<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 1995
REGISTRATION NO. 33-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
CONTINENTAL WASTE INDUSTRIES, INC.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 4953-03 11-2909512
(State or other (Primary Standard (I.R.S Employer
jurisdiction of Industrial Identification
incorporation or Classification Code Number)
organization) Number)
</TABLE>
67 WALNUT AVENUE, SUITE 103, CLARK, NJ, 07066, (908) 396-0018
(Address and telephone number of principal executive offices and principal place
of business)
CARLOS E. AGUERO, 67 WALNUT AVENUE, SUITE 103, CLARK, NJ, 07066, (908) 396-0018
(Name, address and telephone number of agent for service)
-------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL J. CHOATE THOMAS J. MURPHY
DENNIS B. O'BOYLE McDermott, Will & Emery
Shefsky Froelich & Devine Ltd. 227 West Monroe Street, Suite 3100
444 North Michigan Avenue, Suite 2500 Chicago, Illinois 60606-5096
Chicago, Illinois 60611 (312) 372-2000
(312) 527-4000 (312) 984-3669 (Facsimile)
(312) 527-5921 (Facsimile)
</TABLE>
-------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER EFFECTIVENESS OF THIS REGISTRATION STATEMENT
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING PRICE REGISTRATION
TO BE REGISTERED REGISTERED (1) PER SHARE (2) (2) FEE
<S> <C> <C> <C> <C>
Common Stock $0.001 par value 2,038,408 $15.06 $30,698,424 $10,586
<FN>
(1) Includes 265,880 shares which may be purchased by the Underwriters to cover
over-allotment, if any.
(2) Based on the average of the bid and asked prices on September 5, 1995 on
the Nasdaq National Market for the Common Stock pursuant to Rule 457(c).
</TABLE>
-------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION DATED SEPTEMBER 12, 1995
[CWI LOGO] 1,772,529 SHARES
CONTINENTAL WASTE INDUSTRIES, INC.
COMMON STOCK
-------------
OF THE 1,772,529 SHARES OF COMMON STOCK OFFERED HEREBY (THE "OFFERING"),
1,500,000 SHARES ARE BEING ISSUED AND SOLD BY CONTINENTAL WASTE INDUSTRIES, INC.
(THE "COMPANY") AND 272,529 SHARES ARE BEING SOLD BY CERTAIN STOCKHOLDERS OF THE
COMPANY (THE "SELLING STOCKHOLDERS"). THE COMPANY WILL NOT RECEIVE ANY OF THE
PROCEEDS FROM THE SALE OF SHARES BY THE SELLING STOCKHOLDERS. SEE "PRINCIPAL AND
SELLING STOCKHOLDERS." THE COMPANY'S SHARES OF COMMON STOCK (THE "COMMON STOCK")
ARE INCLUDED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
"CONT." ON SEPTEMBER 11, 1995, THE LAST REPORTED SALE PRICE OF THE SHARES OF
COMMON STOCK WAS $15.00 PER SHARE.
-------------------
SEE "RISK FACTORS" BEGINNING ON PAGE SIX FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE INVESTORS.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total (3)..................... $ $ $ $
<FN>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $400,000, payable by the Company.
(3) The Company and certain Selling Stockholders have granted the Underwriters
a 30 day option to purchase up to 245,656 and 20,223 additional shares of
Common Stock, respectively, on the same terms and conditions as the
securities offered hereby, solely to cover over-allotments, if any (the
1,772,529 shares described above together with the shares offered in
connection with the over-allotment are referred to herein as the "Shares").
See "Principal and Selling Stockholders." If all such additional Shares are
purchased, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Stockholders will
be $ , $ , $ , and $ , respectively. See
"Underwriting."
</TABLE>
-------------------
THE SHARES ARE OFFERED BY THE SEVERAL UNDERWRITERS, SUBJECT TO PRIOR SALE,
WHEN, AS AND IF DELIVERED TO AND ACCEPTED BY THEM, AND SUBJECT TO CERTAIN OTHER
CONDITIONS, INCLUDING THE RIGHT OF THE UNDERWRITERS TO WITHDRAW, CANCEL, MODIFY
OR REJECT ANY ORDER, IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE
SHARES WILL BE MADE ON OR ABOUT , 1995, AT THE OFFICES OF RAYMOND
JAMES & ASSOCIATES, INC., ST. PETERSBURG, FLORIDA.
RAYMOND JAMES & ASSOCIATES, INC.
FIRST ANALYSIS SECURITIES CORPORATION
NATWEST SECURITIES LIMITED
The date of this Prospectus is , 1995.
<PAGE>
[MAP]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. THE DATA INCLUDED HEREIN ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED. ALL REFERENCES IN THIS
PROSPECTUS TO THE COMPANY INCLUDE ITS PREDECESSORS AND ITS AND THEIR
SUBSIDIARIES, UNLESS THE CONTEXT OTHERWISE REQUIRES.
THE COMPANY
Continental Waste Industries, Inc. (the "Company") provides integrated solid
waste management services to approximately 175,000 residential, commercial and
industrial customers concentrated primarily in the Midwestern and Mid-South
regions of the United States. These services include non-hazardous landfill
disposal, solid waste collection, transfer station operations and recycling
programs. The Company also provides solid waste management services in Costa
Rica and Mexico.
The Company has grown both through 26 separate acquisitions and through
internal expansion. The Company significantly expanded the scope of its
operations in July 1994 by acquiring a controlling interest in Victory Waste
Incorporated ("Victory") and G.E.M. Environmental Management, Inc. ("GEM") which
collectively operate three landfills and a waste collection company in Indiana.
The Company has effectively become the sole stockholder of GEM and Victory.
Since the Company's public offering in November 1994, the Company has completed
six acquisitions, representing annual revenues of approximately $11.0 million
based on six months of operating results for the period ended June 30, 1995.
The Company conducts its domestic solid waste operations in Indiana,
Michigan, Missouri, Illinois, Kentucky, Tennessee, Mississippi and West
Virginia. The Company operates primarily in smaller metropolitan markets and in
rural areas, although some sites are economically accessible from Chicago and
other large cities. The Company currently owns and operates a total of eight
landfills, nine waste collection operations, thirteen transfer stations and
three municipal recycling facilities. At its landfills the Company has
approximately 650 acres permitted or in various stages of permitting approval.
This represents potential unused disposal capacity of at least 26 million tons
of waste. The Company accepted approximately 765,000 tons of solid waste at its
landfills during the six months ended June 30, 1995.
The Company's growth strategy is centered around landfill and collection
business acquisitions and a landfill capacity expansion program primarily within
midsized regional markets, as well as selected Latin American markets. The
Company pursues a "hub and spoke" acquisition strategy, involving the
acquisition of landfills in its target markets as well as collection operations
around Company-owned landfills. The Company targets both profitable and
under-performing landfills and collection businesses. The Company will also
consider acquiring recycling businesses in markets where these businesses can
complement the Company's solid waste management services.
The Company believes it enhances the productivity of acquired businesses
through its expertise in regulatory and permitting matters and through its
internal landfill remediation and construction capabilities. The Company also
seeks to optimize the performance of acquired businesses and the utilization of
disposal capacity by securing a captive waste stream for each landfill site
through an integrated network of collection companies and transfer stations;
through long-term disposal contracts; through enhanced marketing initiatives;
through the public contract bidding process; through acquisitions of customer
lists; and through other programs that reduce dependence on waste volumes from
unaffiliated haulers. At present, approximately 49% of the waste received by the
Company's landfills is derived from the Company's own collection and transfer
station operations or is received under contracts of more than one year in
duration. The Company seeks to improve operating efficiencies and profitability
through densifying collection routes, rationalizing operating and administrative
costs, and selectively increasing prices.
The Company's waste hauling and transfer operations currently dispose at
Company landfills more than 90% of the waste which they collect. The Company
targets collection markets where it can be the leading
3
<PAGE>
provider of services. In each of the markets where the Company provides
collection services, the Company believes that it is the leading collector and
has established a balanced mix of residential, commercial, industrial and
municipally-contracted service revenues.
Another element of the Company's growth strategy is evidenced by its recent
entry into the Latin American marketplace. In August 1994, the Company completed
the acquisition of the only privately-owned, non-hazardous landfill operation in
Costa Rica. This business holds municipal contracts to serve 55,000 residential
and small commercial customers located in the first, second and sixth largest
cities in Costa Rica. In August 1995, the Company acquired a 72% interest in
Procesa Continental S.A. de C.V. ("Procesa"), a Mexican landfill engineering and
management company headquartered in Mexico City. The Company believes Procesa
provides the Company with a strategic entry into the Mexican solid waste
disposal market and provides a base for expanding the Company's operations in
Mexico. The Company intends to increase its operations in Latin America
primarily through obtaining privatization contracts and secondarily through
joint ventures with local entities or by acquiring existing waste collection
and/or disposal businesses.
THE OFFERING
<TABLE>
<S> <C>
Shares offered by the Company..... 1,500,000 Shares
Shares offered by the Selling
Stockholders..................... 272,529 Shares
Shares to be outstanding after the
Offering......................... 7,896,187 shares of Common Stock (a)
Use of proceeds................... The net proceeds to the Company from the Offering will
be used to reduce outstanding indebtedness under the
Company's $45.0 million revolving credit facility. This
will provide the Company with renewed borrowing capacity
under the credit facility for future acquisitions,
capital expenditures and general corporate purposes. See
"Use of Proceeds."
Nasdaq National Market symbol..... CONT
<FN>
------------------------
(a) Does not include 503,990 shares of Common Stock issuable upon the exercise
of outstanding options and warrants as of the date of this Prospectus. Also
does not include shares of Common Stock issuable on a contingent basis to
former owners and managers of acquired businesses upon achieving certain
conditions. See "Certain Relationships and Related Transactions."
</TABLE>
RISK FACTORS
Prospective investors should be aware of the following material risks
relating to an investment in the Company: extensive environmental and land use
laws and regulations; limitations on expansion; capitalized expenditures;
competition; financial assurance obligations; alternatives to landfill disposal;
uncertainty of operations in Latin America; dependence on senior management;
economic cycles and seasonality; prohibitions under the Delaware General
Corporation Law restricting certain business combinations; and potential
issuance of blank check preferred shares. See "Risk Factors."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------- ---------------------
1990 1991 1992 1993 1994 1994 1995
------ ------ ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA: (A)
Revenue........................................................ $7,844 $8,488 $13,348 $16,204 $28,728 $9,762 $20,478
Income from operations......................................... 342 765 1,695 2,928 7,019 2,124 5,359
Income before extraordinary gain............................... 305 452 689 953 2,767 839 2,338
Primary earnings per share before extraordinary gain........... $ 0.24 $ 0.29 $ 0.16 $ 0.35 $ 0.66 $ 0.27 $ 0.34
Fully diluted earnings per share before extraordinary gain..... $ 0.24 $ 0.29 $ 0.16 $ 0.31 $ 0.60 $ 0.24 $ 0.33
Primary weighted average shares................................ 785 841 1,677 2,370 4,158 3,101 6,848
Fully diluted weighted average shares.......................... 785 841 1,677 2,844 4,611 3,526 6,961
OTHER OPERATING DATA: (A)
Depreciation and amortization.................................. $ 167 $ 434 $ 1,805 $ 2,606 $ 3,802 $1,498 $ 2,759
EBITDA (b)..................................................... $ 509 $1,199 $ 3,500 $ 5,534 $10,821 $3,622 $ 8,118
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1995
----------------------
ADJUSTED
ACTUAL (C)
--------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................... $ 3,795 $ 3,795
Total assets............................................................................ 101,112 101,112
Total debt.............................................................................. 35,688 14,882
Total stockholders' equity.............................................................. 40,222 61,028
<FN>
------------------------------
(a) The Company completed several acquisitions during the periods presented.
The most significant of the acquisitions during this time include Barker
Brothers Waste, Incorporated in January 1991, FLL, Inc. in May 1992 and
Victory and GEM in July 1994. See Note 2 of the Notes to Consolidated
Financial Statements of the Company and the Unaudited Pro Forma Combining
Financial Statements and notes thereto included elsewhere in this
Prospectus.
(b) EBITDA is defined as income from operations plus depreciation and
amortization and is relevant to an understanding of the Company's
performance because it reflects the Company's ability to generate cash
flows sufficient to service fixed obligations. EBITDA should not be
considered an alternative to: (i) operating income (as determined in
accordance with generally accepted accounting principles) as an indicator
of the Company's operating performance; or (ii) cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) as a measure of liquidity.
(c) Adjusted to give effect to the sale of 1,500,000 Shares offered by the
Company hereby, assuming a public offering price of $15.00 per Share, and
the application of the net proceeds thereof to reduce indebtedness. See
"Use of Proceeds."
</TABLE>
5
<PAGE>
RISK FACTORS
Prospective investors should be aware of the following material risks
relating to an investment in the Company:
EXTENSIVE ENVIRONMENTAL AND LAND USE LAWS AND REGULATIONS. The Company is
subject to extensive and evolving environmental and land use laws and
regulations which have become increasingly stringent in recent years as a result
of greater public interest in protecting the environment. These laws and
regulations affect the Company's business in many ways, including as set forth
below, and will continue to impose substantial costs on the Company.
Additionally, any reduction in enforcement or relaxation of environmental
regulations could have a material adverse effect on the Company's business and
financial condition. See "Business -- Environmental Regulation Affecting the
Company and Its Operations" for further information concerning the matters set
forth below.
EXTENSIVE PERMITTING REQUIREMENTS. In order to develop, operate and
expand solid waste management facilities, it is generally necessary to
obtain and maintain in effect one or more permits as well as zoning,
environmental and/or other land use approvals. These permits and approvals
are difficult and time consuming to obtain and are frequently subject to
opposition by various elected officials or citizens. In addition, facility
operating permits may be subject to modification or revocation, and it may
be necessary to periodically renew a permit, which may reopen opportunities
for opposition to the permit. There can be no assurance that the Company
will be successful in obtaining and maintaining in effect the permits and
approvals required for the successful operation and growth of its business,
and the failure by the Company to obtain or maintain in effect a permit
significant to its business could have a material adverse effect on the
Company's business and financial condition.
DESIGN, OPERATION AND CLOSURE REQUIREMENTS. The design, operation and
closure of landfills is extensively regulated. These regulations include,
among others, the regulations (the "Subtitle D Regulations") establishing
minimum federal requirements adopted by the United States Environmental
Protection Agency (the "EPA") in October 1991 under Subtitle D of the
Resource Conservation and Recovery Act of 1976 ("RCRA"). The Subtitle D
Regulations require all states to adopt regulations regarding landfill
design, operation and closure requirements that are no less stringent than
the Subtitle D Regulations. Most states, including those states in which the
Company's landfills are located, have extensive landfill regulations which
have been updated or replaced with new regulations consistent with the
Subtitle D Regulations. These federal and state regulations require the
Company to monitor groundwater, provide financial assurance, and fulfill
closure and post-closure obligations. These regulations could also require
the Company to undertake investigatory or remedial activities, to curtail
operations or to close a landfill temporarily or permanently. Future changes
in these regulations may require the Company to modify, supplement, or
replace equipment or facilities at costs which may be substantial, and the
failure of the states or other regulatory agencies to enforce these
regulations vigorously or consistently may give an unfair advantage to
competitors of the Company whose facilities do not comply with the Subtitle
D Regulations. Although the Company maintains reserves for the payment of
obligations related to the closure and post-closure monitoring of landfill
sites and the remediation of its facilities, the financial obligations
related to these responsibilities may exceed the Company's reserves, and
could have a material adverse effect on the Company's business and financial
condition.
LEGAL AND ADMINISTRATIVE PROCEEDINGS. In the ordinary course of its
business, the Company may become involved in a variety of legal and
administrative proceedings relating to land use and environmental laws and
regulations. These may include proceedings by federal, state or local
agencies seeking to impose civil or criminal penalties on the Company for
violations of those laws and regulations, or to impose liability on the
Company under federal or comparable state statutes, or to revoke or deny
renewal of a permit; actions brought by citizens groups, adjacent landowners
or governmental entities opposing the issuance of a permit or approval to
the Company or alleging violations of the permits pursuant to which the
Company operates or laws or regulations to which the Company is subject; and
actions seeking to impose liability on the Company for any environmental
damage at its landfill sites or
6
<PAGE>
that its landfills or other properties may have caused to adjacent
landowners or others, including groundwater or soil contamination. A local
citizens group recently filed objections to issuance of a renewed permit at
the Company's United Refuse landfill near Ft. Wayne, Indiana. See "Business
-- Legal and Administrative Proceedings." The Company could incur
substantial legal expenses during the course of this or other proceedings,
and these expenses or the adverse outcome of one or more of these
proceedings could have a material adverse effect on the Company's business
and financial condition.
During the ordinary course of its operations, the Company has from time
to time received, and expects that it may in the future from time to time
receive, notices from governmental authorities that its operations are not
in compliance with its permits or certain applicable environmental or land
use laws and regulations. The Company generally seeks to work with the
authorities to resolve the issues raised by such citations or notices. There
can be no assurance, however, that the Company will always be successful in
this regard, and the failure to resolve a significant issue could have a
material adverse effect on the Company's business and financial condition.
POTENTIAL LIABILITIES. There may be various adverse consequences to the
Company in the event that a facility owned or operated by the Company causes
environmental damage, in the event that waste transported by the Company
causes environmental damage at another site, or in the event that the
Company fails to comply with applicable environmental and land use laws and
regulations or the terms of a permit or outstanding consent order. These may
include the imposition of substantial monetary penalties on the Company; the
issuance of an order requiring the curtailment or termination of the
operations involved or affected; the revocation or denial of permits or
other approvals necessary for continued operation or landfill expansion; the
imposition of liability on the Company in respect of any environmental
damage (including groundwater or soil contamination) both at its landfill
sites as well as those of adjacent properties or others which may have been
caused by the Company's landfills or by waste transported by the Company;
the imposition of liability on the Company under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA" or
"Superfund") or under comparable state laws; and criminal liability for the
Company or its officers. Any of the foregoing could have a material adverse
effect on the Company's business and financial condition. The Company has
not been able to obtain, at a reasonable premium, significant environmental
impairment liability insurance. As a result, liability for environmental
damage could have a material adverse effect on the Company's business and
financial condition.
TYPE, QUANTITY AND SOURCE LIMITATIONS. Certain permits and approvals
may limit the types or quantity of waste that may be accepted at a landfill
during a given time period. In addition, certain permits and approvals, as
well as certain state and local regulations, may limit a landfill to
accepting waste that originates from specified geographic areas or seek to
restrict the import of out-of-state waste or otherwise discriminate against
out-of-state waste. Some of the waste accepted at the Company's landfills is
transferred across state borders. Generally, restrictions on the import of
out-of-state waste have not withstood judicial challenge. However, proposed
federal legislation would allow individual states to prohibit the disposal
of out-of-state waste or to limit the amount of out-of-state waste that
could be imported for disposal and would require states, under certain
circumstances, to reduce the amounts of waste exported to other states. If
this or similar legislation is enacted, states in which the Company operates
landfills could act to limit or prohibit the import of out-of-state waste.
Such state actions could adversely affect landfills within those states that
receive a significant portion of waste originating from out-of-state and
could have a material adverse effect on the Company's business and financial
condition.
In addition, certain states and localities may, for economic or other
reasons, restrict the export of waste from their jurisdiction or require
that a specified amount of waste be disposed of at facilities within their
jurisdiction. Recently, the United States Supreme Court held
unconstitutional, and therefore invalid, a local ordinance that sought to
impose such flow controls. However, certain state and local jurisdictions
continue to enforce these restrictions. These restrictions could result in
reduced waste volume in certain areas, which may adversely affect the
Company's ability to operate its landfills at their full capacity and/or
affect the prices that can be charged for landfill disposal services. These
restrictions
7
<PAGE>
may also result in higher disposal costs for the Company's collection
operations. An inability to pass along these higher operating or disposal
costs to customers could have a material adverse effect on the Company's
business and financial condition.
LIMITATIONS ON EXPANSION. The Company's growth strategy depends, in part,
on its ability to expand current and additional disposal facilities and related
collection businesses. The difficulty and uncertainty related to permitting new
or expanding existing disposal facilities, together with the continuing decrease
in the number of operating landfills throughout the country has caused intense
competition in the waste disposal industry for the acquisition of existing
landfills and related businesses. Accordingly, it may become uneconomical for
the Company to make further acquisitions or the Company may be unable to locate
suitable acquisition candidates, particularly in markets the Company does not
already serve. There can be no assurance of future opportunities to acquire or
expand landfills at reasonable cost within the Company's financial capability.
Further, any growth of the Company through the expansion or modification of
permits at existing disposal facilities will require substantial capital
expenditures for engineering fees and for construction costs if such permits are
granted. The inability to acquire or expand landfills at a reasonable cost,
secure necessary permits, or fund capital expenditures related thereto could
have a material adverse effect on the Company's business and financial
condition.
CAPITALIZED EXPENDITURES. In accordance with generally accepted accounting
principles, the Company capitalizes certain expenditures and advances relating
to its acquisitions, pending acquisitions and landfill development and expansion
projects. Indirect acquisition costs, such as executive salaries, general
corporate overhead, public affairs and other corporate services, are expensed as
incurred. The Company charges against earnings any unamortized capitalized
expenditures and advances (net of any portion thereof that the Company estimates
will be recoverable, through sale or otherwise) relating to any operation that
is permanently shut down, any pending acquisition that is not consummated, and
any landfill development or expansion project not successfully completed. There
can be no assurance that the Company will not be required to incur a charges in
the future against earnings in accordance with this policy, which charges
against earnings, if significant, could have a material adverse effect on the
Company's business and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a discussion of
capitalized expenditures in connection with certain operations and projects.
COMPETITION. The solid waste collection and disposal business is highly
competitive and requires substantial amounts of capital. The Company competes
with numerous waste management companies, many of which have significantly
larger operations and greater resources. The Company also competes with counties
and municipalities that maintain their own waste collection and disposal
operations. These counties and municipalities may be better positioned to
finance these operations due to the availability of tax revenues and tax exempt
financing. In addition, competitors may reduce the price of their services in an
effort to expand market share or to win competitively bid municipal contracts.
The Company provides a portion of its residential collection services under
county and municipal contracts that are subject to periodic competitive bidding.
There is no assurance that the Company will be the successful bidder in the
future and will be able to retain such contracts. The Company's inability to
compete with these larger and better capitalized companies, or to replace any
contract lost through the competitive bidding process with a comparable contract
within a reasonable time period could have a material adverse effect on the
Company's business and financial condition.
FINANCIAL ASSURANCE OBLIGATIONS. The Company is required, from time to
time, to provide financial assurance in connection with municipal residential
collection contracts and to a lesser extent private sector customers, and with
the operation or closure of landfills and post-closure monitoring and corrective
activities. If the Company were to be unable to obtain surety bonds or letters
of credit in sufficient amounts or at reasonable rates, or to provide other
required forms of financial assurance, it might be precluded from entering into
additional municipal collection contracts or obtaining or retaining required
landfill permits and approvals. The inability to provide financial assurance
could have a material adverse effect on the Company's business and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
8
<PAGE>
ALTERNATIVES TO LANDFILL DISPOSAL. Alternatives to landfill disposal, such
as recycling, incineration and composting, are increasingly being utilized in
the waste management industry. In addition, there has been a growing trend at
the state and local levels to mandate recycling and waste reduction at the
source and to prohibit the disposal of certain types of wastes, such as yard
wastes, at landfills. For example, many states, including states in which the
Company owns landfills, have adopted bans on the disposal of yard waste or
leaves in landfills and many states have adopted rules restricting or limiting
disposal of tires at landfills. This may reduce the volume of waste going to
landfills in certain areas, which may affect the Company's ability to operate
its landfills at their full capacity and/or affect the prices that can be
charged for landfill disposal services.
UNCERTAINTY OF OPERATIONS IN LATIN AMERICA. The Company's Latin American
operations are subject generally to such risks as currency fluctuations and
exchange controls, availability of suitable employees to control and coordinate
operations in different jurisdictions, changes in foreign laws or governmental
policies or attitudes concerning their enforcement, political changes, uncertain
local economic conditions, and international tensions. An adverse change in any
of these items could have a material adverse effect on the Company's business
and financial condition. See "Business -- Latin American Operations."
The Company's Latin American operations are also subject to risks associated
with Latin American regulations governing solid waste disposal operations. The
inability or unwillingness of governments in Latin America to enforce existing
environmental regulations could adversely affect demand for the Company's
services in Latin America and could have a material adverse effect on the
Company's business and financial condition. In addition, changes in these
regulations could have a material adverse effect on the Company's business and
financial condition.
DEPENDENCE ON SENIOR MANAGEMENT. The Company is highly dependent upon its
senior management team. The loss of the services of any member of senior
management could have a material adverse effect on the Company's business and
financial condition. See "Management."
ECONOMIC CYCLES AND SEASONALITY. The Company's business is affected by
general economic conditions. There can be no assurance that an economic downturn
will not result in a reduction in the volume of waste disposed at the Company's
operations and/or the price that the Company can charge for its services. The
Company's revenues may also be affected by seasonal weather conditions. This is
primarily attributable to: (i) the volume of waste relating to construction and
demolition activities and activities relating to the remediation of contaminated
soils tending to increase in the spring and summer months; and (ii) the volume
of industrial and residential waste in the regions where the Company operates
tending to decrease during the winter months. Particularly harsh weather
conditions may result in the temporary suspension of certain of the Company's
operations which could have a material adverse effect on the Company's business
and financial condition.
PROHIBITIONS UNDER THE DELAWARE GENERAL CORPORATION LAW RESTRICTING CERTAIN
BUSINESS COMBINATIONS. Section 203 of the Delaware General Corporation Law (the
"Delaware Antitakeover Law") prohibits, under certain circumstances, "business
combinations" between a Delaware corporation, whose stock is publicly-traded or
held by more than 2,000 stockholders, and an "interested stockholder" of such
corporation. The provisions prohibiting "business combinations" could delay or
frustrate the removal of incumbent directors or a change in control of the
Company. The provisions also could discourage, impede, or prevent a merger,
tender offer or proxy contest, even if such event would be favorable to the
interests of stockholders. See "Description of Capital Stock -- Delaware
Antitakeover Law."
POTENTIAL ISSUANCE OF BLANK CHECK PREFERRED SHARES. The Company's
Certificate of Incorporation authorizes the issuance of 100,000 shares of blank
check preferred stock (the "Blank Check Preferred Shares"). The Company's
certificate of incorporation grants the board of directors the right to cause
the Company to issue the Blank Check Preferred Shares in one or more series. The
board of directors has the authority to fix the number of Blank Check Preferred
Shares and determine or alter for each series, the voting powers, full or
limited, or new voting powers, and such designations, preferences, and relative
participating, optional or other special rights and such qualifications,
limitations, or restrictions. If the
9
<PAGE>
Company should ever issue Blank Check Preferred Shares, such Blank Check
Preferred Shares could contain voting or other rights which could discourage,
impede, or prevent a merger, tender offer or proxy
contest which could be favorable to the interests of stockholders.
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be $20.8
million ($24.3 million if the Underwriters' over-allotment option is exercised
in full), after deducting the underwriting discount and estimated Offering
expenses. The Company will use all of such net proceeds to reduce outstanding
indebtedness under the Company's $45.0 million revolving credit facility (the
"Credit Facility") with a bank syndicate led by LaSalle National Bank ("LNB").
This reduction will provide the Company with renewed borrowing capacity under
the Credit Facility for future acquisitions, capital expenditures and general
corporate purposes.
On March 28, 1995, the Company entered into the Credit Facility with LNB,
which expires in March 1998. The Credit Facility has been subsequently
syndicated to include the Bank of America and the First National Bank of Boston.
Each borrowing under the Credit Facility bears interest based on the Company's
leverage ratio, as defined, of total liabilities (not including draws on the
Credit Facility) to tangible net worth. At August 31, 1995, the Company had
borrowed approximately $38.8 million under the Credit Facility. These borrowings
bear interest at the weighted average interest rate of 9.2% per annum. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for further discussion regarding the Credit Facility.
THE COMPANY
The Company provides integrated solid waste management services to
approximately 175,000 residential, commercial and industrial customers
concentrated in the Midwestern and Mid-South regions of the United States. These
services include non-hazardous landfill disposal, solid waste collection,
transfer station operations and recycling programs. The Company, now a Delaware
corporation, was organized in 1988. The Company's principal executive offices
are located at 67 Walnut Avenue, Suite 103, Clark, New Jersey 07066; its
telephone number is (908) 396-0018.
RECENT DEVELOPMENTS
The Company recently broadened its presence in Indiana through the addition
of three landfills and a waste collection company. On July 1, 1994, the Company
acquired 73.6% of the issued and outstanding stock of Victory from Camelford
Holdings, Ltd., Salcott Holdings, Ltd. and the two senior executive officers of
Victory. From June 28, 1993 through July 1, 1994, the Company increased its
ownership by purchasing additional shares in privately negotiated transactions.
On June 28, 1995, the stockholders of Victory approved an amendment to Victory's
Articles of Incorporation converting all of Victory's Series A-1 preferred stock
into common stock and effecting a 1-for-10,000 reverse stock split of Victory's
common stock. Pursuant to the reverse stock split, the shares of all of the
stockholders other than the Company were reduced to fractional shares and such
stockholders were paid cash in lieu of fractional shares. As a result of such
actions, the Company effectively became the sole stockholder of Victory.
Between April and August 1995, the Company enlarged its domestic operations
with the acquisition of four collection companies, two transfer stations and two
recycling facilities. Set forth below is a list of the acquired operations. All
estimates of annual revenues are based on actual operating results for the six
month period ended June 30, 1995.
- Larry's Disposal, Inc., a collection company and recycling facility in
Brazil, Indiana, acquired in April 1995. Since the acquisition, all
aspects of its operations, including garaging of trucks, maintenance and
routing, have been integrated into the Company's Terre Haute operation.
Larry's Disposal has approximately $1.2 million of annual revenues. All of
Larry's Disposal Inc.'s disposal costs have been internalized at the
Company's Yaw Hill landfill in Terre Haute, Indiana.
10
<PAGE>
- ASCO Sanitation, Inc., a collection company in Corinth, Mississippi,
acquired in May 1995. ASCO provides services in western Tennessee, and
north-central Mississippi. ASCO has approximately $1.3 million of annual
revenues and approximately one-third of its disposal costs have been
internalized to the Company's Northwest Tennessee landfill.
- Gilliam Sanitation, Inc. and Gilliam Transfer, Inc., collection, recycling
and transfer operations in southeastern Missouri, acquired in July 1995.
The combined entities have approximately $2.5 million of annual revenues.
Shortly after completing this acquisition, the Company signed a multi-year
collection and disposal contract with St. Clair, Missouri and acquired the
predecessor contractor's remaining operations in this area. Collectively,
the new municipal contract and the purchased commercial route will add
approximately $800,000 of annual revenues to the acquired operations. The
majority of Gilliam's disposal costs have been internalized to the
Company's Southern Illinois Regional Landfill.
- Terre Haute Recycling, Inc., a recycling facility in Terre Haute, Indiana,
acquired in July 1995. This facility processes high-grade paper, cardboard
and other fiber products from commercial and industrial customers, and has
approximately $2.0 million of annual revenues.
- Anderson Refuse Company, Inc., a collection company in Anderson, Indiana,
acquired in August 1995. This acquisition also included the purchase of a
solid waste transfer station owned by MV Dulworth. These businesses
generate approximately $2.5 million of annual revenues from a combination
of municipal contracts, commercial and industrial customers and transfer
station operations. Internalization of Anderson transfer station waste to
the Company's United Refuse landfill in Fort Wayne, Indiana averages
approximately 200 tons per day or 50% of Anderson's volume.
In addition to the new domestic acquisitions, in August 1995, the Company
acquired a 72% interest in Procesa, a Mexican landfill engineering and
management company headquartered in Mexico City. Procesa, which also operates a
small roll-off collection service, performs certain operational and supervisory
functions for the largest landfill in Mexico City, Bordo Poniente. The landfill
receives approximately 9,000 tons of solid waste per day. Procesa also provides
environmental engineering services to a variety of customers. The Company
believes Procesa provides the Company with a strategic entry into the Mexican
solid waste market and provides a base for the expansion of the Company's
operations in Mexico. Procesa has annual revenues of approximately $1.5 million
based on six months of operating results for the period ended June 30, 1995.
The Company has recently acquired in open market purchases 342,500 shares of
the common stock of Eastern Environmental Services, Inc. ("Eastern"), which
represents 12.2% of the economic interest and 3.7% of the voting power of
Eastern. Eastern is a publicly-traded waste services company headquartered in
Pennsylvania with landfills in West Virginia, South Carolina and Kentucky and
collection operations in South Carolina.
11
<PAGE>
MARKET FOR COMMON EQUITY AND DIVIDEND POLICY
The Common Stock is included for quotation on the Nasdaq National Market
under the symbol "CONT." The following table sets forth the quarterly high and
low closing bid prices per share for the Common Stock for the periods indicated,
as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH BID LOW BID
----------- ---------
<S> <C> <C>
FISCAL YEAR 1993 (UNITS)(1)
First Quarter.......................................................... $ 3.00 $ 3.00
Second Quarter......................................................... $ 3.50 $ 3.00
Third Quarter.......................................................... $ 6.00 $ 3.50
Fourth Quarter......................................................... $ 7.00 $ 6.00
FISCAL YEAR 1994
First Quarter (Units)(1)............................................... $ 7.00 $ 7.00
First Quarter (Common Stock)........................................... $ 8.38 $ 7.00
Second Quarter......................................................... $ 9.25 $ 8.25
Third Quarter.......................................................... $ 9.88 $ 8.25
Fourth Quarter......................................................... $ 10.50 $ 9.00
FISCAL YEAR 1995
First Quarter.......................................................... $ 10.88 $ 9.25
Second Quarter......................................................... $ 12.00 $ 10.00
Third Quarter (through September 11, 1995)............................. $ 15.00 $ 11.38
<FN>
------------------------------
(1) Prior to January 13, 1994, the Company's shares of Common Stock and
warrants to purchase Common Stock were traded as a unit (the "Units") in
the over-the-counter market. All such warrants have either expired or been
exercised; currently the Company has no publicly-traded class of warrants.
</TABLE>
The last reported sale price for the Common Stock on September 11, 1995 was
$15.00 per share. The number of record holders of the Common Stock at September
11, 1995 was 119. This number does not include an indeterminate number of
stockholders whose shares are held by brokers in "street name."
The Company has not paid, and does not anticipate paying in the foreseeable
future, dividends on the Common Stock. The Company is restricted from paying
dividends pursuant to the terms of the Credit Facility.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1995 on a historical basis and as adjusted to give effect to: (i) the sale
of 1,500,000 Shares offered by the Company hereby assuming a public offering
price of $15.00 per Share; and (ii) the application of the estimated proceeds,
after deduction of underwriting discounts and estimated offering expenses as
described under "Use of Proceeds." This table should be read in conjunction with
the Consolidated Financial Statements of the Company and related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1995
--------------------
ACTUAL ADJUSTED
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt and other short-term debt.............................. $ 786 $ 786
--------- ---------
--------- ---------
Long-term debt, less current maturities:
Credit Facility........................................................................... $ 32,450 $ 11,644
Notes payable to other banks and finance companies........................................ 891 891
Notes payable to individuals and other companies.......................................... 1,561 1,561
--------- ---------
Total long-term debt, less current maturities............................................... 34,902 14,096
Stockholders' equity:
Common stock, $0.001 par value (a)........................................................ 6 8
Additional paid-in capital................................................................ 33,541 54,345
Retained earnings......................................................................... 7,147 7,147
Treasury stock............................................................................ (472) (472)
--------- ---------
Total stockholders' equity.............................................................. 40,222 61,028
--------- ---------
Total capitalization.................................................................... $ 75,124 $ 75,124
--------- ---------
--------- ---------
<FN>
------------------------
(a) Actual and Adjusted Shares outstanding are 6,317,221 and 7,817,221,
respectively. This does not include 512,895 shares of Common Stock issuable
upon the exercise of outstanding options and warrants or shares of Common
Stock. Also does not include shares of Common Stock issuable on a
contingent basis to former owners and managers of acquired businesses upon
achieving certain conditions. See "Certain Relationships and Related
Transactions."
</TABLE>
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated financial information
derived from the consolidated financial statements of the Company and selected
consolidated operating data for the periods indicated. Balance sheet data as of
December 31, 1991, 1992, 1993 and 1994 and income statement data for the years
then ended have been derived from audited consolidated financial statements.
Balance sheet data as of December 31, 1990 and income statement data for the
year ended December 31, 1990 and balance sheet data as of June 30, 1995 and
income statement data for the six months ended June 30, 1994 and 1995 have been
derived from unaudited consolidated financial statements which, in the opinion
of management, include all adjustments necessary for a fair statement of the
results of operations and financial position for such periods and as of such
dates. Results for the six months ended June 30, 1995 are not necessarily
indicative of results for the full year. Certain factors that affect the
comparability of the information set forth in the following table are described
in the notes thereto. In addition, the data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Consolidated Financial Statements of the Company and
related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- -----------
1990 1991 1992 1993 1994 1994
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA: (A)
Revenue............................................. $ 7,844 $ 8,488 $ 13,348 $ 16,204 $ 28,728 $ 9,762
Operating expenses.................................. 6,859 6,862 9,793 11,209 17,224 6,250
General and administrative expenses................. 643 861 1,860 2,067 4,485 1,388
--------- --------- --------- --------- --------- -----------
Income from operations.............................. 342 765 1,695 2,928 7,019 2,124
Interest expense.................................... -- 180 891 1,303 1,881 611
Other income (expenses)............................. 52 26 107 49 (126) (15)
--------- --------- --------- --------- --------- -----------
Income before income taxes and extraordinary gain... 394 611 911 1,674 5,012 1,498
Provision for income taxes.......................... 89 159 222 721 2,245 659
--------- --------- --------- --------- --------- -----------
Income before extraordinary gain.................... 305 452 689 953 2,767 839
Extraordinary gain from prepayment of debt at a
discount........................................... -- -- -- -- 357 --
--------- --------- --------- --------- --------- -----------
Net income.......................................... 305 452 689 953 3,124 839
Preferred stock dividends earned (b)................ 117 211 411 130 -- --
--------- --------- --------- --------- --------- -----------
Income available to common stockholders............. $ 188 $ 241 $ 278 $ 823 $ 3,124 $ 839
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
EARNINGS PER SHARE DATA: (A)
Primary earnings per share before extraordinary
gain............................................... $ 0.24 $ 0.29 $ 0.16 $ 0.35 $ 0.66 $ 0.27
Fully diluted earnings per share before
extraordinary gain................................. $ 0.24 $ 0.29 $ 0.16 $ 0.31 $ 0.60 $ 0.24
Primary weighted average shares..................... 785 841 1,677 2,370 4,158 3,101
Fully diluted weighted average shares............... 785 841 1,677 2,844 4,611 3,526
OTHER OPERATING DATA: (A)
Depreciation and amortization....................... $ 167 $ 434 $ 1,805 $ 2,606 $ 3,802 $ 1,498
EBITDA (c).......................................... $ 509 $ 1,199 $ 3,500 $ 5,534 $ 10,821 $ 3,622
<CAPTION>
1995
-----------
<S> <C>
INCOME STATEMENT DATA: (A)
Revenue............................................. $ 20,478
Operating expenses.................................. 12,135
General and administrative expenses................. 2,984
-----------
Income from operations.............................. 5,359
Interest expense.................................... 1,298
Other income (expenses)............................. --
-----------
Income before income taxes and extraordinary gain... 4,061
Provision for income taxes.......................... 1,723
-----------
Income before extraordinary gain.................... 2,338
Extraordinary gain from prepayment of debt at a
discount........................................... --
-----------
Net income.......................................... 2,338
Preferred stock dividends earned (b)................ --
-----------
Income available to common stockholders............. $ 2,338
-----------
-----------
EARNINGS PER SHARE DATA: (A)
Primary earnings per share before extraordinary
gain............................................... $ 0.34
Fully diluted earnings per share before
extraordinary gain................................. $ 0.33
Primary weighted average shares..................... 6,848
Fully diluted weighted average shares............... 6,961
OTHER OPERATING DATA: (A)
Depreciation and amortization....................... $ 2,759
EBITDA (c).......................................... $ 8,118
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, JUNE 30, 1995
----------------------------------------------------- ----------------------
1990 1991 1992 1993 1994 ACTUAL ADJUSTED(D)
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (A)
Cash and cash equivalents......................... $ 250 $ 711 $ 1,153 $ 1,062 $ 4,677 $ 3,795 $ 3,795
Total assets...................................... 4,548 9,456 32,277 35,257 88,148 101,112 101,112
Total debt........................................ 703 3,853 16,057 15,404 25,348 35,688 14,882
Total stockholders' equity........................ 2,662 3,503 6,549 9,060 37,164 40,222 61,028
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
<FN>
------------------------------
(a) The Company completed several acquisitions during the periods presented.
