<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR TRANSITION PERIOD FROM TO Commission File No. 0-16102
EASTERN ENVIRONMENTAL SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 59-2840783
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
RR #4, BOX 4452, DRUMS, PA 18222
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (717) 788-6075
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicated by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the last sale price of the Registrant's Common Stock at the
close of business on September 21, 1995, was approximately $7,408,320.
The number of shares of Class A Common Stock, par value $.01 per share, of the
Registrant outstanding as of September 21, 1995, was 1,591,201. The number of
shares of Common Stock, par value $.01 per share, of the Registrant outstanding
as of September 21, 1995 was 3,983,104.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be filed with the
Commission in connection with the 1995 Annual Meeting of Shareholders are
incorporated by reference into Part III of this Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Eastern Environmental Services, Inc. ("EESI" or the "Company") is a waste
services company specializing in the disposal and transportation of non-
hazardous residential, commercial, industrial and special waste in the
eastern United States. The Company currently owns and operates three
landfills located in West Virginia, Kentucky and South Carolina and has
recently finalized a management agreement to permit, construct, and
operate a proposed municipal solid waste landfill in Illinois. The
Company's special waste hauling operation serves the eastern United
States and is a source of waste (primarily asbestos) for the Company's
landfills. The Company also provides roll off container services from its
West Virginia and South Carolina landfills. EESI currently has five
active operating subsidiaries.
The Company discontinued and sold substantially all of the operating
assets of its asbestos abatement and laboratory services subsidiaries
during the fiscal year ending June 30, 1994. As a result of increasing
competition and price compression in both these markets, management
decided to exit these businesses and focus on expanding the Company's
waste disposal and transportation capabilities. See "Discontinued
Operations" below.
The Company was formed as a Delaware Corporation in April 1987 to
continue the asbestos abatement operations of the William C. Skuba
Company, Inc. The Company began asbestos waste hauling in 1988 and
acquired its West Virginia landfill in August 1989. The Company's
Kentucky landfill was acquired in July 1990 and its South Carolina
landfill in November 1990. The Company has also recently finalized a
management agreement to develop an Illinois landfill. The Company's
strategy is to expand its waste disposal capabilities by further
developing its existing landfills and hauling operations and secondarily
by acquiring and developing additional landfills, waste hauling
operations and other waste-related businesses.
EXPANSION STRATEGY
------------------
The Company's expansion strategy consists of three principal components:
. Expansion of currently owned or managed landfills and the types
of waste that the Company may accept for disposal in its
landfills and for transportation by its hauling operations.
. Acquisition and development of additional landfills and special
waste hauling operations in the eastern and midwestern United
States.
. Diversification into other waste-related activities and
technologies.
The Company's primary expansion plan for fiscal 1996 is the securing of
the expansion permits in Kentucky and Illinois. The Company will also
concentrate on improving the efficiency and cash flow of its existing
operations. The key component of the Company's future acquisition
strategy is the acquisition of landfills in the eastern and midwestern
United States. The Company plans to acquire construction and demolition
debris landfills with the potential to accept substantial amounts of
special waste from a multi-state area. The Company may also acquire
landfills that can accept Municipal Solid Waste ("MSW") and local waste
collection firms and waste transfer facilities to complement its landfill
operations. The Company expects that some sites may also have the
potential to become regional MSW disposal facilities. Because it is very
difficult to obtain permits for new landfills, the Company seeks sites
with existing permits, although additional permitting usually is required
to make the potential acquisitions
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economically viable. The Company's expansion strategies are contingent
upon the Company's availability to capital funding. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources".
CONTINUING OPERATIONS
LANDFILLS
---------
The Company owns and operates three solid waste landfills in West
Virginia, Kentucky and South Carolina and is party to a management
agreement to permit, construct, and operate a proposed solid waste
landfill in Illinois as described in the following table.
TABLE 1
EESI LANDFILLS
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JUNE 30, 1995
<TABLE>
<CAPTION>
Total Approximate Acreage Approximate
Total Disposal Current of Expansion Life
Location Acres Acres Capacity (5) Expansion Area Capacity (5) In Years (6)
- -------- ----- -------- ------------ ------------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
West Virginia (1) 145 45 4,991,837 N/A N/A 19
Kentucky (2) 142 0 0 43 5,600,000 20
South Carolina (3) 73 39 3,192,646 N/A N/A 21
Illinois (4) 95 0 0 42 5,700,000 20
</TABLE>
___________
(1) Currently permitted to accept up to 9,999 tons per month of
municipal and residential waste, construction and demolition
debris, commercial and non-hazardous industrial waste, auto fluff,
shredded tires, non-infectious medical waste, petroleum
contaminated soil, and asbestos waste from anywhere within the
continental United States and Canada.
(2) The expansion area, if and when permitted, will be able to accept
municipal, commercial and residential waste from 10 counties at
any one time chosen from an 18 county area within Kentucky and
portions of Tennessee within 75 miles of the facility subject to
certain host county restrictions and will also be permitted to
accept non-hazardous industrial and commercial waste (special
waste) from specific generators on a case-by-case basis from
Kentucky and states contiguous to Kentucky. The expansion area, if
and when permitted, will be allowed to accept asbestos waste from
anywhere in the United States during the initial three-year
period; from Kentucky and states contiguous to Kentucky during
years four and five and from Kentucky only in year six and the
period thereafter. The Company is progressing through the
permitting process for the expansion area and currently operates
an approved transfer station. There can be no assurance that the
expansion area approval will be obtained. See " - Kentucky" below.
(3) Currently permitted to accept up to 122,400 in-place cubic yards
per year of asbestos, construction and demolition debris, plastic,
fiberglass, trees, limbs, cardboard, paper and tires from anywhere
within the continental United States. This site may also accept
limited additional industrial and special wastes that meet certain
minimum testing requirements as approved by the State on a case-
by-case basis. See " - South Carolina" below.
(4) Expected permitted capacity to accept residential, commercial,
municipal, industrial and special waste. See " - Illinois" below.
(5) In approximate cubic yards of airspace. Total yards of airspace
does not represent total yards of actual waste space because
daily, intermediate, and final soil cover takes up some airspace
(thus reducing the airspace available for waste disposal).
However, available airspace can be maximized through compaction of
waste at the disposal area and through the use of alternative
cover systems.
(6) These are approximate figures and are based upon existing volume
limitations and anticipated operating levels. Life expectancy will
decrease with increases in the rate of waste disposal. These
figures are based on the current permitted capacity at the West
Virginia and South Carolina landfills and on the expansion
capacity for the Kentucky landfill and on the expected permit
capacity in Illinois.
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WEST VIRGINIA - The Company purchased its landfill in Clarksburg, West
-------------
Virginia in August 1989. See Table 1, EESI Landfills, above for
--------------
information concerning permitted waste streams, acreage, current
capacity, life expectancy and other data relating to the Company's West
Virginia landfill.
The Company's West Virginia landfill is currently used for disposal of
local MSW, along with asbestos from independent waste haulers, asbestos
from the Company's hauling operation, construction and demolition debris,
shredded tires and other special and non-hazardous industrial wastes. MSW
disposal represented approximately 75%, 58% and 40% of the West Virginia
landfill's volume during the years ended June 30, 1995, 1994 and 1993,
respectively, while asbestos disposal represented approximately 15% of
the volume during the year ended June 30, 1995 and 39% of the volume in
both the years ended June 30, 1994 and 1993. The Company's West Virginia
landfill is divided into a separate composite lined disposal area for MSW
and special waste and a clay lined disposal area for asbestos and
construction and demolition debris which by design are integrally
connected to provide for a consolidated operation.
The Company received a State permit for an expansion area at its West
Virginia site on October 1, 1993. On June 30, 1994, the Company completed
construction and certification of the first cell in the expansion area
and began receiving waste in this area. The Company simultaneously
stopped accepting waste in the old landfill area as required by the State
and has began closure operations of the old area.
The Company is required by West Virginia regulations to operate its newly
permitted area in accordance with increased regulatory constraints and
requirements. See "- Regulation - State Law". The Company has expended
---------
approximately $265,000 per acre for the development of approximately 1.6
acres of Non-MSW waste area (which requires a compacted clay liner and
excavation) and $360,000 per acre for the development of approximately
3.3 acres of MSW area (which requires a synthetic liner over a compacted
clay liner and excavation) exclusive of the overall permitting,
engineering, design, legal and hydrogeological costs of permitting the
site. The Company plans to develop further disposal acreage as needed.
Closure costs at the West Virginia site are estimated at approximately
$725,000 for the old permitted area and $3,000,000 for the new expansion
area. Post-closure care and monitoring costs in the old and expansion
areas are expected to be approximately $27,000 and $120,000 per year over
the 30-year period following closure. The Company has begun accruing and
funding for these expenses. See ITEM 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
-------------
Capital Resources."
-----------------
KENTUCKY - The Company purchased its landfill in Pulaski County,
--------
Kentucky in July 1990. See Table 1, EESI Landfills, above for information
--------------
concerning permitted waste streams, acreage, current capacity, expansion
capacity, life expectancy and other data relating to the Company's
Kentucky landfill.
Until June 30, 1995, the Company's Kentucky landfill was primarily used
for disposal of local MSW and petroleum contaminated soil, and to a
significantly less extent, asbestos, sludge, glass, ash and other special
waste and holds an exclusive disposal franchise until February, 2002 for
disposal of solid waste generated within Pulaski County, Kentucky. MSW
represented
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approximately 80%, 84%, and 62% of the Kentucky landfill's total volume
for the years ended June 30, 1995, 1994, and 1993, respectively.
The Kentucky landfill operated under Kentucky's "transition standards"
allowing operation in the existing landfill area until June 30, 1995. As
of June 30, 1995, the company ceased placing waste in the disposal area
and began operation of a transfer station. Management had made a
strategic decision to limit the amount of waste accepted at its Kentucky
landfill each month commencing in January, 1993 in order to extend the
life expectancy of the existing disposal area to June 30, 1995, which has
resulted in a reduction of revenues generated at this facility to
approximately 25% of previous normal operation revenue levels. This
reduction in volume had a continued material adverse effect on the
Company's financial performance until June 30, 1995, when the landfill
ceased accepting waste. Currently, through the operation of the transfer
station, the results of operations reflect lower gross revenues and a
greater operating loss than had been the case prior to June 30, 1995. If
the Company should receive State approval to build and operate the
expansion area described below, the amount of waste accepted at this
facility may, over time, be returned to fully operational levels as have
been in effect prior to 1993. See ITEM 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Revenues".
--------
As a result of this reduction in waste volume, management previously
determined that certain assets acquired upon purchase of the landfill,
primarily a covenant-not-to-compete and amounts assigned to existing
contracts, may not be realizable. Accordingly, these intangible assets
were reflected as a non-cash charge to operations in fiscal year 1993 of
$831,575. See ITEM 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Non-Recurring Charges".
---------------------
The Kentucky landfill, which was previously being operated under a
reissued permit obtained on January 4, 1994, is seeking a State permit
for its 43 acre expansion area. The Company received local approval for
the expansion area from the local Solid Waste Management Board and
entered into a Host Agreement with the county in December, 1994. The Host
Agreement defines acceptance, disposal, and sources of waste for the
landfill and also addresses capacity assurances, transfer stations, white
goods (i.e., appliances) and tire reduction programs, open-dump programs,
prohibited wastes and other general solid waste reduction and disposal
issues. The Company does not anticipate any material adverse effect on
the future operations of the Kentucky landfill from entering into the
Host Agreement.
Although the Company expects to receive a State permit for the Kentucky
expansion area, there can be no assurance that it will be obtained. With
the landfill temporarily closed, the Company has implemented an
alternative to provide for disposal of local solid waste through the use
of a transfer station, through transportation and disposal with local
haulers and nearby landfills. If the State permit is obtained, the
Company will be required by Kentucky regulations to operate this
expansion area in accordance with increased regulatory requirements. See
"- Regulation - State Law". The Company believes the expansion area is
---------
expected to cost up to $400,000 per acre (which requires a synthetic
liner over a compacted clay liner and excavation) to construct exclusive
of the overall permitting, engineering, design, legal and hydrogeological
costs of permitting the site. The Company expects to construct disposal
acreage on an as needed basis. Closure costs for the existing permitted
areas of the Kentucky site are estimated at approximately $1,250,000 and
closure costs for the expansion area are estimated at $3,200,000. Post-
closure
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care and monitoring costs for the old and expansion areas are expected to
be approximately $27,000 and $120,000 per year over the 30-year period
following closing. See ITEM 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations -Liquidity and Capital
---------------------
Resources" and "Non-Recurring Charges".
--------- ---------------------
SOUTH CAROLINA - The Company purchased its landfill in Eastover
--------------
(near Columbia), South Carolina in November 1990. See Table 1, EESI
----
Landfills, above for information concerning permitted waste streams,
---------
acreage, capacity, life expectancy and other data relating to the
Company's South Carolina landfill.
The Company received renewal of its existing permit on November 19, 1993.
The Company's South Carolina landfill is primarily used for disposal of
local construction and demolition debris, plastic, fiberglass, trees,
limbs, tires, cardboard, paper and certain other non-hazardous industrial
wastes along with asbestos from independent waste haulers and from the
Company's waste hauling operation. Construction and Demolition debris
disposal represented 46%, 36% and 14% of the South Carolina landfill's
volume during the years ended June 30, 1995, 1994, and 1993,
respectively, while approximately 54%, 64% and 86%, respectively, were
derived from the disposal of other wastes (principally asbestos). The
Company is limited to accepting up to 122,400 in-place cubic yards per
year of waste. The Company may seek to increase this limit from time to
time, which would require local zoning and state regulatory approvals.
There can be no assurance that such approvals will be obtained.
According to draft regulations which may become effective in fiscal 1996,
the South Carolina facility may be required to operate in accordance with
increased regulatory requirements. See "- Regulation - State Law"
---------
ILLINOIS -The Company has recently finalized a management agreement to
---------
manage a proposed municipal solid waste landfill in Illinois. The
landfill has received local approval, and an application to the State for
permit approval was submitted in November 1994, and is in the final
stages of permit review. If a permit for the landfill is obtained, the
landfill will be able to accept residential, commercial, municipal,
industrial and special waste. The disposal area encompasses approximately
42 acres with projected capacity of 5,700,000 cubic yards of air space,
which at expected operating levels, would have a life of approximately 20
years. Construction costs, closure and post-closure costs will be
comparable with the MSW acres of the Company's West Virginia and Kentucky
landfills previously described. The Company has expended approximately
$257,000 in engineering costs through June 30, 1995. A state permit is
expected to be granted during the 1995 calendar year with construction
and operation expected to occur during 1996. Although the Company
believes that the permit will be obtained, there can be no assurances
that the permit will be received and that the Company will be able to
successfully develop the landfill.
The management agreement provides the Company the right to develop,
construct and operate the municipal solid waste landfill, retaining any
profits generated from operations, subject to paying the owner of the
landfill a royalty based on average tonnage disposal rate achieved. The
management agreement also requires the owner's local waste collection
businesses and transfer stations to dispose of their waste exclusively at
the landfill once it is operational, provided the landfill offers
competitive pricing. The Company has an option to purchase the landfill,
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including additional acreage, within the next 40 years for consideration
consisting of nominal cash and a continuing royalty.
WASTE HAULING
-------------
The Company's special waste hauling subsidiary transports waste to
Company-owned landfills and non-affiliated landfills. The Company formed
its first hauling operation in 1988 and now operates a fleet of
approximately 280 trailers and 20 tractors that it owns, leases or
operates under arrangements with independent owner/operators. The Company
offers roll-off container service (industrial dumpsters) and has
satellite trucking terminals at two of the Company landfills. The Company
is expanding its operations to include the hauling of other special
wastes, shredded construction and demolition debris, and general freight.
In many states, hauling of these wastes requires special permits, which
the Company has obtained or is in the process of obtaining.
Until June 30, 1995, the Company also operated a residential and
commercial waste collection and portable sanitation business in Beaufort
County and Jasper County, South Carolina, and Chatham County, Georgia,
which it purchased in August 1992. The Company integrated certain of the
assets of this business into its South Carolina landfill and sold the
remainder of the operation.
DISCONTINUED OPERATIONS
ASBESTOS ABATEMENT
------------------
Prior to fiscal 1990, asbestos abatement provided a majority of the
Company's revenue. Since that time, growth in the market for these
services slowed and competition increased. As a result of this
continuing market decline, management decided to discontinue this
operation. The Company completed several highly profitable contracts
during the first six months of fiscal 1994 and on January 31, 1994 ceased
operations with the sale of certain assets, contracts and customer
accounts to a competing asbestos abatement firm. The majority of
remaining assets and liabilities were liquidated by June 30, 1994. This
cessation of business was accounted for as a discontinued operation at
June 30, 1993. See ITEM 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Discontinued Operations"
-----------------------
and Footnote 14 to the Consolidated Financial Statements.
LABORATORY SERVICES
-------------------
The Company was also engaged in the business of providing asbestos and
lead testing analysis and consulting services and environmental site
assessments, radon testing, indoor air quality audits and hazardous waste
site remediation monitoring. As with abatement operations, the Company
saw the growth in certain of these markets continually decline with
increased competition. As a result of this decline in profitability,
management substantially cut back operations of this subsidiary during
fiscal 1993 and on October 22, 1993 sold substantially all of the long
term assets (excluding real estate) of this segment to a New York based
environmental consulting firm who maintained ongoing operations. This
cessation of business was accounted for as a discontinued operation at
June 30, 1993. See ITEM 7. "Management's
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Discussion and Analysis of Financial Condition and Results of Operations
- Discontinued Operations" and Footnote 14 to the Consolidated Financial
-----------------------
Statements.
MARKETING AND SALES
The Company employs a sales staff who along with the general managers of
each operation and the officers of the company solicit waste for its
disposal and hauling operations principally through the process of
competitive bidding. Potential customers are contacted through direct
mailings, telemarketing, advertising in national trade journals, exhibits
and participation at trade shows, personal visits, community involvement,
referrals and projects listed in various construction reports. The
Company has also obtained customers through recommendations and referrals
from existing customers. The Company maintains a database of
contractors, haulers, and commercial entities for continual solicitation
of business. The Company is attempting to increase its landfill and
waste hauling revenues and client base and to diversify its mix of
generators and waste streams by systematically identifying potential
customers and obtaining long-term contracts from those customers.
COMPETITION
The solid waste industry is highly competitive, and the Company believes
that industry consolidation will increase competitive pressures. The
Company's landfills compete with municipalities, numerous small local
firms and regional firms and large national waste management companies.
Many of the Company's competitors have greater marketing and capital
resources and experience than the Company. Although a portion of the
waste transported by the Company's waste hauling operations is disposed
of at Company landfills, the Company's landfills receive the majority of
their revenues from non-affiliated waste generators and haulers.
Competition among landfills is based primarily upon proximity of the
landfill to the waste generator, price, service, condition of the
landfill and permit approvals for particular wastes. Municipalities have
financial advantages from tax revenues and tax exempt financing and other
advantages from legislative preferences for public ownership in certain
states. Increased competition among regional and national landfill
companies may adversely affect profit margins in the future.
The Company's waste hauling and collection operations compete with small
transporters and large volume waste hauling firms located in the
northeastern, mid-Atlantic and southeastern states. Competition among
waste haulers is based primarily upon price and the quality and
timeliness of service. The Company believes that its special waste
hauling division has a competitive advantage by offering satellite
terminals at Company owned and operated landfills. This allows the
Company to more effectively dispatch equipment directly to the job site
and back to the landfill.
REGULATION
The regulatory requirements applicable to the Company are extensive and
continually evolving, and changes in laws and regulations could have a
material adverse effect on the Company's business or financial condition.
The Company will be required in the future to make substantial
expenditures to comply with regulations and could be required to curtail
or cease certain of its
8
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operations if it is unable to meet applicable requirements. While the
Company believes that it is in material compliance with federal, state
and local regulations and permits, there can be no assurance that
violations will not occur in the future or that claims of deficient
performance in the past, present or future will not arise and have a
material adverse effect on the Company's business or financial condition.
See ITEM 1. "Business - Permits and Licenses."
STATE LAW
---------
On October 1, 1993, the Company's West Virginia landfill received a
permit to construct its expansion area. The Company completed
construction and certification of the first disposal cell of the
expansion area on June 30, 1994. The Company concurrently ceased
accepting waste in the old landfill and commenced accepting waste in the
newly permitted and constructed disposal area. The Company operates its
expansion area under the more stringent federal and state requirements
and has initiated closure of the old disposal area. The West Virginia
landfill can continue to operate under its newly issued permit with
renewal every five years. The Company estimates the remaining life of
the newly permitted area at approximately 19 years based on anticipated
operating volumes.
Current Kentucky law required the Kentucky landfill to cease operations
in its existing disposal area on June 30, 1995 because this area did not
meet the new required standards. As the Company continues to pursue a
final state permit for the expansion area at the site, a program was
implemented on June 30, 1995 to transfer and dispose of waste to an
alternate location. This suspension of disposal of waste at the landfill
and the operation of a transfer station will have an adverse effect on
the Company's operating results. See ITEM 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Cost of
-------
Revenues and Gross Profit".
-------------------------
The planned development of the Illinois landfill is expected to begin in
early 1996 if the permit is received. The landfill will be operated
under the more stringent federal and state requirements enacted over
recent years. The capital costs to meet the federal and state
requirements will be substantial and similar to those expended for the
Company's West Virginia landfill in its MSW area as described below. The
landfill is expected to operate for 20 years under projected operating
levels.
The current expansion at the West Virginia landfill, the planned
expansion at the Kentucky landfill, and the planned development of the
Illinois landfill require the installation of liners, additional
groundwater monitoring wells, leachate collection and treatment systems,
methane gas monitoring and venting systems and other environmental
protection measures. The capital costs for installation of these
regulatory compliance measures and preparation of the expansion areas are
substantial, although the Company will only construct portions of its
expansion areas on an as-needed basis to accommodate its anticipated
waste volumes. The Company has expended approximately $265,000 per acre
(for compacted clay liners and excavating in the non-MSW areas) and
$360,000 per acre (for compacted clay and synthetic liners and excavating
in the MSW areas) in West Virginia exclusive of the overall permitting,
engineering, design, legal and hydrogeological costs of permitting the
site. These amounts are based on current regulations and on construction
costs incurred to date. The state and federal regulatory requirements
affecting the planned expansions have changed frequently in the past, and
material additional changes
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could occur. Although substantial changes are currently not expected,
any such changes could result in an increase in the cost of regulatory
compliance at the landfills and thereby adversely effect the Company's
operating results.
The Company will also incur material costs in connection with the state
regulatory requirements governing closure and post-closure monitoring and
maintenance of the current operating areas and future expansion areas of
its landfill sites. The costs of closing current permitted operating
areas of the Company's landfills if all acreage is used is estimated to
be approximately $3,725,000 in West Virginia including the recently
permitted West Virginia expansion area, approximately $918,000 in
Kentucky and approximately $465,000 in South Carolina (under draft South
Carolina regulations expected to become effective in fiscal 1996, as
discussed below). Closure costs for the Kentucky expansion area are
expected to be approximately $3,300,000. Post-closure care and
monitoring obligations at both the West Virginia and Kentucky sites will
add additional expenditures of $27,000 to $120,000 per year per site
over the 30-year period following closure. Closure and post-closure care
costs for the proposed Illinois landfill are expected to be similar to
those for the West Virginia and Kentucky landfills. The Company expects
post-closure care to cost $10,000 per year for the 30 years following
closure at the South Carolina landfill. These amounts are only estimates
based on current and proposed regulatory requirements. There can be no
assurance that additional closure and post-closure requirements will not
be mandated. Although substantial changes in applicable regulatory
requirements are currently not expected, any such changes could result in
an increase in the cost of regulatory compliance at the landfills and
thereby adversely affect the Company's operating results.
In 1993, the South Carolina Department of Health and Environmental
Control proposed new regulations governing industrial waste landfills,
which includes the Company's South Carolina facility. If passed in the
proposed form, these regulations would impose additional operating,
reporting and record-keeping requirements on the Company's South Carolina
landfill as well as significant new closure, post-closure and design
requirements. To operate after the effective date of the proposed
regulations, the Company may need to upgrade the landfill's design. The
type of upgrades required would depend on the type of industrial wastes
the Company would choose to accept for disposal. If the Company would
accept only a limited class of industrial wastes (referred to in the
proposed regulations as "Class 1" wastes), the Company would only need to
design and install a groundwater monitoring program. The Company
believes all wastes it currently accepts at the South Carolina landfill
are considered Class 1 wastes. If the Company wished to accept a broader
class of industrial wastes (referred to as "Class 2" or "Class 3"
wastes), it would need to install a clay liner (Class 2) or a clay and
synthetic liner (Class 3) plus a leachate collection system. A Class 3
facility would also be subject to additional closure requirements and
related costs. If the regulations are finalized in substantially the
form proposed, the Company will determine the projected cost and benefit
of being able to accept Class 1, Class 2 or Class 3 wastes, and choose
the appropriate design for the facility, which may include separate
disposal areas for separate classes of wastes. However, these
regulations are only in draft form, and final regulations may have
additional or substantially different requirements. The regulations are
expected to become effective in fiscal 1996.
The rates that the Company may charge at its West Virginia landfill for
the disposal of MSW are regulated by the West Virginia Public Service
Commission ("PSC"). Effective June 30, 1994, the Company increased its
MSW disposal rate from $22.50 per ton to $28.25 per ton (net of tonnage
taxes) upon receipt of waste on its composite lined disposal area
pursuant to
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<PAGE>
finalization of a revised tariff with the PSC based upon a Company filed
rate case. This revised tariff from the PSC, among other items, provides
for an initial base tariff rate of $28.25 per ton for MSW disposal in the
landfill composite lined area and the flexibility, with a minimum 60 days
of notice to the PSC and affected members of the public, to increase its
base rate in increments to a maximum of $38.93 per ton within a two year
period.
The adoption of rate regulation of waste disposal in Kentucky, Illinois
or South Carolina, or in other states in which the Company may own
landfills in the future, could materially adversely affect the Company.
The Company's landfills and related waste collection operations also may
be affected by the trend toward state and local laws requiring the
development of waste reduction and recycling programs. For example, many
states (including West Virginia, Kentucky, South Carolina, and Illinois
where the Company's existing and proposed landfills are located) have
enacted laws that require counties to adopt comprehensive plans to reduce
the volume of solid waste deposited in landfills through waste planning,
composting, recycling or other programs. Some states, including South
Carolina, West Virginia, Kentucky, and Illinois have adopted legislation
that prohibits the disposal of yard waste, tires and other items in
landfills. The development of such programs could reduce the volume of
landfill waste and thereby have a material adverse effect on the Company.
FEDERAL LAW
-----------
At the Federal level, landfill owners and operators and waste haulers are
subject to potential response costs and liabilities that may arise under
the Comprehensive Environmental Response, Compensation and Liability Act,
as amended ("CERCLA"). CERCLA imposes strict, joint and several
liability on present and former owners or operators of facilities, as
well as the waste generator and the transporter (if the transporter
selected the facility), if a release of a hazardous substance occurs or
is threatened at or from the facility. All of those persons may be
subject to liability for response costs and for damages to natural
resources, whether or not they are responsible for the release of a
hazardous substance or have complied with all relevant laws and
regulations. Asbestos is listed as a hazardous substance under CERCLA,
however asbestos is not considered a hazardous waste under the Resource
Conservation and Recovery Act ("RCRA") described below. In the event of
a release or threat of release of hazardous substances from the Company's
landfills or these other facilities, the Company could be liable to the
government or third parties for response costs or natural resource
damages under CERCLA.
The Resource Conservation and Recovery Act ("RCRA") comprehensively
regulates the transportation and disposal of solid and hazardous waste.
Hazardous waste is regulated under Subtitle C of RCRA, while solid waste
is regulated under Subtitle D. Pursuant to RCRA, the Company could be
compelled to abate any imminent and substantial endangerment to public
health or welfare or the environment caused by the past or present
handling of solid or hazardous waste at any of its facilities. Although
the Company attempts to accept only non-hazardous waste and maintains
hazardous waste exclusion plans at its landfills, it may be difficult for
the Company to screen fully and effectively for certain types of non-
regulated hazardous waste. For example, the United States Environmental
Protection Agency ("EPA") has estimated that one to three percent of all
household waste is waste which would otherwise
11
<PAGE>
be considered hazardous and there can be no assurance that household
hazardous waste will not be present at Company landfills.
RCRA regulations developed under Subtitle D set forth criteria for solid
waste disposal practices. Failure to satisfy these criteria constitutes
open dumping which is prohibited by RCRA and most state laws. According
to these regulations, if the disposal activity has certain specified
effects on such environmental resources as floodplains, endangered
species, surface water, groundwater and air, the disposal activity may
constitute illegal open dumping. The Company conducts monitoring at all
of its landfill sites and believes that its landfills do not exceed any
current open dumping standards; however, there can be no assurance that
future monitoring will not reveal conditions that may call for
remediation.
