FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the transition period from __________ to
__________.
Commission file number 0-27508
SUPERIOR SERVICES, INC.
(Exact name of registrant
as specified in its charter)
Wisconsin 39-1733405
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10150 West National Avenue, Suite 350
Milwaukee, Wisconsin 53227
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (414) 328-2800
Securities registered pursuant to
Section 12(b) of the Act: None
Securities registered pursuant to
Section 12(g) of the Act: Common Stock, $.01 par value; Common
Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), 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 ('229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant as of February 19, 1998.1
$569,518,895
Number of shares outstanding of each of the classes of the registrant's
capital stock as of February 19, 1998:
Common Stock, $.01 par value: 24,113,958 shares
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED HEREIN BY REFERENCE:
Proxy Statement for 1998 annual meeting of shareholders (to be
incorporated by reference into Part III upon the filing of the proxy
statement with the Securities and Exchange Commission, to the extent
indicated therein).
--------------------
1 Excludes only shares held by directors and officers of the
registrant.
<PAGE>
PART I
Unless the context indicates otherwise, references to the number of
the Company's various facilities set forth in this Form 10-K Annual Report
are as of December 31, 1997.
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Annual Report on Form 10-K are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of
1995. These forward-looking statements can generally be identified as
such because the context of the statement will include words such as the
Company "believes", "anticipates", "expects" or words of similar import.
Similarly, statements that describe the Company's future plans, objectives
or goals are also forward-looking statements. Such forward-looking
statements are subject to certain risks and uncertainties which are
described in close proximity to such statements and which could cause
actual results to differ materially from those anticipated as of the date
of this report. Shareholders, potential investors and other readers are
urged to consider these factors in evaluating the forward-looking
statements and are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements included
herein are only made as of the date of this report and the Company
undertakes no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.
Item 1. Business.
General
Superior Services, Inc. ("Superior" or the "Company") is an
acquisition-oriented integrated solid waste services company providing
solid waste collection, transfer, recycling and disposal services. The
Company serves over 465,000 residential, commercial and industrial
customers in Alabama, Illinois, Iowa, Michigan, Minnesota, Missouri, Ohio,
Pennsylvania, West Virginia, and Wisconsin. As of December 31, 1997, the
Company owned and operated 14 landfills, including a greenfield landfill
and a municipal solid waste landfill, subject to a definitive purchase
agreement, 29 solid waste collection operations, 14 recycling facilities
and 10 solid waste transfer stations. The Company also manages 4 other
third party landfills.
Superior's objective is to be one of the largest and most profitable
fully integrated providers of solid waste collection and disposal services
in each market it serves. The Company's strategy to achieve this
objective is to (i) continue to expand its operations and customer base in
existing markets and to enter new markets through the acquisition of other
solid waste businesses; (ii) pursue internal growth opportunities in its
current markets; and (iii) achieve continuing operating improvements in
its business. Superior's principal strategy for future growth is through
the acquisition of additional solid waste disposal, transfer and
collection operations. The Company's operating strategy emphasizes the
integration of the solid waste collection and disposal operations and the
internalization of waste collected.
Acquisitions
The solid waste collection and disposal industry continues to undergo
significant consolidation and integration. The Company believes that this
consolidation and integration is caused primarily by four factors:
(i) increasingly stringent environmental regulation and enforcement
resulting in increased capital requirements; (ii) the inability of many
smaller operators to achieve the economies of scale necessary to compete
effectively with large integrated solid waste service providers;
(iii) the evolution of an industry competitive model which emphasizes
providing both collection and disposal/recycling capabilities, and (iv)
the continued privatization of solid waste collection and disposal
services by municipalities and other governmental bodies and authorities.
Despite the considerable consolidation and integration occurring in the
solid waste industry, the Company believes the industry remains primarily
regional in nature and highly fragmented, and that a substantial number of
potential acquisition opportunities remain.
Since the Company's March 1996 initial public offering through
December 31, 1997, the Company has acquired 39 solid waste collection,
transfer and disposal operations, including seven landfills, one
greenfield landfill, two recycling operations and 29 collection
operations, taking the Company into 14 new service markets in five new
states. During 1997, the Company acquired or merged with 26 solid waste,
transfer and disposal operations, including five landfills, one greenfield
landfill, two recycling operations and 18 solid waste collection
operations, with annualized revenues of approximately $75 million. A
single acquisition transaction may involve the purchase of multiple
business operations.
The Company intends to continue to expand its geographic scope
through acquisitions by (i) expanding into adjacent and new markets by
pursuing principally a "hub and spoke" acquisition strategy and (ii)
increasing its revenues and operational and administrative efficiencies
through "tuck-in" and other acquisitions of profitable solid waste
collection operations in its existing markets.
In addition to 11 full time market development personnel and its Vice
President-Market Development, the Company's senior and executive
management teams focus a substantial part of their time identifying
acquisition candidates and consummating acquisitions.
The following table sets forth the Company's acquisitions of
operations completed in 1997:
Acquired Month Principal
company acquired business Location Market area
Certain assets December Lamp St. Paul, Minnesota
of Dynex 1997 recycling, on- MN and
Industries, site lab pack, Wisconsin
Inc. liquid waste
brokerage
Noble Road December Solid waste Shiloh, OH Central Ohio
Landfill, Inc. 1997 landfill
(Superior
Oakland Marsh
Landfill)
Chicago October Underwater Chicago, IL Illinois and
Underwater, 1997 industrial and Indiana
Inc. maintenance Valparaiso,
IN
St. Marys October Solid waste St. Marys, Central
Garbage 1997 collection PA Pennsylvania
Disposal, Inc.
Teter Sanitary October Solid waste Macon, MO Northern and
Landfill and 1997 landfill, Central
Refuse Hauling, solid waste Missouri
Inc. (Superior collection,
Maple Hill transportation
Landfill) and transfer
station
Speedway October Roll-off and Milwaukee, Southeastern
Recycle & 1997 lugger WI Wisconsin
Disposal, Inc. operation
High Ridge October Solid waste Jefferson Eastern
Disposal 1997 collection, County, MO Missouri
recycling and
transportation
Olosky August 1997 Solid waste Clearfield, Eastern
Sanitation collection and PA Pennsylvania
transportation
D & S Disposal July 1997 Solid waste Mauston, WI Central
collection, Wisconsin
recycling and
transportation
Facchine July 1997 Solid waste DuBois, PA Eastern
Sanitation collection, Pennsylvania
recycling and
transportation
Holt Landfill June 1997 Construction Tuscaloosa, Central
Co., Inc. (1) and demolition AL Alabama
(Superior Eagle landfill
Bluff Landfill)
Urban June 1997 Solid waste Pell City, Central
Sanitation landfill and AL Alabama
Corporation (1) collection
(Superior Cedar
Hill Landfill)
Speedway June 1997 Solid waste Tarrant, AL Central
Sanitation, collection, Alabama
Inc. (1) recycling and
transportation
Milliron June 1997 Solid waste Mansfield, Central Ohio
Industries collection, OH
recycling and
transportation
Ohio Disposal June 1997 Solid waste Columbus, Central Ohio
Systems, Inc. collection, OH
recycling and
transportation
Burgraff May 1997 Solid waste St. Cloud, Central
Sanitation collection, MN Minnesota
recycling and
transportation
Certain assets May 1997 Solid waste Buffalo and Central
of Randy's collection, St. Cloud, Minnesota
Sanitation, recycling and MN
Inc. transportation
Certain assets April 1997 Solid waste DuBois and Eastern
of Browning- collection College Pennsylvania
Ferris Station, PA
Industries of
Pennsylvania,
Inc. (2)
Homestand Land April 1997 Solid waste Kersey, PA Central
Corp. (2) landfill Pennsylvania
(Greentree
Landfill)
Certain assets April 1997 Solid waste Columbus, Central Ohio
of BFI Waste collection and Zanesville
Systems of transfer and
Ohio, Inc. (2) Marietta,
OH
Certain assets April 1997 Solid waste Green Bay Northeastern
of Browning- collection and Wisconsin
Ferris Chilton, WI
Industries of
Wisconsin, Inc.
(2)
M&N Disposal, April 1997 Solid waste Chilton, WI Northeastern
Inc. (2) landfill under Wisconsin
(Superior development
Hickory Meadows
Landfill, Inc.)
Certain assets March 1997 Solid waste Horicon, WI Southeastern
of Ideal and recyclable Wisconsin
Disposal collection
Service, Inc.
Rest and Recoup March 1997 Solid waste Horicon, WI Southeastern
Resource collection Wisconsin
Recovery, Inc.
Madison Pallet March 1997 Recycling Madison, WI Southeastern
operation Wisconsin
Eagle Waste February Solid waste St. Louis, Eastern
Systems, Inc. 1997 collection MO Missouri
(1) Holt Landfill Co., Inc., Urban Sanitation Corporation and Speedway
Sanitation, Inc. are the wholly-owned subsidiaries of R2T2, acquired
on June 27, 1997 in a transaction accounted for as a pooling of
interests.
(2) These operations were acquired in April 1997 in a single acquisition
transaction from BFI and certain of its subsidiaries.
There can be no assurance that the Company will be able to continue
to identify suitable acquisition candidates or, if identified, negotiate
successfully their acquisition. If the Company is successful in
identifying and negotiating suitable acquisitions, there can be no
assurance that any debt or equity financing necessary to complete any such
acquisitions can be arranged on terms satisfactory to the Company or that
any such financing will not significantly increase the Company's leverage
or result in additional dilution to existing shareholders. Moreover,
there can be no assurance that the Company will be able to continue to
integrate successfully any acquired operations, or manage or improve the
operating or administrative efficiencies or productivity of any acquired
operations. As the Company continues to pursue acquisition opportunities
in new market areas, the potential additional geographic expansion of the
Company's operations resulting from the successful completion of some of
those acquisition opportunities will make it more difficult for the
Company to successfully and efficiently integrate such operations with the
Company's existing operations. Similarly, the Company may not realize as
many synergies and efficiencies from acquiring operations outside its
existing market areas. Failure by the Company to implement successfully
its acquisition strategy will limit, and may limit materially, the
Company's growth potential and may adversely affect the Company's result
of operations.
The ongoing consolidation and integration activity in the solid waste
industry, as well as the difficulties, uncertainties and expense relating
to the development and permitting of solid waste landfills and transfer
stations, has increased competition for the acquisition of existing solid
waste collection, transfer and disposal operations. Increased competition
for acquisition candidates has resulted, and may continue to result, in
fewer attractive acquisition opportunities being made available to the
Company as well as less advantageous acquisition terms, including
particularly increased purchase prices. These circumstances may increase
acquisition costs to levels beyond the Company's financial capabilities or
pricing parameters or, as to acquisitions made by the Company, may have an
adverse effect on the Company's results of operations. Several of the
Company's competitors for acquisitions are larger, better known companies
with significantly greater resources than the Company. The Company
believes that a significant factor in its ability to consummate additional
acquisitions will be the relative attractiveness of its Common Stock as an
investment instrument to potential acquisition candidates. This
attractiveness may, in large part, be dependent upon the relative market
price and capital appreciation prospects of the Common Stock compared to
the equity securities of the Company's competitors.
Internal Growth
Superior believes its internal growth will come from additional sales
penetration in its current and adjacent markets, marketing additional
services to existing customers, including recycling services, and
selective price adjustments. Utilizing a decentralized operations
strategy, the Company has a 64 person sales force dedicated to increasing
the Company's sales to new and existing commercial, industrial and
municipal customers. A principal component of the Company's internal
growth strategy is to become the sole provider of solid waste services to
its customers, including solid waste, other integrated waste and recycling
services.
Operating Improvements
The Company has implemented programs and benchmarking systems
designed to improve the operational productivity, administrative
efficiency and profitability of its operations through improved collection
and disposal routing efficiency, consolidation of "back office"
operations, equipment utilization, cost controls, employee training and
safety.
An important element of the Company's strategy for improving
operating margins is to establish new transfer stations within a 150-mile
radius of its existing landfills to increase its collection and
transportation efficiencies and improve the Company's internalization of
collected solid waste. For example, the Company recently opened a
transfer station in DePere, Wisconsin to serve that newly acquired market.
Current Operations
Introduction
As of 12/31/97, the Company provides integrated waste services to its
customers in ten states. Specifically, the Company operates solid waste
collection operations, solid waste transfer stations, recycling
facilities, Company-owned solid waste landfills and managed third party
landfills. The Company also provides other integrated waste services,
most of which are project-based and many provide additional waste volumes
to the Company's landfills and recycling facilities. These other
integrated waste services include the remediation and disposal of
contaminated soils and similar materials; wastewater biosolids management;
full container consumer product recycling; and temporary storage and
transportation of special and hazardous waste, including household
hazardous waste. Solid waste services have been and will remain the
Company's core business.
Superior markets its services principally through its facility
managers and direct sales representatives under the direction of area
sales managers. The Company also obtains new customers from referral
sources, reputation, and local print marketing. The Company has a diverse
customer base, with no single customer accounting for more than 6% of the
Company's revenues in 1997. The Company does not believe that the loss of
any single customer would have a material adverse effect on the Company's
results of operations.
Solid Waste Collection and Transfer
As of December 31, 1997, the Company provided solid waste collection
services to over 465,000 residential, commercial and industrial customers.
The Company's collection operations are conducted generally within a
150-mile radius from its landfills or transfer stations. The Company
contracts with local generators of solid waste and directs the waste to
either its own landfill for disposal; to a third-party landfill; or, for
additional handling at one of its transfer stations or recycling
facilities. After compacting and/or separating at a transfer station, the
Company has historically directed the waste to either its own landfill or
a third party landfill.
In 1997, approximately 65% of the solid waste collected by the
Company was delivered for disposal at its own landfills, compared to
approximately 81% in 1996. Solid waste collection and transfer services
accounted for approximately 52% of the Company's revenues for 1997,
including revenues from disposal services provided to customers of the
Company's collection and transfer units, compared to approximately 45% in
1996. These trends reflect the impact of the Company's acquisition of
collection operations during the year, some of which are located in
service areas where the Company does not, as yet, have its own landfill or
transfer station.
The Company's commercial and industrial collection services are
generally performed under one-year to three-year service agreements, and
fees are determined by such factors as collection frequency, type of
equipment and containers furnished, the type, volume and weight of the
waste collected, the distance to the disposal or processing facility and
the cost of disposal or processing. The Company's commercial and
industrial customers generally utilize portable containers that
temporarily hold solid waste, thereby enabling the Company to service many
customers with fewer collection vehicles.
A majority of the Company's municipal solid waste collection services
have historically been performed under contracts with municipalities.
These contracts grant the Company exclusive rights to service all or a
portion of the residential homes in a specified community or provide a
central repository for residential waste drop-off. The Company had
320 municipal contracts in place as of December 31, 1997, compared to over
240 as of December 31, 1996. No single municipal contract is individually
material to the Company's results of operations. Municipal contracts in
the Company's market areas are typically awarded, at least initially, on a
competitive bid basis and usually range in duration from one to three
years. Fees are based primarily on the frequency and type of service, the
distance to the disposal or processing facility and the cost of disposal
or processing. Municipal collection fees are usually paid either by the
municipalities from tax revenues or through direct service charges to the
residents receiving the service. The Company also provides subscription
residential collection services directly to households.
The Company's transfer stations receive solid waste collected
primarily from its various collection operations, compact the waste and
transfer the waste to larger Company-owned vehicles for transport to
landfills. This procedure reduces the Company's costs by improving its
utilization of collection personnel and equipment. Approximately 25% of
the solid waste accepted for transfer at the Company's transfer stations
in 1997 was from third parties, compared to approximately 21% in 1996.
Recycling Services
The Company also provides recycling services to customers in most
markets as part of its strategy to be a full-service integrated solid
waste services company. Recycling involves the removal of reusable
materials from the waste stream for processing and sale in various
applications.
The Company operates 14 recycling facilities as part of its
collection and transfer operations at which it processes, sorts and
recycles paper products, certain plastics, glass, aluminum and tin cans
and certain other items. The Company also operates a wood pallet
recycling operation and curbside residential recycling programs in
connection with its residential collection operations in many communities.
The Company attempts to resell recycled waste products in the most
commercially reasonable manner practicable and, by contract, to pass on a
portion of the commodity pricing risk to its commercial and industrial
clients. The Company has a five-year wastepaper purchase agreement
effective through April 2000 with a national paper company pursuant to
which the paper company purchases certain grades of recyclable wastepaper
from the Company at above-market prices, subject to certain minimum floor
resale pricing assurances. Under the terms of this agreement, the Company
has the ability to sell up to all, but not less than 50%, of its supply of
certain grades of recyclable wastepaper to this company. The Company
believes that this agreement helps mitigate some of the variability
associated with the resale of its collected and recyclable wastepaper.
In 1997, the Company processed an average of approximately 8,400 tons
of recyclable paper and cardboard per month, compared to approximately
7,200 tons per month in 1996. The increase of the average price received
for recyclable wastepaper caused total revenues in 1997 to increase by
approximately 1% compared to 1996. The Company expects this trend to
continue, assuming resale prices are similar to 1997 levels.
Solid Waste Landfill Disposal
The Company owns and operates 14 solid waste landfills in Alabama,
Minnesota, Missouri, Ohio, Pennsylvania, West Virginia, and Wisconsin.
This includes one greenfield landfill and one landfill subject to a
definitive purchase agreement, which the Company is operating pending
final regulatory approval. The Company's landfill facilities are
designed and operated to meet federal, state and local regulations in all
material respects and the Company believes each of its landfill sites are
in compliance with current applicable state and federal Subtitle D
Regulations in all material respects. None of the Company's landfills are
permitted to accept hazardous waste. In 1997, approximately 36% of the
solid waste disposed of at the Company's landfills was delivered by the
Company compared to approximately 34% in 1996.
The average daily volume of waste accepted for disposal at the
Company's open landfills increased to approximately 10,100 tons per day in
1997 from approximately 7,200 tons per day in 1996 in each case as
restated to reflect the Company's June 27, 1997 acquisition of Resource
Recovery Transfer and Transportation Inc. ("R2T2") in a transaction
accounted for as a pooling of interests. The increase in revenues from
landfill disposal operations is the result of waste received at six new
disposal sites acquired since June 30, 1996 and increased volumes of
special waste from the Company's project-driven other integrated waste
services.
The following table provides certain information with respect to
Superior landfills which are owned, under development, or subject to
purchase under a definitive purchase agreement:
Approximate
Month Year Permitted total
Landfill name and location acquired opened acreage(1) acreage(1)
Superior Cranberry Creek * 1986 34 1,060
landfill,
Wisconsin Rapids, WI
(Central Wisconsin)
Superior Valley Meadows * 1979 29 600(2)
landfill,
Fort Atkinson, WI
(Southeastern Wisconsin)
Superior Glacier Ridge March 1986 59(3) 560
landfill, 1993
Mayville, WI (Eastern
Wisconsin)
Superior Emerald Park November 1994 35 340
landfill, 1993
Muskego, WI (Milwaukee
metropolitan area)
Superior FCR landfill, July 1965 24 357(4)
Buffalo, MN (Minneapolis 1994
metropolitan area)
Superior Seven Mile Creek September 1978 37 160(5)
landfill, 1996
Eau Claire, WI (Northwest
Wisconsin)
Superior Oak Ridge September 1975 126 180(6)
landfill, 1996
Ballwin, MO (St. Louis
metropolitan area)
Superior Hickory Meadows April Greenfield 59 317
landfill, 1997 landfill
Chilton,(7) WI under development
(Northeastern Wisconsin) Scheduled
to open
late 1998
Superior Greentree April 1986 91 1,336
landfill, Kersey, PA 1997
(Central Pennsylvania)
Superior Eagle Bluff June 1988 24 87
landfill(8) 1997
Tuscaloosa, AL (Central
Alabama)
Superior Cedar Hill June 1975 25 418
landfill,(9) 1997
Pell City, AL (Central
Alabama)
Superior Maple Hill October 1976 30 380
landfill(10) 1997
Macon, MO (Northeastern
Missouri)
Superior Oakland Marsh December 1997 102 288
landfill(11) 1997
Mansfield, OH (Central
Ohio)
Sycamore landfill(12) Acquisi- 1975 25 93
Hurricane, WV (Central West tion
Virginia) Pending
_______________
* Acquired as part of the Company's original consolidation in 1993.
(1) Permitted acreage represents the portion of the total acreage on
which disposal cells have been constructed (including any that may
have been filled or capped) or may be constructed based upon an
approval issued by the regulatory agency generally authorizing the
development of a landfill on the acreage. The portion of total
acreage that is not currently permitted is not available for waste
disposal.
(2) Does not include approximately 80 acres currently subject to
acquisition by the Company upon exercise of a purchase option.
(3) In November 1997, the WDNR approved the Company's application for a
horizontal and vertical expansion of approximately 15 acres at this
site.
(4) Does not include approximately 40 acres currently subject to
acquisition by the Company upon exercise of a purchase option.
(5) Does not include approximately 80 acres currently subject to
acquisition by the Company upon exercise of a purchase option.
(6) Includes approximately 125 acres leased by the Company. See
"Properties." Does not include approximately 58 acres subject to
acquisition by the Company upon exercise of a purchase option.
(7) Formerly M & N Disposal, Inc. In February 1998, the WDNR approved
the Company's application for 58.7 permitted acres at this
site. In December 1997, the Company entered into an interim
construction agreement and is proceeding with preliminary site
development. The Company is currently negotiating a local host
community agreement.
(8) Construction and demolition landfill, formerly Holt landfill.
(9) Formerly Urban landfill.
(10) Formerly Teter Sanitary landfill.
(11) Formerly Noble Road landfill. This facility opened in November 1997.
(12) The Company has entered into an interim operating agreement to
operate this municipal solid waste landfill pending final regulatory
approval of the Company's proposed purchase of this landfill.
Management of Third Party Landfills
As of December 31, 1997, the Company managed four landfills owned by
third parties including a fly ash monofill in Oak Creek, Wisconsin, a
bottom ash monofill in Port Washington, Wisconsin, and two paper sludge
and ash captive monofills owned by separate paper companies. A monofill
is a landfill which only accepts one type of waste. The fly ash and
bottom ash monofills are managed with a Wisconsin public electric utility
company under agreements which expire in April 2000. One of the paper
company monofills is located in Brokaw, Wisconsin, and is managed under a
two-year waste hauling and landfill operation agreement that expires in
May 1998. The remaining monofill is located in Quinnesec, Michigan, and
is managed under an agreement which expires in July 1999.
Other Integrated Waste Services
In order to provide integrated solid waste services to a wide range of
customers, Superior provides a variety of other waste services, most of
which are project-based and many of which provide additional waste volumes
to the Company's landfills. These services include the remediation and
disposal of contaminated soils and similar materials; wastewater biosolids
management; full container consumer product recycling; and temporary
storage and transportation of special and hazardous waste, including
household hazardous waste. Revenues from these other integrated waste
services constituted approximately 16% of the Company's revenues in 1997
and 19% in 1996. This trend is expected to continue as the Company
pursues its growth strategy of acquiring additional solid waste disposal,
transfer and collection operations.