The most significant of the acquisitions during this time include Barker
Brothers Waste, Incorporated in January 1991, FLL, Inc. in May 1992 and
Victory and GEM in July 1994. See Note 2 of the Notes to Consolidated
Financial Statements of the Company and the Unaudited Pro Forma Combining
Financial Statements and the notes thereto included elsewhere in this
Prospectus.
(b) Dividends on the Company's Series A preferred shares and Series B preferred
shares were suspended after April 1, 1993 by agreement. In connection with
the Company's public offering on November 4, 1994, the Series B preferred
shares were redeemed and the Series A preferred shares were exchanged for
425,200 shares of Common Stock plus warrants to purchase 42,656 shares of
Common Stock. No preferred stock is currently outstanding.
(c) EBITDA is defined as income from operations plus depreciation and
amortization and is relevant to an understanding of the Company's
performance because it reflects the Company's ability to generate cash
flows sufficient to service fixed obligations. EBITDA should not be
considered an alternative to: (i) operating income (as determined in
accordance with generally accepted accounting principles) as an indicator
of the Company's operating performance; or (ii) cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) as a measure of liquidity.
(d) Adjusted to give effect to the sale of 1,500,000 Shares offered by the
Company hereby, assuming a public offering price of $15.00 per Share, and
the application of the net proceeds as described under "Use of Proceeds."
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in connection with the Consolidated
Financial Statements of the Company and related notes thereto and "Selected
Consolidated Financial and Operating Data" included elsewhere in this
Prospectus.
GENERAL
The Company's landfill operations earn revenue from disposal fees (known as
"tipping fees"), which are generally billed on either a bi-weekly or monthly
basis. The Company's landfills receive solid waste from its own collection
companies and transfer stations as well as from independent haulers. Tipping
fees earned by the Company's landfills from its own collection operations are
considered intercompany revenues and are eliminated from the Company's
consolidated collection revenues.
The Company's waste collection operations earn revenue from fees collected
from residential, commercial and industrial collection and transfer station
customers. A significant portion of the Company's residential collection
services are provided on a contract basis in which the Company contracts with a
county or municipal authority to collect from all residents in a specified area.
These contracts, which are usually competitively bid, generally have terms of
one to ten years and provide consistent cash flow during the term of the
contract since the Company is paid regularly by the municipality or its
residents. The Company also provides residential collection services on a
subscription basis in which the Company contracts directly with individual
households. Subscription customers are billed in advance and the fee typically
does not vary with the volume of solid waste collected. Residential subscription
customers provide the Company with a stable source of revenues and an efficient
means to utilize the Company's resources, including its equipment, manpower and
automated reporting systems. The Company selectively bids for county or
municipal contracts both in areas near those where it already provides
subscription residential collection services and in new markets.
The Company also serves commercial and industrial customers in its
residential collection markets, and derives a substantial portion of its
collection revenues from these customers. Commercial and industrial waste
streams improve operating efficiencies and provide additional volume for the
Company's landfills. Commercial and industrial contracts, which typically have
terms of one to three years, are individually negotiated and are typically
billed monthly.
Operating expenses for landfill operations include labor, equipment costs,
the amortization of landfill site development costs, legal and administrative
costs of ongoing environmental compliance, royalties to former owners, site
maintenance and accruals for future closure and post-closure maintenance costs.
Operating expenses for collection operations include direct labor, fuel,
equipment maintenance and tipping fees paid to third-party landfills.
Engineering, legal, permitting, construction and other costs directly
associated with the development of new landfills and expansions of existing
landfills, together with associated interest, are capitalized and, upon receipt
of all necessary operating permits, are amortized based on utilization of
available airspace. The Company charges against earnings any unamortized
capitalized expenditures and advances (net of any portion that the Company
estimates will be recoverable, through sale or otherwise) relating to any
operation that is permanently shut down, any pending acquisition that is not
consummated, and any landfill development or expansion project that is not
successfully completed. The Company accrues the estimated landfill closure and
post-closure maintenance costs expected to be incurred upon and subsequent to
the closing of existing operating landfill areas ratably in relation to the
airspace consumed. The Company believes its landfills are in substantial
compliance with the existing standards for landfill operation and closure in
each of the states in which it operates, and the Company believes that it has
adequately accrued for landfill closure and post-closure costs.
16
<PAGE>
General and administrative expenses include management salaries, clerical
and administrative overhead, costs associated with the Company's sales force,
and community relations expenses. Indirect project development costs, such as
executive and corporate overhead, public relations and other corporate services
are expensed as incurred.
The Company is required, from time to time, to post bid and/or performance
bonds in connection with contracts or projects with government entities and, to
a lesser extent, private sector customers. In addition to bid and performance
bond requirements, existing or proposed legislation in various jurisdictions
requires or will require the Company to provide financial assurance covering
closure, post-closure monitoring and corrective activities, if necessary, of
certain waste disposal facilities. In this respect, the Company has various
performance bonds and letters of credit outstanding as of June 30, 1995,
aggregating approximately $3.2 million. These instruments are not reflected in
the accompanying consolidated financial statements. In addition, the Company
maintains separate escrow accounts to reserve funds necessary to pay for
estimated future closure and post-closure costs. These funds are reflected as
other assets on the Company's consolidated balance sheet. In some cases, a
regulatory agency controls the escrow account and will release amounts to the
Company upon receipt of written evidence that the Company will use the funds to
pay for direct closure or post-closure expenses. Closure funds in
Company-controlled accounts aggregated approximately $1.7 million as of June 30,
1995, and increased to $3.0 million following an additional deposit of
approximately $1.3 million in July 1995. As of June 30, 1995, the amount in
state-controlled funds aggregated approximately $1.3 million.
The Company's business is affected by general economic and seasonal
conditions. An economic downturn could result in a reduction in the volume of
waste disposed at the Company's operations and/or the price that the Company can
charge for its services. The Company's revenues may also be adversely affected
by severe weather conditions. This is primarily attributable to: (i) the volume
of waste relating to construction and demolition activities and activities
relating to the remediation of contaminated soils tending to increase in the
spring and summer months; and (ii) the volume of industrial and residential
waste in the regions where the Company operates tending to decrease during the
winter months. Particularly harsh weather conditions may result in the temporary
suspension of certain of the Company's operations.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the percentage
relationship which the various items bear to total revenue:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------------------- ------------------------
1992 1993 1994 1994 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue: 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Operating expenses........................................ (73.4) (69.2) (60.0) (64.0) (59.3)
General and administrative expenses....................... (13.9) (12.7) (15.6) (14.2) (14.5)
----- ----- ----- ----- -----
Income from operations...................................... 12.7 18.1 24.4 21.8 26.2
Other income (expenses):
Interest expense.......................................... (6.7) (8.0) (6.6) (6.2) (6.4)
Other income (expenses), net.............................. 0.9 0.3 (0.4) (0.2) --
----- ----- ----- ----- -----
Income before income taxes and extraordinary gain........... 6.9 10.4 17.4 15.4 19.8
Provision for income taxes.................................. (1.7) (4.5) (7.8) (6.8) (8.4)
----- ----- ----- ----- -----
Income before extraordinary gain............................ 5.2% 5.9% 9.6% 8.6% 11.4%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
17
<PAGE>
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30, 1994
Revenue: Revenue increased by $10.7 million, or 109.8%, from $9.8 million to
$20.5 million. The increase in revenue was primarily due to the acquisition of
Victory ($7.1 million); higher tipping fees; the acquisitions of a Costa Rican
landfill and hauling operation during the third quarter of 1994 and two
additional hauling and collection companies in the second quarter of 1995; and
increased waste collection.
Operating Expenses: Operating expenses, including depreciation and
amortization, increased by $5.8 million from $6.3 million to $12.1 million but
decreased as a percentage of revenue from 64.0% to 59.3%. The percentage
decrease was primarily attributable to improved economies of scale in the
Company's collection operations achieved through higher activity level and
increased tipping fees with no corresponding increase in cost.
General and Administrative Expenses: General and administrative expenses
increased by $1.6 million from $1.4 million to $3.0 million and increased as a
percentage of revenues from 14.2% to 14.5%. The percentage increase resulted
from the effects of businesses acquired since June 1994, including Victory,
which in the aggregate had higher general and administrative expenses as a
percentage of revenue than the Company's pre-existing operations.
Interest Expense: Interest expense increased from $611,000 to $1.3 million.
The increase was due primarily to increased levels of debt assumed and incurred
in the acquisition of Victory and the other acquisitions described herein and
the financing of capital expenditures.
Provision for Income Taxes: The provision for income taxes increased by $1.1
million, from $659,000 to $1.7 million, as a result of a higher income level.
The effective income tax rate decreased from 44.0% to 42.4%. This decrease is
the result of proportionately less non-deductible expenses as a percentage of
pretax income.
Net Income: For the reasons discussed above, the Company's net income
increased by $1.5 million, from $839,000 to $2.3 million.
Preferred Stock Dividends: Dividends on the Series A and Series B preferred
shares were suspended after April 1, 1993, by agreement with the holders
thereof. In November 1994, all of the Series A preferred shares were converted
into Common Stock and the Series B preferred shares were redeemed.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Revenue: Revenue increased by $12.5 million, or 77.3%, from $16.2 million to
$28.7 million. The increase in revenue was primarily due to the acquisition of
Victory on July 1, 1994 ($6.9 million), increased landfill activity and $1.9
million from a transfer station and hauling company acquired in the second half
of 1993. Offsetting these increases was an absence of $1.1 million of revenue
from the Company's waste brokerage business which ceased operations as of
December 31, 1993.
During 1993, the Company earned revenue of $1.4 million, or 8.7% of the
Company's total revenue, from a single customer. This customer was acquired by a
competitor of the Company in 1993 and the Company stopped doing any substantial
business with this customer in June 1993. Despite the loss of revenue from this
customer, the Company was still able to increase total revenue as discussed
above. No customer accounted for greater than 10% of the Company's revenue in
1994 or 1993.
Operating Expenses: Operating expenses increased by $6.0 million, from $11.2
million to $17.2 million, but decreased as a percentage of revenue from 69.2% to
60.0%. The percentage decrease was primarily attributable to improved economies
of scale in the Company's landfill and collection operations achieved through
higher activity levels. Additionally, the acquisition of Victory led to an
increase in the proportion of the Company's revenue derived from landfill
operations which tend to incur lower operating expenses as a percentage of
revenue than waste collection and other non-landfill operations.
18
<PAGE>
General and Administrative Expenses: General and administrative expenses
increased by $2.4 million from $2.1 million to $4.5 million, and increased as a
percentage of revenue from 12.7% to 15.6%. The increases were due to increased
corporate staffing levels and increased professional fees.
Interest Expense: Interest expense increased from $1.3 million to $1.9
million. The increase was due to increased levels of debt resulting from the
acquisition of Victory.
Provision for Income Taxes: The provision for income taxes increased by $1.5
million, from $721,000 to $2.2 million, primarily as a result of a higher income
level in 1994.
Income Before Extraordinary Gain: The Company's income before extraordinary
gain increased by $1.8 million from $953,000 to $2.8 million.
Extraordinary Gain: The Company recorded a $357,000 after-tax extraordinary
gain on the early extinguishment of certain debt at a discount in 1994.
Net Income: For the reasons described above, the Company's net income
increased by $2.2 million from $953,000 to $3.1 million.
YEAR ENDED DECEMBER 31, 1993 COMPARED TO YEAR ENDED DECEMBER 31, 1992
Revenue: Revenue increased by $2.9 million, or 21.4%, from $13.3 million to
$16.2 million. Increased revenue attributable to businesses acquired during 1993
and 1992 amounted to $3.7 million. These acquired businesses include a landfill
and a transfer station and hauling company in 1993 and a landfill and three
transfer stations in 1992. The Company also experienced increased revenue of
$985,000 from its Tennessee landfill and hauling businesses. This growth was due
primarily to acquired competitor routes, market penetration, and increased
pricing. Partially offsetting these increases was a decrease in revenue from the
Company's brokerage business of $1.3 million, from $2.5 million in 1992 to $1.2
million in 1993. This decrease was due primarily to decreased volumes in its
brokerage business resulting from increased competition, decreased pricing and
decreased demand for this service.
During 1993 and 1992, the Company recognized revenue of $1.4 million and
$1.8 million, or 8.7% and 13.6% of the Company's total revenue, respectively,
from a single customer. This customer was acquired by a competitor of the
Company in 1993 and the Company stopped doing any substantial business with this
customer in June 1993. No other customer of the Company accounted for more than
10.0% of total revenue in 1993 or 1992.
Operating Expenses: Operating expenses increased by $1.4 million, from $9.8
million to $11.2 million, but decreased as a percentage of revenue from 73.4% to
69.2%. Operating expenses as a percentage of revenue fell due to operating
efficiencies and a shift in the Company's revenue mix away from brokerage
towards disposal and collection activities, which carried higher operating
margins.
General and Administrative Expenses: General and administrative expenses
increased by $207,000, from $1.9 million to $2.1 million, but decreased as a
percentage of revenue from 13.9% to 12.7%. The dollar increase was primarily
attributable to acquired businesses and, to a lesser extent, an increase in
corporate expenditures for professional fees pertaining to the investigation of
potential acquisitions. The decrease as a percentage of revenue was primarily a
result of higher revenue without corresponding increases in administrative
costs.
Interest Expense: Interest expense increased from $891,000 to $1.3 million.
This increase was primarily due to the $9.4 million of new debt incurred to
finance the FLL, Inc. acquisition in May 1992. Partially offsetting this amount
was the refinancing in June 1993 of a $2.0 million note, decreasing the interest
rate from 10.0% to 7.0% per annum.
Provision for Income Taxes: The provision for income taxes increased by
$499,000, from $222,000 to $721,000, primarily as a result of an increase in the
Company's effective tax rate from 24.5% in 1992 to 43.8% in 1993 and to a higher
income level in 1993. The increase in the effective tax rate is the result of a
full year of non-deductible goodwill amortization in 1993 and the recognition of
net operating loss benefits in 1992.
19
<PAGE>
Net Income: For the reasons described above, the Company's net income
increased by $264,000 from $689,000 in 1992 to $953,000 in 1993.
Preferred Stock Dividends: Dividends on the Series A and Series B preferred
shares decreased from $411,000 in 1992 to $130,000 in 1993. By agreement of the
holders of Series A and Series B preferred shares, dividends were suspended
after April 1, 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements consist principally of working capital,
payments of principal and interest on its outstanding indebtedness and capital
expenditures. At December 31, 1994 and June 30, 1995, the Company had working
capital of $6.5 million and $7.1 million, respectively, compared to a working
capital deficit of $2.2 million at December 31, 1993. Cash and cash equivalents
balances were $1.1 million, $4.7 million, and $3.8 million at December 31, 1993,
1994, and June 30, 1995, respectively. The Company's growth in working capital
at December 31, 1994 and June 30, 1995 was primarily attributable to the public
and private offerings by the Company of its Common Stock which resulted in net
proceeds to the Company of $16.5 million, the exercise of warrants for Common
Stock totaling $1.2 million, and the reclassification of certain of the
Company's debt from short-term to long-term as a result of entering into the
Credit Facility.
Cash Flows from Operating Activities: During the years ended December 31,
1992, 1993 and 1994 and the six months ended June 30, 1995, net cash provided by
operating activities was $2.7 million, $3.6 million, $5.1 million and $2.9
million, respectively. Cash flows from operating activities increased by
$879,000 from 1992 to 1993, due primarily to higher earnings and increased
depreciation and amortization expense in 1993. Cash flows from operating
activities increased by $1.5 million from 1993 to 1994, due primarily to higher
earnings and increased depreciation and amortization expense in 1994. Cash flows
from operating activities increased by $1.5 million from the first six months of
1994 to the same period in 1995, due primarily to higher earnings and increased
depreciation and amortization expense in the first half of 1995 versus the same
period in 1994, and long-term liabilities increasing more in the first half of
1995 versus the same prior year period.
Cash Flows from Investing Activities: During 1992, 1993 and 1994 and the six
months ended June 30, 1995, the Company made cash capital expenditures of
approximately $4.2 million, $3.5 million, $14.8 million and $11.2 million,
respectively, primarily for landfill expansions, developments, acquisitions and
equipment additions. The Company anticipates making cash capital expenditures of
approximately $5.0 million to $7.0 million during the second half of 1995,
primarily for existing landfill expansion and equipment additions.
Cash Flows from Financing Activities: During the years ended December 31,
1992, 1993, 1994 and the six months ended June 30, 1995, cash flows from
financing activities were approximately $1.2 million, ($1.2 million), $13.5
million and $9.0 million, respectively.
On March 28, 1995, the Company entered into a new $45.0 million Credit
Facility with LaSalle National Bank ("LNB") which expires in March 1998. The
Credit Facility refinanced certain existing indebtedness and provided additional
funds for the operation of the Company. The Credit Facility has been
subsequently syndicated to include the Bank of America and the First National
Bank of Boston. Each borrowing under the Credit Facility bears interest based on
the Company's leverage ratio, as defined, of total liabilities (not including
draws on the Credit Facility) to tangible net worth. If the leverage ratio is
less than 1.25 to 1, then the interest rate is prime. If the leverage ratio
range falls between 1.25 to 1.75 compared to 1, then the interest rate is prime
plus 0.5%. If the leverage ratio is greater than 1.75 to 1, then the interest
rate is prime plus 1.0%. Alternatively, at the Company's election, borrowings
may bear interest at an adjusted LIBOR rate plus (depending on the Company's
leverage ratio) 2.0%, 2.5% or 3.0%. The Credit Facility includes provisions for
letters of credit up to $5.0 million; however, such letters of credit reduce the
funds available for other borrowings under the Credit Facility. The Company is
required to pay a fee equal to 0.5% on the average unused portion of the Credit
Facility and up to 2.0% on the average outstanding letters of credit. The Credit
Facility is secured by all corporate assets and a pledge of the stock of all
subsidiaries. At August 31, 1995, the Company had borrowed $38.8 million under
the Credit Facility. These borrowings bear interest at a weighted average
interest rate of 9.2% per annum.
20
<PAGE>
Under the terms of the Credit Facility, the Company is required to comply
with certain financial and operating covenants. As of June 30, 1995, the Company
had made capital expenditures in excess of the amount permitted under the Credit
Facility. LNB waived compliance with this covenant through June 30, 1995 and
subsequently amended the Credit Facility to permit expenditures at the level
projected by the Company for the fiscal year ended December 31, 1995.
The Company believes that cash from operating activities, the net proceeds
from this Offering, cash on hand, additional borrowings under the Credit
Facility and the issuance of additional debt as permitted by the Credit Facility
will be sufficient to: (i) finance its planned 1995 and 1996 development
projects and capital expenditures; (ii) meet its 1995 and 1996 operating cash
requirements; and (iii) meet expected debt service obligations during 1995 and
1996.
The Company will also have material financial obligations relating to the
closure of the filled areas of landfill sites during their operating lives and
the final closure and post-closure care of facilities at the end of their
operating lives. These obligations apply to each disposal facility the Company
operates or for which it is otherwise responsible. These obligations will
principally include costs for the final cap and cover of the landfill area,
management of leachate, groundwater monitoring and general area maintenance. The
Company's estimate of these costs, stated in current dollars, is inflated at a
rate of 4.0% until the expected time of payment, and this liability is then
discounted to its estimated present value at 8.0%. On an undiscounted basis
these liabilities would have increased by approximately $8.4 million as of
December 31, 1994. Total estimated closure and post-closure costs to be spent
after December 31, 1994, inflated as described above, are approximately $20.1
million, of which approximately $1.0 million is expected to be expended over
each of the next five years.
QUARTERLY RESULTS
The following table sets forth unaudited summary financial information for
the eight quarters ended June 30, 1995. All amounts are in thousands, except per
share data.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1993 1993 1994 1994 1994 1994 1995 1995
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................................. $4,020 $4,174 $4,374 $5,388 $9,373 $9,593 $9,708 $10,770
Income from operations.................. $ 655 $ 876 $ 832 $1,292 $2,260 $2,635 $2,405 $ 2,955
Fully diluted earnings per share before
extraordinary gain..................... $ 0.07 $ 0.05 $ 0.09 $ 0.15 $ 0.19 $ 0.17 $ 0.15 $ 0.19
Fully diluted weighted average number of
shares................................. 2,893 3,195 3,395 3,663 4,554 6,191 6,929 6,985
</TABLE>
21
<PAGE>
BUSINESS
GENERAL
The Company provides integrated solid waste management services to
approximately 175,000 residential, commercial and industrial customers
concentrated primarily in the Midwestern and Mid-South regions of the United
States. These services include non-hazardous landfill disposal, solid waste
collection, transfer station operations, and recycling programs. The Company
also provides waste management services in Costa Rica and Mexico.
The Company has grown both through 26 separate acquisitions and through
internal expansion. The Company significantly expanded the scope of its
operations in July 1994 by acquiring a controlling interest in Victory and GEM,
which collectively operate three landfills and a waste collection company in
Indiana. The Company has effectively become the sole stockholder of Victory and
GEM. Since the Company's public offering in November 1994, the Company has
completed six acquisitions representing approximate annual revenue of
approximately $11.0 million based on six months of operating results for the
period ended June 30, 1995.
INDUSTRY OVERVIEW
According to the ENVIRONMENTAL BUSINESS JOURNAL, an industry trade
publication, the U.S. non-hazardous solid waste collection and disposal industry
generated estimated revenues of approximately $31 billion in 1994. Industry
revenues are derived primarily from collection and hauling services, disposal
services (including landfilling and incineration) and processing/recycling
services. Landfilling is presently the most common means of, and the Company
believes it to be the lowest cost of, disposing municipal solid waste ("MSW"),
which consists primarily of refuse and garbage from residential, commercial and
industrial sources. In 1993, an estimated 62% of the MSW generated in the U.S.
was managed through landfill disposal, 22% was recycled (including composting)
and 16% was incinerated.
The solid waste industry has experienced significant consolidation in recent
years. Based on a recent industry survey, there were fewer than 4,000 solid
waste landfills in the United States in 1994, compared with over 12,000 in 1968.
The trend of landfill closure is expected to continue for several years. This is
principally due to exhaustion of remaining airspace and inability to comply with
the Subtitle D Regulations, which impose stringent landfill design, operating,
closure and post-closure obligations. See "Environmental Regulation Affecting
the Company and Its Operations -- The Resource Conservation and Recovery Act"
below.
Despite the considerable consolidation that has occurred over the past two
decades, the solid waste industry remains regional in nature and highly
fragmented. The ENVIRONMENTAL BUSINESS JOURNAL estimates that one-third of
industry revenue is accounted for by approximately 6,000 private, predominantly
small, collection and disposal businesses; one-third by municipal governments
that provide collection and disposal services; and the remainder by the
publicly-traded solid waste companies. The Company expects that continued
implementation of the Subtitle D Regulations will further the consolidation of
the solid waste industry and raise the cost of all landfill operations. As a
result, smaller municipal or privately-owned local landfills should continue to
be subsumed into larger, regional landfills owned by well-capitalized public
companies.
As a result of increasingly strict regulation, the technical, managerial and
financial resources needed by most companies to operate a solid waste business
have grown significantly. The increase in regulation has required, and will
continue to require, commensurate increases in technical sophistication and
capital expenditures to meet new standards for the construction and operation of
landfills, transfer stations and other solid waste facilities. As a result, the
Company believes that many private landfills are being sold to larger, better
capitalized companies or have reduced their tipping fees in order to attract
greater waste volume prior to their closure in anticipation of the full
implementation of the Subtitle D Regulations. In addition, many municipalities
are opting to privatize their collection and disposal services, due primarily to
the ability of the private sector to perform these operations more efficiently
and economically.
In October 1991, the EPA adopted the Subtitle D Regulations which generally
became effective on October 9, 1993. The Subtitle D Regulations specify design,
siting, operating, monitoring, closure, post-
22
<PAGE>
closure and financial requirements for landfill operations and, among other
things, require upgraded or new composite landfill liners, leachate collection
and treatment, groundwater and methane gas monitoring, stricter siting and
locational criteria, closure and extended post-closure requirements and
financial assurances that the owner or operator can meet certain of these
obligations. Each state is required to revise its applicable solid waste
regulations or programs to meet the requirements of the Subtitle D Regulations.
Many states have already adopted regulations or programs as stringent as, or
more stringent than, the Subtitle D Regulations. State by state implementation
schedules for the Subtitle D Regulations vary. In some states, various
state-level provisions allow landfills which do not comply with the Subtitle D
Regulations to remain operating for a limited period of time.
Another factor expected to affect the solid waste industry is the increasing
mandate to recycle solid wastes. This mandate is expected to reduce the volume
of waste disposed in landfills, but may provide additional revenues for
collection and processing operations. The ability of industry participants to
engage profitably in recycling operations will depend in large part on the
further development of markets for recycled products and the market prices
available for recyclable materials.
GROWTH STRATEGY
The Company's growth strategy is centered around landfill and collection
business acquisitions and a landfill capacity expansion program primarily within
midsized regional markets, as well as selected Latin American markets. The
Company pursues a "hub and spoke" acquisition strategy, involving the
acquisition of landfills in its target markets as well as collection operations
around Company-owned landfills. The Company targets both profitable and under
performing landfills and collection businesses. The Company will also consider
acquiring recycling businesses in markets where these businesses can complement
the Company's solid waste management services. The Company believes it enhances
the productivity of acquired businesses through its expertise in regulatory and
permitting matters and through its internal landfill remediation and
construction capabilities. See "Management." The Company also seeks to optimize
the performance of acquired businesses and existing disposal capacity by
securing a captive waste stream for each landfill site through an integrated
network of collection companies and transfer stations; through long-term
disposal contracts; through enhanced marketing initiatives; through the public
contract bidding process; through acquisitions of customer lists; and through
other programs that reduce dependence on waste volumes from unaffiliated
haulers. The Company seeks to improve operating efficiencies and profitability
through densifying collection routes, rationalizing operating and administrative
costs, and selectively increasing prices. The key elements of the Company's
operating strategy include:
VERTICAL INTEGRATION. The Company seeks to maximize its profitability by
clustering its collection operations around a Company-owned landfill, thereby
eliminating the disposal costs otherwise paid to third party disposal
facilities. As a result the Company is less sensitive to tipping fee pricing
pressure due to the captive waste stream provided by its collection operations.
ACQUISITIONS. The Company actively seeks to acquire companies or assets
within its existing regional markets and, where appropriate, in new markets.
Utilizing a combination of cash (including draws on the Credit Facility) and
equity, the Company believes it can purchase collection operations which provide
attractive returns. The Company targets independent operators with a strong
local presence and/or customer lists and routes whose waste streams can be
combined with those of the Company and routed efficiently to Company-owned or
-operated landfills. Following each acquisition, the Company seeks to improve
the efficiency and profitability of the acquired operations by: (i)
restructuring routing; (ii) consolidating administrative and management systems;
(iii) increasing productivity (by reviewing labor and other operating costs for
possible reduction); (iv) improving equipment utilization; (v) developing
enhanced marketing programs; and (vi) implementing price increases, when
appropriate. See "-- Acquisitions" below.
MARKET PROMINENCE. The Company focuses its collection and transfer
operations in those markets where it has sufficient permitted landfill capacity
and can acquire or develop additional transfer stations and
23
<PAGE>
collection operations which will provide the Company with significant market
share. The Company believes that it is currently one of the leading competitors
in virtually all of its markets, with the exception of the Chicago and Mexico
City metropolitan markets.
LATIN AMERICA EXPANSION. Heightened environmental awareness in many Latin
American countries has convinced the Company that significant expansion
opportunities exist in the Latin American non-hazardous waste service market.
The Company's strategy is targeted at governmental waste disposal and collection
services which are being privatized under long-term operating and management
contracts in large metropolitan regions. The contract services may include
remediation and landfill closure activities, as well as the design and
construction of new sanitary landfills. In areas where it provides long-term
municipal contract services, the Company will also pursue development of
commercial and industrial collection and disposal services to achieve maximum
operating efficiencies. The Company's goal is to enter foreign markets primarily
through obtaining privatization contracts and secondarily through joint ventures
with local entities or by acquiring existing waste collection and/or disposal
businesses. See "-- Latin American Operations" below.
ACQUISITIONS
The Company is presently in preliminary discussions with a number of parties
regarding the acquisition of solid waste businesses or assets. These acquisition
prospects vary greatly in scale and character. As of the date of this
Prospectus, the Company does not have any agreements or understandings to
acquire businesses or assets not described herein.
The Company completed five acquisitions in 1993, six acquisitions in 1994,
six acquisitions in the first eight months of 1995, and is continually
evaluating additional prospects. The Company seeks to acquire landfills with
significant remaining permitted and/or potential disposal capacity, collection
operations that provide a steady stream of waste to the Company's landfills and
that have significant market share in neighboring regions that complement the
Company's disposal operations. There is no assurance that the Company will be
successful in locating or completing any additional acquisitions. See "Risk
Factors -- Limitations on Expansion."
The Company has an experienced acquisition team, comprised of operating,
environmental, engineering, legal, financial and accounting personnel, engaged
in identifying and evaluating acquisition opportunities and implementing the
Company's acquisition program. The Company has established review procedures for
acquisition candidates, including operational, environmental, engineering, legal
and financial reviews. The environmental review includes, where appropriate,
investigation of geologic, hydrogeologic and other site conditions, past and
current operations (including types of waste deposited), design and construction
records, permits, regulatory compliance history, regulatory agency records and
analyses of soil, groundwater and air samples and monitoring results.
In connection with its acquisitions, the Company sometimes utilizes
contingency payments that are based on the purchased entity achieving specific
development or permitting targets and/or royalties that are dependent upon
future revenues or volumes of waste. In establishing the purchase price for a
landfill, the Company considers the extent to which capital expenditures may be
required in order to comply with Subtitle D Regulations or other regulations.
24
<PAGE>
The table below provides a summary description of the Company's 26 completed
acquisitions.
<TABLE>
<CAPTION>
OPERATION LOCATION BUSINESS DATE ACQUIRED
-------------------------------- ----------------------- ---------------------------- ------------------
<S> <C> <C> <C> <C>
1. Prichard Prichard, WV Landfill August 1989
2. Barker Bros. Waste Union City, TN Collection/Recycling January 1991
Northwest Tennessee Union City, TN Landfill January 1991
3. Homer Refuse Dyer County, TN Collection Route April 1991
4. Bluegrass Recycling & Transfer Barlow, KY Collection/Transfer August 1991
5. P.D.Q. Henry County, TN Collection Company March 1992
6. Commercial Waste Mayfield, KY Collection/Transfer April 1992
Mayfield Cleanup Mayfield, KY Collection Route April 1992
7. Forest Lawn Three Oaks, MI Landfill May 1992
8. Jones Waste Services Southeastern MO Collection Company August 1992
9. CWI of Illinois Mt. Vernon, IL Transfer Stations October 1992
Marion, IL
10. Southern Illinois Regional DeSoto, IL Landfill January 1993
11. CWI of Missouri Southeastern MO Collection/Transfer July 1993
12. Beardsley Trash Southeastern MO Collection Route September 1993
13. Torrez Sanitation Southeastern MO Collection Route October 1993
14. Allstate Waste Southeastern MO Collection Route December 1993
15. SEMO Waste Southeastern MO Collection Route January 1994
16. Gila Bend Regional (1) Gila Bend, AZ Development Project March 1994
17. CWI of Illinois Sparta, IL Transfer Station April 1994
18. Greenview Environmental Fountain Co., IN Development Project July 1994
Recycling and Disposal (2)
Volunteer Environmental (2) Jefferson Co., TN Development Project July 1994
United Refuse (2) Fort Wayne, IN Landfill July 1994
Jamax Corporation (2) Terre Haute, IN Collection Company July 1994
Yaw Hill (2) Terre Haute, IN Landfill July 1994
Springfield Environmental (2) Mt. Vernon, IN Construction and Debris July 1994
Landfill
19. WPP Continental Alajuela, Costa Rica Collection August 1994
Los Mangos Alajuela, Costa Rica Landfill August 1994
20. Randolph County Landfill & Randolph Co., IL Collection Company October 1994
Salvage Co.
21. Larry's Disposal Brazil, IN Collection/Recycling April 1995
22. ASCO Sanitation Corinth, MS Collection Company May 1995
23. Terre Haute Recycling Terre Haute, IN Recycling July 1995
24. Gilliam Sanitation Southeastern MO Collection/Recycling July 1995
Gilliam Transfer Southeastern MO Transfer Station July 1995
25. Anderson Refuse Anderson, IN Collection Company August 1995
MV Dulworth Anderson, IN Transfer Station August 1995
26. Procesa Continental Mexico City, Mexico Collection Company August 1995
Landfill Engineering
<FN>
------------------------------
(1) No permit application pending.
(2) This entity was acquired as part of the Victory and GEM acquisitions.
</TABLE>
25
<PAGE>
REVENUE BREAKDOWN
The following table sets forth the amount and percentage of the Company's
consolidated revenue derived from its landfill, waste collection and waste
brokerage activities for each year in the four-year period ended December 31,
1994 and for the six months ended June 30, 1995.
<TABLE>
<CAPTION>
SIX
MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------------------------------------------------ JUNE 30,
1991 1992 1993 1994 1995 (C)
--------------------- --------------------- --------------------- --------------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Landfill operations
(a) . $ 2,224 26.2% $ 6,448 48.3% $ 8,918 55.0% $ 17,790 61.9% $ 11,684
Waste collection
(b)................. 1,888 22.2 4,434 33.2 6,185 38.2 10,938 38.1 8,794
Waste brokerage...... 4,376 51.6 2,466 18.5 1,101 6.8 -- -- --
--------- ----- --------- ----- --------- ----- --------- ----- ---------
Total revenue........ $ 8,488 100.0 % $ 13,348 100.0 % $ 16,204 100.0 % $ 28,728 100.0 % $ 20,478
--------- ----- --------- ----- --------- ----- --------- ----- ---------
--------- ----- --------- ----- --------- ----- --------- ----- ---------
<CAPTION>
<S> <C>
Revenue:
Landfill operations
(a) . 57.1%
Waste collection
(b)................. 42.9
Waste brokerage...... --
-----
Total revenue........ 100.0 %
-----
-----
<FN>
------------------------------
(a) Represents fees charged to dispose of waste at the Company's landfills
(including tipping fees charged to the Company's collection operations).
(b) Includes revenue attributable to the Company's transfer stations and
recycling programs, but excludes the portion of collection revenue
attributable to disposal charges for waste collected by the Company and
disposed of at the Company's landfills.
(c) Revenue for the six months ended June 30, 1995 is derived from unaudited
consolidated financial statements.
</TABLE>
LANDFILL OPERATIONS
Landfill operations accounted for 57.1% of the Company's total revenue for
the first six months of 1995. The Company currently owns and operates seven
solid waste landfills permitted to receive non-hazardous waste and one landfill
operation permitted for construction and demolition dry waste. The Company has
approximately 650 acres permitted or in various stages of permitting approval.
This represents potential additional disposal capacity of at least 26 million
tons of waste. The Company accepted approximately 765,000 tons of solid waste at
its operating landfills for the first six months of 1995. The waste streams that
are permitted to be received at each of these landfills include MSW and certain
special wastes, some of the most common of which are asbestos, solidified
sludge, and petroleum-contaminated soils. The tipping fee associated with these
waste types is typically higher than those associated with MSW. The types of
special waste accepted at each site and the procedure for permitting at each
landfill varies based on the specific state regulations for special waste.
The Company has committed substantial resources to design and construct each
of its landfills and expand existing landfills to substantially meet all
applicable environmental regulations, including the new Subtitle D Regulations.
The Company believes that the increased capital commitment necessary to comply
with these regulations will cause many smaller independent landfill operators
(including some municipalities) to either: (i) raise prices to fund the capital
requirements; (ii) eventually cease operations; or (iii) sell their operations.
For the six months ended June 30, 1995, approximately 49.6% of the waste
disposed of at the Company's landfills was generated by the Company's collection
and transfer station operations or delivered by customers that had a contract of
more than one year in duration.
26
<PAGE>
The table below provides additional information pertaining to the eight
landfills that the Company owns and operates:
<TABLE>
<CAPTION>
TOTAL
ACREAGE
LANDFILL LOCATION OWNED
------------------------------- ----------------------- -----------
<S> <C> <C>
Forest Lawn Three Oaks, MI 141
Yaw Hill Terre Haute, IN 461
United Refuse Ft. Wayne, IN 194
Southern Illinois Regional DeSoto, IL 147
Northwest Tennessee Union City, TN 386
Prichard Prichard, WV 339
Springfield Environmental Mt. Vernon, IN 54
Los Mangos Alajuela, Costa Rica 41
</TABLE>
Landfill Expansion Projects
---------------------------
All of the landfills described below are presently accepting waste. The
Company monitors the available permitted disposal capacity at each of its
landfills on an ongoing basis and evaluates whether to expand this capacity. In
making this evaluation, the Company considers various factors, including the
volume of waste projected to be disposed at the landfill, the size of the
unpermitted acreage included in the landfill, the likelihood that the Company
will be successful in obtaining the necessary approvals and permits required for
the expansion, and the costs that would be involved in developing the expanded
capacity. The Company also considers expanding or changing the permitted waste
streams at a particular landfill or seeking permit modifications based on
changing market conditions. Set forth below is information concerning certain of
the new permits and permit modifications that the Company is currently seeking
or expects to seek. There can be no assurance that the Company will succeed in
obtaining any of these permits or permit modifications. See "Risk Factors --
Extensive Environmental and Land Use Laws and Regulations, and -- Limitations on
Expansion."
FOREST LAWN LANDFILL (SOUTHWESTERN MICHIGAN). The Company is in the process
of constructing eight permitted acres which will provide an additional 890,000
cubic yards of airspace. The site is adjacent to the current operating site and
is expected to begin accepting waste in January 1996. Total permitted airspace
at Forest Lawn Landfill exceeds 11.5 million cubic yards. The Company has an
option to purchase an adjacent parcel of 200 acres, 40 acres of which have been
approved and permitted for landfill use and 110 acres of which have been
approved for composting of waste and various other related activities. As
currently permitted, the 40 acre site would provide 3.5 million of the 11.5
million cubic yards of permitted airspace.
YAW HILL LANDFILL (WEST-CENTRAL INDIANA). The site presently has
approximately 13.5 million cubic yards of permitted airspace. The Company has
completed the construction of a six acre cell providing approximately 525,000
cubic yards of airspace. Additionally, the Company has recently received a
permit for a nine acre construction and demolition debris disposal area.
UNITED REFUSE LANDFILL (NORTHEASTERN INDIANA). The Company has submitted a
permit application to develop approximately 22 acres adjacent to the existing
disposal operations. A public hearing has been scheduled for the fall of 1995
and permit issuance is expected in early 1996. The current operating site must
cease landfill operation by December 31, 1997. If permitted, however, the 22
acres would provide approximately 3.2 million cubic yards of airspace.