In September 1991, the EPA issued new regulations under Subtitle D of
RCRA that apply to MSW landfills. Most provisions of these regulations
took effect on October 9, 1993, and mandate the following for MSW
landfills: groundwater monitoring to detect contamination; corrective
action to clean up contamination; methane gas monitoring and controls;
natural and synthetic liners; leachate collection systems; final cover
systems; restrictions on landfilling of liquids; restrictions on locating
landfills; site specific plans for closure and post-closure; financial
responsibility mechanisms for closure, post-closure, and groundwater
corrective action; a 30-year post-closure responsibility period; and a
program to detect and prevent disposal of RCRA hazardous waste and PCBs.
The EPA may enforce the Subtitle D regulations if it determines that a
state has not adopted an adequate permit program to ensure compliance
with EPA's Subtitle D standards. Many states, including West Virginia,
Kentucky, and Illinois have already adopted regulations that the Company
believes meet or exceed the requirements of the Subtitle D regulations in
most respects. Kentucky's regulations have already been certified by
EPA. The Company believes it is in material compliance with these
regulations.
The Subtitle D regulations apply only to MSW landfills. Thus, the
Company's South Carolina landfill is currently not affected since it is
not permitted to accept MSW. However, increased regulatory conditions at
the South Carolina landfill are anticipated as all types of waste
disposal practices are being continually reevaluated.
Congress frequently considers amendments to RCRA and CERCLA and new bills
and laws governing solid waste. While specific requirements which would
be created in the event any such legislation is passed cannot be
predicted, it is likely that solid waste and industrial solid waste will
be subject to increased regulation and that alternative means of disposal
will be encouraged.
The Federal Clean Water Act established rules regulating the discharge of
pollutants from a variety of sources, including landfills, into streams
or other surface waters. Whenever pollutants from the Company's
landfills may be discharged into surface waters through a point source
(e.g. a drainage channel, ditch, pipe or similar conveyance), this act
requires the Company to apply for and obtain discharge permits, conduct
periodic sampling and monitoring and, under certain circumstances, reduce
the quantity of pollutants in those discharges via treatment or
management practices. This act may regulate the discharge of materials
as varied as the constituents of storm water runoff or landfill leachate
released to surface water channels. In most states,
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<PAGE>
implementation of this program is delegated by the federal government to
the state. In Kentucky, the Company has received a state permit
governing its surface water discharge. The Company has received a NPDES
(National Pollution Discharge Elimination System) permit for its newly
permitted and constructed West Virginia expansion area governing surface
water discharges. In addition, the City of Fairmont and the Grant-Union
Public Service District in West Virginia have received permit approval to
allow disposal of leachate from the West Virginia landfill. The City of
Jamestown in Kentucky accepts leachate from the Kentucky landfill. In
South Carolina, the Company is regulated for storm water discharge under
the state's General Permit for Storm Water Discharges Associated with
Industrial Activity. The Company has been issued a Notice of Coverage
under a General NPDES permit for its Illinois operation to allow
discharges from the proposed landfill activity.
The Clean Air Act provides for federal, state and local regulation of
emissions of air pollutants into the atmosphere and has been construed by
the EPA to apply to the operation of landfills. Asbestos is considered to
be a hazardous air pollutant under the Clean Air Act. When the Company's
landfills accept asbestos-containing waste, they also are governed by
federal EPA regulations promulgated pursuant to the Clean Air Act. These
regulations require that there be no visible emissions to the outside air
from the disposal site or that the asbestos-containing material be
covered daily (or if the site is continuously operated, at least once
every 24 hours). Further, unless a natural barrier adequately deters
access by the general public, warning signs and fencing must be installed
or the asbestos waste must be covered daily. In an effort to track
asbestos waste, federal regulations require active asbestos waste
disposal sites to record the location of all asbestos waste and retain
waste shipment records for at least two years. In addition to federal
regulation, many states and localities have programs for approving and
licensing asbestos disposal sites. The Company believes it is in
material compliance with these regulations.
PERMITS AND LICENSES
The Company's permit in West Virginia allows the landfill to accept up to
9,999 tons per month of MSW, construction and demolition debris,
commercial and non-hazardous industrial and special waste, shredded
tires, petroleum contaminated soil and non-infectious medical waste from
anywhere within the continental United States and Canada. Increasing the
permitted monthly tonnage would require reclassification of the landfill
from a Class B to a Class A landfill, which would also increase the level
of local control over the landfill. The West Virginia permit expires in
October, 1998 and must be renewed every five years.
As previously noted, the Company received local approval for its 43-acre
expansion area in December 1994 at the Kentucky landfill and is currently
seeking a State permit. Although the Company expects to receive an
expansion permit from the State, there can be no assurance that the
permit will be obtained. Failure to obtain a State permit would have a
material adverse effect on the Company's financial condition.
The Company's expansion area in Kentucky, if and when permitted, will be
able to accept municipal, commercial and residential waste from 10
counties at any one time chosen from an 18 county area within Kentucky
and portions of Tennessee within 75 miles of the facility subject to
certain host county restrictions and will also be permitted to accept
non-hazardous industrial and commercial waste (special waste) from
specific generators on a case-by-case basis from
13
<PAGE>
Kentucky and states contiguous to Kentucky. The expansion area, if and
when permitted, will be allowed to accept asbestos waste from anywhere in
the United States during the initial three-year period; from Kentucky and
states contiguous to Kentucky during years four and five and from
Kentucky only in year six and the period thereafter. The Company is
progressing through the permitting process for the expansion area and
currently operates an approved transfer station. There can be no
assurance that the expansion area approval will be obtained.
The Company's permit in South Carolina allows the landfill to accept and
dispose of up to 122,400 cubic yards of in-place waste per calendar year,
including asbestos, construction and demolition debris, plastic,
fiberglass, trees, limbs, tires, cardboard and paper from anywhere within
the continental United States. The Company may seek to increase this
limit from time to time, which would require local zoning and state
regulatory approvals. There can be no assurance that such approvals will
be obtained. The permit requires an environmental compliance review
every 5 years. The most recent environmental compliance review was
performed and the permit was renewed on November 18, 1993.
As previously noted, the Company is seeking approval from the state to
permit a 42-acre landfill in Illinois which will be able to accept
residential, commercial, municipal, industrial, and special waste. There
can be no assurance the permit will be granted.
The Company's waste hauling operation holds various federal, state and
local permits to transport MSW, special, and hazardous wastes.
INSURANCE AND BONDING
The Company's insurance requirements are highly specialized and difficult
and costly to obtain. The Company carries comprehensive general liability
insurance for all its operations on an claims made basis with a primary
limit of $1,000,000 per occurrence and an umbrella limit of $1,000,000 in
the aggregate for all occurrences in the one-year policy period. The
Company also carries comprehensive automobile insurance on all Company
vehicles with a primary limit of $1,000,000 per occurrence, subject to a
deductible of $10,000 per occurrence. The Company has employer liability
coverage with a combined limit of $1,000,000. The Company does not
currently maintain environmental impairment liability insurance coverage.
If the Company were to incur liability for environmental or other damage,
the cost could be substantial and in excess of policy limits, outside the
terms of coverage, or subject to certain policy exclusions. Consequently,
the Company's business or its financial condition could be materially
adversely affected by an environmental claim or other claim.
The Company carries workers compensation insurance as required by law.
The Company is currently self-insured through a program approved by the
Pennsylvania State Workers Compensation Insurance Fund for potential
workers compensation claims for Pennsylvania resident employees. The
Company maintained a $1,000,000 performance bond as collateral for the
program which was reduced to $600,000 in July, 1995. The $1,000,000 bond
at June 30, 1995 was secured by a $250,000 cash deposit in a trust fund
administered by the bonding company. The cash collateral was reduced to
a $150,000 requirement in July, 1995 upon reduction of the bond. An
excess insurance policy for workers compensation is maintained which
provides medical benefit coverage per incident in excess of $120,000,
$60,000 and $50,000 in the first, second and third years, respectively,
from the date of occurrence. The
14
<PAGE>
Company utilizes the services of an independent claims management
consultant to control the cost of the self-insured program. The Company
maintains workers compensations insurance through a state fund for its
West Virginia resident employees and through a national insurance company
for residents in all other states. While the level of claims and the
cost of maintaining this coverage have been minimal to date, there is no
assurance that future claims will not have a material adverse effect on
the future profitability or financial condition of the Company.
The Company is required to post a form of financial assurance at two of
its existing landfills to ensure proper closure and post-closure
monitoring and maintenance. West Virginia currently requires that the
Company post financial assurance of $168,000 for closure and post-closure
care of up to 30 years for the closed disposal area and $214,000 for the
newly permitted expansion area. The West Virginia financial assurance is
secured at June 30, 1995 by certificates of deposit totalling $190,665
including accumulated earnings on the deposits for the closed disposal
area and a $214,000 closure bond for the expansion area. The closure
bond required no collateral. The Company anticipates that the West
Virginia bonding requirements will substantially increase as the State's
solid waste program is approved by the Federal government. Financial
assurance requirements for the newly permitted expansion area may
increase to approximately $3,000,000 for closure and $3,600,000 for post-
closure care.
Kentucky has required $1,321,607 of financial assurance for the closure
of the existing permitted area of the Kentucky landfill and $314,571 for
the 30-year post-closure period. The Kentucky financial assurance for
closure and post-closure monitoring of the current area at June 30, 1995
is secured by payment bonds totalling $1,636,178. The closure bond of
$1,321,607 is collateralized by a $626,000 irrevocable letter of credit.
The post-closure bond of $314,571 is collateralized by a $104,134 U.S.
Government treasury security deposited in a trust fund administered by
the bonding company. Similar additional bonding requirements will be
imposed to secure closure and post-closure obligations at the expansion
area of the Company's Kentucky landfill.
Some of the Company's hauling and collection contracts require
performance and payment bonds to guarantee project completion. In
addition, certain states may require collateral bonds to secure
compliance with hazardous waste hauling requirements. Although such
bonds are restricted in availability, the Company has established
relationships with surety companies that currently meet its bonding
needs. There is no assurance, however, that these relationships will
continue or that the Company will not be forced to seek alternative
sources for bonding. Continuation of bonding is contingent upon the
Company's performance record and credit-worthiness which is reviewed on a
regular basis.
The inability to maintain the Company's insurance program and bonding
capacity or a sizable increase in rates would have a material adverse
impact on the Company's business and may preclude it from obtaining or
retaining landfill operating permits. The Company also is subject to the
risk of potential claims in excess of policy limits, claims relating to
projects performed during periods not covered by insurance, or claims
made after the expiration of the policy coverage period. Asbestos-
related illnesses, such as asbestosis, lung cancer, mesothelioma and
other cancers, may not become apparent until many years after exposure.
From May 15, 1985 through April 28, 1988, the Company carried claims made
general liability coverage when quality occurrence insurance was
difficult to obtain. Because of the long-term nature of asbestos-related
illnesses, any claims presented on the basis of exposure during that
three-year
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<PAGE>
period of time may not be covered by insurance. If the Company were to
incur liability for asbestos-related illnesses, which were not covered by
insurance, its financial condition and results of operations could be
materially adversely affected.
PATENTS, TRADEMARKS, LICENSES AND COPYRIGHTS
The Company has registered its Company logo, the phrase "Experience and
Technology for a Safer Environment", and the Company's symbol on the
Nasdaq National Market ("EESI") with the U.S. Patent and Trademark Office
as service marks.
EMPLOYEES
As of September 21, 1995, the Company had 58 permanent full-time
employees, of which 49 were employed in landfills and waste hauling and
collection operations and 9 in corporate operations (including 3
officers). The Company has no union contracts or collective bargaining
agreements covering its employees. The Company believes that its
employee relations are good.
ITEM 2. PROPERTY AND EQUIPMENT
The Company owns its corporate administrative offices in Drums,
Pennsylvania which currently houses both its corporate staff and the
administrative staff of its special waste hauling operation. The Company
leases a corporate administrative office in West Virginia. Total rent
expense paid to lease non-owned Company facilities during the year ended
June 30, 1995, was $13,000.
The Company owns two facilities in Northeastern Pennsylvania which
previously served as the operations building for the waste hauling
company and operational headquarters of its laboratory services operation
prior to discontinuance. The Company currently leases these two
facilities to unrelated parties under lease agreements. Both facilities,
which are currently being marketed for sale, are held subject to a
mortgage, with a balance of $687,521 at June 30, 1995. The Company also
owns three acres of vacant land adjacent to its corporate offices in
Drums and an office and garage facility for its waste collection
operation in South Carolina.
At June 30, 1993 the Company decided to increase liquidity by selling
certain real estate holdings. During fiscal 1994 and 1995, the Company
sold several real estate holdings in Pennsylvania and Florida with net
proceeds of $498,390 generated and used for the construction of the West
Virginia landfill expansion area. To this end, the Company continues to
actively market the two facilities in Northeastern Pennsylvania described
above along with several other properties in Pennsylvania.
A description of the Company's landfill properties is contained above
under ITEM 1. "Business - Continuing Operations - Landfills".
ITEM 3. LEGAL PROCEEDINGS
An administrative action was filed with the Kentucky Cabinet of Natural
Resources and Environmental Protection (the "Cabinet") in April 1993 by a
local citizens group. This suit challenges certain aspects of the
Kentucky landfill's permit authority, including the adequacy of
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<PAGE>
various notices, hearing procedures, local approvals, and written
authorizations received over the past year. The suit also challenged the
legality of various regulations and actions by the Cabinet and the
adequacy of the Kentucky landfill's groundwater monitoring program. The
administrative action was dismissed by an Agreed Order of Dismissal
signed by the Secretary for the Kentucky Natural Resources and
Environmental Protection Cabinet on August 1, 1995. The Agreed Order
requires the parties to implement certain monitoring activities at the
closed landfill.
In February 1995, Battle Ridge Companies ("Battle Ridge") filed a
complaint against the Company and certain other defendants in the Circuit
Court of Harrison County, West Virginia (No. 95-C-106) alleging that
Battle Ridge is entitled to additional payment for excavation and
development work performed at the Company's West Virginia landfill. The
complaint seeks contract damages of at least $460,000, a $100,000 project
bonus, $1 million in punitive damages, as well as interest, consequential
damages and attorney's fees. The Company has filed a counterclaim
against Battle Ridge claiming that Battle Ridge breached its contract
with the Company and is required to pay liquidated and other damages to
the Company. The Company believes that it has substantial defenses to
the allegations in the complaint and intends to vigorously defend against
the action.
The Company is not currently involved in any other material litigation,
including material litigation arising from federal, state or local
provisions that have been enacted for the purpose of protecting the
environment. Management believes that the ultimate resolution of these
matters will not have a material adverse impact on the Company's business
or its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security-holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the
fiscal year ended June 30, 1995.
17
<PAGE>
PART II
ITEM 5. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market and
quoted on the Nasdaq National Market under the trading symbol "EESI".
There is no established public trading market for the Company's Class A
Common Stock, par value $0.01 per share. As of June 30, 1995, William C.
Skuba, the Chairman of the Company, owned 100% of the outstanding Class A
Common Stock.
The following table sets forth, for the fiscal quarters indicated, the
high and low sale prices per share for the Company's Common Stock, as
reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal Year Ended June 30, 1995
First Quarter............... 1 7/16 1
Second Quarter.............. 1 5/16 3/4
Third Quarter............... 1 1/2 7/8
Fourth Quarter.............. 1 3/4 7/8
Fiscal Year Ended June 30, 1994
First Quarter............... 1 1/2 3/4
Second Quarter.............. 1 1/2 1 1/16
Third Quarter............... 2 1/16 1 3/32
Fourth Quarter.............. 1 3/4 1
</TABLE>
These prices do not reflect commission.
As of September 21, 1995, the Company had 284 holders of record of its
Common Stock.
The Company has never paid dividends to its stockholders. The Company
intends to continue to follow a policy of retaining earnings to finance
future growth and does not anticipate the payment of any dividends in the
foreseeable future. Payment of dividends is also restricted by the
Company's loan agreements with its primary lender.
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<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following Selected Consolidated Financial Information of the Company
was derived from the Company's Consolidated Financial Statements. This
Selected Consolidated Financial Information should be read in conjunction
with the Consolidated Financial Statements and the related notes of the
Company and Management's Discussion and Analysis of Financial Condition
and Results of Operations included under ITEM 7. of this Form 10-K.
<TABLE>
Fiscal Years Ended June 30
---------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- --------
STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues........................... $ 8,651 $ 8,481 $ 8,684 $ 7,911 $ 8,381
Cost of revenues................... 7,430 6,138 5,451 4,201 3,947
------- ------- ------- ------- -------
Gross profit....................... 1,221 2,343 3,233 3,710 4,434
Selling, General and
administrative expenses....... 3,150 3,442 4,157 3,976 3,824
Non-recurring charges.............. - - 1,157 - -
------- ------- ------- ------- -------
Operating (loss) income............ (1,929) (1,099) (2,081) (266) 610
Interest expense................... (226) (75) (229) (298) (346)
Other income (expense)............. 365 155 123 117 (403)
------- ------- ------- ------- -------
Loss from continuing
operations before income taxes
and cumulative effect of change
in accounting for income taxes..... (1,790) (1,019) (2,187) (447) (139)
------- ------- ------- ------- -------
Income taxes (benefit)............. (242) (296) (715) (9) 127
------- ------- ------- ------- -------
Net loss from continuing
operations before cumulative
effect of accounting change........ $(1,548) $ (723) $(1,472) $ (438) $ (266)
======= ======= ======= ======= =======
Net loss from continuing
operations before cumulative
effect of accounting changer per
share.............................. $ (.35) $ (.17) $ (.34) $ (.10) $ (.06)
Weighted average number of shares
outstanding...................... 4,398 4,390 4,392 4,513 4,430
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 567 $ 786 $ 735 $ 2,433 $ 2,715
Working capital.................... (1,480) (334) 2,199 5,106 3,155
Total Assets....................... 16,009 17,468 16,792 19,115 19,640
Short-term debt (including
current maturities of
Long-term debt).................. 1,116 947 957 723 2,355
Long-term debt, net of
current portion.................. 1,783 1,994 2,248 2,915 1,654
Stockholders' equity............... 8,385 9,606 9,804 12,837 12,362
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes included under ITEM
14 of this Form 10-K and the Selected Consolidated Financial Information
included under ITEM 6.
INTRODUCTION
The Company is a waste services company specializing in the disposal and
transportation of non-hazardous residential, commercial, and industrial
and special waste in the eastern United States. The Company previously
operated within three business segments: landfills, waste hauling and
collection; asbestos abatement services; and analytical laboratory
services. Management made a strategic decision in 1993 to withdraw from
the asbestos abatement business and the laboratory services business as a
result of continued reduced profit margins and increased competition from
large national companies. Accordingly, the Company's asbestos abatement
and laboratory services businesses were reflected as discontinued
operations at June 30, 1993. Management views these actions as a
significant event in furthering the Company's transition to a solid waste
management company where management believes that the Company's resources
are better utilized. This allows the Company to focus on developing its
current disposal facilities; expanding its long-haul transportation
operations through diversification into special and hazardous waste
hauling, and shredded construction and demolition debris, general
freight, and acquiring additional landfills and hauling operations.
The Company's landfill revenues are comprised primarily of disposal fees
charged directly to third parties or through the Company's hauling
operations. The Company's revenues from its hauling operations consist
of transportation and disposal fees from residential, commercial and
industrial customers.
Cost of revenues consist primarily of direct labor and the related taxes
and benefits, fuel, maintenance and repairs of equipment and facilities,
subcontracted transportation and equipment rental charges, tipping fees
paid to third party landfills, landfill fees and taxes, amortization of
capitalized direct landfill development costs and accruals for future
landfill closure and post-closure costs. Certain direct landfill
development expenses are capitalized and depreciated over the estimated
useful life of the site utilizing the unit of production method as air
space is consumed, and include acquisition, engineering, legal,
upgrading, construction, and permitting costs paid to outside parties.
All indirect development expenses, such as administrative salaries and
general corporate overhead are expensed in the period when incurred.
During fiscal 1995, capitalized costs directly related to expansion of
existing and future landfills and cell development were $1,362,000. All
of these capitalized costs are included as a balance sheet line item and
are discussed in Note 1 of Notes to Consolidated Financial Statements.
The Company reviews the future realization of these capitalized project
costs on a regular basis.
Selling, general and administrative costs consist primarily of management
salaries, clerical and administrative costs, professional services,
facility rentals and related insurance costs, financial assurance bonding
premiums, and costs related to marketing and sales.
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<PAGE>
Non-recurring charges in fiscal 1993 consisted primarily of accelerated
amortization of certain intangible assets and special legal and
engineering costs incurred to investigate and alleviate concerns
regarding the integrity of the in-situ liner at the Company's Kentucky
disposal facility as well as a write down to estimated net realizable
value of certain assets of continuing operations held for sale.
The following table presents the percentage each item in the Consolidated
Statements of Income bears to total revenues relating to continuing
operations.
<TABLE>
<CAPTION>
Fiscal Years Ended June 30
------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Revenues.......................... 100.0 100.0 100.0
Cost of revenues.................. 85.9 72.4 62.8
----- ----- -----
Gross profit...................... 14.1 27.6 37.2
Selling, general and
administrative expenses......... 36.4 40.6 47.9
Non-recurring charges............. - - 13.3
----- ----- -----
Operating loss.................... (22.3) (13.0) (24.0)
Other income (expense)............ 1.6 1.0 (1.2)
----- ----- -----
Loss before income taxes
from continuing operations...... (20.7) (12.0) (25.2)
Income taxes (benefit)............ (2.8) (3.5) (8.2)
----- ----- -----
Net loss from
continuing operations........... (17.9) (8.5) (17.0)
Depreciation and amortization
and non-cash portion of
non-recurring charges from
continuing operations included
in above costs.................. 26.5 19.0 30.4
</TABLE>
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<PAGE>
REVENUES
Revenues from continuing operations increased 2% from $8,481,000 in
fiscal 1994 to $8,651,000 in fiscal 1995. Revenue increases of $309,000
or 21% at the Company's South Carolina landfill were offset by declines
in revenues of $27,000 or 1%, $446,000 or 39%, and $290,000 or 6%,
respectively, at the Company's West Virginia landfill, Kentucky
landfill, and the Company's hauling operations. No revenues have been
generated by the Illinois landfill.
The significant increase in the South Carolina landfill's revenues
reflects the continued maturing of this site and the third full year of
operation under a permit modification allowing the site to accept waste
from anywhere within the United States. Improved sales integration with
the Company's long-haul transportation operations and continued growth in
the landfill based roll-off collection operations has contributed to an
overall 26% growth in volumes. This volume growth included a 64%
increase in construction and demolition debris volumes partially offset
by a 17% and 28% decrease in acceptance of asbestos and paper products,
respectively, in fiscal 1995. The revenue increase at this facility ,
especially within the construction and demolition debris waste stream,
reflects an increase in marketing and sales efforts with contractors and
directly with waste generators.
The Company's West Virginia landfill's relatively static revenues
included a $416,000 or 41% increase in municipal solid waste (MSW)
revenues, a 67% decline in asbestos volumes, and a greater than 100%
increase in construction and demolition debris, contaminated soils &
sludges and other industrial waste streams. The $416,000 or 41% increase
in MSW revenues includes a 12% increase in volume reflective of the
increase in availability of MSW as certain private and municipally owned
landfills continue to close as a result of an inability for these
facilities to comply with the federal Subtitle D regulations and state
regulations requiring more sophisticated liner systems and an increase in
MSW disposal rates. The West Virginia Public Service Commission ("PSC")
approved a new tariff relating to MSW fees pursuant to a rate case filed
by the Company which on July 1, 1994 allowed for an increase in the MSW
rate the Company may charge from $22.50 per ton to $28.25 per ton. The
increase in contaminated soils and sludges and other industrial waste
streams is directly related to an aggressive marketing and sales campaign
to attract waste streams which the landfill was not allowed to accept
prior to installing the more sophisticated liner system which commenced
accepting waste on July 1, 1994. Management expects additional landfill
closures in its market territory during fiscal 1996.
Revenue growth at the South Carolina landfill and static revenue level at
the West Virginia landfill was offset by a 39% or $446,000 decline in
revenues at the Company's Kentucky landfill. This decline relates to the
Company's decision to continue self-imposed volume limitations based on
management's revised permitting schedule for the expansion area. As a
result, monthly revenues at the Company's Kentucky facility have been
reduced in several incremental steps since January 1, 1993, to the fiscal
1995 level of approximately $55,000 per month. As of June 30, 1995, the
Company ceased placing waste in the disposal area and commenced
operations of a newly permitted transfer station. The transfer station
attempts to assure that the municipal solid waste disposal needs of the
local communities served under the Company's ten year waste disposal
franchise will continue to be satisfied on a monthly basis until the
expansion permit can be secured and the first disposal cell constructed.
The Company anticipates operating the transfer station at a revenue level
of approximately $40,000 per month
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thus assuring continued operating losses at this facility until either an
adequate rate increase is granted for this transfer station or the
expansion permit is obtained and operations returned to profitability.
Revenues from the Company's hauling operations decreased by $290,000 or
6% to $4,897,000 in 1995. This decrease largely relates to a 21%
decrease in revenues related to the Company's waste collection business
located in Beaufort County, South Carolina whose operations were phased
out and discontinued at June 30, 1995. Revenues within the Company's
long haul special waste collection business remained relatively static
between fiscal 1995 and 1994. Management is currently focusing on
temporarily utilizing non-affiliated landfills for disposal of waste and
on hauling certain freight commodities to minimize empty miles, increase
market share, gross revenues and overall profitability.
Total revenues from continuing operations decreased $203,000 or 2% from
1993 to 1994. This overall decrease was the result of increased revenues
of $460,000 or 45%; $257,000 or 5%; and 3% or $60,000 at the Company's
South Carolina landfill, the West Virginia landfill and the Company's
hauling operations, respectively, between fiscal 1993 and fiscal 1994.
These increases were offset by a $1,087,000 or 49% decrease in revenues
at the Company's Kentucky landfill. The noted increases were directly
related to improved sales and marketing efforts. The decrease in
revenues at the Company's Kentucky landfill was directly related to the
self-imposed volume limitations discussed above.
COST OF REVENUES AND GROSS PROFIT
Cost of revenues in fiscal 1995 increased from fiscal 1994 by
approximately $1,292,000 or 21% to $7,430,000. Cost of revenues as a
percent of revenues increased from 72% in 1994 to 86% in 1995. This
increase is largely the result of the significant self-imposed decrease
in volume at the Company's Kentucky landfill with fairly static daily
operating costs; an additional operating charge of $339,000 in the fourth
quarter relating to the Kentucky landfill to accrue for certain estimated
operating losses in fiscal 1996 of running a transfer station and a
write-off of remaining capitalized costs relating to the closed disposal
cell (see further discussions below); increased rate of amortization of
airspace and above average cost of leachate management recognized at the
Company's West Virginia landfill as the facility now operates under the
more stringent federal Subtitle D regulations requiring more
sophisticated liner systems and leachate management programs; current
average waste acceptances of approximately 56% of allowable waste volume
at the Company's West Virginia landfill in fiscal 1995 as certain waste
streams are being replaced with more lucrative waste streams; increased
future closure and post-closure costs at the Company's West Virginia
landfill for additional permitted space; and continued negative operating
margins for most of fiscal 1995 within the local waste collection
business acquired in South Carolina in fiscal 1993. During fiscal 1995,
the Board of Directors of the Company made a decision to exit this local
waste collection business as a result of limited integration with the
Company's landfill and continued operating losses resulting from
significant competitive pressures. The majority of the operating assets
of this business were sold in fiscal 1995 through several asset sale
transactions with certain assets transferred to the Company's South
Carolina landfill. Additionally, a charge of $78,000 was recorded in the
fourth quarter of fiscal 1995 to reduce the remaining net assets of this
business to their estimated net realizable value at June 30, 1995 (see
further discussions below).
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These negative developments were only partially offset by continued
favorable growth in profit margins at the Company's South Carolina
landfill due to the increased revenues and volume at that facility.
Provisions for total closure and post-closure monitoring costs at all
landfills were $282,000 and $312,000 for 1995 and 1994, respectively.
The reduction in costs from 1994 to 1995 was principally the result of an
overall decrease in waste volume in 1995 at the Company's Kentucky and
West Virginia landfill partially offset by an increase in volume at the
Company's South Carolina landfill in fiscal 1995.
Cost of revenues from continuing operations increased $688,000 or 13%
from 1993 to 1994 and increased as a percent of revenues from 63% to 72%
from 1993 to 1994. The consistent increases in 1993 and 1994 in cost of
revenues were the result of lower margins due to continuing increased
competition; the higher recognition of closure and post-closure costs for
the Company's landfills; the result of the significant self imposed
decrease in volume at the Company's Kentucky landfill with fairly static
daily operating costs; and the less favorable impact of the growth within
the Company's hauling operations which provides less lucrative operating
margins than landfill operations.
