UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File Number: 001-10621
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AMERICAN ECO CORPORATION
------------------------
(Exact name of registrant as specified in its charter)
ONTARIO, CANADA 52-1742490
--------------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11011 JONES ROAD, HOUSTON, TEXAS 77070
--------------------------------------------------------
(Address or principal executive offices) (Zip Code)
(281) 774-7000
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(Registrant's telephone number, including area code)
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
----- -----
As of June 30, 1997, there were 15,966,336 shares of Common
Shares, no par value, outstanding.
AMERICAN ECO CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Consolidated Balance Sheets:
May 31, 1997 and November 30, 1996 . . . 3
Consolidated Statements of Income:
Three Months and Six Months Ended
May 31, 1997 and May 31, 1996 . . . . . . 5
Consolidated Statements of Changes in
Financial Position:
Six Months Ended May 31, 1997
and May 31, 1996 . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . 12
Item 2. Changes in Securities . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . 15
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN ECO CORPORATION
CONSOLIDATED BALANCE SHEETS
(United States dollars in thousands)
At May 31, At November 30,
1997 1996
---------- ---------------
(Unaudited) (Audited)
ASSETS
------
CURRENT ASSETS
Cash . . . . . . . . . . . . . . $ 5,687 $ 317
Certificate of deposit,
restricted . . . . . . . . -0- 180
Accounts receivable . . . . . . 35,649 20,918
Current portion of notes
receivable . . . . . . . . 9,673 6,695
Costs and estimated earnings in
excess of billings on jobs
in progress . . . . . . . 9,997 3,446
Inventory . . . . . . . . . . . 10,459 6,807
Deferred income tax . . . . . . 3,147 1,393
Prepaid expenses and other 9,191 4,499
expenses . . . . . . . . . -------- --------
TOTAL CURRENT ASSETS 83,083 44,255
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net 50,331 33,238
-------- --------
OTHER ASSETS
Goodwill, net . . . . . . . . . 29,110 18,969
Debenture issue costs, net . . . 3,647 97
Notes receivable . . . . . . . . 280 280
Investments . . . . . . . . . . 12,888 7,645
-------- --------
TOTAL OTHER ASSETS . 45,925 26,991
-------- --------
TOTAL ASSETS . . . . $180,059 $104,484
======== ========
The accompanying notes to the financial statements are
an integral part thereof.
3
AMERICAN ECO CORPORATION
CONSOLIDATED BALANCE SHEETS
(United States dollars in thousands)
At May 31, At November 30,
1997 1996
---------- ---------------
(Unaudited) (Audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued
liabilities . . . . . . . . . $ 21,622 $ 18,449
Notes payable (Note A) . . . . . 50,005 20,399
Current portion of long-term debt 1,805 1,595
Current portion of
obligations under capital
leases . . . . . . . . . . . . 122 113
Billings in excess of costs
and estimated earnings on 2,554 419
jobs in progress . . . . . . . -------- --------
TOTAL CURRENT LIABILITIES . . 76,108 40,975
-------- --------
LONG-TERM LIABILITIES
Long-term debt, net of current
portion . . . . . . . . . . . 11,181 6,618
Obligations under capital leases 104 102
Deferred income tax liability . 5,010 1,373
Debentures payable (Note B) . . 12,871 --
-------- --------
29,166 8,093
-------- --------
TOTAL LIABILITIES . . . . . . 105,274 49,068
-------- --------
MINORITY INTEREST . . . . . . . . . 370 373
-------- --------
SHAREHOLDERS' EQUITY
Common Shares . . . . . . . . . 50,779 39,411
Common Shares subscribed . . . . 34 34
Unrealized gain on marketable
securities . . . . . . . . . . 22 --
Additional paid-in capital . . . 2,845 2,845
Retained earnings . . . . . . . 20,735 12,753
-------- --------
74,415 55,043
-------- --------
TOTAL LIABILITIES AND $180,059 $104,484
SHAREHOLDERS' EQUITY . . . ======== ========
The accompanying notes to the financial statements are
an integral part thereof.