SOUTHERN ILLINOIS REGIONAL LANDFILL (SOUTHERN ILLINOIS). The Company has
submitted a landfill expansion application to the Illinois Environmental
Protection Agency ("IEPA"). As proposed, the application seeks approval to
develop additional disposal capacity on 60 acres which are not presently
permitted for landfill construction. The application, which has been declared
"administratively complete" by the IEPA, also provides for the incorporation of
existing side slopes from the current operating site into the expansion
facility. If approved, the expansion application is expected to increase total
airspace capacity to approximately 6.0 million cubic yards. The application, if
successful, would also allow disposal of asbestos, solidified
27
<PAGE>
sludge, petroleum-contaminated soils and other special wastes. The Company has
constructed eight acres of a composite-lined cell which is expected to be
utilized for MSW starting in late 1995. Under a May 1995 consent agreement, the
cell may begin accepting waste prior to the issuance of a permit.
NORTHWEST TENNESSEE DISPOSAL (NORTHWESTERN TENNESSEE). The Company owns
approximately 386 acres in Union City, Tennessee, 190 acres of which are fully
permitted for expansion. Fully developed, this expansion acreage will provide
approximately 7.5 million cubic yards of airspace. The first five acre composite
lined cell is currently under construction and is expected to begin accepting
waste in late 1995.
PRICHARD LANDFILL (SOUTHERN WEST VIRGINIA). The Company is developing the
second half of an eight acre cell on a 300 acre upland portion of the Prichard
site. These eight acres are part of a 65 acre expansion site, all of which has
been approved for landfill use. The 65 acres are expected to increase total
airspace capacity to approximately 9.5 million cubic yards. The Company is in
the process of permitting the remaining 57 acres of the 65 acre expansion site.
This includes seeking a Certificate of Need from the West Virginia Public
Service Commission.
SPRINGFIELD ENVIRONMENTAL LANDFILL (SOUTHWESTERN INDIANA). The Springfield
Environmental Landfill is currently permitted as a construction and demolition
debris landfill. The site has airspace capacity of approximately 583,000 cubic
yards, which the Company expects will be sufficient for in excess of 20 years at
current intake volumes. The Company is considering future strategies for the
facility, including expanding its customer base and modifying its permit to
increase disposal capacity and to allow acceptance of additional types of waste.
LOS MANGOS LANDFILL (ALAJUELA, COSTA RICA). The Company owns approximately
41 acres in, and is a party to an agreement with, a small township called Barrio
San Jose, located adjacent to the City of Alajuela. The site has available
airspace capacity estimated at 2.5 million cubic yards with potential for
expansion. The contemplated expansion area is currently undergoing an extensive
hydrogeologic study as part of compliance with newly-enacted regulations
governing waste disposal sites in Costa Rica. Prior to the enactment of these
regulations, there were no landfill permit requirements in Costa Rica. The
Company has made application for the first non-hazardous landfill permit in
Costa Rica under these regulations.
Landfill Development Projects
------------------------------
The process of developing a new landfill for which no site approval or
permit has yet been issued is complex and expensive and typically takes several
years. In addition, litigation opposing a new landfill development is frequently
commenced by local citizens. The Company presently pursues new landfill
development on a limited basis and does not intend to devote substantial
resources to such development. The Company is currently developing three
landfill projects.
GILA BEND, ARIZONA (SOUTHWESTERN ARIZONA). In March 1994, the Company
purchased from WPP Services, Inc. a landfill development project located in Gila
Bend, Arizona. This development project currently involves, among other things,
various geological studies on the site and work on permitting portions of the
site. In connection with this project, the Company has obtained: (i) an option
to purchase approximately 1,200 acres of land to construct a solid waste
landfill; (ii) an annexation agreement for the option land with the City of Gila
Bend; and (iii) a Host Community Agreement with the City of Gila Bend.
The Company expects to move vigorously towards obtaining a solid waste
permit. The Company currently estimates that the total cost to acquire the land
and obtain all required permits will be approximately $4.0 million, of which
approximately $1.6 million has been funded and capitalized to date.
Upon final permitting of the landfill project, the Company has a put option
to sell the project to USA Waste Services, Inc. ("USA") for the sum of $5.0
million plus reimbursement for land purchase costs. If the Company does not
exercise its put option and instead sells the landfill project to a third party,
the Company must pay USA a fee equal to 20% of all proceeds, net of land costs
and site construction, in excess of $5.0 million.
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<PAGE>
JEFFERSON COUNTY, TENNESSEE (EASTERN TENNESSEE). As part of the Victory
acquisition, the Company acquired an 80 acre site in Jefferson County,
Tennessee. In May 1992, the Division of Solid Waste Management of the Tennessee
Department of Environment and Conservation approved the operation of a
construction and demolition debris disposal facility on the site. Approximately
$100,000 will be required to complete the roadwork and development for the site.
The Company currently has an operating permit for twelve acres of the site.
Current market conditions do not justify further significant development at this
time.
FOUNTAIN COUNTY, INDIANA (NORTHWESTERN INDIANA). The Company holds a one
year renewable option to purchase a 189 acre solid waste landfill development
site located in Fountain County, Indiana. Current market conditions do not
justify further significant development at this time.
WASTE COLLECTION
The Company provides solid waste collection services to approximately
170,000 residential and 5,000 commercial and industrial customers. With the
exception of Mississippi and Mexico City, all of these customers are served by
Company-owned landfills into which virtually all Company collected waste is
channeled. Collection services accounted for 42.9% of the Company's total
revenues for the first six months of 1995.
The Company's collection operations primarily serve small metropolitan and
rural markets and have grown through acquiring and integrating local collection
routes. The Company generally purchases and continues to operate under the
tradenames of the acquired businesses. Through marketing of the local name,
additional market penetration, enhanced service and price increases, the Company
has been able to expand the revenue base of acquired operations. The regional
general managers are given autonomy, within corporate policy guidelines, to
encourage development of the local operations. The Company's centralized
management information systems provide the regional managers more time to devote
to marketing and operating responsibilities. Regional managers are responsible
for marketing local services, maintaining public relations, supervising the
local sales force, maintaining equipment in accordance with planned maintenance
schedules, hiring and training the hourly labor force and implementing the
Company's safety programs and other operating procedures.
In some of its collection markets, the Company also operates recycling
facilities or other recycling operations. The Company's three municipal
recycling facilities are located in Union City, Tennessee; Festus, Missouri; and
Terre Haute, Indiana. The materials recovered for recycling by the municipal
recycling facilities include paper, cardboard, plastic, aluminum, ferrous metals
and wood.
Commercial and Industrial Services and Transfer Stations
------------------------------------------------------
Revenue from the Company's commercial and industrial collection services and
transfer stations represented 64.1% of the collection service revenue for the
six months ended June 30, 1995. The Company's commercial customers generally
utilize containers, ranging in size from one to eight cubic yards, which are
provided to the customer by the Company as part of its service contract.
Commercial collection enables the Company to increase revenue and improve
equipment utilization within an existing market area. Commercial services are
typically provided under contracts with terms of one to three years. Fees are
determined by such factors as collection frequency and container volume
capacity.
To service industrial customers, the Company provides a 20 to 40 cubic yard
roll-off waste container for placement at the customer's site and periodic
transport to a disposal facility. These services are performed either according
to an agreed schedule or upon customer request, and fees are negotiated on an
individual contract basis. These services may be provided on a temporary basis,
such as at a construction site. Fees charged for these services are based upon
frequency of collection, volume or weight of the waste and the distance traveled
by the Company's truck. In addition, the Company rents waste compactors to large
industrial customers as part of the Company's roll-off container service for a
fixed monthly fee. To date, no single industrial customer has provided a
material amount of the Company's collection services revenues. The Company has
implemented an aggressive marketing program in an effort to obtain additional
contracts for the collection and disposal of industrial, non-hazardous waste
streams.
29
<PAGE>
At transfer stations, solid waste collected from individual customers in
Company-owned vehicles or waste delivered by unaffiliated haulers is unloaded
and compacted and reloaded to larger Company-owned vehicles and transported,
primarily to Company-owned landfills. The Company operates transfer stations in
Marion, Mt. Vernon and Sparta, Illinois; Anderson, Indiana; Potosi and Ste.
Genevieve, Missouri; Paris, Covington, Union City and McKenzie, Tennessee; and
Mayfield, Barlow and Paducah, Kentucky. The Company has also permitted a
transfer station in Jackson, Missouri.
Residential Services
---------------------
The Company's residential collection services represented 35.9% of
collection services revenue for the first six months of 1995. Residential
collection services are typically provided either on a subscription basis, in
which the individual household contracts directly with the Company, or on a
county or municipal contract basis, in which the Company contracts with the
county or municipality to collect from all residences within a specified area.
The Company's management believes subscription residential service operations
generally require less capital investment than municipal contracts but more
management and administrative resources. These administrative costs include the
daily production of route sheets, the direct billing of customers and the
maintenance of bad debt collection and tracking systems.
A large residential subscription base allows the Company to absorb the costs
associated with the commencement or loss of a municipal residential collection
contract in a market where the Company has a subscription customer base.
Municipal contracts provide consistent cash flow during the contract period and
require less administration because individual billing and debt collection
systems are not necessary and because all residents within the area are served.
The Company is currently a party to 56 governmental contracts, ranging from less
than $1,000 to $152,000 of collection services revenue per month. These
contracts are typically competitively bid and have initial terms of one to ten
years.
LATIN AMERICAN OPERATIONS
In August 1994, the Company completed its acquisition of the only
privately-owned non-hazardous waste landfill operation in Costa Rica and a
related waste collection operation. The acquired business holds municipal
contracts to serve residential and commercial customers in San Jose, Alajuela
and Heredia, the first, second and sixth largest cities in Costa Rica, a nation
of three million persons. The Company's expansion plans in Costa Rica include:
expanding commercial and industrial container service, which are presently
virtually non-existent; the siting, constructing and operating of transfer
stations to replace municipally-operated open dumps; and the public bidding for
and negotiating to secure landfill operations and management agreements with
governmental units. The Company holds ten municipal contracts in Costa Rica to
provide collection and disposal services to approximately 55,000 households and
commercial customers.
In August 1995, the Company acquired a 72% interest in Procesa, a private
Mexican landfill engineering and management company headquartered in Mexico
City. The Company believes Procesa provides the Company with a strategic entry
into the Mexican solid waste disposal market and provides a base for expanding
the Company's operations in Mexico.
The Company anticipates that its Costa Rican and Mexican operations can
achieve significant growth through a carefully coordinated program of
participation in the government's efforts to privatize municipal solid waste
collection, transfer and disposal services for both residential and commercial
customers. The Company's goal is to enter into some of its targeted Latin
America markets primarily through obtaining privatization contracts and
secondarily through joint ventures with local entities or by acquiring existing
waste collection and/or disposal businesses.
The Company believes that the trend towards privatizing waste collection
services and economic development in many Latin American countries has
heightened public awareness of environmental matters and alerted governments to
the need for improvement in sanitary services and pollution control.
30
<PAGE>
Most Latin American countries have not enacted laws regulating the
environment to the same extent as those presently operative in the United
States. Further, while some Latin American countries have promulgated
regulations for operating and permitting existing and new solid waste disposal
facilities, the government infrastructure for the enforcement of such new
regulations is often missing or ineffective. Therefore, many Latin American
cities still operate open dumps or below-standard disposal sites next to or near
environmentally-sensitive areas, such as rivers, aquifers or residential
development areas.
The Company believes it is likely, however, that many countries, including
Costa Rica and Mexico, will increase both environmental regulation and
enforcement effectiveness over the next several years, and that this trend will
increase the need for proven providers of waste management services who
understand and can comply with such regulations. Landfills conforming to such
regulations will need to be constructed and permitted, and collection operations
that meet governmental standards will be needed to service commercial,
industrial and residential customers.
The Company presently anticipates that, based upon its largely in-house
expertise and experience in developing, permitting and operating landfills and
collection companies in the United States, this expected period of growing
regulation and enforcement will provide significant opportunities for waste
management companies that have acquired footholds in Latin America to expand
their operations, as the market for such qualified services increases.
MARKETING
The responsibility and control over marketing at each of the Company's
domestic landfill regions rests primarily with each regional manager. Each
regional manager develops and implements marketing and sales strategies in
direct coordination with senior management. Depending upon the size of the
region and its customer mix, each regional manager is assisted in marketing by
local Company sales representatives. Larger commercial accounts are contacted on
a periodic basis depending on their specific needs. Company salespersons call on
prospective customers in a specified geographic territory, usually within an
area where the Company's radio or print media advertising provides coverage.
Customer awareness of the Company and its services is enhanced by support of
civic groups, sponsoring local sports teams, and participation in community
activities. Municipal contract bids are normally prepared in draft form by the
regional manager and then compared to contract estimates developed at
headquarters to ensure that separate and independent viewpoints are combined to
achieve the most responsive public contract bid possible.
COMPETITION
The solid waste collection and disposal industry is highly competitive and
requires substantial labor and capital resources. The Company competes with
large national waste management companies as well as numerous local and regional
companies of varying sizes and financial resources, with competition varying by
locality and by type of service rendered. The national waste management
companies and certain large regional waste management companies 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 municipalities may have financial advantages due to
their access to tax revenues and tax-exempt financing.
The Company competes primarily on the basis of price and service. The
Company believes that pricing in many of its markets is at a relatively low
level in comparison to other regions in the United States.
The Company may find itself in competition with operators which are
contemplating landfill operations at sites for which the permitting process has
not yet begun. The Company is not able to predict where permitting initiatives
for competing landfills may be successful. Competition in the disposal industry
may also be affected by the increasing national emphasis on recycling and other
waste reduction programs, which may reduce the volume of waste deposited in
landfills.
31
<PAGE>
The Company provides a portion of its residential collection services under
county and municipal contracts. As is generally the case in the industry, these
contracts are subject to periodic competitive bidding. There is no assurance
that the Company will be the successful bidder in the future and will be able to
retain these contracts.
LIABILITY INSURANCE AND BONDING
The Company does not carry, and does not expect to carry for the foreseeable
future, significant insurance coverage for environmental liability because the
Company believes that the cost for such insurance is not economical. The Company
carries a broad range of insurance coverage for the protection of its assets and
operations, including workers compensation, automobile, general liability, fire
and contractor's equipment. The Company does not carry insurance which would
reimburse it for any loss of earnings incurred as a result of an interruption of
its operations. See "Risk Factors -- Extensive Environmental and Land Use Laws
and Regulations -- Potential Liabilities."
The Company is required, from time to time, to provide financial assurance
in connection with contracts or projects with governmental entities and, to a
lesser extent, private sector customers. In addition to bid performance bond
requirements, existing or proposed legislation in various jurisdictions requires
or will require the posting of substantial bonds or the provision of other
financial assurances concerning the closure, post-closure monitoring and
corrective activities of certain waste disposal facilities. To date, the Company
has satisfied these financial responsibility requirements by posting deposits of
cash and/or securities or bank letters of credit. The Company expects that it
will be able to satisfy any additional bonding requirements through a
combination of cash deposits, securities, and bank letters of credit. See "Risk
Factors -- Financial Assurance Obligations." If the Company were unable to
obtain surety bonds or letters of credit in sufficient amounts or at reasonable
rates, it might be precluded from entering into additional municipal collection
contracts or obtaining or retaining landfill operating permits.
ENVIRONMENTAL REGULATION AFFECTING THE COMPANY AND ITS OPERATIONS
The Company is subject to extensive and evolving environmental laws and
regulations. These regulations are administered by the EPA and various other
federal, state and local environmental, zoning, health and safety agencies, many
of which periodically inspect the Company's operations to monitor compliance
with these laws and regulations.
The Company's operation of landfills, transfer stations, recycling centers
and other waste-related facilities subjects it to operational, monitoring, site
maintenance, closure and post-closure obligations which are complex and costly.
Governmental authorities have the power to enforce these obligations and to
obtain injunctions, revoke operating permits, require corrective actions or
impose civil or criminal penalties in case of violations. In addition, almost
all of the Company's operating facilities are required to obtain state, local
and federal permits in order to operate. Particularly in connection with the
Company's existing landfills, it is often necessary to expend considerable time,
effort and money to maintain existing permits and to obtain new permits required
to increase the capacity of these landfills.
The Company's businesses are significantly affected by federal, state, and
local environmental laws and corresponding state laws and related regulations
and enforcement practices. Because the business in which the Company is engaged
is intrinsically connected with the protection of the environment and the
potential discharge of materials into the environment, a material portion of the
Company's expenditures are, directly or indirectly, related to compliance with
environmental laws.
The principal regulations applicable to the Company's operations include the
following:
THE RESOURCE CONSERVATION AND RECOVERY ACT. RCRA is a federal statute that
regulates the generation, treatment, storage, handling, transportation and
disposal of hazardous and non-hazardous wastes and requires states to develop
programs to insure the safe disposal of solid wastes. On October 9, 1991, the
EPA promulgated Solid Waste Disposal Facility Criteria for Landfills under the
Subtitle D Regulations. The Subtitle D Regulations, which were first proposed in
August 1988, became effective in October 1993, and
32
<PAGE>
include location restrictions, facility design standards, operating criteria,
closure and post-closure requirements, financial assurance requirements,
groundwater remediation standards and corrective action requirements. The
Subtitle D Regulations require that new landfill units meet stringent liner
criteria designed to keep leachate out of groundwater and have extensive
collection systems to carry away leachate for treatment prior to disposal.
Groundwater wells must also be installed at virtually all landfills to monitor
groundwater quality and, indirectly, the leachate collection system operation.
The Subtitle D Regulations also require, where threshold test levels are
present, that methane gas generated at landfills be controlled in a manner that
will protect human health and the environment. The Subtitle D Regulations apply
to all solid waste landfill cells that received waste after October 9, 1991,
and, with limited exceptions, all landfills were required to meet these
requirements by October 9, 1993, except that the financial assurance
requirements do not become effective until April 9, 1997, and groundwater
monitoring requirements are phased in over a period ending October 9, 1996.
Landfills that are not in compliance with the Subtitle D Regulations on the
applicable date of implementation must close.
State by state implementation schedules for the Subtitle D Regulations vary.
In some states, various state-level provisions allow landfills which do not
comply with the Subtitle D Regulations to remain operating for a limited period
of time. The failure of a state or other regulatory agency to enforce these
regulations vigorously or consistently may give an advantage to the Company's
competitors to the extent the competing facilities do not comply with Subtitle D
Regulations.
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT OF
1980. CERCLA established a regulatory and remedial program intended to provide
for the investigation and cleanup of facilities from which there has been, or is
threatened, a release of any hazardous substance into the environment. CERCLA's
primary mechanism for remedying such problems is to impose strict joint and
several liability for cleanup of facilities on current owners and operators of
the site, former owners and operators of the site at the time of the disposal of
the hazardous substances, as well as the generators of the hazardous substances
and the transporters who arranged for disposal or transportation of the
hazardous substances. The costs of CERCLA investigation and cleanup can be very
substantial. Liability under CERCLA does not depend upon the existence or
disposal of "hazardous waste" but can also be founded upon the existence of even
very small amounts of the numerous "hazardous substances" listed by the EPA,
many of which can be found in household waste. If the Company were found to be a
responsible party for a CERCLA cleanup, either at one of the Company's owned or
operated facilities, or at a site where waste transported by the Company has
been stored or disposed of, the enforcing agency could hold the Company
completely responsible for all investigative and remedial costs even if others
may also be liable. CERCLA also authorizes the imposition of a lien in favor of
the United States upon all real property subject to or affected by a remedial
action for all costs even if others may also be liable. The Company's ability to
obtain reimbursement from others for their allocable share of such costs would
be limited by the Company's ability to find other responsible parties and prove
the extent of their responsibility and by the financial resources of such other
parties. In the past, legislation has been introduced in Congress to limit the
liability of municipalities and others under CERCLA as generators and
transporters of municipal solid waste. If such legislation were to pass, it
would limit the Company's ability to seek full contribution from municipalities
for CERCLA cleanup costs even if the hazardous substances that were released and
caused the need for cleanup at one of the Company's facilities were generated by
or transported to the facility by a municipality. Other federal legislation
proposing to amend CERCLA may also be considered by Congress this fall. Although
the various proposed bills differ in their approach, they all generally relax
CERCLA's liability scheme for entities that cannot be proven to have actively
contributed to contamination of a property. This legislation could have a
material adverse effect on the Company's business and financial condition.
THE FEDERAL WATER POLLUTION CONTROL ACT (THE "CLEAN WATER ACT"). The Clean
Water Act establishes rules regulating the discharge of pollutants into
groundwater, streams, or other surface waters from a variety of sources,
including solid waste disposal sites. If wastewater from a landfill is to be
discharged, the Clean Water Act requires that the landfill apply for and obtain
discharge permits, conduct sampling and monitoring and, under certain
circumstances, reduce the quantity of pollutants in those discharges. The permit
program has recently been expanded to include storm water discharges from
landfills and other disposal sites that receive,
33
<PAGE>
or in the past received, industrial waste. In addition, if development may alter
or affect "wetlands," a permit may have to be obtained before development may
commence. This requirement is likely to affect the construction or expansion of
many solid waste disposal sites. The Clean Water Act provides civil, criminal
and administrative penalties for violations of its provisions.
Continued funding for implementation of RCRA, CERCLA, and the Clean Water
Act may be acted upon by Congress this year. It is possible that each of these
laws may be changed in ways that may have a material adverse effect on the
Company's business and financial condition.
THE CLEAN AIR ACT. The Clean Air Act provides for regulation, through state
implementation of federal requirements, of the emission of air pollutants from
certain landfills based upon the date of the landfill construction and volume
per year of emissions of regulated pollutants. The EPA has proposed new source
performance standards regulating air emissions of certain regulated pollutants
(methane and non-methane organic compounds) from municipal solid waste
landfills. The EPA may also issue regulations controlling the emissions of
particular regulated air pollutants from municipal solid waste landfills.
Landfills located in areas with air pollution problems may be subject to even
more extensive air pollution controls and emission limitations. In addition, the
EPA has issued standards regulating the disposal of asbestos-containing
materials.
STATE AND LOCAL REGULATION. Each state in which the Company now operates,
or may operate in the future has laws and regulations governing the generation,
storage, treatment, handling, transportation and disposal of solid and hazardous
waste, water and air pollution and, in most cases, the siting, design,
operation, maintenance, closure and post-closure maintenance of landfills and
transfer stations. In addition, many states have adopted "Superfund" statutes
comparable to, and in some cases more stringent than, CERCLA. These statutes
impose requirements for investigation and cleanup of contaminated sites and
liability for costs and damages associated with such sites, and in some cases
provide for the imposition of liens on property owned by responsible parties.
Furthermore, many counties and municipalities also have ordinances, local laws
and regulations affecting Company operations. These include zoning and health
measures that limit solid waste management activities to specified sites or
activities, flow control provisions that direct the delivery of solid wastes to
specific facilities, laws that grant rights to establish franchises for
collection services and then put out for bid the right to provide collection
services, and bans or other restrictions on the movement of solid wastes into a
county or municipality.
In addition, in order to develop, operate and expand solid waste management
facilities, it is generally necessary to obtain and maintain in effect one or
more operating permits as well as zoning, environmental and other land use
permits. These permits and approvals are difficult and time-consuming to obtain
and are frequently subject to opposition by local elected officials or citizens.
Facility operating permits may be subject to revocation, and it may be necessary
to periodically renew the permit. Revocation or renewal of a permit may reopen
opportunities for opposition to the permit. Loss of an operating permit would
require that the affected facility be shut down until the permit is renewed or
reissued, and this could have a material adverse effect on the Company's
business and financial condition.
Certain permits and approvals may limit the types of waste that may be
accepted at a landfill or the quantity of waste that may be accepted at a
landfill during a given time period. In addition, certain permits and approvals,
as well as certain state and local regulations, may limit a landfill to
accepting waste that originates from specified geographic areas or seek to
restrict the import of out-of-state waste or otherwise discriminate against
out-of-state waste. Generally, restrictions on the import of out-of-state waste
have not withstood judicial challenge. However, proposed federal legislation
would give individual states greater authority to restrict the amount of
out-of-state waste that could be imported for disposal and would require states,
under certain circumstances, to reduce the amounts of waste exported to other
states. If this or similar legislation is enacted, states in which the Company
operates landfills could act to limit or prohibit the import of out-of-state
waste. Such state actions could adversely affect the Company's landfills within
those states that receive a significant portion of waste originating from
out-of-state, although Company landfills that have entered into host agreements
with the county or region in which they are located prior to the effective date
of the legislation may be exempted from such controls to some extent.
34
<PAGE>
In addition, certain states and localities may for economic or other reasons
restrict the export of waste from their jurisdiction or require that a specified
amount of waste be disposed of at facilities within their jurisdiction.
Recently, the United States Supreme Court held unconstitutional, and therefore
invalid, a local ordinance that sought to impose flow controls on taking waste
out of the locality. However, certain state and local jurisdictions continue to
seek to enforce these restrictions. In addition, the aforementioned proposed
federal legislation would allow states and localities to impose certain flow
control restrictions. These restrictions could result in the volume of waste
going to landfills being reduced in certain areas, which may adversely affect
the Company's ability to operate its landfills at their full capacity and/or
affect the prices that can be charged for landfill disposal services. These
restrictions may also result in higher disposal costs for the Company's
collection operations. Although some of the Company's operations may have
limited protection from the effects of such legislation through agreements with
their host counties or regions, such legislation could have a material adverse
effect on the Company's business and financial condition.
There has been an increasing trend at the state and local level to mandate
and encourage waste reduction at the source and waste recycling and to prohibit
the disposal of certain types of solid wastes, such as yard wastes, in
landfills. The enactment of regulations reducing the volume and types of wastes
available for transport to and disposal in landfills could affect the Company's
ability to operate its facilities at their full capacity and may have a material
adverse effect on the Company's business and financial condition.
LATIN AMERICAN ENVIRONMENTAL REGULATIONS. The Company's operations in Latin
America are subject to a variety of national and local regulations for
governing, operating and permitting existing and new solid waste collection and
disposal facilities. The Company believes it is likely that governments in Latin
America will increase environmental regulation and enforcement over the next
several years based generally on heightened environmental awareness in these
countries, and encouraged by the North American Free Trade Agreement with
Mexico. The Company is presently not able to determine what effect such
increased regulation may have on its operations in Latin America.
LEGAL AND ADMINISTRATIVE PROCEEDINGS
A local citizens' group has filed objections to issuance of a renewal permit
for the Company's United Refuse landfill near Ft. Wayne, Indiana. The Company
believes the objections are without merit and intends to vigorously defend the
permit. However, if the Company is not successful in such defense, it could
result in revocation or adverse modification of the permit, and this could have
a material adverse effect on the Company's business and financial condition.
The Company is currently involved in certain other routine legal and
administrative proceedings. All such proceedings arose in the ordinary course of
business, and the Company believes that although the outcome of such proceedings
cannot be predicted with certainty, the cost of settlements or judgments arising
from such proceedings will not have a material adverse effect on the Company's
business and financial condition. However, a significant judgment against the
Company or the imposition of a significant fine or penalty in the future could
have a material adverse effect on the Company's business and financial
condition.
In the normal course of its business and as a result of the extensive
governmental regulation of the waste industry, the Company periodically may
become subject to various other judicial and administrative proceedings
involving federal, state or local agencies, or in some cases citizens groups. In
these proceedings, an agency or a citizens group may seek to impose fines on the
Company or to revoke, or to deny renewal of, an operating permit held by the
Company or to deny issuance of a new permit to the Company. Even a temporary
loss of a material operating permit could have a material adverse effect on the
Company's business and financial condition.
EMPLOYEES
The Company has approximately 750 employees, 740 of which are employed
full-time in the United States, Costa Rica and Mexico, of which approximately 30
persons are management. Approximately 215 persons are employed in Costa Rica and
Mexico. A total of 27 employees of the Company are subject to a collective
bargaining agreement. The Company believes its relations with its employees to
be satisfactory.
35
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth information regarding directors and executive
officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------- --- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas A. Volini 49 Chairman of the Board and Chief Operating Officer
Carlos E. Aguero 42 President, Chief Executive Officer and Director
Michael J. Drury 39 Senior Vice President and Chief Financial Officer
Jeffrey E. Levine 46 Senior Vice President and General Counsel
Allen R. Brodbeck 44 Senior Vice President of Landfill Operations
Dallas C.
Schnitzius 58 Vice President of Operations
G. Michael Shannon 57 Vice President of Corporate Development
Timothy J. Salopek 39 Vice President of International Operations
Bret R. Maxwell 36 Director
Donald H. Haider 53 Director
Richard J. Carlson 51 Director
</TABLE>
Each director of the Company serves a term of one year and each officer
serves until his successor is appointed and qualified or his resignation or
removal. References to the "Company" are to Continental Waste Industries, Inc.
after September 9, 1993 and prior to that date, to certain of its direct
predecessors which have been in continuous operation since 1988.
THOMAS A. VOLINI: Chairman of the Board and Chief Operating Officer of the
Company since May 1992. From October 1990 until May 1992, he served as an
officer and director of FLL, Inc. (known as Forest Lawn Landfill), now a
subsidiary of the Company. From 1987 to 1990, he was an officer and director of
Metropolitan Waste Systems, Inc., a solid waste management company. From 1985 to
1987, Mr. Volini served as president of E & E Hauling, Inc. and American
Environmental Construction Company. From 1980 to 1985, he served as vice
president of numerous subsidiaries of Waste Management of North America with
responsibilities ranging from supervising engineering, permitting and regulatory
compliance for company facilities to legislative affairs in seven states. Prior
to 1980, he operated his own construction and real estate development firm. He
has also held various senior planning positions with two city departments and in
the Administrative Office of the Mayor of the City of Chicago. Mr. Volini
received his bachelors degree from the University of Notre Dame and a Juris
Doctor from Loyola University of Chicago.
CARLOS E. AGUERO: President and Chief Executive Officer and a Director of
the Company since its founding in 1988. From 1983 to 1988, he was employed first
as a manager and then as a partner with Gralnick, Strauss, D'Angerio, Certified
Public Accountants, working exclusively in its waste industry services practice.
From 1985 to 1990, concurrent with other responsibilities, he served as
comptroller for the Pennsauken (New Jersey) Solid Waste Management Authority.
From 1977 to 1981, and for a short period in 1983, he worked for Coopers &
Lybrand, leaving the company as audit supervisor. Mr. Aguero received a
bachelors degree in Accounting and International Business from Upsala College
and is a Certified Public Accountant.
MICHAEL J. DRURY: Senior Vice President and Chief Financial Officer of the
Company since its founding in 1988. From 1983 to 1988, Mr. Drury was employed
with Gralnick, Strauss, D'Angerio, including service within its waste industry
services practice. Mr. Drury received a bachelors degree in Accounting from
Seton Hall University.
JEFFREY E. LEVINE: Senior Vice President and General Counsel since January
1995. From 1992 through December 1994, Mr. Levine was primary outside
acquisitions counsel to United Waste Systems, Inc. ("United"), a public waste
management company, for which he had responsibility for negotiating,
coordinating and documenting most of United's mergers and acquisitions. During
this three-year period, he also had responsibilities for environmental law
compliance related to acquisitions, and for contracts and general corporate
matters for United. From 1987 through January 1992, he served as U.S. general
counsel to
36
<PAGE>
Financial Resource International, Ltd. (Hong Kong), a merchant banking company,
where he directed all U.S.-based mergers and acquisitions, corporate finance,
securities and merchant banking matters. Mr. Levine received his bachelors
degree from the State University of New York at Albany and a Juris Doctor from
Buffalo Law School.
ALLEN R. BRODBECK: Senior Vice President of Landfill Operations since
December 1994. From May 1992 through 1994, Mr. Brodbeck was responsible for
landfill construction and operation for all of the Company's landfill sites.
From 1984 until joining Forest Lawn Landfill in 1990 as Site Manager, Mr.
Brodbeck worked with Metropolitan Waste Systems, Inc. and owned a construction
company specializing in earthmoving, hazardous waste site remediation, sanitary
sewer, storm sewer and water line installation. From 1976 to 1984, Mr. Brodbeck
was employed by Walsh Construction Company in a supervisory capacity during the
construction of a nuclear power plant.
DALLAS C. SCHNITZIUS: Vice President of Operations of the Company since
July 1994. Mr. Schnitzius served as the president of GEM from 1991 until its
acquisition by the Company in July 1994. From 1978 to 1991, Mr. Schnitzius was
vice president and chief operating officer of Browning-Ferris Industries, Inc.'s
("BFI") Indianapolis office. In 1963, Mr. Schnitzius formed Mr. Removal, Inc., a
residential and commercial waste collection firm, which later was sold to BFI in
1978. He founded and was president of the Indiana Chapter of the National Solid
Waste Management Association and served on BFI's National Customer Satisfaction
Council and the Indianapolis Air Pollution Control Board for thirteen years. Mr.
Schnitzius' experience in the waste industry totals more than 28 years. He
received a bachelors degree from Indiana University.
G. MICHAEL SHANNON: Vice President of Corporate Development of the Company
since July 1994. Mr. Shannon served as chairman of GEM from November 1989 until
its acquisition by the Company in July 1994. From 1981 until he joined GEM, Mr.
Shannon was president of Resources Unlimited, Inc., a hazardous waste management
company. Previously, he spent three years with Chemical Waste Management, Inc.,
where he had profit and loss responsibility for operating sites in the eastern
half of the United States. Mr. Shannon also spent twelve years with General
Electric Company in various marketing and sales management positions with the
Silicone Products and Insulating Materials divisions. He holds a bachelors
degree in Chemical Engineering from Bucknell University.
TIMOTHY J. SALOPEK: Vice President of International Operations of the
Company since April 1994. From 1989 until he joined the Company in 1994, Mr.
Salopek was principal owner and president of WPP Services, Inc., which offered a
variety of services in the solid waste industry, specializing in landfill
permitting, construction and management. Mr. Salopek has more than eighteen
years of experience in the solid waste industry. He previously worked as
regional landfill manager for Laidlaw Waste Systems, director of field
operations for BFI, general manager for the Ohio/East Coast region for Waste
Management, Inc. and landfill manager for Danis Industries.
BRET R. MAXWELL: Director of the Company since 1990. Mr. Maxwell has been
employed since 1982 by, and is currently a managing director of, First Analysis
Corporation. First Analysis Corporation, the corporate parent of First Analysis
Securities Corporation, one of the representatives of the Underwriters, is an
affiliate of The Productivity Fund Limited Partnership, the Environmental
Venture Fund Limited Partnership and Apex Investment Fund, L.P. See
"Underwriting." Mr. Maxwell received a bachelors degree in Industrial
Engineering and a masters of management from Northwestern University.
DONALD H. HAIDER: Director of the Company since November 1993. Mr. Haider
is currently a Professor of Public Management at the J.L. Kellogg Graduate
School of Management of Northwestern University where he has taught since 1973.
He is the author of numerous books and scholarly articles, a former Deputy
Assistant Secretary of the U.S. Treasury Department, a former budget director
and chief financial officer for the City of Chicago, and a former assistant to
the director of the U.S. Office of Management and Budget. Mr. Haider received a
bachelors degree from Stanford University and a masters degree and a Ph.D. in
Political Science from Columbia University. He is also a member of the board of
directors of LaSalle National Bank, the Company's principal lender.
37
<PAGE>
RICHARD J. CARLSON: Director of the Company since November 1993. Mr.
Carlson has served as president of Carlson Environmental, Inc., an environmental
consulting and engineering firm, since May 1988. From 1981 to 1988, he was
director of the Illinois Environmental Protection Agency. From 1977 to 1981, he
served as assistant to Illinois Governor James R. Thompson for energy,
environmental and other natural resource issues. From 1974 to 1977, he served as
director of research of the Council of State Governments. Mr. Carlson received a
bachelors and masters degree in Communications and a Ph.D. in Public
Administration, all from the University of Illinois.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
of all of the executive officers of the Company, comprised of Messrs. Volini,
Aguero, Drury, Brodbeck and Salopek (the "Named Executive Officers"), earning or
receiving more than $100,000 in compensation, for services in all capacities to
the Company for fiscal years ended December 31, 1994, 1993 and 1992,
respectively:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL SECURITIES
COMPENSATION UNDERLYING
NAME AND CURRENT PRINCIPAL POSITION YEAR SALARY ($) OPTIONS(#)
---------------------------------------------------------------------------- --------- ------------- -------------
<S> <C> <C> <C>
Thomas A. Volini
Chairman of the Board and Chief Operating Officer 1994 $ 204,832(a) 4,604
1993 213,054 160,513
1992 148,308 --
Carlos E. Aguero
President, Chief Executive Officer and Director 1994 230,000 17,264
1993 168,231 --
1992 179,404 --
Michael J. Drury
Senior Vice President and Chief Financial Officer 1994 117,500 12,500
1993 88,788 26,752
1992 92,365 5,350
Allen R. Brodbeck
Senior Vice President of Landfill Operations 1994 101,922 5,000
1993 N/A(b) N/A(b)
1992 N/A(b) N/A(b)
Timothy J. Salopek
Vice President of International Operations 1994 130,321(c) --(c)
1993 N/A(c) N/A(c)
1992 N/A(c) N/A(c)
<FN>
------------------------------
(a) Mr. Volini joined the Company in May 1992.
(b) Mr. Brodbeck became an officer of the Company in December 1994.
(c) Mr. Salopek joined the Company in April 1994.
</TABLE>
38
<PAGE>
OPTION GRANTS
The following table reflects all grants in 1994 of stock options to the
Named Executive Officers. No stock appreciation rights were granted in 1994.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED 1994 ($/SHARE) DATE
----------------------------------------------------------- ------------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
Thomas A. Volini........................................... 4,604 7% $ 3.93(a) 8/1/99
Carlos E. Aguero........................................... 17,264 26% $ 3.93(a) 8/1/99
Michael J. Drury........................................... 10,000 15% $ 7.50(b) 1/31/99
2,500 4% $ 9.00(b) 12/9/99
Allen R. Brodbeck.......................................... 2,000 3% $ 7.50(b) 1/31/99
3,000 4% $ 9.00(b) 12/9/99
Timothy J. Salopek......................................... -- -- -- --
<FN>
------------------------------
(a) The fair market value of a share of Common Stock on the date of grant was
$6.75.
(b) Represents the fair market value of a share of Common Stock on the date of
grant.
</TABLE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information as to the unexercised options to
purchase shares of Common Stock granted in 1994 and prior years to the Named
Executive Officers and the value of options held by each of them at year-end.
None of the Named Executive Officers exercised any options during 1994.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS AT
AT DECEMBER 31, 1994 DECEMBER 31, 1994(A)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Thomas A. Volini.......................................... 161,472 3,645 $ 960,759 $ 21,687
Carlos E. Aguero.......................................... 3,597 13,667 21,400 81,321
Michael J. Drury.......................................... 26,240 18,362 186,436 86,856
Allen R. Brodbeck......................................... 4,178 6,172 28,704 19,570
Timothy J. Salopek........................................ -- -- -- --
<FN>
------------------------------
(a) Based on the fair market value of the Common Stock on December 31, 1994
($9.875).
</TABLE>
DIRECTOR COMPENSATION
The compensation of directors is fixed by the board of directors. The
directors have agreed to a compensation proposal wherein: (i) directors who are
not employees of the Company receive an annual fee of $10,000 which they may
elect to take either in stock options or in cash; (ii) each director will
receive $750 for attending each directors' meeting or committee meeting; and
(iii) non-employee directors annually will receive options to purchase 500
shares of Common Stock at an exercise price equal to the market price on the
date of grant. All directors are reimbursed for travel and other expenses
incurred in the performance of their duties.
39
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of the Named
Executive Officers. These agreements contain generally the same terms, including
provisions for a base salary and a bonus opportunity. Additionally, Mr.
Salopek's employment agreement provides Mr. Salopek with a bonus equal to a 10%
interest in any new projects developed by the Company in Mexico (the "Mexican
Development Bonus"). Any bonuses, with the exception of the Mexican Development
Bonus, are awarded solely at the discretion of the board of directors and are
based on individual and Company performance.
Each of these employment agreements may be terminated by either the Company
or the respective Named Executive Officer at any time. In the event the Named
Executive Officer voluntarily resigns or is terminated for cause, the Company
will have no further liability for compensation under the agreement. In the
event an agreement is terminated by the Company without cause, the terminated
Named Executive Officer will be entitled to receive severance compensation equal
to the respective Named Executive Officer's base salary until the end of his
employment contract.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Until April 1995, the Company leased its collection and hauling business
property located in Union City, Tennessee. This property was leased on a
month-to-month basis at $3,100 per month from Obion Realty, Inc., a corporation
owned 53.5% by Mr. Aguero and 5.5% by Mr. Drury. The Company subsequently
purchased this property for $450,000 in April 1995.