The Company's project-based remediation services involve the removal
and transportation of contaminated soil from environmental remediation
projects for disposal at the Company's landfills in compliance with
applicable regulations. The Company also provides value-added services to
bioremediate contaminated soils at its landfills prior to final disposal.
After excavation, the Company uses nutrients and micro-organisms to
naturally remove or reduce contaminants from contaminated soil before
disposing of the remediated soils in its landfills or using the remediated
soils in landfill construction. The Company's environmental field
services, which are provided principally to industrial clients in
Wisconsin, include the containment and cleanup of actual and threatened
releases of hazardous materials into the environment on both a planned and
an emergency response basis. These services include clean out of
wastewater treatment tanks, cleanup of abandoned oil recycling facilities,
cleanup and demolition of manufacturing facilities and removal and
remediation of underground storage tanks. The Company is the primary
standby provider of environmental emergency spill response services to the
Wisconsin Department of Natural Resources ("WDNR") in Eastern and Central
Wisconsin, the United States Coast Guard in District Nine, and is a
subcontractor to the U.S. Environmental Protection Agency ("EPA") in
Region V.
The Company's wastewater biosolids operations consist principally of
the removal, transportation, storage and beneficial reuse through land
application of industrial and municipal nonhazardous wastewater biosolids
and food wastes. The Company contracts with municipalities, paper mills
and food processing plants to remove, transport and dispose of both
municipal and industrial wastewater biosolids. In most cases,
municipalities or industrial processors have on-site wastewater treatment
facilities which pretreat and concentrate biosolid wastes prior to removal
and reuse. In other cases, the Company will transport a generator's
wastewater biosolids from holding tanks or lagoons to a third party
wastewater treatment facility. Land application is generally limited by
state regulations to six months out of the year in Wisconsin.
Consequently, the Company built a one million gallon permitted wastewater
biosolid storage tank in which it stores certain liquid and biosolid
wastes until they can be land applied during the spring and fall.
The Company provides nonhazardous "special" waste and hazardous waste
(including household hazardous waste) services, transportation and
temporary storage services to industrial clients, principally in
Wisconsin. The Company provides its hazardous waste services from its
fully-permitted temporary storage facility ("TSF") located in Port
Washington, Wisconsin (approximately 25 miles north of Milwaukee), and
operates a hazardous household waste collection and transfer facility in
St. Paul, Minnesota. Hazardous waste collected by the Company is
transported to third party treatment or disposal facilities which have
been selected by the customer in virtually all cases. The Company also
reclaims mercury at its TSF from discarded mercury-containing items such
as utility meters, fluorescent lights and thermometers. The Company does
not typically take title to collected hazardous waste nor does it handle
or accept radioactive wastes, explosives, certain poisons, certain PCBs
and certain other types of hazardous wastes. The Company does not own or
operate, or intend to own or operate, a hazardous waste disposal facility.
Revenues from hazardous waste transportation and temporary storage
services accounted for less than 2% of the Company's revenues in 1997 and
less than 4% of the Company's revenues in 1996. Although the Company may
under certain conditions from time to time acquire additional operations
which focus on providing other integrated waste services, including
certain hazardous waste services, this trend is expected to continue over
the long term as the Company pursues its growth strategy of acquiring
additional solid waste disposal, transfer and collection operations.
Competition
The solid waste management industry is highly competitive, very
fragmented and requires substantial labor and capital resources. Intense
competition exists within the industry not only for collection,
transportation and disposal volume, but also for acquisition candidates.
The industry includes five large national waste companies: Waste
Management, Inc.; Browning-Ferris Industries, Inc.; USA Waste Services,
Inc.; Allied Waste Industries, Inc.; and Republic Industries, Inc. The
Company also competes with a number of regional and local companies.
Superior competes for landfill disposal business primarily on the basis
of disposal fees, geographical location and quality of operations. The
Company's ability to obtain landfill disposal volume may be limited by the
fact that some major collection companies also own or operate their own
landfills in the Company's market areas, to which they send their waste.
The Company also competes, to a lesser extent, with certain municipalities
that maintain their own solid waste disposal operations. These
municipalities may have certain advantages over the Company in financing
their operations due to the availability of tax revenues and tax-exempt
financing. The Company competes for collection and recycling accounts
primarily on the basis of price and quality of its services. From time to
time, competitors may reduce the price of their services in an effort to
expand market share or to win a competitively bid municipal contract.
These practices may also lead to reduced pricing for the Company's
services or the loss of business. The Company provides a substantial
portion of its residential collection services under municipal contracts.
As is generally the case in the industry, these contracts are subject to
periodic competitive bidding. There can be no assurance that the Company
will be the successful bidder to obtain or retain these contracts.
Employees
At December 31, 1997, the Company employed approximately
1,470 full-time employees. None of the Company's employees are members of
a collective bargaining unit or covered by a collective bargaining
agreement, although a representation petition has been filed to represent
14 drivers at one of the Company's subsidiaries. The Company considers
its employee relations to be satisfactory.
Regulation
Introduction
The Company is currently subject to extensive and evolving federal,
state and local environmental laws and regulations that have been enacted
in response to technological advances and increased concern over
environmental issues. These regulations not only strictly regulate the
conduct of the Company's operations but also are related directly to the
demand for many of the services offered by the Company. Some of the
federal statutes discussed below contain provisions authorizing, under
certain circumstances, the institution of lawsuits by private citizens to
enforce the provisions of the statutes.
The regulations affecting the Company are administered by the EPA and
various other federal, state and local environmental, zoning, health and
safety agencies. The Company believes that it is currently in substantial
compliance with applicable federal, state and local laws, permits, orders
and regulations. The Company believes there will continue to be increased
regulation, legislation and regulatory enforcement actions related to the
solid waste services industry. As a result, the Company attempts to
anticipate future regulatory requirements and to plan accordingly to
remain in compliance with the regulatory framework.
In order to develop and operate a landfill, a biosolid storage
facility, a transfer station, most other solid waste facilities or a
hazardous waste treatment/storage facility, the Company must typically go
through several governmental review processes and obtain one or more
permits and often zoning or other land use approvals. Obtaining these
permits and zoning or land use approvals is difficult, time consuming and
expensive and is often opposed by various local elected officials and
citizens' groups. Once obtained, operating permits generally must be
reviewed periodically and are subject to modification and revocation by
the issuing agency.
The Company's operating facilities are subject to a variety of
operational, monitoring, site maintenance, closure, post-closure and
financial assurance obligations which change from time to time and which
could give rise to increased capital expenditures and operating costs. In
connection with the Company's expansion of its existing or any newly
acquired landfills, it is often necessary to expend considerable time,
effort and money in complying with the governmental review and permitting
process necessary to maintain or increase the capacity of these landfills.
Governmental authorities have broad power to enforce compliance with these
laws and regulations and to obtain injunctions or impose civil or criminal
penalties in the case of violations. In the ordinary course of its
landfill, transfer station and TSF operations, the Company has from time
to time received notices from regulatory authorities that its operations
may not be in compliance with certain applicable environmental laws and
regulations. Upon receipt of any notices, the Company generally
cooperates with the authorities in an attempt to resolve the issues raised
by such notices and pays the agreed upon fine or penalty. Failure to
correct the problems to the satisfaction of the authorities could lead to
curtailed operations, fines and penalties or even closure of a landfill or
other facility.
In order to transport waste, it is necessary for the Company to possess
one or more permits from state or local agencies. These permits also must
be periodically renewed and are subject to modification and revocation by
the issuing agency.
The principal federal, state and local statutes and regulations
applicable to the Company's various operations are as follows:
The Resource Conservation and Recovery Act of 1976, as amended.
RCRA regulates the generation, treatment, storage, handling,
transportation and disposal of solid waste and requires states to develop
programs to ensure the safe disposal of solid waste. RCRA divides solid
waste into two groups, hazardous and nonhazardous. Wastes are generally
classified as hazardous if they (i) either (a) are specifically included
on a list of hazardous wastes or (b) exhibit certain hazardous
characteristics and (ii) are not specifically designated as nonhazardous.
Wastes classified as hazardous under RCRA are subject to much stricter
regulation than wastes classified as nonhazardous. Among the wastes that
are specifically designated as nonhazardous waste are household waste and
"special" waste, including items such as petroleum contaminated soils,
asbestos, foundry sand, shredder fluff and most nonhazardous industrial
waste products.
The EPA regulations issued under Subtitle C of RCRA impose a
comprehensive "cradle to grave" system for tracking the generation,
transportation, treatment, storage and disposal of hazardous wastes. The
Subtitle C regulations provide standards for generators, transporters and
disposers of hazardous wastes, and for the issuance of permits for sites
where such material is treated, stored or disposed. Subtitle C imposes
detailed operating, inspection, training and emergency preparedness and
response standards, as well as requirements for manifesting, record
keeping and reporting, facility closure, post-closure and financial
responsibilities. These regulations require the Company's
transfer/storage facilities to demonstrate financial assurance for sudden
and nonsudden pollution occurrences. Financial assurance for future
closure and post-closure expenses must also be maintained. The Company
believes that its hazardous waste transportation activities and its TSF
comply in all material respects with the applicable requirements of
Subtitle C of RCRA.
In October 1991, the EPA adopted the Subtitle D Regulations governing
solid waste landfills. The Subtitle D Regulations, which generally became
effective in October 1993, include location restrictions, facility design
standards, operating criteria, closure and post-closure requirements,
financial assurance requirements, groundwater monitoring requirements,
groundwater remediation standards and corrective action requirements. In
addition, the Subtitle D Regulations require that new landfill sites meet
more stringent liner design criteria (typically, composite soil and
synthetic liners or two or more synthetic liners) designed to keep
leachate out of groundwater and have extensive collection systems to carry
away leachate for treatment prior to disposal. Groundwater monitoring
wells must also be installed at virtually all landfills to monitor
groundwater quality and, indirectly, the leachate collection system
operation. The Subtitle D Regulations also require, where threshold test
levels are present, that methane gas generated at landfills be controlled
in a manner that protects human health and the environment. Each state is
required to revise its landfill regulations to meet these requirements or
such requirements will be automatically imposed upon it by the EPA. Each
state is also required to adopt and implement a permit program or other
appropriate system to ensure that landfills within the state comply with
the Subtitle D Regulations criteria. Wisconsin and various states into
which the Company has entered, or may enter, have adopted regulations or
programs as stringent as, or more stringent than, the Subtitle D
Regulations. The Company believes that all of its present landfill
operations are in compliance with current applicable state and federal
Subtitle D Regulations in all material respects.
The Federal Water Pollution Control Act of 1972, as amended ("Clean
Waste Act")
Clean Water Act, establishes rules regulating the discharge of
pollutants from a variety of sources, including solid waste disposal sites
and transfer stations, into waters of the United States. If surface water
run off from the Company's landfills or transfer stations is discharged
into streams, rivers or other surface waters, the Clean Water Act would
require the Company to apply for and obtain a discharge permit, conduct
sampling and monitoring and, under certain circumstances, reduce the
quantity of pollutants in such discharge. Also, virtually all landfills
are required to comply with the EPA's storm water regulations issued in
November 1990, which are designed to prevent possibly contaminated
landfill storm water runoff from flowing into surface waters. The Company
believes that its facilities are in compliance in all material respects
with Clean Water Act requirements, particularly as they apply to treatment
and discharge of storm water. The Company believes it has secured or has
applied for all material required discharge permits under the Clean Water
Act or comparable state-delegated programs. In those instances where the
Company's applications for discharge permits are pending and a final
discharge permit has not been issued, the Company believes it is in
substantial compliance with the applicable substantive state standards in
its market areas in administering the Clean Water Act.
The Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA")
CERCLA establishes a regulatory and remedial program intended to
provide for the investigation and cleanup of facilities from which there
has been, or is threatened, a release of any hazardous substance into the
environment. CERCLA's primary mechanism for remedying such problems is to
impose strict, joint and several liability for cleanup of facilities on
current owners and operators of the site, former owners and operators of
the site at the time of the disposal of the hazardous substances, as well
as the generators of the hazardous substances and the transporters who
arranged for disposal or transportation of the hazardous substances. The
costs of CERCLA investigation and cleanup can be very substantial.
Liability under CERCLA does not depend upon the existence or disposal of
"hazardous waste" as defined by RCRA, but can also be founded upon the
existence of even very small amounts of the more than 700 "hazardous
substances" listed by the EPA, many of which can be found in household
waste. If the Company were to be found to be a responsible party for a
CERCLA cleanup, the enforcing agency could hold the Company, or any other
generator, transporter or the owner or operator of the facility,
completely responsible for all investigative and remedial costs even if
others may also be liable. CERCLA, however, provides a responsible party
with the right to bring legal action against other responsible parties for
their allocable share of investigative and remedial costs. The Company's
ability to get others to reimburse it for their allocable share of such
costs would be limited by the Company's ability to find other responsible
parties and prove the extent of their responsibility and by the financial
resources of such other parties. In addition, CERCLA authorizes the
imposition of a lien in favor of the United States upon all real property
subject to, or affected by, a remedial action for all costs for which a
party is liable.
CERCLA requires the EPA to establish a National Priorities List ("NPL")
of sites at which hazardous substances have been or are threatened to be
released into the environment and which require investigation or cleanup.
As one of the sellers' conditions to the Company's March 1993 acquisition
of the Superior Glacier Ridge landfill, Superior was required to accept
the transfer of an adjacent closed landfill identified as a CERCLA site
and listed on the NPL. The Company believes that it has not been
identified as a potential responsible party at any other CERCLA landfill
site.
The Clean Air Act
Through state implementation of federal requirements, the Clean Air Act
provides for regulation of the emission of air pollutants from certain
landfills based upon the date of the landfill construction, reconstruction
or modification, and volume of emissions of regulated pollutants or
capacity of the landfill. The EPA has issued new source performance
standards regulating air emissions of methane and non-methane organic
compounds from municipal solid waste landfills with certain capacity,
constructed or reconstructed after May 1991. States are required to
develop regulations for landfills that existed prior to that date and the
regulations are in various stages of development in the states where the
Company operates. The state regulations will require installation of
pollution controls for pre-1991 landfills that emit over certain amounts
of non-methane organic compounds. In addition to these requirements,
landfills may be subject to more extensive pollution controls, emission
limitations, and pre-construction permitting requirements, depending on
the amount of air pollutants the landfill emits or has the potential to
emit; these requirements are more stringent for landfills located in areas
with air pollution problems. Some states may require a permit to install
pollution controls at landfills, particularly gas extraction and flaring
systems. EPA has also issued standards to regulate the disposal of
asbestos-containing wastes. The landfill may be required to obtain a
federal operating permit under Title V. Finally, future regulations under
development by EPA for the control of emissions of hazardous air
pollutants from landfills may apply; EPA plans to issue these rules in
November 2000.
The Occupational Safety and Health Act of 1970, as amended ("OSHA")
OSHA authorizes the Occupational Safety and Health Administration to
promulgate occupational safety and health standards. Various of these
promulgated standards, including standards for notices of hazards, safety
in excavation and the handling of asbestos, may apply to the Company's
operations. The Company has no direct involvement in asbestos removal or
abatement projects. However, asbestos-containing waste materials are
accepted at certain of the Company's landfills that are authorized to
accept such materials, and some of the Company's collection operations
receive asbestos-containing waste materials which have already been
packaged and labeled. These packages are loaded onto the Company's
vehicles by employees of the asbestos abatement contractors for
transportation to and disposal at the Company's authorized landfills.
Accordingly, OSHA regulations designed to minimize employees' exposure to
airborne asbestos fibers and provide employees with proper training and
protection generally apply to the Company's operations in the
transportation and handling of the asbestos waste. The Company's
employees are trained to respond appropriately in the event there is an
accidental spill or release of the packaged asbestos-containing materials
during transportation or landfill disposal.
State and Local Regulations
Each state in which the Company currently operates, or may operate in
the future, has laws and regulations governing the generation, storage,
treatment, handling, transportation and disposal of solid and hazardous
waste, water and air pollution and, in most cases, the siting, design,
operation, maintenance, closure and post-closure maintenance of landfills
and other solid and hazardous waste management facilities. In addition,
many states have programs that require investigation and clean up of sites
containing hazardous materials in a manner comparable to CERCLA. These
statutes impose requirements for investigation and cleanup of contaminated
sites and liability for costs and damages associated with such sites, and
some provide for the imposition of liens on property owned by responsible
parties. Furthermore, many municipalities also have ordinances, local
laws and regulations affecting the Company's operations. These include
zoning and health measures that limit solid waste management activities to
specified facilities, laws that grant the right to establish franchises
for collection services and then put out for bid the right to provide
collection services and bans or other restrictions on the movement of
solid wastes into a municipality.
Certain permits and approvals may limit the types of waste that may be
accepted at a landfill or the quantity of waste that may be accepted at a
landfill during a given time period. In addition, certain permits and
approvals, as well as certain state and local regulations, may limit a
landfill to accepting waste that originates from specified geographic
areas or seek to restrict the importation of out-of-state waste or
otherwise discriminate against out-of-state waste. Generally,
restrictions on the importation of out-of-state waste have not withstood
judicial challenge. However, from time to time federal legislation is
proposed which would allow individual states to prohibit the disposal of
out-of-state waste or to limit the amount of out-of-state waste that could
be imported for disposal and would require states, under certain
circumstances, to reduce the amounts of waste exported to other states.
Although such legislation has not yet been passed by Congress, if this or
similar legislation is enacted, states in which the Company operates
landfills could act to limit or prohibit the importation of out-of-state
waste. Such state actions could materially adversely affect landfills
within those states that receive a significant portion of waste
originating from out-of-state.
In addition, certain states and localities may for economic or other
reasons restrict the exportation of waste from their jurisdiction or
require that a specified amount of waste be disposed of at facilities
within their jurisdiction. In 1994, the United States Supreme Court held
unconstitutional, and therefore invalid, a local ordinance that sought to
impose flow controls on taking waste out of the locality. However,
certain state and local jurisdictions continue to seek to enforce such
restrictions and, in certain cases, the Company may elect not to challenge
such restrictions based upon various considerations. In addition, the
aforementioned proposed federal legislation would allow states and
localities to impose certain flow control restrictions. These
restrictions could result in the volume of waste going to landfills being
reduced in certain areas, which may materially adversely affect the
Company's ability to operate its landfills at their full capacity and/or
affect the prices that can be charged for landfill disposal services.
These restrictions may also result in higher disposal costs for the
Company's collection operations. If the Company were unable to pass such
higher costs through to its customers, the Company's business, financial
condition and result of operations could be materially adversely affected.
The permits or other land use approvals with respect to a landfill, as
well as state or local laws and regulations, may (i) specify the quantity
of waste that may be accepted at the landfill during a given time period;
and/or (ii) specify the types of waste that may be accepted at the
landfill. Once an operating permit for a landfill is obtained, it is
generally necessary to renew the permit periodically.
There has been an increasing trend at the state and local level to
mandate and encourage waste reduction at the source and to provide waste
recycling and limit or prohibit the disposal of certain types of solid
wastes, such as yard wastes, in landfills. The enactment of regulations
reducing the volume and types of wastes available for transport to and
disposal in landfills has reduced the volume of waste disposed of by the
Company's continuing customers. The Company has responded to these trends
by increasing its emphasis on providing recycling services to its customers.
Item 2. Property.
The Company owns solid waste landfills, solid waste collection
operations, recycling facilities, solid waste transfer facilities, a TSF,
a waste water treatment plant and other operating facilities in Alabama,
Illinois, Indiana, Michigan, Minnesota, Missouri, Ohio, Pennsylvania, West
Virginia and Wisconsin. The Company leases its various offices and
facilities, including its executive offices in suburban Milwaukee under a
lease expiring in 1998. The Company is presently negotiating a lease for
its executive offices in Milwaukee to commence in 1998. The Company also
leases property which provides access to its Superior Oak Ridge landfill
in Ballwin, Missouri. See "Business." The real estate owned by the
Company is not subject to material encumbrances. The Company believes that
its existing facilities are generally adequate for its current needs and
requirements.
Item 3. Legal Proceedings.
In connection with an acquisition in March 1993, the Company was
required to accept the transfer of an adjacent closed landfill that is
listed on the National Priorities List ("NPL"). A remedial investigation
performed by the PRPs (including the Company) has determined the scope and
nature of the contamination at the site and the PRPs have submitted a
feasibility study to the EPA and WDNR which describes the alternatives for
remediating the associated groundwater contamination. The WDNR has
formally approved the remedial alternative recommended by the PRPs which
calls for the installation of two to four additional gas extractions wells
(which would be connected to the existing gas extraction system at the
site) and continued groundwater monitoring. As of December 31, 1997, the
estimated one-time capital cost for the additional extraction wells was
$107,000. Annual operating, maintenance and monitoring costs for the new
extraction wells, the landfill cap, the existing gas extraction system and
groundwater monitoring system are estimated at $90,000. The operating
duration of the proposed remediation is uncertain, but could be 30 years
or longer. In December 1995, the Company entered into a settlement
agreement with certain of the PRPs which allocated the costs of the
remediation. Under the settlement agreement, two generator PRPs agreed to
contribute a total of 42% of future costs for remedial action and the
annual operating, maintenance and monitoring costs related to the site.
Additional generator PRPs may join in the settlement agreement, which
would further reduce the share of costs allocated to the Company and the
former owners of the closed landfill. The seller has agreed to indemnify
the Company up to $2.8 million for any site liabilities, including the
annual costs of operating, maintaining and monitoring the closed landfill
and any costs the Company may incur as a PRP. The Company has been paid
$482,755 by the seller. The seller's remaining potential indemnification
obligation was collateralized as of December 31, 1997 by $2,317,245
million held in escrow. The $2,317,245 million recoverable from the
seller is included on the Company's balance sheet as part of "other
assets". On August 15, 1997, an engineer selected by the seller
determined that the reasonable present value of the cost of a likely
remedial action plan for the closed landfill approximates $688,000. The
Company and seller are in dispute regarding the cost of a likely remedial
action plan. The seller has demanded arbitration and has filed a
declaratory judgment action in state court. If the seller's position is
accepted or upheld in the pending proceedings, the Company may be required
to return to the seller substantially all or a substantial portion of the
current amount held in escrow. This would result in a reduction of the
Company's "other asset" and the related liability account on its balance
sheet. Although the engineer's estimate of such potential costs was
substantially less than the Company's current estimate, the Company
believes its existing financial reserves, together with the amounts paid
and remaining payable by the seller and the contribution obligations of
the generator PRPs, are adequate to cover the currently anticipated
remediation costs of such landfill. As is the case with all sites on the
NPL, the performance of the selected remedy at the closed landfill will be
subject to periodic review by the WDNR and the EPA. In the event the
selected remedy does not perform adequately to meet applicable state and
federal standards, additional remedial measures beyond those currently
anticipated could be required by the WDNR and EPA. Implementation of any
of such additional remedial measures may involve substantial additional
costs beyond those currently anticipated.
