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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ____________
COMMISSION FILE NUMBER 0-21054
SYNAGRO TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 88-0219860
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
16000 STUEBNER AIRLINE, SUITE 420, SPRING, TEXAS 77379
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ZIP CODE
(281) 370-6700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.002 PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not 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-K or any amendment to this Form 10-K. [x]
The number of shares outstanding of the issuer's common stock as of April
11, 1997 was 7,673,505. The aggregate market value of the 6,153,525 shares of
the Company's Common Stock (and associated Preferred Stock Purchase Rights) held
by non-affiliates of the Company, based on the market price of the Common Stock
of $1.781 per share as of April 11, 1997, was approximately $10,959,428.
The registrant's proxy statement to be filed in connection with the
registrant's 1997 Annual Meeting of Stockholders is incorporated by reference
into Part III of this report.
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TABLE OF CONTENTS
SYNAGRO TECHNOLOGIES, INC.
FORM 10-K
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PART I
1 Business
History of the Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Business of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Mergers, Acquisitions and Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Bonding Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Patent and Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4 Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II
5 Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . 7
Recent Sales of Unregistered Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . 8
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Bonding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . 12
PART III
10 Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . 13
13 Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART IV
14 Exhibits. Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 13
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Reports on Form 8-K During the Quarterly Period Ended December 31, 1996 . . . . . . . . . . . . . . . . 13
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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This report on Form 10-K contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended that involve risks and
uncertainties. When used in this document, the words "anticipate," "believe,"
"estimate" and "expect" and similar expressions, as they relate to the Company,
are intended to identify forward-looking statements. Such statements reflect
the current views of the Company with respect to future events and are subject
to certain risks, uncertainties and assumptions, including those discussed
below. The Company's actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors
including those set forth under Item 1. "Business" and Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
PART I
ITEM 1. BUSINESS.
HISTORY OF THE COMPANY
Synagro Technologies, Inc. ("Synagro" or the "Company") was originally
incorporated on May 9, 1986 as a Nevada corporation under the name N-Viro
Recovery, Inc. On October 28, 1994, the Company changed its name to "Synagro
Technologies, Inc." to reflect the diversity of biosolids treatment services
provided by the Company.
The Company reincorporated in Delaware on August 16, 1996 by means of a
merger (the "Reincorporation Merger") of the Company with and into a
wholly-owned subsidiary of the Company in Delaware known as Synagro
Technologies, Inc. ("Synagro Delaware"). On the effective date of the
Reincorporation Merger, each issued and outstanding share of Common Stock of
the Company was converted into one share of Common Stock of Synagro Delaware.
Synagro Delaware succeeded to all of the assets, liabilities and business of
the Company and possesses all of the rights and powers of the Company.
(Synagro Delaware and the Company are collectively referred to hereinafter as
the "Company").
BUSINESS OF THE COMPANY
The Company engages in the business of the management of biosolids through
beneficial reuse of organic materials, including sewage sludge. The Company
provides transportation, treatment, site monitoring, land application and
environmental regulatory compliance services with respect to biosolids and
wastewater products to local and state agencies, municipalities and private
industries. The Company's vehicles pick up and transport biosolids and other
organic waste materials to sites operated by the Company. The Company's
services also include the dredging of sludge ponds and cleaning out municipal
and industrial lagoons.
Additionally, the Company provides professional management and consulting
services for treatment of biosolids and the monitoring and land application of
treated biosolids. The Company currently operates under approximately 21
contracts with various state and local agencies, municipalities and private
industries with respect to sewage treatment and other waste products. These
entities include municipal utility districts, correctional facilities and
private businesses. The Company provides a variety of methods of treatment of
biosolids as a means of offering options to prospective customers who may
prefer alternative methods of biosolids treatment. These methods include land
application, pumping, transportation and dewatering of biosolids.
There are two standards of pathogen reduction--Class A and Class B. The
Company is able to treat biosolids with Class A pathogen reduction and certain
levels of vector attraction reduction (i.e., pests, such as insects and
rodents), to produce "Exceptional Quality Biosolids." Exceptional Quality
Biosolids can be beneficially used on the land without limitations, site
restrictions or regulatory reporting. Non-Exceptional Quality Biosolids, while
less expensive to process, are subject to monitoring and detailed record
keeping requirements. These alternative methods provide a broader variety of
choice to prospective customers who may prefer to continue to use methods which
currently require lower initial cost, but which may require additional future
costs for monitoring of the related disposal sites.
The Company also operates and maintains a fleet of trucks which pump,
collect and transport liquid or solid municipal biosolids to various land
application or treatment sites for tipping fees. These tipping fees, which are
fees generated by the Company in connection with the collection, transportation
and treatment of biosolids, constitute substantially all of the
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Company's sources of revenues. The Company's vehicles are registered with
federal, state and local governmental agencies for such transportation
purposes.
The Company primarily conducts its business through its wholly-owned
subsidiaries CDR Environmental, Inc., a Texas corporation ("CDR"), Pima Gro
Systems, Inc., an Arizona corporation ("Pima Gro"), and Organi-Gro, Inc., an
Arkansas corporation ("Organi-Gro"). The Company's primary operations are
conducted in Arkansas, Arizona, California, Texas and Washington D.C. To a
lesser extent, the Company conducts business in Georgia, Indiana, Louisiana,
Mississippi, Missouri, Oklahoma and South Carolina.
Over the past few years, the Company has acquired certain agency and
licensing rights to market a patented sludge treatment technology, using cement
kiln dust ("CKD") and other related materials and an alkaline pasteurization
process (the "N-Viro Technology"), in certain states in the southwestern United
States and in certain Central and South American countries, developed and owned
by N-Viro International Corporation ("N-Viro International").
Through December 1996, the Company had generated nominal profits through
the commercialization of the N-Viro Technology. In December 1996, the Board of
Directors decided to write down the Company's investment in the N-Viro
Technology and associated assets. For this reason, the Company has voluntarily
given up its processing permit for the Hockley, Texas site, and will
re-evaluate its various agency agreements for the application of the N-Viro
Technology. The Company designated the N-Viro-related assets as held for sale.
See "Mergers, Acquisitions and Dispositions--Sale of Organi-Gro, Inc.,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and Note 14 to the Notes to Consolidated Financial Statements.
MERGERS, ACQUISITIONS AND DISPOSITIONS
The Company's business plan has developed through the acquisition of
privately held biosolids treatment companies and their integration into the
business operations of the Company and its subsidiaries. The Company's
acquisition strategy has been developed with the intent to increase the
efficiency and profitability of each of these acquisition targets through
operational and marketing synergies with the Company's existing business
operations. There can be no assurances that the Company's acquisition strategy
will generate these synergies or result in profitable operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SALE OF ORGANI-GRO, INC. In December 1996, the Company decided to sell
substantially all of the assets of its wholly owned subsidiary, Organi-Gro. In
March 1997, the Company reached an agreement to sell Organi-Gro. Consideration
included subordinated notes with a face value of approximately $1.5 million and
the assumption of certain debt and liabilities. The notes are payable in equal
monthly installments of approximately $15,000 for 48 months following the first
anniversary date of the note and bears interest at a rate of 6%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and Note 14 to the Notes to Consolidated Financial Statements.
ACQUISITION OF PIMA GRO SYSTEMS, INC. Effective July 1996, the Company
entered into an agreement pursuant to which the Company acquired 100% of the
issued and outstanding securities of Pima Gro. The amount of consideration
paid in the transaction was determined based on management's analysis of
historical and projected sales of Pima Gro, the estimated market value of Pima
Gro and the synergies to be achieved through the transaction.
The purchase price for the acquisition of Pima Gro was $3,095,561. The
Company issued an aggregate of 155,000 shares of the Company's Common Stock,
paid cash in the aggregate amount of $1,277,265, and issued a promissory note
in the aggregate principal amount of $1,595,561. The shares of Common Stock
issued to the former stockholders of Pima Gro were valued, at $1.437 per share
for the purposes of the transaction. The promissory note issued by the Company
bears interest at the rate of 8% per annum and is payable in four semi-annual
installments of principal and accrued interest, commencing January 1, 1997,
with the final payment due on July 1, 1998.
The Company has agreed to pay an additional contingent sum on the purchase
price of $4.16 for each dollar by which the pre-tax earnings of Pima Gro, for
each of the fiscal years during 1996-1998, exceed the base amount of $380,000
in 1996 and, subject to certain adjustments to the base amount, during the two
following fiscal years. The additional contingent sum may be payable by the
Company, if at all, in cash, Common Stock or promissory notes, or any
combination thereof. Such amounts which may be payable as contingent sum
payments will be held in escrow until March 31, 1999, and subject to
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reduction based on amounts expended by the Company for certain capital
expenditures and costs reserved for the development of certain business sites.
In connection with this agreement, Wilson Nolan has agreed to enter into a
three year employment agreement with Pima Gro at the annual base rate of
$150,000, plus other benefits. Mr. Nolan will serve as the Chief Executive
Officer and a director of Pima Gro. In addition, Mr. Nolan entered into a
non-competition agreement with the Company for a period of six years following
the date of the employment agreement. In consideration of the non-competition
agreement, the Company has agreed to pay Mr. Nolan an additional contingent sum
based on the contingent sum formula payable to the former Pima Gro stockholders
described above, except that Mr. Nolan will be entitled to receive $1.04 for
each dollar by which the pre-tax earnings of Pima Gro exceed the relevant base
amount for each of the fiscal years during 1996-1998.
Further, the former stockholders of Pima Gro have granted a proxy to
Donald L. Thone, Chief Executive Officer of the Company, to vote any shares
issued in connection with the transaction for a period of three years following
the closing date.
ACQUISITION OF CHILDERS BROTHERS TRUCKING, INC. On October 1, 1994, the
Company acquired substantially all of the assets and assumed certain
liabilities of Childers Brothers Trucking, Inc. ("Childers Brothers"), Thompson
Shaving Service, Inc. ("Thompson") and Hodges Heavy Duty Truck Parts and
Services, Inc. ("Hodges") and Zeiler Timber Products, Inc. ("Zeiler"). In
connection with these transactions, Tony Childers became a director of the
Company and the President of Organi-Gro.
Childers Brothers and Thompson were engaged in the business of buying,
hauling and selling bedding and wood waste materials related to the poultry and
building products industries. Hodges was engaged in the business of truck
repair. The Company acquired such assets and assumed such liabilities in three
separate transactions and integrated the assets and operations of all four of
Organi-Gro into the operations.
In connection with these transactions, the Company issued an aggregate of
16,667 shares of Common Stock, paid cash in the aggregate amount of $150,000,
issued promissory notes in the aggregate principal amount of $850,000 and
assumed certain liabilities in an approximate aggregate amount not to exceed
$4,500,000. The promissory notes have been fully paid.
In December 1996, the Company's Board of Directors decided to sell the
Assets of Organi-Gro, including the assets of Childers, Thompson, Hodges and
Zeiler. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
ACQUISITION OF THONE BROTHERS TRUCKING, INC. AND ORGANI-GRO, INC. In July
1993, the Company entered into two agreements, pursuant to which the Company
acquired 100% of the common stock of: (i) Thone Brothers in exchange for 66,667
shares of the Company's Common Stock, and (ii) Organi-Gro in exchange for
$100,000 in cash and a secured promissory note in the principal amount of
approximately $1,050,000, bearing interest at the rate of 9% per annum, which
was paid in full as of March 8, 1996. Both of these companies were engaged in
the business of the transportation and/or treatment of biosolids and poultry
waste, primarily in the State of Arkansas.
In connection with these transactions, the Company merged the business
operations of Thone Brothers into CDR, and Organi-Gro became a separate
wholly-owned subsidiary of the Company. In connection with the merger, Donald
L. Thone became a director of the Company. Mr. Thone currently also serves as
Chief Executive Officer of the Company. In December 1996, the Company's Board
of Directors decided to sell the assets of Organi-Gro, and an agreement for the
sale of those assets was reached in March 1997. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
ACQUISITION OF CDR ENVIRONMENTAL, INC. On November 30, 1992, the Company
entered into a reorganization agreement with CDR pursuant to which the Company
acquired 100% of the issued and outstanding capital stock of CDR in exchange
for 133,333 shares of the Company's Common Stock and a cash payment in the
amount of approximately $1,160,000. In connection with the reorganization
agreement, CDR became a wholly-owned subsidiary of the Company.
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ADDITIONAL ACQUISITIONS. As of January 1993, the Company acquired 100% of
the common stock of Bio-Star, Inc., Gro-Mor, Inc. and K-3 Environmental
Services, Inc., all of which were Texas corporations engaged in the business of
the transportation and/or treatment of biosolids and wastewater products. As
of April, 1994, the Company acquired all of the assets and related liabilities
of Border Farms, Inc. The Company merged the business operations of these
companies into CDR. The Company completed these four separate transactions in
consideration for, in the aggregate, 62,185 shares of Common Stock and cash in
the amount of approximately $1,147,000.
GOVERNMENT REGULATION
Federal and state environmental legislation and regulations require
substantial expenditures by wastewater sludge generators and impose liabilities
on such entities for noncompliance. Environmental laws and regulations are,
and will continue to be, a principal factor affecting the marketability of the
biosolids treatment methods marketed by the Company. Any changes in these laws
or regulations may affect the operations of the Company by imposing additional
regulatory compliance costs on the Company, requiring the modification of
and/or adversely affecting the market for the Company's biosolids treatment
methods. To the extent that demand for the Company's biosolids treatment
methods is created by the need to comply with such environmental laws and
regulations, any modification of the standards created by such laws and
regulations may reduce the demand for the Company's biosolids treatment
methods, thereby adversely affecting the Company's business prospects.
The Company operates in a highly regulated environment and the wastewater
treatment and other plants at which the Company's biosolids treatment methods
may be implemented are required to have permits, registrations and approvals
from federal, state and local governments for the operation of such facilities.
Moreover, each facility is typically required to obtain a state permit for the
processing of Exceptional Quality Biosolids. In some jurisdictions, state
and/or local authorities have prohibited and, in other jurisdictions, have
sought and may seek to prohibit, the land application or agricultural use of
biosolid products.
Any of the permits, registrations or approvals noted above, or
applications therefor, may be subject to denial, revocation or modification
under various circumstances. In addition, if new environmental legislation or
regulations are enacted or existing legislation or regulations are amended or
are enforced differently, the Company may be required to obtain additional
operating permits, registrations or approvals. The process of obtaining a
required permit, registration or approval can be lengthy and expensive and the
issuance of such permit or the obtaining of such approval may be subject to
public opposition. There can be no assurances that the Company will be able to
meet applicable regulatory requirements or that further attempts by state or
local authorities to prohibit the land application or agricultural use of
biosolids will not be successful.
In March 1993, the EPA regulations under the Clean Water Act of 1987 (40
CFR Part 503) which regulate methods for the disposal and use of biosolids
became effective. These regulations address the issues of treating biosolids
generated from the treatment of domestic sewage and septage and the subsequent
disposition of treated biosolids. These regulations establish biosolid use and
disposal standards applicable to approximately 35,000 publicly and privately
owned wastewater treatment plants in the United States. Under these
regulations, biosolids may be surface disposed, incinerated or land applied for
beneficial use in accordance with the requirements established by regulations.
Biosolids may also be disposed in municipal solid waste landfills approved
under Subtitle D of the Resource Conservation and Recovery Act ("RCRA"). This
type of disposal is regulated under 40 C.F.R. Part 258. The last applicable
deadline for compliance with the new standards was February 19, 1995.
Land application regulations apply to generators (sources) of biosolids,
persons who treat the biosolids or persons who apply treated biosolids to land.
Beneficial uses for land application include use on agricultural land, non-
agricultural land (forest, range lands), public contact sites (parks and golf
courses), disturbed and reclamation (mines and gravel pits) and home gardens.
Any biosolids used for land application must meet two sets of standards
established by the EPA for pollutant limits. The first set establishes ceiling
concentrations for nine pollutants; biosolids which contain pollutants in
concentrations exceeding the ceiling limits cannot be applied to the land for
beneficial use. The second set establishes more stringent concentration levels
for eight of the nine pollutants which, if met, allow greater flexibility in
the use of the biosolids. The second set also constitutes the pollutant
concentrations, which when combined with Class A pathogen reduction and certain
levels of vector attraction reduction (i.e. pests, such as insects and
rodents), form "Exceptional Quality Biosolids." This
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term is used herein to designate sludge or sludge products which can be used
beneficially on the land without limitations, site restrictions or regulatory
reporting.
There are two standards of pathogen reduction. These standards are
classified as Class A or Class B. The standard of classification of biosolids
as Class A or Class B is based on pathogen levels in the treated biosolids.
Biosolids which meet the Class A standards for pathogen reduction and certain
standards for reduction of attraction to vectors and meet the lower pollutant
levels of the Exceptional Quality Biosolids may be applied to a site (which
does not require a permit for disposal) without the need for further monitoring
under EPA regulations. However, biosolids which do not meet the Exceptional
Quality standards, but which otherwise meet the Class A or Class B standards of
pathogen reduction and other less strict standards for pollutant control and
vector attraction, may only be applied to sites which have obtained
governmental permits for such deposit, and further, are subject to continuous
monitoring and detailed record keeping of the site.
Class A pathogen reduction and vector attraction reduction requires
treating sludge to meet certain levels for indicator bacteria (such as fecal
coliform or salmonella). To meet the Exceptional Quality standard, sludge must
be treated with one of several alternative methods. These methods include heat
disinfection, alkaline stabilization and composting. Sludge which meets the
Exceptional Quality standards does not impose ongoing site management
restrictions.
CERCLA generally imposes strict, joint and several liability for cleanup
costs upon (1) present owners and operators of facilities at which hazardous
substances were disposed; (2) past owners and operators at the time of
disposal; (3) generators of hazardous substances that were disposed at such
facilities; and (4) parties who arranged for the disposal of hazardous
substances at such facilities. CERCLA Section 107 liability extends to cleanup
costs necessitated by a release or threat of release of a hazardous substance.
