SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-6512
TRANSTECH INDUSTRIES, INC.
(Name of small business issuer in its charter)
Delaware 22-1777533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Centennial Avenue, Suite 202, Piscataway, New Jersey 08854
(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: (732) 981-0777
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.50 par value
(Title of Class)
Check whether the issuer (l) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $559,000
At March 18, 1998 the aggregate market value of the voting stock of the
registrant held by non-affiliates was approximately $673,878.
At March 18, 1998 the issuer had outstanding 2,829,190 shares of Common
Stock, $.50 par value. In addition, at such date, the registrant held 1,885,750
shares of Common Stock, $.50 par value, in treasury.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
Page 1 of 133 pages
Exhibit Index on page 35
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TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
----------------
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1997
I N D E X
Page(s)
Part I, Item 1. Description of Business 3 - 14
" Item 2. Description of Properties 14 - 15
" Item 3. Legal Proceedings 15 - 23
" Item 4. Submission of Matters to a Vote
of Security Holders 23
Part II, Item 5. Market for Common Equity and
Related Stockholder Matters 24
" Item 6. Management's Discussion and
Analysis or Plan of Operation 24
" Item 7. Financial Statements 24
" Item 8. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure 24
Part III, Item 9. Directors, Executive Officers,
Promoters and Control Persons;
Compliance with Section 16(a)
of the Exchange Act 25 - 26
" Item 10. Executive Compensation 26 - 28
" Item 11. Security Ownership of Certain
Beneficial Owners and Management 28 - 30
" Item 12. Certain Relationships and Related
Transactions 30 - 32
Part IV, Item 13. Exhibits and Reports on Form 8-K 33
Signatures 34
Exhibit Index 35 - 40
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PART I, ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Transtech Industries, Inc. ("Transtech") was incorporated under the laws
of the State of Delaware in 1965. Transtech, directly and through its
subsidiaries (Transtech and its subsidiaries collectively referred to as the
"Company"), generates electricity utilizing methane gas, supervises and performs
landfill monitoring and closure procedures and manages methane gas recovery
operations (see "Continuing Operations" below).
During 1995 and 1996, the Company divested its interests in two
subsidiaries. In 1995, the Company sold the subsidiary which marketed carbide
lime and other high alkali products for use as neutralization agents in
municipal and industrial wastewater treatment plants. In 1996, the Company
completed the sale of the subsidiary which manufactured and sold specialty
directional and flow control valves, fluid power components, hydraulic and
pneumatic cylinders, and complete valve systems for commercial and military use
(see "Discontinued Operations" below).
The Company and certain subsidiaries were previously involved in the
resource recovery and waste management industries. These activities included the
operation of three landfills and a solvents recovery facility. Although these
sites are now closed, the Company continues to own and/or remediate them and has
both incurred and accrued for the substantial costs associated therewith (see
"Prior Operations" below and Part I, Item 3, Legal Proceedings).
At December 31, 1997, the Company employed 20 persons on a full-time
basis.
CONTINUING OPERATIONS
ELECTRICITY GENERATION. Revenues from operations which generate
electricity utilizing methane gas as fuel represented 55% and 73% of
consolidated net revenues in the years ended December 31, 1997 and 1996,
respectively. The electricity generating facility consists of four
diesel/generating units each capable of generating approximately 48,000 kwh/day
at full capacity. Methane gas is a component of the landfill gas generated by a
landfill site owned by the Company. Engineering studies indicate sufficient
quantities of gas at the landfill to continue the operation of the facility for
approximately fourteen years. Electricity generated is sold pursuant to a long
term contract with a local utility. The contract has seven years remaining.
Revenues are a function of the number of kilowatt hours sold, the rate received
per kilowatt and capacity payments. The Company sold 10.6 million kwh during the
year ended December 31, 1997 compared to 8.5 million sold in the prior year. The
operation experienced fewer equipment failures and
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down-time for repairs in 1997 when compared to 1996. Elements of the landfill
gas are more corrosive to the equipment than traditional fuels, therefore
resulting in more hours dedicated to repair and maintenance than with equipment
utilizing traditional fuels.
ENVIRONMENTAL SERVICES. The environmental services subsidiary supervises
and performs landfill monitoring and closure procedures and manages methane gas
operations. Approximately 38% of the environmental services subsidiary's gross
revenues for 1996, compared to 65% for the prior year, were from other members
of the consolidated group, and therefore eliminated in consolidation. The
subsidiary contributed 45% and 23% to consolidated revenues in each of the years
ended December 31, 1997 and 1996, respectively, after elimination of
intercompany sales. Substantially all third party sales during 1997 and 1996
were to four and one customer(s), respectively. The increase in sales to third
parties was primarily due to the commencement of a six month construction
project in mid-year 1997.
The Company is continuing its efforts to expand the customer base of this
subsidiary to entities outside the consolidated group. During the last four
years, the subsidiary has provided, and continues to provide, quotes on
construction and maintenance projects involving the closure and remediation of
waste sites and contaminated properties. The subsidiary participates in a
competitive market on the basis of price and experience. Some construction
projects may have bonding requirements which are beyond the subsidiary's ability
to secure. The subsidiary continues performing closure activities on sites
previously operated by other subsidiaries of the Company. During August 1995 the
subsidiary entered into a joint marketing agreement with a national engineering
firm with respect to projects involving the closure and remediation of municipal
waste sites in the northeastern United States. Since entering into the
agreement, the subsidiary and engineering firm had jointly evaluated five
projects and bid on two of those projects, but had not been awarded a contract.
The agreement terminated during December 1996, however the Company continues to
conduct business with the engineering firm.
OTHER BUSINESSES In July 1989, Transtech entered into a purchase agreement
(the "Computer Purchase Agreement") with The Tax Strategy Group, Inc. ("TSG")
pursuant to which Transtech purchased certain high-end IBM mainframe computer
equipment (the "Equipment") subject to a master lease with Computer Leasing,
Inc. for a term of eight years (the "Master Lease") and user leases of varying
terms. The purchase price of the Equipment was $35.8 million, of which $2.6
million was paid in cash at closing and the balance of $33.2 million payable in
equal consecutive monthly installments of $586,741 (representing principal and
interest at the rate of 13.5% per year) over an eight year period.
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Pursuant to the Computer Purchase Agreement and the Master Lease, the
monthly base rental income under the Master Lease equals the Company's monthly
payments to TSG. Commencing in July 1994, the Company began receiving additional
rental income equal to 75% of rents actually paid by users of the Equipment
through the expiration of the Master Lease. From 1989 to 1993, the Company's
deductions for accelerated depreciation and interest expense exceeded rental
income. However, beginning in 1994 and continuing through July 1997, the annual
rental income exceeds such annual tax deductions, generating net taxable income.
Beginning in 1991, the Company reduced its estimate of the future rental
and residual value of the Equipment to reflect the decline in market values and
lease rates of equipment of the type owned by the Company. Terms of the Computer
Purchase Agreement granted the Company the right to require TSG to repurchase
the Equipment if the leases' cumulative financial benefits to the Company
through December 31, 1994 or 1995 were less than a specified amount, as measured
by the rate of return on the Company's investment. This right was exercisable in
the first two months of 1995 or 1996, and was forfeited for the remaining life
of the Computer Purchase Agreement when it was not exercised. The purchase price
of the Equipment which TSG would have been required to pay the Company if the
Company had exercised the right would have equalled the amount necessary for the
Company to achieve the specified rate of return. The rate of return through
December 31, 1995 was greater than the specified rate, therefore the Company was
unable to exercise this right.
The Master Lease terminated during July, 1997 and all but one piece of
Equipment had been sold by the Company to the end-users. The market value of the
remaining piece of Equipment is nominal. The Company reported income of $12,000
for the year ended December 31, 1997 in recognition of proceeds from the sale of
Equipment in excess of book value.
The Internal Revenue Service questioned the deductions claimed by the
Company in connection with its investment in the Equipment (see Part I, Item 3,
Legal Proceedings).
The other subsidiaries of the Company hold assets consisting of cash and
marketable securities, real property, notes receivable and contract rights.
PRIOR OPERATIONS
LANDFILL AND WASTE HANDLING OPERATIONS. In February 1987, the landfill
owned and operated by Kinsley's Landfill, Inc. ("Kinsley's"), the last of the
three solid waste landfills previously operated by subsidiaries of the Company,
reached permitted capacity and was closed. Previously, in 1976, the landfill
owned and operated by Kin-Buc, Inc. ("Kin-Buc") was closed
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and, in 1977, the landfill operated by Mac Sanitary Land Fill, Inc. ("Mac") was
closed. Pursuant to certain federal and state environmental laws, these
subsidiaries continue to be responsible for maintenance and monitoring
activities associated with the closure procedures of these landfills. The
closure procedures typically include the final cover, testing and monitoring of
the landfill and associated wells. In addition, the Company has incurred
significant professional fees in lawsuits regarding these activities and efforts
to obtain contributions towards the cost of closure procedures from waste
generators and other parties.
The Company's accruals for closure and remediation activities equal the
present value of the Company's estimated share of future costs related to a site
less funds held in trust for such purposes. Such estimates require a number of
assumptions, and therefore may differ from the ultimate outcome. The costs of
litigation associated with a site are expensed as incurred. The Company has
accrued remediation and closure costs for Kinsley's landfill and Mac landfill,
and for the Kin-Buc landfill prior to December 31, 1997. Amounts held in certain
trusts dedicated to post-closure activities of Kinsley's are netted against the
accrual for presentation in the Company's balance sheet.
The impact of future events or changes in environmental laws and
regulations, which cannot be predicted at this time, could result in material
changes in remediation and closure costs related to the Company's past waste
handling activities, possibly in excess of the Company's available financial
resources.
At December 31, 1997, the Company has accrued approximately $11.2 million
for its portion of the estimated closure and remediation costs of these
landfills. Of such amount, approximately $9.1 million is held in trusts
maintained by trustees for post-closure activities at Kinsley's landfill (see
Part I, Item 3, Legal Proceedings).
KIN-BUC. On December 23, 1997, the Company entered into four agreements
which settled lawsuits related to the allocation of costs of remediation of the
landfill owned and operated by Kin-Buc (the "Kin-Buc Landfill") and
substantially relieved the Company from future obligation with respect to the
site (see Part I, Item 3, Legal Proceeding).
The Kin-Buc Landfill, located in Edison, New Jersey, was operated by
Kin-Buc through August 1975. From September 1975 until the landfill ceased
operations in November 1977, the landfill was managed by Earthline Company
("Earthline"), a partnership formed by Wastequid, Inc. ("Wastequid"), then a
wholly-owned subsidiary of the Company, and Chemical Waste Management of New
Jersey, Inc. ("CWMNJ"), a wholly-owned subsidiary of SCA Services, Inc. ("SCA")
and an affiliate of Waste Management, Inc. (formerly known as WMX
Technologies, Inc.) ("WMI"). The Company and others have been
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remediating the Kin-Buc Landfill and certain neighboring areas under orders (the
"Orders") issued by the United States Environmental Protection Agency ("EPA") in
September 1990 and November 1992 to 12 respondents: the Company, Kin-Buc,
Earthline, Wastequid, CWMNJ, SCA, Chemical Waste Management, Inc. (an affiliate
of WMI), Filcrest Realty, Inc. (a wholly-owned subsidiary of the Company), Inmar
Associates, Inc. (a company owned and controlled by Marvin H. Mahan, a former
director, officer and principal shareholder of the Company), Marvin H. Mahan,
Robert Meagher (a former director and officer of the Company and Inmar
Associates, Inc.) and Anthony Gaess (a former director and officer of SCA).
Contractors have completed the construction required by EPA. Maintenance of
remedial systems installed at the site and operation of a fluid treatment plant
that was constructed to treat fluids at the site are required for a 30-year
period beginning in 1995. The total cost of the construction, operations and
maintenance of remedial systems over this period plus the cost of past remedial
activities is estimated to be in the range of $80 million to $100 million.
In January 1996, a design for a remedial program involving the
installation of a slurry cut-off wall around a one-acre parcel of land adjacent
to the Kin-Buc Landfill was presented to the EPA for its review and approval.
EPA approved the plan, and construction began in August 1996, and is now
complete. The cost of such installation has been estimated at $1.3 million and
has been financed by SCA and its affiliates.
The EPA has notified the Company that it will conduct a limited
investigation of an area in the vicinity of the Kin-Buc Landfill, known as Mound
B, and that it may seek to recover its costs in connection therewith from the
Company and SCA. The cost of studies and remediation of this area is not
included in the present estimates of the total cost of the remediation since
such work is outside the scope of the Orders.
Other areas within the vicinity of the site also may become the subject of
future studies due to the historic use of the area for waste disposal
operations. The cost of studies and remediation of such areas is not included in
the present estimates of the total cost of the remediation of the Kin-Buc
Landfill since such work is outside the scope of the Orders.
The construction at the Kin-Buc site since July 1994 has been financed in
part with funds provided by SCA and in part with funds provided from negotiated
settlements with certain parties to a suit that the Company initiated in June
1990 in the United States District Court for the District of New Jersey against
approximately 450 generators and transporters of waste disposed of at the site
for the purpose of obtaining contribution toward the cost of remediation (the
"1990 Action"). The Company's cause of action against these parties arises under
certain provisions of the
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Comprehensive Environmental Response, Compensation and Liability Act, as amended
("CERCLA"), which imposes joint and several liability for the remediation of
certain sites upon persons responsible for the generation, transportation and
disposal of wastes at such sites.
Prior to the settlements reached on December 23, 1997 the Company had
contested the validity of a 1986 agreement among the Company, on the one hand,
and SCA and certain of its affiliates, on the other hand (the "SCA Group"). That
agreement allocated to the Company 75% of the costs incurred by the parties for
the remediation of the Kin-Buc site. In 1993, the Company filed a demand for
arbitration (the "Transtech Arbitration") seeking rescission or reformation of
the agreement with the SCA Group. SCA moved to enjoin the Transtech Arbitration
on the grounds that the Company's demand was barred by the statute of
limitations. In March 1995, the SCA Group filed its own demand for arbitration
(the "SCA Arbitration") seeking reimbursement from the Company of approximately
$17 million, representing 75% of the remediation expenses purportedly funded by
the SCA Group through that time. Certain issues raised by SCA's motion to enjoin
the Company Arbitration were referred to a referee. While final discovery in the
SCA Arbitration was being completed and immediately prior to the commencement of
hearings in the SCA Arbitration and the rescheduling of the referee's hearing in
the Transtech Arbitration, the Company and the SCA Group agreed to postpone
proceedings in both arbitrations pending the outcome of settlement discussions.
In addition, certain other potentially responsible parties ("PRPs") contend the
Company is liable for the payment of some or all of the PRPs' shares of
remediation costs pursuant to disposal agreements with such PRPs which provided
for indemnification of those PRPs against certain liabilities. However, the
enforceability of such indemnification provisions was contested by the Company
in the 1990 Action. Indemnification provisions in such agreements vary greatly
in scope and import, and the Company had contested them on various grounds. The
foregoing actions were resolved by the settlements reached on December 23, 1997.
In conjunction with the remediation, 26 acres of undeveloped land
neighboring the site and owned by a wholly-owned subsidiary of the Company were
utilized for the construction of the containment system, treatment plant and
related facilities. The property had been reflected at nominal value on the
Company's financial statements.
At December 31, 1996, the Company had accrued approximately $10.6 million
for its share of the costs of such remediation and closure. The Company has
reversed the balance of such accrual as a result of the settlements described
above, and recognized income of $10.6 million in the year ended December 31,
1997 due to the elimination of such accrual.
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The substantial expense of the Company's prosecution and defense of claims
in the litigation, the prosecution of the Transtech Arbitration, the defense of
the SCA Arbitration, and the prosecution and defense of the litigation related
to the Transtech Arbitration and the SCA Arbitration, as well as the substantial
expense of the Company's efforts in respect to the December 23, 1997 settlements
referred to above, which the Company has incurred through 1997, will no longer
be borne by the Company. There may be some continuing expenses in respect of the
Kin-Buc Landfill, but not of the magnitude experienced in the past.
KINSLEY'S. Kinsley's Landfill, Inc. ("Kinsley's"), a wholly-owned
subsidiary of the Company, ceased accepting solid waste at its landfill in
Deptford Township, New Jersey on February 6, 1987 and commenced closure of that
facility at that time. At December 31, 1997, Kinsley's has accrued $11.1 million
for remaining costs of closure and post-closure care of this facility, of which
$9.1 million is being held in interest-bearing trust accounts. Such funds are
presently anticipated to be adequate to finance post- closure care at the site
through the year 2016 based on current costs and absent any unforeseen changes
in the condition of the site.
MAC. Mac Sanitary Land Fill, Inc. ("Mac"), a wholly-owned subsidiary of
the Company, operated a landfill in Deptford Township, New Jersey that ceased
operations in 1977. The costs of maintaining and monitoring at the facility are
being funded by the Company and were approximately $10,000 and $34,000 for the
years ended December 31, 1997 and 1996, respectively. At December 31, 1997, Mac
has accrued closing costs amounting to $131,000 for the costs of continuing
post-closure care and monitoring at the facility. The Company increased its
accrual for closure costs by $11,000 during 1996 and $131,000 during 1995 due to
unanticipated engineering and testing costs incurred to respond to inquiries
from environmental agencies. The accrual as of December 31, 1997 is based upon
the present value of the estimated maintenance costs of the site's containment
systems through the year 2007.
CARLSTADT. In September 1995, the Court approved a settlement of
litigation regarding the allocation of the cost of remediation of a site in
Carlstadt, New Jersey, on which the Company had operated a solvents recovery
facility. The facility was last operated by the Company in 1970. The settlement
agreement relieves the Company from future obligations to the group of
responsible parties which has been financing the remediation of the site in
exchange for a cash payment, proceeds of the settlement of certain insurance
claims and an assignment of Carlstadt-related claims that had been filed against
the Company's excess insurance carriers. Notwithstanding such settlement, the
Company may have liability in connection with the site to the EPA for its costs
of overseeing the remediation of the site, and to parties who had not
contributed to the cost of the remediation at the time the settlement was
approved
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but who later do so. The Company has received no indication that the EPA intends
to assert a claim for oversight costs and the Company believes that the EPA may
not have the legal right to do so. Based on the comprehensive discovery
performed during the litigation, the Company believes that substantially all
responsible parties have been identified, and that the share of remediation
costs that is attributable to parties who had not been contributing to those
costs is de minimis. Therefore, the Company's liability to those parties, which
would arise only if and when those parties actually paid their share, would not
be significant.
In a related matter, in October 1989, the Company, together with owners
and operators of industrial sites in the Hackensack, New Jersey meadowlands,
including a site in Wood-Ridge, were sued in the United States District Court
for the District of New Jersey for contribution towards the cost of remediation
of those sites, adjacent lands and adjacent water courses, including Berry's
Creek. The plaintiffs in this suit, Morton International, Inc., Velsicol
Chemical Corp. and other parties who have been ordered to remediate such
industrial sites, adjacent lands and adjacent water courses, seek contribution
from the Company towards the cost of remediating Berry's Creek, which, they
allege, was contaminated, in part, by the Company's operations at a nearby
solvents recovery facility at Carlstadt, New Jersey. Since the plaintiffs'
negotiations concerning the scope of the remediation of Berry's Creek are still
ongoing, and no discovery has taken place concerning allegations against the
Company, it is not possible to estimate the Company's ultimate liability in this
matter.
DISCONTINUED OPERATIONS
VALVE MANUFACTURING SEGMENT. Hunt Valve Company, Inc., located in Salem,
Ohio, manufactures specialty directional and flow control valves, fluid power
components, hydraulic and pneumatic cylinders and complete valve systems for
commercial and military use. On August 17, 1995, the Company executed a letter
of intent pursuant to which the Company's wholly-owned subsidiary, THV
Acquisition Corp. ("THV"), agreed to sell all of the issued and outstanding
stock of HVHC, Inc., a Delaware corporation ("HVHC"), the then parent of Hunt
Valve Company, Inc., an Ohio corporation ("Old Hunt") to ValveCo Inc. On October
24, 1995, the Company executed the definitive stock purchase agreement. Hunt's
sales constituted 92% of the Company's consolidated operating revenue in 1994.
As part of the Company's plan to protect the market value of Old Hunt
through the severance of HVHC from the Company's consolidated federal income tax
group in 1995, thereby relieving HVHC and Old Hunt from joint and several
liability for the Company's federal income taxes for 1996 and subsequent years,
the Company and THV caused Old Hunt to merge with and into HVHC (the
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"Merger"), whose sole asset was the common stock of Old Hunt. The Merger became
effective on December 26, 1995 (the "Merger Date"). On that date, HVHC changed
its name to Hunt Valve Company, Inc. Accordingly, except as otherwise expressly
provided herein, all references to Hunt herein with respect to matters or events
preceding the Merger Date are references to Old Hunt, and all references to
"Hunt" herein with respect to matters or events on or after the Merger Date are
references to Hunt, as successor by merger to Old Hunt.
Since the net assets of Hunt represented substantially all of the net
assets of the Company, the sale was subject to approval by the Company's
shareholders. Such approval was granted at a special meeting of the shareholders
on February 29, 1996 and the sale was consummated on March 1, 1996. No other
offers were received or considered, and no other bids for Hunt were solicited,
by the Board of Directors.
The definitive stock purchase agreement provided for a purchase price of
$2,208,000 for Hunt's common stock, representing $18.0 million in cash, reduced
by the sum of (i) $12,721,000, representing the amount of Hunt's indebtedness
for borrowed money as of the closing of the sale, which had been fixed by the
parties at such amount solely for purposes of determination of the purchase
price, (ii) $500,000, representing the negotiated amount required to redeem the
minority equity position held by Hunt's senior secured note holders, (iii)
$2,000,000, representing the amount required to be paid by Hunt to THV upon the
redemption by Hunt of its issued and outstanding 7% preferred stock, without par
value, all of which was owned by THV and (iv) $571,000, representing the amount
to be paid by Hunt to THV in repayment of the senior subordinated note issued by
Hunt to THV in the original principal amount of $500,000. The net cash proceeds
of the sale (i.e., the sum of the purchase price plus (iii) and (iv) above, less
transaction costs) were approximately $3,975,000. A portion of the net cash
proceeds ($750,000) was placed in an interest bearing escrow account to secure
the Company's indemnification obligations to the purchaser under the purchase
agreement, including indemnification for any payments made by Hunt after the
closing in respect of income taxes owed by the Company for the period that Hunt
was a member of the Company's consolidated tax group. The escrow will terminate
upon the earlier to occur of (i) the release of all funds from escrow in
accordance with the terms thereof or (ii) the later to occur of (x) the
expiration of the applicable statute of limitations for the assessment of
federal income taxes for all taxable years in which Hunt was a member of the
Company's consolidated tax group and (y) the satisfaction by the Company of all
assessments or other claims by the Internal Revenue Service for taxes of the
consolidated tax group for such years.
The stock of Old Hunt was acquired by the Company from two individuals,
unaffiliated with the Company, on September 27, 1991,
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when THV acquired all of the stock of HVHC, whose sole asset was Old Hunt.
Through THV and HVHC, the Company invested $2.5 million in common stock of Old
Hunt and an additional $2 million in 7% preferred stock of Old Hunt. The total
consideration paid to the two individual sellers for the capital stock of HVHC
consisted of $9.7 million in cash, including $200,000 paid for non-competition
agreements from the sellers (the "Cash Payment"), plus $500,000 in the form of
two junior subordinated five-year promissory notes of Old Hunt. Funds for the
$5.2 million balance of the Cash Payment, together with the refinancing of
approximately $7.8 million of existing debt of Old Hunt and HVHC and additional
funds for Old Hunt's working capital, were provided by a revolving loan facility
and an aggregate of $11.5 million in term loans to Old Hunt (the "Term Debt").
The loans were secured by substantially all of the assets of Old Hunt. In
connection with such financing, Old Hunt issued ten-year warrants (the "Lender
Warrants") entitling the lenders of the Term Debt (the "Term Lenders") to
acquire up to an aggregate of 19.34% of the common stock of Old Hunt for a
nominal exercise price.
ValveCo Inc. ("ValveCo"), a Delaware corporation organized by Three Cities
Research, Inc. ("TCR"), a Delaware corporation unaffiliated with the Company or
any of its directors and officers, purchased 100% of the Hunt common stock owned
by THV, representing 79.05% of the issued and outstanding Hunt common stock.
Eighty- five percent of the common stock issued by ValveCo was purchased by TCR
investors and 15% was purchased by certain directors and executive officers who
are members of management of the Company and/or Hunt, namely, Robert V. Silva,
David Huberfield, Andrew J. Mayer, Jr. and Gerald Bogner, for $150,000. Such
directors and executive officers also obtained the right to acquire, for an
aggregate cost of $2.3 million, an additional 12.5% of ValveCo's common stock
pursuant to the exercise of performance and value- based options. In addition,
the aforementioned directors and executive officers of the Company and Hunt were
employed in various capacities by ValveCo and Hunt after the sale (see Part III,
Item 12, Certain Relationships and Related Transactions).
In September and October 1995, representatives of the Company, Hunt, the
Term Lenders and the Purchaser conducted negotiations with respect to the
repurchase of the Lender Warrants and the Term Debt, and with respect to the
amount payable to the Term Lenders upon the prepayment of the Term Debt prior to
September 27, 2001 (the "Prepayment Premium"). The Prepayment Premium was
determined to be approximately $1,800,000 as of December 31, 1995. After efforts
of the Company to negotiate a reduced Prepayment Premium were unsuccessful,
representatives of TCR joined the negotiations and offered to purchase the Term
Debt and Lender Warrants on the condition that the Term Lenders reduce the
Prepayment Premium. On October 24, 1995 (the "Term Debt Assignment Date"), the
Term Lenders entered into an agreement to assign (the "Term Debt and Warrant
Assignment") their entire interests in the Term Debt and
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the Lender Warrants, to Terold N.V. ("Terold"), a designee of the Purchaser, in
consideration for a total of $11,822,480 paid to the Term Lenders. Terold is a
wholly-owned subsidiary of Real Ltd. Real Ltd. is a party to an advisory
agreement with TC Holding, Inc., which, in turn, owns 100% of the capital stock
of TCR.
Of the total consideration of $11,822,480 paid by Terold, (x) $10,822,480
represented Hunt's outstanding Term Debt obligations through the Term Debt
Assignment Date, consisting of $10,733,334 of principal plus $89,146 of accrued
and unpaid interest on the Term Debt through the Term Debt Assignment Date, (y)
$500,000 represented payment for the Lender Warrants and (z) $500,000 was a
transaction fee payable to the Term Lenders in lieu of the Prepayment Premium.
Of such transaction fee, $250,000 was paid by Terold and $250,000 was paid by
THV to induce Terold to enter into the Term Debt and Warrant Assignment and to
waive its right, as assignee of the Term Debt, to collect the Prepayment Premium
if the sale is consummated.
In connection with the Term Debt and Warrant Assignment, the Company, THV,
Terold and the Purchaser entered into an agreement on the Term Debt Assignment
Date (the "Recapitalization Agreement"), pursuant to which the parties agreed as
follows: On or before the earlier of (i) the closing of the sale of Hunt's
common stock and (ii) December 26, 1995, the Company and THV would cause Old
Hunt to merge with and into HVHC, with HVHC (now known as Hunt) being the
surviving corporation in the Merger. If the closing of the sale did not occur by
December 27, 1995, Terold would exercise the Lender Warrants (which had an
exercise price of $.01 per share) to acquire 215.79 shares, representing 19.34%
of the issued and outstanding shares, of Hunt common stock. This is the same
percentage as Terold would have acquired of Old Hunt if Terold had exercised the
Lender Warrants prior to the Merger. Concurrently with such exercise, Terold
would purchase from THV 18 shares of Hunt, representing 2% of the common stock
of Hunt held by THV (the "Supplemental Stock"), for an aggregate purchase price
of $50,000, or $2,777.78 per share. After the exercise by Terold of the Lender
Warrants and the purchase by Terold of the Supplemental Stock, the Company and
its subsidiaries owned less than 80% of the outstanding Hunt voting stock. As a
result, Hunt ceased to be a member of the Company's consolidated federal income
tax return filing group and therefore would not be liable for the Company's 1996
consolidated federal income taxes.
In September 1996, the Company, Hunt and ValveCo Inc. entered into a
letter agreement which resolved certain issues related to the allocation of
Hunt's 1995 income tax liability between the Company and Hunt, and certain
issues related to provisions of the 1991 tax sharing agreement between the
Company and Hunt which continues to bind both parties. The purpose of the
letter agreement was to rectify an unintended consequence of tax regulations
concerning the allocation of such tax liability. The
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Company agreed to include $360,000 (equal to 87% of Hunt's 1995 income) of
income in its federal tax return in respect of the 360- day period of 1995
during which Hunt was a member of the Company's consolidated tax group. Hunt
agreed to waive reimbursement for the Company's carryback of Hunt's
post-consolidation net losses (incurred during the period from January 1 through
February 29, 1996) to periods in which Hunt was a member of the consolidation
group. Hunt also agreed to reimburse the Company for certain professional fees
incurred by the Company with respect to these matters. In 1997, the Company
notified Hunt that based upon the Company's review of Hunt's post-consolidation
federal income tax return, the Company believes additional deductions regarding
the write-off of certain financing costs should have been reflected in Hunt's
reported net loss. Discussions regarding the appropriateness of such deductions
are continuing.
ALKALI PRODUCTS. Cal-Lime, Inc. ("Cal-Lime") engaged in the
marketing of high alkali products, primarily lime slurry, to
customers needing acid neutralization agents, such as municipal and
industrial wastewater treatment plants. Sales from this business
constituted 7% of the Company's consolidated operating revenues in
1993, and 5% in 1994.
On August 31, 1995, the Company sold certain machinery, equipment,
contract rights and rights to the Cal-Lime name, and gave a non-compete
covenant, thereby effectively selling the on-going operations of Cal-Lime which
markets alkali products to a competitor. The Company received a cash payment of
$600,000 in consideration for the assets sold, and additional payments of $4,785
which were contingent upon the availability of lime slurry from a specified
source to the purchaser. The Company intends to liquidate the remaining fixed
assets of the subsidiary and has included the book value of the property,
buildings and equipment not part of this transaction under the caption "assets
held for sale" on the accompanying balance sheet.
PART I, ITEM 2. DESCRIPTION OF PROPERTIES.
1. A subsidiary of the Company, Filcrest Realty, Inc., owns parcels of
land totalling approximately 125 acres in Edison Township, Middlesex County, New
Jersey, which are currently not being used. This property is located in the
vicinity of the Kin- Buc, Inc. property (see Paragraph 5 below). Approximately
26 acres of Filcrest's property has been dedicated to the remediation of areas
neighboring the Kin-Buc, Inc. property.
2. One of the Company's subsidiaries, Kinsley's Landfill, Inc., owns
approximately 320 acres in Deptford Township, Gloucester County, New Jersey
which are currently being held for sale. The subsidiary operated a landfill on
approximately 100 acres of this site through February 1987. This landfill is now
undergoing post- closure procedures.
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3. Another subsidiary and Transtech own approximately 108 acres in
Deptford Township, Gloucester County, New Jersey, which are currently being held
for sale. Certain of these parcels are subject to mortgages which total
approximately $28,000 as of
December 31, 1997.
