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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997 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, Mt. 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, 1997, was approximately $ 438,582,000.
(Reference is made to page 25 herein for a statement of assumptions upon which
this calculation is based.)
There were no shares of Class A Common Stock, par value $.01 per share, of the
Registrant outstanding as of September 25, 1997. The number of shares of Common
Stock, par value $.01 per share, of the Registrant outstanding as of September
25, 1997 was 21,991,151.
Documents Incorporated by Reference
Portions of the Registrant's definitive Proxy Statement to be filed with
the Commission in connection with the 1997 Annual Meeting of Stockholders (which
proxy statement is expected to be filed with the Commission not later than 120
days after the end of the Registrant's last fiscal year) are incorporated by
reference into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
General
Eastern Environmental Services, Inc. is a non-hazardous solid waste
management company specializing in the collection, transportation, and disposal
of residential, industrial, commercial, and special waste, principally in the
eastern United States. In June 1996, the Company appointed a new Board of
Directors and hired a new management team with an average of 17 years of
experience in the waste management industry. The goal of the new board and
management team is to grow the Company by conducting an aggressive acquisition
program, increasing productivity and operating efficiency and by internal
growth. During fiscal 1997, the Company implemented its acquisition program by
acquiring 17 solid waste management businesses. Largely as a result of these
acquisitions, during the fiscal year ended June 30, 1997, the Company's revenues
increased by $40.1 (from $39.5 million in fiscal 1996 to $79.6 million in fiscal
1997) and its results of operations (including $3.3 million of merger costs and
a $904,000 related tax provision incurred as a result of such acquisitions)
increased from a net loss of $4.4 million for the fiscal year ended June 30,
1996 to net income of $2.1 million for fiscal year ended June 30, 1997. Of the
Company's revenues for fiscal year 1997, approximately 81% were attributable to
solid waste collection and transportation operations, approximately 8.5% were
attributable to solid waste disposal operations, and approximately 10.5% were
attributable to other waste management services. As of June 30, 1997, the
Company was providing solid waste collection services to approximately 30,000
commercial and industrial customers and approximately 135,000 residential
customers.
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Company Strategy
The Company's objective is to expand the geographic scope of its operations
and to become one of the leading providers of non-hazardous solid waste
management in each market that it serves. The Company's strategy to achieve this
objective is to capitalize on the continuing consolidation of the solid waste
management industry by (i) identifying and penetrating new markets and expanding
its operations in its existing markets through tuck-in acquisitions that are
combined with existing operations, (ii) increasing profitability by integrating
its operations and achieving economies of scale, and (iii) achieving internal
growth.
Expansion Through Acquisitions. The Company has implemented an aggressive
acquisition program to expand its operations by acquiring solid waste
collection, transportation, and disposal companies, principally in the eastern
United States. The principal components of the Company's acquisition strategy
are as follows:
. Enter Markets. The Company typically seeks to enter a new market by
--------------
acquiring one or several solid waste collection and transportation
operations that can be served by a Company-owned landfill or transfer
station or where there are sufficient disposal alternatives to ensure
competitive disposal pricing. The Company may also acquire solid waste
landfills in its targeted new markets with significant currently permitted
capacity and thereafter acquire nearby solid waste collection and transfer
station operations so as to secure a captive waste stream for internal
disposal into the acquired landfill.
. Expansion of Market Share and Services. After its initial entry into a
---------------------------------------
new market, the Company continually seeks to expand its market share and
services through (i) the acquisition of solid waste management businesses
and operations that can be integrated with the Company's existing
operations without increases in infrastructure or that complement the
Company's existing services, and (ii) expansion into adjacent markets. Such
acquisitions may involve adding collection operations, transfer stations,
collection routes, and landfill capacity which allow the Company to expand
market share and increase asset utilization by eliminating duplicate
management, administrative, and operational functions.
Increasing Productivity and Operating Efficiency. The Company believes that
it can reduce the total operating expenses of owned and acquired businesses by
implementing centralized financial controls, consolidating certain functions
performed separately by each business prior to its acquisition by the Company,
and consolidating collection routes, equipment, and personnel through tuck-in
acquisitions. In addition, the Company is implementing programs to take
advantage of certain economies of scale in such areas as the purchase of
equipment, vehicles, parts and tools, vehicle and equipment maintenance, data
processing, financing arrangements, employee benefits, insurance and bonding,
and communications. Through the integration of certain of its solid waste
collection, transportation, and disposal operations, the Company believes that
it will be able to capture profits that would otherwise be paid to third parties
as tipping and other fees.
Internal Growth. The Company believes that it can achieve internal growth,
principally from additional sales into its current markets, by providing
superior and improved service and through its existing marketing efforts. The
Company also intends to selectively implement price increases when competitive
advantages and appropriate market conditions exist.
Acquisition Program
The Company believes that there are numerous potential acquisition candidates,
both within the markets that it currently serves and in other eastern United
States markets, which meet its acquisition criteria. The Company targets
fragmented markets in the eastern United States (i) that are served by a
Company-operated landfill, a landfill that the Company believes that it can
acquire, or one in which collection companies can use comparably priced third
party disposal facilities, (ii) in which the Company can become one of the
leading providers of solid waste management services through strategic
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acquisitions, (iii) where management believes additional complementary
acquisitions can be effected so as to obtain the market share necessary to
achieve economies of scale, and (iv) that have sufficient population density to
permit the Company to operate efficiently and profitably. The Company is
continually analyzing and engaging in discussions concerning potential
acquisitions.
As consideration for future acquisitions the Company intends to continue to
use combinations of common stock, cash, and assumption of indebtedness. The
consideration for each future acquisition will vary on a case-by-case basis
depending on the financial interests of the Company, the historic operating
results, and future prospects of the business to be acquired. The Company
expects to finance future acquisitions through funds provided by operations,
lines of credit available under its credit facility, and the proceeds of
possible future equity and debt financing.
Completed Acquisitions. Since July 1, 1996, the Company acquired 21 solid
waste management businesses. The businesses acquired operated 17 solid waste
collection and transportation operations, three solid waste transfer and
processing facilities, three landfills, and two special waste services
operations. The following is a detailed list of the completed acquisitions:
Completed Acquisitions
July 1996-- September 25, 1997
<TABLE>
<CAPTION>
Date Acquired
Company (Accounting Method) Market Principal Business
- ------- ------------------- ------ ------------------
<S> <C> <C> <C>
Soil Remediation of August 20, 1997 Eastern Pennsylvania Special waste
Philadelphia, Inc (Purchase)
Pappy, Inc August 15, 1997 Northern Maryland Landfill (construction &
(Purchase) demolition)
Waste X Services, Inc. August 14, 1997 Southern Florida Solid waste collection
(Pooling of Interests)
Reuben Smith Rubbish July 9, 1997 Southern New Jersey Solid waste collection
Removal Service, Inc. (Purchase)
A-1 Carting Corporation May 27, 1997 Southern Florida Solid waste collection
(Purchase)
Ameri Carting, Inc. May 27, 1997 Southern Florida Solid waste collection
(Purchase)
Waste Services, Inc., et al. May 12, 1997 Brooklyn, New York Solid waste collection
(Purchase)
C & R Waste Removal, Inc. May 8, 1997 Southern Florida Solid waste collection
(Purchase)
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Combined Waste Services, Inc. May 8, 1997 Southern Florida Solid waste collection
(Purchase)
Environmental Waste Systems Inc. May 8, 1997 Southern Florida Solid waste collection
(Purchase)
Environmental Waste Systems of May 8, 1997 Southern Florida Solid waste collection
Palm Beach, Inc. (Purchase)
Big T Disposal, Inc. April 11, 1997 Southeastern Illinois Solid waste collection and
(Purchase) transfer station
Apex Waste Services, Inc. March 31, 1997 Scranton, Pennsylvania Solid waste collection; transfer
(Pooling of Interests) station and processing
Donno Company, Inc., et al. January 31, 1997 Long Island, New York Solid waste collection and
(Pooling of Interests) transfer station
R&A Bender, Inc., et al. December 10, 1996 South central Pennsylvania Solid waste collection and
(Purchase) landfill (municipal solid waste)
Bayside of Marion, Inc. November 5, 1996 Central Florida Landfill (construction & demolition)
(Purchase)
Super Kwik, Inc., et al. September 27, 1996 Southern New Jersey Solid waste collection
(Pooling of Interests)
Olney Sanitary System, Inc. September 17, 1996 Southeastern Illinois Solid waste collection
(Purchase)
Eastern Waste of Philadelphia, August 1, 1996 Philadelphia, Pennsylvania Solid waste collection
Inc., et al. (Purchase)
K Hydraulic Truck Services, Inc. July 27, 1996 Philadelphia, Pennsylvania Solid waste transportation
(Purchase)
Allied Waste Services, July 2, 1996 New York, New Jersey, Arranges for the transportation
Inc., et al. (Purchase) Pennsylvania, California of construction and demolition
waste and disposal of soil and
special waste products
</TABLE>
On April 29, 1997, the Company signed a 12.5-year agreement to operate the
Long Island, New York Sanitary District No. 1's transfer station, which is
located near John F. Kennedy International Airport. The Company has purchased
all of the rights to operate the facility, including the processing of the
district's 450 tons per day of municipal solid waste.
On September 8, 1997, the Company acquired certain assets and real estate
from Clean Ventures, Inc. and PJ's Environmental Services to operate a transfer
station in Brooklyn, New York. The Company was granted a permit by the New York
Department of Environmental Conservation to operate the transfer station with
capacity to handle 1,000 tons of municipal solid waste and 2,500 tons of
construction and demolition waste per day. Municipal solid waste cannot be
processed until the Company constructs a building in which the municipal solid
waste will be handled. The Company expects that it will have the building
constructed by the spring of 1998.