NON-RECURRING CHARGES
Results for fiscal 1993 for the Company's Kentucky landfill were
adversely impacted by several non-recurring charges totaling $968,933.
The Company incurred $137,358 in special legal and engineering costs at
its Kentucky landfill to investigate and alleviate concerns expressed by
State regulatory officials about the effects of blasting activities on
the integrity of the in-situ shale liner below a portion of the disposal
area. Although the liner proved to be intact, the publicity surrounding
the investigation and the resulting heightened political pressure and
regulatory scrutiny has slowed State review of the Company's permit
application for its approximately 43-acre expansion area. As a result,
the Company had decided to restrict the volume of waste received at the
existing disposal area. As a result of the adverse effect on
profitability during this period, management determined that certain
assets acquired upon purchase of the landfill, primarily a covenant not
to compete and amounts assigned to existing contracts, may not be
realizable. The write-down of these assets, totalling $831,575, was
included in the fiscal 1993 results as a non-cash charge to operations.
Additionally, management segregated certain assets of continuing
operations as held for sale. These assets, consisting of both real
estate and equipment, were written down by $188,095 to their estimated
net realizable value.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A")
Selling, general and administrative expenses decreased $292,000 or 8%
from $3,442,000 in 1994 to $3,150,000 in 1995. SG&A expenses as a
percent of revenues decreased from 41% in 1994 to 36% in 1995. SG&A
expenses include substantially all corporate overhead costs including the
costs relating to the accounting, finance, legal and engineering
departments as well as the SG&A costs specifically attributed to the
landfill and waste hauling operations. This significant decrease in SG&A
costs reflects an approximate 23% reduction in corporate and
administrative salaries as part of the Company's discontinuance of
certain operations; restructuring of remaining operations and the
positive impact of the Company's continuing cost containment programs in
all divisions as management works towards a return to profitability.
These reductions are
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partially offset by an increase in external legal and consultant costs
with the elimination of the internal legal staff at the end of fiscal
1994. The Company also experienced an increase in bonding and banking
fees relating to providing financial assurance for closure and post
closure costs for the Company's landfills. A reduction in amortization
expense of intangible assets of approximately $47,000 was experienced in
fiscal 1995 as a result of certain intangibles relating to the Company's
West Virginia landfill expiring.
SG&A expenses decreased $716,000 or 17% from $4,158,000 in 1993 to
$3,442,000 in 1994. This decrease resulted primarily from an approximate
17% reduction in corporate administrative salaries as part of the
Company's discontinuance of certain operations and restructuring of
operations along with the positive impact of the Company's continuing
costs containment programs in all divisions. The Company also
experienced a reduction in amortization expense of intangible assets of
approximately $265,000 in fiscal 1994 as a result of a covenant not to
compete expiring relating to the Company's South Carolina landfill and
the prior year write-off of certain intangible assets relating to the
Company's Kentucky landfill. (See Non-Recurring Charges).
UNUSUAL OPERATING COSTS
Unusual operating costs of $532,000 were included in the fourth quarter
of fiscal 1995 results of operations. A total charge to cost of revenues
of $339,000 relates to the Company's cessation of waste acceptance at the
Kentucky landfill on June 30, 1995, and the Company's decision to
simultaneously permit and operate a waste transfer facility to continue
to service the waste needs of the local host county under the waste
disposal franchise agreement previously awarded to the Company expiring
in the year 2002. Of the $339,000 of unusual operating costs, $150,000
reflects the Company's estimate of operating losses at the Kentucky
facility through fiscal 1996, while the first disposal cell is
constructed following the anticipated approval of the expansion permit,
and $189,000 reflects a noncash charge to write-off remaining capitalized
costs relating to a disposal cell closed on June 30, 1995. Additionally,
a charge of $78,000 was recorded in the fourth quarter of fiscal 1995 to
reduce the remaining net assets of the Company's waste collection
business located in Beaufort County, South Carolina, to their estimated
net realizable value at June 30, 1995. The $78,000 charge includes a
write-down of $58,000 for certain operating assets, receivables, and
supplies inventory and the establishment of a reserve at June 30, 1995,
for anticipated operating loss on final divestiture of assets of $20,000.
During fiscal 1995, the Board of Directors of the Company made a
strategic decision to exit the local hauling business in Beaufort County
as a result of limited integration with the Company's landfill operation
and continued operating losses resulting from significant competitive
pressures. The majority of the operating assets of this business were
sold in fiscal 1995 through several asset sale transactions. Finally, in
the fourth quarter, the Company refined its estimate of necessary
reserves against past due receivables resulting in a charge to operations
of $118,000.
INTEREST EXPENSE
Interest expense increased 201% or $151,000 to $226,000 from 1994 to 1995
and decreased $154,000 to $75,000 from 1993 to 1994. The increase during
1995 resulted from a slight increase in interest rates and a reduction in
the amount of interest expense capitalized in fiscal 1995 as compared to
fiscal 1994 as part of landfill site expansion projects. Interest
expense
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capitalized was $48,000 and $139,000 in fiscal 1995 and 1994,
respectively. Additionally, total debt outstanding decreased by $43,000
from June 30, 1994 to June 30, 1995.
OTHER INCOME
Other income increased $210,000 in fiscal 1995 compared to fiscal 1994
largely as a result of recognition of a gain on the sale of certain
assets of the Company's local waste collection business in South Carolina
and the recording of additional consideration earned as part of the sale
of the Company's asbestos abatement and laboratory testing operations.
INCOME TAXES
The Company's effective income tax rate, including both federal and state
taxes, was 13% for fiscal 1995 compared to 29% for fiscal 1994. The
effective tax rate for the current year is less than the federal and
state statutory rates, primarily due to a valuation allowance of $340,000
recorded in fiscal 1995 reducing the current year tax benefit of net
operating loss carryforwards due to a lack of certainty of realization of
this loss carryforwards in future years as a result of recent historic
reported operating losses.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, current liabilities of $4,519,000 exceeded current
assets of $3,039,000 which includes cash and cash equivalents of
$567,000. The Company incurred additional short term borrowings of
$250,000 to fund a trust account as collateral for the Company's
Pennsylvania workers' compensation self insurance program. The trust
account is restricted from current operations and is included within
other non-current assets. The Company also increased the current portion
of accrued landfill closure costs by $570,000, reduced its deposits in an
interest earning trust fund as closure and post-closure financial
assurance related to its Kentucky landfill by $207,000 and reduced
outstanding long term debt by $211,000. A significant portion of working
capital expended during the period, approximately $1,845,000, was used to
fund the acquisition of property and equipment, including $1,362,000
related to the permitting and development of landfill space and $483,000
for the purchase of operating equipment.
The Company has experienced liquidity problems due to its lack of
significant revenues with the Company currently operating only the
special waste hauling operation, the South Carolina landfill and the West
Virginia landfill at approximately 56% of its allowable monthly capacity
during fiscal 1995. The Kentucky and Illinois landfills remain in the
permit development stage as described above. This lack of significant
revenues and the development stage situation in Kentucky and Illinois,
among other factors described above, have led to significant operating
losses with a continued need to invest in additional transportation
equipment, landfill permitting and development costs, disposal space cell
construction, and closure costs (See further discussions below). The
Company has currently addressed such issues, in the absences of
significant long-term bank financing arrangements, primarily by private
placements of its equity securities with net proceeds of $300,000 from
sales of common stock in June 1995, and $775,000 in the period subsequent
to June 30, 1995.
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The Company's operations to date have required substantial amounts of
working capital and the Company expects to expend substantial funds to
support the expansion of its disposal and transportation operations. The
Company expects capital expenditures of approximately $1,500,000 in
fiscal 1996 to construct additional disposal space at the Company's West
Virginia landfill, further the permits at Kentucky and Illinois, and
acquire necessary landfill and transportation equipment. Significant
Capital reserves (as previously described) would be required to construct
initial disposal space at the Company's Kentucky landfill and the
Illinois landfill should the permits be received at these two facilities
during fiscal 1996. The Company currently does not have such necessary
capital reserves; however believes that with the receipt of the Kentucky
and/or Illinois permit, it will be able to raise additional funds to meet
its working capital requirements through either additional equity or debt
placements. No assurance can be given that additional financing will be
available or, if available, that it will be available on acceptable
terms. However, management currently believes that funds available from
operations, the recently completed equity financing, and other sources
described below will be sufficient to fund operations currently in effect
through fiscal 1996.
The Company is a party to a $4,500,000 credit facility with Philadelphia
National Bank ("PNB"), including a $3,000,000 refinancing term note and a
secured revolving line of credit providing for aggregate borrowings of up
to $1,500,000 for working capital, equipment purchases and performance
letters of credit. At September 1, 1995; the balance outstanding on the
refinancing term note was $900,000. The secured revolving line of credit
at September 1, 1995 has outstanding cash draws of $350,000 and $971,000
in outstanding performance letters of credit. Certain advance approval
procedures exist for borrowing under the secured revolving credit
facility. The PNB credit facility provides for interest at prime plus
1/4% to 1/2% and is secured by substantially all of the tangible and
intangible assets of the Company, including first mortgage liens on the
landfill properties and a pledge by the Company of all of the issued and
outstanding capital stock of its landfill subsidiaries. The credit
facility contains warranties and financial covenants. Financial
covenants based on earnings, cash flow, working capital, minimal tangible
net worth and capital expenditure levels were not achieved. The Company
has received an amendment to the loan agreement under which the Company
is in compliance. The amendment also provides for maturity of the credit
facility on October 31, 1996. The Company continues to seek additional
credit facilities. On September 26, 1995, the Company entered into a
four-year secured term loan with First Fidelity Bank, N.A. ("FFB") which
provides borrowing up to $1,350,000 bearing an interest rate of 7.03%
secured by a fist lien security interest in the equipment and vehicles of
the Company. The agreement contains certain affirmative and negative
covenants and will require the maintenance of certain levels of tangible
net worth and the maintenance of certain working capital and debt
coverage ratios. A portion of the funds ($900,000) were utilized to
refinance the remaining balance of the $3,000,000 refinancing term loan
with PNB. Accordingly, certain debt has been classified as long-term to
reflect the terms of the FFB loan. The Company's inability to secure
additional credit facilities would have a material adverse impact on the
Company's business.
The Company will have material financial obligations related to closure
and post-closure costs at its landfills. While the exact amount of these
future obligations cannot be determined, the Company estimates that the
costs for final closure of the currently permitted areas at the West
Virginia and Kentucky landfills, if all acreage is used, will be
approximately $4,643,000, of which $1,204,000 has been accrued as of June
30, 1995. The Company estimates that the costs of post-closure monitoring
of groundwater, methane gas and other required procedures for the
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currently permitted areas will approximate $27,000 to $120,000 per year
for 30 years after closure at each of its Kentucky and West Virginia
sites. As of June 30, 1995, the Company has accrued $646,000 for post-
closure obligations representing 18% of the present value of such future
estimated cash outlay. The Company recognizes these costs either on the
unit-of production method based on consumed airspace as the landfills are
filled or as a function of time, depending on the circumstances under
which the permitted landfill is permitted to operate. The Company
recently initiated the accrual of closure and post-closure costs for its
South Carolina landfill on a similar basis as for its other landfills as
a result of recently proposed State regulations. Closure and post-closure
costs are estimated at $465,000 and $10,000 per year for 30 years,
respectively. As of June 30, 1995, the Company has accrued $55,000 and
$46,000 for closure and post-closure, respectively. The Company
maintains a bonding facility pursuant to certain statutory requirements
regarding financial assurance for the closure and post-closure monitoring
cost requirements for its Kentucky and West Virginia disposal facilities.
Bonds outstanding at June 30, 1995, total $1,321,608 and $314,572, as
closure and post-closure financial assurance, respectively, for the
Company's Kentucky landfill and $214,000 as closure financial assurance
for the Company's West Virginia facility. The bonds are collateralized
by irrevocable letters of credit of $626,000 and trust fund deposits of
$104,134. Additionally, the Company has on deposit $190,665 as financial
assurance for landfill closure and post-closure for the closed disposal
area at its West Virginia disposal facility. The trust fund and the
certificates of deposit are restricted from current operations and are
included within other non-current assets. The Company anticipates that
the West Virginia bonding requirements will substantially increase as the
State's solid waste program is approved by the federal government.
Financial assurance requirements could increase to approximately
$3,000,000 for closure and $3,600,000 for post-closure monitoring and
care. Additional collateral requirements will be imposed upon the
Company which will affect profitability of the Company. The Company
anticipates providing financial assurance incrementally over the life of
the facility as disposal cells are constructed and certified for
acceptance of waste. Additionally, the Company anticipates that prior to
issuance of its Kentucky expansion permit, additional closure and post-
closure financial assurance mechanisms will be required. The amounts are
approximated at $3,300,000 for closure and $300,000 for post-closure.
Proposed changes to the current Kentucky post-closure financial assurance
regulations are pending and the post-closure requirements could increase
to $3,000,000. Under the current financial assurance program,
incremental posting of financial assurance over the life of the facility
as disposal cells are constructed and certified for acceptance of waste
is allowed. The Company's inability to continue to obtain bonds or
letters of credit in sufficient amounts or at acceptable rates would have
a material adverse impact on the Company's business and may preclude it
from obtaining or retaining landfill operating permits.
The Company is currently seeking state approval for the expansion area at
its Kentucky landfill and Illinois State approval for its Illinois
landfill. Although the Company expects to receive permits for these
sites, there can be no assurance that either permit will be obtained. The
Company expects that it will incur substantial capital costs to construct
the initial disposal areas and meet certain regulatory compliance
standards. The Company's continued development of currently owned
landfill expansion areas and the future growth of the Company will depend
greatly upon its ability to raise additional capital as noted above. The
Company's inability to raise additional capital would have a material
adverse impact on the Company's business. Government regulation of the
Company's operations has increased significantly over the last few years
and may continue
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in the future. As a result, the Company may incur additional capital
expenditures which could adversely affect its operating results and
financial condition. Due to the difficulty and time constraints on
permitting, the Kentucky landfill did not have the expansion area in
operation by July 1, 1995, the date it was required to cease accepting
waste in the existing area. The Company is progressing through the
permitting process and is currently operating a permitted transfer
station to continue to service the waste needs of the local host county
under the Company's waste disposal franchise agreement expiring in the
Year 2002. The Company recorded an accrual at June 30, 1995 of $150,000
representing the estimated operating loss relating to the Kentucky
operations during fiscal 1996, the Company's estimate of time required to
obtain the expansion permit and to construct the first disposal cell.
DISCONTINUED OPERATIONS
On September 9, 1993, the Company's Board of Directors approved
management's plan to discontinue its operations within the asbestos and
lead paint abatement and laboratory services segments to focus on
development and expansion of its landfill and waste hauling operations.
This discontinuance was part of a restructuring plan which is the
culmination of the Company's transition into the solid waste industry
that began with the Company's entry into waste hauling in 1988 and
continued with the Company's acquisition of its three landfills in 1989
and 1990 and additional hauling operations in 1989 and 1992. The
consolidated financial statements were adjusted to reflect this decision
as of June 30, 1993, and to report these businesses as discontinued
operations. Accordingly, the consolidated financial statements of the
Company have been classified to report separately the assets,
liabilities, and operating results of these discontinued operations.
In the fourth quarter of fiscal 1993, the Company incurred a $618,000
charge (net of applicable income tax benefit of approximately $277,000).
The charge, which had minimum immediate cash flow impact, included a
write-down of the vehicles, equipment, and real estate related to the
discontinued operations of $508,000, and a provision of $110,000 for
expected operating losses during the phase-out period. During fiscal
1994, the Company executed the majority of its restructuring plan with
the discontinuance of the laboratory services division on October 22,
1993 and the abatement operations on January 31, 1994. On October 22,
1993, the Company sold substantially all of the assets (excluding real
property) of its wholly owned laboratory services subsidiary, Advanced
Analytical Laboratories, Inc. ("AAL"), in exchange for $55,000 in cash, a
secured promissory note in the amount of $380,000, and a five percent
royalty on sales of the business ("Sales Bonus") during the one year
period following the closing date up to a maximum of $60,000. The
promissory note was fully collected in fiscal 1995. A gain on the sale
of assets of $138,000 (net of applicable income taxes of approximately
$69,000) was realized in fiscal 1994 as well as income from operations of
$41,000 (Net of applicable income taxes of approximately $20,000). A
Sales Bonus of $60,000 was earned and recorded through June 30, 1995.
On January 31, 1994, the Company sold certain assets (principally
disposable supplies) and assigned certain contracts and customer accounts
of its wholly owned asbestos and lead paint abatement services
subsidiaries, Eastern Environmental Services of the Northeast, Inc. and
Eastern Environmental Services of the Southeast, Inc. ("EESNE/SE"), in
exchange for $14,000 in cash and a four percent royalty on revenue from
certain customers ("Revenue Override") through March 31, 1996, up to a
maximum of $200,000. Revenue Overrides of $31,000 were
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earned and recorded through June 30, 1995. Additionally, substantially
all remaining equipment of the abatement operations as well as certain
real estate in Florida principally used in the southern abatement
operations were sold during fiscal 1994, generating $388,000 cash and a
net gain of $16,000 (net of applicable income taxes of approximately
$8,000). Operating profits generated by the abatement operations were
$258,000 (net of applicable income taxes of approximately $128,000).
Management believes that the discontinuance of the abatement and
laboratory services segments will continue to enhance the operational
efficiencies of the Company and will continue to lead to further overall
reductions in selling, general and administrative expenses.
INFLATION, SEASONALITY AND PREVAILING ECONOMIC CONDITIONS
Inflation has not had a significant impact on the Company's operations to
date. Since the Company has few long-term fixed price contracts, the
Company believes it should be able to continue to pass through to its
customers most cost increases resulting from inflation. During 1995 and
1994, the Company believes that it was affected by the recession through
reductions in renovation, construction and demolition projects. The
effect was increased price competition for a reduced amount of waste from
such projects. The Company is unable to determine the future impact, if
any, of a sustained economic slowdown.
The level of renovation, construction and demolition activity affects the
Company's operations and is typically higher in the spring and summer
months. The Company's municipal solid waste operations are less
influenced by seasonality and these operations have grown as a percentage
of the Company's business during 1994 and 1995. As the Company expands
and its waste streams continue to diversify, the Company expects the
seasonality of its revenues to diminish.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial statements
are included in Part IV, ITEM 14. of this Report beginning on page F- 1.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors and executive officers appearing in
the sections entitled "Election of Directors" and "Executive Officers" in
the Company's definitive proxy statement to be filed with the Securities
and Exchange Commission in connection with the Company's 1995 annual
meeting of stockholders ("Proxy Statement") is incorporated herein by
this reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the section of the Proxy Statement entitled
"Executive Compensation" is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information contained in the section of the Proxy Statement entitled
"Security Ownership of Certain Beneficial Owners and Management" is
incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the section of the Proxy Statement entitled
"Certain Transactions" is incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS
ON FORM 8-K.
(a) Financial Statement Schedule:
The Financial Statement Schedule listed in the accompanying Index to
Financial Statement Schedule on page F-30 are filed as part of this
Annual Report on Form 10-K. All other schedules for which provision is
made in the applicable accounting regulations of the Securities and
Exchange Commission are not required under the related instructions or
are inapplicable and therefore have been omitted.
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(b) Current Reports on Form 8-K:
1. The Company filed a report on Form 8-K, dated June 19, 1995,
under Item 5, to report the sale of 300,000 shares of its common stock to
two accredited investors.
(c) Exhibits
The following Exhibits are filed as part of this report (exhibits
marked with an asterisk have been previously filed with the Commission
and are incorporated herein by this reference):
* 3.1 Certificate of Incorporation of the Company (Exhibit 3.1 to the
Company's Registration Statement on Form S-1, Registration No.
33-14918 filed on June 9, 1987, as subsequently amended on
August 4, 1987 and August 11, 1987 (collectively, the "1987
Registration Statement")).
* 3.2 Amendment to Certificate of Incorporation of the Company
(Exhibit 3.2 to the 1987 Registration Statement).
* 3.3 By-Laws (Exhibit 3.3 to the 1987 Registration Statement).
* 10.1 Agreement for Shares of Class A Stock dated April 9, 1987,
between William C. Skuba and the Company (Exhibit 10. 1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1991 (the "1991 Form 10-K")).
* 10.2 1987 Stock Option Plan (Exhibit 10.9 to the 1987 Registration
Statement).
* 10.3 1988 Employee Stock Bonus Plan (Described on pp. 5-11 of the
Prospectus included in the Company's Registration Statement on
Form S-8, Registration No. 33-25155 fled on October 24, 1988).
* 10.4 1988 Employee Stock Purchase Plan (described on pp. 4-8 of the
Prospectus included in Post Effective Amendment No. 2 to the
Company's Registration Statement on Form S-8, Registration No.
33-21251 filed on May 4, 1990).
* 10.5 1991 Stock Option Plan (Exhibit 10.10 to 1991 Form 10-K).
* 10.6 License Agreement dated as of July 1, 1990, between Eastern
Environmental Services of the Northeast, Inc. and GPAC, Inc.
(Exhibit 10.7(a) to the 1987 Registration Statement).
* 10.7 Letter Agreement dated June 26, 1987, between the Company and
Thomas M. Yanette (Exhibit 10.10 to the 1987 Registration
Statement).
* 10.8 Warrant dated April 16, 1990, issued to The Argentum Group
(Exhibit 10.21 to 1991 Form 10-K).
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* 10.9 Warrant Agreement dated July 16, 1990, between the Company and
Walter Barandiaran. (Exhibit 10.22 to 1991 Form 10-K).
* 10.10 Agreement between Pulaski County Solid Waste Management
District and Pulaski Landfill, Inc., dated February 1992
(Exhibit 10.15 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1992 (the "1992 Form 10-K")).
* 10.11 Credit Agreement dated May 5, 1992, between the Company, its
subsidiaries and CoreStates Bank, N.A., and First Amendment to
Loan Documents dated September 24, 1992 (Exhibit 10.16 to 1992
Form 10-K).
* 10.12 Letter of employment dated July 14, 1992, between the Company
and Gregory M. Krzemien (Exhibit 10.17 to 1992 Form 10-K).
* 10.13 Letter of employment dated April 8, 1991, between the Company
and Michael Fioravante. (Exhibit 10.18 to 1992 Form 10-K).
* 10.14 Second Amendment to Credit Agreement dated March 31, 1993, and
Third Amendment to Loan Documents dated September 27, 1993,
between the Company, its subsidiaries and CoreStates Bank, N.A.
(Exhibit 10.19 to 1993 Form 10-K).
* 10.15 Severance Agreement between the Company and William C. Skuba
dated June 16, 1993. (Exhibit 10.20 to 1993 Form 10-K).
* 10.16 Severance Agreement between the Company and Michael A.
Fioravante dated June 16, 1993. (Exhibit 10.22 to 1993 Form
10-K).
* 10.17 Severance Agreement between the Company and Gregory M. Krzemien
dated June 16, 1993. (Exhibit 10.23 to 1993 Form 10-K).
* 10.18 Asset Purchase Agreement between Advanced Analytical
Laboratories, Inc., GCI Environmental Advisory, Inc. and the
Company dated October 22, 1993 (Exhibit 1 to the Company's
Current Report on Form 8-K dated October 22, 1993 (the "1993
Form 8-K")).
* 10.19 Agreement Not to Compete among Advanced Analytical
Laboratories, Inc., GCI Environmental Advisory, Inc. and the
Company dated October 22, 1993 (Exhibit 2 to the 1993 Form 8-
K").
* 10.20 Commercial Lease between Advanced Analytical Laboratories, Inc.
and GCI Environmental Advisory, Inc. dated October 22, 1993
(Exhibit 3 to the 1993 Form 8-K").
33
<PAGE>
* 10.21 Purchase Agreement among PDG, Inc., Eastern Environmental
Services of the Northeast, Inc. and Eastern Environmental
Services of the Southeast, Inc. dated December 29, 1993
(Exhibit 1 to the Company's Current Report on Form 8-K dated
January 31, 1994 (the "1994 Form 8-K")).
* 10.22 Agreement Not to Compete among PDG, Inc., Eastern Environmental
Services of the Northeast, Inc. and Eastern Environmental
Services of the Southeast, Inc. dated January 31, 1994 (Exhibit
2 to the 1994 Form 8-K").
* 10.23 Fourth Amendment to Loan Documents dated November 30, 1993, and
the Fifth Amendment to Loan Documents dated September 26, 1994,
between the Company, its subsidiaries and CoreStates Bank, N.A.
(Exhibit 10.28 to 1994 Form 10-K).
10.24 Mortgage and Note agreement dated November 18, 1994, between
the Company, its subsidiary, WRN Properties, Inc. and First
Federal Savings and Loan Association of Hazleton.
10.25 Sixth Amendment to Loan Documents dated September 26, 1995,
between the Company, its subsidiaries and CoreStates Bank, N.A.
10.26 Indemnification Agreement dated April 18, 1995 between Eastern
Environmental Services, Inc. and William C. Skuba (Pursuant to
instruction 2 to Item 601 of Regulation S-K, the
Indemnification Agreements, which are substantially identical
in all material respects except as to the parties thereto,
between the Company and the following individuals are not being
filed: Gregory M. Krzemien, Michael A. Fioravante, Timothy W.
Sweeney, Stephen C. Stamos, Jr., and Robert J. Powell).
10.27 Term Loan Agreement dated September 26, 1995, between the
Company, its subsidiaries and First Fidelity Bank, N.A.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
___________________
* Incorporated by reference
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
EASTERN ENVIRONMENTAL SERVICES, INC.
By: /s/ William C. Skuba
----------------------------------------
William C. Skuba
Chairman of the Board, President
and Chief Executive Officer
DATED the 25 day of September, 1995.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ William C. Skuba Chairman of the Board, 9/25/95
----------------------------------
William C. Skuba Chief Executive Officer,
President, Secretary
and Director
/s/ Michael A. Fioravante Chief Operating Officer, 9/25/95
----------------------------------
Michael A. Fioravante Executive Vice President
and Director
/s/ Gregory M. Krzemien Chief Financial Officer 9/25/95
----------------------------------
Gregory M. Krzemien and Treasurer
/s/ Michael P. Nameth Chief Accounting Officer 9/25/95
----------------------------------
Michael P. Nameth
/s/ Timothy W. Sweeney Director 9/25/95
----------------------------------
Timothy W. Sweeney
/s/ Robert J. Powell Director 9/25/95
----------------------------------
Robert J. Powell
/s/ Stephen C. Stamos, Jr. Director 9/25/95
----------------------------------
Stephen C. Stamos, Jr.
</TABLE>
35
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
Consolidated Financial Statements
June 30, 1995
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Report of Independent Auditors..................................F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheets.....................................F-3
Consolidated Statements of Operations...........................F-5
Consolidated Statements of Stockholders' Equity.................F-6
Consolidated Statements of Cash Flows...........................F-8
Notes to Consolidated Financial Statements.....................F-10
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Eastern Environmental Services, Inc.
We have audited the accompanying consolidated balance sheets of Eastern
Environmental Services, Inc. and subsidiaries as of June 30, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended June 30, 1995. Our
audits also included the financial statement schedule listed in the Index at F-
30. These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and 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 Eastern
Environmental Services, Inc. and subsidiaries at June 30, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1995, 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, present fairly in all material respects the
information set forth therein.
As discussed in Note 11 to the financial statements, effective July 1, 1992, the
Company changed its method of accounting for income taxes.