However, the definition of "release" under CERCLA excludes the "normal
application of fertilizer." EPA regulations establish standards for biosolids
applied to land for beneficial use, such as a fertilizer substitute or soil
conditioner. EPA has indicated in a published document that it considers
biosolids applied to land in compliance with the applicable regulations not to
constitute a "release." Although the biosolids and alkaline waste products may
contain hazardous substances (as defined under CERCLA), the Company has
developed plans to manage the risk of CERCLA liability, including training of
operators, regular testing of the biosolids and the alkaline admixtures to be
used in treatment methods and reviewing incineration and other permits held by
the entities from which alkaline admixtures are obtained.
The Company currently maintains environmental impairment liability
insurance in the amount of $6,000,000. The Company could be adversely affected
by a claim that is not covered or is only partially covered by liability
insurance.
Many states have regulations or guidelines covering the land application
of biosolids which set either a maximum allowable concentration or maximum
pollutant loading rate for at least one pollutant. In addition, some states
have established management practices for land application of biosolids. In
some jurisdictions, state and/or local authorities have imposed permit
requirements for, or have prohibited, the land application or agricultural use
of biosolid products, including Exceptional Quality Biosolids product permits.
There can be no assurance that any such permits will be issued or that any
further attempts to require permits for, or to prohibit, the land application
or agricultural use of biosolid products will not be successful.
In addition, many states enforce landfilling restrictions for nonhazardous
biosolids and some states have site restrictions or other management practices
governing lands. These regulations typically require a permit to sell or use
biosolid products as landfill cover material. There can be no assurances that
landfill operators will be able to obtain required permits.
MARKETING
The Company markets its services by soliciting prospective customers,
attending trade shows, obtaining referrals and competitive bidding on potential
contracts. The Company's primary marketing and promotion targets are: (i)
government personnel (municipal, county and state); (ii) POTW operators and
landfill operators; (iii) politicians; (iv) consulting engineers and
construction contractors; (v) equipment and building products manufacturers and
distributors; (vi) the agricultural and horticultural industry; (vii)
transportation service companies; and (viii) the public.
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The Company provides services, through the operations of CDR and Pima Gro,
for the treatment of biosolids, including the transportation of municipal
sludge, and providing monitoring and assistance services in compliance with
governmental regulatory provisions. The Company primarily markets Class B
biosolids processing and land applications to customers who prefer this method
due to higher costs associated with Class A biosolids processing methods.
BONDING REQUIREMENTS
Commercial, federal, state and municipal projects, often require
contractors to post both performance and payment bonds at the execution of a
contract. Contractors without adequate bonding may be ineligible to bid or
negotiate on many projects. The Company has frequently been required to obtain
such bonds and it should be assumed that the Company will continue to be
required to obtain such bonds in the future, particularly with government
contracts. As of December 31, 1996, the Company had a bonding capacity of
approximately $10,000,000, with $1,050,000 utilized as of such date, which
management believes is sufficient to meet bonding needs for the foreseeable
future. To date, no payments have been made by any bonding company for bonds
issued for the Company.
COMPETITION
The Company provides a variety of services relating to the treatment of
biosolids. The Company is in direct and indirect competition with other
businesses, some of which are larger, more firmly established and have greater
capital resources. Many of these competitors provide aspects of the services
provided by the Company.
Since November 1992, the Company has engaged in a business plan of the
acquisition of privately held companies which provide varieties and alternative
methods for the treatment and processing of biosolids, including the
acquisitions of CDR, Thone Brothers, Organi-Gro, Childers Brothers and Pima
Gro. This business plan has enabled the Company to offer alternative treatment
methods and to diversify the Company's services to prospective customers.
There can be no assurances that the Company will be able to achieve and
maintain a competitive position. Management of the Company believes that the
full range of treatment services provided by the Company provides a competitive
advantage over other entities which offer a lesser variety of services.
The Company competes principally through offering quality services at
competitive prices. These methods are enhanced by the Company's ownership of
facilities and trucks and equipment utilized in the delivery of the Company's
services, which allow the Company to maintain costs and quality controls over
its services.
PATENTS AND TRADEMARKS
The Company makes use of its trade secrets or "know-how" developed in the
course of its experience in the marketing of the Company's services. To the
extent that the Company relies upon trade secrets, unpatented know-how and the
development of improvements in establishing and maintaining a competitive
advantage in the market for the Company's services, there can be no assurances
that such proprietary technology will remain a trade secret or that others will
not develop substantially equivalent or superior technologies to compete with
the Company's services.
EMPLOYEES
As of April 11, 1997, the Company had approximately 165 full-time
employees. These employees include: 2 executive officers and 2 non-executive
officers, 9 operations managers, 2 environmental specialists, 8 maintenance
personnel, 63 drivers, 35 land applications specialists, 30 general operation
specialists, 14 financial services/office support employees. The loss of the
services of key employees could have a material adverse effect on the Company's
business. Since there is intense competition for qualified personnel
knowledgeable of the Company's industry, no assurances can be given that the
Company will be successful in retaining and recruiting needed personnel.
The Company's employees are not represented by a labor union or covered by
a collective bargaining agreement, and the Company believes it has good
relations with its employees. The Company provides its employees with certain
benefits, including health, life and dental insurance and 401(k) benefits.
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ITEM 2. PROPERTIES.
The Company currently leases approximately 3,700 square feet of office
space located at 16000 Stuebner Airline, Suite 420, Spring, Texas 77379. This
facility serves as the Company's principal place of business. The Company pays
approximately $3,100 per month on a lease expiring in January, 2001. The
Company also leases additional facilities on a 430 acre Site in Hockley, Texas
under a 3 year lease with a current monthly rental payment of $5,000.
The Company owns a 35 acre farm in Maysville, Arkansas with a 130,000
square foot composting facility for the processing of biosolids. The Maysville
site is subject to a note secured by a deed of trust in the amount of
approximately $1,000,000 held by an unaffiliated third party, with the
underlying loan personally guaranteed by Donald L. Thone. The Company also
owns two acres of land in Russellville, Arkansas with a 4,200 square foot
office building which serves as the Company's Arkansas division facilities.
The Company also owns 367 acres of land in Arkansas on which the Company has
approximately 144,000 gallons of storage facilities for biosolids.
The Company also leases a 5,600 square foot facility in Redlands,
California as a corporate office for the operations of Pima Gro. The Company
pays a monthly rent of $2,800 on the lease which expires in February 2000. The
Company also leases additional facilities which are used as truck maintenance
yards in California, Arizona and Maryland in connection with the operations of
Pima Gro.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently involved in certain routine litigation.
Management believes that all such litigation arose in the ordinary course of
business and that costs of settlements or judgments arising from such suits
will not have a material adverse effect on the Company's consolidated financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock has been listed for trading on The Nasdaq
SmallCap Market, under the symbol "SYGR" since October 1994. On July 3, 1995,
the Company consummated a reverse split of the Common Stock on a 1-for-15
basis, with trading commencing on a post-split basis on the Nasdaq SmallCap
Market on or about July 14, 1995. The reported high and low bid prices of the
Company's Common Stock on The Nasdaq SmallCap Market for the past two fiscal
years as adjusted for the reverse stock split are as follows:
<TABLE>
<CAPTION>
High Low
-------------- -------------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995
1st Quarter . . . . . . . . . . . . . . . . . . . . . 22.523 7.508
2nd Quarter . . . . . . . . . . . . . . . . . . . . . 14.077 4.692
3rd Quarter . . . . . . . . . . . . . . . . . . . . . 6.375 1.500
4th Quarter . . . . . . . . . . . . . . . . . . . . . 2.563 1.125
YEAR ENDED DECEMBER 31, 1996
1st Quarter . . . . . . . . . . . . . . . . . . . . . 2.500 1.156
2nd Quarter . . . . . . . . . . . . . . . . . . . . . 1.469 1.000
3rd Quarter . . . . . . . . . . . . . . . . . . . . . 2.656 1.000
4th Quarter . . . . . . . . . . . . . . . . . . . . . 4.750 2.000
</TABLE>
As of April 11, 1997, the Company had 7,673,505 shares of Common Stock
issued and outstanding. On April 11, 1997, the market price for the Company's
Common Stock in the Nasdaq SmallCap Market was approximately $1.781 per share.
As of April 11, 1997, the Company had approximately 239 stockholders of record.
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<PAGE> 10
Historically, the Company has not paid any dividends on its Common Stock
and has no present plans to pay such dividends. The payment of any future
dividends on Common Stock would depend, among other things, upon the current
and retained earnings and financial condition of the Company.
RECENT SALES OF UNREGISTERED SECURITIES. On July 18, 1996, the Company
issued 155,000 shares of Common Stock to the former stockholders of Pima Gro in
connection with the acquisition of that entity by the Company pursuant to an
exemption from registration under Section 4(2) of the Securities Act.
On August 19, 1996, the Company issued or repriced options to purchase
246,296 and 125,000 shares of Common Stock to Donald L. Thone and Daniel L.
Shook, respectively, pursuant to an exemption from registration under Section
4(2) of the Securities Act in connection with their respective employment
agreements.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data with respect to the
Company and should be read in conjunction with the Consolidated Financial
Statements.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
---------- ----------- ---------- ----------- ----------
FINANCIAL HIGHLIGHTS (In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . $ 22,977 $ 17,976 $ 13,197 $ 9,482 $ 438
Gross profit . . . . . . . . . . . . . . . . . . . . . . 3,723 2,858 2,502 2,136 169
Selling, general and administrative expenses . . . . . . 6,141 4,150 3,900 3,393 507
Loss on asset held for sale and other special charges . . 4,842 2,444 3,169 0 0
Interest expense, net . . . . . . . . . . . . . . . . . . 673 938 626 576 85
Net loss . . . . . . . . . . . . . . . . . . . . . . . . (7,589) (4,553) (4,165) (1,999) (423)
Loss per share . . . . . . . . . . . . . . . . . . . . . (1.21) (1.59) * (2.19) * (1.27) * (0.53) *
Working capital . . . . . . . . . . . . . . . . . . . . . (2,075) 1,889 (667) 285 (2,209)
Total assets . . . . . . . . . . . . . . . . . . . . . . 18,631 20,212 23,154 19,931 8,920
Total long-term debt . . . . . . . . . . . . . . . . . . 8,263 4,448 8,396 7,330 2,604
Stockholders' equity . . . . . . . . . . . . . . . . . . 3,802 10,972 10,212 8,655 3,021
</TABLE>
* As adjusted for the 1 for 15 reverse stock split consummated on July 3,
1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis of the Company's operations should
be read in conjunction with the "Business--Business of the Company,"
"--Government Regulation" and "--Competition" sections hereto. Certain
statements are forward-looking, based on the Company's expectations and, as
such, these statements are subject to uncertainty and risks.
GENERAL
The Company's fiscal 1996 results were heavily influenced by approximately
$4.8 million related to loss on sale of assets and other special charges and
$800,000 of non-recurring claims charges included in selling, general and
administrative expenses. These charges were principally the result of
management's decision in December 1996 to divest itself of all non core assets.
This decision resulted in significant impairment charges pertaining to the
assets of the Organi-Gro division and those related to the N-Viro technology.
As a result, the Company reported a net loss of $7.6 million as compared to a
net loss for the prior year of $4.6 million. Revenues for fiscal 1996
increased $5.0 million from the previous year due to the revenues associated
with the purchase of Pima Gro in July 1996.
During fiscal 1996, the Company purchased Pima Gro for cash and other
consideration of approximately $3,095,000. Pima Gro was the largest
acquisition in the history of the Company, and it is estimated that it will
generate annualized revenues of $10 million.
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<PAGE> 11
As previously stated, the Company has completely refocused its energy on
its core business of biosolids management. In doing so, considerable efforts
have been expended in properly providing the necessary changes in 1996.
Management believes that the current balance sheet is reflective of those
assets required to perform the quality services required for future biosolids
management.
RESULTS OF OPERATIONS
The following table sets forth certain items included in Selected
Financial Data, as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.2 15.9 19.0
Selling, general and administrative expenses . . . . . . . . . . . . . . . . 26.7 23.1 29.5
Loss on assets held for sale and other special charges . . . . . . . . . . . 21.1 13.6 24.0
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 5.2 4.7
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (33.0) (25.3) (31.6)
</TABLE>
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995.
The Company's net sales increased by $5,001,355 or 27.8% in fiscal 1996 as
compared to fiscal 1995. This increase in sales was directly attributable to
the acquisition of Pima Gro in July 1996. No other significant changes
occurred in the sale of other services or products in relation to the
respective period.
During the year ended December 31, 1996, cost of goods sold and gross
profit increased to $19,254,903 and $3,722,501, respectively from $15,117,950
and $2,858,099, respectively for the year ended December 31, 1995. Gross
profit as a percent of sales increased to 16.2% in 1996 from 15.9% in 1995.
Selling, general administrative expenses increased to $6,141,013 or 26.7%
of sales for the year ended 1996 as compared to $4,150,437 or 23.1% in 1995.
The increase in such expenses was primarily the result of increased expenses of
approximately $1,000,000 related to the Pima Gro acquisition and additional
provisions related to claims costs of approximately $800,000.
In the fourth quarter of 1996, management evaluated the future
profitability of the investments made in Organi-Gro and the N-Viro
technologies. As a result, the Company decided to sell all of the assets of
Organi-Gro (for which a sales agreement was reached in March 1997) and to write
off its interest in the N-Viro technology and associated assets. This decision
resulted in a charge to operation for the year of $4,841,807. See Notes 5 and
14 to the Company's financial statements.
Interest expense for fiscal year 1996 was $672,706 as compared to $937,586
for 1995. This decrease of $264,880 was directly attributable to reduced
average debt levels throughout the year prior to the purchase and assumption of
debt related to Pima Gro.
As a result of the foregoing, a net loss of $7,588,930 was reflected in
fiscal 1996 as compared to a net loss of $4,553,169 in fiscal 1995.
The Company has incurred losses since inception and, therefore, has not
been subject to federal income taxes. As of December 31, 1996, the Company had
generated net operating loss carryforwards for financial reporting purposes of
approximately $7.7 million available to reduce future federal income taxes.
These carryforwards will begin to expire in 2004. The Company's ability to
utilize these carryforwards may be limited by "change in ownership," as such
term is defined by federal income tax laws and regulations. As the Company has
incurred losses in recent years and the utilization
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<PAGE> 12
of these carryforwards may be limited as discussed above, a valuation allowance
has been established to fully offset the net deferred tax asset at December 31,
1996.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994.
The Company's net sales increased by $4,778,788, or 36%, in fiscal 1995 as
compared to fiscal 1994. This increase in sales was directly attributable to
sales from poultry bedding and wood waste materials from the October 1994
acquisitions of Childers Brothers, Thompson and Hodges. No other significant
changes occurred in the sale of other services or products in relation to the
respective periods.
During the year ended December 31, 1995, cost of goods sold and gross
profit increased to $15,117,950 and $2,858,099, respectively, from $10,695,468
and $2,501,793, respectively, for the year ended December 31, 1994. Gross
margin, as a percentage of sales, decreased to 16% in 1995 from 19% in 1994.
This decrease in gross margin was directly attributable to the full year's
results in 1995 related to the October 1994 acquisitions of Childers Brothers,
Thompson and Hodges, in which gross margins were historically significantly
lower as a percent of sales than the Company's other operations.
Selling, general and administrative expenses increased to $4,150,437, or
23.1% of sales in 1995 as compared to $3,889,727, or 29.5% of sales for the
year ended 1994. The increase in absolute dollars of such expenses was
primarily the result of an increase in the allowance for doubtful accounts
reserve of $181,000. Historically, the Company has had minimal bad debt
expense and management believes that this is not a recurring expense.
In the first quarter of 1996, certain changes in events caused management
to take charges in the amount of approximately $2,444,000 directly related to
asset impairments as follows:
1. The Company had continued to invest in the Company's sawmill
operations in Arkansas in an attempt to produce its own shavings for the
poultry bedding and wood waste markets and brought this facility to a
production mode in the last part of 1995. In evaluating the efficiency of
the mill for the remainder of 1995 and through March 1996, management
determined that sufficient production quantities could not be sustained to
justify further consideration. This decision resulted in a charge to
fixed assets of $1,091,991 and an associated goodwill charge of $286,000.
2. At December 31, 1994, the Company had an investment in Pan
American N-Viro of approximately $776,034. Pan American N-Viro was formed
in 1994 to market the N-Viro Process in South and Central America and the
Caribbean with the intent of generating a substantial revenue base prior
to the end of 1995. Subsequent evaluation of this business venture and a
review of the marketing efforts through March 28, 1996, revealed continued
losses for the year ending December 31, 1995 of $152,000 and total losses
since the formation of Pan American N-Viro of $244,178. Further, there
were no sales generated in this period and very little indication of
significant future sales prospects. Based on management's decision to
stop any future cash contributions to Pan American N-Viro, the Company
decided to write off the investment in Pan American N-Viro in full as of
December 31, 1995.
3. In 1995, management determined that a charge to operations of
$290,000 was required to properly reflect the current fair market value of
certain assets held for resale pertaining to the Company's then existing
pelletized poultry waste products division. This decision was made based
on a previous decision to discontinue these operations in 1994 and based
on market indications as of February 1996 for the sale of these assets.
Interest expense for 1995 was $937,586 as compared to $626,172 for 1994.
This increase of $311,414 was directly attributable to the October 1994
acquisitions and the related debt assumed in connection with these
acquisitions.
As a result of the foregoing, a net loss of $4,553,169 was reflected in
fiscal 1995 as compared to a net loss of $4,164,795 in fiscal 1994.
For the year ended December 31, 1994, the Company elected to set up loss
reserves in the amount of $876,573 for a legal settlement and a write down of
its investment in a limited partnership. On August 2, 1994, the Company agreed
to sell its investment in a limited partnership interest in exchange for shares
of the Company's Common Stock valued at the average closing bid price for the
30-day periods before and after the date of the agreement. This agreement was
completed in 1995.