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Pending Acquisitions. During fiscal 1997, the Company entered into
definitive agreements to acquire Golden Gate Carting, Co. Inc. ("Golden Gate")
and Coney Island Rubbish Removal, Inc. ("Coney Island"), solid waste
collection companies located in Brooklyn, New York, for approximately $4.4
million (including approximately $3 million of assumed debt) and $1.2 million,
brespectively. The acquisitions have been closed into escrow pending the
satisfaction of certain conditions, including the approval of the New York City
Trade Waste Commission (the "TWC"). The Company currently operates Golden Gate
and Coney Island under management agreements that have been approved by the TWC.
The management agreements will stay in place, at the Company's option, until the
TWC approves the acquisitions. Although the Company believes that the TWC will
approve the acquisitions, no assurance can be given to that effect.
As part of its acquisition program, the Company reviews acquisition
opportunities on an ongoing basis and is in various stages of negotiating and
closing on the acquisitions of additional solid waste management businesses.
There can be no assurance that any of such acquisition negotiations or executed
agreements will result in the actual acquisitions of additional solid waste
management businesses.
Services
The Company's services include solid waste collection, transportation,
disposal, and certain other waste management services.
Waste Collection and Transportation. As of June 30, 1997, the Company
provided solid waste collection services to approximately 30,000 commercial and
industrial customers and approximately 135,000 residential customers. The
Company contracts with local generators of solid waste and transports the waste
to a Company-owned or third party landfill or incinerator for disposal or to a
transfer station for additional handling.
Solid waste collection is provided under two primary types of arrangements
depending on the customer being served. Collection services for commercial and
industrial customers are generally performed under one to three year service
agreements and fees are determined by such factors as collection frequency, the
type of collection equipment furnished, the type, volume, and weight of the
solid waste collected, the distance to the disposal facility, and the cost of
disposal. In certain instances however, the Company may contract for a specific
job. Collection services for residential customers generally are performed under
contracts with, or franchises granted by, municipalities or regional authorities
that grant the Company rights to service all or a portion of the residents in
their jurisdictions, except in rural areas where the Company usually contracts
directly with the customers. Such contracts or franchises generally range in
duration from one to five years. Recently, some municipalities have bid their
residential collection contracts based on the volume of waste collected versus
the number of households serviced. Residential collection fees are either paid
by the municipalities out of tax revenues or service charges or paid directly by
residents receiving the service.
As of June 30, 1997, the Company's solid waste collection activities
included the ownership of transfer stations in Long Island, New York, Scranton,
Pennsylvania, Somerset, Kentucky, and southeastern Illinois, and the operation
of an additional transfer station in Long Island, New York. The Company's
transfer stations receive solid waste primarily from its collection operations,
compact the waste and transfer the waste to larger vehicles for transport to
landfills. This procedure reduces the Company's costs by improving its
utilization of collection personnel and equipment and also extends the scope of
its solid waste transportation services. During the year ended June 30, 1997,
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approximately 15% of the solid waste disposed of at the Company's transfer
stations was delivered by the Company and approximately 85% was delivered by
third parties.
In response to the increasing public environmental awareness and expanding
federal and state regulations pertaining to waste recycling, the Company also
has developed recycling as a component of its solid waste collection services.
However, the Company does not presently intend to expand its recycling
operations, except as necessary to comply with applicable law.
The Company also provides solid waste transportation services for Company-
owned and third party landfills. At June 30, 1997, the Company maintained a
fleet of approximately 178 trailers owned or leased by the Company, or operated
under arrangements with independent owners/operators, and has satellite trucking
terminals at two of its landfills. The Company is expanding its operations to
include the transportation of other non-hazardous wastes, including shredded and
lead contaminated construction and demolition debris. In many states, the
transportation of these wastes requires special permits, which the Company has
obtained or is in the process of obtaining.
Waste collection and transportation services generated revenues of $64.4
million and $35.8 million for the years ended June 30, 1997 and 1996,
respectively, representing approximately 81% and 91%, respectively, of the
Company's total revenue for such periods.
Waste Disposal. The Company owns six non-hazardous solid waste landfills,
five of which are currently operational with the remaining one expected to be
operational in the summer of 1998. The Company has also exercised an option to
acquire, subject to regulatory approval, land in Illinois for which it has
received the necessary permits to construct a landfill. The following table
summarizes certain information concerning the Company's landfills:
Company Landfills
<TABLE>
<CAPTION>
Approximate
Unused
Total Total Permitted Permitted Approximate
Location Acres Disposal Acres Capacity(1) Life In Years(2)
-------- ----- --------------- ----------- ----------------
<S> <C> <C> <C> <C>
Ocala, Florida............. 31 31 1.6 million 15
Bridgeport, Illinois(3).... 95 42 5.7 million 20
Somerset, Kentucky(4)...... 244 42 5.5 million 20
Joppa, Maryland............ 43 39 2.9 million 15
Chambersburg, Pennsylvania. 278 142 14.3 million 35
Eastover, South Carolina... 73 39 3.6 million 25
Clarksburg, West Virginia.. 145 45 4.7 million 30
</TABLE>
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(1) Approximate cubic yards of unused airspace at June 30, 1997; total yards of
airspace does not represent total yards of actual waste volume because
liners, daily, intermediate, and final soil cover consume a portion of the
total permitted airspace available for waste.
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(2) Approximate figures based on existing volume limitations, anticipated
operations, and current permitted capacity at June 30, 1997. Life
expectancy may fluctuate depending upon the rate of waste disposed and type
of waste disposal.
(3) In May 1997 the Company exercised an option to purchase the Illinois
landfill. The transfer of ownership of the Illinois landfill is subject to
the consent of Lawrence County, Illinois pursuant to the host agreement
with the current owner. The landfill is approved to accept municipal solid
waste and industrial and non-hazardous special waste and construction is
planned for the fall of 1997. The landfill is expected to be operational in
the summer of 1998.
(4) The Kentucky landfill received its final state construction permit on
October 14, 1996 (reissued February 26, 1997) and construction is planned
for the spring of 1998. The landfill is expected to be operational in the
summer of 1998.
----------------------------
Florida Landfill. Purchased in November 1996, this landfill is located
-----------------
near Ocala, Florida and is currently permitted to accept Florida Class III
landfill debris, which includes asbestos, construction and demolition debris,
yard trash, waste tires, carpet, cardboard, glass, plastic, and other non-
putrescible (i.e., non-food) materials approved by the Florida Department of
Environmental Protection that are not expected to produce leachate and which do
not pose a threat to public health or the environment.
Illinois Landfill. In May 1997 the Company exercised an option to
------------------
purchase this landfill. The transfer of ownership of the Illinois landfill is
subject to the consent of Lawrence County, Illinois pursuant to the host
agreement with the current owner. This landfill is located in southeastern
Illinois and is expected to be operational in the summer of 1998 upon completion
of construction and receipt of a state operating permit. The landfill is
approved to accept municipal solid waste and industrial and non-hazardous
special waste.
Kentucky Landfill. Purchased in July 1990, this landfill is located in
------------------
southcentral Kentucky and is currently permitted to accept municipal solid waste
from the surrounding 18 county area of Kentucky. The facility also may accept
commercial and industrial special waste approved by the State of Kentucky on a
case-by-case basis, and asbestos. The landfill is expected to begin operations
in the summer of 1998. The site also includes a permitted transfer station which
is in operation.
Maryland Landfill. Purchased in August 1997, this landfill is located
------------------
near Baltimore, Maryland and is a rubble landfill currently permitted to accept
construction and demolition debris, land clearing wastes, carpet and glass from
anywhere in the United States.
Pennsylvania Landfill. Purchased in December 1996, this landfill is
----------------------
located near Chambersburg, Pennsylvania and is currently permitted to accept
1,021 tons of waste per day, with a permitted quarterly average of 857 tons per
day, of municipal solid waste and non-hazardous industrial waste, petroleum
contaminated soil, and asbestos waste from anywhere in the United States.
South Carolina Landfill. Purchased in November 1990, this landfill is
------------------------
located near Columbia, South Carolina and is currently permitted to accept up to
122,400 in-place cubic yards per year of asbestos, construction and demolition
debris (excluding "white goods" such as household appliances), plastic,
fiberglass, trees, limbs, cardboard, paper, and tires from anywhere within the
continental United States. This site may also accept certain other industrial
and special wastes that meet certain minimum testing requirements as approved by
the State of South Carolina on a case-by-case basis.
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West Virginia Landfill. Purchased in August 1989, this landfill is
-----------------------
located in northcentral West Virginia and is currently permitted to accept up to
9,999 tons per month of municipal solid waste, construction and demolition
debris, non-hazardous industrial waste, shredded tires, non-infectious medical
waste, petroleum contaminated soil, and asbestos waste from anywhere within the
continental United States and Canada.
Disposal services generated revenues of $6.7 million and $3.7 million for
the years ended June 30, 1997 and 1996, respectively, representing approximately
8.5% and 9%, respectively, of the Company's total revenue for such periods.
Other Waste Management Services. The Company provides other waste
management services, most of which are provided on demand or are project-based,
and provide additional waste volumes to the Company's landfills. These other
integrated waste services include the treatment, transportation and disposal of
non-hazardous contaminated soils and similar materials, the removal and
transportation of special waste products, including asbestos, and arranging for
the transportation of construction and demolition waste and disposal of soil and
special waste products. Other waste management services generated revenues of
$8.5 million for the year ended June 30, 1997, representing approximately 10.5%
of the Company's total revenue for such period. Revenues from other waste
management services will fluctuate based on the demand for such services.
