<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
RR #4, BOX 4452
DRUMS, PENNSYLVANIA
----------------------------------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE
SECURITIES EXCHANGE ACT OF 1934
AND RULE 14f-1 THEREUNDER
----------------------------------------
This Information Statement is being mailed on or about May 31, 1996 to
the holders of shares of the Common Stock, $.01 par value per share, of Eastern
Environmental Services, Inc., a Delaware corporation (the "Company"), in
connection with the designation by William C. Skuba, the Company's Chairman,
Chief Executive Officer and controlling shareholder of certain persons to the
Board of Directors of the Company (the "Board"). Such designation is to be made
pursuant to a Stock Purchase Agreement dated as of May 8, 1996 by and among Mr.
Skuba and George O. Moorehead, Louis D. Paolino, Jr., Environmental
Opportunities Fund, L.P., a Delaware limited partnership (the "Fund"), and
Environmental Opportunities Fund (Cayman), L.P., a Cayman Islands exempted
limited partnership (the "Cayman Fund")(Mr. Moorehead, Mr. Paolino, the Fund and
the Cayman Fund are hereinafter sometimes referred to as the "Purchasers").
NO ACTION IS REQUIRED BY THE SHAREHOLDERS OF THE COMPANY IN CONNECTION
WITH THE ELECTION OF THE DESIGNATED DIRECTORS TO THE BOARD. However, Section
14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange Act),
requires the mailing to the Company's shareholders of the information set forth
in this Information Statement prior to a change in a majority of the Company's
directors otherwise than at a meeting of the Company's shareholders.
Pursuant to the Stock Purchase Agreement, the Purchasers will acquire
from Mr. Skuba an aggregate of 500,000 shares of the Common Stock of the Company
at a price of $2.00 per share for a total purchase price of $1,000,000 at a
closing that is anticipated to take place approximately two weeks from the date
hereof or such later date as is agreed to by the Purchasers and Mr. Skuba (the
"Closing Date").
In addition, the Purchasers also intend to purchase from other
shareholders of the Company a further aggregate of no less than 400,000 shares
of Common Stock of the Company ("Third Party Stock") through one or more
privately negotiated sales. All of the purchases of Third Party Stock by the
Purchasers are also to be consummated on the Closing Date, except for the
purchase of 225,000 shares of Third Party Stock which purchases are to close by
July 10, 1996. To date, the Purchasers have already purchased 100,000 shares of
Third Party Stock and have executed written contracts for the purchase of an
additional 350,000 shares of Third Party Stock. Upon consummation of the
transactions contemplated by
<PAGE>
the Stock Purchase Agreement, Mr. Paolino, Mr. Moorehead, the Fund and the
Cayman Fund will purchase 425,000, 225,000, 222,422 and 27,578 shares,
respectively. Mr. Paolino and Mr. Moorehead intend to utilize personal funds,
and the Fund and the Cayman Fund intend to utilize working capital, to pay for
the shares. No borrowed funds are being used for such purchases.
Pursuant to the Stock Purchase Agreement, Mr. Skuba has further agreed
to convert all of his Class A Common Stock (as defined below) which currently
carries four votes per share into Common Stock which carries one vote per share
and to transfer by proxy the voting control over his remaining 1,111,101 million
shares of Common Stock for a period to expire on the earlier of one year from
the Closing Date or the date upon which Mr. Skuba disposes of the remainder of
his shares. The consummation of the transactions contemplated by the Stock
Purchase Agreement will result in a change of control of the Company with the
Purchasers becoming significant owners of the Common Stock having the ability to
designate the members of the Board.
The closing of the transactions contemplated by the Stock Purchase
Agreement are subject to the fulfillment or waiver of certain conditions on or
prior to the Closing Date. Among such conditions to closing, Mr. Skuba must
secure the resignations of the current directors of the Company other than Mr.
Skuba to be effective as of the Closing Date and, as the sole remaining
director, must then appoint three individuals designated by the Purchasers to be
directors of the Company ("Designated Directors"). Immediately thereafter, Mr.
Skuba will resign as an officer and director of the Company. Further, on the
Closing Date, Mr. Skuba and the Purchasers or, alternatively, the Company will
enter into various additional agreements including a severance agreement, a
consulting agreement, a put option agreement and a registration rights
agreement, each of which is more fully described below.