4. Another subsidiary of the Company, Mac Sanitary Land Fill, Inc., leased
approximately 88 acres in Deptford Township, Gloucester County, New Jersey for
use as a landfill site until February 1977. At that time, the lease was
terminated in accordance with provisions of the lease which permitted
termination when and as the landfill reached the maximum height allowed under
New Jersey law. Mac currently conducts post-closure activities at the site.
5. Another subsidiary of the Company, Kin-Buc, Inc., owns a 27 acre site
in Edison Township, Middlesex County, New Jersey, upon which it operated a
landfill. At present, only remediation activities are conducted on the site.
6. Harrison Returns, Inc. (f/k/a Cal-Lime, Inc.), a subsidiary of the
Company, owns approximately two acres of real property in Readington Township,
Hunterdon County, New Jersey on which a single-story office building and a
two-story single family house are situated. This property was categorized as
held for sale as of December 31, 1997. This property was sold in March 1998.
7. The Company leases its principal executive offices in Piscataway, New
Jersey pursuant to a lease with an initial term of February 1992 to February 28,
1997. The monthly rent equalled $4,000 from inception through August 1992,
$4,277 through June 1994, and $4,277 from December 1994 through February 28,
1997. The area subject to lease was approximately 5,132 square feet. The Company
amended the expiring lease effective March 1, 1997. The amended lease reduced
the area to 2,572 square feet at a monthly rent of $2,893 and expires August 30,
2000.
PART I, ITEM 3. LEGAL PROCEEDINGS.
AS TO FEDERAL TAX LIABILITIES
In 1991, the Internal Revenue Service (the "Service") asserted numerous
adjustments to the tax liability of the Company and its subsidiaries for tax
years 1980 through 1988, along with interest and penalties thereon. In 1993,
after the conclusion of administrative proceedings, the Service issued a
deficiency notice to the Company asserting adjustments to income of $33.3
million and a corresponding deficiency in federal income taxes of approximately
$13.5 million, as well as penalties of $2.5 million and interest on the asserted
deficiency and penalties. In addition, the Service challenged the carryback of
losses incurred by the Company in taxable years 1989 through 1991, thereby
bringing those years,
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which had been the subject of an ongoing audit, into the deficiency notice. In
1994, the Company filed a petition with the Tax Court contesting many of the
proposed adjustments asserted in the deficiency notice. On June 5, 1995, August
14, 1995, March 7, 1996, July 31, 1996 and January 22, 1998, respectively, the
Company and the Service executed a stipulation of partial settlement, first,
second and third revised stipulations of partial settlement and a supplement to
the third revised stipulation of partial settlement. These partial settlements
resolved all but one of the adjustments asserted in the deficiency notice.
The Service's audit of the Company's 1989-91 federal income tax returns,
resulted in the Service's challenging the deductions claimed by the Company in
connection with its investment in computer equipment under lease (see Note 9 of
the Company's Consolidated Financial Statements). The Service also asserted a
number of smaller adjustments which were settled in 1995 and 1996.
The stipulation of settlement executed on January 22, 1998 resolved the
computer equipment issue by the Company's agreeing to the disallowance of
approximately $3.8 million of deductions for 1989 and no other adjustments to
deductions and income in respect of the computer equipment transaction for 1989
or subsequent years.
Taking into account the settlements that have been concluded to date, the
Company has accepted approximately $5.9 million of the $33.3 million of total
adjustments to income asserted by the Service for the 1980-88 period. Many of
the adjustments accepted by the Company relate to issues on which the Service
would likely have prevailed in Tax Court. The Service has conceded adjustments
totalling $26.7 million of taxable income and $2.5 million of penalties, leaving
only one issue unresolved. The remaining issue in the case relates to the timing
of significant deductions taken by the Company for certain landfill closing
costs in several taxable years from the 1980-88 period. The Company cannot
predict the outcome of further settlement negotiations or litigation with the
Service over the remaining issue. See Note 2 for a discussion of the impact of
the tax litigation on the Company's capital resources.
AS TO THE KIN-BUC LANDFILL
On December 23, 1997, the Company entered into four agreements which
settled lawsuits relating to the remediation of the Kin-Buc Landfill.
In February 1979, EPA brought suit in the United States District Court for
the District of New Jersey against Transtech, its subsidiaries Kin-Buc and
Filcrest Realty, Inc. (a wholly owned subsidiary of the Company) ("Filcrest"),
certain former officers, directors and shareholders of Transtech, and Inmar
Associates, Inc.
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(a corporation owned and controlled by a former principal shareholder, director
and officer of the Company)("Inmar"), in connection with the ownership and
operation of the Kin-Buc Landfill. This suit was placed on administrative hold
by the Court because the Company and SCA agreed to undertake the remediation of
the Kin-Buc Landfill.
In 1986, the Company sold the stock of its subsidiary Wastequid, Inc. to
SCA, and, simultaneously therewith, Transtech, Kin-Buc, Filcrest and Inmar (the
"Transtech Group") entered into the 1986 Agreement with the SCA Group regarding
the sharing of the costs of remediating the Kin-Buc Landfill, pursuant to which
the Transtech Group agreed to pay 75% of such costs and the SCA Group the
remaining 25% (the "Sharing Formula").
In 1990, Transtech, Kin-Buc and Filcrest commenced a suit in the United
States District Court for the District of New Jersey entitled TRANSTECH
INDUSTRIES, INC. ET AL. V. A&Z SEPTIC CLEAN ET AL. against generators and
transporters of hazardous waste disposed of at the Kin-Buc Landfill (the "PRPs")
for contribution towards the cost of remediating the Kin-Buc Landfill. In 1991,
1992 and 1993, the Transtech Group, the SCA Group and WMI presented settlement
proposals to the PRPs believed to have been responsible, individually, for no
more than 1% of the non-municipal waste disposed of at the Kin-Buc Landfill (the
"De Minimis PRPs"). These settlements resulted in a contribution by certain De
Minimis PRPs of approximately $10 million towards the cost of remediating the
Kin-Buc Landfill. From 1993, the litigation proceeded against the non-settling
De Minimis and non-De Minimis PRPs, believed to have been responsible, in the
aggregate, for approximately 90% of the non-municipal waste disposed of at the
Kin-Buc Landfill, and in 1995, generators and transporters of municipal
hazardous waste disposed of at the Kin-Buc Landfill were joined in the
litigation. After 1995 and continuing through 1997, the SCA Group and WMI
entered into settlements with other non-municipal waste PRPs without the
participation of the Transtech Group. These settlements resulted in substantial
additional contributions towards the cost of remediation. Discovery and other
pre-trial proceedings had taken place and a trial date had been tentatively set
as settlement discussions among the Transtech Group, the SCA Group and WMI, on
the one hand, and among a large group of non- municipal waste PRPs (the "AFP
Group"), the SCA Group and WMI, on the other, were taking place.
In 1992, substantially all of the non-municipal waste PRPs, including
substantially all of the AFP Group, filed two pleadings in the litigation
involving the Company. The first was a counterclaim against Transtech, Kin-Buc
and Filcrest and a third-party complaint against other owners or operators of
the Kin-Buc Landfill, including, among others, Inmar, Dock Watch Quarry Pit,
Inc. (a subsidiary of Inmar), Marvin H. Mahan, Meagher, the SCA Group, WMI and
Gaess (the "Owner-Operator Counterclaim"). The
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second pleading involving the Company was a counterclaim against Transtech and a
third-party complaint against parties to transactions with Transtech, including
Inmar and Marvin H. Mahan, which were alleged to have been fraudulent
conveyances (the "Fraudulent Conveyances Counterclaim"). In that pleading, the
PRPs sought to have the consideration paid by Transtech in the conveyances
returned and placed in the hands of a receiver. Discovery on the issues
presented in the Fraudulent Conveyances Counterclaim and the Owner-Operator
Counterclaim was proceeding, and motions to join additional parties to the
Fraudulent Conveyances Counterclaim were pending at the time settlement
discussions between Transtech and the AFP Group were taking place.
In 1993, the Transtech Group served a demand for arbitration (the
"Transtech Arbitration") on the SCA Group and WMI seeking either rescission of
the 1986 Agreement or reformation of the Sharing Formula. In response, the SCA
Group and WMI brought an action in the Supreme Court of the State of New York to
enjoin the Transtech Arbitration. Pending a decision by that Court, the
Transtech Arbitration was stayed. In 1995, during the stay, the SCA Group filed
a demand for arbitration (the "SCA Arbitration") seeking reimbursement from the
Transtech Group of 75% of remediation expenses fully funded by the SCA Group to
that point, and the Transtech Group brought an action in the Supreme Court of
the State of New York to stay the SCA Arbitration pending a decision on the
motion to enjoin the Transtech Arbitration. On motion brought by the SCA Group,
the Court narrowed the issues to be arbitrated in the SCA Arbitration and made
any findings on such issues subject to resolution of the issues in the Transtech
Arbitration. After discovery on these issues was completed, the Transtech Group,
the SCA Group and WMI agreed to postpone proceedings in both the SCA Arbitration
and the Transtech Arbitration pending the outcome of settlement discussions.
On December 23, 1997, settlements of the litigation, including claims for
contribution towards the cost of remediating the Kin-Buc Landfill, the
Owner-Operator Counterclaim and the Fraudulent Conveyances Counterclaim, and
settlements of the Transtech Arbitration, the SCA Arbitration and litigation
relating thereto, resulting from discussions among the Transtech Group, the SCA
Group and WMI, on the one hand, and among the AFP Group, the SCA Group and WMI,
on the other, were reached, and four agreements effecting these settlements were
executed and delivered.
The first of these four settlement agreements was among Transtech,
Kin-Buc, Filcrest, Marvin H. Mahan, Meagher, the SCA Group and the AFP Group
(consisting of all but 29 non-municipal waste PRPs). In this agreement, among
other things, all members of the AFP Group released all their claims against
Transtech, Kin-Buc, Filcrest, Marvin H. Mahan, Meagher, Inmar and Dock Watch,
among others, arising from or relating to claims for contribution and the
Owner-Operator Counterclaim.
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The second settlement agreement was among Transtech, Kin-Buc, Filcrest,
Marvin H. Mahan, Meagher, Inmar, Dock Watch, the SCA Group, WMI and Gaess. In
this agreement, among other things, the parties agreed to terminate the 1986
Agreement and all the other agreements between or among any of them relating to
the Kin-Buc Landfill, to dismiss the Transtech Arbitration and the SCA
Arbitration and the related litigation, and to dismiss all their claims against
the other parties arising from or relating to the Kin-Buc Landfill, including
claims for contribution and the Owner- Operator Counterclaim. Transtech, Kin-Buc
and Filcrest agreed to continue to prosecute their pending suit against former
excess insurance carriers and to pay SCA 75% of the net recoveries of such suit,
after allowances for related legal fees and federal and state income tax
obligations resulting from the audit of the Company's income tax returns for the
years 1982 through 1992, up to a maximum of $3.5 million. Transtech also agreed
to turn over the work products of its expert witness and its attorney in the
litigation to SCA, who will defend and indemnify Transtech, Kin-Buc, Filcrest,
Marvin H. Mahan, Meagher, Inmar and Dock Watch from continuing claims by
non-settling non-municipal waste and municipal waste PRPs in the litigation. SCA
will also defend and indemnify the Company from all future liability for or in
connection with the remediation of the Kin-Buc Landfill.
The third settlement agreement was among the AFP Group and certain other
PRPs, Transtech, all the third-party defendants to the Fraudulent Conveyances
Counterclaim, and other parties sought to be joined in the Fraudulent
Conveyances Counterclaim. In this agreement, the AFP Group and the other
settling PRPs dismissed all their claims in the Fraudulent Conveyances
Counterclaim in exchange for a payment $1.5 million. Of this amount, $480,000
was paid by Transtech and the balance was or will be paid by the third-party
defendants and such other parties.
The fourth settlement agreement was among the SCA Group, WMI, Transtech,
all the third-party defendants to the Fraudulent Conveyances Counterclaim, and
the other parties sought to be joined in the Fraudulent Conveyances
Counterclaim. In this agreement, the SCA Group and WMI dismissed all their
claims in the Fraudulent Conveyances Counterclaim and agreed to defend and
indemnify Transtech, the third-party defendants and such other parties against
continuing claims by non-settling PRPs (consisting of a group of four
non-municipal waste PRPs). In addition, the third-party defendants and such
other parties released Transtech from all liability to them arising from the
settlement of the Fraudulent Conveyances Counterclaim.
In April 1991, Inmar demanded that, in accordance with certain provisions
of the lease from Inmar to Kin-Buc of 50 acres upon which a portion of the
Kin-Buc Landfill is located, Transtech indemnify Inmar and Marvin H. Mahan
against liability for remediation of such property and pay Inmar $6.6 million in
damages
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for loss of value of its adjoining property. These demands are the subject of
negotiations with Inmar discussed below.
INSURANCE
In 1995, Transtech, Kin-Buc and Filcrest commenced suit in the Superior
Court of New Jersey, Middlesex County, entitled TRANSTECH INDUSTRIES, INC. ET.
AL V. CERTAIN UNDERWRITERS AT LLOYDS ET AL., Docket No. MSX-L-10827-95, to
obtain indemnification from its excess insurers during the period 1965 through
1986 against costs incurred in connection with the remediation of the Kin-Buc
Landfill and the Tang Site and for the defense of litigation related thereto.
The defendant insurers, which include various London and London Market insurance
companies, First State Insurance Company and International Insurance Company,
have answered the complaint against them and discovery is proceeding. All of the
policies of excess insurance issued by the defendant insurers cover Transtech,
its present subsidiaries and former subsidiaries, some of which Transtech no
longer controls. They also cover Inmar and other companies presently or formerly
owned or controlled by Marvin H.
Mahan.
AS TO THE CLAY DEPOSITS
In 1988, Kin-Buc purchased 150,000 cubic yards of clay for use in the
closure of the Kin-Buc Landfill for $1.2 million from Inmar. Pursuant to the
agreement for the purchase of the clay, Kin-Buc is entitled to a refund of the
purchase price of clay it is unable to mine or can not use. The Company used a
small portion of the clay for the closure of the Kin-Buc Landfill and was
planning to sell the remainder to third parties. In October 1996, the Company
learned that Inmar had contracted to sell a substantial portion of its land,
upon which a substantial amount of the clay is situated, to Edison Expansion,
Inc. ("Expansion"). In November 1996, Kin-Buc brought suit entitled KIN-BUC,
INC. V. INMAR ASSOCIATES, INC. AND EDISON EXPANSION, INC. in Superior Court,
Morris County, New Jersey against Inmar and Expansion for, among other things, a
declaratory judgment that Kin-Buc's rights in the clay would survive a sale of
the land to Expansion and, alternatively, a money judgment against Inmar.
Kin-Buc also filed a lis pendens against the Inmar property. In December 1996,
Expansion sought and obtained a discharge of the lis pendens and a closing of
the sale to Expansion took place in January 1997. In accordance with a Court
order entered in another Inmar matter, the net proceeds of the sale totalling
approximately $530,000 was paid into Court to secure the payment of costs of
remediation of the Carlstadt, New Jersey Superfund Site discussed below for
which Inmar or Marvin H. Mahan is held liable. An appeal of this order brought
by Inmar is pending. The order permitted Inmar to apply to the Court for
permission to withdraw proceeds for other purposes. In March 1997, the Court
denied Kin-Buc's request that the proceeds be dedicated to the payment of
whatever money judgment Kin-Buc might obtain
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against Inmar, but agreed that Kin-Buc could reapply for such relief when and if
it obtained such a judgment. In June 1997, Kin- Buc requested the entry of a
default against Inmar for its failure to answer Kin-Buc's complaint and in
August, Kin-Buc obtained such a judgment in the amount of approximately $1.1
million. In October 1997, the Court granted summary judgment to Expansion,
dismissing Kin-Buc's suit for a declaratory judgment that Kin-Buc's rights to
the clay survived the sale of the land to Expansion. Kin-Buc did not appealed
this decision. There is substantial uncertainty that Inmar is financially
capable of responding to this judgment and there is no assurance as to the
amount of money that Kin-Buc will be permitted to draw from the deposit with the
Court. Kin-Buc is engaged in negotiations with Inmar concerning satisfaction of
the default judgment.
AS TO THE CARLSTADT SITE
Transtech is one of 43 respondents to a September 1990 Administrative
Order of the EPA concerning the implementation of interim environmental
remediation measures at a site in Carlstadt, New Jersey owned by Inmar and
operated by Transtech as a solvents recovery plant for approximately five years
ending in 1970.
In 1988, Transtech, Inmar and Marvin H. Mahan were sued in a civil action
in the United States District Court for the District of New Jersey entitled
AT&T TECHNOLOGIES, INC. ET AL. V. TRANSTECH INDUSTRIES, INC. ET AL. V. ALLSTATE
INSURANCE COMPANY ET AL. (the "AT&T Suit") by a group of generators of waste
(the "AT&T Group") alleging, among other things, that the primary responsibility
for the clean-up and remediation of the Carlstadt site rests with Transtech,
Inmar and Marvin H. Mahan.
In September 1995, the Court approved a settlement of the AT&T Suit among
Transtech, Inmar, Marvin H. Mahan, the AT&T Group and other generators and
transporters of waste handled at the Carlstadt site who had contributed to the
costs of the remediation of the site. Pursuant to such settlement, Transtech,
Inmar and Marvin H. Mahan agreed to (i) pay $4.1 million of proceeds from
settlements with primary insurers of a coverage action brought by the Company
and Inmar against their primary and excess insurers, (ii) pay an additional
$145,000 ($72,500 from Transtech and $72,500 from Inmar and Marvin H. Mahan),
and (iii) assign their Carlstadt site-related insurance claims against an excess
insurer in exchange for a complete release from these parties of all liability
arising from or on account of environmental contamination at the Carlstadt site
and the parties' remediation of the same. Notwithstanding such settlement, the
Company may have liability in connection with the site to the EPA for its costs
of overseeing the remediation of the site, and to parties who had not
contributed to the remediation at the time the settlement was approved but who
may later do so. The Company has received no indication that the EPA intends to
assert a claim for oversight costs.
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In a related matter, in October 1989, the Company, together with owners
and operators of industrial sites in the Hackensack, New Jersey meadowlands,
including a site in Wood-Ridge, were sued in the United States District Court
for the District of New Jersey for contribution towards the cost of remediation
of those sites, adjacent lands and adjacent water courses, including Berry's
Creek. The plaintiffs in this suit, Morton International, Inc., Velsicol
Chemical Corp. and other parties who have been ordered to remediate such
industrial sites, adjacent lands and adjacent water courses, seek contribution
from the Company towards the cost of remediating Berry's Creek, which, they
allege, was contaminated, in part, by the Company's operations at a nearby
solvents recovery facility at Carlstadt, New Jersey. Shortly after the
institution of suit, the plaintiffs began negotiating with the governmental
entities which ordered the remediation of the sites, adjacent land and adjacent
water courses, as to the scope of remediation and, pending those negotiations,
had stayed the suit. In August 1996, the plaintiffs reinstituted the suit but
shortly thereafter agreed to sever claims against the Company and proceed
against other defendants. As a result, the claims against the Company have again
been stayed. Since the plaintiffs' negotiations concerning the scope of the
remediation of Berry's Creek are still ongoing, and no discovery has taken place
concerning allegations against the Company, it is not possible to estimate the
Company's ultimate liability in this matter.
In December 1989, Inmar and Transtech agreed to share equally certain
costs in connection with the AT&T Suit. As of December 31, 1992, Transtech paid
$514,000 towards such costs. Inmar has disputed which expenses are to be shared.
Further, in April 1991, Marvin H. Mahan made a demand upon Transtech for
reimbursement of approximately $300,000 in costs which he incurred in connection
with the AT&T Suit. The dispute concerning the shared expenses and Marvin H.
Mahan's demand for reimbursement are subjects of the negotiations with Inmar
discussed below.
AS TO THE TANG SITE
Pursuant to a December 1988 agreement with Tang, in 1988, 1989 and 1990
Transtech spent approximately $4.3 million for the remediation of a Piscataway,
New Jersey site owned by Tang and operated by Transtech for a limited period of
time. In October 1990, Transtech determined that it would no longer continue to
contribute to the remediation of that site. The EPA is performing remediation at
the site and has requested information from approximately 100 potentially
responsible parties concerning their involvement with the Tang site. Transtech
has had no direct involvement with the EPA since October 1990 and has not been
the recipient of an EPA request for information.
In connection with its determination not to continue to contribute to the
remediation of the Tang site, in March 1991
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Transtech made a demand upon Tang for reimbursement of the amounts it had
expended in connection with such remediation. In April 1991, Tang rejected the
demand for reimbursement and demanded Transtech resume the remediation. These
demands are the subject of negotiations with Tang discussed below.
AS TO NEGOTIATIONS WITH INMAR, TANG AND MARVIN H. MAHAN
Transtech has been negotiating with Inmar, Tang and Marvin H. Mahan
(collectively, the "Mahan Interests") toward a settlement of disputes with
Transtech mentioned above, namely, Inmar's demand for damages for loss of value
of property adjoining the Kin-Buc Landfill, the sharing of expenses of the AT&T
Suit, and the reimbursement of remediation costs at the Tang site. Negotiations
have recently broadened to include the Mahan Interests' joining in the
settlement of the Fraudulent Conveyances Counterclaim, the satisfaction of
Kin-Buc's $1.1 million judgment against Inmar and the Mahan Interests'
cooperation in the prosecution of the suit against Transtech's insurers. Efforts
to resolve all outstanding issues are continuing.
GENERAL
In the ordinary course of conducting its business, the Company becomes
involved in certain lawsuits and administrative proceedings (other than those
described herein), some of which may result in fines, penalties or judgments
being assessed against the Company. The management of the Company is of the
opinion that these proceedings, if determined adversely individually or in the
aggregate, are not material to its business or consolidated financial position.
The uncertainty of the outcome of the aforementioned tax litigation and
insurance litigation and the impact of future events or changes in environmental
laws or regulations, which cannot be predicted at this time, could result in
increased remediation and closure costs, and increased tax and other potential
liabilities. A significant increase in such costs could have a material adverse
effect on the Company's financial position, results of operations and net cash
flows. The Company may ultimately incur costs and liabilities in excess of its
available financial resources.
PART I, ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.
None during the quarter ended December 31, 1997.
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PART II
PART II, ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The information required under this Item is incorporated herein by
reference to the Company's Annual Report to Stockholders filed herewith as
Exhibit 13.
PART II, ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION.
The information required under this Item is incorporated herein by
reference to the Company's Annual Report to Stockholders filed herewith as
Exhibit 13.
PART II, ITEM 7. FINANCIAL STATEMENTS.
The information required under this Item is incorporated herein by
reference to the Company's Annual Report to Stockholders filed herewith as
Exhibit 13.
PART II, ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The information required under this Item has been previously reported by
the Registrant on its Current Report on Form 8-K dated May 23, 1997.
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PART III
PART III, ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(A) OF THE SECURITIES EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Robert V. Silva (54) - President and Chief Executive Officer
and a director of the Company from April 1991 and Chairman of the
Board of Directors from November 1991. Mr. Silva served as a
consultant to the Company from December 1990 until his appointment
in April 1991 as an officer of the Company. Mr. Silva was employed
from September 1987 to December 1990 as Executive Vice President of
Kenmare Capital Corp. ("Kenmare"), an investment firm, and provided
financial and management consulting services to companies acquired
by Kenmare's affiliates. In connection with such financial and
management services, Mr. Silva served as Vice President and a
Director of Old American Holdings, Inc. and its subsidiary from
1988 to 1990, and Vice President and a Director of Compact Video
Group, Inc. and its subsidiaries from 1988 to 1991 and of Manhattan
Transfer/Edit, Inc. from 1989 to 1991. Mr. Silva also served as a
Director of General Textiles from 1989 to 1991. From June 1985 to
September 1987, Mr. Silva served as Vice President of, and provided
management consulting services to, The Thompson Company, a private
investment firm controlled by the Thompson family of Dallas, Texas.
Mr. Silva served as Chairman and Chief Executive Officer of Hunt
Valve Company, Inc., a former subsidiary of the Company, from March
1, 1996 to his resignation effective January 1, 1997. Mr. Silva
also served as Vice President and a Director of ValveCo Inc., the
entity which acquired Hunt, from October 10, 1995 to his
resignation effective January 1, 1997. From September 1996 to
February 14, 1997, Mr. Silva served as a Director of Hunt's
subsidiary, Hunt SECO Engineering, Ltd. and its subsidiaries. Mr.
Silva remains a Director of Hunt. Mr. Silva is also the principal
of Robert V. Silva and Company, Inc., an investment firm. Mr.
Silva's wife is the sister-in-law of Gary Mahan, the son of Marvin
H. Mahan and Ingrid T. Mahan.
Arthur C. Holdsworth, III (50) - A director of the Company
since 1988. Since August 1991, Mr. Holdsworth has been Vice
President of Sales at Millington Quarry, Inc. Prior to that and
from 1977, Mr. Holdsworth was General Manager of Dallenbach Sand
Co., Inc. Millington Quarry, Inc., is owned by members of the
Mahan family. Dallenbach Sand was previously owned by members of
the Mahan family.
Andrew J. Mayer, Jr. (42) - Vice President-Finance and Chief
Financial Officer of the Company from November 1991 and a director
of the Company from December 1991 and, from April 1992, Secretary
of the Company. From 1988 to November 1991, Mr. Mayer served as
Vice President, Secretary and Treasurer of Kenmare. From 1984 to
25
<PAGE>
1988, Mr. Mayer served as Financial Analyst and Controller of Kenmare. In
connection with management and financial services provided by Kenmare, Mr. Mayer
served in a variety of capacities for the following companies: Old American
Holdings, Inc. and its subsidiary from 1988 to 1991; The Shannon Group, Inc. and
its subsidiaries from 1988 to 1990; Detroit Tool Group, Inc. and its
subsidiaries from 1989 to 1990; Compact Video Group, Inc. from 1988 to 1991;
Manhattan Transfer/Edit, Inc. from 1989 to 1991; and General Textiles from 1989
to 1990. Mr. Mayer served as Executive Vice President of Hunt Valve Company,
Inc., a former subsidiary of the Company from March 1, 1996, the date the
Company sold Hunt, to his resignation effective January 1, 1997. Mr. Mayer also
served as Vice President - Chief Financial Officer of ValveCo Inc. from April 3,
1996 through his resignation effective January 1, 1997. From September 1996 to
February 14, 1997, Mr. Mayer served as a Director of Hunt's subsidiary, Hunt
SECO Engineering, Ltd. and its subsidiaries.
COMPLIANCE WITH SECTION 16(A) OF SECURITIES
EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file. Base solely on a review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the Company's fiscal year ending December 31, 1997 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with, except for the
late filing of a report on Form 4 as to one transaction completed by Arthur C.
Holdsworth, III.
PART III, ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid to or earned by the
President and Chief Executive Officer (the "Chief Executive Officer") and the
Vice President-Finance, Chief Financial Officer and Secretary (the "Named
Executive Officer") in the years ending December 31, 1997, 1996 and 1995
("Fiscal 1997", "Fiscal 1996" and "Fiscal 1995", respectively) for services
rendered by them to the Company in all capacities during such years. Both the
Chief Executive Officer and the Named Executive Officer were the only executive
officers of the Company whose total annual salary and bonus exceeds $100,000 and
were serving as executive officers of the Company at December 31, 1997.
26
<PAGE>
<TABLE>
<S> <C> <C>
Long Term Compensation
Annual Compensation Awards Payouts
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Options/ Long-Term All
Name and Annual Restricted Stock App- Incentive Other
Principal Fiscal Compen- Stock reciation Plan Compen-
Position Year Salary Bonus sation (a) Awards Rights Payouts sation
Robert V. Silva 1997 $159,898 $77,500 $0 0 0 0 0
President and Chief 1996 $176,804(b) $0 $90 0 0 0 0
Executive Officer 1995 $278,688(c) $25,000(c) $1,964 0 0 0 0
Andrew J. Mayer, Jr. 1997 $135,792 $20,000 $994 0 0 0 0
Vice President- 1996 $136,000 $0 $1,360 0 0 0 0
Finance, Chief 1995 $136,000 $0 $1,435 0 0 0 $10,000(d)
Financial Officer
and Secretary
</TABLE>
(a) In each case, the amount shown as other annual compensation is the
Company's matching contributions to its 401(k) Plan on behalf of the Chief
Executive Officer and the Named Executive Officer during each of Fiscal 1997,
Fiscal 1996 and Fiscal 1995. In each of Fiscal 1997, Fiscal 1996 and Fiscal
1995, the Company's 401(k) Plan provided for a match equal to 50% of a
participant's contribution to the plan in that year, subject to a maximum of (i)
2% of compensation in that year or (ii) applicable Internal Revenue Service
limits.
(b) Mr. Silva's Fiscal 1996 annual compensation of $176,804 was allocated
$160,000 to the Company and $16,804 to Hunt for the period of 1996 Hunt was a
subsidiary of the Company. Mr. Silva served as Chairman of the Board of
Directors and Chief Executive Officer of Hunt.
(c) Mr. Silva's Fiscal 1995 aggregate annual compensation of $278,688 was
allocated $160,000 to the Company and $118,688 to Hunt. The bonus of $25,000 was
paid by Hunt.
(d) Represents Fiscal 1995 director fees paid by Hunt.
STOCK OPTION PLANS
The following table sets forth, with respect to grants of stock options
and stock appreciation rights ("SARs") to the Chief Executive Officer and the
Named Executive Officer during Fiscal 1997: (a) the number of options granted;
(b) the percent the grant represents of total options granted to employees
during Fiscal 1997; (c) the per-share exercise price of the options granted; and
(d) the expiration date of the options.
OPTION/SAR GRANTS IN FISCAL 1997
<TABLE>
<S> <C> <C> <C> <C>
% Of Total
Options/SARs*
Options/ Granted to Exercise
SARs* Employees in or Base
Name Granted (#) Fiscal Year Price ($/sh) Expiration Date
Robert V. Silva 0 N/A N/A N/A
Andrew J. Mayer, Jr. 0 N/A N/A N/A
</TABLE>
*No SARs have been issued by the Company.
The following table sets forth: (a) the number of shares
27
<PAGE>
received and the aggregate dollar value realized in connection with each
exercise of outstanding stock options during Fiscal 1997 by the Chief Executive
Officer and the Named Executive Officer; (b) the total number of all
outstanding, unexercised options (separately identifying exercisable and
unexercisable options) held by such executive officers as of the end of Fiscal
1997; and (c) the aggregate dollar value of all such unexercised options that
are in-the-money (i.e., options as to which the fair market value of the
underlying common stock of the Company that is subject to the option exceeds the
exercise price of the option), as of the end of Fiscal 1997.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1997
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<S> <C> <C> <C> <C>
Number of Value of Unexercised
Unexercised In-the-Money
Options/SARs* at Options/SARs* at
Fiscal Year-End(#) Fiscal Year-End($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
Robert V. Silva 0 N/A 50,000/0 0/0
Andrew J. Mayer, Jr. 0 N/A 5,000/0 0/0
</TABLE>
* No SARs have been issued by the Company.
COMPENSATION OF DIRECTORS
Directors of the Company who are not also employees are paid annual
directors' fees of $1,875 per calendar quarter, plus $500 for attending each
meeting of the board. In Fiscal 1997, Arthur C.