Operations Management
The Company's financial, budgeting, and purchasing functions are centrally
managed. At the conclusion of each acquisition, the Company typically places
financial personnel with the acquired entity to centralize authority and
financial reporting. The Company's day-to-day management is conducted on a
decentralized basis. The management of each operating location is responsible
for local operations, profitability, the integration of acquisitions, and
growth, subject to the Company's overall business plan and budget. Certain of
the Company's corporate functions, including environmental compliance, and
purchasing and marketing expertise, are centralized and shared among locations
to improve productivity, lower operating costs, and stimulate internal growth.
Permits and other governmental approvals for the Company's operations, including
those related to zoning, environmental, and land use are handled by local
engineers under the supervision of local and senior officers. While local
management operates with a high degree of autonomy, the Company's senior
officers monitor local operations and require conformance to its accounting,
purchasing, marketing, and internal control policies, particularly with respect
to financial matters. The performance of local management is reviewed by the
Company's executive officers on a regular basis.
As of September 25, 1997, the Company had a total of 20 operating
locations all of which are located in the eastern United States. Some
acquisitions create new operating locations while others are combined into
existing locations. Solid waste businesses acquired by the Company that are
located within an existing market are consolidated or "tucked-in" with the
Company's existing operations in such markets.
Marketing
The solid waste management industry services customers on a local basis.
The Company's marketing program is designed for implementation at the local
level. The Company employs sales people at its operating locations. The
salespeople are supervised by the management of the operating locations. The
Company emphasizes providing quality services as well as customer satisfaction
and retention and believes that it will attract customers in the future because
of its reputation for quality service. The Company markets its services to a
broad spectrum of commercial, industrial, and residential customers, and has a
diverse customer base, with no single customer accounting for five percent or
more of the Company's consolidated revenues for the year ended June 30, 1997.
The Company does not believe that the loss of any single consumer would have a
material adverse effect on the Company's business or results of operations.
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Competition
The solid waste management industry is highly competitive and the Company
believes that industry consolidation will increase competitive pressures. The
Company competes with several large national waste management companies,
including Waste Management, Inc. (formerly WMX Technologies, Inc.), Browning-
Ferris Industries, Inc., U.S.A. Waste Services, Inc., and Allied Waste
Industries, Inc. A number of these competitors have significantly greater
financial, marketing, and other resources than the Company. The Company also
competes with numerous well-established smaller, local or regional firms, some
of which have accumulated substantial goodwill. In addition, municipalities that
operate their own waste collection and disposal facilities often enjoy the
benefits of tax-exempt financing and may control the disposal of waste collected
within their jurisdictions. Increased competition from these companies or
municipalities could have a material adverse effect on the Company's business or
results of operations.
The Company competes for waste disposal business on the basis of tipping
fees, geographic location, and quality of operations. The Company's ability to
acquire waste disposal business may be limited by the fact that many landfills
are owned by the Company's major competitors. The Company competes for
collection accounts primarily on the basis of price and the quality of its
services. Intense competition is encountered for both quality of service and
pricing. From time to time, competitors may reduce the price of their services
and accept lower profit margins in an effort to expand or maintain market share
or to win competitively bid contracts.
At June 30, 1997, the Company provided residential collection services
under 54 municipal contracts with terms ranging between one to five years. As is
customary in the waste management industry, such contracts come up for
competitive bidding periodically and there can be no assurance that the Company
will be the successful bidder or will be able to retain such contracts. If the
Company is unable to replace any contract lost through the competitive bidding
process with a comparable contract within a reasonable period of time or use any
surplus equipment in other service areas, the Company's business and results of
operations could be adversely affected. However, during the years ended June 30,
1997 and 1996, no one commercial customer or municipal contract accounted for
five percent or more of the total revenue of the Company.
Increased public environmental awareness and certain mandated state
regulations have resulted in increased recycling efforts in many areas of the
country that are reducing the amount of solid waste destined for landfills. The
increased public awareness and certain state regulations have also increased
waste volume through programs of mandatory collection, disposal, and clean-up.
In addition, the Company could face competition from companies engaged in waste
incineration and other alternatives to landfill disposal. Although the Company
believes that landfills will continue to be the primary depository for solid
waste well into the future, there can be no assurance that recycling,
incineration, and other waste reduction efforts will not affect future landfill
disposal volumes. The effect, if any, on such volumes could also vary between
regions of the country as well as within individual market areas in each region.
Government Regulation
Introduction. The Company is subject to extensive and evolving federal,
state, and local environmental laws and regulations. These regulations not only
strictly regulate the conduct of the Company's operations but also are related
directly to the demand for many of the services offered by the Company.
These regulations are administered by the United States Environmental
Protection Agency ("EPA") and various other federal, state and local
environmental, zoning, health, and safety agencies. The Company believes that it
is in substantial compliance with applicable federal, state, and local laws,
permits, orders, and regulations. The Company believes that there will continue
to be increased regulation, legislation, and regulatory enforcement actions
related to the solid waste management industry. The Company attempts to
anticipate future regulatory requirements and to plan accordingly to remain in
compliance with the regulatory framework.
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In order to develop and operate its landfills, transfer stations, and other
solid waste management facilities, the Company typically must go through several
governmental review processes and obtain one or more permits including zoning or
other land use approvals. Obtaining these permits and zoning or land use
approvals is difficult, time consuming, and expensive, and they are often
opposed and appealed by various local elected officials and citizens' groups.
Once obtained, operating permits generally must be periodically renewed and are
subject to modification and revocation by the issuing agency.
The Company's operating facilities are subject to a variety of operational,
monitoring, site maintenance, closure, post-closure, and financial assurance
obligations which change from time to time and which could give rise to
increased capital expenditures and operating costs. In connection with the
expansion of landfills, it is often necessary to expend considerable time,
effort, and money in complying with the governmental review and permitting
processes necessary to increase the capacity of these landfills. Governmental
authorities have broad authority to enforce compliance with these laws and
regulations and to obtain injunctions or impose civil or criminal penalties in
the case of violations. Failure to correct violations to the satisfaction of the
government authorities could lead to curtailed operations, fines, and penalties
or even closure of a landfill or other facility.
The principal federal, state, and local statutes and regulations applicable
to the Company's various operations are as follows:
The Resource Conservation and Recovery Act of 1976. The Resource
Conservation Act of 1976 ("RCRA") regulates the generation, treatment, storage,
handling, transportation, and disposal of solid waste and requires states to
develop programs to ensure the safe disposal of solid waste. RCRA divides solid
waste into two groups, hazardous and non-hazardous. Wastes are generally
classified as hazardous if they: (i) either (a) are specifically included on a
list of hazardous wastes or (b) exhibit certain hazardous characteristics; and
(ii) are not specifically designated as non-hazardous. Wastes classified as
hazardous under RCRA are subject to much stricter regulation than wastes
classified as non-hazardous. Among the wastes that are specifically designated
as non-hazardous waste are household waste and "special" waste, including items
such as petroleum contaminated soils, asbestos, foundry sand, shredder fluff,
and most non-hazardous industrial waste products.
In October 1991, the EPA adopted regulations governing solid waste
landfills ("Subtitle D Regulations"). The Subtitle D Regulations, which
generally became effective in October 1993, include location restrictions,
facility design standards, operating criteria, closure and post-closure
requirements, financial assurance requirements, groundwater monitoring
requirements, groundwater remediation standards, and corrective action
requirements. In addition, the Subtitle D Regulations require that new landfill
units meet more stringent liner design criteria (typically, composite soil and
synthetic liners or two or more synthetic liners) designed to keep leachate out
of groundwater and have extensive collection systems to collect leachate for
treatment prior to disposal. Groundwater monitoring wells must also be installed
at virtually all landfills to monitor groundwater quality and, indirectly, the
effectiveness of the leachate collection system operation. The Subtitle D
Regulations also require, where threshold test levels are present, that methane
gas generated at landfills be controlled in a manner that protects human health
and the environment. Each state is required to revise its landfill regulations
to meet these requirements or such requirements will be automatically imposed
upon it by the EPA. Each state is also required to adopt and implement a permit
program or other appropriate system to ensure that landfills within the state
comply with Subtitle D Regulation criteria. A majority of the states in which
the Company currently operates or into which the Company may enter have adopted
regulations or programs as stringent as, or more stringent than, the Subtitle D
Regulations. Since the Company's operating landfills are believed by the Company
to be in compliance in all material respects with such laws, the Company
believes that all of its present landfill operations meet or exceed the Subtitle
D Regulations, where applicable, in all material aspects.
The Federal Water Pollution Control Act of 1972. The Federal Water
Pollution Control Act of 1972, as amended (the "Clean Water Act"), establishes
rules regulating the discharge of pollutants from a variety of sources,
including solid waste disposal sites and transfer stations, into waters of the
United States. If runoff or collected
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leachate from the Company's landfills or transfer stations is discharged into
surface waters, the Clean Water Act would require the Company to apply for and
obtain a discharge permit, conduct sampling and monitoring and, under certain
circumstances, reduce the quantity of pollutants in such discharge. Also,
virtually all landfills are required to comply with federal storm water
regulations issued in November 1990, which are designed to prevent contaminated
landfill storm water runoff from flowing into surface waters. The Company
believes that its facilities are in compliance in all material respects with
Clean Water Act requirements, particularly as they apply to treatment and
discharge of leachate and storm water. The Company has secured or has applied
for the required discharge permits under the Clean Water Act or comparable
state-delegated programs.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980. The Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"), establishes a regulatory and remedial program
intended to provide for the investigation and cleanup of facilities where there
has been, or is threatening to be, a release of any hazardous substance into the
environment. CERCLA's primary mechanism for remedying such problems is to impose
strict joint and several liability for cleanup of facilities on current owners
and operators of the site, former owners and operators of the site at the time
of the disposal of the hazardous substances, as well as the generators of the
hazardous substances and the transporters who arranged for disposal or
transportation of the hazardous substances. The costs of CERCLA investigation
and cleanup can be substantial. Liability under CERCLA does not depend upon the
existence or disposal of "hazardous waste" as defined by RCRA, but can be
founded upon the existence of even very small amounts of the more than 700
"hazardous substances" listed by the EPA, many of which can be found in
household waste. If the Company were found to be liable under CERCLA, the
enforcing agency could hold the Company completely responsible for all
investigative and remedial costs even if other responsible parties may also be
liable. CERCLA also authorizes the imposition of a lien in favor of the United
States upon all real property subject to, or affected by, a remedial action for
all costs for which a party is liable. CERCLA provides a responsible party with
the right to bring legal action against other responsible parties for their
allocable share of investigative and remedial costs. The Company's ability to
get others to reimburse it for their allocable share of such costs would be
limited by the Company's ability to find other responsible parties and prove the
extent of their responsibility and the financial resources of such other
parties.