4
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(United States dollars in thousands except per share data)
Three Months Ended May 31,
---------------------------
1997 1996
----------- ------------
(unaudited) (unaudited)
$ 56,362 $ 25,069
REVENUE . . . . . . . . . . . . . ----------- ----------
COSTS AND EXPENSES
Cost of contracts, sales and other
operating expenses . . . . . 49,520 22,275
Interest expense on long-term
debt, net exchange . . . . . 1,448 164
Depreciation and amortization . . 956 563
----------- ----------
51,924 23,002
INCOME BEFORE RECOVERY OF
(PROVISION FOR) INCOME TAXES . 4,438 2,067
RECOVERY OF (PROVISION FOR) 0 0
INCOME TAXES . . . . . . . . . ----------- ----------
NET INCOME . . . . . . . . . . . $ 4,438 $ 2,067
=========== ==========
Earnings per common share: . . . $ 0.30 $ 0.21
=========== ==========
Earnings per common share
Fully diluted: . . . . . . . . $ 0.29 $ 0.20
=========== ==========
Weighted average number of shares
used in computing income per 14,432,926 9,559,690
common share . . . . . . . . . ========== =========
Six Months Ended May 31,
--------------------------
1997 1996
----------- -----------
(unaudited) (unaudited)
$ 101,599 $ 65,083
REVENUE . . . . . . . . . . . . . ----------- ----------
COSTS AND EXPENSES
Cost of contracts, sales and other
operating expenses . . . . . 89,891 60,234
Interest expense on long-term
debt, net exchange . . . . . 1,864 292
Depreciation and amortization . . 1,862 685
----------- ----------
93,617 61,211
INCOME BEFORE RECOVERY OF
(PROVISION FOR) INCOME TAXES 7,982 3,872
RECOVERY OF (PROVISION FOR) 0 0
INCOME TAXES . . . . . . . . ----------- ----------
NET INCOME . . . . . . . . . . . $ 7,982 $ 3,872
=========== ==========
Earnings per common share: . . . $ 0.55 $ 0.41
=========== ==========
Earnings per common share
Fully dilutes: . . . . . . . . $ 0.53 $ 0.37
=========== ==========
Weighted average number of shares
used in computing income per 14,624,864 9,559,690
common share . . . . . . . . =========== ==========
The accompanying notes to the financial statements are
an integral part thereof.
5
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(United States dollars in thousands)
Six Months Ended
---------------------
1997 1996
----------- -----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATIONS
Net income . . . . . . . . . . . . . $ 7,982 $ 3,872
Depreciation and amortization . . . 1,863 685
Changes in Working Capital:
Accounts receivable . . . . . . . . (4,630) (11,617)
Costs in excess of billings . . . . (4,402) 1,584
Other assets . . . . . . . . . . . . (3,426) (1,614)
Accounts payable . . . . . . . . . . (9,583) 2,324
Billings in excess of costs . . . . 1,003 181
Other liabilities . . . . . . . . . (566) (111)
-------- --------
Net cash from operations . . . . . . (11,759) (4,696)
-------- --------
CASH FLOWS FROM INVESTING
Capital expenditures . . . . . . . . 683 (500)
Acquisition of businesses, net of
working capital acquired . . . . . (5,210) --
Increase in goodwill . . . . . . . . (1,540) (729)
-------- --------
Net cash used in investing activities (6,067) (1,229)
-------- --------
CASH FLOWS FROM FINANCING
Net proceeds from notes receivable . (2,978) (760)
Net proceeds from long term debt . . 21,118 2,968
Net proceeds from issuance of stock 5,056 6,815
-------- --------
Net cash provided by (used in) 23,196 9,023
financing activities . . . . . . . -------- --------
NET INCREASE IN CASH . . . . . . . . . 5,370 3,098
CASH AT BEGINNING OF THE YEAR . . . . . 317 898
-------- --------
CASH AT THE END OF THE PERIOD . . . . . $ 5,687 $ 3,996
======== ========
The accompanying notes to financial statements are
an integral part hereof.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q
and Article 10 of Regulation S-X promulgated by the Securities
and Exchange Commission. Such financial statements do not
include all disclosures required by generally accepted accounting
principles for annual financial statement reporting purposes.
