<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[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, 1996
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.)
1000 Crawford Place, Suite 101, Mount Laurel, NJ 08054
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (609) 235-6009
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.
[ ]
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 25, 1996, was approximately $40,530,000.
There were no shares of Class A Common Stock, par value $.01 per share, of the
Registrant outstanding as of September 25, 1996. The number of shares of Common
Stock, par value $.01 per share, of the Registrant outstanding as of September
25, 1996 was 9,220,208.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement to be filed with the
Commission in connection with the 1996 Annual Meeting of Shareholders are
incorporated by reference into Part III of this Form 10-K.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
Louis D. Paolino, Jr., 40, has been Chairman of the Board, Chief Executive
Officer and a director since June 20, 1996 and has over 14 years of experience
in the solid waste industry. From 1991 to June 1, 1996, Mr. Paolino was
president of Soil Remediation of Philadelphia, Inc. Mr. Paolino sold Soil
Remediation of Philadelphia, Inc. to USA Waste Services, Inc. in 1993. Soil
Remediation of Philadelphia, Inc. is in the business of treating contaminated
soil.
Terry W. Patrick, 50, joined the Company as Executive Vice-President and
Chief Operating Officer on June 20, 1996. Mr. Patrick has over 25 years of
management experience in the waste industry, including ownership of waste
collection and landfill companies; eleven combined years experience with Waste
Management, Inc. and Browning Ferris Industries, Inc. in district and regional
management; Vice President of Operations for Mid-American Waste Systems, Inc.;
past President and Chief Operating Officer of USA Waste Services, Inc. For the
past two years, Mr. Patrick has been involved with personal investments and
ownership of a chemical manufacturing and distributing company.
Gregory M. Krzemien, 37, joined the Company as Chief Financial Officer and
Treasurer in August 1992. From October 1988 to joining the Company, Mr. Krzemien
was a senior audit manager with Ernst & Young, LLP an independent accounting
firm. Mr. Krzemien worked for Ernst & Young, LLP for 11 years.
Robert M. Kramer, 44, joined the Company as its General Counsel, Vice
President and Secretary on June 20, 1996. Prior to joining the Company, Mr.
Kramer was engaged in the private practice of law, with various firms since
1979. Since 1989, Mr. Kramer has practiced law through Robert M. Kramer &
Associates P.C. a law firm specializing in commercial transactions and
securities law. In addition to his duties with the Company, Mr. Kramer will
still be engaged in the private practice of law through Robert M. Kramer &
Associates, P.C.
George O. Moorehead, 43, has been a director of the Company since June 20,
1996 and has over 30 years experience in the solid waste industry. Since
February 1995, Mr. Moorehead has served as the President, Director and Chief
Executive Officer of EMCO Recycling Corp., a company engaged in the business of
metal recycling in Arizona. Since 1993, Mr. Moorehead has been a principal
stockholder and director of EMCO Recycling Corp. From 1990 to 1993, Mr.
Moorehead was the President, Director and Chief Executive Officer of Custom
Disposal, a Phoenix area solid waste disposal company.
2
<PAGE>
Kenneth Chuan-kai-Leung, 51, has been a director of the Company since June
20, 1996. Mr. Leung has been a managing director of investment banking at
Sanders, Morris, Mundy, Inc. since 1994 and chief investment officer of the
Environmental Opportunities Fund, L.P. and The Environmental Opportunities Fund
(Cayman), L.P. since January 1, 1996. From 1987 to 1994, Mr. Leung was a
managing director of Smith Barney, Inc. Mr. Leung has 23 years of experience in
the environmental services industry as a securities analyst and investment
banker.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons whom own more than ten percent of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission ("SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than ten-percent shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended June 30, 1996, all Section
16(a) filing requirements applicable to the Company's officers, directors and
greater than ten-percent beneficial owners were complied with, except as stated
in the next three sentences. Robert Powell and Steven Stamos, each of whom was a
director until June 1996, each filed three reports late relating to three
warrant grant transactions. Timothy Sweeney, who was a director until June 1996,
filed two reports late relating to two warrant grant transactions. Louis D.
Paolino, Jr. filed one report late relating to purchases of Company common
stock.