The Company handles and stores petroleum, motor oil, and other hazardous
substances at its facilities. In the past, there may have been historical
releases of these hazardous substances into the soil or ground water. The
Company may be required under federal, state, or local environmental law to
investigate and remediate this contamination.
The Clean Air Act, as amended in 1990. The Clean Air Act, as amended in
1990 ("Clean Air Act") provides for regulation, through state implementation of
federal requirements, of the emission of air pollutants from certain landfills
based upon the date of the landfill construction and volume per year of
emissions of regulated pollutants. The EPA has recently promulgated new
standards regulating air emissions of certain regulated pollutants (methane and
non-methane organic compounds) from municipal solid waste landfills. Landfills
located in areas with air pollution problems may be subject to even more
extensive air pollution controls and emissions limitations. The EPA and the
states in which the Company operates also have adopted regulations under Title V
of the Clean Air Act requiring permits for certain disposal facilities. This may
require one or more of the Company's landfills to install passive or active gas
collection systems. In addition, the National Emission Standards for Hazardous
Air Pollutants ("NESHAPs") regulate the collection, packaging, transportation,
and disposal of asbestos-containing material. NESHAPs regulate visible emissions
of asbestos fibers to outside air and require emissions controls and appropriate
work practices. Asbestos is listed as a hazardous substance under CERCLA. A few
states have classified asbestos as hazardous waste and require appropriate
handling and disposal practices. The Company transports and disposes of asbestos
containing materials. There can be no assurance that the Company will not face
claims resulting from environmental liabilities relating to these and other
materials with respect to its solid waste management operations.
The federal statutes described above contain provisions authorizing, under
certain circumstances, the institution of lawsuits by private citizens to
enforce the provisions of these statutes.
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The Occupational Safety and Health Act of 1970. The Occupational Safety and
Health Act of 1970, as amended ("OSHA"), authorizes the Occupational Safety
and Health Administration to promulgate occupational safety and health
standards. Various of those promulgated standards, including standards for
notices of hazards, safety in excavation and the handling of asbestos, may apply
to certain of the Company's operations. OSHA regulations set forth requirements
for the training of employees handling, or who may be exposed in the work place
to, concentrations of asbestos-containing materials that exceed specified action
levels. The OSHA regulations also set standards for employee protection,
including medical surveillance, the use of respirators, protective clothing and
decontamination units, during asbestos demolition, removal, or encapsulation as
well as its storage, transportation, and disposal. In addition, OSHA specifies a
maximum permissible exposure level for airborne asbestos in the workplace. The
Company has no direct involvement in asbestos removal or abatement projects.
However, asbestos-containing waste materials are accepted at certain of the
Company's landfills that are authorized to accept such materials, and some of
the Company's collection businesses receive asbestos-containing waste materials
which have already been packaged and labeled. These packages are loaded onto the
Company's vehicles by employees of the asbestos abatement contractors for
transportation to and disposal at the Company's authorized landfills.
Accordingly, OSHA regulations designed to minimize employees' exposure to
airborne asbestos fibers and provide employees with proper training and
protection generally apply to the Company's operations in the transportation,
handling, and disposal of the asbestos waste. The Company's employees are
trained to respond appropriately in the event there is an accidental spill or
release of the packaged asbestos-containing materials during transportation or
landfill disposal.
Flow Control/Interstate Waste Restrictions. Certain permits and approvals
may limit the types and quantity of waste that may be accepted at a landfill
during a given time period. Certain permits, approvals, and state and local
regulations, may seek to limit a landfill's acceptance of out-of-state waste.
Legislative or regulatory restrictions on the importation of out-of-state waste
have not to date withstood judicial challenge. From time to time, federal
legislation is proposed which would allow individual states to prohibit or limit
the disposal of out-of-state waste. Although no such federal legislation has
been enacted to date, if such federal legislation should be enacted in the
future, states in which the Company operates landfills could limit or prohibit
the importation of out-of-state waste. Such legislation could adversely affect
the Company's landfills that receive a significant portion of out-of-state
waste. A restrictions on out-of-state waste could result in higher disposal
costs for the Company's collection operations. If the Company were unable to
pass such higher costs through to its customers, the Company's business and
results of operations could be adversely affected.
Certain states and localities may for economic and other reasons restrict
the exportation of waste from their jurisdiction or require that a specified
amount of waste be disposed at facilities within their jurisdiction. In 1994,
the United States Supreme Court held unconstitutional and therefore invalidated
a local ordinance that sought to impose flow controls on taking waste out of a
locality. However, certain state and local jurisdictions continue to seek to
enforce such restrictions through legislation or contract and, in certain cases,
the Company may elect not to challenge such restrictions based upon various
considerations. Federal legislation has from time to time been proposed to allow
states and localities to impose flow control restrictions. The restrictions, if
enacted, would result in the volume of waste going to landfills being reduced in
certain areas. Flow control restrictions could adversely affect the Company's
ability to operate its landfills at their full capacities and could reduce the
prices that can be charged for landfill disposal services. These restrictions
may also result in higher disposal costs for the Company's collection
operations. If the Company were unable to pass such higher costs through to its
customers, the Company's business and results of operations could be adversely
affected.
The Company's Kentucky landfill is subject to a host county agreement which
limits the origin and type of waste the landfill may accept for disposal. The
landfill is restricted to accepting only municipal, commercial and residential
waste from 10 counties at any one time chosen from an 18 county area within
Kentucky, and areas of Tennessee within 75 miles of the landfill. The landfill
is also permitted to accept non-hazardous industrial and commercial special
waste from specific generators on a case-by-case basis from Kentucky and from
states contiguous to Kentucky. Once the landfill commences operations, it may
accept asbestos from anywhere in the United States for
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an initial three-year period; from Kentucky and states contiguous to Kentucky
during years four and five; and, from Kentucky in year six and the period
thereafter.
New York City Trade Waste Commission. In 1996, the New York City Council
enacted Local Law 42 ("Local Law 42") in order to control the corrupting
influence of organized crime on the waste hauling industry. Local Law 42 created
the Trade Waste Commission ("TWC") and established rules for licensing and
regulating the operations of the commercial and industrial waste industry in New
York City. The law prohibits the collection, disposal or transfer of commercial
and industrial waste without a license issued by the TWC and requires TWC
approval of all acquisitions or other business combinations proposed by all
licensees. Each acquisition, sale, or merger transaction generally must be
submitted for review by the TWC 30 days before the transaction takes effect,
although the amount of time required for review depends on the complexity of the
transaction and the need to investigate the background of the principals
involved. One of the Company's subsidiaries has received a license from the TWC
which enables it to conduct New York City collection operations. The license has
a term of two years as do all TWC licenses. The TWC also sets maximum rates for
the industry and establishes operational requirements. In May 1997 the TWC
lowered the maximum collection rates that may be charged by licensed companies.
The Company's New York City collection operations are subject to Local Law 42,
which could preclude or materially impact the Company's operations in this
region, the time and cost of completing future acquisitions in this region, and
the rates which may be charged for collection services in this region.
Public Utility Regulation. The rates that the Company may charge at its
West Virginia landfill for the disposal of municipal solid waste are regulated
by the West Virginia Public Service Commission ("PSC"). Effective June 30, 1994,
the Company received authorization from the PSC based on a revised tariff to
increase its municipal waste disposal rate from $22.50 per ton to $28.25 per ton
(net of taxes) upon receipt of waste on its composite lined disposal area.
Pursuant to this same tariff, the rate for municipal solid waste disposal may be
increased to $38.93 per ton. The adoption of rate regulation in other states in
which the Company owns landfills could have an adverse effect on the Company's
business and results of operations.
State and Local Regulations. Each state in which the Company currently
operates, or may operate in the future, has laws and regulations governing the
generation, storage, treatment, handling, transportation, and disposal of solid
waste, water and air pollution and, in most cases, the siting, design,
operation, maintenance, closure and post-closure maintenance of landfills and
other solid waste management facilities. Many states also have programs that
require investigation and clean up of sites containing hazardous materials in a
manner comparable to or more stringent than CERCLA. These statutes impose
requirements for investigation and cleanup of contaminated sites and liability
for costs and damages associated with such sites. Some of the state laws provide
for the imposition of liens on property owned by responsible parties. Many
municipalities also have ordinances, local laws, and regulations affecting the
Company's operations. These include zoning and health measures that limit solid
waste management activities to specified sites or activities.