Holdsworth, III earned fees of $11,500.
PART III, ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
As of the close of business on March 18, 1998, the Company has issued and
outstanding 2,829,190 shares of Common Stock, which figure excludes 1,885,750
shares owned by the Company which are not outstanding and are not eligible to
vote.
Set forth below is a table showing, as of March 18, 1998, the number of
shares of Common Stock owned beneficially by:
(1) each person known by the Company to be the beneficial owner of
more than 5% of the outstanding shares of such Common Stock;
(2) each director of the Company;
28
<PAGE>
(3) the chief executive officer of the Company (the "Chief Executive
Officer");
(4) the most highly compensated executive officers of the Company
(other than the Chief Executive Officer) whose total annual salary and bonus
exceeds $100,000 (the "Named Executive Officer"); and
(5) all officers and directors of the Company as a group.
Unless otherwise specified, the persons named in the table below and
footnotes thereto have the sole right to vote and dispose of their respective
shares.
Name and Address of
Beneficial Owner and Number of Shares Percentage
Identity of Group Beneficially Owned of Class
==============================================================================
Herzog, Heine & Geduld 329,973 (a) 11.7%
525 Washington Blvd.
Jersey City, NJ 07310
Roger T. Mahan 325,435 (b),(e) 11.5%
47 McGregor Avenue
Mt. Arlington, NJ 07856
Nancy M. Ernst 321,775 (b),(c),(e) 11.4%
2229 Washington Valley Rd.
Martinsville, NJ 08836
Gary A. Mahan 310,601 (b),(d),(e) 11.0%
53 Cross Road
Basking Ridge, NJ 07920
Robert V. Silva 78,322 (f) 2.8%
200 Centennial Avenue
Piscataway, NJ 08854
Arthur C. Holdsworth, III 3,200 .1%
200 Centennial Avenue
Piscataway, NJ 08854
Andrew J. Mayer, Jr. 5,000 (g) .2%
200 Centennial Avenue
Piscataway, NJ 08854
All executive officers 86,522 (h) 3.1%
and directors
as a group
(3 in group)
==============================================================================
(a) Includes 28,200 shares owned by customers of this firm.
(b) Roger T. Mahan, Nancy M. Ernst and Gary A. Mahan are the children of
Marvin H. Mahan, a former officer, director and principal shareholder of the
Company, and his wife, Ingrid T. Mahan. Marvin H. and Ingrid T. Mahan disclaim
beneficial ownership of the shares owned by their children.
29
<PAGE>
(c) Includes 8,600 shares owned by Nancy M. Ernst's husband, Kenneth A.
Ernst, and 18,200 shares owned by their minor children. Mr. Ernst was a director
of the Company from June 1987 through April 29, 1994.
(d) Includes 8,600 shares owned by Gary A. Mahan's wife, Elizabeth Mahan,
and 8,600 shares owned by their minor child.
(e) Members of the Mahan family, consisting of Roger T. Mahan, Nancy M.
Ernst and Gary A. Mahan, their spouses and children and their parents, Marvin H.
Mahan and Ingrid T. Mahan, own 967,911 shares of Common Stock, which represent
approximately 34% of the shares outstanding. In addition, Ingrid T. Mahan is
executrix of the estate of Arthur Tang, which owns an additional 32,750 shares
of such common stock.
(f) Includes incentive options to purchase 50,000 shares at $.75 per
share, all of which are presently exercisable, and 6,822 shares held in the
Company's 401K Plan.
(g) Represents incentive options to purchase 5,000 shares at $0.438 per
share, all of which are presently exercisable.
(h) Includes incentive options to purchase 55,000 shares held by two
officers of the Company, all of which are presently exercisable.
PART III, ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In 1988, Marvin H. Mahan, a former officer, director and principal
shareholder of the Company, Inmar Associates, Inc. ("Inmar"), a New Jersey
corporation controlled by Marvin H. Mahan, and Transtech were sued in a civil
action in the United States District Court for the District of New Jersey
entitled AT&T TECHNOLOGIES, INC. ET AL. V. TRANSTECH INDUSTRIES, INC. ET AL. V.
ALLSTATE INSURANCE COMPANY ET AL. (the "AT&T Suit") by a group of generators of
waste (the "AT&T Group") alleging, among other things, that the primary
responsibility for the clean-up and remediation of a Carlstadt, New Jersey site
operated by the Company as a solvents recovery plant for a five year period
ended in 1970 rests with the Company, Inmar and Marvin H. Mahan. Thereafter, the
Company and Inmar brought third-party actions against, among others, the
insurance companies which issued policies of comprehensive general liability
insurance to them and to another operator of the site now in dissolution.
Settlements with these insurers in 1995 resulted in payments to Transtech, Inmar
and Marvin H. Mahan of a total of $4.075 million which was applied to the
Company's, Inmar's and Marvin H. Mahan's liability to the AT&T Group. The
Company believes that the terms of the settlements are no less favorable to the
Company than could be obtained with non-affiliated parties.
In December 1989, the Company and Inmar agreed to share equally certain
expenses in connection with the AT&T Suit. As of December 31, 1992, the Company
paid $514,000 towards such costs. Inmar has disputed which expenses are to be
shared. Further, in April 1991, Marvin H. Mahan made a demand upon the Company
for reimbursement of approximately $300,000 in costs which he incurred
30
<PAGE>
in connection with the AT&T Suit. The dispute concerning the shared expenses and
Marvin H. Mahan's demand for reimbursement are subjects of the negotiations with
Inmar discussed below.
Pursuant to a December 1988 agreement with Tang Realty, Inc. ("Tang"), a
corporation controlled by Marvin H. Mahan, in 1988, 1989 and 1990 the Company
spent approximately $4.3 million for the remediation of a Piscataway, New Jersey
site owned by Tang and operated by the Company for a limited period of time. In
October 1990, the Company determined that it would no longer continue to
contribute to the remediation of that site and in March 1991 the Company made a
demand upon Tang for reimbursement of the amounts it had expended in connection
with such remediation. In April 1991 Tang rejected the demand for reimbursement
and demanded the Company resume the remediation. These demands are the subject
of negotiations with Tang discussed below. One of the Company's wholly-owned
subsidiaries, Kin-Buc, Inc. ("Kin-Buc"), leased from Inmar approximately 50
acres of land upon which a portion of the Kin-Buc landfill (the "Kin-Buc
Landfill") is located. This lease ran to July 1995. The annual base rent of
$162,500 had been waived by Inmar because the Kin-Buc Landfill was not
operating. In April 1991, Inmar demanded that, in accordance with certain
provisions of the Kin-Buc Lease, the Company indemnify Inmar and Marvin H. Mahan
against liability for remediation of the leased tract, and pay Inmar $6.6
million in damages for loss of value of its adjoining property. The claim for
damages is the subject of negotiations with Inmar discussed below.
In 1988, Kin-Buc paid $1,200,000 to Inmar for clay to be used for the
closure of the Kin-Buc Landfill. Under its agreement with Inmar, the Company has
a right to a refund of the purchase price of the clay if it is unable to extract
or use the clay. However, there is substantial uncertainty that the Company will
be able to obtain a refund of the purchase price for the unused clay (see Part
I, Item 3. Legal Proceedings - "As to the Clay Deposits").
Since Marvin H. Mahan's retirement from the Company, it has provided
Marvin H. Mahan the use of an automobile and contributed to the expenses of
maintaining an office for his use including secretarial services. Such expenses
totalled approximately $21,000 and $14,000 in 1997 and 1996, respectively. In
addition, the Company agreed to pay $40,000 in 1997 toward legal fees incurred
by Marvin H. Mahan with respect to litigation related to the Kin-Buc Landfill.
The Company has been negotiating with Inmar, Tang and Marvin H. Mahan
(collectively, the "Mahan Interests") toward a settlement of disputes with the
Company mentioned above, namely Inmar's demand for damages for loss of value of
property adjoining the Kin-Buc Landfill, the sharing of expenses of the AT&T
Suit, and the reimbursement of remediation costs at the Tang site. Negotiations
have recently broadened to include the Mahan Interests' joining in
31
<PAGE>
the settlement of the Fraudulent Conveyances Counterclaim, the satisfaction of
Kin-Buc's $1.1 million judgment against Inmar and the Mahan Interests'
cooperation in the prosecution of the suit against Transtech's insurers. Efforts
to resolve all outstanding issues are continuing.
On August 28, 1992, the Company made an advance of $10,000 to Robert V.
Silva, President and Chairman of the Board of the Company. The advance was
evidenced by an interest bearing note. The note and accrued interest thereon was
repaid in full during 1996. On April 22, 1994 the Company made a loan of $75,000
to Mr. Silva evidenced by a note which bears interest at a floating prime rate
plus 1% and is due and payable in as determined by the Board of Directors. A
total of $101,000 was outstanding with respect to the loan, including interest,
as of December 31, 1997.
On March 1, 1996, ValveCo Inc. ("ValveCo"), a Delaware corporation
organized by Three Cities Research, Inc. ("TCR"), a Delaware corporation
unaffiliated with the Company or any of its directors and officers, purchased
100% of the Hunt Valve Company, Inc. common stock owned by THV Acquisition Corp,
a wholly- owned subsidiary of the Company, representing 79.05% of the issued and
outstanding Hunt common stock. Fifteen percent of the common stock issued by
ValveCo was purchased by certain directors and executive officers who are
members of management of the Company and/or Hunt, namely, Robert V. Silva
(7.5%), David Huberfield (4%), Andrew J. Mayer, Jr. (2%) and Gerald Bogner
(1.5%) for $150,000. Such directors and executive officers also obtained the
right to acquire, for an aggregate cost of $2.3 million, an additional 12.5% of
ValveCo's common stock pursuant to the exercise of performance and value-based
options. In addition, the aforementioned directors and executive officers of the
Company and Hunt were employed in various capacities by ValveCo and Hunt after
the sale (see Part I, Item 1, Description of Business, Discontinued Operations).
Mr. Silva resigned from his employment with ValveCo and Hunt effective January
1, 1997, but remains a director of Hunt. Mr. Mayer also resigned from his
employment with ValveCo and Hunt effective January 1, 1997.
32
<PAGE>
PART IV
PART IV, ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS
The exhibits to this report are listed in the Exhibit Index on pages
35 to 39.
REPORTS ON FORM 8-K
The Company filed a report on Form 8-K dated December 23, 1997 to report
the Company's execution of four agreements which settled lawsuits relating to
the remediation of the landfill owned and operated by the Company's subsidiary,
Kin-Buc, Inc. (see Part I, Item 3, Legal Proceedings).
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized.
TRANSTECH INDUSTRIES, INC.
(Registrant)
By: /s/ Robert V. Silva
Robert V. Silva, President and
Chief Executive Officer
and Director
Dated: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the date indicated.
/s/ Robert V. Silva March 30, 1998
- --------------------------------
Robert V. Silva, President and
Chief Executive Officer
and Director
/s/ Andrew J. Mayer, Jr. March 30, 1998
- --------------------------------
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer, Secretary and
Director
34
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
No. Page No.
3 Articles of Incorporation and By-Laws:
3(a) Articles of incorporation: Incorporated by
reference to Exhibit 3(a) to the Company's Annual
Report on Form 10-K for fiscal year ended
December 31, 1989
3(b) By-laws: Incorporated by reference to
Exhibit 3 (b) to the Company's Annual Report
on Form 10-K for fiscal year ended December
31, 1989
3(c) Amended and restated by-laws: See "G" below
10 Material contracts:
10(a) Stock Purchase Agreement dated June 29, 1989
among the Company and the Tendering Shareholders,
as therein defined: See "A" below
10(b) Stock Option Cancellation Agreement dated June
29, 1989 among the Company, Charles F. Trapp
and Edward Egan: See "B" below
10(c) Purchase Agreement dated as of July 14, 1989
between The Tax Strategy Group, Inc. and the
Company: See "B" below
10(d) Non-Negotiable, Non-Recourse Installment
Promissory Note dated as of July 14, 1989 by
the Company to The Tax Strategy Group, Inc.:
See "B" below
10(e) Security Agreement dated as of July 14, 1989
between the Company and The Tax Strategy Group,
Inc.: See "B" below
10(f) Master Lease Agreement dated as of July 14,
1989 between The Tax Strategy Group, Inc. and
CLI Equity Resources XV, L.P. ("CLI"),
assigned by CLI to the Company by Consent and
Assignment Agreement dated as of July 14,
1989: See "B" below
35
<PAGE>
Sequential
Exhibit No. Page No.
10 (n) Property Purchase Agreement dated December 31,
1992 by and among Red Robin Realty, Inc. as
Seller and James Messner, Sr. and James
Messner, Jr. as Buyers: See "C" below
10 (o) Asset Purchase Agreement dated December 31,
1992 by and among Genetic Farms, Inc., as
Seller and James Messner, Sr. and James
Messner, Jr., as Buyers: See "C" below
10 (p) Settlement Agreement and Mutual Release dated
October 28, 1992 among Transtech Industries,
Inc. and certain of its subsidiaries and
affiliates, Inmar Associates, Inc. and certain
of its affiliates, Marvin H. Mahan, Roger T.
Mahan and The Continental Insurance Company:
See "C" below
10 (q) Order for Approval of De Minimis Settlement
and for Dismissal of Certain Defendants of the
District Court for the District of New Jersey
dated November 2, 1992 in Transtech
Industries, Inc. et al. v. A&Z Septic Clean,
et al., Civil Action No. 90-2578 (HAA)
approving settlements with certain defendants
identified on Exhibits 1 and 2 to such Order
pursuant to The Kin-Buc Landfill Contribution
Agreement in the form of Exhibit 3 to such
Order: See "C" below
10 (y) Settlement Agreement and Mutual Release dated
May 31, 1994 among Transtech Industries, Inc.
and certain of its subsidiaries and
affiliates, Inmar Associates, Inc. and certain
of its affiliates, Marvin H. Mahan, Roger T.
Mahan and The City Insurance Company: See "D"
below
10 (z) Settlement Agreement and Release dated April
20, 1994 among Transtech Industries, Inc.
Inmar Associates, Inc., Marvin H. Mahan, Mt.
Vernon Insurance Company and The United States
Liability Insurance Company: See "D" below
10(ac) Settlement Agreement and Release dated
September 16, 1994 among Transtech Industries, Inc.,
and its subsidiaries and affiliates,
36
<PAGE>
Sequential
Exhibit No. Page No.
Inmar Associates, Inc., and its subsidiaries
and affiliates, and the National Union Fire
Insurance Company of Pittsburgh, Pa.: See "E"
below
10 (ad) Settlement Agreement and Mutual Release dated
October 3, 1994 among Transtech Industries,
Inc., and its subsidiaries and affiliates,
Inmar Associates, Inc. and its subsidiaries
and affiliates, Marvin H. Mahan and Allstate
Insurance Company: See "E" below
10 (au) Settlement Agreement approved in September
1995 among Transtech Industries, Inc., Inmar
Associates, Inc., Marvin H. Mahan and certain
members of the 216 Paterson Plank Road
Cooperating PRP Group: See "F" below
10 (av) Income Tax Sharing Agreement dated September
27, 1991 among Transtech Industries, Inc., THV
Acquisition Corp., HVHC, Inc. and Hunt Valve
Company, Inc.: See "F" below
10 (aw) Stock Purchase Agreement dated as of October
24, 1995 between ValveCo Inc. and THV
Acquisition Corp. (without schedules): See
"G" below
10 (ax) Amended and Restated Stock Purchase Agreement
dated as of January 15, 1996 among THV
Acquisition Corp., ValveCo Inc., Transtech
Industries, Inc., Hunt Valve Company, Inc. and
Terold N.V., with exhibits, and letter
agreement dated February 5, 1990 among THV
Acquisition Corp., ValveCo Inc. and Transtech
Industries, Inc.: See "H" below
10 (ay) Escrow Agreement dated March 1, 1996 by and
among THV Acquisition Corp., ValveCo Inc. and
United States Trust Company of New York, as
escrow agent: See "I" below
10 (az) Settlement Agreement for Matters Relating to 40 - 63
the Kin-Buc Landfill dated December 23, 1997
among Transtech Industries, Inc. and certain
of its subsidiaries, Waste Management, Inc.
and certain of its affiliates including SCA
Services, Inc., Inmar Associates, Inc., Dock
Watch Quarry, Inc., Marvin H. Mahan, Robert J.
37
<PAGE>
Sequential
Exhibit No. Page No.
Meagher, and Anthony Gaess
10 (ba) Stipulation of Settlement and Release dated 64 - 71
December 23, 1997 among Transtech Industries,
Inc. and certain of its shareholders and
former officers, Inmar Associates, Inc., Tang
Realty, Inc., Waste Management, Inc. and
certain of its affiliates including SCA
Services, Inc.
11 Statement regarding computation of net loss 72
per share
13 Annual Report to Stockholders 73 - 132
21 Subsidiaries of the Registrant 133
- ------------------------------------------------------------------------------
"A" Incorporated herein by reference to the
Company's Current Report on Form 8-K dated
June 30, 1989
"B" Incorporated herein by reference to the
Company's Current Report on Form 8-K dated
July 14, 1989
"C" Incorporated herein by reference to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1992, as amended
on May 18, 1993
"D" Incorporated herein by reference to the Company's Quarterly Report
on Form 10-QSB for the quarter ended June 30, 1994
"E" Incorporated herein by reference to the Company's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1994
"F" Incorporated herein by reference to the Company's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1995
38
<PAGE>
"G" Incorporated herein by reference to the
Company's Current Report on Form 8-K dated
October 24, 1995
"H" Incorporated herein by reference to the
Company's Current Report on Form 8-K dated
March 1, 1996
"I" Incorporated herein by reference to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1995
39
SETTLEMENT AGREEMENT FOR MATTERS RELATING TO
THE KIN-BUC LANDFILL
This SETTLEMENT AGREEMENT dated December 23, 1997 is between and among the
following:
WASTE MANAGEMENT, INC., a Delaware corporation (formerly named WMX
Technologies, Inc.), SCA SERVICES, INC., a Delaware corporation ("SCA"),
CHEMICAL WASTE MANAGEMENT OF NEW JERSEY, INC., a New Jersey corporation
(formerly named SCA Scientific Services, Inc., SCA Services of Edison, Inc. and
SCA Services of Passaic, Inc.), for and as to itself and as a general partner of
Earthline Company, formerly a New Jersey general partnership (which partnership
was also called Environmental Services Company and Gaess Environmental Services
Company), CHEMICAL WASTE MANAGEMENT, INC., a Delaware corporation, for and as to
itself and as successor to CWM Consolidation Sub, Inc., a Delaware corporation,
which is, in turn, the successor by merger to Carl Gulick, Inc., a New Jersey
corporation, and to Wastequid, Inc., a New Jersey corporation, for and as to
itself and as a general partner of Earthline Company, WASTE MANAGEMENT OF NEW
JERSEY, INC., a New Jersey corporation, successor by merger to United Carting,
Inc., a New Jersey corporation, CWM CHEMICAL SERVICES, INC., a Delaware
corporation (formerly named SCA Chemical Services, Inc. and Chem-Trol Pollution
Services, Inc.), successor by merger to Carl Gulick, Inc., a New Jersey
corporation, and to R&R Sanitation Service, Inc., a New Jersey corporation (for
all of the foregoing, "SCA Parties"), and
TRANSTECH INDUSTRIES, INC., a Delaware corporation (formerly
named Scientific Chemical Treatment Company, Inc. and Scientific, Inc.)
("Transtech"), FILCREST REALTY, INC., a New Jersey corporation ("Filcrest"),
and KIN-BUC, INC., a New Jersey corporation ("KB") (for Transtech, Filcrest and
KB, "Transtech Parties"), and
INMAR ASSOCIATES, INC., a New Jersey corporation, successor by
consolidation of Inmar Realty, Inc., a New Jersey corporation, and other
corporations ("Inmar"), and DOCK WATCH QUARRY, INC., a New Jersey corporation,
for and as to itself and as a possible successor of Marpak, Inc., a New Jersey
corporation ("Dock Watch") (for Inmar and Dock Watch, "Inmar Parties"), and
MARVIN H. MAHAN, for and as to himself and as a possible
successor of Marpak, Inc. ("Mahan"), ROBERT J. MEAGHER,
individually and as trustee of a trust for the benefit of Roger
Mahan ("Meagher"), and ANTHONY GAESS ("Gaess").
WHEREAS, the parties to this Settlement Agreement ("Agreement") wish to
reallocate among some of them the costs of the remediation of the Kin-Buc
Landfill, which, for the purposes of this Agreement, shall mean the Kin-Buc
Landfill located at 383 Meadow Road, Edison, New Jersey described more
particularly at
<PAGE>
pages 1 and 2 of the United States Environmental Protection Agency ("EPA")
Record of Decision dated September 30, 1988, together with any real property
located outside the boundaries of the Kin-Buc Landfill into which hazardous
substances or contaminants may have migrated or threatened to migrate from the
Kin-Buc Landfill or to which hazardous substances or contaminants deposited in
the Kin-Buc Landfill finally came to rest or on which hazardous substances or
contaminants were deposited from the operation of the Kin-Buc Landfill ("Kin-Buc
Landfill"); and
WHEREAS, the parties to this Agreement which are parties to a suit pending
in the United States District Court for the District of New Jersey entitled
Transtech Industries, Inc. et al. v. A & Z Septic Clean et al., Civil Action No.
2-90-2578 (HAA) ("Kin-Buc Cost Recovery Action") wish to settle the claims
between and among them in the Kin-Buc Cost Recovery Action; and
WHEREAS, the parties to this Agreement which are parties to the
arbitrations pending before the American Arbitration Association, Commercial
Arbitration Tribunal, entitled Transtech Industries, Inc. et al. v. WMX
Technologies, Inc. et al., Case No. 13-172-00782-93 01 and SCA Services, Inc.
et al. v. Transtech Industries, Inc. et al., Case No. 13-192-00183-95
("Arbitration Demands") and to the suits pending in the Supreme Court of the
State of New York, New York County, entitled In the Matter of the
Application of WMX Technologies, Inc. et al. for a Judgment Staying the
Arbitration Commenced by Transtech Industries, Inc. et al., Index No. 123430/93,
and In the Matter of the Application of Transtech Industries, Inc. et al. for a
Judgment Staying the Arbitration Commenced by SCA Services, Inc. et al., Index
No. 95-107816 ("Arbitration Suits") wish to settle the claims between
and among them in the Arbitration Demands and the Arbitration
Suits; and
WHEREAS, all parties to this Agreement which are respondents to the
Administrative Order dated November 19, 1992 of the EPA in the Matter of the
Kin-Buc Landfill, Edison, New Jersey, Docket No. II-CERCLA-93-0101, the
Administrative Order dated September 21, 1990 by the EPA in the Matter of the
Kin-Buc Landfill, Docket No. II-CERCLA-00114, and all prior orders of, and
stipulations and agreements with the EPA referring or relating to the same
matter ("EPA Orders") wish to allocate, among themselves, the responsibilities
of such respondents for compliance with the Orders; and
WHEREAS, to accomplish these purposes the parties have agreed to release
claims against other parties, dismiss suits and arbitration proceedings, defend
and indemnify parties, transfer rights to data bases and expert witness's work
product, apply a portion of certain insurance proceeds and take other actions,
all in accordance with, and on the conditions set forth in, this Agreement.
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NOW, THEREFORE, in consideration of the premises, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties agree as
follows:
1. TERMINATION OF ALL PREVIOUS AGREEMENTS.
1.1 Unless otherwise specifically set forth herein, all the agreements and
undertakings contained in this Agreement shall be and are effective on and as of
the date first set forth above, which is the date that this Agreement was
executed by all the parties hereto ("Effective Date"). The Settlement Agreement
for Matters Relating to the Kin-Buc Landfill dated February [22], 1986 ("1986
Agreement") and the other documents and agreements executed in connection
therewith, including, but not limited to (i) the Side Agreement dated February
22, 1986, (ii) the Agreement dated as of January 1, 1986, (iii) Releases dated
March 4, 1986 by Meagher, Mahan, Transtech, KB, Filcrest and Inmar, and (iv) the
Waiver and Release of Claims by SCA Services, Inc., SCA Services of Passaic,
Inc., Earthline Company and their Officers and Directors dated March 4, 1986
(for all such other documents and agreements, "Accompanying Agreements"), hereby
are superseded and replaced by this Agreement and shall no longer bind or inure
to the benefit of the parties thereto and their respective heirs, executors,
administrators, successors and assigns, as the case may be.
1.2 Except as specifically set forth in this Paragraph 1.2, all other
agreements between or among any of the Transtech Parties, the Inmar Parties,
Mahan and Meagher, on the one hand, and any of the SCA Parties, on the other,
which refer or relate in any way to the Kin-Buc Landfill, including, but not
limited to (i) that certain letter agreement dated November 26, 1990 concerning
submittal of financial assurance, and (ii) that certain letter agreement dated
May 27, 1992 concerning a de minimis settlement in the Kin-Buc Cost Recovery
Action, hereby are superseded and replaced by this Agreement and shall no longer
bind or inure to the benefit of the parties thereto and their respective heirs,
executors, administrators, successors and assigns, as the case may be.
Specifically excepted herefrom are all easements and access agreements among (i)
Filcrest, as grantor, and SCA and KB, as grantees, and (ii) Inmar, as grantor,
and SCA and KB, as grantees, which were given in connection with the remediation
of the Kin-Buc Landfill ("Remediation Easements"). Notwithstanding the
provisions of this Paragraph 1.2, the Remediation Easements shall continue to
bind and inure to the benefit of the parties thereto and their respective
successors and assigns.
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1.3 Nothing in Paragraph 1.1, 1.2 or (except as expressly provided) in any
other paragraph of this Agreement shall operate to revive or reinstate any claim
or cause of action extinguished, dismissed with prejudice or otherwise barred by
any of the superseded or replaced agreements, nor unwind or rescind actions
taken heretofore to effectuate said agreements, except to the extent that such
actions are inconsistent with this Agreement.
2. RELEASES BY THE TRANSTECH PARTIES, THE INMAR PARTIES, MAHAN AND MEAGHER
OF THEIR CLAIMS.
2.1 The Transtech Parties, the Inmar Parties, Mahan and Meagher, jointly
and severally, hereby release and discharge all claims, rights, causes of action
and demands which they, or any of them, have made or brought, or could have made
or brought, against the SCA Parties and Gaess, or any of them, in the Kin-Buc
Cost Recovery Action, the Arbitration Demands and the Arbitration Suits.
2.2 The Transtech Parties, the Inmar Parties, Mahan and Meagher, jointly
and severally, hereby release and discharge all claims, rights, causes of action
and demands which they, or any of them, have or hereafter may have against the
SCA Parties and Gaess, or any of them (i) in any way connected with the Kin-Buc
Landfill, including, but not limited to all claims for cost recovery and
contribution under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. ss.9601 et seq. ("CERCLA") or
comparable federal or state statutes or common law, or (ii) arising from, or
pursuant to the provisions of the 1986 Agreement, the Accompanying Agreements or
any other agreement between or among any of the SCA Parties, on the one hand,
and any of the Transtech Parties, the Inmar Parties, Mahan and Meagher (and, in
the case of Mahan and Meagher, either personally and as an officer of any of the
Transtech Parties or the Inmar Parties), on the other, which refers or relates,
in any way, to the Kin-Buc Landfill, except that claims, rights, causes of
action and demands which the Transtech Parties, the Inmar Parties, Mahan and
Meagher, or any of them, may have against the SCA Parties, or any of them,
arising from or pursuant to the provisions of the Remediation Easements or this
Agreement are not released and discharged.
3. TRANSFER OF RIGHTS IN DATA BASE AND EXPERT WITNESS'S WORK PRODUCT.
3.1 The Transtech Parties, jointly and severally, hereby assign, transfer
and convey to SCA (without representation or warranty) all their right, title
and interest in and to the documents, information, data, data base, computer
programs, reports, analyses and other work product of Advanced Analytical
Solutions, Inc. and all of its principals and employees,
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including, but not limited to William J. Hengemihle ("A2S"), and to the expert
testimony of A2S, compiled, created, produced or prepared in connection with the
Kin-Buc Landfill.
3.2 Each of the Inmar Parties, Mahan and Meagher represents and warrants
to SCA that it or he, as the case may be, (i) has no right, title or interest
in, or claim to or against, the documents, information, data, data base,
computer programs, reports, analyses and other work product of A2S which is the
subject of the assignment provided in this Paragraph 3, and (ii) has no
relationship with William J. Hengemihle as a consultant or expert on or as to
the Kin-Buc Landfill.
3.3 SCA shall afford the Transtech Parties and their legal counsel or
other representatives reasonable access to the documents, information, data,
data base, computer programs, reports, analyses and other work product of A2S
assigned to SCA pursuant to this Paragraph 3 or thereafter created in connection
with the Kin-Buc Landfill, at reasonable times, and from time to time, at no
cost to SCA but at no charge to the Transtech Parties. All costs incurred by the
Transtech Parties associated with such access shall be borne solely by the
Transtech Parties. Further, SCA shall permit A2S to provide the Transtech
Parties, or their legal counsel or other representatives, with newly created
reports, analyses and compilations of such documents, information and data and
with such expert testimony, as they, or any of them, may reasonably require,
provided that the cost of providing such reports, analyses, compilations and
expert testimony shall be borne by the Transtech Parties and, provided further,
that no such request by Transtech for newly created reports and the like shall
interfere with or unreasonably delay A2S's work for SCA on matters related to
the Kin-Buc Landfill.
3.4 The Transtech Parties, the Inmar Parties, Mahan and Meagher hereby
waive any conflict of interest which SCA's retention of A2S, use of its work
product and use of the expert testimony of its principals and employees for or
in connection with the Kin-Buc Landfill may present, and each shall execute
whatever documents SCA may reasonably require to evidence such waiver.
3.5 Similarly, the SCA Parties hereby waive any conflict of interest which
the Transtech Parties' retention of A2S or its principals or employees may
present for or in connection with matters related to the Kin-Buc Landfill, and,
provided that the SCA Parties' interests are not adverse to the Transtech
Parties' interests therein, for or in connection with other actions or other
matters, including, but not limited to (i) proceedings under CERCLA or
comparable federal or state statutes or common law involving the apportionment
of liability for the costs of study or remediation of environmentally impaired
sites, and
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(ii) environmental audits, environmental assessments and related matters, and
each of the SCA Parties shall execute whatever documents the Transtech Parties
may reasonably require to evidence such waiver. Determinations by the SCA
Parties about adversity of interests in any such action or matter shall be based
upon the advice of counsel to the SCA Parties in such action or matter, and in
the event counsel to the Transtech Parties in such action or matter disagrees
with any such determination, the Transtech Parties and the SCA Parties shall
submit the matter to a third party acceptable to them and qualified to make
determinations of this nature, and the determination of such third party shall
be binding upon the SCA Parties and the Transtech Parties.
4. ASSIGNMENTS OF CLAIMS IN THE KIN-BUC COST RECOVERY ACTION. The
Transtech Parties, the Inmar Parties, Mahan and Meagher, jointly and severally,
hereby assign, transfer and set over to SCA (without representation or warranty)
all of the claims, rights, causes of action and demands which they, or any of
them, have made or brought or which they, or any of them, hereafter may make or
bring against (i) the parties to the Kin- Buc Cost Recovery Action, and (ii) any
other person or party who may be potentially responsible under CERCLA or
comparable federal or state statutes or common law for the remediation of the
Kin- Buc Landfill.
