SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
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 (NO FEE REQUIRED)
Commission file number: 0-6512
TRANSTECH INDUSTRIES, INC.
(Name of small business issuer in its charter)
Delaware 22-1777533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Centennial Avenue, Suite 202, Piscataway, New Jersey 08854
(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: (908) 981-0777
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.50 par value
(Title of Class)
Check whether the issuer (l) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $363,000
At March 18, 1997 the aggregate market value of the voting stock of
the registrant held by non-affiliates was approximately $55,000.
At March 18, 1997 the issuer had outstanding 2,829,090 shares of
Common Stock, $.50 par value. In addition, at such date, the registrant
held 1,885,750 shares of Common Stock, $.50 par value, in treasury.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
Page 1 of 109 pages
Exhibit Index on page 37
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1996
I N D E X
Page(s)
Part I,Item 1. Description of Business 3 - 15
" Item 2. Description of Properties 15 - 16
" Item 3. Legal Proceedings 16 - 25
" Item 4. Submission of Matters to a Vote
of Security Holders 25
Part II, Item 5.Market for Common Equity and
Related Stockholder Matters 26
" Item 6. Management's Discussion and
Analysis or Plan of Operation 26
" Item 7. Financial Statements 26
" Item 8. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure 26
Part III,Item 9.Directors, Executive Officers,
Promoters and Control Persons;
Compliance with Section 16(a)
of the Exchange Act 27 - 28
" Item 10. Executive Compensation 28 - 30
" Item 11. Security Ownership of Certain
Beneficial Owners and Management 30 - 32
" Item 12. Certain Relationships and Related
Transactions 32 - 34
Part IV,Item 13.Exhibits and Reports on Form 8-K 35
Signatures 36
Exhibit Index 37 - 40
Part I, Item 1. Description of Business.
General
Transtech Industries, Inc. ("Transtech") was incorporated
under the laws of the State of Delaware in 1965. Transtech,
directly and through its subsidiaries (Transtech and its
subsidiaries collectively referred to as the "Company"), generates
electricity utilizing methane gas, supervises and performs landfill
monitoring and closure procedures, manages methane gas recovery
operations and has investments in computer equipment under lease
(see "Continuing Operations" below).
During 1995 and 1996, the Company divested its interests in
two subsidiaries. In 1995, the Company sold the subsidiary which
marketed carbide lime and other high alkali products for use as
neutralization agents in municipal and industrial wastewater
treatment plants. In 1996, the Company completed the sale of the
subsidiary which manufactured and sold specialty directional and
flow control valves, fluid power components, hydraulic and
pneumatic cylinders, and complete valve systems for commercial and
military use (see "Discontinued Operations" below).
The Company and certain subsidiaries were previously involved
in the resource recovery and waste management industries. These
activities included the operation of three landfills and a solvents
recovery facility. Although these sites are now closed, the
Company continues to own and/or remediate them and has both
incurred and accrued for the substantial costs associated therewith
(see "Prior Operations" below and Part I, Item 3, Legal
Proceedings).
At December 31, 1996, the Company employed 15 persons on a
full-time basis.
Continuing Operations
Electricity Generation. Revenues from operations which
generate electricity through the use of methane gas represented 73%
and 55% of consolidated revenues in the years ended December 31,
1996 and 1995, respectively. The facility consists of four
diesel/generating units each capable of generating approximately
48,000 kwh/day at full capacity. Electricity generated is sold
pursuant to a long term contract with a local utility. Production
increased 33% during the year ended December 31, 1996 compared to
the prior year. The operation experienced a series of unrelated
equipment failures in 1995 which subjected two of the four electric
generating units to significant down-time for repairs. All
generating units were placed back into service during the fourth
quarter of 1995.
Environmental Services. The environmental services subsidiary
supervises and performs landfill monitoring and closure procedures
and manages methane gas operations. Approximately 65% of the
environmental services subsidiary's gross revenues for 1996,
compared to 61% for the prior year, were either from other members
of the consolidated group or from third parties providing services
to another member of the consolidated group, and were therefore
eliminated in consolidation. The subsidiary contributed 27% and
45% to consolidated revenues in each of the years ended December
31, 1996 and 1995, respectively, after elimination of intercompany
sales. Substantially all third party sales during 1996 and 1995
were to a single customer. The decline in sales (prior to the
elimination of intercompany activity) was primarily due to the
completion of the construction phase of its work for the third
party during the second half of 1995 and the substantial completion
of the construction phase of the remediation work at a closed
landfill owned by the Company in mid-year 1995.
The Company is continuing its efforts to expand the customer
base of this subsidiary to entities outside the consolidated group.
During the last three years, the subsidiary has provided, and
continues to provide, quotes on construction and maintenance
projects involving the closure and remediation of waste sites and
contaminated properties. The subsidiary participates in a
competitive market on the basis of price and experience. Some
construction projects may have bonding requirements which are
beyond the subsidiary's ability to secure. The subsidiary
continues performing closure activities on sites previously
operated by other subsidiaries of the Company. During August 1995
the subsidiary entered into a joint marketing agreement with a
national engineering firm with respect to projects involving the
closure and remediation of municipal waste sites in the
northeastern United States. Since entering into the agreement, the
subsidiary and engineering firm had jointly evaluated five projects
and bid on two of those projects, but had not been awarded a
contract. The agreement terminated during December 1996, however
the Company continues to conduct business with the engineering
firm.
Computer Leasing. In July 1989, Transtech entered into a
purchase agreement (the "Computer Purchase Agreement") with The Tax
Strategy Group, Inc. ("TSG") pursuant to which Transtech purchased
certain high-end IBM mainframe computer equipment (the "Equipment")
subject to a master lease with Computer Leasing, Inc. for a term of
eight years (the "Master Lease") and user leases of varying terms.
The purchase price of the Equipment was $35.8 million, of which
$2.6 million was paid in cash at closing and the balance of $33.2
million payable in equal consecutive monthly installments of
$586,741 (representing principal and interest at the rate of 13.5%
per year) over an eight year period.
Pursuant to the Computer Purchase Agreement and the Master
Lease, the monthly base rental income under the Master Lease equals
the Company's monthly payments to TSG. Commencing in July 1994,
the Company began receiving additional rental income equal to 75%
of rents actually paid by users of the Equipment through the
expiration of the Master Lease. From 1989 to 1993, the Company's
deductions for accelerated depreciation and interest expense
exceeded rental income. However, beginning in 1994 and continuing
through July 1997, the annual rental income exceeds such annual tax
deductions, generating net taxable income.
Beginning in 1991, the Company has reduced its estimate of the
future rental and residual value of the computer equipment to
reflect the decline in market values and lease rates of equipment
of the type owned by the Company. The Company believes that the
carrying value of its investment in this computer equipment at
December 31, 1996 approximates its net realizable value; however,
there can be assurance that future adjustments to its carrying
value will not be required to give effect to further market
declines in equipment values or lease rates for computer equipment
of this type.
Terms of the Computer Purchase Agreement granted the Company
the right to require TSG to repurchase the Equipment if the lease's
cumulative financial benefits to the Company through December 31,
1994 or 1995 were less than a specified amount, as measured by the
rate of return on the Company's investment. This right was
exercisable in the first two months of 1995 or 1996, and was
forfeited for the remaining life of the Computer Purchase Agreement
when it was not exercised. The purchase price of the Equipment
which TSG would have been required to pay the Company if the
Company had exercised the right would have equalled the amount
necessary for the Company to achieve the specified rate of return.
The rate of return through December 31, 1995 was greater than the
specified rate, therefore the Company was unable to exercise this
right.
The Internal Revenue Service has questioned the deductions
claimed by the Company in connection with its investment in the
computer equipment (see Part I, Item 3, Legal Proceedings).
Other Businesses. The other subsidiaries of the Company hold
assets consisting of cash and marketable securities, real property,
notes receivable and contract rights.
Prior Operations
Landfill and Waste Handling Operations. In February 1987, the
landfill owned and operated by Kinsley's Landfill, Inc.
("Kinsley's"), the last of the three solid waste landfills
previously operated by subsidiaries of the Company, reached
permitted capacity and was closed. Previously, in 1976, the
landfill owned and operated by Kin-Buc, Inc. ("Kin-Buc") was closed
and, in 1977, the landfill operated by Mac Sanitary Land Fill, Inc.
("Mac") was closed. Pursuant to certain federal and state
environmental laws, these subsidiaries continue to be responsible
for maintenance and monitoring activities associated with the
closure procedures of these landfills. The closure procedures
typically include the final cover, testing and monitoring of the
landfill and associated wells. In addition, the Company has
incurred significant professional fees in lawsuits regarding these
activities and efforts to obtain contributions towards the cost of
closure procedures from waste generators and other parties.
The Company's accruals for closure and remediation activities
equal the present value of the Company's estimated share of future
costs related to a site less funds held in trust for such purposes.
Such estimates require a number of assumptions, and therefore may
differ from the ultimate outcome. The costs of litigation
associated with a site are expensed as incurred. The Company has
accrued remediation and closure costs for the Kin-Buc landfill,
Kinsley's landfill and Mac landfill. Amounts held in certain
trusts dedicated to post-closure activities of Kinsley's are netted
against the accrual for presentation in the Company's balance
sheet.
The impact of future events or changes in environmental laws
and regulations, which cannot be predicted at this time, could
result in material changes in remediation and closure costs related
to the Company's past waste handling activities, possibly in excess
of the Company's available financial resources.
Additional material adjustments to the Company's current
accrual may become necessary as the above costs are incurred and
weighed against allocations to other respondents and potentially
responsible parties.
At December 31, 1996, the Company has accrued approximately
$22.1 million for its portion of the estimated closure and
remediation costs of these landfills. Of such amount,
approximately $9.3 million is held in trusts maintained by trustees
for post-closure activities at Kinsley's landfill (see Part I, Item
3, Legal Proceedings).
Kin-Buc. The Kin-Buc landfill, located in Edison, New Jersey,
was operated by a wholly-owned subsidiary of the Company, Kin-Buc,
Inc. ("KB"), through August 1975. From September 1975 until the
landfill ceased operations in November 1977, the landfill was
managed by Earthline Company ("Earthline"), a partnership formed by
Wastequid, Inc. ("Wastequid"), then a wholly-owned subsidiary of
the Company, and Chemical Waste Management of New Jersey, Inc.