In December 1993, Mr. Aguero loaned $100,000 to the Company. This debt was
evidenced by a promissory note bearing interest at the rate of 7% per annum and
was due on demand. During 1994, the Company paid off $25,000 of this
indebtedness and Mr. Aguero and the Company agreed to convert the remaining
amounts into warrants exercisable for five years to purchase 26,596 shares of
Common Stock at $3.93 per share. These warrants were issued pursuant to
exemptions from registration under the federal securities laws. At the time
these warrants were issued, the most recent private sale of shares of Common
Stock had occurred at $6.75 per share.
On June 30, 1994 and September 2, 1994, Mr. Aguero and Mr. Volini pledged
all of their shares of Common Stock as collateral for term notes aggregating
$2.0 million and $2.8 million and owed by the Company to LNB. These notes were
retired with proceeds drawn from the Credit Facility and the shares were
released from the pledge on March 28, 1995.
Environmental Venture Fund Limited Partnership, Apex Investment Fund, L.P.,
The Productivity Fund Limited Partnership (referred to collectively as the
"Venture Investors"), Mr. Aguero, Mr. Volini (collectively with the Venture
Investors referred to as the "Agreeing Stockholders"), the Company and Mr.
Maxwell entered into an agreement (the "Stockholders' Agreement") dated as of
May 10, 1994. The Stockholders' Agreement grants the Agreeing Stockholders
rights of first refusal to shares of Common Stock offered by other Agreeing
Stockholders, under certain circumstances. In addition, upon the death of either
Messrs. Aguero or Volini, the Company is granted the right to purchase the
shares held by the decedent party's estate or legal representative, based upon
the average closing price as quoted on the Nasdaq National Market for the 15
trading days ending one week prior to the date of repurchase (the "Repurchase
Price"). Further, upon the death of either Messrs. Aguero or Volini, the
decedent party's estate or legal representative has the right to cause the
Company to purchase the decedent party's shares of Common Stock upon the
quotient obtained by dividing proceeds of any life insurance policy on the
decedent by the Repurchase Price. The Company is the beneficiary of certain key
man insurance on the life of Mr. Aguero, the proceeds of which would be used to
fund any repurchase obligations with respect to Common Stock owned by Mr.
Aguero. Finally, the Stockholders' Agreement grants the Venture Investors an
unlimited number of demand registration rights covering all of the shares of
Common Stock owned by the Venture Investors.
Mr. Maxwell is a managing director of First Analysis Corporation, an
affiliate of the Venture Investors and the parent of First Analysis Securities
Corporation, one of the Representatives (as defined herein) of the Underwriters.
The Venture Investors invested $2.4 million in preferred shares in a predecessor
to the
40
<PAGE>
Company. These preferred shares were exchanged for preferred shares of another
predecessor to the Company, which were, in turn, exchanged for 118,950 of the
Company's Series B preferred shares in September 1993. The Company redeemed all
outstanding shares of Series B preferred shares, including payment for all
accrued but unpaid dividends, for approximately $3.1 million in November 1994.
The Venture Investors had previously agreed to the suspension of dividends on
Series A and Series B preferred shares in April 1993. All issuances of
securities set forth in this paragraph were made pursuant to transactions exempt
from registration under the federal securities laws.
In November 1994, the Venture Investors converted the 425,200 Series A
preferred shares held by them on a 1-for-1 basis into shares of Common Stock,
plus warrants to purchase 42,656 shares of Common Stock. Each warrant has a
$9.50 per share exercise price and expires on November 4, 1999.
On July 1, 1994, the Company acquired approximately 60% of the issued and
outstanding capital stock of Victory from Camelford Holdings, Ltd. and Salcott
Holdings, Ltd. Simultaneously with this transaction, the Company entered into an
agreement with Messrs. Schnitzius and Shannon (the "Schnitzius/Shannon
Agreement"). Pursuant to this agreement, Messrs. Schnitzius and Shannon
exchanged all of the shares of common stock of Victory and all of the warrants
to purchase common stock of Victory owned by Messrs. Schnitzius and Shannon for
45,000 and 64,967 shares of Common Stock, respectively. The shares of Common
Stock issued in these transactions were issued in transactions exempt from
registration under the federal securities laws. The Company is also required to
make one-time payments to these individuals in shares of Common Stock contingent
upon Victory earning certain levels of income for the year ending December 31,
1995. Specifically, both Messrs. Schnitzius and Shannon will receive one share
of Common Stock for every $28.13 of net income earned by Victory as constituted
on June 1, 1994, for the year ending December 31, 1995. Additionally, each of
Messrs. Schnitzius and Shannon will receive 52,778 shares of Common Stock if
certain permits are issued to United Refuse, Inc. As part of the purchase price,
Messrs. Schnitzius and Shannon will each receive stock options worth
approximately $2.5 million from the Company over a five year period. The fair
market value of these stock options has been reflected as a component of the
purchase price and is recorded as additional paid-in capital in the Company's
consolidated balance sheet for the year ended December 31, 1994.
The Company has purchased materials totaling approximately $1.0 million from
Mid-America Lining Co. since 1994. Mr. Brodbeck owns 21.3% of the outstanding
equity and Mr. Levine owns 14.9% of the outstanding equity of Mid-America Lining
Co.
The Company purchased certain assets from Mr. Salopek and his spouse in
exchange for 26,600 shares of Common Stock on October 19, 1994. The purchased
assets include all stock of WPP Services, Inc. owned by Mr. Salopek and his
spouse, his interest in the Gila Bend landfill development project, and the
right to assume Mr. Salopek's position in certain other Latin American solid
waste business ventures in various stages of development. The Company also
agreed to reimburse Mr. Salopek for development expenses incurred personally by
Mr. Salopek at the Company's Costa Rican operations. The shares of Common Stock
exchanged for these assets were issued in private transactions exempt from
registration under the federal securities laws.
In August 1995, the Company provided Mr. Salopek with 10.0% of the
outstanding shares of common stock of CWI Mexican Ventures S.A. de C.V., parent
company of Procesa. Pursuant to the terms of Mr. Salopek's employment agreement,
Mr. Salopek is entitled to a Mexican Development Bonus equal to a 10% interest
in any new projects developed by the Company in Mexico. As a result, in August
1995, Mr. Salopek received an effective interest equal to 8% of the outstanding
shares of Procesa, leaving the Company with a 72% interest in Procesa. The
Company effectively acquired 72% of the outstanding shares of Procesa after
providing Mr. Salopek with the bonus described above.
41
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock, including shares of Common Stock which may
be purchased within 60 days of the date of this Prospectus upon the exercise of
outstanding stock options by: (i) each stockholder known by the Company to own
beneficially in excess of 5% of the outstanding shares of Common Stock; (ii)
each director; (iii) each executive officer; (iv) all directors and executive
officers as a group; and (v) each Selling Stockholder. Except as otherwise
indicated in the footnotes to the table, the persons named below have sole
voting and investment power with respect to the shares of Common Stock
beneficially owned by such person.
<TABLE>
<CAPTION>
ADDITIONAL
SHARES TO BE SHARES TO BE
SOLD IN EVENT BENEFICIALLY
SHARES SHARES TO BE OVER-ALLOTMENT OWNED IN EVENT
BENEFICIALLY SHARES BENEFICIALLY OPTION IS OVER-ALLOTMENT
OWNED PRIOR TO BEING OWNED AFTER FULLY OPTION IS FULLY
OFFERING OFFERED OFFERING EXERCISED EXERCISED
----------------- ------- ----------------- -------------- -----------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER NUMBER PERCENT NUMBER NUMBER PERCENT
--------------------------------------------- -------- ------- ------- -------- ------- -------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Environmental Venture Fund Limited
Partnership (a)............................. 493,512 8% 94,660 398,852 5% -- 398,852 5%
Apex Investment Fund, L.P. (a)............... 313,685 5% 59,620 254,065 3% -- 254,065 3%
The Productivity Fund
Limited Partnership (a)..................... 238,028 4% 45,720 192,308 2% -- 192,308 2%
Carlos E. Aguero (b)......................... 764,848 12% -- 764,848 10% -- 764,848 9%
Allen R. Brodbeck (b)........................ 9,883 * -- 9,883 * -- 9,883 *
Richard J. Carlson (b)....................... 15,000 * -- 15,000 * -- 15,000 *
Jerome Case.................................. 1,333 * 733 600 * -- 600 *
Michael Coble................................ 567 * 567 -- * -- -- *
Robert Coble................................. 400 * 400 -- * -- -- *
Robert Coble & Amy Coble (as joint tenants).. 167 * 167 -- * -- -- *
Thomas Coble................................. 5,033 * 5,033 -- * -- -- *
Thomas Coble & Barbara Coble (as joint
tenants).................................... 3,333 * 3,333 -- * -- -- *
Catherine Dassow............................. 400 * 400 -- * -- -- *
Tommy Drewery................................ 148 * 148 -- * -- -- *
Michael J. Drury (b)......................... 76,497 1% -- 76,497 * 10,223 66,274 *
Gregory Gibson............................... 54,778 * 40,862 13,916 * -- 13,916 *
Richard Ginsberg............................. 9,700 * 9,700 -- * -- -- *
Donald H. Haider (c)......................... 15,000 * -- 15,000 * -- 15,000 *
Victoria Halloran............................ 803 * 803 -- * -- -- *
JJB Hilliard WL Lyons, Inc................... 383 * 383 -- * -- -- *
Jeffrey E. Levine (b)........................ 3,750 * -- 3,750 * -- 3,750 *
Bret R. Maxwell (a).......................... 15,000 * -- 15,000 * -- 15,000 *
Roger McDonald............................... 4,000 * 3,000 1,000 * -- 1,000 *
George Plews................................. 14,134 * 7,000 7,134 * -- 7,134 *
Timothy J. Salopek (b)....................... 13,300 * -- 13,300 * -- 13,300 *
Dallas C. Schnitzius (b)..................... 56,913 * -- 56,913 * -- 56,913 *
G. Michael Shannon (b)....................... 76,880 1% -- 76,880 1% -- 76,880 1%
Joel Stone................................... 69,114 1% -- 69,114 * 10,000 59,114 *
Thomas A. Volini (b)......................... 720,686 11% -- 720,686 9% -- 720,686 9%
Directors and executive officers, as a group
(11 persons)................................ 1,767,757 28% -- 1,767,757 22% 10,223 1,757,534 22%
<FN>
------------------------------
(a) The business address of each of Mr. Maxwell, Environmental Venture Fund
Limited Partnership, Apex Investment Fund, L.P. and The Productivity Fund
Limited Partnership is c/o First Analysis Corporation, The Sears Tower,
Suite 9500, 233 South Wacker Drive, Chicago, Illinois 60606.
(b) The business address of each of Messrs. Aguero, Brodbeck, Carlson, Drury
Haider, Levine, Salopek, Schnitzius, Shannon and Volini is 67 Walnut
Avenue, Suite 103, Clark, New Jersey 07066.
(c) The business address of Mr. Haider is J. L. Kellogg Graduate School of
Management, Northwestern University, Evanston, Illinois 60208.
* Less than 1% of the Company's outstanding shares of Common Stock.
</TABLE>
42
<PAGE>
For further information concerning certain Selling Stockholders who are
directors and/or executive officers of the Company, or who have engaged in
certain transactions with the Company, see "Management" and "Certain
Relationships and Related Transactions," respectively.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of: (i) 10,000,000
shares of Common Stock, par value $0.001 per share, 6,396,187 of which shares
were outstanding as of the date of this Prospectus; (ii) 425,200 shares of
preferred stock without designation, par value of $5.64 per share, none of which
were issued and outstanding as of the date of this Prospectus; (iii) 119,000
shares of preferred stock without designation, par value of $20.00 per share,
none of which were issued and outstanding as of the date of this Prospectus; and
(iv) 100,000 Blank Check Preferred Shares, par value $0.001 per share, none of
which were issued and outstanding as of the date of this Prospectus.
COMMON STOCK
Each share of Common Stock is entitled to one vote. There are no preemptive,
subscription, conversion or redemption rights pertaining to the shares of Common
Stock. Stockholders are entitled to receive such dividends as declared by the
board of directors out of assets legally available therefor and to share ratably
in the assets of the Company available upon liquidation.
The Certificate of Incorporation does not provide for cumulative voting.
Therefore, stockholders do not have the right to aggregate their votes for the
election of directors and, accordingly, stockholders holding more than 50% of
the shares of Common Stock outstanding can elect all of the directors.
PREFERRED STOCK
The Company is authorized to issue 425,200 shares of preferred stock without
designation, par value $5.64 per share, and 119,000 shares of preferred stock
without designation, par value $20.00 per share. As of the date of this
Prospectus, there were no shares of preferred stock outstanding.
The certificate of incorporation grants the board of directors the right to
cause the Company to issue, from time to time, all or part of the Blank Check
Preferred Shares remaining undesignated in one or more series, and to fix the
number of Blank Check Preferred Shares and determine or alter for each series,
the voting powers, full, limited, or none, and other designations, preferences,
or relative, participating, optional or other special rights and such
qualifications, limitations, or restrictions thereof. See "Risk Factors --
Potential Issuance of Blank Check Preferred Stock."
TRANSFER AGENT
The Company's transfer agent is LaSalle National Trust, N.A., 135 South
LaSalle Street, Room 360, Chicago, Illinois 60603-4105.
DELAWARE ANTITAKEOVER LAW
The Delaware Antitakeover Law prohibits certain "business combinations"
between a Delaware corporation, whose stock is generally publicly-traded or held
by more than 2,000 stockholders, and an "interested stockholder" of the
corporation for a three-year period following the date that such stockholder
became an interested stockholder, unless: (i) the corporation has elected, in
its certificate of incorporation, not to be governed by the Delaware
Antitakeover Law (the Company has not made such an election); (ii) the business
combination was approved by the board of directors of the corporation before the
other party to the business combination became an interested stockholder; (iii)
upon consummation of the transaction which resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the commencement of the
transaction (excluding voting stock owned by directors who are also officers or
held in employee benefit plans in which the employees do not have a confidential
right to tender or vote stock held by the plan); or (iv) the business
combination was approved by the board of directors of the corporation and
ratified by 66 2/3% of the voting stock which the interested stockholder did not
own. The three-year prohibition also does not apply to certain business
43
<PAGE>
combinations proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation and
a person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the corporation's directors or who became an interested stockholder prior to the
amendment to the corporation's certificate of incorporation to subject the
corporation to the Delaware Antitakeover Law. The term "business combination" is
defined generally to include mergers or consolidations between a Delaware
corporation and an interested stockholder, transactions with an interested
stockholder involving the assets or stock of the corporation or its
majority-owned subsidiaries, and transactions which increase an interested
stockholder's percentage ownership of stock. The term "interested stockholder"
is defined, generally, as those stockholders who become beneficial owners of 15%
or more of a Delaware corporation's voting stock. See "Risk Factors --
Prohibitions Under the Delaware General Corporation Law Restricting Certain
Business Combinations."
These provisions could delay or frustrate the removal of incumbent directors
or a change in control of the Company. These provisions also could discourage,
impede, or prevent a merger, tender offer or proxy contest, even if such an
event would be favorable to the interests of the stockholders.
UNDERWRITING
The Underwriters named below, acting through their representatives, Raymond
James & Associates, Inc., First Analysis Securities Corporation and NatWest
Securities Limited (the "Representatives"), have severally agreed, subject to
the terms and conditions of the underwriting agreement by and among the Company,
the Selling Stockholders and the Underwriters (the "Underwriting Agreement"), to
purchase from the Company and the Selling Stockholders the number of Shares set
forth below opposite each such Underwriter's name, at the public offering price
less the underwriting discounts and commissions set forth on the cover page of
this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
--------------------------------------------------------------------------------------------- -----------
<S> <C>
Raymond James & Associates, Inc..............................................................
First Analysis Securities Corporation........................................................
NatWest Securities Limited...................................................................
-----------
Total......................................................................................
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions and that the Underwriters will purchase the
total number of Shares shown above if any of such Shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the Shares directly to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers, including the Underwriters, at such price less a concession not in
excess of $ per
44
<PAGE>
Share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per Share to certain other dealers. After this Offering,
the public offering price and other selling terms may be changed by the
Representatives.
The Company and Selling Stockholders have granted the Underwriters an
over-allotment option exercisable no later than 30 days after the date of this
Prospectus to purchase up to 245,656 and 20,223 additional shares, respectively,
of Common Stock at the public offering price, less the underwriting discounts
and commissions, set forth on the cover page of this Prospectus. To the extent
that the Underwriters exercise such option, each Underwriter will be committed,
subject to certain conditions, to purchase a number of the additional shares of
Common Stock proportionate to such Underwriter's initial commitment as indicated
in the preceding table, and the Company will be obligated, pursuant to the
option, to sell these additional shares of Common Stock to the Underwriters. The
over-allotment option may be exercised for fewer than all of the shares of
Common Stock subject to such option. The Underwriters may exercise this option
only to cover over-allotments, if any, made in connection with the sale of the
shares of Common Stock offered hereby. If purchased, such additional shares of
Common Stock will be sold by the Underwriters on the same terms as those on
which the Shares are being offered.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against, or to contribute to losses arising out of, certain
liabilities in connection with this Offering, including liabilities under the
Securities Act.
The Company, all directors and officers of the Company and the Selling
Stockholders have agreed not to sell, contract to sell or otherwise dispose of
shares of Common Stock for a period of 120 days from the date of this Prospectus
without the prior written consent of Raymond James & Associates, Inc. subject to
certain limited exceptions.
The Underwriters and certain selling group members that currently act as
market makers for the Common Stock may engage in "passive market making" in the
Common Stock on the Nasdaq National Market in accordance with Rule 10b-6A under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Rule
10b-6A permits, upon the satisfaction of certain conditions, underwriters and
selling group members participating in a distribution that are also Nasdaq
National Market market makers in the security being distributed to engage in
limited market making transactions during the period when Rule 10b-6 under the
Exchange Act would otherwise prohibit such activity. In general, under Rule
10b-6A, any Underwriter or selling group member engaged in passive market making
in the Common Stock: (i) may not effect transactions in, or display bids for,
the Common Stock at a price that exceeds the highest bid for the Common Stock
displayed on the Nasdaq National Market by a market maker that is not
participating in the distribution of the Common Stock; (ii) may not have net
daily purchases of the Common Stock that exceed 30% of its average daily trading
volume in the Common Stock for the two full consecutive calendar months
immediately preceding the filing date of the registration statement of which
this Prospectus forms a part; and (iii) must identify its bids as bids made by a
passive market maker.
The foregoing includes a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement that is on file as an exhibit to the registration
statement of which this Prospectus is a part.
In May 1991 and April 1993, Apex Investment Fund, L.P., The Productivity
Fund Limited Partnership, and Environmental Venture Fund Limited Partnership
purchased shares of preferred stock convertible into an aggregate of 276,447
shares of Common Stock of the Company. First Analysis Corporation is an
affiliate of The Productivity Fund Limited Partnership, Environmental Venture
Fund Limited Partnership, and Apex Investment Fund, L.P. See "Principal
Stockholders." Mr. Maxwell, a director of the Company, is a managing director of
First Analysis Corporation. See "Management." First Analysis Securities
Corporation, one of the Representatives, is a wholly-owned subsidiary of First
Analysis Corporation. As such, First Analysis Securities Corporation may be
considered to be an affiliate of the Company. Accordingly, this Offering is made
in conformity with Schedule E of the By-Laws of National Association of
Securities Dealers, Inc. See "Certain Relationships and Related Transactions"
for a description of transactions between the Company and the Venture Investors.
45
<PAGE>
In connection with its role as lead manager of the Company's November 1994
public offering of Common Stock, Raymond James & Associates, Inc. received a
warrant exercisable for five years to purchase 50,000 shares of Common Stock at
$13.30 per share. This warrant has not been exercised or transferred.
NatWest Securities Limited, a United Kingdom broker-dealer and a member of
the Securities and Futures Authority Limited, as part of the distribution of the
Shares offered hereby and subject to certain exceptions, will not offer or sell
any Shares within the United States, its territories or possessions or to
persons who are citizens thereof or residents therein. The Underwriting
Agreement does not limit sales of shares of Common Stock in this Offering
outside of the United States.
NatWest Securities Limited also: (i) has not offered or sold and will not
offer or sell any Shares to persons in the United Kingdom prior to admission of
the Shares to listing in accordance with Part IV of the Financial Services Act
1986 (the "U.K. Act") except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purpose of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations 1995
or the U.K. Act; (ii) has complied and will comply with all applicable
provisions of the U.K. Act with respect to anything done by it in relation to
the Shares in, from or otherwise involving the United Kingdom; and (iii) has
only issued or passed on, and will only issue or pass on, in the United Kingdom
any document received by it in connection with the issue of the Shares, other
than any document which consists of or any part of listing particulars,
supplementary listing particulars or any other document required or permitted to
be published by listing rules under Part IV of the U.K. Act, to a person who is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1995 or is a person to whom the
document may otherwise lawfully be issued or passed upon.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
LEGAL MATTERS
The validity of the Shares offered by this Prospectus will be passed upon
for the Company by Shefsky Froelich & Devine Ltd., Chicago, Illinois. Certain
legal matters in connection with the interpretation of various environmental
laws and regulations will be passed upon for the Company by Varnum, Riddering,
Schmidt & Howlett, LLP, Grand Rapids, Michigan. Certain legal matters will be
passed upon for the Underwriters by McDermott, Will & Emery, Chicago, Illinois.
EXPERTS
The consolidated financial statements of Continental Waste Industries, Inc.
as of December 31, 1993 and 1994 and for the years ended December 31, 1992, 1993
and 1994 and the combined financial statements of the Terre Haute Operations as
of and for the year ended August 31, 1993, included in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The financial statements of Victory Waste Incorporated as of and for the
year ended December 31, 1993, and for the period March 29, 1985 (Inception) to
December 31, 1993, included in this Prospectus have been audited by Darrell T.
Schvaneveldt, certified public accountant, as indicated in his report with
respect thereto, and are included herein in reliance upon the authority of said
accountant as an expert in giving said report.
The financial statements of G.E.M. Environmental Management, Inc. as of
December 31, 1992 and 1993 and for each of the years in the two-year period
ended December 31, 1993, included in this Prospectus have been included herein
in reliance upon the report of KPMG Peat Marwick LLP, independent auditors,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing.
46
<PAGE>
AVAILABLE INFORMATION
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto with respect to the offer and
sale of Shares which the Company has filed with the Securities and Exchange
Commission (the "Commission"), and which may be obtained from the Commission at
its principal office at Washington, D.C. This material, as well as copies of all
other documents filed with the Commission, may be obtained upon payment of the
fee prescribed by the Commission. The Company is subject to the informational
requirements of the Exchange Act, and in accordance therewith files reports and
other information with the Commission which can be inspected and copied at the
Commission's Washington, D.C. office.
47
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES:
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants................................................................. F-2
Consolidated Balance Sheets as of December 31, 1993 and 1994............................................. F-3
Consolidated Statements of Income for the years ended December 31, 1992, 1993 and 1994................... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1992, 1993 and 1994..... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1992, 1993 and 1994............... F-6
Notes to Consolidated Financial Statements............................................................... F-7
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of June 30, 1995................................................. F-23
Condensed Consolidated Statements of Income for the six months ended June 30, 1994 and 1995.............. F-24
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1994 and 1995.......... F-25
Notes to Condensed Consolidated Financial Statements..................................................... F-26
ACQUIRED BUSINESSES:
VICTORY WASTE INCORPORATED
FINANCIAL STATEMENTS
Independent Auditors' Report........................................................................... F-29
Balance Sheet as of December 31, 1993.................................................................. F-30
Statements of Operations Accumulated from March 29, 1985 (Inception) to December 31, 1993 and for the
nine months ended December 31, 1993................................................................... F-31
Statement of Stockholders' Equity for the nine months ended December 31, 1993.......................... F-32
Statements of Cash Flows Accumulated from March 29, 1985 (Inception) to December 31, 1993 and for the
nine months ended December 31, 1993................................................................... F-33
Notes to Financial Statements.......................................................................... F-34
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of June 30, 1994............................................... F-38
Condensed Consolidated Statements of Operations for the six months ended June 30, 1993 and 1994........ F-39
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1993 and 1994........ F-40
Notes to Condensed Consolidated Financial Statements................................................... F-41
G.E.M. ENVIRONMENTAL MANAGEMENT INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report........................................................................... F-45
Consolidated Balance Sheets as of December 31, 1992 and 1993........................................... F-46
Consolidated Statements of Operations for the years ended December 31, 1992 and 1993................... F-47
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1992 and 1993......... F-48
Consolidated Statements of Cash Flows for the years ended December 31, 1992 and 1993................... F-49
Notes to Consolidated Financial Statements............................................................. F-50
TERRE HAUTE OPERATIONS
COMBINED FINANCIAL STATEMENTS
Report of Independent Public Accountants............................................................... F-56
Combined Balance Sheet as of August 31, 1993........................................................... F-57
Combined Statement of Income for the year ended August 31, 1993........................................ F-58
Combined Statement of Cash Flows for the year ended August 31, 1993.................................... F-59
Notes to Combined Financial Statements................................................................. F-60
UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
Adjusted Combining Balance Sheet as of June 30, 1995..................................................... F-63
Pro Forma Combining Statement of Income for the year ended December 31, 1994............................. F-64
Pro Forma Combining Statement of Income for the six months ended June 30, 1995........................... F-65
Notes to Unaudited Pro Forma Combining Financial Statements.............................................. F-66
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Continental Waste Industries, Inc.:
We have audited the accompanying consolidated balance sheets of CONTINENTAL
WASTE INDUSTRIES, INC. (a Delaware corporation) and SUBSIDIARIES as of December
31, 1993 and 1994, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Continental
Waste Industries, Inc. and Subsidiaries as of December 31, 1992, 1993 and 1994,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 20, 1995 (except with respect
to the matter discussed in Note 6,
as to which the date is March 28, 1995)
F-2
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1994
ASSETS
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................................................... $ 1,062,049 $ 4,677,237
Accounts and notes receivable, net................................................................ 2,643,146 5,295,770
Prepaid expenses.................................................................................. 1,146,121 4,710,810
Deferred income taxes............................................................................. 198,487 523,752
----------- -----------
Total current assets.......................................................................... 5,049,803 15,207,569
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Land, landfill sites and improvements............................................................. 14,373,411 44,708,324
Buildings and improvements........................................................................ 895,454 2,426,922
Vehicles and equipment............................................................................ 9,624,786 19,127,148
Office furniture and equipment.................................................................... 123,147 692,514
----------- -----------
25,016,798 66,954,908
Less -- Accumulated depreciation and amortization................................................. 4,490,662 7,941,916
----------- -----------
Net property and equipment.................................................................... 20,526,136 59,012,992
----------- -----------
OTHER ASSETS:
Excess cost over fair value of net assets acquired, net........................................... 6,144,600 8,010,092
Agreements not to compete, net.................................................................... 1,287,268 1,245,368
Cash held in escrow............................................................................... 478,310 1,121,220
Land purchase option.............................................................................. 1,000,000 1,000,000
Other............................................................................................. 770,588 2,551,247
----------- -----------
Total other assets............................................................................ 9,680,766 13,927,927
----------- -----------
$35,256,705 $88,148,488
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank............................................................................. $ 240,000 $ --
Note payable to stockholder....................................................................... 100,000 --
Current maturities of long-term debt.............................................................. 3,069,225 856,731
Accounts payable.................................................................................. 1,634,111 2,908,686
Income taxes payable.............................................................................. 561,134 1,567,524
Other accrued liabilities......................................................................... 1,656,669 3,338,848
----------- -----------
Total current liabilities..................................................................... 7,261,139 8,671,789
----------- -----------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities........................................................... 11,995,265 24,491,315
Deferred income taxes............................................................................. 2,834,614 7,451,264
Accrued landfill closure costs, less current portion.............................................. 2,384,380 6,647,577
Due to certain stockholders....................................................................... 551,675 --
Dividends payable................................................................................. 208,169 --
Other long-term liabilities....................................................................... 961,068 2,153,625
----------- -----------
Total long-term liabilities................................................................... 18,935,171 40,743,781
----------- -----------
MINORITY INTEREST IN SUBSIDIARIES................................................................... -- 1,569,163
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series A preferred stock, $5.64 par value, convertible, 425,200 shares authorized in 1993, issued
and outstanding 425,200 in 1993.................................................................. 2,398,128 --
Series B preferred stock, $20.00 par value, 119,000 shares authorized in 1993, issued and
outstanding 118,950 in 1993...................................................................... 2,379,000 --
Common stock, $.001 par value, 5,000,000 and 10,000,000 shares authorized in 1993 and 1994,
respectively, issued and outstanding 2,664,915 and 6,201,324 in 1993 and 1994, respectively...... 2,665 6,201
Additional paid-in capital........................................................................ 2,596,217 32,455,361
Retained earnings................................................................................. 1,684,385 4,808,742
Treasury stock (11,070 common shares at cost)..................................................... -- (106,549)
----------- -----------
Total stockholders' equity.................................................................... 9,060,395 37,163,755
----------- -----------
$35,256,705 $88,148,488
----------- -----------
----------- -----------
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of these balance sheets.
F-3
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
1992 1993 1994
------------- ------------- -------------
<S> <C> <C> <C>
REVENUE $ 13,347,517 $ 16,203,848 $ 28,728,298
COSTS AND EXPENSES:
Operating expenses................................................ 9,792,303 11,208,880 17,224,249
General and administrative expenses............................... 1,859,770 2,066,668 4,484,856
------------- ------------- -------------
Income from operations............................................ 1,695,444 2,928,300 7,019,193
------------- ------------- -------------
OTHER INCOME (EXPENSES):
Interest expense.................................................. (890,976) (1,303,110) (1,881,173)
Other, net........................................................ 107,004 48,671 (125,878)
------------- ------------- -------------
Other income (expenses), net.................................... (783,972) (1,254,439) (2,007,051)
------------- ------------- -------------
Income before income taxes and extraordinary gain................. 911,472 1,673,861 5,012,142
PROVISION FOR INCOME TAXES.......................................... (222,037) (721,070) (2,244,505)
------------- ------------- -------------
Income before extraordinary gain.................................. 689,435 952,791 2,767,637
EXTRAORDINARY GAIN, net of $280,280 of income taxes................. -- -- 356,720
------------- ------------- -------------
Net income........................................................ $ 689,435 $ 952,791 $ 3,124,357
------------- ------------- -------------
------------- ------------- -------------
EARNINGS PER SHARE:
Primary:
Income before extraordinary gain................................ $0.16 $0.35 $0.66
Extraordinary gain.............................................. -- -- 0.09
---- ---- ----
Net income...................................................... $0.16 $0.35 $0.75
---- ---- ----
---- ---- ----
Fully diluted:
Income before extraordinary gain................................ $0.16 $0.31 $0.60
Extraordinary gain.............................................. -- -- 0.08
---- ---- ----
Net income...................................................... $0.16 $0.31 $0.68
---- ---- ----
---- ---- ----
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-4
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
SERIES A SERIES B ADDITIONAL
PREFERRED PREFERRED COMMON PAID-IN RETAINED TREASURY
STOCK STOCK STOCK CAPITAL EARNINGS STOCK
----------- ----------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1991.......... $ 2,600,597 $ -- $ 842 $ 318,182 $ 583,241 $ --
Net Income........................ -- -- -- -- 689,435 --
Preferred stock dividends
declared......................... -- -- -- -- (411,092) --
Issuance of preferred stock....... 49,067 2,379,000 -- 38 -- --
Repurchase of preferred stock..... (7,544) -- -- (6) -- --
Issuance of common stock.......... -- -- 1,336 346,381 -- --
----------- ----------- ----------- ------------ ----------- ----------
BALANCE, December 31, 1992.......... 2,642,120 2,379,000 2,178 664,595 861,584 --
Net income........................ -- -- -- -- 952,791 --
Preferred stock dividends
declared......................... -- -- -- -- (129,990) --
Finet Acquisition................. -- -- 267 698,225 -- --
Exchange of common stock for
preferred stock.................. (243,992) -- 43 243,949 -- --
Additional common stock issued in
Finet Acquisition................ -- -- 133 745,447 -- --
Issuance of common stock.......... -- -- 44 244,001 -- --
----------- ----------- ----------- ------------ ----------- ----------
BALANCE, December 31, 1993.......... 2,398,128 2,379,000 2,665 2,596,217 1,684,385 --
Net income........................ -- -- -- -- 3,124,357 --
Issuance of common stock, net of
offering costs................... -- -- 2,184 16,517,493 -- --
Conversion of preferred stock into
common stock..................... (2,398,128) -- 425 2,397,703 -- --
Redemption of preferred stock..... -- (2,379,000) -- -- -- --
Warrants exercised for common
stock............................ -- -- 137 1,233,673 -- --
Victory Waste Acquisition......... -- -- 746 9,230,769 -- --
Issuance of warrants and options
as obligation settlements........ -- -- -- 165,000 -- --
Purchase of treasury stock........ -- -- -- -- -- (106,549)
Common stock issued for acquired
businesses....................... -- -- 44 314,506 -- --
----------- ----------- ----------- ------------ ----------- ----------
BALANCE, December 31, 1994.......... $ -- $ -- $ 6,201 $ 32,455,361 $ 4,808,742 ($ 106,549)
----------- ----------- ----------- ------------ ----------- ----------
----------- ----------- ----------- ------------ ----------- ----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-5
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
1992 1993 1994
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................... $ 689,435 $ 952,791 $ 3,124,357
Adjustments to reconcile net income to net cash provided by
operating activities --
Depreciation and amortization..................................... 1,805,004 2,605,576 3,802,461
Extraordinary gain, net of income taxes........................... -- -- (356,720)
Provision (benefit) for deferred income taxes..................... (207,903) 552,786 845,404
Minority interest in subsidiaries' income (loss).................. (4,145) (27,210) 116,279
Compensatory options, warrants and common shares.................. -- -- 112,836
Changes in operating assets and liabilities, net of effect of
business acquisitions --
Accounts and notes receivable, net.............................. (503,279) (891,621) (1,283,722)
Prepaid expenses................................................ 6,883 (116,310) (289,984)
Other assets.................................................... (526,812) (340,630) (600,058)
Accounts payable................................................ 226,194 656,657 483,638
Income taxes payable............................................ 471,320 68,797 763,390
Accrued landfill closure costs.................................. 188,886 129,586 712,941
Other accrued liabilities....................................... 578,725 12,667 (2,345,820)
------------ ------------ -------------
Net cash provided by operating activities..................... 2,724,308 3,603,089 5,085,002
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................ (4,185,160) (3,485,177) (12,826,591)
Acquisition of landfill development project......................... -- -- (1,514,547)
Cash paid for businesses, net of cash acquired...................... -- (18,087) (475,000)
Cash acquired in businesses purchased with stock.................... 524,502 699,707 323,633
(Increase) decrease in cash held in escrow, net of effect of
business acquisitions.............................................. 165,079 324,410 (483,873)
------------ ------------ -------------
Net cash used in investing activities........................... (3,495,579) (2,479,147) (14,976,378)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under revolving lines of credit........... 400,000 (160,000) (240,000)
Issuance of long-term debt.......................................... 2,513,861 4,030,355 13,496,468
Payments on long-term debt.......................................... (1,787,824) (5,105,108) (14,659,801)
Issuance of preferred stock......................................... 49,105 -- --
Repurchase of preferred stock....................................... (11,973) -- --
Issuance of common stock, net of offering costs..................... 50,100 64,015 16,369,800
Redemption of Series B preferred stock.............................. -- -- (2,379,000)
Preferred stock dividends paid...................................... -- (44,620) (208,164)
Exercise of warrants for common stock............................... -- -- 1,233,810
Purchase of treasury stock.......................................... -- -- (106,549)
------------ ------------ -------------
Net cash provided by (used in) financing activities............. 1,213,269 (1,215,358) 13,506,564
------------ ------------ -------------
Net increase (decrease) in cash and cash equivalents............ 441,998 (91,416) 3,615,188
CASH AND CASH EQUIVALENTS, beginning of year.......................... 711,467 1,153,465 1,062,049
------------ ------------ -------------
CASH AND CASH EQUIVALENTS, end of year................................ $ 1,153,465 $ 1,062,049 $ 4,677,237
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-6
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1992, 1993 AND 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
On September 9, 1993, Continental Waste Industries, Inc. ("Former
Continental") was acquired by (the "Finet Acquisition") Finet, Inc. ("Finet").
Finet was a public corporation which had no operations. The acquisition has been
recorded in accordance with generally accepted accounting principles as a
reverse acquisition under the purchase method. The historical consolidated
financial statements of Former Continental are presented herein. All Former
Continental share and per share information has been adjusted by the conversion
rate at which such shares were converted into Finet shares for presentation
purposes. The consolidated financial statements for the periods ended December
31, 1993 and 1994 include the results of both Continental Waste Industries, Inc.
and Finet in their consolidated form from September 9, 1993. As part of the
acquisition, Finet changed its name to Continental Waste Industries, Inc. (the
"Company"). The Company changed its state of incorporation from New York to
Delaware on February 28, 1994.
The Company's $.001 par value common stock is hereinafter referred to as
Shares.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
CASH EQUIVALENTS
The Company considers those investments which are highly liquid in nature
and have an original maturity of three months or less at the date of purchase to
be cash equivalents.
REVENUE AND RECEIVABLES
The Company owns and operates sanitary landfills, waste collection equipment
and transfer stations. The Company recognizes revenue upon receipt of waste at
the Company's facilities. The Company grants credit to the majority of its
customers on terms which range from fifteen to forty days. Potential loss
amounts associated with the granting of credit are included in management's
estimate of the allowance for doubtful accounts. It is not the policy of the
Company to require collateral from its customers in order to obtain credit.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is computed on a straight-line basis
over the estimated useful lives as follows:
<TABLE>
<CAPTION>
ESTIMATED ASSET
ASSET DESCRIPTION DESCRIPTION
------------------------------------------------------------------- ---------------
<S> <C>
Buildings and improvements......................................... 19 to 32 Yrs.
Vehicles and equipment............................................. 2 to 12 Yrs.
Office furniture and equipment..................................... 5 to 7 Yrs.
</TABLE>
Repairs and maintenance costs are expensed as incurred, while major renewals
and betterments are capitalized. Repair and maintenance costs in 1992, 1993 and
1994 were $521,504, $569,480 and $1,046,946, respectively. Gains or losses on
retirements and disposals of property and equipment are reflected in current
operations.
Landfill sites represent costs to develop individual landfill cells for
usage which are capitalized as incurred and are amortized as the airspace in
each cell is consumed. Fully amortized cells are written off in the period in
which the cell accepts its last receipt of waste. Landfill site improvement
costs include design,
F-7
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
licensing and construction costs necessary to make the cell ready for receipt of
waste. Interest costs are also capitalized while development activities are
undertaken to prepare cells for their intended use. Interest costs capitalized
in 1992, 1993 and 1994 were $127,542, $114,240 and $224,345, respectively.
The Company classifies landfill site improvement costs which are expected to
be amortized over the next twelve months as prepaid expenses. Prepaid landfill
site improvement costs were $835,676 and $3,764,000 as of December 31, 1993 and
1994, respectively.
EXCESS COST OVER THE FAIR VALUE OF NET ASSETS ACQUIRED
The excess cost over the fair value of net assets acquired ("goodwill") is
amortized on a straight-line basis over twenty-five to thirty years. Such costs
are reflected net of accumulated amortization of $514,616 and $831,642 at
December 31, 1993 and 1994, respectively. Amortization expense was $211,890,
$255,428 and $317,026 in 1992, 1993 and 1994, respectively. Should events or
circumstances occur subsequent to the acquisition of a business which bring into
question the realizable value or impairment of the related goodwill, the Company
will evaluate the remaining useful life and balance of goodwill and make
appropriate adjustments. The Company's principal considerations in determining
impairment include the strategic benefit to the Company of the particular
business and the current and expected future operating income levels of that
particular business.
