UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-10621
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AMERICAN ECO CORPORATION
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(Exact name of Registrant as specified in its charter)
ONTARIO, CANADA 52-1742490
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
11011 JONES ROAD, HOUSTON, TEXAS 77070
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(Address of principal executive offices)
(281) 774-7000
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Registrant's telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act.
Name of each exchange on
Title of each class which registered
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None None
Securities registered pursuant to Section 12(g) of the Act.
COMMON SHARES, NO PAR VALUE
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was $87,347,189 at March 17, 1997.
At May 2, 1997, the number of Common Shares outstanding of the
Registrant was 14,787,246.
Documents Incorporated in Reference: None
FORM 10-K
TABLE OF CONTENTS
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . 18
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . 20
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . 21
Item 6. Selected Financial Data . . . . . . . . . . . . . . 23
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . 24
Item 8. Financial Statements and Supplementary Data . . . . 30
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . 52
PART III
Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . . . 53
Item 11. Executive Compensation . . . . . . . . . . . . . . 57
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . 61
Item 13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . 62
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . 63
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PART I
Unless otherwise indicated all dollar amounts are in United States
dollars. For a statement regarding forward looking statements
contained herein, see "Item 7. Management's Discussion and Analysis
of Results of Operations and Financial Condition Information Regarding
Forward Looking Statements."
ITEM 1. BUSINESS
GENERAL
American Eco Corporation (the "Company") provides industrial
support services to the petroleum and petrochemical refining, power
generation and forest products industries in the United States and
Canada. Within this general line of business, the Company provides
industrial maintenance, environmental remediation and specialty
fabrication services. The Company's environmental services include
hazardous material remediation and abatement, emergency hazardous
spill containment and cleanup and hazardous material packaging and
transportation. The Company's industrial maintenance services include
the repair, maintenance and modification of boilers, pressure vessels
and tubing used in industrial facilities as well as the provision of
project management and engineering services. The Company's specialty
fabrication services typically involve the construction of custom
steel and metal alloy products used in refineries, pulp mills and
offshore oil drilling platforms.
Management believes that several factors characterize the market
for industrial support services. The industries served by the Company
increasingly hire independent contractors to provide industrial
support services that had once been provided by their internal
maintenance employees. In addition, the market for environmental
remediation services has been characterized by level to low growth
over the past five years which has contributed to a general
consolidation in the market as small, regional environmental service
providers have been acquired or go out of business. By expanding its
capabilities and geographic presence through acquisitions and internal
growth, the Company hopes to capitalize on these market trends and
become a leading single-source industrial support service provider in
the United States and Canada.
At March 31, 1997, the Company operated primarily through the
following first and second tier subsidiaries: Eco Environmental,
Inc., a Delaware corporation ("Eco Environmental"); C.A. Turner
Construction Company, a Delaware corporation ("C.A. Turner" and,
together with Action Contract Services, Inc., a Delaware corporation,
the "Turner Group"); Cambridge Construction Services Corp., a Nevada
corporation ("Cambridge"); Lake Charles Construction Company, a
Louisiana corporation ("Lake Charles Construction" and, together with
its wholly-owned subsidiaries, the "Lake Charles Group");
Environmental Evolutions, Inc., a Texas corporation ("Environmental
Evolutions" or "EE"); Industra Service Corporation, a British
Columbia, Canada corporation ("Industra Service"); MM Industra, Ltd.,
a Nova Scotia, Canada corporation ("MM Industra"); United Eco Systems,
Inc., a Delaware corporation ("United Eco"); Separation and Recovery
Systems, Inc., a Nevada corporation ("SRS"); and Chempower, Inc., an
Ohio corporation ("Chempower").
The following table lists the Company's subsidiaries by business
segment:
INDUSTRIAL ENVIRONMENTAL SPECIALTY
MAINTENANCE REMEDIATION FABRICATION
SERVICES SERVICES SERVICES
------------ ------------ ----------
Turner Group Eco Environmental Turner Group
Lake Charles EE Lake Charles Group
Group United Eco MM Industra
Industra Service Chempower Industra Service
Chempower SRS Chempower
SRS Cambridge
Industra Service
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DEVELOPMENT OF THE BUSINESS
The Company was organized under the laws of Ontario, Canada in
1969 and entered the environmental business in 1987 under the name ECO
Corp. Between 1987 and 1992, the Company developed and marketed
certain environmental technologies, including commercial and
residential food waste composting systems. The Company discontinued
its composter operations, which resulted in the eventual write-down or
sale of substantially all of the assets associated with such
operations by 1993. The Company continues to license these
environmental technologies to other companies, but revenues derived
from the licensing of such environmental technologies accounted for
less than one percent of the Company's total revenues during fiscal
1996.
The Company has entered its current lines of business and has
grown substantially through the acquisition of other companies. The
Company acquired nine companies between fiscal 1993 and fiscal 1996,
and its revenues grew from $7.6 million to $119.5 million during such
period.
The Company first entered the environmental remediation business
in fiscal 1993, with the acquisition of Eco Environmental, a provider
of such services based in Houston, Texas. Subsequent to this
acquisition, Michael McGinnis, who had been the President of Eco
Environmental, became President and Chief Executive Officer of the
Company.
In November 1993, the Company purchased the operating assets and
businesses of the Turner Group, which is located in Port Arthur, Texas
and provides construction, maintenance, demolition, and industrial
maintenance services to petroleum and petrochemical refineries along
the Gulf Coastal region of the United States. Management believes
that as a result of the acquisition of the Turner Group, the Company
is well positioned to provide industrial maintenance services to the
petroleum and petrochemical refining industry. The Turner Group has a
50-year operating history and is located in a region that has the
largest crude refinery capacities in the United States.
In June 1994, the Company acquired Cambridge, a construction
management company located in Dallas, Texas which provides project
management consulting services to small contractors.
In July 1995, the Company acquired the Lake Charles Group, a
construction company located in Lake Charles, Louisiana. The Lake
Charles Group commenced operations in 1986 and provides general
contracting, industrial maintenance, heating and air conditioning and
industrial sheet metal services to commercial and light industrial
clients.
The Company accelerated its acquisition program during fiscal
1996 by adding five new subsidiaries to the Company. The Company's
revenues increased 156% to $119.5 million in fiscal 1996 from $46.6
million in fiscal 1995, primarily as a result of such acquisitions.
On January 1, 1996, the Company acquired all of the outstanding
capital stock of Environmental Evolutions in exchange for 400,000
shares of the Company's Common Shares, which had a fair market value
of approximately $2.4 million. Environmental Evolutions is based in
Corpus Christi, Texas and provides hazardous spill response services
to the pipeline and power generation industries located primarily
along the Gulf Coast of Texas.
On January 31, 1996, the Company acquired certain assets of
Petrocon Construction Resources, Inc., Petrocon Plant Services, Inc.
and Petrocon Instrumentation and Electrical Inc., which provided
industrial support services to the petroleum and petrochemical
refining and forest products industries from facilities located in
Beaumont, Texas. The Company transferred these operations to the
Turner Group.
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Effective May 31, 1996, the Company acquired United Eco, a
construction company which is headquartered in High Point, North
Carolina and provides environmental contracting, remediation, waste
water, ground contamination treatment and recycling services to
clients in the eastern and southeastern regions of the United States.
United Eco operates two thermal desorption treatment facilities. The
consideration for United Eco consisted of 315,000 shares of the
Company's Common Shares, which had a fair market value of
approximately $2.5 million.
Effective July 1, 1996, the Company acquired all of the issued
and outstanding shares of capital stock of SRS, which is based in
Irvine, California. SRS manufactures and distributes a proprietary
line of Sarex oil filtration and separation systems. There are
approximately 30,000 such systems currently installed in one-half of
the world's oil and petrochemical tankers as well as in major oil
refineries. The Company hopes that the addition of SRS's proprietary
technology and waste treatment expertise will enhance its ability to
win contract bids for turnkey projects as aging petroleum refineries
are replaced or upgraded. The Company acquired the capital stock of
SRS by exchanging 736,667 shares of the Company's Common Shares, which
had a fair market value of $5.6 million.
Effective July 22, 1996, the Company acquired Industra Service,
which is based in Vancouver, British Columbia, Canada. Industra
Service is an industrial engineering and environmental services
company which provides industrial support services to the power
generation, petroleum and petrochemical refining and forest products
industries principally in western Canada and the northwestern United
States. The Company effected a take-over bid for Industra Service by
exchanging 1,486,997 shares of the Company's Common Shares, which had
a fair market value of $10.7 million, for 94% of the outstanding
shares of Industra common stock. In December 1996, the Company
received authorization to acquire the remaining 6% shares of Industra
Service capital stock, pursuant to an Arrangement Agreement.
On September 3, 1996, the Company acquired certain assets of M &
M Manufacturing Limited Partnership of Dartmouth, Nova Scotia, which
provided pipefitting, assembling, machining and fabrication services
to the petroleum and petrochemical refining, power generation, forest
products and offshore oil exploration industries. The Company
transferred the operations of M & M Manufacturing Limited Partnership
to MM Industra, a newly formed, wholly-owned subsidiary of the
Company. Prior to their acquisition by the Company, the operations of
M & M Manufacturing Limited Partnership had been idle and in
receivership. The Province of Nova Scotia awarded the Company its bid
to purchase and operate the assets of the bankrupt company, and MM
Industra commenced operations in October 1996.
On March 4, 1997, the Company completed its acquisition of
Chempower, a manufacturing, construction and environmental services
company for the power generation and chemical processing industries,
headquartered in Akron, Ohio. A newly formed, wholly-owned subsidiary
of the Company merged with and into Chempower, and Chempower became a
wholly-owned subsidiary of the Company. As a result of the merger,
all of the shareholders of Chempower, other than two principal
shareholders (the "Principal Shareholders"), received $6.20 in cash
for each of their Chempower shares, and all Chempower optionholders
received, in cash, the difference between $6.20 and the exercise price
per share for their outstanding options. The Principal Shareholders
received a portion of the merger consideration in cash and the balance
in the form of a $15.9 million promissory note of Chempower (the
"Shareholder Note"), payable on February 28, 1998. The Shareholder
Note was secured by all of Chempower's assets, subject to the prior
security interest of Chempower's bank, and guaranteed by the Company,
which guaranty was secured by a pledge of its Chempower shares. See
"Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations." The acquisition was financed through an
increase in the $15.0 million Chempower bank line of credit and
borrowings of approximately $6 million plus the sale by the Company of
$15.0 million in 9.5% convertible debentures due 2007. Pending
repayment of the Shareholder Note, certain restrictions were imposed
upon Chempower's business. See "Item 5. Market for Registrant's
Common Equity and Related Stockholder matters -- Private Placements of
Common Shares." Based on the total 7,565,113 Chempower shares
outstanding on the effective date of the merger and the amounts due to
Chempower optionholders, the total acquisition cost was approximately
$50.0 million.
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The following table sets forth the years in which the Company
acquired its principal operating subsidiaries and the market segments
served by such subsidiaries.
INDUSTRIAL ENVIRONMENTAL SPECIALTY
MAINTENANCE REMEDIATION FABRICATION
YEAR SERVICES SERVICES SERVICES
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1992 Eco
Environmental
1993 Turner Group Turner Group
1994 Cambridge
1995 Lake Charles Lake Charles
Group Group
1996 Industra Industra Industra
Service Service Service
SRS SRS MM Industra
Environmental
Evolution
United Eco
1997 Chempower Chempower Chempower
The Company has made a strategic investment in EIF Holdings, Inc.
("EIF"), an asbestos and lead removal company based in California
whose common stock is traded over the counter through The Nasdaq
Bulletin Board under the trading symbol "EIFH." On November 20, 1996,
the Company completed its purchase of 4,000,000 shares of EIF common
stock from Julbin International Ltd. for $70,000 in cash and 300,000
Common Shares of the Company pursuant to a Purchase Agreement, dated
March 7, 1996. The Company purchased an additional 4,600,000 shares
of EIF common stock in open market transactions effected in June 1996
and 200,000 shares of EIF common stock in November 1996 in connection
with the settlement of a legal dispute with a subsidiary of EIF. At
March 31, 1997, the Company owned 8,800,000 shares of EIF common
stock, representing approximately 36% of the outstanding shares. The
Company also entered into a stock purchase agreement with EIF pursuant
to which the Company will purchase an additional 10,000,000 shares of
EIF common stock for $1,000,000, which purchase is conditioned upon
the shareholders of EIF authorizing an increase in EIF's authorized
capital stock. When completed the purchase would result in the
Company owning approximately 53% of the outstanding shares of EIF
common stock. It is anticipated that the shareholders of EIF will
vote upon the increase in authorized capital stock at a shareholders
meeting to be held sometime in fiscal 1997. There can be no assurance
that the shareholders of EIF will approve the increase in the number
of shares of EIF's authorized capital stock. The Company also has
provided a $5,250,000 line of credit to EIF, of which approximately
$4,908,000 was outstanding at November 30, 1996, and has guaranteed
certain indebtedness and leases of EIF and its subsidiaries.
EIF and the Company have agreed that during the interim period
between the execution and the closing of its purchase of an additional
10,000,000 shares of EIF common stock, a management team, primarily
comprised of the Company's managers, will assist in the management of
EIF's operations.
In February 1997, the Company signed a letter of intent to form a
joint venture with CVG International America to provide industrial,
environmental, engineering and health and safety services to
Corporacion Venezolana de Guyana.
CHANGE IN REPORTING STATUS
Until the filing of this Annual Report on Form 10-K, the Company
had filed periodic reports with the Securities and Exchange Commission
(the "SEC") pursuant to the United States securities regulations
governing foreign private
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issuers. Foreign issuers are required to file an annual report on
Form 20F with the SEC within 180 days after the end of each fiscal
year. In addition, foreign private issuers are not subject to the
SEC quarterly reporting requirements or proxy rules, but are required
to file reports on Form 6K whenever a significant public announcement
is made or a report is filed in accordance with the laws of the
issuer's home jurisdiction. The Company filed quarterly reports
that complied with the securities laws of the Province of Ontario
under cover of Form 6-K. As a domestic issuer, the Company will
begin to file annual, quarterly and current reports and distribute
proxy materials in compliance with United States securities
regulations governing domestic issuers.
OVERVIEW OF BUSINESS AND GEOGRAPHICAL SEGMENTS
The Company is pursuing a strategy of becoming a single-source,
industrial support services provider for the petroleum and
petrochemical refining, power generation and forest products
industries in the United States and Canada. Within this general line
of business, the Company provides industrial maintenance,
environmental remediation and specialty fabrication services.
The following table provides information with respect to the
Company's three principal business segments.
ENVIRONMENTAL INDUSTRIAL SPECIALTY
REMEDIATION MAINTENANCE FABRICATION
SERVICES SERVICES SERVICES
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(In thousands)
FISCAL 1996
Contract income from
customers . . . . . . . . . $31,897 $86,975 $657
Operating income . . . . . 2,118 5,617 218
Depreciation and
amortization . . . . . . . 1,132 1,100 -
Capital expenditures during
the year . . . . . . . . . 516 1,336 6,155
Identifiable assets . . . . 38,488 28,425 4,865
FISCAL 1995
Contract income from customers. . .$ 5,362 $41,322 -
Operating income . . . . . . . . . 505 2,555 -
Depreciation and amortization . . . 214 893 -
Capital expenditures
during the year . . . . . . . . . . 54 1,675 -
Identifiable assets . . . . . . . . 4,636 17,163 -
FISCAL 1994
Contract income from customers . . $ 8,040 $26,951 -
Operating income . . . . . . . . . 451 615 -
Depreciation and amortization . . . 196 848 -
Capital expenditures during
the year . . . . . . . . . . . . . 47 686 -
Identifiable assets . . . . . . . . 5,246 11,447 -
The acquisition of Industra Service, based in Vancouver, British
Columbia, and MM Industra, based in Dartmouth, Nova Scotia, increased
the amount of revenues generated from Canadian operations in fiscal
1996. At November 30, 1996, approximately 30% of the Company's
tangible assets were located in Canada.
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The following table provides information with respect to the
geographic segmentation of the Company's business.
CANADA UNITED STATES
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(IN THOUSANDS)
FISCAL 1996
Contract income . . . . . . . $6,509 $113,020
Operating income . . . . . . 89 7,864
Depreciation and
amortization . . . . . . . . 166 2,066
Capital expenditures during
the year . . . . . . . . . . 6,151 1,856
Identifiable assets . . . . . 20,988 50,789
FISCAL 1995
Contract income . . . . . . . - $46,684
Operating income . . . . . . - 3,060
Depreciation and
amortization . . . . . . . . - 1,107
Capital expenditures during
the year . . . . . . . . . . - 1,729
Identifiable assets . . . . . - 21,799
FISCAL 1994
Contract income . . . . . . . - $34,991
Operating income . . . . . . - 1,066
Depreciation and - 1,044
amortization . . . . . . . .
Capital expenditures during - 733
the year . . . . . . . . . .
Identifiable assets . . . . . - 16,693
The Company is attempting to cross market its services so that it
may win single-source, turnkey projects to repair, clean and refurbish
clients' facilities in the petroleum and petrochemical refining, power
generation and forest products industries. Such cross-selling efforts
have included training the staff and, in particular, the business
development personnel from each of the Company's acquired subsidiaries
so that they understand the capabilities of all of the Company's other
subsidiaries. During fiscal 1996, SRS, Industra Service and United
Eco were awarded a contract to construct a facility in New Jersey that
will treat soils contaminated by hydrocarbons, heavy coal tars and
polychlorinated biphenyls. The facility, which is expected to serve
utilities, environmental contractors and heavy manufacturing
industries throughout the region, will incorporate remediation
technologies provided by United Eco and SRS to treat contaminated
soil.
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INDUSTRIAL MAINTENANCE SERVICES
The Company provides industrial maintenance services to clients
in the petroleum and petrochemical refining, power generation and
forest products industries through the Turner Group, the Lake Charles
Group, Industra Service, Chempower and SRS. The industrial
maintenance service business segment generated approximately 73% of
the Company's revenues during fiscal 1996.
INDUSTRIAL MAINTENANCE SERVICES MARKET
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Petroleum refiners must replace and repair process equipment and
piping systems on an on-going basis in order to maintain the
operability and efficiency of their facilities and to ensure that such
facilities comply with safety and environmental regulations. Refinery
maintenance projects vary in scope from routine repairs to major
capital improvements. Petroleum refiners must continually make
routine repairs to equipment and piping systems. Other repair and
maintenance projects require the shutdown of operating units or the
entire refinery. In addition to routine maintenance, refiners
undertake capital improvement projects to refurbish their refining
facilities. Such projects take from between six months to three years
to complete depending upon the type, utilization rate and operating
efficiency of the particular refinery.
There are approximately 175 operating refineries in the United
States. Texas and Louisiana have an aggregate of 50 operating
refineries and management believes that the Gulf Coastal region of the
United States accounts for approximately 43% of the United States'
petrochemical and petroleum refining capacity. The Company believes
that the typical refinery in the United States is an aging facility
that must process petroleum at high utilization rates while complying
with stringent environmental regulations. High utilization rates
accelerate a facility's rate of deterioration and increase the need
for repair and maintenance work. The Company also believes that any
increase in utilization capacity is likely to involve primarily the
refurbishing and expanding existing facilities due to the high cost
and environmental opposition associated with the construction of new
facilities. In addition, refiners have reduced internal maintenance
personnel.