3
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation
paid by the Company during its last three completed fiscal years to Mr. Skuba,
the Company's former Chief Executive Officer, and Mr. Paolino, the Company's
current Chief Executive Officer. Other than Mr. Skuba, no other executive
officer had total annual salary and bonus exceeding $100,000 during the
Company's fiscal year ended June 30, 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
============================================================================================================
Long-Term
Compensation Awards
- ------------------------------------------------------------------------------------------------------------
Name & Annual Compensation
Principal ------------------------ Securities Underlying All Other
Position Year Salary ($) Bonus ($) Options (#) Compensation ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
William C. FY96 129,312 None None 151,874 (2)
Skuba, CEO (1)
- ------------------------------------------------------------------------------------------------------------
FY95 124,800 None None 2,500 (3)
- ------------------------------------------------------------------------------------------------------------
FY94 127,390 None None 2,500 (3)
- ------------------------------------------------------------------------------------------------------------
Louis D. Paolino, FY96 8,192 None 250,000 None
Jr., CEO
============================================================================================================
</TABLE>
(1) William C. Skuba was the Company's CEO during fiscal year 1996 until
June 20, 1996 after which time Louis D. Paolino, Jr. became the Company's
CEO.
(2) Consists of non-cash compensation paid to Mr. Skuba under the 1996
Severance Agreement as amended in September, 1996. See "Certain
Relationships and Related Transactions."
(3) Consists solely of moving expenses.
4
<PAGE>
The following table sets forth information concerning individual grants of stock
options and stock appreciation rights made during fiscal year 1996 to the
Company's Chief Executive Officer.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
================================================================================
Percent of
Total
Number of Options
Securities Granted to Exercise
Underlying Employees or Base
Options in Fiscal Price Expiration
Name Granted (#) Year ($/sh) Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Louis D. Paolino, Jr. 250,000 (1) 31.1% $6.33 June 20, 2006
- --------------------------------------------------------------------------------
William C. Skuba 0 0 0 0
================================================================================
</TABLE>
(1) Mr. Paolino's stock options vest over a four-year period at the rate
of 25% per year at the end of each year.
The following table sets forth information concerning each exercise of
stock options during the Company's fiscal year 1996 by the Company's Executive
Officer.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES AND FY-END OPTION VALUES
===========================================================================================================
Value of
Number of Securities Unexercised
Underlying Unexercised In-the-Money
Shares Acquired Value Options at FY-End Options
Name on Exercise (#) Realized ($) (#Exercisable/Unexercisable) at FY-End
($Exercisable/
Unexercisable)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Louis D. Paolino, Jr. None None 0/250,000 $0/$42,500
- -----------------------------------------------------------------------------------------------------------
William C. Skuba None None None None
===========================================================================================================
</TABLE>
COMPENSATION OF DIRECTORS
Prior to June 20, 1996, non-employee directors of the Company receive a fee
of $1,000 per meeting for attendance in person at each Board meeting and $250
for attendance by telephone. After June 20, 1996 the Company revised its policy
and non-employee directors do not receive any fee for attendance of Board
meetings. Each of the Company's directors received options or warrants to
purchase shares of the Company's Common Stock. In July 1996, options to purchase
10,000 shares of the Company's Common Stock at an exercise price of $6.375 per
share were issued to each of Mr. Leung, Mr. Moorehead and Mr Paolino with the
options becoming fully vested one year from the date of grant. All expenses
incurred by all directors for attendance at Board meetings are reimbursed by the
Company. On June 20, 1996, simultaneous with the change in
5
<PAGE>
management control of the Company, the Company's former Board of Directors were
replaced. During fiscal year 1996, the former directors of the Company received
warrants to purchase Common Stock. Warrants to purchase 12,000 shares were
issued to Timothy W. Sweeney, and warrants to purchase 6,000 shares to each of
Stephen C. Stamos, Jr., and Robert J. Powell were issued in July 1995, all at an
exercise price of $1.50. Additionally, in calendar year 1996, warrants to
purchase 11,800 shares were issued to Mr. Sweeney, and warrants to purchase
6,600 shares to each of Mr. Stamos and Mr. Powell were issued at an exercise
price ranging from $1.25 to $2.00. The Company's prior Board also approved Mr.