5. APPLICATION OF INSURANCE RECOVERIES.
5.1 All recoveries of insurance proceeds relating to the claims made, or
to the Kin-Buc related claims which could have been made ("Recoveries"), in the
suit pending in the Superior Court of New Jersey, Law Division, Middlesex
County, entitled Transtech Industries, Inc. et al. v. Certain Underwriters at
Lloyd's et al., Civil Action No. MSX-L-10827-95 ("Insurance Action") shall be
paid to Mark Manewitz, Esq., an attorney with the firm of Skadden, Arps, Slate,
Meagher & Flom, One Newark Center, Newark, New Jersey 07102, or to another
independent third party acceptable to Transtech and SCA ("Paying Agent") who
shall make payment to SCA of a portion of such recoveries ("SCA Payment")
derived as follows:
Net Recoveries or $4,666,667, whichever is less X $3,500,000 = SCA Payment,
$4,666,667
where the Net Recoveries equals the Recoveries minus the sum
of:
(a) the hourly fees and disbursements which the Transtech Parties
shall then have paid, and the contingent fee which is payable, to Friedman
Siegelbaum, a law firm with offices at Seven Becker Farm Road, Roseland,
New Jersey ("Friedman Siegelbaum"), pursuant to that certain
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letter agreement dated June 13, 1995 between Transtech and
Friedman Siegelbaum ("Retainer Agreement"); and
(b) the sum of (x) the amount paid or owed by Transtech and its
affiliated group for income tax purposes ("Transtech's Consolidated
Group") to the Internal Revenue Service and any state or local taxing
authority on account of adjustments to the taxable income of Transtech's
Consolidated Group or any of its members resulting from an audit of its
federal tax returns for the years 1982 through 1991, whether such amounts
are in respect of taxes, interest or penalties, and (y) an amount which
grosses-up the amount of the Recoveries utilized for the payment of the
federal income taxes and penalties described in clause (x) above so that
the after-tax proceeds of such amount are equal to the federal and state
income taxes imposed on the federal income taxes and penalties described
in (x) above, and (z) an amount which grosses-up the amount of the
recoveries utilized for the payment of the state income taxes described in
clause (x) above so that the after-tax proceeds of such amount are equal
to the state income taxes imposed on the state income taxes described in
clause (x) above. The federal and state tax rates utilized to determine
(x), (y) and (z) shall be computed at the highest marginal federal rate
and New Jersey state income tax rate in effect for the taxable year in
which the Recoveries are included in the taxable income of Transtech's
Consolidated Group. As used herein, the term, "Transtech's Tax
Liabilities," shall mean and refer to the sum of (x), (y) and (z) above.
The Paying Agent shall pay the balance of the Recoveries to Transtech.
5.2 The Paying Agent shall notify the Transtech Parties and SCA of the
receipt of Recoveries as soon as practicable after receipt, and within five (5)
days of the receipt of such notice, Transtech shall either (i) submit to the
Paying Agent and SCA a certificate of its independent tax preparer ("Preparer's
Certificate") setting forth, in reasonable detail, the amount of the hourly fees
and disbursements identified in Paragraph 5.1(a) above (as to which the
independent tax preparer may rely upon its own investigation of such amount or
upon a certificate of a partner of Friedman Siegelbaum submitted to such tax
preparer), the amount of Transtech's Tax Liabilities, if then determinable, and
the calculation of the SCA Payment pursuant to the provisions of Paragraph 5.1,
or (ii) notify the Paying Agent and SCA that the amount of Transtech's Tax
Liabilities is not then determinable, as the case may be.
5.3 If Transtech submits a Preparer's Certificate pursuant to the
provisions of Paragraph 5.2(i), SCA shall have fifteen (15) days from the
receipt of the same within which to object to
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the contents thereof. Any such objection shall set forth in reasonable detail,
both the grounds of such objection and the amount of the SCA Payment, up to a
maximum of $3,500,000, which SCA reasonably estimates is due and payable in
accordance with the provisions of Paragraph 5.1. If no such objection is made or
if, having been made, such objection does not set forth SCA's estimate of the
SCA Payment, the Paying Agent shall make payment to SCA of the SCA Payment in
accordance with the Preparer's Certificate and remit the balance of the
Recoveries to Transtech. If an objection which sets forth an estimate of the SCA
Payment is made, the Paying Agent shall hold a sum equal to such estimate in
escrow, and pay the balance of the Recoveries to Transtech. As soon as
practicable after the receipt of SCA's objection, Transtech shall submit to SCA
such additional information, documents and reports, including, but not limited
to reports of Transtech's outside certified public accountants, concerning the
matters set forth in SCA's objection as SCA may reasonably request. If Transtech
and SCA shall not have agreed upon the amount of the SCA Payment, or SCA has not
withdrawn its objection, in either case within sixty (60) days of the date of
such objection, the calculation of the SCA Payment pursuant to the provisions of
Paragraph 5.1 shall be submitted to a third party acceptable to Transtech and
SCA and qualified to make determinations of this nature. The determination of
such third party shall be binding upon Transtech and SCA, and shall be relied
upon by the Paying Agent, who shall then make payment to SCA of the SCA Payment
in accordance with such determination out of the funds being held in escrow, and
pay the balance of such funds, if any, to Transtech. SCA shall pay such third
party's fees if such third party's determination confirms the accuracy of the
Preparer's Certificate; if it does not, Transtech shall pay such fees.
5.4 If Transtech notifies the Paying Agent and SCA that the amount of
Transtech's Tax Liabilities is not then determinable pursuant to the provisions
of Paragraph 5.2(ii), the Paying Agent shall hold the sum of $3,500,000 in
escrow and pay the balance of the Recoveries to Transtech. As soon as
practicable after the amount of Transtech's Tax Liabilities is determinable and
a calculation of the SCA Payment pursuant to the provisions of Paragraph 5.1 can
be made, the President or Vice President- Finance and Chief Financial Officer of
Transtech shall submit the Preparer's Certificate to the Paying Agent and SCA
and the disposition of the funds being held by the Paying Agent in escrow shall
be made in accordance with the provisions of Paragraph 5.2.
5.5 The SCA Payment shall be treated by the Transtech Parties and the SCA
Parties as attributable to and as a payment and reimbursement of remediation
costs (i) that already have been incurred and paid by the SCA Parties, and (ii)
that were incurred and paid by the SCA Parties on account of property or
services that already have been received by the SCA Parties. The SCA
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Parties represent to the Transtech Parties that an amount of such costs equal to
the SCA Payment have been incurred and paid by the SCA Parties on or before the
Effective Date, and in connection with any tax investigation, audit or other tax
proceedings, and upon the request of Transtech, the SCA Parties will provide
such information, documents and other evidence as is reasonably required to
enable Transtech to establish the foregoing to the satisfaction of the relevant
tax authorities.
5.6 The Transtech Parties represent and warrant that they have diligently
prosecuted, in good faith, the Insurance Action pursuant to the Retainer
Agreement and that they will continue, in good faith, the diligent prosecution
of the Insurance Action.
[6. RESERVED.]
7. WETLANDS.
7.1 Filcrest hereby agrees to make available to SCA such of Filcrest's
real property in Edison Township, Middlesex County, New Jersey identified on
Exhibit A attached hereto ("Filcrest's Property") as may be needed for or in
connection with the remediation of the Kin-Buc Landfill, the mitigation of the
disturbance of wetlands or tidelands related to such remediation, or in
settlement of natural resource damage claims arising from such remediation,
provided that the lands to be made available shall be identified by the SCA
Parties, or any of them, within four (4) years from the Effective Date.
7.2 Filcrest will not sell Filcrest's Property for two (2) years from the
Effective Date. Title to Filcrest's Property identified for use by the SCA
Parties within two (2) years from the Effective Date shall be subject only to
encumbrances of record on and as of the Effective Date. Thereafter, except as
provided in Paragraph 7.3, the SCA Parties' rights pursuant to this Paragraph 7
shall be subject to prior sale by Filcrest of any or all of Filcrest's Property.
Title to Filcrest's Property not previously sold and identified for use by the
SCA Parties after two years from the Effective Date shall be subject to all
encumbrances of record on and as of the date so identified.
7.3 If, after two (2) years from the Effective Date, Filcrest receives a
bona fide offer from a person other than a party to this Agreement to purchase
all or any portion of Filcrest's Property, then it may sell the property
identified in such offer, on the terms set forth in such offer, only if, after
having given the SCA Parties notice of the terms of such bona fide offer, none
of the SCA Parties has offered to buy the property identified in such offer on
the same terms. Filcrest shall give written notice to the SCA Parties of any
such bona fide offer within ten (10) days of receipt thereof, and the SCA
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Parties shall have ten (10) days from receipt of such notice within which to
notify Filcrest of its intention to purchase the property identified in such
offer on the same terms.
7.4 Any use of Filcrest's Property pursuant to this Paragraph 7 shall take
the form of a deed or other document of transfer of such property to the SCA
Parties, or any of them, as SCA may designate, or to any other entity (such as
the State of New Jersey, the Township of Edison, a state or local governmental
agency, a conservation trust or the like), as SCA may direct. Filcrest shall
execute such deed or other documents effecting such use promptly upon submission
to it of the same.
7.5 The Transtech Parties hereby release any and all claims against the
SCA Parties, now existing or in the future arising, relating to ownership or use
of any or all of the wastewater treatment plant and appurtenances thereto
constructed pursuant to the EPA Orders. SCA shall enter into a long-term ground
lease with Filcrest, effective retroactively to the Effective Date, for the tax
lot which is the site of such plant and the portions of the tax lots owned by
Filcrest on or under which such appurtenances are located. Such ground lease
shall be totally net to Filcrest, no rent shall be payable to Filcrest
thereunder, and SCA shall have the obligations of a ground lessee thereunder
which are customary in the circumstances.
8. ACKNOWLEDGMENT OF RECEIPT OF REPRESENTATIONS AS TO MAHAN'S AND
MEAGHER'S RESPECTIVE FINANCIAL CONDITION.
8.1 The SCA Parties acknowledge the receipt of a written representation by
each of Mahan and Meagher as to his respective financial condition and ability
to respond to the liability sought to be imposed upon him in the Kin-Buc Cost
Recovery Action. Such representations are satisfactory, in form and substance,
to the SCA Parties. For purposes of Paragraph 20, these representations shall be
treated as if they were expressly set out in the Agreement even though, as
provided in Paragraph 8.2, they will be maintained confidentially by the SCA
Parties.
8.2 Such representations, and the information contained therein, shall be
treated by the SCA Parties as confidential, and shall not be revealed to any
person not employed, or retained as an attorney or a consultant, by the SCA
Parties, or to any persons, whether or not so employed or retained, not directly
involved in matters related to the Kin-Buc Landfill.
9. Releases by the SCA Parties and Gaess of their claims.
9.1 The SCA Parties and Gaess, jointly and severally, hereby release and
discharge all claims, rights, causes of action and demands which they, or any of
them, have made or brought, or could have made or brought, against the Transtech
Parties, the
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Inmar Parties, Mahan and Meagher (individually and as trustee of a trust for the
benefit of Roger Mahan), or any of them, in the Kin-Buc Cost Recovery Action,
including, but not limited to the counterclaim and third-party complaint in the
Kin-Buc Cost Recovery Action known as the fraudulent conveyances counterclaim
("Fraudulent Conveyances Counterclaim"), the Arbitration Demands and the
Arbitration Suits. The SCA Parties, the Transtech Parties, Inmar, Mahan and
Meagher acknowledge that each of them and other parties to the Fraudulent
Conveyances Counterclaim are simultaneously entering into a separate agreement
concerning the Fraudulent Conveyances Counterclaim, which contains, among other
things, releases of claims not contained herein. The SCA Parties, the Transtech
Parties, Inmar, Mahan and Meagher acknowledge and agree that there is no
conflict between this Agreement and such other separate agreement concerning the
Fraudulent Conveyances Counterclaim, and that both this Agreement and such other
separate agreement are to be given full effect, each in accordance with their
respective terms.
9.2 Further, the SCA Parties and Gaess, jointly and severally, hereby
release and discharge all claims, rights, causes of action and demands which
they, or any of them, have or hereafter may have against the Transtech Parties,
the Inmar Parties, Mahan and Meagher, or any of them (i) in any way connected
with the Kin-Buc Landfill, including, but not limited to all claims for cost
recovery and contribution under CERCLA or comparable federal or state statutes
or common law, or (ii) arising from, or pursuant to the provisions of, the 1986
Agreement, the Accompanying Agreements, or any other agreement between or among
any of the SCA Parties, Gaess, the Transtech Parties, the Inmar Parties, Mahan
and Meagher, or any of them, which refers or relates, in any way, to the Kin-Buc
Landfill, except that claims, rights, causes of action and demands which the SCA
Parties and Gaess, or any of them, hereafter may have against the Transtech
Parties, the Inmar Parties, Mahan and Meagher, or any of them, arising from, or
pursuant to the Remediation Easements or this Agreement are not released and
discharged.
10. DISMISSALS BY SCA PARTIES OF FRAUDULENT CONVEYANCES COUNTERCLAIM
AGAINST OTHER PARTIES. For good and valuable consideration given by the
Transtech Parties, the receipt and sufficiency of which is hereby acknowledged,
the SCA Parties, jointly and severally, hereby dismiss, with prejudice, all
claims, rights, causes of action and demands which they, or any of them, have
made or brought, explicitly or, pursuant to case management order, impliedly, or
could have made or brought, against the following third-party defendants in the
Fraudulent Conveyances Counterclaim (the following, together with Transtech,
Inmar, Mahan and Meagher, constituting all the defendants named in the
Fraudulent Conveyances Counterclaim): Charles F. Trapp,
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Eileen Trapp, Ingrid T. Mahan, Nancy Ernst, Gary Mahan, Victor P. DiLeo,
individually and as trustee of a trust for the benefit of Roger Mahan, Roger
Mahan, Allen & Company Incorporated, Allen & Company, Roland Crandall and Tang
Realty, Inc. As soon as practicable after the Effective Date, the SCA Parties
shall file with the District Court before which the Kin-Buc Cost Recovery Action
is pending, a document evidencing the dismissal with prejudice provided for
herein.
11. DEFENSE AND INDEMNIFICATION AS TO THE KIN-BUC COST RECOVERY ACTION.
The SCA Parties, jointly and severally, hereby shall defend and indemnify the
Transtech Parties, the Inmar Parties, Mahan and Meagher ("Indemnitees") from and
against (i) all claims, demands and causes of action which have been made or
brought by the other parties to the Kin-Buc Cost Recovery Action against the
Indemnitees, or any of them, (ii) all claims, demands and causes of action for
response costs which hereafter may be made or brought by such parties to the
Kin-Buc Cost Recovery Action or by any other parties which may be potentially
responsible for the remediation of the Kin-Buc Landfill, whether or not such
claims, demands or causes of action for response costs are based on contractual
indemnification provisions, and (iii) all liability, loss, costs and expense
(including reasonable attorneys' fees) which may be suffered or incurred by the
Indemnitees, or any of them, in each case arising from the Kin-Buc Cost Recovery
Action, except for such claims, demands, causes of action, liability, loss,
costs and expenses that have been or may be made or brought against, or suffered
or incurred by, the Indemnitees in or as a result of the Fraudulent Conveyances
Counterclaim. Nothing contained herein shall be deemed to obligate the SCA
Parties, or any of them, to reimburse the Indemnitees, or any of them, for (i)
response costs paid by the Indemnitees, or any of them, on or before the
Effective Date, or (ii) attorney's fees, disbursements or other costs and
expenses arising from the Indemnitees' prosecution, defense or settlement of the
Kin-Buc Cost Recovery Action or the Fraudulent Conveyances Counterclaim paid or
incurred by the Indemnitees, or any of them, on or before the Effective Date.
The Indemnitees may not incur or contract for any obligation under this
Paragraph 11 unless written notice of breach of the SCA Parties' obligations
under this Paragraph 11 has been given to the SCA Parties and such breach
continues for ten (10) days thereafter.
12. DEFENSE AND INDEMNIFICATION AS TO EPA ORDERS AND OTHER ENFORCEMENT.
The SCA Parties hereby shall defend and indemnify the Indemnitees from and
against (i) all claims, demands and causes of action which have been made or
brought, or hereafter may be made or brought, by the EPA or any other federal,
state or local governmental or regulatory agency, against the Indemnitees, or
any of them, and (ii) all liability, loss, cost and expense (including
reasonable attorneys' fees) which may be suffered or
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incurred by the Indemnitees, or any of them, which, in the case of (i) and (ii)
above, arise from (y) the EPA Orders (except for fines or penalties levied or
imposed against the Indemnitees for or on account of any of the Indemnitees'
actions or omissions on or before the Effective Date), or (z) any other orders
or directives, and environmental or other applicable laws, regulations or
ordinances, which are directed against or relate to the Kin-Buc Landfill or any
portion thereof, operations at the Kin-Buc Landfill, the remediation of the
Kin-Buc Landfill [except for the fines and penalties identified in (y) above],
environmental conditions at the Kin-Buc Landfill or conditions resulting from
releases from the Kin-Buc Landfill. Nothing contained herein shall be deemed to
obligate the SCA Parties, or any of them, to reimburse the Indemnitees, or any
of them, for (i) response costs paid by the Indemnitees, or any of them, on or
before the Effective Date, or (ii) attorney's fees, disbursements or other costs
and expenses arising from the Indemnitees' prosecution, defense or settlement of
the Kin-Buc Cost Recovery Action or the Fraudulent Conveyances Counterclaim paid
or incurred by the Indemnitees, or any of them, on or before the Effective Date.
The Indemnitees may not incur or contract for any obligation under this
Paragraph 12 unless written notice of breach of the SCA Parties' obligations
under this Paragraph 12 has been given to the SCA Parties and such breach
continues for ten (10) days thereafter.
13. DEFENSE AND INDEMNIFICATION AS TO SETTLEMENT AGREEMENTS IN THE KIN-BUC
COST RECOVERY ACTION. The SCA Parties hereby shall defend and indemnify the
Indemnitees from and against all claims, demands, causes of action, liability,
loss, cost and expense (including reasonable attorneys' fees) which have been,
or hereafter may be made, brought, suffered or incurred by the Indemnitees, or
any of them, arising from or in any way connected with the de minimis settlement
agreements which have been executed by the Indemnitees in the Kin-Buc Cost
Recovery Action, and such other de minimis, non-de minimis and municipal solid
waste settlement agreements which hereafter may be executed by the Indemnitees
in the Kin-Buc Cost Recovery Action, provided that such other de minimis, non-de
minimis and municipal solid waste settlement agreements shall have been approved
by the SCA Parties. The SCA Parties shall reimburse the Transtech Parties for
all of their attorneys' and consultant's fees arising from work on the municipal
solid waste settlements. Nothing contained herein shall be deemed to obligate
the SCA Parties, or any of them, to reimburse the Indemnitees, or any of them,
for (i) response costs paid by the Indemnitees, or any of them, on or before the
Effective Date, or (ii) attorney's fees, disbursements or other costs and
expenses arising from the Indemnitees' prosecution, defense or settlement of the
Kin-Buc Cost Recovery Action or the Fraudulent Conveyances Counterclaim paid or
incurred by the Indemnitees, or any of them, on or before the Effective Date.
The Indemnitees may not incur or contract for
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<PAGE>
any obligation under this Paragraph 13 unless written notice of breach of the
SCA Parties' obligations under this Paragraph 12 has been given to the SCA
Parties and such breach continues for ten (10) days thereafter.
14. DEFENSE AND INDEMNIFICATION AS TO OTHER CLAIMS RELATING TO THE KIN-BUC
LANDFILL.
14.1 The SCA Parties hereby shall defend and indemnify the Indemnitees
from and against all claims, demands and causes of action (including toxic tort
and similar claims and causes of action), and all liability, loss, cost and
expense (including reasonable attorneys' fees), which have been, or hereafter
may be made, brought, suffered or incurred by the Indemnitees, or any of them
(i) arising from environmental conditions at, or related to, the Kin-Buc
Landfill or any portion thereof, or the remediation and maintenance of the
Kin-Buc Landfill, or (ii) on account of any inaccuracy or material omission in
any of the representations and warranties of the SCA Parties set forth in
Paragraph 15. Nothing contained herein shall be deemed to obligate the SCA
Parties, or any of them, to reimburse the Indemnitees, or any of them, for (i)
response costs paid by the Indemnitees, or any of them, on or before the
Effective Date, or (ii) attorney's fees, disbursements or other costs and
expenses arising from the Indemnitees' prosecution, defense or settlement of the
Kin-Buc Cost Recovery Action or the Fraudulent Conveyances Counterclaim paid or
incurred by the Indemnitees, or any of them, on or before the Effective Date.
The Indemnitees may not incur or contract for any obligation under this
Paragraph 14 unless written notice of breach of the SCA Parties' obligations
under this Paragraph 14 has been given to the SCA Parties and such breach
continues for ten (10) days thereafter.
14.2 This Paragraph 14 does not apply to the claims, demands, causes of
action, liability, loss, cost and expense identified in Paragraphs 11, 12 and
13, does not enlarge the obligations of the SCA Parties as to such matters and
does not negate any exclusions from such obligations provided in such
Paragraphs. Nothing in this Agreement shall require the SCA Parties to defend or
indemnify the Indemnitees, or any of them, with respect to any claims, demands,
causes of action, liability, loss, cost or expense arising out of or connected
in any way with (i) contracts for the remediation or the post-closure operations
and maintenance of the Kin-Buc Landfill entered into by the Indemnitees, or any
of them, to which none of the SCA Parties was a party, or (ii) work performed by
the Indemnitees, or any of them, or any of their respective employees or agents,
in connection with the remediation or post-closure operations or maintenance of
the Kin-Buc Landfill.
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15. REPRESENTATIONS AND WARRANTIES OF THE SCA PARTIES. Each of the SCA
Parties, jointly and severally, represents and warrants to the Transtech
Parties, the Inmar Parties, Mahan and Meagher that:
(a) each of the SCA Parties is duly organized, validly existing and
in good standing under the laws of the state identified herein as the
state of incorporation of each of the SCA Parties;
(b) the SCA Parties identified in the heading of this Agreement as
successors by merger to other corporations are accurately identified as
such, and all of the corporations and other entities formerly or presently
affiliated with any of the SCA Parties and named in the Kin-Buc Cost
Recovery Action are included in the definition of the SCA Parties herein;
(c) each of the SCA Parties and Gaess has full power and authority,
or legal capacity, as the case may be, to execute and deliver this
Agreement;
(d) the execution and delivery of this Agreement, and the
performance of all of the undertakings by the SCA Parties provided for
herein, have been duly and validly authorized and approved by the SCA
Parties' respective boards of directors, and no other corporate
proceedings on the part of any of the SCA Parties are necessary to
authorize the execution and delivery of this Agreement or the performance
by the SCA Parties of any of their respective undertakings; and
(e) this Agreement has been duly and validly executed and delivered
by each of the SCA Parties and Gaess, and assuming the valid execution and
delivery thereof by the other parties hereto, this Agreement constitutes
the legal, valid and binding agreements of each of the SCA Parties and
Gaess, enforceable against each of them in accordance with its terms.
16. REPRESENTATIONS AND WARRANTIES OF TRANSTECH. Transtech represents and
warrants to the SCA Parties that:
(a) each of the Transtech Parties has full power and authority to
execute and deliver this Agreement;
(b) the execution and delivery of this Agreement, and the
performance of all of the undertakings by the Transtech Parties provided
for herein, have been duly and validly authorized and approved by the
Transtech Parties' respective boards of directors, and no other corporate
proceedings on
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the part of any of the Transtech Parties are necessary to authorize the
execution and delivery of this Agreement or the performance by the
Transtech Parties of any of their respective undertakings; and
(c) this Agreement has been duly and validly executed and delivered
by each of the Transtech Parties, and assuming the valid execution and
delivery thereof by the other parties hereto, this Agreement constitutes
the legal, valid and binding agreements of each of the Transtech Parties
enforceable against each of them in accordance with its terms.
17. REPRESENTATIONS AND WARRANTIES OF THE INMAR PARTIES AND MAHAN. Each of
Inmar and Mahan, jointly and severally, represents and warrants to the SCA
Parties that:
(a) each of the Inmar Parties and Mahan has full power and
authority, or legal capacity, as the case may be, to execute and deliver
this Agreement;
(b) the execution and delivery of this Agreement, and the
performance of all of the undertakings by the Inmar Parties provided for
herein, have been duly and validly authorized and approved by the Inmar
Parties' respective boards of directors, and no other corporate
proceedings on the part of either of the Inmar Parties are necessary to
authorize the execution and delivery of this Agreement or the performance
by the Inmar Parties of any of their respective undertakings; and
(c) this Agreement has been duly and validly executed and delivered
by each of the Inmar Parties and Mahan, and assuming the valid execution
and delivery thereof by the other parties hereto, this Agreement
constitutes the legal, valid and binding agreements of each of the Inmar
Parties and Mahan, enforceable against each of them in accordance with its
terms.
18. REPRESENTATIONS AND WARRANTIES OF MEAGHER. Meagher represents and
warrants to the SCA Parties that:
(a) he has full legal capacity to execute and deliver
this Agreement; and
(b) this Agreement has been duly and validly executed and delivered
by Meagher, and assuming the valid execution and delivery thereof by the
other parties hereto, this Agreement constitutes the legal, valid and
binding agreement of Meagher, enforceable against him in accordance with
its terms.
16
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19. DISMISSAL. Promptly upon the Effective Date, the parties shall submit
to the District Court a Stipulation of Dismissal executed by all the parties
hereto which shall effect a dismissal, with prejudice, of all claims brought by
and among the parties hereto.
20. ENTIRE AGREEMENT. This Agreement contains the entire agreement between
and among the parties with respect to the subject matter hereof and supersedes
all prior agreements, written or oral, with respect thereto. Each party to this
Agreement warrants and represents that in entering into this Agreement, it has
not relied upon any oral or written representation or promise that is not
expressly set out in this Agreement. This Agreement cannot be modified except by
a writing signed by the parties whose rights or obligations are affected by such
modification.
21. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New Jersey applicable to agreements
made and to be performed entirely within such State, without regard to the
conflict of laws rules thereof.
22. ASSIGNMENT.
22.1 This Agreement may not be assigned (including by operation of law) by
any party without the express written consent of the other parties, except that
the obligations of SCA may be assigned to an affiliated company which, in the
opinion of the Transtech Parties, has financial resources equal to or greater
than SCA's at and as of the Effective Date. Prior to any such assignment, SCA
shall give written notice to Transtech of its intention to assign, providing,
with such notice, the name, address and state of incorporation of the proposed
assignee and copies of the most recent audited financial statements of the
assignee. SCA shall also provide such additional information about the assignee
as Transtech may reasonably request. Transtech shall have ten (10) days from
receipt of all requested information about the assignee within which to object
to the assignment, in which case the assignment shall not be made. Any purported
assignment made without notice to Transtech as provided herein or despite
Transtech's objection thereto shall not be valid and shall not relieve SCA of
any of its obligations hereunder. The same procedures, requiring notice by
Transtech to SCA and right of objection by SCA, shall apply to any proposed or
purported assignment by Transtech.
22.2 Nothing in this Agreement, express or implied, is intended or shall
be construed to confer upon, or to give anyone other than the parties hereto and
their respective heirs, executors, administrators, legal representatives,
successors or
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assigns, as the case may be, any rights or benefits under, or by reason of, this
Agreement, and no other party shall have any right to enforce any of the
provisions of this Agreement.
23. JOINT DEFENSE AGREEMENT.
23.1 The parties hereby acknowledge and agree that, during the pendency of
the Kin-Buc Cost Recovery Action and continuing to the Effective Date it has
been, and it will continue to be in the interests of the parties to defend
against the defendants' claims, including but not limited to claims for
contribution and indemnification, in that action. The SCA Parties therefore
agree to assume the legal costs of the defense of, or of any other compulsory
participation in the Kin-Buc Cost Recovery Action by, the Transtech Parties, the
Inmar Parties, Mahan and Meagher, including but not limited to attorneys' fees.
The SCA Parties shall have the right to conduct and control, through counsel of
their choosing, the defense of the Kin-Buc Cost Recovery Action and any other
participation by the Transtech Parties, the Inmar Parties, Mahan and Meagher,
and may compromise or settle the same. The parties hereby acknowledge and agree
that, in order to protect their interests, the parties shall have shared and
wish to continue to share information, some of which may be subject to the
attorney-client privilege and work product protection, without waiving the
attorney-client privilege or work product protection, or allowing information to
be disclosed to any third party ("Joint Defense Materials"). The sharing or
disclosure of Joint Defense Materials between the parties hereby will not
diminish in any way the confidentiality of such materials and will not
constitute a waiver of any available privilege or protection and none of the
parties to this Agreement shall have the power to waive, without the express
written consent of the other parties, any privilege or protection applicable to
the Joint Defense Materials.
23.2 The parties hereby agree that they shall inform all employees, agents
and counsel who receive access to Joint Defense Materials pursuant to this
Agreement of the existence and scope of this Agreement, and shall instruct such
employees, agents and counsel not to disclose, disseminate or transfer the Joint
Defense Materials or any of the information contained therein to any other
person or entity or to use or permit others to use the Joint Defense Materials
or any of the information contained therein except to the extent expressly
permitted hereunder.
24. ACKNOWLEDGMENT OF REPRESENTATION BY COUNSEL. Each of the Inmar
Parties, Mahan, Meagher and Gaess expressly acknowledges that it or he, as the
case may be, has been represented by counsel in connection with the negotiation
and execution of this Agreement, that in connection with the negotiation and
execution of this Agreement, it or he, as the
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case may be, has neither received nor relied upon any advice given by any other
party hereto or counsel to any other party hereto, and that it or he, as the
case may be, has executed this Agreement freely, of its or his own accord,
without influence, duress or inducements other than the consideration expressly
provided for in this Agreement.
25. NOTICE. All notices required or permitted to be given pursuant to the
provisions of this Agreement by any party hereto to any other party or parties
hereto shall be in writing, shall be sent only by overnight delivery service or
United States Postal Service certified mail, return receipt requested, and shall
be addressed to such party or parties hereto at the addresses for such party or
parties set forth below (or to such other address as may be indicated by a party
requesting a change of address in a notice to all the other parties to this
Agreement given in the manner set forth herein for the giving of notices).
Notices given in the manner set forth herein for the giving of notices shall be
deemed to have been given when delivered to an overnight delivery service or
when postmarked, as the case may be. Addresses for notices are:
if to any or all of the SCA Services, Inc.
SCA Parties or Gaess: 3003 Butterfield Road
Oak Brook, Illinois 60523-1100
Attention: General Counsel
with a copy to: Antoinette R. Stone, Esq.
Buchanan Ingersoll
Eleven Penn Center
1835 Market Street, 14th Floor
Philadelphia, Pennsylvania 19103
if to any or all of the Transtech Industries, Inc.
Transtech Parties: 200 Centennial Avenue, Suite 202
Piscataway, New Jersey 08854
Attention: President
with a copy to: Dante J. Romanini, Esq.
Kozlov, Seaton, Romanini &
Brooks, P.C.