These trends have encouraged refiners to increase their reliance
on outside contractors which can perform specialized maintenance
services within strict time constraints, minimizing the downtime
associated with routine maintenance and major capital expenditure
programs. According to HYDROCARBON PROCESSING MAGAZINE, a trade
publication, refineries in the United States spent $5.7 billion on
maintenance out of an aggregate of $23.1 billion for operating budgets
in 1994. Management estimates that independent contractors currently
perform approximately half of the maintenance work in the petroleum
refining industry.
The power generation industry in the United States has become
more competitive as the Federal Energy Regulatory Commission begins to
implement the provisions of the Energy Policy Act of 1992, which
deregulates the electric power generation industry by allowing
independent power producers and other companies access to its
transmission and distribution systems. The anticipation of such
deregulation has forced utilities to reduce their operating costs in
order to produce power at more competitive rates. Utilities have
attempted to accomplish this in part by deferring repairs and
refurbishing existing power plants. In the near term, such deferred
maintenance could reduce the amount of contract business available.
However, management believes that in the longer term power generation
companies will be forced to make needed repairs, and they may
increasingly outsource such services.
The forest products industry experienced a recession between 1992
and 1995, resulting in deferred plant maintenance and the cancellation
of major capital improvement projects. Management believes than an
upturn in this industry may result in an increase in plant maintenance
projects. In addition, the EPA has instituted new environmental
standards which will require pulp and paper manufacturers to make
capital improvements.
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MARKETING
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The Company provides industrial maintenance services to clients
in the petrochemical and petroleum refining industries located in the
Gulf Coastal and midwestern regions of the United States and in Nova
Scotia, British Columbia and Alberta, Canada. Many of the Company's
customers operate multiple refineries, and, in general, decisions to
award work are made at each operating facility. In most cases, bids
are prepared by the Company on a job-by-job basis. Fee arrangements
for their services are bid either fixed-price or based on detailed
time and material billing schedules. Bids generally are awarded based
on price considerations, although scheduling, efficiency, quality and
safety are also factors in the customer's determination. Although the
Company performed a significant amount of work for certain refining
facilities, performance on any given project does not ensure
subsequent work at that facility or other facilities of that customer.
Conversely, the loss of a bid for any one project does not affect the
Company's ability to obtain additional work from that customer.
Historically, the Turner Group has derived much of its revenues
from long-term contracts with major petroleum and petrochemical
refining facilities in and around the Beaumont/Port Arthur, Texas
area. The Turner Group has also provided services to companies in the
chemical, gas processing pipeline and liquid terminal industries.
Since its acquisition by the Company in 1993, the Turner Group's
marketing efforts have been expanded geographically to include the
entire Gulf Coastal region from Pascagoula, Mississippi to Corpus
Christi, Texas.
The Lake Charles Group typically bids for its construction and
industrial maintenance projects on a project-by-project basis and, in
the past, it has not won long-term industrial maintenance contracts.
Management will attempt to win long-term industrial maintenance
contracts from petrochemical and petroleum refineries located in the
Baton Rouge and Lake Charles, Louisiana areas. Because the management
of each refinery typically selects its own maintenance contractors,
management believes that it is important to be perceived as a local
contractor. Based upon the Company's existing contacts, it is hoped
that the Lake Charles Group will give the Company a local presence in
the Baton Rouge and Lake Charles areas, which have a high
concentration of petrochemical and petroleum refining facilities.
Industra Service markets to the pulp and paper industry in
western Canada and the northwestern United States. It offers turnkey
services for projects from the engineering through the construction
and manufacturing phases. These services include insulation, asbestos
removal and fireproofing, and normally are obtained through
competitive bidding. Industra Service also offers these services, as
well as oil sands extraction services to the oil/gas and petrochemical
industry, in Alberta, Canada.
The major customers of Chempower are in the electric power
generation and chemical industries located in Ohio and other
midwestern states. To service its customers, Chempower has
established a network of facilities in Ohio, Pennsylvania, Tennessee
and West Virginia. In anticipation of the deregulation in the
electric power generation industry, some utilities are outsourcing
some of the repairs and refurbishments of their power plants.
Chempower is seeking these outsourced projects.
SERVICES
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TOTAL UNIT TURNAROUNDS. The Company performs turnaround services
-----------------------
involving maintenance of crude distillation units, catalytic reformer
units, delayed coker units, alkylation units, platformers, fluid
catalytic cracking units and butamer units as part of one project.
These services also involve the maintenance and modification of heat
exchangers, heaters, vessels, and piping.
PLANNING AND MANAGEMENT SERVICES. The Company has developed the
---------------------------------
planning capabilities, operation skills and field supervision
techniques necessary to manage all aspects of turnaround projects and
other maintenance services. When managing a turnaround project, the
Company is responsible for cost control procedures, resource planning
and scheduling, safety control, hazardous material handling, hiring
and training of personnel, procuring
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equipment and tools, performing field inspections and coordinating
the entire project. Certain aspects of the turnaround project and
certain specialized types of welding often are provided directly by
the Company. Other aspects of a turnaround project are performed by
subcontractors under the supervision of the Turner Group. In
addition, the Company develops suggested maintenance programs that
incorporate its experience from prior projects.
PROCESS HEATER MAINTENANCE. The Company repairs process heaters.
---------------------------
The installation and maintenance of process heaters requires skilled
craftsmen and supervisors and specialized construction techniques.
FLUID CATALYTIC CRACKING UNIT TURNAROUNDS. Fluid Catalytic
-----------------------------------------
Cracking Units ("FCCU") require a high level of maintenance because of
extremely high temperatures inside the unit in excess of 1000 degrees
F and due to their many internal parts, which consist generally of
stainless steel components and refractory lining systems. Refractory
is a heat resistant lining that insulates the inner shell of the
cracking unit vessels. The main pieces of equipment in a FCCU are
the reactor, the regenerator and the flue gas exhaust system. Most
of the repair and revamp work required during a turnaround project is
performed on this equipment. Major revamp work is required to
increase efficiencies of the FCCU and to reduce air pollution from
the unit. In most cases, the mechanical work involving the
disassembly and repair of the unit components and the refractory work
involving the "spraying" of the refractory material onto the inside
of the units' vessels is performed by different contractors. The
Company provides all of these services.
EMERGENCY RESPONSE SERVICES. The Company provides temporary
----------------------------
workers for fast response situations such as repair and revamp
services in connection with refinery fires, explosions and other
accidents. Management believes that the Turner Group has enhanced its
relationships with customers by responding quickly to these types of
emergencies and by providing timely repair services.
DISMANTLING AND DEMOLITION SERVICES. The Company provides
------------------------------------
dismantling and demolition services when a client has decommissioned
an entire facility or unit within its plant. A typical dismantling
project begins by identifying potential safety hazards and preparing a
work plan, including an estimate of the number and type of personnel
and equipment necessary to complete the project. Personnel then
examine and, if necessary, drain refinery pipelines or remove asbestos
or other hazardous materials. Dismantling services are often
performed using cranes which are equipped with torches or hydraulic
guillotine shears. In addition, the Company may use explosives in
performing demolition work. Dismantled equipment is cut into scrap
pieces and sold in the scrap market. Sometimes dismantled equipment
can be salvaged and sold.
ABOVEGROUND STORAGE TANK SERVICES. The Company provides its
----------------------------------
customers with maintenance and modification services for aboveground
storage tanks ("AST"). Maintenance and modification services involve
the design, construction, and installation of pollution control
devices such as floating roof and seal assemblies,secondary
containment systems (double bottoms), and a variety of underground and
aboveground piping systems in existing AST's. The Company also
installs, maintains and modifies tank appurtenances, including spiral
stairways, platforms, gauging systems, fire protection systems,
rolling ladders, and structural supports.
ASME CODE STAMP SERVICES. The Turner Group is qualified to
-------------------------
perform services on equipment that contain American Society of
Mechanical Engineer Code Stamps ("ASME Codes"). Many state agencies
and insurance companies require that qualified ASME code installers
perform services on ASME coded equipment. Many of the Turner Group's
competitors are not ASME code qualified, which requires them to
subcontract portions of a project involving work with coded equipment.
INSTRUMENTATION AND ELECTRICAL. The Company provides lighting,
------------------------------
power and instrumentation wiring for electrical systems of up to 5,000
volts. It also installs, terminates, troubleshoots and commissions
switches, transformers and associated control and monitoring equipment
and is qualified to calibrate and commission both electrical and
pneumatic instrument systems. The Turner Group has had extensive
experience with the conversion and physical design of distribution
control systems.
-11-
OIL SEPARATION AND REMOVAL SYSTEMS. The Company installs SRS's
----------------------------------
proprietary Sarex oil separation and removal systems which extract
reusable oils from sludges and oily water. Approximately 30,000 of
SRS's Sarex oil separation and removal systems have been installed in
oil tankers and petroleum refineries around the world.
COMPETITION
-----------
The market for industrial maintenance services is highly
competitive. Many competitors have greater financial and other
resources than the Company. Additionally, the Company competes with
numerous small, independent contractors which, collectively, have a
significant share of the market for these services. Competitive
factors for these services include price considerations, performance
record, quality, and safety. Construction orders are customarily
awarded after competitive bids have been submitted as proposals based
on the estimated cost of each job.
ENVIRONMENTAL SERVICES
The Company provides environmental remediation and waste services
through United Eco, Industra Service, Chempower, Cambridge, Eco
Environmental, Environmental Evolutions and SRS. Remediation includes
the on-site clean-up and treatment of hazardous and non-hazardous
organic and inorganic contaminants utilizing a number of technologies.
Waste services include removal, encapsulation, stabilization,
treatment and disposal services. The environmental remediation
services business segment (excluding Chempower which was acquired
subsequent to year end) generated approximately 27% of the Company's
revenues during fiscal 1996.
THE ENVIRONMENTAL REMEDIATION MARKET
------------------------------------
Growth in the environmental remediation industry has been
influenced by the following legislation:
CERCLA-The Comprehensive Environmental Response, Compensation and
Liability Act of 1990 ("CERCLA" or the "Superfund Act"). The
Superfund Act authorizes the Environmental Protection Agency (the
"EPA") to coordinate responses to environmental emergencies and
establishes liability for cleanup costs and environmental damages
on present and/or previous owners and operators of treatment
facilities and disposal sites, and persons who generated,
transported or arranged for the disposal or transportation of
wastes to such facilities. These provisions are enforceable by
lawsuits initiated by either the EPA or private citizens.
RCRA-The Resource Conservation and Recovery Act of 1976 ("RCRA")
established a comprehensive set of regulations for the treatment,
storage and disposal of hazardous wastes. RCRA mandated
"cradletograve" tracking systems for the transportation and
disposal of hazardous wastes and instituted pretreatment
requirements for a list of 500 hazardous wastes prior to land
disposal. More important, RCRA imposed restrictions on and
established required treatment standards for land disposal of
certain wastes in order to minimize or eliminate reliance on
offsite disposal. RCRA has served to enhance the attractiveness
of onsite remediation techniques such as those provided by Eco
Environmental.
FFCA-The Federal Facilities Compliance Act of 1992 allows states
and the EPA to enforce solid and hazardous waste violations
against federal facilities, including those operated by the
Department of Defense ("DOD") and the Department of Energy
("DOE"), the primary federal hazardous waste generators, which
the Company believes should encourage remediation at these
facilities.
Demand for hazardous waste remediation work is increasing as the
nature and extent of certain waste problems become known. According
to an EPA study, the Superfund Act program has been progressing from
the evaluation of sites into the design and cleanup phases. The study
stated that as of September 1992, the EPA had conducted preliminary
assessments of over 95% of the 36,814 potentially hazardous sites
listed on the EPA database, of which
-12-
approximately 1,200 have been placed on the National Priorities List
("NPL"). The EPA study also reported that the 123 remedial actions
started at NPL sites during the year ended September 30, 1992 was a
20% increase over 1991, and a 60% increase over 1990. Increasing
demand for remediation services is also expected from the DOD and
DOE. The EPA study stated that as of September 30, 1991, the DOD
had identified 17,660 sites located at 1,877 DOD installations and
6,786 "Formerly Used Defense Sites" with potential hazardous
waste contamination involving soil or groundwater, and that
the DOD estimates that 7,313 sites will require cleanup.
Cleanup and restoration work at most DOE installations is in the very
early stages, but according to the EPA study, the DOE estimates that
about 4,000 contaminated sites, covering more than 26,000 acres at DOE
and nonDOE locations, require some remediation.
Management recognizes that the environmental remediation
industry, which is largely the creation of federal legislation, is
sensitive to shifts in public opinion and legislation. While there is
growing anti-regulatory sentiment in the United States, management
does not believe that this political trend will have a substantial
impact on the Company's environmental services business. The Company
has targeted projects involving soil remediation, ground water
cleanup, and lead and asbestos abatement. The cleanup projects on
which the Company typically works have already been designed and
planned and, management believes, are unlikely to be delayed or
canceled in the near term as a result of deregulation, if any.
MARKETING
---------
The Company derives revenues in its environmental remediation
segment from a variety of customers, including owners and tenants of
commercial and industrial property, insurance companies, real estate
development companies, and state and municipal entities. The Company
typically contracts directly with owners, operators, or tenants of
properties and works closely with the client's environmental
consultants in performing its services. Fee arrangements for its
services are bid either fixed-price or based on detailed time and
material billing schedules. Bids are typically awarded based on
price, scheduling, experience, efficiency, quality, and safety
considerations. The Company markets its services directly to
companies that are in need of remediation, abatement, or renovation
services as well as consulting firms. During the year ended November
30, 1996, the Company provided environmental remediation services to
clients in Texas, Louisiana, Wyoming, North Carolina, South Carolina,
Virginia, Georgia and Tennessee. The Company provides emergency spill
response services to utility, petrochemical and petroleum refining
clients located in Texas. Environmental Evolutions services this
market through business development personnel and by field
representatives at project sites located throughout the Gulf Coastal
region. The SRS Sarex System is offered worldwide for on-site
treatment of refinery, petrochemical, marine and other industrial
waste materials.
In February 1997, the Company signed a letter of intent to form a
strategic alliance with CVG International America, Inc. in part to
provide environmental services to Corporacion Venezolana de Guayana.
SERVICES
--------
The environmental services segment provides the following
specialized environmental remediation services:
SOIL REMEDIATION. The Company employs bioremediation, vapor
-----------------
extraction, thermal desorption and other techniques to degrade
hazardous and non-hazardous contaminates in soil. Areas of
application include soils, sludges, slurries, and liquids contaminated
with hydrocarbons, creosote, pentachlorophenol, pentachloroethylene,
PCB's, digester sulfides, phenols, benzene, toluene, chlorinated
aliphatic solvents and raw sewage.
UNDERGROUND STORAGE TANK REMOVAL. The Company provides tank
---------------------------------
management, subsurface investigation, tank and line integrity testing,
tank removal and replacement, removal and treatment of contaminated
soils and site closure services.
-13-
ASBESTOS ABATEMENT AND LEAD ABATEMENT. The Company's licensed
--------------------------------------
supervisors and workers remove or encapsulate materials which contain
asbestos and materials contaminated with lead.
SPILL RESPONSE. The Company's Spill Response Division provides
---------------
incident-specific, on-site services for the release or spill of PCB's
or other chemicals which may pose health or environmental risks such
as fuels, oils, acids, caustics and solvents.
TRAINING. The Company's Incident Response Preparation School
----------
provides safety and response training to organizations and individuals
on spill prevention and control. Training is administered at clients'
locations.
EQUIPMENT RENTAL. The Company rents to third parties certain
----------------
equipment used in the environmental and remediation industry,
including air filtration devices, vacuums and sprayers.
PROPRIETARY TECHNOLOGIES
------------------------
The Company has developed and licenses certain proprietary
technologies that it uses in its environmental remediation business.
United Eco has entered into an agreement to deploy a technology for
the chemical stabilization of materials contaminated with heavy
metals. The Molecular Bonding System ("MBS") is a patented technology
of Solucorp Industries Ltd. The MBS technology uses a mobile facility
to process large quantities of soils, ash, sediments and sludges. The
agreement permits United Eco to use this technology throughout North
America.
COMPETITION
-----------
The environmental services industry is highly competitive with
numerous companies of various sizes, geographic presence and
capabilities participating. The principal competitive factors for
these services are operational experience, technical proficiency,
scope of services offered, local presence and price. To offer certain
of Eco Environmental's and Environmental Evolutions' services,
significant capital investment is required for equipment. Certain
competitors have greater financial resources or offer specialized
techniques or services not provided by the Company. Additionally, the
relatively recent entry of aerospace and defense contractors, as well
as large construction and engineering firms into the environmental
services industry has increased competition. Management believes that
the demand for environmental services is still developing and
expanding and, as a result, many small and large firms will continue
to be attracted to the industry.
SPECIALTY FABRICATION SERVICES
------------------------------
The Company provides specialty fabrication services to clients in
the petroleum and petrochemical refining, forest products and offshore
oil exploration industries through the Turner Group, the Lake Charles
Group, Industra Service, Chempower and MM Industra. The Company's
specialty fabrication service business segment generated approximately
$657,000 during fiscal 1996, or less than one percent of the Company's
total revenues for that period. However, the Company's results of
operations for fiscal 1996 only reflect four months of operations for
Industra Service and one month of operations for MM Industra, and do
not include the operations of Chempower which was acquired in March
1997.
SPECIALTY FABRICATION SERVICES MARKET
-------------------------------------
The specialty fabrication services market includes general
industrial and offshore construction projects, ranging greatly in size
and complexity of the project. The market in which the Company
participates is affected by the state of the economy in general as
well as the levels of capital expenditures in the chemical,
petrochemical and refining industries.
-14-
MARKETING
---------
The Company typically obtains specialty fabrication business by
submitting proposals to local plant managers on a project-by-project
basis. If the Company is engaged by a customer for a specialty
fabrication project, the services usually are provided pursuant to a
fixed-price contract. The Company also will negotiate fee
arrangements and cost reimbursements, although such arrangements are
less frequently obtained than fixed-price contracts. The Company has
found that plant managers award contracts based primarily upon price,
but scheduling, product and service quality and safety also contribute
to a customer's determination. Each of the Company's subsidiaries
prepares and submits its own contract proposals. The Company directs
broader marketing efforts such as placing advertisements in trade
publications. In addition to these efforts, the Company encourages
each subsidiary to generate cross-selling opportunities for the
Company's other subsidiaries.
SERVICES
--------
The Company owns and operates approximately 687,000 square feet
of specialty fabrication facilities in the United States and Canada
where it constructs piping, power boiler assemblies, pressure vessels,
reactors, drums, towers, precipitators, tanks, exchanger retubing,
heater coils, and components, and various equipment used in connection
with process industries. The Company also performs emergency
fabrication at facilities when necessary to assist their customers.