The information contained in this Information Statement concerning the
Company is based on the Company's Proxy Statement dated January 29, 1996, and,
except as indicated, such information is given as of such date. The information
contained in this Information Statement concerning Mr. Skuba, the Purchasers and
the Designated Directors has been furnished to the Company by such persons and
the Company assumes no responsibility as to the accuracy and completeness of
such information.
VOTING SECURITIES
SECURITIES OUTSTANDING
As of May 31, 1996, there were: (a) 4,231,504 shares of Common Stock
outstanding and (b) 1,591,201 shares of Class A Common Stock, $.01 par value per
share of the Company (the "Class A Common Stock"), outstanding. Each share of
Common Stock entitles the holder to one vote, and each share of Class A Common
Stock entitles the holder to four votes, on each matter submitted to a vote of
the shareholders of the Company.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding
beneficial ownership of the Company's capital stock, as of May 31, 1996, by each
of the Company's directors, by each of the Named Executive Officers, and by all
persons known to the Company to be the beneficial owner of more than 5% of the
Company's outstanding Common Stock or Class A Common Stock other than the
Purchasers and Designated Directors which are set forth separately below. Unless
otherwise indicated, the shareholders listed possess sole voting and investment
power with respect to the shares listed.
<TABLE>
<CAPTION> Percent of
Common Stock Class A Common Stock Voting Power(b)
-------------------------------------- ------------------------------------ ---------------
Amount and Nature Amount and Nature
Name and Address of of Beneficial Percent of Class of Beneficial Percent of Class
Beneficial Owner(a) Ownership Outstanding Ownership Outstanding
- ------------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
William C. Skuba 34,900 (c) * 1,591,201 100% 60.4%
Michael A. Fioravante 160,700 (d) 3.7% 0 * 1.5%
Timothy W. Sweeney 48,800 (e) 1.1% 0 * *
Stephen C. Stamos, Jr. 27,600 (e) * 0 * *
Robert J. Powell 27,600 (e) * 0 * *
Jack Casagrande 250,000 5.9% 0 * 2.4%
11550 SW 95th Avenue
Miami, FL 33176
M. Beckmann, Ltd. 241,500 5.7% 0 * 2.3%
Arawak Trust
Arawak Chambers
Road Town, Tortola
British Virgin Islands
Continental Waste 253,000 5.9% 0 * 2.4%
67 Walnut Avenue
Suite 103
Clark, NJ 07066
All officers and 459,600 (c)(f) 9.9% 1,591,201 100% 62.1%
directors as a group
(6 persons)
</TABLE>
- -----------------------------------------------------
* Represents less than 1% of the outstanding shares.
(a) Except as otherwise indicated, the address of each person identified is
care of Eastern Environmental Services, Inc., RR #4, Box 4452, Drums,
Pennsylvania 18222.
(b) Holders of Class A Stock are entitled to four votes for each share, and
holders of Common Stock are entitled to one vote for each share, on all
matters submitted to a vote of shareholders.
-3-
<PAGE>
(c) Includes 15,000 shares of Common Stock owned by Nancy Skuba, Mr. Skuba's
mother, with respect to which a proxy has been granted to William Skuba.
Does not include 1,591,201 shares of Common Stock which may be acquired
upon conversion of Class A Common Stock held by William Skuba.
(d) Includes 120,000 shares purchasable upon the exercise of options and
warrants.
(e) Consists solely of shares purchasable upon the exercise of options and
warrants.
(f) Includes 384,000 shares purchasable upon the exercise of options and
warrants by all officers and directors as a group (including one officer
not listed in the foregoing table).
SECURITY OWNERSHIP OF THE PURCHASERS AND DESIGNATED DIRECTORS
The following table sets forth certain information regarding beneficial
ownership of the Company's capital stock by each of the Purchasers and the
Designated Directors upon consummation of the transactions contemplated by the
Stock Purchase Agreement. Unless otherwise indicated, the shareholders listed
possess sole voting power and investment power with respect to the shares
listed.
<TABLE>
<CAPTION>
Common Stock
---------------------------------------
Amount and Nature
Name and Address of of Beneficial Percent of Class
Beneficial Owner Ownership Outstanding(a)
- ---------------- ------------------ ----------------
<S> <C> <C>
George O. Moorehead 2,258,435 (b) 38.8%
5339 East Lafayette Blvd.
Phoenix, Arizona 85018
Louis D. Paolino, Jr. 2,268,435 (c) 39.0%
1000 Crawford Ave.
Mt. Laurel, NJ 08051
Kenneth Chuan-kai-Leung * *
3100 Texas Commerce Tower
Houston, Texas 77002
Environmental Opportunities Fund, L.P. 2,258,435 (d) 38.8%
Environmental Opportunities Fund 1,147,334 (e) 19.7%
(Cayman), L.P.