1940 Route 70 East, Suite 200
Cherry Hill, New Jersey 08003
if to any or all of the Inmar Associates, Inc.
Inmar Parties: 1703 E. 2nd Street
Scotch Plains, New Jersey 07076
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with a copy to: Michael K. Mullen, Esq.
Schenck, Price, Smith & King
10 Washington Street
P.O. Box 905
Morristown, New Jersey 07963-0905
if to Mahan: Mr. Marvin H. Mahan
2250 Woodland Terrace
Scotch Plains, New Jersey 07076
with a copy to: Michael K. Mullen, Esq.
Schenck, Price, Smith & King
10 Washington Street
P.O. Box 905
Morristown, New Jersey 07963-0905
if to Meagher: Mr. Robert J. Meagher
P.O. Box 190
Reeders, Pennsylvania 18352
with a copy to: Dante J. Romanini, Esq.
Kozlov, Seaton, Romanini &
Brooks, P.C.
1940 Route 70 East, Suite 200
Cherry Hill, New Jersey 08003
26. INDEX TO DEFINED TERMS. The following terms are defined in the
following paragraphs of this Agreement:
Term Section
Accompanying Agreements P. 1.1
Agreement First recital
Arbitration Demands Third recital
Arbitration Suits Third recital
A2S P. 3.1
CERCLA P. 2.2
Dock Watch Fourth P. of heading
EPA First recital
EPA Orders Fourth recital
Effective Date P. 1.1
Filcrest Third P. of heading
Filcrest's Property P. 7.1
Fraudulent Conveyances Counterclaim P. 9.1
Friedman Siegelbaum P. 5.1
Gaess Fifth P. of heading
Indemnitees P. 11
Inmar Fourth P. of heading
Inmar Parties Fourth P. of heading
Insurance Action P. 5.1
Joint Defense Materials P. 23.1
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Term (continued) Section (continued)
KB Third P. of heading
Kin-Buc Landfill First recital
Kin-Buc Cost Recovery Action Second recital
Mahan Fifth P. of heading
Meagher Fifth P. of heading
Net Recoveries P. 5.1
1986 Agreement P. 1.1
Paying Agent P. 5.1
Preparer's Certificate P. 5.2
Recoveries P. 5.1
Remediation Easements P. 1.2
Retainer Agreement P. 5.1(a)
SCA Second P. of heading
SCA Parties Second P. of heading
SCA Payment P. 5.1
Transtech Third P. of heading
Transtech Parties Third P. of heading
Transtech's Consolidated Group P. 5.1
Transtech's Tax Liabilities P. 5.1(b)
27. HEADINGS. Headings are not part of the agreement of the parties.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on and as
of the date set forth above.
WASTE MANAGEMENT, INC. SCA SERVICES, INC.
By:/s/ Stephen T. Joyce By:/s/ Stephen T. Joyce
-------------------- --------------------
Title:Manager-Closed Sites Title:Manager-Closed Sites
CHEMICAL WASTE MANAGEMENT
OF NEW JERSEY, INC., for
and as to itself and as
a general partner of
Earthline Company
By:/s/ Stephen T. Joyce
--------------------
Title:Manager-Closed Sites
[Signatures continued on next page]
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[Signatures continued]
CHEMICAL WASTE MANAGEMENT, WASTE MANAGEMENT OF NEW JERSEY,
INC., for and as to itself INC.
and as successor to CWM
Consolidation Sub, Inc.
By:/s/Stephen T. Joyce
-------------------
By:/s/ Stephen T. Joyce Title:Manager-Closed Sites
--------------------
Title:Manager-Closed Sites
CWM CHEMICAL SERVICES, INC.
By:/s/Stephen T. Joyce
-------------------
Title:Manager-Closed Sites
TRANSTECH INDUSTRIES, INC. FILCREST REALTY, INC.
By:/s/Robert V. Silva By:/s/Robert V. Silva
------------------ -------------------
Title:President and Title:President
Chief Executive Officer
KIN-BUC, INC.
By:/s/Robert V. Silva
------------------
Title:President
INMAR ASSOCIATES, INC. DOCK WATCH QUARRY, INC.,
for and as to itself and as a
possible successor to Marpak, Inc.
By:/s/ Marvin H. Mahan
-------------------
Title:President By:/s/ Marvin H. Mahan
-------------------
Title:President
[Signatures continued on next page]
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[Signatures continued]
/s/ Marvin H. Mahan /s/ Robert J. Meagher
- ------------------- ---------------------
MARVIN H. MAHAN, ROBERT J. MEAGHER,
for and as to himself and individually and as a trustee
as a possible successor to of a trust for the benefit of
Marpak, Inc. Roger Mahan
/s/ Anthony Gaess
------------------
ANTHONY GAESS
23
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EXHIBIT "A"
FILCREST PROPERTY
BLOCK/LOT MUNICIPALITY ACREAGE
--------- ------------------ ----------
399/14 Edison, New Jersey 1.06 acres
399/59 " 1.00
399/61 " 4.20
399/63 " 5.13
399/65 " 2.00
399/68 " 1.50
399/73 " 6.00
399/76 " 1.00
399/78 " 3.52
399/80 " 3.49
399/84 " 5.18
399/91 " 1.04
399/106, 107 " 1.66
399/108 " .93
400/4, 5 " 5.46
400/6, 7 " 4.50
400/9 " 5.46
400/26 " 11.00
400/31 " 2.30
400/37 " 2.00
400/43, 44 " .32
400/45, 46, 47 " .86
400/49 " 5.00
400/56 " 5.00
400/59, 60, 61 " 4.59
400/63 " .55
400/67, 68 " 2.04
400/70 " 2.00
STIPULATION OF SETTLEMENT AND RELEASE
This Stipulation of Settlement and Release, is entered into as of the 23rd
day of December, 1997 (the "Effective Date"), by and between Transtech
Industries, Inc., Charles F. Trapp, Victor P. DiLeo, Marvin H. Mahan, Ingrid T.
Mahan, Allen & Company, a New York partnership, Allen & Company Incorporated, a
New York corporation, Nancy Ernst, Roger T. Mahan, Gary A. Mahan, Victor P.
DiLeo and Robert J. Meagher as Trustees of Trust f/b/o Roger Mahan, Roland D.
Crandall, Eileen Trapp, Inmar Associates, Inc. and Tang Realty, Inc. (the
"Fraudulent Conveyance Defendants") and Waste Management, Inc., a Delaware
corporation (formerly named WMX Technologies, Inc.), SCA Services, Inc., a
Delaware corporation, Chemical Waste Management of New Jersey, Inc., a New
Jersey corporation (formerly named SCA Scientific Services, Inc., SCA Services
of Edison, Inc. and SCA Services of Passaic, Inc.), for and as to itself and as
a general partner of Earthline Company, formerly a New Jersey general
partnership (which partnership was also called Environmental Services Company
and Gaess Environmental Services Company), Chemical Waste Management, Inc., a
Delaware corporation, for and as to itself and as successor to CWM Consolidation
Sub, Inc., a Delaware corporation, which is, in turn, the successor by merger to
Carl Gulick, Inc., a New Jersey corporation, and to Wastequid, Inc., a New
Jersey corporation, for and as to itself and as a general partner of Earthline
Company, Waste Management of New Jersey, Inc., a New Jersey corporation,
successor by merger to United Carting, Inc., a New Jersey corporation, CWM
Chemical Services, Inc., a Delaware corporation (formerly named SCA Chemical
Services, Inc. and Chem- Trol Pollution Services, Inc.), successor by merger to
Carl Gulick, Inc., a New Jersey corporation, and to R&R Sanitation Service,
Inc., a New Jersey corporation (the "SCA Parties"); and
WHEREAS, Transtech Industries, Inc. ("Transtech") instituted an action
pursuant to the Comprehensive Environmental Response Compensation and Liability
Act of 1980 ("CERCLA"), 42 U.S.C. ss.ss.9607 and 9613 on or about June 25, 1990
in the United States
<PAGE>
District Court for the District of New Jersey styled TRANSTECH INDUSTRIES, INC.
V. A&Z SEPTIC CLEAN, INC., ET AL., Civil Action No. 2-90-2578 (HAA)
(the "CERCLA Action"); and
WHEREAS, Transtech has alleged that various defendants were generators of
hazardous substances disposed of at the Kin-Buc Landfill in Edison, New Jersey,
which was owned and operated by Transtech and/or its subsidiaries; and
WHEREAS, on November 9, 1992, and February 9, 1996, respectively, certain
parties (the "AFP Group") and the SCA Parties filed fraudulent conveyance
counterclaims against the Fraudulent Conveyance Defendants, seeking to have
certain alleged fraudulent transfers or conveyances voided (the "Fraudulent
Conveyances Counterclaims Litigation"); and
WHEREAS, the Fraudulent Conveyances Counterclaims Litigation alleges that
Transtech knowingly, intentionally and fraudulently transferred or conveyed
substantial assets to the other Fraudulent Conveyance Defendants, with the
intent of rendering itself incapable of (1) performing the future clean-up of
the Kin-Buc Landfill and/or (2) reimbursing the United States for the cost of
performing such a clean-up; and
WHEREAS, the Fraudulent Conveyance Defendants denied all the allegations
asserted against them in the Fraudulent Conveyance Counterclaims Litigation; and
WHEREAS, the Fraudulent Conveyance Defendants are simultaneously entering
into a separate agreement with the AFP Group settling and dismissing the AFP
Group's claims in the Fraudulent Conveyance Counterclaims Litigation (the "AFP
Settlement Agreement"); and
WHEREAS, the Fraudulent Conveyance Defendants and the SCA Parties now
desire to settle and dismiss the SCA Parties' claims in the Fraudulent
Conveyance Counterclaims Litigation, with prejudice and without costs, and
without admission of liability or wrongdoing on the part of any party; and
WHEREAS, certain Fraudulent Conveyance Defendants wish to release all
claims which they may have against Transtech arising
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from the Fraudulent Conveyance Counterclaims Litigation; and
WHEREAS, the SCA Parties are simultaneously entering into a
separate agreement with Transtech and some of its affiliates settling and
dismissing, among other things, the SCA Parties' claims against Transtech and
such affiliates in the CERCLA Action (the "SCA-Transtech Settlement Agreement");
NOW THEREFORE, in consideration of the agreements and undertakings being
made by Transtech and some of its affiliates in the SCA-Transtech Settlement
Agreement, and for other good and valuable consideration and the mutual promises
and covenants contained herein, the receipt and sufficiency of which the parties
acknowledge, the SCA Parties and the Fraudulent Conveyance Defendants do hereby
agree as follows:
1. RELEASE BY THE SCA PARTIES
Without in any way limiting the application of the provisions of the
SCA-Transtech Settlement Agreement, the SCA Parties hereby release and discharge
all claims, rights, causes of action and demands which they, or any of them,
have made or brought or could have made or brought, against the Fraudulent
Conveyance Defendants, or any of them, relating to, or in any way connected with
the CERCLA Action and the Fraudulent Conveyances Counterclaims Litigation.
2. INDEMNIFICATION BY THE SCA PARTIES
The SCA Parties, jointly and severally, hereby shall defend and indemnify
the Fraudulent Conveyance Defendants, or any of them (the "Indemnitees") from
and against (i) all claims, demands and causes of action which have been made or
brought, or hereafter may be made or brought, against the Indemnitees in the
Fraudulent Conveyance Counterclaims Litigation, and (ii) all liability, loss,
cost and expense (including reasonable attorneys' fees), which may be suffered
or incurred by the Indemnitees, or any of them, arising from or in any way
relating to the Fraudulent Conveyance Counterclaims Litigation. Nothing
contained herein shall be deemed to obligate the SCA Parties, or any of them, to
reimburse the Indemnitees, or any of them, for
3
<PAGE>
(i) settlement amounts or response costs paid or incurred by the Indemnitees, or
any of them, on or before the Effective Date, or (ii) attorneys' fees,
disbursements, or other costs and expenses paid or incurred by the Indemnitees,
or any of them, on or before the Effective Date, arising from the Indemnitees'
prosecution, defense or settlement of the CERCLA Action or the Fraudulent
Conveyance Counterclaims Litigation.
3. RELEASE OF THE SCA PARTIES BY THE FRAUDULENT CONVEYANCE DEFENDANTS
The Fraudulent Conveyance Defendants hereby release and discharge all
claims, rights, causes of action and demands which they, or any of them, have
made or brought, or could have made or brought, against the SCA Parties, their
subsidiaries, and their respective officers, directors, employees and agents,
or any of them, relating to, or in any way connected with the CERCLA Action
and the Fraudulent Conveyance Counterclaims Litigation.
4. RELEASE OF TRANSTECH BY CERTAIN FRAUDULENT CONVEYANCE DEFENDANTS
The Fraudulent Conveyance Defendants (except Transtech) hereby release
and discharge all claims, rights, causes of action and demands which they, or
any of them, have made or brought, or could have made or brought, against
Transtech, and its subsidiaries, and its or their respective officers,
directors, employees and agents relating to, or in any way connected with
the Fraudulent Conveyance Counterclaims Litigation, the AFP
Settlement Agreement, the SCA-Transtech Settlement Agreement and
this Stipulation of Settlement and Release.
5. GOVERNING LAW
This Stipulation of Settlement and Release shall be construed and
governed in all respects by the laws of the State of New Jersey.
6. FORUM SELECTION
Any action, suit or other proceeding initiated for the purposes of
interpreting, enforcing or avoiding any provision hereof by any Party shall be
instituted in either the United
4
<PAGE>
States District Court for the District of New Jersey, or, if subject matter
jurisdiction in such court does not exist, in the Courts of the State of New
Jersey, and all Parties hereby submit to the jurisdiction of such courts.
7. BINDING AUTHORITY
The Parties hereby mutually represent and warrant to each other that each
signatory to this Stipulation of Settlement and Release has the full power,
authority and legal right to execute this document on its own behalf as well as
on behalf of the corporate or other entities referred to herein. Moreover, the
Parties hereby represent to each other that neither has executed this document
under any duress, undue pressure, or fraud and that each hereby expressly agrees
to be legally and equitably bound by the express terms, covenants and conditions
contained herein. Lastly, the Parties mutually represent to each other that each
has entered into this Stipulation of Settlement and Release with the assistance
of competent counsel of their own choosing.
8. SEVERABILITY
This Stipulation of Settlement and Release shall be severable such that
the invalidity or unenforceability of any portion or provision contained herein
shall in no way affect the validity or enforceability of any other portion or
provision of this Stipulation of Settlement and Release. If any portion or
provision of this Stipulation of Settlement and Release is held to be invalid or
unenforceable by any court of competent jurisdiction, then, in that event, such
portion or provision shall be deemed amended to the extent, but only to the
extent, necessary to make it valid and enforceable.
9. REPRESENTATIONS AND WARRANTIES
This Stipulation of Settlement and Release is knowingly and voluntarily
entered into by the signatories hereto, and each of them declares and represents
that no payments, promises, representations or inducements for the execution of
this Stipulation of Settlement and Release have been made or in any way relied
upon, except as provided herein.
5
<PAGE>
10. NO ADMISSION OF LIABILITY
It is further agreed and understood that the Stipulation of Settlement and
Release set forth herein is in the best interest of the Parties hereto. This
Stipulation of Settlement and Release is given in compromise of disputed claims,
and nothing contained herein shall be construed or offered as an admission of
liability on behalf of or with respect to any claims asserted by or against the
Released Parties, the Parties or any other person in the CERCLA Action and the
Released Parties deny any liability and intend merely to avoid litigation and
all such alleged liability is hereby expressly denied.
11. AMENDMENTS OR MODIFICATIONS
To be legally binding, any amendments or modifications to this
Stipulation of Settlement and Release must be in writing, must refer
specifically to this Stipulation of Settlement and Release and must be signed
by duly-authorized representatives of all parties hereto.
12. COUNTERPARTS
This Stipulation of Settlement and Release may be executed in
counterparts, each such counterpart to be deemed an original, and all such
counterparts to constitute one single instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Stipulation of
Settlement and Release as of the day and year first above written.
TRANSTECH INDUSTRIES, INC.
By:/s/ Robert V. Silva
-------------------
Title: President and Chief
Executive Officer
CHARLES F. TRAPP MARVIN H. MAHAN
/s/ Charles F. Trapp /s/ Marvin H. Mahan
- -------------------- -------------------
[Signatures continued on next page]
6
<PAGE>
VICTOR P. DILEO INGRID T. MAHAN
/s/ Victor P. DiLeo /s/ Ingrid T. Mahan
- ------------------- -------------------
ALLEN & COMPANY ALLEN & COMPANY
a New York partnership INCORPORATED,
a New York corporation
By:/s/ Dominick Cantalupo By:/s/ Kim M. Wieland
---------------------- -------------------
Kim Wieland
Title: Authorized Signatory Title: Managing Director
NANCY ERNST ROGER T. MAHAN
/s/ Nancy Ernst /s/ Roger T. Mahan
- --------------- ------------------
GARY A. MAHAN VICTOR P. DILEO
as Trustee of Trust f/b/o Roger
Mahan
/s/ Gary A. Mahan /s/ Victor P. DiLeo
- ------------------ -------------------
ROBERT J. MEAGHER ROLAND D. CRANDALL
as Trustee of Trust f/b/o
Roger Mahan
/s/ Robert J. Meagher /s/ Roland D. Crandall
- --------------------- ----------------------
EILEEN TRAPP INMAR ASSOCIATES, INC.
/s/ Eileen M. Trapp By:/s/ Marvin H. Mahan
- ------------------- -------------------
Title: President
[Signatures continued on next page]
7
<PAGE>
TANG REALTY, INC.
By:/s/ Marvin H. Mahan
---------------------
Title: President
WASTE MANAGEMENT, INC. SCA SERVICES, INC.
a Delaware corporation a Delaware corporation
By:/s/ Stephen T. Joyce By:/s/ Stephen T. Joyce
-------------------- --------------------
Title: Manager - Closed Sites Title: Manager - Closed Sites
----------------------- -----------------------
CHEMICAL WASTE MANAGEMENT CHEMICAL WASTE
OF NEW JERSEY, INC. MANAGEMENT, INC.
a New Jersey corporation a Delaware corporation
(for and as to itself and as (for and as to itself and as
a general partner of successor to CWM Consolidation
Earthline Company) Sub, Inc.)
By:/s/ Stephen T. Joyce By:/s/ Stephen T. Joyce
-------------------- ---------------------
Title: Manager - Closed Sites Title: Manager - Closed Sites
----------------------- -----------------------
WASTE MANAGEMENT OF CWM CHEMICAL SERVICES, INC.
NEW JERSEY, INC. a Delaware corporation
a New Jersey corporation
By:/s/ Stephen T. Joyce By:/s/ Stephen T. Joyce
--------------------- ---------------------
Title: Manager - Closed Sites Title: Manager - Closed Sites
----------------------- -----------------------
8
EXHIBIT 11. COMPUTATION OF NET INCOME (LOSS) PER SHARE.
- ----------------------------------------------------------
TRANSTECH INDUSTRIES, INC.
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
Years Ended
December 31,
BASIC: 1997 1996
---- ----
Weighted Average Common Shares
Outstanding 2,829,190 2,829,090
========= =========
Net Income (Loss) from Operations $ 5,920,000 $(2,725,000)
Extraordinary charge - (512,000)
--------- ----------
Net Income (Loss) $ 5,920,000 $(3,267,000)
========= =========
Basic Net Income (Loss)
Per Common Share:
Net Income (Loss) from Operations $2.09 $ (.97)
Extraordinary charge - (.18)
----- ----
Net Income (Loss) per share $2.09 $(1.15)
==== =====
DILUTED:
Weighted Average Common
Shares Outstanding 2,829,190 2,829,000
Dilutive Stock Options Based
Upon the Treasury Stock
Method - -
--------- --------
2,829,190 2,829,000
Net Income (Loss) from Operations $5,920,000 $(2,755,000)
Extraordinary charge - (512,000)
Net Income (Loss)
$5,920,000 $(3,267,000)
Diluted Net Income (Loss)
Per Common Share:
Income (Loss) from Operations $ 2.09 $ (.97)
Extraordinary charge - (.18)
----- -----
Net Income (Loss) Per Share $ 2.09 $(1.15)
===== =====
EXHIBIT 13. ANNUAL REPORT TO STOCKHOLDERS.
TRANSTECH INDUSTRIES, INC.
ANNUAL REPORT
1997
<PAGE>
===============================================================
COMPANY PROFILE
Transtech Industries, Inc. and its subsidiaries
provide environmental services and generate
electricity utilizing methane gas. The Company's
headquarters are located in Piscataway, New Jersey.
===============================================================
TABLE OF CONTENTS
Page
President's Letter 2
Management's Discussion and Analysis of
Financial Condition 3
Consolidated Balance Sheets 14
Consolidated Statements of Operations 16
Consolidated Statements of Stockholders' Equity 18
(Deficit)
Consolidated Statements of Cash Flows 19
Notes to Consolidated Financial Statements 22
Report of Independent Certified Public Accountants 56
Market Prices of Common Stock 58
Directory 59
===============================================================
<PAGE>
TRANSTECH INDUSTRIES, INC.
PRESIDENT'S LETTER
=================================================================
To Our Stockholders:
The year 1997 saw several major accomplishments at your company.
After extensive effort and extremely complex negotiation, on December 23,
1997 the Company was able to settle significant litigation claims arising out of
the operations of its Kin-Buc landfill, thereby substantially relieving the
Company of environmental remediation obligations with respect to that site, as
described in greater detail in this Annual Report.
We are now directing our efforts towards seeking recoveries against the
Company's excess insurance carriers for past environmental remediation costs of
Kin-Buc and other landfill sites. We are also accelerating the Company's asset
divestiture program and the marketing efforts of our environmental service
subsidiary.
Management continues to pursue its business agenda under challenging
circumstances. While we remain hopeful, the Company cannot at this time
ascertain whether these efforts will be adequate to satisfy its future capital
requirements and anticipated tax and other liabilities.
Sincerely,
Robert V. Silva
2
<PAGE>
Transtech Industries, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
================================================================
RESULTS OF OPERATIONS
INTRODUCTION
The Company's operations consist of the parent company and 25
subsidiaries, two of which conduct active operations. These two subsidiaries'
operations have been classified into two segments: the generation and sale of
electricity utilizing methane gas and the performance of environmental services.
The other subsidiaries of the Company hold assets consisting primarily of cash
and marketable securities, real property, notes receivable and contract rights.
During 1995, the Company sold the segment of its operations which marketed
alkali products and in 1996, completed the sale of its valve manufacturing
segment.
The Company and certain subsidiaries were previously active in the
resource recovery and waste management industries. These activities included the
operation of three landfills and a solvents recovery facility. These sites are
now closed, but the Company continues to own and/or remediate the landfills and
has both incurred and accrued for the substantial costs associated therewith.
The Company has also incurred significant expense in litigation related to one
of the three landfills and in its ongoing litigation before the U.S. Tax Court
(see the discussion of "Liquidity and Capital Resources" below and Notes 9 and
15 to the Company's Consolidated Financial Statement).
OPERATING REVENUES
Consolidated operating revenues increased 54%, or $196,000, for the year
ended December 31, 1997, compared to the year ended December 31, 1996.
Consolidated operating revenues by business segment for the years ended December
31, 1997 and 1996 were as follows (in $000):
- Quarter - Total
1997 1st 2nd 3rd 4th Year
----- ----- ----- ----- -----
Electric Generation $ 81 $ 71 $ 72 $ 86 $ 310
Environmental Svcs. 65 80 72 184 401
Intercompany (38) (57) (37) (20) (152)
--- --- --- --- ----
Total revenues $108 $ 94 $107 $250 $ 559
=== === === === ====
1996
Electric Generation $ 55 $ 65 $ 68 $ 77 $ 265
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONT'D
=================================================================
Environmental Svcs. 64 77 73 64 278
Intercompany (36) (52) (55) (37) (180)
--- --- --- --- ----
Total revenues $ 83 $ 90 $ 86 $104 $ 363
=== === === === ====
Revenues from the operation which generates electricity using methane gas as
fuel were $310,000 for the year ended December 31, 1997, an increase of $45,000
or 17% compared to the prior year. The electricity generating facility consists
of four diesel/generating units each capable of generating approximately 48,000
kwh/day at full capacity. Methane gas is a component of the landfill gas
generated by a landfill site owned by the Company. Engineering studies indicate
sufficient quantities of gas at the landfill to continue the operation of the
facility for approximately 14 years. Electricity generated is sold pursuant to a
long term contract with a local utility. The contract has seven years remaining.
Revenues are a function of the number of kilowatt hours sold, the rate received
per kilowatt and capacity payments. The Company sold 10.6 million kwh during the
year ended December 31, 1997 compared to 8.5 million sold in the prior year. The
operation experienced fewer equipment failures and down-time for repairs in 1997
when compared to 1996. Elements of the landfill gas are more corrosive to the
equipment than traditional fuels, therefore resulting in more hours dedicated to
repair and maintenance than with equipment utilizing traditional fuels.
Approximately 13% of available machine hours were dedicated to repairs and
scheduled maintenance in 1997 versus 17% for such tasks during 1996.
The environmental services segment reported $401,000 of operating revenues
for 1997 (prior to elimination of intercompany sales) compared to $278,000 for
1996, an increase of 44%. Approximately $152,000 or 38% of the environmental
services segment's revenues for the period, compared to $180,000 or 65% for last
year, were for services provided to other members of the consolidated group and
therefore eliminated in consolidation. Substantially all the third party sales
during 1997 and 1996 were to four and one customer(s), respectively. The
increase in sales to third parties during 1997 was primarily due to commencement
of a six month construction project during the second half of the year.
The Company is continuing its efforts to expand the customer base of this
subsidiary to entities outside the consolidated group. During the last four
years, the subsidiary has provided, and continues to provide, quotes on
construction and maintenance projects involving the closure and remediation of
waste sites and contaminated properties. The subsidiary participates in a
competitive market on the basis of price and experience. Some construction
projects may have bonding requirements which are
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONT'D
=================================================================
beyond the subsidiary's ability to secure. The subsidiary continues performing
closure activities on sites previously operated by other subsidiaries of the
Company.
COST OF OPERATIONS
Consolidated direct operating costs for the year ended December 31, 1997
were $502,000, an increase of $203,000 or 68% when compared to 1996. The costs
of the electricity generating operation increased 33% for the year ended
December 31, 1997 when compared to the prior year due to a increase in repair
and maintenance costs related to the electric generating equipment. Costs of the
environmental services segment increased 144% overall due primarily to the
increase in sales volume.
Consolidated selling, general and administrative expenses for the year
ended December 31, 1997 were $2,359,000, an increase of $10,000 from the prior
year. Decreases were reported in insurance expenses and professional fees
relating to the Company's environmental and tax litigation (see Note 15 to the
Company's Consolidated Financial Statements). Increases were reported in salary,
business development and supply expenses. Professional fees and administrative
costs are incurred in support of the Company's ongoing litigation, marketing and
asset divestiture efforts (see Liquidity and Capital Resources - Liquidity). The
operating costs of the non-operating subsidiaries, consisting primarily of
insurance and franchise, income and real estate taxes, aggregated approximately
$68,000 and $136,000 for the years ended December 31, 1997 and 1996,
respectively. Such expenses declined primarily due to the divestiture of certain
property held for sale as discussed herein.
OPERATING LOSS
The Company's consolidated operating loss for the year ended December 31,
1997 increased to $2,302,000 from a loss of $2,285,000 reported for the prior
year.
OTHER INCOME (EXPENSE)
Consolidated investment income decreased by $60,000 for the year ended
December 31, 1997 to $285,000 due primarily to an decrease in the amount of
funds available for investment.
Consolidated interest expense decreased $27,000 to $6,000 for the year
ended December 31, 1997 compared to last year due to a decease in the amount of
outstanding funded debt.
Interest expense or credit reported as "Interest (expense)
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONT'D
=================================================================
credit - income taxes payable" represents the increase or decrease,
respectively, in the amount of interest accrued on estimated income taxes
payable as a result of the Company's tax litigation discussed below. The Company
reported interest expense of $860,000 for the twelve months ended December 31,
1997 versus a credit of $76,000 for the comparable period of 1996. The credit
reported for 1996 is due to the reversal of approximately $240,000 of interest
expense that was previously accrued on estimated income taxes payable to a state
net of additional interest accrued on estimated federal income tax liability.
The state sponsored a tax amnesty program pursuant to which all interest and
penalties for back taxes were waived upon payment of the tax liability. The
expense reported for 1997 reflects the interest accrued for estimated income
taxes payable as a result of the January 1998 settlement of one of the issues in
the tax litigation.
The Company reported income of $12,000 for the year ended December 31,
1997 in recognition of proceeds from the sale of computer equipment previously
leased by the Company pursuant to a leveraged lease agreement. The Company
recorded a charge of $37,000 related to this investment during 1996 to reflect
the decline in the market value for IBM mainframe computer equipment and the
rental income commanded by such equipment.
The Company charged $33,000 and $671,000 to operations for the years ended
December 31, 1997 and 1996, respectively, to reduce the carrying value of real
estate held for sale to amounts which approximate current net realizable values.
Estimates of net realizable values were based upon indications of value received
from professional real estate brokers and certain offers received from potential
purchasers of such property (see Note 7 to the Company's Consolidated Financial
Statements).
The Company charged $47,000 and $500,000 to operations for the years ended
December 31, 1997 and 1996, respectively, to reduce the carrying value of its
rights to certain clay deposits to management's best estimate of the values it
may ultimately realize for this asset. Such rights relate to clay purchased by
the Company in 1988 to be used for the closure of the landfill site in Edison,
New Jersey (the "Kin-Buc Landfill") owned and operated by the Company's
subsidiary, Kin Buc, Inc. for $1.2 million from an entity owned and controlled
by a former principal shareholder, director and officer of the Company (see
Notes 8 and 15 to the Company's Consolidated Financial Statements).
The Company recognized income of $10,672,000 during the year ended
December 31, 1997 due to the reversal of the balance of amounts previously
accrued for future expenditures related to the Kin-Buc Landfill. In December
1997 the Company entered into four
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONT'D
=================================================================
agreements with parties to litigation related to the allocation of costs of
remediation of the site which substantially relieved the Company from future
obligations with respect to the site in exchange for a cash payment and the
future sharing of proceeds from certain insurance claims filed against the
Company's excess insurance carriers (see Note 15 to the Company's Consolidated
Financial Statements).
The Company incurred charges of $11,000 for the year ended December 31,
1996 due to an increase in the accrual for closure costs related to a landfill
previously operated by Mac Sanitary Land Fill, Inc., a subsidiary of the
Company. The Company incurred higher than anticipated engineering and testing
costs in order to respond to inquiries from environmental regulators.
The consolidated gain (loss) on sale of property for the year ended
December 31, 1997 includes a loss of $64,000 with respect to the sale in May
1997 of approximately 95 acres of property held for sale with a book value of
approximately $773,000 for net proceeds after expenses of approximately
$709,000. The gain (loss) on sale of property reported for the years ended
December 31, 1997 and 1996 includes $32,000 and $25,000 respectively, of
deferred income associated with a 1992 installment sale of real property.