ERNST & YOUNG LLP
Reading, Pennsylvania
September 26, 1995
F-2
<PAGE>
Eastern Environmental Services, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30
1995 1994
----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 566,771 $ 785,749
Accounts receivable, less allowance for
doubtful accounts of $454,695 and $324,540 1,381,469 1,804,922
Notes receivable - 191,954
Deferred income taxes 168,186 78,036
Tax refund receivable 152,871 143,467
Prepaid expenses and other current assets 769,987 677,546
Current assets of discontinued operations - 117,575
---------------------------
Total current assets 3,039,284 3,799,249
Property and equipment:
Land 148,852 160,852
Landfill sites 10,804,589 9,442,633
Buildings and leasehold improvements 1,446,640 1,490,118
Vehicles 1,658,513 1,790,313
Machinery and equipment 3,512,070 3,305,386
Furniture and fixtures 639,075 597,167
---------------------------
Total property and equipment 18,209,739 16,786,469
Accumulated depreciation and amortization 6,829,458 5,004,623
---------------------------
11,380,281 11,781,846
Noncurrent assets of discontinued operations 517,659 534,650
Intangible assets, net of $3,057,468
and $2,917,137 accumulated amortization 453,450 696,568
Other assets (including $544,597 and
$526,452 of restricted cash on deposit
for landfill closure and insurance
bonding) 618,274 656,133
---------------------------
Total assets $16,008,948 $17,468,446
===========================
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
JUNE 30
1995 1994
-----------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 350,000 $ 100,000
Accounts payable 1,686,861 2,155,358
Accrued expenses 743,584 565,971
Note payable to shareholder/officer 42,457 -
Income taxes payable 59,506 103,267
Current liabilities relating to
discontinued operations - 61,500
Current portion of accrued landfill
closure and other environmental costs 870,000 300,000
Current portion of long-term debt 766,240 847,283
----------------------------
Total current liabilities 4,518,648 4,133,379
Deferred income taxes 240,538 364,388
Long-term debt 1,782,715 1,993,951
Accrued landfill closure and other
environmental costs 1,082,246 1,370,627
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued and outstanding shares -
3,168,104 and 2,838,104 31,681 28,381
Class A common stock (convertible to
common stock), $.01 par value:
Authorized shares - 10,000,000
Issued shares - 1,591,201 15,912 15,912
Additional paid-in capital 7,672,228 7,349,278
Retained earnings 741,239 2,288,789
----------------------------
8,461,060 9,682,360
Less treasury stock at cost - 39,100
common shares 76,259 76,259
----------------------------
Total stockholders' equity 8,384,801 9,606,101
----------------------------
Total liabilities and stockholders'
equity $16,008,948 $17,468,446
============================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Eastern Environmental Services, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1995 1994 1993
-------------------------------------------
<S> <C> <C> <C>
Revenues $ 8,650,945 $ 8,480,955 $ 8,683,800
Cost of revenues 7,430,228 6,138,295 5,450,439
-------------------------------------------
Gross profit 1,220,717 2,342,660 3,233,361
Selling, general and administrative
expenses 3,149,863 3,442,193 4,157,726
Nonrecurring charges - - 1,157,028
-------------------------------------------
Operating loss (1,929,146) (1,099,533) (2,081,393)
Interest expense (226,463) (75,132) (229,161)
Other income 365,888 155,933 123,643
-------------------------------------------
Loss from continuing operations before
income taxes and cumulative effect of
change in accounting for income taxes (1,789,721) (1,018,732) (2,186,911)
Income taxes (benefit) (242,171) (295,759) (714,567)
-------------------------------------------
Loss from continuing operations before
cumulative effect of accounting change (1,547,550) (722,973) (1,472,344)
Discontinued operations:
Loss from discontinued operations, net
of applicable income taxes (benefit)
of $(282,764) - - (548,093)
Gain (loss) on disposal of discontinued
operations, net of applicable income
taxes (benefit) of $260,784 and
$(276,682) - 525,309 (618,417)
------------------------------------------
Loss before cumulative effect of
accounting change (1,547,550) (197,664) (2,638,854)
Cumulative effect as of July 1, 1992 of
change in accounting for income taxes - - (371,029)
-------------------------------------------
Net loss $(1,547,550) $ (197,664) $(3,009,883)
===========================================
(LOSS) EARNINGS PER SHARE
Continuing operations before cumulative
effect of accounting change $ (.35) $ (.17) $ (.34)
Discontinued operations - .12 (.27)
Cumulative effective of accounting change - - (.08)
-------------------------------------------
Net loss $ (.35) $ (.05) $ (.69)
===========================================
Weighted average number of shares
outstanding 4,398,232 4,390,205 4,392,022
===========================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Eastern Environmental Services, Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
NUMBER OF SHARES PAR VALUE
-------------------------------------------
CLASS A CLASS A
COMMON COMMON COMMON COMMON
STOCK STOCK STOCK STOCK
-------------------------------------------
<S> <C> <C> <C> <C>
Balance at June 30, 1992 2,838,104 1,591,201 $28,381 $15,912
Purchase of 10,200 shares of common
stock - - - -
Net loss - - - -
-------------------------------------------
Balance at June 30, 1993 2,838,104 1,591,201 28,381 15,912
Net loss - - - -
-------------------------------------------
Balance at June 30, 1994 2,838,104 1,591,201 28,381 15,912
Exercise of common stock options 30,000 - 300 -
Issuance of common stock 300,000 - 3,000 -
Net loss - - - -
-------------------------------------------
Balance at June 30, 1995 3,168,104 1,591,201 $31,681 $15,912
===========================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN RETAINED TREASURY
CAPITAL EARNINGS STOCK TOTAL
- ----------------------------------------------------
<S> <C> <C> <C>
$7,349,278 $ 5,496,336 $(53,391) $12,836,516
- - (22,868) (22,868)
- (3,009,883) - (3,009,883)
- ----------------------------------------------------
7,349,278 2,486,453 (76,259) 9,803,765
- (197,664) - (197,664)
- ----------------------------------------------------
7,349,278 2,288,789 (76,259) 9,606,101
25,950 - - 26,250
297,000 - - 300,000
- (1,547,550) - (1,547,550)
- ----------------------------------------------------
$7,672,228 $ 741,239 $(76,259) $ 8,384,801
====================================================
</TABLE>
F-7
<PAGE>
Eastern Environmental Services, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Loss from continuing operations $(1,547,550) $ (722,973) $(1,843,373)
Adjustments to reconcile loss from
continuing operations to net cash
provided by operating activities of
continuing operations:
Depreciation and amortization 2,289,066 1,612,706 1,809,260
Non-cash portion of nonrecurring charges - - 831,575
Provision for losses on receivables 199,271 107,970 201,629
Landfill closure costs 281,619 312,360 334,463
Deferred income taxes (214,000) 62,560 (401,462)
(Gain) loss on sale of property and
equipment (41,428) (3,487) 170,540
Changes in operating assets and
liabilities:
Accounts receivable 341,757 (224,070) (481,231)
Tax refund receivable (9,404) 471,826 (394,280)
Prepaid expenses 365,946 276,198 119,435
Other assets (10,660) 69,937 151,703
Accounts payable (468,497) 1,121,253 499,040
Billings in excess of costs and
estimated earnings - (58,373) 13,416
Accrued expenses 116,113 (247,417) 329,224
Income taxes payable (43,761) 103,267 -
----------------------------------------
Net cash provided by operating
activities of continuing operations 1,258,472 2,881,757 1,339,939
Net cash provided by discontinued
operations - 1,533,360 672,784
</TABLE>
See accompanying notes.
F-8
<PAGE>
Eastern Environmental Services, Inc.
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
INVESTING ACTIVITIES
Acquisition of landfills and waste
collection operations $ - $ - $ (361,000)
Cost of noncompete agreements - - (310,000)
Proceeds from sale of property and
equipment 348,035 498,990 43,760
Purchase of property and equipment (1,845,344) (4,299,364) (2,099,760)
Increase of intangibles - - (35,690)
Increase in notes receivable - - (220,000)
Payments received on notes receivable 279,383 193,012 214,086
Landfill closure and insurance bonding
deposits (18,145) 83,398 (359,200)
------------------------------------------
Net cash used in investing activities (1,236,071) (3,523,964) (3,127,804)
FINANCING ACTIVITIES
Proceeds from revolving line of credit
and long-term debt 525,000 215,383 300,000
Payments on revolving line of credit
and long-term debt (1,135,086) (1,055,592) (865,229)
Purchases of treasury stock - - (17,468)
Net proceeds from note payable to
shareholder/officer 42,457 - -
Proceeds from issuance of common stock 326,250 - -
------------------------------------------
Net cash used in financing activities (241,379) (840,209) (582,697)
------------------------------------------
Net (decrease) increase in cash and
cash equivalents (218,978) 50,944 (1,697,778)
Cash and cash equivalents at beginning
of year 785,749 734,805 2,432,583
------------------------------------------
Cash and cash equivalents at end of year $ 566,771 $ 785,749 $ 734,805
==========================================
</TABLE>
See accompanying notes.
F-9
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements
June 30, 1995
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION
Eastern Environmental Services, Inc. (the Company) is engaged in the business of
providing integrated special waste services through nonhazardous waste disposal
facilities and waste hauling operations. At June 30, 1993, the activities of the
Company's asbestos and lead paint abatement and laboratory services operations
were reported as discontinued operations.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated in consolidation.
PROPERTY AND EQUIPMENT
Property and equipment is stated on the basis of cost. Expenditures for major
additions and improvements are capitalized, while minor repairs and maintenance
are expensed as incurred. The Company uses the straight-line method of
depreciation for substantially all its property and equipment except for
landfill sites.
Landfill sites consist of land acquisition costs, in addition to, engineering,
permitting, legal, and certain site preparation costs which management believes
are recoverable. General and administrative costs are not capitalized as
landfill site costs. Landfill site costs for facilities currently in use are
generally depreciated based upon consumed airspace using the unit-of-production
method of airspace filled during the fiscal year in relation to estimates of
total available airspace. Annually, the Company prepares topographic analyses of
the sites, using various survey techniques to confirm airspace utilization
during the current year and remaining capacity. Engineering, legal, and other
costs associated with the expansion of permitted capacity of existing sites are
deferred until receipt of all necessary operating permits. Such costs are
capitalized and amortized after receipt of the necessary operating permits. The
Company reviews the realization of landfill development projects on a periodic
basis. The portion of landfill sites currently
F-10
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
under development for future expansion and thus excluded from depreciation
totaled $1,341,000 and $4,869,000 at June 30, 1995 and 1994, respectively.
The Company capitalizes interest costs as part of the cost of developing
landfill sites and constructing disposal space. Interest costs of $48,000 and
$139,000, respectively, were capitalized in fiscal 1995 and 1994.
INTANGIBLE ASSETS
Intangible assets consist principally of goodwill, noncompete agreements, and
waste collection and hauling contracts acquired in the acquisition of landfill
sites and a waste collection operation (Note 3). Goodwill, noncompete
agreements, and waste collection and hauling contracts are being amortized over
a period of five to nine years. Amortization of intangible assets was $195,000,
$242,000, and $1,351,000 in 1995, 1994, and 1993, respectively, including
$832,000 in 1993 relating to nonrecurring charges.
LANDFILL CLOSURE, POST-CLOSURE, AND OTHER ENVIRONMENTAL COSTS
Accrued landfill closure and other environmental costs include the cost of
closure and post-closure monitoring and maintenance of landfills, as well as,
environmental and remediation costs all of which are estimated based on
currently available facts, existing technology and interpretation of presently
enacted laws and regulations. Landfill post-closure costs represent management's
estimate of the current value of the future obligation associated with
maintaining and monitoring the landfill for generally a 30-year period
subsequent to the closure of the landfill. The Company estimates the future cost
of closure and post-closure costs based on its interpretation of the U.S.
Environmental Protection Agency's Subtitle D technical standards. The Company
periodically updates its estimates of future closure and post-closure costs with
the impact of changes in estimates accounted for on a prospective basis. The
Company recognizes these costs either on the unit-of-production method based on
consumed airspace or as a function of time, depending on the circumstances under
which the landfill is currently permitted to operate. Environmental costs
relating to remediation work is accrued and charged to income in the period the
potential environmental liability is known.
F-11
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
STATEMENT OF CASH FLOWS
For the purposes of reporting cash flows, cash and cash equivalents consists of
money market accounts and certificates of deposit with original maturities of
three months or less.
Noncash investing and financing activities of the Company excluded from the
statement of cash flows include property and equipment additions financed by
debt of $109,420, $267,237, and $132,434 and financed insurance premiums of
$458,387, $309,575, and $0 for fiscal years 1995, 1994, and 1993, respectively.
In fiscal 1994, the Company also sold property and equipment in exchange for a
note receivable of $449,236.
REVENUE AND COST RECOGNITION
The Company recognizes revenues upon receipt and acceptance of waste material at
its landfills and upon collection of waste material at its waste hauling
operations.
EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of common
shares outstanding including the effect of stock options and warrants, if
dilutive.
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 value 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. The carrying
value of the Company's long-term debt is similar to fair value based on current
rates and terms.
2. ACCOUNTING CHANGE
During the fourth quarter of fiscal 1993, the Company adopted FASB Statement No.
109, "Accounting for Income Taxes." As permitted under the Statement, the
Company elected not to restate the financial statements of prior years.
F-12
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING CHANGE (CONTINUED)
Under Statement 109, the liability method is used in accounting for income
taxes. Deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets and liabilities
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Prior to the adoption of Statement 109,
income tax expense was determined using the deferred method. Deferred tax
expense was based on items of income and expense that were reported in different
years in the financial statements and tax returns and were measured at the tax
rate in effect in the year the difference originated.
3. ACQUISITIONS
During fiscal 1993, the Company completed the acquisition of two waste hauling
operations for a total cash purchase price of $671,000.
All of the Company's acquisitions were accounted for under the purchase method
of accounting; accordingly, assets and liabilities acquired have been recorded
at their estimated fair values at the dates of acquisition and their results of
operations are included in the accompanying consolidated statements of income
since those dates.
The fair values of assets and liabilities acquired in fiscal 1993 were as
follows:
<TABLE>
<S> <C>
Other property and equipment $336,000
Goodwill 25,000
Noncompete agreements 310,000
----------
$671,000
==========
</TABLE>
4. ACCOUNTS RECEIVABLE
The Company grants credit to local and national companies in various geographic
regions throughout principally the Eastern United States. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral. The Company maintains an allowance for doubtful accounts at a level
that management believes is sufficient to cover potential credit losses.
F-13
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements (continued)
5. RELATED PARTY TRANSACTIONS
The Company has a one-year secured promissory note with a stockholder and
officer with a balance of $42,457 at June 30, 1995. The note bears interest at a
rate of 11.75% with interest expense of $3,397 incurred in fiscal 1995.
During fiscal 1995, the Company purchased legal services totaling approximately
$112,000 from a firm whose sole shareholder is a director of the Company.
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
<TABLE>
<CAPTION>
JUNE 30
1995 1994
--------------------
<S> <C> <C>
Supplies $ 22,443 $ 46,416
Insurance 258,584 324,725
Non-trade receivables 308,475 101,473
Performance bonds 42,136 37,233
Prepaid financing costs 7,756 29,792
Prepaid licenses 34,289 33,588
Other 96,304 104,319
--------------------
$769,987 $677,546
====================
</TABLE>
7. DEBT
The Company has a $4,500,000 credit arrangement with Philadelphia National Bank
(PNB or the Bank), consisting of a secured revolving credit facility that
provides for aggregate borrowings of up to $1,500,000 for working capital,
equipment purchases and performance letters of credit, and a $3,000,000 term
loan. The revolving credit facility, which is subject to periodic reviews by the
Bank, was extended to October 31, 1996.
Borrowings under the revolving credit facility are limited to the Company's
qualified trade accounts receivable as defined in the credit agreement less
outstanding performance letters of credit. Interest is payable monthly at the
Bank's prime rate plus 1/4%. The weighted average interest rate was 9.32% and
7.23% in fiscal 1995 and fiscal 1994, respectively.
F-14
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements (continued)
7. DEBT (CONTINUED)
Performance letters of credit outstanding in the amount of $1,031,000 reduced
the borrowing capacity under the revolving credit facility to $469,000 at June
30, 1995. Borrowings outstanding on the revolving credit facility at June 30,
1995, were $350,000. The Company is required to pay quarterly a fee at an annual
rate of 1/2% of the average daily unused amount of the revolving credit
facility.
The PNB credit arrangement contains warranties and financial covenants to
maintain certain levels of working capital and tangible net worth; to meet
certain fixed charge, leverage, and cash flow ratios; and to attain certain
quarterly performance levels. In addition, the credit arrangement requires the
Company to follow certain written approval procedures for borrowing under the
Company's secured revolving credit facility, and imposes restrictions on capital
expenditures based upon the Company's cash flow from operations and the
liquidation of certain assets the Company holds for sale. For the year ended
June 30, 1995, the Company was not in compliance with substantially all of the
covenants of the credit arrangement. The Bank amended the agreement for periods
subsequent to June 30, 1995, and has waived all items of non-compliance as of
June 30, 1995, and the Company is currently in compliance with the covenants as
amended.
Additionally, the PNB credit arrangement is secured by substantially all of the
tangible and intangible assets of the Company, including first mortgage liens on
mortgaged properties and a pledge by the Company of all of the issued and
outstanding capital stock of its landfill subsidiaries.
On September 26, 1995, the Company entered into a four-year secured term loan
with First Fidelity Bank, N.A. ("FFB"), which provides for borrowings up to
$1,350,000. The term loan is payable in equal monthly principal installments
through September 1999; plus interest at a fixed rate of 7.03%, and is secured
by a first lien security interest in the equipment and vehicles of the Company.
The agreement contains certain affirmative and negative covenants and will
require the maintenance of certain levels of tangible net worth, and the
maintenance of certain debt coverage and working capital ratios. A portion of
the funds were utilized to refinance the remaining balance of the PNB term loan.
Accordingly, certain debt has been classified as long-term to reflect the terms
of the FFB loan.
F-15
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements (continued)
7. DEBT (CONTINUED)
Debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30
1995 1994
------------------------
<S> <C> <C>
PNB term loan refinanced in September 1995 $1,150,000 $1,750,000
Note payable to Pennsylvania National
Bank in monthly installments of
$6,092, including interest at 8-1/4%,
secured by real estate, due September
2013. 687,521 703,177
Note payable to First Federal Savings
in monthly installments of $3,521,
including interest at 9.25%, secured
by real estate, due November 1999. 263,398 -
Machinery and equipment notes payable,
secured by equipment, with various
maturities payable through April 2000,
interest rates ranging from 6% to 12%,
payable monthly in installments
ranging from $559 to $4,569. 219,852 268,852
Other 228,184 119,205
------------------------
2,548,955 2,841,234
Less current portion 766,240 847,283
------------------------
$1,782,715 $1,993,951
========================
</TABLE>
Maturities of long-term debt are as follows: 1996--$766,000; 1997--$463,000;
1998--$398,000; 1999--$127,000; 2000--$795,000.
Interest paid on all indebtedness was $226,000, $217,000, and $264,000 for
fiscal 1995, 1994, and 1993, respectively.
F-16
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements (continued)
8. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
JUNE 30
1995 1994
--------------------
<S> <C> <C>
Accrued compensation $ 65,110 $153,665
Workers' compensation 67,981 125,501
Damage claims 187,000 95,000
Accrued professional fees 40,938 63,720
Miscellaneous taxes 110,820 59,224
Deferred income - 44,829
Operating loss accrual 170,000 -
Other 101,735 24,032
--------------------
$743,584 $565,971
====================
</TABLE>
9. ACCRUED LANDFILL CLOSURE AND OTHER ENVIRONMENTAL COSTS
The Company owns three solid waste landfills, all of which are permitted and
operating. The Company will have financial obligations related to closure and
post-closure monitoring and maintenance of these currently permitted and
operating landfills. While the exact amount of future closure and post-closure
obligations cannot be determined, the Company has developed procedures to
estimate these total projected costs based on currently available facts,
existing technology, and presently enacted laws and regulations. Accordingly,
the Company will continue to periodically review and update underlying
assumptions and projected costs and record required adjustments. As of June 30,
1995, the Company estimates that the costs of final closure of the currently
permitted and operating areas at the Company's three landfills will be
approximately $5,108,000, of which $1,260,000 has been accrued as of June 30,
1995. The Company estimates that the costs of post-closure monitoring of
groundwater and methane gas and other required maintenance procedures for the
currently permitted and expansion areas will approximate $27,000-$120,000 per
year for 30 years after closure at each of the Company's two municipal solid
waste accepting facilities and $10,000 per year for 30 years after closure at
the Company's industrial landfill site. The Company has accrued $692,000 for
post-closure obligations as of June 30, 1995, representing 18% of the present
value of such future cash outlays.
F-17
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements (continued)
9. ACCRUED LANDFILL CLOSURE AND OTHER ENVIRONMENTAL COSTS (CONTINUED)
The Company maintains a bonding facility pursuant to certain statutory
requirements regarding financial assurance for the closure and post-closure
monitoring cost requirements for its Kentucky and West Virginia disposal
facilities. Bonds outstanding at June 30, 1995, total $1,321,607 and $314,571,
as closure and post-closure financial assurance, respectively, for the Company's
Kentucky landfill and $214,000 as closure financial assurance for the Company's
West Virginia facility. The bonds are collateralized by irrevocable letters of
credit of $626,000 and trust fund deposits of $104,134. Additionally, the
Company has on deposit $190,665 as financial assurance for landfill closure and
post-closure for the closed disposal area of its West Virginia disposal
facility. The trust fund and cash deposits are restricted from current
operations and are included within other noncurrent assets.
A potential property damage claim may exist relating to alleged sedimentation
overflow for a landfill holding pond. While no detectable levels of
contamination exist, the Company may be required to perform clean-up activities
regarding the sedimentation. Accrued as part of damage claims is $25,000 at June
30, 1995, for this matter.
10. COMMON STOCK AND STOCK PLANS
Each share of the Company's Common Stock is entitled to one vote and each share
of Class A Common Stock is entitled to four votes. Class A Common Stock is
convertible into Common Stock on a share-for-share basis. Holders of Common
Stock are entitled to receive a preferential distribution of $1 per share from
net assets in the event of liquidation or dissolution of the Company.
The Company's Stock Option Plans provide for the grant of incentive stock
options or non-qualified stock options to directors, officers or employees of
the Company. Under the Option Plans, as amended, 200,000 shares of Common Stock
were reserved prior to January 1, 1991, and 700,000 shares are reserved
effective January 1, 1991, for issuance upon the exercise of such options.
Incentive stock options have an exercise price of at least 100% of the fair
market value of the common stock at the date of grant (or 110% of fair market
value in the case of employees or officers holding ten percent or more of the
voting stock of the Company). Non-qualified options have an exercise price of
not less than 90% of the fair market value of the common stock at the date of
grant. The options generally expire five years from the date of grant and are
generally exercisable after two years based upon graduated vesting schedules.
F-18
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements (continued)
10. COMMON STOCK AND STOCK PLANS (CONTINUED)
Options outstanding have been granted to officers and employees to purchase
common stock at prices ranging from $.87 to $1.87 per share. A summary of the
option transactions are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1995 1994 1993
---------------------------------
<S> <C> <C> <C>
Options outstanding, beginning of period 417,200 482,800 418,250
Options granted 20,000 45,000 169,000
Options exercised (30,000) - -
Exercise price $.87 - -
Options cancelled (40,300) (110,600) (104,450)
---------------------------------
Options outstanding, end of period, of
which 350,650, 337,450, and 302,350
were exercisable at June 30, 1995,
1994, and 1993, respectively 366,900 417,200 482,800
=================================
Options available for grant 300,100 279,800 214,200
=================================
</TABLE>
Proceeds from exercise of stock options are credited to common stock for the
amount of par value and any excess is credited to additional paid-in capital.
On June 19, 1995, the Company, through a private placement, issued 300,000
shares of its common stock for cash of $1.00 per share or $300,000, pursuant to
stock subscription agreements with two individual accredited investors.
Subsequent to June 30, 1995, the Company, through additional private placements
of stock with accredited investors, issued an additional 775,000 shares of its
common stock for cash of $1.00 per share or $775,000. Certain of the private
placements of stock issued subsequent to June 30, 1995, contain warrants to
purchase a total of 525,000 additional shares of common stock at an exercise
price of $1.50 per share expiring three years from the date of grant. The
agreements provide that the Company will register the securities within six
months of the Company's acceptance of the subscription agreements.
F-19
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements (continued)
10. COMMON STOCK AND STOCK PLANS (CONTINUED)
The Company's Employee Stock Bonus Plan and Employee Benefit Stock Purchase Plan
(the Employee Plans) are for eligible employees. Shares are awarded under the
Employee Stock Bonus Plan at the Company's discretion based on the employees'
performance. Under the Employee Benefit Stock Purchase Plan, employees may
purchase common shares at a purchase price of 85% of the fair market value at
the date of purchase. A total of 450,000 common shares are reserved under the
Employee Plans. At June 30, 1995, 27,311 shares have been issued under these
plans.
At June 30, 1995, the Company has 232,103 warrants outstanding and exercisable
to purchase shares of Common Stock which are exercisable at the discretion of
the Board of Directors at prices between $.87 and $4.88 expiring at various
dates through 2000.
11. INCOME TAXES
Effective July 1, 1992, the Company changed its method of accounting for income
taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes" (see Note 2 - "Accounting
Changes"). As permitted under the new rules, prior year's financial statements
have not been restated. The cumulative effect of adopting Statement 109 as of
July 1, 1992, increased the fiscal 1993 net loss by $371,029.
At June 30, 1995, the Company has net operating loss carryforwards for federal
and state income tax purposes of $1,869,000 and $165,000, respectively, that
expire through 2010. For financial reporting purposes, a valuation allowance of
$490,000 has been recognized to offset the deferred tax assets related to those
carryforwards.
F-20
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements (continued)
11. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
JUNE 30
1995 1994
------------------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ (539,897) $(624,446)
Other, net (113,507) (161,436)
------------------------
Total deferred tax liabilities (653,404) (785,882)
Deferred tax assets:
Allowance for doubtful accounts 176,810 161,719
Self insurance 7,781 19,918
Discontinued operations accrual 68,260 28,412
Reserve for loss on assets held for sale 122,767 174,007
Net operating loss carryforwards 642,216 163,106
AMT credit 24,376 72,098
Other, net 28,842 30,270
------------------------
Total deferred assets 1,071,052 649,530
Valuation allowance for deferred tax
assets (490,000) (150,000)
------------------------
Net deferred tax assets 581,052 499,530
------------------------
Net deferred tax liabilities $ (72,352) $(286,352)
========================
</TABLE>
F-21
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements (continued)
11. INCOME TAXES (CONTINUED)
Significant components of the provision for income taxes (benefit) attributable
to continuing operations are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------
<S> <C> <C> <C>
CURRENT
Federal $ - $(309,317) $(514,307)
State (28,171) (49,002) 17,948
-----------------------------------
(28,171) (358,319) (496,359)
DEFERRED
Federal (66,052) 177,955 (177,029)
State (8,838) 47,711 (41,179)
Operating loss carryforward (139,110) (163,106) -
-----------------------------------
(214,000) 62,560 (218,208)
-----------------------------------
Provision for income taxes (benefit) $(242,171) $(295,759) $(714,567)
===================================
</TABLE>
The reconciliation of income tax attributable to continuing operations computed
at the U.S. federal statutory tax rates to income tax expense is:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------
<S> <C> <C> <C>
Tax at U.S. statutory rates $(608,505) $(346,369) $(743,550)
State income taxes, net of federal tax
benefit (24,426) (16,076) (15,332)
Nondeductible depreciation depletion
and amortization 24,918 24,918 24,154
Nondeductible penalties - 2,540 11,092
Valuation allowance for deferred tax
assets 340,000 - -
Other 25,842 39,228 9,069
-----------------------------------
Provision for income taxes (benefit) $(242,171) $(295,759) $(714,567)
===================================
</TABLE>
Net income tax refunds received in fiscal 1995, 1994, and 1993 were $23,000,
$875,000, and $96,000, respectively.
F-22
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements (continued)
12. NONRECURRING CHARGES
During fiscal 1993, the Company recorded a nonrecurring charge of $968,933
relating to its Kentucky landfill. In December 1992, state regulatory officials
questioned the effects of blasting activities on the integrity of the in-situ
shale liner, however the liner proved to be intact. This along with a general
industry wide slow down in the issuance of permits has slowed the Company's
efforts to obtain approval for its expansion area and as a result the Company
restricted the current volume of waste to be received to insure that the
expansion permit is obtained before the existing disposal capacity is depleted.
Management has determined that certain intangible assets acquired upon purchase
of the landfill would not be realizable as a result of the impact of these
volume restrictions on earnings. Accordingly, the write-down of these intangible
assets is reflected as a non-cash charge to fiscal 1993 operations of $831,575
along with related legal and engineering costs totaling $137,358. Additionally,
certain assets relating to continuing operations are being held for sale and
accordingly were written down by $188,095 to net realizable value.
The volume restrictions were in effect for fiscal 1995 and 1994, and are
expected to remain in effect through fiscal 1996 when the Company expects to
receive permit approval and to begin construction of the expansion site.
13. COMMITMENTS AND CONTINGENCIES
The Company is obligated under various operating leases, primarily for certain
office facilities and transportation equipment. Lease agreements frequently
include renewal options and require that the Company pay for taxes, insurances,
and maintenance expense. Future minimum lease payments under operating leases
with initial or remaining noncancellable lease terms in excess of one year as of
June 30, 1995, are as follows: 1996--$213,000, 1997--$213,000, 1998--$194,000,
1999--$78,000, and 2000--$30,000. Total rental expense relating to continuing
operations under operating leases was approximately $411,000, $388,000, and
$389,000 for fiscal 1995, 1994, and 1993, respectively.
The Company maintains claims made based general liability insurance with limits
of $1,000,000.
F-23
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements (continued)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material effect on the Company's
consolidated financial position or results of operations.
The Company's activities are conducted in a developing and changing statutory,
political and regulatory environment with aggressive government enforcement.
Governmental regulation of the waste management industry requires the Company to
obtain and retain numerous permits to conduct various aspects of its operations.
These permits are subject to revocation, modification or denial. The costs and
other capital expenditures which may be required to obtain or reclaim the
applicable permits or comply with applicable regulations could be significant.