</TABLE>
- -----------------------------------------------------
*Represents less than 1% of the outstanding shares.
(a) Upon consummation of the transactions contemplated by the Stock Purchase
Agreement, the Class A Common Stock will be converted into Common Stock and
all Company stock will be entitled to one vote for each share on all
matters submitted to a vote of the shareholders.
(b) Mr. Moorehead is currently the holder of record of 60,000 shares. Upon
consummation of the transactions contemplated by the Stock Purchase
Agreement, Mr. Moorehead will be the holder of record of 260,000 shares and
may be deemed to beneficially own (i) 887,334 shares to be held of record
by the other Purchasers and (ii) 1,111,101 shares to be held of record by
Mr. Skuba with respect to which the Purchasers will hold a proxy.
-4-
<PAGE>
(c) Mr. Paolino is currently the holder of record of 227,334 shares and is the
beneficial owner of an additional 10,000 shares currently held by Wenonah
Holdings, Inc., a Pennsylvania corporation of which Mr. Paolino is a
director. Upon consummation of the transactions contemplated by the Stock
Purchase Agreement, Mr. Paolino will be the holder of record of 637,334
shares and may be deemed to beneficially own (i) 10,000 shares to be held
of record by Wenonah Holdings, Inc., (ii) 510,000 shares to be held of
record by the other Purchasers and (iii) 1,111,101 shares to be held of
record by Mr. Skuba with respect to which the Purchasers will hold a proxy.
(d) The Fund does not currently own any shares of Common Stock. Upon
consummation of the transactions contemplated by the Stock Purchase
Agreement, the Fund will be the holder of record of 222,422 shares and may
be deemed to beneficially own (i) 924,912 shares to be held of record by
the other Purchasers and (ii) 1,111,101 shares to be held of record by Mr.
Skuba with respect to which the Purchasers will hold a proxy.
(e) The Cayman Fund does not currently own any shares of Common Stock. Upon
consummation of the transactions contemplated by the Stock Purchase
Agreement, the Cayman Fund will be the holder of record 27,578 shares and
may be deemed to beneficially own 1,119,756 shares to be held of record by
the other Purchasers.
SHAREHOLDER AGREEMENTS
The Purchasers have agreed that upon the Closing Date the Board shall
appoint Mr. Paolino as the President, Chief Executive Officer and Chairman of
the Board.
THE BOARD OF DIRECTORS
CURRENT DIRECTORS
The Board currently consists of five members: William C. Skuba,
Timothy W. Sweeney, Stephen C. Stamos, Jr., Robert J. Powell and Michael A.
Fioravante.
Under the Company's Certificate of Incorporation and By-Laws, each
director is elected at the annual meeting of shareholders to hold office until
the next annual meeting of shareholders to serve until the next annual meeting
of shareholders and until their respective successors shall have been elected
and qualified. Further, in the event that directors resign from the Board during
the term of their respective directorships before the next annual meeting of
shareholders, such vacancies are to be filled by a majority vote of the
remaining members of the Board, even though less than a quorum, or by a sole
remaining director, and such persons so elected shall serve as directors for the
balance of the unexpired terms.
The following is certain biographical information with respect to the
current members of the Board:
William C. Skuba, 40, has been Chairman of the Board, Chief Executive
Officer and a director of the Company since he founded the Company in 1980. Mr.
Skuba has served as President since February 1991 and Secretary since April
1989. He also served as President and Chief Financial Officer from June 1982
until April 1989 and as Chief Accounting Officer from June 1982 until August
1988.
-5-
<PAGE>
Timothy W. Sweeney, 53, has been a director of the Company since
February 1991. Mr. Sweeney has been a full professor with the Department of
Management of Bucknell University and a business and marketing consultant since
September 1980.
Stephen C. Stamos, Jr., 48, has been a director of the Company since
July 1994. Mr. Stamos has been a full professor of International Relations of
Bucknell University since 1974. Mr. Stamos' focus has been in the areas of
international economics and finance and has published extensively in academic
journals and periodicals.
Robert J. Powell, 36, has been a director of the Company since July
1994. Mr. Powell has been engaged in the private practice of law in Hazleton,
Pennsylvania since October 1993. Prior to that, Mr. Powell was an attorney with
Hourigan, Kluger, Spohrer & Quinn, P.C., Wilkes-Barre, Pennsylvania from October
1992 to September 1993 and Deasy, Mohoney, Bender & McKenna, Ltd., Philadelphia,
Pennsylvania from October 1988 to September 1992.