Miscellaneous income (expense) for the year ended December 31, 1997
includes a charge to income of $480,000 in recognition of the payment made to
the plaintiffs in certain litigation settled in December 1997 related to the
allocation of costs of remediation of the Kin-Buc Landfill. Miscellaneous income
(expense) for 1997 also includes a charge to income of $40,000 for reimbursement
of legal fees incurred by a former principal shareholder, director and officer
of the Company in connection with litigation related to the Kin-Buc Landfill.
See Note 15 to the Company's Consolidated Financial Statements for further
discussion of these issues.
The consolidated income from operations before income taxes was $7,242,000
for the year ended December 31, 1997, compared to a loss before income tax
credits and extraordinary item of $2,757,000 for last year.
INCOME TAXES
Income tax expense for the year ended December 31, 1997 equalled
$1,322,000, versus a $2,000 credit for 1996. As discussed below (see Liquidity
and Capital Resources - Taxes), the Company filed a petition with the Tax Court
to contest certain adjustments asserted in a deficiency notice issued by the
Internal Revenue Service (the "Service") as a result of the Service's audit of
the Company's federal tax returns for the years 1982 through 1988. The
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONT'D
=================================================================
Service also conducted an audit of the Company's 1989-91 federal tax returns,
which resulted in the challenge of a number of deductions claimed by the
Company. Income tax expense for 1997 includes $1,458,000 for federal taxes which
result from the acceptance of a partial settlement of certain adjustments
asserted by the Service (see Note 9 to the Company's Consolidated Financial
Statements).
EXTRAORDINARY CHARGE
On March 1, 1996 the Company sold all of the issued and outstanding stock
of Hunt Valve Company, Inc. ("Hunt") to ValveCo Inc. Upon consummation of the
sale, a portion of Hunt's funded debt was extinguished resulting in a write-off
of approximately $775,000 of unamortized debt issuance costs and debt discounts.
Pursuant to Securities and Exchange Commission policy, $512,000 ($775,000 less
income taxes of $263,000) was reported as an extraordinary loss in the period
ended March 31, 1996 when such debt was deemed to have been extinguished. The
Company recognized a loss on the sale in its consolidated statement of
operations for 1995.
NET LOSS
Net income for the year ended December 31, 1997 was $5,920,000, or $2.09
per share, compared to a net loss of $3,267,000, or $1.15 per share, for the
year ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Net cash used in operating activities for the year ended December 31, 1997
decreased to a net use of $2,299,000 from a use of $2,501,000 when compared to
last year. Net cash provided by investing activities decreased this year to
$2,366,000 from $2,751,000 due primarily to the inclusion in 1996 of $4,005,000
in proceeds from the sale of Hunt. The use of cash in financing activities
decreased from $410,000 to $16,000 for the period compared to last year, due
primarily to the maturity of a long term debt instrument in 1996. Funds held by
the Company in the form of cash and cash equivalents increased as of December
31, 1997 to $311,000 from $260,000. The sum of cash, cash equivalents and
marketable securities as of December 31, 1997 decreased to $2,921,000 from
$4,043,000 when compared to last year.
Working capital deficit was $(1.2) million and the ratio of current assets
to current liabilities was .7 to 1 as of
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONT'D
=================================================================
December 31, 1997, compared to working capital of $2.4 million and a ratio of
2.0 to 1 at December 31, 1996.
The Company faces significant short-term and long-term cash requirements
for (i) federal and state income tax obligations discussed below and in the
notes to the Company's consolidated financial statements for the year ended
December 31, 1997, most of which will become due following the conclusion of
litigation or a settlement with the Internal Revenue Service (the "Service") of
the Company's tax liability for the years 1980 through 1991, (ii) funding its
professional and administrative costs, and (iii) funding remediation costs
associated with sites of past operations. In addition, the Company's past
participation in the waste handling and disposal industries subjects the Company
to future events or changes in environmental laws or regulations, which cannot
be predicted at this time, which could result in material increases in
remediation and closure costs, and other potential liabilities that may
ultimately result in costs and liabilities in excess of its available financial
resources.
Although the Company has completed the sale of two business segments, one
in each 1995 and 1996, and continues to pursue the sale of property held for
sale and claims against insurance carriers for recoveries of past remediation
costs, no assurance can be given that the timing and amount of the proceeds from
such sources will be sufficient to meet the capital requirements of the Company
as they come due. In addition, the Company cannot ascertain whether its
remaining operations and funding sources will be adequate to satisfy its future
capital requirements, including its anticipated tax liabilities. In the event of
an unfavorable resolution of the tax and insurance litigation, or the proceeds
of asset sales are insufficient to meet the Company's future capital
requirements, including its tax liabilities, then, if other alternatives are
unavailable at that time, the Company will be forced to consider a plan of
liquidation of its remaining assets, whether through bankruptcy proceedings or
otherwise.
TAXES
As discussed in greater detail below, the Company is currently litigating
with the Service in Tax Court over its tax liability for taxable years 1980-88.
Certain issues from taxable years 1989-91 are also part of the Tax Court
litigation because losses from those years were carried back to 1988. The
Company estimates that after taking into account partial settlements that have
been reached through January 22, 1998 of all but one of the adjustments asserted
by the Service, and taking into account available net operating losses and tax
credits as of December 31, 1997, approximately $3.5 million of federal income
tax and $127,000 of state income tax and
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONT'D
=================================================================
$7.9 million of federal interest, calculated through December 31, 1997, would be
owed if the Company were unsuccessful in its defense of the remaining unsettled
issue in the Tax Court litigation. (The tax liability estimates presented herein
exclude penalties. The Service has conceded all of the penalties that it had
asserted in the Tax Court litigation, but state tax authorities may assert that
penalties are due.)
In 1991, the Service asserted numerous adjustments to the tax liability of
the Company and its subsidiaries for tax years 1980 through 1988, along with
interest and penalties thereon. In 1993, after the conclusion of administrative
proceedings, the Service issued a deficiency notice to the Company asserting
adjustments to income of $33.3 million and a corresponding deficiency in federal
income taxes of approximately $13.5 million, as well as penalties of $2.5
million and interest on the asserted deficiency and penalties. In addition, the
Service challenged the carryback of losses incurred by the Company in taxable
years 1989 through 1991, thereby bringing those years, which had been the
subject of an ongoing audit, into the deficiency notice. In 1994, the Company
filed a petition with the Tax Court contesting many of the adjustments asserted
in the deficiency notice. On June 5, 1995, August 14, 1995, March 7, 1996, July
31, 1996 and January 22, 1998, respectively, the Company and the Service
executed a stipulation of partial settlement, first, second and third revised
stipulations for partial settlement, and a supplement to the third revised
stipulation of settlement. These partial settlements resolved all but one of the
adjustments asserted in the deficiency notice.
Taking into account the settlements to date, the Company has accepted
approximately $5.9 million of the $33.3 million of total adjustments to income
asserted by the Service for the 1980-88 period. Many of the adjustments accepted
by the Company relate to issues on which the Service would likely have prevailed
in Tax Court. The Service has conceded adjustments totalling $26.7 million of
taxable income and $2.5 million of penalties, leaving only one issue, involving
several taxable years, unresolved from the 1980-88 period. The Company cannot
predict the outcome of further settlement negotiations or litigation with the
Service over the one remaining issue.
All of the adjustments from the 1989-91 period were settled in the revised
stipulations of partial settlement, except for the adjustment relating to
computer equipment acquired in 1989 (see Note 6 to the Company's Consolidated
Financial Statements). The computer leasing issue was settled in the supplement
to the third stipulation of settlement that was executed on January 22, 1998.
The computer equipment issue was resolved by the Company agreeing to the
disallowance of approximately $3.8 million of deductions for
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONT'D
=================================================================
1989 and no other adjustments to deductions or income in respect of the computer
equipment transaction for 1989 or subsequent years.
The Company has net operating loss and tax credit carryforwards that will
partly offset the tax liability resulting from the settled adjustments to
taxable income. Taking into account such carryforwards, the estimated federal
income tax and interest that is owed on account of the settlements reached to
date is approximately $4,065,000, with interest through December 31, 1997
($1,812,000 of taxes and $2,253,000 of interest). The settlements also will
result in approximately $237,000 of state income tax (not including penalties
and penalty interest that may be assessed) $110,000 of which was paid to one
state during the second quarter of 1996. This state had a tax amnesty program in
effect pursuant to which all interest and penalties for back taxes were waived
upon payment of the tax liability. In conjunction with the $110,000 payment, the
Company reversed approximately $240,000 of interest that was previously accrued
on the $110,000 tax liability. Payment of the federal tax liability and the
remaining state tax liability from both the settled issues and the remaining
unsettled issue will be due after the conclusion of the Tax Court case. The
above $4.1 million estimated tax liability to be paid at that time (plus
additional interest from January 1998 forward) exceeds the Company's current
liquid assets (i.e., cash and marketable securities).
The remaining issue in the case relates to the timing of significant
deductions that were taken by the Company for certain landfill closing costs in
several taxable years from the 1980-88 period. The incremental amount of federal
income tax and interest that the Company would owe if it were unsuccessful in
its defense of this issue from the 1980-88 period is approximately $1.7 million
of federal income taxes and $5.6 million of interest, calculated through
December 31, 1997. (This is in addition to the tax of $1.8 million and interest
of $2.2 million, discussed above, that the Company owes as a result of the
partial settlements entered into to date.) No additional state income tax or
interest is anticipated on account of the remaining unsettled issue.
REMEDIATION AND CLOSURE COSTS
As of December 31, 1997, the Company has accrued $11.1 million for its
estimated share of remediation and closure costs related to the Company's former
landfill and waste handling operations. Approximately $9.1 million is held in
trust and maintained by trustees for the post-closure activities of one site
located in Deptford, New Jersey (see Note 11 to the Company's Consolidated
Financial Statements).
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONT'D
=================================================================
On December 23, 1997, the Company entered into four agreements which
settled lawsuits related to the allocation of costs of remediation of the
Kin-Buc Landfill and substantially relieved the Company from future obligation
with respect to the site (see Notes 11 and 15 to the Company's Consolidated
Financial Statements). The Company and other responsible parties have been
remediating the Kin-Buc Landfill, located in Edison, New Jersey, under an
Amended Unilateral Administrative Order issued by the United States
Environmental Protection Agency ("EPA") in September 1990. In November 1992, EPA
issued an Administrative Order for the remediation of certain areas neighboring
the Kin-Buc Landfill. The Company initiated a suit in 1990 against generators
and transporters of waste deposited at a site with the intent of obtaining
contribution toward the cost of remediation.
The Company carried an accrued remediation liability of approximately $10
million related to the Kin-Buc Landfill, essentially all of which has been
reversed as a result of the settlements described above. The Company recognized
income in an amount equal to the reduction of such accrued remediation liability
in the year ended December 31, 1997.
The substantial expense of the Company's prosecution and defense of claims
in the litigation relating to the Kin-Buc Landfill as well as the substantial
expense of the Company's efforts in respect to the settlements described above,
which the Company has incurred through 1997, will no longer be borne by the
Company. There may be some continuing expenses in respect of the Kin-Buc
Landfill, but not of the magnitude experienced in the past.
ASSETS HELD FOR SALE/CLAIMS FOR PAST REMEDIATION COSTS
Assets held for sale consist of real estate and certain equipment
remaining from the alkali products segment which are carried at a cost of
$1,581,000 and $1,724,000 as of December 31, 1997 and 1996, respectively. The
real estate included in this category as of December 31, 1997 consists of
approximately 430 acres located in Deptford, N.J. (including approximately 100
acres upon which the landfill owned and operated by the Company's subsidiary
Kinsley's Landfill, Inc. is situated) and approximately two acres located in
Readington Township, N.J. The Company is actively pursuing the disposition of
such properties. However, based upon market conditions for real estate of this
type the Company is unable to determine when such sales will ultimately be
consummated.
During the fourth quarter of 1997 the Company charged $33,000 to
operations to reduce the carrying value of the Readington Township, N.J.
property to $268,000, which represents proceeds
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONT'D
=================================================================
received by the Company from the March 1998 sale of such property.
In 1995, the Company commenced suit to obtain indemnification from its
excess insurers during the period 1965 through 1986 against costs incurred in
connection with the remediation of the Kin-Buc Landfill, a site located in
Piscataway, N.J., and for the defense of litigation related thereto. The
defendant insurers, which include various London and London Market insurance
companies, First State Insurance Company and International Insurance Company,
have answered the complaint against them and discovery is proceeding. All of the
policies of excess insurance issued by the defendant insurers cover Transtech,
its present subsidiaries and former subsidiaries, some of which Transtech no
longer controls. They also cover companies presently or formerly owned or
controlled by a former principal shareholder, director and officer of the
Company (see Note 15 to the Company's Consolidated Financial Statements).
The Company can not assure that the timing and amount of the net proceeds
from the sale of such assets held for sale and the successful litigation or
settlement of the insurance claims will be sufficient to meet the capital
requirements of the Company discussed above.
13
<PAGE>
TRANSTECH INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN $000'S)
=======================================================================
December 31, 1997 1996
=======================================================================
ASSETS
- -----------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 311 $ 260
Marketable securities 2,610 3,783
Accounts and notes receivable
(net of allowance for doubtful
accounts of $15 and $16, respectively) 125 318
Deferred income taxes 30 44
Prepaid expenses and other 331 439
- -----------------------------------------------------------------------
Total current assets 3,407 4,844
- -----------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Land - 799
Buildings and improvements - 339
Machinery and equipment 2,892 2,992
- -----------------------------------------------------------------------
2,892 4,130
Less accumulated depreciation 2,742 3,190
- -----------------------------------------------------------------------
Net property, plant and equipment 150 940
- -----------------------------------------------------------------------
OTHER ASSETS
Notes receivable 178 284
Investment in leveraged lease - 41
Assets held for sale 1,581 1,724
Receivable/Clay deposits 530 577
Escrowed funds from sale of subsidiary 817 777
Deferred income taxes 302 320
Other 33 60
- -----------------------------------------------------------------------
Total other assets 3,441 3,783
- -----------------------------------------------------------------------
TOTAL ASSETS $ 6,998 $ 9,567
=======================================================================
See Accompanying Notes to Consolidated Financial Statements
14
<PAGE>
TRANSTECH INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS, CONT'D
(IN $000'S)
=======================================================================
December 31, 1997 1996
=======================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- -----------------------------------------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 22 $ 18
Accounts payable 256 215
Accrued income taxes 4,192 2,048
Accrued miscellaneous expenses 157 164
- -----------------------------------------------------------------------
Total current liabilities 4,627 2,445
- -----------------------------------------------------------------------
LONG-TERM DEBT 38 48
- -----------------------------------------------------------------------
ACCRUED REMEDIATION AND CLOSURE COSTS 2,135 12,817
- -----------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.50 par value,
10,000,000 shares authorized:
4,714,840 shares issued 2,357 2,357
Additional paid-in capital 1,516 1,516
Retained earnings 7,305 1,385
Net unrealized gains on marketable
securities 34 13
- -----------------------------------------------------------------------
Sub-Total 11,212 5,271
Treasury stock, at cost - 1,885,750 shares (11,014) (11,014)
- -----------------------------------------------------------------------
Total stockholders' equity (deficit) 198 (5,743)
- -----------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 6,998 $ 9,567
=======================================================================
See Accompanying Notes to Consolidated Financial Statements
15
<PAGE>
TRANSTECH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN $000'S)
=======================================================================
Years ended December 31, 1997 1996
- -----------------------------------------------------------------------
OPERATING REVENUES $ 559 $ 363
- -----------------------------------------------------------------------
COST OF OPERATIONS
Direct operating costs 502 299
Selling, general and
administrative expenses 2,359 2,349
- -----------------------------------------------------------------------
Total cost of operations 2,861 2,648
- -----------------------------------------------------------------------
OPERATING INCOME (LOSS) (2,302) (2,285)
- -----------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Investment income (loss) 285 345
Interest expense (6) (33)
Interest (expense) credit - income
taxes payable (860) 76
Gain (loss) from sale of securities - 183
Gain (loss) sale/disposal of property
and equipment (34) 25
Income from (writedown of) investment in
computer equipment 12 (37)
Writedown of assets held for sale (33) (671)
Writedown of clay deposits (47) (500)
Remediation accrual reversal 10,672 -
Closure costs - (11)
Miscellaneous income (expense) (445) 151
- -----------------------------------------------------------------------
Total other income (expense) 9,544 (472)
- -----------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (CREDIT)
AND EXTRAORDINARY ITEM 7,242 (2,757)
- -----------------------------------------------------------------------
Income Taxes (Credit) 1,322 (2)
- -----------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 5,920 (2,755)
- -----------------------------------------------------------------------
EXTRAORDINARY CHARGE ON ELIMINATION OF DEBT,
NET OF TAXES - (512)
- -----------------------------------------------------------------------
NET INCOME (LOSS) $ 5,920 $ (3,267)
=======================================================================
See Accompanying Notes to Consolidated Financial Statements
16
<PAGE>
TRANSTECH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS, CONT'D
(IN $000'S, EXCEPT PER SHARE DATA)
=======================================================================
Years ended December 31, 1997 1996
=======================================================================
BASIC NET INCOME (LOSS) PER COMMON SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ 2.09 $ (.97)
- -----------------------------------------------------------------------
EXTRAORDINARY CHARGE - (.18)
- -----------------------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE $ 2.09 $(1.15)
=======================================================================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,829,190 2,829,090
=======================================================================
See Accompanying Notes to Consolidated Financial Statements
17
<PAGE>
TRANSTECH INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN $000'S)
=======================================================================
Years ended December 31, 1997 1996
=======================================================================
COMMON STOCK
- -----------------------------------------------------------------------
Balance at December 31 $ 2,357 $ 2,357
- -----------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
- -----------------------------------------------------------------------
Balance at December 31 1,516 1,516
- -----------------------------------------------------------------------
RETAINED EARNINGS
Balance at January 1 1,385 4,652
Net income (loss) 5,920 (3,267)
- -----------------------------------------------------------------------
Balance at December 31 7,305 1,385
- -----------------------------------------------------------------------
NET UNREALIZED GAINS ON MARKETABLE
SECURITIES
Balance at January 1 13 95
Valuation adjustments 31 (124)
Provision for taxes (10) 42
- -----------------------------------------------------------------------
Balance at December 31 34 13
- -----------------------------------------------------------------------
TREASURY STOCK
- -----------------------------------------------------------------------
Balance at December 31 (11,014) (11,014)
- -----------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) $ 198 $ (5,743)
=======================================================================
See Accompanying Notes to Consolidated Financial Statements
18
<PAGE>
TRANSTECH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN $000'S)
========================================================================
Years ended December 31, 1997 1996
========================================================================
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
- ------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 502 $ 349
Cash paid to suppliers and
employees (2,603) (3,037)
Interest and dividends received 269 267
Other income received 73 152
Other expenses paid (518) -
Interest paid (6) (51)
Income tax paid (16) (181)
- ------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (2,299) (2,501)
- ------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable
securities 4,205 3,254
Purchase of marketable securities (3,001) (4,911)
Collections on notes receivable 320 402
Proceeds from sale of property,
plant and equipment 865 33
Purchase of property, plant
and equipment (90) (68)
Rent sharing payments
from computer leases 67 36
Cash proceeds from sale of
discontinued segment-net of
transaction costs - 4,005
- ------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 2,366 2,751
- ------------------------------------------------------------------------
19
<PAGE>
TRANSTECH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT'D
(IN $000'S)
========================================================================
Years ended December 31, 1997 1996
========================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on
long-term debt $ (18) $ (356)
Proceeds from issuance of
long-term debt 12 -
Payment of landfill closing
costs (10) (54)
- ------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (16) (410)
- ------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 51 (160)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 260 420
- ------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 311 $ 260
========================================================================
See Accompanying Notes to Consolidated Financial Statements
20
<PAGE>
TRANSTECH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT'D
(IN $000'S)
========================================================================
Years ended December 31, 1997 1996
========================================================================
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Net loss $ 5,920 $ (3,267)
Adjustments to Reconcile Net Loss
to Net Cash Provided by (Used
in) Operating Activities:
Extraordinary charge on elimination
of debt - 512
Depreciation and amortization 60 66
(Gain) loss on sale of marketable
securities - (183)
(Gain) loss on sale of property,
plant and equipment 34 (25)
Income from (writedown of) investment
in leveraged lease (12) 37
Writedown of assets
held for sale 33 671
Writedown of clay deposits 47 500
Remediation accrual reversal (10,672) -
Closure costs - 11
Increase (decrease) in
deferred income taxes 44 (365)
(Increase) decrease in assets:
Accounts and notes receivable (49) (52)
Prepaid expenses and other 94 (84)
Net assets of discontinued operations (40) (27)
Other assets 27 -
Increase (decrease) in liabilities:
Accounts payable and accrued
miscellaneous expenses 93 (401)
Accrued income taxes 2,127 106
- ------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (2,299) $ (2,501)
========================================================================
See Accompanying Notes to Consolidated Financial Statements
21
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The Consolidated Financial Statements include the accounts of the
Company and its subsidiaries. All significant intercompany transactions
and balances have been eliminated.
Cash and Cash Equivalents:
The Company considers all highly liquid investments purchased with an
original maturity of three months or less and funds deposited in money
market accounts to be cash equivalents. At December 31, 1997 and 1996,
cash and cash equivalents includes interest-bearing cash equivalents of
$117,000 and $48,000, respectively.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation is
provided on a straight-line basis over estimated useful lives of 5-30
years for buildings and improvements and 3-15 years for machinery and
equipment.
Disclosure About Fair Value of Financial Instruments:
The carrying amount of cash and cash equivalents, accounts
receivable, accounts payable and accrued miscellaneous expenses
approximates fair value because of the short maturity of these items. The
carrying amount of notes receivable (net of allowances for uncollectible
amounts) and notes payable (including current portion) approximates fair
value since such notes bear interest at current market rates.
Financial instruments which potentially subject the Company to credit
risk are cash and cash equivalents, and accounts and notes receivable.
Credit limits, ongoing credit evaluations, and account monitoring
procedures are utilized to minimize the risk of loss with respect to
accounts receivable. Notes receivable are generally collateralized by real
property or other fixed assets.
Use of Estimates:
In preparing financial statements in accordance with generally
accepted accounting principles, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the
22
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
financial statements, and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Year 2000 Data Conversion:
The Company does not anticipate any significant disruption to
business operations due to Year 2000 software failures. The Company does
not know the extent its customers' may be effected by such failures.
Reclassifications:
Certain reclassifications have been made to the 1996 financial
statements in order to conform to the presentation followed in preparing
the 1997 financial statements.
- -----------------------------------------------------------------
NOTE 2 - GOING CONCERN UNCERTAINTY:
The Company's financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of
business. The Company has incurred significant operating losses in each of
the prior five years and it is anticipated that such operating losses will
continue as general and administrative expenses are expected to exceed the
Company's available earnings from its remaining operating businesses in
the near-term. The Company has accrued $4,192,000 for taxes and interest
relating to the settlement of all but one issue raised by the Internal
Revenue Service resulting from audits of the Company's consolidated
Federal income tax returns for the years 1980 through 1988. This estimated
tax liability, which will be due upon settlement of the remaining
contested issue (See Notes 9 and 15), exceeds the Company's current
financial resources. The Company is aggressively pursuing numerous
alternatives to raise cash to fund this liability including:(i) the
disposition of all of its non-operating assets held for sale (See Note 7);
(ii) the collection of amounts due the Company; and,(iii) continuing legal
claims against insurance carriers for recoveries of past remediation
costs. To this end the Company has successfully completed the sale of its
alkali products segment during 1995, the sale of its valve manufacturing
operations during 1996, and certain property held for sale during 1997.
However, the Company is currently unable to determine whether the timing
and sufficiency of cash generated from these efforts will be sufficient to
discharge their tax liability and other continuing operating liabilities
as they come due. The
23
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
consolidated financial statements do not include any adjustments that
might result if the Company is unable to continue as a going concern.
- -----------------------------------------------------------------
NOTE 3 - MARKETABLE SECURITIES:
The Company classifies all equity securities and debt securities
purchased with remaining maturities of less than two years as
available-for-sale securities. Available-for- sale debt securities are
carried at amortized cost, which approximates fair value because of their
short term to maturity. At December 31, 1997 and 1996, available-for-sale
debt securities consisted of $2,521,000 and $3,725,000, respectively, of
U.S. Government Securities with maturities through April 1999 and October
1997, respectively. Available- for-sale equity securities are carried at
fair value as determined by quoted market prices. The portfolio of
available-for-sale equity securities had a cost of $38,000 and a market
value of $89,000 as of December 31, 1997 and a cost of $38,000 and a
market value of $58,000 as of December 31, 1996. The aggregate excess of
fair value over cost of such securities as of December 31, 1997 and 1996
of $51,000 and $20,000, respectively, is presented less deferred income
taxes of $17,000 and $7,000, respectively, and included as a separate
component of stockholders' equity. The excess of fair value over cost
consisted of gross unrealized gains of $70,000 and gross unrealized losses
of $19,000 as of December 31, 1997 and gross unrealized gains of $36,000
and gross unrealized losses of $16,000 as of December 31, 1996. The cost
of marketable securities sold is determined on the specific identification
method and realized gains and losses are reflected in income. Proceeds
from sale of available-for- sale securities during the year ended December
31, 1997 and 1996 amounted to $4,205,000 and $3,254,000, respectively.
Dividend and interest income is accrued as earned.
- -----------------------------------------------------------------
NOTE 4 - DISCONTINUED OPERATIONS:
On March 1, 1996, the Company's wholly-owned subsidiary, THV
Acquisition Corp. ("THV"), sold all of the issued and outstanding stock of
Hunt Valve Company, Inc. ("Hunt") to ValveCo, Inc. The Company reported a
loss on the sale in its results for the year ended December 31, 1995.
A portion of the net cash proceeds of the sale ($750,000) was placed
in an interest bearing escrow account to secure the Company's
indemnification obligations to the purchaser under
24
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
the purchase agreement. The escrow will terminate upon the earlier to
occur of (i) the release of all funds from escrow in accordance with the
terms thereof or (ii) the later to occur of (x) the expiration of the
applicable statute of limitations for the assessment of federal income
taxes for all taxable years with respect to which Hunt was a member of the
Company's consolidated tax group and (y) the satisfaction by the Company
of all assessments or other claims by the Internal Revenue Service for
taxes of the consolidated tax group during such years. The escrowed funds,
which together with $67,000 and $27,000 of accrued interest income through
December 31, 1997 and 1996, respectively, are classified as long-term in
the accompanying consolidated balance sheets.
In September 1996, the Company, Hunt and ValveCo Inc. entered into a
letter agreement which resolved certain issues related to the allocation
of Hunt's 1995 income tax liability between the Company and Hunt, and
certain issues related to provisions of the 1991 tax sharing agreement
between the Company and Hunt which continues to bind both parties. The
purpose of the letter agreement was to rectify an unintended consequence
of tax regulations concerning the allocation of such tax liability. The
Company agreed to include $360,000 (equal to 87% of Hunt's 1995 income) of
income in its federal tax return in respect of the 360-day period of 1995
during which Hunt was a member of the Company's consolidated tax group.
Hunt agreed to waive reimbursement for the Company's carryback of Hunt's
post-consolidation net losses (incurred during the period from January 1
through February 29, 1996) to periods in which Hunt was a member of the
consolidated group. Hunt also agreed to reimburse the Company for certain
professional fees incurred by the Company with respect to these matters.
In 1997, the Company notified Hunt that, based upon the Company's
review of Hunt's post-consolidation federal income tax return, the Company
believes additional deductions regarding the write-off of certain
financing costs should have been reflected in Hunt's reported net loss.
Discussions regarding the appropriateness of such deductions are
continuing.
Upon consummation of the sale of Hunt, a portion of Hunt's funded
debt was extinguished resulting in a write-off of approximately $775,000
of unamortized debt issuance costs and debt discounts. Pursuant to
Securities and Exchange Commission policy, $512,000 ($775,000 less income
taxes of $263,000) was reported as an extraordinary loss in the period
ended March 31, 1996 when such debt was deemed to have been
25
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
extinguished.
In connection with the sale, four individuals affiliated with the
Company, namely the Company's President and Chairman of the Board of
Directors, the Company's Vice President and Chief Financial Officer, who
is also a member of the board, a director of Hunt and Hunt's President and
Chief Operating Officer acquired 15% of the equity of ValveCo Inc. for
$150,000. These four individuals also obtained options to acquire up to an
additional 12.5% of the common stock of ValveCo Inc. pursuant to the
exercise of performance and value-based options at an aggregate cost to
such individuals of $2.3 million. In addition, the aforementioned
directors and executive officers of the Company and/or Hunt were employed
in various capacities by ValveCo Inc. and Hunt after the sale. The
Company's President and Chairman of the Board of Directors resigned from
his employment with ValveCo Inc. and Hunt effective January 1, 1997, but
remains a director of Hunt. The Company's Vice President and Chief
Financial Officer also resigned from his employment with ValveCo Inc.
and Hunt effective January 1, 1997.
- -----------------------------------------------------------------
NOTE 5 - NOTES RECEIVABLE:
Notes receivable consist of the following (in $000's):
1997 1996
7.25% Installment note receivable
from sale of real property (net of
deferred income of $209,000 and
$242,000, respectively) (See Note 7) $170 $210
11.50% Installment note receivable from
sale of equipment (net of allowance
for uncollectible amounts
of $267,000 and $200,000, respectively) 31 99
9% Installment notes receivable
from sale of subsidiaries - 249
--- ---
Total notes receivable 201 558
Less: Current portion 23 274
--- ---
Long-term portion $178 $284
=== ===
At December 31, 1997 notes receivable mature as follows:
1999 $147
2000 -
2001 and thereafter 31
-----
$178
26
<PAGE>
Transtech Industries, Inc.
Notes to Consolidated Financial Statements, cont'd
=================================================================
NOTE 6 - INVESTMENT IN LEVERAGED LEASE:
The Company was the lessor of computer equipment pursuant to a
leveraged lease agreement entered into in July 1989. This equipment was
acquired at a cost of $35,864,000 and was subject to a Master Lease with
an original term of 96 months and four user sub-leases with remaining
terms of from one to seven months. The Company's equity investment,
$2,596,000, represented 7.2% of the purchase price; the remaining 92.8%,
or $33,268,000, was furnished by third-party financing in the form of
long-term debt that provided for no recourse against the Company and was
secured by a lien on the equipment.
For federal income tax purposes, the Company had the benefit of tax
deductions for depreciation on the entire leased asset and for interest on
the long-term debt. Since, during the early years of the lease, those
deductions exceeded the lease rental income, substantial excess deductions
were available to be applied against the Company's other income. Beginning
in 1994, rental income exceeded the depreciation and interest deductions
resulting in taxable income. Deferred taxes are provided to reflect this
reversal.
The Master Lease also provided for the Company to share in the
rentals paid by the end-users of the equipment to the Master Lessee
beginning July 1994. Approximately $28,000 and $36,000 was received by the
Company during 1997 and 1996, respectively, pursuant to such provision.
During 1996, the Company determined that its estimates of future
rentals and residual values of the computer equipment subject to this
lease should be reduced to reflect current market values and lease rates.
Accordingly, for the year ended December 31, 1996, the Company has
recorded a charge to earnings and reduced its investment in the lease by
$37,000 in recognition of a 19% reduction in estimated future shared
rentals under the user leases and a 43% reduction in estimated residual
values of the computer equipment at the termination of the Master Lease.