The permits or other land use approvals and laws with respect to a landfill
may (i) limit a landfill to accepting waste that originates from a specified
geographic area, (ii) specify the quantity of waste that may be accepted at the
landfill during a given time period, and (iii) specify the types of waste that
may be accepted at the landfill. Once an operating permit for a landfill is
obtained, it is generally necessary to renew the permit periodically. These
restrictions could result in the volume or types of waste going to landfills
being reduced in certain areas, which may materially adversely affect the
Company's ability to operate its landfills at their full capacity and/or affect
the prices that can be charged for solid waste disposal services. These
restrictions may also result in higher operating costs for the Company. If the
Company is unable to pass such increased costs to its customers, the Company's
business and results of operations could be materially adversely affected.
In 1996, the South Carolina Department of Health and Environmental Control
proposed new regulations governing industrial waste landfills. If passed in
proposed form, these regulations would impose additional operating, reporting,
record-keeping requirements and new closure, post-closure and design
requirements on the Company's
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South Carolina landfill. 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 types of industrial waste the Company
would choose to accept for disposal. If the Company would continue to accept the
limited classes of waste it currently accepts at its South Carolina landfill
(referred to in the proposed regulations as "Class 1" wastes), the Company would
only need to design and install a ground water monitoring system. If the Company
were 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") including a leachate collection system. If the
regulations are finalized in substantially the form proposed, the Company will
determine the projected costs 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. These
regulations are only in draft form, and final regulations expected to become
effective in 1997 may have additional or substantially different requirements
that could have a material adverse effect on the Company's business and results
of operations.
The Company's Pennsylvania landfill, acquired by the Company in December
1996, has been in existence since 1972. From 1972 to 1988, the 110-acre area of
the landfill which received waste or was authorized by state permits to receive
waste had either received all necessary local zoning approvals or was not
required by local ordinance to receive a zoning permit or other approval to
operate. In 1988, the landfill received a state expansion permit for a 32-acre
lined expansion area increasing the size of the permitted disposal area to 142
acres as well as a conditional use zoning approval from the local township. In
1990, the township adopted a new zoning ordinance which limited the height of
municipal waste landfills to 35 feet above the original land contour. The
landfill, as permitted in 1988 and as currently designed and permitted, exceeds
the height limit in certain areas. The Company has maintained that the current
permitted area is an existing nonconforming use and is not subject to the 35
foot height limitation imposed by the 1990 ordinance. If the township seeks to
impose this limitation, and is successful, the existing permitted capacity of
the Company's Pennsylvania landfill would be materially reduced.
There has been an increasing trend at the state and local levels to mandate
recycling and waste reduction at the source and to prohibit the disposal of
certain types of wastes at landfills. Many states (including states in which the
Company operates) 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
Florida, Illinois, Kentucky, Maryland, Pennsylvania, South Carolina, and West
Virginia) have adopted legislation that prohibits the disposal of yard waste,
tires, and other items in landfills. These developments could result in a
reduction in the volume of waste destined for landfills in certain areas, which
may affect the Company's ability to operate its landfills at their full capacity
and/or affect the prices that can be charged for landfill disposal services.
Such effects could have a material adverse effect on the Company's business and
results of operations.
Permits and Licenses
The Company is required to obtain and maintain various federal, state, and
local permits and licenses in connection with its solid waste collection,
transportation and landfill operations. The Company is also required to obtain
and maintain various facility permits and other governmental approvals,
including those related to zoning, environmental and land use. Permits and
approvals are required to operate a landfill, transfer station, and a waste
hauling operation and expand landfill and transfer station operations. These
permits and approvals are difficult, time consuming and costly to obtain, may be
subject to community opposition, opposition by various local elected officials
or citizens, regulatory delays and other uncertainties. Some permits are
dependent on the Company's facilities being included in state or local solid
waste management plans and the Company's entering into satisfactory host
agreements with local communities. Operating permits may be subject to
modification, renewal, or revocation by the issuing agencies after issuance,
which may increase the Company's obligations and reopen opportunities for
opposition relating to the permits. Moreover, from time to time, regulatory
agencies may impose moratoria on, or otherwise delay, the review or granting of
these permits or approvals or such agencies may modify the procedures or
increase the stringency of the standards applicable to the review or granting of
such permits or approvals.
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There can be no assurance that the Company will be successful in obtaining
and maintaining in effect the permits and approvals required for the successful
operation and growth of its business, including permits and approvals required
for the development of additional disposal capacity needed to replace existing
capacity that becomes exhausted. The failure of the Company to obtain or
maintain in effect a permit or agreement significant to its business would have
a material adverse effect on the Company's business and results of operations.
Pennsylvania Landfill. Prior to 1990, the Company's Pennsylvania landfill
disposed of municipal solid waste in an unlined disposal area. This unlined area
was operated by the former owner and has caused localized ground water
contamination. As a condition to a recent permit modification, the Company has
agreed to remove all waste from unlined areas to remove the source of
contamination and relocate the waste to a Subtitle D approved disposal area at
the landfill. For the period of time during which the waste will be relocated,
the Company will operate a groundwater removal and treatment system which has
received a permit for the associated surface water discharge. Relocation of the
waste began in April 1997, is coordinated with new pad construction, and is
scheduled to be completed in fiscal year 2008. At June 30, 1997, the Company had
accrued approximately $4.0 million for such relocation and removal costs. An
additional condition of the permit modification requires groundwater monitoring
of five private water supply wells. Low levels of volatile organic compounds
have been detected in two of these private water supply wells. The Company does
not believe that this off-site contamination is related to the Company's on-site
groundwater contamination. Nevertheless, the Company has voluntarily supplied
one private residence with a carbon treatment unit on its water supply; the
other private residence is being supplied with bottled water. The Company has
not established a specific financial reserve for potential costs relating to
this remediation or any additional potential liabilities associated with this
contamination. Though no assurance can be given, the Company currently believes
that ultimate resolution of these matters should not have a material adverse
effect on the Company's business or results of operations.
Kentucky Landfill. The Company ceased operations at its Kentucky landfill
on June 30, 1995 because the existing permitted disposal area did not meet
current state law design requirements. From June 30, 1995 to June 30, 1996, the
Company operated a transfer station at the landfill site and disposed of waste
at an alternate location. The Company simultaneously pursued a final state
permit for an expansion area designed to meet the new state standards. The
suspension of landfill operations and the diversion of waste to an alternate
location had an adverse effect on the Company's operating results and the
Company discontinued its transfer station operation on July 1, 1996. On July 1,
1997, the Company recommended operation of its transfer station to fulfill the
obligations of the disposal franchise until the Company's expansion area is
completed. The Company received a final permit to construct its expansion area
on October 14, 1996. The permit issued October 14, 1996 (reissued February 26,
1997) for the Company's Kentucky landfill approved corrective action measures to
abate a ground water discharge containing vinyl chloride at an off-site spring.
The corrective action requires the installation of three vertical gas wells.
This corrective action has been completed by the Company and the Company is
monitoring the spring on a quarterly basis. The planned development of the
expansion area is currently expected to begin in the spring of 1998. The initial
capital costs required to meet the new state requirements are anticipated to be
approximately $3.3 million. The final permit issued for the Kentucky landfill
expansion area incorporated the requirements contained in an October 8, 1996,
Agreed Order which settled an administrative appeal filed by the Somerset
Pulaski County Concerned Citizens Group. Prior to construction of the expansion
area the Company is required to complete an additional hydrogeologic
investigation to confirm the adequacy of the groundwater monitoring program
approved in the final permit. Any negative results of this investigation could
have a material adverse effect on the permitted disposal capacity at the
Kentucky landfill expansion area and cause a delay in reopening the landfill.
The final permit issued for the Kentucky landfill expansion area required
closure of the original disposal area by August 15, 1997. The Company has
commenced closure of the area. The Company has received a violation and an
$80,000 fine for not completing closure by the required date. The regulatory
authorities could also move to forfeit the Company's existing $1.3 million
payment bond posted by the Company to assure a proper closure of this area.
Though no assurance can be given, the Company believes it can negotiate a
decrease in the fine and that the regulatory authorities will not call the
Closure Board as long as the Company proceeds with closure of the site.
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The Company has entered into an exclusive waste disposal franchise
agreement with Pulaski County, Kentucky to service the municipal waste needs of
the county at the Company's Kentucky landfill through the year 2002. The
Company's obligations under this franchise agreement were suspended on July 1,
1996 for a one-year period ending July 1, 1997 due to the Company's cessation of
operations at the original permit area and delay in initiating operations at the
expansion area.
Illinois Landfill. The Company has received all required permits to
construct a new Illinois landfill, but has delayed such construction until a
closure permit for an adjacent unlined landfill was issued on July 17, 1997. The
Company currently anticipates commencement of construction of the new landfill
in the fall of 1997 and commencement of operations in the summer of 1998 upon
issuance of an operating permit. The Company estimates that the cost of
construction of the initial landfill area will be $1.7 million.
Although the Company is not the owner or operator of the adjacent unlined
landfill and therefore disclaims financial responsibility for its closure and
any other potential liability associated therewith, the Company has contracted
with the owner to facilitate and partially fund closure. As part of the
Company's Landfill Management Agreement to operate the Illinois landfill, the
Company agreed to advance up to a maximum of $365,000 towards closure of the
adjacent unlined landfill. In addition, the Company has entered into an
agreement with a surety providing financial assurance for the closure and post-
closure care requirements for the adjacent unlined landfill pursuant to which
the Company agreed to indemnify the surety in the amount of $646,000 in the
event the owner of the adjacent landfill defaults on its closure and/or post-
closure care obligations.
West Virginia Landfill. The Company has been advised by the State
regulatory agency that the Company's West Virginia landfill is in violation of
regulatory requirements and its permit relating to stabilization of a slope area
and closure of a portion of the landfill. The State regulatory agency has not
issued a formal notice of violation. The Company submitted a schedule on July 1,
1997 for a phased closure and will submit a slope stabilization plan by October
1, 1997. The costs associated with these activities are estimated to be
$348,000. Although the State could assess penalties and/or cause a forfeiture of
the Company's closure bond, the Company believes that such activities are
unlikely. While no assurance can be given, the Company believes that the
ultimate resolution of this matter will not have a material adverse effect on
the Company's business or results of operations.