In connection with the formation of the Company in 1993 through the
consolidation of three groups of independent waste services companies,
certain potential environmental liabilities associated with the previously
filled portion of the Superior Valley Meadows landfill were identified.
At the time of the consolidation of these companies into the Company, a
contingent liability escrow was established to cover the then estimated
costs of remediation and monitoring with respect to these contingent
liabilities. To indemnify the Company against up to $1,308,000 of these
contingent liabilities, 130,800 shares of the Company's Common Stock
otherwise issuable as part of the consolidation to the individual who was
the principal shareholder of the prior owner of the site and who is now a
director, executive officer and significant shareholder of the Company,
were withheld from issuance. In order to preserve the Company's rights
under this indemnification arrangement prior to the February 24, 1997
expiration date for advancing such types of indemnification claims, the
Company formally notified the individual of the Company's claim against
the withheld shares for the entire amount of the originally established
liability escrow. The Company believes that the entire amount of such
environmental liabilities will either be covered by the foregoing
indemnification arrangement or otherwise is not expected to have a
material adverse effect on the Company's results of operations or
financial condition.
The Company's 1993 federal income tax return is currently the subject
of an Internal Revenue Service audit.
The Company is also a party to various legal proceedings arising in the
ordinary course of its businesses. The Company believes that the ultimate
resolution of these other matters will not have a material adverse effect
on the Company's financial condition or results of operations. In the
normal course of its businesses, and as a result of the extensive
government regulation of the solid waste services industry, the Company
may periodically become subject to various judicial and administrative
proceedings involving federal, state or local governmental agencies. In
particular, landfill expansion permitting process is lengthy, difficult
and expensive, and is often subject to substantial uncertainty and there
can be no assurance that any such permits will be granted. From time to
time the Company also may be subjected to actions brought by citizens
groups in connection with the permitting or expansion of landfills, the
permitting of transfer stations, or alleging violations of the permits
pursuant to which the Company operates. The Company also may be subject
to claims for personal injury or property damage arising out of accidents
involving its vehicles or at its facilities.
The Company carries a range of insurance, including a commercial
general liability policy and a property damage policy. The Company
maintains a limited environmental impairment liability policy on its
landfills and transfer stations that provides coverage, on a "claims made"
basis, against certain third party off-site environmental damage. There
can be no assurance that the limited environmental impairment policy will
remain in place or provide sufficient coverage for existing, but not yet
known, third party, off-site environmental liabilities.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of 1997.
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters.
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "SUPR". The following table sets forth the range of high
and low sale prices for the Common Stock for the period from March 8,
1996, the date of its intial public stock offering, through December 31,
1997 as reported by Nasdaq. The prices below may reflect interday trading
prices and may include intradealer prices without retail mark up, mark
down, or commission and may not reflect actual transactions.
High Low
1996
First quarter ended March 31,
1996 (from March 8, 1996) $15 $12 3/4
Second quarter ended June 30,
1996 $19 $12 3/4
Third quarter ended September 30,
1996 $17 3/4 $13 1/4
Fourth quarter ended December 31,
1996 $20 1/2 $15 1/2
High Low
1997
First quarter ended March 31,
1997 $24 $17 1/2
Second quarter ended June 30,
1997 $23 3/4 $20 1/8
Third quarter ended September 30,
1997 $29 $22 3/4
Fourth quarter ended December 31,
1997 $29 1/2 $20 7/8
At February 19, 1998, there were approximately 235 shareholders of
record of the Company's common stock and, based on security position
listings, the Company believes it has in excess of 4,700 beneficial
owners.
The Company has never paid cash dividends on its Common Stock and has
no present intention to pay cash dividends. In addition, the Company's
revolving credit facility prohibits the payment of cash dividends on its
Common Stock. It is the Company's intention to retain earnings to finance
the expansion of its business.
Item 6. Selected Consolidated Financial and Operating Data
The following table presents selected consolidated statement of
operations, balance sheet and other operating data of the Company for the
periods presented. The following selected financial and operating data
were derived from the Company's consolidated financial statements, which
have been audited by Ernst & Young LLP, independent auditors. The
selected consolidated financial data below should be read in conjunction
with the Company's audited consolidated financial statements and notes
thereto at December 31, 1996 and 1997 and for the three years in the
period ended December 31, 1997 and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations." All financial
data for 1995, 1996, and 1997 have been restated and give retroactive
effect to reflect the Company's June 27, 1997 merger with Resource
Recovery Transfer & Transportation, Inc. ("R2T2") in a transaction
accounted for as a pooling of interests. Periods prior to 1995 have not
been restated to include the accounts and operation of R2T2 as combined
results are not materially different from the results as previously
presented.
<TABLE>
<CAPTION>
Years ended December 31, (1)
1993 1994 1995 1996 1997
Statement of Operations Data: (in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $67,304 $76,297 $96,175 $117,121 $177,833
Cost of Operations 39,262 46,417 49,897 60,593 97,187
Selling, general and administrative
expenses 12,106 15,054 16,561 18,677 25,132
Merger Costs ---- ---- ----- ----- 1,035
Depreciation and amortization 6,180 9,488 13,357 16,767 23,861
-------- ------- -------- -------- --------
Operating income from continuing
operations 9,756 5,338 16,360 21,084 30,618
Interest expense (1,531) (2,245) (2,853) (859) (1,277)
Other income 228 27 290 478 1,120
-------- ------- -------- -------- --------
Income from continuing operations before
income taxes 8,453 3,120 13,797 20,703 30,461
Income taxes 3,343 1,389 5,733 8,540 12,706
-------- ------- -------- -------- --------
Income from continuing operations 5,110 1,731 8,064 12,163 17,755
Income (loss) from discontinued
operations, net of income tax(2) 56 (5,735) (329) ----- -----
-------- ------- -------- -------- --------
Net income (loss) $5,166 $(4,004) $7,735 $12,163 $17,755
======== ======= ======== ======== ========
Earnings (loss) per share:
Basic $0.43 $(0.30) $0.52 $0.68 $0.87
===== ====== ===== ===== =====
Diluted $0.42 $(0.30) $0.51 $0.67 $0.85
===== ====== ===== ===== =====
Other Operating Data:
EBITDA(3) $15,936 $14,826 $29,717 $37,851 $54,479
<CAPTION>
December 31,
1993 1994 1995 1996 1997
Balance Sheet Data: (in thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $3,022 $2,034 $3,101 $16,579 $40,135
Working capital 8,906 12,818 5,403 15,825 44,501
Property and equipment, net 76,546 80,592 88,409 115,691 210,969
Total assets 116,398 126,785 132,503 190,026 366,992
Long-term debt, net of current
maturities 27,388 35,794 20,168 4,907 3,282
Series A convertible preferred stock 15,000 15,000 15,000 ---- ----
Total common shareholders' investment 32,922 29,331 38,798 107,045 259,409
____________________
(1) All financial data for periods ending prior to and on December 31,
1994 have been restated to reflect separately the results of
discontinued operations.
(2) Includes estimated losses on disposition of discontinued operations,
net of income taxes of $5,042,000 and $329,000 for 1994 and 1995,
respectively.
(3) EBITDA is defined as operating income from continuing operations,
plus depreciation and amortization. EBITDA should not be considered
an alternative to (i) operating income or net income (as determined
in accordance with generally accepted accounting principles ("GAAP"))
as an indicator of the Company's operating performance or (ii) cash
flows from operating activities (as determined in accordance with
GAAP) as a measure of operating performance or liquidity. However,
the Company has included EBITDA data (which are not a measure of
financial performance under GAAP) because it understands that such
data are commonly used by certain investors to evaluate a company's
performance in the solid waste industry. Furthermore, the Company
believes that EBITDA data are relevant to an understanding of the
Company's performance because they reflect the Company's ability to
generate cash flows sufficient to satisfy its debt service, capital
expenditure and working capital requirements. The Company therefore
interprets the trends that EBITDA depicts as one measure of the
Company's's operating performance. However, funds depicted by the
EBITDA measure may not be available for debt service, capital
expenditures or working capital due to legal or functional
requirements to conserve funds or other commitments or uncertainties.
EBITDA, as measure by the Company, might not be comparable to
similarly titled measure reported by other companies. Therefore, in
evaluating EBITDA data, investors should consider, among other
factors: the non-GAAP nature of EBITDA data; actual cash flows; the
actual availability of funds for debt service; capital expenditures
and working capital; and the comparability of the Company's EBITDA
data to similarly titled measures reported by other companies.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
Superior provides solid waste collection, transfer, transportation,
recycling and disposal services to customers in Alabama, Illinois, Iowa,
Michigan, Minnesota, Missouri, Ohio, Pennsylvania, West Virginia, and
Wisconsin. The Company also provides other integrated waste services,
most of which are project-based and many of which provide additional waste
volumes to the Company's landfills and recycling facilities. As of
December 31, 1997, solid waste operations consisted of 14 Company owned
and operated landfills, including a greenfield landfill and a municipal
solid waste landfill, subject to a definitive purchase agreement,
4 managed third party landfills, 29 solid waste collection operations, 14
recycling facilities and 10 solid waste transfer stations.
As described more fully below, revenues for the periods presented were
comprised of fees received for the following services:
1995 1996 1997
(Restated) (Restated)
Collection . . . . . . . . 46% 45% 52%
Disposal . . . . . . . . . 19% 24% 21%
Recycling . . . . . . . . . 14% 12% 11%
Other integrated waste
services . . . . . . . . . 21% 19% 16%
------ ------ ------
100% 100% 100%
====== ====== ======
The Company's strategy for future growth anticipates significant
revenue from its acquisition program and continued internal growth. The
Company acquired businesses with estimated annualized revenues of more
than $75 million in 1997. The percentage of revenue obtained from
collection services increased to 52% in 1997 compared to 45% in 1996 due
to a greater portion of revenue being generated from collection operations
acquired. The Company believes that future operations acquired will
continue the trend in its revenue mix away from recycling and other
integrated waste services and more towards solid waste collection and
disposal.
All financial data for 1995, 1996, and 1997 have been restated and give
retroactive effect to reflect the Company's June 27, 1997 merger with R2T2
in a transaction accounted for as a pooling of interests.
Results of Operations
Overview
In 1997, revenues increased 51.8% to $177.8 million compared to
$117.1 million in 1996. Income from continuing operations increased 46.0%
to $17.8 million in 1997 from $12.2 million in 1996. Diluted earnings per
share from continuing operations increased 26.9% to $0.85 for 1997 from
$0.67 per share for 1996. The weighted average of common and common
equivalent shares outstanding was 20.9 million for 1997 and 18.1 million
for 1996.
The following table sets forth for the years indicated the percentage of
revenues represented by the individual line items reflected in the
Company's condensed consolidated statements of operations:
</TABLE>
<TABLE>
<CAPTION>
Percentage Relationship to Total Period-to-Period Change
Revenues Years Ended Years Ended
December 31, December 31,
1996 vs. 1997 vs.
1995 1996 1997 1995 1996
<S> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 21.8% 51.8%
Cost of operations 51.9 51.7 54.7 21.4% 60.4%
Selling, general and
administrative expenses 17.2 16.0 14.1 12.8% 34.6%
Merger costs - - 0.6 N/A N/A
Depreciation and amortization 13.9 14.3 13.4 25.5% 42.3%
----- ----- ----- ------ -----
Operating income from
continuing operations 17.0 18.0 17.2 28.9% 45.2%
Interest expense (3.0) (0.7) (0.7) (69.9%) 48.7%
Other income 0.3 0.4 0.6 64.8% 134.3%
----- ----- ----- ----- -----
Income from continuing
operations before income
taxes 14.3 17.7 17.1 50.1% 47.1%
Income taxes 5.9 7.3 7.1 49.0% 48.8%
----- ----- ----- ----- -----
Income from continuing
operations 8.4% 10.4% 10.0% 50.8% 46.0%
===== ===== ===== ===== =====
</TABLE>
Revenues
Revenues increased approximately $60.7 million, or 51.8%, to
$177.8 million in 1997 from $117.1 million in 1996 due primarily to the
impact of operations acquired which were accounted for under the purchase
method of accounting. During 1997, the Company acquired or merged with 26
businesses with expected annualized revenues of approximately $75 million.
The Company expects its revenues and income from operations to increase in
1998 in comparison to those reported historically due to the inclusion of
a full year of revenue and income in 1998 from these acquired businesses,
as well as a result of its ongoing acquisition program. The increase in
revenue was also due, to a much lesser extent, to increases in volumes of
wastes collected and disposed at the Company's landfills. Internal growth
from sales activities increased approximately 5% over 1996, exclusive of
the impact of an increase in recyclable commodity prices which caused an
approximately 1% increase in total revenues compared to the previous year.
Daily disposal volume at the Company's landfills rose to an average of
approximately 10,100 tons per day in 1997 compared to an average of
7,200 tons per day in 1996. The higher landfill volume was predominantly
the result of waste received at disposal sites acquired, as well as
increased volumes of special waste streams from the Company's project-
driven other integrated waste services. The Company expects to continue
to increase disposal volumes in 1998 due primarily to the inclusion of a
full year of disposal income from landfills acquired during 1997 and
continued internal sales growth activities.
Revenues increased approximately $20.9 million, or 21.8%, to
$117.1 million in 1996 from $96.2 million in 1995. This increase was
attributable primarily to a 63.2% increase in volumes of wastes disposed
at the Company's landfills. Revenues for 1996 compared to 1995 increased
$10.6 million from the impact of operations acquired. These increases
were achieved despite a decrease of $3.8 million in revenues from
recyclable waste paper sales for 1996 compared to 1995. Daily disposal
volume at the Company's landfills rose to an average of approximately
7,200 tons per day in compared to an average of almost 4,500 tons per day
in 1995. The higher landfill volume was the result of increased volumes
received from a disposal contract for a customer's Milwaukee collection
operations, increased volumes of special waste streams from the Company's
project-driven other integrated waste services, increased third party
disposal volume and higher solid waste volumes from its collection
operations.
Cost of Operations
Cost of operations increased $36.6 million, or 60.4%, for 1997
compared to 1996. As a percentage of revenues, cost of operations
increased to 54.7% from 51.7% in 1996. The increase in cost of operations
as a percentage of revenues was due to the higher relative percentage of
non-integrated collection revenues from businesses acquired resulting in a
lower overall percentage of waste collected by the Company which is
disposed of at its own facilities and a higher relative percentage of
business recognized from collection operations (which typically have
higher costs of operations as a percentage of revenues than disposal
operations). Changes in this trend are dependent on the timing and mix of
potential future business acquisitions, the ability to internalize waste
streams from new and planned transfer stations, and the seasonality of the
Company's operations. See "Seasonality." The increase in the dollar
amount of cost of operations was primarily attributable to the costs of
collecting and disposing of the increased volumes of wastes received from
services provided to new customers, including the operation of new
businesses acquired.
Cost of operations increased $10.7 million, or 21.4%, for 1996
compared to 1995. As a percentage of revenues in 1996, cost of operations
improved to 51.7% from 51.9% in 1995. The decrease in cost of operations
as a percentage of revenues resulted primarily from cost efficiencies
generated from vertical expansions at two of the Company's landfills. The
increase in the dollar amount of cost of operations was primarily
attributable to the costs of collecting and disposing of the increased
volumes of wastes received from additional projects and services provided
to new customers, including the operation of new operations acquired.
Selling, General and Administrative Expense ("SG&A")
SG&A increased $6.5 million, or 34.6%, for 1997 compared to 1996. As
a percentage of revenues, SG&A decreased to 14.1% in 1997 from 16.0% in
1996. The percentage decline in SG&A was primarily due to the significant
increase in revenues acquired without a need to correspondingly increase
SG&A support functions, particularly at the home office. This trend is
expected to continue in 1998 as the Company continues to pursue further
SG&A efficiencies. While SG&A decreased as a percentage of revenues, the
actual dollars increased primarily due to increased costs for personnel
necessary to support service to new customers, including those associated
with the operations acquired and increased expenditures for 6 additional
market development personnel.
SG&A increased $2.1 million, or 12.8%, for 1996 compared to 1995. As
a percentage of revenues, SG&A decreased to 16.0% in 1996 from 17.2% in
1995. The percentage decline in SG&A was due to the significant increase
in disposal revenues without a need to correspondingly increase SG&A
support functions. While SG&A decreased as a percentage of revenues, the
actual dollars increased primarily due to increased costs for personnel
necessary to support the Company's acquisition program and to service new
customers, including those associated with the operations acquired.
Depreciation and Amortization
Property and equipment costs are depreciated using the straight-line
method over 20 years or the life of the lease for buildings or leasehold
improvements, and over 5 to 10 years for vehicles and equipment. Landfill
costs are amortized using the units-of-production method, which is
calculated using the total units of airspace filled during the year in
relation to total estimated permitted airspace capacity. Goodwill is
amortized over 15 to 25 year periods. Covenants not to compete are
amortized over 3 to 10 year periods. The Company believes its depreciation
and amortization accounting policies and practices are consistent with
industry practice.
Depreciation and amortization increased $7.1 million, or 42.3%, for
1997 compared to 1996 primarily as a result of increased depreciation
costs of the additional assets and businesses acquired, increased
landfill depletion costs, and increased goodwill amortization as a result
of acquisitions completed during 1997. As a percentage of revenues,
depreciation and amortization decreased to 13.4% in 1997 compared to 14.3%
in 1996 reflecting the change in revenue mix towards collection
operations which typically reflect lower depreciation as a percentage of
revenue. Changes in this trend are dependent on the timing and mix of
potential future business acquisitions and the seasonality of the
Company's operations. See "Seasonality."
Depreciation and amortization increased $3.4 million, or 25.5%, for
1996 compared to 1995, primarily as a result of increased landfill
depletion costs and increased depreciation costs of the additional assets
and operations acquired. As a percentage of revenues, depreciation and
amortization increased to 14.3% in 1996 compared to 13.9% in 1995,
reflecting the increase in disposal revenue as a percentage of total
revenue which resulted in additional depletion costs, and also the
depreciation and amortization of the additional assets of operations
acquired.
Interest Expense
Gross interest expense (exclusive of interest income) increased
$418,000, or 48.7%, for 1997 compared to 1996. The lower interest expense
in 1996 was due to the application of a portion of the net proceeds from
the Company's March 1996 initial public offering to repay indebtedness.
Indebtedness was also repaid in 1997 through the use of proceeds from the
Company's September 1997 follow-on offering, but this occurred much later
in the year resulting in more interest expense than had been incurred than
in 1996. Interest expense as a percentage of revenues was 0.7% in both
1997 and 1996. Interest of $950,000 was capitalized during 1997 related
to landfills under development.
Interest expense decreased $2.0 million, or 69.9%, for 1996 compared
to 1995. Interest expense as a percentage of revenues was 0.7% in 1996
compared to 3.0% in 1995. The reduction in interest expense was due to
the application of a portion of the net proceeds from the Company's March
1996 initial public offering to repay indebtedness. Additionally, the
Company benefitted from a lower overall interest rate on outstanding
borrowings in 1996 as a result of the successful renegotiation of its
revolving credit facility in December 1995.
Income Taxes
The Company's effective tax rate increased to 41.7% for 1997 compared
to 41.3% in 1996 and 41.6% in 1995. The increase in the effective tax
rate in 1997 is due to the non-deductible amortization of intangibles
related to businesses acquired.
Liquidity and Capital Resources
On August 7, 1997, the Company filed a Form S-3 "shelf" registration
statement with the Securities and Exchange Commission to register
5,000,000 shares of common stock of which 4,403,500 shares were sold in
September 1997 at a price of $28.00 per share. The $116.7 million of net
proceeds to the Company from this offering after deduction of underwriting
discounts and commissions and other offering expenses were used to reduce
outstanding debt by $51.7 million. The remainder of the net proceeds have
been and will continue to be used for potential future acquisitions,
capital expenditures, and working capital. The Company's balance sheet at
December 31, 1997 reflected approximately $40.1 million in cash and cash
equivalents compared to $16.6 million at December 31, 1996. Pending
specific application, the Company has invested the unused proceeds in
short-term interest bearing securities.
At December 31, 1997, the Company had no outstanding borrowings and
approximately $2.3 million in letters of credit outstanding under its $110
million revolving credit facility. Outstanding long-term indebtedness at
December 31, 1997 consists primarily of equipment loan facilities. At
December 31, 1997, the ratio of the Company's long-term debt to total
capitalization was 1.25% compared to 4.4% at December 31, 1996. The
reduction was attributable to the use of the net proceeds from the
September 1997 follow-on public offering and net cash flow from operations
applied to further reduce outstanding indebtedness.
The Company's principal strategy for future growth is through the
acquisition of additional solid waste disposal and collection operations.
During 1997, the Company acquired 23 businesses, including four
operational landfills, which were accounted for as purchases.
Consideration for these acquisitions was $104.9 million in cash (net of
cash acquired), $6.1 million in future payments or notes payable, and
384,893 shares of Common Stock. Although there can be no assurance that
the Company will be able to successfully continue its acquisition program
at the same pace as in 1997, the Company intends to fund any such future
acquisitions through the use of cash, capital stock, assumption of
indebtedness, future royalties and/or contingent payments. The cash
required to fund any future acquisitions will likely be provided from one
or more of the following sources: existing cash balances, cash flow from
operations and/or borrowings under the Company's revolving credit
facility. Substantially all of the $110 million facility was available at
December 31, 1997. The revolving credit facility requires the Company to
maintain certain financial ratios and satisfy other requirements,
including a prohibition on the payment of cash dividends. Availability
under this facility is based on the Company's liquidity, cash flow and
leverage. Interest is payable monthly based on the agent bank's base rate
or quarterly based on a Eurodollar borrowing rate, depending upon how
advances are drawn, plus a margin. The facility matures in March 2002.
Capital expenditures for 1998 currently are expected to be
approximately $38 million compared to $26.9 million in 1997. These amounts
are primarily allocated to continued spending for landfill expansions.
The Company intends to fund future capital expenditures principally
through internally generated funds and, to a lesser extent, equipment
lease financing. In addition, the Company also anticipates that it may
require substantial additional capital expenditures to facilitate its
growth strategy of acquiring additional solid waste collection and
disposal businesses. If the Company is successful in acquiring additional
landfill disposal facilities, the Company may also be required to make
significant expenditures to bring any such newly acquired disposal
facilities into compliance with applicable regulatory requirements, obtain
permits for any such newly acquired disposal facilities or expand the
available disposal capacity at any such newly acquired disposal
facilities. The amount of these expenditures cannot be currently
determined, since they will depend on the nature and extent of any
acquired landfill disposal facilities, the condition of any facilities
acquired and the permitting status of any acquired sites. In the past,
the Company has been able to obtain other types of financing arrangements,
such as equipment lease financing, to fund its various capital
requirements. The Company believes it can readily access such additional
sources of financing as necessary to facilitate the Company's growth.