("CWMNJ"), a wholly-owned subsidiary of SCA Services, Inc. ("SCA")
and an affiliate of WMX Technologies, Inc. (formerly known as Waste
Management, Inc.) ("WMX"). The Company and others have been
remediating the Kin-Buc landfill and certain neighboring areas
under orders (the "Orders") issued by the United States
Environmental Protection Agency ("EPA") in September 1990 and
November 1992 to 12 respondents: the Company, KB, Earthline,
Wastequid, CWMNJ, SCA, Chemical Waste Management, Inc. (an
affiliate of WMX), Filcrest Realty, Inc. (a wholly-owned subsidiary
of the Company), Inmar Associates, Inc. (a company owned and
controlled by Marvin H. Mahan, a former director, officer and
principal shareholder of the Company), Marvin H. Mahan, Robert
Meagher (a former director and officer of the Company and Inmar
Associates, Inc.) and Anthony Gaess (a former director and officer
of SCA). Contractors have completed the construction required by
EPA, and the Company is awaiting EPA acceptance of the work
performed. Maintenance of remedial systems installed at the site
and operation of a fluid treatment plant that was constructed to
treat fluids at the site are required for a 30-year period
beginning in 1995. The total cost of the construction, operations
and maintenance of remedial systems over this period plus the cost
of past remedial activities is estimated to be in the range of $80
million to $100 million.
In January 1996, a design for a remedial program involving the
installation of a slurry cut-off wall around a one-acre parcel of
land adjacent to the Kin-Buc Landfill was presented to the EPA for
its review and approval. EPA approved the plan, and construction
began in August 1996. The construction is substantially complete
and the Company is awaiting EPA acceptance of the work performed.
The cost of such installation has been estimated at $1.3 million
and has been financed by SCA and its affiliates. SCA may assert
that this cost is subject to the cost sharing agreement entered
into in 1986 (described below) and seek reimbursement of 75% of
amounts expended from the Company.
The EPA has notified the Company that it will conduct a
limited investigation of an area in the vicinity of the Kin-Buc
Landfill, known as Mound B, and that it may seek to recover its
costs in connection therewith from the Company and SCA. The cost
of studies and remediation of this area is not included in the
present estimates of the total cost of the remediation since such
work is outside the scope of the Orders.
It is not possible to predict, at this time, whether the EPA
will require additional remedial measures to be taken or will
mandate long-term maintenance of the slurry wall. Therefore, the
total cost associated with such remediation cannot now be
predicted. Other areas within the vicinity of the site also may
become the subject of future studies due to the historic use of the
area for waste disposal operations. The cost of studies and
remediation of such areas is not included in the present estimates
of the total cost of the remediation of the Kin-Buc landfill since
such work is outside the scope of the Orders. An obligation to
undertake significant remediation of areas outside the scope of the
Orders could have a material adverse effect on the total estimated
costs of remediation.
The construction at the Kin-Buc site since July 1994 has been
financed in part with funds provided by SCA and in part with funds
provided from negotiated settlements with certain parties to a suit
that the Company initiated in June 1990 in the United States
District Court for the District of New Jersey against approximately
450 generators and transporters of waste disposed of at the site
for the purpose of obtaining contribution toward the cost of
remediation (the "1990 Action"). The Company's cause of action
against these parties arises under certain provisions of the
Comprehensive Environmental Response, Compensation and Liability
Act, as amended ("CERCLA"), which imposes joint and several
liability for the remediation of certain sites upon persons
responsible for the generation, transportation and disposal of
wastes at such sites.
The Company is also incurring costs in contesting the validity
of a 1986 agreement among the Company, on the one hand, and SCA and
certain of its affiliates, on the other hand (the "SCA Group").
That agreement allocated to the Company 75% of the costs incurred
by the parties for the remediation of the Kin-Buc site. In 1993,
the Company filed a demand for arbitration (the "Company
Arbitration") seeking rescission or reformation of the agreement
with the SCA Group. SCA moved to enjoin the Company Arbitration on
the grounds that the Company's demand was barred by the statute of
limitations. In March 1995, the SCA Group filed its own demand for
arbitration (the "SCA Arbitration") seeking reimbursement from the
Company of approximately $17 million, representing 75% of the
remediation expenses purportedly funded by the SCA Group through
that time. Certain issues raised by SCA's motion to enjoin the
Company Arbitration were referred to a referee. In October 1995,
the referee decided that in 1986 the Company knew or should have
known facts giving rise to its legal right to challenge its
agreement with SCA. In November 1995, SCA moved to confirm the
referee's report and the Company moved to reject it. In January
1996, the Court ruled that the referee had not considered the
appropriate issues and remanded the referral to the same referee
for another hearing, which has not yet been scheduled. While final
discovery in the SCA Arbitration was being completed and
immediately prior to the commencement of hearings in the SCA
Arbitration and the rescheduling of the referee's hearing in the
Transtech Arbitration, the Company and the SCA Group agreed to
postpone proceedings in both arbitrations pending the outcome of
settlement discussions. These discussions are ongoing, and no
prediction as to the outcome thereof can be made at this time. The
recovery by SCA of a judgment against the Company in the SCA
Arbitration would have a material adverse effect on the financial
condition of the Company, depending upon the structuring of
payments pursuant to the judgment and the ability of the Company to
recover a portion of such costs from insurance carriers and other
parties liable for remediation of the Kin-Buc site. Such judgment,
however, cannot be enforced by SCA until and unless the motion to
enjoin the Company Arbitration is resolved in SCA's favor.
The Company believes that it has already contributed its fair
share of remediation costs for the Kin-Buc site, having expended in
excess of $12 million for direct remediation, carrying costs and
ancillary activities related to the site (in historical dollars).
The Company is advised, by consultants experienced in CERCLA cost
allocation methods, that the Company's share of the cost of
remediation of the site will be affected by a variety of factors
that are presently being assessed. Such assessment is being
developed as discovery of facts relevant thereto is made. It is
expected that proceedings for discovery of relevant facts will
continue in the 1990 Action for a period of at least six months.
On the basis of this assessment, the Company's share of remediation
costs could range from $11 million to $37 million. Insurance
proceeds and settlement payments may be available to pay a portion
of the Company's share. The insurance companies from which the
Company has sought recovery have contested the Company's claim. In
addition, the Company may be liable for the payment of some or all
of certain other potentially responsible parties' ("PRPs") shares
of remediation costs pursuant to disposal agreements with such PRPs
which provided for indemnification of those PRPs against certain
liabilities. However, the enforceability of such indemnification
provisions is being contested by the Company in the 1990 Action.
Indemnification provisions in such agreements vary greatly in scope
and import, and the Company has contested them on various grounds.
It is not possible to predict at this point which, if any, of these
provisions will be held inapplicable or unenforceable; accordingly,
the impact upon the Company of the outcome of this issue is not
determinable at this time. Because the Company's share of
remediation costs may exceed the $12 million thus far expended by
the Company (that is, may be between the $12 million already spent
and the $37 million estimate set forth above) and may not be
covered by insurance and settlement proceeds, and because of the
Company's potential obligation to indemnify other PRPs, the Company
may be required to contribute cash or other assets at the
conclusion of the 1990 Action and the related derivative actions
and countersuits.
The Company has currently accrued $10.7 million for future
remediation costs at the Kin-Buc site. The amount ultimately borne
by the Company, as well as the timing of such future payments,
however, cannot be determined with certainty and are dependent upon
the following: (i) determination of the total costs to remediate
the landfill as required by current or future orders and directives
of the EPA, (ii) the allocation of the total remediation costs to
each of the potentially responsible parties named to the Orders,
(iii) the success of the Company's pending arbitration for
rescission or reformation of the cost sharing agreement with the
SCA Group and (iv) the success of the SCA Group's demand in
arbitration for reimbursement of 75% of the costs it has expended
to date in the remediation effort. Any or all of the preceding
items could ultimately be resolved in a manner that could have a
material adverse effect on the financial condition, results of
operations or net cash flows of the Company.
Kinsley's. Kinsley's Landfill, Inc. ("Kinsley's"), a wholly-
owned subsidiary of the Company, ceased accepting solid waste at
its landfill in Deptford Township, New Jersey on February 6, 1987
and commenced closure of that facility at that time. At December
31, 1996, Kinsley's has accrued $11.3 million for remaining costs
of closure and post-closure care of this facility, of which $9.3
million is being held in interest-bearing trust accounts. Such
funds are presently anticipated to be adequate to finance post-
closure care at the site through the year 2016 based on current
costs and absent any unforeseen changes in the condition of the
site.
Mac. Mac Sanitary Land Fill, Inc. ("Mac"), a wholly-owned
subsidiary of the Company, operated a landfill in Deptford
Township, New Jersey that ceased operations in 1977. The costs of
maintaining and monitoring at the facility are being funded by the
Company and were $34,000 and $69,000 for the years ended December
31, 1996 and 1995, respectively. At December 31, 1996, Mac has
accrued closing costs amounting to $142,000 for the costs of
continuing post-closure care and monitoring at the facility. The
Company increased its accrual for closure costs by $11,000 during
1996 and $131,000 during 1995 due to unanticipated engineering and
testing costs incurred to respond to inquiries from environmental
agencies. The accrual as of December 31, 1996 is based upon the
present value of the estimated maintenance costs of the site's
containment systems through the year 2007.
Carlstadt. In September 1995, the Court approved a settlement
of litigation regarding the allocation of the cost of remediation
of a site in Carlstadt, New Jersey, on which the Company had
operated a solvents recovery facility. The facility was last
operated by the Company in 1970. The settlement agreement relieves
the Company from future obligations to the group of responsible
parties which has been financing the remediation of the site in
exchange for a cash payment, proceeds of the settlement of certain
insurance claims and an assignment of Carlstadt-related claims that
had been filed against the Company's excess insurance carriers.
Notwithstanding such settlement, the Company may have liability in
connection with the site to the EPA for its costs of overseeing the
remediation of the site, and to parties who had not contributed to
the cost of the remediation at the time the settlement was approved
but who later do so. The Company has received no indication that
the EPA intends to assert a claim for oversight costs and the
Company believes that the EPA may not have the legal right to do
so. Based on the comprehensive discovery performed during the
litigation, the Company believes that substantially all responsible
parties have been identified, and that the share of remediation
costs that is attributable to parties who had not been contributing
to those costs is de minimis. Therefore, the Company's liability
to those parties, which would arise only if and when those parties
actually paid their share, would not be significant.