Michael A. Fioravante, 40, joined the Company as Executive Vice
President and Director of Engineering in April 1991. In addition, he has served
as director since August 1994. For 13 years prior to joining the Company, Mr.
Fioravante was Manager of Engineering for Esmer & Associates, an engineering
firm which performed environmental and other engineering work related to the
Company's landfill from 1989 through 1991.
As a condition to closing the transactions contemplated by the Stock
Purchase Agreement, the current directors must resign their positions as
directors of the Company on or before the Closing Date.
MEETINGS OF THE BOARD OF DIRECTORS
The Board held fourteen meetings during the fiscal year ended June 30,
1995. Each director attended at least 75% of the meetings of the Board.
The Board has an Audit Committee. The members of the Audit Committee
are Mr. Sweeney, Mr. Stamos and Mr. Powell. The functions of the Audit Committee
include the recommendation and selection of independent accountants, the review
of audit results, the review of related party transactions and the valuation of
internal accounting procedures of the Company. The Audit Committee met three
times during the fiscal year ended June 30, 1995, at which meetings all members
were present.
The Board also has a Compensation Committee and a Nominating
Committee. The Compensation Committee is currently made up of Mr. Skuba and Mr.
Sweeney. The functions of the Compensation Committee consist of setting cash
compensation for employees receiving base salary in excess of $50,000 per year,
setting compensation policy for other employees and approving option grants
under the 1987 and 1991 Stock Option Plans. The functions of the Nominating
Committee, comprised of Mr. Skuba and Mr. Sweeney, consist of finding and
recommending qualified candidates to serve on the Board. The Nominating
Committee will consider director nominees recommended by
-6-
<PAGE>
shareholders. Any such recommendation, together with the nominee's
qualifications and consent to being considered as a nominee, should be sent in
writing to the Nominating Committee in care of the Secretary of the Company. The
Compensation Committee met two times and the Nominating Committee met once
during the fiscal year ended June 30, 1995. All Compensation Committee and
Nominating Committee members attended all of the meetings of their respective
Committees during the fiscal year ended June 30, 1995.
DIRECTOR COMPENSATION
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. In addition, each non-employee director receives warrants to
purchase shares of the Company's Common Stock. In August 1994, warrants to
purchase 15,000 shares of the Company's Common Stock at an exercise price of
$.875 per share were granted to each of Mr. Stamos and Mr. Powell, with 5,000
warrants vesting at the end of each four-month period from the date of issuance.
In July 1995, warrants to purchase 12,000 shares of Common Stock were granted to
Mr. Sweeney and warrants to purchase 6,000 shares of Common Stock were granted
to Messrs. Stamos and Powell, in each case at an exercise price of $1.50 per
share. In February 1996, warrants to purchase 10,000 shares of Common Stock were
granted to Mr. Sweeney and warrants to purchase 5,000 shares of Common Stock
were granted to Messrs. Stamos and Powell, in each case at an exercise price of
$1.25 per share. In May 1996, warrants to purchase 1,800 shares of Common Stock
were granted to Mr. Sweeney and warrants to purchase 1,600 shares of Common
Stock were granted to Messrs. Stamos and Powell, in each case at an exercise
price of $2.00 per share.
All expenses incurred by all directors for attendance at Board
meetings are reimbursed by the Company. The Board has 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 $13,000 and $15,900 to Mr. Sweeney and Mr. Stamos, respectively,
for consulting services and expenses in fiscal 1995.
PURCHASER DESIGNEES
The Stock Purchase Agreement provides that Mr. Skuba will use his best
efforts to cause the current directors of the Company, other than himself, to
tender their resignations as directors of the Company, effective as of the
Closing Date. Upon submission of such resignations, Mr. Skuba as the sole
remaining director of the Company will appoint three individuals selected by the
Purchasers to be directors of the Company as the Designated Directors.
The Purchasers have designated the following persons to serve as
directors of the Company in accordance with the Stock Purchase Agreement:
George O. Moorehead, 43, has 30 years experience in the solid waste
industry. Since February 1995, Mr. Moorehead has served as the president,
director and chief executive officer of
-7-
<PAGE>
EMCO Recycling Corp., a company engaged in the business of metal recycling in
Arizona. Since 1993, Mr. Moorehead has been a principal shareholder 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.