In many instances, the facilities are operated 24 hours per day to
assist a turnaround project. The Company also provides machining
services used to rework pumps, turbines, compressors, tail shafts,
rudder shafts, couplings, hydraulic cylinders and other refinery
components. The Company erects structural steel support systems such
as pipe racks and scaffolding, components which the Company sometimes
fabricates according to customized specifications. The Chempower
manufacturing services include design and fabrication of pre-insulated
panels for industrial equipment applications, of metal casings for
machines used in the gaming industry and of electrical switch gear,
power distribution systems and bus duct systems for mass transit
authorities, utilities, chemical and other industrial facilities.
COMPETITION
-----------
The companies competing in the specialty fabrication services
market are widely segmented, with few large participants. Many of the
competitors are local entities. The Company seeks to offer a full
range of services to potential customers, and, where necessary, to
enter into strategic alliances and joint ventures with competitors
that provide complementary services in bidding on projects.
Competitive factors include price, quality, product availability and
delivery.
RESEARCH AND DEVELOPMENT
The Company does not have a research and development program.
CUSTOMERS
During fiscal 1996, the Company generated 73% of its revenues
from industrial customers in general and 20% of its revenues from
customers in the petroleum and petrochemical refining business in
particular. Huntsman Corporation, Star Enterprises, Goodyear Tire and
Rubber and BioLab together accounted for approximately 18% of the
Company's total revenues in fiscal 1996, compared to 75% of total
revenues in fiscal 1995. No single customer accounted for more than
5% of the Company's revenues during fiscal 1996. Nevertheless, the
loss of any one of these key customers could have a material adverse
impact on the Company's results of operations and financial condition.
Management believes that the Company's continued efforts to expand and
diversify its customer base in addition to the effects of a full year
of operations from its newly acquired operating subsidiaries will further
-15-
reduce the Company's dependence on certain key customers. See
"Item 7. Management's Discussion and Analysis of Financial Condition
and Resutls of Operations."
BACKLOG
At November 30, 1996, the Company's backlog was approximately
$125 million, which included backlog of approximately $70 million at
November 30, 1996 of entities acquired by the Company in fiscal 1996.
This compares to approximately $47 million of backlog for such
contract work at November 30, 1995. Between December 1, 1996 and
January 31, 1997 the Company entered into additional contracts with an
estimated value of $67.0 million. Backlog represents the amount of
revenue that the Company expects to realize from work to be performed
on uncompleted contracts in progress and from contractual agreements
upon which work has not commenced. Contracts included in backlog may
have provisions which permit cancellation or delay in their
performance and there can be no assurance that any work orders
included in backlog will not be canceled or delayed.
EMPLOYEES
At March 31, 1997, the Company employed 365 full-time employees
and 1,700 hourly workers, some of whom were represented by labor
unions under agreements expiring at various dates. Total employment
levels ranged from 1,300 to 3,300 workers per week during fiscal 1996.
Management believes that it maintains good relations with its
employees.
It has been the Company's experience that hourly-rate employees
are generally available in the quantity required for its projects over
an extended period of time. The Company has not experienced a
significant work stoppage and considers its employee relations to be
good.
RAW MATERIALS
The Company has not experienced any difficulties obtaining the
raw materials needed by its operating segments.
GOVERNMENT REGULATION AND RISK MANAGEMENT
Certain of the Company's services involve contact with crude oil,
refined petroleum products, asbestos and other substances classified
as hazardous material under the various federal, state and local
environmental laws. Under these laws, hazardous material is regulated
from the point of generation to the point of disposal. In addition,
the United States Environmental Protection Agency has issued
regulations for hazardous waste remediation contractors. To
management's knowledge, the operating segments have obtained all
required permits and licenses in the states in which they operate.
All of the Company's operations are subject to regulations issued
by the United States Department of Labor under the Occupational Safety
and Health Act ("OSHA"). These regulations set forth strict
requirements for protecting personnel involved with any materials that
are classified as hazardous, which includes materials encountered when
performing many of the Company's services. Violations of these rules
can result in fines and suspension of licenses. To management's
knowledge, the Company and all of its subsidiaries are in material
compliance with OSHA.
The Company's safety and training efforts are directed through
its subsidiaries. In addition to training designed to advance the
skill level of individual employees, the Company uses entry level
screening and broad-based skills development programs to improve the
overall quality and technical competence of its work force. The
Company has a designated safety officer at each of its subsidiaries
who is responsible for compliance with applicable governmental
procedures and the Company's internal policies and practices. All of
the Company's technicians are
-16-
subject to pre-employment, scheduled and random drug testing. The
Company's operations and personnel are subject to significant
regulations and certification requirements imposed by federal,
state and other authorities.
The Company maintains worker's compensation insurance in
accordance with statutory requirements and contractors' general
liability insurance with an annual aggregate coverage limit that
varies with each subsidiary. The Company's general liability
insurance specifically excludes all pollution related claims and fines
levied against the Company as a result of any violations by the
Company of the regulations issued by the Department of Labor under
OSHA. To date, the Company has not incurred any significant fines or
penalties or any liability for pollution, environmental damage, toxic
torts or personal injury from exposure to hazardous wastes. However,
a successful liability claim for which the Company is only partially
insured or completely uninsured could have a material adverse effect
on the Company. In addition, if the Company experiences a significant
amount of such claims, increases in the Company's insurance premiums
could materially and adversely affect the Company. Any difficulty in
obtaining insurance coverage consistent with industry practice may
also impair the Company's ability to obtain future contracts, which in
most cases are conditioned upon the availability of specified
insurance coverage. The Company has not experienced any difficulty in
obtaining adequate insurance coverage for its businesses. Management
has been advised by its insurance carriers that access to such
insurance coverage is not likely to change in the near future.
Asbestos abatement projects, and to a lesser extent, industrial
cleaning and maintenance projects generally require the Company to
maintain appropriate levels and types of insurance and, in certain
instances, require the Company to post surety bonds or letters of
credit in lieu thereof. Building owners require insurance to protect
against third party, asbestos related liabilities arising from the
work performed at an asbestos abatement site and may require
performance and payment bonds, or letters of credit in lieu thereof,
to assure completion of the project and payment of all subcontractors.
To date, the Company has not had any significant difficulty in
obtaining such bonds or letters of credit.
SEASONALITY
The Company's revenues from its industrial and environmental
segments may be affected by the timing and planned outages at its
industrial customers' facilities and by weather with respect to
outside projects. The effects of this seasonality may be offset by
the timing of large individual contracts, particularly if all or a
substantial portion of the contracts fall within one or two quarters.
Accordingly, the Company's quarterly results may fluctuate and the
results of one quarter should not be deemed to be representative of
the results of any other quarter or for the year. The Company
believes revenues derived from its industrial segment long-term
maintenance contracts provide a more consistent revenue base.
-17-
ITEM 2. PROPERTIES
The location, ownership, primary use and approximate square
footage of the facilities of the Company are set forth in the
following table. The Company believes that its existing facilities
are adequate to meet current requirements and that suitable additional
or substitute space would be available as needed to accommodate any
expansion of operations.
APPROXIMATE
Primary SQUARE
BUSINESS UNIT AND OWNERSHIP USE (1) FEET
SITE LOCATION OF FLOOR
SPACE
------------------------------ ------------ ------------ --------
AMERICAN ECO
Toronto, Ontario . . . . . Leased Adm. 2,000
Houston, Texas . . . . . . Leased Adm. 14,000
CHEMPOWER
Akron, Ohio . . . . . . . Owned(2) Adm./Const. 36,000(3)
Canton, Ohio . . . . . . . Owned(2) Adm./Mfg. 205,000
Cincinnati, Ohio . . . . . Owned(2) Adm./Const. 25,000
Las Vegas, Nevada . . . . Leased Adm./Mfg. 47,000
Washington, Pennsylvania . Owned(2) Adm./Const./Mfg. 112,000(3)
Knoxville, Tennessee . . . Leased Adm. 1,000
Waverly, Tennessee . . . . Owned(2) Adm./Const./Mfg 95,000(3)
Hurricane, West Virginia . Leased Adm. 2,000
Winfield, West Virginia . Owned(2) Adm./Const. 90,000
ECO ENVIRONMENTAL
Houston, Texas . . . . . . Leased Adm./Const. 26,000
ENVIRONMENTAL EVOLUTIONS
Corpus Christi, Texas . . Leased Adm./Const. 2,000
San Antonio, Texas . . . . Leased Adm./Const. 1,000
INDUSTRA SERVICE
Edmonton, Alberta . . . . Owned Adm. 14,000
New Westminster, British Owned Adm./Const./Mfg. 74,000
Columbia . . . . . . . . .
Portland, Oregon . . . . . Leased Adm. 6,000
Seattle, Washington . . . Leased Adm. 11,000
LAKE CHARLES GROUP
Lake Charles, Louisiana . Owned(2) Adm./Const./Mfg. 10,000
-18-
APPROXIMATE
Primary SQUARE
BUSINESS UNIT AND OWNERSHIP USE (1) FEET
SITE LOCATION OF FLOOR
SPACE
------------------------------ ------------ ------------ --------
MM INDUSTRA
Dartmouth, Nova Scotia . . Owned Adm./Mfg. 60,000
Dartmouth, Nova Scotia . . Leased Mfg./Const. 180,000
SRS
Irvine, California . . . . Leased Adm./Mfg. 24,000
TURNER GROUP
Bridge City, Texas . . . . Owned(2) Adm./Mfg. 2,750
Bridge City, Texas . . . . Owned(2) Adm./Const. 4,293
Port Arthur, Texas(4) . . Owned Adm./Const./Mfg. 29,000
UNITED ECO
Highpoint, North Carolina Owned Adm./Const. 75,000
Apex, North Carolina . . . Leased Adm. 5,000
Blacksburg, Virginia . . . Leased Lab. 5,000
----------------
(1) Adm. = Administration; Const. = Construction warehouse; Mfg. =
Manufacturing facility.
(2) Subject to mortgage.
(3) Amount includes approximately 9,000, 30,000 and 10,000 square
feet of floor space leased to unaffiliated tenants at the Akron,
Washington and Waverly facilities, respectively,
(4) This facility is situated on 6.5 acres and contains 15,000 square
feet of office and warehouse space and 14,000 square feet of
covered fabrication area. The facility is in close proximity to
the Intercoastal Waterway where piping and other fabricated
components can be shipped.
ITEM 3. LEGAL PROCEEDINGS
SRS is engaged in a dispute with a customer which was submitted
to arbitration in May 1996 before the American Arbitration Association
in Cincinnati, Ohio. The customer claimed that certain equipment did
not perform as represented after it had been delivered to a waste
cleanup site by SRS. The customer seeks $19.3 million in compensatory
damages for delays and the cost of completing the project. SRS has
responded to the customer's charges by claiming that the equipment
could not work as represented because of conditions at the cleanup
site and the customer's interference with SRS's operation of such
equipment. SRS has submitted counterclaims to the arbitrator against
the customer seeking $4.9 million in compensatory damages and an
additional $5 million in punitive damages. The hearing has concluded,
and post-hearing briefs were filed in April 1997. The decision is
expected to be rendered in June. Although the outcome of this dispute
cannot be determined, the Company does not believe that the financial
condition or results of operation of the Company will be materially
affected by the final outcome of this arbitration.
The Company's operating subsidiaries are each currently involved
in various claims and disputes in the normal course of business.
Management believes that the disposition of all such claims,
individually or in the aggregate, will not have a material adverse
effect on the Company's financial condition or results of operation.
-19-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matter to a vote of shareholders
during the last quarter of fiscal 1996 through the solicitation of
proxies or otherwise.
-20-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
PUBLIC MARKET FOR COMMON SHARES
The Company's Common Shares are traded on The Toronto Stock
Exchange and The Nasdaq National Market under the trading symbols ECX
and ECGOF, respectively. The Company's Common Shares were traded on
the American Stock Exchange under the symbol ECG until November 16,
1995 when the Company delisted from such exchange and listed its
Common Shares on The Nasdaq National Market. As of March 17, 1997,
there were 586 shareholders of record. The Company believes that the
number of beneficial holders is significantly greater than the number
of record holders as a large number of shares are held of record in
nominee or broker names.
The following table provides the quarterly high-ask and low-bid
prices for the Company's Common Shares on The American Stock Exchange,
The Nasdaq National Market and The Toronto Stock Exchange for the two
years ended November 30, 1996.
AMERICAN THE NASDAQ
STOCK EXCHANGE NATIONAL MARKET
------------- --------------
(US$) (US$)
HIGH LOW HIGH ASK LOW BID
------- --- -------- -------
Fiscal year ended
November 30, 1995
First quarter . . $2.62 $1.62 $- $-
Second quarter . . 4.75 1.94 - -
Third quarter . . 4.44 3.12 - -
Fourth quarter . . 4.12 2.87 - -
Fiscal year ended
November 30, 1996
First quarter . . - - 6.25 3.25
Second quarter . . - - 9.19 5.50
Third quarter . . - - 11.50 7.25
Fourth quarter . . - - 11.25 6.38
TORONTO
STOCK EXCHANGE
----------
(CDN$)
--------
HIGH LOW
------- ---
Fiscal year ended
November 30, 1995
First quarter . . $3.50 $2.39
Second quarter . . 6.50 2.39
Third quarter . . 6.00 4.25
Fourth quarter . . 5.37 4.00
Fiscal year ended
November 30, 1996
First quarter . . 8.37 4.44
Second quarter . . 12.45 7.25
Third quarter . . 15.50 10.00
Fourth quarter . . 15.10 8.75
The Company is subject to covenants in loan agreements which
restrict or limit the payment of cash dividends on its Common Shares.
Notwithstanding such restrictions and limitations, it is the Company's
present policy to retain future earnings for use in its business.
PRIVATE PLACEMENTS OF COMMON SHARES
The Company effected a number of its acquisitions and strategic
investments during fiscal 1996 by exchanging shares of Common Shares
for shares of capital stock of the respective target companies. The
Company issued an aggregate of 2,938,204 shares of Common Shares with
a market value of $21.2 million in exchange for all of the issued and
outstanding shares of capital stock of Environmental Evolutions,
United Eco and for 94% of the outstanding shares of Industra Service.
The exchanges of Common Shares for shares of capital stock of each of
Environmental Evolutions, United Eco and Industra Service were exempt
from registration under the Securities Act by virtue of Section 4(2)
therein and Regulation D promulgated thereunder. The exchange of
Common Shares for the capital stock of SRS was exempt from
registration under the Securities Act by virtue of Section 3(a)(10) of
the Securities Act. See "Item 1. Description of Business Development
of Business."
-21-
Effective January 24, 1997, the Company closed the sale of $15
million aggregate principal amount of 9.5% convertible debentures due
January 24, 2007 (the "Debentures") and 1,125,000 share purchase
warrants (the "Warrants") to a group of institutional investors. The
Debentures are convertible into shares of Common Shares at the
conversion rate of 85% of the average closing price of the Common
Shares on the Nasdaq National Market for the five trading days
immediately preceding the respective conversion dates, subject to a
floor conversion price of $6.30 per share. The floor conversion price
would be eliminated if shareholders ratify the placement at the May 7,
1997 shareholders meeting. Each Warrant is exercisable for one Common
Share, subject to customary anti-dilution provisions, at an exercise
price of $9.56 per share (110% of the closing market price for the
Common Shares on January 23, 1997) for a period of five years. The
purchasers have certain rights for the registration under the
Securities Act of the Common Shares underlying the Debentures and the
Warrants. An aggregate of 300,000 Warrants also were issued to the
placement agents for the transaction, which Warrants are exercisable
for five years at $8.00 per share. The sale of the Debentures and the
Warrants was exempt from registration under the Securities Act by
virtue of Section 4(2) therein and Regulation D promulgated
thereunder.
Effective March 3, 1997, the Company closed the sale of $3
million aggregate principal amount of Debentures and 225,000 Warrants
to a group of institutional investors, which included entities which
had participated in the January 1997 placement. Each Warrant is
exercisable for one Common Share, subject to customary anti-dilution
provisions, at an exercise price of $9.21 per share (110% of the
closing market price for the Common Shares on February 28, 1997) for a
period of five years. The purchasers have certain rights for the
registration under the Securities Act of the Common Shares underlying
the Debentures and the Warrants. The sale of the Debentures and the
Warrants was exempt from registration under the Securities Act by
virtue of Section 4(2) therein and Regulation D promulgated
thereunder.
-22-
ITEM 6. SELECTED FINANCIAL DATA.
The results of operations prior to fiscal 1993 do not reflect the
Company's current or planned business activities with the exception of
the licensing and consulting services provided by the Company. Eco
Environmental was acquired by the Company in November 1992, the Turner
Group was acquired in October 1993, Cambridge was acquired in June
1994, the Lake Charles Group was acquired in July 1995, Environmental
Evolutions was acquired in January 1996, the assets of Petrocon
Construction Resources, Inc. were acquired in May 1996, both SRS and
Industra Service were acquired in July 1996 and MM Industra was
acquired in September 1996. Accordingly, the statement of operations
for the year ended November 30, 1993 reflects twelve months of
operations for Eco Environmental and only one month of operations for
the Turner Group. The statement of operations for the year ended
November 30, 1994 reflects six months of operations for Cambridge.
The statement of operations for the year ended November 30, 1995
reflects five months of operations for the Lake Charles Group. The
statement of operations for the year ended November 30, 1996 reflects
eleven months of operations for Environmental Evolutions, six months
of operations for United Eco, four months of operations for SRS and
Industra Service and one month of operations for MM Industra. The
following information should be read in conjunction with the
Consolidated Financial Statements and the notes thereto and "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations," included elsewhere herein.
FISCAL YEAR ENDED
NOVEMBER 30
--------
1996 1995 1994
------- ---- ----
(IN THOUSANDS EXCEPT
PER SHARE INFORMATION)
STATEMENT OF
OPERATIONS DATA:
Total revenue . . $119,529 $46,684 $ 34,991
Operating income
(loss) . . . . . 9,701 3,773 1,747
Interest expense 1,747 713 681
Pretax income
(loss) . . . . . 7,954 3,060 1,066
Net income (loss) $8,763 $2,852 $903
======== ======= ========
Net income (loss)
per share . . . . $0.81 $0.40 $0.15
======= ======= ========
Weighted average
shares
outstanding(3) . 10,846 7,217 6,191
BALANCE SHEET
DATA:
Working capital . $3,280 $6,639 $6,441
Total assets . . 104,484 31,061 22,947
Current debt . . 40,975 10,054 6,350
Long-term debt . 6,720 2,100 4,977
Shareholders' 55,043 18,736 11,299
equity . . . . .
1993 1992(1) 1992(2)
---- ----- ------
(unaudited) (audited)
(IN THOUSANDS EXCEPT
PER SHARE INFORMATION)
STATEMENT OF OPERATIONS DATA:
Total revenue . . . . . . . . . . .
$7,565 $650 CDN$875
Operating income
(loss) . . . . . . . . . . . . . . 604 (901) (1,218)
Interest expense . . . . . . . . . 229 29 39
Pretax income (loss) . . . . . . . 375 (934) (1,257)
Net income (loss) . . . . . . . . .$322 $(934)CDN$(1,257)
====== ========= ========
Net income (loss) per share . . . .
$0.07 $ (0.11) CDN$(0.15)
=========== ========= ========
Weighted average shares
outstanding(3) . . . . . . . . . .
4,680 612 824
BALANCE SHEET DATA:
Working capital . . . . . . . . . .