However, there has been no material change in the information
disclosed in the Company's annual consolidated financial
statements dated November 30, 1996, except as disclosed herein.
Accordingly, the information contained herein should be read in
conjunction with such annual consolidated financial statements
and related disclosures. The accompanying financial statements
reflect, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair
presentation of the results for the interim periods presented.
Results of operations for the quarter and six months ended May
31, 1997 are not necessarily indicative of results expected for
an entire year.
NOTE A
Notes payable of the Company increased to $50 million for
the six month period ended May 31, 1997 compared to $20.3 million
for the year ended November 30, 1996. The increase is primarily
due to the debt associated with the Company's acquisition of
Chempower Inc. ("Chempower") that closed as of March 4, 1997. 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,
received cash for each of their Chempower shares. The two
principal shareholders received a portion of the merger
consideration in cash and the balance was represented by a $15.9
million promissory note due on February 28, 1998. In addition,
the Company acquired property from the two principal shareholders
in the amount of $4 million due on February 28, 1998, which
property had been leased by Chempower. Chempower also borrowed
$6 million against its $15 million credit line, which was
guaranteed by the Company, to complete the cash consideration for
the acquisition.
NOTE B
On January 24, 1997, the Company sold $15 million aggregate
principal amount of 9.5% Cumulative Convertible Debentures due
January 24, 2007 (the "Debentures"), together with 1,125,000
stock purchase warrants (the "Warrants") to a group of
institutional investors. The Company used the net proceeds from
the offering of such securities to fund in part the acquisition
of Chempower. The total proceeds from the issuance of the
Debentures have been allocated between the Warrants issued to the
holders, the conversion feature of the Debentures, and the debt
feature of the Debentures for financial reporting purposes. As a
result of this allocation, the Debentures are being carried at
less than their face value with a difference being charged to
interest expense over the term of the Debentures. The total
charge associated with this Debenture offering was $6.3 million
that is being amortized over their ten year life. For the six
months ended May 31, 1997, the Company had an interest expense of
$223,000 as a result of this financial reporting practice.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The results of operations for the three months and the six
months ended May 31, 1997 are not necessarily indicative of the
results for future periods. The following discussion should be
read in conjunction with the unaudited financial statements
included herein and the notes thereto, and with the audited
financial statements and notes thereto for the year ended
November 30, 1996.
OVERVIEW
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 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 environmental services include hazardous material
remediation and abatement, emergency hazardous spill containment
and cleanup and hazardous material packaging and transportation.
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.
The Company entered its current lines of business in
November 1992 when it acquired Eco Environmental, Inc., 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 and to $101.6
million for the first six months of fiscal 1997 primarily as a
result of such acquisitions. The Company accelerated its
acquisition program in fiscal 1996 by adding the following five
operating subsidiaries: Industra Service Corporation, a British
Columbia, Canada corporation ("Industra Service"), Separation and
Recovery Systems, Inc., a Nevada corporation ("SRS"),
Environmental Evolutions, Inc., a Texas corporation
("Environmental Evolutions"), United Eco Systems, Inc., a
Delaware corporation ("United Eco"), and MM Industra, Ltd., a
Nova Scotia, Canada corporation ("MM Industra"). In March 1997,
the Company completed its $50.0 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 or be sold.
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.
8
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 one- to 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 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 Company's balance sheet.