The Master Lease terminated during July 1997 and all but one piece of
equipment had been sold by the Company to the end-users. The market value
of the remaining piece of
27
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
equipment is nominal. The Company reported income of $12,000 for the year
ended December 31, 1997 in recognition of proceeds from the sale of
equipment in excess of book value. As a result of adjustments to the
carrying value of the computer equipment and the reversal of existing
temporary differences, deferred federal income taxes relating to this
leveraged lease were reduced by $1,171,000 and $2,123,000 in 1997 and
1996, respectively.
The Company's net investment in the leveraged lease at December 31,
1996 was comprised of the following elements (in $000's):
1996
Lease income (net of principal and
interest on non-recourse debt) $ 13
Estimated residual value of leased
assets 28
Investment in leveraged lease 41
Less: Deferred taxes (1,171)
--------
Net investment in leveraged lease $(1,130)
The Internal Revenue Service questioned the deductions claimed by the
Company in connection with its investment in the computer equipment. This
issue was settled in January 1998 (see Note 9 - Income Taxes, for further
discussion of this matter).
- ----------------------------------------------------------------
NOTE 7 - ASSETS HELD FOR SALE:
Assets held for sale consist of real estate and certain equipment
remaining from the alkali products segment which are carried at a cost of
$1,581,000 and $1,724,000 as of December 31, 1997 and 1996, respectively.
The real estate included in this category as of December 31, 1997 consists
of approximately 430 acres located in Deptford, N.J. (including
approximately 100 acres upon which the landfill, owned and operated by the
Company's subsidiary Kinsley's Landfill, Inc. is situated) and
approximately 2 acres located in Readington Township, N.J. As of December
31, 1996 this category included 213 acres in Deptford, NJ. and the
Readington Township, N.J. property. The Company is actively pursuing the
disposition of such properties. However, based upon market conditions for
real estate of this type the Company is unable to determine when such
sales will ultimately be consummated.
During March 1997 the Company sold approximately 12 acres of property
located in Deptford, N.J. classified as assets
28
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
held for sale for net proceeds after expenses totalling $149,000. No gain
or loss has been reported related to the sale since the proceeds
approximated the carrying value of the property.
In May 1997 the Company sold approximately 95 acres of property also
located in Deptford, N.J. classified as assets held for sale with a book
value of approximately $773,000 for net proceeds after expenses of
approximately $709,000. The Company reported a loss of $64,000 with
respect to this transaction in the period ended June 30, 1997.
During the fourth quarter of 1997 the Company charged $33,000 to
operations to reduce the carrying value of the Readington Township, N.J.
property to $268,000, which represents proceeds received by the Company
from the March 1998 sale of the property.
During 1996, the Company charged $671,000 to operations to reduce the
carrying value of real estate held for sale to amounts which approximate
current net realizable values. Estimates of net realizable values were
based upon current indications of value received from professional real
estate brokers and certain offers received from potential purchasers of
such property.
During the fourth quarter of 1992, two subsidiaries of the Company
sold property consisting of approximately 569 acres of land, together with
buildings and improvements and auxiliary equipment, in exchange for
consideration aggregating $916,000. The consideration consisted of $66,000
in cash and $850,000 in non-recourse seven-year notes which are secured by
the property purchased as well as other real estate owned by the buyers.
The notes bear interest at 7.25% per annum and require principal payments
of $50,000 on each of the first, second, fourth, fifth and sixth
anniversaries, $200,000 payable on the third anniversary and the balance
payable on the seventh anniversary. The buyer has the right to extend the
payment of the seventh installment over three additional years. Deferred
installments bear a higher rate of interest.
The Company recognized $32,000 of income from this transaction for
each of the years ended December 31, 1997 and 1996, and has deferred
income of $209,000 and $242,000 as of December 31, 1997 and 1996,
respectively, which will be recognized under the installment method. The
deferred income has been netted against the gross value of the notes
receivable for financial reporting purposes.
29
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
- ----------------------------------------------------------------
NOTE 8 - RECEIVABLE/CLAY DEPOSITS:
In 1988, Kin-Buc, Inc., a wholly-owned subsidiary of the Company
("Kin-Buc") purchased 150,000 cubic yards of clay for use in the closure
of the landfill site it owned and operated in Edison, N.J. (the "Kin-Buc
Landfill") for $1.2 million from Inmar Associates, Inc. ("Inmar"), a
corporation owned and controlled by Marvin H. Mahan, a former principal
shareholder, director and officer of the Company, and applied this amount
against its accrual for remediation and closure costs. In 1992, the
Company reclassified approximately $1,077,000 of this accrual,
representing the cost of the clay not required for such closure, to other
long-term assets, recognizing the Company's plan to market the clay to
third parties. Pursuant to the agreement for the purchase of the clay,
Kin-Buc is entitled to a refund of the purchase price of clay it is unable
to mine or can not use. In August 1996, the Company learned that Inmar
intended to obtain relief from a 1983 order of the Superior Court, Morris
County, New Jersey ("Superior Court") prohibiting the sale of its land,
and in October 1996, the Company learned that Inmar had contracted to sell
a substantial portion of its land, upon which a substantial amount of the
clay is situated, to Edison Expansion, Inc. ("Expansion"). In November
1996, Kin-Buc brought suit entitled KIN-BUC, INC., V. INMAR ASSOCIATES,
INC. AND EDISON EXPANSION, INC. in Superior Court against Inmar and
Expansion for, among other things, a declaratory judgment that Kin-Buc's
rights in the clay would survive a sale of the land to Expansion and,
alternatively, a money judgment against Inmar. Kin-Buc also filed a lis
pendens against the Inmar property. In December 1996, Expansion sought and
obtained a discharge of the lis pendens and a closing of the sale to
Expansion took place in January 1997.
In accordance with a Court order entered in another Inmar matter, the
net proceeds of the sale, totalling approximately $530,000, were to be
deposited with the Court to secure any payment of costs of remediation of
a Carlstadt, New Jersey Superfund Site for which Inmar or Marvin H. Mahan
is held liable. The order permitted Inmar to apply to the Court for
permission to withdraw proceeds for other purposes. In March 1997, the
Court denied Kin-Buc's request that the proceeds be dedicated to the
payment of whatever money judgement Kin-Buc might obtain against Inmar,
but agreed that Kin-Buc could reapply for such relief when and if it
obtained such a judgment. In June 1997, Kin-Buc requested the entry of a
default judgment against Inmar for its failure to answer Kin-
30
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
Buc's complaint and in August, Kin-Buc obtained such a judgment in the
amount of approximately $1.1 million.
Separately, in October 1997, the Court granted summary judgment to
Expansion, dismissing Kin-Buc's suit for a declaratory judgment that Kin
Buc's rights to the clay survived the sale of the land to Expansion.
Kin-Buc has not appealed this decision. Absent Kin-Buc's rights to the
clay, there is substantial uncertainty that Inmar is financially capable
of responding to the foregoing judgment and there is no assurance that
Kin-Buc will be permitted to draw against all or any portion of the
deposit with the Court. The Company is engaged in negotiations with Inmar
on matters related to the settlement of pending litigation, including the
above mentioned proceeding (see Note 15).
During the fourth quarters of 1997 and 1996, the Company charged
$47,000 and $500,000, respectively, to operations to reduce the carrying
value of this asset to management's best estimate of the values it may
ultimately realize from resolution of these matters, considering the
amount of the proceeds held by the Superior Court and assuming the Company
will be able to recover such proceeds. There is no assurance that Kin-Buc
will be permitted to draw against the proceeds in the Superior Court.
- -----------------------------------------------------------------
NOTE 9 - INCOME TAXES:
The Company has adopted FASB Statement No. 109 ("Accounting for
Income Taxes") which requires the use of an asset and liability approach
for financial accounting and reporting of income taxes. Deferred income
taxes are provided for all temporary differences between the financial
reporting and tax basis of the Company's assets and liabilities, and net
operating loss and tax credit carryforwards.
The provision (credit) for income taxes consists of the following (in
$000's):
1997 1996
Provision for operations
Currently payable (refundable):
Federal $ (160) $ 357
State 2 3
----- -----
(158) 360
Deferred:
Federal 25 (361)
31
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
State (3) (1)
----- -----
22 (362)
----- -----
Total income tax
provision (credit) (136) (2)
----- -----
Provision for tax audits
Currently payable:
Federal 1,458 -
State - -
----- ----
1,458 -
Deferred:
Federal - -
----- ----
Total provision for tax audits 1,458 -
----- ----
Total income tax provision
(credit) $1,322 $ (2)
===== =====
Deferred tax expense
results from temporary
differences as follows
(in $000's):
1997 1996
Excess of tax over book
(book over tax) depreciation $ (23) $ 3
Investment in leveraged lease (1,481) (2,692)
Change in valuation allowance (4,230) 1,245
Non-deductible accruals 1 38
Net operating loss carryforwards 940 387
Alternative minimum tax (credit) - 1,147
Non-deductible impairment losses 241 (504)
Deferred gain - installment sale (9) (8)
Remediation and closure costs 4,579 22
Other 4 -
----- -----
$ 22 $ (362)
===== =====
Deferred tax assets and
liabilities at December 31, 1997
and 1996 were comprised of
the following (in $000's):
1997 1996
Deferred tax assets
Remediation and closure costs $ - $ 4,579
Non-deductible impairment losses 262 504
Non-deductible accruals 45 46
Allowance for doubtful accounts 8 9
Depreciation 12 -
State net operating loss
carryforwards 1,409 2,349
----- -----
Subtotal 1,736 7,487
Valuation allowance for deferred
tax assets (1,351) (5,581)
----- -----
Total 385 1,906
----- -----
32
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
Deferred tax liabilities
Leveraged lease - (1,481)
Depreciation - (11)
Unrealized appreciation of
equity securities (21) (9)
Installment sales (32) (41)
----- -----
Total (53) (1,542)
----- -----
Net deferred tax asset (liability) $ 332 $ 364
===== =====
Included in the accompanying balance sheet as:
Current deferred tax asset $ 30 $ 44
Non-current deferred tax
asset (liability) 302 320
----- -----
$ 332 $ 364
===== =====
The Company has recorded valuation allowances of $1,351,000 and
$5,581,000 as of December 31, 1997 and 1996, respectively, to reflect the
estimated amount of deferred tax assets which are not currently
realizable. Recognition of these deferred tax assets is dependent upon
both the sufficiency and timing of future taxable income.
The following is a reconciliation between the amount of reported
total income tax (credit) from continuing operations and the amount
computed by multiplying the income (loss) before tax by the applicable
statutory U.S. federal income tax rate (in $000's):
1996 1995
Tax expense (credit) computed
by applying U.S. federal
income tax rate to income (loss)
before income taxes (credits) $2,354 $(938)
Increases (reductions) in taxes
resulting from:
State income taxes (credit) net
of federal income tax benefit - 1
Change in federal deferred
tax valuation allowance (2,489) 936
Corporate dividends
received deduction - (1)
Other (1) -
----- ----
$ (136) $ (2)
===== =====
As discussed in greater detail below, the Company is currently litigating
with the Internal Revenue Service (the "Service") in Tax Court over its tax
liability for taxable years 1980-88. Certain issues from taxable years 1989-91
are also part of the Tax Court
33
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
litigation because losses from those years were carried back to 1988. The
Company estimates that after taking into account partial settlements that have
been reached through January 22, 1998 of all but one of the adjustments asserted
by the Service, and taking into account available net operating losses and tax
credits as of December 31, 1997, approximately $3.5 million of federal income
tax and $127,000 of state income tax and $7.9 million of federal interest,
calculated through December 31, 1997, would be owed if the Company were
unsuccessful in its defense of the remaining unsettled issue in the Tax Court
litigation. (The tax liability estimates presented herein exclude penalties. The
Service has conceded all of the penalties that it had asserted in the Tax Court
litigation, but state tax authorities may assert that penalties are due.)
In 1991, the Service asserted numerous adjustments to the tax liability of
the Company and its subsidiaries for tax years 1980 through 1988, along with
interest and penalties thereon. In 1993, after the conclusion of administrative
proceedings, the Service issued a deficiency notice to the Company asserting
adjustments to income of $33.3 million and a corresponding deficiency in federal
income taxes of approximately $13.5 million, as well as penalties of $2.5
million and interest on the asserted deficiency and penalties. In addition, the
Service challenged the carryback of losses incurred by the Company in taxable
years 1989 through 1991, thereby bringing those years, which had been the
subject of an ongoing audit, into the deficiency notice. In 1994, the Company
filed a petition with the Tax Court contesting many of the adjustments asserted
in the deficiency notice. On June 5, 1995, August 14, 1995, March 7, 1996, July
31, 1996 and January 22, 1998, respectively, the Company and the Service
executed a stipulation of partial settlement, first, second and third revised
stipulations for partial settlement, and a supplement to the third revised
stipulation of settlement. These partial settlements resolved all but one of the
adjustments asserted in the deficiency notice.
Taking into account the settlements to date, the Company has accepted
approximately $5.9 million of the $33.3 million of total adjustments to income
asserted by the Service for the 1980-88 period. Many of the adjustments accepted
by the Company relate to issues on which the Service would likely have prevailed
in Tax Court. The Service has conceded adjustments totalling $26.7 million of
taxable income and $2.5 million of penalties, leaving only one issue, involving
several taxable years, unresolved from the 1980-88 period. The Company cannot
predict the outcome of further settlement negotiations or litigation with the
Service over the one remaining issue.
All of the adjustments from the 1989-91 period were settled in
34
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
the revised stipulations of partial settlement, except for the adjustment
relating to computer equipment acquired in 1989 (see Note 6 to the Company's
Consolidated Financial Statements). The computer leasing issue was settled in
the supplement to the third stipulation of settlement that was executed on
January 22, 1998. The computer equipment issue was resolved by the Company
agreeing to the disallowance of approximately $3.8 million of deductions for
1989 and no other adjustments to deductions or income in respect of the computer
equipment transaction for 1989 or subsequent years.
The Company has net operating loss and tax credit carryforwards that will
partly offset the tax liability resulting from the settled adjustments to
taxable income. Taking into account such carryforwards, the estimated federal
income tax and interest that is owed on account of the settlements reached to
date is approximately $4,065,000, with interest through December 31, 1997
($1,812,000 of taxes and $2,253,000 of interest). The settlements also will
result in approximately $237,000 of state income tax (not including penalties
and penalty interest that may be assessed) $110,000 of which was paid to one
state during the second quarter of 1996. This state had a tax amnesty program in
effect pursuant to which all interest and penalties for back taxes was waived
upon payment of the tax liability. In conjunction with the $110,000 payment, the
Company reversed approximately $240,000 of interest that was previously accrued
on the $110,000 tax liability. Payment of the federal tax liability and the
remaining state tax liability from both the settled issues and the remaining
unsettled issue will be due after the conclusion of the Tax Court case. The
above $4.1 million estimated tax liability to be paid at that time (plus
additional interest from January 1998 forward) exceeds the Company's current
liquid assets (i.e., cash and marketable securities).
The remaining issue in the case relates to the timing of significant
deductions that were taken by the Company for certain landfill closing costs in
several taxable years from the 1980-88 period. The unsuccessful defense of this
issue would have a material adverse impact on the financial position, results of
operations and net cash flow of the Company. The incremental amount of federal
income tax and interest that the Company would owe if it were unsuccessful in
its defense of this issue from the 1980-88 period is approximately $1.7 million
of federal income taxes and $5.6 million of interest, calculated through
December 31, 1997. (This is in addition to the tax of $1.8 million and interest
of $2.2 million, discussed above, that the Company owes as a result of the
partial settlements entered into to date.) No additional state income tax or
interest is anticipated on account of the remaining unsettled issue.
35
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
- -----------------------------------------------------------------
NOTE 10 - LONG-TERM DEBT:
Long-term debt consists of the following (in $000's):
1997 1996
10.5% mortgage note,
due in monthly installments,
through April 2000, secured by
certain land and buildings held
for sale, carried at a cost
of $358,000 $ 28 $ 38
Other obligations 32 28
--- ---
Total debt 60 66
Less: Current portion 22 18
--- ---
Long-term portion $ 38 $ 48
=== ===
Maturities
At December 31, 1997, long-term debt matures as follows (in $000's):
1999 $ 24
2000 9
2001 3
2002 2
---
$ 38
- -----------------------------------------------------------------
NOTE 11 - REMEDIATION AND CLOSURE COSTS:
The Company's accruals for closure and remediation activities equal
the present value of its allocable share of the estimated future costs
related to a site less funds held in trust for such purposes. The costs of
litigation associated with a site are expensed as incurred. The Company
has accrued remediation and closure costs for the following sites (in
$000's):
1997 1996
Kin-Buc landfill $ - $10,672
Kinsley's landfill 2,004 2,003
Mac Sanitary landfill 131 142
------ ------
Total $ 2,135 $12,817
====== ======
Cash and securities held in certain trusts for post closure
activities at Kinsley's landfill have been netted against the accrual for
presentation in the Company's balance sheet.
36
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
On December 23, 1997, the Company entered into four agreements which
settled lawsuits related to the allocation of costs of remediation of the
Kin-Buc Landfill operated in Edison, New Jersey by Kin-Buc and
substantially relieved the Company from future obligation with respect to
the site (see Note 15).
The Kin-Buc Landfill ceased operations in 1977. Remediation and
closure activities continue at the Kin-Buc Landfill pursuant to the
provisions of an Amended Administrative Order issued by the United States
Environmental Protection Agency (the "EPA") to the Company and other
respondents, including SCA Services, Inc. ("SCA"), an unaffiliated
company, in September 1990 (the "1990 Order"). In November 1992, EPA
issued an Administrative Order to the Company, SCA and other respondents
for the remediation of certain areas neighboring the Kin-Buc Landfill (the
"1992 Order"). Each respondent to these orders is jointly and severally
liable thereunder.
In 1986, Transtech, Kin-Buc, Filcrest Realty, Inc. (a wholly owned
subsidiary of Transtech ("Filcrest")) and Inmar (together the "Transtech
Group"), and SCA and certain subsidiaries and affiliates of SCA (the "SCA
Group") entered into an agreement in settlement of litigation among
themselves regarding the sharing of the remediation and closure costs of
the Kin-Buc Landfill, whereby 75% of such costs would be borne by the
Transtech Group and 25% by the SCA Group (the "1986 Agreement"). The
parties also agreed to establish and fund a trust for the payment of these
costs (the "1986 Trust").
Both the 1990 Order and the 1992 Order required the Company, SCA and
the other respondents to submit financial assurance to the EPA that all of
the remediation required under those orders would be completed. In
November 1990 the Company entered into an agreement with SCA whereby SCA
submitted the guaranty by Waste Management, Inc. ("WMI") (formerly known
as WMX Technologies, Inc.), its indirect corporate parent, of all of SCA's
and the Company's obligations under the 1990 Order. In 1992, SCA submitted
a revised guaranty by WMI to encompass SCA's and the Company's obligations
under the 1992 Order, based upon an estimated aggregate remediation
project cost of $99.8 million.
In 1990, the Company commenced a suit in the United States
District Court for the District of New Jersey entitled
TRANSTECH INDUSTRIES, INC. ET AL. V. A&Z SEPTIC CLEAN ET AL.
against generators and transporters of hazardous waste
disposed of at the Landfill (the "PRPs") for contribution
37
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
towards the cost of remediating the Landfill. In 1991, 1992 and 1993, the
Transtech Group, the SCA Group and WMI presented settlement proposals to
the PRPs believed to be responsible, individually, for no more than 1% of
the non-municipal waste disposed of at the Landfill ( the "De Minimis
PRPs"). These settlements ultimately resulted in a contribution by certain
De Minimis PRPs of approximately $10 million towards the cost of
remediating the Landfill.
During May 1993, a $22 million contract was awarded for the
construction of a containment system and leachate treatment plant at the
Kin-Buc Landfill in accordance with the engineered design and standards
accepted by the EPA in satisfaction of certain requirements of the 1990
Order. The contract was to be financed with funds from the 1993 Trust.
During May 1994, the Company met with representatives of EPA to discuss
the impact delays in securing settlement proceeds would have on the
Company's ability to finance the construction within the time frame
required by EPA. In July 1994, after meeting with EPA, SCA entered into a
contract with the contractor installing the containment system and
treatment plant, thereby alleviating the potential for delays in this
phase of the construction due to financial limitations. In August 1994 and
thereafter, contracts were awarded to the contractor and other parties by
SCA for certain activities mandated by the 1992 Order.
The execution of the contracts between SCA and the contractors did
not relieve the Company of liability for such costs due to its obligations
under the 1986 Agreement. In August 1993, the Company filed a demand for
arbitration seeking rescission or reformation of the 1986 Agreement and
reimbursement of overpayments. During March 1995, the SCA Group filed a
demand for arbitration seeking reimbursement from the Company of $17
million, representing 75% of the $23 million of remediation expenses
purportedly funded by the SCA Group through June 30, 1995.
The contractors have completed the construction required under the
Orders. Operation of the treatment plant and maintenance of the facilities
is being conducted by an affiliate of SCA. The total cost of the
construction, operation and maintenance of remedial systems for a 30-year
period, plus the cost of past remedial activities, is estimated to be in
the range of approximately $80 million to $100 million.
In January 1996, a design for a remedial program involving the
installation of a slurry cut-off wall around a one-acre
38
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
parcel of land adjacent to the Kin-Buc Landfill was presented to the EPA
for its review and approval. EPA approved the plan, and construction began
in August 1996, and is now complete. The cost of such installation has
been estimated at $1.3 million and has been financed by the SCA Group.
The EPA has notified the Company that it will conduct a limited
investigation of an area in the vicinity of the Kin- Buc Landfill, known
as Mound B, and that it may seek to recover its costs in connection
therewith from the Company and the SCA Group. The cost of studies and
remediation of this area is not included in the above estimates of the
total cost of the remediation since such work is outside the scope of the
Orders.
In conjunction with the remediation, 26 acres of undeveloped land
neighboring the site and owned by Filcrest were utilized for the
construction of the containment system, treatment plant and related
facilities. The property had been reflected at nominal value on the
Company's financial statements.
One of the four settlement agreements executed on December 23, 1997
was among the Transtech Group, Marvin H. Mahan, Robert Meagher (a former
officer of the Company) ("Meagher"), the SCA Group and certain PRPs (the
"AFP Group") (consisting of all PRPs remaining in the case but excluding
municipal waste PRPs and 29 non-municipal waste PRPs). In this agreement,
among other things, all members of the AFP Group released all their claims
against the Transtech Group, Marvin H. Mahan, Meagher, Inmar and Dock
Watch Quarry Pit, Inc. (a subsidiary of Inmar) ("Dock Watch"), among
others, arising from or relating to claims for contribution and
counterclaims.
Another of the December 23, 1997 settlement agreements was among the
Transtech Group, Marvin H. Mahan, Meagher, Inmar, Dock Watch, the SCA
Group, and WMX and Anthony Gaess ( a former officer and director of SCA)
("Gaess"). In this agreement, among other things, the parties agreed to
terminate the 1986 Agreement and all the other agreements between or among
any of them relating to the Kin-Buc Landfill, to dismiss the arbitration
proceedings between the Company and SCA and the related litigation, and to
dismiss all their claims against the other parties arising from or
relating to the Kin- Buc Landfill, including claims for contribution and
counterclaims. The Company agreed to continue to prosecute its pending
suit against former excess insurance carriers and to pay SCA 75% of the
net recoveries of such suit, after allowances for related legal fees and
federal and state income
39
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
tax obligations resulting from the audit of the Company's income tax
returns for the years 1982 through 1992, up to a maximum of $3.5 million.
The Company also agreed to turn over the work products of its expert
witness and its attorney in the litigation to SCA, who will defend and
indemnify the Company, Marvin H. Mahan, Meagher, Inmar and Dock Watch from
continuing claims by non-settling non-municipal waste and municipal waste
PRPs in the litigation. SCA will also defend and indemnify the Company
from all future liability for or in connection with the remediation of the
Kin-Buc Landfill.
At December 31, 1996, Kin-Buc had accrued approximately $10,672,000
million for its share of the costs of such remediation and closure. The
Company has reversed the balance of such accrual as a result of the
settlements described above, and recognized income of $10.6 million in the
year ended December 31, 1997 due to the elimination of such accrual.
Kinsley's Landfill, Inc. ("Kinsley's"), a wholly-owned subsidiary of
the Company, ceased accepting solid waste at its landfill in Deptford
Township, New Jersey on February 6, 1987 and commenced closure of that
facility. At December 31, 1997 and 1996, Kinsley's has accrued $11,086,000
and $11,255,000, respectively, for the remaining costs of closure and
post- closure care of this facility, of which $9,082,000 and $9,252,000,
respectively, is being held in interest-bearing trust accounts. The
accrual as of December 31, 1997 is based upon the present value of the
estimated operation and maintenance costs related to the site's
containment systems and treatment plant through the year 2016.
Mac Sanitary Land Fill, Inc. ("Mac"), a wholly-owned subsidiary of
the Company, operated a landfill in Deptford Township, New Jersey which
ceased operations in 1977. The closure of this facility has been
substantially completed. At December 31, 1997 and 1996, Mac has accrued
$131,000 and $142,000, respectively, for the costs of continuing post-
closure care and monitoring at the facility. The Company increased its
accrual for closure costs by $11,000 during 1996 due to unanticipated
engineering and testing costs incurred to respond to inquiries from
environmental agencies. The accrual as of December 31, 1997 is based upon
the present value of the estimated maintenance costs of the site's
containment systems through the year 2007.
In 1988, the Company entered into a settlement agreement (the "Tang
Agreement") regarding the costs of remediation of certain property in
Piscataway, New Jersey owned by Tang
40
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
Realty, Inc. ("Tang"), a company owned and controlled by Marvin H. Mahan
(see Note 15). Upon the signing of this agreement, the Company paid
$2,000,000 to Tang as reimbursement for damages and remediation costs
incurred by it, and agreed to assume all future remediation costs in
connection with the Piscataway site. During 1988, the Company accrued
$1,741,000 for current and future remediation costs, and during 1989, the
Company accrued an additional $2,689,000 for such costs. In October 1990,
the Company rescinded the Tang Agreement based on a reassessment of its
involvement at the site. During the term of the Tang Agreement, the
Company accrued $6,430,000 for the costs of current and future remediation
at the site. As of the date of the rescission, the Company had paid
approximately $4,300,000 to Tang in reimbursement for damages and actual
remediation costs incurred. As a result of the rescission, amounts accrued
by the Company for future remediation costs (the sum of $2,238,000) were
reversed and reflected in income during 1990. In March 1991, the Company
made demand upon Tang for reimbursement of the $4,300,000 paid by the
Company in the remediation of the Piscataway site. Tang disputed the
Company's right to rescind the Tang Agreement. This dispute is a subject
of the negotiations discussed in Note 15.
The impact of future events or changes in environmental laws and
regulations, which cannot be predicted at this time, could result in
material increases in remediation and closure costs related to these
sites, possibly in excess of the Company's available financial resources.
A significant increase in such costs could have a material adverse effect
on the Company's financial position, results of operations and net cash
flows.
- -----------------------------------------------------------------
NOTE 12 - STOCKHOLDERS' EQUITY:
STOCK OPTION PLANS
At December 31, 1997, 797,000 shares of Transtech's common stock were
reserved for issuance under incentive stock option plans that provide for
the granting of options to employees at prices equal to the market value
of Transtech's common stock on the date of grant, which options are
exercisable for a period not to exceed ten years from the date of grant.
Nonqualified stock options are available for grant to officers, directors,
certain eligible employees and consultants at prices ranging from 50% to
100% of market value at the date of grant and these are also exercisable
for a period not to exceed ten years. Options for 55,000 shares were
outstanding
41
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
at December 31, 1997 and 1996, all of which are exercisable.
A summary of stock option transactions for 1997 and 1996 follows:
1997 1996
---------------- ----------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------------------------------------
Outstanding,
beginning of year 55,000 $0.72 58,800 $1.00
Granted - - - -
Exercised - - - -
Expired - - (3,800) 5.00
Outstanding,
end of year 55,000 $0.72 55,000 $0.72
====== ======
Options exercisable
at year end 55,000 55,000
The following information applies to stock options outstanding at
December 31, 1997:
Options outstanding 55,000
Range of exercise prices $0.44 to $0.75
Weighted average exercise price $0.72
Weighted average remaining life in years 3.50
- -----------------------------------------------------------------
NOTE 13 - EMPLOYEE BENEFIT PLANS:
RETIREMENT SAVINGS AND PROFIT SHARING PLANS
The Company and its subsidiaries have a 401(k) Retirement Savings and
Profit Sharing Plan which covers substantially all full-time non-union
employees. Employees may contribute up to 15% of their eligible
compensation, but not in excess of amounts allowable under the Internal
Revenue Code. The Company matches employees' contributions in amounts or
percentages determined by the Company's board of directors. The Company
may also make profit sharing contributions to the plan in amounts
determined annually by the Company. The Company's matching contribution
was 50% of employees' contributions not in excess of 2% of their eligible
compensation during 1997 and 1996. The plan provides that the Company's
matching and profit sharing contributions may be made in cash, in shares
of Company stock, or in cash and invested in shares of Company stock.
Contributions to the
42
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TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
plan for the years ended December 31, 1997 and 1996 were $9,000 and
$10,000, respectively.
EMPLOYEE HEALTH PLANS
The Company maintains an employee benefit program which provides
health care benefits to substantially all full-time employees, and
eligible dependents. The Company's health care plan utilizes a program
provided by a leading health maintenance organization and, provides
medical benefits, including hospital, physicians' services and major
medical benefits. The employees contribute to the expense for enrolled
dependents.
- -----------------------------------------------------------------
NOTE 14 - LEASE COMMITMENTS:
The Company leases land, office facilities, vehicles and equipment
under operating leases which expire through 1999. Total rent expense
charged to operations for all operating leases was $60,000 and $71,000 in
1997 and 1996, respectively.
Future minimum lease commitments under non-cancelable operating
leases with initial or remaining terms in excess of one year are as
follows (in $000's):
1998 $53
1999 52
2000 29
- -----------------------------------------------------------------
NOTE 15 - LEGAL PROCEEDINGS:
AS TO FEDERAL TAX LIABILITIES
In 1991, the Internal Revenue Service (the "Service") asserted
numerous adjustments to the tax liability of the Company and its
subsidiaries for tax years 1980 through 1988, along with interest and
penalties thereon. In 1993, after the conclusion of administrative
proceedings, the Service issued a deficiency notice to the Company
asserting adjustments to income of $33.3 million and a corresponding
deficiency in federal income taxes of approximately $13.5 million, as well
as penalties of $2.5 million and interest on the asserted deficiency and
penalties. In addition, the Service challenged the carryback of losses
incurred by the Company in taxable years 1989 through 1991, thereby
bringing those years, which had been the subject of an ongoing audit, into
the deficiency notice. In 1994, the Company filed a petition with the Tax
43
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TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
Court contesting many of the proposed adjustments asserted in the
deficiency notice. On June 5, 1995, August 14, 1995, March 7, 1996, July
31, 1996 and January 22, 1998, respectively, the Company and the Service
executed a stipulation of partial settlement, first, second and third
revised stipulations of partial settlement and a supplement to the third
revised stipulation of partial settlement. These partial settlements
resolved all but one of the adjustments asserted in the deficiency notice.