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<PAGE> 13
Accordingly, the Company elected to set up loss reserves in the amount of
$685,573. The Company's determination of the permanent impairment and the
amount of the allowance on the value of the investment in the limited
partnership was based on the market value of the 40,000 shares of the Company's
Common Stock during the 30-day periods to and after August 2, 1994.
Additionally, for the year ended December 31, 1994, the Company reviewed
the results of the operations of Organi-Gro's pelletized poultry waste product
division and concluded that due to the fact that no significant revenues have
been generated by these products since its purchase in July 1993, and that
there were not any increases in sales volumes expected in the near future,
management determined to discontinue the operations of that division of
Organi-Gro. Accordingly, as this product division constituted the business
operations of Organi-Gro at the time of the July 1993 acquisition, goodwill
less amortization attributable to the purchase in the net amount of $2,424,294
was permanently written off in 1994. Although management believes that the
goodwill should be written off, there was no corresponding reduction in the
value of the other assets of Organi-Gro's operations which consist of plant and
equipment. As of the end of fiscal 1994, the net book value of plant and
equipment was $1,917,450 and the most recent appraised value was $2,223,804.
The Company also reviewed goodwill on other acquisitions and determined that no
write down was currently warranted.
Due to the net operating loss generated in 1994, which was not limited by
ownership changes, the Company determined that a deferred tax asset could be
recognized to the extent of deferred tax liabilities, which resulted in an
income tax benefit to the Company in the amount of $897,000.
BONDING. The amount of bonding capacity offered by sureties is a function
of financial health of the company requesting the bonding. As of December 31,
1996, the Company had a bonding capacity of approximately $10,000,000 with
$1,050,000 utilized as of such date, which management believes is sufficient to
meet bonding needs for the foreseeable future. See "Liquidity and Capital
Resources."
LIQUIDITY AND CAPITAL RESOURCES. The Company has historically financed
its operations principally through the sale of equity and debt securities and
through funds provided by operating activities.
On February 22, 1997, the Company completed its call of 3,000,000 warrants
to purchase Common Stock. Warrants for 1,324,243 shares of Common Stock were
converted providing gross proceeds to the Company in the amount of $3,178,183.
The remaining outstanding warrants were redeemed by the Company for $167,576.
In December 1996, the Company was successful in obtaining a credit
facility with LaSalle National Bank ("LaSalle") in the amount of $10,000,000
($5 million term loan and $5 million line of credit). At December 31, 1996,
the Company has borrowings under the term loan in the amount of $4,614,000. No
borrowings are outstanding under the line of credit at December 31, 1996.
Amounts available under the line of credit are subject to a borrowing base
consisting of 85 percent of accounts receivable, as defined. The LaSalle credit
facility requires the Company to meet certain loan covenants, and the Company
was in compliance with these covenants as of December 31, 1996. This credit
facility expires in December 1998, and will need to be renegotiated and/or
refinanced prior to that time.
In July 1996, the Company purchased Pima Gro for $3,096,000. Included in
this purchase price was a cash payment of $1,277,000, newly issued debt of
$1,596,000, and Common Stock issued in the amount of 155,000 shares. See Note 2
to Consolidated Financial Statements.
In December 1996, the Company decided to sell substantially all of the
assets of Organi-Gro, Inc. In March 1997, the Company reached an agreement to
sell the assets of Organi-Gro, Inc. to its former owners. Consideration
included the assumption of debt by the purchasers in the amount of $1,035,000
and promissory notes payable to the Company in the amount of $1,500,000.
Proceeds from the notes will be recognized as income in the period collected as
collection of such proceeds is considered doubtful. During the fourth quarter of
1996, the Company recorded a charge to operations of $2.5 million as a result
of its decision to dispose of Organi-Gro.
The Company purchased assets throughout 1996 in the amount of $1,404,815.
As of December 31, 1996, the Company had current maturities on long term
debt of $2,434,057 as compared to $2,244,477 in 1995. In 1995, the Company had
$508,702 of debt payable to related parties which was subsequently paid in
1996. The Company's long term debt increased $3,833,603 from $4,429,291 in
1995 to $8,262,894 in 1996. As previously indicated, the Company refinanced
substantially all of its short and long term debt through the LaSalle credit
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<PAGE> 14
facility. The total increase in debt for 1996 is primarily attributable to the
financing of asset purchases during the year of $1,325,150 as well as the
issuance of approximately $1,600,000 of debt pertaining to the acquisition of
Pima Gro.
At December 31, 1996, the Company had cash and cash equivalents and
short-term investments of approximately $1,203,000 and a negative working
capital deficit of approximately $2,075,000. The working capital deficit is
directly attributable to the acquisition debt for Pima Gro and due to
provisions of approximately $800,000 for the settlement of claims which have
been provided for in accrued liabilities.
The Company believes that its cash requirements for 1997 can be met by its
existing cash and short-term investments at December 31, 1996, the proceeds from
the warrant exercises of $3,178,000 in February 1997, its cashflows from
operations and its additional availability under its credit facility. Beyond
1997, there can be no assurances that additional financing requirements will not
be required in order to maintain liquidity as the LaSalle credit facility will
expire in December 1998 and will need to be renegotiated and/or refinanced prior
to that time.
The Company has undergone significant recapitalization and restructuring
events throughout the last two fiscal years. As a result of these changes,
management believes that the Company is better positioned to respond to
opportunities in the biosolids market and aggressively pursue its goal of
acquiring additional biosolids management companies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required by this Item 8 are incorporated herein
by reference as set forth on pages F-1 to F-20 attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On December 13, 1996, the Company replaced Singer Lewak Greenbaum &
Goldstein, LLP ("SLGG") as its principal accountant with Arthur Andersen LLP
("AA").
The report of SLGG on the Company's financial statements for the last
three fiscal years did not contain an adverse opinion or a disclaimer of
opinion, nor was such opinion qualified or modified as to uncertainty, audit
scope, or accounting principles. During the Company's three most recent fiscal
years and subsequent interim periods preceding the replacement of SLGG, the
Company had no disagreements with SLGG on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure.
During the Company's three most recent fiscal years and subsequent interim
periods preceding the retention of AA, neither the Company nor anyone on the
Company's behalf, consulted AA regarding any matter.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding the executive officers and directors of the Company
and compliance with Section 16(a) of the Exchange Act is incorporated by
reference to the information set forth under the caption "Election of
Directors" in the Company's Proxy Statement for the 1997 Annual Meeting of
Stockholders.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation is incorporated by reference
to the information set forth under the caption "Other Information--Executive
Compensation" in the Company's Proxy Statement for the 1997 Annual Meeting of
Stockholders.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners and
management is incorporated by reference to the information set forth under the
caption "Other Information--Principal Stockholders" and "Election of
Directors--Management Stockholdings" in the Company's Proxy Statement for the
1997 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions is
incorporated by reference to the information set forth under the caption "Other
Information--Certain Transactions" in the Company's Proxy Statement for the
1997 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS.
Synagro Technologies, Inc. and Subsidiaries consolidated balance sheets as
of December 31, 1996 and 1995, and related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996.
2. FINANCIAL SCHEDULES.
Schedule II--Synagro Technologies, Inc. and Subsidiaries consolidated
schedule of valuation and qualifying accounts for each of the three years in
the period ended December 31, 1996.
All other financial statement schedules are omitted for the reason that
they are not required or are not applicable, or the required information is
shown in the financial statements or the notes thereto.
(b) REPORTS ON FORM 8-K DURING THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996.
During the quarter ended December 31, 1996, the Company filed three
Current Reports on Form 8-K as follows: (i) dated December 17, 1996, in which
the Company reported the replacement of Singer Lewak Greenbaum & Goldstein,
L.L.P. as its principal accountant with Arthur Andersen LLP, (ii) dated
December 19, 1996, in which the Company reported the abandonment of merger
discussions with U.S. Liquids Inc., and (iii) dated December 27, 1996, in which
the Company reported the adoption of a shareholder rights plan.
(c) EXHIBIT INDEX
EXHIBIT DESCRIPTION OF EXHIBIT
*2.1 Sale and Purchase Agreement by and between Organi-Gro, Inc.
("Organi-Gro") and Custom Poultry Bedding, Inc. ("Custom Poultry")
dated April 1, 1997.
*2.2 Sale and Purchase Agreement by and between Organi-Gro and Hodges Heavy
Duty Truck Repair, Inc. ("Hodges") dated April 1, 1997.
3.1 Restated Certificate of Incorporation of Synagro Technologies, Inc.
(the "Company") dated August 16, 1996. (Exhibit 3.1 to the Company's
Post-Effective Amendment No. 1 to Registration Statement No. 33-95028,
dated October 25, 1996, is incorporated herein by reference).
3.2 Bylaws of the Company dated August 5, 1996. (Exhibit 3.2 to the
Company's Post-Effective Amendment No. 1 to Registration Statement No.
33-95028, dated October 25, 1996, is incorporated herein by
reference).
4.1 Specimen Common Stock Certificate of the Company. (Exhibit 4.1 to the
Company's Registration Statement on Form 10, dated December 29, 1992,
is incorporated herein by reference).
4.2 Specimen Warrant Certificate of the Company. (Exhibit 4.2 to the
Company's Registration Statement on Form S-1 (No. 33-95028), dated
July 27, 1995, and as amended, is incorporated herein by reference).
4.3 Convertible Promissory Notes dated July 19, 1994 and August 11, 1994.
(Exhibit 4.3 to the Company's Registration Statement on Form S-1 (No.
33-95028), dated July 27, 1995, and as amended, is incorporated herein
by reference).
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EXHIBIT DESCRIPTION OF EXHIBIT
4.4 8% Convertible Debenture due December 31, 1996. (Exhibit 4.4 to the
Company's Registration Statement on Form S-1 (No. 33-95028), dated
July 27, 1995, and as amended, is incorporated herein by reference).
10.1 Amendment No. 1 to Employment Agreement between the Company and Donald
L. Thone dated June 10, 1996. (Exhibit 10.4 to the Company's
Post-Effective Amendment No. 1 to Registration Statement No. 33-95028,
dated October 25, 1996, is incorporated herein by reference).
10.2 Employment Agreement between the Company and Daniel L. Shook dated
January 29, 1996. (Exhibit 10.17 to the Company's Post-Effective
Amendment No. 1 to Registration Statement No. 33-95028, dated October
25, 1996, is incorporated herein by reference).
10.3 Form of Indemnification Agreement. (Appendix F to the Company's Proxy
Statement on Schedule 14A for Annual Meeting of Stockholders, dated
May 9, 1996, is incorporated herein by reference).
10.4 Amended and Restated 1993 Stock Option Plan dated August 5, 1996.
(Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No.
333-18029), dated December 17, 1996, is incorporated herein by
reference).
10.5 Lease Agreement between the Company and Green Coast Enterprises, Inc.
dated February 1, 1996. (Exhibit 10.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995, is incorporated
herein by reference).
10.6 Employment Agreement between Pima Gro Systems, Inc.("Pima Gro") and
Wilson Nolan, dated July 18, 1996. (Exhibit 10.1 to the Company's
Current Report on Form 8-K, dated July 31, 1996, is incorporated
herein by reference).
10.7 Agreement for the Purchase of Stock by and among Synagro Technologies,
Inc. (the "Company"), CDR Environmental, Inc., Pima Gro, Pima Gro
Systems 2, Inc., Wilson Nolan, Herbert Kai and John Kai, Jr. dated
July 18, 1996. (Exhibit 2.1 to the Company's Current Report on Form
8-K, dated July 31, 1996, is incorporated herein by reference).
*10.8 6% Promissory Note made by Custom Poultry to Organi-Gro and the
Company in the principal amount of $1,152,381 dated April 1, 1997.
*10.9 Guaranty of Tony D. Childers ("Childers") for 6% Promissory Note made
by Custom Poultry to Organi-Gro dated April 1, 1997.
*10.10 6% Promissory Note made by Hodges to Organi-Gro and the Company in the
principal amount of $308,203 dated April 1, 1997.
*10.11 Guaranty of Childers and Jack Hodges for 6% Promissory Note made by
Hodges to Organi-Gro dated April 1, 1997.
16.1 Letter dated December 13, 1996, from Singer Lewak Greenbaum &
Goldstein LLP to the Commission. (Exhibit 16.1 to the Company's
Current Report Form 8-K dated December 17, 1996 is incorporated herein
by reference.)
*21.1 Subsidiaries of Synagro Technologies, Inc.
*23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Singer Lewak Greenbaum & Goldstein LLP.
*27.1 Financial Data Schedule.
_____________
* Filed herewith.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SYNAGRO TECHNOLOGIES, INC.
Dated: April 15, 1997 By: /s/ Donald L. Thone
-------------------------------------
Donald L. Thone,
Chairman of the Board,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: April 15, 1997 By: /s/ Donald L. Thone
-------------------------------------
Donald L. Thone,
Chairman of the Board,
Chief Executive Officer and Director
Dated: April 15, 1997 By: /s/ Daniel L. Shook
-------------------------------------
Daniel L. Shook,
Chief Financial Officer and Director
Dated: April 15, 1997 By: /s/ Irwin I. Gelbart
-------------------------------------
Irwin I. Gelbart,
Director
Dated: April 15, 1997 By: /s/ Mark Myers
-------------------------------------
Mark Myers,
Director
15
<PAGE> 18
SYNAGRO TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants F-1
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the Years Ended December 31, 1996,
1995 and 1994 F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December
31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
<PAGE> 19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Synagro Technologies, Inc.:
We have audited the accompanying consolidated balance sheet of Synagro
Technologies, Inc. (a Delaware corporation), and subsidiaries as of December
31, 1996, and the related statements of operations, stockholders' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Synagro Technologies, Inc.,
and subsidiaries as of December 31, 1996, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 11, 1997
F-1
<PAGE> 20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Synagro Technologies, Inc.:
We have audited the accompanying consolidated balance sheet of Synagro
Technologies, Inc., and subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Synagro
Technologies, Inc., and subsidiaries as of December 31, 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
Singer Lewak Greenbaum & Goldstein LLP
Los Angeles, California
February 28, 1996
F-2
<PAGE> 21
SYNAGRO TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 643,109 $ 2,687,624
Short-term investments 560,000 1,015,743
Restricted cash, current portion 159,285 80,000
Accounts receivable, net of allowance for doubtful accounts of $287,514
and $217,724 2,910,781 1,723,937
Inventory -- 448,977
Prepaid expenses and other current assets 218,224 725,849
------------ ------------
Total current assets 4,491,399 6,682,130
PROPERTY, MACHINERY AND EQUIPMENT, net 8,146,354 7,348,081
OTHER ASSETS:
Agency rights, net -- 1,178,325
Goodwill, net of accumulated amortization of $737,184 and $581,956 4,562,172 4,059,599
Restricted cash, long-term portion 186,077 260,257
Assets held for sale, net 1,138,754 605,000
Other 106,531 78,994
------------ ------------
Total assets $ 18,631,287 $ 20,212,386
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,434,057 $ 2,244,477
Current portion of notes payable, related parties -- 489,952
Accounts payable and accrued expenses 4,132,212 2,058,263
------------ ------------
Total current liabilities 6,566,269 4,792,692
LONG-TERM DEBT 8,262,894 4,429,291
LONG-TERM NOTES PAYABLE, related parties -- 18,750
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.002 par value, authorized 10,000,000 shares, none issued
and outstanding -- --
Common stock, $.002 par value, authorized 100,000,000 shares, 6,355,434
shares and 6,052,757 shares issued and outstanding 12,712 12,106
Additional paid-in capital 22,579,380 22,160,585
Accumulated deficit (18,789,968) (11,201,038)
------------ ------------
Total stockholders' equity 3,802,124 10,971,653
------------ ------------
Total liabilities and stockholders' equity $ 18,631,287 $ 20,212,386
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE> 22
SYNAGRO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $ 22,977,404 $ 17,976,049 $ 13,197,261
COST OF GOODS SOLD 19,254,903 15,117,950 10,695,468
------------ ------------ ------------
Gross profit 3,722,501 2,858,099 2,501,793
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6,141,013 4,150,437 3,899,727
OTHER CHARGES:
Loss on assets held for sale and other special charges 4,841,807 2,158,025 744,839
Write-off of goodwill -- 286,000 2,424,294
------------ ------------ ------------
Loss from operations (7,260,319) (3,736,363) (4,567,067)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Other income, net 344,095 120,780 131,444
Interest (672,706) (937,586) (626,172)
------------ ------------ ------------
(328,611) (816,806) (494,728)
------------ ------------ ------------
NET LOSS BEFORE BENEFIT FOR INCOME TAXES (7,588,930) (4,553,169) (5,061,795)
BENEFIT FOR INCOME TAXES -- -- 897,000
------------ ------------ ------------
NET LOSS $ (7,588,930) $ (4,553,169) $ (4,164,795)
============ ============ ============
NET LOSS PER SHARE $ (1.21) $ (1.59) $ (2.19)
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 6,266,579 2,864,195 1,902,497
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE> 23
SYNAGRO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993 1,797,365 $ 3,595 $ 11,134,110 $ (2,483,074) $ 8,654,631
Sale of common stock 126,410 253 5,669,847 -- 5,670,100
Offering costs 9,657 19 (415,438) -- (415,419)
Shares issued for acquisitions 23,283 47 454,391 -- 454,438
Shares issued for equipment 717 1 12,362 -- 12,363
Exercise of options 17 -- 500 -- 500
Net loss -- -- -- (4,164,795) (4,164,795)
--------- ------------ ------------ ------------ ------------
BALANCE, December 31, 1994 1,957,449 3,915 16,855,772 (6,647,869) 10,211,818
Sale of common stock 3,000,000 6,000 5,994,000 -- 6,000,000
Conversion of long-term debt 715,709 1,431 1,468,527 -- 1,469,958
Conversion of long-term debt, related
parties 400,000 800 799,200 -- 800,000
Offering costs 12,867 26 (1,382,928) -- (1,382,902)
Exercise of options 18,999 38 121,676 -- 121,714
Shares issued for services 8,800 18 29,216 -- 29,234
Shares repurchased in legal settlement (20,000) (40) (500,960) -- (501,000)
Repurchase of shares (1,067) (2) (23,998) -- (24,000)
Shares exchanged for investment (40,000) (80) (1,199,920) -- (1,200,000)
Net loss -- -- -- (4,553,169) (4,553,169)
--------- ------------ ------------ ------------ ------------
BALANCE, December 31, 1995 6,052,757 12,106 22,160,585 (11,201,038) 10,971,653
Shares issued for acquisition 155,000 310 222,425 -- 222,735
Conversion of long-term debt 144,344 289 189,711 -- 190,000
Exercise of options 3,333 7 6,659 -- 6,666
Net loss -- -- -- (7,588,930) (7,588,930)
--------- ------------ ------------ ------------ ------------
BALANCE, December 31, 1996 6,355,434 $ 12,712 $ 22,579,380 $(18,789,968) $ 3,802,124
========= ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE> 24
SYNAGRO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,588,930) $(4,553,169) $(4,164,795)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities-
Depreciation 1,951,518 1,681,616 1,319,544
Amortization 255,690 505,295 476,321
Deferred income taxes -- -- (897,000)
Write-off of goodwill -- 286,000 2,424,294
Loss on assets held for sale 4,841,807 2,158,025 744,839
Gain on sale of property, machinery and equipment (261,319) (5,597) (19,196)
Stock issued for payment of interest and services -- 64,196 --
Conversion of accrued interest into note payable -- 33,533 64,726
Legal settlement (recovery) -- (119,028) 191,000
(Increase) decrease in the following excluding the effects of
acquisitions-
Accounts receivable (635,872) 505,557 (446,296)
Inventory 111,429 459,623 (117,500)
Prepaid expenses and other current assets 758,253 (362,655) (158,573)
Other assets (27,627) (106,042) (128,100)
Increase (decrease) in the following excluding the effects of
acquisitions-
Accounts payable and accrued expenses 1,472,235 (209,285) 273,064
----------- ----------- -----------
Net cash provided by (used in) operating activities 877,184 338,069 (437,672)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired (1,277,265) -- (409,337)
Purchase of property, machinery and equipment (1,404,815) (1,224,110) (1,086,356)
Proceeds from sale of property, machinery and equipment 640,404 559,033 171,600
Sales (purchases) of short-term investments, net 455,743 (1,015,743) (43,000)
Other -- -- 4,775
----------- ----------- -----------
Net cash used in investing activities (1,585,933) (1,680,820) (1,362,318)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 5,797,696 3,538,284 3,474,442
Payments on debt (7,135,023) (4,638,099) (7,702,183)
Decrease (increase) in restricted cash (5,105) (103,825) 68,760
Deferred offering costs -- 128,663 (128,663)
Sale of common stock, net of offering costs 6,666 4,807,290 5,255,181
Purchase of common stock -- (24,000) --
----------- ----------- -----------
Net cash provided by (used in) financing activities (1,335,766) 3,708,313 967,537
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH EQUIVALENTS (2,044,515) 2,365,562 (832,453)
CASH AND CASH EQUIVALENTS, beginning of year 2,687,624 322,062 1,154,515
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 643,109 $ 2,687,624 $ 322,062
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
<PAGE> 25
SYNAGRO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Continued)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ --------
SUPPLEMENTAL CASH FLOW INFORMATION:
<S> <C> <C> <C>
Interest paid $ 760,339 $ 880,668 $572,112
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES
The Company has purchased all of the common stock of various entities during
1996 and 1994. The assets acquired and liabilities assumed were as follows for
the years ended December 31, 1996 and 1994:
<TABLE>
<CAPTION>
1996 1994
----------- -----------
<S> <C> <C>
Fair value of assets acquired $ 6,211,327 $ 5,905,452
Liabilities assumed (3,115,766) (4,129,177)
Promissory notes payable (1,595,561) (912,500)
Common stock issued (222,735) (454,438)
----------- -----------
Net cash paid $ 1,277,265 $ 409,337
=========== ===========
</TABLE>
In 1996, $190,000 of debentures were converted into 144,344 shares of common
stock.