The Company also has material financial obligations relating to
closure and post-closure costs or remediation of disposal facilities it
operates or for which it is or may become responsible. While the precise
amounts of these future obligations cannot be determined, at December 31,
1997, the Company estimated the total costs (on a current dollar as
opposed to a discounted present value basis) to be approximately
$85 million for final closure of its operating facilities and post closure
monitoring costs pursuant to applicable regulations (generally for a term
of 30 to 40 years after final closure), as well as ongoing remediation.
At December 31, 1997, the Company had accrued $38.3 million for such
projected costs. The Company will provide additional accruals based on
engineering estimates of consumption of permitted landfill airspace over
the useful lives of its landfills.
Net cash provided by operations for the year ended December 31, 1997
increased to $36.2 million from $30.9 million during 1996. The increase
was primarily due to the increase in depreciation and amortization, a
noncash expense, of $7.1 million between 1996 and 1997 as well as the
$5.6 million increase in net income. These increases were offset by the
increase in accounts receivable of $9.5 million attributable to the
increased sales volume from operations acquired.
Net cash used in investing activities for the year ended December 31,
1997 increased to $131.7 million from $37.6 million for the year ended
December 31, 1996. The increase was primarily due to $106.8 million of
net cash payments for businesses acquired compared to $20.4 million in
1996. Purchases of property and equipment increased $9.4 million to
$26.9 million for 1997, primarily due to landfill expansions.
Net cash provided by financing activities in the year ended
December 31, 1997 totaled $119.1 million compared to $20.2 million in the
year ended December 31, 1996. This increase reflected the receipt of
$116.7 million in net proceeds from the follow-on offering of the
Company's stock in September 1997.
Quarterly Results
The following table presents the Company's unaudited consolidated
quarterly results and the percentages of revenues represented by the
individual line items reflected in the Company's consolidated statements
of operations for each of the four quarters in the years ended
December 31, 1997 and December 31, 1996, all restated to give retroactive
effect to the merger with R2T2 in a transaction accounted for as a pooling
of interests. This information has been presented on the same basis as
the Company's audited consolidated financial statements and, in the
Company's opinion, contains all necessary adjustments (consisting only of
normal recurring accruals) to present fairly the Company's unaudited
quarterly results when read in conjunction with the Company's audited
consolidated financial statements and notes thereto. These interim
operating results, however, are not necessarily indicative of the
Company's results for any future period.
<TABLE>
<CAPTION>
Three months ended
March 31, 1997 June 30, 1997 September 30, 1997 December 31, 1997
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $30,683 100.0% $45,291 100.0% $51,578 100.0% $50,281 100.0%
Expenses:
Cost of operations 16,533 53.9 24,697 54.5 28,761 55.8 27,196 54.1
Selling, general and
administrative
expenses 5,588 18.2 6,242 13.8 6,260 12.1 7,042 14.0
Merger costs - - 1,035 2.3 - - - -
Depreciation and
amortization 4,474 14.6 5,827 12.9 6,935 13.4 6,625 13.2
------ ------ ------ ------ ------- ------ ------- ------
Operating income 4,088 13.3 7,490 16.5 9,622 18.7 9,418 18.7
Other income:
Interest expense (193) (0.6) (366) (0.8) (471) (0.9) (247) (0.5)
Other income (expense),
net 251 0.8 (249) (0.5) 163 0.3 955 1.9
------ ------ ------ ------ ------- ------ ------- ------
Income before income taxes 4,146 13.5 6,875 15.2 9,314 18.1 10,126 20.1
Income taxes 1,710 5.6 2,977 6.6 3,842 7.5 4,177 8.3
------ ------ ------ ------ ------- ------ ------- ------
Net income $2,436 7.9% $3,898 8.6% $5,472 10.6% $5,949 11.8%
====== ====== ======= =======
Earnings per share:
Basic $0.13 $0.20 $0.27 $0.25
====== ====== ======= =======
Diluted $0.13 $0.20 $0.27 $0.25
====== ====== ======= =======
<CAPTION>
Three months ended
March 31, 1996 June 30, 1996 September 30, 1996 December 31, 1996
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $23,375 100.0% $28,710 100.0% $31,478 100.0% $33,558 100.0%
Expenses:
Cost of operations 12,764 54.6 14,582 50.8 15,617 49.6 17,630 52.5
Selling, general and
administrative
expenses 4,177 17.9 4,325 15.1 4,608 14.6 5,567 16.6
Depreciation and
amortization 3,659 15.6 4,235 14.7 4,135 13.1 4,738 14.1
------ ------- ------- ------- ------- ------- ------- ------
Operating income 2,775 11.9 5,568 19.4 7,118 22.7 5,623 16.8
Other income:
Interest expense (397) (1.7) (146) (0.5) (99) (0.3) (217) (0.6)
Other income
(expense), net 276 1.2 210 0.7 (187) (0.6) 179 0.5
------- ------- ------- ------ ------- ------- ------- -------
Income before income taxes 2,654 11.4 5,632 19.6 6,832 21.8 5,585 16.7
Income taxes 1,095 4.7 2,323 8.1 2,818 9.0 2,304 6.9
------- ------- ------- ------- ------ ------- ------- --------
Net income $1,559 6.7% $3,309 11.5% $4,014 12.8% $3,281 9.8%
====== ====== ======= =======
Earnings per share:
Basic $0.10 $0.18 $0.22 $0.18
====== ====== ======= ======
Diluted $0.10 $0.18 $0.21 $0.17
====== ====== ====== ======
</TABLE>
Seasonality
The Company's results of operations tend to vary seasonally, with the
first quarter of the year typically generating the least amount of
revenues, and with revenues higher in the second and third quarters,
followed by a decline in the fourth quarter. This seasonality reflects
the lower volume of waste, as well as decreased revenues from
project-based and other integrated waste services during the fall and
winter months, as well as the operating difficulties experienced during
the protracted periods of cold and inclement weather typically experienced
during the winter in the Upper Midwest. In 1996, revenues increased
during the fourth quarter compared to the third quarter due to the revenue
from acquisitions closed by the Company at the end of the third and the
beginning of the fourth quarters, masking somewhat the effect of
seasonality. Also, certain operating and other fixed costs remain
relatively constant throughout the calendar year, resulting in a similar
seasonality of operating income.
Year 2000 Initiative
The Company has determined that it will need to modify or replace portions
of its software so that its computer systems will function properly with
respect to dates in the year 2000 and beyond. The Company also has
initiated discussions with its significant suppliers and financial
institutions to ensure that those parties have appropriate plans to
remediate Year 2000 issues where their systems interface with the
Company's systems or otherwise impact its operations. The Company is
assessing the extent to which its operations are vulnerable should those
organization fail to properly remediate their computer systems.
The Company's comprehensive Year 2000 initiative is being managed by a
team of internal staff. The team's activities are designed to ensure that
there is no adverse effect on the Company's core business operations and
that transactions with customers, suppliers and financial institutions are
fully supported. While the Company believes its planning efforts are
adequate to address its Year 2000 concerns, there can be no guarantee that
the systems of other companies on which the Company's systems and
operations rely will be converted on a timely basis and will not have a
material effect on the Company. The cost of Year 2000 initiatives is not
expected to be material to the Company's results of operations or
financial position.
Item 8. Financial Statements and Supplementary Data.
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors
Superior Services, Inc.
We have audited the accompanying consolidated balance sheets of
Superior Services, Inc. (the Company), as of December 31, 1996 and 1997,
and the related consolidated statements of income, shareholders'
investment and cash flows for each of the three years in the period ended
December 31, 1997. Our audits also include the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
the schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
the schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of the Company at December 31, 1996 and 1997, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
Milwaukee, Wisconsin Ernst & Young LLP
February 5, 1998
<PAGE>
Superior Services, Inc.
Consolidated Balance Sheets
December 31
1996 1997
(In Thousands, Except Share
and Per Share amounts)
Assets
Current assets:
Cash and cash equivalents $16,579 $ 40,135
Trade accounts receivable 19,226 35,178
Prepaid expenses and other
current assets 2,817 4,900
--------- ----------
Total current assets 38,622 80,213
Property and equipment, net 115,691 210,969
Restricted funds held in trust 8,035 7,714
Other assets 4,044 3,603
Intangible assets, net 23,634 64,493
--------- ----------
Total assets $190,026 $366,992
========= ==========
Liabilities and shareholders' investment
Current liabilities:
Current maturities of long-term debt $2,529 $ 1,879
Trade accounts payable 6,966 10,388
Accrued payroll and related expenses 3,178 4,769
Other accrued expenses 10,124 18,676
--------- ----------
Total current liabilities 22,797 35,712
Long-term debt, net of current
maturities 4,907 3,282
Disposal site closure and long-term
care obligation 30,470 38,347
Deferred income taxes 13,679 18,067
Other liabilities 11,128 12,175
Commitments and contingencies (Note 10)
Shareholders' investment:
Common stock, $.01 par value; 100,000,000
shares authorized; 18,726,449 and
24,071,932 issued and outstanding in
1996 and 1997, respectively 187 241
Additional paid-in capital 81,754 216,309
Retained earnings 25,104 42,859
---------- ----------
Total shareholders' investment 107,045 259,409
---------- ----------
Total liabilities and shareholders'
investment $190,026 $366,992
========== ==========
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
Superior Services, Inc.
Consolidated Statements of Income
<CAPTION>
Year ended December 31
1995 1996 1997
(In Thousands, Except Share
and Per Share amounts)
<S> <C> <C> <C>
Revenues $96,175 $117,121 $177,833
Expenses:
Cost of operations 49,897 60,593 97,187
Selling, general and administrative expenses 16,561 18,677 25,132
Merger costs - - 1,035
Depreciation and amortization 13,357 16,767 23,861
--------- -------- --------
79,815 96,037 147,215
Operating income from continuing operations 16,360 21,084 30,618
Other income (expense):
Interest expense (2,853) (859) (1,277)
Other income 290 478 1,120
--------- -------- --------
Income from continuing operations before income taxes
13,797 20,703 30,461
Provision for income taxes 5,733 8,540 12,706
--------- --------- --------
Income from continuing operations 8,064 12,163 17,755
Loss on disposition of discontinued operations, net of
income tax (Note 3) (329) - -
--------- --------- ---------
Net income $7,735 $ 12,163 $ 17,755
========= ========= =========
Earnings per share:
Basic earnings per share:
Income from continuing operations $ .54 $.68 $.87
Loss from discontinued operations (.02) - -
--------- --------- ---------
Net income $ .52 $.68 $.87
========= ========= =========
Diluted earnings per share:
Income from continuing operations $ .53 $.67 $.85
Income from discontinued operations (.02) - -
--------- --------- ---------
Net income $ .51 $.67 $.85
========= ========= =========
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
Superior Services, Inc.
Consolidated Statements of Shareholders' Investment
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amounts Capital Earnings Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 11,682,720 $117 $ 26,653 $ 5,206 $ 31,976
Net income - - - 7,735 7,735
Other (90,905) (1) (913) - (914)
---------- ----- -------- -------- ---------
Balance at December 31, 1995 11,591,815 116 25,740 12,941 38,797
Net income - - - 12,163 12,163
Issuance of common stock:
Shares sold to public, net of
offering costs 3,532,500 35 37,195 - 37,230
Acquisitions 114,381 1 1,893 - 1,894
Conversion of preferred stock 3,317,890 33 14,967 - 15,000
Stock options 169,863 2 1,334 - 1,336
Tax benefit of stock options - - 625 - 625
----------- ----- -------- -------- --------
Balance at December 31, 1996 18,726,449 187 81,754 25,104 107,045
Net income - - - 17,755 17,755
Issuance of common stock:
Shares sold to public, net of
offering costs 4,403,500 44 116,684 - 116,728
Acquisitions 467,142 5 11,005 - 11,010
Payment of debt 59,114 1 1,278 - 1,279
Stock options 415,727 4 3,447 - 3,451
Tax benefit of stock options - - 2,141 - 2,141
---------- ----- --------- -------- ---------
Balance at December 31, 1997 24,071,932 $241 $216,309 $42,859 $259,409
========== ===== ========= ======== =========
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
Superior Services, Inc.
Consolidated Statements of Cash Flows
<CAPTION>
Year ended December 31
1995 1996 1997
(In Thousands)
<S> <C> <C> <C>
Operating activities
Net income $7,735 $12,163 $ 17,755
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 13,268 16,767 23,861
Deferred income taxes (695) (517) 1,112
(Gain) loss on sale of assets (204) 74 150
Other (780) 40 445
Change in operating assets and liabilities, net of effects of
acquired businesses:
Accounts receivable (266) (2,160) (11,697)
Prepaid expenses and other current assets 2,678 572 (1,757)
Accounts payable and accrued expenses 2,683 1,645 6,501
Disposal site closure and long-term care obligation 2,698 2,318 (209)
------ ------ -------
Net cash provided by operating activities 27,117 30,902 36,161
Investing activities
Acquisition of businesses and landfills under development, net of
cash acquired (1,651) (20,430) (106,847)
Purchases of property and equipment (12,124) (17,469) (26,864)
Proceeds from sale of discontinued operations 4,295 562 B
Proceeds from sale of property and equipment 1,471 661 1,164
Decrease (increase) in restricted funds held in trust (1,549) (925) 850
------- ------- --------
Net cash used in investing activities (9,558) (37,601) (131,697)
Financing activities
Net proceeds from public stock offering - 37,230 116,728
Issuance of stock under employee stock plans - 1,336 3,451
Proceeds from long-term debt 5,803 4,017 4,364
Payments of long-term debt (23,010) (22,406) (5,451)
------- ------- --------
Net cash provided by (used in) financing activities (17,207) 20,177 119,092
Net increase in cash and cash equivalents 352 13,478 23,556
Cash and cash equivalents at beginning of year 2,749 3,101 16,579
------- ------- --------
Cash and cash equivalents at end of year $3,101 $16,579 $ 40,135
======= ======= =========
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE>
Superior Services, Inc.
Notes to Consolidated Financial Statements
December 31, 1997
1. Organization and Basis of Presentation
Superior Services, Inc. ("Superior" or the "Company") is an integrated
waste management services company providing a range of collection,
transfer, transportation, disposal and recycling services to generators of
solid waste and special waste, in Alabama, Illinois, Iowa, Michigan,
Minnesota, Missouri, Ohio, Pennsylvania, West Virginia and Wisconsin.
The accompanying consolidated financial statements include the accounts of
Superior and its subsidiaries. All significant intercompany transactions
and balances have been eliminated.
2. Accounting Policies and Selected Balance Sheet Information
Revenue Recognition
The Company generates revenue principally by providing collection,
transportation, recycling and disposal services to generators of solid and
special waste. Revenues are recorded as services are provided. Certain
customers are billed in advance and, accordingly, recognition of the
related revenues is deferred until the services are provided.
The Company grants credit to the majority of its customers. Potential loss
amounts associated with the granting of credit are included in
management's estimate of the allowance for doubtful accounts, which totals
$643,000 and $1,488,000 at December 31, 1996 and 1997, respectively. It is
not the policy of the Company to require collateral from its customers in
order to obtain credit.
Property and Equipment
Property and equipment are stated at cost. Depreciation for financial
reporting purposes is provided using the straight-line method over the
estimated useful lives of the respective assets.
Landfill costs, including engineering and other professional fees, are
amortized using the units-of-production method, which is calculated using
the total units of airspace filled during the year in relation to total
estimated permitted airspace capacity. The determination of airspace usage
and remaining airspace is an essential component in the calculation of
landfill asset depletion. This determination is performed by conducting
annual topographic surveys, using aerial survey techniques, of the
Company's landfill facilities to determine remaining airspace in each
landfill. The surveys are reviewed by the Company's consulting engineers,
the Company's internal engineering staff and its accounting staff. The
reevaluation process did not significantly impact results of operations
for any year presented.
Engineering and legal fees paid to third parties incurred to obtain a
disposal facility permit are capitalized as landfill costs and amortized
over the estimated related airspace capacity. These costs are not
amortized until the permit is obtained and operations have commenced. If
the Company determines that the facility cannot be developed, these costs
are charged to expense.
Intangible Assets
Intangible assets primarily consist of goodwill and covenants not to
compete, acquired in business acquisitions. Goodwill is being amortized
over a 15 to 25 year period. Covenants not to compete are being amortized
over 3 to 10 year periods. Should events or circumstances occur subsequent
to the acquisition of a business which bring into question the realizable
value or impairment of the related intangible asset, the Company will
evaluate the remaining useful life and balance of the asset and make
appropriate adjustments.
Intangible assets consist of the following:
December 31
1996 1997
(In Thousands)
Goodwill $20,067 $62,977
Covenants not to compete 5,727 5,698
Other 3,347 4,343
-------- --------
29,141 73,018
Less accumulated amortization 5,507 8,525
-------- --------
$23,634 $64,493
======== ========
Other Accrued Expenses
Other accrued expenses consist of the following:
December 31
1996 1997
(In Thousands)
Additional acquisition consideration $2,547 $6,059
Real estate and personal property taxes 1,170 1,016
Liabilities for covenants not-to-compete 1,445 1,625
Deferred revenue 2,051 4,648
Insurance 1,229 1,923
Income taxes payable 299 -
Other 1,383 3,405
------- -------
$10,124 $18,676
======= =======
<PAGE>
Superior Services, Inc.
Notes to Consolidated Financial Statements
Disposal Site Closure and Long-Term Care
The Company has material financial obligations relating to closure and
post-closure costs (long-term care) or remediation of disposal facilities
it operates or for which it is or may become responsible. While the
precise amounts of these future obligations cannot be determined, at
December 31, 1997, the Company estimates the total costs to be
approximately $85 million for remediation, final closure of its current
operating facilities and post-closure monitoring costs pursuant to
applicable regulations (generally for a term of 30 to 40 years after final
closure). The Company's estimate of these costs is expressed in current
dollars and is not discounted to reflect anticipated timing of future
expenditures. The Company had accrued approximately $30,470,000 and
$38,347,000 for such projected costs at December 31, 1996 and 1997,
respectively. The Company will provide additional accruals based on
engineering estimates of consumption of airspace over the useful lives of
the facilities.
Restricted funds held in trust at December 31, 1996 and 1997, consist of
amounts on deposit with various regulatory bodies and an environmental
protection policy underwritten by a large insurance carrier which support
the Company's financial assurance obligations for its facilities closure
and post-closure costs.
Consolidated Statements of Cash Flows
For purposes of the consolidated statements of cash flows, all short-term
investments with maturities of three months or less are considered cash
equivalents. Supplemental disclosures of cash flow information for each of
the three years are as follows:
December 31
1995 1996 1997
(In Thousands)
Interest paid $2,964 $1,001 $ 1,276
Income taxes paid 4,680 8,996 10,506
The effects of noncash transactions related to business combinations are
disclosed in Note 4.
Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share," which replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effect of options and convertible securities.
Diluted earnings per share is very similar to previously reported fully
diluted earnings per share. All earnings per share amounts for all periods
have been restated to conform to the SFAS No. 128 requirements. The
weighted average number of shares of common stock at December 31, 1995
includes the effect of the issuance of 3,317,890 shares of common stock
upon the automatic conversion of the outstanding Series A Convertible
Preferred Stock upon closing of the public offering in March 1996. Shares
of common stock held in escrow pursuant to the indemnification agreements
discussed in Note 11 are included in the number of shares issued and
outstanding for all years presented. The weighted average number of shares
of common stock has been adjusted to reflect the one-for-two reverse stock
split, effective upon the closing of the public offering (See Note 7).
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, investments in closure trust funds, trade
payables and debt instruments. The book values of cash and cash
equivalents, trade receivables, investments in closure trust funds and
trade payables are considered to be representative of their respective
fair values. None of the Company's debt instruments that are outstanding
as of December 31, 1997, have readily ascertainable market values;
however, the carrying values are considered to approximate their
respective fair values. See Note 6 for the terms and carrying values of
the Company's various debt instruments.
New Accounting Standards
The Company is required to adopt SFAS No. 130, "Reporting Comprehensive
Income," effective January 1, 1998. Comprehensive income and its
components will be required to be presented for each year for which an
income statement is presented. The Company has not historically
encountered the type of transactions that would be accounted for as part
of comprehensive income.
The Company is required to adopt SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," effective for years beginning
after December 15, 1997. SFAS No. 131 establishes standards for the way
that public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports. Management has not completed its review of SFAS
No. 131, but does not anticipate that the adoption of this statement will
have a significant effect on the Company's reported segments.
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 amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the 1995 and 1996 amounts to
conform with the 1997 presentation.
3. Discontinued Operations
As of September 30, 1994, Superior made the determination that
substantially all of its construction and biomedical waste operations
would be sold or closed in order to focus on its solid and special waste
operations. The sale or disposition of construction operations was
completed by the end of 1995. The sale of biomedical waste operations was
completed in the first quarter of 1996.
During 1995, the equipment related to the construction operations was sold
at auction for approximately $4.3 million in cash. The estimated loss on
disposition of the discontinued operations for the year ended December 31,
1995, was $329,000, net of a tax benefit of $220,000, resulting from a
change in estimates regarding the realizable value of assets held for sale
and operating losses through the date of disposal.
4. Merger and Acquisitions
On June 27, 1997, the Company completed its merger with Resource Recovery
Transfer & Transportation, Inc. ("R2T2"), accounted for as a pooling of
interests, pursuant to which the Company issued 1,705,000 shares of common
stock to the former shareholders of R2T2 . The Company incurred
nonrecurring merger costs of $1,035,000 during 1997 as a result of the
merger. The merger costs include severance and bonuses, professional fees
and other merger related costs, substantially all of which were paid prior
to December 31, 1997. A reconciliation of consolidated total revenues,
income before income taxes and net income to the separated pooled
companies' prior to the dates of combination is as follows:
Superior R2T2 Combined
Year ended December 31, 1995:
Revenue $ 92,592 $3,583 $ 96,175
Income from continuing
operations before income
taxes 13,523 274 13,797
Income from continuing
operations 7,914 150 8,064
Net income 7,585 150 7,735
Year ended December 31, 1996:
Revenue $109,659 $7,462 $117,121
Income from continuing
operations before income
taxes 20,052 651 20,703
Income from continuing
operations 11,781 382 12,163
Net income 11,781 382 12,163
During 1997, the Company acquired 23 businesses, including 4 operational
landfills, which were accounted for as purchases. Aggregate consideration
for these acquisitions consisted of $104,914,000 in cash (net of cash
acquired), $6,059,000 in notes payable and 384,893 shares of common stock.
The results of operations of the acquired businesses have been included in
the Company's consolidated financial statements from their respective
acquisition dates.
During 1997, as the result of final valuations pertaining to previous
acquisitions, $1,934,000 in cash and 82,249 shares of common stock were
issued. In addition, 59,114 shares were issued in payment of debt of
entities acquired in 1997.