In a related matter, in October 1989, the Company, together
with owners and operators of industrial sites in the Hackensack,
New Jersey meadowlands, including a site in Wood-Ridge, were sued
in the United States District Court for the District of New Jersey
for contribution towards the cost of remediation of those sites,
adjacent lands and adjacent water courses, including Berry's Creek.
The plaintiffs in this suit, Morton International, Inc., Velsicol
Chemical Corp. and other parties who have been ordered to remediate
such industrial sites, adjacent lands and adjacent water courses,
seek contribution from the Company towards the cost of remediating
Berry's Creek, which, they allege, was contaminated, in part, by
the Company's operations at a nearby solvents recovery facility at
Carlstadt, New Jersey. Since the plaintiffs' negotiations
concerning the scope of the remediation of Berry's Creek are still
ongoing, and no discovery has taken place concerning allegations
against the Company, it is not possible to estimate the Company's
ultimate liability in this matter.
Discontinued Operations
Valve Manufacturing Segment. Hunt Valve Company, Inc.,
located in Salem, Ohio, manufactures specialty directional and flow
control valves, fluid power components, hydraulic and pneumatic
cylinders and complete valve systems for commercial and military
use. Hunt's sales constituted 91%, 89% and 92% of the Company's
consolidated operating revenue in 1992, 1993 and 1994,
respectively.
On August 17, 1995, the Company executed a letter of intent
pursuant to which the Company's wholly-owned subsidiary, THV
Acquisition Corp. ("THV"), agreed to sell all of the issued and
outstanding stock of HVHC, Inc., a Delaware corporation ("HVHC"),
the then parent of Hunt Valve Company, Inc., an Ohio corporation
("Old Hunt") to ValveCo Inc. On October 24, 1995, the Company
executed the definitive stock purchase agreement.
As part of the Company's plan to protect the market value of
Old Hunt through the severance of HVHC from the Company's
consolidated federal income tax group in 1995, thereby relieving
HVHC and Old Hunt from joint and several liability for the
Company's federal income taxes for 1996 and subsequent years, the
Company and THV caused Old Hunt to merge with and into HVHC (the
"Merger"), whose sole asset was the common stock of Old Hunt. The
Merger became effective on December 26, 1995 (the "Merger Date").
On that date, HVHC changed its name to Hunt Valve Company, Inc.
Accordingly, except as otherwise expressly provided herein, all
references to Hunt herein with respect to matters or events
preceding the Merger Date are references to Old Hunt, and all
references to "Hunt" herein with respect to matters or events on or
after the Merger Date are references to Hunt, as successor by
merger to Old Hunt.
Since the net assets of Hunt represented substantially all of
the net assets of the Company, the sale was subject to approval by
the Company's shareholders. Such approval was granted at a special
meeting of the shareholders on February 29, 1996 and the sale was
consummated on March 1, 1996. No other offers were received or
considered, and no other bids for Hunt were solicited, by the Board
of Directors.
The definitive stock purchase agreement provided for a
purchase price of $2,208,000 for Hunt's common stock, representing
$18.0 million in cash, reduced by the sum of (i) $12,721,000,
representing the amount of Hunt's indebtedness for borrowed money
as of the closing of the sale, which had been fixed by the parties
at such amount solely for purposes of determination of the purchase
price, (ii) $500,000, representing the negotiated amount required
to redeem the minority equity position held by Hunt's senior
secured note holders, (iii) $2,000,000, representing the amount
required to be paid by Hunt to THV upon the redemption by Hunt of
its issued and outstanding 7% preferred stock, without par value,
all of which was owned by THV and (iv) $571,000, representing the
amount to be paid by Hunt to THV in repayment of the senior
subordinated note issued by Hunt to THV in the original principal
amount of $500,000. The net cash proceeds of the sale (i.e., the
sum of the purchase price plus (iii) and (iv) above, less
transaction costs) were approximately $3,975,000. A portion of the
net cash proceeds ($750,000) was placed in an interest bearing
escrow account to secure the Company's indemnification obligations
to the purchaser under the purchase agreement, including
indemnification for any payments made by Hunt after the closing in
respect of income taxes owed by the Company for the period that
Hunt was a member of the Company's consolidated tax group. The
escrow will terminate upon the earlier to occur of (i) the release
of all funds from escrow in accordance with the terms thereof or
(ii) the later to occur of (x) the expiration of the applicable
statute of limitations for the assessment of federal income taxes
for all taxable years in which Hunt was a member of the Company's
consolidated tax group and (y) the satisfaction by the Company of
all assessments or other claims by the Internal Revenue Service for
taxes of the consolidated tax group for such years.
The stock of Old Hunt was acquired by the Company from two
individuals, unaffiliated with the Company, on September 27, 1991,
when THV acquired all of the stock of HVHC, whose sole asset was
Old Hunt. Through THV and HVHC, the Company invested $2.5 million
in common stock of Old Hunt and an additional $2 million in 7%
preferred stock of Old Hunt. The total consideration paid to the
two individual sellers for the capital stock of HVHC consisted of
$9.7 million in cash, including $200,000 paid for non-competition
agreements from the sellers (the "Cash Payment"), plus $500,000 in
the form of two junior subordinated five-year promissory notes of
Old Hunt. Funds for the $5.2 million balance of the Cash Payment,
together with the refinancing of approximately $7.8 million of
existing debt of Old Hunt and HVHC and additional funds for Old
Hunt's working capital, were provided by a revolving loan facility
and an aggregate of $11.5 million in term loans to Old Hunt (the
"Term Debt"). The loans were secured by substantially all of the
assets of Old Hunt. In connection with such financing, Old Hunt
issued ten-year warrants (the "Lender Warrants") entitling the
lenders of the Term Debt (the "Term Lenders") to acquire up to an
aggregate of 19.34% of the common stock of Old Hunt for a nominal
exercise price.
ValveCo Inc. ("ValveCo"), a Delaware corporation organized by
Three Cities Research, Inc. ("TCR"), a Delaware corporation
unaffiliated with the Company or any of its directors and officers,
purchased 100% of the Hunt common stock owned by THV, representing
79.05% of the issued and outstanding Hunt common stock. Eighty-
five percent of the common stock issued by ValveCo was purchased by
TCR investors and 15% was purchased by certain directors and
executive officers who are members of management of the Company
and/or Hunt, namely, Robert V. Silva, David Huberfield, Andrew J.
Mayer, Jr. and Gerald Bogner, for $150,000. Such directors and
executive officers also obtained the right to acquire, for an
aggregate cost of $2.3 million, an additional 12.5% of ValveCo's
common stock pursuant to the exercise of performance and value-
based options. In addition, the aforementioned directors and
executive officers of the Company and Hunt were employed in various
capacities by ValveCo and Hunt after the sale (see Part III, Item
12, Certain Relationships and Related Transactions).
In September and October 1995, representatives of the Company,
Hunt, the Term Lenders and the Purchaser conducted negotiations
with respect to the repurchase of the Lender Warrants and the Term
Debt, and with respect to the amount payable to the Term Lenders
upon the prepayment of the Term Debt prior to September 27, 2001
(the "Prepayment Premium"). The Prepayment Premium was determined
to be approximately $1,800,000 as of December 31, 1995. After
efforts of the Company to negotiate a reduced Prepayment Premium
were unsuccessful, representatives of TCR joined the negotiations
and offered to purchase the Term Debt and Lender Warrants on the
condition that the Term Lenders reduce the Prepayment Premium. On
October 24, 1995 (the "Term Debt Assignment Date"), the Term
Lenders entered into an agreement to assign (the "Term Debt and
Warrant Assignment") their entire interests in the Term Debt and
the Lender Warrants, to Terold N.V. ("Terold"), a designee of the
Purchaser, in consideration for a total of $11,822,480 paid to the
Term Lenders. Terold is a wholly-owned subsidiary of Real Ltd.
Real Ltd. is a party to an advisory agreement with TC Holding,
Inc., which, in turn, owns 100% of the capital stock of TCR.
Of the total consideration of $11,822,480 paid by Terold, (x)
$10,822,480 represented Hunt's outstanding Term Debt obligations
through the Term Debt Assignment Date, consisting of $10,733,334 of
principal plus $89,146 of accrued and unpaid interest on the Term
Debt through the Term Debt Assignment Date, (y) $500,000
represented payment for the Lender Warrants and (z) $500,000 was a
transaction fee payable to the Term Lenders in lieu of the
Prepayment Premium. Of such transaction fee, $250,000 was paid by
Terold and $250,000 was paid by THV to induce Terold to enter into
the Term Debt and Warrant Assignment and to waive its right, as
assignee of the Term Debt, to collect the Prepayment Premium if the
sale is consummated.
In connection with the Term Debt and Warrant Assignment, the
Company, THV, Terold and the Purchaser entered into an agreement on
the Term Debt Assignment Date (the "Recapitalization Agreement"),
pursuant to which the parties agreed as follows: On or before the
earlier of (i) the closing of the sale of Hunt's common stock and
(ii) December 26, 1995, the Company and THV would cause Old Hunt to
merge with and into HVHC, with HVHC (now known as Hunt) being the
surviving corporation in the Merger. If the closing of the sale
did not occur by December 27, 1995, Terold would exercise the
Lender Warrants (which had an exercise price of $.01 per share) to
acquire 215.79 shares, representing 19.34% of the issued and
outstanding shares, of Hunt common stock. This is the same
percentage as Terold would have acquired of Old Hunt if Terold had
exercised the Lender Warrants prior to the Merger. Concurrently
with such exercise, Terold would purchase from THV 18 shares of
Hunt, representing 2% of the common stock of Hunt held by THV (the
"Supplemental Stock"), for an aggregate purchase price of $50,000,
or $2,777.78 per share. After the exercise by Terold of the Lender
Warrants and the purchase by Terold of the Supplemental Stock, the
Company and its subsidiaries owned less than 80% of the outstanding
Hunt voting stock. As a result, Hunt ceased to be a member of the
Company's consolidated federal income tax return filing group and
therefore would not be liable for the Company's 1996 consolidated
federal income taxes.