The Service's audit of the Company's 1989-91 federal income tax
returns, resulted in the Service's challenging the deductions claimed by
the Company in connection with its investment in computer equipment under
lease (see Note 9). The Service also asserted a number of smaller
adjustments which were settled in 1995 and 1996.
The stipulation of settlement executed on January 22, 1998 resolved
the computer equipment issue by the Company's agreeing to the disallowance
of approximately $3.8 million of deductions for 1989 and no other
adjustments to deductions and income in respect of the computer equipment
transaction for 1989 or subsequent years.
Taking into account the settlements that have been concluded to date,
the Company has accepted approximately $5.9 million of the $33.3 million
of total adjustments to income asserted by the Service for the 1980-88
period. Many of the adjustments accepted by the Company relate to issues
on which the Service would likely have prevailed in Tax Court. The Service
has conceded adjustments totalling $26.7 million of taxable income and
$2.5 million of penalties, leaving only one issue unresolved. The
remaining issue in the case relates to the timing of significant
deductions taken by the Company for certain landfill closing costs in
several taxable years from the 1980-88 period. The Company cannot predict
the outcome of further settlement negotiations or litigation with the
Service over the remaining issue. See Note 2 for a discussion of the
impact of the tax litigation on the Company's capital resources.
AS TO THE KIN-BUC LANDFILL
On December 23, 1997, the Company entered into four agreements which
settled lawsuits relating to the remediation of the Kin-Buc Landfill.
In February 1979, EPA brought suit in the United States District
Court for the District of New Jersey against
44
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TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
Transtech, its subsidiaries Kin-Buc and Filcrest, certain former officers,
directors and shareholders of Transtech, and Inmar, in connection with the
ownership and operation of the Kin-Buc Landfill. This suit was placed on
administrative hold by the Court because the Company and SCA agreed to
undertake the remediation of the Landfill.
In 1986, the Company sold the stock of its subsidiary Wastequid, Inc.
to SCA, and, simultaneously therewith, the Transtech Group entered into
the 1986 Agreement with the SCA Group regarding the sharing of the costs
of remediating the Kin-Buc Landfill, pursuant to which the Transtech Group
agreed to pay 75% of such costs and the SCA Group the remaining 25% (the
"Sharing Formula").
In 1990, Transtech, Kin-Buc and Filcrest commenced a suit in the
United States District Court for the District of New Jersey entitled
TRANSTECH INDUSTRIES, INC. ET AL. V. A&Z SEPTIC CLEAN ET AL. against
generators and transporters of hazardous waste disposed of at the Kin-Buc
Landfill (the "PRPs") for contribution towards the cost of remediating the
Kin-Buc Landfill. In 1991, 1992 and 1993, the Transtech Group, the SCA
Group and WMI presented settlement proposals to the PRPs believed to have
been responsible, individually, for no more than 1% of the non-municipal
waste disposed of at the Kin-Buc Landfill (the "De Minimis PRPs"). These
settlements resulted in a contribution by certain De Minimis PRPs of
approximately $10 million towards the cost of remediating the Kin-Buc
Landfill. From 1993, the litigation proceeded against the non-settling De
Minimis and non-De Minimis PRPs, believed to have been responsible, in the
aggregate, for approximately 90% of the non-municipal waste disposed of at
the Kin-Buc Landfill, and in 1995, generators and transporters of
municipal hazardous waste disposed of at the Kin-Buc Landfill were joined
in the litigation. After 1995 and continuing through 1997, the SCA Group
and WMI entered into settlements with other non-municipal waste PRPs
without the participation of the Transtech Group. These settlements
resulted in substantial additional contributions towards the cost of
remediation. Discovery and other pre-trial proceedings had taken place and
a trial date had been tentatively set as settlement discussions among the
Transtech Group, the SCA Group and WMI, on the one hand, and among a large
group of non-municipal waste PRPs (the "AFP Group"), the SCA Group and
WMI, on the other, were taking place.
In 1992, substantially all of the non-municipal waste PRPs, including
substantially all of the AFP Group, filed two pleadings in the litigation
involving the Company. The first
45
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
was a counterclaim against Transtech, Kin-Buc and Filcrest and a
third-party complaint against other owners or operators of the Kin-Buc
Landfill, including, among others, Inmar, Dock Watch, Marvin H. Mahan,
Meagher, the SCA Group, WMI and Gaess (the "Owner-Operator Counterclaim").
The second pleading involving the Company was a counterclaim against
Transtech and a third-party complaint against parties to transactions with
Transtech, including Inmar and Marvin H. Mahan, which were alleged to have
been fraudulent conveyances (the "Fraudulent Conveyances Counterclaim").
In that pleading, the PRPs sought to have the consideration paid by
Transtech in the conveyances returned and placed in the hands of a
receiver. Discovery on the issues presented in the Fraudulent Conveyances
Counterclaim and the Owner-Operator Counterclaim was proceeding, and
motions to join additional parties to the Fraudulent Conveyances
Counterclaim were pending at the time settlement discussions between
Transtech and the AFP Group were taking place.
In 1993, the Transtech Group served a demand for arbitration (the
"Transtech Arbitration") on the SCA Group and WMI seeking either
rescission of the 1986 Agreement or reformation of the Sharing Formula. In
response, the SCA Group and WMI brought an action in the Supreme Court of
the State of New York to enjoin the Transtech Arbitration. Pending a
decision by that Court, the Transtech Arbitration was stayed. In 1995,
during the stay, the SCA Group filed a demand for arbitration (the "SCA
Arbitration") seeking reimbursement from the Transtech Group of 75% of
remediation expenses fully funded by the SCA Group to that point, and the
Transtech Group brought an action in the Supreme Court of the State of New
York to stay the SCA Arbitration pending a decision on the motion to
enjoin the Transtech Arbitration. On motion brought by the SCA Group, the
Court narrowed the issues to be arbitrated in the SCA Arbitration and made
any findings on such issues subject to resolution of the issues in the
Transtech Arbitration. After discovery on these issues was completed, the
Transtech Group, the SCA Group and WMI agreed to postpone proceedings in
both the SCA Arbitration and the Transtech Arbitration pending the outcome
of settlement discussions.
On December 23, 1997, settlements of the litigation, including claims
for contribution towards the cost of remediating the Kin-Buc Landfill, the
Owner-Operator Counterclaim and the Fraudulent Conveyances Counterclaim,
and settlements of the Transtech Arbitration, the SCA Arbitration and
litigation relating thereto, resulting from discussions among the
Transtech Group, the SCA Group and WMI, on the one
46
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
hand, and among the AFP Group, the SCA Group and WMI, on the other, were
reached, and four agreements effecting these settlements were executed and
delivered.
The first of these four settlement agreements was among Transtech,
Kin-Buc, Filcrest, Marvin H. Mahan, Meagher, the SCA Group and the AFP
Group (consisting of all but 29 non- municipal waste PRPs). In this
agreement, among other things, all members of the AFP Group released all
their claims against Transtech, Kin-Buc, Filcrest, Marvin H. Mahan,
Meagher, Inmar and Dock Watch, among others, arising from or relating to
claims for contribution and the Owner-Operator Counterclaim.
The second settlement agreement was among Transtech, Kin- Buc,
Filcrest, Marvin H. Mahan, Meagher, Inmar, Dock Watch, the SCA Group, WMI
and Gaess. In this agreement, among other things, the parties agreed to
terminate the 1986 Agreement and all the other agreements between or among
any of them relating to the Kin-Buc Landfill, to dismiss the Transtech
Arbitration and the SCA Arbitration and the related litigation, and to
dismiss all their claims against the other parties arising from or
relating to the Kin-Buc Landfill, including claims for contribution and
the Owner-Operator Counterclaim. Transtech, Kin-Buc and Filcrest agreed to
continue to prosecute their pending suit against former excess insurance
carriers and to pay SCA 75% of the net recoveries of such suit, after
allowances for related legal fees and federal and state income tax
obligations resulting from the audit of the Company's income tax returns
for the years 1982 through 1992, up to a maximum of $3.5 million.
Transtech also agreed to turn over the work products of its expert witness
and its attorney in the litigation to SCA, who will defend and indemnify
Transtech, Kin-Buc, Filcrest, Marvin H. Mahan, Meagher, Inmar and Dock
Watch from continuing claims by non-settling non- municipal waste and
municipal waste PRPs in the litigation. SCA will also defend and indemnify
the Company from all future liability for or in connection with the
remediation of the Kin-Buc Landfill.
The third settlement agreement was among the AFP Group and certain
other PRPs, Transtech, all the third-party defendants to the Fraudulent
Conveyances Counterclaim, and other parties sought to be joined in the
Fraudulent Conveyances Counterclaim. In this agreement, the AFP Group and
the other settling PRPs dismissed all their claims in the Fraudulent
Conveyances Counterclaim in exchange for a payment $1.5 million. Of this
amount, $480,000 was paid by Transtech and the balance was or will be paid
by the third-party defendants and such other parties.
47
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
The fourth settlement agreement was among the SCA Group, WMI,
Transtech, all the third-party defendants to the Fraudulent Conveyances
Counterclaim, and the other parties sought to be joined in the Fraudulent
Conveyances Counterclaim. In this agreement, the SCA Group and WMI
dismissed all their claims in the Fraudulent Conveyances Counterclaim and
agreed to defend and indemnify Transtech, the third-party defendants and
such other parties against continuing claims by non-settling PRPs
(consisting of a group of four non-municipal waste PRPs). In addition, the
third-party defendants and such other parties released Transtech from all
liability to them arising from the settlement of the Fraudulent
Conveyances Counterclaim.
In April 1991, Inmar demanded that, in accordance with certain
provisions of the lease from Inmar to Kin-Buc of 50 acres upon which a
portion of the Kin-Buc Landfill is located, Transtech indemnify Inmar and
Marvin H. Mahan against liability for remediation of such property and pay
Inmar $6.6 million in damages for loss of value of its adjoining property.
These demands are the subject of negotiations with Inmar discussed below.
INSURANCE
In 1995, Transtech, Kin-Buc and Filcrest commenced suit in the
Superior Court of New Jersey, Middlesex County, entitled TRANSTECH
INDUSTRIES, INC. ET. AL V. CERTAIN UNDERWRITERS AT LLOYDS ET AL., Docket
No. MSX-L-10827-95, to obtain indemnification from its excess insurers
during the period 1965 through 1986 against costs incurred in connection
with the remediation of the Kin-Buc Landfill and the Tang Site and for the
defense of litigation related thereto. The defendant insurers, which
include various London and London Market insurance companies, First State
Insurance Company and International Insurance Company, have answered the
complaint against them and discovery is proceeding. All of the policies of
excess insurance issued by the defendant insurers cover Transtech, its
present subsidiaries and former subsidiaries, some of which Transtech no
longer controls. They also cover Inmar and other companies presently or
formerly owned or controlled by Marvin H. Mahan.
AS TO THE CLAY DEPOSITS
In 1988, Kin-Buc purchased 150,000 cubic yards of clay for use in the
closure of the Kin-Buc Landfill for $1.2 million from Inmar. Pursuant to
the agreement for the purchase of the clay, Kin-Buc is entitled to a
refund of the purchase price of
48
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
clay it is unable to mine or can not use. The Company used a small portion
of the clay for the closure of the Kin-Buc Landfill and was planning to
sell the remainder to third parties. In October 1996, the Company learned
that Inmar had contracted to sell a substantial portion of its land, upon
which a substantial amount of the clay is situated, to Edison Expansion,
Inc. ("Expansion"). In November 1996, Kin-Buc brought suit entitled
KIN-BUC, INC. V. INMAR ASSOCIATES, INC. AND EDISON EXPANSION, INC. in
Superior Court, Morris County, New Jersey against Inmar and Expansion for,
among other things, a declaratory judgment that Kin-Buc's rights in the
clay would survive a sale of the land to Expansion and, alternatively, a
money judgment against Inmar. Kin-Buc also filed a lis pendens against the
Inmar property. In December 1996, Expansion sought and obtained a
discharge of the lis pendens and a closing of the sale to Expansion took
place in January 1997. In accordance with a Court order entered in another
Inmar matter, the net proceeds of the sale totalling approximately
$530,000 were paid into Court to secure the payment of costs of
remediation of the Carlstadt, New Jersey Superfund Site discussed below
for which Inmar or Marvin H. Mahan is held liable. An appeal of this order
brought by Inmar is pending. The order permitted Inmar to apply to the
Court for permission to withdraw proceeds for other purposes. In March
1997, the Court denied Kin-Buc's request that the proceeds be dedicated to
the payment of whatever money judgment Kin-Buc might obtain against Inmar,
but agreed that Kin-Buc could reapply for such relief when and if it
obtained such a judgment. In June 1997, Kin-Buc requested the entry of a
default against Inmar for its failure to answer Kin-Buc's complaint and in
August, Kin-Buc obtained such a judgment in the amount of approximately
$1.1 million. In October 1997, the Court granted summary judgment to
Expansion, dismissing Kin-Buc's suit for a declaratory judgment that
Kin-Buc's rights to the clay survived the sale of the land to Expansion.
Kin-Buc did not appealed this decision. There is substantial uncertainty
that Inmar is financially capable of responding to this judgment and there
is no assurance as to the amount of money that Kin-Buc will be permitted
to draw from the deposit with the Court. Kin-Buc is engaged in
negotiations with Inmar concerning satisfaction of the default judgment.
AS TO THE CARLSTADT SITE
Transtech is one of 43 respondents to a September 1990 Administrative
Order of the EPA concerning the implementation of interim environmental
remediation measures at a site in Carlstadt, New Jersey owned by Inmar and
operated by Transtech as a solvents recovery plant for approximately five
years
49
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
ending in 1970.
In 1988, Transtech, Inmar and Marvin H. Mahan were sued in
a civil action in the United States District Court for the
District of New Jersey entitled AT&T Technologies, Inc. et al.
v. Transtech Industries, Inc. et al. v. Allstate Insurance
Company et al. (the "AT&T Suit") by a group of generators of
waste (the "AT&T Group") alleging, among other things, that
the primary responsibility for the clean-up and remediation of
the Carlstadt site rests with Transtech, Inmar and Marvin H.
Mahan.
In September 1995, the Court approved a settlement of the AT&T Suit
among Transtech, Inmar, Marvin H. Mahan, the AT&T Group and other
generators and transporters of waste handled at the Carlstadt site who had
contributed to the costs of the remediation of the site. Pursuant to such
settlement, Transtech, Inmar and Marvin H. Mahan agreed to (i) pay $4.1
million of proceeds from settlements with primary insurers of a coverage
action brought by the Company and Inmar against their primary and excess
insurers, (ii) pay an additional $145,000 ($72,500 from Transtech and
$72,500 from Inmar and Marvin H. Mahan), and (iii) assign their Carlstadt
site- related insurance claims against an excess insurer in exchange for a
complete release from these parties of all liability arising from or on
account of environmental contamination at the Carlstadt site and the
parties' remediation of the same. Notwithstanding such settlement, the
Company may have liability in connection with the site to the EPA for its
costs of overseeing the remediation of the site, and to parties who had
not contributed to the remediation at the time the settlement was approved
but who may later do so. The Company has received no indication that the
EPA intends to assert a claim for oversight costs.
In a related matter, in October 1989, the Company, together with
owners and operators of industrial sites in the Hackensack, New Jersey
meadowlands, including a site in Wood- Ridge, were sued in the United
States District Court for the District of New Jersey for contribution
towards the cost of remediation of those sites, adjacent lands and
adjacent water courses, including Berry's Creek. The plaintiffs in this
suit, Morton International, Inc., Velsicol Chemical Corp. and other
parties who have been ordered to remediate such industrial sites, adjacent
lands and adjacent water courses, seek contribution from the Company
towards the cost of remediating Berry's Creek, which, they allege, was
contaminated, in part, by the Company's operations at a nearby solvents
recovery facility at Carlstadt, New Jersey. Shortly
50
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
after the institution of suit, the plaintiffs began negotiating with the
governmental entities which ordered the remediation of the sites, adjacent
land and adjacent water courses, as to the scope of remediation and,
pending those negotiations, had stayed the suit. In August 1996, the
plaintiffs reinstituted the suit but shortly thereafter agreed to sever
claims against the Company and proceed against other defendants. As a
result, the claims against the Company have again been stayed. Since the
plaintiffs' negotiations concerning the scope of the remediation of
Berry's Creek are still ongoing, and no discovery has taken place
concerning allegations against the Company, it is not possible to estimate
the Company's ultimate liability in this matter.
In December 1989, Inmar and Transtech agreed to share equally certain
costs in connection with the AT&T Suit. As of December 31, 1992, Transtech
paid $514,000 towards such costs. Inmar has disputed which expenses are to
be shared. Further, in April 1991, Marvin H. Mahan made a demand upon
Transtech for reimbursement of approximately $300,000 in costs which he
incurred in connection with the AT&T Suit. The dispute concerning the
shared expenses and Marvin H. Mahan's demand for reimbursement are
subjects of the negotiations with Inmar discussed below.
AS TO THE TANG SITE
Pursuant to a December 1988 agreement with Tang, in 1988, 1989 and
1990 Transtech spent approximately $4.3 million for the remediation of a
Piscataway, New Jersey site owned by Tang and operated by Transtech for a
limited period of time. In October 1990, Transtech determined that it
would no longer continue to contribute to the remediation of that site.
The EPA is performing remediation at the site and has requested
information from approximately 100 potentially responsible parties
concerning their involvement with the Tang site. Transtech has had no
direct involvement with the EPA since October 1990 and has not been the
recipient of an EPA request for information.
In connection with its determination not to continue to contribute to
the remediation of the Tang site, in March 1991 Transtech made a demand
upon Tang for reimbursement of the amounts it had expended in connection
with such remediation. In April 1991, Tang rejected the demand for
reimbursement and demanded Transtech resume the remediation. These demands
are the subject of negotiations with Tang discussed below.
As to Negotiations with Inmar, Tang and Marvin H. Mahan
51
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
Transtech has been negotiating with Inmar, Tang and Marvin H. Mahan
(collectively, the "Mahan Interests") toward a settlement of disputes with
Transtech mentioned above, namely, Inmar's demand for damages for loss of
value of property adjoining the Kin-Buc Landfill, the sharing of expenses
of the AT&T Suit, and the reimbursement of remediation costs at the Tang
site. Negotiations have recently broadened to include the Mahan Interests'
joining in the settlement of the Fraudulent Conveyances Counterclaim, the
satisfaction of Kin- Buc's $1.1 million judgment against Inmar and the
Mahan Interests' cooperation in the prosecution of the suit against
Transtech's insurers. Efforts to resolve all outstanding issues are
continuing.
GENERAL
In the ordinary course of conducting its business, the Company
becomes involved in certain lawsuits and administrative proceedings (other
than those described herein), some of which may result in fines, penalties
or judgments being assessed against the Company. The management of the
Company is of the opinion that these proceedings, if determined adversely
individually or in the aggregate, are not material to its business or
consolidated financial position.
The uncertainty of the outcome of the aforementioned tax litigation
and insurance litigation and the impact of future events or changes in
environmental laws or regulations, which cannot be predicted at this time,
could result in increased remediation and closure costs, and increased tax
and other potential liabilities. A significant increase in such costs
could have a material adverse effect on the Company's financial position,
results of operations and net cash flows. The Company may ultimately incur
costs and liabilities in excess of its available financial resources.
- -----------------------------------------------------------------
NOTE 16 - SEGMENT INFORMATION:
The Company's continuing operations can be grouped into three segments:
operations which generate electricity from recovered methane gas,
operations which perform maintenance, remediation and related services on
landfill sites, and corporate and other. Corporate and other includes: (i)
selling, general and administrative expenses not specifically allocable to
the other segments, and (ii) other administrative costs incurred for the
continuing closure and post-closure activities at the Company's dormant
landfill facilities. Corporate assets are represented primarily by cash
and cash
52
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TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
equivalents, marketable securities, notes receivable and real estate held
for investment and sale.
(In $000's) ELECTRICITY ENVIRONMENTAL CORPORATE
GENERATION SERVICES AND OTHER
1997
Operating revenues $ 310 $ 249 $ -
Intercompany revenues $ - $ 152 $ -
Income (loss)
from operations $ 9 $ (228) $(2,083)
Identifiable assets $ 29(a) $ 267 $ 6,652
Depreciation expense $ 23 $ 29 $ 8
Capital expenditures $ 9 $ 73 $ 17
1996
Operating revenues $ 265 $ 98 $ -
Intercompany revenues $ - $ 180 $ -
Income (loss)
from operations $ 9 $ (204) $(2,090)
Identifiable assets $ 44(a) $ 119 $ 9,404
Depreciation expense $ 17 $ 24 $ 26
Capital expenditures $ 34 $ 13 $ 21
(a) Substantially all of the assets of the electricity generation segment
are fully depreciated.
During the years ended December 31, 1997 and 1996, five and three
customers, respectively, of the Company accounted for 100% of the
Company's consolidated operating revenues.
- ----------------------------------------------------------------
NOTE 17 - NET INCOME (LOSS) PER COMMON SHARE:
The Company has adopted SFAS No. 128. "Earnings per Share" which
requires entities with complex capital structures to present both basic
earnings per share ("EPS") and diluted EPS. Basic EPS excludes dilution
and is computed by dividing net income (loss) available to common
shareholders by the weighted average number of common shares outstanding
during the period. diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock, such as
stock options, were exercised, converted into common stock or resulted in
the issuance of common stock. Diluted EPS is computed by dividing net
income (loss) by the weighted average number of common shares outstanding
for the period increased by the dilutive effect of common stock-equivalent
shares computed using the treasury stock method. Diluted EPS have not been
presented since the calculations are anti-dilutive for each of the
periods presented.
53
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TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
- ----------------------------------------------------------------
NOTE 18 - RELATED PARTY TRANSACTIONS:
The Company and its subsidiaries have had transactions with
businesses owned or controlled by the Company's principal shareholders or
members of their immediate family.
On August 28, 1992, the Company made an advance of $10,000 to the
Company's President and Chairman of the Board of Directors. The advance
was evidenced by an interest bearing note. The note and accrued interest
thereon was repaid in full during 1996. On April 22, 1994, the Company
made a loan of $75,000 to the President and Chairman of the Board of
Directors of the Company, evidenced by a note which bears interest at a
floating prime rate plus 1% and is due and payable as determined by the
Board of Directors. Approximately $101,000 and $95,000 was outstanding
with respect to the loan, including interest, as of December 31, 1997 and
1996, respectively.
Until July 1995, the Company leased certain real property from Inmar
Associates, Inc., a corporation controlled by Marvin H. Mahan, a former
officer, director and principal shareholder of the Company, and the father
of three of the Company's principal shareholders. No rental payments have
been made since 1990 (see Note 15). Since Mr. Mahan's retirement from the
Company, it has provided Mr. Mahan the use of an automobile and
contributed to the expenses of maintaining an office for his use including
secretarial services. Such expenses totalled approximately $21,000 and
$14,000 in 1997 and 1996, respectively.
On March 1, 1996, ValveCo Inc. ("ValveCo"), a newly-formed Delaware
corporation organized by Three Cities Research, Inc. ("TCR"), a Delaware
corporation unaffiliated with the Company or any of its directors and
officers, purchased 100% of the Hunt Valve Company, Inc. common stock
owned by THV Acquisition Corp., a wholly owned subsidiary of the Company,
representing 79.05% of the issued and outstanding Hunt common stock.
Eighty-five percent of the common stock issued by ValveCo was purchased by
the TCR investors and 15% was purchased by four individuals affiliated
with the Company, namely the Company's President and Chairman of the Board
of Directors (7.5%), the Company's Vice President and Chief Financial
Officer, who is also a member of the board (2%), a director of Hunt (1.5%)
and Hunt's President and Chief Operating Officer (4%) for $150,000. These
four individuals also obtained the right to
54
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
acquire, for an aggregate cost of $2.3 million, an additional 12.5% of
ValveCo's common stock pursuant to the exercise of performance and
value-based options. In addition, the aforementioned directors and
executive officers of the Company and/or Hunt were employed in various
capacities by ValveCo and Hunt after the sale. The Company's President and
Chairman of the Board of Directors resigned from his employment with
ValveCo Inc. and Hunt effective January 1, 1997, but remains a director of
Hunt. The Company's Vice President and Chief Financial Officer also
resigned from his employment with ValveCo Inc. and Hunt effective January
1, 1997. See Note 4 for discussion of Hunt's tax sharing agreement.
55
<PAGE>
TRANSTECH INDUSTRIES, INC.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
================================================================
TO THE STOCKHOLDERS AND THE BOARD OF DIRECTORS
TRANSTECH INDUSTRIES, INC.
We have audited the accompanying consolidated balance sheet of Transtech
Industries, Inc. and subsidiaries as of December 31, 1997 and the related
statements of operations, stockholders' equity (deficit), 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. The financial statements of Transtech
Industries, Inc. and subsidiaries, as of and for the year ended December 31,
1996, were audited by other auditors whose report on those financial statements
dated March 20, 1997, included an explanatory paragraph which discussed the
Company's ability to continue as a going concern.
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 1997 financial statements referred to above present
fairly, in all material respects, the financial position of Transtech
Industries, Inc. and subsidiaries as of December 31, 1997 and the results of
their operations and their cash flows for the year 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
Notes 2, 8,9 and 15 to the consolidated financial statements, the Company has
experienced recurring operating losses and has current liabilities which exceed
its available financial resources. In addition, the Company is currently
involved in material litigation concerning recovery of environmental remediation
costs, its rights with respect to clay deposits, and an Internal Revenue Service
examination, the outcome of which cannot presently be determined. These factors
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described
in Note 2 to the consolidated financial statements. The
56
<PAGE>
TRANSTECH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D
=================================================================
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
BRIGGS, BUNTING AND DOUGHERTY, LLP
Philadelphia, Pennsylvania
March 18, 1998
57
<PAGE>
TRANSTECH INDUSTRIES, INC.
MARKET PRICES OF COMMON STOCK
===============================================================
The Company's Common Stock is traded under the symbol TRTI on the OTC
Bulletin Board. The following table sets forth by quarter the high and low bid
price for the Company's common stock during the period January 1, 1996 through
December 31, 1997. The high and low bid price information has been obtained from
The Nasdaq Stock Market, Inc.
1997 High Low 1996 High Low
---- ---- --- ---- ---- ---
1st quarter $.0300 $.0300 1st quarter $.0300 $.0300
2nd quarter .0300 .0300 2nd quarter .0325 .0300
3rd quarter .0300 .0300 3rd quarter .0300 .0300
4th quarter .4000 .0300 4th quarter .0700 .0300
The above quotations represent prices between dealers and do not include
retail markups, markdowns or commissions. They do not represent actual
transactions.
The number of holders of record of the Common Stock of the Company at
December 31, 1997 was 273.
The Company paid no dividends in either stock or cash in 1997 or 1996 and
does not presently anticipate paying dividends in the foreseeable future.
58
<PAGE>
TRANSTECH INDUSTRIES, INC.
DIRECTORY
==============================================================================
EXECUTIVE OFFICES: DIRECTORS: INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS:
200 Centennial Avenue Robert V. Silva
Suite 202 Chairman of the Board, Briggs, Bunting &
Piscataway, NJ 08854 President and Chief Dougherty, LLP
Phone: (732) 981-0777 Executive Officer Two Logan Sq., Suite 2121
Fax: (732) 981-1856 Transtech Industries, Inc. 18th & Arch Streets
Philadelphia, PA 19103
Arthur C. Holdsworth, III
Vice President of Sales TRANSFER AGENT:
Millington Quarry, Inc.
Millington, New Jersey Continental Stock
Transfer & Trust Co.
Andrew J. Mayer, Jr. 2 Broadway
Vice President-Finance, New York, NY 10004
Chief Financial Officer 212-509-4000
and Secretary
Transtech Industries, Inc. OTC BULLETIN BOARD
SYMBOL:
OFFICERS:
TRTI
Robert V. Silva
President and Chief
Executive Officer
Andrew J. Mayer, Jr.
Vice President-Finance,
Chief Financial Officer
and Secretary
- -----------------------------------------------------------------------------
FORM 10-KSB
The Company will provide without charge to any stockholder a copy of its most
recent Form 10-KSB filed with the Securities and Exchange Commission including
the financial statements and schedules thereto. Requests by stockholders for a
copy of the Form 10-KSB must be made in writing to: Transtech Industries, Inc.,
200 Centennial Avenue, Suite 202, Piscataway, New Jersey 08854, Attention:
Secretary.
59
EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT.
The registrant, Transtech Industries, Inc. (incorporated in the State of
Delaware), is the sole stockholder of the following corporations, except for
(g), (h) and (i), in which Sandcrest, Inc. is the sole stockholder; (k) and
(q), in which Methane Energy Recycling, Inc. is the sole stockholder; (p), in
which Smithtown Energy Recycling, Inc. holds a 75% interest and Energy
Recycling, Inc. holds a 25% interest; (r), in which Riverhead Energy
Recycling, Inc. holds a 75% interest and Energy Recycling, Inc. holds a 25%
interest; (u), in which ACC Investment Co., Inc. is the sole stockholder;
(v), in which Chambers Brook, Inc. is the sole stockholder; (w), in which
Transtown, Inc. is the sole stockholder. The operations of all of the listed
corporations and partnerships are included in the consolidated financial
statements which are incorporated herein by reference from the registrant's
Annual Report to Stockholders filed as an exhibit hereto.
(a) Kinsley's Landfill, Inc. (a New Jersey corporation)
(b) Filcrest Realty, Inc. (a New Jersey corporation)
(c) Sandcrest, Inc. (a New Jersey corporation)
(d) Kin-Buc, Inc. (a New Jersey corporation)
(e) Mac Sanitary Land Fill, Inc. (a New Jersey corporation)
(f) Birchcrest, Inc. (a New Jersey corporation)
(g) Del Valley Farms, Inc. (a New Jersey corporation)
(h) Genetic Farms, Inc. (a New Jersey corporation)
(i) Red Robin Realty, Inc. (a New Jersey corporation)
(j) United Environmental Services, Inc. (a New Jersey corporation)
(k) Smithtown Energy Recycling, Inc. (a New York corporation)
(l) Energy Recycling, Inc. (a New Jersey corporation)
(m) Methane Energy Recycling, Inc. (a New Jersey corporation)
(n) Pennsylvania Continental Feed, Inc. (a Pennsylvania corporation)
(o) Harrison Returns, Inc. (a New Jersey corporation)
(p) Smithtown Land Gas Company (a New York partnership)
(q) Riverhead Energy Recycling, Inc. (a New York corporation)
(r) Riverhead Land Gas Company (a New York partnership)
(s) Delsea Realty, Inc. (a New Jersey corporation)
(t) ACC Investment Co., Inc. (a Delaware corporation)
(u) Transtown, Inc. (a Delaware corporation)
(v) Camden Energy Recycling, Inc. (a New Jersey corporation)
(w) Chambers Brook, Inc. (a Delaware corporation)
(x) Arrow Realty, Inc. (a Pennsylvania corporation)
(y) THV Acquisition Corp. (a Delaware corporation)
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<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 311,000
<SECURITIES> 2,610,000
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<PP&E> 2,892,000
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<TOTAL-LIABILITY-AND-EQUITY> 6,998,000
<SALES> 559,000
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<CGS> 502,000
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