$3,639 $253 CDN$345
Total assets . . . . . . . . . . .
15,007 753 1,014
Current debt . . . . . . . . . . .
2,634 403 543
Long-term debt . . . . . . . . . .
9,031 0 0
Shareholders' equity . . . . . . .
3,288 350 471
-------------------
(1) Dollar amounts have been converted from Canadian dollars into
United States dollars using the exchange rate at November 30,
1992 of one United States dollar to 1.3461 Canadian dollars.
(2) Prior to fiscal 1993, the Company recorded amounts in Canadian
dollars.
(3) Reflects 1-for-10 reverse stock split in November 1993.
-23-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company entered into its current lines of business in
November 1992 when it acquired Eco Environmental, and it has continued
to expand its service capabilities, geographic presence and customer
base primarily by acquiring other companies. The Company acquired
eight businesses between fiscal 1993 and fiscal 1996, and its revenues
grew from $7.6 million in fiscal 1993 to $119.5 million in fiscal 1996
primarily as a result of such acquisitions. The Company accelerated
its acquisition program in fiscal 1996 by adding the following
operating subsidiaries: Industra Service, SRS, Environmental
Evolutions, United Eco and MM Industra. In March 1997, the Company
completed its $50 million acquisition of Chempower.
The Company intends to continue to expand its business through
the acquisition of companies in the industrial maintenance,
environmental remediation and specialty fabrication businesses. The
Company's acquisition strategy entails the potential risks inherent in
assessing the value, strengths, weaknesses, contingent liabilities and
potential profitability of acquisition candidates and in integrating
the operations of acquired companies. There can be no assurance that
acquisition opportunities will continue to be available, that the
Company will have access to the capital required to finance potential
acquisitions or that any business acquired will be integrated
successfully or prove profitable.
The Company's acquisition strategy has led to rapid growth in the
Company's operations over the past four fiscal years. The Company's
operations generally are managed at each of its subsidiaries, but core
administrative, financing and strategic planning functions are
performed at the holding company level. This rapid growth has
increased, and may continue to increase, the operating complexity of
the Company as well as the level and responsibility for both existing
and new management personnel at the holding company level. The
Company's ability to manage its expansion effectively will require it
to hire and retain new management personnel at the holding company
level and to continue to implement and improve its operational and
financial systems. The Company's inability to effectively manage its
expansion could have a materially adverse effect on its results of
operations and financial results.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's revenues from its industrial and environmental
segments may be affected by the timing of scheduled outages at its
industrial customers' facilities and by weather conditions with
respect to projects conducted outdoors. The effects of seasonality
may be offset by the timing of large individual contracts,
particularly if all or a substantial portion of the contracts fall
within a oneto two-quarter period. Accordingly, the Company's
quarterly results may fluctuate and the results of one fiscal quarter
should not be deemed to be representative of the results of any other
quarter or for the full fiscal year.
RECOGNITION OF REVENUES
The Company recognizes revenues and profits on contracts using
the percentage-of-completion method of accounting. Under the
percentage-of-completion method, contract revenues are accrued based
upon the percentage that accrued costs to date bear to total estimated
costs. As contacts can extend over more than one accounting period,
revisions in estimated total costs and profits during the course of
work are reflected during the period in which the facts requiring the
revisions become know. Losses on contracts are charged to income in
the period in which such losses are first determined. The percentage-
of-completion method of accounting can result in the recognition of
either costs and estimated profits in excess of billings or billings
in excess of costs and estimated profits on uncompleted contracts,
which are classified as current assets and liabilities, respectively,
in the Company's balance sheet. See Note A to Consolidated Financial
Statements.
-24-
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUES
--------
The Company's revenues grew 156% to $119.5 million in fiscal 1996
from $46.6 million in fiscal 1995, primarily as a result of acquiring
five new subsidiaries during fiscal 1996. Because these acquisitions
were completed at different times during fiscal 1996, the Company's
results of operations do not reflect the full effect of such
acquisitions. The Company's results of operations for fiscal 1996
reflect eleven months of operations for Environmental Evolutions, six
months of operations for United Eco, four months of operations of each
of SRS and Industra Service and one month of operations for MM
Industra.
Prior to fiscal 1996, the Company had generated relatively
insignificant revenues in Canada at the holding company level from the
licensing of certain environmental technologies and the provision of
consulting services. The Company acquired Industra Service and MM
Industra, two Canadian businesses, in fiscal 1996. As a result of
these acquisitions, the Company's Canadian operations generated $6.5
million, or 5% of the Company's total revenues, in fiscal 1996.
Management anticipates that the Company will generate a larger
percentage of its total revenues from its Canadian operations as it
benefits from a full fiscal year of operations of Industra Service and
MM Industra. The Company may expand its operations in Canada through
future acquisitions, although the Company has no immediate plans to
do so. Management anticipates that the increase in revenues generated
by the Company's Canadian operating subsidiaries will increase the
Company's exposure to potential foreign currency exchange gains or
losses.
During fiscal 1996, the Company generated approximately 73% of
its revenues from the provision of industrial maintenance services and
20% of its revenues from the provisions of such services to petroleum
and petrochemical refining customers. Huntsman Corporation, Star
Enterprising, Goodyear Tire and Rubber and BioLab together accounted
for approximately 18% of the Company's total revenues in fiscal 1996,
compared to 75% of total revenue in fiscal 1995. No single customer
accounted for more than 5% of the Company's total revenues during
fiscal 1996. Nevertheless, the loss of any one or more key customers
could have a material adverse effect on the Company's results of
operation and financial condition. Management believes that the
Company's continued efforts to expand and diversify its customer base
in addition to the effects of a full year of operations from its newly
acquired operating subsidiaries will further reduce the Company's
dependence on certain key customers.
The Company's industrial maintenance segment generated $87.0
million, or 73%, of the Company's total revenues in fiscal 1996
compared to $41.3 million, or 88%, in fiscal 1995. This 110% increase
in revenues reflects, in part, the addition of four months of
operations of Industra Service and SRS. The revenues generated by the
Company's industrial maintenance operations that were in place at
November 30, 1995 grew 105% in fiscal 1996. This internal growth was
due, in part, to revenues generated on a single project that concluded
in fiscal 1996. Management anticipates that the revenues generated by
its industrial maintenance service segment will represent a smaller
percentage of its total revenues in fiscal 1997 as the Company
benefits form a full year of operations form MM Industra, SRS, United
Eco and Environmental Evolutions.
The revenues generated from the Company's environmental services
segment increased 491% to $31.9 million in fiscal 1996 from $5.4
million in fiscal 1995. This growth primarily reflects the effects of
four months of operations of each of Industra Service and SRS and six
months of operations of United Eco. Prior to fiscal 1996, only Eco
Environmental provided environmental remediation services. As a
percentage of total revenues, the Company's environmental remediation
service segment contributed approximately 26.7% to total revenues in
fiscal 1996 as compared to 11.5% of total revenues in fiscal 1995.
Management believes that this trend may continue in fiscal 1997 as
such new subsidiaries are included in the Company's results of
operations for a full fiscal year.
-25-
The Company significantly expanded its specialty fabrication
service business in fiscal 1996 through the acquisition of Industra
Service and MM Industra, and this business segment generated $657,000,
or less than 1%, of the Company's total revenues in fiscal 1996.
Management anticipates that the Company's specialty fabrication
services segment will generate more revenues and will contribute a
greater percentage of the Company's total revenues in fiscal 1997.
Prior to fiscal 1996, the Company had provided specialty fabrication
services through the Turner Group and the Lake Charles Group as part
of those subsidiaries' industrial maintenance services, and the
Company did not separately report revenues for specialty fabrication
services. The Company will report revenues generated from the
provision of such services by the Turner Group and the Lake Charles
Group in the specialty fabrication service segment. The Company will
benefit from a full fiscal year of operations of Industra Service and
MM Industra as well as nine months of operations of Chempower. M & M
Manufacturing Limited Partnership, the predecessor to MM Industra, had
been idle and in receivership, but MM Industra commenced operations in
October 1996, and, at April 29, 1997, it had been awarded CDN$35.0
million ($25.5 million) in contracts to perform specialty fabrication
services.
OPERATING EXPENSES.
------------------
The Company's total operating expenses increased approximately
156% to $111.6 million in fiscal 1996 from $43.6 million in fiscal
1995 primarily as a result of adding the operations of five new
subsidiaries during fiscal 1996. Expressed as a percentage of total
revenues, operating expenses were approximately 93.3% in fiscal 1996
compared to 93.4% in fiscal 1995. The Company's interest expense on
long-term debt increased to $1.7 million from $713,000 but, as a
percentage of total revenue, interest expense remained unchanged at
1.5%. Depreciation and amortization increased to $2.2 million in
fiscal 1996 from $1.1 million in fiscal 1995. As a percentage of
total revenues, depreciation and amortization decreased slightly to
1.7% in fiscal 1996 from 2.4% in fiscal 1995. Management believes
that the Company has been able to contain operating expenses through a
program instituted in fiscal 1994 pursuant to which project managers
are required to track such cost control indicators as labor
productivity and potential project cost overruns. Management believes
that the Company will continue to be able to control operating
expenses, but there can be no assurance that the Company's cost
control policies will be as effective in the future as they have been
in the past.
PROVISION FOR INCOME TAX.
------------------------
The Company has net loss carry forwards in Canada with which it
is able to reduce its tax liabilities. In fiscal 1996, the
application of $786,000 in such net loss carry forwards contributed to
a tax recovery of $809,000 in fiscal 1996. The Company paid $208,000
in taxes in fiscal 1995. At November 30, 1996, the Company had a
total of $3.2 million in net loss carry forwards that expire
incrementally between 1999 and 2003.
NET INCOME.
----------
Net income from continuing operations increased approximately
207% to $8.8 million, or $0.81 per share, in fiscal 1996 from $2.9
million, or $0.40 per share, in fiscal 1996 from $2.9 million, or
$0.40 per share, in fiscal 1995. A tax recovery of $809,000
contributed approximately 9.2% of the Company's net income, or $0.07
per share, in fiscal 1996.
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUES
--------
Revenues increased to $46,684,000 in fiscal 1995 from $34,991,000
in fiscal 1994. The growth in revenues is attributable to the
Company's industrial maintenance segment, primarily from the benefits
of the July 1995 acquisition of the Lake Charles Group. Revenues
generated from the Company's industrial maintenance segment increased
to $41,322,000 in fiscal 1995 from $26,951,000 in fiscal 1994. The
53% growth in revenues in this
-26-
segment reflects the addition of the Lake Charles Group, which
contributed five months of operating income, or $10,554,000. The
construction project for Players International, Inc. accounted for
much of the operating income generated by the Lake Charles Group in
fiscal 1995. Revenues generated from the Company's environmental
service segment decreased to $5,171,000 in fiscal 1995 from $8,040,000
in fiscal 1994. The decrease in revenues from the Company's
environmental service segment reflected a temporary softening of the
market for environmental remediation services coupled with a delay in
the start of a major project until late in fiscal 1995.
OPERATING EXPENSES
------------------
The Company realized a gross margin of $3,060,000 in fiscal 1995.
Operating expenses, which included interest expense on long-term debt
and depreciation and amortization, were $43,624,000 in fiscal 1995
compared to $33,925,000 in the prior fiscal year. Management believes
that this increase in operating expense was modest relative to the
increase in the Company's revenues. As a percentage of revenues,
operating expenses decreased to 93% in fiscal 1995 from 97% in fiscal
1994. In December 1994, the Company instituted new project cost
reporting guidelines and management has continued to follow these
guidelines. The Company's project managers track such cost control
indicators as labor productivity and potential project cost overruns.
Management believes that the Company will continue to be able to
control selling, general and administrative expenses and other
operating expenses during fiscal 1996 and that the Company's favorable
results of operations in fiscal 1995 will be achievable in fiscal
1996.
PROVISION FOR INCOME TAX
------------------------
The Company incurred substantial net operating losses between
fiscal 1989 and 1992, and the Company has used such net operating
losses to reduce its tax liabilities. The use of Canadian tax loss
carry forwards is limited to earnings generated from the same or
similar products or services from businesses without any break in
service to which these loss carry forwards are attributable. The
Company uses these loss carry forwards to offset income generated from
its consulting business. The Company paid taxes of $208,000 in fiscal
1995 compared to $58,000 in fiscal 1994 after the application of
$104,000 and $285,000, respectively.
NET INCOME.
----------
Net income was $2.9 million, or $0.40 per share, for fiscal 1995
as compared to $903,000, or $0.15 per share, for fiscal 1994. These
numbers reflect a 82% increase in net income on a 133% increase in
revenues from fiscal 1994 to fiscal 1995. Net income in fiscal 1994
reflects the writeoff of $105,000 from discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and shortterm investments decreased to
$497,000 at November 30, 1996 from $1.1 million at November 30, 1995,
as a result of the increased cash requirements of the Company's
expanded operations. Typically the Company maintains cash levels of
between $1.0 million and $2.0 million for general corporate needs,
with any excess cash used to reduce borrowings under the Company's
lines of credit. The Company's existing capital resources consist of
cash, cash provided by its operating subsidiaries and funds available
under its lines of credit. In fiscal 1996, the Company's operating
activities provided net cash of $3.8 million compared to $2.6 million
in fiscal 1995. The Company's financing activities in fiscal 1996
provided $7.1 million of net cash compared to the use of $663,000 in
cash during fiscal 1995. The major factors contributing to the
Company's improved cash flow during fiscal 1996 were a $6.0 million
dollar increase in income from continuing operations over the prior
fiscal year and the Company's ability to incur an additional
$15.0 million in debt.
At November 30, 1996, the Company and its operating subsidiaries
had an aggregate of $19.4 million in lines of credit, $5.6 million of
which remained available to certain operating subsidiaries. The
Company has a $10.0 million line of credit with Merrill Lynch Business
Financial Services, Inc. which bears interest at a floating
-27-
interest rate equal to 2.75% per year above the interest rate for
30day commercial paper and is secured by all of the Company's assets.
The Company had no availability under this line of credit at
November 30, 1996. Industra Service has a $5.9 million line of credit
with Hongkong Bank of Canada, $3.2 million of which remained available
at November 30, 1996. Industra Service also has a $2.3 million line
of credit with SeaFirst Bank, $2.0 million of which remained available
at November 30, 1996. United Eco has a $1 million line of credit with
Branch Banking and Trust, $300,000 of which remained available at
November 30, 1996. Hubbard Electric Company, a subsidiary of the
Turner Group, has a $250,000 line of credit with Bridge City Bank,
$25,000 of which remained available at November 30, 1996.
The Company incurred additional debt in fiscal 1997 in connection
with the acquisition of Chempower. The Company issued $15.0 million
aggregate principal amount of 9.5% convertible subordinated debentures
due January 24, 2007 and guaranteed two Chempower promissory notes in
the aggregate principal amount of $15.9 million, which notes mature in
1998. The Company pledged all of its shares of Chempower capital
stock to secure its guaranty of each promissory note. Chempower
issued the promissory notes to two principal shareholders of Chempower
as partial payment for such shareholders' equity interest in
Chempower. In addition, Chempower borrowed $6.0 million under an
unsecured Chempower line of credit.
The Company's cash requirements consist of working capital needs,
obligations under its leases and promissory notes and the funding of
potential acquisitions. Management believes that the Company's cash
and funds available under its credit facilities, together with cash
generated from its operations, are sufficient to meet its anticipated
cash requirements, with the exception of the Company's obligations
under the notes guaranteed by the Company in connection with the
Chempower acquisition. The Company may fund its capital requirements
by increasing its current lines of credit or restructuring such lines
of credit to enable all operating subsidiaries to draw upon them. The
Company also may seek to raise additional capital by issuing debt or
equity securities in private or public offerings. There can be no
assurance that the Company will be able to increase or restructure its
lines of credit or that the Company will be able to issue its
securities to coincide with the funding of certain capital
requirements.
Accounts receivable at November 30, 1996 increased to $20.9
million from $5.5 million at November 30, 1995, after deducting
allowances of $346,000 and $60,000 for doubtful accounts at year-end
fiscal 1996 and fiscal 1995, respectively. This increase in accounts
receivables reflects the addition of five new operating subsidiaries
during fiscal 1996, which had, in the aggregate, accounts receivables
of $12.1 million at November 30, 1996. The current portion of notes
receivable increased to $6.8 million at November 30, 1996 from $1.8
million at November 30, 1995 largely as a result of a loan made by the
Company to EIF, an asbestos and lead removal company in which the
Company holds a 36% equity interest. Inventory increased to $6.8
million at November 30, 1996 from $1.9 million at November 30, 1995.
This increase in inventory reflects that addition of five new
subsidiaries during fiscal 1996, which had, in the aggregate,
inventory of $3.6 million at November 30, 1996.
Property, plant and equipment increased significantly to $33.2
million at November 30, 1996 from $5.8 million at November 30, 1995 as
a result of the Company's acquisition effected during fiscal 1996.
The Company's investments increased to $7.6 million at November
30, 1996 from $1.4 million at November 30, 1995 as a result of the
Company's additional strategic investments made in EIF during fiscal
1996. At November 30, 1996, the Company's recorded investment in EIF
was $5.2 million.
Accounts payable and other accrued liabilities increased to $18.4
million at November 30, 1996 from $5.1 million from November 30, 1995
primarily due to the addition of new operations.
-28-
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward looking
statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. Although
the Company believes that its expectations are based on reasonable
assumptions, it can give no assurance that such expectations will be
achieved. Important factors that could cause actual results to differ
materially from those in the forward looking statements made herein
include the ability of the Company to continue to expand through
acquisitions, the availability of capital to fund the Company's
expansion program, the ability of the Company to manage its expansion
effectively, economic conditions that could affect demand for the
Company's services, the ability of the Company to complete projects
profitably and severe weather conditions that could delay projects.
-29-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
AMERICAN ECO CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
-30-
[Letterhead of Karlins Fuller Arnold & Klodosky, P.C.]
To the Shareholders and Directors of
AMERICAN ECO CORPORATION
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheet of
AMERICAN ECO CORPORATION as of November 30, 1996 and 1995 and the
related consolidated statements of income, retained earnings and
changes in financial position for each of the three years in the
period ended November 30, 1996, which, as described in Note O, have
been prepared on the basis of accounting principles generally accepted
in Canada. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States (and in Canada). U.S. standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of AMERICAN ECO CORPORATION as of November 30, 1996 and 1995, and the
results of its operations and its changes in financial position for
each of the three years in the period ended November 30, 1996, in
conformity with accounting principles generally accepted in Canada.
/s/ Karlins Fuller Arnold & Klodosky, P.C.