Louis D. Paolino, Jr., 40, has 14 years of experience in the solid waste
industry. From 1991 to June 1, 1996, Mr. Paolino has been president of Soil
Remediation of Philadelphia, Inc. and sold Soil Remediation of Philadelphia,
Inc. to U.S.A. Waste Services, Inc. where he also served as vice president from
1993 to 1996. Soil Remediation of Philadelphia is in the business of treating
contaminated soil.
Kenneth Chuan-kai-Leung, 51, has been a managing director of investment
banking at Sanders, Morris, Mundy and chief investment officer of The
Environmental Opportunities Fund, L.P. and The Environmental Opportunities Fund
(Cayman), L.P. since 1994. From 1987 to 1994, Mr. Leung was a managing director
of Smith Barney, Inc. Mr. Leung has 28 years of experience in the environmental
services industry as a securities analyst and investment banker.
Upon assuming office, the Designated Directors will thereafter constitute a
majority of the Board, and Mr. Skuba will resign from the Board.
EXECUTIVE OFFICERS
The following biographical information is furnished as to executive officers
of the Company (other than executive officers who are also directors, as to whom
biographical information is set forth above):
Gregory M. Krzemien, 36, joined the Company as Chief Financial Officer and
Treasurer in August 1992. Prior to joining the Company, Mr. Krzemien was Senior
Audit Manager with Ernst & Young, an independent accounting firm, since October
1988. Mr. Krzemien worked for Ernst & Young for 11 years prior to joining the
Company.
At the closing of the transactions contemplated by the Stock Purchase
Agreement, Mr. Skuba will resign his position as an executive officer of the
Company.
-8-
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to compensation paid
by the Company during its last three completed fiscal years to its Chief
Executive Officer, who was the only executive officer of the Company whose total
annual salary and bonus exceeded $100,000 during the Company's fiscal year ended
June 30, 1995.
<TABLE>
<CAPTION>
Long-Term
Compensation Awards
Name & Annual Compensation ----------------------
Principal ------------------- Securities Underlying All Other
Position Year Salary ($) Bonus ($) Options (#) Compensation ($)
- ------------- ---- ---------- --------- ---------------------- ----------------
<S> <C> <C> <C> <C> <C>
William C.
Skuba, CEO FY95 124,800 None None 2,500/1/
FY94 124,800 None None 2,500/1/
FY93 127,390 None None 26,000/1/
</TABLE>
- ----------------------
1. Consists solely of reimbursement of moving expenses.
The following table sets forth information concerning individual grants of
stock options and stock appreciation rights made during fiscal year 1995 to the
Company's Chief Executive Officer.
<TABLE>
<CAPTION>
Number of Securities Percent of Total Exercise or
Underlying Options/ Options/SARs Granted to Base Price Expiration
Name SARs Granted (#) Employees in Fiscal Year ($/sh) Date
---- -------------------- ------------------------ ----------- ----------
<S> <C> <C> <C> <C>
William C. Skuba 0 0 N/A N/A
</TABLE>
The following table sets forth information concerning each exercise of stock
options during the Company's fiscal year 1995 by the Company's Executive
Officer.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options/ SARs at FY-
Shares Acquired Value Options/SARs at FY-End (# End ($ Exercisable/
Name on Exercise (#) Realized ($) Exercisable/Unexercisable) Unexercisable)
---- --------------- ------------ -------------------------- ---------------------
<S> <C> <C> <C> <C>
William C. Skuba None None None None
</TABLE>
-9-
<PAGE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
In 1993, each of the Company's executive officers entered into severance
agreements with the Company. These agreements were amended as of February 1996.
Under these agreements, if the executive's employment is terminated
involuntarily for any reason other than cause, the Company will pay the
executive (or his estate) a lump sum severance benefit in cash in the amount of
such executive's then current annual salary multiplied by 1.5 or such larger
amount as the Board may deem appropriate. In addition, if there is an actual
change in control of 20% or more in Company's voting power, a sale of
substantially all of the assets of the Company or any similar transaction,
including a change in the majority of the members of the Board the acquisition
by any person or group acting in concert of at least 30% of the voting power of
the Company, and if the executive employment is terminated voluntarily or
involuntarily within one year after such control change, the Company is
obligated to pay the executive a lump sum severance benefit in cash equal to his
then current annual salary multiplied by 2 or such larger amount as the Board
deems appropriate. Under the severance agreement between the Company and Mr.