RESULTS OF OPERATIONS
Revenues
--------
The Company's revenues totaled $56.4 million and $101.6
million for the three and six months ended May 31, 1997 compared
to $2.5 million and $65.1 million for the three and six months
ended May 31, 1996. This significant increase for the first six
months of fiscal 1997 compared to the first six months of fiscal
1996 on both a percent and a dollar basis is due to the
acquisition of five operating subsidiaries subsequent to the
second quarter of fiscal 1996 in addition to the acquisition of
Chempower as of March 4, 1997. The second quarter of fiscal 1997
reflects for the first time the revenues generated from
Chempower's operations. The Company has recorded $525,000 of a
$2.4 million arbitration award that was given to its wholly-owned
subsidiary SRS as of May 31, 1997. The Company plans to record
the remaining $1.8 million prior to November 30, 1997. For
additional information, see Item 1 of Part II of this report and
Item 3 of the Company's Form 10-K for the fiscal year ended
November 30, 1996.
Operating Expenses
------------------
The Company's operating costs increased to $49.5 million and
$89.9 million for the three and six months ended May 31, 1997
versus $22.3 million and $60.2 million for the three and six
months ended May 31, 1996. This significant increase is
primarily as a result of adding five new subsidiaries subsequent
to the second quarter of fiscal 1996. Expressed as a percent of
total revenues, operating costs decreased to 88.9% for the first
six months of fiscal 1997 compared to 92.5% for the first six
months of fiscal 1996. Management attributes this decrease to
the Company's continued effort to control operating expenses.
The Company had instituted a program in fiscal 1994 which
requires managers to track such cost control indicators as labor
productivity and potential project cost overruns. Management
believes that the Company will continue to control operating
expenses, but there can be no assurance that the Company's cost
control policies will be effective in the future. The Company's
interest expenses increased to $1.5 million and $1.9 million for
the three and six months ended May 31, 1997 versus $200,000 and
$300,000 for the three and six months ended May 31, 1996. This
9
increase in expenses is due primarily to the acquisition of the
operating subsidiaries with existing debt and an addition to the
interest associated with the Debenture placement in January 1997
and increase in a bank line used as part of the payment to
acquire Chempower. The Company's depreciation and amortization
increased to $1 million and $12.9 million for the three and six
months ended May 31, 1997 versus $600,000 and $700,000 for the
three and six months ended May 31, 1996. This significant
increase is due to the Company's expanded operations as a result
of its acquisition program.
Net Income
----------
Net income from continuing operations increased to $7.9
million, or $0.55 per share as of May 31, 1997 compared to $3.9
million or $0.41 per share as of May 31, 1996. Net income for
the quarter ended May 31, 1997 was $4.4 million or $0.30 per
share compared to $2.1 million and $0.21 per share for the
quarter ended May 31, 1996.
The Company has net loss carry forwards in Canada with which
it is able to reduce its tax liabilities. 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.
Management believes that the net operating loss carry forwards
will be extinguished in the second half of fiscal 1997 at which
time the Company will begin to pay taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's existing capital resources consist of cash,
cash provided by its operating subsidiaries and funds available
under its lines of credit. Typically the Company maintains cash
levels of between $1.0 million and $2.0 million for general
corporate needs, but the Company's available cash increased to
$5.7 million at May 31, 1997 from $317,000 at November 30, 1996
primarily due to the Company raising funds from the sales to a
group of institutional investors of $15.0 million aggregate
principal amount of 9.5% Debentures in January 1997 and $3.0
million of Debentures in March 1997, together with stock purchase
Warrants. The Company used the net proceeds from the January
offering of the Debentures to fund, in part, the acquisition of
Chempower, which closed as of March 4, 1997. At May 31, 1997,
the Company and its operating subsidiaries had an aggregate of
$34.1 million in lines of credit, of which $11.9 million remained
available to the Company and its subsidiaries.
The Company incurred additional debt in the second quarter
of fiscal 1997 in connection with the acquisition of Chempower.
The Company issued the January Debentures 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 former principal shareholders of
Chempower as partial payment for such shareholders' equity
interest in Chempower. In addition, Chempower borrowed
$6.0 million under an unsecured line of credit in the amount of
$15 million, which line of credit is guaranteed by the Company.