Houston, Texas
January 31, 1997
-31-
AMERICAN ECO CORPORATION
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1996 AND 1995
(United States Dollars in thousands)
1996 1995
---- ----
ASSETS
-----
CURRENT ASSETS
Cash $317 $898
Certificate of Deposit,
restricted 180 172
Accounts receivable, trade,
less allowance for doubtful
accounts of $346 and $60
at November 30, 1996 and 1995,
respectively 20,918 5,535
Current portion of notes
receivable (Note B) 6,695 1,870
Costs and estimated earnings
in excess of billings on
jobs in progress (Note I) 3,446 2,996
Inventory 6,807 1,923
Deferred income tax (Note L) 1,393 442
Prepaid expenses, other $4,499 $2,857
-------- -------
TOTAL CURRENT ASSETS $44,255 $16,693
-------- -------
PROPERTY, PLANT AND EQUIPMENT,
net (Note C) $33,238 $5,844
OTHER ASSETS
Goodwill (Note D), net
of accumulated amortization
of $762 and $225 at
November 30, 1996 and 1995,
respectively 18,969 7,123
Debenture issue costs 97 7
Notes receivable (Note B) 280 --
Investments (Note E) $7,645 $1,394
-------- -------
TOTAL OTHER ASSETS $26,991 $8,524
-------- -------
TOTAL ASSETS $104,484 $31,061
======== =======
The accompanying notes are an integral part of
these financial statements.
-32-
AMERICAN ECO CORPORATION
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1996 AND 1995
(United States Dollars in thousands)
1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------
CURRENT LIABILITIES
Accounts payable and
accrued liabilities $ 18,449 $ 5,144
Notes payable (Note F) 20,399 3,971
Current portion of long-term debt (Note G) 1,595 451
Current portion of obligations under
capital leases (Note H) 113 75
Deferred income taxes -- 219
Billings in excess of costs and
estimated earnings on jobs
in progress (Note I) 419 194
-------- -------
TOTAL CURRENT LIABILITIES 40,975 10,054
-------- -------
LONG-TERM LIABILITIES
Long-term debt (Note G) 6,618 1,931
Obligations under capital
leases (Note H) 102 169
Deferred income tax
liability (Note L) 1,373 171
-------- -------
8,093 2,271
-------- -------
TOTAL LIABILITIES 49,068 12,325
-------- -------
MINORITY INTEREST 373
--
-------- -------
COMMITMENTS AND CONTINGENCIES (Note R)
SHAREHOLDERS' EQUITY
Share capital (Note M) 39,411 11,803
Share capital subscribed 34 98
Contributed surplus 2,845 2,845
Retained earnings 12,753 3,990
-------- -------
55,043 18,736
-------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $104,484 $31,061
======== =======
On behalf on the Board
Michael E. McGinnis Barry Cracower
Director Director
January 31, 1997
The accompanying notes are an integral part of
these financial statements.
-33-
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
FOR THE YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
(United States Dollars in thousands)
Balance, November 30, 1993 $ 235
Net income, for the year ended
November 30, 1994 903
------
Balance, November 30, 1994 1,138
Net income, for the year ended
November 30, 1995 2,852
------
Balance, November 30, 1995 3,990
Net income, for the year ended
November 30, 1996 8,763
------
Balance, November 30, 1996 $12,753
=======
The accompanying notes are an integral part of
these financial statements.
-34-
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
(United States Dollars in thousands)
1996 1995 1994
-------- ------- -------
REVENUE $119,529 $46,684 $34,991
-------- ------- -------
COSTS AND EXPENSES
Costs of contracts, sales
and other operating
expenses 107,819 42,270 32,318
Interest expense on
long-term debt 1,747 713 681
Depreciation and amortization 2,232 1,107 1,044
Gain on sale of equipment (2) (370) --
Foreign exchange (income) (221) (96) (118)
-------- ------- --------
111,575 43,624 33,925
-------- ------- -------
INCOME FROM CONTINUING OPERATIONS
BEFORE RECOVERY OF (PROVISION
FOR) INCOME TAX 7,954 3,060 1,066
RECOVERY OF (PROVISION FOR)
INCOME TAX (Note L) 809 (208) (58)
-------- ------- -------
INCOME FROM CONTINUING
OPERATIONS 8,763 2,852 1,008
-------- ------- -------
DISCONTINUED OPERATIONS (Note Q)
Loss from operations of
discontinued division
(less applicable tax
benefit of $49) -- -- (95)
Loss on equipment held for
sale (less applicable
tax benefit of $5) -- -- (10)
-------- ------- -------
-- -- (105)
-------- ------- -------
NET INCOME $ 8,763 $2,852 $ 903
======== ======= =======
Earnings per common share:
Income from continuing
operations $.81 $.40 $.16
=== === ===
Net income $.81 $.40 $.15
=== === ===
Weighted average number of shares
used in computing
income per common
share (Note M) 10,846,516 7,217,005 6,191,296
========== ========= =========
The accompanying notes are an integral part of
these financial statements.
-35-
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
(United States Dollars in thousands)
1996 1995 1994
---------- -----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing
operations $ 8,763 $ 2,852 $ 1,008
Adjustments to reconcile net
income to net cash provided by
operating activities:
Loss from discontinued operations -- -- (105)
Gain on sale of equipment (2) (370) --
Depreciation and amortization 2,232 1,107 1,044
Change in deferred income taxes 490 (64) 4
Change in certificate of deposit,
restricted (8) (6) (166)
Change in accounts receivable (1,823) (1,356) (1,553)
Change in costs and estimated
earnings in excess of billings
on jobs in progress (363) (1,059) (981)
Change in inventory (2,511) 189 2
Change in prepaid expenses (748) 256 72
Change in accounts payable (2,312) 981 683
Change in billings in excess
of costs and estimated
earnings on jobs in progress
34 75 (13)
------- ------- -------
Net cash provided by (used in)
operating activities 3,752 2,605
(5)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,803) (386) (121)
Proceeds from sale of equipment 53 -- --
Increase in goodwill (586) (219) (640)
Acquisition of business, net of
cash acquired 18 (586) --
Increase in investment (6,156) (727) (633)
------- ------- -------
Net cash used in investing activities
(11,474) (1,918) (1,394)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes receivable 3,257 288 582
Disbursements for notes receivable
(8,350) (625) (1,051)
Proceeds from notes payable 14,920 800 3,182
Proceeds from long-term debt 428 -- --
Principal payments on notes payable
(7,412) (739) (321)
Principal payments on long-term debt
(927) (325) (438)
Principal payments on obligations
under capital leases (88) (139) (135)
Deferred foreign exchange -- (27) (18)
Debenture issuance costs (193) -- --
Stock issuance costs (125) --
Issuance of common stock 5,506 229 118
------- ------- -------
Net cash provided by (used in)
financing activities 7,141 (663) 1,919
------- ------- -------
NET INCREASE (DECREASE) IN CASH (581) 24 520
CASH AT BEGINNING OF YEAR 898 874 354
------- ------- -------
CASH AT END OF YEAR $ 317 $ 898 $ 874
======= ======= =======
The accompanying notes are an integral part of
these financial statements.
-36-
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
American Eco Corporation and its wholly-owned subsidiaries ( the
Company" or "AEC") provide industrial services, environmental services
and specialty manufacturing to the petrochemical, refining, forest
products and offshore fabrication industries.
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The accompanying consolidated financial statements include the Company
and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada. There are no
material differences, except as described in Note O, between the
accounting principles applied by the Company and those that would be
applied under accounting principles generally accepted in the United
States.
REVENUE RECOGNITION - The Company recognizes revenues and profits on
-------------------
contracts using the percentage-of-completion method. Under the
percentage-of-completion method, contract revenues are accrued based
upon the percentage that accrued costs to date bear to total estimated
costs. As contracts can extend over more than one accounting period,
revisions in estimated total costs and profits during the course of
work are reflected during the period in which the facts requiring the
revisions become known. Losses on contracts are charged to income in
the period in which such losses are first determined.
The percentage-of-completion method of accounting can result in the
recognition of either costs and estimated profits in excess of
billings or billings in excess of costs and estimated profits on
uncompleted contracts, which are classified as current assets and
liabilities, respectively, in the accompanying balance sheet. The
current asset account represents costs incurred and profits earned
that have not been billed to the customer on uncompleted construction
contracts. The current liability account represents deferred income
on uncompleted construction contracts. Generally accepted accounting
principles for percentage-of-completion accounting require the
classifications as current assets and liabilities.
INVENTORY - Inventory of raw material is valued at the lower of cost
---------
or market method, with cost determined on the first-in, first-out
method. Inventory consists primarily of supplies and consumables used
in conjunction with construction projects.
PROPERTY, PLANT AND EQUIPMENT - Property and equipment are stated at
------------------------------
cost. Depreciation of plant and equipment is provided over the
estimated useful lives of the respective assets using the straight-
line method over the following periods based on their estimated useful
lives:
Buildings 40 years
Fabrication machinery, mobile and other equipment 3-10 years
Expenditures for additions, major renewals and betterments are
capitalized and expenditures for maintenance and repairs are charged
to earnings as incurred. When property and equipment are retired or
otherwise disposed of, the cost thereof and the applicable accumulated
depreciation are removed from the respective accounts and the
resulting gain or loss is reflected in earnings.
AMORTIZATION - The cost in excess of net assets of businesses acquired
------------
at their respective acquisition dates are amortized on a straight-line
basis over 40 years. On an annual basis, the Company assesses the
carrying value in order to determine whether an impairment has
occurred, taking into account both historical and forecasted results
of operations.
DEBENTURE FINANCING COSTS - The costs of debenture financing are
-------------------------
deferred and are amortized over the life of the related debt.
PREPAID EXPENSES - Included in prepaid expenses is deferred financing
----------------
costs in the amount of $1,145,000 and $805,000 at November 30, 1996
and 1995, respectively. This represents costs incurred with brokerage
investment houses and other expenses in the Company s quest to raise
capital. These costs have been deferred and will serve as an offset
to the funds raised subsequent to November 30, 1996 (Refer to Note
S).
-37-
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
INCOME TAXES - The Company reflects income taxes based on the tax
-------------
allocation method. Under this method, timing differences between
reported and taxable income result in provisions for taxes not
currently payable. Such timing differences arise principally as a
result of claiming depreciation and amortization for tax purposes at
amounts differing from those charged to income.
EARNINGS PER SHARE - Per share data is calculated using the weighted
-------------------
average number of shares outstanding for the year. Warrants and other
stock options have not been included in earnings per share data as
they are anti-dilutive.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -
-------------------------------------------------
1996 1995 1994
-------- -------- --------
Cash paid during the
years for:
Interest $1,614,000 $713,000 $712,000
Income taxes $ -- $ 66,000 $ 5,000
TRANSLATION OF FINANCIAL STATEMENTS INTO UNITED STATES DOLLARS - The
--------------------------------------------------------------
consolidated financial statements are expressed in United States
dollars using foreign currency translation procedures established by
the Canadian Institute of Chartered Accountants. All of the Company's
operations are classified as integrated operations for purposes of
applying the translation procedures, and the functional currency is
United States dollars.
For integrated purposes, cash, accounts and notes receivable, costs
and estimated earnings in excess of billings, current liabilities and
long term debt are translated into United States dollars using year
end rates of exchange; all other assets and liabilities are translated
at applicable historical rates of exchange. Revenues, expenses and
certain costs are translated at annual average exchange rates except
for inventory, depreciation and amortization which are translated at
historical rates. Realized exchange gains and losses and currency
translation adjustments relative to long-term monetary items with a
fixed and ascertainable life are deferred and amortized on a straight-
line basis over the life of the item.
USE OF ESTIMATES - The preparation of financial statements in
-----------------
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B NOTES RECEIVABLE
1996 1995
-------- -------
(United States Dollars in thousands)
EIF Holdings, Inc., receivable on July 31, 1997,
maximum borrowings with under this
agreement are $5,250,000, interest
at the rate of prime plus 2%, unsecured. $4,908 $ --
Impala Development, Ltd., interest at 12%
secured by 144,500 shares AEC of stock,
this note was repaid in February, 1997. 775 --
Michael McGinnis, President of AEC, receivable
March through April, 1997, with
interest at 10%, secured by 268,000
shares of AEC stock and 140,000
share options of AEC stock. 490 --
Frank Fradella, Chief Operating Officer of
AEC, receivable $70,000 per annum,
non-interest bearing, unsecured. 350 --
-38-
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B NOTES RECEIVABLE (continued)
Kam Biotechnology International, LLC,
receivable on December 31, 1997,
with interest at the rate of 6%,
unsecured. 200 200
Network Capital Management Group, Inc.,
("Network") due on September 15,
1996, with interest at the rate of 7%.,
secured by fees and commissions
to be earned by Network from the Company. -- 675
Turner Holdings, Inc., with interest at
the rate of 8%, unsecured. 20 20
Longview Industries, Inc., non-interest
bearing, secured by equipment. -- 675
Miscellaneous notes receivable 232 300
------- -------
6,975 1,870
Current portion 6,695 1,870
Long-term portion $ 280 $ --
======= =======
NOTE C PROPERTY , PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
1996 1995
---------- ----------
(United States Dollars in thousands)
Land $ 1,965 $ 56
Buildings 7,345 861
Fabrication machinery, mobile
and other equipment 28,940 6,142
Furniture and fixtures 1,645 257
Equipment under capital leases 626 580
Leasehold improvements 908 69
-------- --------
41,429 7,965
Accumulated depreciation
and amortization 8,191 2,121
-------- --------
$33,238 $5,844
======== ========
NOTE D GOODWILL
1996
----
Effective January 1, 1996, the Company acquired all of the outstanding
common stock of Environmental Evolutions, Inc., a Corpus Christi,
Texas, company, in exchange for 400,000 shares of Company common stock
with a fair market value of $2.4 million. The purchase price and
expenses associated with the acquisition exceeded the fair value of
net assets acquired by approximately $3.3 million and has been
included in intangible assets. Pro forma results were not material
to the Company's financial position or results of operations.
Effective May 31, 1996, the Company acquired substantially all the
assets and assumed certain liabilities of United Eco Systems
("United"), a construction company located in High Point, North
Carolina. The purchase price consisted of
-39-
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D GOODWILL (continued)
315,000 shares of Company common stock with a fair market value of
$2.5 million. The purchase price and expenses associated with the
acquisition exceeded the fair market value of net assets acquired
by approximately $2.8 million and has been included in intangible
assets. Pro forma results were not material to the Company's
financial position or results of operations.
Effective July 1, 1996, the Company acquired all of the outstanding
common stock of Separation and Recovery Systems, Inc. ("SRS"), a
California company. The purchase price consisted primarily of 736,667
shares of Company common stock with a fair market value of $5.6
million, which approximated the book value of SRS.
Effective July 22, 1996, the Company acquired all of the outstanding
common stock of Industra Service Corporation ("Industra"), a British
Columbia, Canada company. AEC exchanged 0.425 common shares for each
common share of Industra, or 1,486,997 shares of AEC common shares.
The purchase price and expenses associated with the acquisition
exceeded the fair value of net assets of the business acquired by
approximately $4.4 million and has been included in intangible assets.
All acquisitions have been accounted for using the purchase method;
accordingly, the assets and liabilities have been recorded at their
estimated fair values at the date of acquisition. The excess purchase
price and related expenses over the fair value of net assets acquired
is included in "Goodwill". Under the purchase method of accounting,
the results of operations are included in the consolidated financial
statements from their acquisition dates.
The unaudited pro forma results, assuming the SRS and Industra
acquisitions had occurred at December 1, 1993, are as follows:
1995 1994
---- ----
United States Dollars
in thousands, except
per share data:
--------------
Revenues $112,000 $94,033
Net income $ 3,069 $ 12
Earnings per share $ .33 $ .00
The unaudited pro forma summary is not necessarily indicative either
of results of operations that would have occurred had the acquisitions
been made at the beginning of the periods presented, or of future
results of operations of the combined companies.
1995
----
In July, 1995, the Company acquired all of the outstanding capital
stock of Lake Charles Construction Corporation, in exchange for
issuance of 520,000 shares of the Company's common stock valued at $2
million. The purchase price and expenses associated with the
acquisition exceeded the fair value of net assets acquired by
approximately $2.8 million.
-40-
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E INVESTMENT IN EIF HOLDINGS, INC.
For the period, August 9, 1996 through November 7, 1996, the Company
owned approximately 18% of EIF Holdings, Inc. ("EIF"). On November 7,
1996, the Company completed a transaction to acquire approximately
another 20% of EIF. Since November 7, 1996, the Company accounts for
its 38% ownership interest in EIF using the equity method of
accounting. As of November 30, 1996, the Company's recorded
investment in EIF was $5.2 million. No other investment made during
fiscal 1996 exceeded $500,000.
NOTE F NOTES PAYABLE
1996 1995
---------- -----------
(United States Dollars in
thousands)
Note payable to Merrill Lynch Business
Financial Services, Inc., revolving
line of credit, maximum borrowing of
$10,000,000, interest at 30-day
Commercial paper rate plus 2.75%,
secured by all accounts, chattel
paper, contract rights, inventory,
equipment, fixtures, general
intangibles, deposit accounts,
documents and instruments of
the Company. $10,000 $ --
Note payable to Hongkong Bank of
Canada, revolving line of
credit, maximum borrowings
of $5,900,000, interest at
prime plus 3/8%; secured
by general assignment of
accounts receivable and
inventory and a floating
charge debenture on all
the assets of Industra
Service Corporation,
Canada, a subsidiary of
the Company. 2,688 --
Note payable to Branch Banking & Trust,
payable $48,000 per month, including
interest at prime plus 1.50%, maturing
May, 1997, secured by deed of trust
on real property and all personal
property of United Eco Systems,
Inc. a subsidiary of the Company. 2,200 --
8% convertible callable secured debentures,
maturing May, 1997, convertible
into common shares of the Company
at a price of 85% of the greater
of (a) the 20-day weighted average
trading price of the common shares
on NASDAQ, immediately prior to
conversion and (b) the 1-day
weighted average trading price
of the common shares on NASDAQ
immediately prior to conversion,
unsecured. Refer to Note M. 1,850 --
Note payable to Bank of America, payable
$100,000 per month, including
interest at the bank's reference
rate plus .75%, maturing August,
1997, secured by accounts receivable,
inventory and machinery and equipment
of SRS. 998 --
Note payable to Bank of America, due August,
1997, including interest at the
bank's reference rate plus
.75%, maturing August, 1997,
secured by accounts receivable,
inventory, and machinery and
equipment of SRS. 900 --
-41-
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F NOTES PAYABLE (continued)
Note payable to Branch Banking & Trust,
revolving line of credit, interest
at prime plus 1.5%, maturing May,
1997, secured by a deed of trust
on real property and a lien on
all personal property of United
Eco Systems. 700 --
Note payable to AICCO for insurance premiums,
payable $61,400 (1996) and $82,000
(1995) per month, including interest
at 6.19% (1996) and 7.8% (1995),
secured by insurance premiums. 480 356
Note payable to SeaFirst Bank, revolving
line of credit, maximum borrowings
of $2,250,000, interest at prime
plus .75%, secured by accounts
receivable and equipment of
Industra, Inc. 250 --
Note payable to Bridge City Bank, revolving
line of credit, maximum borrowings
of $250,000, interest at prime plus
2.50%, maturing June, 1997; secured
by accounts receivable, equipment
and inventory of Hubbard Electric
Company, a subsidiary of
the Company. 225 --
Note payable to Pacific Southwest Bank, payable
$8,500 monthly, including interest
at 11.25%, maturing March, 1998,
secured by transportation and
other equipment. 85 --
Note payable to First Interstate Bank,
revolving line of credit, maximum
borrowings of $4,000,000, interest
at prime plus 1.50%. Aggregate
amounts available under the line
of credit were limited to 75%
of total eligible accounts receivable
from completed contracts and
maintenance billings plus 60%
of accounts receivable from
progress billings, collateralized
by accounts receivable and
inventory of the Company. The
line of credit expired in
October, 1996. -- 3,450
Note payable to individual, payable on
February 24, 1996, non-interest
bearing, secured by real estate. -- 165
Other miscellaneous 23
-------- --------
$20,399 $ 3,971
======== ========
NOTE G LONG-TERM DEBT
1996 1995
---- ----
(United States Dollars in thousands)
Note payable to Bank of America, payable
$83,000 per month beginning
January, 1997, plus interest at
bank's reference rate plus .75%,
secured by receivables, inventory,
machinery and equipment of SRS. $3,000 $ --
Note payable to Hongkong Bank of Canada,
payable $23,000 per month, including
interest at 9.00%, secured by real
estate of Industra. 2,062 --
-42-
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G LONG-TERM DEBT (continued)
Note payable to The C.A. Turner Construction
Company, Texas, payable $92,000
quarterly including interest at
8.00%, secured by substantially
all of the fixed assets of C.A.