In 1996, $1,325,150 of machinery and equipment was acquired with debt.
In 1995, $1,050,000 of debentures and $34,961 of accrued interest were
converted into 404,273 shares of common stock.
In 1995, $384,997 of long-term debt was converted to 311,436 shares of common
stock.
In 1995, $800,000 of long-term debt to related parties was converted to 400,000
shares of common stock.
In 1995, the Company completed its exchange of $1,200,000 of investment in
partnership for 40,000 shares of common stock based on an agreement entered
into in August 1994.
In 1995, the Company transferred 100 percent of the stock in its Agkone, Inc.,
subsidiary in exchange for 20,000 shares of common stock, valued at $501,000.
In 1994, $107,908 of machinery and equipment was acquired through capital lease
obligations.
In 1994, $1,039,223 of machinery and equipment was acquired by assuming debt in
the amount of $1,053,053, receiving miscellaneous net assets of $34,413 and
issuing 717 shares of common stock valued at $12,363.
The accompanying notes are an integral part
of these consolidated financial statements.
F-7
<PAGE> 26
SYNAGRO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Organization and Line of Business
Synagro Technologies, Inc. (the Company), is engaged in the biosolids
management business. The Company does this through beneficial reuse of organic
materials, transportation and monitoring of biosolids, and the marketing of end
products from the treatment of such materials. In addition, the Company is
engaged in the sales and transportation of poultry bedding products. The
Company's primary concentration of customers is in the states of Texas,
California, Arizona and Arkansas.
The Company has an accumulated deficit of $18,789,968 through December 31,
1996, and has had losses of $7,588,930, $4,553,169 and $4,164,795 for the years
ended December 31, 1996, 1995 and 1994, respectively. In addition, the Company
has a working capital deficit of $2,074,870 at December 31, 1996. In December
1996, the Company refinanced the majority of its debt under a new credit
facility with a bank which will mature in December 1998 (see Note 8).
Management plans to extend or refinance this indebtedness prior to its
maturity. In February 1997, the Company received proceeds of approximately
$3,200,000 from the issuance of common stock upon the exercise of certain
warrants (see Note 12).
Management is currently pursuing a business strategy which includes increasing
the Company's revenues through marketing to new customers, acquisitions in
similar markets and reducing operating expenses. Management believes this
business strategy will allow the Company to be profitable and in compliance
with its debt covenants under the new credit facility. There can be no
assurance that management's strategy will be achieved.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All intercompany accounts and transactions have
been eliminated.
Cash Equivalents and Short-Term Investments
The Company considers all investments with an original maturity of three months
or less when purchased to be cash equivalents. Short-term investments have
maturities greater than three months at the date of purchase. At December 31,
1996 and 1995, short-term investments consisted of certificates of deposit. All
short-term investments have been classified as held-to-maturity at December 31,
1996 and 1995. These investments have various maturity dates which do not
exceed one year. These securities are carried at amortized cost which
approximates fair value.
F-8
<PAGE> 27
Inventory
Inventory, which consists of composted materials, wood shavings and truck parts
is stated at the lower of cost or market, with cost generally being determined
on a first-in, first-out basis.
Property, Machinery and Equipment
Property, machinery and equipment is stated at cost. Depreciation is being
provided using straight-line and accelerated methods over estimated useful
lives of five to 31 years. Leasehold improvements are capitalized and amortized
over the lesser of the life of the lease or the estimated useful life of the
asset.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property, machinery and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
Equipment under capital leases is stated at the present value of future minimum
lease payments and is amortized on the straight-line method over the shorter of
the lease term or the life of the related asset.
Goodwill
The excess of cost over the fair value of net assets acquired (goodwill) is
being amortized by the straight-line method over 20 to 40 years. Amortization
expense was $255,690, $246,376 and $348,633 in 1996, 1995 and 1994,
respectively.
In the event that facts and circumstances indicate that goodwill may be
impaired, an evaluation of recoverability would be performed. If an evaluation
were required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow value was necessary. The
Company believes the goodwill remaining as of December 31, 1996, is fully
realizable.
Revenue Recognition
Revenues are primarily recognized as services are completed and provided.
Net Loss Per Share
Net loss per share is based on the weighted average number of common and common
equivalent shares outstanding during each year. Options and warrants have been
excluded from the calculation of common and common equivalent shares
outstanding because the effect of such options and warrants are antidilutive.
New Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." The Company adopted SFAS No. 121 on January 1, 1996. SFAS
No. 121 requires that long-lived assets and certain identifiable intangibles
held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company's adoption of SFAS No. 121 did not materially
impact the results of its operations.
F-9
<PAGE> 28
Reclassifications
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform with the 1996 presentation.
2. ACQUISITIONS:
Effective July 1, 1996, the Company acquired all the issued and outstanding
stock of Pima Gro Systems, Inc., and Pima Gro Systems 2, Inc. (collectively,
PimaGro), a company engaged in the business of recycling and transportation of
biosolids. The aggregate purchase price was $3,095,561, consisting of
$1,277,265 in cash, $1,595,561 in notes payable and 155,000 shares of the
Company's common stock valued at $222,735, subject to an additional contingent
sum on the purchase price of $5.20 for each dollar by which the pretax earnings
of PimaGro, for each of the fiscal years during 1996 through 1998, exceed the
base amount of $380,000 in 1996 and, subject to certain adjustments to the base
amount, during the two following fiscal years. The additional contingent sum
may be payable by the Company, if at all, in cash, common stock or promissory
notes, or any combination thereof. Such amounts which may be payable as
contingent sum payments will be held in escrow until March 31, 1999, and
subject to reduction based on amounts expended by the Company for certain
capital expenditures and costs reserved for the development of certain business
sites. The acquisition has been accounted for under the purchase method and,
accordingly, the operating results of PimaGro have been included in the
operating results of the Company since the date of acquisition. The excess of
the total acquisition cost over the fair value of the net assets acquired
(goodwill) in the amount of $1,419,000 is being amortized on a straight-line
basis over 40 years.
The following unaudited pro forma information for the periods set forth below
gives effect to the transaction as if it had occurred at the beginning of each
period. The pro forma information is presented for information purposes only
and is not necessarily indicative of what would have occurred if the
acquisition had been made as of those dates.
<TABLE>
<CAPTION>
Year Ended
December 31
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Sales $ 27,152,000 $ 26,524,000
Net loss (7,547,000) (4,173,000)
Net loss per share $ (1.19) $ (1.38)
</TABLE>
In 1994, the Company purchased four companies, two of which are engaged in the
biosolids management business, one in the sale and transportation of poultry
bedding products, and one in the business of truck repairs and parts sales. The
aggregate purchase price was $1,963,438, consisting of $338,500 in cash,
$109,000 in direct acquisition costs, $1,061,500 in notes payable and 23,283
shares of the Company's common stock, valued at $454,438. The excess of the
total acquisition cost over the fair value of the net assets acquired
(goodwill) in the amount of $2,062,985 is being amortized on the straight-line
basis over 20 years. The majority of this goodwill has been written off in
connection with the Company's proposed sale of Organi-Gro, Inc. (see Note 14),
and in connection with the Company's assessment of goodwill realization in 1995
and 1994 (see Note 14).
F-10
<PAGE> 29
3. INVENTORY:
Inventory consisted of the following:
<TABLE>
<CAPTION>
December 31
----------------------
1996 1995
------ ---------
<S> <C> <C>
Wood shavings $ - $ 49,775
Truck parts - 399,202
------ ---------
$ - $ 448,977
====== =========
</TABLE>
Inventory at December 31, 1996, is classified as assets held for sale (see Note
14).
4. PROPERTY, MACHINERY AND EQUIPMENT:
Property, machinery and equipment consists of the following:
<TABLE>
<CAPTION>
December 31
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Land $ 326,884 $ 367,356
Buildings 483,207 1,926,035
Machinery and equipment 11,245,952 7,818,574
Equipment under capitalized leases -- 360,465
Office furniture and equipment 338,663 165,139
Leasehold improvements 99,555 34,945
Construction in process 162,075 61,401
----------- -----------
12,656,336 10,733,915
Less- Accumulated depreciation and amortization (including
$155,663 for capitalized leases at December 31, 1995) 4,509,982 3,385,834
----------- -----------
$ 8,146,354 $ 7,348,081
=========== ===========
</TABLE>
5. AGENCY RIGHTS:
The Company owns the exclusive agency rights to market the "N-Viro Process" in
the southwestern United States. The "N-Viro Process" is a process to convert
biological organic waste into marketable products. The Company acts as the
agent to collect all of the fees from any licensees and to pay to N-Viro
International any amounts not payable to the Company as compensation pursuant
to the agency and license agreements.
In December 1996, the Company decided to wind down and discontinue its
operations relating to the N-Viro Process and accordingly determined that a
permanent impairment had occurred in the value of the agency rights. The
carrying value of the agency rights of $1,178,325 was charged to operations. In
addition, the Company will sell certain assets related to these operations and
recorded a charge to operations in the fourth quarter of 1996 amounting to
$1,200,426 to adjust the carrying values of these assets to their estimated
fair market values. These charges are included in "loss on assets held for sale
and other special charges" in the accompanying consolidated statements of
operations. The remaining assets in the amount of $436,508 have been classified
as "assets held for sale, net" in the accompanying consolidated balance sheet
at December 31, 1996.
F-11
<PAGE> 30
6. INVESTMENT IN PARTNERSHIP:
In 1992, the Company acquired a 5 percent limited partnership interest for
$2,000,000 in N-Viro Energy Systems, Ltd. The partnership invests in N-Viro
International, the exclusive worldwide licensor for the "N-Viro Process."
In 1994, the Company determined that a permanent impairment had occurred in the
value of the limited partnership interest and $685,573 was charged to
operations and is included in "loss on assets held for sale and other special
charges" in the accompanying consolidated statements of operations. The amount
of the write-down was determined based on an August 1994 agreement to sell its
investment in the limited partnership interest in exchange for shares of the
Company's common stock held by the Partnership valued at the average closing
bid price for the 30-day periods before and after the date of the agreement. In
1995, the agreement was consummated, resulting in the exchange of the Company's
investment in the limited partnership for 40,000 shares of the Company's common
stock, valued at $1,200,000.
7. EQUITY INVESTMENT:
In 1994, the Company entered into a 50 percent/50 percent partnership agreement
with N-Viro International pursuant to which the Company agreed to transfer the
Company's rights for the Central and South America "N-Viro Process" license
agreement to Pan-American N-Viro, Inc. (Pan-American). The corporation was
formed by the parties for the purpose of marketing the N-Viro Technology in the
South and Central American and Caribbean territories. N-Viro International
contributed $150,000 in cash and its marketing and technical expertise to
Pan-American.
At December 31, 1995, the Company determined that its partnership interest in
Pan-American had suffered permanent impairment due to the inability of the
partnership to successfully market the "N-Viro Process," continued losses since
the inception of the partnership and the need for additional funding which
neither partner is expected to contribute. Accordingly, the remaining
investment of $662,254 was charged to operations.
8. DEBT:
Credit Facility
On December 16, 1996, the Company, through two of its subsidiaries, obtained a
new credit facility with a bank. The credit facility consists of a $5 million
revolving line of credit and a $5 million term loan. The credit facility was
used to retire certain debt payable to various individuals and financial
institutions. The credit facility is secured by substantially all of the
Company's assets. The Company is required to pay a facility fee of 1 percent
and .5 percent for 1997 and 1998, respectively. In addition, the agreement
provides for a prepayment premium of $100,000 through December 16, 1997, and
$50,000 through June 1998.
No borrowings were outstanding under the line of credit at December 31, 1996.
The line of credit matures on December 31, 1998, and bears interest at the
prime rate plus 1 percent (9.25 percent at December 31, 1996). Amounts
available under the line of credit are subject to a borrowing base consisting
of 85 percent of eligible accounts receivable, as defined.
The term loan had a balance of $4,614,099 at December 31, 1996. It matures on
December 31, 1998, and bears interest at the prime rate plus 1 percent (9.25
percent at December 31, 1996).
F-12
<PAGE> 31
Pursuant to the terms of the credit facility, the Company is required to
satisfy certain financial covenants. Specifically, the two subsidiaries of the
Company are required to maintain (a) a ratio of current assets to current
liabilities of 1 to 1, (b) a ratio of debt to tangible net worth, as defined,
not to exceed 2.5 to 1 and (c) a tangible net worth, as defined, of not less
than $3,600,000 through December 30, 1997, and $4,100,000 from January 1, 1997,
through December 30, 1998.