During 1996, the Company acquired thirteen businesses, including two
operational landfills, all of which were accounted for as purchases.
Aggregate consideration for these acquisitions consisted of $15,273,000 in
cash (net of cash acquired), $8,280,000 in notes payable and 114,381
shares of common stock. The results of operations of the acquired
businesses have been included in the Company's consolidated financial
statements from their respective acquisition dates. Resource Recovery
Transfer & Transporation, Inc. (merged with in June 1997 and accounted for as
a pooling of interests) paid additional consideration for acquisitions in
1996 which consisted of $5,157,000 in cash and $777,000 in notes payable.
The unaudited pro forma results of operations below assume that the
acquisitions had occurred at the beginning of each period presented.
Year ended December 31
1996 1997
(Unaudited)
Total net revenue $193,813 $205,964
Net income 14,198 18,759
Basic earnings per share 0.79 0.91
Diluted earnings per share 0.77 0.89
The pro forma results do not purport to be indicative of the results of
operations which actually would have resulted had the acquisitions
occurred on January 1, 1996, nor are they necessarily indicative of future
operating results.
During 1995, the Company acquired four businesses which were accounted for
as purchases. Aggregate consideration for these acquisitions consisted of
$1,651,000 in cash and $1,609,000 in notes payable. During 1995, as the
result of final valuations pertaining to previous acquisitions, 90,905
shares of common stock were returned to the Company. The Company retired
these shares.
As an integral part of certain acquisitions, the former shareholders
signed noncompetition agreements and, in certain situations, key
management members entered into employment agreements to continue in the
management of these businesses. Costs associated with these agreements are
charged to operations over their respective lives.
5. Property and Equipment
Property and equipment consists of the following:
December 31
1996 1997
(In Thousands)
Land and land improvements $ 81,939 $165,662
Vehicles and equipment 74,389 103,760
Buildings and leasehold improvements 12,714 14,945
--------- ---------
169,042 284,367
Less accumulated depreciation and
amortization 53,351 73,398
--------- ---------
$115,691 $210,969
========= =========
Landfill costs of approximately $78,553,000 and $160,367,000 are included
in land and land improvements at December 31, 1996 and 1997, respectively.
Landfill costs include land held for development, representing various
landfill properties with an aggregate cost of approximately $30,696,000
and $59,429,000 at December 31, 1996 and 1997, respectively, which is not
being amortized. During 1997, interest of approximately $950,000 was
capitalized related to land being actively developed.
6. Long-Term Debt
Long-term debt consists of the following:
December 31
1996 1997
(In Thousands)
Revolving credit facility $ 490 $ -
Equipment loan facilities at variable
interest rates (weighted-average interest
rate of 7.93% and 7.66% at December 31,
1996 and 1997, respectively) 5,053 4,737
Industrial revenue bonds at fixed interest
rates of 9.16% to 9.36% 438 290
Equipment loans payable - paid in 1997 591 -
Subordinated notes payable - paid in 1997 859 -
Other 5 134
-------- ---------
Total long-term debt 7,436 5,161
Less current maturities 2,529 1,879
-------- ---------
$4,907 $3,282
======== =========
The Company's primary revolving credit facility provides for a borrowing
capacity up to a maximum of $110,000,000, including letters of credit.
Availability under this facility is based on the Company's liquidity, cash
flow and leverage. Interest is payable monthly based on the agent bank's
base rate, or quarterly based on a Eurodollar borrowing rate plus a
margin, depending upon how advances are drawn. The facility matures in
March 2002. In addition to the outstanding borrowings, the Company had
approximately $2,280,000 and $2,284,000 in letters of credit issued under
the facility at December 31, 1996 and 1997, respectively. This facility is
collateralized by the stock of the Company's subsidiaries. The facility
has provisions for the maintenance of certain financial ratios and other
requirements, including a prohibition on the payment of cash dividends.
Maturities of long-term debt, excluding amounts under the revolving credit
facility, for each of the years succeeding December 31, 1997, are as
follows (in thousands):
Year ending December 31:
1998 $1,879
1999 1,035
2000 880
2001 948
2002 419
7. Preferred Stock and Shareholders' Investment
Preferred Stock
Superior is authorized to issue up to 500,000 shares of preferred stock in
one or more undesignated series. In February 1993, the Company issued
331,789 shares of Series A Preferred Stock for $15,000,000 to an investor
group pursuant to a Series A Convertible Preferred Stock Purchase
Agreement (the "Agreement").
Pursuant to the Agreement, the Series A Preferred Stock holders exercised
their rights to convert their preferred stock into 3,317,890 shares of
common stock at the time of the public offering. Upon the conversion, all
cumulative dividends in connection with the Preferred Stock were defeased.
Common Stock
In September 1997, the Company completed a follow-on public stock offering
in which it issued 4,403,500 shares of common stock at a price of $28.00
per share, resulting in net proceeds after deduction of underwriting
discounts and commissions and other offering expenses to the Company of
approximately $116,728,000.
In March 1996, the Company completed an initial public offering in which
it issued 3,532,500 shares of common stock at a price of $11.50 per share
resulting in net proceeds after deduction of underwriting discounts and
commissions and other offering expenses to the Company of approximately
$37,230,000.
A one-for-two reverse stock split declared by the Company's Board of
Directors became effective on March 8, 1996, the effective date of the
initial public offering of the Company's common stock. All common shares,
per share, weighted average shares outstanding and stock option data have
been adjusted to reflect this reverse stock split.
Common Stock Purchase Rights
On February 21, 1997, the Board of Directors of the Company declared a
dividend of one common share purchase right (a "Right") for each
outstanding share of common stock. The dividend was paid on March 24,
1997, to the shareholders of record on March 10, 1997.
The Rights are attached to and traded with the shares of common stock and
are not exercisable until certain conditions occur. Generally, a
distribution date will occur when 15% or more of the common stock is
acquired by a third party or 10 business days following the commencement
of, or an announcement of an intention to make, a tender or exchange offer
for at least 15% of the common stock. Upon a distribution date, the Rights
will become exercisable and will allow the holders of Rights (other than
the person or entity which caused the distribution date, whose Rights
shall become void) to purchase at a price per share equal to one-half of
the market price on the distribution date, shares of the Company's common
stock or the stock of the acquirer.
Stock Options
The Company has two incentive stock option plans (the "ISO Plans") under
which options for the purchase of up to 1,535,000 shares may be granted at
exercise prices no less than the estimated fair market value of the common
stock on the date of grant. The options generally become exercisable 25%
after one year and an additional 6.25% for each quarter thereafter. After
four years, all options are exercisable. At December 31, 1997, there were
397,657 shares available for grants under the ISO Plans. The Company has
also issued options under a nonqualified stock option plan to certain of
its executives. These options have various vesting schedules.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25"), and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price
of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is
recognized.
In determining the effect of FASB Statement No. 123, the Black-Scholes
option pricing model was used with the following weighted-average
assumptions for 1997: risk-free interest rates of 5%, dividend yields of
0%, volatility factors of the expected market price of the Company's
common stock of .39, and a weighted-average expected life of the options
of five years. The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands except for earnings
per share information):
1997 1996 1997
Pro forma net income $5,912 $11,941 $16,551
Pro forma earnings per share:
Basic 0.40 0.67 0.81
Diluted 0.40 0.67 0.80
<TABLE>
The following table summarizes the transactions of the Company's Stock
Option Plans for the three-year period ended December 31, 1997:
<CAPTION>
1995 1996 1997
Weighted- Weighted
Average Average
Exercise Exercise
Options Options Price Options Price
<S> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 920,973 1,227,748 $ 8.68 1,307,531 $ 9.96
Options granted 577,466 319,745 14.13 810,435 23.80
Options exercised - (169,863) 7.86 (415,726) 8.30
Options canceled (270,691) (70,099) 11.14 (32,938) 15.60
--------- --------- ---------
Options outstanding at end
of year 1,227,748 1,307,531 $ 9.96 1,669,302 $16.98
========= ========= =========
Weighted-average fair
value of options granted
during the year $14.13 $23.80
====== ======
Number of options
exercisable at end of year 964,972 $ 8.55 677,984 $ 9.65
======= =======
Options outstanding:
Price range $7.70 to
$11.50; weighted-average
contractual life of 3.3
years 1,146,231 $ 8.98 711,201 $ 9.30
Price range $11.51 to
$26.06; weighted-average
contractual life of 9.1
years 161,300 $16.93 958,101 $22.67
--------- -------
1,307,531 1,669,302
========= =========
</TABLE>
8. Earnings Per Share
<TABLE>
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per
share amounts).
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Numerator
Income from continuing operations used in computing
basic and diluted earnings per share $ 8,064 $ 12,163 $ 17,755
======== ======== ========
Denominator
Denominator for basic earnings per share-weighted
average common shares 14,955,409 17,781,694 20,513,069
Effect of dilutive securities-employee stock options 223,625 367,563 380,674
---------- ---------- ----------
Denominator for diluted earnings per share-adjusted
weighted average common shares 15,179,034 18,149,257 20,893,743
========== ========== ==========
9. Employee Benefit Plans
Prior to April 1, 1994, the Company had certain defined contribution plans
resulting from the merger of the Predecessor Companies which covered
substantially all of their employees and provided for discretionary
contributions. Effective April 1, 1995, the Company adopted a contributory
401(k) plan that covers substantially all of its employees. Contributions
made by the Company under the various plans were $205,000, $254,000 and
$339,000, for the years ending December 31, 1995, 1996 and 1997,
respectively.
10. Income Taxes
The provisions for income taxes attributable to continuing operations for
the years ended December 31, consist of the following:
1995 1996 1997
(In Thousands)
Current:
Federal $5,131 $ 8,060 $ 9,275
State 1,297 1,992 2,319
------ ------- -------
6,428 10,052 11,594
Deferred:
Federal (565) (1,224) 901
State (130) (288) 211
------ ------- ------
(695) (1,512) 1,112
------ ------- ------
Total $5,733 $ 8,540 $12,706
====== ======= ======
The difference in the provisions for income taxes attributable to
continuing operations and the amounts determined by applying the federal
statutory rate of 34% for 1995 and 35% for 1996 and 1997, to income from
continuing operations before income taxes for the years ended December 31
are as follows:
1995 1996 1997
(In Thousands)
Tax at statutory rate $4,829 $7,246 $10,661
State income taxes 726 1,075 1,584
Other 178 219 461
------ ------ -------
$5,733 $8,540 $12,706
====== ====== =======
Deferred income taxes reflect the impact of temporary differences between
the amounts of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for income tax purposes.
The deferred income tax balances consist of the following:
December 31
1996 1997
(In Thousands)
Deferred tax liabilities:
Property and equipment basis differences $15,663 $24,392
Other 1,230 1,211
------- -------
Total deferred tax liabilities 16,893 25,603
Deferred tax assets:
Closure and long-term care obligations 2,216 5,705
Other expenses not currently deductible 901 1,050
State and federal net operating loss
carryforwards 485 644
Other 206 246
------- ------
Total deferred tax assets 3,808 7,645
Valuation allowance for deferred tax
assets (235) (235)
------- ------
Net deferred tax assets 3,573 7,410
------- -------
Net deferred tax liabilities $13,320 $18,193
======= =======
Included in prepaid expenses and other current assets are current deferred
tax assets of $359,000 and $126,000 at December 31, 1996 and 1997,
respectively.
At December 31, 1997, the Company has net operating loss carryforwards of
approximately $12.9 million for state income tax purposes which begin to
expire in 2008 and 2009.
11. Commitments and Contingencies
Certain shareholders are entitled to receive additional consideration from
the Company in the event of future permitted landfill expansion at two
sites. For permitted horizontal expansion at both landfills, the
additional consideration is $.40 per cubic yard, less associated
permitting costs, not to exceed $2,000,000 per site.
In connection with certain landfill acquisitions, the sellers are entitled
to receive additional consideration from the Company, if regulatory
approval, as defined, is obtained for expansions of permitted air space.
For permitted vertical and horizontal expansion above certain defined
minimums, the additional consideration varies between approximately $.11
and $1.25 per cubic yard, less associated costs. These amounts, if any,
will be capitalized when paid or payable as additional purchase price. The
Company is also obligated to make royalty payments of $1.50 per ton of
tonnage received at a particular landfill to a landfill's former owners.
The royalty applies to tons received in excess of 400,000 annually, for
each of the first five years. For each year thereafter, the $1.50 per ton
royalty applies to all tonnage received and is guaranteed to be at least
$600,000 annually for the life of the landfill, including any permitted
expansions.
The Company is obligated to make royalty payments to a landfill's former
owners of 5% of the gross revenues generated from the expanded capacity.
Approximately 125 acres occupied in connection with the landfill
activities is leased from a third party. Under the terms of the lease, the
Company pays the property owner monthly rental equal to the greater of 3%
of the landfill's gross operating receipts or $3,650.
In connection with an acquisition in March 1993, the Company was required
to accept the transfer of an adjacent closed landfill that is listed on
the National Priorities List (NPL). A remedial investigation performed by
the PRPs (including the Company) has determined the scope and nature of
the contamination at the site and the PRPs have submitted a feasibility
study to the EPA and WDNR which describes the alternatives for remediating
the associated groundwater contamination. The WDNR has formally approved
the remedial alternative recommended by the PRPs which calls for the
installation of two to four additional gas extraction wells (which would
be connected to the existing gas extraction system at the site) and
continued groundwater monitoring. As of December 31, 1997, the estimated
one-time capital cost for the additional extraction wells was $107,000.
Annual operating, maintenance and monitoring costs for the new extraction
wells, the landfill cap, the existing gas extraction system and
groundwater monitoring system are estimated as $90,000. The operating
duration of the proposed remediation is uncertain, but could be 30 years
or longer. As the duration is uncertain, the accrual was not measured on a
discounted basis. The Company has entered into a settlement agreement with
certain generator PRPs which allocates the costs of the remediation. Under
the settlement agreement, certain of the generator PRPs agreed to
contribute a total of approximately 42% of future costs for remedial
action and the annual operating, maintenance, and monitoring costs related
to the site. The seller and former owner of the closed landfill agreed to
indemnify the Company up to $2.8 million for any site liabilities,
including the annual costs of operating, maintaining and monitoring the
closed landfill and any costs the Company may incur as a PRP. The Company
has been paid $482,755 by the seller. The seller's remaining potential
indemnification obligation was collateralized as of December 31, 1997, by
$2,317,245 in cash held in escrow. The $2,317,245 recoverable from the
seller is included on the Company's balance sheet as part of "other
assets." On August 15, 1997, an engineer selected by the seller determined
that the reasonable present value of the cost of a likely remediation plan
for the closed landfill approximates $688,000.
The Company and seller are in dispute regarding the cost of a likely
remedial action plan. The seller has demanded arbitration and has filed a
declaratory judgment action in state court. If the seller's position is
accepted or upheld in the pending proceedings, the Company may be required
to return to the seller substantially all or a substantial portion of the
current amount held in escrow. This would result in a reduction of its
"other asset" and the related liability account on its balance sheet.
Although the engineer's estimate of such potential costs was substantially
less than the Company's current estimate, the Company believes its
existing financial reserves, together with the amounts paid and remaining
payable by the seller and the contribution obligations of the generator
PRPs, are adequate to cover the currently anticipated remediation costs of
such landfill. As is the case with all sites on the NPL, the performance
of the selected remedy at the closed landfill will be subject to periodic
review by the WDNR and the EPA. In the event the selected remedy does not
perform adequately to meet applicable state and federal standards,
additional remedial measures beyond those currently anticipated could be
required by the WDNR or EPA. Implementation of any such additional
remedial measures may involve substantial additional costs beyond those
currently anticipated.
In connection with the formation of the Company in 1993 through the
consolidation of three groups of independent waste services companies,
certain potential environmental liabilities associated with the previously
filled portion of the Superior Valley Meadows landfill were identified. At
the time of the consolidation of these companies into the Company, a
contingent liability escrow was established to cover the then estimated
costs of redemption and monitoring with respect to the contingent
liabilities. To indemnify the Company against up to $1,308,000 of these
contingent liabilities, 130,800 shares of the Company's common stock
otherwise issuable as part of the consolidation to the individual who was
the principal shareholder of the prior owner of the site and who is now a
director, executive officer and significant shareholder of the Company,
were withheld from issuance. In order to preserve the Company's rights
under this indemnification arrangement prior to the February 24, 1997
expiration date for advancing such types of indemnification claims, the
Company formally notified the individual of the Company's claim against
the withheld shares for the entire amount of the originally established
liability escrow. The Company believes that the entire amount of such
environmental liabilities will either be covered by the foregoing
indemnification arrangement or otherwise is not expected to have a
material adverse effect on the Company's results of operations or
financial condition.
A group of local citizens challenged the feasibility of one of the
Company's Wisconsin landfills in an administrative contested case hearing.
The WDNR ruled in favor of the Company. The group of local citizens has
now filed a civil action seeking review of the WDNR decision. That action
is pending.
The Company is also a party to various legal proceedings arising in the
ordinary course of its businesses. The Company believes that the ultimate
resolution of these other matters will not have a material adverse effect
on the Company's financial condition or results of operations. In the
normal course of its businesses, and as a result of the extensive
government regulation of the solid waste services industry, the Company
may periodically become subject to various judicial and administrative
proceedings involving federal, state or local governmental agencies. From
time to time, the Company may also be subjected to actions brought by
citizens groups in connection with the permitting of landfills or transfer
stations, or alleging violations of the permits pursuant to which the
Company operates. The Company also may be subject to claims for personal
injury or property damage arising out of accidents involving its vehicles
or at its facilities.
The Company carries a range of insurance, including a commercial general
liability policy and a property damage policy. The Company maintains a
limited environmental impairment liability policy on its landfills and
transfer stations that provides coverage, on a "claims made" basis,
against certain third party off-site environmental damage. There can be no
assurance that the limited environmental impairment policy will remain in
place or provide sufficient coverage for existing, but not yet known,
third party, off-site environmental liabilities.
PART III
Item 9. Changes in and Disagreements with Accountants and Financial
Disclosure.
None.
Item 10. Directors and Executive Officers of the Company.
The information required by this item is incorporated herein by
reference to the information pertaining thereto set forth in the
definitive Proxy Statement for the Company's 1998 Annual Meeting of the
Shareholders scheduled to be held May 12, 1998 ("Proxy Statement"). To
the knowledge of the Company, no director, executive officer or
significant shareholder violated the filing requirements of Section 16(a)
under the Securities and Exchange Act of 1934 during the year ended
December 31, 1997.
Item 11. Executive Compensation.
The information required by this item is incorporated herein by
reference to the information pertaining thereto set forth under the
caption entitled "Executive Compensation" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated herein by
reference to the information pertaining thereto set forth under the
caption entitled "Stock Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required by this item, to the extent applicable, is
incorporated herein by reference to the information pertaining thereto set
forth under the caption entitled "Certain Transactions" in the Proxy
Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this Form 10-K:
1. Financial Statements Form 10-K Page No.
Report of Ernst & Young LLP,
Independent Auditors . . . . . . . . . . . . . 25
Consolidated Balance Sheets as of
December 31, 1996 and 1997 . . . . . . . . . . 26
Consolidated Statements of Income
for the years ended
December 31, 1995, 1996, and 1997 . . . . . . . 27
Consolidated Statements of Shareholders'
Investment for the years ended
December 31, 1995, 1996, and 1997 . . . . . . . 28
Consolidated Statements of Cash Flows
for the years ended
December 31, 1995, 1996, and 1997 . . . . . . . 29
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . 30
2. Financial Statement Schedules.
Schedule II - Valuation and Qualifying
Accounts . . . . . . . . . . . . . . . . . . . 45
Schedules other than those listed above
are omitted because they are not
applicable or not required or because
the required information is included in
the consolidated financial statements
or notes thereto.
3. Exhibits. The Exhibits filed with this Form 10-K or incorporated
by reference in this Form 10-K are listed on the attached Exhibit
Index.*
(b) The Company did not file a Form 8-K with the Securities and
Exchange Commission during the fourth quarter of fiscal 1997.
____________________
* Exhibits to this Form 10-K will be furnished to shareholders upon
advance payment of a fee of $0.20 per page, plus mailing expenses.
Requests for copies should be addressed to Scott S. Cramer, Vice
President, General Counsel, Superior Services, Inc., 10150 West
National Avenue, Suite 350, West Allis, Wisconsin 53227.
<PAGE>
</TABLE>
<TABLE>
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
SUPERIOR SERVICES, INC.
(In Thousands)
<CAPTION>
COL. A COL. B COL. C ADDITIONS COL. D COL. E
DESCRIPTION Balance at Charged to costs (1) Charged to Deductions Balance at
beginning of and expenses other accounts (Additions) end of
period period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful accounts $643 $689 --- ($156)(2) $1,488
Closure and long-term care
obligation 30,470 3,001 7,698 2,822 38,347
---------- ------- ------- -------- --------
$31,113 $3,690 $7,698 $2,666 $39,835
========== ======= ======= ======== ========
Year ended Decmber 31, 1996
Allowance for doubtful accounts $676 $1,029 --- $1,062(2) $643
Closure and long-term care
obligation 22,442 3,025 5,618 615 30,470
--------- ------- ------- -------- --------
$23,118 $4,054 $5,618 $1,677 $31,113
========= ======= ======= ======== ========
Year ended Decmber 31, 1995
Allowance for doubtful accounts $553 $718 ($20) $575(2) $676
Closure and long-term care
obligation 17,451 2,770 2,379 158 22,442
--------- ------- ------- ------- -------
$18,004 $3,488 $2,359 $733 $23,118
========= ======= ======= ======= =======
_______________
(1) Doubtful accounts written off (recovered)
(2) Assumed in acquisitions
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, as of
February 25, 1998.
SUPERIOR SERVICES, INC.
By:/s/ G. William Dietrich
G. William Dietrich, President
and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Company and in the capacities indicated as of February 25, 1998.
By: /s/ Joseph P. Tate By:/s/ G. William Dietrich By: /s/ George K. Farr
Joseph P. Tate G. William Dietrich George K. Farr
Chairman of the Board President, Chief Executive Chief Financial
and Director Officer and Director Officer (Principal
(Principal Executive Financial &
Officer) Accounting Officer)
By: /s/ Gary G. Edler By:/s/ Walter G. Winding By/s/ Francis J. Podvin
Gary G. Edler Walter G. Winding Francis J. Podvin
Vice President and Director Director
Director
By: /s/Warner C. Frazier By: /s/ Donald Taylor
Warner C. Frazier Donald Taylor
Director Director
<PAGE>
SUPERIOR SERVICES, INC.
EXHIBIT INDEX
TO FORM 10-K FOR YEAR ENDED DECEMBER 31, 1997
Exhibit Exhibit Description
No.
3.0 Restated Articles of Incorporation. [Incorporated by
reference to Exhibit 3.0 filed with the Company's Form S-1
Registration Statement No. 333-240, dated January 9, 1996, as
amended.]