Turner Construction, Inc. and
Action Contract Services, Inc.,
two subsidiaries of the Company,
maturing December, 2000. 1,240 1,495
Note payable to Hongkong Bank of Canada,
payable $4,000 per month,
including interest at 9.00%,
secured by real estate of
Industra. 368 --
Notes payable to four individuals, interest
only through May, 1999, then
quarterly payments of $38,000
including interest at 8%, unsecured. 398 --
Note payable to Metlife Capital Corporation,
payable $8,000 monthly including
interest at 8.50%, secured by equipment
of C.A. Turner Construction, Inc. 262 337
Note payable to Bridge City Bank, payable
$4,000 per month including interest
at prime plus 1.00%, maturing July,
2110, secured by real estate of
Hubbard Electric, a subsidiary
of the Company. 242 --
Note payable to Cameron State Bank, payable
$2,700 per month including interest
at 9.125%, secured by real estate. 153 --
Note payable to Bridge City Bank, payable
$1,000 per month including
interest at prime plus 1.00%,
maturing June, 2001, secured
by real estate. 87 --
8.00% convertible callable secured
debentures Series A, maturing
October 14, 1998, convertible
into common shares of the
Company at a conversion price
of $4.50 per share in Canadian
dollars, secured by the assets
of Eco Environmental, Inc., a
subsidiary of the Company. -- 134
Note payable to Madison Trading International
Ltd., payable $80,000 on
February 28, 1996 and the
remaining balance on February 28,
1997, Interest is at 7.00%,
payable annually, unsecured. -- 297
Notes payable, other 401 119
-------- --------
8,213 2,382
Current portion 1,595 451
------- --------
Long-term portion $6,618 $1,931
======== ========
The aggregate principal payments on long-term debt during the years
subsequent to November 30, 1996 are: 1997 - $1,595,000; 1998 -
$1,726,000; 1999 - $1,779,000; 2000 - $785,000; 2001 -$467,000;
thereafter - $1,861,000.
-43-
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H LEASE AGREEMENTS
The Company leases equipment and office and warehouse space under
capital and operating leases that expire at various times through
September 1999 and September 2001, respectively. Imputed interest on
the capital leases range from 9.00% to 17.50%.
Future minimum payments, by year and in the aggregate, under these
capital and operating leases, consisted of the following at November
30, 1996.
Capital Operating
Leases Leases
---------- ---------
(United States Dollars
in thousands)
1997 $139 $1,319
1998 94 1,043
1999 14 767
2000 -- 562
2001 -- 406
------- -------
Total minimum lease payment 247 $4,097
======= =======
Amounts representing interest
and executory costs 32
-------
Present value of net minimum
lease payments 215
Current portion 113
-------
Long-term portion $102
=======
Rent expense for the years ended November 30, 1996 and 1995 amounted
to $538,000 and $181,000, respectively.
NOTE I COSTS AND ESTIMATED EARNINGS ON JOBS IN PROGRESS
1996 1995
--------- -------
(United States Dollars in thousands)
Costs, estimated earnings and billings are summarized as follows:
Costs incurred on uncompleted jobs $66,476 $44,971
Estimated earnings 8,417 6,720
------- -------
74,893 51,691
Billings to date 71,866 48,889
------- -------
$ 3,027 $ 2,802
======= =======
Included in the accompanying
balance sheet under the
following captions:
Costs and estimated earnings in excess
of billings on jobs in progress $ 3,446 $2,996
Billings in excess of costs and estimated
earnings on jobs in progress (419) (194)
------- -------
$ 3,027 $ 2,802
======= =======
-44-
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J BACKLOG (unaudited)
The following schedule summarizes changes in backlog on contracts
during the year ended November 30, 1996. Backlog represents the
amount of revenue the Company expects to realize from work to be
performed on uncompleted contracts in progress at November 30, 1996
and from contractual agreements on which work has not yet begun.
(United States Dollars in thousands)
Backlog balance at November 30, 1995 $46,951
Contracts entered into during the period 197,578
Less revenue earned during the year (119,529)
--------
Backlog balance at November 30, 1996 $125,000
========
The Company also entered into additional contracts with estimated
revenues of $67,000 between December 1, 1996 and January 31, 1997.
NOTE K RELATED PARTY TRANSACTIONS
For the years ended November 30, 1996 and 1995, the Company had
business transactions with related parties. The details of these
transactions and balances owing from and to these parties are as
follows:
Green Cone Limited (U.K.) ("Green Cone")
----------------------------------------
1996 - During 1996, the Company converted it's receivable in Green
Cone to equity and assigned the Company's Green Cone Patent to Green
Cone. The Company recognized income of $130,000 on this transaction.
1995 - During 1995, the Company had sales to Green Cone in the amount
of $8,000. At November 30, 1995, $11,000 is included in accounts
receivable and $136,000 in notes receivable.
Legal Fees
----------
During the years ended November 30, 1996 and 1995, the Company
incurred legal fees in the amount of $13,000 and $2,000, respectively,
with a firm in which a director of the Company is a partner.
Consulting Fees
---------------
1996 - During the year ended November 30, 1996, fees aggregating
$120,000 were paid to a director, in his capacity as an officer of the
Company. Of this amount, $80,000 is included in deferred financing
costs, $30,000 is included in share issue costs, as a reduction to
common stock, and $10,000 is included in administrative expenses.
Additionally, another director was paid $109,000 for services rendered
during the year, of which $27,000 is included in deferred financing
costs, $18,000 is included in share issue costs, as a reduction to
common stock, and $64,000 is included in administrative expenses.
1995 - During the year ended November 30, 1995, fees aggregating
$84,000 were paid to a Director, in his capacity as an officer of the
Company. Of this amount, $75,000 is included in share issue costs, as
a reduction to common stock, and $9,000 is included in administrative
expenses. Additionally, another Director was paid $140,000 for
services rendered during the year, of which $110,000 is included in
deferred bid costs and $30,000 is included in deferred financing
costs.
-45-
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K RELATED PARTY TRANSACTIONS (continued)
Turner Holdings, Inc. ("THI")
-----------------------------
At November 30, 1996 and 1995, a note receivable in the amount of
$20,000 was due from THI.
Sandhills Industries, Inc.
--------------------------
During 1996, the Company earned gross revenues of $537,000 from a
construction agreement with a company in which an employee of the
Company has an equity interest.
EIF Holdings, Inc.
------------------
1996 - The Company has a note receivable from EIF as of November 30,
1996, with accrued interest of $248,000. Refer to Notes B and E.
In conjunction with the above investment, the Company has entered into
the following guarantees:
Employment agreements with the new President and Chief Operating
Officer of EIF, through December 31, 2000.
The Company has guaranteed $800,000 of EIF bank debt with Farmers
and Merchants Bank.
On December 13, 1996 EIF borrowed $300,000 from Truman Harty, Inc.,
which is guaranteed by the Company.
The Company has also guaranteed $22,481 to a vendor of EIF and the
payment of November and December rent due to EIF's landlord.
OTHER ITEMS - At November 30, 1995, accounts payable include $88,000,
-----------
which was advanced to Cambridge Construction Service Company ("CCSC"),
a subsidiary of the Company, by a former officer of CCSC. Also CCSC
leased office space from a company owned by an officer of CCSC. For
the year ended November 30, 1995, rent expense amounted to $31,000 for
such office space.
NOTE L INCOME TAXES
Canada - Income tax expense varies from the amount that would be
--------
computed by applying the basic combined Canadian federal and
provincial rate of 44.34%, as follows:
1996 1995 1994
------ ------ --------
(United States Dollars in thousands)
Basic rate applied to pre-tax income $3,526 $ 419 $ 473
Reduction due to timing differences (137) (315) (164)
Reduction due to income taxed
in other jurisdictions (2,603) -- (24)
Reduction of income taxes due to
application of loss
carryforwards (786) (104) (285)
------------- ------- --------
Effective Canadian tax expense $ -- $ -- $ --
========== ====== ====
-46-
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L INCOME TAXES (continued)
The Company has Canadian tax operating loss carryforwards expiring in:
Year ended November 30,
1999 $ 555
2000 111
2001 1,521
2002 144
2003 884
-------
$3,215
=======
UNITED STATES - The components of the recovery of (provision for)
-------------
income taxes are as follows:
1996 1995 1994
------- ----- --------
(United States Dollars in thousands)
Federal $865 $ (16) $(54)
State (50) (128) --
-------- -------- --------
815 (144) (54)
Deferred (6) ( 64) (4)
------- -------- --------
Recovery of (provision for) income tax $809 $(208) $(58)
======= ======== ========
The significant components of the net deferred tax asset (liability)
are as follows:
1996 1995 1994
------- ------ -----
Depreciation of plant and
equipment $(1,204) $(400) $(291)
Reduction of income taxes due
to application of loss
carryforwards 1,415 565 281
Gain on sale of equipment,
recognized on the installment
method for income tax purposes -- (125) --
Other (30) 12 (3)
Valuation allowance (161) -- --
-------- -------- --------
Net deferred tax asset (liability) $ 20 $ 52 $ (13)
======== ======== ========
The liability method of accounting for deferred income taxes requires
a valuation allowance against deferred income taxes against the net
income tax losses available to be carried forward. The Company
established a valuation allowance against deferred tax assets of
$161,000 at November 30, 1996.
NOTE M SHARE CAPITAL
AUTHORIZED SHARE CAPITAL - The authorized share capital consists of
------------------------
unlimited Class A Preference shares and unlimited, no par value Common
shares.
ISSUED SHARE CAPITAL -
--------------------
Number of Total
Common Consider-
Shares ation
--------- ---------
(Total Consideration in United States
Dollars in thousands)
Outstanding, November 30, 1993 4,789,510 $ 208
Conversion of debentures 950,430 3,130
Purchase of insurance deposits 369,849 1,187
-47-
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M SHARE CAPITAL (continued)
Number of Total
Common Consider-
Shares ation
-------- ---------
(Total Consideration in United States
Dollars in thousands)
Purchase of Cambridge Construction
Service Corporation 400,000 1,200
Issued for debenture costs 20,000 64
Issued in settlement of debt 30,000 92
Issued for cash 262,552 862
Share issue cost (232)
Outstanding, November 30, 1994 6,822,341 6,511
Conversion of debentures 1,147,250 3,454
Purchase of Lake Charles
Construction Corporation 520,000 2,080
Purchase of Reclamation Management, Inc. 9,000 33
Issued for cash 78,500 145
Issued for services 130,000 460
Issued for real estate acquisition 152,381 400
Share issue cost - (1,280)
--------- ---------
Outstanding, November 30, 1995 8,859,472 11,803
Conversion of debentures 198,820 1,284
Issued for acquisitions 4,283,204 27,269
Issued for cash 594,940 1,743
Issued for services 281,000 1,753
Share issue cost
-- (4,441)
--------- ---------
Outstanding, November 30, 1996 14,217,436 $39,411
========== =========
SHARE WARRANTS - As of November 30, 1996, the Company had 876,000
---------------
outstanding share warrants, which call for the issuance of one common
share upon presentation of the warrant at issue prices of $4.50
(Canadian dollars) to $6.00 (United States dollars) . These warrants
expire at various times through November, 2001.
STOCK OPTIONS - The Company has options outstanding to certain
-------------
officers, consultants, directors and employees of the Company and its
subsidiaries, to issue a total of 615,163 common shares at prices
ranging from $2.50 to $8.30 (Canadian dollars). These options expire
through March, 2001.
CONVERTIBLE SECURED DEBENTURES - 265,107 common shares are reserved
------------------------------
for issue on the conversion of convertible secured debentures of
$1,850,000, maturing May, 1997.
WEIGHTED AVERAGE - The weighted average number of shares outstanding
-----------------
used in the calculation of earnings per share was 10,846,516,
7,217,005 and 6,191,296, for the years ended November 30, 1996, 1995
and 1994, respectively. See
Note O.
NOTE N ECONOMIC DEPENDENCE
The Company had revenues from ten, four and four customers that
represented 68%, 75% and 48% of total revenue for the years ended
November 30, 1996, 1995 and 1994, respectively.
-48-
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE O DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES AND PRACTICES
United States accounting practices relating to foreign currency
translation are not entirely compatible with Canadian accounting
practices which the Company follows, and which are described in Note
A. Under United States practices, where the functional currency is
United States dollars, all currency translation adjustments related to
assets and liabilities are included in earnings currently, whereas
Canadian practices for integrated operations require that currency
translation adjustments related to long term monetary items with a
fixed and ascertainable life be deferred and amortized over the life
of the item.
Deferred income taxes are translated at year-end rates of exchange
under United States practices rather than historical rates of exchange
which are required by Canadian practices.
Under the United States basis, income tax losses available to be
carried forward are recognized when it is more likely than not that
they will be realized. Under the Canadian basis, income tax losses
available to be carried forward are recognized only when there is
virtual certainty that they will be realized. For the years ended
November 30, 1996, 1995 and 1994, there were no significant
differences between these two methods.
Under accounting principles generally accepted in the United States,
earnings per share would be calculated based upon the weighted average
number of shares outstanding during the year plus common stock
equivalents, such as common stock purchase options, unless they are
antidilutive. Earnings per share would be computed as if common share
purchase options and warrants were exercised at the beginning of the
year, as if funds obtained thereby were used to purchase common shares
of the Company at the average market price during the year. Fully
diluted earnings per share would be calculated as if the proceeds from
the exercise of common share purchase options and warrants were used
to purchase the company's common shares at its average market price
during the year or its market value at the end of the year, whichever
is higher.
NOTE P RETIREMENT PLANS
The Company has a profit-sharing plan (defined contribution)
retirement plan covering substantially all employees, except employees
who are members of a union who bargained separately for retirement
benefits. Employees are eligible upon attaining the age of twenty-
one (21) and completing one (1) year of service. The amount of
contribution to the plan is determined annually by the Board of
Directors and may vary from zero to fifteen percent of covered
compensation.
The Company, through it's collective bargaining agreements with
various unions, contributes to the unions' retirement plans. For the
years ended November 30, 1996, 1995 and 1994, an expense of
$1,454,000, $560,000 and $1,029,000, respectively, was incurred for
these retirement plans.
NOTE Q DISCONTINUED OPERATIONS
During 1994, the Company's management made a decision to cease
operations of Action Machine Shop, a division of Action. At November
30, 1994 the net assets held for sale consisted of plant and
equipment, with a cost of $374,000 and accumulated depreciation of
$66,000. In August, 1995, these assets were sold for $675,000 to
Longview Industries, Inc. and is included in notes receivable at
November 30, 1995. The Company collected the receivables and
liquidated the liabilities. Discontinued operations of Action Machine
Shop for the year ended November 30, 1994 were as follows:
Revenues $441,000
Cost of sales and general expenses (600,000)
--------
Loss from operations (159,000)
Income tax benefit 54,000
--------
Net loss $(105,000)
========
-49-
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE R CONTINGENCIES AND COMMITMENTS
EMPLOYMENT AGREEMENT - The Company has an employment agreement with
the chief executive officer through November 30, 2000 with annual base
compensation of $250,000. The chief executive officer is entitled to
an annual bonus equal to five percent of net income and stock options
have been granted that allow for the purchase of up to 20,000 shares
of Company common stock per year pursuant to the currently effective
Employee Stock Option Plan.
LITIGATION - The Company is involved in arbitration with a customer.
The Company claims that equipment supplied to a clean-up site would
not perform properly, due to conditions at the site and the customer's
actions interfering with the Company's ability to work efficiently.
The customer has claimed the equipment did not perform as represented.
This matter is currently in arbitration. The customer claims damages
from the Company totalling $19.3 million, consisting of delay damages
and costs of completion. The Company counter-claims damages totalling
$2.4 million for breach of subcontract and $10 million for the
customers bad faith and intentional misconduct. Although the outcome
is not determinable, it is the best judgement of management that
neither the financial position nor results of operations of the
Company will be materially affected by the final outcome of this
arbitration.
At November 30, 1996, there were various claims and disputes
incidental to its business. The Company believes that the disposition
of all such claims and disputes, individually or in the aggregate,
should not have a material adverse affect upon the Company's financial
position, results of operations or cash flows.
NOTE S SUBSEQUENT EVENTS
The Company has entered into an agreement pursuant to which AEC would
acquire Chempower, Inc. The transaction is anticipated to take the
form of a merger, with an estimated purchase price of $48.36 million
in a combination of cash and debt. In conjunction with this merger,
the Company has consummated a private placement for $15 million of
convertible debentures. The acquisition is subject to various
conditions including negotiation and execution of a definitive
agreement and completion of due diligence.
In February, 1997, the Company signed a letter of intent to form a
joint venture with CVG International America ("CVG"). The joint
venture is to provide industrial, environmental, engineering, and
health and safety services to Corporacion Venezolana de Guyana.
NOTE T SEGMENTED INFORMATION
The Company operates in Canada and the United States in three primary
industry segments: (1) Environmental Services which involves asbestos
removal, insulation and other environmental services, (2) Industrial
Services which involves the repair, maintenance and modification of
boilers, pressure vessels and tubing used in industrial facilities and
the provision of engineering services and (3) Manufacturing Services
which involves construction of high-quality custom steel and alloy
products. It is the Company's policy to price intersegment contracts
on an equivalent basis to that used for pricing external contracts.