Third-Party Debt
The Company has third-party debt, including the credit facility discussed
above, as follows:
<TABLE>
<CAPTION>
December 31
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Term loan with a bank $ 4,614,099 $ --
Economic development revenue bonds 1,030,000 1,110,000
Notes payable to banks and financial institutions, maturing in varying
installments through the year 2002, secured by certain assets of the
Company, with interest rates ranging from 4% to 10%, $300,000 guaranteed by
an officer of the Company 898,425 1,271,380
Notes payable to financial institutions, maturing in varying installments through
the year 2000, secured by certain assets of the Company, with interest rates
ranging from 8% to 16.56%, expected to be assumed by purchasers of Organigro
(see Note 14) 1,034,743 1,329,755
Notes payable to financial institutions and individuals, maturing in varying
installments through the year 2008, secured by equipment and real estate, with
interest rates ranging from 8% to 10% 1,524,123 --
Note payable to former owners of PimaGro, maturing in 1998, secured by PimaGro common
stock, bearing interest at 8% 1,595,561 --
Equipment contracts payable, paid in full in 1996, secured by related equipment, with
interest rates ranging from 8% to 13.3% -- 1,414,979
Capitalized lease obligations, paid in full in 1996, secured by related
equipment, with interest rates ranging from 7.4% to 19.4% -- 114,574
Convertible promissory notes payable -- 1,415,001
Other -- 18,079
----------- -----------
Total debt 10,696,951 6,673,768
Less- Current maturities 2,434,057 2,244,477
----------- -----------
Long-term debt $ 8,262,894 $ 4,429,291
=========== ===========
</TABLE>
The economic development revenue bonds have annual maturities of $85,000 in
1997, increasing to $150,000 by its maturity date in 2005. Interest was payable
at 6.8 percent per annum in 1996, increasing to 7.3 percent by 2005. Monthly
payments are required to be deposited into restricted cash accounts from which
the annual principal and semiannual interest are paid. Included in the
accompanying consolidated balance sheets as of December 31, 1996 and 1995, is
restricted cash of $345,362 and $340,257, respectively, for future payment of
principal and interest on the bonds. The bonds are secured by certain real
estate in Arkansas and are guaranteed by an officer of the Company.
The convertible promissory notes were due in July 1997. Interest was payable
quarterly at 9.5 percent per annum. The note is convertible at the option of
the noteholder into common stock. The conversion rate is the average of 65
percent of the closing market price, defined as the mean of the closing bid and
asking price of the Company's stock for the period prior to conversion. In
January 1996, $190,000 of these notes was converted to 144,344 shares of the
Company's common stock and the remaining $1,225,001 of the notes was repaid.
F-13
<PAGE> 32
Principal payments of debt are as follows:
<TABLE>
<S> <C>
Year ending December 31-
1997 $ 2,434,057
1998 6,156,566
1999 440,677
2000 328,937
2001 357,988
Thereafter 978,726
------------
Total $ 10,696,951
============
</TABLE>
Related-Party Debt
The Company had notes payable to stockholders and officers of the Company of
$508,702 at December 31, 1995. The notes had interest rates ranging from 7.75
percent to 10.5 percent. The notes were paid in full in 1996.
9. ACCOUNTS PAYABLE
AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31
-----------------------
1996 1995
---------- ----------
<S> <C>
Accounts payable $1,989,263 $1,689,543
Accrued claims costs 858,480 --
Professional fees 389,430 --
Accrued salaries and benefits 365,984 90,809
Other accrued expenses 529,055 277,911
---------- ----------
Total $4,132,212 $2,058,263
========== ==========
</TABLE>
10. INCOME TAXES:
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been recognized differently in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement carrying amounts and tax bases of liabilities and assets
using enacted tax rates and laws in effect in the years in which the
differences are expected to reverse. Deferred tax assets are evaluated for
realization based on a more-likely-than-not criteria in determining if a
valuation should be provided.
F-14
<PAGE> 33
Significant components of the Company's deferred tax liabilities and assets for
federal income taxes consist of the following:
<TABLE>
<CAPTION>
December 31
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets-
Net operating loss carryforwards $ 2,612,000 $ 1,870,000
Accrual not currently deductible for tax purposes 412,000 --
Allowance for bad debts 98,000 74,000
Write-off of assets not currently deductible for tax purposes 591,000 --
Difference between book and tax bases of fixed assets 70,000 --
Other 3,000 43,000
----------- -----------
Total deferred tax assets 3,786,000 1,987,000
Valuation allowance for deferred tax assets (3,786,000) (1,665,000)
Deferred tax liability-
Differences between book and tax bases of fixed assets -- (322,000)
----------- -----------
Net deferred tax liability $ -- $ --
=========== ===========
</TABLE>
As of December 31, 1996, the Company has generated net operating loss (NOL)
carryforwards of approximately $7,680,000 available to reduce future income
taxes. These carryforwards begin to expire in 2004. A change in ownership, as
defined by federal income tax regulations, could significantly limit the
Company's ability to utilize its carryforwards. Accordingly, the Company's
ability to utilize its NOLs to reduce future taxable income and tax liabilities
may be limited. Additionally, because federal tax laws limit the time during
which these carryforwards may be applied against future taxes, the Company may
not be able to take full advantage of these attributes for federal income tax
purposes. As the Company has incurred losses in recent years and the
utilization of these carryforwards could be limited as discussed above, a
valuation allowance has been established to fully offset the net deferred tax
asset at December 31, 1996 and 1995. The valuation allowance increased
$2,121,000 and $1,281,000 for the years ended December 31, 1996 and 1995,
respectively, primarily due to the Company's losses.
11. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases certain facilities for its corporate and operations offices
under noncancelable long-term lease agreements. Minimum annual rental
commitments under these leases are as follows:
<TABLE>
Year ending December 31-
<S> <C>
1997 $ 638,615
1998 482,790
1999 256,829
2000 162,630
2001 26,429
Thereafter -
-----------
$ 1,567,293
===========
</TABLE>
Rental expense was $633,751, $160,683 and $192,340 for 1996, 1995 and 1994,
respectively.
F-15
<PAGE> 34
Employment Agreements
The Company has entered into employment agreements with certain key executive
officers of the Company which provides for annual salaries and bonuses. These
agreements may be terminated by the Company; however, separation fees may be
required.
Litigation
The Company is involved in litigation and claims arising in the ordinary course
of its business. Management believes, based on consultation with legal counsel,
that the ultimate outcome of these matters will not have a material adverse
impact on the Company's operations or financial position.
12. STOCK, STOCK OPTIONS AND WARRANTS:
Reorganization
In 1995, the Company effected a recapitalization that included a 15-for-1
reverse stock split of the common stock. The common stock outstanding and
weighted average shares outstanding for all years presented have been adjusted
for this stock split. The financial statements give effect to these
transactions for all years presented.
Sale of Common Stock
In October 1995, the Company completed a secondary public offering of its
common stock. The offering consisted of 500,000 units at $12.00 per unit, each
unit consisting of six shares of common stock and six redeemable common stock
purchase warrants. The 3,000,000 warrants have an exercise price of $2.40 per
share and expire in October 2000. These warrants are redeemable by the Company
at $0.10 per warrant, subject to certain events occurring. The underwriters
were issued a warrant which expires in October 2000 to purchase 50,000 units
(includes 300,000 warrants) at $16.20 per unit.
On December 23, 1996, the Company called for redemption the 3,000,000 warrants
on February 22, 1997. Prior to redemption, 1,324,243 warrants were converted
into common shares providing gross proceeds to the Company of $3,178,183 in
1997. In February 1997, the remaining 1,675,757 warrants were redeemed by the
Company for $167,576.
Warrants
At December 31, 1996, the Company has warrants to purchase 16,667 shares of
common stock outstanding, which are exercisable at $90.00 per share and expire
February 1998.
F-16
<PAGE> 35
Stock Option Plans
As of December 31, 1996, the Company has outstanding stock options granted
under the Amended and Restated 1993 Stock Option Plan (the Plan) for officers,
directors, key employees and certain consultants of the Company.
Under the Plan, the Company has reserved 540,000 shares of common stock for
issuance. The exercise price of options granted shall be at least 100 percent
(110 percent for 10 percent or greater stockholders) of the fair value of the
Company's common stock on the date of grant. Options must be granted within 10
years from the date of the Plan and become exercisable at such times as
determined by the Plan committee. Options are exercisable for no longer than
five years for certain 10 percent or greater stockholders and for no longer
than 10 years for others.
A summary of the Company's stock option plans as of December 31, 1996, 1995 and
1994, and changes during those years is presented below:
<TABLE>
<CAPTION>
Weighted
Average
Shares Under Exercise
Option Price
------------ --------
Options outstanding at December 31, 1994 -- $ --
<S> <C> <C>
Converted from "other" options 24,100 10.80
Granted 99,894 9.64
Canceled/expired (13,067) 10.80
Exercised (19,000) 6.56
-------
Options outstanding at December 31, 1995 91,927 10.48
Granted 174,667 2.00
Canceled/expired (162,662) 5.09
Exercised (3,333) 2.00
-------
Options outstanding at December 31, 1996 100,599 4.75
=======
Exercisable at December 31, 1996 38,656
=======
</TABLE>
At December 31, 1996, there were 439,401 shares of common stock reserved under
the Plan for the future granting of stock options.
Other options
In addition to options issuable under the stock option plans, the Company has
options outstanding to employees and consultants of the Company. The options
were issued at exercise prices equal to or greater than the fair market value
at the grant date of the options.
F-17
<PAGE> 36
The following summarizes the stock option transactions of the "other" options:
<TABLE>
<CAPTION>
Weighted
Average
Shares Under Exercise
Option Price
------------ --------
<S> <C> <C>
Options outstanding at December 31, 1993 76,966 $56.25
Canceled/expired (50,850) 30.00
Exercised (16) 30.00
------
Options outstanding at December 31, 1994 26,100 56.25
Canceled/expired (2,000) 56.25
Converted to ISOP/NSOP (24,100) 56.25
Granted 400,000 10.80
-------
Options outstanding at December 31, 1995 400,000 10.80
Canceled/expired ------- 10.80
Granted 221,296 2.00
-------
Options outstanding at December 31, 1996 621,296 2.00
=======
Exercisable at December 31, 1996 437,963
=======
</TABLE>
In May 1995, 24,100 of the "other" options were converted into options under
the stock option plans and the exercise price was reduced to $10.80, the market
price on the repricing date. In 1996, the exercise price of 400,000 of the
"other" options was reduced to $2.00, the market price on the repricing date.
During 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123, which is effective for fiscal years beginning
after December 15, 1995, establishes financial accounting and reporting
standards for stock-based employee compensation plans and for transactions in
which an entity issues its equity instruments to acquire goods and services
from nonemployees. SFAS No. 123 requires, among other things, that compensation
cost be calculated for fixed stock options at the grant date by determining
fair value using an option-pricing model. The Company has the option of
recognizing the compensation cost over the vesting period as an expense in the
income statement or making pro forma disclosures in the notes to the financial
statements for employee stock-based compensation.
The Company continues to apply ABP Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
in the accompanying consolidated financial statements for its stock option
plans. Had the Company elected to apply SFAS No. 123, the Company's net loss
and loss per share would have approximated the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Net loss-
As reported $ (7,588,930) $ (4,553,169)
Pro forma (7,781,351) (5,194,188)
Loss per share-
As reported $(1.21) $(1.59)
Pro forma $(1.24) $(1.81)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model resulting in a weighted average fair value
of $0.78 and $7.47 for grants made during the years ended December 31, 1996 and
1995, respectively. The following assumptions were used for option grants in
1996 and 1995, respectively: expected volatility of 87 percent and 78 percent;
risk-free interest rates of 6.47 percent and 6.04 percent; and expected lives
of up to 6.5 years. The compensation expense included in the above pro forma
net income may not be indicative of amounts to be included in future periods as
the fair value of options granted prior to 1995 was not determined.
F-18
<PAGE> 37
13. STOCKHOLDERS' RIGHTS PLAN:
In December 1996, the Company adopted a stockholders' rights plan (the Rights
Plan). The Rights Plan provides for a dividend distribution of one preferred
stock purchase right (Right) for each outstanding share of the Company's common
stock, to stockholders of record at the close of business on January 10, 1997.
The Rights Plan is designed to deter coercive takeover tactics and to prevent
an acquirer from gaining control of the Company without offering a fair price
to all of the Company's stockholders. The Rights will expire on December 31,
2006.
Each Right entitles stockholders to buy one one-thousandth of a newly issued
share of Series A Junior Participating Preferred Stock of the Company at an
exercise price of $10. The Rights are exercisable only if a person or group
acquires beneficial ownership of 15 percent or more of the Company's common
stock or commences a tender or exchange offer which, if consummated, would
result in that person or group owning 15 percent or more of the common stock of
the Company. However, the Rights will not become exercisable if common stock is
acquired pursuant to an offer for all shares which a majority of the board of
directors determines to be fair to and otherwise in the best interests of the
Company and its stockholders. If, following an acquisition of 15 percent or
more of the Company's common stock, the Company is acquired by that person or
group in a merger or other business combination transaction, each Right would
then entitle its holder to purchase common stock of the acquiring company
having a value of twice the exercise price. The effect will be to entitle the
Company stockholder to buy stock in the acquiring company at 50 percent of its
market price.
The Company may redeem the Rights at $.001 per Right at any time on or prior to
the tenth business day following the acquisition of 15 percent or more of its
common stock by a person or group or commencement of a tender offer for such 15
percent ownership.
14. OTHER CHARGES TO OPERATIONS:
Write-Off of Fixed Assets
At December 31, 1995, the Company determined that certain equipment had
suffered impairment in value. This equipment, which was acquired in October
1994, and for which additional refurbishing costs were incurred in 1995, had
suffered impairment of $1,091,991 due to operating losses and the decision to
not actively pursue the business which utilized that equipment. In addition,
the Company determined that certain other equipment had suffered permanent
impairment of $290,000 due to operating losses and the decision to not pursue
the business which utilized that equipment. Accordingly, a provision in the
amount of $1,381,991 for impairment of fixed assets was charged to operations
and is included in "loss on assets held for sale and other special charges" in
the accompanying consolidated statements of operations. In addition, the
remaining net book value of these assets amounting to $605,000 has been
classified as machinery and equipment held for sale at December 31, 1995. In
1996, these assets were sold resulting in a gain of approximately $200,000
which is included in "other income" in the accompanying consolidated statements
of operations.
Write-Off of Goodwill
In June 1993, the Company acquired all of the capital stock of Organi-Gro, Inc.
(Organigro). At December 31, 1994, the Company determined that there had been a
permanent impairment in the value of the excess of cost over fair value of net
assets acquired from the acquisition of Organigro. This decision was a result
of operating losses and a decision to not actively pursue the original business
in which Organigro was involved. Accordingly, the remaining unamortized
balance, $2,424,294, of the excess of cost over the fair value of net assets
acquired (goodwill) recognized at the date of acquisition of Organigro was
charged to operations.
F-19
<PAGE> 38
At December 31, 1995, the Company determined that there had been a permanent
impairment in the value of the excess of cost over fair value of net assets
acquired (goodwill) relating to certain equipment which was written off as a
result of the impairment. Accordingly, $286,000 of excess of cost over fair
value of net assets acquired was charged to operations.
Sale of Organi-Gro, Inc.
In December 1996, the Company decided to sell all of the net assets of its
wholly owned subsidiary, Organigro. In March 1997, the Company reached an
agreement to sell Organigro. Consideration included subordinated notes with a
face value of approximately $1.5 million and the assumption of certain debt and
liabilities. The notes are payable in equal monthly installments of
approximately $15,000 for 48 months following the first anniversary date of the
note and bears interest at a rate of 6 percent. The balance of the notes are
due in March 2002. Proceeds from the notes will be recognized as income in the
period collected as collection of such proceeds is considered doubtful. The
transaction is subject to the purchaser refinancing the assumed debt. As a
result of the proposed sale, the Company recorded a charge to operations in the
fourth quarter of 1996 amounting to approximately $2.5 million to adjust the
carrying value of Organigro's net assets to its estimated fair market value.
This charge is included in "losses on assets held for sale and other special
charges" in the accompanying consolidated statements of operations.
For financial reporting purposes, the assets and liabilities (excluding assumed
debt) attributable to Organigro have been classified in the consolidated
balance sheet as assets held for sale as of December 31, 1996. Following are
the assets and liabilities of Organigro as of December 31, 1996:
<TABLE>
<S> <C>
Current assets $ 1,448,320
Property, plant and equipment, net 1,448,219
Other assets 661,715
-----------
3,558,254
Current liabilities 392,952
Reserve for loss on sale 2,463,056
Net assets held for sale $ 702,246
===========
Long-term debt $ 1,034,743
===========
</TABLE>
F-20
<PAGE> 39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULE
To Synagro Technologies, Inc.:
We have audited in accordance with generally accepted auditing standards the
consolidated financial statements of Synagro Technologies, Inc., and
subsidiaries included in this Form 10-K and have issued our report thereon
dated April 11, 1997. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
in Part IV, Item 14 (a)(2) for Synagro Technologies, Inc., and subsidiaries is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
April 11, 1997
<PAGE> 40
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE
To the Board of Directors and Stockholders of
Synagro Technologies, Inc.:
In connection with our audits of the consolidated financial statements of
Synagro Technologies, Inc., referred in our report dated February 28, 1996, we
have also audited Schedule II for the years ended December 31, 1995 and 1994.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
Singer Lewak Greenbaum & Goldstein LLP
Los Angeles, California
February 28, 1996
<PAGE> 41
SCHEDULE II
SYNAGRO TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Additions
Balance, Charged to
Beginning Costs and Balance,
Description of Year Expenses Deductions End of Year
- ----------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts-
Year ended December 31, 1996 $ 217,724 $ 268,463 $(198,673)(a) $ 287,514
Year ended December 31, 1995 36,622 184,377 (3,275)(a) 217,724
Year ended December 31, 1994 338,500 2,854 (304,732)(a) 36,622
</TABLE>
(a) Recoveries, net of write-offs.
<PAGE> 42
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
*2.1 Sale and Purchase Agreement by and between Organi-Gro, Inc.
("Organi-Gro") and Custom Poultry Bedding, Inc. ("Custom Poultry")
dated April 1, 1997.
*2.2 Sale and Purchase Agreement by and between Organi-Gro and Hodges Heavy
Duty Truck Repair, Inc. ("Hodges") dated April 1, 1997.
3.1 Restated Certificate of Incorporation of Synagro Technologies, Inc.
(the "Company") dated August 16, 1996. (Exhibit 3.1 to the Company's
Post-Effective Amendment No. 1 to Registration Statement No. 33-95028,
dated October 25, 1996, is incorporated herein by reference).
3.2 Bylaws of the Company dated August 5, 1996. (Exhibit 3.2 to the
Company's Post-Effective Amendment No. 1 to Registration Statement No.