3.1 Restated By-Laws. [Incorporated by reference to Exhibit 3.1
filed with the Company's Form S-1 Registration Statement
No. 333-240, dated January 9, 1996, as amended.]
4.1* Amended and Restated Revolving Credit Agreement, dated as of
March 26, 1997, between the Company and its subsidiaries and
The First National Bank of Boston, LaSalle National Bank and
Bank One, Wisconsin and Bank of America Illinois.
[Incorporated by reference to Exhibit 4.5 filed with the
Company's Form 10-Q for the period ended March 31, 1997,
dated January 9, 1996, as amended.]
4.2* First Amendment to the Revolving Credit Agreement, dated as
of April 21, 1997, between the Company Amended and Restated,
and The First National Bank of Boston, LaSalle National Bank
and Bank One and its subsidiaries.
4.3* Second Amendment to the Amended and Restated Revolving Credit
Agreement, dated as of May 30, 1997, between the Company and
The First National Bank of Boston, LaSalle National Bank and
Bank One Wisconsin.
4.4 Rights Agreement dated February 21, 1997, between the Company
and LaSalle National Bank, Chicago, Illinois. [Incorporated
by reference to Exhibit 4.1 to the Company's Current Report
on Form 8-K, dated February 28, 1997.]
10.0** Stock Option Agreement, dated as of February 25, 1993, and as
amended on May 5, 1995 and August 15, 1995, and November 29,
1995, between George K. Farr and the Company. [Incorporated
by reference to Exhibit 10.1 filed with the Company's Form
S-1 Registration Statement No. 333-240, dated January 9,
1996, as amended.]
10.1** Stock Option Agreement, dated as of February 14, 1995, and as
amended on May 16, 1995, August 15, 1995 and November 29,
1995, between G. William Dietrich and the Company.
[Incorporated by reference to Exhibit 10.2 filed with the
Company's Form S-1 Registration Statement No. 333-240, dated
January 9, 1996, as amended.]
10.2** Amendment to Restated Option Agreement dated November 26,
1996 between G. William Dietrich and the Company. [Incorporated
by reference to Exhibit 10.2 to the Company's Form 10-K Annual
Report for the year ended December 31, 1996].
10.3** Employment Agreement, dated as of September 1, 1993 and as
amended August 15, 1995, between Peter J. Ruud and the
Company. [Incorporated by reference to Exhibit 10.3 filed
with the Company's Form S-1 Registration Statement
No. 333-240, dated January 9, 1996, as amended.]
10.4** Noncompetition Agreement, dated February 14, 1995, between
G. William Dietrich and the Company. [Incorporated by
reference to Exhibit 10.4 filed with the Company's Form S-1
Registration Statement No. 333-240, dated January 9, 1996, as
amended.]
10.5** Key Executive Employment and Severance Agreement, dated
August 15, 1995, between G. William Dietrich and the Company.
[Incorporated by reference to Exhibit 10.5 filed with the
Company's Form S-1 Registration Statement No. 333-240, dated
January 9, 1996, as amended.]
10.6** Key Executive Employment and Severance Agreement, dated
August 15, 1995, between George K. Farr and the Company.
[Incorporated by reference to Exhibit 10.6 filed with the
Company's Form S-1 Registration Statement No. 333-240, dated
January 9, 1996, as amended.]
10.7** Key Executive Employment and Severance Agreement, dated
August 15, 1995, between Peter J. Ruud and the Company.
[Incorporated by reference to Exhibit 10.7 filed with the
Company's Form S-1 Registration Statement No. 333-240, dated
January 9, 1996, as amended.]
10.8** 1993 Incentive Stock Option Plan. [Incorporated by reference
to Exhibit 10.8 filed with the Company's Form S-1
Registration Statement No. 333-240, dated January 9, 1996, as
amended.]
10.9** Form of Stock Option Agreement under 1993 Stock Option Plan.
[Incorporated by reference to Exhibit 10.9 filed with the
Company's Form S-1 Registration Statement No. 333-240, dated
January 9, 1996, as amended.]
10.10** 1996 Equity Incentive Plan. [Incorporated by reference to
Exhibit 10.10 filed with the Company's Form S-1 Registration
Statement No. 333-240, dated January 9, 1996, as amended.]
10.11** Form of Non-Employee Director Non-Qualified Stock Option
Agreement under 1996 Equity Incentive Plan. [Incorporated by
reference to Exhibit 10.11 filed with the Company's Form S-1
Registration Statement No. 333-240, dated January 9, 1996, as
amended.]
10.12** Form of Key Employee Non-Qualified Stock Option Agreement
under 1996 Equity Incentive Plan. [Incorporated by reference
to Exhibit 10.12 filed with the Company's Form S-1
Registration Statement No. 333-240, dated January 9, 1996, as
amended.]
10.13** Form of Key Employee Incentive Stock Option Agreement under
1996 Equity Incentive Plan. [Incorporated by reference to
Exhibit 10.13 filed with the Company's Form S-1 Registration
Statement No. 333-240, dated January 9, 1996, as amended.]
10.14** Employment Agreement between the Company and Scott S. Cramer
dated as of July 1, 1997.
10.15** Employment Agreement between the Company and Gary Blacktopp
dated as of January 1, 1997, and amended as of August 26,
1997.
10.16**
Form of Amendment of Key Executive Employment and Severance
Agreements entered into by each of G. William Dietrich,
George K. Farr, and Peter J. Ruud.
21 List of subsidiaries as of December 31, 1997.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
99 Proxy Statement to the Company's 1998 Annual Shareholders
meeting scheduled to be held May 13, 1998. [To be filed with
the Commission prior to 120 days after December 31, 1997, and
incorporated by reference herein to the extent indicated in
Part III to this Form 10-K.]
____________________
* The exhibits, schedules and ancillary documents to the listed
agreement are not being filed herewith because the Company believes
that the information contained in such exhibits, schedules and
ancillary documents should not be considered material to an
investment decision in the Company. The listed agreement includes a
list briefly identifying the contents of all omitted exhibits,
schedules and ancillary documents. The Company agrees to furnish
supplementally to the Commission (but not to file) a copy of any such
exhibit, schedule or ancillary document upon request.
** This exhibit is a management contract or compensatory plan or
arrangement required to be filed as an exhibit to the Form 10-K
pursuant to Item 14 of Form 10-K.
FIRST AMENDMENT TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
AND
FIRST AMENDMENT TO
AMENDED AND RESTATED STOCK PLEDGE AGREEMENT
This FIRST AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT
AGREEMENT AND FIRST AMENDMENT TO AMENDED AND RESTATED STOCK PLEDGE
AGREEMENT (this "First Amendment") is made and entered into as of
April 21, 1997, by and among (a) SUPERIOR SERVICES, INC., a Wisconsin
corporation (the "Parent"), the subsidiaries of the Parent identified on
Schedule 1 to the Credit Agreement defined below (the "Subsidiaries" and
collectively with the Parent, the "Borrowers"), (b) THE FIRST NATIONAL
BANK OF BOSTON ("FNBB"), a national banking association having its
principal place of business at 100 Federal Street, Boston, Massachusetts
02110, LASALLE NATIONAL BANK, a national banking association having its
principal place of business at 135 South LaSalle Street, Chicago, Illinois
60603, BANK ONE, WISCONSIN, a Wisconsin banking association having its
principal place of business at 111 East Wisconsin Avenue, Milwaukee,
Wisconsin 53201, BANK OF AMERICA ILLINOIS, an Illinois banking association
having its principal place of business at 231 South LaSalle Street,
Chicago, Illinois 60697, and the other lending institutions which become
parties to the Credit Agreement (collectively, the "Banks"), and (c) THE
FIRST NATIONAL BANK OF BOSTON, as agent for the Banks (the "Agent").
WHEREAS, the Borrowers, the Banks and the Agent are parties to an
Amended and Restated Revolving Credit Agreement dated as of March 26, 1997
(as amended and in effect from time to time, the "Credit Agreement"),
pursuant to which the Banks have extended credit to the Borrowers on the
terms set forth therein;
WHEREAS, the Borrowers have informed the Banks that the Parent and
certain Subsidiaries are acquiring certain businesses as follows:
(a) Superior Waste Services of Pennsylvania, Inc., a Pennsylvania
corporation and a Subsidiary of the Parent ("Superior of Pennsylvania"),
is acquiring substantially all of the assets of the business referred to
as the Dubois District #703 (the "Dubois Asset Purchase") and the Parent
is acquiring all of the capital stock of Homestand Land Corp., a
Pennsylvania corporation (the "Homestand Stock Purchase") for an aggregate
purchase price of approximately $27,800,000;
(b) Superior of Ohio, Inc., an Ohio corporation and a Subsidiary of
the Parent ("Superior of Ohio"), is acquiring substantially all of the
assets of the business referred to as the Columbus District #867 for a
total purchase price of approximately $11,000,000 (the "Columbus Asset
Purchase");
(c) (i) Superior of Wisconsin, Inc., a Wisconsin corporation and a
Subsidiary of the Parent ("Superior of Wisconsin"), is acquiring
substantially all of the assets of the business referred to as the Green
Bay District #814 (the "Green Bay Asset Purchase") and substantially all
of the assets of M&N Recycling, Inc., a Wisconsin corporation (the "M&N
Asset Purchase" and collectively with the Dubois Asset Purchase, the
Columbus Asset Purchase, and the Green Bay Asset Purchase, the "Asset
Purchases"), and (ii) the Parent is acquiring all of the capital stock of
M&N Disposal, Inc., a Wisconsin corporation (the "M&N Stock Purchase," and
collectively with the Homestand Stock Purchase, the "Stock Purchases"),
for an aggregate purchase price of approximately $18,500,000;
WHEREAS, the Asset Purchases and the Stock Purchases (the
"Acquisitions") are to be consummated substantially in accordance with the
terms set forth in the Purchase and Sale Agreement dated as of April 11,
1997 among Browning-Ferris Industries, Inc., a Delaware corporation
("BFI"), Browning-Ferris Industries of Wisconsin, Inc., a Wisconsin
corporation and a wholly-owned subsidiary of BFI, M&N Recycling, Inc., a
Wisconsin corporation and a wholly-owned subsidiary of BFI, BFI Waste
Systems of Ohio, Inc., a Delaware corporation and a wholly-owned
subsidiary of BFI, Browning-Ferris Industries of Pennsylvania, Inc., a
Delaware corporation and a wholly-owned subsidiary of BFI, the Parent,
Superior of Wisconsin, Superior of Ohio, and Superior of Pennsylvania (the
"Purchase Agreement");
WHEREAS, the Borrowers have requested that the Banks consent to the
Acquisitions, and the Banks are willing to consent to the Acquisitions on
the terms set forth herein;
WHEREAS, the Banks, the Agent, and the Borrowers have further agreed
to amend the Credit Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Definitions. Capitalized terms used herein without definition
shall have the meanings assigned to such terms in the Credit Agreement.
2. Amendment to Schedule 1 of the Credit Agreement. Schedule 1 to
the Credit Agreement is hereby amended to add Homestand Land Corp., a
Pennsylvania corporation ("Homestand") and M&N Disposal, Inc., a Wisconsin
corporation ("M&N," and together with Homestand, the "New Borrowers") each
as a Subsidiary of the Parent and as a Borrower. An amended and restated
Schedule 1 is attached hereto. The Borrowers represent and warrant that,
except as set forth therein, the entities listed on Schedule 1 are all of
the Subsidiaries of the Parent, each of which is a Borrower.
3. Amendment to Stock Pledge Agreement. The Parent hereby pledges
100% of the stock of each of the New Borrowers to the Agent for the
benefit of the Banks, and the New Borrowers hereby agree to be bound by
the provisions of Section 4.1, 6, and 7 of the Stock Pledge Agreement. An
amended and restated Annex A to the Stock Pledge Agreement is attached
hereto.
4. Consent to Acquisitions. Each of the Banks hereby consents to
the Acquisitions, provided that the total aggregate purchase price paid by
the Borrowers in connection therewith shall not exceed $57,300,000 plus
(a) liabilities assumed as set forth in Article 2.1 of the Purchase
Agreement, plus (b) deferred payments of approximately $2,000,000 as set
forth in Article 3.3 of the Purchase Agreement, plus or minus, as
applicable, (c) adjustments to the purchase price as set forth in
Articles 3.4 and 3.6 of the Purchase Agreement.
5. Ratification, etc. The Credit Agreement, the other Loan
Documents and all documents, instruments and agreements related thereto
are hereby ratified and confirmed in all respects and shall continue in
full force and effect. This First Amendment and the Credit Agreement
shall hereafter be read and construed together as a single document, and
all references in the Credit Agreement or any related agreement or
instrument to the Credit Agreement shall hereafter refer to the Credit
Agreement as amended by this First Amendment. This First Amendment and
the Stock Pledge Agreement shall hereafter be read and construed together
as a single document, and all references in the Stock Pledge Agreement or
any related agreement or instrument to the Stock Pledge Agreement shall
hereafter refer to the Stock Pledge Agreement as amended by this First
Amendment.
6. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
AND SHALL TAKE EFFECT AS A SEALED INSTRUMENT IN ACCORDANCE WITH SUCH LAWS.
7. Counterparts. This First Amendment may be executed in any number
of counterparts and by different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all
of which counterparts taken together shall be deemed to constitute one and
the same instrument.
8. Effectiveness. This First Amendment shall become effective upon
the satisfaction of each of the following conditions (the "Effective
Date"):
(a) This First Amendment shall have been executed and delivered by
the respective parties hereto; and
(b) Each of the Banks shall have received an executed allonge to
such Bank's Note, in form and substance satisfactory to such Bank, adding
each of Homestand and M&N as a Borrower.
9. Representations.
9.1 Asset Purchases. The Borrowers represent and warrant to
the Agent and the Banks that they intend to operate:
(a) the business acquired pursuant to the Dubois Asset Purchase
as a division of Superior of Pennsylvania under the name, "Superior
Services-Dubois, a division of Superior Waste Services of Pennsylvania,
Inc."
(b) the business acquired pursuant to the Columbus Asset
Purchase as a division of Superior of Ohio under the name, "Superior
Services-Columbus, a division of Superior of Ohio, Inc."
(c) the businesses acquired pursuant to the Green Bay Asset
Purchase and the M&N Asset Purchase as a division of Superior of Wisconsin
under the name, "Superior Services-Green Bay, a division of Superior of
Wisconsin, Inc."
9.2 No Event of Default. The Borrowers represent and warrant
to the Agent and the Banks that at the time of the Acquisitions, no
Default or Event of Default has occurred and is continuing, and the
Acquisitions will not otherwise create a Default or an Event of Default
under the Credit Agreement.
9.3 Waiver. The Borrower has delivered to the Agent all items
required under Section 7.4 of the Credit Agreement, with the exception of
the appraisal required pursuant to clause (h) thereof, which requirement
is hereby waived by each of the Banks and the Agent.
10. Covenant Regarding New Borrowers. The Borrowers agree to
deliver, no later than thirty (30) days after the Effective Date, each of
the following, in form and substance satisfactory to the Agent:
(a) a certificate of the Secretary or Assistant Secretary of
each New Borrower regarding the incumbency of the officers of each
such Borrower and a copy, certified by a duly authorized officer of
such Person to be true and complete on the date hereof, of such
Borrower's (i) charter or other incorporation documents and by-laws
as in effect on such date of certification, and (ii) the resolutions
of each such Borrower's Board of Directors authorizing the execution
and delivery of this First Amendment, the allonges to the Notes, and
all related documents;
(b) an opinion of counsel to the Borrowers as to the due
authorization and enforceability of this First Amendment as it
relates to the New Borrowers, the allonges to the Notes to be issued
to the Banks pursuant to Section 8(b) hereof, the due organization,
legal existence, and good standing of the New Borrowers and all other
matters as the Agent may reasonably request;
(c) the stock certificates evidencing all of the issued and
outstanding shares of capital stock of each of the New Borrowers
together with stock powers thereto duly executed in blank; and
(d) the results of UCC searches with respect to the New
Borrowers indicating no liens other than Permitted Liens.
Failure to deliver each of such items on or before thirty (30) days
after the Effective Date shall constitute an Event of Default under the
Credit Agreement.
12. Entire Agreement. THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS AS AMENDED REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, each of the undersigned have duly executed this
First Amendment under seal as of the date first set forth above.
THE FIRST NATIONAL BANK OF
BOSTON, individually and as Agent
By:_________________________________
Timothy M. Laurion
Vice President
LASALLE NATIONAL BANK
By:_________________________________
Michael Foster
Senior Vice President
BANK ONE, WISCONSIN
By:_________________________________
Mark P. Bruss
Vice President
BANK OF AMERICA ILLINOIS
By:_________________________________
Timothy J. Pepowski
Senior Vice President
SUPERIOR SERVICES, INC.
SUPERIOR CRANBERRY CREEK LANDFILL, INC.
SUPERIOR CONSTRUCTION SERVICES, INC.
HARDROCK, INC.
SUMMIT, INC.
SUPERIOR SPECIAL SERVICES, INC.
VALLEY SANITATION CO., INC.
SUPERIOR SERVICES OF ELGIN, INC.
SUPERIOR GLACIER RIDGE, INC.
LAND & GAS RECLAMATION, INC.
SUPERIOR OF WISCONSIN, INC.
SUPERIOR EMERALD PARK LANDFILL, INC.
SUPERIOR FCR LANDFILL, INC.
SUPERIOR SEVEN MILE CREEK LANDFILL, INC.
SUPERIOR OAK RIDGE LANDFILL, INC.
SUPERIOR OF MISSOURI, INC.
SUPERIOR OF OHIO, INC.
SUPERIOR SERVICES OF MICHIGAN, INC.
SUPERIOR WASTE SERVICES OF PENNSYLVANIA, INC.
By:_________________________________
George K. Farr, Treasurer
HOMESTAND LAND CORP.
By:_________________________________
Name:
Title:
M&N DISPOSAL, INC.
By:_________________________________
Name:
Title:
<PAGE>
SCHEDULE 1
SUBSIDIARIES (1)
Number of Number of
Jurisdiction of Authorized Outstanding
Issuer Incorporation Shares Shares
Superior Cranberry Creek
Landfill, Inc. Wisconsin 9,000 100
Superior Construction
Services, Inc. Wisconsin 9,000 508
Hardrock, Inc. Wisconsin 9,000 1,000
Summit, Inc. Wisconsin 9,000 1,000
Superior Special Services,
Inc. Wisconsin 9,000 1,000
Valley Sanitation Co., Inc. Wisconsin 9,000 100
Superior Services of Elgin,
Inc. Illinois 9,000 480
Superior Glacier Ridge, Inc. Wisconsin 9,000 1,000
Land & Gas Reclamation, Inc. Wisconsin 9,000 500
Superior of Wisconsin, Inc. Wisconsin 9,000 100
Superior Emerald Park
Landfill, Inc. Wisconsin 9,000 100
Superior FCR Landfill, Inc. Minnesota 9,000 1,800
Superior Seven Mile Creek
Landfill, Inc. Wisconsin 9,000 1,000
Superior Oak Ridge Landfill,
Inc. Missouri 9,000 4
Superior of Missouri, Inc. Missouri 9,000 4
Superior of Ohio, Inc. Ohio 850 100
Superior Services of
Michigan, Inc. Michigan 60,000 1,000
Superior Waste Services of
Pennsylvania, Inc. Pennsylvania 9,000 100
Homestand Land Corp. Pennsylvania 100 100
M&N Disposal, Inc. Wisconsin 1,000 1,000
_______________
(1) Sharps Incinerator of Fort, Inc. ("Sharps") is a Subsidiary of the
Parent, but is not a Borrower under the Credit Agreement. The only
remaining assets of Sharps are an ABB microwave unit, an incinerator unit,
approximately $1,300 in cash, and nominal accounts receivable.
<PAGE>
ANNEX A TO PLEDGE AGREEMENT
None of the issuers has any authorized, issued or outstanding shares
of its capital stock of any class or any commitments to issue any shares
of its capital stock of any class or any securities convertible into or
exchangeable for any shares of its capital stock of any class except as
otherwise stated in this Annex A.
Number Number Par or
Class Number of of of Out- Liquid-
Record of Authorized Issued standing ation
Issuer Owner Shares Shares Shares Shares Value
Superior
Cranberry
Creek
Landfill,
Inc. Parent Common 9,000 100 100 .10
Superior
Construction
Services,
Inc. Parent Common 9,000 508 508 .10
Hardrock,
Inc. Parent Common 9,000 1,000 1,000 .10
Summit, Inc. Parent Common 9,000 1,000 1,000 .10
Superior
Special
Services,
Inc. Parent Common 9,000 1,000 1,000 .10
Valley
Sanitation
Co., Inc. Parent Common 9,000 100 100 .10
Superior
Services of
Elgin, Inc. Parent Common 9,000 480 480 .10
Superior
Glacier
Ridge, Inc. Parent Common 9,000 1,000 1,000 .10
Land & Gas
Reclamation,
Inc. Parent Common 9,000 500 500 .10
Superior of
Wisconsin,
Inc. Parent Common 9,000 100 100 .10
Superior
Emerald Park
Landfill,
Inc. Parent Common 9,000 100 100 .10
Superior FCR
Landfill,
Inc. Parent Common 9,000 1,800 1,800 .10
Superior
Seven Mile
Creek
Landfill,
Inc. Parent Common 9,000 1,000 1,000 .10
Superior Oak
Ridge
Landfill,
Inc. Parent Common 9,000 4 4 .10
Superior of
Missouri,
Inc. Parent Common 9,000 4 4 .10
Superior of
Ohio, Inc. Parent Common 850 100 100 None
Superior
Services of
Michigan,
Inc. Parent Common 60,000 1,000 1,000 None
Superior Waste
Services of
Pennsylvania,
Inc. Parent Common 9,000 100 100 .10
Homestand
Land Corp. Parent Common 100 100 100 None
M&N Disposal,
Inc. Parent Common 1,000 1,000 1,000 None
<PAGE>
April 21, 1997
Allonge to $40,000,000 Amended and Restated Revolving Credit Note dated as
of March 26, 1997 (the "Note") issued by Superior Services, Inc. and the
other entities signatory thereto and payable to the order of The First
National Bank of Boston.
Each of the undersigned, intending to be legally bound as a Borrower
under the Note, has caused this Allonge to the Note to be signed in its
corporate name under seal by its duly authorized officer.
HOMESTAND LAND CORP.
By:______________________________
Name:
Title:
M&N DISPOSAL, INC.
By:______________________________
Name:
Title:
<PAGE>
April 21, 1997
Allonge to $25,000,000 Amended and Restated Revolving Credit Note dated as
of March 26, 1997 (the "Note") issued by Superior Services, Inc. and the
other entities signatory thereto and payable to the order of LaSalle
National Bank.
Each of the undersigned, intending to be legally bound as a Borrower
under the Note, has caused this Allonge to the Note to be signed in its
corporate name under seal by its duly authorized officer.