The following is a summary of selected data for these business
segments:
Industry
Segmentation
Environmental Industrial
Services Services
-------------- ----------
(United States Dollars in thousands)
1996
Contract income from customers $31,897 $86,975
Operating income 2,118 5,617
Depreciation and amortization 1,132 1,100
Capital expenditures during the year 516 1,336
Identifiable assets 38,488 28,425
-50-
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE T SEGMENTED INFORMATION (continued)
Environmental Industrial
Services Services
-------------- ----------
(United States Dollars in thousands)
1995
Contract income from customers $5,362 $41,322
Operating income 505 2,555
Depreciation and amortization 214 893
Capital expenditures during the year 54 1,675
Identifiable assets 4,636 17,163
1994
Contract income from customers $8,040 $26,951
Operating income 451 615
Depreciation and amortization 196 848
Capital expenditures during the year 47 686
Identifiable assets 5,246 11,447
Industry
Segmentation
Manufacturing
Services Consolidated
-------------- -----------------
(United States Dollars in thousands)
1996
Contract income from customers $657 $119,529
Operating income 218 7,953
Depreciation and amortization -- 2,232
Capital expenditures during the year 6,155 8,007
Identifiable assets 4,864 71,777
1995
Contract income from customers $ -- $46,684
Operating income -- 3,060
Depreciation and amortization -- 1,107
Capital expenditures during the year -- 1,729
Identifiable assets -- 21,799
1994
Contract income from customers $ -- $34,991
Operating income -- 1,066
Depreciation and amortization -- 1,044
Capital expenditures
during the year -- 733
Identifiable assets -- 16,693
Geographic Segmentation
United Consoli-
States Canada dated
-------- -------- ---------
1996
Contract income $ 6,509 $113,020 $119,529
Operating income 89 7,864 7,953
Depreciation and amortization 166 2,066 2,232
Capital expenditures during the year 6,151 1,856 8,007
Identifiable assets 20,988 50,789 71,777
1995
Contract income
$ -- $46,684 $46,684
Operating income -- 3,060 3,060
Depreciation and amortization -- 1,107 1,107
Capital expenditures during the year -- 1,729 1,729
Identifiable assets -- 21,799 21,799
1994
Contract income
$ -- $34,991 $34,991
Operating income -- 1,066 1,066
Depreciation and amortization -- 1,044 1,044
Capital expenditures during the year -- 733 733
Identifiable assets -- 16,693 16,693
-51-
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
The Company has had no disagreements with Karlins Fuller
Arnold & Klodosky PC., the Company's independent accountants, or such
firm's predecessor during the prior three fiscal years. In March
1997, the Board of Directors selected Coopers & Lybrand, L.L.P. as
auditors of the Company effective May 7, 1997, subject to the
ratification of the shareholders at the Annual Shareholders Meeting
scheduled to be held on May 7, 1997. Accordingly, Karlins Fuller
Arnold & Klodosky P.C. has resigned effective May 7, 1997.
-52-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The names of the executive officers, directors and certain
significant employees are set forth below, together with the positions
held by each such person in the Company and their ages as of March 31,
1997. All directors are elected annually by the shareholders of the
Company and serve until their successors are duly elected and
qualified. Officers are elected by the Board of Directors and serve
at the will of the Board of Directors.
NAME AGE POSITIONS
---- --- --------
Mark White 57 Chairman
Michael E. 47 President, Chief
McGinnis Executive
Officer and
Director
John C. Pennie 58 Vice-Chairman of
the Board of
Directors
Frank Fradella 42 Executive Vice
President and
Chief Operating
Officer
David L. 47 Vice President
Norris and Chief
Financial
Officer
John H. Craig 49 Secretary
Barry Cracower 59 Director
William A. 69 Director
Dimma
Tyrrell Garth 48 Director
Donald Getty 63 Director
Joseph D. 75 Division
DeFranco President, SRS
Besim Halef 41 Division
President, MM
Industra
John Hoyle 50 Division
President,
United Eco
Toomas Kukk 56 Division
President,
Chempower
Donald Scott 38 Division
Manager, Eco
Environmental
James Wright 35 Division
President,
Environmental
Evolutions
EXECUTIVE OFFICERS
MARK WHITE has been a director of the Company since July 1993 and
was elected Chairman of the Board in July 1994. Since 1986, Mr. White
has practiced law and has acted as an independent consultant. From
1983 to 1986, he served as the Governor of the State of Texas. His
career in public service also included serving as the Attorney General
of Texas, Secretary of State and Assistant Attorney General. He
serves on the board of
-53-
directors of the John Gray Foundation at Lamar University, and the
boards of regents of Hardin Simmons University, the Houston
Educational Excellence Foundation, and the Houston Read Foundation.
Mr. White is a member of the National Association of Attorneys'
General and the National Governors' Association.
MICHAEL E. MCGINNIS has been the President and Chief Executive
Officer of the Company since 1993 and a director since 1994. He was
the President and Chief Executive Officer of Eco Environmental, Inc.,
a provider of environmental remediation services to industrial
clients, when it was acquired by the Company in 1993. Prior to
joining Eco Environmental, Inc. in 1992, Mr. McGinnis was employed
with The Brand Companies, Inc., one of the largest asbestos abatement
contractors in the United States. Mr. McGinnis joined The Brand
Companies in 1965 and served in various operational and administrative
capacities for over 27 years. Mr. McGinnis serves as the Chairman of
the Board of EIF Holdings, Inc., an asbestos abatement and lead
removal contractor based in California in which the Company holds a
minority interest, and he has held that position since June 1996,
having been President of EIF from March 1996 until August 1996.
JOHN C. PENNIE has been a director of the Company since February
1992 and the Vice-Chairman of the Board of Directors since October
1993. Mr. Pennie served as the Company's President and Chief
Executive Officer in 1992 in order to execute the downsizing and
reorganization of the Company. Prior to joining the Company, Mr.
Pennie was a business consultant with over 25 years of experience in
assisting turnaround and start-up companies. He also serves as a
director of Innovadent Technologies, Inc., a manufacturing company.
FRANK FREDELLA has been Executive Vice President and Chief
Operating Officer since October 1996. For more than five years prior
thereto he was an executive of NSC Corporation, with his last position
as President. NSC Corporation provides asbestos abatement and other
specialty contracting services.
DAVID L. NORRIS has been Vice President and Chief Financial Officer
of the Company since March 1997. He also has been President and Chief
Executive Officer and a director of EIF since August 1996. Prior
thereto, Mr. Norris was the President of Tonopah Resources
International, Inc. and Citadel Environmental Group, Inc., which
owned and operated several abatement and remediation companies in
the environmental industry. From 1994 to 1996, Mr. Norris was the
President and Managing Member of WNH Investments, L.L.C., which is a
private investment banking company investing principally in companies
in the environmental and energy industries. From 1992 to 1994, Mr.
Norris was the President and Chief Operating Officer of North
American Recycling Systems, Inc. Prior thereto, from 1972 to 1992,
Mr. Norris was employed by Evergren Bankcorp, Inc., most recently as
Executive Vice President in charge of corporate banking.
JOHN CRAIG has been as Secretary of the Company for more than five
years. He has been a partner in Cassels, Brock & Blackwell, a
Toronto, Ontario law firm since 1994, and for at least three years
prior thereto, he was a partner in Holden, Day & Wilson. His law
firms have performed legal services for the Company.
OUTSIDE DIRECTORS
BARRY CRACOWER has been a director of the Company since December
1996. Mr. Cracower has been the President of Pharmx Rexall Drug
Stores Ltd., a drug store chain based in Concord, Ontario, since 1990.
Prior to 1990, he held senior executive positions at several major
Canadian corporations. Mr. Cracower served on the Board of Directors
of the predecessor corporation to the Company, ECO Corp., in 1992
during its restructuring. He also is as a director of Algonquin
Mercantile Corporation, a Canadian company.
WILLIAM A. DIMMA has been a director of the Company since January
1997. Mr. Dimma has served as the Chairman of the Board of Canadian
Business Media Ltd since 1992, and York University since 1991. For
more than five years through 1993, Mr. Dimma served as the Deputy
Chairman and also as the President and Chief
-54-
Executive Officer of Royal LePage Limited, a Canadian real estate
company. In addition to the companies mentioned above, Mr. Dimma
is a director of the Greater Toronto Airport Authority, Magellan
Aerospace Corporation, IPL Energy Inc., a pipeline and gas
distribution company, London Life Insurance Company, Sears
Canada Inc. and Trilon Financial Corporation, a financial services
company.
TYRRELL L. GARTH has been a director of the Company since December
1996 and previously was as a director from 1993 to 1995. Mr. Garth
has been the President of Cheyenne Capital Inc., a provider of
merchant banking services located in Beaumont, Texas, since 1996.
Prior to joining Cheyenne Capital, Mr. Garth was a partner of Moore
Landrey Garth Jones Burmeister & Hulett, L.L.P., a law firm in
Beaumont, Texas, for more than five years. In addition to serving as
a director of the Company, Mr. Garth is a director of Unison
HealthCare Corp., a long-term healthcare provider (Nasdaq National
Market).
HON. DONALD R. GETTY has been a director of the Company since
January 1997. Mr. Getty has been the President and Chief Executive
Officer of Sunnybank Investments Ltd., an investment and consulting
company located in Edmonton, Alberta, since December 1992. Mr. Getty
has held elected and appointive offices in Canadian government, most
recently as the Premier of the Province of Alberta from 1985 to 1992
and as the Minister of Energy and Natural Resources for the federal
government of Canada between 1971 and 1979. Mr. Getty currently
serves on the boards of directors of Mera Petroleum, an oil and gas
company, Cen Pro Technologies, an engineering company, Farm Energy
Corporation, an ethanol production company, and Guyanor Resources, a
mining company, all located in Canada.
SIGNIFICANT EMPLOYEES
JOSEPH D. DEFRANCO has been as the Division President of SRS since
July 1996 when SRS was acquired by the Company. Mr. DeFranco had
served as the President, Chief Executive Officer, Treasurer and a
director of SRS since 1973.
DESIM HALEF has been the Division President of MM Industra since
June 1996. Between April 1994 and May 1996, Mr. Halef served as a
project general manager for National Heavy Industries Limited, Saudi
Arabia in connection with a project to build specialty fabrication
facilities in the Kingdom of Saudi Arabia. Mr. Halef had served in
various capacities at M&M Manufacturing Limited Partnership, the
predecessor of MM Industra, between 1994 and 1985, most recently as
the Executive Vice President and General Manager of that company from
March 1991 to April 1994.
JOHN HOYLE has been as the Division President of United Eco since
November 1996. Mr. Hoyle had been the President of Four Seasons
Environmental, Inc., an environmental services company, between July
1996 and August 1993, and served as the Vice President of that
corporation between August 1993 and September 1990.
TOOMAS KUKK has served as the Division President of Chempower since
its acquisition in March 1997. Mr. Kukk founded Chempower and
Powerhouse Equipment, Inc., the predecessor to Chempower, and he
served as the Chief Executive Officer and Chairman of the Board of
Directors of Chempower since its organization in 1985.
DONALD SCOTT has served as the Division Manager of Eco
Environmental since April 1996. Mr. Scott served as Project Manager
for Eco Environmental since January 1993. He previously worked as a
project manager for T.G.I Stephens, a provider of environmental
services.
-55-
JAMES WRIGHT has served as the Division President of Environmental
Evolutions since January 1996. Prior to the acquisition of
Environmental Evolutions, Mr. Wright had served as the President of
that corporation since April 1992.
BOARD OF DIRECTORS MATTERS
The Board of Directors has an Audit Committee and a Compensation
Committee. The Audit Committee reviews the annual and quarterly
financial statements, and material investments and transactions, and
meets with the outside accountants and senior management regarding,
among other items, internal control procedures established by the
Company. The Compensation Committee sets the level of compensation of
the Company's executive officers.
During the 1996 fiscal year, the Board of Directors met in person
or telephonically four times, and each director attended at least 75%
of the meetings. The Board of Directors also authorized corporate
actions through written consents.
COMPLIANCE WITH CERTAIN REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934 requires that
the officers, directors and 10% shareholders of a domestic issuer
report the ownership and purchase or sale of the equity securities of
such issuer to the SEC. Officers, directors and 10% shareholders of
foreign private issuers are not required to report such ownership or
transactions. The Company has become a "domestic issuer" for the
purposes of United States securities regulations. The officers and
directors of the Company will file Initial Statements of Beneficial
Interest with the SEC. See Item 1. "Description of Business Change
in Reporting Status."
-56-
ITEM 11. EXECUTIVE COMPENSATION.
The following table discloses the compensation awarded to or earned
by the Chief Executive Officer and the other most highly compensated
executive officers of the Company as of the end of fiscal 1996 whose
annual salary plus other forms of compensation exceeded $100,000 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Name Other Annual
and Bonus Compensation
Position Year Salary ($) ($) ($)
-------- ---- --------- ----- -------
Michael E. McGinnis
President and 1996 252,276 (1) 0 6,439 (2)
Chief Executive 1995 102,201 (1) 0 6,440 (2)
Officer 1994 90,012 0 0
Mark White 1996 0 0 120,000 (3)
Chairman of 1995 0 0 140,000 (3)
the Board 1994 0 0 87,500
John C. Pennie 1996 0 0 109,140 (4)
Vice-Chairman 1995 0 0 119,100 (4)
of the Board 1994 0 0 80,785 (4)
---------------------
SUMMARY COMPENSATION TABLE
Long-Term All Other
Compensation Compensation
-------- ------------
Name
and Securities
Position Year Underlying
-------- ---- Options (#)
Michael E. McGinnis
President and 1996 20,000 0
Chief Executive 1995 50,000 0
Officer 1994 50,000 0
Mark White 1996 0 0
Chairman of 1995 65,000 0
the Board 1994 10,000 0
John C. Pennie 1996 0 0
Vice-Chairman 1995 50,000 0
of the Board 1994 0 0
---------------------
(1) Includes $1,138 and $1,158 of deferred compensation
contributed by the Company to Mr. McGinnis' 401K Plan in
fiscal 1996 and fiscal 1995, respectively.
(2) Represents automobile lease payments paid by the Company.
(3) Represents amounts paid as a retainer to Mr. White for
services rendered to the Company.
(4) Represents fees paid to Windrush Corporation, a company
50% of which is owned by Mr. Pennie, for executive
services including rent and secretarial services for the
Company's Toronto office.
EMPLOYMENT CONTRACTS
The Company and Michael E. McGinnis have entered into an employment
agreement pursuant to which Mr. McGinnis receives an annual base
salary of $250,000 and is entitled to participate in an annual bonus
pool equal to 5% of the Company's net income and to receive annual
grants of stock options for the purchase of 20,000 Common Shares. The
agreement provides for up to two years compensation if he is
terminated without cause, or upon his death or disability, subject to
certain limitations. The employment agreement terminates on November
30, 2000.
The Company and Frank Fradella have entered into an employment
agreement, effective October 1, 1996, pursuant to which Mr. Fradella
will be paid an annual base salary of $250,000 and an automobile
allowance of $750 per month plus any operating and maintenance
expenses associated with such vehicle. The agreement also provides
that Mr. Fradella is entitled to receive a non-discretionary bonus of
$70,000 per year, to participate in an annual bonus pool equal to 5%
of the Company's net income, to receive 50,000 stock options to
purchase Common Shares, and to receive an additional $250,000 as a
signing bonus. In addition, the Company has agreed to reimburse Mr.
Fradella for certain costs associated with his relocating to Houston,
Texas. The agreement provides that the Company will pay up to six
months salary to Mr. Fradella or his estate if he dies, is permanently
disabled or is
-57-
terminated by the Company without cause, subject to certain
limitations. Mr. Fradella's employment agreement with the
Company terminates on September 30, 2001. See "Item 13. Certain
Relationships and Related Transactions Indebtedness of Management or
Affiliates of Management."
The Company and David L. Norris entered into an employment
agreement effective August 1, 1996 pursuant to which Mr. Norris will
be paid an annual base salary of $175,000, an automobile allowance of
$700 per month plus any operating and maintenance expenses associated
with such vehicle, and he is entitled to participate in an annual
bonus pool equal to 5% of the Company's income and to receive up to
25,000 options to purchase Common Shares per year based upon his
performance. The agreement provides for up to two years compensation
if Mr. Norris is terminated by the Company without cause subject to
certain limitations. Mr. Norris' employment agreement with the
Company terminates on December 31, 2000.
COMPENSATION OF DIRECTORS
The directors of the Company who are not otherwise employees or
consultants of the Company receive CDN$20,000 per year. In addition,
all reasonable expenses incurred by the directors in respect of their
duties are reimbursed by the Company. None of the directors of the
Company receives compensation in his capacity as a director pursuant
to any other arrangement or in lieu of any standard arrangement except
through the granting of stock options.
The following table provides information with respect to stock
options granted to the Named Executive Officers during fiscal 1996.
Stock Options Granted
in Fiscal Year Ended November 30, 1996
--------------------------------------
% of Total
Options
Securities Granted to
Under Employees Exercise
Options in Financial Price
Name Granted (#) Year (CDN$)
---- ------------ ----------- ---------
Michael E. McGinnis 20,000 4% $4.60
Mark White 0 -- --
John C. Pennie 0 -- --
Market Value
of Securities
Underlying
Options on
the Date of
Grant Expiration
Name (CDN$) Date
---- ------------ ----------
Michael E. McGinnis $4.60 12/1/2000
Mark White -- --
John C. Pennie -- --
The following table provides information with respect to stock
options exercised by the Named Executive Officers during the fiscal
year ended November 30, 1996 and the balance of stock options
remaining after such exercises. All stock options described below
were presently exercisable at November 30, 1996.
-58-
Aggregated Stock Options Exercised
in Fiscal Year Ended November 30, 1996
and Fiscal Year-End Values
--------------------------------------
Securities
Acquired
Upon
Name Exercise(#) Value Realized (US$)
---- ----------- --------------------
Michael E.
McGinnis 0 --
Mark White 0 --
John C. 50,000 214,925
Pennie
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Stock
at Fiscal Options at Fiscal
Year-End Year-End
(#) (CDN$)(1)
-------------------- -------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
---- ------------------- --------------------
Michael E. McGinnis 108,000/12,000 707,200/55,800
Mark White 75,000/0 502,500/0
John C. Pennie 0 --
(1) Based on the closing price of the Common Shares on The Toronto
Stock Exchange on November 30, 1996 of CDN$9.25.
REPORT OF COMPENSATION COMMITTEE
During fiscal 1996, the Compensation Committee of the Board of
Directors of the Company was comprised of Henry Knowles, Ronald Mann
and A. Murray Sinclair, all of whom were independent directors. All
three directors resigned as a member of the Board of Directors during
fiscal 1996.
It is the responsibility of the Compensation Committee to determine
the level of compensation in respect of the Company's executives
officers with a view to providing such executives with a competitive
compensation package having regard to performance. Performance is
defined to include achievement of the Company's strategic objective of
growth and the enhancement of shareholder value through increases in
the stock price resulting from a stronger balance sheet and increased
earnings.
Compensation for executive officers is composed primarily of three
components; namely, base salary, performance bonuses and the granting
of stock options. Performance bonuses are considered from time to
time having regard to the above referenced objectives.
In establishing the levels of base salary, the award of stock
options and performance bonuses, the Compensation Committee takes into
consideration individual performance, responsibilities, length of
service and levels of compensation provided by industry competitors.
In the case of Mr. McGinnis, the Chief Executive Officer, he will be
entitled to participate in an annual bonus pool equal to 5% of the net
income under his employment contract entered into on December 1, 1995
and as subsequently amended. In determining the Chairman's retainer,
the Committee considered that the Chairman was devoting over 50% of
his time to the affairs of the Company and had made a significant
contribution to the success of the Company.
The Compensation Committee is also responsible for reviewing the
Company's manpower and succession plans to ensure that adequate plans
are in place.
This report was furnished by the Compensation Committee.