In September 1996, the Company, Hunt and ValveCo Inc. entered
into a letter agreement which resolved certain issues related to
the allocation of Hunt's 1995 income tax liability between the
Company and Hunt, and certain issues related to provisions of the
1991 tax sharing agreement between the Company and Hunt which
continues to bind both parties. The purpose of the letter
agreement was to rectify an unintended consequence of tax
regulations concerning the allocation of such tax liability. The
Company agreed to include $360,000 (equal to 87% of Hunt's 1995
income) of income in its federal tax return in respect of the 360-
day period of 1995 during which Hunt was a member of the Company's
consolidated tax group. Hunt agreed to waive reimbursement for the
Company's carryback of Hunt's post-consolidation net losses
(incurred during the period from January 1 through February 29,
1996) to periods in which Hunt was a member of the consolidation
group. Hunt also agreed to reimburse the Company for certain
professional fees incurred by the Company with respect to these
matters.
Alkali Products. Cal-Lime, Inc. ("Cal-Lime") engaged in the
marketing of high alkali products, primarily lime slurry, to
customers needing acid neutralization agents, such as municipal and
industrial wastewater treatment plants. Sales from this business
constituted 7% of the Company's consolidated operating revenues in
1993, and 5% in 1994.
On August 31, 1995, the Company sold certain machinery,
equipment, contract rights and rights to the Cal-Lime name, and
gave a non-compete covenant, thereby effectively selling the on-
going operations of Cal-Lime which markets alkali products to a
competitor. The Company received a cash payment of $600,000 in
consideration for the assets sold, and additional payments of
$4,785 which were contingent upon the availability of lime slurry
from a specified source to the purchaser. The Company intends to
liquidate the remaining fixed assets of the subsidiary and has
included the book value of the property, buildings and equipment
not part of this transaction under the caption "assets held for
sale" on the accompanying balance sheet.
Part I, Item 2. Description of Properties.
1. A subsidiary of the Company, Filcrest Realty, Inc., owns
parcels of land totalling approximately 125 acres in Edison
Township, Middlesex County, New Jersey, which are currently not
being used. This property is located in the vicinity of the Kin-
Buc, Inc. property (see Paragraph 5 below). Approximately 26 acres
of Filcrest's property has been dedicated to the remediation of
areas neighboring the Kin-Buc, Inc. property.
2. One of the Company's subsidiaries, Kinsley's Landfill,
Inc., owns, and until February 1987, operated a landfill on
approximately 320 acres in Deptford Township, Gloucester County,
New Jersey. This landfill is now undergoing post-closure
procedures.
3. Other subsidiaries and Transtech own approximately 218
acres in Deptford Township, Gloucester County, New Jersey, which
are currently being held for sale. Certain of these parcels are
subject to mortgages which total approximately $38,000 as of
December 31, 1996. A subsidiary completed the sale of an 12 acre
parcel in March 1997.
4. Another subsidiary of the Company, Mac Sanitary Land Fill,
Inc., leased approximately 88 acres in Deptford Township,
Gloucester County, New Jersey for use as a landfill site until
February 1977. At that time, the lease was terminated in
accordance with provisions of the lease which permitted termination
when and as the landfill reached the maximum height allowed under
New Jersey law. Mac currently conducts post-closure activities at
the site.
5. Another subsidiary of the Company, Kin-Buc, Inc., owns a
27 acre site in Edison Township, Middlesex County, New Jersey, upon
which it operated a landfill. At present, only remediation
activities are conducted on the site.
6. Harrison Returns, Inc. (f/k/a Cal-Lime, Inc.), a
subsidiary of the Company, owns approximately two acres of real
property in Readington Township, Hunterdon County, New Jersey on
which a single-story office building and a two-story single family
house are situated. This property is currently held for sale.
7. The Company leases its principal executive offices in
Piscataway, New Jersey pursuant to a lease which commenced in
February 1992 and was to terminate February 28, 1997. The monthly
rent equalled $4,000 from inception through August 1992, $4,277
through June 1994, and $4,277 from December 1994 through February
28, 1997. The area subject to lease was approximately 5,132 square
feet. The Company amended the expiring lease effective March 1,
1997. The amended lease reduced the area to 2,572 square feet at
a monthly rent of $2,893 and expires August 30, 2000.
Part I, Item 3. Legal Proceedings.
As to Federal Tax Liabilities
In 1991, the Internal Revenue Service (the "Service") asserted
numerous adjustments to the tax liability of the Company and its
subsidiaries for tax years 1980 through 1988, along with interest
and penalties thereon. In 1993, after the conclusion of
administrative proceedings, the Service issued a deficiency notice
to the Company asserting adjustments to income of $33.3 million and
a corresponding deficiency in federal income taxes of approximately
$13.5 million, as well as penalties of $2.5 million and interest on
the asserted deficiency and penalties. In addition, the Service
challenged the carryback of losses incurred by the Company in
taxable years 1989 through 1991, thereby bringing those years,
which had been the subject of an ongoing audit, into the deficiency
notice. The 1989-91 tax audit is discussed below. The Company
filed a petition with the Tax Court contesting many of the proposed
adjustments asserted in the deficiency notice. On June 5, 1995,
August 14, 1995, March 7, 1996 and July 31, 1996, respectively, the
Company and the Service executed a stipulation of partial
settlement of issues in the Tax Court case and first, second and
third revised stipulations of partial settlement. These partial
settlements resolved all but two of the adjustments asserted in the
deficiency notice.
Taking into account the partial settlements that have been
concluded to date, the Company has accepted approximately $5.9
million of the $33.3 million of total adjustments to income
asserted by the Service for the 1980-88 period. Many of the
adjustments accepted by the Company relate to issues on which the
Service would likely have prevailed in Tax Court. The Service has
conceded adjustments totalling $26.7 million of taxable income and
$2.5 million of penalties, leaving only one issue, involving
several taxable years, unresolved from the 1980-88 period. The
Company cannot predict the outcome of further settlement
negotiations or litigation with the Service over that remaining
issue.
The Service has concluded an audit of the Company's 1989-91
federal income tax returns which resulted in the Service
challenging the deductions claimed by the Company in connection
with its investment in computer equipment under lease (see Note 9
to the Company's Consolidated Financial Statements). The Service
also asserted a number of smaller adjustments which have been
settled. Discussions with the Service on the computer equipment
issue are in progress. The Company cannot predict the outcome of
further settlement negotiations or litigation with the Service over
these remaining two issues.
The financial condition, results of operations and net cash
flows of the Company could be materially and adversely affected if
the Company is either unsuccessful in the defense of the issues
remaining in dispute with the Service or unable to settle such
issues in a manner which can be funded by the Company's available
resources.
As to the Kin-Buc Landfill
In 1966, Kin-Buc, Inc. ("Kin-Buc"), a wholly-owned subsidiary
of Transtech Industries, Inc. ("Transtech"), leased approximately
19 acres of land in Edison, New Jersey from Inmar Associates, Inc.
("Inmar"), a corporation controlled by Marvin H. Mahan, a former
officer, director and principal shareholder of Transtech, and
operated a waste disposal facility at that site. In 1969, another
wholly-owned subsidiary of Transtech, Filcrest Realty, Inc.
("Filcrest") acquired a number of lots near Kin-Buc's site and
several contiguous to it. In September 1975, Transtech and SCA
entered into an agreement pursuant to which a wholly-owned
subsidiary of SCA, Chemical Waste Management of New Jersey, Inc.
("CWMNJ"), and a wholly-owned subsidiary of Transtech, Wastequid,
Inc. ("Wastequid"), formed a partnership known as Earthline Company
("Earthline"). In connection with the formation of this
partnership, Kin-Buc entered into two new leases with Inmar,
superseding and replacing the 1966 lease. Pursuant to these
leases, Kin-Buc leased a total of 77 acres from Inmar, 27 acres,
including the original 19 acre disposal site, in one lot, and 50
acres in a contiguous lot. Simultaneously therewith, Earthline
entered into an agreement with Kin-Buc permitting it to dispose of
waste at the leased site. From 1972 through 1976, the Kin-Buc site
operated as a state approved facility for the disposal of solid and
liquid industrial and municipal waste. In July 1976, it stopped
accepting liquid waste. In December 1976, Kin-Buc acquired title
to the 27 acres it had been leasing from Inmar. In 1977, Kin-Buc
stopped accepting solid waste at the site. Such site is referred
to herein as the Kin-Buc Landfill. In February 1979, EPA brought
suit in the United States District Court for the District of New
Jersey against Transtech, Kin-Buc and Filcrest, certain former
officers, directors and shareholders of Transtech, and Inmar in
connection with the ownership and operation of the Kin-Buc
Landfill. This suit was placed on administrative hold by the Court
because Transtech and SCA agreed to undertake the remediation of
the site. This suit remains on administrative hold.
In 1986, Transtech sold the stock of Wastequid to SCA, and,
simultaneously therewith, Transtech, Kin-Buc, Filcrest and Inmar
(the "Transtech Group") entered into a settlement agreement (the
"Settlement Agreement") with SCA, CWMNJ, Wastequid and Earthline
(the "SCA Group") regarding the sharing of remediation costs of the
Kin-Buc Landfill, pursuant to which the Transtech Group agreed to
pay 75% of such costs and the SCA Group the remaining 25%. The
parties also agreed to establish and fund a trust for the payment
of these costs.
In June 1990, Transtech, Kin-Buc and Filcrest commenced a suit
in the United States District Court for the District of New Jersey
entitled Transtech Industries, Inc. et al. v. A&Z Septic Clean et
al. against approximately 450 generators and transporters of waste
disposed of at the Kin-Buc Landfill (the "PRPs") for contribution
towards the cost of cleanup of the landfill. Stayed for some time
pending multiple unsuccessful appeals of the denial of a motion to
dismiss brought by a group of PRPs, the suit is now in discovery.
In 1991, 1992 and 1993, Transtech, Kin-Buc, Filcrest, SCA,
CWMNJ and Wastequid (the "Kin-Buc Response Group") presented
settlement proposals to approximately 300 of these 450 PRPs; of the
450, these 300 PRPs were believed to be responsible, individually,
for no more than 1%, and in the aggregate, no more than 25% of the
non-municipal waste disposed of at the Kin-Buc Landfill (the "De
Minimis PRPs"). Approximately 200 of the 300 De Minimis PRPs
accepted settlement, paying an aggregate of approximately $10
million towards the cost of the remediation of the Kin-Buc
Landfill. With changes in ownership, mergers, consolidations,
insolvencies, bankruptcies, dissolutions and liquidations of the
PRPs from the time of their involvement with the Kin-Buc Landfill
to the conclusion of settlements, approximately 50 De Minimis PRPs,
believed to be responsible, in the aggregate, for approximately 15%
of the non-municipal waste disposed of at the Kin-Buc Landfill,
remained in the litigation, along with 24 non-De Minimis, or major
PRPs, believed to be responsible, in the aggregate, for
approximately 75% of such waste. Percentages of waste attributed
to non-owner/operator PRPs who arranged for the disposal of, or
transported waste to, the Kin-Buc landfill, are relevant to, but
not dispositive of, those PRPs' share of the cost of the
remediation of the landfill.