The Company, effective December 1991, is self-insured for workers' compensation
claims in certain states in which the Company operates. Workers' compensation
self-insurance (credits) costs were approximately $(18,000), $30,000, and
$23,000 in fiscal 1995, 1994, and 1993, respectively. The Company maintains a
$1,000,000 Performance bond as collateral for the Program (reduced to $600,000
in July 1995).
In connection with the acquisition of the Company's Kentucky landfill, the
purchase agreements provide for management royalty payments based on revenues,
as defined, to be made to former owners. Payments made under these agreements
are charged to operations as incurred. For the years ended June 30, 1995, 1994,
and 1993, approximately $0, $47,000, and $128,000, respectively, in royalty
payments have been paid.
In February 1995, an independent contractor ("contractor") filed a complaint
against the Company and certain other defendants alleging that contractor is
entitled to additional payment for excavation and development work performed at
the Company's West Virginia landfill. The complaint seeks contract damages of at
least $460,000, a $100,000 project bonus, $1 million in punitive damages, as
well as interest, consequential damages and attorney's fees. The Company has
filed a counterclaim claiming that the contractor breached its contract with the
Company and is required to pay liquidated and other damages to the Company. The
Company believes that it has substantial defenses to the allegations in the
complaint and intends to vigorously defend against the action. In the opinion of
management, the ultimate disposition of this matter will not have a material
effect on the Company's consolidated financial position or results of
operations.
F-24
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements (continued)
14. DISCONTINUED OPERATIONS
On October 22, 1993, the Company sold substantially all of the assets (excluding
real property) of its wholly owned laboratory services subsidiary, Advanced
Analytical Laboratories, Inc. (AAL), in exchange for $55,000 in cash and a
secured promissory note in the amount of $380,000, and the value of a "Sales
Bonus" defined as five percent of the gross sales of AAL's business during the
one year period following the closing date up to a maximum of $60,000. The
promissory note, which was secured by a first priority lien on all assets
transferred by AAL to the buyer, was paid in full on October 22, 1994. The
maximum sales bonus was earned by the Company.
On January 31, 1994, the Company sold certain assets (principally disposable
supplies) and assigned certain contracts and customer accounts of its wholly
owned asbestos and lead paint abatement services subsidiaries, Eastern
Environmental Services of the Northeast, Inc., and Eastern Environmental
Services of the Southeast, Inc. (EESNE/SE), in exchange for $14,000 in cash and
the value of a "Revenue Override" defined as four percent of all gross revenue
from certain "Qualifying Clients," as defined in an Assignment and Assumption
Agreement, through March 31, 1996, up to a maximum of $200,000. A revenue
override of approximately $31,000 was earned and recorded through fiscal 1995.
The consolidated financial statements as of June 30, 1995 and 1994, reflect the
assets, liabilities, and operations of AAL and EESNE/SE as discontinued
operations. This presentation was pursuant to management's plan, as approved by
the Company's Board of Directors on September 9, 1993, to discontinue these
operations. Financial results for periods prior to the date of discontinuance
have been restated to reflect continuing operations. Corporate selling, general,
and administrative expenses are classified as expenses of continuing operations
for all periods presented.
In fiscal 1993, the Company adopted a plan to discontinue its asbestos and lead
paint abatement and laboratory services. The estimated loss on disposition of
the discontinued operations reflected in the consolidated statement of income
for the fiscal year ended June 30, 1993, was $618,000 (net of applicable income
tax benefit of $277,000). The charge included a write-down of the vehicles,
equipment, and real estate related to the discontinued operations of $508,000,
and a provision of $110,000 for expected operating losses related to EESNE/SE's
and AAL's operations during the phase-out periods which was substantially
completed by June 30, 1994.
F-25
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements (continued)
14. DISCONTINUED OPERATIONS (CONTINUED)
Revenues applicable to the discontinued operations prior to final discontinuance
were $2,039,000 and $4,188,000 in 1994 and 1993, respectively.
The assets and liabilities relating to discontinued operations in the
consolidated balance sheets have been reclassified to identify them separately
at the lower of cost or net realizable value and net of any liabilities assumed.
Assets and liabilities relating to discontinued operations are as follows:
<TABLE>
<CAPTION>
JUNE 30
1995 1994
----------------------
<S> <C> <C>
Current assets:
Accounts receivable $ - $117,575
----------------------
$ - $117,575
======================
Noncurrent assets:
Property and equipment, net $517,659 $534,650
----------------------
$517,659 $534,650
======================
Current liabilities:
Reserve for operating and other losses $ - $ 61,500
======================
</TABLE>
F-26
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements (continued)
15. UNUSUAL OPERATING COSTS
Unusual operating costs of $532,000 were included in the fourth quarter of
fiscal 1995 results of operations. A total charge to cost of revenues of
$339,000 relates to the Company's cessation of waste acceptance at the Kentucky
landfill on June 30, 1995, and the Company's decision to simultaneously permit
and operate a waste transfer facility to continue to service the waste needs of
the local host county under the ten-year waste disposal franchise agreement
previously awarded to the Company expiring in the year 2002. Of the $339,000 of
unusual operating costs, $150,000 reflects the Company's estimate of operating
losses at the Kentucky facility through fiscal 1996, while the first disposal
cell is constructed following approval of the expansion permit, and $189,000
reflects a noncash charge to write-off remaining capitalized costs relating to a
disposal cell closed on June 30, 1995.
Additionally, a charge of $78,000 was recorded in the fourth quarter of fiscal
1995 to reduce the remaining net assets of All Waste Refuse Services, Inc.
(AWRS), the Company's waste collection business located in Beaufort County,
South Carolina, to their estimated net realizable value at June 30, 1995. The
$78,000 charge includes a write-down of $58,000 for certain operating assets,
receivables, and supplies inventory and the establishment of a reserve at June
30, 1995, for anticipated operating loss on final divestiture of assets of
$20,000. During fiscal 1995, the Board of Directors of the Company made a
decision to exit the local hauling business in Beaufort County as a result of
limited integration with the Company's landfill operation and continued
operating losses resulting from significant competitive pressures. The majority
of the operating assets of AWRS were sold in fiscal 1995 through several asset
sale transactions.
Also, in the fourth quarter, the Company refined its estimate of necessary
reserves against past due receivables resulting in a charge to operations of
$118,000.
F-27
<PAGE>
Eastern Environmental Services, Inc.
Notes to Consolidated Financial Statements (continued)
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995
Revenues $2,470,835 $2,046,955 $2,106,708 $2,026,447 $ 8,650,945
Gross profit 427,465 376,482 430,386 (13,616) 1,220,717
Loss from continuing operations (192,881) (200,342) (272,883) (881,444) (1,547,550)
-----------------------------------------------------------------
Net loss $ (192,881) $ (200,342) $ (272,883) $ (881,444) $(1,547,550)
=================================================================
LOSS PER SHARE
Continuing operations $ (.04) $ (.05) $ (.06) $ (.20) $ (.35)
-----------------------------------------------------------------
Net loss $ (.04) $ (.05) $ (.06) $ (.20) $ (.35)
=================================================================
YEAR ENDED JUNE 30, 1994
Revenues $2,480,261 $2,031,892 $1,760,942 $2,207,860 $ 8,480,955
Gross profit 855,093 547,440 343,853 596,274 2,342,660
Income (loss) from continuing
operations 35,460 (169,630) (330,604) (258,199) (722,973)
Gain from discontinued operations 36,000 189,000 - 300,309 525,309
-----------------------------------------------------------------
Net income (loss) $ 71,460 $ 19,370 $ (330,604) $ 42,110 $ (197,664)
=================================================================
EARNINGS (LOSS) PER SHARE
Continuing operations $ .01 $ (.04) $ (.07) $ (.07) $ (.17)
Discontinued operations .01 .04 - .07 .12
-----------------------------------------------------------------
Net earnings (loss) $ .02 $ .00 $ (.07) $ .00 $ (.05)
=================================================================
</TABLE>
F-28
<PAGE>
Report of Independent Auditors on Other Financial Information
Board of Directors and Stockholders
Eastern Environmental Services, Inc.
The audited consolidated financial statements of the Company and our report
thereon are presented in the preceding section of this report. The following
financial information is presented for purposes of additional analysis and is
not a required part of the financial statements of the Company. Such information
has been subjected to the auditing procedures applied in our audit of the
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the financial statements taken as a whole.
ERNST & YOUNG LLP
Reading, Pennsylvania
September 26, 1995
F-29
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
Financial Statement Schedule
June 30, 1995
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Schedule II - Valuation and Qualifying Accounts .................... F-31
</TABLE>
F-30
<PAGE>
Eastern Environmental Services, Inc.
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COST AND OTHER END
OF PERIODS EXPENSES ACCOUNTS DEDUCTIONS OF PERIODS
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1993
Allowance for doubtful accounts
(deducted from accounts receivable) $411,339 $164,220 $ - $353,559 (1) $222,000
==============================================================
YEAR ENDED JUNE 30, 1994
Allowance for doubtful accounts
(deducted from accounts receivable) $222,000 $107,970 $ - $ 5,430 $324,540
==============================================================
YEAR ENDED JUNE 30, 1995
Allowance for doubtful accounts
(deducted from accounts receivable) $324,540 $199,271 $ - $ 69,116 $454,695
==============================================================
</TABLE>
(1) Includes the effect of discontinued operations.
F-31
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit
No.
<S> <C>
10.24 Mortgage and Note agreement dated
November 18, 1994, between the
Company, its subsidiary, WRN Properties,
Inc. and First Federal Savings and Loan
Association of Hazleton.
10.25 Sixth Amendment to Loan Documents
dated September 26, 1995, between
the Company, its subsidiaries and
CoreStates Bank, N.A.
10.26 Indemnification Agreement dated April
18, 1995 between Eastern Environmental
Services, Inc. and William C. Skuba
(Pursuant to instruction 2 to Item 601
of Regulation S-K, the Indemnification
Agreements, which are substantially
identical in all material respects except
as to the parties thereto, between the
Company and the following individuals
are not being filed: Gregory M. Krzemien,
Michael A. Fioravante, Timothy W.
Sweeney, Stephen C. Stamos, Jr.,
and Robert J. Powell).
10.27 Term Loan Agreement dated September 26, 1995,
between the Company, its subsidiaries and
First Fidelity Bank, N.A.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
</TABLE>
<PAGE>
Exhibit 10.24
THIS MORTGAGE
-------------
MADE THIS 18th day of November , 1994, is between Mortgagors, WRN
-------- ------------
PROPERTIES, INC., a Pennsylvania corporation with offices at P.O. Box 366, Route
309 North, Drums, Luzerne County, Pennsylvania, 18707 (called "Mortgagor"), and
Mortgagee, FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF HAZLETON, organized and
existing under the laws of the United States of America with offices at 12 East
Broad Street, Hazleton, Pennsylvania, 18201 (called "Bank").
In consideration for and to secure payment and performance to Bank by
Mortgagor (if more than one person, jointly or severally obligated to Bank and
called "Mortgagor") of a loan in the amount of Two Hundred Seventy-five Thousand
and no/100 ($275,000.00) Dollars evidenced by a Note of even date, plus interest
and costs as provided therein (and/or any modification, refinancing, extension
or renewal thereof and any other promissory notes or other agreements which may
be substituted therefor, any or all of which are hereinafter called the "Note"),
and of all of the Obligations (as defined hereinafter), Mortgagor does hereby
grant, bargain, sell, convey and mortgage unto Bank, to have and to hold, to and
for the use and behoof of Bank, its successors and assigns, forever, a first
lien on all that certain lot, piece or parcel of land, with the buildings and
improvements thereon erected, situate, and located at P.O. Box 366, Route 309
North, Drums, Luzerne County, Pennsylvania, described in greater detail on
"Exhibit A", appended to and made a part of this Mortgage, and called the
"Premises."
TOGETHER with all and singular the present and future buildings, additions and
improvements thereon, including all alleys, passageways, rights, liberties,
privileges, hereditaments and appurtenances, and the reversions, remainders,
rents, issues and profits thereof, now or hereafter accruing, attached to or in
any way pertaining to the Premises, and any fixtures attached thereto.
THIS MORTGAGE IS MADE subject to the following terms and conditions:
A. OBLIGATIONS
As used in this Mortgage, "Obligations" means any or all of the following
liabilities and obligations:
(1) the liabilities and obligations of Eastern Environmental Services, Inc. to
Bank arising out of the Note and the Loan Commitment of Bank dated October 28,
1994 to Borrower, accepted by Eastern Environmental Services, Inc. on October
28, 1994;
(2) all other existing and future liabilities and obligations of Eastern
Environmental Services, Inc. to Bank, whether absolute or contingent, direct or
indirect, of any nature whatsoever and arising from this or any other
transaction, under an agreement between it and Bank of even date;
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(3) performance by Eastern Environmental Services, Inc. of all warranties,
representations, covenants and agreements set forth in the Note and in other
documents evidencing the liabilities and obligations specified in Sections A.(1)
and A.(2) above;
(4) performance by WRN Properties, Inc. of all warranties, representations,
covenants and agreements set forth in this Mortgage;
(5) the cost of curing any Event of Default or performing any warranty,
representation, covenant or agreement which Bank elects to cure or perform; and
(6) the reasonable cost incurred by Bank to enforce any of the aforesaid
obligations of Eastern Environmental Services, Inc.
REFERENCE IS MADE TO A HYPOTHECATION AGREEMENT OF MORTGAGOR THIS DATE
AUTHORIZING THE PLEDGE OF THE PREMISES DESCRIBED HEREIN AS SECURITY FOR BANK'S
LOAN TO EASTERN ENVIRONMENTAL SERVICES, INC.
B. WARRANTIES, REPRESENTATIONS, COVENANTS AND AGREEMENTS
Until the Obligations are paid and performed in full, Mortgagor warrants,
represents, covenants and agrees to all of the following:
1. PAYMENTS: All payments on the Note will be made when and where due,
including payments due on demand, if the Note is payable on demand, or by
acceleration of maturity upon default, and all Obligations will promptly be paid
and performed in full in accordance with their terms.
2. TITLE: Mortgagor has fee simple title to the Premises and the right to
mortgage the Premises, and Mortgagor will defend said title against any person
claiming any right in the Premises prior to or superior to the lien of this
Mortgage.
3. INSURANCE: Mortgagor will maintain insurance on the Premises of such
kinds, in such amounts, with such companies and with such mortgagee loss-payable
clauses as are satisfactory to Bank and, at Bank's request, will deposit
evidence of such policies including paid receipts with Bank. Mortgagor shall
not engage in or permit any lessee of all or part of the Premises to engage in
any activity on the Premises which, if resulting in any loss or damage to the
Premises, would not be covered by such insurance. Mortgagor shall notify Bank
of any loss of damage to the Premises and promptly submit to such insurers a
proof or proofs of loss. Mortgagor appoints Bank as Mortgagor's attorney-in-
fact, in Mortgagor's or Bank's name, to file such proof or proofs of loss, if
Mortgagor fails or refuses to do so, and to endorse Mortgagor's name to any
check, draft or other instrument received in payment or settlement of insurance
claims. Mortgagor directs the insurers to mail or deliver all checks, drafts or
other instruments in payment or settlement of insurance claims directly to Bank.
The proceeds of any such insurance shall be applied to the repair of the
Premises or to reduce the outstanding balance of the Obligations, at Bank's sole
election.
4. TAXES: Mortgagor will pay when due all taxes, assessments and
governmental charges, and all other charges of any kind which are levied upon
Mortgagor or the Premises at any time and which, if unpaid, would result in a
lien or other security interest in the Premises superior to that of Bank, and
will deliver to Bank upon request all receipts evidencing payment therefor.
Mortgagor will not claim a credit under the Note or this Mortgage for such
payments.
5. CONDITION AND REPAIR: Mortgagor will maintain the Premises in good
repair,
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order and condition and will not commit nor permit any strip, waste,
nuisance, impairment or deterioration of the Premises, will not remove from the
Premises any fixtures, appliances, machinery or equipment of any nature covered
by the lien of this Mortgage, will not bring nor permit any lessee of the
Premises to bring any hazardous substances onto the Premises, for storage,
manufacturing, processing or other purposes, and will comply with all laws
regarding the use and possession of the Premises. Bank's representatives may
inspect the Premises at any reasonable time or times. Mortgagor represents
that, except as specifically noted on an addendum to this Mortgage, there are no
hazardous substances now on the Premises. For purposes of this Mortgage,
"hazardous substance" shall mean any manufactured, processed or distilled
substance which does not occur naturally on the Premises and which, if released
into the environment, could or would pose a real and substantial threat to the
public health and welfare.
6. TRANSFERS: Mortgagor will not materially improve or alter the Premises,
nor sell, assign or transfer the Premises or any portion thereof, voluntarily or
involuntarily, to any other person, nor grant anyone rights therein without the
prior written consent of Bank.
7. LEASES: If the Premises have been or will be leased in whole or in part,
Mortgagor hereby assigns to Bank Mortgagor's interest in such leases as
additional security for the Note. Mortgagor shall provide Bank with copies of
all existing and future leases of all or part of the Premises. Mortgagor will
comply with the provisions of such leases, but Mortgagor will not collect more
than one (1) month's rent, exclusive of any security deposit for damages to the
Premises or nonpayment of rentals, in advance. Unless with the prior written
consent of Bank or used in the normal course of lessee's business as specified
in the lease, all leases of all or part of the Premises shall specifically
prohibit the lessees from bringing hazardous substances onto the Premises, for
storage, manufacturing, processing or any other purpose.
8. CONDEMNATION AND JUDGMENTS: Mortgagor assigns all judgments or awards
for damage to the Premises or arising out of condemnation of the Premises, or
otherwise, in their entirety to Bank, and Bank may apply the same to the
Obligations secured by this Mortgage. Bank is authorized by Mortgagor to
institute or defend such actions and to appeal from any such judgments.
9. ASSIGNMENTS: Mortgagor will not assign the rents, profits or income from
the Premises without first obtaining the written consent of the Bank to such
assignment, except that in the event of foreclosure, Mortgagor's interest in any
insurance policy relating to the Premises shall be and is hereby assigned to the
purchaser at such sale.
10. SUITS: Mortgagor shall not permit any action to enforce any other lien
or claim against the Premises prior to the lien of this Mortgage to be commenced
and not discontinued and withdrawn within ten (10) days.
11. RESTRICTIONS: Mortgagor shall comply with all restrictions or
governmental regulations affecting the use, title or possession of the Premises,
and shall not make use, encumber title or allow possession of the Premises,
whereby the same may be forfeited to any person.
C. EVENTS OF DEFAULT
Each of the following shall constitute an "Event of Default" hereunder:
(1) The failure of Eastern Environmental Services, Inc. to make any payment on
the Note as and when due;
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(2) The failure of Eastern Environmental Services, Inc. to pay or perform any
of the Obligations as and when due; and
(3) The breach by Mortgagor of any warranty, representation, covenant or
agreement contained herein, or by Eastern Environmental Services, Inc. in the
Note, or by Mortgagor in any document or instrument evidencing any of the
Obligations.
(4) The occurrence of any event, circumstance or proceeding that, in the good
faith determination of Bank, materially adversely affects the credit or
financial condition of Eastern Environmental Services, Inc. or the value of the
premises.
D. REMEDIES
Upon the occurrence of any Event of Default or at any time thereafter, Bank
may do any or all of the following:
(1) At its sole discretion, cure the Event of Default and add the costs of
such cure to the Principal sum then due on the Note, and charge interest thereon
in accordance with the Note from the date of such payment.
(2) Accelerate and declare immediately due and payable all amounts due under
the Note and under all of the Obligations.
(3) Place this Mortgage or any of the Obligations in the hands of an attorney
for collection, or institute an action of mortgage foreclosure against the
Premises, or take such other action at law or in equity for the enforcement
hereof and of the Obligations as the law may allow and proceed to final judgment
and execution thereon for the entire unpaid balance thereof, together with any
costs incurred by the Bank in curing any Events of Default, with interest
thereon at the rate stipulated in the Note, together with all sums due in
accordance with the provisions hereof, and all costs of suit and reasonable
attorney's fees, but in no event shall such attorney's fees be less than One
Thousand and no/100 ($1,000.00) Dollars.
(4) Enter into possession of the Premises, with or without legal action, or
have a receive appointed to take possession and collect all rents, issues,
profits or insurance proceeds therefrom whether due or to become due, all of
which Mortgagor hereby expressly assigns to Bank as additional security for the
Obligations.
(5) Lease the Premises and, at any time and from time to time, upon five (5)
days' prior written notice to Mortgagor, which Mortgagor acknowledges is
sufficient, proper and commercially reasonable, sell or otherwise dispose of the
Premises, in whole or in part, at public or private sale, without advertisement
or notice of sale, all of which are hereby waived.
(6) After deducting all costs of collection (including reasonable attorney's
fees and administration expenses), apply the net rents, issues, profits and
proceeds of sale of the Premises to the payment of taxes, water and sewer rents,
insurance premiums and all other charges related to the maintenance, repair,
restoration, use and/or sale of the Premises, or on account and in reduction of
the Obligations hereby secured, in such order and amounts as Bank, in Bank's
sole discretion, may elect, and Mortgagor hereby waives and releases any right
to require Bank to collect any of the Obligations from any other collateral
under any equitable theory of marshalling of assets or otherwise.
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E. WAIVER
Mortgagor hereby waives and releases all benefit and relief from any and all
appraisement, stay and exemption laws now in force or hereafter passed, either
for the benefit or relief of Mortgagor, or limiting the balance due to a sum not
in excess of the amount actually paid by the purchaser of the Premises at a sale
thereof in any judicial proceedings upon this Mortgage, or exempting the
Premises or any other property, real or personal, or any part of the proceeds of
sale thereof, from attachment, levy or sale under execution, or providing for
any stay of execution or any process.
Mortgagor hereby waives any requirement that Bank protect, secure, perfect or
ensure any lien or security interest or any property subject thereto to exhaust
any right or take any action against any other obligor or any other collateral
which directly or indirectly secures the obligations of borrower or Eastern
Environmental Services, Inc. under any loan document.
Mortgagor hereby irrevocably waives its rights, in the event it or Eastern
Environmental Services, Inc. files for bankruptcy or if an involuntary
bankruptcy is filed against either it or Eastern Environmental Services, Inc.,
to (i) defend any motion pursuant to which Bank seeks relief from the automatic
stay under 11 U.S.C. (S)362 (d).
F. CONSENT
Mortgagor hereby consents: to the extension of the time for payment of the
Note, this Mortgage or any Obligations secured hereby or to the release of any
party also liable therefor; to the making of any compromise or settlement; to
the waiver or failure to enforce any rights against any person or any property;
to the release of any other collateral security or any part of the Premises; or
to any action which might or could release Mortgagor from liability; and
Mortgagor also hereby expressly waives any claims to any such release from
liability by reason of any of the foregoing acts, or failures to act, and also
by reason of any defects in, or incompleteness of, any foreclosure of this
Mortgage or any other action or neglect, excepting only the full payment to Bank
of all sums secured to it hereunder.
G. NOTICE
Any notice required to be give to Bank shall be personally served or sent by
certified or registered mail, return receipt requested. Such notice shall be
effective upon actual receipt by Bank. Any notice required to be given to the
Mortgagor may be sent by ordinary first class mail addressed to Mortgagor's last
know mailing address as shown on Bank's books and records and shall be deemed
received as of the next business day after mailing.
H. RELEASE
Bank may release any part of the Premises without creating any rights in favor
of any subsequent lienor, and also without affecting the liability of any person
for the payment of any of the Obligations secured hereby or the lien of this
Mortgage upon the remainder of the Premises for the full amount of the
Obligations then remaining unpaid.
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BUT ALWAYS PROVIDED, nevertheless, that if this Mortgage and the Obligations
hereby secured are paid in full in the manner provided in the Note and in the
Obligations, then this Mortgage and the estate hereby granted shall cease and
determine and become void, anything herein to the contrary notwithstanding.
The rights and remedies of Bank as provided herein or in the Obligations shall
be cumulative and concurrent, and may be pursued singly, successively, or
together against Mortgagor, Mortgagor and the Premises, at the sole discretion
of Bank, and the failure to exercise any such right or remedy shall in no event
be construed as a waiver or release of the same. The words "Mortgagor" and
"Bank" shall be deemed and construed to include their respective successors and
assigns. This Mortgage shall be governed by and construed according to the laws
of the Commonwealth of Pennsylvania. The unenforceability or invalidity of any
provision of this Mortgage shall not render any other provisions unenforceable
or invalid.
MORTGAGOR HAS DULY EXECUTED THIS MORTGAGE under seal the day and year first
mentioned above.
ATTEST: WRN PROPERTIES, INC.
Mortgagor
/s/ Gregory M. Krzemien BY: /s/ William C. Skuba
- ----------------------- ----------------------(SEAL)
President
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ACKNOWLEDGEMENT
COMMONWEALTH OF PENNSYLVANIA :
: ss
COUNTY OF LUZERNE :
On this, the 18 day of November, 1994, before me, a Notary Public, the
undersigned officer, personally appeared William C. Skuba, who acknowledged
himself to be the President of WRN Properties, Inc., a corporation, and that he
as such President, being authorized to do so, executed the foregoing instrument
for the purposes therein contained by signing the name of the corporation by
himself as President.
WITNESS my hand and official seal the day and year aforesaid.
(SEAL) /s/ Gwen A. Blakeslee
---------------------
Notary Public
My Commission expires:
The precise address of the within named Mortgagee is:
P.O. Box 950, 12 East Broad Street, Hazleton, Pennsylvania, 18201
/s/ Frank Wengen, Vice-President
--------------------------------
Attorney for Mortgagee
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ALL that certain piece, parcel or tract of land situate in the Township of
Butler, County of Luzerne and Commonwealth of Pennsylvania, bounded and
described as follows, to wit:
BEGINNING at a point, the northwest corner of the parcel herein described, said
point being located South 0 degrees, 16 minutes East, 100 feet from the
southeast corner of the intersection of U.S. Route 309 and T349, said point also
being corner of lands of Highway Equipment and Supply Company, and said point
also being located on the easterly side of U.S. Highway Route 309;
THENCE along lands of Highway Equipment and Supply Company, the following 2
courses and distances:
North 82 degrees, 2 minutes East, 159.71 feet to a point;
South 1 degree, 0 minutes, 31 seconds East, 175.38 feet to a point, said point
being corner of lands of Highway Equipment and Supply Company;
THENCE along lands of Bernard Kushmider, North 89 degrees, 7 minutes, 10 seconds
West, 160.57 feet to a point on the easterly side of U.S. Route 309;
THENCE along the easterly side of U.S. Route 309, North 0 degrees, 16 minutes
West, 150.75 feet to a point, the place of BEGINNING.
CONTAINING 0.59 acres.
All as set forth on a map of same dated April 30, 1985, prepared by Schumacher
Engineering, Inc. The above description was also prepared by William J.
Schumacher, Jr., P.E.
BEING the same premises sold and conveyed to the Borrower herein WRN Properties,
Inc. by Deed of Harold B. Benjamin and Lorraine E. Benjamin, his wife, dated
March 1, 1987 and recorded in the Office of the Recorder of Deeds in and for
Luzerne County on April 7, 1987 in Deed Book 2227 at Page 163
The PIN number is: Q853-001-005
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NOTE
----
AMOUNT: $275,000.00 DATE: November 18 , 1994
----------------
Hazleton, Pennsylvania
FOR VALUE RECEIVED, EASTERN ENVIRONMENTAL SERVICES, INC. ("Borrower"), a
business corporation with principal place of business at Route 309 North, Drums,
PA 18222, promise to pay to the order of FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF HAZLETON ("Lender"), a corporation organized and existing under
the laws of the United States of America, at its principal place of business and
address of 12 East Broad Street, Hazleton, Pennsylvania, 18201, or at such other
place as Lender may from time to time designate in writing, the principal sum of
Two Hundred Seventy-five Thousand and no/100 ($275,000.00) Dollars, together
with interest thereon, as follows:
1. Interest Rate
-------------
Commencing on the date of this Note, interest on the outstanding principal
balance shall accrue at nine and one-quarter (9.25%) per cent for the first
thirty-six (36) months. Thereafter, the interest rate will be adjusted on the
third (3rd) anniversary date of the Loan Closing ("Adjustment Dates"), to a
fixed rate equal to Lender's national prime rate, plus one and one-half (1.50%)
per cent per annum. Lender's "national prime rate" is a changing rate used by
Lender from time to time as a reference base with respect to different interest
rates charged to Borrowers. Interest shall be computed at the daily rate basis
of one-three hundred sixty-fifth (1/365th) of the annual rate per day.
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2. Payment of Principal and Interest
---------------------------------
Commencing on the 18th day of December, 1994, and continuing on that day of
------
each month thereafter for a period of sixty (60) months (each such date being
hereinafter called "payment date"), Borrower shall pay to Lender installments or
principal and interest in the amount of Three Thousand Five Hundred Twenty and
90/100 ($3,520.90) Dollars.
If not sooner declared due and payable, the entire unpaid balance of
principal and all accrued interest due under this Note shall be due and payable
on November 18th, 1999.