Maryland Landfill. Lead has been detected in a few of the groundwater
monitoring wells of the Maryland landfill. The Company and the State regulatory
agency have agreed on an action plan to identify potential sources of lead
detected above action levels. The plan consists of continued well monitoring. An
independent consultant has issued a report concluding that the landfill is not
contaminating the groundwater and the elevated lead levels are related to
sampling errors. The Company has agreed to prepare a contingency plan to
identify what actions need to be taken, if after four quarters of monitoring,
the regulatory authority determines that the landfill is contaminating the
groundwater with lead. Although the Company does not believe that the landfill
is contaminating the groundwater, the Company estimates that the costs
associated with a remediation of the lead in the groundwater would be $500,000.
The Company believes that the ultimate resolution of this matter will not have a
material adverse effect on the Company's business or results of operations.
Closure and Post-Closure Obligations
The Company will incur costs in connection with state regulatory
requirements governing closure and post-closure monitoring and maintenance of
the inactive areas, the current operating areas and future expansion areas at
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
$128,000 in Florida, approximately $8.0 million in Pennsylvania, approximately
$465,000 in South Carolina (pursuant to the draft South Carolina regulations
expected to become effective in fiscal 1998) and, approximately $1.9 million in
Maryland. Closure costs for the completed areas at the West Virginia landfill
are estimated to be approximately $750,000. Closure costs for the remaining
areas of the West Virginia landfill are estimated to be approximately $3.0
million. Closure costs for the original permit area at the
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Kentucky landfill which ceased operations on June 30, 1995 are estimated to be
approximately $1.3 million. Closure costs for the Kentucky landfill expansion
area which received a final permit on October 14, 1996 (reissued February 26,
1997) are estimated to be approximately $3.0 million. Post-closure care and
monitoring obligations at the Kentucky, Pennsylvania and West Virginia landfills
will add additional expenditures of $90,000 to $125,000 per year per landfill
over the 30-year period following closure. Closure and post-closure care costs
for the Illinois landfill are expected to be similar to those for the Kentucky,
Pennsylvania and West Virginia landfills. The Company expects post-closure care
to cost $13,000 to $16,000 per year per landfill for the 30 years following
closure at the South Carolina landfill and the Florida landfill. The Maryland
landfill currently requires five years of post-closure care estimated at $48,000
per year. The Company has also agreed to indemnify a surety providing financial
assurance for closure and post-closure care requirements for the unlined
landfill adjacent to the new Illinois landfill in the event the owner defaults
on its closure and post-closure obligations. 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 not
currently expected, any such changes could result in an increase in the cost of
regulatory compliance and thereby could have a material adverse effect on the
Company's business and results of operations.
Insurance and Bonding
The Company carries insurance covering its assets and operations, including
pollution liability coverage. Specifically, each of the Company's landfills has
pollution liability coverage of $5.0 million per occurrence or $5.0 million in
the aggregate subject to a $500,000 deductible per occurrence. Nevertheless,
there can be no assurance that the Company's insurance will provide sufficient
coverage in the event an environmental claim was made against the Company or
that the Company will be able to maintain in place such insurance at reasonable
costs. An uninsured or underinsured claim against the Company of sufficient
magnitude could have a material adverse effect on the Company's business and
results of operations. The Company also is subject to the risk of claims by
employees and others made after the expiration of the policy coverage period,
including asbestos-related illnesses (such as asbestosis, lung cancer,
mesothelioma, and other cancers), which 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. Any claims presented on the basis of
exposure during that period may not be covered by insurance and any resulting
liability could, consequently, have an adverse effect on the Company's business
and results of operations.
The Company is required to post a form of financial assurance at its
landfills to ensure proper closure and post-closure monitoring and maintenance.
Additionally, some of the Company's collection and transportation contracts
require performance and payout bonds to guarantee project completion and certain
states may require collateral bonds to secure compliance with hazardous waste
transportation requirements. The Company's ability to meet these bonding
requirements is contingent upon the Company's performance record and
creditworthiness. Any inability by the Company to maintain bonding capacity or a
sizable increase in rates would have a material adverse impact on the Company's
business and results of operations.
The Company maintains various bonding, cash and cash substitutes pursuant
to certain statutory requirements regarding financial assurance for the closure
and post-closure monitoring cost requirements for its Kentucky, Pennsylvania,
Maryland, Florida and West Virginia disposal facilities. 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, 1997 by certificates of deposit totaling $204,000 including
accumulated earnings on the deposits for the closed disposal area and a $214,000
closure bond for the expansion area. The Company anticipates that the West
Virginia bonding requirements will substantially increase in 1997 when the West
Virginia solid waste program is approved by the EPA under Subtitle D
Regulations. Financial assurance requirements for the newly permitted area may
increase to approximately $3.1 million for closure and $3.7 million for post-
closure care. The funds for this additional financial assurance are currently
being escrowed through a $1.37 per ton surcharge on municipal solid waste
disposal imposed through the Company's tariff approved by the West Virginia
Public Service Commission.
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Pennsylvania requires a total closure and post-closure amount of
approximately $6.4 million for financial assurance of its currently permitted
area. The financial assurance is provided through a payment bond of $3.8 million
and a remaining phased eight-year cash collateral deposit of $331,000 per year.
The bond is collateralized by a $500,000 irrevocable letter of credit and other
covenants with the bonding company.
Kentucky has required approximately $1.3 million of financial assurance for
the closure of the original permitted area which ceased operations on June 30,
1995 and approximately $315,000 for the 30-year post-closure period. The
financial assurance for this area is secured by payment bonds totaling
approximately $1.6 million. The closure bond of approximately $1.3 million is
collateralized by a $626,000 irrevocable letter of credit and the post-closure
bond of $315,000 is collateralized by a $128,000 United States Government
security deposit in a trust fund.
Florida has required $128,000 of financial assurance for the closure of the
landfill's currently permitted areas and $480,000 for the 30-year post-closure
period. The mechanism of financial assurance is provided by a phased collateral
escrow account which is funded over the life of the landfill. The current amount
funded through June 30, 1996, is approximately $81,000.
Maryland has required a $220,000 bond for the financial assurance for the
closure of the landfill's currently permitted areas, $51,000 for the financial
assurance of performance of a grading permit and $48,000 for financial assurance
of a surface mining permit. The mechanism of financial assurance is to be
provided by surety bonds.
Illinois requires a demonstration of financial assurance prior to the
initiation of landfilling operations. No amounts are currently funded but
closure costs are estimated at approximately $1.9 million and post-closure costs
are estimated at approximately $1.9 million. The actual amounts required as the
financial assurance may be less depending on landfill sequencing and the areas
that remain to be properly closed. The Company has also indemnified a surety for
closure and post-closure payment liabilities of $232,000 and $414,000,
respectively, for a closed landfill adjacent to the Company's landfill site.
If the Company was unable to obtain surety bonds or letters of credit in
sufficient amounts or at acceptable rates, it would be unable to remain in
compliance with Subtitle D Regulations or comparable state requirements, and,
among other things, may be precluded from entering into additional municipal
solid waste collection contracts or obtaining or retaining landfill operating
permits.
Factors Influencing Future Results and Accuracy of Forward-Looking Statements
The Company, in an effort to help keep its shareholders and the public
informed about the Company's operations, may from time to time issue certain
statements that contain or may contain forward-looking information. Generally,
these statements relate to business plans or strategies, projected or
anticipated benefits or other consequences of such plans of strategies,
projected or anticipated benefits from acquisitions made by or to be made by the
Company, or projections involving anticipated revenues, earnings or other
aspects of operating results. Such statements are subject to a number of factors
that tend to influence the accuracy of the statements and the projections upon
which the statements are based. As noted elsewhere in this report, all phases of
the Company's operations are subject to a number of uncertainties, risks and
other influences, many of which, could materially affect the results of the
Company's operations and whether forward-looking statements made by the Company
ultimately prove to be accurate.
19
<PAGE>
Other Factors Influencing Future Results
History of Losses; Working Capital Deficits; Continuing Charges. Before
reporting net income of $2.1 million (including $4.2 million of merger costs and
related tax provisions incurred as a result of acquisitions) in the year ended
June 30, 1997, the Company recorded net losses to common stockholders of
approximately $4.4 million (including $2.8 million in unusual items principally
related to the Company's June 1996 change of control) and $55,000, during the
fiscal years ended June 30, 1996 and 1995, respectively. Additionally, the
Company had working capital deficits of $852,000 and $1.9 million at June 30,
1997 and 1996, respectively. In connection with the financing of its
acquisitions and business growth, the Company has incurred, and anticipates that
it will continue to incur, significant debt and interest charges under its
revolving credit facility. In addition, the Company will continue to recognize a
significant amount of goodwill amortization charges in connection with its
acquisitions of collection and transportation businesses and transfer stations
that are accounted for under the "purchase" method of accounting. Such goodwill
is amortized over a period of 40 years, resulting in an annual non-cash charge
to earnings. As the Company continues to pursue its acquisition program, its
financial position and results of operations may fluctuate significantly from
period to period.
Limited Operating History in Regard to Significant Assets. In June 1996,
control of the Company was acquired by a group of investors, and the Company
appointed a new Board of Directors, hired a new management team, and implemented
an aggressive acquisition program. Since July 1996, the Company has acquired 21
solid waste management businesses. Of these acquisitions, the 17 completed by
June 30, 1997 collectively contributed approximately $73 million or 91.6% of the
Company's revenues for the fiscal year ended June 30, 1997 and approximately
$136 million or 84.4% of the Company's assets at June 30, 1997. Because of the
Company's relatively limited operating history with respect to these businesses,
no assurances can be given that the Company will be able to replicate or improve
upon their historical financial performance.