AGREEMENTS NOT TO COMPETE
Agreements not to compete represent the cost of obtaining such agreements
pursuant to various business acquisitions. Such costs are amortized over the
term of the related agreement, typically five to ten years. Some such terms do
not commence until after certain consulting arrangements have terminated. Such
costs are reflected net of amortization of $146,306 and $204,205 at December 31,
1993 and 1994, respectively. Amortization expense in 1992, 1993 and 1994 was
$59,237, $64,674 and $57,899, respectively.
LANDFILL CLOSURE COSTS
It is the policy of the Company to accrue the estimated landfill closure and
post-closure maintenance costs expected to be incurred upon and subsequent to
the closing of existing operating landfill areas ratably in relation to the
airspace consumed. Such costs will principally include costs for the final cap
and cover of the landfill area, management of leachate, groundwater monitoring
and general area maintenance. The Company's estimate of these costs in current
dollars is inflated at a rate of 4% until expected time of payment and then
discounted to present value at 8%. Had the Company not discounted this
liability, the amounts recorded would have been increased by approximately $8.4
million as of December 31, 1994. Total estimated closure and post-closure costs
to be spent after December 31, 1994, inflated as described above, are
approximately $20.1 million of which approximately $1.0 million is expected to
be expended each year over the next five years.
TRANSLATION OF FOREIGN CURRENCY
The Company translates the financial statements of its foreign subsidiary in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 52,
"Foreign Currency Translation." For the year ended December 31, 1994, the
cumulative translation adjustment and translation loss are immaterial to the
consolidated financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In December 1991, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." This
disclosure statement becomes effective for the Company for the year ending
December 31, 1995.
F-8
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
LAND PURCHASE OPTION
The $1,000,000 land purchase option is an option to purchase 200 acres of
land adjacent to the Company's Forest Lawn Landfill in Three Oaks, Michigan.
Forty acres of the 200 acres have already been approved by Berrien County for
landfill use and 110 acres have been similarly approved for composting of waste
and various other related activities. The expiration date of the option is
October 16, 2000. The option must be exercised prior to the expiration date or
the date on which the 40 acres of the 200 acres is licensed by the State of
Michigan to receive solid waste for disposal, whichever occurs first. The
exercise price of this option is $4,250,000 or at the seller's option, a royalty
of 10% of gross revenue from disposal activity on the 200 acres.
RECLASSIFICATIONS
Certain amounts in previously issued financial statements have been
reclassified to conform to 1994 classifications.
NOTE 2 -- BUSINESS COMBINATIONS
In May 1992, the Company acquired 100% of the outstanding stock of FLL, Inc.
("FLL") through the merger of Town & Country Waste, Inc. ("Town and Country", an
affiliate of FLL) into the Company and the concurrent exercise of Town and
Country's option to purchase a 50% interest in FLL. The other 50% interest in
FLL had been owned by a stockholder of Town and Country and was assigned to the
Company concurrent with the Town and Country merger. In consideration for the
100% interest in FLL and the net assets of Town and Country, the Company
financed the approximate $4,250,000 purchase price paid to the former 50% owner
of FLL, including a five-year covenant not to compete with the seller,
commencing on May 15, 1997, issued 1,295,990 shares of common stock and 118,950
shares of Series B preferred stock to the former owners of Town and Country, and
assumed $3,500,000 of debt payable to the old 50% owners of FLL.
Additionally, the Company purchased the real estate which FLL had previously
rented from an affiliate of the former 50% owner of FLL and an option to
purchase additional property from that same related party for $600,000 and
$1,000,000, respectively. The Company also entered into a 10-year consulting
agreement with the former owner of FLL for $200,000 per year. The noncurrent
portion of the consulting agreement, discounted at 8%, has been reflected as a
long-term liability on the consolidated balance sheets. The net assets of Town
and Country included $2,379,000 and $684,948 of debt and accrued interest,
respectively, payable to certain of its stockholders. That debt was effectively
replaced by the 118,950 shares of Series B preferred stock of the Company and
the $684,948 was reflected as due to certain stockholders in the consolidated
balance sheet. Of the balance due, $133,273 was settled in 1993 in connection
with the Finet Acquisition and the remainder was settled in November 1994 in
connection with the Company's public offering.
In January 1993, the Company purchased a landfill disposal business from a
current stockholder and Chairman of the Company's Board of Directors, Thomas A.
Volini, for one Share and the assumption of $214,000 notes payable by Mr. Volini
to the previous business owner.
On September 9, 1993, the Company completed the Finet Acquisition. Finet
issued 2,196,030 Shares in exchange for all of Former Continental's issued and
outstanding common shares, 43,264 Shares in exchange for certain Former
Continental Series A preferred shares and 118,025 Shares and a cash payment of
$44,620 as payment of accrued dividends on Former Continental Series A preferred
shares and indebtedness to certain stockholders. Finet sold 15,000 Shares for
$.001 per share. Finet issued 425,200 Series A preferred shares and 118,950
Series B preferred shares in exchange for certain issued and outstanding Former
Continental Series A and Series B preferred shares.
F-9
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
NOTE 2 -- BUSINESS COMBINATIONS (CONTINUED)
Former Continental common and Series A preferred stock were converted into
Finet common and Series A preferred stock at a 1 for 2.675223 per share
conversion rate. Former Continental Series B preferred stock was converted into
Finet Series B preferred stock on a 1 for 1 basis. All Former Continental share
information has been adjusted by the conversion rates for presentation purposes.
Earnings per share information has been restated for the periods presented to
reflect those conversions.
In July 1994, the Company acquired approximately 60% of the issued and
outstanding capital stock of Victory Waste Incorporated ("Victory") from
Camelford Holdings, Ltd. ("Camelford") and Salcott Holdings, Ltd. ("Salcott")
through a Stock Purchase Agreement (the "Camelford/Salcott Agreement"). The
Camelford/Salcott Agreement involved the exchange of a total of 13,121,994
common shares of Victory, as well as warrants for the purchase of an additional
6,000,000 common shares of Victory at an exercise price of $0.50 (U.S.) per
share, exercisable at any time up to January 30, 1999, in exchange for a total
of 388,888 Shares. The Camelford/Salcott Agreement further involved a
contingency payment of Shares up to a value of $1 million, with such payment
contingent upon the quantity of the disposal capacity which may be permitted in
the future to United Refuse, Inc., the owner and operator of a Ft. Wayne,
Indiana landfill and a wholly-owned subsidiary of G.E.M. Environmental
Management Inc. ("GEM"), a Canadian company, which is in turn a subsidiary of
Victory. This contingency was settled, prior to obtaining the permit, on
December 31, 1994 by an agreement between the parties for the Company to issue
an aggregate of 61,112 Shares to Camelford and Salcott on July 4, 1995. As the
only remaining contingency related to the issuance of these 61,112 Shares is the
passage of time, the accompanying consolidated financial statements reflect such
shares as outstanding.
Simultaneously with the Camelford/Salcott transaction, the Company entered
into an Agreement for Exchange of Stock with Dallas C. Schnitzius ("Schnitzius")
and G. Michael Shannon ("Shannon") on July 1, 1994 (hereinafter the
"Schnitzius/Shannon Agreement"). Prior to July 1, 1994, Schnitzius and Shannon
were directors and officers of GEM and of Victory along with Gregory Morey.
Prior to the closing of the Schnitzius/Shannon Agreement, Gregory Morey resigned
as a director and officer of GEM and Victory, leaving Schnitzius and Shannon as
the sole remaining officers and directors of GEM and Victory. On July 1, 1994,
Michael J. Drury, Carlos E. Aguero, and Thomas A. Volini, the Senior Vice
President and Chief Financial Officer; Director, President and Chief Executive
Officer; and Chairman of the Board and Chief Operating Officer of the Company,
respectively, were appointed to the Boards of GEM and Victory along with
Schnitzius and Shannon.
The Schnitzius/Shannon Agreement involved the exchange of 1,099,998 common
shares of Victory owned by Schnitzius as well as warrants for the purchase of
610,000 common shares of Victory at an exercise price of $0.56 (Canadian) per
share with an expiration date of June 3, 1998, and warrants for the purchase of
1,500,000 common shares of Victory at an exercise price of $0.25 (U.S.) with an
expiration date of January 27, 1999 for 45,000 Shares. Shannon exchanged
1,699,006 common shares of Victory as well as warrants for the purchase of
400,000 common shares of Victory at an exercise price of $0.56 (Canadian) with
an expiration date of June 3, 1998 and warrants for the purchase of 1,500,000
common shares of Victory at an exercise price of $0.25 (U.S.) with an expiration
date of January 27, 1999 for 64,967 Shares.
The shares owned by Schnitzius constituted approximately 5% of the issued
and outstanding stock of Victory and the shares owned by Shannon constituted
approximately 8% of the issued and outstanding stock of Victory.
Simultaneous with the consummation of the Schnitzius/Shannon Agreement,
Schnitzius and Shannon entered into Employment Agreements with a termination
date of June 30, 1999. Included within these Employment Agreements are
provisions for future payments in Shares with such payments contingent upon the
net income of Victory for the year ending December 31, 1995. Specifically, both
Schnitzius and Shannon
F-10
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
NOTE 2 -- BUSINESS COMBINATIONS (CONTINUED)
will receive one Share for every $28.13 of Victory's net income for the year
ending December 31, 1995. Additionally, each of Schnitzius and Shannon will
receive 52,778 Shares if certain permits are issued to United Refuse, Inc. As
further consideration for the sale of Schnitzius' and Shannon's shares and
warrants, these Employment Agreements provide for the annual issuance to
Schnitzius and Shannon of stock options. The fair market value of these stock
options of approximately $2,520,000 has been reflected as a component of the
purchase price and is recorded as additional paid-in capital in the December 31,
1994 consolidated balance sheet.
In addition, Schnitzius and Shannon entered into a separate Representation
and Warranty Agreement wherein they represented and warranted the accuracy of
certain facts and financial information in connection with Victory and its
subsidiaries which was relied upon by the Company in entering into both the
Camelford/Salcott Agreement and the Schnitzius/Shannon Agreement.
The combined shares of Salcott, Camelford, Schnitzius and Shannon conveyed
to the Company constituted a total of approximately 73% of the issued and
outstanding stock of Victory.
In the second half of 1994, the Company purchased an additional 4,949,191
common shares and 2,366,667 outstanding options for common shares of Victory by
exchanging 162,707 Shares. As of December 31, 1994, the Company owned 95.6% of
Victory.
In the second half of 1994, the Company accepted 3.0 million preferred
shares and 6.5 million common shares of GEM as payment on a demand note due to
the Company from GEM. Other second half 1994 transactions included purchasing
691,463 GEM common shares for 23,049 Shares. As of December 31, 1994, the
Company effectively owned 81.1% of GEM.
It is the Company's intention to acquire the remaining capital stock of
Victory and GEM that it does not presently own.
In August 1994, for $700,000, the Company purchased the only privately-owned
non-hazardous waste landfill operation in Costa Rica, which serves Alajuela and
Heredia, the second and fourth largest cities in that nation of three million
persons. The definitive agreements provide for the assumption of the residential
and commercial collection contracts of the aforementioned cities. The Company is
required to pay half of the purchase price during the first year following
closing with the remainder payable over a seven year period in equal quarterly
payments bearing no interest.
The following summarizes the pro forma operating results in 1993 and 1994 as
if Victory had been acquired as of the beginning of the applicable year (and as
if Victory acquired GEM and GEM acquired several businesses as of January 1,
1993), and the pro forma operating results as if FLL had been acquired as of
January 1, 1992 (unaudited):
<TABLE>
<CAPTION>
1992 1993 1994
------------- ------------- -------------
<S> <C> <C> <C>
Pro forma revenue................................................... $ 15,655,510 $ 28,913,757 $ 34,939,846
------------- ------------- -------------
------------- ------------- -------------
Pro forma income before extraordinary gain.......................... $ 1,086,237 $ 577,890 $ 2,847,362
------------- ------------- -------------
------------- ------------- -------------
Pro forma net income................................................ $ 1,086,237 $ 577,890 $ 3,204,082
------------- ------------- -------------
------------- ------------- -------------
Pro forma primary earnings per share after extraordinary gain....... $0.27 $0.13 $0.68
---- ---- ----
---- ---- ----
Pro forma fully diluted earnings per share after extraordinary
gain............................................................... $0.27 $0.13 $0.62
---- ---- ----
---- ---- ----
</TABLE>
F-11
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
NOTE 2 -- BUSINESS COMBINATIONS (CONTINUED)
The pro forma operating results include each acquiree's pre-acquisition
results of operations for the indicated years with adjustments to reflect
amortization of goodwill, additional depreciation on the increases to the fair
market value of fixed assets, interest expense on the acquisition borrowings and
the effect of income taxes thereon. The pro forma information given above does
not purport to be indicative of the results that actually would have been
obtained if the operations were combined during the periods presented and is not
intended to be a projection of future results or trends.
Excluding the acquisitions described above, the Company also acquired in
1992, 1993 and 1994 the common stock, net assets (consisting primarily of
hauling equipment) or customer routes of 14 small, independent hauling
operations for an aggregate of $2.0 million in cash and notes and 69,465 Shares.
The effect on consolidated operating results and financial condition from these
acquisitions was not material.
All of the above acquisitions were accounted for as purchases and,
accordingly, the purchase price, in some cases based on the estimated market
value of the Shares issued as consideration, was allocated to the related assets
acquired and liabilities assumed based upon their estimated fair values at the
date of acquisition. Those estimated fair values have been adjusted as of
December 31, 1994. Any future adjustments, if any, will be made prior to the one
year anniversary of the related acquisition and are not expected to be material.
Operating results of acquired businesses have been included in the consolidated
financial statements from the date of acquisition.
NOTE 3 -- ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following table reflects the activity of the allowance for doubtful
accounts for the years ended December 31, 1992, 1993 and 1994:
<TABLE>
<CAPTION>
CHARGED TO
BALANCE COSTS AND
BEGINNING EXPENSE BALANCE
OF YEAR ACCOUNTS DEDUCTIONS END OF YEAR
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1992......................... $ 89,000 $ 119,000 $ (131,000) $ 77,000
Year ended December 31, 1993......................... $ 77,000 $ 50,000 $ (25,000) $ 102,000
Year ended December 31, 1994......................... $ 102,000 $ 368,000 $ (110,000) $ 360,000
</TABLE>
NOTE 4 -- EARNINGS PER SHARE
Earnings per share information for all years presented herein reflect the
conversions described in Note 2 related to the Finet Acquisition.
Primary earnings per share for the years ended December 31, 1992 and 1993
are based upon the weighted average number of common and common equivalent
shares outstanding during such years and income available to common
stockholders. Common equivalent shares result from dilutive stock options and
warrants. Primary weighted average common and common equivalent shares were
1,677,046 and 2,370,051 for the years ended December 31, 1992 and 1993,
respectively. Income available to common stockholders excludes dividends
declared on the Company's preferred stock. No such dividends were declared in
1994.
Fully diluted earnings per share are similarly computed but include, if
dilutive, the effect of the Company's convertible Series A preferred stock.
Fully dilutive weighted average common and common equivalent shares were
2,843,562 for the year ended December 31, 1993. The Series A preferred stock was
antidilutive in 1992 and converted into Shares in November 1994.
F-12
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
NOTE 4 -- EARNINGS PER SHARE (CONTINUED)
Earnings per share for the year ended December 31, 1994 was based on the
following:
<TABLE>
<CAPTION>
FULLY
PRIMARY DILUTED
------------ ------------
<S> <C> <C>
Weighted average common and common equivalent shares:
Shares outstanding........................................................ 3,765,291 3,765,291
Dilutive stock options, warrants and convertible Series A
preferred stock.......................................................... 318,551 718,563
Contingent shares and options related to the
Victory Waste acquisition................................................ 74,017 127,228
------------ ------------
4,157,859 4,611,082
------------ ------------
------------ ------------
Income available to common stockholders:
Income before extraordinary gain.......................................... $ 2,767,637 $2,767,637
Amortization of incremental goodwill upon issuance
of additional contingent shares.......................................... (17,000) (17,000)
------------ ------------
2,750,637 2,750,637
Extraordinary gain, net of income taxes..................................... 356,720 356,720
------------ ------------
$ 3,107,357 $3,107,357
------------ ------------
------------ ------------
</TABLE>
NOTE 5 -- ACCRUED LIABILITIES
Current accrued liabilities as of December 31, 1993 and 1994, consisted of
the following:
<TABLE>
<CAPTION>
1993 1994
------------ ------------
<S> <C> <C>
Accrued local landfill taxes................................................ $ 518,283 $ 904,143
Unearned revenue............................................................ 503,490 766,423
Other accrued liabilities................................................... 634,896 1,668,282
------------ ------------
$ 1,656,669 $ 3,338,848
------------ ------------
------------ ------------
</TABLE>
Unearned revenue primarily represents quarterly or monthly billings in
advance of service.
NOTE 6 -- DEBT
The note payable to bank as of December 31, 1993 of $240,000 was a line of
credit agreement with LaSalle National Bank ("LNB"). This note was retired in
1994 and the credit agreement expired.
The note payable to stockholder at December 31, 1993 was retired during 1994
by payment of cash and warrants.
F-13
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
NOTE 6 -- DEBT (CONTINUED)
Long-term debt, including capital lease obligations which are not material,
at December 31, 1993 and 1994 consisted of the following:
<TABLE>
<CAPTION>
1993 1994
------------- -------------
<S> <C> <C>
Notes payable to LNB, interest at prime (8.5% at December 31, 1994) plus
1.0% and principal payable quarterly through March 1998, secured by
certain land and building, vehicles and equipment and all outstanding
stock of FLL, Barker Brothers Waste, Inc. and Northwest Tennessee
Disposal Corp., all wholly-owned subsidiaries........................... $ 5,193,750 $ 8,843,750
Note payable to LNB, interest at prime plus 1.0%, currently an $800,000
line of credit which expires on June 30, 1995 and then converts to a
term loan with interest and principal payable in equal quarterly
payments from September 30, 1995 to December 31, 1997 secured by certain
land and all outstanding stock of Barker Brothers Waste, Inc. and
Northwest Tennessee Disposal Corp....................................... 800,000 --
Notes payable to banks and finance companies, interest from 4.8% to 13.0%
and principal payable monthly through October 2005, secured by certain
land and buildings, vehicles, equipment, and accounts receivable........ 3,639,162 9,107,310
Notes payable to individuals and companies, interest from 0% to 15% and
principal payable monthly, quarterly, semi-annually and annually through
October 2004, secured by certain land, vehicles, and equipment.......... 5,431,578 7,396,986
------------- -------------
15,064,490 25,348,046
Less current maturities.................................................. 3,069,225 856,731
------------- -------------
$ 11,995,265 $ 24,491,315
------------- -------------
------------- -------------
</TABLE>
In July 1994, the Company entered into a $2,000,000 term note with LNB which
bears interest at prime plus 1.0%. The Company then lent these and other funds
to its newly-acquired subsidiary, GEM, to retire a GEM note due on July 1, 1994.
Effective July 2, 1994, GEM issued 3,000,000 preferred shares and 6,500,000
common shares as payment for $2,375,000 of a $2,400,000 loan to the Company.
On September 2, 1994, the Company entered into a $2.8 million term note with
LNB which bears interest at prime plus 1.0%. The proceeds from this borrowing
were used to retire $3.5 million of notes and accrued interest due to certain
individuals at a discount. This early retirement of debt resulted in an
extraordinary gain, net of related expenses and income taxes of $356,720.
Related to this transaction, the Company also issued warrants to purchase 20,000
shares of common stock currently at a price of $9.00 per share to the note
holders. The warrants expire in 1997.
Pursuant to the acquisition of Victory, the Company assumed $11.3 million of
notes payable primarily to banks and finance companies with interest of 4.8% to
15.0%, maturing through 1999 and secured by certain assets of Victory.
F-14
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
NOTE 6 -- DEBT (CONTINUED)
On March 28, 1995, the Company entered into a $45 million revolving credit
facility agreement (the "Revolver") with LNB expiring in March 1998. Each
borrowing under the Revolver bears interest based on the Company's leverage
ratio, as defined, of Total Liabilities (less the Revolver) to Tangible Net
Worth. If the leverage ratio is less than 1.25 to 1, then the interest rate is
prime. If the leverage ratio range falls between 1.25 to 1.75 compared to 1,
then the interest rate is prime plus 1/2%. If the leverage ratio is greater than
1.75 to 1, then the interest rate is prime plus 1.0%. Based on December 31, 1994
results, the interest rate would have been the prime rate. Alternatively, at the
Company's selection, borrowings will bear interest at an adjusted LIBOR rate
plus (depending again on the Company's leverage ratio) 2.0%, 2.5% or 3.0%. The
Revolver includes provisions for letters of credit up to $5.0 million. The
Company also has a 1/2% fee on the average unused portion of the Revolver and up
to 2.0% on average outstanding letters of credit. The Revolver is secured by all
corporate assets and a pledge of the stock of all subsidiaries. Pursuant to a
post-closing deliveries agreement between the Company and LNB, the Company may
not borrow in excess of $35 million of the credit facility until the Company has
provided LNB with certain documents consisting principally of certain stock
certificates, Uniform Commercial Code termination statements and site surveys.
Under the terms of the Revolver, the Company is required to meet certain
covenants regarding, among other things, financial position and results of
operations. Based on the Company's December 31, 1994 financial position and
results of operations, the Company would have been in compliance with such
covenants. The terms of the Revolver impose restrictions that affect, among
other things, the Company's ability to (I) incur additional indebtedness, (II)
create liens on assets, (III) sell assets, (IV) engage in mergers, acquisitions
or consolidations, (V) make investments, (VI) pay dividends or make
distributions and (VII) engage in certain transactions with affiliates and
subsidiaries.
The Revolver also contains subjective covenants providing that the Company
would be in default if, in the judgment of the lenders, there is a material
adverse change in the financial condition of the Company. Management is not
aware of, nor does it anticipate, any facts, events or occurrences which could
reasonably be expected to have a material adverse effect on the operations of
the Company that would cause the lenders to demand repayment of the amounts
borrowed under the Revolver prior to its termination.
The Company immediately refinanced or intends to refinance approximately
$23.1 million of its debt obligations as of December 31, 1994 prior to their
scheduled maturities with proceeds from the Revolver. Accordingly, such
obligations are classified as long-term obligations in the accompanying
consolidated balance sheet. The primary obligations which have been or shortly
will be refinanced include all of the notes payable to LNB, notes payable to
banks and finance companies of approximately $7.8 million and notes payable to
individuals and companies of approximately $6.5 million. No prepayment penalties
will be incurred in the early retirement of debt pursuant to the refinancing.
Immediately after the refinancing, the Company had approximately $20.0 million
of unused and available capacity under the Revolver subject to compliance of the
post-closing deliveries agreement.
F-15
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
NOTE 6 -- DEBT (CONTINUED)
Principal payments on long-term debt, based on scheduled maturities after
the refinancing described above, are due as follows during the years ending
December 31:
<TABLE>
<S> <C>
1995.............................................................................................................. $ 856,731
1996.............................................................................................................. 599,369
1994.............................................................................................................. 427,794
1998.............................................................................................................. 23,361,821
1999.............................................................................................................. 72,266
After 2000............................................................................................................. 30,065
-----------
$25,348,046
-----------
-----------
</TABLE>
NOTE 7 -- COMMON STOCK
In June 1993, Former Continental issued 7,793 shares of common stock with an
aggregate value of $6,236 in settlement of outstanding liabilities and sold
10,556 shares of common stock to current stockholders for $64,000. In March
1992, Former Continental issued 25,990 shares of common stock in conjunction
with its acquisition of Commercial Waste, Inc. Additionally, Former Continental
issued 14,208 shares to current stockholders for $5.64 per share in 1992. In May
1992, Former Continental issued 1,295,990 shares of common stock in conjunction
with its acquisition of Town and Country and FLL.
On October 12, 1993, as a result of the Finet Acquisition, the Company
authorized 120,000,000 shares of common stock in its new name, par value of
$.001 per share, each of which is entitled to one vote. On October 27, 1993, the
Company decreased the number of authorized Shares from 120,000,000 to 5,000,000.
Of the 5,000,000 newly authorized Shares, 2,638,986 Shares were issued as
replacement for previously outstanding Finet common shares, including the
2,372,319 Shares issued to Former Continental stockholders in the Finet
Acquisition. Subsequent to the Finet Acquisition in 1993, an additional 25,930
Shares with an aggregate value of $173,810 were issued as settlement of
outstanding liabilities. In November 1994, the Company increased the number of
authorized Shares from 5,000,000 to 10,000,000.
In November 1994, the Company completed a public offering of 1,533,616
Shares (1,400,000 Shares were sold by the Company and 133,616 Shares were sold
by certain stockholders of the Company). The Company received approximately
$11.6 million of net proceeds from the sale of which approximately $3.1 million
was used to redeem all of the outstanding Series B preferred shares and pay
related accrued interest and dividends. The remaining $8.5 million was and will
be used for general corporate purposes, which may include working capital,
capital expenditures (primarily for the expansion of existing landfills) and
future acquisitions.
Concurrent with the public offering, in order to eliminate the accrual of
any further dividends on the Series A preferred stock, the Series A preferred
stockholders agreed to and have converted the 425,200 Series A preferred shares
into 425,200 Shares. The Company, in consideration of the conversion, issued
warrants to purchase 42,656 Shares at an exercise price of $9.50 to the holders
of the Series A preferred shares. The warrants expire in 1999.
Had the public offering, the redemption of the Series B preferred shares and
payment of related accrued interest and dividends and the conversion of the
Series A preferred stock and related issuance of warrants occurred on January 1,
1994, earnings per share after the extraordinary gain in 1994 would have been
$0.63. Only the portion of the public offering (363,224 Shares) which was
necessary to fund the redemption and related payment was considered for purposes
of this pro forma earnings per share disclosure.
F-16
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
NOTE 7 -- COMMON STOCK (CONTINUED)
During 1994, the Company issued 784,922 Shares in private placements or in
settlement of certain compensation, debt or service fee obligations. The
aggregate value of such issuances was $4,919,946. The Company also issued 43,475
Shares as consideration paid in two business acquisitions with an aggregate
value of $314,550.
See Note 2 for a description of the Victory Waste acquisition and the
resulting 745,723 Shares issued or issuable at an aggregate value of $6,711,515.
During the fourth quarter of 1994, 137,090 Shares were issued upon the
exercise of certain warrants for $1,233,810. An additional 13,635 Shares were
issued in early 1995 upon a similar exercise for $122,715.
NOTE 8 -- PREFERRED STOCK
During 1992, 8,700 shares of Series A preferred stock were issued, primarily
to current principal stockholders. All other shares of Series A preferred stock
issued in 1992 were issued at a price of $5.64 per share. Additionally, 1,338
shares of Series A preferred stock were retired by the Company in 1992 for $8.95
per share representing the redemption value of $5.64 plus earned but unpaid
dividends through the date of repurchase.
In May 1992, the Company issued 118,950 shares of Series B preferred stock
in conjunction with its acquisition of Town and Country and FLL.
On October 27, 1993, as a result of the Finet Acquisition, the Company
authorized 644,200 new shares of preferred stock of which 425,200 of such shares
were designated as Series A preferred stock with a par value of $5.64 per share,
119,000 of such shares were designated as Series B preferred stock with a par
value of $20.00 per share, and 100,000 of such shares were designated as
additional preferred stock with a par value of $.001 per share. The 425,200
shares of Series A preferred stock and 118,950 shares of Series B preferred
stock were issued in replacement of the then outstanding shares of Former
Continental Series A and Series B preferred stock, respectively. By agreement of
the holders of the preferred stock, dividends on such stock had been suspended
after April 1, 1993. None of the 100,000 shares of additional preferred stock
has been issued as of December 31, 1994.
In November 1994, all of the Series A preferred stock was converted into
Shares and all of the Series B preferred stock, including related accrued
interest and dividends, were retired with a portion of the proceeds from the
public offering described in Note 7.
NOTE 9 -- STOCK OPTIONS AND WARRANTS
INCENTIVE STOCK OPTIONS
The Board of Directors has adopted a policy of issuing annual stock options
to selected employees. The issuance and amount of such stock option grants are
reviewed annually by the Board of Directors and such grants are solely in its
discretion. Options are granted at an exercise price equal to the then
prevailing market value as determined by the Board of Directors. The options
vest in equal percentages over a three year period commencing on the date of the
grant and expire five years from such date. The Board of Directors has not
established a maximum number of shares available for issuance upon the exercise
of incentive stock options.
Options to purchase up to 20,600 Shares at a price of $1.86 per share were
granted in January 1992. On January 1, 1993, options to purchase up to 58,852
Shares at a price of $2.24 per share were granted by the Company. In January and
December 1994, options to purchase up to 27,650 and 17,750 Shares, respectively,
at a price of $7.50 and $9.00 per share, respectively, were granted to certain
employees by the Company. In 1992, 1993 and 1994, options to purchase 1,782,
1,781 and 4,053 Shares, respectively, were cancelled upon
F-17
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
NOTE 9 -- STOCK OPTIONS AND WARRANTS (CONTINUED)
termination of the employment of the option holders. No options have been
exercised as of December 31, 1994. Vested options at December 31, 1992, 1993,
and 1994 allowed for the purchase of up to 7,400, 32,887 and 64,056 Shares,
respectively.
DIRECTOR STOCK OPTIONS
In each of 1992 and 1993, the Board of Directors of the Company approved the
granting of stock options to a certain director which allowed for the purchase
of up to 1,338 Shares at a price of $5.64. The options were fully vested upon
issuance and expire five years from the date of grant. The director has resigned
from his position on the Board of Directors of the Company without forfeiting
his options. As of December 31, 1994, none of the options were exercised or
cancelled.
In January 1993, the Board of Directors of the Company approved the granting
of stock options to another director which allowed for the purchase of up to
160,513 Shares at a price of $3.93 per share. These options were fully vested
upon issuance and expire ten years from the date of grant. No such options have
been exercised or cancelled.
The Company authorized in November 1993 the issuance of stock options to
three nonemployee directors, for each director to purchase 10,000 Shares at an
exercise price equal to 70% of the market value of the Shares on the date of
grant. Those options were granted in May 1994 retroactive to November 1993 with
a $4.47 option price per share. The options were issued as payment of directors'
fees and, accordingly, the Company recorded $57,150 of expense. On each annual
anniversary date in November, these directors will receive additional stock
options to purchase 5,000 Shares at an exercise price equal to market value on
the date of grant so long as such individuals remain directors on such date.
Accordingly, in November 1994, the Company issued stock options to purchase
15,000 Shares at an exercise price of $10.25. Directors stock options were fully
vested upon issuance and expire five years from the date of grant. No such
options have been exercised or cancelled.
WARRANTS
In connection with the Finet initial public offering, Finet sold detachable
redeemable warrants to purchase up to 200,000 Shares. A majority of those
warrants were exercised in the fourth quarter of 1994 or the first quarter of
1995. See Note 7 for further description. Remaining warrants have expired.
Also in connection with the Finet initial public offering, Finet sold to its
underwriter, for $20.00, warrants to purchase from Finet an aggregate of 20,000
Shares. These warrants are exercisable at a price of $6.00 per share for a
four-year period which commenced in October 1992. As of December 31, 1994, no
such warrants have been exercised or cancelled.
In January 1994, the Company issued warrants to purchase 20,000 Shares at an
exercise price of $9.00 per share. See Note 6 for further description. No such
warrants have been exercised or cancelled.
In November 1994, the Company issued warrants to purchase 42,656 Shares at
an exercise price of $9.50 per share. See Note 7 for further description. No
such warrants have been exercised or cancelled.
In November 1994, the Company issued warrants to its primary underwriter in
connection with the public offering described in Note 7. The warrants allow for
the purchase of 50,000 Shares at an exercise price of $13.30 per share and
expire in 1999. No such warrants have been exercised or cancelled.
During 1994, the Company issued warrants by certain officers as
consideration for compensatory services, as settlement of outstanding debt and
as payment for certain equipment purchases. The warrants
F-18
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
NOTE 9 -- STOCK OPTIONS AND WARRANTS (CONTINUED)
allow for the purchase of an aggregate of 55,556 Shares at an exercise price of
$3.93 per share and expire in 1999. Compensation expense of $12,850 was recorded
pursuant to the issuance of these warrants. No such warrants have been exercised
or cancelled.
NOTE 10 -- LANDFILL DEVELOPMENT PROJECT
In March 1994, the Company purchased 100% of the issued and outstanding
stock of Gila Bend Regional Landfill Co., Inc., a landfill development company
located in Gila Bend, Arizona. The development project includes, among other
things: (I) various geological studies; (II) work done on the permitting
process; (III) negotiations for options to purchase approximately 1,200 acres of
land to construct a solid waste landfill; and (IV) a Host Community Agreement
with the City of Gila Bend, Arizona. The Host Community Agreement will become
effective upon completion of the City of Gila Bend's annexation of the 1,200
acres. During the annexation process, the Host Community Agreement will be
amended to reflect the Company as the owner/operator of the site. City officials
and the Company are currently working together to finalize the annexation of the
1,200 acres though there can be no assurance that this event will take place.
The Company paid $300,000 at closing and issued a $1.1 million note due in March
1995 to the seller with interest payable at the prime rate. Upon final
permitting of the landfill project, the Company has a put option for a period of
180 days, which would require a publicly-traded national solid waste company to
purchase the landfill project for the sum of $5.0 million plus reimbursement for
land purchase and site construction estimated at $3.5 million. If the Company
does not execute its put option and sells the landfill project to a third party,
the Company must pay a 20% fee to the national solid waste company on all
proceeds, net of the cost of land acquisition and site construction, in excess
of $5.0 million. There can be no assurance that the Company will receive
permitting to exercise the put option or otherwise sell this project.
NOTE 11 -- INCOME TAXES
In 1992, the Company changed its method of accounting for income taxes by
adopting SFAS No. 109, "Accounting for Income Taxes", effective as of January 1,
1992. The Company records a provision for income taxes using the "liability"
method of accounting for income taxes. Deferred taxes are recorded for all
temporary differences between financial and tax reporting. Deferred tax expense
(benefit) results from the net changes during the year of the deferred tax
assets and liabilities. The effect of adopting this new accounting policy was
not material and, therefore, did not require restatement of prior financial
statements or a cumulative catch-up adjustment.
The Company, except for its two-thirds owned subsidiary, Prichard Landfill
Corporation ("Prichard"), reports taxes on a consolidated basis for federal tax
purposes and by legal entity for state income tax purposes. Income taxes are
provided at statutory rates based on income reported for financial statement
purposes. A summary of income tax expense is shown below:
<TABLE>
<CAPTION>
1992 1993 1994
----------- ---------- ------------
<S> <C> <C> <C>
Taxes currently payable:
Federal........................................................ $ 349,230 $ 125,884 $ 1,137,696
State.......................................................... 80,710 42,400 261,405
Prepaid and deferred taxes....................................... (207,903) 552,786 845,404
----------- ---------- ------------
$ 222,037 $ 721,070 $ 2,244,505
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
F-19
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
NOTE 11 -- INCOME TAXES (CONTINUED)
The table below reconciles the differences between the statutory federal
income tax rate and the Company's effective income tax rate:
<TABLE>
<CAPTION>
1992 1993 1994
----------- ---------- ------------
<S> <C> <C> <C>
Statutory federal income tax..................................... $ 308,491 $ 559,861 $ 1,743,663
State income taxes, net of the federal income tax benefit........ 67,542 76,865 317,354
Non-deductible amortization...................................... 72,043 73,619 90,331
Change in valuation allowance.................................... (225,063) 47,165 (25,020)
Others, net...................................................... (976) (36,440) 118,177
----------- ---------- ------------
Reported provision for income taxes.............................. $ 222,037 $ 721,070 $ 2,244,505
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
The deferred tax assets and liabilities result from the differences in the
timing of the recognition of certain income and expense items for financial and
tax accounting purposes. The sources of these differences and the related tax
effects were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1994
------------------------- ----------------------------
BENEFITS OBLIGATIONS BENEFITS OBLIGATIONS
---------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Property basis differences.................... $ -- $ (3,351,789) $ -- $ (10,736,103)
Reserves for landfill site closure costs...... 324,045 -- 1,976,134 --
Credit carryforwards.......................... 39,221 -- 175,543 --
Non-deductible bonus accruals................. -- -- 1,117,865 --
Other non-deductible accruals................. 305,010 -- 524,509 --
Other, net.................................... 47,386 -- 14,539 --
---------- ------------- ------------ --------------
Total....................................... $ 715,662 $ (3,351,789) $ 3,808,590 $ (10,736,103)
---------- ------------- ------------ --------------
---------- ------------- ------------ --------------
</TABLE>
In the consolidated balance sheets, these deferred benefits and deferred
obligations are classified as deferred income tax assets or deferred income tax
liabilities, based on the classification of the related asset or liability for
financial reporting. A deferred tax liability or asset that is not related to an
asset or liability for financial reporting, including deferred tax assets
related to carryforwards, are classified according to the expected reversal date
of the temporary difference. Credit carryforwards primarily consist of net
operating losses subject to various limitations under the current tax laws.
Credit carryforwards as of December 31, 1994 expire, if unused, in 2008.
A valuation allowance of $124,307 and $99,287 as of December 31, 1993 and
1994, has been recorded to offset credit carryforwards in 1994 and the entire
net deferred tax assets related to Prichard in 1993. As of December 31, 1994, no
other valuation allowances are deemed necessary as management expects to be able
to benefit from all other recognizable future tax deductions.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
The Company is sometimes required to post bid and/or performance bonds in
connection with contracts or projects with government entities and, to a lesser
extent, private sector customers. In addition to bid and performance bond
requirements, existing legislation in various jurisdictions requires or will
require the posting of substantial bonds or the provision of other financial
assurances covering the closure, post-closure monitoring and corrective
activities of certain waste disposal facilities. In this respect, the Company
has various performance bonds and letters of credit outstanding as of December
31, 1994, aggregating to $1,937,635. These instruments are not reflected in the
accompanying consolidated financial statements.
The Company also maintains five separate escrow funds to accumulate money
necessary to pay for estimated future closure and post-closure costs. These
funds are reflected as long-term assets on the
F-20
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1992, 1993 AND 1994
NOTE 12 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
accompanying consolidated balance sheets. In some cases, a regulatory agency
controls the escrow account and will release withdrawals to the Company upon
written evidence of permitted closure or post-closure or of expenditures paid in
such an effort.
The State of Michigan also collects a tax from the Company which is based on
the volume of waste disposed at FLL. The Company collects the tax from its
customers and deposits these funds into a State of Michigan perpetual care fund
which the state maintains to pay for or reimburse participating companies for
closure, post-closure and response activity costs. The funds paid by FLL are
earmarked specifically for use at its site. While the Company anticipates that
this state fund will ultimately be available to fund its closure and
post-closure needs, that availability is not guaranteed by the State of
Michigan. Accordingly, the Company does not record its payments into the fund as
an asset of the Company.
The Company is involved in various legal proceedings and litigation arising
in the ordinary course of business. In the opinion of the Company's management
and legal counsel, the outcome of such proceedings and litigation will not
materially affect the Company's financial position or results of operations.
Consistent with industry trends, the Company has not been able to obtain, at
a reasonable premium, significant environmental impairment liability insurance
which covers sudden or gradual environmental damage. Accordingly, if the Company
were to incur liability for environmental damage, its financial condition could
be materially adversely affected.
Rental expense amounted to $99,787, $168,325 and $503,005 in 1992, 1993, and
1994, respectively. Future minimum payments under noncancellable leases are less
than $250,000 annually. The Company leases a facility from Obion Realty, Inc. on
a month-to-month basis. Obion Realty, Inc. is 53.5% owned by Carlos E. Aguero,
President of the Company, and 5.5% by Michael Drury, Chief Financial Officer for
the Company.