------
At the option of Lender, Borrower shall pay to Lender installments of
principal and interest in strict accordance with a monthly amortization schedule
established by Lender on the thirty-sixth (36th) month of a total amortization
period of sixty (60) months based upon the outstanding principal balance as of
that change date, so that the principal balance will be paid in sixty (60)
monthly installments from December 18th , 1994.
------
All installments of principal and interest shall be applied first to escrow
payments, late charges, if any; interest then due, and principal.
3. Late Charges
------------
If any payment of interest due under this Note, or any other sum due to
Lender under any loan document incidental to this transaction is not paid within
fifteen (15) calendar days after the date it is due, Borrower shall pay to
Lender, immediately upon the expiration of the said period after the due date,
without notice or demand, a late charge equal to five (5) per cent of the amount
overdue in order to defray part of the additional expense incurred by Lender in
connection with the delinquency in collection of the overdue amount. Provisions
for such late charge shall not be construed to permit Borrower to make any
payment after its due date, obligate Lender to accept any overdue installment or
affect Lender's rights and remedies for Borrower's default under this Note. The
amount of any such late charge not
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paid promptly shall be deemed outstanding and payable pursuant to this Note and
secured by the Mortgage (defined hereafter).
4. Prepayments
-----------
The Borrower shall have the full right to prepay the principal and interest
owing hereunder in full at any time or to prepay any portion of principal before
the same shall fall due without penalty. The acceptance of any such prepayment,
when there is an event of default in existence hereunder or under the loan
documents, shall not constitute a waiver, release or accord and satisfaction
thereof or of any rights with respect thereto by Lender. Partial prepayment of
the principal made by Borrower shall not postpone the next payment of interest
falling due or the due date of the entire principal and all accrued interest
have been paid.
5. Security For Note
-----------------
This Note and the due performance by Borrower of all of its obligations
hereunder, is secured by a first lien Mortgage on property presently owned by
WRN Properties, Inc. more particularly described in Luzerne County Deed Book
2227 at Page 163, situate at Route 309 North, Drums, Butler Township, Luzerne
County, Pennsylvania, 18222. Reference is hereby made to a commitment letter
dated October 28, 1994, accepted by Borrower on October 28, 1994.
This Note, the Commitment Letter and the Mortgage are sometimes referred to
individually as a "Loan Document" and collectively as the "Loan Documents." Any
collateral securing any of Borrowers' obligations under any of the Loan
Documents is referred to collectively as the "Collateral."
6. Events of Default
-----------------
In addition to any other event referred to in the Loan Documents, the
occurrence of
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which constitutes an Event of Default, the occurrences of any one or more of the
following shall constitute Events of Default under this Note:
(a) a failure to pay any installment of principal and/or interest or any
other sum due under this Note or any other loan document on or before its due
date; and
(b) a failure to pay the final installment and/or any interest or any other
sum due under this Note or the Loan Documents within thirty (30) days after its
due date, or a failure to cure any other default which cannot be cured by the
payment of money within thirty (30) days after Lender gives notice of such
default to Borrower; and
(c) any representation or warranty contained in this Note, any other loan
document or any other writing delivered to Lender in connection with this Note
or any affidavit given by or on behalf of Borrower pursuant to any provision of
this Note or any other loan document is breached or is found to be materially
incorrect or untrue;
(d) any attachment or seizure of or execution against any of the mortgaged
property by any person or entity;
(e) any default which could, in the absence of the immediate exercise by
Lender of a right or remedy, result in irreparable harm to Lender, impairment of
this Note or any Collateral for this Note or damage to or loss of the Collateral
for this Note;
(f) the occurrence of any Event of Default as defined in any other loan
document; or
(g) Borrower makes an assignment for the benefit of creditors or a
composition with creditors or is unable to admit in writing its inability to pay
debts as they mature, or files a Petition in Bankruptcy, or is adjudicated
insolvent or bankrupt, or petitions or applies to any tribunal for the
appointment of any receiver, liquidator, or trustee of or for it or any
substantial part of its properties or assets, or commences any proceeding
relating to it under receivership, dissolution or liquidation law or statute of
any jurisdiction, whether now or
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hereafter in effect, or there is commenced against Borrower any such proceeding
which shall remain undismissed for a period of sixty (60) days or an Order,
judgement or decree approving the Petition in any such receiving is entered; or
by any act or failure to act indicating its consent to or approval of, or
acquiescence in, any such proceeding or in the appointment of any receiver,
liquidator or trustee of or for it or any substantial part of its properties or
assets, or allow any such appointment to continue undischarged or unstayed for a
period of sixty (60) days;
(h) if any controlling interest in the Borrower or WRN Properties, Inc.
greater than ten (10%) per cent should be sold or otherwise transferred,
directly or indirectly, to any person or entity other than William C. Skuba,
without Lender's prior written approval;
(i) if any of the Collateral should be sold or otherwise transferred at
voluntary or judicial sale, or in the event legal or equitable title becomes
vested by assignment in any one other than WRN Properties, Inc., without
Lender's prior written approval, or if any part thereof should be so
transferred, other than as expressly provided in any of the Loan Documents;
(j) Borrower or WRN Properties, Inc. allows any inferior lien to be filed
against any of the Collateral; and
(k) if any of the collateral should be leased or otherwise occupied by any
person or entity in whole or in part other than Borrower without the prior
written approval of Lender.
8. Remedies
--------
At any time after occurrence of an Event of Default, Lender may, at Lender's
option and without notice or demand, do any one or more of the following:
(a) without declaring the unpaid principal balance to be due, collect all
interest and all other sums due under this Note or any other loan documents from
time to time, by any
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<PAGE>
action provided in this Note or any other loan document or provided at law or in
equity;
(b) declare the entire unpaid balance of this Note, together with interest
accrued thereon and all other sums due from Borrower under this Note or any
other loan document to be due and payable immediately; and/or
(c) take possession of the Collateral of WRN Properties, Inc.; and
(d) exercise any other right or remedy as may be provided in this Note or
any other loan document or provided at law or in equity.
Payment of all or any part of the indebtedness may be recovered at any time
by one or more of the foregoing remedies.
Whether or note the entire unpaid principal balance is declared to be due,
the interest rate on the unpaid balance shall continue to be subject to interest
rate changes as set forth in Paragraph 1 hereof, until the date on which all
defaults are cured or the entire unpaid principal balance and all other sums due
under this Note or any other loan document (collectively, the "Indebtedness")
are actually received by the Lender. Upon the entry of any judgement, interest
shall accrue at said rate (that is, with increases as set forth in Paragraph 1
hereof) in the judgment amount from the date of judgment until actual receipt of
the entire indebtedness by Lender, including any period after a Sheriff's Sale
of the Collateral.
9. Costs and Attorney's Commission
-------------------------------
In any action under this Note or any other loan document, Lender may recover
the following:
(a) all costs of suit and other expenses in connection with the action,
including the cost of any title search and attorneys' fees, paid or incurred by
Lender; and
(b) an attorney's commission for collection of not less than ten (10%) per
cent of the indebtedness, which attorney's commission shall be payable to
Lender.
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10. Remedies Cumulative
-------------------
The rights and remedies provided to Lender in this Note and other loan
documents, including all warrants of attorney, (a) are not exclusive and are in
addition to any other rights and remedies Lender may have at law or in equity,
(b) shall be cumulative and concurrent, (c) may be pursued singly, successively
or together against Borrower, any of the Collateral, and/or any other security
at the sole discretion of Lender, and (d) may be exercised as often as occasion
therefor shall arise. The failure to exercise or delay in exercising any such
right or remedy shall not be construed as a waiver or release thereof.
11. Borrower's Waivers
------------------
Borrower hereby waives and releases Lender and its attorneys from all errors,
defects, and imperfections in any proceeding instituted or maintained by Lender
under this Note or any other loan document. Borrower hereby, to the extent not
prohibited by law, waives all benefit of any and all present and future statutes
of limitations and moratorium laws and any and all present and future laws which
(a) exempt all or any part of the mortgaged property, or any other real or
personal property or any part of the proceeds of any sale or any such property
from attachment, levy foreclosure or sale under execution, (b) provide for any
stay of execution, marshalling of assets, exemption from civil process,
redemption, extension of time for payment, or valuation or appraisement of all
or any part of the mortgaged property, or any other real or personal property,
or (c) conflict with any provision of this Note or any other loan document.
Borrower agrees that the Collateral and any other real or personal property, may
be sold to satisfy any judgement entered under this Note or any other loan
document in whole or in part and in any order as may be desired by Lender.
Borrower: (a) waives presentment for payment, demand, notice of demand,
notice of
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nonpayment or dishonor, protest and notice of protest of this Note, and all
other notices (not expressly provided for in this Note) in connection with the
delivery, acceptance, performance, default, or enforcement of the payment of
this Note; (b) agrees that the liability of each of them shall be unconditional
without regard to the liability of any other part and shall not be affected in
any manner by any indulgence, extension of time, renewal, waiver or modification
granted or consented to by Lender at any time; (c) consents to any and all
indulgences, extensions of time, renewals, waivers or modifications granted or
consented to by Lender at any time; (d) consents to the release of all or any
part of or interest in the mortgaged property, with or without substitution; and
(e) agrees that additional makers, endorser, guarantors or sureties may become
parties to this Note or any other loan documents without notice to them or
affecting their liability under this Note or any other loan document.
As a separate inducement to Lender to enter into this loan transaction, and
upon Lender's reliance hereon, Borrower hereby irrevocably waives its rights, in
the event it files for bankruptcy or if an involuntary bankruptcy is filed
against it, to defend any motion pursuant to which Lender seeks relief from the
automatic stay under 11 U.S.C. (S)362 (d).
12. Lender's Waivers
----------------
Lender shall not be deemed, by any act or omission or commission, to have
waived any of its rights or remedies hereunder unless such waiver is in writing
and signed by Lender. Such a written waiver signed by Lender shall waive
Lender's rights and remedies only to the extent specifically stated in such
written waiver. A waiver as to one or more particular events or defaults shall
not be construed as continuing or as a bar to or waiver of any right or remedy
as to another or subsequent event or default.
8
<PAGE>
13. Miscellaneous
-------------
(a) No Joint Venture. Lender shall not be construed for any purpose to be a
-----------------
partner, joint venturer or associate of Borrower or of any lessee, operator,
concessionaire or licensee of Borrower or of any of the mortgaged property by
reason of this Note or any of the loan documents.
(b) Time of Essence. Time is of the essence of each and every provision
----------------
requiring payment or performance of an obligation by Borrower.
(c) Successors and Assigns. The words "Lender" and "Borrower" shall include
-----------------------
the respective distributees, successors and assigns of Lender and Borrower,
respectively. The provisions of this Note shall bind and inure to the benefit of
Lender and Borrower and their respective distributees, successors and assigns.
This provision shall not be construed to allow any transfer which would
otherwise be prohibited under the terms hereof.
(d) Amendment of Note. This Note may be modified, amended, discharged or
------------------
waived only by an agreement in writing signed by the party against whom
enforcement of any such modification, amendment, discharge or waiver is sought.
(e) Governing Law. This Note shall be governed by and construed according to
--------------
the laws of the Commonwealth of Pennsylvania.
(f) Notice. All notices, requests, demands and other communications given
-------
pursuant to any provision of this Note shall be given in writing by United
States certified mail with return receipt requested and postage prepaid,
addressed to the party for which it is intended at the address of that party
first stated above or such other address of which that party shall have given
notice in the manner provided herein. Notice shall be deemed to have been given
when the notice is deposited in the mail.
9
<PAGE>
14. Confession of Judgment
----------------------
Borrower hereby irrevocably authorizes and empowers any attorney or attorneys
or the Prothonotary or Clerk of Courts of record in the Commonwealth of
Pennsylvania or in any other jurisdiction which permits the entry of judgment by
confession, to appear for Borrower in such Court in an appropriate action there
brought or to be brought against Borrower, at the suit of Lender on this Note,
with or without complaint or declaration filed as of any term or time, and
therein to CONFESS OR ENTER JUDGMENT against Borrower for all sums due by
Borrower to Lender under this Note and the loan documents (with or without
acceleration of maturity), including all costs, attorneys' fees and attorneys'
commission. For so doing this Note or a copy hereof verified by affidavit shall
be sufficient warrant. The authority to confess judgment granted herein shall
not be exhausted by any exercise thereof but may be exercised from time to time
and at any time as of any term and or any amount authorized herein. Borrower
expressly authorizes the entry of repeated judgment under this paragraph
notwithstanding any prior entry of judgments in the same or any other Court for
the same obligation or any part thereof.
10
<PAGE>
BORROWER ACKNOWLEDGES THAT THE FULL LEGAL SIGNIFICANCE OF THE CONFESSION OF
JUDGMENT CLAUSE CONTAINED ABOVE HAS BEEN CAREFULLY EXAMINED BY BORROWER, AND
BORROWER DOES HEREBY ACKNOWLEDGE THAT BORROWER HAS SIGNED THIS NOTE KNOWINGLY,
VOLUNTARILY, AND UNDERSTANDINGLY, AND WITH KNOWLEDGE THAT, LENDER MAY CAUSE
JUDGMENT TO BE CONFESSED AGAINST BORROWER WITH OR WITHOUT DEFAULT, AND UPON ANY
DEFAULT IN THE OBLIGATIONS OF BORROWER, MAY CAUSE EXECUTION TO ISSUE AND AS THE
RESULT, THERE MAY BE A JUDICIAL SALE OF REAL, PERSONAL OR MIXED PROPERTY
BELONGING TO BORROWER OR WRN PROPERTIES, INC. BORROWER HAS ACCESS TO LEGAL
COUNSEL AND WAIVES ANY RIGHTS TO HAVE A MORE DETAILED EXPLANATION OF BORROWER'S
LEGAL RIGHTS UNDER THIS NOTE AND OF THE EFFECT OF THE CONFESSION OF JUDGEMENT
CLAUSE.
IN WITNESS WHEREOF, Borrower has executed this Note under seal the day and
year first written above.
ATTEST: EASTERN ENVIRONMENTAL SERVICES, INC.
/s/ Gregory M. Krzemien /s/ William C. Skuba (SEAL)
- ----------------------- ---------------------------
11
<PAGE>
EXHIBIT 10.25
SIXTH AMENDMENT TO CREDIT AGREEMENT
This SIXTH AMENDMENT TO CREDIT AGREEMENT (the "Sixth Amendment") is dated as of
September 25, 1995 by and between EASTERN ENVIRONMENTAL SERVICES, INC., a
Delaware corporation ("Eastern"), the Subsidiaries of Eastern (together with
Eastern, the "Borrowers"), and CORESTATES BANK, N.A., a national banking
association (the "Bank"), with reference to the following
BACKGROUND
A. The Borrowers and the Bank have entered into a Credit Agreement dated
May 5, 1992, as amended September 24, 1992, March 31, 1993, September 24, 1993,
November 30, 1993, and September 26, 1994 (the "Agreement").
B. The Borrowers and the Bank desire to amend and extend the Agreement as
hereinafter set forth.
C. All capitalized terms used herein and not otherwise defined herein
shall have the meaning assigned to them in the Agreement and are used herein as
therein defined.
THEREOF, in consideration of the premises contained herein and intending to
be legally bound, the Borrowers and the Bank agree as follows:
1. Waiver of Certain Existing Defaults. The Borrowers expressly
------------------------------------
acknowledge and agree that they are in Default under the Agreement because of
their non-compliance with Sections 7.01, 7.02, 7.05, 7.06, and 7.07 of the
Agreement as of June 30, 1995. Notwithstanding such Borrowers' Default, the
Bank hereby waives such Borrowers' Default and the Borrowers' compliance with
Sections 7.01, 7.02, 7.05, 7.06, and 7.07 as to June 30, 1995 only, provided
--------
however, that such waiver shall not constitute a waiver as to any other Default
- -------
under the Agreement, including, without limitation, any other non-compliance
with Sections 7.01, 7.02, 7.03, 7.04, 7.05, 7.06 and 7.07 after June 30, 1995,
nor impair any of the Bank's remedies under the Agreement as to any other
Default.
2. Termination Date. The definition of "Termination Date" in Section 1.01
-----------------
shall be deleted in its entirety and replaced by the following:
"Termination Date" means, with respect to the Revolving Credit Commitment
and the Refinancing Term Loan, the earlier of October 31, 1996 or the date
on which the Commitment and the Refinancing Term Loan and the Letter of
Credit Facility are terminated or prepaid in full pursuant to Sections
2.05, 2.11 or 8.01.
3. The Revolving Credit. Section 2.01 of the Agreement shall be amended
---------------------
by adding the following at the end:
Commencing September 25, 1995, the Bank agrees on the terms and
conditions hereinafter set forth, to maintain the currently outstanding
Revolving Credit Loans of the Borrowers from September 25, 1995 up to but
not including the Termination Date in an aggregate amount which, when added
<PAGE>
to the aggregate Performance Letter of Credit Balance, shall not exceed at
any time outstanding the lesser of (1) One Million Three Hundred Twenty One
Thousand Dollars ($1,321,000), as such sum may be reduced pursuant to
Section 2.05 or (2) the Current Borrowing Base. Effective September 25,
1995, any Revolving Credit Loans, once repaid, may not be re-borrowed.
4. The Letter of Credit Facility. Section 2.04 of the Agreement shall be
------------------------------
amended by adding the following at the end:
Commencing September 25, 1995, the Bank agrees on the Terms and
Conditions hereinafter set forth, to maintain currently outstanding
Letters of Credit. No new Letters of Credit will be issued under the
Letter of Credit Facility.
5. Termination or Reduction of Commitments.
----------------------------------------
(a) Subsection (3) of Section 2.05 of the Agreement shall be amended by
adding the following at the end: The Borrowers will use their best efforts
to reduce the aggregate sum of the Commitment, plus the Refinancing Term
Loan, plus the Letter of Credit Facility to the following levels on or
before the applicable dates:
<TABLE>
<CAPTION>
Commitment Level Applicable Date
---------------- ---------------
<S> <C>
$1,200,000 December 31, 1995
$ 0 July 1, 1996
</TABLE>
(b) The following shall be added to section 2.05 as new subsection
2.05(4):
(4) Commencing September 25, 1995, the Revolving Credit Commitment
shall be reduced by an amount equal to $12,500 per month payable on the
first day of each month commencing October 1, 1995 against the outstanding
Revolving Credit Loan balance at September 30, 1995, which is $1,321,000.
(c) The following shall be added to section 2.05 as new subsection
2.05(5):
(5) Commencing September 25, 1995, the Revolving Credit Commitment
shall be further reduced, without duplication of the reduction called for
in section 2.05(4), by an amount equal to the amount of any prepaid
Revolving Credit Loans in excess of $12,500 per month and the amount of any
Letters of Credit which are returned and cancelled.
6. Notes. The sentence added to the end of Section 2.10 (2) by the Fifth
------
Amendment dated September 26, 1994, (the "Fifth Amendment"), shall be amended by
adding the following at the end:
Effective September 25, 1995, the number of installments shall be reduced
to thirteen (13), with a fourteenth (14th) and final installment in an
amount necessary to repay in full the unpaid principal amount of the
Refinancing Term Loan on October 31, 1996.
<PAGE>
7. Mandatory and Optional Prepayments. Sections 2.11 (3), 2.11 (4) and
-----------------------------------
2.11 (5) of Section 2.11 of the Agreement as added by the Fifth Amendment, shall
be deleted in their entirety and replaced with the following:
(3) The Borrowers shall immediately prepay the Loans, in accordance
with Section 2.11 (2), in an amount equal to (a) the sum of the face
amount(s) of any new outstanding obligations of the Borrowers for money
borrowed, created between the date of the Sixth Amendment and the
Termination Date, but specifically excluding equipment money purchase
loans, and loan proceeds secured by the equipment, vehicles, and office
furnishings of the Borrowers in excess of the amounts owed on the
Refinancing Term Loan at the date of such loan and any funds borrowed using
the Company's West Virginia or Kentucky properties as collateral with funds
to be used for capital improvements at those facilities.
(4) If by operation of Section 2.11(3), a mandatory prepayment is
required to be made by the Borrowers and there are no Loans outstanding,
then the Borrowers shall pay to the Bank an amount of cash equal to the
lesser of (a) the prepayment required, or (b) 100% of the sum of the
Performance Letter of Credit Balance, to be retained by the Bank in an
account pledged as collateral security for the obligation of the Borrowers
to reimburse the Bank under or in conjunction with this Agreement, pursuant
to a pledge agreement in form and substance satisfactory to the Bank.
(5) On the Termination Date, the Borrowers will pay to the Bank an
amount of cash equal to 100% of the sum of the Performance Letter of Credit
Balance pledged as collateral security for the obligation of the Borrowers
to reimburse the Bank under or in conjunction with this Agreement pursuant
to a pledge agreement in form and substance satisfactory to the Bank. All
such amounts, including those received by operation of Section 2.11(4),
shall be held in an interest bearing account and all interest earned
thereon shall be paid over to the Borrowers monthly; provided, however,
------------------
that in the event that the stated amount of all outstanding Letters of
Credit issued by the Bank are reduced, the Bank will return to the
Borrowers any amounts of the collateral security held by the Bank under
Sections 2.11(4) and 2.11(5) that exceeds the sum of (a) 100% of the sum of
the Performance Letter of Credit Balance, and (b) the unpaid principal of,
and interest on, Loans.
8. Minimum Working Capital. Section 7.01 of the Agreement shall be
------------------------
amended by adding the following at the end:
Commencing 9/30/95, the Borrowers will maintain at all times that the
sum of consolidated current assets minus consolidated current liabilities
(the maximum amount of the current portion of the Refinancing Term Loan
shall be limited to $600,000 for the purposes of calculating compliance
with this covenant) shall not exceed a deficit greater than One Million
Five Hundred Thousand Dollars ($1,500,000), compliance with this covenant
to be measured quarterly as at the end of each fiscal quarter.
<PAGE>
9. Minimum Tangible Net Worth. Section 7.02 of the Agreement shall be
---------------------------
amended by adding the following at the end:
Commencing 9/30/95, compliance with this covenant shall be measured at
the end of each fiscal quarter with the standards set forth below:
<TABLE>
<CAPTION>
Minimum Tangible
Date Net Worth ("TNW")
---- -----------------
<S> <C>
9/30/95 $8,600,000
12/31/95 $8,300,000
3/31/96 $8,100,000
6/30/96 $8,200,000
9/30/96 and $8,400,000
thereafter
</TABLE>
10. Cash Flow Ratio. Section 7.05 of the Agreement shall be amended by
----------------
deleting the material beginning "at 6/30/95" and by adding the following at the
end:
Commencing 9/30/95, the Borrowers will maintain at all times a ratio
of (a) the sum of consolidated net income after taxes, plus depreciation,
plus amortization, plus the cash proceeds received during the measurement
period from asset sales of the Borrowers and cash proceeds from the
issuance of stock, less non cash income to (b) the sum of all current
maturities of long term Debt required to have been paid during that fiscal
year, plus 100% of all capital expenditures, including all costs of
acquisitions incurred during that fiscal year, on a consolidated basis, of
not less than the following ratios at the following dates, compliance with
this covenant to be measured annually as at each fiscal year end date:
<TABLE>
<CAPTION>
Cash Flow Ratio
Date Not Less Than
---- -------------
<S> <C>
6/30/96 and 1.00 to 1.00
thereafter
</TABLE>
11. Minimum Pre-Tax Income (Maximum Pre-Tax Loss). Section 7.06 of the
----------------------------------------------
Agreement shall be deleted in its entirety.
12. Maximum Capital Expenditures. Section 7.07 of the Agreement shall be
-----------------------------
amended by adding the following at the end:
Commencing the fiscal quarter beginning after 9/30/95, the Borrowers
agree that the sum of (a) capital expenditures plus landfill development
costs, shall not exceed the sum of (b) consolidated net income, plus
depreciation and amortization, plus the cash proceeds received during the
measurement period from asset sales of the Borrowers or cash proceeds from
the issuance of stock, less the amount of all current maturities of long
term Debt required to have been paid during the measurement period,
compliance with this covenant to be measured quarterly, on a cumulative
basis for the current fiscal year, as at the end of each fiscal quarter for
the period then ended.
<PAGE>
13. Events of Default. Section 8.01(10) of the Agreement shall be deleted
------------------
in its entirety.
14. Amendment of Loan Documents. Any and all corresponding portions of
----------------------------
all Loan Documents are hereby amended to conform to and be consistent with the
amendments to the Agreement set forth above.
15. Non-amendment of Other Terms. All other terms of the Agreement and
-----------------------------
the other Loan Documents shall be unaffected by this Sixth Amendment and shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have each caused this Sixth Amendment to
be duly executed by their duly authorized officers as of the date set forth
above.
CORESTATES BANK, N.A.
By:\s\ Edmund L. Green, AVP
------------------------
Edmund L. Green
Assistant Vice-President
EASTERN ENVIRONMENTAL S&S GRADING, INC., A
SERVICES, INC. West Virginia Corporation
By:\s\ William C. Skuba, President By:\s\ William C. Skuba, President
------------------------------- -------------------------------
Title Title
NHD, INC, a Pennsylvania PULASKI GRADING, INC., a
SERVICES, INC. Kentucky Corporation
By:\s\ William C. Skuba, President By:\s\ William C. Skuba, President
------------------------------- -------------------------------
Title Title
EASTERN ENVIRONMENTAL SERVICES CAROLINA GRADING, INC., a
OF THE NORTHEAST, INC., a South Carolina Corporation
New York corporation
By:\s\ William C. Skuba, Secretary By:\s\ William C. Skuba, President
------------------------------- -------------------------------
Title Title
EASTERN ENVIRONMENTAL SERVICES PULASKI SANITATION, INC.,
OF THE SOUTHEAST, INC., a a Kentucky corporation
Florida corporation
By:\s\ William C. Skuba, Secretary By:\s\ William C. Skuba, President
------------------------------- -------------------------------
Title Title
ADVANCED ANALYTICAL LABORATORIES, WRN PROPERTIES, INC., a
INC., a Delaware corporation Pennsylvania corporation
By:\s\ William C. Skuba, President By:\s\ William C. Skuba, President
------------------------------- -------------------------------
Title Title
(Signatures Continued on Next Page)
<PAGE>
EASTERN REAL PROPERTY, INC. ALL WASTE REFUSE SERVICES,
a Florida corporation INC., a South Carolina
corporation
By:\s\ William C. Skuba, President By:\s\ William C. Skuba, President
------------------------------- -------------------------------
Title Title
A.W.S. OF VIRGINIA INCORPORATED,
a Virginia corporation
By:\s\ William C. Skuba, President
-------------------------------
Title
<PAGE>
EXHIBIT 10.26
INDEMNITY AGREEMENT
-------------------
This Agreement is made this day, April 18, 1995, by and between
Eastern Environmental Services, Inc., a Delaware corporation (the "Company"),
and William C. Skuba ("Indemnitee"), a director and/or officer of the Company.
To encourage Indemnitee to remain a director and/or officer of the
Company and in consideration of the promises and agreements set forth in this
Agreement, the Company and Indemnitee agree as follows:
1. Agreement to Serve. Indemnitee agrees to serve or continue to
------------------
serve as a director and/or officer of the Company at the will of the Board of
Directors of the Company or under separate contract, as the case may be, for as
long as Indemnitee is duly elected or appointed or until such time as Indemnitee
tenders his or her resignation in writing.
2. Definitions. As used in the Agreement:
-----------
a. The term "Proceeding" includes any threatened, pending or
completed action, suit or proceeding, or appeal thereof, whether brought in the
name of the Company or otherwise and whether of civil, criminal, administrative
or investigative nature (including actions, suits or proceedings brought under
or predicated upon the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the Resource Conservation and Recovery Act, as
amended, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of
1986 or otherwise, their respective state counterparts or any rule or regulation
promulgated thereunder) in which Indemnitee may be or may have been involved as
a party or otherwise, by reason of any action or inaction of Indemnitee while
acting as such director or officer or by reason of the fact that Indemnitee is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, whether or not Indemnitee is serving in such capacity at the time
any liability or expense is incurred for which indemnification or reimbursement
can be provided under this Agreement.
b. The term "Expenses" includes expenses of Proceedings, amounts paid
in settlement by or on behalf of Indemnitee, attorneys' fees and disbursements
and any expenses of establishing a right to indemnification under this
Agreement, and the amount of judgments, fines or penalties levied against
Indemnitee.
3. Indemnity in Third Party Proceedings. The Company shall indemnify
------------------------------------
Indemnitee in accordance with the provisions of this section if Indemnitee is a
party or threatened to be made a
<PAGE>
party to or otherwise involved in any Proceeding (other than a Proceeding by the
Company to procure a judgment in its favor), by reason of the fact that
Indemnitee is or was a director or officer of the Company or is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against all Expenses actually and reasonably incurred by Indemnitee in
connection with the defense or settlement of such Proceeding, provided it is
determined pursuant to Paragraph 7 of this Agreement or by the court before
which such action was brought that Indemnitee (i) acted in good faith, (ii)
acted in a manner which Indemnitee reasonably believed to be not opposed to the
best interests of the Company and (iii) in the case of a criminal proceeding,
had no reasonable cause to believe that Indemnitee's conduct was unlawful. The
termination of any such Proceeding by judgment, order of court, settlement,
conviction, plea of nolo contendere, or the equivalent, shall not, of itself,
create a presumption that Indemnitee did not act in the best interest of the
Company, or, with respect to any criminal proceeding, that Indemnitee had
reasonable cause to believe that Indemnitee's conduct was unlawful.