Ability to Manage Growth. The Company's strategy of growing primarily
through acquisitions has placed, and is expected to continue to place,
significant burden on the Company's management and on its operational and other
resources. The Company will need to continue to attract, train, motivate,
retain, and supervise its senior managers, technical professionals and other
employees. Any failure to expand its management information system capabilities,
to implement and improve its operational and financial systems and controls or
to recruit appropriate additional personnel in an efficient manner and at a pace
consistent with the Company's business growth could have a material adverse
effect on the Company's business and results of operations.
Dependence on Acquisitions for Growth. The rate of future growth and
profitability of the Company is largely dependent on its ability to identify and
acquire additional solid waste collection, transportation, and disposal
businesses. This strategy involves risks inherent in assessing the values,
strengths, weaknesses, risks, and profitability of acquisition candidates,
including adverse short-term effects on the Company's reported operating
results, diversion of management's attention, dependence on retaining, hiring
and training key personnel, and risks associated with unanticipated problems or
latent liabilities. There can be no assurance that acquisition opportunities
will be available, that the Company will have access to the capital required to
finance potential acquisitions, that the Company will continue to acquire
businesses or that any business acquired by the Company will be integrated
successfully into the Company's operations or prove profitable.
Availability of Acquisition Targets. Increased competition for acquisition
candidates may result in fewer acquisition opportunities being made available to
the Company as well as less advantageous acquisition terms which may increase
acquisition costs to levels that are beyond the Company's financial capability
or that may have an adverse effect on the Company's business and results of
operations. Accordingly, no assurance can be given as to the number or timing of
the Company's acquisitions or as to the availability of financing necessary to
complete an acquisition. The Company also believes that a significant factor in
its ability to consummate acquisitions will be the attractiveness of the Common
Stock as an investment to potential acquisition candidates. Such attractiveness
may, in large part, be dependent upon the market price and capital appreciation
prospects of the Common Stock compared to the equity securities of the Company's
competitors. Many of the Company's competitors for acquisitions are
20
<PAGE>
larger, more established companies with significantly greater capital resources
than the Company and whose equity securities may be more attractive than the
Common Stock. To the extent the Common Stock is less attractive to acquisition
candidates, the Company's acquisition program may be adversely affected.
Ability to Integrate Acquired Businesses and Achieve Operating
Efficiencies. The Company is in the process of combining the businesses and
assets that it has acquired since July 1996 into an integrated operating
structure. This process may require, among other things, changes in the
operating methods and strategies of these separate businesses. The future growth
and profitability of the Company will be substantially dependent upon its
ability to operate recently acquired companies, as well as additional businesses
that may be acquired in the future, and integrate them in the Company's
operations. The Company's strategy is to achieve economies of scale and
operating efficiencies through increases in its size resulting from
acquisitions. There can be no assurance that the Company's efforts to integrate
acquired operations will be effective or that expected efficiencies and
economies of scale will be realized. The failure to achieve any of these results
could have a material adverse effect on the Company's business and results of
operations.
Potential Liabilities Associated with Acquisitions. The businesses acquired
by the Company may have liabilities that the Company does not discover or may be
unable to discover during its pre-acquisition investigations, including
liabilities arising from environmental contamination or non-compliance by prior
owners with environmental laws or regulatory requirements, and for which the
Company, as a successor owner or operator, may be responsible. Certain
environmental liabilities, even if expressly not assumed by the Company, may
nonetheless be imposed on the Company under certain legal theories of successor
liability, including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended. The businesses acquired by the Company
handled and stored petroleum, motor oil, and other hazardous substances at their
facilities. In the past, there may have been releases of these hazardous
substances into the soil or groundwater. The Company may be required under
federal, state, or local law to investigate and remediate this contamination, if
any. Any indemnities or warranties, due to their limited scope, amount,
duration, the financial limitations of the indemnitor or warrantor, or other
reasons, may not fully cover such liabilities.
Need for Additional Capital; Potential Dilution. The Company's acquisition
program required a steady increase in capital, which is expected to continue in
the future as the Company pursues its strategy. The Company has and intends to
continue to pay for acquisitions with a combination of Common Stock, cash, and
the assumption of debt. When the Company issues Common Stock to make
acquisitions, the Company's stockholders may experience dilution in the net
tangible book value per share of Common Stock. To the extent the Company is
unable to use Common Stock to make future acquisitions, its ability to grow may
be adversely affected. The Company's capital requirements also include working
capital needs to maintain daily operations and significant capital expenditures
for cell construction and expansion of its landfills, closure and post-closure
care costs associated with its landfills, equipment purchases, and debt
repayment obligations and/or financial assurance obligations. To the extent that
cash available under the Company's credit facility and internally generated cash
are not sufficient to meet the Company's capital needs, the Company will be
required to raise additional funds through significant equity and/or debt
financing. No assurance can be given that additional funding will be available
on terms favorable to the Company.
Control of Management. Executive officers and directors of the Company as a
group beneficially own a significant amount of the outstanding common stock. As
a result, these existing stockholders, if acting together, will be able to
influence significantly the election of individuals to the Board of Directors
and the outcome of certain matters submitted for stockholder consideration.
Dependence on Key Personnel. In June 1996, the Company appointed a new
Board of Directors and hired a new management team. The Company's operations are
substantially dependent upon the services of its executive officers,
particularly Louis D. Paolino, Jr., the Chairman of the Board, Chief Executive
Officer, and President of the Company, and Terry W. Patrick, the Chief Operating
Officer and an Executive Vice President of the Company. The loss of the services
of Mr. Paolino, Mr. Patrick or one or more of the other executive officers of
the Company
21
<PAGE>
could have a material adverse effect on the Company's business and results of
operations. All of the Company's executive officers have entered into employment
agreements with the Company, most of which contain noncompetition agreements.
The Company does not maintain key-man life insurance policies on its executive
officers.
Executive Officers of the Company
The following information is furnished in this Part I pursuant to
Instruction 3 to Item 401(b) of Regulation S-K:
There are no family relationships between any of the executive officers of
the Company. The following table sets forth information regarding certain
executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Louis D. Paolino, Jr........ 41 Chairman of the Board, President, and Chief
Executive Officer
Terry W. Patrick............ 51 Executive Vice President and Chief Operating
Officer
Gregory M. Krzemien......... 38 Chief Financial Officer and Treasurer
Robert M. Kramer............ 45 General Counsel, Executive Vice President
and Secretary
John W. Poling.............. 52 Vice President--Finance
Dennis M. Grimm............. 47 Vice President--Operations
Willard Miller.............. 60 Executive Vice President
Glen M. Miller.............. 39 Executive Vice President of Collection
Operations
</TABLE>
Louis D. Paolino, Jr. has served as Chairman of the Board, President, and
Chief Executive Officer of the Company since June 1996. Mr. Paolino has over 14
years of experience in the solid waste management industry. From 1989 to June
1996, Mr. Paolino was President of Soil Remediation of Philadelphia, Inc., a
company engaged in the business of treating contaminated soil and which was sold
to U.S.A. Waste Services Inc., a waste management corporation, in September
1993. From September 1993 to June 1996, Mr. Paolino served as Vice President of
U.S.A. Waste Services, Inc. Mr. Paolino currently serves as President of Blue
Pointe, Inc., the lessor of the Company's executive offices in Mt. Laurel, New
Jersey. From November 1995 to January 1996, Mr. Paolino served on the Board of
Directors of Metal Management, Inc., formerly known as General Parametrics
Corp., a publicly traded company. Mr. Paolino received a B.S. degree in Civil
Engineering from Drexel University.
Terry W. Patrick has served as Executive Vice President and Chief Operating
Officer of the Company since June 1996. Mr. Patrick has over 25 years of
experience in the waste management industry. From September 1995 to June 1996,
Mr. Patrick was involved with personal investments and ownership of a chemical
manufacturing and distributing company. From April 1990 to August 1994, he
served as President and Chief Operating Officer of U.S.A. Waste Services, Inc.,
and from November 1988 to April 1990 as Vice President of Operations at Mid-
America Waste Systems, Inc. Prior to joining Mid-America Waste Systems, Inc.,
Mr. Patrick served in various district and regional management positions with
Waste Management, Inc. and Browning-Ferris Industries, Inc. Mr. Patrick received
a B.S. degree in Business Management from Evangel College.
Gregory M. Krzemien has served as Chief Financial Officer and Treasurer of
the Company since August 1992. From October 1988 to August 1992, Mr. Krzemien
was a senior audit manager with Ernst & Young LLP, and held other positions with
that firm since 1981. Mr. Krzemien received a B.S. degree in Accounting from
Pennsylvania State University and is a certified public accountant.
Robert M. Kramer has served as General Counsel, Executive Vice President
and Secretary of the Company since June 1996. Mr. Kramer is an attorney and has
practiced law since 1979 with various firms, including Blank Rome Comisky &
McCauley, Philadelphia, Pennsylvania and Arent Fox Kitner Plotkin & Kahn,
Washington, D.C.
22
<PAGE>
Mr. Kramer has represented public and private companies in the waste management
industry for over 15 years. Since 1989, Mr. Kramer has been the sole partner of
Robert M. Kramer & Associates P.C., a law firm consisting of three lawyers.
Although Mr. Kramer will continue his private practice of law at Robert M.
Kramer & Associates, P.C., he has and will devote a substantial amount of time
performing his duties for the Company. Mr. Kramer since December 1989 has served
on the Board of Directors of American Capital Corporation, a registered
securities broker dealer. Mr. Kramer received a J.D. degree from Temple
University Law School.