In November 1995, an additional 145 PRPs were joined in the
litigation. Of these, 88 are municipalities whose waste was
disposed of at the Kin-Buc landfill and 57 are companies which
transported such municipal waste to the landfill.
In December 1992, substantially all of the non-municipal waste
PRPs filed three pleadings in the case, two of which are against
Transtech or its subsidiaries. The first such pleading is a
counterclaim against Transtech, Kin-Buc and Filcrest and a third-
party complaint against other owners or alleged operators of the
Kin-Buc Landfill (including the SCA Group, Inmar, Marvin H. Mahan,
another former officer and director of Transtech and a former
principal of SCA.) The second pleading is a third-party complaint
against six parties, not named by Transtech in its complaint, which
also allegedly arranged for the disposal of or transported
hazardous wastes to the Kin-Buc Landfill. Discovery in respect of
the issues raised in these pleadings is being conducted together
with those raised in the case in chief.
The third pleading is a counterclaim against Transtech and a
third-party complaint against parties to transactions with
Transtech which are alleged to have been fraudulent conveyances.
The claimants seek to have the consideration paid in these
transactions returned and placed in the hands of a receiver. The
transactions identified are the 1988 payment of fees to a
consultant and relative of a former director of the Company for his
services in connection with the sale of the assets of Allentown
Cement Co., Inc.; the 1988 purchase of clay from Inmar; the 1988
settlement with Tang Realty, Inc. ("Tang"), a corporation
controlled by Marvin H. Mahan, for the remediation of its
Piscataway, New Jersey property; a 1989 bonus to a former officer
and director of Transtech; and the 1989 redemption of Transtech
stock from certain shareholders. Transtech has denied these
allegations and has been defending certain former officers and
directors and redeemed shareholders with respect to some of the
issues raised in this pleading. Discovery is being conducted
separately on these issues.
During August 1993, the Company served a demand for
arbitration (the "Transtech Arbitration") on WMX Technologies, Inc.
("WMX") (formerly named Waste Management, Inc.) and the SCA Group.
The Company is seeking reformation or rescission of the Settlement
Agreement, including the apportionment of Kin-Buc Landfill
remediation costs, and reimbursement of overpayments made in
accordance therewith. WMX brought an action in the Supreme Court
for the State of New York in September 1993 seeking to enjoin the
Transtech Arbitration. The Transtech Arbitration has been stayed
pending a decision by the Court. In February 1995, the Court
assigned WMX's and the SCA Group's motion to permanently enjoin the
Transtech Arbitration to a special referee to report and recommend
with regard to the claim that the Transtech Arbitration should be
enjoined permanently on the grounds that the statute of limitations
has run.
In October 1995, a referee appointed by the Court to determine
when the Company knew or should have known facts giving rise to its
legal right to challenge the 1986 agreement (that is, what the cost
to remediate the Kin-Buc Landfill would be), found that the Company
knew or should have known such facts as early as 1986. In November
1995, the SCA Group moved to confirm the referee's report and the
Company moved to reject it. In January 1996, the Court ruled that
the referee had not considered the appropriate issues and remanded
the referral to the same referee for another hearing, which has not
yet been scheduled.
In March 1995, while the Court's referral on the Company's
arbitration was pending, the SCA Group filed a demand for
arbitration (the "SCA Arbitration") seeking reimbursement from the
Company of 75% of remediation expenses purportedly funded by WMX
through that time. The Company brought an action in the Supreme
Court for the State of New York in March 1995 seeking to stay the
SCA Arbitration pending a decision on WMX's and the SCA Group's
motion to enjoin the Transtech Arbitration. In April 1995, the
Court narrowed the issues to be arbitrated to the amount of funds
expended on the remediation and the reasonableness of such
expenditures and made any findings on such issues subject to
resolution of the Company's arbitration as to the enforceability of
the 1986 agreement. While final discovery in the SCA Arbitration
was being completed and immediately prior to the commencement of
hearings in the SCA Arbitration and the re-scheduling of the
referee's hearing in the Transtech Arbitration, the Company and the
SCA Group agreed to postpone proceedings in both arbitrations
pending the outcome of settlement discussions. These discussions
are ongoing, and no prediction as to the outcome thereof can be
made at this time.
The Company believes that a portion of the owner-operator
share of the cost of the remediation of the Kin-Buc Landfill will
be allocated to it by the Court. At this point, management is
unable to assess whether this portion will exceed the costs already
borne by the Company. Further, it is too early in the proceedings
in the Transtech Arbitration and the SCA Arbitration to assess
whether the Settlement Agreement will be enforced, and whether, if
it is enforced, recoveries from PRPs and the Company's insurance
carriers will be sufficient to satisfy the Company's obligations
thereunder. The financial condition, results of operations and net
cash flows of the Company will be materially and adversely affected
if the Company is required to make any significant additional
contribution to the cost of the remediation.
In April 1991, Inmar demanded that, in accordance with certain
provisions of the lease from Inmar to Kin-Buc of 50 acres upon
which a portion of the Kin-Buc Landfill is located, Transtech
indemnify Inmar and Marvin H. Mahan against liability for
remediation of such property and pay Inmar $6.6 million in damages
for loss of value of its adjoining property. These demands are the
subject of negotiations with Inmar discussed below.
As to the Clay Deposits
In 1988, Kin-Buc purchased 150,000 cubic yards of clay for use
in the closure of the Kin-Buc Landfill for $1.2 million from Inmar.
Pursuant to the agreement for the purchase of the clay, Kin-Buc is
entitled to a refund of the purchase price of clay it is unable to
mine or can not use. In October 1996, the Company learned that
Inmar had contracted to sell a substantial portion of its land,
upon which a substantial amount of the clay is situated, to Edison
Expansion, Inc. ("Expansion") In November 1996, Kin-Buc brought
suit entitled Kin-Buc, Inc., v. Inmar Associates, Inc. and Edison
Expansion, Inc. in Superior Court, Morris County, New Jersey
("Superior Court") against Inmar and Expansion for, among other
things, a declaratory judgment that Kin-Buc's rights in the clay
would survive a sale of the land to Expansion and, alternatively,
a money judgment against Inmar. Kin-Buc also filed a lis pendens
against the Inmar property. In December 1996, Expansion sought and
obtained a discharge of the lis pendens and a closing of the sale
to Expansion took place in January 1997. In accordance with an
order of the Superior Court entered in another matter involving
Inmar, the net proceeds of the sale was paid into the Superior
Court. Kin-Buc is seeking an order from the Superior Court that,
subject to senior claims, such proceeds are to be paid to Kin-Buc
if it obtains a money judgment against Inmar in its action. These
proceeds are substantially less than Kin-Buc's claim against Inmar.
Upon entry of an order concerning the disposition of the proceeds,
Inmar and Expansion will be required to answer Kin-Buc's complaint.
Kin-Buc may ultimately obtain a declaratory judgment, an award of
money damages against Inmar, or both. There is no assurance that
Kin-Buc will be able to mine and remove the clay on Expansion's
property or Inmar's remaining property even if Kin-Buc obtains a
declaratory judgment. In addition, there is no assurance that Kin-
Buc will be permitted to draw against the proceeds in the Superior
Court. Lastly, there is substantial uncertainty that Inmar will be
financially capable of paying damages to Kin-Buc.
As to the Carlstadt Site
Transtech is one of 43 respondents to a September 1990
Administrative Order of the EPA concerning the implementation of
interim environmental remediation measures at a site in Carlstadt,
New Jersey owned by Inmar and operated by Transtech as a solvents
recovery plant for approximately five years ending in 1970.
In 1988, Transtech, Inmar and Marvin H. Mahan were sued in a
civil action in the United States District Court for the District
of New Jersey entitled AT&T Technologies, Inc. et al. v. Transtech
Industries, Inc. et al. v. Allstate Insurance Company et al. (the
"AT&T Suit") by a group of generators of waste (the "AT&T Group")
alleging, among other things, that the primary responsibility for
the clean-up and remediation of the Carlstadt site rests with
Transtech, Inmar and Marvin H. Mahan.
In September 1995, the Court approved a settlement of the AT&T
Suit among Transtech, Inmar, Mr. Mahan, the AT&T group and other
generators and transporters of waste handled at the Carlstadt site
who had contributed to the costs of the remediation of the site.
Pursuant to such settlement, Transtech, Inmar and Mr. Mahan agreed
to (i) pay $4.1 million of proceeds from settlements with primary
insurers of a coverage action brought by the Company and Inmar
against their primary and excess insurers, (ii) pay an additional
$145,000 ($72,500 from Transtech and $72,500 from Inmar and Mr.
Mahan) and (iii) assign their Carlstadt Site-related insurance
claims against an excess insurer in exchange for a complete release
from these parties of all liability arising from or on account of
environmental contamination at the Carlstadt Site and the parties'
remediation of the same. Notwithstanding such settlement, the
Company may have liability in connection with the site to the EPA
for its cost of overseeing the remediation of the site, and to
parties who had not contributed to the remediation at the time the
settlement was approved but who later do so. The Company has
received no indication that the EPA intends to assert a claim for
oversight costs and the Company believes that the EPA may not have
the legal right to do so.
In a related matter, in October 1989, the Company, together
with owners and operators of industrial sites in the Hackensack,
New Jersey meadowlands, including a site in Wood-Ridge, were sued
in the United States District Court for the District of New Jersey
for contribution towards the cost of remediation of those sites,
adjacent lands and adjacent water courses, including Berry's creek.
The plaintiffs in this suit, Morton International, Inc., Velsicol
Chemical Corp. and other parties who have been ordered to remediate
such industrial sites, adjacent lands and adjacent water courses,
seek contribution from the Company towards the cost of remediating
Berry's Creek, which, they allege, was contaminated, in part, by
the Company's operations at a nearby solvents recovery facility at
Carlstadt, New Jersey. Shortly after the institution of suit, the
plaintiffs began negotiating with the governmental entities which
ordered the remediation of the sites, adjacent land and adjacent
water courses, as to the scope of remediation and, pending those
negotiations, had stayed the suit. In August 1996, the plaintiffs
reinstituted the suit but shortly therafter agreed to sever claims
against the Company and proceed against other defendants. As a
result, the claims against the Company have again been stayed.