The Company's cash requirements consist of working capital
needs, obligations under its leases and promissory notes and the
funding of potential acquisitions. The Company primarily
provides services and its capital expenditure requirements are
low relative to the revenues that it generates. The Company used
$700.000 for capital expenditures during the first six months of
fiscal 1997 compared to a negative $500,000 during the first six
months of fiscal 1996. 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 it 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 is
presently engaged in negotiations with banks to open a line of
10
credit which would replace certain lines of credit held by some
of its subsidiaries. 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 May 31, 1997 increased to $35.6
million from $21.0 million at November 30, 1996. Management
attributes this increase to the addition of five new operating
subsidiaries during fiscal 1996. Property, plant and equipment
increased to $50.3 million at May 31, 1997 from $33.2 million at
November 30, 1996 as a result of the acquisition of Chempower
which contributed an additional $17.1 million. Accounts payable
increased to $21.6 million at May 31, 1997 from $18.4 million at
November 30, 1996 as a result of the Company's acquisition of
Chempower.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS.
The Company is including the following cautionary statement
in its Report on Form 10-Q to make applicable and take advantage
of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 for any forward-looking statements
made by, or on behalf of the Company. Forward-looking statements
include statements concerning plans, objectives, goals,
strategies, future events or performance and underlying
assumptions and other statements which are other than statements
of historical facts. Certain statements contained herein are
forward looking statements and accordingly involve risks and
uncertainties which could cause actual results or outcomes to
differ materially from those expressed in the forward-looking
statements. The Company's expectations, beliefs and projects are
expressed in good faith and are believed by the Company to have a
reasonable basis, including without limitations, management's
examination of historical operating trends, data contained in the
Company's records and other data available from third parties,
but there can be no assurance that management's expectations,
beliefs or projections will result or be achieved or
accomplished. In addition to other factors and matters discussed
elsewhere herein, the following are important factors that, in
the view of the Company, could cause actual results to differ
materially from those discussed in the forward-looking
statements: 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. The Company disclaims any obligation to
update any forward-looking statements to reflect events or
circumstances after the date hereof.
11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 16, 1997, the arbitrators in the arbitration
proceeding brought by OHM Remediation Services Corp. ("OHM"), a
customer of Separation and Recovery Systems, Inc. ("SRS"), a
wholly-owned subsidiary of the Company, awarded SRS $2.4 million
in compensatory damages on its counterclaims, and denied SRS's
claims for punitive damages, and also denied all claims of OHM.
On June 23, 1997, OHM filed a complaint in the United States
District Court for the Southern District of Ohio (the "Court")
challenging the award asserting that the arbitrators had exceeded
their authority. On June 24, 1997, SRS filed a motion in the
same Court seeking confirmation of the award. The Court
scheduled a hearing on the motions for September 1997.
Management believes that the award will be confirmed as binding
arbitration had been ordered by the Court and agreed to by both
parties and the Company is not aware of any basis for vacating
the award. For the six months ended May 31, 1997, the Company
has recorded $525,000 for the award, and plans to record the
remaining $1.8 million prior to November 30, 1997. For
additional information, see Item 3 of the Company's Form 10-K for
the fiscal year ended November 30, 1996.
ITEM 2. CHANGES IN SECURITIES
(c) Effective January 24, 1997, the Company closed the sale
of $15 million aggregate principal amount of 9.5% Cumulative
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 was eliminated
upon shareholders ratification of the placement at the May 7,
1997 shareholders meeting, see Item 4 below. Each Warrant is
exercisable for one Common Share at an exercise price of $9.56
per share (110% of the closing market price for the Common Shares
on January 23, 1997) subject to customary anti-dilution
provisions, for a period of five years. 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. At June 30, 1997, $3,360,000 principal amount
of the Debentures had been converted into 585,952 Common Shares.
Effective March 3, 1997, the Company closed the sale of $3
million aggregate principal amount of 9.5% Cumulative Convertible
Debentures due May 2007 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 at an exercise price of $9.21
per share (110% of the closing market price for the Common Shares
on February 28, 1997), subject to customary anti-dilution
provisions, for a period of five years. At June 30, 1997, all
these Debentures had been converted into 367,303 Common Shares.