F-21
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993 AND 1994
NOTE 13 -- SUPPLEMENTAL CASH FLOWS AND NON-CASH TRANSACTIONS DISCLOSURE
<TABLE>
<CAPTION>
1992 1993 1994
------------- ------------ -------------
<S> <C> <C> <C>
Cash paid during year for:
Interest, net of interest capitalized.............................. $ 476,614 $ 1,308,792 $ 1,969,891
Income taxes....................................................... 101,581 46,206 441,105
------------- ------------ -------------
------------- ------------ -------------
Business acqusitions (excluding Finet):
Preferred stock issued............................................. $ 2,379,000 $ -- $ --
Shares issued...................................................... 297,617 -- 6,476,049
Issuable common stock and options.................................. -- -- 3,070,008
Notes and other payables issued to sellers......................... -- 290,091 1,222,500
Receivables forgiven............................................... -- -- 100,000
Cash paid.......................................................... -- 81,846 475,000
------------- ------------ -------------
Total consideration paid............................................. 2,676,617 371,937 11,343,557
Assets received...................................................... 19,420,401 1,108,784 36,178,649
------------- ------------ -------------
Liabilities assumed.................................................. $ 16,743,784 $ 736,847 $ 24,835,092
------------- ------------ -------------
------------- ------------ -------------
Conversion of Series A preferred stock into Shares................... $ -- $ -- $ 2,398,128
------------- ------------ -------------
------------- ------------ -------------
Shares and warrants issued in settlement of certain obligations...... $ -- $ 180,048 $ 314,885
------------- ------------ -------------
------------- ------------ -------------
Property received in settlement of accounts receivable............... $ -- $ 716,000 $ --
------------- ------------ -------------
------------- ------------ -------------
Finet Acquisition:
Cash acquired...................................................... $ -- $ 856,212 $ --
Shares issued in replacement of preferred stock.................... -- 243,992 --
Shares issued in settlement of amounts due to certain
stockholders...................................................... -- 750,000 --
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
F-22
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1995
--------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents....................................................................... $ 3,794,547
Accounts and notes receivable -- net............................................................ 6,705,032
Other current assets............................................................................ 5,238,574
--------------
Total current assets........................................................................ 15,738,153
LANDFILLS, PROPERTY AND EQUIPMENT -- net.......................................................... 67,421,726
EXCESS COST OVER THE FAIR VALUE OF NET ASSETS ACQUIRED -- net..................................... 9,980,425
OTHER ASSETS...................................................................................... 7,971,204
--------------
$ 101,111,508
--------------
--------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt............................................................ $ 786,393
Accounts payable.............................................................................. 2,492,830
Other accrued liabilities..................................................................... 5,385,387
--------------
Total current liabilities................................................................... 8,664,610
LONG-TERM DEBT, less current maturities........................................................... 34,901,571
ACCRUED LANDFILL CLOSURE COSTS, less current portion.............................................. 6,856,722
OTHER LONG-TERM LIABILITIES....................................................................... 10,466,725
STOCKHOLDERS' EQUITY:
Common stock, $.001, authorized shares 10,000,000, issued and outstanding 6,269,596............. 6,318
Additional paid-in capital...................................................................... 33,541,021
Retained earnings............................................................................... 7,146,640
Treasury stock (47,625 common shares)........................................................... (472,099)
--------------
Total stockholders' equity.................................................................. 40,221,880
--------------
$ 101,111,508
--------------
--------------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of this balance sheet.
F-23
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1994 1995
------------ -------------
<S> <C> <C>
REVENUE.............................................................................. $ 9,761,828 $ 20,478,298
COSTS AND EXPENSES:
Operating expenses................................................................. 4,752,822 9,376,272
General and administrative expenses................................................ 1,387,829 2,983,937
Depreciation and amortization...................................................... 1,497,549 2,758,981
------------ -------------
Income from operations............................................................. 2,123,628 5,359,108
------------ -------------
OTHER INCOME (EXPENSES):
Interest expense, net.............................................................. (599,926) (1,212,582)
Other, net......................................................................... (25,306) (85,658)
------------ -------------
Other income (expenses), net..................................................... (625,232) (1,298,240)
------------ -------------
Income before income taxes......................................................... 1,498,396 4,060,868
PROVISION FOR INCOME TAXES........................................................... (659,294) (1,722,970)
------------ -------------
Net income......................................................................... $ 839,102 $ 2,237,898
------------ -------------
------------ -------------
EARNINGS PER SHARE:
Primary............................................................................ $0.27 $0.34
---- ----
---- ----
Fully diluted...................................................................... $0.24 $0.33
---- ----
---- ----
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
F-24
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1994 1995
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $ 839,102 $ 2,337,898
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................... 1,497,549 2,758,981
Compensatory warrants............................................................ -- 15,420
Changes in operating assets and liabilities, net of effect of acquired
businesses:
Accounts and notes receivables, net............................................ (802,521) (1,284,921)
Other current assets........................................................... (160,320) (537,661)
Accounts payable............................................................... (182,845) (543,353)
Other current liabilities...................................................... 498,889 (204,615)
Other long-term liabilities.................................................... 138,510 860,826
Other long-term assets......................................................... (424,697) (486,004)
------------- --------------
Net cash provided by operating activities.................................... 1,403,667 2,916,571
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................. (4,518,388) (10,104,903)
Acquisition of landfill development project...................................... (1,498,248) --
Cash paid for businesses, net of cash acquired................................... -- (1,065,755)
Cash paid for common and preferred stock of minority interest.................... -- (669,824)
Increases in cash held in escrow, net of effect of acquired businesses........... (6,437) (937,571)
------------- --------------
Net cash used in investing activities........................................ (6,023,073) (12,778,053)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit lines...................................... (240,000) --
Issuance of long-term debt....................................................... 4,993,857 32,713,054
Payments on long-term debt....................................................... (2,194,308) (23,176,035)
Deferred financing costs paid.................................................... -- (716,871)
Exercise of warrants for common stock............................................ -- 218,715
Issuance of common stock......................................................... 2,476,250 305,479
Purchase of treasury stock....................................................... -- (365,550)
------------- --------------
Net cash provided by financing activities.................................... 5,035,799 8,978,792
------------- --------------
Net increase (decrease) in cash and cash equivalents......................... 416,393 (882,690)
CASH AND CASH EQUIVALENTS, beginning of year....................................... 1,062,049 4,677,237
------------- --------------
CASH AND CASH EQUIVALENTS, end of period........................................... $ 1,478,442 $ 3,794,547
------------- --------------
------------- --------------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
F-25
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994 AND 1995
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation (consisting of normal recurring
accruals) have been included. Operating results for the six months ended June
30, 1995 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1995. For further information, refer to the
financial statements and footnotes thereto included in Continental Waste
Industries, Inc. ("the Company's") Form 10-KSB for the year ended December 31,
1994.
Certain amounts in previously issued financial statements have been
reclassified to conform to 1995 classifications. The Company's $.001 par value
common stock is hereinafter referred to as Shares.
NOTE 2 -- BUSINESS COMBINATIONS AND EQUITY OFFERING:
During the second half of 1994, the Company purchased a majority interest in
Victory Waste Incorporated ("Victory") and G.E.M. Environmental Management, Inc.
("GEM") which is a subsidiary of Victory. As of June 30, 1995, the Company owns
100% of Victory and 100% of GEM with a final distribution to minority
shareholders of $816,302 pending at June 30, 1995. The balance of the GEM shares
were acquired pursuant to a cash-out merger. The balance of the Victory shares
were acquired as a result of a cash-out reverse stock split. As of June 30,
1995, the Company had issued 777,030 Shares, paid $3,395,000 in cash and
payables and agreed to grant stock options to purchase Shares worth $2,520,000.
Approximately 191,270 Shares are contingently issuable as additional
consideration for these acquisitions.
During the second quarter of 1995, the Company purchased two hauling and
collection companies for a total of approximately $1.4 million.
In November 1994, the Company completed a public offering of 1,533,616
Shares (1,400,000 Shares were sold by the Company and 133,616 Shares were sold
by certain stockholders of the Company). The Company received approximately
$11.6 million of net proceeds from the sale of which approximately $3.1 million
was used to redeem all of the outstanding Series B preferred shares and pay
related accrued interest and dividends. The remaining $8.5 million was used for
general corporate purposes, which included working capital, capital expenditures
(primarily for the expansion of existing landfills) and acquisitions.
Concurrent with the public offering, in order to eliminate the accrual of
any further dividends on the Series A preferred stock, the Series A preferred
stockholders agreed to and have converted the 425,200 Series A preferred shares
into 425,200 Shares. The Company, in consideration of the conversion, issued
warrants to purchase 42,656 Shares at an exercise price of $9.50 to the holders
of the Series A preferred shares. The warrants expire in 1999.
Subsequent to June 30, 1995, the Company purchased three hauling and
collection companies and a recycling center in Indiana and Missouri for a total
of approximately $5.0 million. The Company effectively purchased a 72% interest
in a company in Mexico engaged in engineering and consulting, landfill
management and hauling and collection for a total of approximately $1.4 million.
F-26
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1994 AND 1995
(UNAUDITED)
NOTE 3 -- EARNINGS PER SHARE:
Primary earnings per share for the six months ended June 30, 1994, are based
upon the weighted average number of common and common equivalent shares
outstanding during that period, and net income. Common equivalent shares result
from dilutive stock options and warrants. Primary weighted average shares were
3,101,000 for the six months ended June 30, 1994.
Fully diluted earnings per share are similarly computed but include, if
dilutive, the effect of the Company's convertible Series A preferred stock which
was outstanding during the six months ended June 30, 1994. Fully dilutive
weighted average shares were 3,526,000 for the six months ended June 30, 1994.
Earnings per share for the six months ended June 30, 1995 was based on the
following:
<TABLE>
<CAPTION>
FULLY
PRIMARY DILUTED
------------ ------------
<S> <C> <C>
Weighted average common and common equivalent shares:
Shares outstanding........................................................ 6,232,668 6,232,668
Dilutive stock options and warrants....................................... 468,299 476,628
Contingent shares and options related to the
Victory Waste acquisition................................................ 146,826 251,986
------------ ------------
6,847,793 6,961,282
------------ ------------
------------ ------------
Income available to common stockholders:
Net income................................................................ $ 2,337,898 $2,337,898
Amortization of incremental goodwill upon issuance
of additional contingent shares.......................................... (19,133) (19,133)
------------ ------------
$ 2,318,765 $2,318,765
------------ ------------
------------ ------------
</TABLE>
NOTE 4 -- SUPPLEMENTAL CASH FLOWS DISCLOSURE:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
------------------------
1994 1995
---------- ------------
<S> <C> <C>
Cash paid during the period for:
Interest, net of interest capitalized..................................... $ 576,981 $ 1,416,311
---------- ------------
---------- ------------
Income taxes.............................................................. $ 405,645 $ 1,233,011
---------- ------------
---------- ------------
Common stock issued in settlement of certain liabilities.................... $ 93,297 $ --
---------- ------------
---------- ------------
Business acquisitions:
Common stock issued....................................................... $ -- $ 96,688
Notes issued to sellers................................................... -- 244,284
Cash paid................................................................. -- 1,065,755
---------- ------------
Total consideration paid................................................ -- 1,406,727
Assets received......................................................... -- 2,276,513
---------- ------------
Liabilities assumed..................................................... $ -- $ 869,786
---------- ------------
---------- ------------
</TABLE>
F-27
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1994 AND 1995
(UNAUDITED)
NOTE 5 -- OTHER INFORMATION:
Selected balance sheet account disclosures follow:
<TABLE>
<CAPTION>
JUNE 30, 1995
-------------
<S> <C>
Allowance for doubtful accounts.......................................................... $ 322,415
-------------
-------------
Accumulated depreciation and amortization of landfills, property and equipment........... $ 10,331,557
-------------
-------------
Accumulated amortization of excess cost over the fair value of net assets acquired....... $ 1,051,883
-------------
-------------
</TABLE>
NOTE 6 -- DEBT:
On March 28, 1995, the Company entered into a new $45.0 million credit
facility (the "Credit Facility") with LaSalle National Bank ("LNB") which
expires in March 1998. The Credit Facility has been subsequently syndicated to
the Bank of America and the First Bank of Boston. Each borrowing under the
Credit Facility bears interest based on the Company's leverage ratio, as
defined, of total liabilities (not including draws on the Credit Facility) to
tangible net worth. If the leverage ratio is less than than 1.25 to 1, then the
interest rate is prime. If the leverage ratio range falls between 1.25 to 1.75
compared to 1, then the interest rate is prime plus 0.5%. If the leverage ratio
is greater than 1.75 to 1, then the interest rate is prime plus 1.0%.
Alternatively, at the Company's election, borrowings may bear interest at an
adjusted LIBOR rate plus (depending again on the Company's leverage ratio) 2.0%,
2.5% or 3.0%. The Credit Facility includes provisions for letters of credit up
to $5.0 million, however, such letters of credit reduce the amount available for
other borrowings under the Credit Facility. The Company is required to pay a fee
equal to 0.5% fee on the average unused portion of the Credit Facility and up to
2.0% on average outstanding letters of credit. The Credit Facility is secured by
all corporate assets and a pledge of the stock of all subsidiaries. At June 30,
1995, $32.5 million was outstanding under the Credit Facility and bore interest
at a weighted average interest rate of 9.2% per annum.
Under the terms of the Credit Facility, the Company is required to comply
with certain covenants. As of June 30, 1995, the Company had made capital
expenditures in excess of the amount permitted under the Credit Facility. LNB
has waived compliance with this covenant through June 30, 1995 and has
subsequently amended the Credit Agreement to permit expenditures at the level
contemplated by the Company in 1995.
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Victory Waste Incorporated
(Formerly Ventura Associates, Inc.)
(A Development Stage Co.)
I have audited the accompanying balance sheet of Victory Waste Incorporated,
(formerly Ventura Associates, Inc.,) (a development state company), as of
December 31, 1993, and the related statements of operations, stockholders'
equity and cash flows for the period April 1, 1993 to December 31, 1993 and the
related statements of operations and cash flows for the period March 29, 1985
(Inception) to December 31, 1993. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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 the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Victory Waste Incorporated
(formerly Ventura Associates, Inc.), (a development stage company), as of
December 31, 1993, and the results of its operations and its cash flows for the
period April 1, 1993 to December 31, 1993, and the period March 29, 1985
(Inception) to December 31, 1993 in conformity with generally accepted
accounting principles.
DARRELL T. SCHVANEVELDT
Salt Lake City, Utah
May 3, 1994
F-29
<PAGE>
VICTORY WASTE INCORPORATED
(FORMERLY VENTURA ASSOCIATES, INC.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1993
<TABLE>
<S> <C>
ASSETS
Current Assets
Cash........................................................................... $ 90,000
---------
Total Current Assets......................................................... 90,000
Fixed Assets
Computer....................................................................... 3,476
Other Assets
Gold Recovery Equipment........................................................ 100
Supplies Inventory............................................................. 100
---------
Total Other Assets........................................................... 200
---------
Total Assets................................................................. $ 93,676
---------
---------
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accrued Liabilities............................................................ $ 45,433
---------
Total Liabilities............................................................ 45,433
Stockholders' Equity
Preferred Stock
3,000,000 shares authorized, $1.00 par value; 179,745 shares issued and
outstanding respectively.................................................... 179,745
Common Stock
350,000,000 shares authorized, $0.001 par value; 1,992,493 shares issued and
outstanding retroactively restated.......................................... 1,993
Capital in Excess of Par Value................................................. 342,588
Accumulated Deficit.......................................................... (476,083)
---------
Total Stockholders' Equity................................................... 48,243
---------
Total Liabilities and Stockholders' Equity................................... $ 93,676
---------
---------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-30
<PAGE>
VICTORY WASTE INCORPORATED
(FORMERLY VENTURA ASSOCIATES, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
ACCUMULATED MARCH 29, 1985 (INCEPTION)
TO DECEMBER 31, 1993 AND
APRIL 1, 1993 TO DECEMBER 31, 1993
<TABLE>
<CAPTION>
ACCUMULATED FROM
INCEPTION MARCH
29, 1985 TO APRIL 1, 1993 TO
DECEMBER 31, 1993 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
Revenues
Interest Income............................................................ $ 5,390 $ --
Forgiveness of Debt...................................................... 11,392 --
----------------- -----------------
Total Revenues......................................................... 16,782 --
Expenses
General & Administration Expenses........................................ 167,095 51,233
Depreciation............................................................. 16,171 5,610
Write-down of Assets..................................................... 99,599 99,599
----------------- -----------------
Total Expenses......................................................... 282,865 156,442
----------------- -----------------
Net Loss From Operations............................................... (266,083) (156,442)
Loss on Partnership...................................................... (210,000) --
----------------- -----------------
Net Loss............................................................... $ (476,083) $ (156,442)
----------------- -----------------
----------------- -----------------
Loss Per Share......................................................... $ (0.15)
Weighted Average Shares Outstanding Retroactively Restated............... 1,037,343
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
VICTORY WASTE INCORPORATED
(FORMERLY VENTURA ASSOCIATES, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
APRIL 1, 1993 TO DECEMBER 31, 1993
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK CAPITAL IN
----------------------- ------------------------ EXCESS PAR ACCUMULATED
SHARES AMOUNT SHARES AMOUNT VALUE DEFICIT
------------ --------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance April 1, 1993................ 1,037,343 $ 1,037 319,745 $ 319,745 $ 231,494 $ (319,641)
Shares issued to acquire property and
technology at $.001 per share....... 940,893 941 -- -- 7,527 --
Shares issued for consulting fees at
$.001 per share..................... 88,888 89 -- -- 711 --
Shares returned in recision of asset
acquisition......................... (940,893) (941) (125,000) (125,000) (7,527) --
Shares returned to corporation for
cancellation........................ (900,199) (900) -- -- 900 --
Shares issued to non-U.S.A. persons
for cash at $.005 per share......... 1,641,461 1,642 -- -- 88,358 --
Shares returned to corporation for
cancellation........................ -- -- (15,000) (15,000) 15,000 --
Shares issued for professional
services at $.05 per share.......... 125,000 125 -- -- 6,125 --
Net loss for nine month period ended
December 31, 1993................... -- -- -- -- -- (156,442)
------------ --------- ----------- ----------- ----------- ------------
Balance, December 31, 1993........... 1,992,493 $ 1,993 179,745 $ 179,745 $ 342,588 $ (476,083)
------------ --------- ----------- ----------- ----------- ------------
------------ --------- ----------- ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-32
<PAGE>
VICTORY WASTE INCORPORATED
(FORMERLY VENTURA ASSOCIATES, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
ACCUMULATED MARCH 29, 1985 (INCEPTION)
TO DECEMBER 31, 1993
AND APRIL 1, 1993 TO DECEMBER 31, 1993
<TABLE>
<CAPTION>
ACCUMULATED FROM
MARCH 29, 1985 TO APRIL 1, 1993 TO
DECEMBER 31, 1993 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
Cash Flows From Operating Activities
Net Loss................................................................. $ (476,083) $ (156,442)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating
Activities:
Depreciation........................................................... 16,171 5,610
Noncash Expenses....................................................... 112,149 106,649
Changes in Operating Assets and Liabilities:
Increase in Accrued Liabilities........................................ 45,433 44,183
----------------- -----------------
Net Cash Used in Operating Activities.................................. (302,330) --
Cash Flows From Investing Activities
Purchase of Fixed Assets................................................. (4,701) --
----------------- -----------------
Cash Used by Investing Activities.......................................... (4,701) --
Cash Flows From Financing Activities
Sale of Preferred Shares................................................. 80,000 --
Sale of Common Shares.................................................... 314,864 90,000
Contributed Capital...................................................... 2,167 --
----------------- -----------------
Net Cash Provided by Financing Activities................................ 397,031 90,000
----------------- -----------------
Increase in Cash....................................................... 90,000 90,000
Cash at Beginning of Period............................................ -- --
----------------- -----------------
Cash at End of Year.................................................... $ 90,000 $ 90,000
----------------- -----------------
----------------- -----------------
Other Disclosures:
Interest................................................................. $ -- $ --
Taxes.................................................................... -- --
Noncash Transactions:
2,685,259 Common Shares Issued to Acquire Partnership Interest........... 53,705 --
319,745 Preferred Shares to Acquire Equipment and Supplies............... 319,745 --
5,500,000 Common Shares for Services Rendered by Officers................ 5,500 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
VICTORY WASTE INCORPORATED
(FORMERLY VENTURA ASSOCIATES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- CORPORATE HISTORY AND SIGNIFICANT ACCOUNTING POLICY
(A) Victory Waste Incorporated, (formerly Ventura Associates, Inc.,) the
"Company", was incorporated on March 29, 1985, in the state of California. The
Company's Articles of Incorporation grants power to engage in any lawful act or
activity for which a corporation may be organized under the general corporation
law of California other than the banking business, the trust company business,
or the practice of a profession permitted to be incorporated by the California
Corporation Code. The Company has not commenced planned operations and is
considered to be in its development stage.
(B) Significant Accounting Policies
(1) Depreciation on assets is recorded using the straight-line method
and a 5 year life.
(2) The Company uses the accrual method of accounting.
(3) Revenues and expenses are recognized in the period in which the
activities occur.
(4) The Company considers all short term, highly liquid investments that
are readily convertible to known amounts as cash. (The Company currently has
no cash or liquid investments.)
(5) The Company has changed its fiscal year end from March 31 to
December 31 to correspond with the fiscal year of G.E.M. Environmental
Management, Inc., ("GEM") (See Note #10).
(C) Preferred Stock
The Company shall be authorized to issue up to three million (3,000,000)
shares of preferred stock having a par value of One Dollar ($1.00) per share.
The Board of Directors may designate the preferred stock to be issued to one or
more series and may designate that the holders of one or more series of the
preferred stock may have rights to cumulative preferential annual dividends out
of the surplus of the Corporation, but not to exceed 8% per annum. The shares of
preferred stock may, at the option of each shareholder thereof, be converted to
common stock on the basis of 1.2 shares of common stock for each share of
preferred stock, within 18 months of the date of issuance of such preferred
shares.
Within eighteen months of the date of issuance of series A-1 preferred
stock, at the option of each shareholder thereof, the Series A-1 Preferred Stock
may be converted to common stock on the basis of .13 shares of common stock for
each share of Series A-1 Preferred Stock.
Series A-2 Preferred Stock may be converted into twelve (12) shares of the
Company's common stock.
(1) Preferred Stock may, at the option of the holder, be converted at any
time from time to time into fully paid and non-assessable shares (calculated as
to each conversion to the largest whole share) of the Corporation's common
stock. Subject to adjustment as provided hereinafter, each share of Series A-2
Preferred Stock shall be convertible into twelve (12) shares of the
corporation's $0.001 par value per share common stock ("Common Stock").
(2) The number of shares of common stock into which each share of Series A-2
Preferred stock is convertible shall be (I) increased proportionately in the
event the company pays any dividend in common stock or subdivides the
outstanding shares of common stock into a larger number of shares and (ii)
reduced proportionately in the event the company combines the outstanding shares
of common stock into a smaller number of shares. In the event the Company issues
any shares of common stock (or any securities convertible into or exercisable
for common stock) at a price less than $.025 per share (which number shall be
proportionately adjusted in the event of any stock dividend payable to in common
stock or any subdivision or combination of the common stock after the initial
issuance of the Series A-2 Preferred stock), the number of shares of common
stock into which share of Series A-2 Preferred stock is convertible shall be
increased by
F-34
<PAGE>
VICTORY WASTE INCORPORATED
(FORMERLY VENTURA ASSOCIATES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- CORPORATE HISTORY AND SIGNIFICANT ACCOUNTING POLICY (CONTINUED)
multiplying such number of shares of common stock by a fraction, the numerator
of which is $0.25 (or such number as may result from any adjustment in the event
of any stock dividend payable in common stock or any subdivision or combination
of the common stock after the initial issuance of the Series A-2 Preferred
stock) divided by the purchase price for the shares being issued.
NOTE 2 -- COMMON STOCK PUBLIC OFFERING
During the year ended March 31, 1986, the Company completed a public
offering of its common stock. The offering resulted in selling 13,016,500 shares
at $0.02 per share, for a total of $260,330. Expenses of the public offering
were $65,466.
NOTE 3 -- PERFORMANCE STOCK PLAN
Pursuant to a Performance Stock Plan adopted by the stockholders of the
Company in 1985, the Company reserved 3,000,000 shares of its common stock for
purchase by certain key employees of the Company at the sole discretion of the
Company's Board of Directors. The option price pursuant to which these shares
may be purchased shall not be less than the fair market value of such shares at
the time that the option to purchase such shares is granted. No participant
under the Stock Plan shall be granted options to purchase more than $100,000 in
value of the Company's common stock in any calendar year.
In connection with the completion of the GEM Plan and pursuant to the Stock
Plan, the Company granted to the following key employees of the Company an
option to acquire 3,000,000 shares of the Company's common stock at a price of
$0.25 per share (actual market value on the date of grant was approximately
$0.10 per share). G. Michael Shannon and Dallas C. Schnitzius were each granted
an option to purchase 1,500,000 shares of the Company's common stock, with
500,000 of such shares to vest during each of the following three years,
commencing with the calendar year ending December 31, 1994.
NOTE 4 -- STOCK OPTIONS
Under terms of the Agreement and Plan of Reorganization, the Company has
agreed to exchange options with certain GEM option holders on terms identical to
the terms given by GEM to the option holders during 1993. Scheduled below are
the option holders and the terms of each option:
<TABLE>
<CAPTION>
NAME AND ADDRESS OPTIONED SHARES PRICE TERMS ISSUANCE
----------------- --------------- ----------------- --------- ---------
<S> <C> <C> <C> <C>
Holder #1 50,000 .28 CDN 5 yrs. 3/3/93
Holder #2 50,000 .62 CDN 5 yrs. 10/1/93
Holder #3 766,667 .30 US Year 1 2 yrs. 5/18/93
.35 US Year 2
Holder #4 50,000 .28 CDN 5 yrs. 3/3/93
Holder #5 50,000 .62 CDN 5 yrs. 10/1/93
Holder #6 400,000 .56 CDN 5 yrs. 6/3/93
Holder #7 610,000 .56 CDN 5 yrs. 6/3/93
</TABLE>
F-35
<PAGE>
VICTORY WASTE INCORPORATED
(FORMERLY VENTURA ASSOCIATES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- NET OPERATING LOSSES FOR TAX CARRYFORWARD
The Company has the following net operating losses to carryforward to offset
future taxable income:
<TABLE>
<CAPTION>
YEAR OF LOSS AMOUNT EXPIRATION DATE
----------------- --------- -----------------
<S> <C> <C>
March 31, 1986 $ 15,145 2001
March 31, 1987 8,633 2002
March 31, 1988 1,463 2003
March 31, 1989 844 2004
March 31, 1990 155 2005
March 31, 1991 0 2006
March 31, 1992 800 2007
March 31, 1993 91,010 2008
</TABLE>
For the year ended March 31, 1991, the Company has a capital loss on its
partnership investments of $210,000.
Significant changes of stock ownership and a change in the business purpose
will cause restrictions as to the deductibility of the loss carryforwards for
future tax consideration.
NOTE 6 -- NONCASH INVESTING AND FINANCING ACTIVITIES
The Company acquired gold processing and mining equipment for future use by
issuing 239,745 shares of its preferred stock. The assets acquired have been
valued at their costs, less applicable depreciation, to the recipients of the
Company stock.
During the current fiscal year, one of the transactions for gold processing
and mining equipment was rescinded. The Company relinquished the equipment
valued at $125,000 and accepted 125,000 shares of its preferred stock as full
satisfaction.
The Company issued 88,888 post split shares of common stock for consulting
services rendered to the Company in the current fiscal year. In addition,
125,000 shares were issued for professional services valued at $6,250.
NOTE 7 -- GOLD RECOVERY EQUIPMENT AND SUPPLIES INVENTORY
In anticipation of the change of Company purpose pursuant to the Agreement
and Plan of Reorganization, the Company intends to sell the remaining gold
recovery equipment and supplies inventory. These assets will be sold for value
that at the date of the financial statement is uncertain. Therefore, the Company
has written the assets down to a nominal value of $200.
NOTE 8 -- FIXED ASSETS
The Company has purchased a computer for $4,244. It is estimated to have a
life of 5 years and is being depreciated on the straight-line method.
Accumulated depreciation is $868.
NOTE 9 -- ACCOUNTS PAYABLE
Accounts payable includes operating expenses for past goods and services at
the negotiated settlement amount paid by the Company in January 1994. Included
in the total accounts payable is $43,000 for finders' fees in connection to the
GEM acquisition and $30,000 to past directors and officers for consulting
services. These amounts were disbursed in January 1994 from the cash held by
legal counsel in trust funds.
NOTE 10 -- SUBSEQUENT EVENTS
In January 1994, the Company became a party to an Agreement and Plan of
Reorganization with GEM, a Delaware corporation. The Agreement calls for an
exchange of shares to acquire 53.9% of GEM by the
F-36
<PAGE>
VICTORY WASTE INCORPORATED
(FORMERLY VENTURA ASSOCIATES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- SUBSEQUENT EVENTS (CONTINUED)
Company. The Company will issue 8,862,189 shares of common stock to acquire the
shares of GEM. The Agreement also calls for a one-for-nine reverse split of the
Company's common stock. The reverse split has been retroactively reflected in
the accompanying financial statements and footnotes.
The Company canceled 1,841,091 post-split shares which were owned by certain
principal stockholders for nominal consideration, resulting in 226,034
post-split shares outstanding.
The Company canceled 140,000 shares of its convertible preferred stock,
leaving 179,745 shares of preferred stock outstanding which are convertible into
23,966 post-split common shares.
The Company issued 1,641,461 post-split common shares for services rendered
in connection with the Plan. These shares are being held by GEM pending the
resolution of a dispute regarding the amount to be paid for these services.
The Company exchanged one share of post-split common stock for each of the
8,862,189 shares of GEM common stock exchanged under the Plan (consisting of
53.9% of GEM's common stock outstanding). The Company is attempting to acquire
the remaining shares of GEM not exchanged as part of the Plan.
The Company issued options to acquire 1,966,667 shares of its common stock
in exchange for similar options to acquire to GEM stock. The Company options
have the same terms as the exchanged GEM options.
The Company issued 12,000,000 shares of its common stock and warrants for
6,000,000 shares to a shareholder for payment in full of GEM's $3,000,000
acquisition note payable in February 1994. The warrants entitle the holder to
acquire an additional 6,000,000 post-split shares at a price of $0.50 per share.
GEM issued 12,000,000 shares of its common stock to Ventura in consideration for
its issuance of shares in exchange for the payment of the GEM Note.
The Company issued 125,000 common shares to consultants for service related
to the Plan.
The Company designated the directors and executive officers of GEM to
similar positions with the Company upon resignation of the Company's previous
directors and executive officers.
On March 14, 1994, Articles of Amendment were filed with the state of
California changing the name of the Company to Victory Waste Incorporated.
In 1994, the Company conveyed to an officer the computer equipment in
satisfaction of service rendered in 1994 valued at not less than $3,476.
F-37
<PAGE>
VICTORY WASTE INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1994
-------------
<S> <C>
CURRENT ASSETS:
Cash............................................................................................. $ 323,633
Accounts receivable.............................................................................. 1,478,901
Other current assets............................................................................. 346,475
-------------
Total current assets........................................................................... 2,149,009
-------------
PROPERTY AND EQUIPMENT, at cost.................................................................... 19,840,590
Less -- Accumulated depreciation and amortization................................................ 3,809,010
-------------
Net property and equipment..................................................................... 16,031,580
-------------
NONCURRENT ASSETS.................................................................................. 2,444,781
-------------
TOTAL ASSETS....................................................................................... $ 20,625,370
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................................. $ 790,941
Notes payable and current portion of long-term debt.............................................. 6,180,212
Other accrued liabilities........................................................................ 989,636
-------------
Total current liabilities...................................................................... 7,960,789
-------------
LONG-TERM DEBT, LESS CURRENT PORTION............................................................... 6,928,682
OTHER LONG-TERM LIABILITIES........................................................................ 1,360,091
MINORITY INTEREST IN SUBSIDIARIES.................................................................. 1,197,547
STOCKHOLDERS' EQUITY:
Preferred Stock.................................................................................. 179,745
Common stock..................................................................................... 21,642
Additional paid-in capital....................................................................... 7,414,580
Accumulated deficit.............................................................................. (4,437,706)
-------------
Total stockholders' equity..................................................................... 3,178,261
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................................................... $ 20,625,370
-------------
-------------
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of this balance sheet.
F-38
<PAGE>
VICTORY WASTE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1993 1994
------------ ------------
<S> <C> <C>
Operating revenues:................................................................... $ 1,404,160 $ 6,211,548
Operating expenses:
Operating expenses.................................................................. 405,400 2,850,967
Depreciation and amortization....................................................... 431,800 938,610
General and administrative.......................................................... 593,133 1,177,075
Canceled acquisitions and related financing......................................... 161,407 --
------------ ------------
Operating income (loss)........................................................... (187,580) 1,244,896
Interest expense...................................................................... (195,868) (1,015,348)
Other income (expense)................................................................ 9,600 4,868
------------ ------------
Income (loss) before income taxes and minority interest............................... (373,848) 234,416
Tax provision......................................................................... 21,061 200,000
Minority interest..................................................................... -- (55,570)
------------ ------------
Net loss.............................................................................. $ (394,909) $ (21,154)
------------ ------------
------------ ------------
Loss per share........................................................................ $ (0.03) $ 0.00
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
F-39
<PAGE>
VICTORY WASTE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1993 1994
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................................ $ (394,909) $ (21,154)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities --
Depreciation and amortization..................................................... 431,800 1,138,610
Minority interest................................................................. -- 55,050
Changes in operating assets and liabilities....................................... (90,311) 4,099
----------- -------------
Net cash provided by (used in) operating activities............................. (53,420) 1,176,605
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................................ (131,739) (2,783,572)
Cash acquired in business purchased with stock...................................... -- 90,000
----------- -------------
Net cash used in investing activities........................................... (131,739) (2,693,572)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt.......................................................... 78,747 8,918,387
Payments on long-term debt.......................................................... (324,708) (7,570,943)
Issuance of common stock............................................................ 440,475 --
----------- -------------
Net cash provided by financing activities....................................... 194,514 1,347,444
----------- -------------
Net increase (decrease) in cash................................................. 9,355 (169,523)
CASH, beginning of period............................................................. 211,699 493,156
----------- -------------
CASH, end of period................................................................... $ 221,054 $ 323,633
----------- -------------
----------- -------------
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
F-40
<PAGE>
VICTORY WASTE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- REORGANIZATION
On January 31, 1994, Victory Waste Incorporated ("Victory"), an entity with
no significant operations and formerly known as Ventura Associates, Inc.,
entered into a Plan of Reorganization (the "Plan") with G.E.M. Environmental
Management, Inc. ("GEM"). The terms of the Plan are summarized as follows:
- Victory effected a one-for-nine reverse split of its common stock,
resulting in 18,604,125 outstanding shares being adjusted to 2,067,125
post-split shares.
- Victory canceled 1,841,091 post-split shares which were owned by certain
principal stockholders for nominal consideration, resulting in 226,034
post-split shares outstanding.
- Victory canceled 140,000 shares of its convertible preferred stock,
leaving 179,745 shares of preferred stock outstanding which are
convertible into 23,966 post-split common shares.
- Victory issued 1,641,461 post-split common shares pursuant to Regulation S
to certain non-U.S. persons in connection with the Plan, which were
reduced to a total of 428,000 shares by mutual agreement.
- Victory exchanged one share of post-split common stock for each of the
8,862,189 shares of GEM common stock exchanged under the Plan (consisting
of 53.9% of GEM's common stock outstanding). Victory is attempting to
acquire the remaining shares of GEM not exchanged as part of the Plan.
- Victory issued options to acquire 1,966,667 shares of its common stock in
exchange for similar options to acquire to GEM stock. The new Victory
options have the same terms as the exchanged GEM options.
- Victory issued 12,000,000 shares of its common stock and warrants for
6,000,000 shares to a shareholder for payment in full of GEM's $3,000,000
acquisition note payable in February 1994. The warrants entitle the holder
to acquire an additional 6,000,000 post-split shares at a price of $0.50
per share. GEM issued 12,000,000 shares of its common stock to Victory in
consideration for its issuance of shares in exchange for the payment of
the GEM Note.
- Victory issued 125,000 common shares to consultants for services rendered.
- Victory designated the directors and executive officers of GEM to similar
positions with Victory upon the resignation of Victory's previous
directors and executive officers.
- The Plan was effective as of January 1, 1994.
NOTE 2 -- BASIS OF PRESENTATION
Pursuant to the Plan, GEM was acquired by Victory in a transaction which was
treated as a reverse acquisition for accounting purposes as the controlling
stockholders of GEM became the controlling stockholders of Victory. The
acquisition is accounted for using the purchase method of accounting.
The historical financial statements of GEM are presented for the six months
ended June 30, 1993. The financial statements include the results of both GEM
and Victory in their consolidated form from January 1, 1994. All share and per
share information has been restated for the periods presented to reflect the
reverse acquisition.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and Article 310(b) of Regulation S-B. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation
(consisting of normal recurring accruals) have
F-41
<PAGE>
VICTORY WASTE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 2 -- BASIS OF PRESENTATION (CONTINUED)
been included. Operating results for the six months ended June 30, 1994 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1994. For further information, refer to Victory's financial
statements and footnotes thereto and GEM's consolidated financial statements and
footnotes thereto for the year ended December 31, 1993 included elsewhere in
this Registration Statement.
NOTE 3 -- LOSS PER SHARE
The loss per share for the periods are based upon the weighted average
number of common shares outstanding during such periods. The weighted average
common shares outstanding were 14,361,000 and 17,641,000 for the six months
ended June 30, 1993 and 1994, respectively. The weighted average number of
shares outstanding does not include the assumed exercise of certain common stock
equivalents as the effect is antidilutive.
NOTE 4 -- SUPPLEMENTAL CASH FLOWS DISCLOSURE
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1993 1994
---------- ------------
<S> <C> <C>
Cash paid during the period for:
Interest.................................................................... $ 139,963 $ 755,389
---------- ------------
---------- ------------
Income Taxes................................................................ $ 477 $ 100,000
---------- ------------
---------- ------------
Common stock issued for Acquisition Notes Payable............................. $ -- $ 3,000,000
---------- ------------
---------- ------------
Common stock issued for Accounts Payable...................................... $ 70,000 $ --
---------- ------------
---------- ------------
</TABLE>
NOTE 5 -- BUSINESS ACQUISITIONS
In September 1993, Victory acquired the assets of Jamax Corporation
("Jamax"), a trash hauling operation, and Victory Environmental Services
Corporation ("VESC"), an operating landfill site, for an aggregate purchase
price of $12,351,000, of which approximately $8,100,000 was borrowed from the
former owner of Jamax and VESC. In September 1993, Victory acquired Springfield
Environmental, Inc. ("Springfield"), an operating landfill site, for a purchase
price of $596,000. The acquisitions were purchased from Laidlaw Waste Systems
(the "Laidlaw Acquisitions") and were recorded under the purchase method, and
the purchase prices were allocated to the assets acquired based on their
relative fair value. The operating results of the acquired companies have been
included in the consolidated operating results subsequent to the date of
acquisition. The former owner of Jamax receives a royalty of 10% of the revenue
from a certain hauling contract until the contract expires in December 1997, and
the former owner of VESC receives a royalty of 10% of VESC's gross revenue,
which are expensed as incurred. The following summarized the effect on reported
operating results for the six months ended June 30, 1993, as if the Laidlaw
Acquisitions had occurred on January 1, 1993:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1993 1994
------------ ------------
<S> <C> <C>
Pro forma operating revenues................................................ $ 6,258,000 $ 6,212,000
------------ ------------
------------ ------------
Pro forma net loss.......................................................... $ (285,000) $ (21,000)
------------ ------------
------------ ------------
Pro forma loss per share.................................................... $ (.02) $ .00
------------ ------------
------------ ------------
</TABLE>
F-42
<PAGE>
VICTORY WASTE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6 -- DEBT
In connection with its 1993 acquisitions, Victory obtained acquisition notes
payable as follows:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST RATE
------------ -------------
<S> <C>
$ 2,300,000 8%
$ 5,792,000 10%
$ 3,000,000 10%
------------
$ 11,092,000
------------
------------
</TABLE>
The $2,300,000 and $5,792,000 acquisition notes are payable to the former
owner of Jamax and VESC. On January 27, 1994, the $1,000,000 note payable to
bank (see next paragraph), $2,300,000 acquisition note and $3,292,000 of the
$5,792,000 acquisition note were retired with the proceeds of new borrowings.