Since the plaintiffs' negotiations concerning the scope of the
remediation of Berry's Creek are still ongoing, and no discovery
has taken place concerning allegations against the Company, it is
not possible to estimate the Company's ultimate liability in this
matter.
In December 1989, Inmar and Transtech agreed to share equally
certain costs in connection with the AT&T Suit. As of December 31,
1992, Transtech paid $514,000 towards such costs. Inmar has
disputed which expenses are to be shared. Further, in April 1991,
Marvin H. Mahan made a demand upon Transtech for reimbursement of
approximately $300,000 in costs which he incurred in connection
with the AT&T Suit. The dispute concerning the shared expenses and
Mr. Mahan's demand for reimbursement are subjects of the
negotiations with Inmar discussed below.
As to the Tang Site
Pursuant to a December 1988 agreement with Tang, in 1988, 1989
and 1990 Transtech spent approximately $4.3 million for the
remediation of a Piscataway, New Jersey site owned by Tang and
operated by Transtech for a limited period of time. In October
1990, Transtech determined that it would no longer continue to
contribute to the remediation of that site. The EPA is performing
remediation at the site and has requested information from
approximately 100 potentially responsible parties concerning their
involvement with the Tang site. Transtech has had no direct
involvement with the EPA since October 1990 and has not been the
recipient of an EPA request for information.
In connection with its determination not to continue to
contribute to the remediation of the Tang site, in March 1991
Transtech made a demand upon Tang for reimbursement of the amounts
it had expended in connection with such remediation. In April
1991, Tang rejected the demand for reimbursement and demanded
Transtech resume the remediation. These demands are the subject of
negotiations with Tang discussed below.
As to Negotiations with Mahan Interests
Transtech has been negotiating with Inmar, Tang and Marvin H.
Mahan (collectively, the "Mahan Interests") toward a settlement of
disputes with Transtech, including those involving the indemnity
against liability for remediation of the Kin-Buc Landfill and the
demand for damages for loss of value of property adjoining the Kin-
Buc Landfill, the sharing of expenses of the AT&T Suit, and the
reimbursement of remediation costs at the Tang site. Such
negotiations are continuing. The Company believes that, if decided
against the Company, the outcome of any suit brought by the Mahan
Interests on the basis of any or all such claims would have a
materially adverse effect on the financial condition of the
Company. Management is unable to determine at this time whether
the Mahan Interests will bring suit against the Company on any or
all such claims.
As to Sale of a Subsidiary
In June 1992, Transtech was sued in the United States District
Court for the Eastern District of Pennsylvania by Eastern
Industrial Corporation ("Eastern") and John Moore, a former officer
of Transtech. The plaintiffs sought an order declaring Transtech
in breach of an indemnity provision of a Stock Purchase Agreement
which effected a sale by Transtech to Moore in 1986 of all of the
stock of Eastern, then a wholly-owned subsidiary of Transtech, and
demanding indemnification from Transtech against certain
environmental liabilities allegedly arising from operations of
Eastern prior to the sale to Moore.
During December 1993, a settlement was reached which provided
the plaintiffs with a nominal cash payment from the Company and the
ability to recover from the Company up to $300,000 for
reimbursement of certain expenditures if after two years the
plaintiffs are unsuccessful in their efforts to obtain coverage for
certain liabilities from the Company's and the plaintiffs'
insurance carriers. No such demand for reimbursement has been made
by the plaintiffs.
General
In the ordinary course of conducting its business, the Company
becomes involved in certain lawsuits and administrative proceedings
(other than those described herein), some of which may result in
fines, penalties or judgments being assessed against the Company.
The management of the Company is of the opinion that these
proceedings, if determined adversely individually or in the
aggregate, are not material to its business or consolidated
financial position.
The uncertainty of the outcome of the aforementioned tax
litigation and audit and environmental litigation and the impact of
future events or changes in environmental laws or regulations,
which cannot be predicted at this time, could result in increased
remediation and closure costs, and increased tax and other
potential liabilities. A significant increase in such costs could
have a material adverse effect on the Company's financial position,
results of operations and net cash flows. The Company may
ultimately incur costs and liabilities in excess of its available
financial resources.
Part I, Item 4. Submission of Matters to a Vote of
Security Holders.
None during the quarter ended December 31, 1996.
PART II
Part II, Item 5. Market for Common Equity and Related
Stockholder Matters.
The information required under this Item is incorporated
herein by reference to the Company's Annual Report to Stockholders
filed herewith as Exhibit 13.
Part II, Item 6. Management's Discussion and Analysis or Plan
of Operation.
The information required under this Item is incorporated
herein by reference to the Company's Annual Report to Stockholders
filed herewith as Exhibit 13.
Part II, Item 7. Financial Statements.
The information required under this Item is incorporated
herein by reference to the Company's Annual Report to Stockholders
filed herewith as Exhibit 13.
Part II, Item 8. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure.
None.
PART III
Part III, Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with Section
16(a) of the Securities Exchange Act.
Directors and Executive Officers of the Company
Robert V. Silva (53) - President and Chief Executive Officer
and a director of the Company from April 1991 and Chairman of the
Board of Directors from November 1991. Mr. Silva served as a
consultant to the Company from December 1990 until his appointment
in April 1991 as an officer of the Company. Mr. Silva was employed
from September 1987 to December 1990 as Executive Vice President of
Kenmare Capital Corp. ("Kenmare"), an investment firm, and provided
financial and management consulting services to companies acquired
by Kenmare's affiliates. In connection with such financial and
management services, Mr. Silva served as Vice President and a
Director of Old American Holdings, Inc. and its subsidiary from
1988 to 1990, and Vice President and a Director of Compact Video
Group, Inc. and its subsidiaries from 1988 to 1991 and of Manhattan
Transfer/Edit, Inc. from 1989 to 1991. Mr. Silva also served as a
Director of General Textiles from 1989 to 1991. From June 1985 to
September 1987, Mr. Silva served as Vice President of, and provided
management consulting services to, The Thompson Company, a private
investment firm controlled by the Thompson family of Dallas, Texas.
Mr. Silva served as Chairman and Chief Executive Officer of Hunt
Valve Company, Inc., a former subsidiary of the Company, from March
1, 1996 to his resignation effective January 1, 1997. Mr. Silva
also served as Vice President and a Director of ValveCo Inc., the
entity which acquired Hunt, from OCtober 10, 1995 to his
resignation effective January 1, 1997. From September 1996 to
February 14, 1997, Mr. Silva served as a Director of Hunt's
subsidiary, Hunt SECO Engineering, Ltd. and its subsidiaries. Mr.
Silva remains a Director of Hunt. Mr. Silva is also the principal
of Robert V. Silva and Company, Inc., an investment firm. Mr.
Silva's wife is the sister-in-law of Gary Mahan, the son of Marvin
H. Mahan and Ingrid T. Mahan.
Arthur C. Holdsworth, III (49) - A director of the Company
since 1988. Since August 1991, Mr. Holdsworth has been Vice
President of Sales at Millington Quarry, Inc. Prior to that and
from 1977, Mr. Holdsworth was General Manager of Dallenbach Sand
Co., Inc. Millington Quarry, Inc., is owned by members of the
Mahan family. Dallenbach Sand was previously owned by members of
the Mahan family.
Andrew J. Mayer, Jr. (41) - Vice President-Finance and Chief
Financial Officer of the Company from November 1991 and a director
of the Company from December 1991 and, from April 1992, Secretary
of the Company. From 1988 to November 1991, Mr. Mayer served as
Vice President, Secretary and Treasurer of Kenmare. From 1984 to
1988, Mr. Mayer served as Financial Analyst and Controller of
Kenmare. In connection with management and financial services
provided by Kenmare, Mr. Mayer served in a variety of capacities
for the following companies: Old American Holdings, Inc. and its
subsidiary from 1988 to 1991; The Shannon Group, Inc. and its
subsidiaries from 1988 to 1990; Detroit Tool Group, Inc. and its
subsidiaries from 1989 to 1990; Compact Video Group, Inc. from 1988
to 1991; Manhattan Transfer/Edit, Inc. from 1989 to 1991; and
General Textiles from 1989 to 1990. Mr. Mayer served as Executive
Vice President of Hunt Valve Company, Inc., a former subsidiary of
the Company from March 1, 1996, the date the Company sold Hunt, to
his resignation effective January 1, 1997. Mr. Mayer also served
as Vice President - Chief Financial Officer of ValveCo Inc. from
April 3, 1996 through his resignation effective January 1, 1997.
From September 1996 to February 14, 1997, Mr. Mayer served as a
Director of Hunt's subsidiary, Hunt SECO Engineering, Ltd. and its
subsidiaries.
Compliance with Section 16(a) of Securities
Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's officers and directors, and persons who own more than
ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors
and greater than ten-percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a)
forms they file. Base solely on a review of the copies of such
forms furnished to the Company, or written representations that no
Forms 5 were required, the Company believes that during the
Company's fiscal year ending December 31, 1996 all Section 16(a)
filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with.
Part III, Item 10. Executive Compensation.
Summary Compensation Table
The following table summarizes the compensation paid to or
earned by the President and Chief Executive Officer (the "Chief
Executive Officer") and the Vice President-Finance, Chief Financial
Officer and Secretary (the "Named Executive Officer") in the years
ending December 31, 1996, 1995 and 1994 ("Fiscal 1996", "Fiscal
1995" and "Fiscal 1994", respectively) for services rendered by
them to the Company in all capacities during such years. Both the
Chief Executive Officer and the Named Executive Officer were the
only executive officers of the Company whose total annual salary
and bonus exceeds $100,000 and were serving as executive officers
of the Company at December 31, 1996.