33-95028, dated October 25, 1996, is incorporated herein by
reference).
4.1 Specimen Common Stock Certificate of the Company. (Exhibit 4.1 to the
Company's Registration Statement on Form 10, dated December 29, 1992,
is incorporated herein by reference).
4.2 Specimen Warrant Certificate of the Company. (Exhibit 4.2 to the
Company's Registration Statement on Form S-1 (No. 33-95028), dated
July 27, 1995, and as amended, is incorporated herein by reference).
4.3 Convertible Promissory Notes dated July 19, 1994 and August 11, 1994.
(Exhibit 4.3 to the Company's Registration Statement on Form S-1 (No.
33-95028), dated July 27, 1995, and as amended, is incorporated herein
by reference).
4.4 8% Convertible Debenture due December 31, 1996. (Exhibit 4.4 to the
Company's Registration Statement on Form S-1 (No. 33-95028), dated
July 27, 1995, and as amended, is incorporated herein by reference).
10.1 Amendment No. 1 to Employment Agreement between the Company and Donald
L. Thone dated June 10, 1996. (Exhibit 10.4 to the Company's
Post-Effective Amendment No. 1 to Registration Statement No. 33-95028,
dated October 25, 1996, is incorporated herein by reference).
10.2 Employment Agreement between the Company and Daniel L. Shook dated
January 29, 1996. (Exhibit 10.17 to the Company's Post-Effective
Amendment No. 1 to Registration Statement No. 33-95028, dated October
25, 1996, is incorporated herein by reference).
10.3 Form of Indemnification Agreement. (Appendix F to the Company's Proxy
Statement on Schedule 14A for Annual Meeting of Stockholders, dated
May 9, 1996, is incorporated herein by reference).
10.4 Amended and Restated 1993 Stock Option Plan dated August 5, 1996.
(Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No.
333-18029), dated December 17, 1996, is incorporated herein by
reference).
10.5 Lease Agreement between the Company and Green Coast Enterprises, Inc.
dated February 1, 1996. (Exhibit 10.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995, is incorporated
herein by reference).
10.6 Employment Agreement between Pima Gro Systems, Inc.("Pima Gro") and
Wilson Nolan, dated July 18, 1996. (Exhibit 10.1 to the Company's
Current Report on Form 8-K, dated July 31, 1996, is incorporated
herein by reference).
10.7 Agreement for the Purchase of Stock by and among Synagro Technologies,
Inc. (the "Company"), CDR Environmental, Inc., Pima Gro, Pima Gro
Systems 2, Inc., Wilson Nolan, Herbert Kai and John Kai, Jr. dated
July 18, 1996. (Exhibit 2.1 to the Company's Current Report on Form
8-K, dated July 31, 1996, is incorporated herein by reference).
*10.8 6% Promissory Note made by Custom Poultry to Organi-Gro and the
Company in the principal amount of $1,152,381 dated April 1, 1997.
*10.9 Guaranty of Tony D. Childers ("Childers") for 6% Promissory Note made
by Custom Poultry to Organi-Gro dated April 1, 1997.
*10.10 6% Promissory Note made by Hodges to Organi-Gro and the Company in the
principal amount of $308,203 dated April 1, 1997.
*10.11 Guaranty of Childers and Jack Hodges for 6% Promissory Note made by
Hodges to Organi-Gro dated April 1, 1997.
16.1 Letter dated December 13, 1996, from Singer Lewak Greenbaum &
Goldstein LLP to the Commission. (Exhibit 16.1 to the Company's
Current Report Form 8-K dated December 17, 1996 is incorporated herein
by reference.)
*21.1 Subsidiaries of Synagro Technologies, Inc.
*23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Singer Lewak Greenbaum & Goldstein LLP.
*27.1 Financial Data Schedule.
_____________
* Filed herewith.
<PAGE> 1
EXHIBIT 2.1
SALE AND PURCHASE AGREEMENT
This Agreement made and entered into by and between OrganiGro, Inc., an
Arkansas corporation and a wholly owned subsidiary of Synagro Technologies,
Inc. (the parent), a Delaware corporation, hereinafter called "Sellers" and
Custom Poultry Bedding, Inc., an Arkansas corporation, and Tony D. Childers, an
individual, hereinafter called "Buyers."
WITNESSETH:
1) AGREEMENT OF SALE AND PURCHASE: This is a sale of assets detailed on
Schedule A and as well, the assumption of stated debt and trade payables
effective April 1, 1997. The total purchase price shall be One Million
Five Hundred Twenty Nine Thousand Eight Hundred Sixty Six Dollars
($1,529,866).
2) The Buyers shall pay the Sellers the sum of One Million Five Hundred Twenty
Nine Thousand Eight Hundred Sixty Six Dollars ($1,529,866). through and
including the following:
A) Buyers shall assume debt, effective January 1, 1997, from the
Sellers of $377,485.21 as detailed and stated herein. All
guarantees by parent, OrganiGro or management personnel will be
released with the new financing of this debt.
<TABLE>
<CAPTION>
Balance
Payee Note # Note Date Face Amt. 12/31/96
- ----- ---------- --------- ----------- ------------
<S> <C> <C> <C>
First State Bank 8590 7/1/94 $125,000.00 $ 83,069.63
of Huntsville
Ford Motor Credit Corp. DLA229B51L 8/31/93 $ 11,873.91 $ 4,071.03
Boatmen's Bank 115790 3/11/93 $ 6,324.00 $ 233.11
(Worthen National Bank of Russellville)
ITT Capital Finance 4059511-001 4/27/95 $ 33,815.00 $ 22,218.00
ITT Capital Finance 6034935-001 12/28/94 $ 571,475.16 $ 267,893.44
</TABLE>
B) Additionally, the Buyers will sign a promissory note and guarantee
agreement in the amount of $1,152,381 which will be collateralized
by a certain note receivable agreement per schedule A-2, a first
lien on approximately 5 acres located directly behind the offices
for Custom Poultry Bedding in Pope County (See schedule B), and a
second lien on all assets detailed in Schedule A.
3) COVENANT NOT TO COMPETE: Sellers covenants and agrees that they will
not compete directly or indirectly, will not open, own, assist, advise
or operate a business for the supply of bedding to the poultry
industry.
<PAGE> 2
4) EFFECTIVE DATE: The effective date of this agreement shall be upon
signing with a thirty (30) day period for Buyers to refinance the
assumed debt per article 2A.
5) This sale includes the assignment of any rights and interests Sellers
have in their present contracts, purchase orders, and oral and written
agreements concerning the poultry bedding division.
6) Sellers warranties that all assets, equipment and inventory is free
and clear of any encumbrances except those stipulated in item 2A
above.
7) If any payment shall remain unpaid under the Promissory Note Agreement
for thirty (30) days, upon written notice to Buyers by Sellers, by
registered mail, of the delinquency, the Buyers shall have fifteen
(15) days to cure the delinquency. If the Buyers fails to cure the
delinquency, the Buyers shall be in default, and the entire balance
shall be accelerated, due and payable. The acceleration shall occur
without any further notice from Sellers. Additionally, should Buyers
default on any other debt obligation assumed in 2A above, and not
cured within the stated cure period, then the promissory note will be
due and payable immediately.
8) Sellers shall be liable for all acts of the employees, etc. up to the
date of this agreement and Buyers shall be liable for all acts of his
employees after said date.
9) It is agreed that certain employment agreements dated October 1, 1994
by and between OrganiGro, Inc. and/or Synagro Technologies, Inc.
(formerly N-Viro Recovery, Inc.) collectively Sellers and Mr. Tony D.
Childers are hereby canceled.
10) Reference is made to a certain asset exchange agreement by and among
OrganiGro, Inc. and N-Viro Recovery, Inc. (currently Synagro
Technologies, Inc.) and Childers Brothers Trucking, Inc., Thompson
Shaving Service, Inc. and Zeiler Timber Products, Inc. dated as of
October 1, 1994. This reference is made to specifically all
warranties, representations and other data contained therein to be
rescinded and the parties in this agreement agree to assume all
existing, prior and future liabilities that may become known now or in
the future.
11) MISCELLANEOUS PROVISIONS: Sellers and Buyers further agree as
follows:
A) Buyers will have inspected all the assets to be sold under
this Agreement and accept such assets in an "as is" condition
without express or implied warranties of any kind as to
fitness or mercantability.
B) Each corporate entity, Sellers and Buyers, shall enact all
corporate resolutions and acts necessary to authorize the
corporation and/or individuals to perform all the terms and
conditions of this Sale and Purchase Agreement.
2
<PAGE> 3
C) Any notice, consent, request, claim or other communication
hereunder shall be in writing and shall be deemed to have been
duly given if delivered or mailed by registered and/or
certified mail, return receipt requested, to the address shown
for the respective parties at the conclusion of this
Agreement. Such addresses may be changed by any party by
notice given in the manner provided above.
D) In the event either party to this Agreement shall employ legal
counsel to protect its rights under this Agreement or to
enforce any term or provision of this Agreement, then the
party prevailing in any such legal action shall have the right
to recover from the other party all of its reasonable
attorneys' fees, costs and expenses incurred in relation to
such claim.
E) This Agreement, together with all exhibits and the documents
referred to herein, contain all the terms and conditions
agreed upon by the parties hereto with respect to the
transactions contemplated hereby, and shall not be amended or
modified except by written instrument signed by all the
parties.
F) This Agreement shall be binding upon and inure to the benefits
of the representatives, heirs, estates, successors and assigns
to the parties hereto.
G) Nothing expressed or implied in this Agreement is indented or
shall be construed, to confer upon or give any person, firm or
corporation, other than the parties hereto, their successors,
assigns, any benefits, rights or remedies under or by reason
of this Agreement.
H) This Agreement may be executed simultaneously in two (2) or
more counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same instrument.
I) never in this Agreement it is provided that any party shall or
will make any payment or perform or refrain from performing
any act or obligation, each such provision shall be construed,
even though not so expressed, as an express agreement to make
such payment or to perform, as the case may be, such act or
obligation.
J) Sellers warrants ownership of all assets being sold and
warrants they are free and clear of any debt, except as
scheduled in article 2A.
K) This Agreement shall be governed by and construed under the
laws of the State of Arkansas.
3
<PAGE> 4
L) Upon closing, Buyers and Sellers agree to sign any documents
necessary to complete this sale as per its terms and
conditions. This includes titles, deeds, bills of sale,
franchise agreements, fund remittance, or any other documents
necessary to carry out this contract.
12) Buyers shall maintain adequate insurance coverage satisfactory to
Sellers in an amount sufficient to cover the balance owed to Sellers.
Proof of said coverage shall be provided to Sellers by Buyers.
Sellers shall be shown as a loss payee as per their interest on said
insurance coverage.
13) Buyers agree that any and all amounts payable to Sellers and/or its
subsidiaries at March 31, 1997 are paid in full.
14) It is agreed that all rights under the note agreement (see attachment
1) with Cabin Creek are transferred to Buyers, and that the note
balance will be excluded from any interest payable under the
promissory note.
In witness of the parties have hereunto set their hands this first day
of April, 1997.
SELLERS
ORGANIGRO, INC. SYNAGRO TECHNOLOGIES, INC.
/s/ Donald L. Thone /s/ Donald L. Thone
- ------------------------------- -------------------------------------
Chairman President
ATTEST:
/s/ Daniel L. Shook
----------------------------
BUYERS
/s/ Custom Poultry Building /s/ Tony D. Childers
- -------------------------------------- ---------------------------------
CUSTOM POULTRY TONY D. CHILDERS, an individual
BUILDING, INC.
Its President
-------------------------------------------
ATTEST:
/s/ Tony D. Childers
----------------------------
4
<PAGE> 5
SALE AND PURCHASE AGREEMENT
CUSTOM POULTRY BEDDING, INC.
SCHEDULE A
<TABLE>
<CAPTION>
See detailed fixed asset listing attached hereto. Value
-----
<S> <C>
Accounts Receivable (see Schedule A-1) $439,374.73
Note Receivable (see Schedule A-2) $603,930.00
Fixed Assets (see Schedule A-3) $780,443.16
Accounts Payable (see Schedule A-4) $ 30,232.25
</TABLE>
5
<PAGE> 6
SALE AND PURCHASE AGREEMENT
CUSTOM POULTRY BEDDING INC.
SCHEDULE B
Schedule data omitted.
6
<PAGE> 1
EXHIBIT 2.2
SALE AND PURCHASE AGREEMENT
This Agreement made and entered into by and between OrganiGro, Inc.,
an Arkansas corporation and a wholly owned subsidiary of Synagro Technologies,
Inc. (the parent), a Delaware corporation, hereinafter called "Sellers" and
Hodges Heavy Duty Truck Repair, Inc., an Arkansas corporation, Tony D.
Childers, an individual, and Jack Hodges, an individual, hereinafter called
"Buyers."
WITNESSETH:
1) AGREEMENT OF SALE AND PURCHASE: This is a sale of assets on location at
3821 S. Arkansas Ave., Russellville, Arkansas 72801, and other assets
detailed on Schedule A and as well, the assumption of stated debt and
trade payables effective March 26, 1997. The total purchase price shall
be Nine Hundred Ten Thousand Dollars ($910,000).
2) The Buyers shall pay the Sellers the sum of Nine Hundred Ten Thousand
Dollars ($910,000) through and including the following:
A) Buyers shall assume debt, effective March 26, 1997, from the
Sellers of $600,704 as detailed and stated herein. All guarantees
by parent, OrganiGro or management personnel will be released with
the new financing of this debt.
<TABLE>
<CAPTION>
Balance
Payee Note # Note Date Face Amt. 3/26/97
- ----- ------------ --------- ------------- -------------
<S> <C> <C> <C> <C>
Arkansas Valley Bank 44666 12-Feb-93 $ 43,894.48 $ 21,063.78
Bank of Dardannelle 0095296245 18-Aug-94 $ 6,440.29 $ 1,179.75
Bank of Dardannelle 0095296886 10-March-94 $ 6,500.00 $ 17.84
Boatmen's Bank 7135750-9001 Jul-94 $ 465,000.00 $ 415,926.26
Boatmen's Bank 7363257-0001 Jun-95 $ 279,000.00 $ 163,609.57
</TABLE>
B) Additionally, the Buyers will sign a promissory note with interest at
6% per annum and a guarantee agreement in the amount of $308,203 and
the Sellers will receive a second lien on all assets detailed in
Schedule A.
3) SERVICE AGREEMENT: Sellers hereby agree to use Buyers' services at a rate
of $2,500 per month for a period of sixty (60) months, with said services
defined in Schedule B. These monthly service fees shall be applied to the
note agreement. Should any of these services not be performed in a manner
satisfactory to Sellers, in their sole discretion, then this article 4
will be null and void upon written documentation via certified mail to
Buyers as of the date of that certified letter and all future applications
<PAGE> 2
of these service payments to the note agreement will cease with no other
obligations by Sellers.
4) ADDITIONAL SERVICE OPTION: Additionally, Sellers agree to provide Buyers
an additional Service Option ("Option") for all repair work on owned
vehicles of parent and its subsidiaries within the State of Arkansas.
This option to Buyers will only be valid and enforceable if Buyers'
quotation for the repair services are priced at or below a competitive
quotation and the quality of work performed is satisfactory to Sellers.
It is further agreed to by the Sellers and Buyers that any and all
decisions made for repairs under this Option will be at the sole
discretion of Sellers. It is understood by Buyers that this article in
its entirety can be canceled if the pricing and quality of work is not
satisfactory to Sellers. It is further understood that this particular
article 5 will be null and void without creating any other changes to this
sale and purchase agreement.
5) COVENANT NOT TO COMPETE: Sellers covenants and agrees that they will not
compete directly or indirectly, will not open, own, assist, advise or
operate a heavy duty truck repair shop, except that should Sellers decide
to open its own repair shop for services on its owned assets, this would
not be considered a violation of the Agreement.
6) EFFECTIVE DATE: The effective date of this agreement shall be upon
signing with a thirty (30) day period for Buyers to refinance the assumed
debt per article 2A.
7) This sale includes the assignment of any rights and interests Sellers have
in their present contracts, purchase orders, and oral and written
agreements concerning the truck repair business by outside, independent
customers.
8) Sellers warranties that all assets, equipment and inventory is free and
clear of any encumbrances except those stipulated in item 2A above.
9) If any payment shall remain unpaid under the Promissory Note Agreement for
thirty (30) days, upon written notice to Buyers by Sellers, by registered
mail, of the delinquency, the Buyers shall have fifteen (15) days to cure
the delinquency. If the Buyers fails to cure the delinquency, the Buyers
shall be in default, and the entire balance shall be accelerated, due and
payable. The acceleration shall occur without any further notice from
Sellers. Additionally, should Buyers default on any other debt obligation
assumed in 2A above, and not cured within the stated cure period, then the
promissory note will be due and payable immediately.
10) Sellers shall be liable for all acts of the employees, etc. up to the date
of this agreement and Buyers shall be liable for all acts of his employees
after said date.
2
<PAGE> 3
11) It is agreed that certain employment agreements dated October 1, 1994 by
and between OrganiGro, Inc. and/or Synagro Technologies, Inc. (formerly
N-Viro Recovery, Inc.) collectively Sellers and Mr. Jack Hodges and Mr.
Tony D. Childers are hereby canceled.
12) Reference is made to a certain asset exchange agreement by and among
OrganiGro, Inc. and N-Viro Recovery, Inc. (currently Synagro
Technologies, Inc.) and Hodges Heavy Duty Truck Parts and Services, Inc.
dated as of October 1, 1994. This reference is made to specifically
unwind this Purchase Agreement and consider all warranties,
representations and other data contained therein to be rescinded and the
parties in this agreement agree to assume all existing, prior and future
liabilities that may become known now or in the future.
13) MISCELLANEOUS PROVISIONS: Sellers and Buyers further agree as follows:
A) Buyers will have inspected all the assets to be sold under this
Agreement and accept such assets in an "as is" condition without
express or implied warranties of any kind as to fitness or
mercantability.