The new borrowings consist of a $4,100,000 loan payable to a bank in monthly
installments of $83,400 including interest at 10% (including a 2% guarantee fee
payable to the former owner of Jamax and VESC), to maturity in January 1999, and
a $4,400,000 loan payable to the former owner of Jamax and VESC in monthly
installments of $93,513, including interest at 10%, to a maturity in January
1999. The excess of the new borrowings over the acquisition notes retired of
$1,900,000 has been recorded as deferred refinancing costs, a component of
noncurrent assets, and is being amortized over the life of debt beginning in
1994. In exchange for the guarantee of the $4,100,000 note payable to a bank,
Victory granted the former owner of Jamax and VESC options to acquire 1,600,000
shares of common stock for $0.24 per share, through June 30, 1995.
Notes payable to bank of $1,000,000 represent the full amount of a line of
credit which requires interest at 4.25% to maturity in September 1994, which was
retired on January 27, 1994 with the proceeds of new borrowings (see next
paragraph). The note was guaranteed by a former owner of Jamax and VESC, and in
1994, Victory paid the former owner $200,000 for this guarantee.
The remaining balance of $2,500,000 of the $5,792,000 note required monthly
payments to maturity on July 1, 1994. The Note was paid in full on July 1, 1994
through a loan of $2,400,000 from Continental Waste Industries, Inc. ("CWI")
which took back a demand note for such payment. CWI owns approximately 73% of
the issued and outstanding shares of Victory as of July 1, 1994.
In February 1994, the $3,000,000 acquisition note was converted into
12,000,000 shares of common stock and 6,000,000 warrants, which entitle the
lender to acquire an additional 6,000,000 shares of common stock at $0.50 per
share.
NOTE 7 -- SUBSEQUENT EVENT
On July 1, 1994, CWI acquired approximately 60% of the issued and
outstanding capital stock of Victory from Camelford Holdings, Ltd. and Salcott
Holdings, Ltd. through a Stock Purchase Agreement (the "Camelford/Salcott
Agreement"). The Agreement involved the exchange of a total of 13,121,994 common
shares of Victory, as well as warrants for the purchase of an additional
6,000,000 common shares of Victory at an exercise price of $0.50 (U.S.) per
share, exercisable at any time up to January 30, 1999, in exchange for a total
of 388,888 common shares of CWI. The Agreement further involved a contingency
payment of common shares of CWI up to a value of $1 million, with such payment
contingent upon the size of the disposal capacity which may be granted in the
future to United Refuse, Inc., the owner and operator of a Ft. Wayne, Indiana
landfill and a wholly-owned subsidiary of GEM.
Simultaneously with the Salcott/Camelford transaction, CWI entered into an
Agreement for Exchange of Stock with Dallas C. Schnitzius ("Schnitzius") and G.
Michael Shannon ("Shannon") on July 1, 1994 (the "Schnitzius/Shannon
Agreement"). Prior to July 1, 1994, Schnitzius and Shannon were the sole
directors and
F-43
<PAGE>
VICTORY WASTE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 7 -- SUBSEQUENT EVENT (CONTINUED)
officers of GEM and were officers and directors of Victory. Prior to the closing
of the Schnitzius/Shannon Agreement, Gregory Morey resigned as director of
Victory, leaving Schnitzius and Shannon as the sole remaining directors of
Victory. On July 1, 1994, Michael Drury, Carlos E. Aguero, and Thomas A. Volini,
the Senior Vice President and Chief Financial Officer; Director, President and
Chief Executive Officer, and Chairman of the Board and Chief Operating Officer
of CWI, respectively, were appointed to the Boards of GEM and Victory along with
Schnitzius and Shannon.
The Schnitzius/Shannon Agreement involved the exchange of 1,099,998 common
shares of Victory owned by Schnitzius as well as warrants for the purchase of
610,000 common shares of Victory at an exercise price of $0.56 (Canadian) per
share with an expiration date of June 3, 1998, and warrants for the purchase of
1,500,000 common shares of Victory at an exercise price of $0.25 (U.S.) with an
expiration date of January 27, 1999 for 45,000 common shares of CWI. Shannon
exchanged 1,699,006 common shares of Victory as well as warrants for the
purchase of 400,000 common shares of Victory at an exercise price of $0.56
(Canadian) with an expiration date of June 3, 1998 and warrants for the purchase
of 1,500,000 common shares of Victory at an exercise price of $0.25 (U.S.) with
an expiration date of January 27, 1999 for 64,967 common shares of CWI. The
shares owned by Schnitzius constitute approximately 5% of the issued and
outstanding stock of Victory and the shares owned by Shannon constitute
approximately 8% of the issued and outstanding stock of Victory.
Simultaneous with the consummation of Schnitzius/Shannon Agreement,
Schnitzius and Shannon entered into Employment Agreements with a termination
date of June 30, 1999. In addition, Schnitzius and Shannon entered into a
separate Representation and Warranty Agreement wherein they represented and
warranted the accuracy of certain facts and financial information in connection
with Victory and its subsidiaries which was relied upon by CWI in entering into
both the Camelford/Salcott Agreement and the Schnitzius/Shannon Agreement.
In the third quarter of 1994, CWI purchased an additional 3,162,199 shares
and 2,366,667 outstanding options of Victory by exchanging 103,141 CWI common
shares and $80,000. CWI currently owns 88.2% of Victory.
F-44
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
G.E.M. Environmental Management, Inc.:
We have audited the accompanying consolidated balance sheets of G.E.M.
Environmental Management, Inc. and subsidiaries as of December 31, 1992 and 1993
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of G.E.M.
Environmental Management, Inc. and subsidiaries as of December 31, 1992 and 1993
and the results of their operations and their cash flows for each of the years
then ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in note
8 to the consolidated financial statements, the substantial excess of the
Company's current liabilities over its current assets raises substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to this matter are also described in note 8. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
KPMG Peat Marwick LLP
Indianapolis, Indiana
March 4, 1994, except as to the last paragraph
of note 8, which is as of March 16, 1994.
F-45
<PAGE>
G.E.M. ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1992 AND 1993
ASSETS
<TABLE>
<CAPTION>
1992 1993
------------- -------------
<S> <C> <C>
Current assets:
Cash.............................................................................. $ 211,698 $ 493,156
Trade accounts receivable, net.................................................... 202,755 1,461,940
Other current assets.............................................................. 1,364 37,823
------------- -------------
Total current assets............................................................ 415,817 1,992,919
------------- -------------
Property and equipment:
Landfill sites.................................................................... 5,027,270 14,188,304
Machinery and equipment........................................................... 927,050 3,234,544
Other property and equipment...................................................... 92,076 1,530,694
------------- -------------
6,046,396 18,953,542
Less accumulated depreciation..................................................... 1,886,473 2,883,767
------------- -------------
4,159,923 16,069,775
------------- -------------
Costs of undeveloped properties..................................................... 335,089 396,622
Debt issuance costs, net of accumulated amortization of $167,427 and $240,024....... 47,074 174,477
Other non-current assets............................................................ 68,966 159,037
------------- -------------
$ 5,026,869 $ 18,792,830
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................. $ 176,473 $ 379,085
Current portion of long-term debt................................................. 700,226 889,888
Notes payable..................................................................... 1,191,669 2,191,669
Acquisition notes payable......................................................... -- 11,091,867
Accrued interest.................................................................. 372,271 719,740
Other accrued expenses and current liabilities.................................... 50,482 477,270
------------- -------------
Total current liabilities....................................................... 2,491,121 15,749,519
Long-term debt, less current portion................................................ 1,280,231 588,007
Estimated landfill closure and post-closure cost.................................... 89,590 415,221
Deferred income taxes............................................................... 596,935 596,935
------------- -------------
Total liabilities............................................................... 4,457,877 17,349,682
------------- -------------
Stockholders' equity:
Common stock, $.01 par value; 35,000,000 shares authorized, 13,592,936 and
16,422,503 shares issued and outstanding......................................... 5,084,226 5,859,701
Accumulated deficit............................................................... (4,515,234) (4,416,553)
------------- -------------
Total stockholders' equity...................................................... 568,992 1,443,148
------------- -------------
$ 5,026,869 $ 18,792,830
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-46
<PAGE>
G.E.M. ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1992 AND 1993
<TABLE>
<CAPTION>
1992 1993
------------- -------------
<S> <C> <C>
Operating revenues................................................................. $ 3,130,538 $ 6,141,985
Costs and expenses:
Operating expenses............................................................... 915,592 2,112,191
General and administrative....................................................... 1,326,923 1,589,865
Royalty expense.................................................................. 82,127 318,650
Depreciation and amortization.................................................... 839,110 1,087,056
Canceled acquisitions and related financing...................................... -- 160,000
------------- -------------
3,163,752 5,267,762
------------- -------------
Operating income (loss)........................................................ (33,214) 874,223
Interest expense................................................................... (403,614) (662,414)
Other income....................................................................... 74,168 14,172
------------- -------------
Income (loss) before income taxes, minority interest and extraordinary loss...... (362,660) 225,981
State and federal income taxes..................................................... (34,968) (104,200)
------------- -------------
Income (loss) before minority interest and extraordinary loss.................... (397,628) 121,781
Minority interest in earnings of subsidiaries...................................... (40,698) --
------------- -------------
Income (loss) before extraordinary loss.......................................... (438,326) 121,781
Extraordinary loss on extinguishment of debt, net of income taxes of $11,900....... -- 23,100
------------- -------------
Net income (loss)................................................................ $ (438,326) $ 98,681
------------- -------------
------------- -------------
Income (loss) per share:
Income (loss) before extraordinary item.......................................... $ (.03) $ .01
Extraordinary item............................................................... -- --
------------- -------------
Net income....................................................................... $ (.03) $ .01
------------- -------------
------------- -------------
Weighted average number of shares outstanding...................................... 13,593,000 15,391,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-47
<PAGE>
G.E.M. ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1992 AND 1993
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK DEFICIT
------------ -------------
<S> <C> <C>
Balance at January 1, 1992.......................................................... $ 5,084,226 $ (4,076,908)
Net loss........................................................................... -- (438,326)
------------ -------------
Balance at December 31, 1992....................................................... 5,084,226 (4,515,234)
Exchange of accounts payable for 300,000 shares of common stock at $0.35 per
share............................................................................. 105,000 --
Issuance of 1,761,900 shares of common stock at $0.25 per share.................... 440,475 --
Issuance of 766,667 shares of common stock at $0.30 per share...................... 230,000 --
Net income......................................................................... -- 98,681
------------ -------------
Balance at December 31, 1993....................................................... $ 5,859,701 $ (4,416,553)
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-48
<PAGE>
G.E.M. ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1992 AND 1993
<TABLE>
<CAPTION>
1992 1993
----------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................................. $ (438,326) $ 98,681
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation of property and equipment........................................... 816,514 1,014,459
Amortization of debt issuance costs.............................................. 22,596 72,597
Estimated landfill closure and post-closure costs................................ 41,440 325,631
Loss on extinguishment of debt................................................... -- 35,000
Minority interest in earnings of subsidiaries.................................... 40,698 --
Deferred income taxes............................................................ 13,660 --
Change in operating assets and liabilities:
Accounts receivable.............................................................. 113,201 (1,259,185)
Accounts payable................................................................. 121,745 272,612
Accrued interest................................................................. 146,173 347,469
Other accrued revenues and expenses, net......................................... (123,752) 96,418
----------- --------------
Net cash provided by operating activities.................................... 753,949 1,003,682
----------- --------------
Cash flows from investing activities:
Costs of undeveloped properties.................................................... (25,417) (61,533)
Additions to property and equipment, net........................................... (194,778) (4,595,101)
Acquisition of minority interest in subsidiary..................................... (242,819) --
----------- --------------
Net cash used by investing activities........................................ (463,014) (4,656,634)
----------- --------------
Cash flows from financing activities:
Proceeds from notes payable and long-term debt..................................... -- 4,000,000
Repayment of long-term debt........................................................ (517,703) (736,065)
Proceeds from issuance of stock.................................................... -- 670,475
----------- --------------
Net cash provided (used) by financing activities............................. (517,703) 3,934,410
----------- --------------
Net increase (decrease) in cash.................................................... (226,768) 281,458
Cash at beginning of year.......................................................... 438,466 211,698
----------- --------------
Cash at end of year................................................................ $ 211,698 $ 493,156
----------- --------------
----------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-49
<PAGE>
G.E.M. ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1993
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company, through its subsidiaries, is engaged in the business of
acquiring, developing and operating non-hazardous solid waste landfills and
other related businesses. All significant intercompany accounts and transactions
have been eliminated in consolidation.
During 1989, the Company acquired 100% of the outstanding stock of
Greenfield Environmental Development Corp. ("GED") which owned 80.9% of United
Refuse, Inc. ("United"). During 1992, GED acquired the remaining 19.1% of the
outstanding common stock of United from its minority shareholder for cash of
$242,000 and a note payable of $669,000 (see note 4). The cost of the landfill
site owned by United was increased by approximately $505,000 as a result of the
acquisition of the minority interest. The former minority shareholder receives a
royalty of 4.5% of United's gross revenue subsequent to the purchase of the
remaining stock, which is expensed as incurred.
GED also owns 100% of the outstanding capital stock of Sanifill, Inc. and
Triple G Landfill, Inc. During 1992, the undeveloped landfill site owned by
Sanifill, Inc. was permitted, but the Company has yet to complete the
development activities necessary to operate the site. Triple G Landfill, Inc.
has an option, through July 1995, to acquire a potential landfill site for which
a permit has yet to be issued.
In September 1993, the Company acquired the assets of Jamax Corporation
("Jamax"), a trash hauling operation, and Victory Environmental Services
Corporation ("VESC"), an operating landfill site, for an aggregate purchase
price of $12,351,000, of which approximately $8,100,000 was borrowed from the
former owner of Jamax and VESC. In September 1993, the Company acquired
Springfield Environmental, Inc. ("Springfield"), an operating landfill site, for
a purchase price of $596,000. The acquisitions were recorded under the purchase
method, and the purchase prices were allocated to the assets acquired based on
their relative fair value. The operating results of the acquired companies have
been included in the consolidated operating results subsequent to the date of
acquisition. The former owner of Jamax receives a royalty of 10% of the revenue
from a certain hauling contract until that contract expires in December 1997,
and the former owner of VESC receives a royalty of 10% of VESC's gross revenue,
which are expensed as incurred.
In 1993, a potential acquisition was not completed, and costs of $160,000
associated with this potential acquisition were charged to operations.
REORGANIZATION
On January 31, 1994, the Company entered into a Plan of Reorganization (the
"Plan") with Ventura Associates, Inc. ("Ventura"), an entity with no significant
operations. The terms of the Plan are summarized as follows:
- Ventura effected a one-for-nine reverse split of its common stock,
resulting in 18,604,125 outstanding shares being adjusted to 2,067,125
post-split shares.
- Ventura canceled 1,841,091 post-split shares which were owned by certain
principal stockholders for nominal consideration, resulting in 226,034
post-split shares outstanding.
- Ventura canceled 140,000 shares of its convertible preferred stock,
leaving 179,745 shares of preferred stock outstanding which are
convertible into 23,966 post-split common shares.
- Ventura issued 1,641,461 post-split common shares for services rendered in
connection with the Plan. These shares are being held by the Company
pending the resolution of a dispute regarding the amount to be paid for
these services.
F-50
<PAGE>
G.E.M. ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- Ventura exchanged one share of post-split common stock for each of the
8,862,189 shares of G.E.M. common stock exchanged under the Plan
(consisting of 53.9% of G.E.M.'s common stock outstanding). Ventura is
attempting to acquire the remaining shares of G.E.M. not exchanged as part
of the Plan.
- Ventura issued options to acquire 1,966,667 shares of its common stock in
exchange for similar options to acquire G.E.M. stock. The new Ventura
options have the same terms as the exchanged G.E.M. options.
- Ventura exchanged 12,000,000 shares of its common stock and 1,000,000
warrants for payment in full of G.E.M.'s $3,000,000 acquisition note
payable in February 1994 (see note 3). The warrants entitle the holder to
acquire an additional 6,000,000 post-split shares at a price of $0.50 per
share (see note 3).
- Ventura issued 125,000 common shares to consultants for service related to
the Plan.
- Ventura designated the directors and executive officers of G.E.M. to
similar positions with Ventura upon the resignation of the Ventura's
previous directors and executive officers.
- Ventura changed its name to Victory Waste Incorporated.
The following condensed pro forma balance sheet presents the effects of the
Reorganization as discussed above and the refinancing of certain notes payable
(see note 3) as if they had occurred as of December 31, 1993 (unaudited):
<TABLE>
<S> <C>
Total current assets............................................... $ 1,993,000
Property, plant and equipment...................................... 17,970,000
Other noncurrent assets............................................ 948,000
-----------
$20,911,000
-----------
-----------
Total current liabilities.......................................... $ 7,528,000
Long-term debt, less current portion............................... 7,755,000
Other noncurrent liabilities....................................... 1,012,000
-----------
Total liabilities.............................................. 16,295,000
-----------
Minority interest.................................................. 1,182,000
-----------
Preferred stock, 179,745 shares.................................... 180,000
Common stock, 22,854,684 shares.................................... 22,000
Additional paid-in capital......................................... 7,415,000
Accumulated deficit................................................ (4,183,000)
-----------
Total stockholders' equity..................................... 3,434,000
-----------
$20,911,000
-----------
-----------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. The cost of active landfill sites
are depreciated over the estimated remaining capacity of the site. As revisions
to the estimated capacity of the site are determined, depreciation amounts are
adjusted prospectively. Depreciation of other property and equipment is
recognized over the estimated useful life of the assets using the straight-line
method.
Property and equipment includes assets under a capital lease of $78,562 and
$154,757 and accumulated amortization of $18,331 and $27,228 as of December 31,
1992 and 1993, respectively.
F-51
<PAGE>
G.E.M. ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEBT ISSUANCE COSTS
Debt issuance costs are amortized over the term of the related debt using
the straight-line method.
LANDFILL CLOSURE AND POST-CLOSURE COSTS
The estimated cost of closure and post-closure activities to comply with
regulations regarding the closure of a landfill site, which include the
monitoring of the site for thirty years after closure, is recognized as expense
as the estimated capacity of the site is used. Amounts recognized are adjusted
prospectively as subsequent revisions to the estimated cost or landfill capacity
become known. At December 31, 1992 and 1993, the Company has deposited $68,145
and $159,037, respectively, in a restricted account included in other
non-current assets, to fund these future costs. Management estimates that its
landfill sites have remaining capacity lives ranging from 3 to 25 years as of
December 31, 1993, and that closure and post-closure costs will increase as a
result of new regulations in 1993 governing these activities.
INCOME (LOSS) PER SHARE
Income (loss) per share is based on the weighted average number of shares
outstanding. In 1992 and 1993, the weighted average number of shares outstanding
does not include the assumed exercise of certain common stock equivalents
(consisting of stock options and warrants) as the effect is anti-dilutive or
dilutes earnings per share by less than 3%.
INCOME TAXES
Income taxes are recorded under the asset and liability method of Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using currently enacted tax rates, and the effect of a change in tax
rates is recognized in the year enacted.
NOTE 2 -- NOTES PAYABLE
Notes payable to bank of $1,000,000 represent the full amount of a line of
credit which requires interest at 4.25 % to maturity in September 1994, which
was retired on January 27, 1994 with the proceeds of new borrowings (see note
3). The note was guaranteed by a former owner of Jamax and VESC, and in 1994,
the Company paid the former owner $200,000 for this guarantee (see note 3). A
summary of other notes payable at December 31, 1992 and 1993 is as follows:
<TABLE>
<CAPTION>
DEFAULT
INTEREST RATE INTEREST RATE
----------------- -------------
<S> <C> <C>
Prime Prime $ 500,000
Prime Prime 567,000
Prime plus 2% 19% 125,000
------------
$ 1,192,000
------------
------------
</TABLE>
Certain notes payable have matured and are in default (see note 8), and
accordingly, interest from the maturity date accrues at the default rate. The
prime rate at December 31, 1992 and 1993 was 6.0%. In 1992, the terms of two
notes payable with an original principal of $157,000 were renegotiated whereby
monthly principal payments of $10,000 including interest began in June 1993.
These notes payable have been reclassified as long-term debt (see note 4).
F-52
<PAGE>
G.E.M. ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- ACQUISITION NOTES PAYABLE
In connection with its 1993 acquisitions, the Company obtained acquisition
notes payable as follows:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST RATE
------------- ---------------
<S> <C>
$2,300,000 8%
5,792,000 10%
3,000,000 10%
-------------
$11,092,000
-------------
-------------
</TABLE>
The $2,300,000 and $5,792,000 acquisition notes are payable to the former
owner of Jamax and VESC. On January 27, 1994, the $1,000,000 note payable to
bank (see note 2), the $2,300,000 acquisition note and $3,292,000 of the
$5,792,000 acquisition note were retired with the proceeds of new borrowings.
The new borrowings consist of a $4,100,000 loan payable to a bank in monthly
installments of $83,400, including interest at 10% (including a 2% guarantee fee
payable to the former owner of Jamax and VESC), to maturity in January 1999, and
a $4,400,000 loan payable to the former owner of Jamax and VESC in monthly
installments of $93,513, including interest at 10%, to maturity in January 1999.
In exchange for the guarantee of the $4,100,000 note payable to a bank, the
Company granted the former owner of Jamax and VESC options to acquire 1,600,000
shares of common stock for $0.24 per share, through June 30, 1995.
The remaining balance of $2,500,000 of the $5,792,000 note requires monthly
payments to maturity on July 1, 1994 (see note 8). If not repaid by the maturity
date, the holders of the note have a 180-day option to acquire all the stock of
Jamax, VESC and Springfield for $500,000.
In February 1994, the $3,000,000 acquisition note was converted into
12,000,000 shares of common stock and 1,000,000 warrants, which entitle the
lender to acquire an additional 6,000,000 shares of common stock at $0.50 per
share.
NOTE 4 -- LONG-TERM DEBT
A summary of long-term debt at December 31 is as follows:
<TABLE>
<CAPTION>
1992 1993
------------ ------------
<S> <C> <C>
United acquisition note........................................... $ 917,608 $ 505,560
United minority interest acquisition note......................... 585,512 457,953
Equipment notes................................................... 235,477 149,630
Note payable...................................................... 183,077 130,530
Capital leases.................................................... 58,783 187,180
Land acquisition notes............................................ -- 47,042
------------ ------------
1,980,457 1,477,895
Less current portion.............................................. 700,226 889,888
------------ ------------
$ 1,280,231 $ 588,007
------------ ------------
------------ ------------
</TABLE>
The United acquisition note is payable in monthly installments of $41,666,
including interest at 12%, to maturity in February 1995. The note is secured by
substantially all the assets of United and GED's stock in United.
The United minority interest acquisition note is payable in monthly
installments of $15,030, including interest at 10%, to maturity in May 1995.
The equipment notes are payable in monthly installments of $8,841, including
interest at rates from 10% to 10.5%, to maturity from 1994 to 1996.
F-53
<PAGE>
G.E.M. ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992 AND 1993
NOTE 4 -- LONG-TERM DEBT (CONTINUED)
The notes payable require monthly installments of $10,000, including
interest at 15%, to maturity in April 1995.
The capital leases are payable in monthly installments of $4,890, including
interest from 5% to 10%, to maturity from 1995 to 1998. The land acquisition
notes payable require monthly installments of $4,221 including interest at 6% to
maturity in 1994 and 1995.
Scheduled maturities of long-term debt is as follows: $890,000 in 1994;
$478,000 in 1995; $52,000 in 1996; $33,000 in 1997; and $25,000 in 1998.
Cash paid for interest totaled $231,000 and $315,000 in 1992 and 1993,
respectively.
NOTE 5 -- INCOME TAXES
The provision for income taxes for the years ended December 31, 1992 and
1993 differs from the "expected" tax expense (computed by applying the federal
corporate income tax rate of 34% to income (loss) before income taxes) primarily
due to state taxes.
In 1992 and 1993, the Company's taxable income was entirely offset by
existing net operating loss carryforwards, except for the alternative minimum
tax provisions. The Company's net operating loss carryforwards have been fully
utilized at December 31, 1993.
A summary of the tax effects of temporary differences that give rise to the
deferred tax assets and deferred tax liabilities at December 31 is as follows:
<TABLE>
<CAPTION>
1992 1993
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............................................. $ 233,850 $ --
---------- ----------
Total gross deferred tax assets............................................. 233,850 --
---------- ----------
Deferred tax liabilities:
Property and equipment, principally due to differences in depreciation methods
and the effects of purchase accounting....................................... 775,610 541,760
Landfill closure and post-closure costs....................................... 55,175 55,175
---------- ----------
Net deferred tax liability.................................................. $ 596,935 $ 596,935
---------- ----------
---------- ----------
</TABLE>
Cash paid for income taxes totaled $29,000 in 1993. No income tax payments
were required in 1992.
NOTE 6 -- STOCK OPTIONS
A summary of outstanding stock options for the years ended December 31 is as
follows:
<TABLE>
<CAPTION>
EXERCISE PRICE TERM
------------------- ---------
<S> <C> <C> <C>
Outstanding at January 1, 1992 380,000
Canceled.................................................. 170,000 Cdn. $1.49-$1.60
----------
Outstanding at December 31, 1992 210,000
Issued.................................................... 1,200,000 Cdn. $0.28-$0.67 5 years
766,667 $0.30-$0.35 2 years
Canceled.................................................. 210,000 $0.39
----------
Outstanding at December 31, 1993 1,966,667
----------
----------
</TABLE>
F-54
<PAGE>
G.E.M. ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- STOCK OPTIONS (CONTINUED)
All options are exercisable at December 31, 1993. At December 31, 1993,
options priced in Canadian dollars have exercise prices of U.S. $0.21 to $0.51
per share.
NOTE 7 -- EXTRAORDINARY ITEM
In 1993, the Company exchanged 300,000 shares of common stock for accounts
payable of $70,000. The difference between the carrying amount of the
liabilities and the value allocated to the shares issued based on the public
market price is reflected as an extraordinary item.
NOTE 8 -- CONTINGENCIES
Due primarily to a canceled attempt to place convertible subordinated
debentures for anticipated acquisitions in 1990, certain notes payable are in
default (see note 2), and sufficient funds are not available to pay these
obligations upon the creditors' demand. The Company is continuing negotiations
with the holders of the notes, and management expects substantially all holders
to settle the obligations on terms favorable to the Company or through the
issuance of additional common stock. Additionally, acquisition notes payable of
$2,500,000 mature July 1, 1994. Management expects that replacement financing at
acceptable terms will be obtained prior to the maturity of this note.
On April 1, 1992, the Indiana Department of Environmental Management
("IDEM") notified United that the renewal application of its landfill operating
permit was denied. As a result, United's authority to operate its landfill was
revoked, and the landfill is operating pursuant to an administrative stay of
IDEM's order. The stay entitles the Company to operate the landfill pending a
final determination of the matter. In February 1994, United entered into an
agreement with the Indiana Department of Natural Resources, under which a
previously unused portion of the landfill is expected to become permitted by
IDEM, the Company will construct a wetlands park which will be donated to the
Allen County Park Board, and the Company will pay the Park Board $300,000 over a
ten-year period to maintain the wetlands park.
On March 16, 1994, a tentative agreement was reached with IDEM which would
renew the landfill's operating permit. Negotiations continue and a final
agreement is expected to be reached. Should IDEM not issue the permits,
management is unable to determine the ultimate resolution of this uncertainty
and its effects on the accompanying consolidated financial statements.
F-55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Continental Waste Industries, Inc.:
We have audited the accompanying combined balance sheet of TERRE HAUTE
OPERATIONS as of August 31, 1993, and the related combined statements of income
and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Terre Haute Operations as of
August 31, 1993, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
As explained in Note 1, the accompanying combined financial statements of
Terre Haute Operations differ from a complete presentation of financial
statements as the allocations of corporate income taxes have been omitted.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
September 12, 1994
F-56
<PAGE>
TERRE HAUTE OPERATIONS
COMBINED BALANCE SHEET
AS OF AUGUST 31, 1993
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash......................................................................... $ 79,462
Accounts receivable, net of allowance of $38,989............................. 998,793
Prepaid expenses............................................................. 33,233
Other current assets......................................................... 24,203
----------
Total current assets....................................................... 1,135,691
----------
PROPERTY AND EQUIPMENT, at cost:
Land, landfill sites and cell development.................................... 10,941,680
Buildings and improvements................................................... 338,516
Equipment.................................................................... 4,664,536
----------
15,944,732
Less -- Accumulated depreciation and amortization............................ 4,069,246
----------
Net property and equipment................................................. 11,875,486
----------
OTHER ASSETS:
Excess cost over the fair value of assets acquired, net...................... 1,235,847
Agreements not to compete, net............................................... 100,000
----------
Total other assets......................................................... 1,335,847
----------
$14,347,024
----------
----------
CURRENT LIABILITIES:
Accounts payable............................................................. $ 199,835
Accrued liabilities (Note 3)................................................. 495,403
----------
Total current liabilities.................................................. 695,238
----------
ACCRUED LANDFILL CLOSURE COSTS, less current portion........................... 178,051
----------
STOCKHOLDER'S AND DIVISION EQUITY (Note 4):
Balance, beginning of year................................................... 14,337,449
Net income for the year...................................................... 409,750
Net amounts transferred to Laidlaw Inc....................................... (1,273,464)
----------
Balance, end of year......................................................... 13,473,735
----------
$14,347,024
----------
----------
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this balance sheet.
F-57
<PAGE>
TERRE HAUTE OPERATIONS
COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED AUGUST 31, 1993
<TABLE>
<S> <C>
REVENUE........................................................................ $7,532,661
COSTS AND EXPENSES:
Operating expenses........................................................... 4,619,469
General and administrative expenses.......................................... 1,747,062
----------
Income from operations..................................................... 1,166,130
----------
INTERCOMPANY INTEREST EXPENSE.................................................. 756,380
----------
Net income................................................................. $ 409,750
----------
----------
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this statement.
F-58
<PAGE>
TERRE HAUTE OPERATIONS
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 1993
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 409,750
Adjustments to reconcile net income to net cash provided by operating
activities --
Depreciation and amortization............................................... 1,397,173
Changes in assets and liabilities --
Accounts receivable....................................................... 216,686
Prepaid expenses.......................................................... (1,545)
Other current assets...................................................... (4,901)
Accounts payable.......................................................... (30,325)
Accrued liabilities....................................................... 312,462
Accrued landfill closure costs............................................ (142,687)
----------
Net cash provided by operating activities............................... 2,156,613
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................................ (815,808)
----------
Net cash used in investing activities................................... (815,808)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net amounts transferred to Laidlaw Inc........................................ (1,273,464)
----------
Net cash used in financing activities................................... (1,273,464)
----------
Net increase in cash.......................................................... 67,341
CASH, beginning of year......................................................... 12,121
----------
CASH, end of year............................................................... $ 79,462
----------
----------
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this statement.
F-59
<PAGE>
TERRE HAUTE OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
AUGUST 31, 1993
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION:
Laidlaw Waste Systems -- Hauling Division: Terre Haute (the "Hauler"), a
trash hauling operation, and Laidlaw Waste Systems -- Landfill Division: Terre
Haute (the "Landfill"), an operating landfill site, collectively referred to as
Terre Haute Operations, or the Company, were established as divisions of Laidlaw
Inc. ("Laidlaw"), a Canadian public company, as of September 1, 1989. The
accompanying combined financial statements include the accounts of the Company,
after elimination of all significant intercompany accounts and transactions
between the Hauler and the Landfill. These combined financial statements differ
from a complete presentation of financial statements in that allocations of
corporate income taxes have been omitted.
As further discussed in Note 8, in September 1993, G.E.M. Environmental
Management Inc. ("GEM") acquired all of the issued and outstanding shares of the
Landfill and substantially all of the assets of the Hauler in a transaction
which was accounted for as a purchase.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. REVENUE AND RECEIVABLES
The Company recognizes revenue upon receipt of waste at the Company's
landfill sites or as trash is collected. The Company grants credit to the
majority of its customers on terms which range from fifteen to forty days.
Potential loss amounts associated with the granting of credit are included in
management's estimate of the allowance for doubtful accounts. It is not the
policy of the Company to require collateral from its customers in order to
obtain credit.
b. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is computed on a straight-line basis
over the estimated useful lives as follows:
<TABLE>
<CAPTION>
ASSET DESCRIPTION LIVES
------------------------------------------------------------------ ----------------
<S> <C>
Landfill site improvements........................................ life of site
Buildings and improvements........................................ 19 to 32 years
Equipment......................................................... 5 to 15 years
</TABLE>
Repairs and maintenance costs are expensed as incurred, while certain major
renewals and betterments may be capitalized. Repair and maintenance costs were
$886,975 in 1993. Gains or losses on retirements and disposals of property and
equipment for 1993 were not material.
Landfill sites and cell development represent costs to develop the landfill
facility and individual landfill cells for usage. These costs are capitalized as
incurred and are amortized as the airspace is consumed. Development costs
include design, licensing and construction costs necessary to make the landfill
ready for receipt of waste.
c. EXCESS COST OVER THE FAIR VALUE OF ASSETS ACQUIRED
The excess cost over the fair value of assets acquired ("goodwill") is
amortized on a straight-line basis over forty years. Such costs are reflected
net of accumulated amortization of $143,703 as of August 31, 1993. Amortization
expense was $34,500 in 1993. Should events or circumstances occur subsequent to
the acquisition of a business which bring into question the realizable value or
impairment of the related goodwill, the Company will evaluate the remaining
useful life and balance of goodwill and make appropriate adjustments. The
Company's principle considerations in determining impairment include current and
expected future operating income levels of that particular business.
F-60
<PAGE>
TERRE HAUTE OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1993
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
d. ROYALTY PAYMENTS AND AGREEMENT NOT TO COMPETE
The former owner of the Hauler receives a royalty of 5% of the revenue from
a certain hauling contract. Effective January 1994, the royalty rate was
increased to 10% for the life of this hauling contract, including any contract
extensions. The current contract expires in December 1997. The former owner of
the Landfill receives a royalty of 10% of the Landfill's gross revenue for the
life of the Landfill. These costs are expensed as incurred and are reflected in
operating expenses in the combined statement of income. Combined royalty expense
was $502,201 in 1993.
Agreements not to compete represent the cost of obtaining such agreements
pursuant to various business acquisitions. Such costs are amortized over the
five-year term of the related agreement. Some terms do not commence until after
certain consulting arrangements have terminated. Such costs are reflected net of
accumulated amortization of $500,000 at August 31, 1993. Amortization expense in
1993 was $120,000.
e. LANDFILL CLOSURE COSTS
It is the policy of the Company to accrue the estimated landfill closure and
post-closure maintenance costs expected to be incurred upon and subsequent to
the closing of existing operating landfill areas ratably in relation to the
airspace consumed. Such costs will principally include costs for the final cap
and cover of the landfill area, management of leachate, groundwater monitoring
and general area maintenance. The Company's estimate of these costs is
discounted to present value at 5%. Had the Company not discounted this
liability, the amounts recorded would have been increased by approximately
$122,000 at August 31, 1993. Approximately $291,000 is expected to be spent in
1994 based on estimated third party costs per Indiana regulations, and the
remainder of these costs will be spent over the next thirty years. Total
estimated closure and post-closure costs to be spent after August 31, 1993,
related to the development of new cells are approximately $8,400,000, of which
approximately $1,700,000 is expected to be expended over the next five years.
f. INCOME TAXES
The results of operations of the Company were included in the consolidated
income tax return of Laidlaw. Accordingly, income taxes on a separate company
basis have not been presented.
g. SIGNIFICANT CUSTOMERS
During 1993, one of the Company's customers accounted for approximately 15%
of net revenues and approximately 25% of accounts receivable as of August 31,
1993. In addition, approximately $1,500,000 of net revenues relates to a subsidy
agreement with the county in which the Landfill is located. This agreement was
extended in July, 1994, for an additional five years.
NOTE 3 -- ACCRUED LIABILITIES:
The Company's accrued liabilities consist of the following:
<TABLE>
<S> <C>
Closure costs............................................. $ 291,355
Royalties................................................. 36,845
Salaries.................................................. 32,231
---------
Other accrued liabilities................................. 134,972
---------
$ 495,403
---------
---------
</TABLE>
NOTE 4 -- RELATED PARTY TRANSACTIONS:
Intercompany interest charges were based on the Company's weighted-average
intercompany balance using a rate of 8%. These interest charges were expensed
during the year. Management fees charged by
F-61
<PAGE>
TERRE HAUTE OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1993
NOTE 4 -- RELATED PARTY TRANSACTIONS: (CONTINUED)
Laidlaw to the Company were $539,892 and are reflected in general and
administrative expenses in the combined statement of income. These fees
represent charges for purchasing services, billing, lockbox collection, human
resources, and various other administrative functions.
The Stockholder's and Division Equity account of the Company consists of
intercompany accounts of $9,370,672, capital stock of the Landfill of $2,000,000
and retained earnings of $2,103,063. The intercompany accounts balance reflects
the activity between the Company and Laidlaw, as well as activity with other
affiliates, and includes allocations, cash transfers, and transfers of various
assets and liabilities. As of August 31, 1993, there were 10 shares of capital
stock of the Landfill issued and outstanding.
NOTE 5 -- EMPLOYEE BENEFIT PLAN:
The Company participates in the Laidlaw 401(k) Plan (the "Plan"), which is
available to certain non-union employees. The terms of the Plan allow for annual
discretionary contributions by Laidlaw as determined by a specific formula as
well as a match of employee contributions up to a certain level. The expense of
this program was $4,545 in 1993.
NOTE 6 -- COMMITMENTS:
Rental expense for 1993 amounted to $131,810. Future minimum payments under
noncancellable leases are not material.
NOTE 7. -- PERMITS:
On August 18, 1993, the Landfill was notified by the Indiana Department of
Environmental Management of the approval of its operating permit renewal
application for additional airspace. Prior to the receipt of this permit,
Laidlaw contemplated the closing of this facility within one year. However,
since the facility did receive the permit for additional airspace expansion and
the Company is designing the landfill cells to be in compliance with Subtitle D
Regulations, the Company expects the landfill to have a useful life of twenty to
thirty years.
NOTE 8 -- SUBSEQUENT EVENT:
In September 1993, the Company was acquired by GEM for an aggregate purchase
price of approximately $12,351,000. Under terms of the purchase agreement,
Laidlaw assumed the accounts payable, accrued liabilities and intercompany
payables as of August 31, 1993. GEM has agreed to indemnify Laidlaw and its
affiliated companies of any future environmental claims, even if the claims
arise from facts, conditions or omissions which existed or occurred prior to the
closing and transfer of ownership, except to the extent that any such claim
arises from the violation or breach by Laidlaw of any applicable laws,
regulations or orders relating to the conduct of the Company during the period
of Laidlaw's ownership.