On June 2, 1997, the Company borrowed an aggregate of $6
million from two institutional investors pursuant to Term Loan
Agreements and issued to the borrowers Warrants to purchase
480,000 Common Shares at an exercise price of $7.27 per share,
subject to customary anti-dilution provisions for a period of
five years. The Term Loan Agreement includes financial covenants
of the Company and restrictions on the payment of cash dividends.
The sales of the Debentures, Notes and Warrants mentioned in
this Item 2 were claimed to be exempt from registration under the
Securities Act of 1933 by virtue of Section 4(2) thereof and
Regulation D promulgated thereunder, and the conversion of the
Debentures into Common Shares were claimed to be exempt from
12
registration under the Securities Act by virtue of Section
3(a)(9) thereof. The purchasers have certain rights for the
registration under the Securities Act of the Common Shares
underlying the Debentures and the Warrants.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 7, 1997, the Company held its Annual and Special
Meeting of Shareholders (the "Meeting").
The following persons were elected directors at the Meeting:
Barry Cracower
William A. Dimma
Hon. Donald R. Getty
Michael E. McGinnis
John C. Pennie
Francis J. Sorg
At the Meeting, in addition to the election of directors,
the shareholders approved amendments to the Articles of the
Company relating to its preference shares, approved amendments to
the Company's Stock Option Plan, approved an amendment to
outstanding January Debentures, authorized the Company to enter
into private placement agreements over the next 12 months and
appointed Coopers & Lybrand L.L.P. as auditors for fiscal 1997.
The voting by shareholders at the Meeting was as follows:
FOR AGAINST WITHHELD
--- ------- --------
Elect directors 4,523,830 - 4,300
Amend Articles 3,190,960 1,196,350 2,520
Amend Option Plan 4,219,877 306,353 1,900
Amend Debentures 3,398,622 990,208 1,000
Authorize Placements 3,164,546 1,222,784 2,500
Appoint Auditors 4,520,979 - 5,751
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Amendment, certified on May 27, 1997.
4.1 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).
4.2 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).
4.3 Form of Common Share Purchase Warrant expiring January
24, 2002 (incorporated by reference to Exhibit 3 to the
Company's Form 6-K, dated February 7, 1997).
13
4.4 Form of Common Share Purchase Warrant expiring March 3,
2002 (incorporated by reference to Exhibit 3 to the
Company's Form 6-K, dated March 14, 1997).
4.5 Form of Common Stock Purchase Warrant expiring May 29,
2002.
10.1 Term Loan Agreement, dated as of May 30, 1997, between
the Company and Refco Capital Markets, Ltd., together
with Secured Term Note (similar agreement with other
lender).
27 Financial Data Schedule
(b) Form 8-K
None
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
AMERICAN ECO CORPORATION
(Registrant)
Dated: July 17, 1997 /s/ Michael E. McGinnis
--------------------------
Michael E. McGinnis
Chief Executive Officer
Dated: July 17, 1997 /s/ Davis L. Norris
--------------------------
David L. Norris
Chief Financial Officer
15
EXHIBIT INDEX
Exhibit Description
------- -----------
3.1 Articles of Amendment, certified on May 27, 1997.
4.1 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).
4.2 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).
4.3 Form of Common Share Purchase Warrant expiring January
24, 2002 (incorporated by reference to Exhibit 3 to the
Company's Form 6-K, dated February 7, 1997).
4.4 Form of Common Share Purchase Warrant expiring March 3,
2002 (incorporated by reference to Exhibit 3 to the
Company's Form 6-K, dated March 14, 1997).
4.5 Form of Common Stock Purchase Warrant expiring May 29,
2002.
10.1 Term Loan Agreement, dated as of May 30, 1997, between
the Company and Refco Capital Markets, Ltd., together
with Secured Term Note (similar agreement with other
lender).
27 Financial Data Schedule