-59-
STOCK PERFORMANCE CHART
The following graph compares the yearly percentage change at
November 30 of the indicated year in the Company's cumulative total
shareholder return on its Common Shares with the cumulative total
shareholder return on (i) securities traded on the Toronto Stock
Exchange, and (ii) publicly traded companies which are part of the
Pollution Control Index. Although the Company believes this graph
reflects favorably on the Company, it does not believe that the
comparison is necessarily useful in determining the quality of the
Company's performance or in establishing executive compensation.
[performance graph depicting information
contained in the following chart]
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
Pollution Control
Industry Index 100 100 80 60 145 130
TSE 300 Total
Return Index 100 98 129 129 151 199
American Eco 100 123 164 92 137 264
Corporation
Share Price
(Canadian) $3.50 $4.30 $5.75 $3.25 $4.80 $9.25
-60-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth as of May 2, 1997 the number of
Common Shares beneficially owned by (i) each person known to be the
beneficial owner of more than five percent of the outstanding Common
Shares, (ii) each director of the Company, (iii) each Named Executive
Officer and (iv) all officers and directors of the Company as a group
as known by the Company or as reflected on the records of the transfer
agent.
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership(1)
------------------- -----------------------
Number Percentage
------ ----------
Vision Holdings, Inc. . .
3,052,611 21%
14 Parlaville Road
P.O. Box HM 2257
Hamilton, Bermuda HMJX
Barry Cracower . . . . .20,000(2) *
William Dimma . . . . .20,000(2) *
Tyrrell Garth . . . . . .
102,300(3) *
Donald Getty . . . . . .20,000(2) *
Michael E. McGinnis . . .
435,000(4) 3%
John C. Pennie . . . . .22,500(5) *
Mark White . . . . . . .
112,000(6) *
Directors and executive
officers as a group (7 731,800 5%
persons) . . . . . . . .
----------------------------
* Represents less than one percent of the issued and outstanding
Common Shares.
(1) Unless otherwise indicated, all persons have sole voting and
investment power over the Common Shares.
(2) Represents Common Shares underlying presently exercisable stock
options.
(3) Includes 20,000 Common Shares underlying presently exercisable
stock options.
(4) Includes (i) 142,000 Common Shares underlying presently
exercisable stock options and (ii) 90,500 shares owned by his
wife.
(5) Includes 20,000 Common Shares underlying presently exercisable
stock options.
(6) Includes 75,000 Common Shares underlying presently exercisable
stock options.
(7) Includes Common Shares disclosed in notes (2), (3), (4), (5), (6)
above.
-61-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TRANSACTIONS WITH MANAGEMENT OR AFFILIATES OF MANAGEMENT
Pursuant to an agreement between the Company and Windrush
Corporation ("Windrush"), dated October 5, 1994, Windrush receives a
fee of $5,000 per month in consideration for executive services for
administration, strategic and marketing planning and public investor
relations provided to the Company plus fees which are negotiated on a
project-by-project basis for other specific services rendered. This
agreement may be terminated by the Company on 30 days' prior written
notice. Mr. Pennie, the Vice-Chairman of the Board of Directors,
holds a 50% interest in Windrush.
INDEBTEDNESS OF MANAGEMENT OR AFFILIATES OF MANAGEMENT
During fiscal 1996, the Company loaned $490,355 to Michael E.
McGinnis for the purpose of purchasing Common Shares of the Company in
the open market. The loan matures on May 7, 1997, bears interest at
the rate of 10% per annum and is secured by the purchased shares. On
September 6, 1996, the Company loaned $475,000 to Mark White, who was
then Chairman of the Board, which loan was non-interest bearing and
unsecured. Mr. White repaid the loan on October 16, 1996. The
Company also loaned $350,000 to Frank J. Fradella, Executive Vice
President and Chief Operating Officer, for the purpose of purchasing a
home upon his joining the Company, repayable, without interest, at the
rate of $70,000 per year while Mr. Fradella is employed by the
Company. This loan becomes due upon the termination of Mr. Fradella's
employment with the Company.
-62-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a) Financial Statements:
--------------------
The following audited consolidated financial statements of
American Eco Corporation and subsidiaries are included in Item 8:
Index to Consolidated Financial Statements
Report of Independent Auditors
Consolidated Balance Sheet as of November 30, 1996 and 1995
Consolidated Statement of Retained Earnings for the years ended
November 30, 1996, 1995 and 1994
Consolidated Statement of Income for the years ended November 30,
1996, 1995 and 1994
Consolidated Statement of Cash Flows for the years ended November
30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
The following consolidated financial statement schedules of
American Eco Corporation and subsidiaries are included in
Item 14(d):
All schedules to the consolidated financial statements required
by Article 7 of Regulation S-X are not required under related
instructions or are not applicable and, therefore, have been
omitted.
(b) REPORTS ON FORM 8-K
Not applicable
(c) EXHIBITS
INDEX TO EXHIBITS
Exhibit Number Document
3.1.1 Letters Patent (Certificate of Incorporation) filed February
6, 1969, incorporated by reference to Exhibit 3.1.1 to the
Company registration statement on Form 10, dated September 19,
1990.
3.1.2 Supplementary Letters Patent, dated June 26, 1970
(incorporated by reference to Exhibit 3.1.2 to the Company's
Form 10).
3.1.3 Articles of Amendment, filed June 16, 1975 (incorporated by
reference to Exhibit 3.1.3 to the Company's Form 10).
3.1.4 Articles of Amendment, filed June 23, 1978 (incorporated by
reference to Exhibit 3.1.4 to the Company's Form 10).
3.1.5 Articles of Amendment, filed June 20, 1986 (incorporated by
reference to Exhibit 3.1.5 to the Company's Form 10).
-63-
3.1.6 Articles of Amendment, filed June 17, 1987 (incorporated by
reference to Exhibit 3.1.6 to the Company's Form 10).
*3.1.7 Articles of Amendment, certified on November 19, 1993
3.2.1 By-Laws (incorporated by reference to Exhibit 3.2 to the
Company's Form 10.).
*3.2.2 By-Law Number 10.
4.1 Share Option Plan (incorporated by reference to Exhibit to
Management Information Circular to the Company's Form 6-K,
dated September 27, 1995).
4.2 Form of 9.5% Cumulative Convertible Debenture due January 24,
2007 (incorporated by reference to Exhibit 2 to the Company's
Form 6-K, dated February 7, 1997).
4.3 Form of 9.5% Cumulative Convertible Debenture due March 3,
2007 (incorporated by reference to Exhibit 2 to the Company's
Form 6-K, dated March 14, 1997).
4.4 Form of Stock Purchase Warrant (incorporated by reference to
Exhibit 3 to the Company's Form 6-K, dated February 7, 1997).
10.1 Memorandum, dated October 5, 1995, between the Company and
Windrush Corporation (incorporated by reference to Exhibit
10.6 to the 1994 Form 20-F).
10.2 Share Exchange Agreement, dated June 1, 1994, among Westlake
Interests, Ltd., Cambridge, the Company and Marc A. Sparks
(incorporated by reference to Exhibit 10.7.1 to the 1994 Form
20-F).
10.3 Acquisition Agreement, dated July 31, 1995, between the
Company and Kenneth Hagan and Janet Hagan. (incorporated by
reference to Exhibit 2.7.1 to the 1995 Form 20-F).
*10.4.1 Agreement and Plan of Merger dated as of April 26, 1996, among
the Company SRS Acquisition Corporation and Separation and
Recovery Systems, Inc. ("SRS").
*10.4.2 Business Loan Agreement, dated as of February 7, 1996, between
Bank of America National Trust and Savings Association ("BA")
and SRS.
*10.4.3
Amendment No. 1 to Business Loan Agreement, dated as of July
3, 1996, between SRS and BA.
*10.4.4 Continuing Guarantee, dated as of July 3, 1996 from the
Company to BA.
*10.4.5 Subordination Agreement, dated July 3, 1996, among American
Eco, SRS and BA.
*10.5 Acquisition Agreement, dated as of May 31, 1996, between the
Company and United Eco Systems, Inc.
*10.6.1 WCMA Note, Loan and Security Agreement, dated as of August 23,
1996 between American Eco/SP Corporation and Merrill Lynch
Business Financial Services, Inc. ("MLBFS")
*10.6.2 Security Agreement, dated as of August 26, 1996 between C.A.
Turner Maintenance, Inc. ("Turner") and MLBFS.
*10.6.3 Unconditional Guaranty, dated as of August 26, 1996 of Turner
in favor of MLBFS.
-64-
*10.6.4 Unconditional Guaranty, dated as of August 26, 1996 of
American Eco/SP Corporation in favor of MLBFS.
*10.7 Acquisition Agreement and Plan of Reorganization, dated as of
January 1, 1996 between Jim Wright, Mark L. Crawford and Aaron
Fine (as shareholders of Environmental Evolutions, Inc.) and
the Company, as amended March 15, 1996.
10.8.1 Agreement, dated April 9, 1996 between the Company and Wayne
E. Shaw, and as amended on April 17, 1996, April 18, 1996, May
23, 1996 and June 12, 1996 (incorporated by reference to
Exhibit 1 to the Company's Registration Statement on Form F-
8).
*10.8.2 Arrangement Agreement, dated November 13, 1996, among Industra
Service Corporation, 519742 B.C. Ltd. and the Company.
*10.9.1 Agreement and Plan of Merger, dated as of September 10, 1996,
among the Company, Sub Acquisition Corp. and Chempower, Inc.
("Chempower").
*10.9.2 Financing Agreement, dated February 28, 1997, among the
Company, Chempower, Toomas J. Kukk and
Mark L. Rochester.
*10.9.3 Letter Agreement, dated February 28, 1997, between the Company
and Toomas J. Kukk, as agent (the
"Agent").
*10.9.4 Guaranty, dated February 28, 1997, by the Company in favor of
the Agent.
*10.9.5 Pledge Agreement, dated February 28, 1997, between the Company
and the Agent.
*10.9.6 Security Agreement, dated February 28, 1997, between the
Company and the Agent.
*10.9.7 Loan Agreement, dated as of February 28, 1997, by and between
Chempower, Inc. and First National Bank of Ohio ("FNBO").
*10.9.8 Promissory Note, dated February 28, 1997, of Chempower in
favor of the Agent.
*10.9.9 Purchase Agreement, dated as of February 28, 1997, between
Chempower and Holiday Properties ("Holiday").
*10.9.10 Commercial Guaranty, dated February 28, 1997, by the Company
in favor of FNBO.
*10.9.11 Promissory Note, dated February 28, 1997, of Chempower in
favor of FNBO.
*10.9.12 Subordination Agreement, dated as od February 28, 1997, among
Chempower, FNBO, Thomas J. Kukk, Mark L. Rochester and the
Agent.
*10.9.13 Commercial Security Agreement, dated as of February 28, 1997,
between Chempower and FNBO.
*10.10 Lease, dated as of August 15, 1996, between 1011 Jones Road
Joint Venture Group and the Company.
-65-
*10.11.1 Employment Agreement, dated December 1, 1995, between the
Company and Michael E. McGinnis, as amended May 1, 1996.
*10.11.2 Employment Agreement, effective as of October 1, 1996, between
the Company and Frank Fradella.
*10.11.3 Employment Agreement, effective as of August 1, 1996, between
the Company and David L. Norris.
*16 Letter of Karlins Fuller Arnold & Klodosky regarding such
account firm's resignation as independent auditors of the
Company.
*21. Subsidiaries of the Company.
*24. Power of Attorney
*27. Financial Data Schedule
------------------------
*Filed herewith
(d) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules required by Regulation S-K are
incorporated by reference to Item 14(a).
-66-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN ECO CORPORATION
Dated: May 2, 1997 By: /s/ Michael E. McGinnis
---------------------------
Michael E. McGinnis, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/Michael E. McGinnis President and Chief
---------------------- Executive Officer and
Michael E. McGinnis Director (Principal May 2, 1997
Executive Officer)
/s/John C. Pennie Vice-Chairman of the
---------------------- Board of Directors May 2, 1997
John C. Pennie
/s/David L. Norris Chief Financial Officer
---------------------- (Principal Financial May 2, 1997
David L. Norris and Accounting Officer)
/s/Barry Cracower
---------------------- Director May 2, 1997
Barry Cracower
---------------------- Director May 2, 1997
William Dimma
/s/Tyrrell Garth
---------------------- Director May 2, 1997
Tyrrell Garth
----------------------
Donald Getty Director May 2, 1997
----------------------
Mark White Director May 2, 1997
-67-
INDEX TO EXHIBITS
Exhibit
Number Document
------- ---------
3.1.1 Letters Patent (Certificate of Incorporation) filed February
6, 1969, incorporated by reference to Exhibit 3.1.1 to the
Company registration statement on Form 10, dated September 19,
1990.
3.1.2 Supplementary Letters Patent, dated June 26, 1970
(incorporated by reference to Exhibit 3.1.2 to the Company's
Form 10).
3.1.3 Articles of Amendment, filed June 16, 1975 (incorporated by
reference to Exhibit 3.1.3 to the Company's Form 10).
3.1.4 Articles of Amendment, filed June 23, 1978 (incorporated by
reference to Exhibit 3.1.4 to the Company's Form 10).
3.1.5 Articles of Amendment, filed June 20, 1986 (incorporated by
reference to Exhibit 3.1.5 to the Company's Form 10).
3.1.6 Articles of Amendment, filed June 17, 1987 (incorporated by
reference to Exhibit 3.1.6 to the Company's Form 10).
*3.1.7 Articles of Amendment, certified on November 19, 1993
3.2.1 By-Laws (incorporated by reference to Exhibit 3.2 to the
Company's Form 10.).
*3.2.2 By-Law Number 10.
4.1 Share Option Plan (incorporated by reference to Exhibit to
Management Information Circular to the Company's Form 6-K,
dated September 27, 1995).
4.2 Form of 9.5% Cumulative Convertible Debenture due January 24,
2007 (incorporated by reference to Exhibit 2 to the Company's
Form 6-K, dated February 7, 1997).
4.3 Form of 9.5% Cumulative Convertible Debenture due March 3,
2007 (incorporated by reference to Exhibit 2 to the Company's
Form 6-K, dated March 14, 1997).
4.4 Form of Stock Purchase Warrant (incorporated by reference to
Exhibit 3 to the Company's Form 6-K, dated February 7, 1997).
10.1 Memorandum, dated October 5, 1995, between the Company and
Windrush Corporation (incorporated by reference to Exhibit
10.6 to the 1994 Form 20-F).
10.2 Share Exchange Agreement, dated June 1, 1994, among Westlake
Interests, Ltd., Cambridge, the Company and Marc A. Sparks
(incorporated by reference to Exhibit 10.7.1 to the 1994 Form
20-F).
10.3 Acquisition Agreement, dated July 31, 1995, between the
Company and Kenneth Hagan and Janet Hagan. (incorporated by
reference to Exhibit 2.7.1 to the 1995 Form 20-F).
*10.4.1 Agreement and Plan of Merger dated as of April 26, 1996, among
the Company SRS Acquisition Corporation and Separation and
Recovery Systems, Inc. ("SRS").
-68-
INDEX TO EXHIBITS
EXHIBIT
NUMBER DOCUMENT
------- ---------
*10.4.2 Business Loan Agreement, dated as of February 7, 1996, between
Bank of America National Trust and Savings Association ("BA")
and SRS.
*10.4.3 Amendment No. 1 to Business Loan Agreement, dated as of July
3, 1996, between SRS and BA.
*10.4.4 Continuing Guarantee, dated as of July 3, 1996 from the
Company to BA.
*10.4.5 Subordination Agreement, dated July 3, 1996, among American
Eco, SRS and BA.
*10.5 Acquisition Agreement, dated as of May 31, 1996, between the
Company and United Eco Systems, Inc.
*10.6.1 WCMA Note, Loan and Security Agreement, dated as of August 23,
1996 between American Eco/SP Corporation and Merrill Lynch
Business Financial Services, Inc. ("MLBFS")
*10.6.2 Security Agreement, dated as of August 26, 1996 between C.A.
Turner Maintenance, Inc. ("Turner") and MLBFS.
*10.6.3 Unconditional Guaranty, dated as of August 26, 1996 of Turner
in favor of MLBFS.
*10.6.4 Unconditional Guaranty, dated as of August 26, 1996 of
American Eco/SP Corporation in favor of MLBFS.
*10.7 Acquisition Agreement and Plan of Reorganization, dated as of
January 1, 1996 between Jim Wright, Mark L. Crawford and Aaron
Fine (as shareholders of Environmental Evolutions, Inc.) and
the Company, as amended March 15, 1996.
10.8.1 Agreement, dated April 9, 1996 between the Company and Wayne
E. Shaw, and as amended on April 17, 1996, April 18, 1996, May
23, 1996 and June 12, 1996 (incorporated by reference to
Exhibit 1 to the Company's Registration Statement on Form F-
8).
*10.8.2 Arrangement Agreement, dated November 13, 1996, among Industra
Service Corporation, 519742 B.C. Ltd. and the Company.
*10.9.1 Agreement and Plan of Merger, dated as of September 10, 1996,
among the Company, Sub Acquisition Corp. and Chempower, Inc.
("Chempower").
*10.9.2 Financing Agreement, dated February 28, 1997, among the
Company, Chempower, Toomas J. Kukk and Mark L. Rochester.
*10.9.3 Letter Agreement, dated February 28, 1997, between the Company
and Toomas J. Kukk, as agent (the "Agent").
*10.9.4 Guaranty, dated February 28, 1997, by the Company in favor of
the Agent.
-68-
INDEX TO EXHIBITS
EXHIBIT
NUMBER DOCUMENT
------- ---------
*10.9.5 Pledge Agreement, dated February 28, 1997, between the Company
and the Agent.
*10.9.6 Security Agreement, dated February 28, 1997, between the
Company and the Agent.
*10.9.7 Loan Agreement, dated as of February 28, 1997, by and between
Chempower, Inc. and First National Bank of Ohio ("FNBO").
*10.9.8 Promissory Note, dated February 28, 1997, of Chempower in
favor of the Agent.
*10.9.9 Purchase Agreement, dated as of February 28, 1997, between
Chempower and Holiday Properties ("Holiday").
*10.9.10 Commercial Guaranty, dated February 28, 1997, by the Company
in favor of FNBO.
*10.9.11 Promissory Note, dated February 28, 1997, of Chempower in
favor of FNBO.
*10.9.12 Subordination Agreement, dated as od February 28, 1997, among
Chempower, FNBO, Thomas J. Kukk, Mark L. Rochester and the
Agent.
*10.9.13 Commercial Security Agreement, dated as of February 28, 1997,
between Chempower and FNBO.
*10.10 Lease, dated as of August 15, 1996, between 1011 Jones Road
Joint Venture Group and the Company.
*10.11.1 Employment Agreement, dated December 1, 1995, between the
Company and Michael E. McGinnis, as amended May 1, 1996.
*10.11.2 Employment Agreement, effective as of October 1, 1996, between
the Company and Frank Fradella.
*10.11.3 Employment Agreement, effective as of August 1, 1996, between
the Company and David L. Norris.
*16 Letter of Karlins Fuller Arnold & Klodosky regarding such
account firm's resignation as independent auditors of the
Company.
*21. Subsidiaries of the Company.
*24. Power of Attorney
*27. Financial Data Schedule
------------------------
*Filed herewith