F-62
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED ADJUSTED COMBINING BALANCE SHEET
AS OF JUNE 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONTINENTAL
WASTE BUSINESSES
INDUSTRIES, ACQUIRED SINCE PRO FORMA
INC. JUNE 30, 1995 ADJUSTMENTS COMBINED
-------------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 3,795 $ 54 $ -- $ 3,849
Accounts and note receivable.......................... 6,705 244 -- 6,949
Other current assets.................................. 5,239 149 (44) 5,344
-------------- ------ ------ -----------
Total current assets................................ 15,739 447 (44) 16,142
LANDFILLS, PROPERTY AND EQUIPMENT, net.................. 67,422 2,423 796 70,641
EXCESS COST OVER FAIR VALUE............................. 9,980 -- 5,496 15,476
OTHER ASSETS............................................ 7,971 4 -- 7,975
-------------- ------ ------ -----------
$ 101,112 $ 2,874 $ 6,248 $ 110,234
-------------- ------ ------ -----------
-------------- ------ ------ -----------
CURRENT LIABILITIES:
Notes Payable......................................... $ -- $ -- $ 1,350 $ 1,350
Current maturities of long-term debt.................. 786 198 183 1,167
Accounts payable...................................... 2,493 77 -- 2,570
Other accrued liabilities............................. 5,385 328 230 5,943
-------------- ------ ------ -----------
Total current liabilities........................... 8,664 603 1,763 11,030
LONG-TERM DEBT.......................................... 34,902 1,371 4,042 40,315
ACCRUED LANDFILL CLOSURE COSTS.......................... 6,857 -- -- 6,857
OTHER LONG-TERM LIABILITIES............................. 10,467 -- 650 11,117
STOCKHOLDERS' EQUITY:
Equity of acquired companies.......................... -- 900 (900) --
Common stock.......................................... 6 -- -- 6
Additional paid-in capital............................ 33,541 -- 693 34,234
Retained earnings..................................... 7,147 -- -- 7,147
Treasury stock........................................ (472) -- -- (472)
-------------- ------ ------ -----------
Total stockholders' equity.......................... 40,222 900 (207) 40,915
-------------- ------ ------ -----------
$ 101,112 $ 2,874 $ 6,248 $ 110,234
-------------- ------ ------ -----------
-------------- ------ ------ -----------
</TABLE>
The accompanying Notes to Unaudited Pro Forma Combining Financial Statements
are an integral part of this balance sheet.
F-63
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CONTINENTAL
WASTE BUSINESSES
INDUSTRIES, ACQUIRED PRO FORMA PRO FORMA
INC. VICTORY IN 1995 ADJUSTMENTS COMBINED
-------------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUE........................................... $ 28,728 $ 6,212 $ 11,549 $ -- $ 46,489
COSTS AND EXPENSES:
Operating expenses.............................. 17,224 3,790 9,201 556 30,771
General and administrative expenses............. 4,485 1,177 1,749 -- 7,411
------- --------- ----------- ----- -----------
Income from operations.......................... 7,019 1,245 599 (556) 8,307
OTHER INCOME (EXPENSES):
Interest expense................................ (1,881) (1,015) (158) (150) (3,204)
Other income (expense), net..................... (126) (51) 19 (47) (205)
------- --------- ----------- ----- -----------
Income before income taxes and extraordinary
gain........................................... 5,012 179 460 (753) 4,898
PROVISION FOR INCOME TAXES........................ (2,244) (200) (147) 322 (2,269)
------- --------- ----------- ----- -----------
Income (loss) before extraordinary gain......... $ 2,768 $ (21) $ 313 $ (431) $ 2,629
------- --------- ----------- ----- -----------
------- --------- ----------- ----- -----------
EARNINGS PER SHARE:
Primary before extraordinary gain............... $ 0.66 $ 0.62
Fully diluted before extraordinary gain......... $ 0.60 $ 0.55
Primary weighted average shares................. 4,158 67 4,225
Fully diluted weighted average shares........... 4,611 67 4,678
</TABLE>
The accompanying Notes to Unaudited Pro Forma Combining Financial Statements
are an integral part of this statement.
F-64
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CONTINENTAL
WASTE BUSINESSES
INDUSTRIES, ACQUIRED PRO FORMA PRO FORMA
INC. IN 1995 ADJUSTMENTS COMBINED
-------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
REVENUE.................................................... $ 20,478 $ 5,585 $ -- $ 26,063
COSTS AND EXPENSES:
Operating expenses....................................... 12,135 4,550 153 16,838
General and administrative expenses...................... 2,984 701 -- 3,685
------- ----------- ----- -----------
Income from operations................................... 5,359 334 (153) 5,540
OTHER INCOME (EXPENSES):
Interest expense......................................... (1,298) (86) (221) (1,605)
Other income (expense), net.............................. -- 1 89 90
------- ----------- ----- -----------
Income before income taxes............................... 4,061 249 (285) 4,025
PROVISION FOR INCOME TAXES................................. (1,723) (116) 133 (1,706)
------- ----------- ----- -----------
Net income............................................... $ 2,338 $ 133 $ (152) $ 2,319
------- ----------- ----- -----------
------- ----------- ----- -----------
EARNINGS PER SHARE:
Primary.................................................. $ 0.34 $ 0.34
Fully diluted............................................ $ 0.34 $ 0.33
Primary weighted average shares.......................... 6,848 63 6,911
Fully diluted weighted average shares.................... 6,961 63 7,024
</TABLE>
The accompanying Notes to Unaudited Pro Forma Combining Financial Statements
are an integral part of this statement.
F-65
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS
NOTE 1. -- DESCRIPTION OF PRO FORMA COMBINING FINANCIAL STATEMENTS
The unaudited pro forma combining financial statements of the Company
reflect certain business acquisitions as if such acquisitions had occurred on
January 1, 1994. The acquisitions included in the pro forma statements are
described below:
1994 ACQUISITION:
On July 1, 1994, the Company acquired approximately 73% of the issued
and outstanding capital stock of Victory for 498,855 shares of Common
Stock and various contingent consideration. At that point Victory owned
approximately 54% of the issued and outstanding common stock of GEM. By
December 31, 1994, the Company acquired an additional approximate 23% of
Victory, certain options to purchase Victory common stock and an
additional approximate 27% of GEM for an aggregate of 185,756 shares of
Common Stock and the forgiveness of certain indebtedness from GEM. See
Note 2 of the Notes to Consolidated Financial Statements included
elsewhere in this Prospectus for a full description of the Victory
acquisition.
The acquisition was accounted for as a purchase and, accordingly, the
purchase price was allocated to the assets acquired and liabilities
assumed based upon management's estimate of their fair value at the date
of acquisition. Those estimated fair values were adjusted as of December
31, 1994, to reflect information obtained by the Company's managment
regarding the fair values after the original allocation. Certain other
immaterial adjustments to the fair values assigned have been made as of
June 30, 1995, to reflect yet additional information. No further
adjustments are anticipated except to appropriately account for certain
contingencies which have yet to be settled. The operating results of
Victory have been included in the consolidated results of the Company
from the acquisition date.
The principal allocations of the purchase price, excluding the potential
effect of certain contingencies which have yet to be settled, are as
follows (in millions):
<TABLE>
<S> <C>
Land, landfill sites and improvements................ $ 26.1
Excess cost over fair value of net assets acquired... 1.3
Assumed indebtedness................................. (11.3)
Accrued landfill closure costs....................... (3.7)
Other net assets..................................... (2.8)
---------
$ 9.6
---------
---------
</TABLE>
The settlement of outstanding contingencies are not expected to have a
material effect on the above allocation or future results of operations.
1995 ACQUISITIONS:
From April 1, to August 15, the Company has expanded its operations
through the acquisition of eight businesses engaged in waste management
businesses. Each of these transactions have been accounted for using the
purchase method of accounting. These entities included ASCO Sanitation,
Inc., Larry's Disposal, Inc., Terre Haute Recycling, Inc., Gilliam
Sanitation, Inc., Gilliam Transfer, Inc., Anderson Refuse Company, Inc.,
M.V. Dulworth, and a 72% interest in Procesa Continental S.A., de C.V.
The aggregate purchase price of these businesses was $7.9 million, plus
the assumption or refinancing of $2.1 million of debt and $1.0 million
of future contingent payments. The purchase prices were paid by issuing
67,020 shares of the Company's Common Stock with a market value of
$797,000 at the time of issuance and cash obtained from the Company's
Credit Facility of $4.8 million.
F-66
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. -- DESCRIPTION OF PRO FORMA COMBINING FINANCIAL STATEMENTS (CONTINUED)
None of these acquisitions have been individually significant, each with
a purchase price and assets less than 10% of the Company's December 31,
1994 assets and each with historical income or loss before income taxes
of less than 10% of the Company's income before income taxes and
extraordinary gain for the year ended December 31, 1994. In addition,
the aggregate of these transactions is less than 10% of the measures
described above except for the aggregate of the absolute values of the
incomes and losses before income taxes of these entities which total
more than 10% but less than 20% of the Company's 1994 income before
income taxes and extraordinary gain.
Accordingly, although the acquired businesses are not integral to each
other, their financial position and operating results were combined for
purposes of the pro forma presentation. Additionally, on June 28, 1995,
the Company acquired the remaining outstanding common stock of Victory
and GEM.
For purposes of the accompanying pro forma financial statements,
adjustments have been reflected on an estimated basis using the most
recent information available. No assurances can be given that the final
determination of the fair value of assets acquired and liabilities
assumed in the various acquisitions (except the acquisition of Victory
as described above) will not differ from the adjustments presented
herein. Such determination will be made within one year of the related
acquisition and are not expected to be materially different from the
estimates used herein.
The pro forma financial statements should be read in conjunction with
the respective audited and interim financial statements of CWI, Victory
and GEM and the related notes thereto, included elsewhere in this
Prospectus. The pro forma statements are not necessarily indicative of
the results that would have been obtained if the acquisitions had been
consummated at an earlier date and is not intended to be a projection of
future results or trends.
F-67
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. -- ADJUSTMENTS TO THE JUNE 30, 1995 COMBINING BALANCE SHEET (IN
THOUSANDS)
<TABLE>
<S> <C>
Other current assets --
Revaluation of certain prepaid expenses........................... $ (44)
---------
---------
Landfills, property and equipment, net --
Revaluation of acquired transfer station.......................... $ 796
---------
---------
Excess cost over fair value --
Anderson Refuse Company, Inc...................................... $ 986
Terre Haute Recycling, Inc........................................ 1,825
Gilliam Sanitation, Inc........................................... 1,587
Procesa Continental S.A., de C.V.................................. 1,098
---------
$ 5,496
---------
---------
Notes payable --
Non-interest bearing notes to sellers of Anderson Refuse Company,
Inc.............................................................. $ 955
Non-interest bearing note to seller of M.V. Dulworth.............. 195
Non-interest bearing note to seller of Procesa Continental S.A.,
de C.V........................................................... 200
---------
$ 1,350
---------
---------
Current maturities of long-term debt --
Debt due to seller of Gilliam Sanitation, Inc. at imputed interest
of 9.0%.......................................................... $ 183
---------
---------
Other current liabilities --
Current portion of determinable contingent payments............... $ 230
---------
---------
Long-term debt --
Borrowing under the Credit Facility to finance the acquisitions... $ 3,723
Debt due to seller of Gilliam Sanitation, Inc. at imputed interest
of 9.0%.......................................................... 319
---------
$ 4,042
---------
---------
Other long-term liabilities --
Long-term portion of determinable contingent payments............. $ 570
Minority interest in subsidiaries (28% of Procesa)................ 80
---------
$ 650
---------
---------
Equity of acquired companies --
Elimination of equity of acquired companies....................... $ (900)
---------
---------
Additional paid-in capital --
Issuance of Shares to acquire companies........................... $ 693
---------
---------
</TABLE>
F-68
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. -- ADJUSTMENTS TO COMBINING STATEMENTS OF INCOME
Operating results of acquired businesses for periods prior to their
acquisition by the Company are included in the "Victory" and "Businesses
Acquired in 1995" columns, as appropriate. Pre-acquisition periods for each
acquired business extend to their respective acquisition dates which are as
follows:
<TABLE>
<S> <C>
Victory Waste Incorporated, Inc. July 1, 1994
ASCO Sanitation, Inc. April 1, 1995
Larry's Disposal, Inc. April 28, 1995
Terre Haute Recycling, Inc. July 17, 1995
Gilliam Sanitation, Inc. July 18, 1995
Gilliam Transfer, Inc. July 18, 1995
Anderson Refuse Company, Inc. August 1, 1995
M.V. Dulworth August 1, 1995
Procesa Continental S.A., de C.V. August 15, 1995
</TABLE>
Pro forma adjustments (in thousands) --
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE SIX
ENDED DEC. MONTHS ENDED
31, 1994 JUNE 30, 1995
------------- ---------------
<S> <C> <C>
Operating expenses --
Record amortization of Victory's landfill site revaluation adjustments............. $ 206 $ --
Record depreciation of other property revaluation adjustments...................... 69 35
Record amortization of goodwill from all acquisitions over 25 years................ 281 118
----- -----
$ 556 $ 153
----- -----
----- -----
Interest expense --
Record interest expense on additional borrowings under the Credit Facility to
finance the acquisitions.......................................................... $ (436) $ (194)
Record interest expense on notes due to sellers.................................... (64) (27)
Eliminate non-recurring interest expense and deferred refinancing costs incurred by
Victory........................................................................... 350 --
----- -----
$ (150) $ (221)
----- -----
----- -----
Other income (expense), net --
Eliminate Victory's minority interest related to GEM............................... $ 56 $ --
Eliminate the Company's minority interest related to Victory and GEM............... -- 44
Record the Company's minority interest related to Procesa.......................... (103) 45
----- -----
$ (47) $ 89
----- -----
----- -----
Provision for income taxes --
Record income tax effect of above adjustments at the Company's statutory income tax
rate (40%)........................................................................ $ 322 $ 133
----- -----
----- -----
Primary and fully dilutive weighted average shares --
Issuance of Shares to acquire companies............................................ 67 63
----- -----
----- -----
</TABLE>
F-69
<PAGE>
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUMMARY............................. 3
RISK FACTORS................................... 6
USE OF PROCEEDS................................ 10
THE COMPANY.................................... 10
RECENT DEVELOPMENTS............................ 10
MARKET FOR COMMON EQUITY AND DIVIDEND POLICY... 12
CAPITALIZATION................................. 13
SELECTED CONSOLIDATED FINANCIAL AND OPERATING
DATA.......................................... 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................... 16
BUSINESS....................................... 22
MANAGEMENT..................................... 36
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.................................. 40
PRINCIPAL AND SELLING STOCKHOLDERS............. 42
DESCRIPTION OF CAPITAL STOCK................... 43
UNDERWRITING................................... 44
LEGAL MATTERS.................................. 46
EXPERTS........................................ 46
AVAILABLE INFORMATION.......................... 47
INDEX TO FINANCIAL STATEMENTS.................. F-1
</TABLE>
1,772,529 SHARES
[LOGO]
CONTINENTAL WASTE
INDUSTRIES, INC.
COMMON STOCK
-----------------
P R O S P E C T U S
-----------------
RAYMOND JAMES &
ASSOCIATES, INC.
FIRST ANALYSIS SECURITIES CORPORATION
NATWEST SECURITIES LIMITED
, 1995
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 2 of Article Eighth of the Company's Certificate of Incorporation
provides for indemnification of the Company's officers and directors to the
fullest extent permitted by Section 145 of the Delaware General Corporation Law
(the "DGCL"). Section 145 of the DGCL provides for indemnification of the
Company's directors and officers from and against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement reasonably incurred by
them in connection with any civil, criminal, administrative or investigative
claim or proceeding (including civil actions brought as derivative actions by or
in the right of the Company but only to the extent of expenses reasonably
incurred in defending or settling such action) in which they may become involved
by reason of being a director or officer of the Company if the director or
officer acted in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interest of the Company and, in addition, in
criminal actions, if he had no reasonable cause to believe his conduct to be
unlawful. If, in an action brought by or in the right of the Company, the
director or officer is adjudged liable for negligence or misconduct in the
performance of his duty, he will only be entitled to this indemnity as the court
finds proper. Persons who are successful in defense of any claim against them
are entitled to indemnification as of right against expenses actually and
reasonably incurred in connection therewith. In all other cases, indemnification
shall be made (unless otherwise ordered by a court) only if the board of
directors of the Company, acting by a majority vote of a quorum of disinterested
directors, independent legal counsel or holders of a majority of the shares
entitled to vote, determines that the applicable standard of conduct has been
met. Section 145 also provides this indemnity for directors and officers of the
Company who, at the request of the Company, act as directors, officers,
employees or agents of other corporations, partnerships or other enterprises.
Section 1 of Article Eighth of the Company's Certificate of Incorporation
limits the liability of the Company's directors to the Company or its
stockholders to the fullest extent permitted by the DGCL. Section 102(b)(7) of
the DGCL provides that personal monetary liabilities of a director for breaches
of his fiduciary duties as a director may not be eliminated with regard to any
breach of the duty of loyalty, failing to act in good faith, intentional
misconduct or knowing violation of law, payment of an unlawful dividend,
approval of an illegal stock repurchase, or obtainment of an improper personal
benefit. Such a provision has no affect on the availability of equitable
remedies, such as an injunction or recision, for breach of fiduciary duty.
The employment agreements of certain directors and officers contain a
provision similar to the provisions of the Certificate of Incorporation.
The Company maintains directors and officers liability insurance that will
insure against liabilities that directors and officers of the Company may incur
in such capacities.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted for directors, officers and controlling persons of the Company
pursuant to the foregoing, or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a schedule of the estimated expenses to be incurred by the
Company in connection with the issuance and sale of the securities being
registered hereby.
<TABLE>
<S> <C>
Registration Fee...................................................... $ 10,586
NASD Filing Fee....................................................... 3,570
Blue Sky Fees and Expenses............................................ 10,000*
Accounting Fees and Expenses.......................................... 75,000*
Legal Fees and Expenses............................................... 182,500*
Printing Expenses..................................................... 110,000*
Transfer Agent and Registrar Fees..................................... 500*
Nasdaq Listing Fees...................................................
Miscellaneous.........................................................
---------
Total............................................................... $ 400,000
---------
---------
<FN>
------------------------
* Estimated
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the last three years the Company and its predecessor, Finet, Inc.
("Finet"), a New York corporation, issued the following securities in
transactions exempt from registration under the Securities Act:
1. On September 9, 1993, Finet issued 2,357,319 shares of common stock,
425,200 Series A preferred shares and 118,950 Series B preferred shares in
exchange for all of the outstanding capital stock (and certain related accrued
dividends) of a predecessor to the Company ("Former Continental"). These shares
of common stock were issued to 31 persons, five of whom were accredited
investors. All shareholders of Former Continental that were not accredited
investors represented that they were acquiring the shares of common stock for
investment and not with a view to distribution and that either alone or with
their purchaser representatives they had such knowledge and experience in
financial and business matters to be capable of evaluating the merits and risks
of the investment (the "Investor Representations"). Finet filed reports pursuant
to Section 15(d) of the Securities Exchange Act of 1934 and the shareholders of
Former Continental were provided the information specified in subparagraphs (ii)
through (vii) of paragraph (b)(2) of Rule 502 of Regulation D (the "Regulation D
Information") a reasonable time prior to the transaction. In connection with
this transaction, the Company also issued 15,000 shares of common stock to two
accredited investors on September 9, 1993 for an aggregate of $15.00. A Form D
was filed with the Commission in connection with these transactions and
exemption was claimed under Rule 506 of Regulation D.
2. Since November 23, 1993 the Company has issued 25,387 shares of Common
Stock to eight persons as payment for professional services and other
compensation. Each of the persons who acquired these shares of Common Stock
represented that they were accredited investors. A Form D was filed with respect
to each of these transactions and exemption from registration for each of these
transactions was claimed under one or more of Rules 505 and 506 of Regulation D
and Section 4(6) of the Securities Act.
3. Since December 30, 1993, the Company has issued a total of 878,213
shares of Common Stock in connection with acquisitions to a total of 43 persons,
42 of whom represented to the Company that they were accredited investors. The
person who acquired these shares of Common Stock that was not an accredited
investor made the Investor Representations and was provided with the Regulation
D Information. A Form D was filed with the Commission in connection with each of
these transactions and exemption from registration for each of these
transactions was claimed under one or more of Rules 505 and 506 of Regulation D
or Section 4(2) of the Securities Act.
4. Since January 25, 1994, the Company has issued a total of 771,459 shares
of Common Stock for cash at prices ranging from $5.00 to $8.00 per Share, with a
total purchase price aggregating $4,784,748. These shares of Common Stock were
purchased by a total of 50 persons, 46 of whom represented to the
II-2
<PAGE>
Company that they were accredited investors. Each of the persons who acquired
these shares of Common Stock who was not an accredited investor made the
Investor Representations and was provided with the Regulation D Information. A
Form D was filed with the Commission in connection with each of these
transactions and exemption from registration for each of these transactions was
claimed under one or more of Rules 505 and 506 of Regulation D.
5. On February 17, 1994, Finet was merged with and into the Company for the
purpose of changing domicile. In the merger each share of capital stock of the
predecessor was converted into a like share of capital stock of the Company.
Exemption for this transaction is claimed on the grounds that the issuance of
the shares did not involve an "offer to sell," "offer for sale" or sale within
the meaning of Section 2(3) of the Securities Act because the sole purpose of
the merger was to change domicile as contemplated by paragraph (a)(2) of Rule
145 promulgated under the Securities Act.
6. On November 4, 1994, the Company exchanged 425,200 shares of Common
Stock plus warrants to purchase 42,656 shares of Common Stock at an exercise
price of $9.50 per share (the "Venture Warrants") for 425,200 Series A preferred
shares held by the Venture Investors. An exemption for the Common Stock and
warrants issued by the Company in this transaction was claimed under Section
3(a)(9) of the Securities Act as an exchange by the Company exclusively with its
existing security holders where no commission or other remuneration was paid or
given directly or indirectly for soliciting the exchange. All of the Venture
Warrants, which expire November 4, 1999, remain outstanding as of the date of
this Prospectus.
7. On July 13, 1995, the Company issued 14,043 shares of Common Stock to
Mr. Edward Albert, who represented to the Company that he was an accredited
investor, in exchange for 110,000 shares of common stock of Eastern
Environmental Services, Inc. A Form D was filed with respect to this transaction
and exemption from registration for this transaction was claimed under one or
more of Rules 505 and 506 of Regulation D and Section 4(6) of the Securities
Act.
Additional detail with respect to the aforementioned issuances is set forth
in the table below:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
SHARES OF SHARES OF SHARES OF
COMMON SERIES A SERIES B CONSIDERATION
STOCK PREFERRED PREFERRED AMOUNT PER CASH OTHER THAN
DATE ISSUED # STOCK ISSUED STOCK ISSUED SHARE $ AMOUNT $ CASH
-------------------------------------- ----------- ------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
August 15, 1995(q).................... 25,000
July 18, 1995(r)...................... 33,520 11.93 400,000
July 17, 1995(l)...................... 433 12.75 5,521 (s)
July 13, 1995(w)...................... 14,043 11.75 165,005 (y)
July 1, 1995(l)....................... 862 11.50 9,913 (s)
June 2, 1995(l)....................... 14,134 10.25 144,874 (s)
May 16, 1995(l)....................... 8,500 11.38 96,688 (t)
May 8, 1995(l)........................ 14,545 11.00 159,995 (s)
May 8, 1995(l)........................ 8,149 11.75 95,751 (s)
May 8, 1995(l)........................ 2,638 11.13 29,348 (s)
May 8, 1995(l)........................ 909 11.88 10,794 (s)
May 8, 1995(l)........................ 155 11.00 1,705 (s)
April 14, 1995(l)..................... 383 10.63 4,069 (s)
April 14, 1995(l)..................... 294 10.00 2,940 (s)
March 17, 1995(l)..................... 36,555 10.00 365,550 (s)
November 17, 1994(u).................. 61,416 9.00 552,735
November 4, 1994(x)................... 425,200 (z)
October 25, 1994(v)................... 16,875 8.00 135,000
October 3, 1994(u).................... 9,900 9.00 89,100
September 30, 1994(m)................. 26,600 9.00 239,400
September 30, 1994(m)................. 91,141 9.00 820,269
September 30, 1994(m)................. 12,000 9.00 108,000
September 9, 1994(l).................. 6,203 6.75 $ 41,870(b)
September 1, 1994(l).................. 5,148 6.75 34,749
July 25, 1994(n)...................... 50,000 6.75 337,500
July 21, 1994(m)...................... 498,855 N/A N/A(c)
July 20, 1994(n)...................... 222,222 6.75 1,499,999
<CAPTION>
NUMBER OF
DATE PERSONS
-------------------------------------- --------------
<S> <C>
August 15, 1995(q).................... 1
July 18, 1995(r)...................... 5
July 17, 1995(l)...................... 1
July 13, 1995(w)...................... 1
July 1, 1995(l)....................... 1
June 2, 1995(l)....................... 1
May 16, 1995(l)....................... 1
May 8, 1995(l)........................ 1
May 8, 1995(l)........................ 1
May 8, 1995(l)........................ 1
May 8, 1995(l)........................ 1
May 8, 1995(l)........................ 1
April 14, 1995(l)..................... 1
April 14, 1995(l)..................... 1
March 17, 1995(l)..................... 1
November 17, 1994(u).................. 5
November 4, 1994(x)................... 3
October 25, 1994(v)................... 3
October 3, 1994(u).................... 6
September 30, 1994(m)................. 2
September 30, 1994(m)................. 3
September 30, 1994(m)................. 1
September 9, 1994(l).................. 3
September 1, 1994(l).................. 3
July 25, 1994(n)...................... 1
July 21, 1994(m)...................... 4
July 20, 1994(n)...................... 2
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
SHARES OF SHARES OF SHARES OF
COMMON SERIES A SERIES B CONSIDERATION
STOCK PREFERRED PREFERRED AMOUNT PER CASH OTHER THAN
DATE ISSUED # STOCK ISSUED STOCK ISSUED SHARE $ AMOUNT $ CASH
-------------------------------------- ----------- ------------- ------------- ----------- ----------- -------------
July 18, 1994(n)...................... 64,000 6.25 400,000
<S> <C> <C> <C> <C> <C> <C>
July 18, 1994(n)...................... 10,000 7.00 70,000
July 18, 1994(n)...................... 25,000 7.00 175,000
July 18, 1994(n)...................... 1,000 6.75 6,750
March 31, 1994(n)..................... 12,500 8.00 100,000
March 31, 1994(n)..................... 15,000 7.00 105,000
March 31, 1994(n)..................... 10,000 6.75 67,500
March 31, 1994(n)..................... 106,000 6.50 689,000
March 31, 1994(n)..................... 5,000 6.75 33,750
March 31, 1994(n)..................... 55,000 6.75 371,250
March 31, 1994(n)..................... 1,667 6.00 10,000
March 31, 1994(n)..................... 3,000 6.00 18,000
March 25, 1994(n)..................... 3,455 6.50 22,453(a)
January 28, 1994(n)................... 150,000 5.00 750,000
January 26, 1994(n)................... 30,000 5.00 150,000
January 20, 1994(n)................... 11,070 6.40 70,844(d)
December 30, 1993(m).................. 15,385 6.50 100,000(e)
November 23, 1993(l).................. 10,545 7.00 73,810(a)
September 9, 1993(3)(k)............... 2,196,030 N/A N/A(f)
September 9, 1993(k).................. 43,264 N/A N/A(g)
September 9, 1993(k).................. 118,025 6.35 750,000(h)
September 9, 1993(k).................. 15,000 0.001 15
September 9, 1993(k).................. 425,200 5.64 N/A N/A(i)
September 9, 1993(k).................. 118,950 N/A N/A(j)
<CAPTION>
NUMBER OF
DATE PERSONS
-------------------------------------- --------------
July 18, 1994(n)...................... 1
<S> <C>
July 18, 1994(n)...................... 1(o)
July 18, 1994(n)...................... 1(o)
July 18, 1994(n)...................... 1
March 31, 1994(n)..................... 1
March 31, 1994(n)..................... 4
March 31, 1994(n)..................... 2
March 31, 1994(n)..................... 2
March 31, 1994(n)..................... 1
March 31, 1994(n)..................... 3
March 31, 1994(n)..................... 1
March 31, 1994(n)..................... 1
March 25, 1994(n)..................... 1
January 28, 1994(n)................... 26
January 26, 1994(n)................... 1
January 20, 1994(n)................... 2
December 30, 1993(m).................. 1
November 23, 1993(l).................. 1
September 9, 1993(3)(k)............... 28
September 9, 1993(k).................. 3(p)
September 9, 1993(k).................. 3(p)
September 9, 1993(k).................. 2
September 9, 1993(k).................. 3(p)
September 9, 1993(k).................. 3(p)
<FN>
------------------------------
(a) Shares were issued as payment for certain professional fees.
(b) Shares were issued as payment for certain compensation.
(c) Shares were issued in exchange for 73% of the common stock of Victory Waste
Incorporated.
(d) Shares were issued as payment for certain accrued interest.
(e) Shares were issued as payment for certain liabilities in the purchase of a
landfill.
(f) Shares were issued in exchange for all of the issued and outstanding common
stock of Former Continental.
(g) Shares were issued in exchange for certain Former Continental Series A
Preferred shares.
(h) Shares were issued as payment for accrued dividends and indebtedness to
certain stockholders.
(i) Shares were issued in exchange for certain issued and outstanding Former
Continental Series A Preferred Shares.
(j) Shares were issued in exchange for all the issued and outstanding Former
Continental Series B Preferred Shares.
(k) See paragraph No. 2, above.
(l) See paragraph No. 3, above.
(m) See paragraph No. 4, above.
(n) See paragraph No. 6, above.
(o) Denotes the same investor.
(p) Includes the three Venture Investors.
(q) Shares were issued in connection with the acquisition of 72% of the
outstanding common stock of Procesa Continental S.A. de C.V.
(r) Shares were issued in connection with the acquisition of Gilliam
Sanitation, Inc. and Gilliam Transfer, Inc.
(s) Shares were issued in connection with the acquisition of the outstanding
common stock of Victory Waste Incorporated and G.E.M. Environmental
Management Inc.
(t) Shares were issued to Mr. Anthony Smith in connection with the merger of
ASCO Sanitation, Inc. with and into ASCO Acquisition, Inc., a wholly-owned
subsidiary of the Company.
(u) Shares issued upon the exercise of warrants issued in connection with the
outstanding common stock of Victory Waste Incorporated.
(v) Shares issued in connection with the acquisition of assets from Messrs.
Larry and C.S. Henderson and the Randolph County Landfill & Salvage Co.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
(w) Shares issued to Mr. Edward Albert in connection with the acquisition of
110,000 shares of outstanding common stock of Eastern Environmental
Services, Inc.
(x) Shares issued in connection with the conversion of the 425,200 Series A
preferred shares into shares of Common Stock.
(y) See paragraph No. 7, above.
(z) See paragraph No. 6, above.
</TABLE>
On January 20, 1994, the Company issued warrants to two persons to purchase
20,000 shares of Common Stock at an exercise price of $9.00 per share in
connection with the acquisition of FLL, Inc. (the "Landfill Warrants"). All of
the Landfill Warrants, which expire on January 20, 1997, remain outstanding as
of the date of this Prospectus. An exemption for the Landfill Warrants issued in
this transaction was claimed under Section 4(2) of the Securities Act as a
transaction by the issuer not involving a public offering.
On August 1, 1994, the Company issued warrants to purchase 43,860 shares of
Common Stock at an exercise price of $3.93 per share in connection with the
retirement of certain debt owned to Mr. Aguero (the "Aguero Warrants"). All of
the Aguero Warrants, which expire on August 1, 1999, remain outstanding as of
the date of this Prospectus. An exemption for the Aguero Warrants issued in this
transaction was claimed under Section 4(2) of the Securities Act as a
transaction by the issuer not involving a public offering.
On August 1, 1994, the Company issued warrants to purchase 11,696 shares of
Common Stock to Mr. Volini in connection with the acquisition of certain
equipment from Mr. Volini (the "Volini Warrants"). All of the Volini Warrants,
which expire on August 1, 1999, remain outstanding as of the date of this
Prospectus. An exemption for the Volini Warrants issued in this transaction was
claimed under Section 4(2) of the Securities Act as a transaction by the issuer
not involving a public offering.
On November 4, 1994, the Company issued warrants to purchase 50,000 shares
of Common Stock at an exercise price of $13.30 per share, for nominal
consideration, to the underwriters of the Company's public offering in November,
1994 (the "Underwriter Warrants"). All of the Underwriter Warrants, which expire
on November 4, 1999, remain outstanding as of the date of this Prospectus. An
exemption for the Underwriter Warrants issued in this transaction is claimed
under Section 4(2) of the Securities Act as a transaction by the issuer not
involving a public offering.
The Company did not use any placement agents or underwriters in connection
with the sale of any of these securities.
ITEM 27. EXHIBITS
See the Exhibit Index attached hereto.
ITEM 28. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company, a small business issuer, pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The Company will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company under Rule 424(b)(1) or (4) or 497(h) under
the Securities Act as part of this registration statement as of the time the
Commission declared it effective.
II-5
<PAGE>
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
BONA FIDE offering of those securities.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Clark, State of New Jersey, on September 11, 1995.
CONTINENTAL WASTE INDUSTRIES, INC.
(Registrant)
By: /s/ THOMAS A. VOLINI
-----------------------------------
Thomas A. Volini,
CHAIRMAN OF THE BOARD AND
CHIEF OPERATING OFFICER
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Thomas A.
Volini and Carlos E. Aguero his true and lawful attorneys-in-fact and agents,
each acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments to the Registration Statement on Form SB-2 (including post-effective
amendments or any abbreviated registration statement, and any amendments
thereto, filed pursuant to Rule 462(b) increasing the amount of securities for
which registration is being sought), and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Commission,
granting unto said attorneys-in-fact and agents, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act, this registration
statement was signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
NAME POSITION DATE
------------------------------------------------------ --------------------------------- ----------------------
<C> <S> <C>
/s/ THOMAS A. VOLINI Chairman of the Board and Chief
------------------------------------------- Operating Officer (principal September 11, 1995
Thomas A. Volini executive officer)
/s/ CARLOS E. AGUERO President, Chief Executive
------------------------------------------- Officer and Director (principal September 11, 1995
Carlos E. Aguero executive officer)
/s/ MICHAEL J. DRURY
------------------------------------------- Senior Vice President and Chief September 11, 1995
Michael J. Drury Financial Officer
/s/ BRET R. MAXWELL
------------------------------------------- Director September 11, 1995
Bret R. Maxwell
/s/ DONALD H. HAIDER
------------------------------------------- Director September 11, 1995
Donald H. Haider
/s/ RICHARD J. CARLSON
------------------------------------------- Director September 11, 1995
Richard J. Carlson
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DOCUMENT DESCRIPTION PAGE NUMBER
--------- ------------------------------------------------------------------------------------------ -----------------
<C> <S> <C>
1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of Continental Waste Industries, Inc. (incorporated by
reference to Exhibit 3.1 to the Annual Report on Form 10-KSB of Continental Waste
Industries, Inc. filed on March 31, 1994, Commission File No. 0-22602).
3.2 By-Laws of Continental Waste Industries, Inc. (incorporated by reference to Exhibit 3.2 to
the Annual Report on Form 10-KSB of Continental Waste Industries, Inc. filed on March 31,
1994, Commission File No. 0-22602).
3.3 Amendment to Certificate of Incorporation of Continental Waste Industries, Inc., dated
November 1, 1994 (incorporated by reference to Exhibit 3.3 to the Registration Statement
on Form SB-2 of Continental Waste Industries, Inc. filed on November 4, 1994, Commission
File No. 33-84130).
4.1 Warrant of First Analysis Corporation (incorporated by reference to Exhibit 4.4 to the
Registration Statement on Form SB-2 of Continental Waste Industries, Inc. filed on
November 4, 1994, Commission File No. 33-84130).
4.2 Warrant of Raymond James & Associates, Inc. (incorporated by reference to Exhibit 4.3 to
the Registration Statement on Form SB-2 of Continental Waste Industries, Inc. filed on
November 4, 1994, Commission File No. 33-84130).
5 Opinion of Shefsky Froelich & Devine Ltd. regarding legality.*
9 Shareholders' Agreement among Carlos E. Aguero, Thomas A. Volini, Apex Investment Fund
Limited Partnership, Environment Venture Fund Limited Partnership, The Productivity Fund
Limited Partnership, Continental Waste Industries, Inc. and Bret R. Maxwell (incorporated
by reference to Exhibit 9 to the Registration Statement on Form SB-2 of Continental Waste
Industries, Inc. filed on November 4, 1994, Commission File No. 33-84130).
10.1 Employment Agreement between Continental Waste Industries, Inc. and Thomas Volini.
10.2 Employment Agreement between Continental Waste Industries, Inc. and Carlos Aguero.
10.3 Employment Agreement between Continental Waste Industries, Inc. and Michael Drury.
10.4 Employment Agreement between Continental Waste Industries, Inc. and Timothy J. Salopek.*
10.5 Employment Agreement between Continental Waste Industries, Inc. and G. Michael Shannon
(incorporated by reference to Exhibit 10.4 to the Registration Statement on Form SB-2 of
Continental Waste Industries, Inc. filed on November 4, 1994, Commission File No.
33-84130).
10.6 Employment Agreement between Continental Waste Industries, Inc. and Dallas C. Schnitzius
(incorporated by reference to Exhibit 10.5 to the Registration Statement on Form SB-2 of
Continental Waste Industries, Inc. filed on November 4, 1994, Commission File No.
33-84130).
10.7 Employment Agreement between Continental Waste Industries, Inc. and Allen R. Brodbeck.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DOCUMENT DESCRIPTION PAGE NUMBER
--------- ------------------------------------------------------------------------------------------ -----------------
<C> <S> <C>
10.8 Credit Agreement by and among LaSalle National Bank as agent, the Lenders Signatory or
Parties Thereto and Continental Waste Industries, Inc. and its Subsidiaries.*
10.9 First Amendment to Credit Agreement by and among LaSalle National Bank as agent, the
Lenders Signatory or Parties Thereto, and Continental Waste Industries, Inc. and its
Subsidiaries.*
10.10 Stock Purchase Agreement Among Continental Waste Industries, Inc., Camelford Holdings,
Ltd. and Salcott Holdings, Ltd. (incorporated by reference to Exhibit 2 to the Current
Report on Form 8-K of Continental Waste Industries, Inc. filed on July 15, 1994,
Commission File No. 0-22602).
10.11 Agreement for Exchange of Stock Among Continental Waste Industries, Inc., Dallas C.
Schnitzius and G. Michael Shannon (incorporated by reference to Exhibit 2 to the Current
Report on Form 8-K of Continental Waste Industries, Inc. filed on July 15, 1994,
Commission File No. 0-22602).
10.12 Purchase Agreement between Continental Waste Industries, Inc. and Timothy J. Salopek and
Catherine Salopek for the purchase of WPP Services, Inc. (incorporated by reference to
Exhbit 10.9 to the Registration Statement on Form SB-2 of Continental Waste Industries,
Inc. filed on November 4, 1994, Commission File No. 33-84130).
16 Letter re: change in certifying accountants (incorporated by reference to Exhibit 16 to
the Current Report on Form 8-K of Finet, Inc. filed on September 23, 1993, Commission File
No. 0-22602).
21 Subsidiaries of Continental Waste Industries, Inc.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Darrell T. Schvaneveldt.
23.4 Consent of Shefsky Froelich & Devine Ltd. (see Exhibit 5).
<FN>
------------------------
* To be filed by amendment.
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated February 20, 1995 (except with respect to the matter
discussed in Note 6, as to which the date is March 28, 1995), regarding
Continental Waste Industries, Inc. and of our report dated September 12,
1994, regarding Terre Haute Operations and to all references to our firm
included in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois
September 11, 1995
<PAGE>
[KPMG PEAT MARWICK LLP LETTERHEAD]
The Board of Directors
Victory Waste Incorporated
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Indianapolis, Indiana
September 11, 1995
<PAGE>
EXHIBIT 23.3
SCHVANEVELDT AND COMPANY
CERTIFIED PUBLIC ACCOUNTANT
275 E. SOUTH TEMPLE, SUITE 300
SALT LAKE CITY, UTAH 84111
Darrell T. Schvaneveldt, C.P.A. (801) 521-2392
CONSENT OF DARRELL T. SCHVANEVELDT
INDEPENDENT AUDITOR
I consent to the use, in this Form S-B2, of our report dated May 3, 1994, on
the financial statements of Victory Waste Incorporated, (Formerly Ventura
Associates, Inc.), dated December 31, 1993 included herein.
_______/s/ DARRELL SCHVANEVELDT_______
Darrell Schvaneveldt
Salt Lake City, Utah