Sweeney and Mr. Stamos to provide consulting services to the Company as
requested from time to time at a rate of $100 per hour plus expenses. The
Company paid approximately $1,900 and $6,100 to Mr. Sweeney and Mr. Stamos,
respectively, for consulting services and expenses in fiscal 1996. Mr. Sweeney
and Mr. Stamos have not rendered services to the Company since the change in
control.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company entered into an Employment Agreement with the Company's
Chief Executive Officer, Mr. Paolino. Under this agreement, Mr. Paolino is
provided a base annual salary of $150,000 and options to purchase 250,000
shares of the Company's common stock. The options have been granted under the
terms of the 1996 Stock Option Plan. The options vest equally at the end of each
year of the Employment Contract, over the four-year period of the Employment
Contract. In addition, if there is an actual change in control of 50% or more in
the Company's voting power, or a change in the majority of the current Board of
Directors, the Company is obligated to pay the executive a lump sum severance
benefit in cash equal to his then current annual salary multiplied by two. The
Agreement also provides that during the term of Mr. Paolino's employment and for
a period of two years following the termination of the Employee's employment,
Mr. Paolino will not compete with the Company or its subsidiaries in the
business of waste hauling, waste disposal, landfilling, handling demolition
waste, handling special waste, and recycling waste within a 50-mile radius of
any Company business operation.
The Company has entered into a Severance Agreement with Mr. Skuba, the
Company's former Chief Executive Officer. See Item 13, "Certain Relationships
and Related Transactions" below for further discussion relating to the Severance
Agreement.
6
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of the Company's capital stock by each of the Company's directors, by
each of the executive officers listed in the Summary Compensation Table above
and by all persons known to the Company to be the beneficial owner of more than
five percent of the Company's outstanding Common Stock as of October 24, 1996.
Unless otherwise indicated, the stockholders listed possess sole voting power
and investment power with respect to the shares listed.
<TABLE>
<CAPTION>
Common Stock
Amount and Nature
of Beneficial Percent of
Name of Beneficial Owner (1) Ownership Class Outstanding
- ------------------------ ----------------- -----------------
<S> <C> <C>
Louis D. Paolino (2)......... 3,119,286 26.9%
George O. Moorehead (3)...... 3,119,286 26.9%
5100 Buckeye
Phoenix, AZ 85009
Kenneth Chuan-kai-Leung...... ----- -----
126 East 56th Street
24th Floor
New York, NY 10022
Environmental
Opportunities Fund, L.P.(4).. 3,119,286 26.9%
126 East 56th Street
24th Floor
New York, NY 10022
Environmental
Opportunities
Fund (Cayman)(5)............. 2,008,185 17.3%
126 East 56th Street
24th Floor
New York, NY 10022
William Skuba(6)............. 1,231,101 10.6%
RR #4, Box 4452
Drums, PA
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C>
Willard Miller.............. 1,283,781 11.1%
200 Park Drive
Voorhees, NJ 08043
Glen Miller................. 1,028,395 8.9%
200 Park Drive
Voorhees, NJ 08043
All officers and directors
as a group (6 persons) (7).. 3,492,278 29.6%
</TABLE>
(1) Unless otherwise noted, the business address of the person and entity is
1000 Crawford Place, Mt. Laurel, NJ 08054.
(2) Mr. Paolino is the holder of record of 972,048 shares and may be deemed to
beneficially own (i) 10,000 shares to be held of record by Wenonah
Holdings, Inc., (ii) 1,026,137 shares to be held of record by Mr.
Moorehead, the Fund and the Cayman Fund, and (iii) 1,111,101 shares
held of record by Mr. Skuba with respect to which Mr. Paolino, Mr.
Moorehead, and the Fund hold a proxy.
(3) Mr. Moorehead is the holder of record of 260,000 shares and may be deemed
to beneficially own (i) 1,748,185 shares held of record by Mr. Paolino, the
Fund and the Cayman Fund, and (ii) 1,111,101 owned of record by Mr. Skuba
over which shares Mr. Moorehead holds a joint proxy with Louis D. Paolino,
Jr. and the Fund.