Annual Compensation
Other
Name and Annual
Principal Fiscal Compen-
Position Year Salary Bonus sation (a)
Robert V. Silva 1996 $176,804(b) $0 $90
President and Chief 1995 $278,688(c) $25,000(c) $1,964
Executive Officer 1994 $264,000(d) $48,000(d) $2,668
Andrew J. Mayer, Jr.1996 $136,000 $0 $1,360
Vice President- 1995 $136,000 $0 $1,435
Finance, Chief 1994 $126,000 $7,500 $1,270
Financial Officer
and Secretary
Long Term Compensation
Awards Payouts
Options/ Long-Term All
Name and Restricted Stock App- Incentive Other
Principal Fiscal Stock reciation Plan Compen-
Position Year Awards Rights Payouts sation
Robert V. Silva 1996 0 0 0 0
President and Chief 1995 0 0 0 0
Executive Officer 1994 0 0 0 0
Andrew J. Mayer, Jr.1996 0 0 0 0
Vice President- 1995 0 0 $10,000(e) 0
Finance, Chief 1994 5,000 0 $10,000(e) 0
Financial Officer
and Secretary
(a) In each case, the amount shown as other annual
compensation is the Company's matching contributions to its 401(k)
Plan on behalf of the Chief Executive Officer and the Named
Executive Officer during each of Fiscal 1996, Fiscal 1995 and
Fiscal 1994. In each of Fiscal 1996, Fiscal 1995 and Fiscal 1994,
the Company's 401(k) Plan provided for a match equal to 50% of a
participant's contribution to the plan in that year, subject to a
maximum of (i) 2% of compensation in that year or (ii) applicable
Internal Revenue Service limits.
(b) Mr. Silva's Fiscal 1996 annual compensation of $176,804
was allocated $160,000 to the Company and $16,804 to Hunt for the
period of 1996 Hunt was a subsidiary of the Company. Mr. Silva
served as Chairman of the Board of Directors and Chief Executive
Officer of Hunt.
(c) Mr. Silva's Fiscal 1995 aggregate annual compensation of
$278,688 was allocated $160,000 to the Company and $118,688 to
Hunt. The bonus of $25,000 was paid by Hunt.
(d) Mr. Silva's Fiscal 1994 aggregate annual compensation of
$264,000 was allocated $160,000 to Transtech and $104,000 to Hunt.
The bonuses totalling $48,000 were paid by Hunt.
(e) Represents Fiscal 1995 and Fiscal 1994 director fees paid
by Hunt.
Stock Option Plans
The following table sets forth, with respect to grants of
stock options and stock appreciation rights ("SARs") to the Chief
Executive Officer and the Named Executive Officer during Fiscal
1996: (a) the number of options granted; (b) the percent the grant
represents of total options granted to employees during Fiscal
1996; (c) the per-share exercise price of the options granted; and
(d) the expiration date of the options.
OPTION/SAR GRANTS IN FISCAL 1996
% Of Total
Options/SARs*
Options/ Granted to Exercise
SARs* Employees in or Base Expiration
Name Granted (#) Fiscal Year Price ($/sh) Date
Robert V. Silva 0 N/A N/A N/A
Andrew J. Mayer, Jr. 0 N/A N/A N/A
*No SARs have been issued by the Company.
The following table sets forth: (a) the number of shares
received and the aggregate dollar value realized in connection with
each exercise of outstanding stock options during Fiscal 1996 by
the Chief Executive Officer and the Named Executive Officer; (b)
the total number of all outstanding, unexercised options
(separately identifying exercisable and unexercisable options) held
by such executive officers as of the end of Fiscal 1996; and (c)
the aggregate dollar value of all such unexercised options that are
in-the-money (i.e., options as to which the fair market value of
the underlying common stock of the Company that is subject to the
option exceeds the exercise price of the option), as of the end of
Fiscal 1996.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1996
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Value of Unexercised
Unexercised In-the-Money
Shares Options/SARs* at Options/SARs* at
Acquired on Fiscal Year-End(#) Fiscal Year-End($)
Acquired Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
Robert V.
Silva 0 N/A 50,000/0 0/0
Andrew J.
Mayer, Jr. 0 N/A 5,000/0 0/0
* No SARs have been issued by the Company.
Compensation of Directors
Directors of the Company who are not also employees are paid
annual directors' fees of $1,875 per calendar quarter, plus $500
for attending each meeting of the board. In Fiscal 1996, Arthur C.
Holdsworth, III earned fees of $9,000.
Part III, Item 11. Security Ownership of Certain Beneficial Owners
and Management.
As of the close of business on March 18, 1997, the Company has
issued and outstanding 2,829,090 shares of Common Stock, which
figure excludes 1,885,750 shares owned by the Company which are not
outstanding and are not eligible to vote.
Set forth below is a table showing, as of March 18, 1997, the
number of shares of Common Stock owned beneficially by:
(1) each person known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of such
Common Stock;
(2) each director of the Company;
(3) the chief executive officer of the Company (the
"Chief Executive Officer");
(4) the most highly compensated executive officers of
the Company (other than the Chief Executive Officer) whose total
annual salary and bonus exceeds $100,000 (the "Named Executive
Officer"); and
(5) all officers and directors of the Company as a
group.
Unless otherwise specified, the persons named in the table
below and footnotes thereto have the sole right to vote and dispose
of their respective shares.
Name and Address of
Beneficial Owner and Number of Shares Percentage
Identity of Group Beneficially Owned of Class
Herzog, Heine & Geduld 368,453 (a) 13.0%
525 Washington Blvd.
Jersey City, NJ 07310
Roger T. Mahan 325,435 (b),(e) 11.5%
47 McGregor Avenue
Mt. Arlington, NJ 07856
Nancy M. Ernst 321,775 (b),(c),(e) 11.3%
2229 Washington Valley Rd.
Martinsville, NJ 08836
Gary A. Mahan 310,601 (b),(d),(e) 11.0%
53 Cross Road
Basking Ridge, NJ 07920
Robert V. Silva 50,000 (f) 1.8%
200 Centennial Avenue
Piscataway, NJ 08854
Arthur C. Holdsworth, III 0 --
200 Centennial Avenue
Piscataway, NJ 08854
Andrew J. Mayer, Jr. 5,000 (g) .2%
200 Centennial Avenue
Piscataway, NJ 08854
All executive officers 55,000 (h) 2.0%
and directors as a group
(3 in group)
(a) Includes 41,200 shares owned by customers of this firm.
(b) Roger T. Mahan, Nancy M. Ernst and Gary A. Mahan are the
children of Marvin H. Mahan, a former officer, director and
principal shareholder of the Company, and his wife, Ingrid T.
Mahan. Marvin H. and Ingrid T. Mahan disclaim beneficial ownership
of the shares owned by their children.
(c) Includes 8,600 shares owned by Nancy M. Ernst's husband,
Kenneth A. Ernst, and 18,200 shares owned by their minor children.
Mr. Ernst was a director of the Company from June 1987 through
April 29, 1994.
(d) Includes 8,600 shares owned by Gary A. Mahan's wife,
Elizabeth Mahan, and 8,600 shares owned by their minor child.
(e) Members of the Mahan family, consisting of Roger T. Mahan,
Nancy M. Ernst and Gary A. Mahan, their spouses and children and
their parents, Marvin H. Mahan and Ingrid T. Mahan, own 967,911
shares of Common Stock, which represent approximately 34% of the
shares outstanding. In addition, Ingrid T. Mahan is executrix of
the estate of Arthur Tang, which owns an additional 32,750 shares
of such common stock.
(f) Represents incentive options to purchase 50,000 shares at
$.75 per share, all of which are presently exercisable.
(g) Represents incentive options to purchase 5,000 shares at
$0.438 per share, all of which are presently exercisable.
(h) Consists of incentive options to purchase 55,000 shares
held by two officers of the Company, all of which are presently
exercisable.
Part III, Item 12. Certain Relationships and Related Transactions.
In 1988, Marvin H. Mahan, a former officer, director and
principal shareholder of the Company, Inmar Associates, Inc.
("Inmar"), a New Jersey corporation controlled by Mr. Mahan, and
Transtech were sued in a civil action in the United States District
Court for the District of New Jersey entitled AT&T Technologies,
Inc. et al. v. Transtech Industries, Inc. et al. v. Allstate
Insurance Company et al. (the "AT&T Suit") by a group of generators
of waste (the "AT&T Group") alleging, among other things, that the
primary responsibility for the clean-up and remediation of a
Carlstadt, New Jersey site operated by the Company as a solvents
recovery plant for a five year period ended in 1970 rests with the
Company, Inmar and Mr. Mahan. Thereafter, the Company and Inmar
brought third-party actions against, among others, the insurance
companies which issued policies of comprehensive general liability
insurance to them and to another operator of the site now in
dissolution. Settlements with these insurers resulted in payments
to Transtech, Inmar and Mr. Mahan of a total of $4.075 million
which was applied to the Company's, Inmar's and Mr. Mahan's
liability to the AT&T Group. The Company believes that the terms
of the settlements are no less favorable to the Company than could
be obtained with non-affiliated parties.
In December 1989, the Company and Inmar agreed to share
equally certain expenses in connection with the AT&T Suit. As of
December 31, 1992, the Company paid $514,000 towards such costs.
Inmar has disputed which expenses are to be shared. Further, in
April 1991, Mr. Mahan made a demand upon the Company for
reimbursement of approximately $300,000 in costs which he incurred
in connection with the AT&T Suit. The dispute concerning the
shared expenses and Mr. Mahan's demand for reimbursement are
subjects of the negotiations with Inmar discussed below.
Pursuant to a December 1988 agreement with Tang Realty, Inc.
("Tang"), a corporation controlled by Mr. Mahan, in 1988, 1989 and
1990 the Company spent approximately $4.3 million for the
remediation of a Piscataway, New Jersey site owned by Tang and
operated by the Company for a limited period of time. In October
1990, the Company determined that it would no longer continue to
contribute to the remediation of that site and in March 1991 the
Company made a demand upon Tang for reimbursement of the amounts it
had expended in connection with such remediation. In April 1991
Tang rejected the demand for reimbursement and demanded the Company
resume the remediation. These demands are the subject of
negotiations with Tang discussed below. One of the Company's
wholly-owned subsidiaries, Kin-Buc, Inc. ("Kin-Buc"), leased from
Inmar approximately 50 acres of land upon which a portion of the
Kin-Buc landfill (the "Kin-Buc Landfill") is located. This lease
ran to July 1995. The annual base rent of $162,500 had been waived
by Inmar because the Kin-Buc Landfill was not operating. In April
1991, Inmar demanded that, in accordance with certain provisions of
the Kin-Buc Lease, the Company indemnify Inmar and Mr. Mahan
against liability for remediation of the leased tract, and pay
Inmar $6.6 million in damages for loss of value of its adjoining
property. These demands are the subject of negotiations with Inmar
discussed below.
In 1988, Kin-Buc paid $1,200,000 to Inmar for clay to be used
for the closure of the Kin-Buc Landfill. Under its agreement with
Inmar, the Company has a right to a refund of the purchase price of
the clay if it is unable to extract or use the clay. However,
there is substantial uncertainty that the Company will be able to
obtain a refund of the purchase price (see Part I, Item 3. Legal
Proceedings - "As to the Clay Deposits").