B) Each corporate entity, Sellers and Buyers, shall enact all corporate
resolutions and acts necessary to authorize the corporation and/or
individuals to perform all the terms and conditions of this Sale and
Purchase Agreement.
C) Any notice, consent, request, claim or other communication hereunder
shall be in writing and shall be deemed to have been duly given if
delivered or mailed by registered and/or certified mail, return
receipt requested, to the address shown for the respective parties at
the conclusion of this Agreement. Such addresses may be changed by
any party by notice given in the manner provided above.
D) In the event either party to this Agreement shall employ legal
counsel to protect its rights under this Agreement or to enforce any
term or provision of this Agreement, then the party prevailing in any
such legal action shall have the right to recover from the other
party all of its reasonable attorneys' fees, costs and expenses
incurred in relation to such claim.
E) This Agreement, together with all exhibits and the documents referred
to herein, contain all the terms and conditions agreed upon by the
parties hereto with respect to the transactions contemplated hereby,
and shall not be amended or modified except by written instrument
signed by all the parties.
F) This Agreement shall be binding upon and inure to the benefits of the
representatives, heirs, estates, successors and assigns to the
parties hereto.
3
<PAGE> 4
G) Nothing expressed or implied in this Agreement is indented or shall
be construed, to confer upon or give any person, firm or corporation,
other than the parties hereto, their successors, assigns, any
benefits, rights or remedies under or by reason of this Agreement.
H) This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
I) Whenever in this Agreement it is provided that any party shall or
will make any payment or perform or refrain from performing any act
or obligation, each such provision shall be construed, even though
not so expressed, as an express agreement to make such payment or to
perform, as the case may be, such act or obligation.
J) Sellers warrants ownership of all assets being sold and warrants they
are free and clear of any debt, except as scheduled in article 2A.
K) This Agreement shall be governed by and construed under the laws of
the State of Arkansas.
L) Upon closing, Buyers and Sellers agree to sign any documents
necessary to complete this sale as per its terms and conditions.
This includes titles, deeds, bills of sale, franchise agreements,
fund remittance, or any other documents necessary to carry out this
contract.
14) Buyers shall maintain adequate insurance coverage satisfactory to Sellers
in an amount sufficient to cover the balance owed to Sellers. Proof of
said coverage shall be provided to Sellers by Buyers. Sellers shall be
shown as a loss payee as per their interest on said insurance coverage.
15) OrganiGro agrees to pay all Hodges employees' payroll through March 30,
1997.
16) It is agreed that all amounts owed by Sellers and/or its subsidiary, CDR
Environmental, Inc., are paid in full as of the date of this agreement.
17) It is agreed to by Buyers that any debts, obligations, taxes or other
liabilities discovered at any time in the future are to be assumed by
Buyers.
4
<PAGE> 5
In witness of the parties have hereunto set their hands this 1st day
of April, 1997.
SELLERS
ORGANIGRO, INC. SYNAGRO TECHNOLOGIES, INC.
/s/ Donald L. Thone /s/ Donald L. Thone
- -------------------------------------- ---------------------------------
Chairman President
ATTEST:
/s/ Daniel L. Shook
----------------------------------
BUYERS
/s/ Jack Hodges /s/ Tony D. Childers
- ---------------------------- ------------------------------------
HODGES HEAVY DUTY TRUCK TONY D. CHILDERS, an individual
REPAIR, INC.
Its President
-------------------------------------------
/s/ Jack Hodges
- --------------------------------------
JACK HODGES, an individual
ATTEST:
/s/ Tony D. Childers
-------------------------------------------
5
<PAGE> 6
SALE AND PURCHASE AGREEMENT
HODGES HEAVY DUTY TRUCK REPAIR, INC.
SCHEDULE A
<TABLE>
<CAPTION>
See detailed fixed asset listing attached hereto. Stated Value
------------
<S> <C>
Accounts Receivable (see Schedule A-1) $109,643.86
Inventory (see Schedule A-2) $270,972.50
Fixed Assets (see Schedule A-3) $620,069.10
Accounts Payable (see Schedule A-4) $ 28,210.98
</TABLE>
6
<PAGE> 7
SALE AND PURCHASE AGREEMENT
HODGES HEAVY DUTY TRUCK REPAIR, INC.
SCHEDULE B
RENTAL/SERVICE AGREEMENT
This Agreement is entered into by and between Hodges Heavy Duty Truck
Repair and CDR-Russellville, a subsidiary of Synagro Technologies, Inc. This
Agreement shall be effective April 1, 1997 pending the sale agreement by and
between Synagro Technologies and Hodges Heavy Duty Truck Repair.
AGREEMENT TERMS
CDR-Russellville will owe Hodges Heavy Duty Truck Repair $2,500.00 the
first of every month in arrears, for a period of five years for the
following services.
$1,000.00 per month will be for rental of one service bay in the Hodges
Heavy Duty Truck Parts Shop in Russellville, Arkansas. $1,500.00 will
be for the use of the tire bay and wash bay facilities. Hodges Heavy
Duty Truck Repair will provide a tire man, service truck and tools for
tire work and tire repairs for CDR-Russellville trucks and equipment
for six days per week, being Monday through Saturday (Sundays
excluded).
It is agreed that the payment of this rent and services will be
credited by Synagro Technologies, Inc. to the note held by Synagro
Technologies, Inc. and/or OrganiGro, Inc. against Hodges Heavy Duty
Truck Parts and Service on the first of each month, in arrears.
7
<PAGE> 1
EXHIBIT 10.8
PROMISSORY NOTE
$1,152,381
Date: April 1, 1997
After date, for value received, the undersigned as principles promise
to pay OrganiGro, Inc. and Synagro Technologies, Inc. the sum of One Million
One Hundred Fifty Two Thousand Three Hundred Eighty One Dollars
($1,152,381.00), with interest of 6% per annum.
This note is in connection with the certain sale and purchase
agreement dated March 31, 1997 for all of the assets of the Poultry Bedding
Division of OrganiGro, Inc. and certain collateral as stated in the Purchase and
Sale agreement Article 2 B apply. It is understood that this note agreement is
for a period of sixty (60) months or five years with payments made as follows:
All monies/product received under the Cabin Creek agreement by Custom Poultry
Bedding will be paid at 100% (in cash) to OrganiGro on a monthly basis, but in
any case, the total amount of $603,930 will be paid no later than September 16,
1998.
The remaining promissory note balance (after giving consideration to
the Cabin Creek note assignment (see attachment 1) of $ 603,930 will accrue
interest at 6% per annum and payments will begin May 1, 1997 at a rate of
$11,000 with any and all outstanding principal and interest payable on March
31, 2002. See attached amortization schedule.
The makers and endorsers of this note hereby severally waive the
presentation for payment, notice of nonpayment without notice of protest, and
consent to extension of time of payment without notice thereof. Should the
makers and endorsers of this note become thirty (30) days late on any payment,
the principal has the option to foreclose on said note and mortgage if they
elect to do so. Furthermore, should the guarantors and principals of this note
fail to comply with all provisions of new debt agreements entered into pursuant
to the debt assumption per article 2A of the sale and purchase agreement will
cause a default of this note agreement.
Should it become necessary for the payee to institute legal action for
the collection of this note, the makers and endorsers hereby agree to pay
reasonable attorneys fees in the collection of and enforcement of this note.
CUSTOM POULTRY BEDDING, INC.
/s/ Tony D. Childers /s/ Tony D. Childers
- ------------------------------- ----------------------------------------
Its President Tony D. Childers, an individual
ATTEST: /s/ Tony D. Childers
-----------------------
<PAGE> 1
EXHIBIT 10.9
GUARANTY
GUARANTORS BORROWER
- ---------- --------
TONY D. CHILDERS Custom Poultry
Arkansas License No. 432887273 BEDDING, INC.
3821 S. Arkansas Ave. 3821 S. Arkansas Ave.
Russellville, AR 72801 Russellville, AR 72801
1. CONSIDERATION. This Guaranty is being executed to induce
Seller to enter into the financial accommodations with or on behalf of Buyer.
2. GUARANTY. Guarantor hereby unconditionally guarantees the
prompt and full payment and performance of Buyer's present and future, joint
and/or several, direct and indirect, absolute and contingent, express and
implied, indebtedness, liabilities, obligations and covenants (cumulatively
"indebtedness") to Seller as follows:
_____ LIMITED TO AN AMOUNT: Guarantor's liabilities and obligations
under this Guaranty ("Obligations") shall include all present and future
written agreements between Borrower and Lender evidencing the indebtedness
(whether executed for the same or different purposes), but shall be limited to
the principal amount of One Million One Hundred Fifty Two Thousand Three
Hundred Eighty One Dollars ($1,152,381) together with all interest and all of
Seller's expenses and costs incurred in connection with the indebtedness
including any amendments, extensions, modifications, renewals, replacements or
substitutions thereto. This limitation on the liability of Guarantor shall not
apply to any costs incurred by Seller pursuant to paragraph 20.
_____ LIMITED TO THE FOLLOWING DESCRIBED NOTES/ AGREEMENTS:
Guarantor's liabilities obligations under this Guaranty ("Obligations") shall
be limited to the following described promissory notes and agreements between
Borrower and Lender evidencing the indebtedness, together with all interest and
all of Lender's expenses and costs incurred in connection with the indebtedness
including any amendments, extensions, modifications, renewals, replacements or
substitutions thereto: One Million One Hundred Fifty Two Thousand Three Hundred
Eighty One Dollars ($1,152,381) plus 6% interest per annum.
<PAGE> 2
NOTICE TO COSIGNER/GUARANTOR
You are being asked to guarantee this debt. Think carefully before
you do so. If the Buyer doesn't pay the debt, you will have to be sure you can
afford to pay if you have to, and that you want to accept this responsibility.
You may have to pay up to the full amount of the debt if the Buyer
does not pay. You may also have to pay late fees or collection costs, which
increase this amount.
The Seller can collect this debt from you without first having to
collect from the Buyer. The Seller can use the same collection methods against
you that can be used against the Buyer such as suing you, garnishing your
wages, etc. If this debt is ever in default, that fact may become a part of
your credit record.
This notice is not the contract that makes you liable for this debt.
GUARANTOR ACKNOWLEDGES GUARANTOR HAS READ, UNDERSTANDS, AND AGREES TO
THE TERMS AND AGREES TO THE TERMS AND CONDITIONS OF THIS AGREEMENT INCLUDING
THE TERMS AND CONDITIONS ON THE REVERSE SIDE, GUARANTOR HAS EXECUTED THIS
AGREEMENT WITH THE INTENT TO BE LEGALLY BOUND, GUARANTOR ACKNOWLEDGES RECEIPT
OF AN EXACT COPY OF THIS AGREEMENT.
DATED: April 1, 1997.
ATTEST:
/s/ Tony D. Childers /s/ Tony D. Childers
- ------------------------------- ------------------------------
TONY D. CHILDERS
2 a. Buyer shall be referred to as Borrower hereafter and the
Seller as Lender.
3. ABSOLUTE AND CONTINUING NATURE OF GUARANTY. Guarantor's
obligations are absolute and continuing and shall not be affected or impaired
if Lender amends, renews, extends, compromises, exchanges, fails to exercise,
impairs or releases any of the indebtedness owed by any Borrower, co-guarantor,
or any third party or any of Lender's rights against any Borrower,
co-guarantor, third party, or collateral. In addition, the obligations shall
not be affected or impaired by the death, incompetency, termination,
dissolution, insolvency, business cessation, or other financial deterioration
of any Borrower, Guarantor, or third party.
4. DIRECT AND UNCONDITIONAL NATURE OF GUARANTY. Guarantor's
obligations under this Guaranty are direct and unconditional and may be
enforced without
2
<PAGE> 3
requiring Lender to exercise, enforce, or exhaust any right or remedy against
any Borrower, co-guarantor, third party, or collateral.
5. WAIVER OF NOTICE. Guarantor hereby waives notice of the
acceptance of this Guaranty; notice of present and future extensions of credit
and other financial accommodations by Lender to any Borrower; notice of
presentment for payment, demand, protest, dishonor, default, and nonpayment
pertaining to the indebtedness and this Guaranty and all other notices and
demands pertaining to this indebtedness and this Guaranty as permitted by law.
6. DEFAULT. Guarantor shall be in default under this Guaranty in
the event that any Borrower or Guarantor:
(a) fails to pay any amount under this Guaranty or any
other indebtedness to Lender when due (whether such amount is due by
acceleration or otherwise);
(b) fails to perform any obligation or breaches any
warranty or covenant to Lender contained in this Guaranty or any other present
or future written agreement;
(c) provides or causes any false or misleading signature
or representation to be provided to Lender;
(d) allows any collateral for the indebtedness or this
Guaranty to be destroyed, lost or stolen, or damaged in any material respect;
(e) permits the entry or service of any garnishment,
judgment, tax levy, attachment or lien against Borrower, Guarantor, or any of
their property;
(f) dies, becomes legally incompetent, is dissolved or
terminated, ceases to operate its business, becomes insolvent, makes an
assignment for the benefit of creditors, fails to pay debts as they become due,
or becomes the subject of any bankruptcy, insolvency or debtor rehabilitation
proceeding; or
(g) causes Lender to deem itself insecure in good faith
for any reason.
7. RIGHTS OF LENDER ON DEFAULT. If there is a default under this
Guaranty, Lender shall be entitled to exercise one or more of the following
remedies without notice or demand (except as required by law);
(a) to declare Guarantor's obligations under this
Guaranty immediately due and payable in full.
3
<PAGE> 4
(b) to collect the outstanding obligations under this
Guaranty with or without resulting to judicial process;
(c) to setoff Guarantor's obligations under this Guaranty
against any amounts due to Guarantor including, but not limited, to, moneys,
instruments, and deposit accounts maintained with Lender; and
(d) to exercise all other rights available to Lender
under any other written agreement or applicable law.
Lender's rights are cumulative and may be exercised together,
separately, and in any order.
8. SUBORDINATION. The payment of any present or future
indebtedness of Borrower to Guarantor will be postponed and subordinated to the
payment in full of any present or future indebtedness of Borrower to lender
during the term of this Agreement. In the event that Guarantor receives any
moneys, instruments, or other remittances to be applied against Borrower's
obligations to Guarantor, Guarantor will hold these funds in trust for Lender,
and immediately endorse or assign (if necessary) and deliver these moneys,
instruments, and other remittances to lender. Guarantor agrees that Lender
shall be preferred to Guarantor in any assignment for the benefit of creditors
in any bankruptcy, insolvency, liquidation, or reorganization proceeding
commenced by or against Borrower in any federal or state court.
9. INDEPENDENT INVESTIGATION. Guarantor's execution and delivery
to Lender of this Guaranty is based solely upon Guarantor's independent
investigation of Borrower's financial condition and not upon any written or
oral representation of Lender in any manner. Guarantor assumes full
responsibility for obtaining any additional information regarding Borrower's
financial condition and Lender shall not be required to furnish Guarantor with
any information of any kind regarding Borrower's financial condition.
10. ACCEPTANCE OF RISKS. Guarantor acknowledges the absolute and
continuing nature of this Guaranty and voluntarily accepts the full range of
risks associated herewith including, but not limited to, the risk that
Borrower's financial condition shall deteriorate or if this Guaranty is
unlimited, the risk that Borrower shall incur additional indebtedness to Lender
in the future.
11. SUBORDINATION. Guarantor will not be subrogated to any of
Lender's rights against any Borrower, any co-guarantor, any third party or any
collateral unless Guarantor has satisfied all of Borrower's present and future,
joint and/or several, direct or indirect, absolute and contingent, express and
implied, indebtedness, liabilities, obligations and covenants to Lender in a
full and complete manner.
4
<PAGE> 5
12. APPLICATION OF PAYMENTS. Lender will be entitled to apply any
payments or other moneys received from Borrower, any third party, or any
collateral against Borrower's present and future obligations to Lender in any
order.
13. TERMINATION. This Guaranty shall remain in full force and
effect until Lender executes and delivers to Guarantor a written release
thereof, notwithstanding the foregoing, Guarantor shall be entitled to
terminate any unlimited guaranty of Borrower's future indebtedness to lender
following any anniversary of this Guaranty by providing Lender with sixty (60)
or more days' written notice of such termination by hand-delivery or certified
mail. Notice shall be deemed given when received by Lender. Such notice of
termination shall not affect or impair any of the agreements and obligations of
the Guarantor under this Agreement with respect to any of the obligations
existing prior to the time of actual receipt of such notice by Lender, any
extensions or renewals thereof, and any interest on any of the foregoing.
14. ASSIGNMENT. Guarantor shall not be entitled to assign any of
its rights or obligations described in this Guaranty without Lender's prior
written consent which may be withheld by Lender in its sole discretion. Lender
shall be entitled to assign some or all of its rights and remedies described in
this Guaranty without notice to or the prior consent of Guarantor in any
manner. Unless the Lender shall otherwise consent in writing, the Lender shall
have an unimpaired right prior and superior to that of any assignee, to enforce
this Guaranty for the benefit of the Lender, as to those obligations that the
Lender has not assigned.
15. MODIFICATION AND WAIVER. The modification and waiver of any
of Guarantor's obligations or Lender's rights under this Guaranty must be
contained in a writing signed by Lender. Lender may delay in exercising or
fail to exercise any of its rights without causing a waiver of those rights. A
waiver on one occasion shall not constitute a waiver on any other occasion.
16. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon
and inure to the benefit of Guarantor and Lender and their respective
successors, assigns, trustees, receivers, administrators, personal
representatives, legatees, and devisees.
17. NOTICE. Any notice or other communication to be provided
under this Guaranty shall be in writing and sent to the parties at the
addresses described in this Guaranty or such other addresses as the parties may
designate in writing from time to time.