(4) The Environmental Opportunities Fund, L.P. is the holder of record of
673,454 shares and may be deemed to beneficially own (i) 1,334,731 shares
held of record by Mr. Paolino, Mr. Moorehead and The Environmental
Opportunities (Cayman) Fund, L.P., and (ii) 1,111,101 shares held of record
by Mr. Skuba with respect to which Louis Paolino, Jr., George Moorehead and
the Environmental Opportunities Fund, L.P. holds a joint proxy.
(5) The Environmental Opportunities (Cayman) Fund L.P. is the holder of record
of 92,683 shares and may be deemed to beneficially own 1,915,502 shares to
be held of record by Mr. Paolino, Mr. Moorehead and the Environmental
Opportunities Fund, L.P.
(6) Mr. Skuba holds of record 1,231,101 shares over which Mr. Skuba has granted
a proxy to Mr. Paolino, Mr. Moorehead and The Environmental Opportunities
Fund L.P. for 1,111,101 shares.
(7) Includes 182,992 shares for which an officer has options exercisable within
60 days.
8
<PAGE>
Item 13. Certain Relationships and Related Transactions
The Company leases its executive offices at 1000 Crawford Place, Mt.
Laurel, New Jersey from a corporation controlled by Louis Paolino, the Company's
President and Chief Executive Officer. The Lease which was entered into in June
of 1996 for a term of five years, covers 5,000 square feet and is for a monthly
rental of $6,250, plus annual increases by the annual increase in the Consumer
Price Index. The lease is terminable at any time within the five year term at
the option of Company by payment of a termination fee equal to one year's rent.
The lessor provided $20,000 of leasehold improvements for the premises at the
lessor's expense. The Company believes that the rental it pays is at a fair
market value rate.
The Company acquired all of the assets of Eastern Waste of Philadelphia,
Inc. ("Eastern Waste") on August 1, 1996 for 391,250 unregistered shares of the
Company's common stock. Eastern Waste was wholly owned by Matthew Paolino and
Donald Moorehead, brothers of Louis Paolino and George Moorehead.
Kenneth C. Leung, a director of the Company, is one of the two managing
directors of the Fund and the Cayman Fund. The Fund and the Cayman Fund combined
are substantial owners of the Company's common stock.
Robert M. Kramer, the Company's General Counsel, Vice President and
Secretary is engaged in the private practice of law through Robert M. Kramer &
Associates, P.C., a professional corporation owned by Mr. Kramer.
In 1987, the Company entered into an agreement with Thomas M. Yanette, a
former director and officer of the Company. Pursuant to such agreement, in
exchange for the surrender by Mr. Yanette of an equity interest he owned in a
predecessor of the Company and the agreement of Mr. Yanette not to compete with
the Company and to provide consulting services to the Company, the Company has
agreed to pay Mr. Yanette or his surviving spouse $48,000 per year. Such
payments began in September 1987 and will continue until August 1997.
Robert J. Powell, a former director, is the sole shareholder of The Law
Offices of Robert J. Powell, Hazleton, Pennsylvania. The Company retained
Mr. Powell's law firm to provide legal services for the Company during fiscal
1996. The Company paid approximately $78,000 for such legal services in fiscal
1996.
Change of Control
On June 21, 1996, Mr. Skuba, who was then the Company's Chairman, Chief
Executive Officer and President, sold an aggregate of 500,000 shares (the "Sale
Shares") of the Common Stock of the Company at a price of $2.00 per share to a
group consisting of Messrs. Moorehead and Paolino, the Fund and the Cayman Fund
(Mr. Moorehead, Mr. Paolino, the Fund and the Cayman Fund being hereinafter
sometimes collectively referred to as the "Purchasers") pursuant to a Stock
Purchase Agreement dated as of May 8, 1996 by and among Mr. Skuba and the
Purchasers (the "Stock Purchase Agreement").
Pursuant to the Stock Purchase Agreement, Mr. Skuba also converted all of
his Class A Common Stock of the Company (which carried four votes per share)
into Common Stock (which carries one vote per share). Mr. Skuba also granted to
the Purchasers an irrevocable proxy over his remaining 1,111,101 shares of
Common Stock for a period to expire on the earlier of June 21, 1997 or the date
upon which Mr. Skuba disposes of such remaining shares.