HOMESTAND LAND CORP.
By:______________________________
Name:
Title:
M&N DISPOSAL, INC.
By:______________________________
Name:
Title:
<PAGE>
April 21, 1997
Allonge to $25,000,000 Amended and Restated Revolving Credit Note dated as
of March 26, 1997 (the "Note") issued by Superior Services, Inc. and the
other entities signatory thereto and payable to the order of Bank One,
Wisconsin.
Each of the undersigned, intending to be legally bound as a Borrower
under the Note, has caused this Allonge to the Note to be signed in its
corporate name under seal by its duly authorized officer.
HOMESTAND LAND CORP.
By:______________________________
Name:
Title:
M&N DISPOSAL, INC.
By:______________________________
Name:
Title:
<PAGE>
April 21, 1997
Allonge to $20,000,000 Amended and Restated Revolving Credit Note dated as
of March 26, 1997 (the "Note") issued by Superior Services, Inc. and the
other entities signatory thereto and payable to the order of Bank of
America Illinois.
Each of the undersigned, intending to be legally bound as a Borrower
under the Note, has caused this Allonge to the Note to be signed in its
corporate name under seal by its duly authorized officer.
HOMESTAND LAND CORP.
By:______________________________
Name:
Title:
M&N DISPOSAL, INC.
By:______________________________
Name:
Title:
SECOND AMENDMENT TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
AND
SECOND AMENDMENT TO
AMENDED AND RESTATED STOCK PLEDGE AGREEMENT
This SECOND AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT
AGREEMENT AND SECOND AMENDMENT TO AMENDED AND RESTATED STOCK PLEDGE
AGREEMENT (this "Second Amendment") is made and entered into as of May 30,
1997, by and among (a) SUPERIOR SERVICES, INC., a Wisconsin corporation
(the "Parent"), the subsidiaries of the Parent identified on Schedule 1 to
the Credit Agreement defined below (the "Subsidiaries" and collectively
with the Parent, the "Borrowers"), (b) BANKBOSTON, N.A., f/k/a THE FIRST
NATIONAL BANK OF BOSTON, a national banking association having its
principal place of business at 100 Federal Street, Boston, Massachusetts
02110 ("BKB"), LASALLE NATIONAL BANK, a national banking association
having its principal place of business at 135 South LaSalle Street,
Chicago, Illinois 60603, BANK ONE, WISCONSIN, a Wisconsin banking
association having its principal place of business at 111 East Wisconsin
Avenue, Milwaukee, Wisconsin 53201, BANK OF AMERICA ILLINOIS, an Illinois
banking association having its principal place of business at 231 South
LaSalle Street, Chicago, Illinois 60697, and the other lending
institutions which become parties to the Credit Agreement (collectively,
the "Banks"), and (c) BKB, as agent for the Banks (the "Agent").
WHEREAS, the Borrowers, the Banks and the Agent are parties to an
Amended and Restated Revolving Credit Agreement dated as of March 26, 1997
and amended by a First Amendment to Amended and Restated Revolving Credit
Agreement and First Amendment to Amended and Restated Stock Pledge
Agreement dated as of April 21, 1997 (as further amended and in effect
from time to time, the "Credit Agreement"), pursuant to which the Banks
have extended credit to the Borrowers on the terms set forth therein;
WHEREAS, the Borrowers have informed the Banks that Superior of Ohio,
an Ohio corporation and a Subsidiary of the Parent ("Superior of Ohio") is
acquiring substantially all of the assets of the Companies (defined below)
for a total purchase price of approximately $5,000,000 (the "Asset
Purchase");
WHEREAS, the Borrowers have informed the Banks that the Parent is
entering into an agreement to acquire all of the capital stock of Noble
Road Landfill, Inc., an Ohio corporation ("Noble") from Grant E. Milliron,
an individual residing in the State of Ohio ("Milliron"), for a total
purchase price of approximately $20,000,000 plus the additional share
purchase price as set forth in Article 2.5 of the Purchase Agreement,
defined below (the "Stock Purchase");
WHEREAS, the Asset Purchase and the Stock Purchase (the
"Acquisitions") are to be consummated substantially in accordance with the
terms set forth in the draft Purchase Agreement and Plan of Reorganization
dated as of May 14, 1997 among Milliron Waste Management, Inc., Gem
Leasing, Inc., North Central Management, Inc., Milliron Paper Recycling,
Inc., and Richland County Transfer & Recycling, Inc., each an Ohio
corporation (the "Companies"), Milliron, the Parent, and Superior of Ohio
(the "Purchase Agreement");
WHEREAS, until the gate opening of the Noble Landfill (defined
below), which is anticipated to occur in approximately September or
October 1997 and which is a condition precedent to the final exchange of
cash consideration in connection with the Stock Purchase (the "Final
Exchange"), the Parent wishes to advance a loan of up to $4,000,000 to
Noble (the "Noble Loan") pursuant to the construction loan agreement dated
as of June 1, 1997 among the Parent and Noble (the "Noble Loan Agreement")
for the construction of a landfill located in Richland County, Ohio (the
"Noble Landfill");
WHEREAS, the Parent has agreed to assign the fixed-rate promissory
note payable by Noble to the Parent under the Noble Loan Agreement, and
the Parent's security interests in the open-end mortgage granted by Noble
to secure the Noble Loan, to the Agent for the benefit of the Banks (the
"Assignments");
WHEREAS, the Borrowers have requested that the Banks consent to the
Acquisitions and the Noble Loan, and the Banks are willing to consent
thereto on the terms set forth herein;
WHEREAS, the Banks, the Agent, and the Borrowers have further agreed
to amend the Credit Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Definitions. Capitalized terms used herein without definition
shall have the meanings assigned to such terms in the Credit Agreement.
2. Amendment to Section 7.4 of the Credit Agreement. The second
sentence of Section 7.4 of the Credit Agreement is hereby amended by
deleting the first two words, "The Parent" and substituting "The
Borrowers" in place thereof.
3. Amendment to Section 7.1(g) of the Credit Agreement. Section
7.1(g) of the Credit Agreement is hereby amended to delete the amount,
"$10,000,000" and to substitute the amount "$3,000,000" in place thereof.
4. Amendment to Section 7.2 of the Credit Agreement.
(a) Section 7.2(a) of the Credit Agreement is hereby amended to
delete the amount, "$10,000,000" and to substitute the amount "$3,000,000"
in place thereof.
(b) Section 7.2 of the Credit Agreement is hereby amended by adding
the following subsection (j) to the end thereof:
"(j) A first mortgage granted to Grant E. Milliron, an
individual residing in the State of Ohio ("Milliron"), securing the
Parent's obligation to pay royalties pursuant to Article 2.5 of the draft
Purchase Agreement and Plan of Reorganization dated as of May 14, 1997
among Milliron Waste Management, Inc., Gem Leasing, Inc., North Central
Management, Inc., Milliron Paper Recycling, Inc., and Richland County
Transfer & Recycling, Inc., each an Ohio corporation, Milliron, the
Parent, and Superior of Ohio, an Ohio corporation and a Subsidiary of the
Parent."
5. Consent. Each of the Banks hereby consents to the Acquisitions
and the Noble Loan, provided that:
(a) the total aggregate purchase price paid by the Borrowers in
connection with the Asset Purchase shall not exceed $5,000,000 cash plus
(i) the liabilities assumed as set forth in Article 1.4 of the Purchase
Agreement, plus (ii) the invoice price paid by the Companies for capital
assets acquired after December 31, 1996, minus (iii) the long-term
liabilities of the Companies as set forth in Article 2.1 of the Purchase
Agreement;
(b) the total aggregate purchase price paid by the Borrowers in
connection with the Stock Purchase shall not exceed $20,000,000 (of which
$13,750,000 may be cash) minus (i) the long-term liabilities of Noble as
set forth in Article 2.2 of the Purchase Agreement plus (ii) the
additional share purchase price as set forth in Article 2.5 of the
Purchase Agreement; and
(c) contemporaneously with the closing of the Stock Purchase and the
acquisition by the Parent of all the capital stock of Noble in connection
therewith, the Borrowers and Noble shall execute an amendment to the
Credit Agreement and the Stock Pledge Agreement, and an allonge to each of
the Notes, adding Noble as a Borrower, each in form and substance
satisfactory to the Agent.
6. Ratification, etc. The Credit Agreement, the other Loan
Documents and all documents, instruments and agreements related thereto
are hereby ratified and confirmed in all respects and shall continue in
full force and effect. This Second Amendment and the Credit Agreement
shall hereafter be read and construed together as a single document, and
all references in the Credit Agreement or any related agreement or
instrument to the Credit Agreement shall hereafter refer to the Credit
Agreement as amended by this Second Amendment. This Second Amendment and
the Stock Pledge Agreement shall hereafter be read and construed together
as a single document, and all references in the Stock Pledge Agreement or
any related agreement or instrument to the Stock Pledge Agreement shall
hereafter refer to the Stock Pledge Agreement as amended by this Second
Amendment.
7. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
AND SHALL TAKE EFFECT AS A SEALED INSTRUMENT IN ACCORDANCE WITH SUCH LAWS.
8. Counterparts. This Second Amendment may be executed in any
number of counterparts and by different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which counterparts taken together shall be deemed to
constitute one and the same instrument.
9. Effectiveness. This Second Amendment shall become effective upon
the execution and delivery of this Second Amendment by the respective
parties hereto (the "Effective Date").
10. Representations. The Borrowers represent and warrant to the
Agent and the Banks that:
(a) at the time of the Acquisitions, no Default or Event of Default
has occurred and is continuing, and the Acquisitions will not otherwise
create a Default or an Event of Default under the Credit Agreement; and
(b) the Borrowers have delivered to the Agent all items required
under Section 7.4 of the Credit Agreement.
11. Covenants.
11.1 Deliveries by Borrowers. The Borrowers agree to deliver,
no later than thirty (30) days after the Effective Date, each of the
following, in form and substance satisfactory to the Agent:
(a) duly executed Assignments;
(b) an opinion of counsel to the Borrowers as to the due
authorization and enforceability of the Assignments, and all other
matters as the Agent may reasonably request; and
(c) the results of UCC searches with respect to the Companies
and Noble indicating no liens other than Permitted Liens.
Failure to deliver each of such items on or before thirty (30) days
after the Effective Date shall constitute an Event of Default under the
Credit Agreement.
11.2 Repayment of Noble Loan. Contemporaneously with the Final
Exchange, the Noble Loan shall be repaid in full. No more than thirty
(30) days after the Final Exchange, the mortgage securing the Noble Loan
shall be released, and satisfactory evidence thereof shall be delivered to
the Agent.
12. Entire Agreement. THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS AS AMENDED REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, each of the undersigned have duly executed this
Second Amendment under seal as of the date first set forth above.
BANKBOSTON, N.A., f/k/a
THE FIRST NATIONAL BANK OF
BOSTON, individually and as Agent
By:______________________________
Timothy M. Laurion
Vice President
LASALLE NATIONAL BANK
By:______________________________
Michael Foster
Senior Vice President
BANK ONE, WISCONSIN
By:______________________________
Mark P. Bruss
Vice President
BANK OF AMERICA ILLINOIS
By:______________________________
Timothy J. Pepowski
Senior Vice President
SUPERIOR SERVICES, INC.
SUPERIOR CRANBERRY CREEK LANDFILL, INC.
SUPERIOR CONSTRUCTION SERVICES, INC.
HARDROCK, INC.
SUMMIT, INC.
SUPERIOR SPECIAL SERVICES, INC.
VALLEY SANITATION CO., INC.
SUPERIOR SERVICES OF ELGIN, INC.
SUPERIOR GLACIER RIDGE, INC.
LAND & GAS RECLAMATION, INC.
SUPERIOR OF WISCONSIN, INC.
SUPERIOR EMERALD PARK LANDFILL, INC.
SUPERIOR FCR LANDFILL, INC.
SUPERIOR SEVEN MILE CREEK LANDFILL, INC.
SUPERIOR OAK RIDGE LANDFILL, INC.
SUPERIOR OF MISSOURI, INC.
SUPERIOR OF OHIO, INC.
SUPERIOR SERVICES OF MICHIGAN, INC.
SUPERIOR WASTE SERVICES OF PENNSYLVANIA, INC.
HOMESTAND LAND CORP.
M&N DISPOSAL, INC.
By:______________________________
George K. Farr, Treasurer
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
July 10, 1997, by and between Superior Services, Inc, a Wisconsin
corporation (the "Company"), and Scott S. Cramer ("Employee").
RECITALS:
The Company recognizes that the efforts of its officers and key management
employees have contributed and will continue to contribute to the growth
and success of the Company.
The Company believes that, in the Company's best interest, it is essential
that its officers and key management employees, including the Employee, be
retained and that the Company be in a position to rely on their ongoing
dedication and commitment to render services to the Company.
The Company wishes to take steps to assure that the Company will continue
to have the Employee's services available to the Company by entering into
an agreement with the Employee concerning his employment by the Company.
In consideration of the foregoing, the mutual provisions contained herein,
and for other good and valuable consideration, the parties agree with each
other as follows:
1. EMPLOYMENT
A. The Company hereby employs the Employee and the Employee hereby
accepts employment as one of the Company's Vice Presidents on the terms
and conditions hereinafter set forth. The Employee shall perform such
duties, and have such powers, authority, functions, and responsibilities
as may be assigned to him by the Company's President and Chief Executive
Officer.
B. The Employee shall not, during the term of his employment under
this Agreement, be engaged in any other activities if such activities
interfere materially with the Employee's current duties, authority, and
responsibilities for the Company, except for those other activities as
shall hereafter be carried on with the Company's consent.
2. TERM
A. Subject only to the provisions of Section 4 of this Agreement,
the term of the Employee's employment under this Agreement shall be for a
term of one (1) year. The term of this Agreement shall renew
automatically for successive one (1) year terms, subject to termination as
set forth in Section 4.
3. COMPENSATION
For all services rendered by the Employee under this Agreement, the
Company agrees to compensate the Employee for each compensation year
(January 1 through December 31) during the term hereof, as follows:
A. Base Salary. A base salary shall be payable to the Employee
equal initially to One Hundred Twenty Thousand Dollars ($120,000) for each
compensation year (as the same may be adjusted by the Company from time to
time, the "Base Salary"), which shall be payable in intervals consistent
with the Company's normal payroll schedules.
In addition to the Base Salary, the Employee shall be eligible to
receive such annual cash bonus and any stock option grant upon achievement
of the criteria and targets established adjusted annually to reflect the
Company's budgeted and targeted financial performance.
B. Fringe Benefits. The Employee shall have the right to
participate in the other fringe benefit plans generally provided by the
Company to its full-time employees, subject to the Employee's
qualification for participation in such benefit plans pursuant to the
terms and conditions under which such benefit plans are offered.
C. Expenses. The Employee may incur reasonable business expenses
while on Company business, including expenses for hotels, meals, air
travel, telephone, gasoline, and similar items. The Company shall either
pay such reasonable expenses directly or promptly reimburse Employee for
such reasonable out-of-pocket expenses incurred by the Employee upon
presentation of receipts and an itemized accounting of the expenses for
which such reimbursement is sought and any other documentation necessary
to comply with applicable Internal Revenue Service rules and regulations.
D. Vacation. The Employee shall be entitled to paid vacation and
"personal days", to be scheduled at times mutually acceptable to the
Employee and the Company and otherwise in accordance with policies
established by the Company.
4. TERMINATION
A. Termination By The Company. The employment of the Employee
under this Agreement, may be terminated at any time by the Company,
(i) for cause in the event of the Employee's deliberate and
intentional continuing refusal to substantially perform his duties and
obligations under this Agreement (except by reason of incapacity due to
illness or accident),
(ii) upon a determination that the Employee (A) has engaged in
willful fraud or defalcation involving funds or other assets of the
Company, or (B) has been convicted of, or has pled nolo contendere to, a
felony or other crime involving moral turpitude, or
(iii) without cause, upon sixty (60) days prior written
notice.
B. Termination Payment. In the event of termination of the
Employee's employment under this Agreement by the Company under either
Section 4(A)(i) or (ii), the Employee shall only be entitled to receive
his Base Salary through the date of such termination. If this Agreement
is terminated pursuant to Section 4(A)(iii) the Company shall be obligated
to pay to the Employee a severance payment equal to one year of the
Employee's Base Salary, in effect on the date the notice is given. In the
event that Employee's employment is terminated due to a "change of
control", Employee's employment shall be deemed to have been terminated
under Section 4(A)(iii), and Company shall pay Employee, a severance
payment equal to one year of the Employee's Base Salary at the rate in
effect on the effective date of the change in control. A "change in
control" shall be deemed to have occurred if:
(a) any person (other than any employee benefit plan of the
Company, any subsidiary of the Company or any person
organized, appointed, or established pursuant to the terms
of any such benefit plan) is or becomes the beneficial
owner of securities of the Company representing at least
50% of the combined voting power of the Company's then
outstanding securities; or
(b) there shall be consummated (x) any consolidation, merger,
share exchange or other business combination of the Company
in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's
capital stock would be converted into cash, securities, or
other property, other than a merger of the Company in which
the holders of the Company's capital stock immediately
prior to the merger have the same proportionate ownership
of capital stock of the surviving corporation immediately
after the merger, or (y) any sale, lease, exchange, or
other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the
consolidated assets of the Company.
C. Termination By Employee. Employee shall have the right at any
time during his employment, by giving written notice to the President and
Chief Executive Officer of the Company, to terminate the Employee's
employment under this Agreement effective thirty (30) days after the date
on which such notice is given by the Employee (unless such effective date
shall be accelerated at the option of the Company). In the event the
Employee shall make such election under this Section 4(C), the Employee
shall, in addition to all other reimbursements, payments, or other
allowances required to be paid under this Agreement or under any other
plan, agreement, or policy which survives the termination of this
Agreement, be entitled to be paid, the Base Salary payable through the
effective date of termination. Thereupon, this Agreement shall terminate
and Employee shall have no further rights under or be entitled to any
other benefits of this Agreement, provided that the provisions of
Section 5 shall survive such termination.
D. Death. In the event of the Employee's death during the term of
his employment hereunder, the Company shall pay to the Employee's
surviving spouse or to the executor or administrator of the Employee's
estate (if his spouse shall not survive him) an amount equal to the
installments of his Base Salary then payable pursuant to Section 3(A),
solely for the month in which he dies.
E. Disability. (i) If during the first six (6) months of the term
of this Agreement the Employee shall become permanently disabled (as
defined in the group long-term disability insurance policy maintained by
the Company) because of physical or mental illness or personal injury,
this Agreement shall terminate as of the date of such permanent
disability. In such event the Company shall pay to the Employee or his
guardian an amount equal to the installments of his Base Salary then
payable pursuant to Section 3(A), solely for the month in which he becomes
permanently disabled. (ii) In the event the Employee shall become
permanently disabled (as defined in the group long-term disability
insurance policy maintained by the Company) after the first six (6) months
of the term of this Agreement, the Employee shall receive disability
insurance benefits in accordance with the Company's disability insurance
policy. (iii) If during the first six (6) months of the term of this
Agreement the Employee shall become temporarily disabled (as defined in
the group short-term disability insurance policy maintained by the
Company) because of physical or mental illness or personal injury, this
Agreement shall not terminate, and all payments of Base Salary shall
continue during said six (6) month period. Thereafter, the Employee shall
receive disability insurance benefits in accordance with the Company's
disability insurance policy.
5. CONFIDENTIALITY OBLIGATIONS OF THE EMPLOYEE; NONCOMPETITION
A. During and following the Employee's employment by the Company,
the Employee shall hold in confidence and not directly or indirectly
disclose or use or copy or make lists of any confidential information or
proprietary data of the Company, except to the extent authorized in
writing by the President and Chief Executive Officer of the Company or
required by any court or administrative agency other than to an employee
of the Company or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Employee of duties
as an executive of the Company. Confidential information shall not
include any information known generally to the public. All records,
files, documents, and materials, or copies thereof, relating to the
business of the Company which the Executive shall prepare, or use, or come
into contact with, shall be and remain the sole property of the Company
and shall be promptly returned to the Company upon termination of
employment with the Company.
B. The Employee agrees that, for a period of one (1) year after the
termination date of the Employee's employment under this Agreement for any
reason the Employee shall not:
(i) Directly or indirectly, either individually or as an
employee, agent, partner, shareholder, consultant, or in any other
capacity, participate in, engage in, or have a financial or other interest
in any Venture in Competition; provided, however, that ownership of less
than one percent (1.0%) interest in a corporation whose shares of stock
are traded on a recognized stock exchange or traded on the over-the-
counter markets shall not be deemed a violation of this section.
(ii) Directly or indirectly, individually, or as an employee,
agent, partner, shareholder, consultant, or in any other capacity, canvas,
contact, solicit, or accept any of Superior's customers for the purpose of
providing services that are substantially similar to the services or
business of Superior. (For purposes of this Agreement, "customer" shall
include, on any given date, any customer who was serviced by Superior
during the last two (2) years of employee's employment.)
(iii) In any manner induce, attempt to induce, or assist
others to induce any customer, client, employee, insurer, or any other
person having a business or employment relationship with Superior to
terminate such relationship.
(iv) Directly or indirectly, either as an employee, agent,
partner, shareholder, consultant, or in any other capacity, use or
disclose, or cause to be used or disclosed, any confidential or
proprietary information acquired by Employee during Employee's employment
with Superior, including but not limited to customer lists, price lists,
agreements, procedures, sales techniques, marketing strategies, matters
relating to operations, business software and computer programs and
printouts, techniques, engineering information or financial information
relating to Superior.
C. "Venture in Competition" is defined to mean any business that,
at any given date, owns or operates a landfill business, or in any manner
collects, stores, transports, recycles, or disposes of solid, hazardous,
or other waste products or provides hazardous material emergency response
or environmental remediation services, within one hundred (100) miles of
any location in which duties were assigned to Employee during the last two
(2) years of Employee's employment.
6. ASSIGNMENT; SUCCESSORS
This Agreement shall not be assignable by the Company. This Agreement and
all rights of the Employee shall inure to the benefit of and be
enforceable by the Employee's personal or legal representatives,
executors, administrators, heirs, and beneficiaries.
7. SEVERABILITY
The provisions of this Agreement shall be regarded as divisible, and if
any of said provisions or any part hereof are declared invalid or
unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remainder of such provisions or parts hereof and the
applicability thereof shall not be affected thereby.
8. AMENDMENT
This Agreement may not be amended or modified at any time except by
written instrument executed by the Company and the Employee.
9. WITHHOLDING
The Company shall be entitled to withhold from amounts to be paid to the
Employee hereunder any federal, state, or local withholding or other taxes
or charges which it is from time to time required to withhold; provided,
that the amount so withheld shall not exceed the minimum amount required
to be withheld by law. Company shall be entitled to rely on an opinion of
nationally recognized tax counsel if any question as to the amount or
requirement of any such withholding shall arise.