Since Mr. Mahan's retirement from the Company, it has provided
Mr. Mahan the use of an automobile and contributed to the expenses
of maintaining an office for his use including secretarial
services. Such expenses totalled approximately $14,000 and $21,000
in 1996 and 1995, respectively.
The Company has been negotiating with Inmar, Tang and Mr.
Mahan (collectively, the "Mahan Interests") toward a settlement of
disputes with the Company, including those involving Mr. Mahan's
and Inmar's claims for indemnity against liability for remediation
of the Kin-Buc Landfill and the demand for damages for loss of
value of property adjoining the Kin-Buc Landfill, the sharing of
expenses of the AT&T Suit, and the reimbursement of remediation
costs at the Tang site. Negotiations to date have not yielded any
definitive agreement on any of the disputed issues. The filing, in
December 1992, of two third-party actions in the Company's action
against generators and transporters of waste disposed of at the
Kin-Buc Landfill by a group of defendants in that action against
Inmar and Mr. Mahan (among others) for contribution to the costs of
the remediation of the Landfill, and against the Mahan Interests
(among others) for the return of amounts paid to the Mahan
Interests in allegedly fraudulent transactions with the Company
(one such transaction being the Company's reimbursement of
remediation costs at the Tang site), made resolution between the
Company and the Mahan Interests of the issues being negotiated in
advance of resolution of such third-party actions inadvisable, from
the Company's point of view. The Mahan Interests and the Company
have agreed to waive, as a defense to any suit on such disputes
which any of them might bring against any other, the preclusion of
suit resulting from such party's not having joined such disputes in
the third-party actions.
On August 28, 1992, the Company made an advance of $10,000 to
Robert V. Silva, President and Chairman of the Board of the
Company. The advance was evidenced by an interest bearing note.
The note and accrued interest thereon was repaid in full during
1996. On April 22, 1994 the Company made a loan of $75,000 to Mr.
Silva evidenced by a note which bears interest at a floating prime
rate plus 1% and is due and payable in as determined by the Board
of Directors. A total of $95,000 was outstanding with respect to
the loan, including interest, as of December 31, 1996. The Company
believes that the terms of the loan to Mr. Silva are no less
favorable to the Company than could be obtained with non-affiliated
parties.
On March 1, 1996, ValveCo Inc. ("ValveCo"), a Delaware
corporation organized by Three Cities Research, Inc. ("TCR"), a
Delaware corporation unaffiliated with the Company or any of its
directors and officers, purchased 100% of the Hunt Valve Company,
Inc. common stock owned by THV Acquisition Corp, a wholly- owned
subsidiary of the Company, representing 79.05% of the issued and
outstanding Hunt common stock. Fifteen percent of the common stock
issued by ValveCo was purchased by certain directors and executive
officers who are members of management of the Company and/or Hunt,
namely, Robert V. Silva (7.5%), David Huberfield (4%), Andrew J.
Mayer, Jr. (2%) and Gerald Bogner (1.5%) for $150,000. Such
directors and executive officers also obtained the right to
acquire, for an aggregate cost of $2.3 million, an additional 12.5%
of ValveCo's common stock pursuant to the exercise of performance
and value-based options. In addition, the aforementioned directors
and executive officers of the Company and Hunt were employed in
various capacities by ValveCo and Hunt after the sale (see Part I,
Item 1, Description of Business, Discontinued Operations). Mr.
Silva resigned from his employment with ValveCo and Hunt effective
January 1, 1997, but remains a director of Hunt. Mr. Mayer also
resigned from his employment with ValveCo and Hunt effective
January 1, 1997.
PART IV
Part IV, Item 13. Exhibits and Reports on Form 8-K.
Exhibits
The exhibits to this report are listed in the Exhibit Index on
pages 37 to 40.
Reports on Form 8-K
None were filed during the quarter ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, hereunto duly
authorized.
TRANSTECH INDUSTRIES, INC.
(Registrant)
By: /s/ Robert V. Silva
Robert V. Silva, President and
Chief Executive Officer
and Director
Dated: March 27, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Company and in the capacities and on the date
indicated.
/s/ Robert V. Silva March 27, 1997
Robert V. Silva, President and
Chief Executive Officer
and Director
/s/ Andrew J. Mayer, Jr. March 27, 1997
Andrew J. Mayer, Jr.
Vice President-Finance, Chief
Financial Officer, Secretary and
Director
EXHIBIT INDEX
Sequential
Exhibit No. Page No.
3 Articles of Incorporation and By-Laws:
3 (a) Articles of incorporation: Incorporated by
reference to Exhibit 3 (a) to the Company's
Annual Report on Form 10-K for fiscal year
ended December 31, 1989
3 (b) By-laws: Incorporated by reference to Exhibit
3 (b) to the Company's Annual Report on Form
10-K for fiscal year ended December 31, 1989
3 (c) Amended and restated by-laws: See "G" below
10 Material contracts:
10 (a) Stock Purchase Agreement dated June 29, 1989
among the Company and the Tendering
Shareholders, as therein defined: See "A"
below
10 (b) Stock Option Cancellation Agreement dated June
29, 1989 among the Company, Charles F. Trapp
and Edward Egan: See "B" below
10 (c) Purchase Agreement dated as of July 14, 1989
between The Tax Strategy Group, Inc. and the
Company: See "B" below
10 (d) Non-Negotiable, Non-Recourse Installment
Promissory Note dated as of July 14, 1989 by
the Company to The Tax Strategy Group, Inc.:
See "B" below
10 (e) Security Agreement dated as of July 14, 1989
between the Company and The Tax Strategy
Group, Inc.: See "B" below
10 (f) Master Lease Agreement dated as of July 14,
1989 between The Tax Strategy Group, Inc. and
CLI Equity Resources XV, L.P. ("CLI"),
assigned by CLI to the Company by Consent and
Assignment Agreement dated as of July 14,
1989: See "B" below
Sequential
Exhibit No. Page No.
10 (n) Property Purchase Agreement dated December 31,
1992 by and among Red Robin Realty, Inc. as
Seller and James Messner, Sr. and James
Messner, Jr. as Buyers: See "C" below
10 (o) Asset Purchase Agreement dated December 31,
1992 by and among Genetic Farms, Inc., as
Seller and James Messner, Sr. and James
Messner, Jr., as Buyers: See "C" below
10 (p) Settlement Agreement and Mutual Release dated
October 28, 1992 among Transtech Industries,
Inc. and certain of its subsidiaries and
affiliates, Inmar Associates, Inc. and certain
of its affiliates, Marvin H. Mahan, Roger T.
Mahan and The Continental Insurance Company:
See "C" below
10 (q) Order for Approval of De Minimis Settlement
and for Dismissal of Certain Defendants of the
District Court for the District of New Jersey
dated November 2, 1992 in Transtech
Industries, Inc. et al. v. A&Z Septic Clean,
et al., Civil Action No. 90-2578 (HAA)
approving settlements with certain defendants
identified on Exhibits 1 and 2 to such Order
pursuant to The Kin-Buc Landfill Contribution
Agreement in the form of Exhibit 3 to such
Order: See "C" below
10 (y) Settlement Agreement and Mutual Release dated
May 31, 1994 among Transtech Industries, Inc.
and certain of its subsidiaries and
affiliates, Inmar Associates, Inc. and certain
of its affiliates, Marvin H. Mahan, Roger T.
Mahan and The City Insurance Company: See "D"
below
10 (z) Settlement Agreement and Release dated April
20, 1994 among Transtech Industries, Inc.
Inmar Associates, Inc., Marvin H. Mahan, Mt.
Vernon Insurance Company and The United States
Liability Insurance Company: See "D" below
10 (ac) Settlement Agreement and Release dated
September 16, 1994 among Transtech Industries,
Inc., and its subsidiaries and affiliates,
Sequential
Exhibit No. Page No.
Inmar Associates, Inc., and its subsidiaries
and affiliates, and the National Union Fire
Insurance Company of Pittsburgh, Pa.: See "E"
below
10 (ad) Settlement Agreement and Mutual Release dated
October 3, 1994 among Transtech Industries,
Inc., and its subsidiaries and affiliates,
Inmar Associates, Inc. and its subsidiaries
and affiliates, Marvin H. Mahan and Allstate
Insurance Company: See "E" below
10 (au) Settlement Agreement approved in September
1995 among Transtech Industries, Inc., Inmar
Associates, Inc., Marvin H. Mahan and certain
members of the 216 Paterson Plank Road
Cooperating PRP Group: See "F" below
10 (av) Income Tax Sharing Agreement dated September
27, 1991 among Transtech Industries, Inc., THV
Acquisition Corp., HVHC, Inc. and Hunt Valve
Company, Inc.: See "F" below
10 (aw) Stock Purchase Agreement dated as of October
24, 1995 between ValveCo Inc. and THV
Acquisition Corp. (without schedules): See
"G" below
10 (ax) Amended and Restated Stock Purchase Agreement
dated as of January 15, 1996 among THV
Acquisition Corp., ValveCo Inc., Transtech
Industries, Inc., Hunt Valve Company, Inc. and
Terold N.V., with exhibits, and letter
agreement dated February 5, 1990 among THV
Acquisition Corp., ValveCo Inc. and Transtech
Industries, Inc.: See "H" below
10 (ay) Escrow Agreement dated March 1, 1996 by and
among THV Acquisition Corp., ValveCo Inc. and
United States Trust Company of New York, as
escrow agent: See "I" below
11 Statement regarding computation of net loss
per share 41 - 42
13 Annual Report to Stockholders 43 - 108
22 Subsidiaries of the Registrant 109
"A" Incorporated herein by reference to the
Company's Current Report on Form 8-K dated
June 30, 1989
"B" Incorporated herein by reference to the
Company's Current Report on Form 8-K dated
July 14, 1989
"C" Incorporated herein by reference to the
Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1992, as
amended on May 18, 1993
"D" Incorporated herein by reference to the
Company's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1994
"E" Incorporated herein by reference to the
Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1994
"F" Incorporated herein by reference to the
Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1995
"G" Incorporated herein by reference to the
Company's Current Report on Form 8-K dated
October 24, 1995
"H" Incorporated herein by reference to the
Company's Current Report on Form 8-K dated
March 1, 1996
"I" Incorporated herein by reference to the
Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1995