The consummation of the Stock Purchase Agreement resulted in a change of
control of the Company, with the Purchasers becoming significant owners of the
Company's Common Stock. As required by the Stock Purchase Agreement, Mr. Skuba
resigned as the Company's Chairman, President and Chief Executive Officer and,
along with all of the other members of the Company's Board of Directors,
resigned from the Board of Directors of the Company. Mr. Paolino, Mr. Moorehead
and Kenneth Chuan-kai Leung (a managing director of the Fund and the Cayman
Fund) were elected as members of the Company's Board of Directors. Mr. Paolino
was appointed as the Company's new Chairman, President and Chief Executive
Officer.
In connection with the consummation of the transaction contemplated
by the Stock Purchase Agreement, the Company entered into a series of agreements
with Mr. Skuba regarding his relationship with the Company following his
resignation as an officer, director and employee of the Company. Among such
agreements, the Company and Mr. Skuba entered into a severance agreement ("1996
Severance Agreement") which provides for Mr. Skuba to receive certain health
insurance benefits from the Company (at its cost for one year and at Mr. Skuba's
cost thereafter). Additionally, in payment of a severance obligation of the
Company to Mr. Skuba pursuant to a separate severance agreement entered into in
1993, as subsequently amended in 1995, the Company conveyed to a company
controlled by Mr. Skuba: (i) the outstanding stock of a corporation which owns
certain real property
9
<PAGE>
located in Drums, Pennsylvania, ("Drums Real Property"), (ii) certain real and
personal property located in Jasper County, South Carolina, and (iii) certain
vehicles owned by the Company. The Company also sold to Mr. Skuba certain
potential business opportunities which the Company decided that it had no
interest in pursuing. The Company entered into two leases with a company
controlled by Mr. Skuba under which the Company agreed to lease back a portion
of the Drums Real Property currently used in its operations. In October 1996,
one of the leases was terminated.
The 1996 Severance Agreement further provides that until the earlier of one
year from the Closing Date or a change of control of the Company, Mr. Skuba will
not compete with the Company or its subsidiaries (i) in the business of landfill
operation or municipal solid waste collection within a 50-mile radius of the
Company's landfills operated in West Virginia, South Carolina, Kentucky and
Illinois, or (ii) in the business of asbestos hauling within a 90-mile radius of
the Drums Real Property. Finally, the 1996 Severance Agreement included a mutual
release of all claims each of the Company and Mr. Skuba may have against the
other and, for a six-year period, the Company's agreement to indemnify Mr. Skuba
and maintain director and officer liability insurance coverage for Mr. Skuba.
The Company also retained Mr. Skuba as a consultant for a period of six
months with the Company having an option to retain Mr. Skuba for an additional
six months pursuant to a consulting agreement (the "Consulting Agreement").
Under the Consulting Agreement, Mr. Skuba is serving as a general advisor and
consultant to the Company to assist the Company on such matters related to the
transition of control of the Company and negotiating acquisitions for the
Company as the Company and Mr. Skuba may mutually agree. In consideration for
performing such services during the first six months, the Company will provide
no compensation to Mr. Skuba other than the reimbursement of his reasonable
expenses and secretarial support.
Additionally, the Company entered into a registration rights agreement with
Mr. Skuba ("Registration Rights Agreement") providing for the registration of
the remainder of Mr. Skuba's shares of Common Stock which are not being sold
pursuant to the Stock Purchase Agreement and which are not yet registered under
the Securities Act of 1933 (the "Securities Act"). Pursuant to the Registration
Rights Agreement, the Company also agreed to register Mr. Skuba's unregistered
Common Stock under the Securities Act in the event that the Company proposes to
register any of its Common Stock under the Securities Act.
10
<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.
Dated the 25/th/ day of October, 1996.
EASTERN ENVIRONMENTAL SERVICES, INC.
By: /s/ Louis D. Paolino, Jr.
-----------------------------
Louis D. Paolino, Jr.
Chairman of the Board, President
and Chief Executive Officer
11