10. CERTAIN RULES OF CONSTRUCTION
No party shall be considered as being responsible for the drafting of this
Agreement for the purpose of applying any rule construing ambiguities
against the drafter or otherwise. No draft of this Agreement shall be
taken into account in construing this Agreement. Any provision of this
Agreement which requires an agreement in writing shall be deemed to
require that the writing in question be signed by the Employee and an
authorized representative of the Company.
11. GOVERNING LAW
This Agreement and the rights and obligations hereunder shall be governed
by and construed in accordance with the laws of the State of Wisconsin. .
12. NOTICE
Notices given pursuant to this Agreement shall be in writing and shall be
deemed given when actually received by the Employee or actually received
by the Company's Secretary or any officer of the Company other than the
Employee. If mailed, such notices shall be mailed by United States
registered or certified mail, return receipt requested, addressee only,
postage prepaid, if to the Company, to Superior Services, Inc., Attention:
President and Chief Executive Officer, 10150 West National Avenue, Suite
350, West Allis, Wisconsin 53227, or if to the Employee , at the
Employee's current address according to the Company's payroll records, or
to such other address as the party to be notified shall have theretofore
given to the other party in writing.
13. NO WAIVER
No waiver by either party at any time of any breach by the other party of,
or compliance with, any condition or provision of this Agreement to be
performed by the other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or any prior or
subsequent time.
14. HEADINGS
The headings herein contained are for reference only and shall not affect
the meaning or interpretation of any provision of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
EMPLOYEE SUPERIOR SERVICES, INC.
_________________________________ By:__________________________________
Scott S. Cramer G. W. "Bill" Dietrich
President and Chief Executive Officer
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of January
1, 1997, by and between Superior Services, Inc, a Wisconsin corporation
(the "Company"), and Gary Blacktopp ("Employee").
RECITALS:
The Company recognizes that the efforts of its officers and key management
employees have contributed and will continue to contribute to the growth
and success of the Company.
The Company believes that, in the Company's best interest, it is essential
that its officers and key management employees, including the Employee, be
retained and that the Company be in a position to rely on their ongoing
dedication and commitment to render services to the Company.
The Company wishes to take steps to assure that the Company will continue
to have the Employee's services available to the Company by entering into
an agreement with the Employee concerning his employment by the Company.
In consideration of the foregoing, the mutual provisions contained herein,
and for other good and valuable consideration, the parties agree with each
other as follows:
1. EMPLOYMENT
A. The Company hereby employs the Employee and the Employee hereby
accepts employment as one of the Company's Operating Vice Presidents on
the terms and conditions hereinafter set forth. The Employee shall
perform such duties, and have such powers, authority, functions, and
responsibilities as may be assigned to him by the Company's President and
Chief Executive Officer.
B. The Employee shall not, during the term of his employment under
this Agreement, be engaged in any other activities if such activities
interfere materially with the Employee's current duties, authority, and
responsibilities for the Company, except for those other activities as
shall hereafter be carried on with the Company's consent.
2. TERM
A. Subject only to the provisions of Section 4 of this Agreement,
the term of the Employee's employment under this Agreement shall be for a
term of one (1) year. The term of this Agreement shall renew
automatically for successive one (1) year terms unless a party gives
notice to the other not less than sixty (60) days prior to the end of the
then current term that this Agreement is not to be renewed.
3. COMPENSATION
For all services rendered by the Employee under this Agreement, the
Company agrees to compensate the Employee for each compensation year
(January 1 through December 31) during the term hereof, as follows:
A. Base Salary. A base salary shall be payable to the Employee
equal initially to One Hundred Forty Five Thousand Dollars ($145,000) for
each compensation year (as the same may be adjusted by the Company from
time to time, the "Base Salary"), which shall be payable in intervals
consistent with the Company's normal payroll schedules.
In addition to the Base Salary, the Employee shall be eligible to
receive such annual cash bonus and any stock option grant upon achievement
of the criteria and targets established adjusted annually to reflect the
Company's budgeted and targeted financial performance.
B. Fringe Benefits. The Employee shall have the right to
participate in the other fringe benefit plans generally provided by the
Company to its full-time employees, subject to the Employee's
qualification for participation in such benefit plans pursuant to the
terms and conditions under which such benefit plans are offered.
C. Expenses. The Employee may incur reasonable business expenses
while on Company business, including expenses for hotels, meals, air
travel, telephone, gasoline, and similar items. The Company shall either
pay such reasonable expenses directly or promptly reimburse Employee for
such reasonable out-of-pocket expenses incurred by the Employee upon
presentation of receipts and an itemized accounting of the expenses for
which such reimbursement is sought and any other documentation necessary
to comply with applicable Internal Revenue Service rules and regulations.
D. Vacation. The Employee shall be entitled to paid vacation and
"personal days", to be scheduled at times mutually acceptable to the
Employee and the Company and otherwise in accordance with policies
established by the Company.
4. TERMINATION
A. Termination By The Company. The employment of the Employee
under this Agreement, may be terminated at any time by the Company,
(i) for cause in the event of the Employee's deliberate and
intentional continuing refusal to substantially perform his duties and
obligations under this Agreement (except by reason of incapacity due to
illness or accident),
(ii) upon a determination that the Employee (A) has engaged in
willful fraud or defalcation involving funds or other assets of the
Company, or (B) has been convicted of, or has pled nolo contendere to, a
felony or other crime involving moral turpitude, or
(iii) upon termination of the initial one (1) year term or
any renewal term if the Company has delivered notice to the Employee at
least sixty (60) days prior to such date.
B. Termination Payment. In the event of termination of the
Employee's employment under this Agreement by the Company under either
Section 4(A)(i) or (ii), the Employee shall only be entitled to receive
his Base Salary through the date of such termination. If this Agreement
is terminated pursuant to Section 4(A)(iii) the Company shall be obligated
to pay to the Employee a severance payment equal to the unpaid balance of
the Employee's Base Salary, through the expiration of the initial term or
the renewal term within which the notice is given. Provided, however, in
the event that Employee's employment is terminated due to a "change of
control", Company shall pay Employee, in lieu of the severance payment
payable under the preceding sentence, a severance payment equal to one
year of the Employee's Base Salary at the rate in effect on the effective
date of the change in control. A "change in control" shall be deemed to
have occurred if:
(a) any person (other than any employee benefit plan of the
Company, any subsidiary of the Company or any person
organized, appointed, or established pursuant to the terms
of any such benefit plan) is or becomes the beneficial
owner of securities of the Company representing at least
50% of the combined voting power of the Company's then
outstanding securities; or
(b) there shall be consummated (x) any consolidation, merger,
share exchange or other business combination of the Company
in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's
capital stock would be converted into cash, securities, or
other property, other than a merger of the Company in which
the holders of the Company's capital stock immediately
prior to the merger have the same proportionate ownership
of capital stock of the surviving corporation immediately
after the merger, or (y) any sale, lease, exchange, or
other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the
consolidated assets of the Company.
C. Termination By Employee. Employee shall have the right at any
time during his employment, by giving written notice to the President and
Chief Executive Officer of the Company, to terminate the Employee's
employment under this Agreement effective thirty (30) days after the date
on which such notice is given by the Employee (unless such effective date
shall be accelerated at the option of the Company). In the event the
Employee shall make such election under this Section 4(C), the Employee
shall, in addition to all other reimbursements, payments, or other
allowances required to be paid under this Agreement or under any other
plan, agreement, or policy which survives the termination of this
Agreement, be entitled to be paid, the Base Salary payable through the
effective date of termination. Thereupon, this Agreement shall terminate
and Employee shall have no further rights under or be entitled to any
other benefits of this Agreement, provided that the provisions of Section
5 shall survive such termination.
D. Death. In the event of the Employee's death during the term of
his employment hereunder, the Company shall pay to the Employee's
surviving spouse or to the executor or administrator of the Employee's
estate (if his spouse shall not survive him) an amount equal to the
installments of his Base Salary then payable pursuant to Section 3(A),
solely for the month in which he dies.
E. Disability. This Agreement shall terminate as of the date the
Employee shall become permanently disabled (as defined in the group long-
term disability insurance policy maintained by the Company) because of
physical or mental illness or personal injury. In such event the Company
shall pay to the Employee or his guardian an amount equal the installments
of his Base Salary then payable pursuant to Section 3(A), solely for the
month in which be becomes disabled.
5. CONFIDENTIALITY OBLIGATIONS OF THE EMPLOYEE; NONCOMPETITION
A. During and following the Employee's employment by the Company,
the Employee shall hold in confidence and not directly or indirectly
disclose or use or copy or make lists of any confidential information or
proprietary data of the Company, except to the extent authorized in
writing by the President and Chief Executive Officer of the Company or
required by any court or administrative agency other than to an employee
of the Company or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Employee of duties
as an executive of the Company. Confidential information shall not
include any information known generally to the public. All records,
files, documents, and materials, or copies thereof, relating to the
business of the Company which the Executive shall prepare, or use, or come
into contact with, shall be and remain the sole property of the Company
and shall be promptly returned to the Company upon termination of
employment with the Company.
B. The Employee agrees that, for a period of two (2) years after
the termination date of the Employee's employment under this Agreement the
Employee shall not, within a one hundred (100) mile radius of any office,
landfill, or facility of the Company, except as permitted by the Company's
prior written consent (which shall not be unreasonably withheld),
participate in the management of any business which is a direct and
substantial competitor of the Company. The ownership of less than one
percent of any class of securities of any corporation listed on a national
securities exchange or regularly traded over the county even though such
corporation may be a competitor of the Company as specified above, shall
not be deemed as constituting a financial interest in such competitor.
6. ASSIGNMENT; SUCCESSORS
This Agreement shall not be assignable by the Company. This Agreement and
all rights of the Employee shall inure to the benefit of and be
enforceable by the Employee's personal or legal representatives,
executors, administrators, heirs, and beneficiaries.
7. SEVERABILITY
The provisions of this Agreement shall be regarded as divisible, and if
any of said provisions or any part hereof are declared invalid or
unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remainder of such provisions or parts hereof and the
applicability thereof shall not be affected thereby.
8. AMENDMENT
This Agreement may not be amended or modified at any time except by
written instrument executed by the Company and the Employee.
9. WITHHOLDING
The Company shall be entitled to withhold from amounts to be paid to the
Employee hereunder any federal, state, or local withholding or other taxes
or charges which it is from time to time required to withhold; provided,
that the amount so withheld shall not exceed the minimum amount required
to be withheld by law. Company shall be entitled to rely on an opinion of
nationally recognized tax counsel if any question as to the amount or
requirement of any such withholding shall arise.
10. CERTAIN RULES OF CONSTRUCTION
No party shall be considered as being responsible for the drafting of this
Agreement for the purpose of applying any rule construing ambiguities
against the drafter or otherwise. No draft of this Agreement shall be
taken into account in construing this Agreement. Any provision of this
Agreement which requires an agreement in writing shall be deemed to
require that the writing in question be signed by the Employee and an
authorized representative of the Company.
11. GOVERNING LAW
This Agreement and the rights and obligations hereunder shall be governed
by and construed in accordance with the laws of the State of Wisconsin. .
12. NOTICE
Notices given pursuant to this Agreement shall be in writing and shall be
deemed given when actually received by the Employee or actually received
by the Company's Secretary or any officer of the Company other than the
Employee. If mailed, such notices shall be mailed by United States
registered or certified mail, return receipt requested, addressee only,
postage prepaid, if to the Company, to Superior Services, Inc., Attention:
President and Chief Executive Officer, 10150 West National Avenue, Suite
350, West Allis, Wisconsin 53227, or if to the Employee , at the address
set forth below the Employee's signature to this Agreement, or to such
other address as the party to be notified shall have theretofore given to
the other party in writing.
13. NO WAIVER
No waiver by either party at any time of any breach by the other party of,
or compliance with, any condition or provision of this Agreement to be
performed by the other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or any prior or
subsequent time.
14. HEADINGS
The headings herein contained are for reference only and shall not affect
the meaning or interpretation of any provision of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
EMPLOYEE SUPERIOR SERVICES, INC.
__________________________________ By:__________________________________
Gary Blacktopp G. W. "Bill" Dietrich
President and Chief Executive Officer
Address:
____________________________________
____________________________________
<PAGE>
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment made as of the 26th day of August, 1997, by and
between Superior Services, Inc., a Wisconsin Corporation (the
"Corporation"), and Gary Blacktopp (the "Employee").
Witnesseth
Whereas, the Corporation and the Employee previously entered into an
Employment Agreement dated as of January 1, 1997 (the "Agreement"); and
Whereas, the parties desire to amend the Agreement as set forth
herein.
Now, Therefore, in consideration of the mutual promises contained
herein, the parties agree as follows:
1. The phrase "one of the Company's Operating Vice Presidents" in
Section 1.A. of the Agreement is deleted and the phrase "Senior Vice
President-Operations" substituted therefor.
2. All references to "one (1) year" in Section 2.A. of the
Agreement are revised to read "two (2) years".
3. Section 4.A.(iii) is amended by deleting the phrase "initial one
(1) year term" and substituting the following: "initial two (2) year
term".
4. The third sentence of Section 4.B. is amended by deleting the
phrase "one year of the Employee's Base Salary" and substituting the
following: "two years of the Employee's Base Salary".
5. Except as set forth herein, and in the letter Agreement of even
date herewith by and between the Corporation and Employee, the terms of
the Employment Agreement shall remain unaltered and in full force and
effect.
In witness whereof, the parties have executed this First Amendment to
Employment Agreement as of the date and year first above written.
EMPLOYEE: SUPERIOR SERVICES, INC.
_________________________ By:______________________________
/s/ Gary Blacktopp /s/ G.W. "Bill" Dietrich
Gary Blacktopp G.W. "Bill" Dietrich
President and Chief Executive Officer
Executive's Name:___________________________
Date:______________, 1998
AMENDMENT
TO
KEY EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT
THIS AMENDMENT ("Amendment"), dated as of the date set forth
above, supplements and amends the Key Employment and Severance Agreement,
dated August 15, 1995 ("Agreement"), by and between SUPERIOR SERVICES,
INC., a Wisconsin corporation ("Company"), and the named executive set
forth above ("Executive"). All defined terms used herein and not defined
shall have the same meaning as in the Agreement.
W I T N E S S E T H:
WHEREAS, pursuant to Section 19 of the Agreement, the Executive
and the Company desire to supplement and amend the Agreement as
specifically set forth in this Amendment.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements herein set forth, and for other valuable
consideration, the parties hereto covenant and agree as follows:
1. Section 1(h) of the Agreement is hereby amended and
restated to read in its entirety as follows:
"(h) Discretionary Termination. For purposes of this
Agreement, 'Discretionary Termination' means the
determination by the Executive at any time during the
ninety (90) day period commencing on and then after the
occurrence of a Change in Control of the Company, as
evidenced by the Executive's delivery to the Company of a
Notice of Termination during such period (including
simultaneously with the occurrence of a Change in Control
of the Company), to terminate his employment hereunder for
any reason whatsoever in his sole discretion, with or
without good faith."
2. The first paragraph of Section 1(o) of the Agreement is
hereby amended and restated to read in its entirety as follows:
"(o) Termination Date. For purposes of this Agreement,
except as otherwise provided in Section 10(b) and Section
17(a) hereof or as set forth below, the term 'Termination
date' means (i) if the Executive's employment is terminated
by the Executive's death, the date of death; (ii) if the
Executive's employment is terminated by reason of voluntary
early retirement, as agreed in writing by the Company and
the Executive, the date of such early retirement which is
set forth in such written agreement; (iii) if the
Executive's employment is terminated by reason of
disability pursuant to Section 12 hereof, the earlier of
thirty (30) days after the Notice of Termination is given
or one day prior to the end of the Employment period; (iv)
if the Executive's employment is terminated by the
Executive voluntarily (other than for Good Reason), the
date the Notice of Termination is given; (v) if the
Executive's employment is terminated by the Executive
voluntarily pursuant to a Discretionary Termination, the
Termination Date for purposes of the payment of a
Termination Payment under Section 9(b) hereof shall be the
date the Notice of Termination is given to the Company, but
for any and all other purposes (including for all purposes
under all of the Executive's stock option agreements with
the Company), the effective Termination Date for employment
termination hereunder and for all other purposes shall be
such date as is specified by the Executive in his Notice of
Termination, provided that such specified date shall not be
more than ninety (90) days after the date of the Change in
Control of the Company; and (vi) if the Executive's
employment is terminated by the Company (other than by
reason of disability pursuant to Section 12 hereof) or by
the Executive for Good Reason, the earlier of thirty (30)
days after the Notice of Termination is given or one day
prior to the end of the Employment Period. Notwithstanding
the foregoing, ..." [Remainder of existing Section 1(o) to
remain as written in Agreement.]
3. The first paragraph of Section 9(b) of the Agreement shall
be amended and restated in its entirety as follows:
"(b) Termination Payment. The Termination Payment shall be
an amount equal to the average of the Executive's annual
total compensation reportable by the Company on Form W-2
(i.e., base salary plus bonus amounts and all other taxable
compensation) over the five (5) fiscal years of the Company
immediately prior to the Change in Control of the Company
(with such compensation annualized for any initial partial
year of employment) multiplied by three (3); provided that
if the Executive has been employed by the Company for less
than three (3) years, then the Termination Payment shall be
an amount equal to the highest amount of the Executive's
annual total compensation for any year during the period of
his employment by the Company prior to the Change in
Control of the Company multiplied by three (3). Except as
otherwise provided herein, the Termination Payment shall be
paid to the Executive in cash no later than ten (10)
business days after the Termination Date; provided,
however, the Termination Payment shall be paid to the
Executive immediately upon receipt by the Company of a
Notice of Termination relating to a Discretionary
Termination (regardless of any differing effective date of
the Executive's employment termination). The Executive
shall not be required to mitigate the amount of the
Termination Payment by securing other employment or
otherwise, nor will such Termination Payment be reduced by
reason of the Executive securing other employment or for
any other reason.
[Remainder of Section 9(b) shall remain as written in the
Agreement.]
4. Except as specifically set forth above, all other terms and
conditions of the Agreement shall continue in full force and effect,
unaffected by this Amendment. This Amendment shall be effective for all
purposes immediately as of the date first written above.
IN WITNESS WHEREOF, the Executive and the Company have set their
hands hereto as of the date above.
SUPERIOR SERVICES, INC.
___________________________ By:____________________________________
Executive Joseph P. Tate, Chairman of the Board
EXHIBIT 21
Superior Services, Inc.
10150 W. National Ave.
Suite 350
West Allis, WI 53227
Superior Cranberry Creek Landfill, Inc.
2510 Engel Road
Wisconsin Rapids, WI 54494
Superior Construction Services, Inc.
Hardrock, Inc.
Summit, Inc.
2510 Engel Road
Wisconsin Rapids, WI 54494
Superior Special Services, Inc.
100 West Larsen Drive
P.O. Box 1323
Fond du Lac, WI 54936-1323
Valley Sanitation Co., Inc.
1215 Klement Street
Fort Atkinson, WI 53538
Superior Services of Elgin, Inc.
1790 Gilpen
P.O. Box 334
South Elgin, IL 60177
Superior Glacier Ridge, Inc.
N7396 Highway V
Horicon, WI 53032
Land & Gas Reclamation, Inc.
N7296 Highway V
Horicon, WI 53032
Superior of Wisconsin, Inc.
559 Progress Drive
P.O. Box 168
Hartland, WI 53029
Superior Emerald Park Landfill, Inc.
W124 S10629 South 124th Street
Muskego, WI 53130
Superior FCR Landfill, Inc.
6480 County Road 12N
Buffalo, MN 55313
Superior Seven Mile Creek Landfill, Inc.
8001 Olson Drive
Eau Claire, WI 54703
Superior Oak Ridge Landfill, Inc.
1741 Sulphur Springs Road
Ballwin, MO 63021
Superior of Missouri, Inc.
2264 Creve Coeur Mill Road
Maryland Heights, MO 63043
Superior of Ohio, Inc.
1515 Harmon Avenue
Columbus, Oh 43223
Superior Services of Michigan, Inc.
Superior Waste Services of Pennsylvania, Inc.
P.O. Box 0
R.D. 2, Route 219
Brockway, PA 15824
Superior Hickory Meadows Landfill, Inc.
W3106 Schneider Road
Hilbert, WI 54129
Resource Recovery Transfer & Transportation, Inc. ("R2T2")
Speedway Sanitation, Inc.
1430 Speedway Blvd.
P.O. Box 540
Lincoln, AL 35096
Holt Landfill Co., Inc.
4831 12th Street N.E.
Holt, AL 35404
Urban Sanitation Corporation
1319 No Business Creek Road
Ragland, AL 35131
Superior Maple Hill Landfill, Inc.
31226 Intrepid Road
Macon, MO 63552
Homestand Land Corp.
5635 Toby Road
Kersey, PA 15846
Sharps Incinerator of Fort
1203 Klement Street
Fort Atkinson, WI 53538
Speedway Sanitation, Inc.
1430 Speedway Blvd.
P.O. Box 540
Lincoln, AL 35096
Superior Oakland Marsh Landfill
(f/k/a Noble Road Landfill)
170 Noble Road East
P.O. Box 275
Shiloh, OH 44878
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-3 No. 333-33141, Form S-4 No. 333-06443 (as amended)
and Form S-8 No. 333-12807) pertaining to (a) Superior Services, Inc.'s
registration of 5,000,000 shares of its common stock and common stock
purchase rights (b) Superior Services, Inc.'s registration of 5,000,000
shares of its common stock and common stock purchase rights and (c) the
Superior Services, Inc. 1996 Equity Incentive Plan, 1993 Incentive Stock
Option Plan and various other individual Employment, Stock Option and
Stock Purchase Agreements of our report dated February 5, 1998, with
respect to the consolidated financial statements and schedule of Superior
Services, Inc. included in this Annual Report (Form 10-K) for the year
ended December 31, 1997.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
February 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS OF SUPERIOR SERVICES, INC. AS OF AND FOR THE
TWELVE MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 40,135
<SECURITIES> 0
<RECEIVABLES> 36,666
<ALLOWANCES> (1,488)
<INVENTORY> 1,263
<CURRENT-ASSETS> 80,213
<PP&E> 284,367
<DEPRECIATION> (73,398)
<TOTAL-ASSETS> 366,992
<CURRENT-LIABILITIES> 35,712
<BONDS> 3,282
0
0
<COMMON> 241
<OTHER-SE> 259,409
<TOTAL-LIABILITY-AND-EQUITY> 366,992
<SALES> 0
<TOTAL-REVENUES> 177,833
<CGS> 0
<TOTAL-COSTS> 121,048
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 689
<INTEREST-EXPENSE> 1,277
<INCOME-PRETAX> 30,461
<INCOME-TAX> 12,706
<INCOME-CONTINUING> 17,755
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,755
<EPS-PRIMARY> .87
<EPS-DILUTED> .85
</TABLE>