4. Indemnity in Proceedings by the Company. The Company shall
---------------------------------------
indemnify Indemnitee in accordance with the provisions of this section if
Indemnitee is a party to or threatened to be made a party to or otherwise
involved in any Proceeding by the Company to procure a judgment in its favor by
reason of the fact that Indemnitee was or is a director or officer of the
Company or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against all Expenses actually and reasonably incurred
by Indemnitee in connection with the defense or settlement of such Proceeding,
but only if Indemnitee acted in good faith and in a manner which Indemnitee
reasonably believed to be not opposed to the best interests of the Company,
except that no indemnification for Expenses shall be made under this Paragraph 4
in respect of any claim, issue or matter as to which Indemnitee shall have been
adjudged to be liable to the Company, unless and only to the extent that any
court in which such Proceeding is brought shall determine upon application that,
despite the adjudication of liability, in view of all the circumstances of the
case, Indemnitee is fairly and reasonably entitled to indemnity for such
Expenses as such court shall deem proper.
5. Indemnification of Expenses of Successful Party. Notwithstanding
-----------------------------------------------
any other provisions of this Agreement, to the extent that Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding or in defense
of any claim, issue or matter therein, including dismissal of an action without
prejudice, Indemnitee shall be indemnified against all Expenses incurred in
connection therewith.
-2-
<PAGE>
6. Advancement of Expenses. The Expenses incurred by Indemnitee
-----------------------
pursuant to Paragraphs 3 and 4 in any Proceeding shall be paid by the Company in
advance at the written request of the Indemnitee, if Indemnitee shall undertake
to repay such amount to the extent that it is ultimately determined that
Indemnitee is not entitled to indemnification. No requirement for security,
bond, third-party guarantee or similar assurance of such undertaking shall be
required by the Company.
7. Right of Indemnitee to Indemnification Upon Application; Procedure
------------------------------------------------------------------
Upon Application. The Company agrees that it will use its best efforts for the
- ----------------
Board of Directors to meet within 30 days after written application by
Indemnitee for indemnification or advance under Paragraphs 3, 4 or 6 hereof for
the purpose of determining, by a majority vote of a quorum of the Board
consisting of directors who were not parties to such Proceedings, whether the
Indemnitee has met the relevant standards for indemnification. If no such
quorum exists, the Company shall use its best efforts to obtain, as promptly as
reasonably practicable, a written opinion of independent legal counsel as to
whether the Indemnitee has met the relevant standards for indemnification.
8. Enforcement. The right to indemnification or advances set forth
-----------
in this Agreement shall be enforceable by Indemnitee in any court of competent
jurisdiction. The burden of proving that indemnification or advances are not
appropriate shall be on the Company. Indemnitee's Expenses incurred in
connection with successfully establishing his or her right to indemnification or
advances, in whole or in part, in any such Proceeding shall also be indemnified
by the Company.
9. Non-Exclusivity. The indemnification provided by this Agreement
---------------
shall not derogate, amend, waive or replace any other rights to which Indemnitee
may be entitled under the Company's Certificate of Incorporation or bylaws, any
agreement, any vote of shareholders or disinterested directors, the General
Corporation Law of the State of Delaware, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
10. Continuing Nature. The indemnification under this Agreement
-----------------
shall continue as to Indemnitee even though Indemnitee may have ceased to be a
director or officer and shall inure to the benefit of the heirs and personal
representatives of Indemnitee.
11. Partial Indemnification. If Indemnitee is entitled by this
-----------------------
Agreement to indemnification by the Company for a portion of the Expenses
incurred in the investigation, defense, appeal or settlement of any Proceeding,
but not for the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion
-3-
<PAGE>
of such Expenses, judgments, fines or penalties to which Indemnitee is entitled.
-4-
<PAGE>
12. Governing Law. This Agreement shall be governed by the internal
-------------
law of Delaware and federal law applicable to transactions in Delaware.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date set forth above.
EASTERN ENVIRONMENTAL SERVICES, INC.,
a Delaware corporation
By: /s/ Gregory M. Krzemien
----------------------------------
Gregory M. Krzemien
Vice President and Chief
Financial Officer
INDEMNITEE:
WILLIAM C. SKUBA
/s/ William C. Skuba
--------------------
-5-
<PAGE>
Exhibit 10.27
TERM LOAN AGREEMENT
(Pennsylvania)
THIS TERM LOAN AGREEMENT (together with all schedules and exhibits hereto and
any amendments or modifications hereto in effect from time to time, this
"Agreement"), is made this 26 day of September, 1995, by and between EASTERN
----
ENVIRONMENTAL SERVICES, INC., a Delaware corporation with offices located at
R.R. #4, Box 4452, Drums, Pennsylvania 18222; PULASKI GRADING, INC., a Kentucky
corporation with offices located at 4140 South Highway, 320 Dixie Bend Road,
Burnside, Kentucky 42519; S & S GRADING, INC., a West Virginia corporation with
offices located at Route 5, Box 559, Clarksburg, West Virginia 26301; CAROLINA
GRADING, INC., a South Carolina corporation with offices located at 125 McDowell
Lane, Eastover, South Carolina 29044; NHD, INC., a Pennsylvania corporation with
offices located at R.R. #4, Box 4452, Drums, Pennsylvania 18222 and EASTERN REAL
PROPERTY, INC., a Florida corporation with offices located at R.R. #4, Box 4452,
Drums, Pennsylvania 18222; (hereinafter, collectively the "Borrower") and FIRST
FIDELITY BANK, N.A. (the "Bank").
The Borrower has applied to the Bank for a loan in the principal amount of One
Million Three Hundred Fifty Thousand Dollars ($1,350,000.00) (the "Loan"). The
Loan shall be evidenced by Term Notes (together with any amendments or
modifications thereto in effect from time to time, the "Notes").
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged and intending to be legally bound hereby, the
Bank and the Borrower agree as follows:
A. TERMS OF LOAN AGREEMENT.
1. PAYMENT OF PRINCIPAL. The principal balance of the Loan shall be paid
in forty-eight (48) consecutive monthly installments in the amount of
Twenty-eight Thousand One Hundred Twenty-five and 00/100 Dollars
($28,125.00) (48 consecutive monthly installments of Eighteen Thousand
Seven Hundred Fifty and 00/00 Dollars ($18,750.00) as to the Nine
Hundred Thousand and 00/100 Dollars ($900,000.00); and 48 consecutive
monthly installments of Nine Thousand Three Hundred Seventy-Five and
00/100 Dollars ($9,375.00) as to the Four Hundred Fifty Thousand and
00/100 Dollars ($450,000.00) Note) each, commencing October, 1995, and
continuing on the same day of each such consecutive period thereafter,
with a final installment in the amount of the remaining unpaid
principal balance outstanding hereunder together with any accrued,
unpaid interest thereon due and payable on September 26, 1999.
----
2. INTEREST PAYMENTS. The Borrower shall pay the Bank, together with
each principal installment as set forth in Paragraph A.1. hereof,
interest in arrears on the unpaid principal balance of the Loan.
Interest on the outstanding principal balance of the Loan shall accrue
at Seven and three one-hundredths per cent (7.03%) per annum.
<PAGE>
3. COMPUTATION. Interest and any fees or compensation based upon a per
annum rate shall be calculated on the basis of a 360 day year for the
actual number of days elapsed.
4. DEBITING OF ACCOUNT. Eastern Environmental Services, Inc. agrees to
maintain an account (the "Account") at the Bank continuously until the
Liabilities due hereunder are paid in full. The Bank may, and the
Borrower authorizes the Bank to, debit the Account for the amount of
any payment as and when such payment becomes due hereunder. If there
are insufficient funds in the Account at the time the Account is
debited, and the debiting creates an overdraft, the Bank may charge
the Borrower an administrative fee in an amount established from time
to time by the Bank. Notwithstanding the foregoing, the Bank may, and
the Borrower authorizes the Bank to, debit any account maintained by
the Borrower with the Bank for the amount of any payment, as and when
such payment becomes due hereunder, whether such payment is for
accrued interest, principal or expense. Such authorization shall not
affect the Borrower's obligation to pay when due all amounts payable
hereunder, whether or not there are sufficient funds in any accounts
of the Borrower. The foregoing rights of the Bank to debit the
Borrower's accounts shall be in addition to, and not in limitation of,
any rights of set-off which the Bank and/or any Affiliate may have
hereunder or under any Loan Document.
5. ADDITIONAL TERMS. Additional terms pertaining to the time, place and
mode of making payments are described in the Note.
6. PREPAYMENT. If interest hereunder accrues at a floating rate,
prepayment of principal may be made at any time without prepayment
penalty or premium. If interest hereunder accrues at a fixed rate,
the Loan may be prepaid, in whole or in part, at any time, provided,
that any prepayment (whether in whole or in part and whether made
voluntarily or because of accelerations) will also be accompanied by
(i) all accrued and unpaid interest on the Loan and all other fees,
expenses, and other sums due and owing hereunder, and (ii) an
additional amount (the "Make Whole Premium") determined by the Bank,
in its sole discretion. The Bank's determination of the Make Whole
Premium shall be conclusive and binding, absent manifest error. All
payments received on the Note may be applied in such order as the Bank
in its sole discretion shall determine.
7. FEES. The Borrower shall pay to the Bank a nonrefundable one-time
facility fee equal to one-half of one percent (0.5%) of the Loan or
Six Thousand Seven Hundred Fifty Dollars ($6,750.00) on or before the
date of this Agreement. The Borrower acknowledges that this facility
fee is a liquidated damages amount, and together with amounts payable
by the Borrower to the Bank under Paragraph J.2. hereof, constitutes
reasonable compensation to the Bank for the Bank's expenses and
services arising in connection with the
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negotiation of this Agreement, the Note and all other Loan Documents
executed in connection herewith and preparing for the closing of the
transaction described herein. Notwithstanding anything to the
contrary in this Agreement, the Bank may charge the Borrower an
additional reasonable facility fee in the event that the Loan is ever
modified, renewed or extended.
B. DEFINITIONS. As used herein, the following terms shall have the following
meanings:
1. AFFILIATE. The term "Affiliate" means First Fidelity Bancorporation
and any of its direct and indirect affiliates and subsidiaries.
2. BASE RATE. The term "Base Rate" means the rate of interest
established by the Bank as its reference rate in making loans, and is
not tied to any external rate of interest or index. The rate of
interest charged hereunder shall change automatically and immediately
as of the date of any change in the Base Rate, without notice to the
Borrower.
3. COLLATERAL. The term "Collateral" means any and all property of any
Obligor (as defined below) now or hereafter in the possession, custody
or control of the Bank or any Affiliate including, but not limited to,
any balance or share of any deposit, trust or agency account of any
Obligor and all collateral described in any and all Loan Documents (as
defined below), the additional collateral described in Section G
hereof, any additional collateral more fully described in the Schedule
(defined below), and any other property of any Obligor now or
hereafter subject to a security agreement, mortgage, pledge agreement,
assignment, hypothecation or other document granting the Bank or any
Affiliate a security interest or other lien or encumbrance.
4. CONSOLIDATED. The term "Consolidated" means an accounting
presentation which includes any consolidated subsidiaries of the
Borrower.
5. GAAP. The term "GAAP" means generally accepted accounting principles
in effect from time to time in the United States.
6. LIABILITIES. The term "Liabilities" means any and all indebtedness
and obligations of every kind and description of the Borrower owing to
the Bank or any Affiliate, whether or not under the Loan Documents,
and whether such debts or obligations are primary or secondary, direct
or indirect, absolute or contingent, sole, joint or several, secured
or unsecured, due or to become due, contractual or tortious, arising
by operation of law, by overdraft, or otherwise, or now or hereafter
existing, including, without limitation, principal, interest, fees,
late fees, expenses, attorneys' fees and costs, and/or the allocated
costs and fees of the Bank's in-house legal counsel, that have been or
may hereafter be contracted or incurred.
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<PAGE>
7. LOAN DOCUMENTS. The term "Loan Documents" means any and all credit
accommodations, notes, loan agreements, and any other agreements and
documents, now or hereafter existing, creating, evidencing,
guarantying, securing or relating to any or all of the Liabilities,
together with all amendments, modifications, renewals, or extensions
thereof.
8. OBLIGOR. The term "Obligor" means the Borrower and each and every
maker, endorser, guarantor, or surety of or for the Liabilities.
9. SCHEDULE. The term "Schedule" means the Schedule of Additional Terms
to Term Loan Agreement which is attached hereto.
C. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants with
respect to itself and, to the extent applicable, each of its consolidated
subsidiaries, that:
1. ORGANIZATION; AUTHORITY. As to each Borrower that is not an
individual, it is a corporation duly organized, validly existing, and
in good standing under the laws of the jurisdiction of its
organization or formation and is duly qualified as a foreign
corporation and is in good standing under the laws of each
jurisdiction in which it is required to be qualified because of the
business it conducts or the property it owns. The Borrower has the
necessary power, authority, and legal right to own, or lease and enjoy
undisturbed, its assets and engage in its business as now conducted
and it has the necessary power, authority, and legal right to enter
into and perform this Agreement, the Note, and any other Loan Document
to which it is a party. The execution and performance of the Loan
Documents have been duly authorized by all necessary proceedings and
upon their execution and delivery, they will be valid, binding and
enforceable in accordance with their terms, and the Borrower's
execution and performance of the Loan Documents to which it is a party
will not violate any orders, laws or regulations applicable to the
Borrower, any organizational documents of the Borrower, or any
instruments, indentures or agreements (including any provisions
pertaining to subordinated debt) to which the Borrower is a party or
by which the Borrower or any of its properties are bound; and all
consents, approvals, licenses, franchises, patents, trademarks and
other general intangibles required in connection with this Agreement,
the other Loan Documents or the operation of the Borrower's business
have been obtained and are in full force and effect. The Borrower's
subsidiaries and affiliates, if any, are duly organized, validly
existing, and in good standing under the laws of the jurisdictions of
their organization;
2. USE OF PROCEEDS; NO PURCHASES OF MARGIN STOCK. The proceeds of the
Loan will be used only in connection with the Borrower's business, for
the following purposes:
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1) to refinance an existing term debt of Eastern Environmental
Services, Inc.; and
2) to provide additional working capital to:
A) Pulaski Grading, Inc.;
B) S & S Grading, Inc.;
C) Caroling Grading, Inc.;
D) NHD, Inc.; and
E) Eastern Real Property, Inc.
None of the proceeds of the Loan will be used to purchase or carry any "margin
security" or extend credit for such purpose within the meaning of Regulations G
or U of the Board of Governors of the Federal Reserve System;
3. FINANCIAL STATEMENTS. All financial statements, statements as to
ownership of the Borrower and its assets, and other statements and
information delivered to the Bank were prepared in accordance with
GAAP, consistently applied, are true and correct, and disclose all
presently outstanding indebtedness or obligations of the Borrower,
including contingent obligations, obligations under leases of property
from others, and all liens and encumbrances, including tax liens,
against its properties and assets; and there have been no adverse
changes in the Borrower's financial condition or business since the
date of such statements;
4. SUITS. Except as to the suit disclosed in Borrower's S.E.C. 10(K)
documents, there are no material actions, suits, proceedings, or
claims pending or threatened against the Borrower or any of its
property; and the Borrower's business is in compliance with all
applicable orders, laws and regulations;
5. DEFAULTS. The Borrower is not in default under any agreement to which
the Borrower is a party or by which the Borrower or any of its
property is bound, or under any indenture or instrument evidencing any
indebtedness of the Borrower, and neither the Borrower's execution of
nor performance under the Loan Documents will create a default or any
lien or encumbrance under any such agreement, indenture or instrument
other than a lien or encumbrance in favor of the Bank;
6. ERISA. No employee benefit plan established or maintained by the
Borrower which is subject to the Employee Retirement Income Security
Act 29 U.S.C. (S)1001 et seq. ("ERISA") has an accumulated funding
deficiency (as such term is defined in ERISA). No material liability
to the Pension Benefit Guaranty Corporation (or any successor thereto
under ERISA) has been incurred by the Borrower with respect to any
such plan and no Reportable Event under ERISA has occurred. The
Borrower has no actual or anticipated liability under Section 4971 of
the Internal Revenue Code ("Code") (relating to tax on failure to meet
the minimum funding standard of Section 412 of the Code) with
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<PAGE>
respect to any employee benefit plan to which it contributes but which
is not maintained or established by it;
7. TAX RETURNS AND TAXES. The Borrower has filed all federal, state, and
local tax returns required to be filed and to be the best of
Borrower's knowledge has paid all taxes, assessments, and governmental
charges and levies thereon, including interest and penalties, except
where the same are being contested in good faith by appropriate
proceedings and for which adequate reserves have been set aside, and
no liens for taxes have been filed and no claims are being assessed by
a governmental authority with respect to any taxes. The charges,
accruals and reserves on the books of the Borrower with respect to
taxes or other governmental charges are adequate;
8. COMPLIANCE WITH LAWS. The Borrower has complied with all requirements
of foreign, federal, state, and local law in connection with the
acquisition, ownership, and operation of the Borrower's business and
property, including, without limitation, any and all applicable
requirements of environmental protection laws;
9. ENVIRONMENTAL COMPLIANCE. To the best of the Borrower's knowledge,
after due inquiry and investigation, the Borrower and all previous
owners and/or operators of the real and/or personal property of the
Borrower have not knowingly engaged in any conduct, resulting in the
discharging of hazardous substances or wastes into the atmosphere or
waters, or onto lands. The Borrower has not received a summons,
citation, directive, letter, or other communication, written or oral,
from any jurisdiction, political subdivision, agency, or
instrumentality thereof, concerning any intentional or unintentional
action or omission on the Borrower's part resulting in the discharging
of hazardous substances into the atmosphere or waters, or onto lands;
and
10. AFFIRMANCE OF ADDITIONAL COVENANTS. The Borrower hereby makes and
affirms, for itself and if applicable, for its consolidated
subsidiaries, any additional representations and warranties set forth
on the Schedule.
D. CONDITIONS. The obligation of the Bank to make the Loan to the Borrower is
subject to and conditioned upon each of the following: (i) the fees due to
the Bank under Sections A.7. and J.3. of this Agreement have been paid to
the Bank; (ii) the representations and warranties contained in Section C
hereof are true and correct on and as of the date of the Loan; (iii) no
Event of Default described in Section H, and no event which, with the
giving of notice, or the passage of time, or both, would become an Event of
Default, has occurred and is continuing; (iv) all of the Loan Documents
remain in full force and effect; and (v) the Bank has received the
following documents, duly executed and delivered by the Obligor thereunder,
and in form and substance satisfactory to the Bank:
a. The Note(s) and this Agreement;
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<PAGE>
b. If the Borrower is a corporation, certified resolutions of the Board
of Directors of the Borrower authorizing the Borrower to borrow
hereunder and to execute, deliver and perform its obligations under
the Loan Documents. If the Borrower is a partnership, the Borrower
shall deliver to the Bank a certified document executed by all general
partners of the Borrower authorizing the Borrower to borrow hereunder
and authorizing the Borrower's execution, delivery and performance of
the Loan Documents. Such resolution or document shall contain such
other provisions as shall be required by the Bank;
c. The following security, subordination, and/or guaranty documents, and
related instruments necessary to perfect any interest in the
Collateral described therein:
1.) As to the $900,000.00 Note to be executed by Eastern
Environmental Services, Inc., Guaranties of Pulaski Grading,
Inc., S & S Grading, Inc., Carolina Grading, Inc., NHD, Inc.
and Eastern Real Property, Inc.
2.) As to the $450,000.00 Note to be executed by Pulaski
Grading, Inc., S & S Grading, Inc., Carolina Grading, Inc.,
NHD, Inc. and Eastern Realty Property, Inc., a Guaranty to
be executed by Eastern Environmental Services, Inc.;
3.) Perfected Security interests in all equipment and vehicles
of Borrower in South Carolina, West Virginia, Kentucky,
Maine and Pennsylvania, including, but not limited to, UCC-
1's at the State and local level as may be required, and
appropriate notations on the Certificates of Title for all
equipment and vehicles covered by Title Registration
statutes in the respective jurisdictions of the equipment
and vehicle's state of registration or location.
d. Such other documents as the Bank may reasonably require, including,
without limitation, proof of insurance, appraisals of real and/or
personal property, environmental analysis, other agreements,
instruments, or indentures to which an Obligor is a party, including,
without limitation, financing statements, proofs, opinions of the
Borrower's counsel and/or other professionals, guaranties and other
written assurances.
E. AFFIRMATIVE COVENANTS. The Borrower covenants and agrees that so long as
there are any outstanding Liabilities hereunder or otherwise, the Borrower
and each of its consolidated subsidiaries shall:
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<PAGE>
1. FINANCIAL STATEMENTS. Furnish to the Bank the following financial
information: (i) not later than ninety (90) days after the end of each
fiscal year, consolidated and consolidating audited compiled year-end
financial statements for the Borrower (if the boxes herein are left
blank, then the type of financial statement shall be determined by the
Bank at its sole discretion), and if applicable, for each of its
consolidated subsidiaries, including, but not limited to, statements
of financial condition, income and cash flows, a reconciliation of net
worth, notes to financial statements (all of the above prepared in
accordance with GAAP, consistently applied, by an independent
certified public accountant acceptable to the Bank, and certified as
true, correct, and complete by the Borrower's chief financial officer)
and any other information that may assist the Bank in assessing the
Borrower's financial condition; (ii) not later than forty-five (45)
days after the end of each interim fiscal quarter, the Borrower's
consolidated and consolidating financial statements, including, but
not limited to, statements of financial condition, income and cash
flows, and a reconciliation of net worth (all of the above prepared in
a format acceptable to the Bank, certified as true, correct, and
complete by the Borrower's chief financial officer); (iii) the
following statements and schedules relating to the Borrower's
business, quarterly or at such other times as may be requested by the
Bank:
accounts receivable agings
accounts payable schedules
Location of each piece of equipment and vehicles.
and/or (iv) such information respecting the operations, financial or
otherwise, of the Borrower or any of its subsidiaries, as the Bank may
from time to time reasonably request;
2. COMPLIANCE CERTIFICATE. Furnish to the Bank, together with each set
of financial statements described in Paragraphs E.1. (i) and (ii)
above, a compliance certificate, in the form attached hereto as
Exhibit A, signed by the Borrower (if an individual) or the Borrower's
chief financial officer, certifying that (i) all representations and
warranties set forth in this Agreement and in any other Loan Document
remain true and correct; (ii) none of the covenants in this Agreement
or in any other Loan Document has been breached; and (iii) no event
has occurred which, alone, or with the giving of notice or the passage
of time, or both, would constitute an Event of Default under this
Agreement or under the other Loan Documents;
3. NOTICE OF CERTAIN EVENTS. Promptly give written notice to the Bank of
(i) the details of any Reportable Events (as defined in ERISA) which
have occurred; (ii) the occurrence of any event which alone or with
notice, the passage of time, or both, would constitute an Event of
Default; (iii) the commencement of any proceeding or litigation which,
if adversely determined, would adversely affect its financial
condition or ability to conduct its business; and (iv) the formation
of any subsidiary of the Borrower after the date of this
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<PAGE>
Agreement, which notice shall be accompanied by the resolution of the
Board of Directors of such subsidiary authorizing such subsidiary to
execute a guaranty of the Liabilities, satisfactory in form and
substance to the Bank, together with such guaranty duly executed by
such subsidiary;
4. PRESERVATION OF PROPERTY; INSURANCE. Keep and maintain (and promptly
notify Bank of any change of location of any equipment or vehicles),
and require its subsidiaries to keep and maintain (and promptly notify
Bank of any change of location of any equipment or vehicles), all of
its and their property and assets in good order and repair, maintain
extended coverage, general liability, business interruption, hazard,
property and other insurance in amounts deemed sufficient by the Bank
and as is customary for businesses similar to the Borrower's business,
and deliver to the Bank certificates of all such insurance in effect;
and cause all such policies covering any Collateral and business
interruption to contain loss payee endorsements in favor of the Bank
and to be subject to cancellation or reduction in coverage only upon
30 days prior written notice thereof to the Bank at its address set
forth in this Agreement;
5. TAXES. Pay and discharge, and require its subsidiaries to pay and
discharge, when due, all taxes, assessments or other governmental
charges imposed on them or any of their respective properties, unless
the same are currently being contested in good faith by appropriate
proceedings and adequate reserves are maintained therefor;
6. OPERATION OF PROPERTIES. Operate its properties, and cause those of
its subsidiaries to be operated in compliance with all applicable
orders, rules and regulations promulgated by the jurisdictions and
agencies thereof where such properties are located, and duly file or
cause to be filed such reports and/or information returns as may be
required or appropriate under applicable orders, regulations or law;
7. ACCESS TO PROPERTIES, BOOKS AND RECORDS. Permit the Bank's
representatives and/or agents full and complete access to any or all
of the Borrower's and its subsidiaries' properties and financial
records, to make extracts from and/or audit such records and to
examine and discuss the Borrower's properties, business, finances and
affairs with the Borrower's officers and outside accountants;
8. ENVIRONMENTAL LIENS. In the event that there shall be filed a lien
against any property of the Borrower by any jurisdiction, political
subdivision, agency, or instrumentality thereof, arising from an
intentional or unintentional act or omission of the Borrower,
resulting in the discharging of hazardous substances or wastes into
the atmosphere or waters, or onto lands, then, within thirty (30) days
from the date that the Borrower is given notice that the lien has been
placed against such property, or within such shorter period
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<PAGE>
of time in the event that such jurisdiction, political subdivision,
agency, or instrumentality thereof has commenced steps to cause such
property to be sold pursuant to the lien, the Borrower shall either
(i) pay the claim and remove the lien from the applicable property or
(ii) furnish to such jurisdiction, political subdivision, agency, or
instrumentality thereof that imposed the lien one of the following:
(a) a bond satisfactory to such jurisdiction, political subdivision,
agency, or instrumentality thereof in the amount of the claim out of
which the lien arises; (b) a cash deposit in the amount of the claim
out of which the lien arises; or (c) other security reasonably
satisfactory to such jurisdiction, political subdivision, agency, or
instrumentality thereof in an amount sufficient to discharge the claim
out of which the lien arises;
9. REMOVAL OF HAZARDOUS SUBSTANCES. Should the Borrower cause or permit
any intentional or unintentional act or omission resulting in the
discharging of hazardous substances or wastes into the atmosphere or
waters, or onto lands resulting in damage to the natural resources
without having obtained a permit issued by the appropriate
governmental authorities, the Borrower shall promptly clean up same in
accordance with all applicable federal, state, and local orders,
statutes, laws, ordinances, rules and regulations; and
10. ADDITIONAL AFFIRMATIVE COVENANTS. The Borrower further affirmatively
covenants and agrees that it shall perform any other affirmative
covenants set forth in the Schedule and in the Loan Documents to which
the Borrower is a party.