Skuba (the "1993 Severance Agreement"), the consummation of the transactions
contemplated by the Stock Purchase Agreement will constitute a change of control
under the 1993 Severance Agreement, and Mr. Skuba's resignation as an employee
of the Company will entitle Mr. Skuba to severance benefits under the
agreements.
Under the Stock Purchase Agreement, on the Closing Date, the Company will
enter 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 will enter into a
severance agreement ("1996 Severance Agreement") which provides that upon his
resignation Mr. Skuba will receive certain health insurance benefits from the
Company (at its cost for one year and at Mr. Skuba's cost thereafter).
Additionally, the Company will sell to a company controlled by Mr. Skuba: (i)
certain real property located in Drums, Pennsylvania, which currently serves as
the Company's corporate headquarters ("Drums Real Property"), for $351,200 which
exceeds the current appraised fair market value of the property, together with
certain related personal property for $9,800, (ii) certain real and personal
property located in Jasper County, South Carolina for $130,000, the estimated
fair market value of the property, and (iii) certain vehicles owned by the
Company for an aggregate price of $8,600. The Company will also sell to Mr.
Skuba certain potential business opportunities which the Company has decided
that it has no interest in pursuing. For such business opportunities, Mr. Skuba
will pay to the Company the amount which the Company has invested to date in the
business opportunities. In addition, following the Closing Date, the Company
will lease back a portion of the Drums Real Property currently used in its
operations and will continue to store certain of its business records at the
Drums Real Property. The rent payable by the Company pursuant to the lease
approximates the carrying cost of the Drums Real Property.
-10-
<PAGE>
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 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. Finally, the 1996 Severance Agreement provides for a mutual release of
all claims each of the Company and Mr. Skuba may have against the other relating
to Mr. Skuba's employment relationship with the Company and, for a six year
period, the Company's indemnification of Mr. Skuba and maintenance of director
and officer liability insurance coverage for Mr. Skuba.
On the Closing Date, the Company will also retain 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 will serve 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, on the Closing Date, the Company will enter 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"). The
Company will also provide Mr. Skuba with certain piggy-back rights for the
registration of his Common Stock in the event that the Company proposes to
register any of its Common Stock under the Securities Act.
The Stock Purchase Agreement further provides that Mr. Skuba and the
Purchasers will enter into a put option agreement (the "Put Option Agreement").
Under this agreement, the Purchasers will grant Mr. Skuba the right to require
the Purchasers to purchase all or a portion of Mr. Skuba's remaining 1,111,101
shares a price of $2.00 per share. The term of the Put Option Agreement will be
from the Closing Date to the date upon the earlier of the date upon which all of
Mr. Skuba's shares have been sold to the Purchasers pursuant to the exercise of
the put option or the first anniversary date of the Closing Date. In addition,
at such time as the daily average of the high and low sales prices of the Common
Stock as reported by the Nasdaq Stock Market exceeds $4.00 per share (as
adjusted) during any period of 70 consecutive trading days, commencing no
earlier than six months following the Closing Date, the put option will expire
as to all of Mr. Skuba's shares other than certain shares of Common Stock which
have not yet been registered under the Securities Act and the letter of credit
will expire. The obligations of the Purchasers to purchase Mr. Skuba's shares of
Common Stock subject to the put option will be secured by a letter of credit in
the face amount of $1.25 million.
-11-
<PAGE>
On the Closing Date, Mr. Skuba will also deliver an irrevocable proxy to the
Purchasers for the purpose of transferring voting control of his remaining
shares of Common Stock in the Company to the Purchasers. This proxy shall
continue as to all of Mr. Skuba's shares in the Company but not as to those
shares that he subsequently sells to the Purchasers pursuant to the put option
or other parties under his registration rights.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 $48,000 per year. Such payments began in September
1987 and will continue until August 1997.
Robert J. Powell is the sole shareholder of The Law Offices of Robert J.
Powell, Hazleton, Pennsylvania, which has provided legal services to the Company
since July 1994. The Company has retained Mr. Powell's law firm to provide legal
services for the Company during fiscal year 1995. The Company paid approximately
$112,000 for such legal services in fiscal 1995.
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the Securities and
Exchange Commission 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
regulation 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 reports
were required, during the fiscal year ended June 30, 1995, all Section 16(a)
filing requirements applicable to the Company's officers, directors and greater
than ten-percent beneficial owners were complied with, except that Messrs.
Stamos and Powell each filed his initial statement of beneficial ownership and
one report of a change in beneficial ownership reflecting one transaction late.
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