18. SEVERABILITY. If any provision of this Guaranty violates the
law or is unenforceable, the rest of the Guaranty shall remain valid.
19. APPLICABLE LAW. This Guaranty shall be governed by the laws
of the State of Arkansas. Guarantor consents to the jurisdiction and venue of
any court located in such state in the event of any legal proceeding under this
Guaranty.
5
<PAGE> 6
20. COLLECTION COSTS. If Lender hires an attorney to assist in
collecting any amount due or enforcing any right or remedy under this Guaranty,
Guarantor agrees to pay Lender's reasonable attorneys' fees, legal expenses and
other costs to the extent permitted by law.
21. REPRESENTATIONS OF GUARANTOR. Guarantor acknowledges receipt
of reasonably equivalent value in consideration for the execution of this
Guaranty and represents that, after giving effect to this Guaranty, the fair
market value of Guarantor's assets exceeds Guarantor's total liabilities,
including contingent, subordinate and unliquidated liabilities, that Guarantor
has sufficient cash flow to meet debts as they mature, and is paying its debts
as they mature, and that Guarantor does not have unreasonably small capital.
22. MISCELLANEOUS. This Guaranty is executed in connection with a
consumer loan. Guarantor will provide Lender with a current financial
statement upon request. All references to Guarantor in this Guaranty shall
include all entities or persons signing this Guaranty. If there is more than
one Guarantor, they will be obligated jointly and individually. This Guaranty
and any related documents represent the complete and integrated understanding
between Guarantor and Lender pertaining to the terms and conditions of those
documents.
23. ADDITIONAL TERMS: Any additional terms shall be in writing
and approved by Guarantor, Borrower and Lender.
6
<PAGE> 1
EXHIBIT 10.10
PROMISSORY NOTE
$308,203.00
Date: April 1, 1997
After date, for value received, the undersigned as principles promise
to pay OrganiGro, Inc. and Synagro Technologies, Inc. the sum of Three Hundred
Eight Thousand Two Hundred Three Dollars ($308,203), with interest of 6% per
annum.
This note is in connection with the certain sale and purchase
agreement dated March 31, 1997 for all of the assets of Hodges Heavy Duty Truck
Repair. It is understood that this note agreement is for a period of sixty
(60) months or five years with the first cash payment payable one (1) year from
the date of this agreement in monthly installments thereafter.
It is agreed by all parties to this note, both makers and payees, that
the monthly amount payable will be determined at the end of the first year
after all consideration for right of offset for those services provided per the
sale and purchase agreement articles 4 and 5. Thereafter, the payments will be
Three Thousand Seven Hundred Dollars ($3,700.00) monthly with the remaining
balance due March 31, 2002, see the attached amortization schedule.
The makers and endorsers of this note hereby severally waive the
presentation for payment, notice of nonpayment without notice of protest, and
consent to extension of time of payment without notice thereof. Should the
makers and endorsers of this note become thirty (30) days late on any payment,
the principal has the option to foreclose on said note and mortgage if they
elect to do so. Furthermore, should the guarantors and principals of this note
fail to comply with all notes subsequently financed for purposes of complying
with the debt assumption per article 2A of the sale and purchase agreement, any
payment not made pursuant to the bank arrangements would be considered a
default of this note agreement, as well, also known as a cross default
provision.
Should it become necessary for the payee to institute legal action for
the collection of this note, the makers and endorsers hereby agree to pay
reasonable attorneys fees in the collection of and enforcement of this note.
HODGES HEAVY DUTY TRUCK REPAIR, INC.
/s/ Jack Hodges /s/ Tony D. Childers
- --------------------------------- -------------------------------------
Its President Tony D. Childers, an individual
ATTEST: /s/ Tony D. Childers /s/ Jack Hodges
------------------------- -------------------------------------
Jack Hodges, an individual
<PAGE> 1
EXHIBIT 10.11
GUARANTY
GUARANTORS BORROWER
- ---------- --------
TONY D. CHILDERS HODGES HEAVY DUTY
Arkansas License No. 432887273 TRUCK REPAIR, INC.
3821 S. Arkansas Ave. 3821 S. Arkansas Ave.
Russellville, AR 72801 Russellville, AR 72801
JACK HODGES
Arkansas License No. 431130546
3821 S. Arkansas Ave.
Russellville, AR 72801
1. CONSIDERATION. This Guaranty is being executed to induce
Seller to enter into the financial accommodations with or on behalf of Buyer.
2. GUARANTY. Guarantor hereby unconditionally guarantees the
prompt and full payment and performance of Buyer's present and future, joint
and/or several, direct and indirect, absolute and contingent, express and
implied, indebtedness, liabilities, obligations and covenants (cumulatively
"indebtedness") to Seller as follows:
_____ LIMITED TO AN AMOUNT: Guarantor's liabilities and obligations
under this Guaranty ("Obligations") shall include all present and future
written agreements between Borrower and Lender evidencing the indebtedness
(whether executed for the same or different purposes), but shall be limited to
the principal amount of Three Hundred Eight Thousand Two Hundred Three Dollars
($308,203) together with all interest and all of Seller's expenses and costs
incurred in connection with the indebtedness including any amendments,
extensions, modifications, renewals, replacements or substitutions thereto.
This limitation on the liability of Guarantor shall not apply to any costs
incurred by Seller pursuant to paragraph 20.
_____ LIMITED TO THE FOLLOWING DESCRIBED NOTES/ AGREEMENTS:
Guarantor's liabilities obligations under this Guaranty ("Obligations") shall
be limited to the following described promissory notes and agreements between
Borrower and Lender evidencing the indebtedness, together with all interest and
all of Lender's expenses and costs incurred in connection with the indebtedness
including any amendments, extensions, modifications, renewals, replacements or
substitutions thereto: Three Hundred Eight Thousand Two Hundred Three Dollars
($308,203) plus 6% interest per annum.
<PAGE> 2
NOTICE TO COSIGNER/GUARANTOR
You are being asked to guarantee this debt. Think carefully before
you do so. If the Buyer doesn't pay the debt, you will have to be sure you can
afford to pay if you have to, and that you want to accept this responsibility.
You may have to pay up to the full amount of the debt if the Buyer
does not pay. You may also have to pay late fees or collection costs, which
increase this amount.
The Seller can collect this debt from you without first having to
collect from the Buyer. The Seller can use the same collection methods against
you that can be used against the Buyer such as suing you, garnishing your
wages, etc. If this debt is ever in default, that fact may become a part of
your credit record.
This notice is not the contract that makes you liable for this debt.
GUARANTOR ACKNOWLEDGES GUARANTOR HAS READ, UNDERSTANDS, AND AGREES TO
THE TERMS AND AGREES TO THE TERMS AND CONDITIONS OF THIS AGREEMENT INCLUDING
THE TERMS AND CONDITIONS ON THE REVERSE SIDE, GUARANTOR HAS EXECUTED THIS
AGREEMENT WITH THE INTENT TO BE LEGALLY BOUND, GUARANTOR ACKNOWLEDGES RECEIPT
OF AN EXACT COPY OF THIS AGREEMENT.
DATED: April 1, 1997.
/s/ Tony D. Childers
---------------------------------------
TONY D. CHILDERS
ATTEST: /s/ Tony D. Childers /s/ Jack Hodges
-------------------------- ---------------------------------------
JACK HODGES
2 a. Buyer shall be referred to as Borrower hereafter and the
Seller as Lender.
3. ABSOLUTE AND CONTINUING NATURE OF GUARANTY. Guarantor's
obligations are absolute and continuing and shall not be affected or impaired
if Lender amends, renews, extends, compromises, exchanges, fails to exercise,
impairs or releases any of the indebtedness owed by any Borrower, co-guarantor,
or any third party or any of Lender's rights against any Borrower,
co-guarantor, third party, or collateral. In addition, the obligations shall
not be affected or impaired by the death, incompetency, termination,
dissolution, insolvency, business cessation, or other financial deterioration
of any Borrower, Guarantor, or third party.
2
<PAGE> 3
4. DIRECT AND UNCONDITIONAL NATURE OF GUARANTY. Guarantor's
obligations under this Guaranty are direct and unconditional and may be
enforced without requiring Lender to exercise, enforce, or exhaust any right or
remedy against any Borrower, co-guarantor, third party, or collateral.
5. WAIVER OF NOTICE. Guarantor hereby waives notice of the
acceptance of this Guaranty; notice of present and future extensions of credit
and other financial accommodations by Lender to any Borrower; notice of
presentment for payment, demand, protest, dishonor, default, and nonpayment
pertaining to the indebtedness and this Guaranty and all other notices and
demands pertaining to this indebtedness and this Guaranty as permitted by law.
6. DEFAULT. Guarantor shall be in default under this Guaranty in
the event that any Borrower or Guarantor:
(a) fails to pay any amount under this Guaranty or any
other indebtedness to Lender when due (whether such amount is due by
acceleration or otherwise);
(b) fails to perform any obligation or breaches any
warranty or covenant to Lender contained in this Guaranty or any other present
or future written agreement;
(c) provides or causes any false or misleading signature
or representation to be provided to Lender;
(d) allows any collateral for the indebtedness or this
Guaranty to be destroyed, lost or stolen, or damaged in any material respect;
(e) permits the entry or service of any garnishment,
judgment, tax levy, attachment or lien against Borrower, Guarantor, or any of
their property;
(f) dies, becomes legally incompetent, is dissolved or
terminated, ceases to operate its business, becomes insolvent, makes an
assignment for the benefit of creditors, fails to pay debts as they become due,
or becomes the subject of any bankruptcy, insolvency or debtor rehabilitation
proceeding; or
(g) causes Lender to deem itself insecure in good faith
for any reason.
7. RIGHTS OF LENDER ON DEFAULT. If there is a default under this
Guaranty, Lender shall be entitled to exercise one or more of the following
remedies without notice or demand (except as required by law);
(a) to declare Guarantor's obligations under this
Guaranty immediately due and payable in full.
3
<PAGE> 4
(b) to collect the outstanding obligations under this
Guaranty with or without resulting to judicial process;
(c) to setoff Guarantor's obligations under this Guaranty
against any amounts due to Guarantor including, but not limited, to, moneys,
instruments, and deposit accounts maintained with Lender; and
(d) to exercise all other rights available to Lender
under any other written agreement or applicable law.
Lender's rights are cumulative and may be exercised together,
separately, and in any order.
8. SUBORDINATION. The payment of any present or future
indebtedness of Borrower to Guarantor will be postponed and subordinated to the
payment in full of any present or future indebtedness of Borrower to lender
during the term of this Agreement. In the event that Guarantor receives any
moneys, instruments, or other remittances to be applied against Borrower's
obligations to Guarantor, Guarantor will hold these funds in trust for Lender,
and immediately endorse or assign (if necessary) and deliver these moneys,
instruments, and other remittances to lender. Guarantor agrees that Lender
shall be preferred to Guarantor in any assignment for the benefit of creditors
in any bankruptcy, insolvency, liquidation, or reorganization proceeding
commenced by or against Borrower in any federal or state court.
9. INDEPENDENT INVESTIGATION. Guarantor's execution and delivery
to Lender of this Guaranty is based solely upon Guarantor's independent
investigation of Borrower's financial condition and not upon any written or
oral representation of Lender in any manner. Guarantor assumes full
responsibility for obtaining any additional information regarding Borrower's
financial condition and Lender shall not be required to furnish Guarantor with
any information of any kind regarding Borrower's financial condition.
10. ACCEPTANCE OF RISKS. Guarantor acknowledges the absolute and
continuing nature of this Guaranty and voluntarily accepts the full range of
risks associated herewith including, but not limited to, the risk that
Borrower's financial condition shall deteriorate or if this Guaranty is
unlimited, the risk that Borrower shall incur additional indebtedness to Lender
in the future.
11. SUBORDINATION. Guarantor will not be subrogated to any of
Lender's rights against any Borrower, any co-guarantor, any third party or any
collateral unless Guarantor has satisfied all of Borrower's present and future,
joint and/or several, direct or indirect, absolute and contingent, express and
implied, indebtedness, liabilities, obligations and covenants to Lender in a
full and complete manner.
4
<PAGE> 5
12. APPLICATION OF PAYMENTS. Lender will be entitled to apply any
payments or other moneys received from Borrower, any third party, or any
collateral against Borrower's present and future obligations to Lender in any
order.
13. TERMINATION. This Guaranty shall remain in full force and
effect until Lender executes and delivers to Guarantor a written release
thereof, notwithstanding the foregoing, Guarantor shall be entitled to
terminate any unlimited guaranty of Borrower's future indebtedness to lender
following any anniversary of this Guaranty by providing Lender with sixty (60)
or more days' written notice of such termination by hand-delivery or certified
mail. Notice shall be deemed given when received by Lender. Such notice of
termination shall not affect or impair any of the agreements and obligations of
the Guarantor under this Agreement with respect to any of the obligations
existing prior to the time of actual receipt of such notice by Lender, any
extensions or renewals thereof, and any interest on any of the foregoing.
14. ASSIGNMENT. Guarantor shall not be entitled to assign any of
its rights or obligations described in this Guaranty without Lender's prior
written consent which may be withheld by Lender in its sole discretion. Lender
shall be entitled to assign some or all of its rights and remedies described in
this Guaranty without notice to or the prior consent of Guarantor in any
manner. Unless the Lender shall otherwise consent in writing, the Lender shall
have an unimpaired right prior and superior to that of any assignee, to enforce
this Guaranty for the benefit of the Lender, as to those obligations that the
Lender has not assigned.
15. MODIFICATION AND WAIVER. The modification and waiver of any
of Guarantor's obligations or Lender's rights under this Guaranty must be
contained in a writing signed by Lender. Lender may delay in exercising or
fail to exercise any of its rights without causing a waiver of those rights. A
waiver on one occasion shall not constitute a waiver on any other occasion.
16. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon
and inure to the benefit of Guarantor and Lender and their respective
successors, assigns, trustees, receivers, administrators, personal
representatives, legatees, and devisees.
17. NOTICE. Any notice or other communication to be provided
under this Guaranty shall be in writing and sent to the parties at the
addresses described in this Guaranty or such other addresses as the parties may
designate in writing from time to time.
18. SEVERABILITY. If any provision of this Guaranty violates the
law or is unenforceable, the rest of the Guaranty shall remain valid.
19. APPLICABLE LAW. This Guaranty shall be governed by the laws
of the state of Arkansas. Guarantor consents to the jurisdiction and venue of
any court located in such state in the event of any legal proceeding under this
Guaranty.
5
<PAGE> 6
20. COLLECTION COSTS. If Lender hires an attorney to assist in
collecting any amount due or enforcing any right or remedy under this Guaranty,
Guarantor agrees to pay Lender's reasonable attorneys' fees, legal expenses and
other costs to the extent permitted by law.
21. REPRESENTATIONS OF GUARANTOR. Guarantor acknowledges receipt
of reasonably equivalent value in consideration for the execution of this
Guaranty and represents that, after giving effect to this Guaranty, the fair
market value of Guarantor's assets exceeds Guarantor's total liabilities,
including contingent, subordinate and unliquidated liabilities, that Guarantor
has sufficient cash flow to meet debts as they mature, and is paying its debts
as they mature, and that Guarantor does not have unreasonably small capital.
22. MISCELLANEOUS. This Guaranty is executed in connection with a
consumer loan. Guarantor will provide Lender with a current financial
statement upon request. All references to Guarantor in this Guaranty shall
include all entities or persons signing this Guaranty. If there is more than
one Guarantor, they will be obligated jointly and individually. This Guaranty
and any related documents represent the complete and integrated understanding
between Guarantor and Lender pertaining to the terms and conditions of those
documents.
23. ADDITIONAL TERMS: Any additional terms shall be in writing
and approved by Guarantor, Borrower and Lender.
6
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF SYNAGRO TECHNOLOGIES, INC.
The following is a list of all of the subsidiaries of the Company at
December 31, 1996. Each of the subsidiaries is wholly-owned by the Company.
<TABLE>
<CAPTION>
Corporate Name of Subsidiary State of Incorporation
- ----------------------------------------- --------------------------
<S> <C>
CDR Environmental, Inc. Texas
Compost Technologies International, Inc. Arkansas
Organi-Gro, Inc. Arkansas
Pima Gro Systems, Inc. Arizona
ST Interco, Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated April 11, 1997, included in this Form 10-K, into the Company's
previously filed Registration Statement file No. 333-18029 on Form S-8 and
Registration Statement file No. 333-20825 on Form S-3.
ARTHUR ANDERSEN LLP
Houston, Texas
April 11, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation of our report dated February 28, 1996 on
the consolidated financial statements of Synagro Technologies, Inc. for the
years ended December 31, 1995 and 1994, included in this Form 10-K, into the
Company's previously filed Registration Statement file No. 333-18029 on
Form S-8 and Registration Statement file No. 333-20825 on Form S-3.
Singer Lewak Greenbaum & Goldstein LLP
Los Angeles, California
April 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 643,109
<SECURITIES> 560,000
<RECEIVABLES> 3,198,295
<ALLOWANCES> 287,514
<INVENTORY> 0
<CURRENT-ASSETS> 4,491,399
<PP&E> 12,656,336
<DEPRECIATION> 4,509,982
<TOTAL-ASSETS> 18,631,287
<CURRENT-LIABILITIES> 6,566,269
<BONDS> 8,262,894
0
0
<COMMON> 12,712
<OTHER-SE> 3,789,412
<TOTAL-LIABILITY-AND-EQUITY> 18,631,287
<SALES> 22,977,404
<TOTAL-REVENUES> 22,977,404
<CGS> 19,254,903
<TOTAL-COSTS> 19,254,903
<OTHER-EXPENSES> 10,637,931
<LOSS-PROVISION> 268,463
<INTEREST-EXPENSE> 672,706
<INCOME-PRETAX> (7,588,930)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,588,930)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,588,930)
<EPS-PRIMARY> (1.21)
<EPS-DILUTED> (1.21)
</TABLE>