F. NEGATIVE COVENANTS. So long as any Liabilities are outstanding, the
Borrower and its consolidated subsidiaries shall not, without the prior
written consent of the Bank:
1. INCUR INDEBTEDNESS; CREATION OF LIEN. With the exceptions of loans
aggregating less than Two Hundred Fifty Thousand and 00/100
($250,000.00) Dollars in any one (1) fiscal year, incur, create, or
assume any indebtedness including, without limitation, obligations
under capitalized leases, except indebtedness owing to the Bank,
indebtedness existing on the date hereof and previously reported in
writing to and permitted by the Bank, and trade indebtedness arising
in the ordinary course of business; make any loans or advances to
others including, without limitation, officers, directors,
shareholders, principals, partners or affiliates of the Borrower or
any Obligor; or create, permit, or suffer the creation of any liens,
security interests, or other encumbrances on any of its property, real
or personal, except liens, security interests or encumbrances in favor
of the Bank or existing on the date hereof (or replacing existing debt
on the date hereof) and previously reported in writing to and
permitted by the Bank;
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<PAGE>
2. SALE OF ASSETS; LIQUIDATION; MERGER; ACQUISITIONS. Convey, lease,
sell, transfer or assign any assets except in the ordinary course of
the Borrower's business for value received, liquidate or discontinue
its normal operations with intent to liquidate, enter into any merger
or consolidation, or acquire all or substantially all of the assets,
stock or other equity interests of another entity;
3. PAYMENT OF DIVIDENDS; REDEMPTION OF STOCK. Pay any dividends, make
any withdrawal from its capital, make any other distributions and/or
repurchase, redeem, or otherwise acquire or set aside reserves to
acquire, any of its outstanding stock, partnership or other equity
interests, except for such actions by any subsidiaries in favor of the
Borrower provided that nothing herein shall prohibit a forward or
reverse stock split;
4. ACCOUNTS. Sell, assign, transfer or dispose of any of its accounts or
notes receivable, with or without recourse, except to the Bank;
5. GUARANTY OBLIGATIONS. Become a guarantor, surety, obligor or
otherwise become directly, indirectly or contingently liable for the
debts or obligations of others, except for the benefit of the Bank or
its Affiliates, and except as an endorser of checks or drafts
negotiated in the ordinary course of the Borrower's business;
6. LEASE OBLIGATIONS. Incur, create, or assume any commitment to make
any Lease Payments if the aggregate amount payable thereunder in any
one fiscal year would exceed One Hundred Thousand and 00/100
($100,000.00) Dollars; "Lease Payments" means any direct or indirect
payment or payments, whether as rent or otherwise, including fees or
service or finance charges, under any lease, rental or other agreement
for the use of the property of any person and/or entity other than the
Borrower whether or not such agreement contains an option to purchase;
7. SALE-LEASEBACK TRANSACTIONS. Enter into any sale-leaseback
transaction or any transaction howsoever termed which would have the
same or substantially the same result or effect as a sale-leaseback;
8. PREPAYMENT OF OTHER INDEBTEDNESS. Prepay any amounts not required to
be prepaid, except to the Bank or any Affiliate, or cause or permit to
be accelerated any amounts on any outstanding indebtedness now
existing or hereafter arising;
9. EXPENSES FOR FIXED ASSETS. Shall not exceed the sum of consolidated
net income, plus depreciation and amortization, plus the cash proceeds
received during the period from asset sales, net of gain or loss on
sale, plus the net cash proceeds from the issuance of stock, less the
amount of all current maturities of long term Debt required to have
been paid during the year;
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<PAGE>
10. SALE OR ISSUANCE OF CORPORATE STOCK. If the Borrower is a corporation,
sell, issue, or agree to sell or issue, any shares (voting, non-
voting, preferred or common) of the Borrower, or purchase any such
shares;
11. INVESTMENTS. Purchase or make any investment in the stock,
securities, or evidence of indebtedness of or loan to any other person
or entity (including, without limitation, entities owned or controlled
by any officers, directors, shareholders, principals, partners or
affiliates of the Borrower) except (i) the United States Government or
its agencies, or (ii) certificates of deposit of United States
domestic banks having a ratio of qualifying total capital to weighted
risk assets of not less than eight percent (8%), at least four percent
(4%) of which is Tier 1 capital, and having total capital and surplus
in excess of $50,000,000. "Qualifying total capital" and "Tier 1
capital" shall be defined from time to time pursuant to regulations
published by the Office of the Comptroller of the Currency and the
Federal Deposit Insurance Corporation;
12. HAZARDOUS SUBSTANCES. Cause or permit to exist a dumping of hazardous
substances or wastes into the atmosphere or waters or onto lands
resulting in damage to the natural resources unless the dumping is
pursuant to and in compliance with the conditions of a permit issued
by the appropriate federal, state, or local governmental authorities;
13. CONSOLIDATED LEVERAGE RATIO. Permit the ratio of Consolidated Total
Liabilities to Consolidated Tangible Net Worth at any time to exceed
1:1 until and including June 30, 1995, and 1:1 thereafter, "Total
Liabilities" is defined at any date as all liabilities of the Borrower
which would properly appear on the liabilities side of a balance
sheet, other than capital stock, capital surplus, retained earnings,
minority interests, deferred credit, Approved Subordinated Debt and
contingency reserves under GAAP.
14. CONSOLIDATED TANGIBLE NET WORTH. Permit Consolidated Tangible Net
Worth at any time to be less than $7,750,000 for the fiscal year
ending June 30, 1995; $8,500,000.00 for the fiscal year ending June
30, 1996; $9,000,000.00 for the fiscal year ending June 30, 1997; and
$10,000,000.00 for the fiscal year ending June 30, 1998; "Tangible Net
Worth" is defined, at any date, as (i) the aggregate amount at which
all assets of the Borrower would be shown on a balance sheet at such
date after deducting capitalized research and development costs,
capitalized interest, debt discount and expense, goodwill, patents,
trademarks, copyrights, franchises, licenses, amounts owing from
officers, directors, shareholders, principals, partners or affiliates
of the Borrower and any investments in any entities owned or
controlled by any of the foregoing, and such other assets as are
properly classified as "intangible assets" less (ii) the aggregate
amount of indebtedness, liabilities (including tax and other proper
accruals) and reserves of the Borrower and its consolidated
subsidiaries (excluding Approved Subordinated Debt); "Approved
Subordinated Debt" means any indebtedness for borrowed money that is
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<PAGE>
permitted by this Agreement and that is owing on the date hereof or is
subordinated to the Liabilities on terms approved in writing by the
Bank;
15. CONSOLIDATED DEBT COVERAGE RATIO REQUIREMENTS. Permit the ratio of
cash after operations divided by current portion of debt plus interest
at any time to be less than 1.15 for the fiscal year ending June 30,
1995; and 1.5 for the fiscal year ending June 30, 1996 and thereafter;
or
16. ADDITIONAL NEGATIVE COVENANTS. The Borrower and its subsidiaries
shall not undertake any activities prohibited by any other negative
covenants set forth in the Schedule.
17. ESTABLISHMENT OF CLOSURE TRUST FUND. The Borrower shall establish,
commencing on or about November 1, 1995, yearly estimated landfill
closure costs, by depositing cash monthly into a First Fidelity Bank,
N.A. Trust Escrow Account. The monthly contribution shall be equal to
or greater than the dollar amount of landfill closure costs, expensed
at each landfill of Borrower.
18. MINIMUM CONSOLIDATED CURRENT ASSETS/CURRENT LIABILITIES RATIO. Permit
the ratio of the Current Assets divided by Current Liabilities to less
than .65 for the fiscal year ending June 30, 1995; less than .65 for
the fiscal year ending June 30, 1996; and less than .70 for the fiscal
year ending June 30, 1997 and thereafter.
G. ADDITIONAL COLLATERAL. As additional collateral security for the payment
of the Borrower's Liabilities to the Bank hereunder, under the other Loan
Documents, and/or otherwise, the Borrower hereby assigns, pledges,
transfers and grants to the Bank a continuing, first priority security
interest in and lien upon all funds, balances, deposits, accounts,
certificates of deposit, securities and/or other property of any kind of
the Borrower and/or in which the Borrower has an interest, now or hereafter
in the possession, custody, or control of the Bank or any Affiliate.
H. EVENTS OF DEFAULT. Each of the following shall constitute an event of
default ("Event of Default") hereunder:
1. BREACH. As to other than monetary defaults for which no notice shall
be required, a breach by any Obligor, after ten (10) days notice from
Bank to Obligor of the alleged breach and opportunity to cure, of any
term, provision, obligation, covenant, representation, or warranty
arising under (i) this Agreement or any other Loan Document,
including, without limitation, failure to make any payment when due;
(ii) any present or future agreement or instrument with or in favor of
the Bank, including, without limitation, the failure to make any
payment when due; or (iii) any present or future agreement or
instrument for borrowed money or other financial accommodations with
any other person or entity;
- 13 -
<PAGE>
2. BANKRUPTCY; INSOLVENCY. (i) Any Obligor commences any bankruptcy,
reorganization, debt arrangement, or other case or proceeding under
the United States Bankruptcy Code or under any similar foreign,
federal, state, or local statute, or any dissolution or liquidation
proceeding, or makes a general assignment for the benefit of
creditors, or takes any action for the purpose of effecting any of the
foregoing; (ii) any bankruptcy, reorganization, debt arrangement, or
other case or proceeding under the United States Bankruptcy Code or
under any similar foreign, federal, state or local statute, or any
dissolution or liquidation proceeding, is involuntarily commenced
against or in respect of any Obligor or an order for relief is entered
in any such proceeding; (iii) the appointment, or the filing, of a
petition seeking the appointment, of a custodian, receiver, trustee,
or liquidator for any Obligor or any of its property, or the taking of
possession of any part of the property of any Obligor at the instance
of any governmental authority; or (iv) any Obligor becomes insolvent
(however defined), is generally not paying its debts as they become
due, or has suspended transaction of its usual business;
3. DEATH; REORGANIZATION. The death, dissolution, merger, consolidation,
or reorganization of any Obligor;
4. MATERIAL MISSTATEMENT. Any statement, representation or warranty made
in or pursuant to this Agreement or any other Loan Document or to
induce the Bank to enter into this Agreement shall prove to be untrue
or misleading in any material respect;
5. DEBT, LIENS, LOANS, LEASE PAYMENTS. Except as set forth in Paragraph
F.1, and F.6, any Obligor (i) incurs or assumes additional debt other
than debt to the Bank and/or an Affiliate and/or trade debt in the
ordinary course of its business; (ii) makes any loans or advances to
officers, directors, shareholders, principals, partners or affiliates
of the Borrower or any Obligor; (iii) creates, permits or grants any
lien or security interest in any of its property on which the Bank has
a lien and/or security interest; or (iv) incurs, creates or assumes
any commitment, either directly or indirectly, for rent, service fees
or charges or finance charges under any lease, rental, sale-lease back
or other agreement for use of the property of any person and/or entity
other than the Borrower;
6. ENTRY OF JUDGMENT. The filing, entry, or issuance of any judgment,
execution, garnishment, attachment, distraint, or lien in excess of
Twenty-five Thousand and 00/100 ($25,000.00) Dollars against any
Obligor or its property, or the entry of any order enjoining or
restraining any Obligor and/or restraining or seizing any property of
any Obligor; or
7. TRANSFER OF ASSETS. Any Obligor transfers or sells all or
substantially all of its assets, without the prior written consent of
the Bank.
- 14 -
<PAGE>
I. REMEDIES.
1. ACCELERATION OF LIABILITIES; RIGHTS OF BANK. Upon the occurrence of an
Event of Default described in Section H (other than the Events of
Default described in Paragraph H.2.), at the Bank's sole option, the
Bank's commitment, if any, to make any further advances or loans to
the Borrower under any Loan Document shall terminate and all
Liabilities shall immediately become due and payable in full, all
without protest, presentment, demand or further notice of any kind to
the Borrower or any other Obligor, all of which are expressly waived.
Upon the occurrence of any Event of Default described in Paragraph
H.2., immediately and automatically, the Bank's commitment, if any, to
make any further advances or loans to the Borrower under any Loan
Document, shall terminate and all Liabilities shall immediately become
due and payable in full, all without protest, presentment, demand or
further notice of any kind to the Borrower or any other Obligor, all
of which are expressly waived. Upon and following an Event of Default,
the Bank may, at its option, exercise any and all rights and remedies
it has under this Agreement, any other Loan Document and/or applicable
law, including, without limitation, the right to charge and collect
interest on the principal portion of the Liabilities at a rate equal
to the lesser of (i) the highest rate of interest set forth in the
Loan Documents, or (ii) the highest rate of interest allowed by law,
such rate of interest to apply to the Liabilities, at the Bank's
option, upon and after an Event of Default, maturity, whether by
acceleration or otherwise, and the entry of a judgment in favor of the
Bank with respect to any or all of the Liabilities. Upon and following
an Event of Default, the Bank may proceed to protect and enforce the
Bank's rights under any Loan Document and/or under applicable law by
action at law, in equity or other appropriate proceeding including,
without limitation, an action for specific performance of any
provision contained herein or in any other Loan Document.
2. RIGHT OF SET-OFF. If any of the Liabilities shall be due and payable
or any one or more Events of Default shall have occurred, whether or
not the Bank shall have made demand under any Loan Document and
regardless of the adequacy of any collateral for the Liabilities or
other means of obtaining repayment of the Liabilities, the Bank shall
have the right, without notice to the Borrower or to any other
Obligor, and is specifically authorized hereby to set-off against and
apply to the then unpaid balance of the Liabilities any items or funds
of the Borrower and/or any Obligor held by the Bank or any Affiliate,
any and all deposits (whether general or special, time or demand,
matured or unmatured) or any other property of the Borrower and/or any
Obligor, including, without limitation, securities and/or certificates
of deposit, now or hereafter maintained by the Borrower and/or any
Obligor for its or their own account with the Bank or any Affiliate,
and any other indebtedness at any time held or owing by the Bank or
any Affiliate, to or for the credit or the account of the Borrower
and/or any Obligor, even if effecting such set-off
- 15 -
<PAGE>
results in a loss or reduction of interest or the imposition of a
penalty applicable to the early withdrawal of time deposits. For such
purpose, the Bank shall have, and the Borrower hereby grants to the
Bank, a first lien on and security interest in such deposits,
property, funds, and accounts, and the proceeds thereof. The Borrower
further authorizes any Affiliate, upon and following the occurrence of
an Event of Default, at the request of the Bank, and without notice to
the Borrower, to turn over to the Bank any property of the Borrower,
including, without limitation, funds and securities, held by the
Affiliate for the Borrower's account and to debit any deposit account
maintained by the Borrower with such Affiliate (even if such deposit
account is not then due or there results a loss or reduction of
interest or the imposition of a penalty in accordance with law
applicable to the early withdrawal of time deposits), in the amount
requested by the Bank up to the amount of the Liabilities, and to pay
or transfer such amount or property to the Bank for application to the
Liabilities.
3. CONFESSION OF JUDGMENT.
a. THE FOLLOWING PARAGRAPH SETS FORTH A WARRANT OF AUTHORITY FOR ANY
ATTORNEY TO CONFESS JUDGMENT AGAINST THE BORROWER. IN GRANTING
THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST THE
BORROWER, THE BORROWER, FOLLOWING CONSULTATION WITH (OR DECISION
NOT TO CONSULT) SEPARATE COUNSEL FOR THE BORROWER AND WITH
KNOWLEDGE OF THE LEGAL EFFECT HEREOF, HEREBY KNOWINGLY,
INTENTIONALLY, VOLUNTARILY AND UNCONDITIONALLY WAIVES ANY AND ALL
RIGHTS THE BORROWER HAS OR MAY HAVE TO PRIOR NOTICE AND AN
OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND
LAWS OF THE UNITED STATES OF AMERICA, THE COMMONWEALTH OF
PENNSYLVANIA, OR ELSEWHERE. IT IS SPECIFICALLY ACKNOWLEDGED BY
THE BORROWER THAT THE BANK HAS RELIED ON THIS WARRANT OF ATTORNEY
IN RECEIVING THIS AGREEMENT AND AS AN INDUCEMENT TO GRANT
FINANCIAL ACCOMMODATIONS CONTAINED HEREIN.
b. Upon and following the occurrence of an Event of Default, the
Borrower hereby jointly and severally authorizes and empowers any
attorney of any court of record or the prothonotary or clerk of
any county in the Commonwealth of Pennsylvania, or in any
jurisdiction where permitted by law or the clerk of any United
States District Court, to appear for the Borrower or any of them
in any and all actions which may be brought hereunder and enter
and confess judgment against the Borrower or any of them in favor
of the Bank for such sums as are due or may become due hereunder
or under any other Loan Document, together with costs of suit and
actual collection costs including, without limitation, reasonable
attorneys' fees, with or without declaration, without prior
notice, without stay of execution and with release of all
procedural errors and the right to issue executions forthwith.
To the extent permitted by law, the Borrower
- 16 -
<PAGE>
waives the right of inquisition on any real estate levied on,
voluntarily condemns the same, authorizes the prothonotary or
clerk to enter upon the writ of execution this voluntary
condemnation and agrees that such real estate may be sold on a
writ of execution; and also waives any relief from any
appraisement, stay or exemption law of any state now in force or
hereafter enacted. If a copy of this Agreement verified by
affidavit of any officer of the Bank shall have been filed in
such action, it shall not be necessary to file the original
thereof as a warrant of attorney, any practice or usage to the
contrary notwithstanding. The authority herein granted to confess
judgment shall not be exhausted by any single exercise thereof,
but shall continue and may be exercised from time to time as
often as the Bank shall find it necessary and desirable and at
all times until full payment of all amounts due hereunder and
under the other Loan Documents. The Bank may confess one or more
judgments in the same or different jurisdictions for all or any
part of the obligations arising hereunder or under any other Loan
Document, without regard to whether judgment has theretofore been
confessed on more than one occasion for the same obligations. In
the event that any judgment confessed against the Borrower is
stricken or opened upon application by or on behalf of the
Borrower or any Obligor for any reason, the Bank is hereby
authorized and empowered to again appear for and confess judgment
against the Borrower for any part or all of the obligations due
and owing under this Agreement, as herein provided.
4. REMEDIES CUMULATIVE; NO WAIVER. The rights, powers and remedies of
the Bank provided in this Agreement and in any of the Loan Documents
are cumulative and not exclusive of any right, power or remedy
provided by law or equity. No failure or delay on the part of the
Bank in the exercise of any right, power or remedy shall operate as a
waiver thereof, nor shall any single or partial exercise preclude any
other or further exercise thereof, or the exercise of any other right,
power or remedy.
5. CONTINUING ENFORCEMENT OF THE LOAN DOCUMENTS. If, after receipt of
any payment of all or any part of the Liabilities, the Bank is
compelled or agrees, for settlement purposes, to surrender such
payment to any person or entity for any reason, then this Agreement
and the other Loan Documents shall continue in full force and effect
or be reinstated, as the case may be. The provisions of this
Paragraph shall survive the termination of this Agreement and the
other Loan Documents and shall be and remain effective notwithstanding
the payment of the Liabilities, the cancellation of the Agreement, the
release of any security interest, lien or encumbrance securing the
Liabilities or any other action which the Bank may have taken in
reliance upon its receipt of such payment.
- 17 -
<PAGE>
J. MISCELLANEOUS.
1. WAIVER OF DEMAND. The Borrower (i) waives demand, presentment,
protest, notice of protest, and notice of dishonor of this Agreement;
(ii) consents to any and all extensions of time, renewals, waivers, or
modifications that may be granted by the Bank with respect to the
payment or other provisions of this Agreement; and (iii) agrees that
makers, endorsers, guarantors, and sureties for the indebtedness
evidenced hereby may be added or released without notice to the
Borrower and without affecting the Borrower's liability hereunder.
The liability of the Borrower hereunder shall be absolute and
unconditional.
2. NOTICES. Notices and communications under this Agreement shall be in
writing and shall be given by (i) hand-delivery, (ii) first class
mail (postage prepaid), or (iii) reliable overnight commercial courier
(charges prepaid) to the addresses listed in this Agreement. Notice
by overnight courier shall be deemed to have been given and received
on the date scheduled for delivery. Notice by mail shall be deemed to
have been given and received three (3) calendar days after the date
first deposited in the United States Mail. Notice by hand-delivery
shall be deemed to have been given and received upon delivery. A
party may change its address and/or by giving written notice to the
other party as specified herein.
3. COSTS AND EXPENSES. Whether or not the transactions contemplated by
the Loan Documents are fully consummated, the Borrower shall promptly
pay (or reimburse, as the Bank may elect) all costs and expenses which
the Bank has incurred or may hereafter incur in connection with the
negotiation, preparation, reproduction, interpretation, perfection,
protection of collateral, administration and enforcement of this
Agreement and the other Loan Documents, the collection of all amounts
due under this Agreement and the other Loan Documents, and all
amendments, modifications, consents or waivers, if any, to the Loan
Documents. The Borrower's reimbursement obligations under this
Paragraph shall survive any termination of this Agreement or any other
Loan Document.
4. PAYMENT DUE ON A DAY OTHER THAN A BUSINESS DAY. If any payment due or
action to be taken under this Agreement or any other Loan Document
falls due or is required to be taken on a day that the Bank is not
open for business, such payment or action shall be made or taken on
the next succeeding day when the Bank is open for business and such
extended time shall be included in the computation of interest.
5. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the substantive laws of the Commonwealth of
Pennsylvania without reference to conflict of laws principles.
- 18 -
<PAGE>
6. INTEGRATION; AMENDMENT. This Agreement and the other Loan Documents
constitute the sole agreement of the parties with respect to the
subject matter hereof and thereof and supersede all oral negotiations
and prior writings with respect to the subject matter hereof and
thereof. No amendment of this Agreement, and no waiver of any one or
more of the provisions hereof shall be effective unless set forth in
writing and signed by the parties hereto.
7. SUCCESSORS AND ASSIGNS. This Agreement (i) shall be binding upon the
Borrower and the Bank and, where applicable, their respective heirs,
executors, administrators, successors and permitted assigns, and (ii)
shall inure to the benefit of the Borrower and the Bank and, where
applicable, their respective heirs, executors, administrators,
successors and permitted assigns; provided, however, that the Borrower
may not assign its rights or obligations hereunder or any interest
herein without the prior written consent of the Bank, and any such
assignment or attempted assignment by the Borrower shall be void and
of no effect with respect to the Bank. The Bank may from time to time
sell or assign, in whole or in part, or grant participations in the
Loan and/or the Agreement and/or the obligations evidenced thereby.
The Borrower authorizes the Bank to provide information concerning the
Borrower to any prospective purchaser, assignee or participant.
8. SEVERABILITY AND CONSISTENCY. The illegality, unenforceability or
inconsistency of any provision of this Agreement or any instrument or
agreement required hereunder shall not in any way affect or impair the
legality, enforceability or consistency of the remaining provisions of
this Agreement or any instrument or agreement required hereunder. The
Loan Documents are intended to be consistent. However, in the event
of any inconsistencies among any of the Loan Documents, such
inconsistency shall not affect the validity or enforceability of any
Loan Document. The Borrower agrees that in the event of any
inconsistency or ambiguity in any of the Loan Documents, the Loan
Documents shall not be construed against any one party but shall be
interpreted consistent with the Bank's policies and procedures.
9. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. The Borrower
irrevocably appoints each and every owner, partner and/or officer of
the Borrower as its attorneys upon whom may be served, by regular or
certified mail at the address set forth in this Agreement, any notice,
process or pleading in any action or proceeding against it arising out
of or in connection with this Agreement or any of the other Loan
Documents. The Borrower hereby consents and agrees that (i) any
action or proceeding against it may be commenced and maintained in any
court within the Commonwealth of Pennsylvania or in the United States
District Court for any District of Pennsylvania by service of process
on any such owner, partner and/or officer, and (ii) the courts of the
Commonwealth of Pennsylvania an the United States
- 19 -
<PAGE>
District Court for any District of Pennsylvania shall have
jurisdiction with respect to the subject matter hereof and the person
of the Borrower and all collateral for the Liabilities. The Borrower
agrees that any action brought by the Borrower shall be commenced and
maintained only in a court in the federal judicial district or county
in which the Bank has its principal place of business in Pennsylvania.
10. JOINT AND SEVERAL LIABILITY. In the event that the Borrower consists
of more than one person or entity, the Liabilities of each such person
or entity shall be joint and several and the word "Borrower" means
each of them, any of them and/or all of them.
11. JUDICIAL PROCEEDINGS; WAIVERS.
THE BORROWER AND THE BANK ACKNOWLEDGE AND AGREE THAT (i) ANY SUIT,
ACTION OR PROCEEDING, WHETHER CLAIM OR COUNTERCLAIM, BROUGHT OR
INSTITUTED BY THE BANK OR THE BORROWER OR ANY SUCCESSOR OR ASSIGN OF
THE BANK OR THE BORROWER, ON OR WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR THE DEALINGS OF THE PARTIES WITH RESPECT
HERETO, OR THERETO, SHALL BE TRIED ONLY BY A COURT AND NOT BY A JURY
AND EACH PARTY WAIVES THE RIGHT TO TRIAL BY JURY; (ii) EACH WAIVES ANY
RIGHT IT MAY HAVE TO CLAIM OR RECOVER, IN ANY SUCH SUIT, ACTION OR
PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES
OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; AND
(iii) THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT
AND THE BANK WOULD NOT EXTEND CREDIT TO THE BORROWER IF THE WAIVERS
SET FORTH IN THIS SECTION WERE NOT A PART OF THIS AGREEMENT.
IN WITNESS WHEREOF, the Borrower and the Bank have executed this Agreement, on
the day and year first above written.
ATTEST: EASTERN ENVIRONMENTAL SERVICES, INC.
/s/ William C. Skuba
- ------------------------------ By:/s/ William C. Skuba
----------------------------
Name : William C. Skuba
Title: President
Address: RR #4, Box 4452
-----------------------
Drums, Pa 18222
-----------------------
- 20 -
<PAGE>
ATTEST: PULASKI GRADING, INC.
/s/ William C. Skuba By:/s/ William C. Skuba
- -------------------- --------------------
Name : William C. Skuba
Title: President
Address: 4140 South Highway
----------------------
320 Dixie Bend Rd.
----------------------
Burnside, KY 42519
----------------------
ATTEST: S & S GRADING, INC.
/s/ William C. Skuba By: /s/ William C. Skuba
- -------------------- ----------------------------
Name : William C. Skuba
Title: President
Address: Route 5 Box 559
----------------------
Clarskburg, W.V. 26301
----------------------
ATTEST: CAROLINA GRADING, INC.
/s/ William C. Skuba By: /s/ William C. Skuba
- -------------------- ----------------------------
Name : William C. Skuba
Title: President
Address: 125 McDowell Lane
----------------------
Eastover, S.C. 29044
----------------------
ATTEST: NHD, INC.
/s/ William C. Skuba By: /s/ William C. Skuba
- -------------------- ----------------------------
Name : William C. Skuba
Title: President
Address: RR #4, Box 4452
----------------------
Drums, PA 18222
----------------------
- 21 -
<PAGE>
ATTEST: EASTERN REAL PROPERTY, INC.
/s/ William C. Skuba
- ------------------------------ By: /s/ William C. Skuba
-----------------------------------
Name : William C. Skuba
Title: President
Address: RR #4, Box 4452
------------------------------
Drums, Pa 18222
--------------------------------------
First Fidelity Bank, National Association
By: /s/ David G. Kowaleck
------------------------
Name: David G. Kowaleck
Title: Vice - President
Address: 24 W. Market Street
Wilkes - Barre, Pa 18711
- 22 -
<PAGE>
EXHIBIT A
TO TERM LOAN AGREEMENT
DATED _________________, 19__,
BY AND BETWEEN THE BORROWER AND THE BANK
COMPLIANCE CERTIFICATE OF BORROWER
FOR THE FISCAL YEAR ENDING _________________, 19__ OR
FOR THE FISCAL QUARTER ENDING ________________, 19__
The Compliance Certificate, signed by _______________________________________
(if the Borrower is an individual) the Borrower, or (if the Borrower is not an
individual) the Chief Financial Officer of the Borrower, is delivered to the
Bank pursuant to Section E.2. of the Term Loan Agreement ("the Agreement").
The undersigned certifies that he/she is authorized to execute this Compliance
Certificate on behalf of the Borrower and hereby certifies on behalf of the
Borrower as follows:
(i) all representations and warranties set forth in the Agreement and in
any other Loan Document (as defined in the Agreement) remain true
and correct:
(ii) none of the covenants in the Agreement or in any of the other Loan
Documents has been breached; and
(iii) no event has occurred which, alone, or with the giving of notice or
the passage of time, or both, would constitute an event of default
(as defined in the Agreement) under the Agreement or under any of
the Loan Documents. No material adverse change has occurred in the
Borrower's financial condition.
The foregoing representations concerning the Borrower's financial condition are
made to the Bank with the understanding that the Bank will rely on these
representations.
Name of Borrower
By:
Name:
Title:
- 23 -
<PAGE>
Exhibit 21
SUBSIDIARIES
------------
The following is a list of the Company's subsidiaries. Omitted from the list
are certain subsidiaries which are inactive and are being dissolved, and which,
if considered in the aggregate as a single subsidiary, would not constitute a
"significant subsidiary" as defined in Regulation S-X.
<TABLE>
<CAPTION>
Company State of Incorporation
------- ----------------------
<S> <C>
NHD, Inc. Pennsylvania
Eastern Real Property, Inc. ("ERP") Florida
S & S Grading, Inc.
(f/k/a "S & S Landfill, Inc.") West Virginia
WRN Properties, Inc.,
a subsidiary of ERP Pennsylvania
Pulaski Grading, Inc.
(f/k/a "Pulaski Landfill, Inc.") Kentucky
Carolina Grading, Inc. South Carolina
All Waste Refuse Services, Inc. South Carolina
A.W.S. of Virginia Incorporated Virginia
</TABLE>
<PAGE>
EXHIBIT 23
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (Registration No. 33-25155, filed on October 24, 1988), the
Registration Statement on Form S-8 (Post-Effective Amendment No. 2 to
Registration No. 33-21251, filed on May 4, 1990), the Registration Statement on
Form S-8 (Registration No. 33-37374, filed on October 18, 1990) and the
Registration Statement on Form S-8 (Registration No. 33-45250, filed on January
27, 1992) of Eastern Environmental Services, Inc. of our reports dated September
26, 1995, on the consolidated financial statements and financial statement
schedule of Eastern Environmental Services, Inc. included in the Annual Report
(Form 10-K) for the year ended June 30, 1995.
ERNST & YOUNG LLP
Reading, Pennsylvania
September 26, 1995