John W. Poling has served as a Vice President of Finance of the Company
since November 1996. Mr. Poling has held senior financial positions in publicly-
held environmental services companies since 1979, and served as Vice President
and Treasurer of Smith Technology Inc. from 1994 to 1996, Vice President,
Finance and Chief Financial Officer of Envirogen, Inc. from 1993 to 1994,
President of Tier Inc. from December 1992 to September 1993, and Vice
President--Finance and Chief Financial Officer of Roy F. Weston, Inc. from 1989
to 1992. Mr. Poling received a B.S. degree in Accounting from Rutgers
University.
Dennis M. Grimm has been employed with the Company since March 1997 and
currently serves as Vice President of Operations. Mr. Grimm has more than 25
years of experience in the solid waste industry. From January to March 1997, Mr.
Grimm was President and Chief Executive Officer of Apex Waste Services, Inc.,
which was acquired by the Company in March 1997. From 1984 to 1994, he served as
Group Vice President and Regional Manager for WMX Technologies, Inc. (Northeast
Region).
Willard Miller joined the Company as Executive Vice President in September
1996. In 1972, Mr. Miller founded Super Kwik, Inc. where he held the positions
of President and Chief Executive Officer for 24 years.
Glen M. Miller joined the Company as Executive Vice President of Collection
Operations in September 1996. Prior to joining the Company, Mr. Miller had 23
years in the solid waste industry, most recently as Vice President and Chief
Operating Officer of Super Kwik, Inc. since January 1980 and President of Waste
Maintenance Services, Inc. from May 1987 to September 1996.
Employees
As of September 25, 1997, the Company had approximately 840 full-time
employees, of which approximately 671 were employed in collection, transfer and
disposal operations, 129 in clerical, administrative, and sales positions and 40
in management. Approximately 255 of the Company's employees at four operating
locations are covered by collective bargaining agreements. Management has not
experienced a work stoppage and considers its employee relations to be good.
ITEM 2. PROPERTIES
The principal fixed assets used by the Company are its landfills which are
described under "Item 1. Business--Services--Waste Disposal." The six landfills
currently owned by the Company are situated on sites owned by the Company.
The Company leases approximately 6,000 square feet of office space in Mt.
Laurel, New Jersey for its principal executive offices under a lease expiring in
June 2001. The Company owns real estate, buildings, and other properties that it
employs in substantially all of its solid waste collection, transportation, and
disposal operations.
At September 25, 1997, the Company owned or leased approximately 700 items
of equipment including waste collection vehicles and related support vehicles,
as well as bulldozers, compactors, earth movers, and related heavy equipment and
vehicles used in landfill operations. At September 25, 1997, the Company also
had approximately 32,000 steel containers in use, ranging from one to 45 cubic
yards. The Company believes that its vehicles, equipment, and operating
properties are well maintained and adequate for its current operations. However,
the
23
<PAGE>
Company expects to make substantial investments in additional equipment and
property for expansion, for replacement of assets, and in connection with future
acquisitions.
ITEM 3. LEGAL PROCEEDINGS
One of the Company's solid waste collection subsidiaries, is a defendant,
along with approximately 350 other defendants, in a private cost recovery action
under various state statutory and common law theories for allegedly sending
waste to a landfill currently undergoing a remedial clean-up. The suit seeks
reimbursement of an unspecified amount for soil and groundwater remediation. The
case is in the early stages of discovery and neither the total potential
remediation costs nor the Company's allocable share of liability has been
quantified. Based on information available to the Company, the subsidiary did
not contribute a significant proportion of the waste to the site and any waste
that was transported by the subsidiary to the site appears to have been
construction and demolition waste and municipal solid waste. To date, one of the
Company's insurance carriers has agreed to provide a defense up to the policy
limits of $70,000, which the Company expects will be sufficient to cover its
liability, and four other carriers are expected to be placed on notice. Given
the limited quantities of waste potentially transported to the landfill, the
nature of the waste sent to the site, the availability of insurance coverage,
and other potential defenses, the resolution of the action should not have a
material adverse effect on the Company's business and results of operations. No
assurance can be given, however, that the Company's ultimate financial
obligations related to this matter will not have a material adverse effect on
the Company's business and results of operations.
The same subsidiary is also a party to a Superfund litigation, which has
been settled by substantially all of the defendants. The Company is being
defended in this action by one of its insurance carriers, which did not accept a
$13,000 settlement offer. Because the settlement offer was not accepted, the
Company could be subject to claims for any deficiency between the amount
contributed by all settling parties and the actual costs of remediating the
site. While the Company has no reason to believe that any such claims will be
asserted and no meaningful basis to estimate the amount of such claims, no
assurances can be given that they would not be brought or that the amount
claimed would not be substantial. Were any such claims to be asserted, the
Company would vigorously assert all available defenses and believes that its
liability, if any, would either be covered by insurance or, under applicable
law, be the responsibility of the carrier because of its failure to accept
settlement. However, no assurances can be given that insurance proceeds would
cover the entire amount of the claim or that the Company would prevail in any
action against the carrier. Accordingly, there can be no assurance that the
Company's ultimate financial obligations related to this matter will not have a
material adverse affect on the Company's business and results of operations.
The Company is not currently involved in any material litigation, including
material litigation arising from federal, state or local provisions that have
been enacted for the purpose of protecting the environment. The Company is
routinely involved in certain legal and administrative proceedings. Companies in
the solid waste management business are frequently subject to judicial and
administrative proceedings involving federal, state or local agencies or citizen
groups. These governmental agencies and citizen groups may seek to impose fines
or penalties on the Company or to revoke or deny renewal of the Company's
operating permits or licenses for violations or alleged violations of
environmental laws or regulations or require that the Company make expenditures
to remediate potential environmental problems relating to waste disposed of or
stored by the Company or its predecessors, or resulting from its or its
predecessors' transportation and collection operations. All such proceedings
arise in the ordinary course of business and the Company believes that although
the outcome of such proceedings cannot be predicted with certainty, the cost of
settlement or judgments arising from such proceedings will not have a material
adverse effect on the Company's business or results of operations.
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, 1997.
24
<PAGE>
PART II
ITEM 5. MARKET PRICE AND DIVIDENDS OF THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
(a) Market Price and Dividends of the Registrant's Common Equity
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". The
common stock prices reflect inter-dealer quotations, do not include retail
markups, markdowns or commissions and do not necessarily represent actual
transactions.
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
by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year Ended June 30, 1996
First Quarter................... 2 1/4 1 1/4
Second Quarter.................. 2 1/4 1 1/2
Third Quarter................... 1 3/4 1
Fourth Quarter.................. 7 1/8 1 1/4
Fiscal Year Ended June 30, 1997
First Quarter................... 7 1/16 5
Second Quarter.................. 10 3/8 6 1/2
Third Quarter................... 14 1/8 8 3/8
Fourth Quarter.................. 18 1/8 11 3/8
</TABLE>
The closing price for the Common Stock on September 25, 1997 was $26.25
For purposes of calculating the aggregate market value of the shares of Common
Stock of the Company held by nonaffiliates, as shown on the cover page of this
report, it has been assumed that all the outstanding shares were held by
nonaffiliates except for the shares held by directors and executive officers of
the Company and stockholders owning 10% or more of the outstanding shares.
However, this should not be deemed to constitute an admission that all such
persons are, in fact, affiliates of the Company, or that there are not other
persons who may be deemed to be affiliates of the Company. Further information
concerning ownership of the Company's securities by executive officers,
directors and principal stockholders will be included in the Company's
definitive proxy statement to be filed with the Securities and Exchange
Commission.
As of September 25, 1997, the Company had 332 holders of record and
approximately 2970 beneficial owners of its Common Stock.
The Company does not anticipate paying any cash dividends in the
foreseeable future and intends to retain all working capital and earnings, if
any, for use in the Company's operations and in the expansion of its business.
Any future determination with respect to the payment of dividends will be at the
discretion of the Board of Directors and will depend upon, among other things,
the Company's results of operations, financial condition and capital
requirements, the terms of any then existing indebtedness, general business
conditions, and such other factors as the Board of Directors deems relevant. The
Company's credit facility prohibits the payment of cash dividends without prior
bank approval.
25
<PAGE>
(b) Recent Sales of Unregistered Securities.
On April 11, 1997, the Company consummated the acquisition of Big T
Disposal, Inc. pursuant to the terms of a purchase agreement. Consideration for
the acquisition was $1,336,000 including the issuance of 51,528 shares of common
stock of the Company, par value $.01 per share, to the sellers.
On May 8, 1997, the Company consummated the acquisition of four collection
companies in south Florida, namely Environmental Waste Systems, Inc.,
Environmental Waste Systems of Palm Beach, Inc., C&R Waste Removal, Inc. and
Combined Waste Services, Inc. pursuant to separate Purchase and Sale of Assets
Agreement. Consideration for the acquisitions was approximately $7,818,000
including the issuance of 418,605 shares of common stock of the Company, par
value $.01 per share, to the sellers.
On May 12, 1997, Eastern Waste of New York, Inc., Eastern Waste of Long
Island, Inc. and Eastern Container Corporation, wholly owned subsidiaries of the
Company, acquired substantially all of the assets related to the operations of
KC Waste Services, Inc., Curbside Leasing, Inc., Waste Services, Inc., New York
Waste Services, Inc. and Long Island Waste Services, Inc. (collectively referred
to as "WSI"). Consideration for the acquisition consisted of the issuance of
1,159,982 shares of common stock of the Company, par value $.01 per share to the
sellers. Additionaly, 221,170 shares of common stock of the Company are issuable
upon the satisfaction of certain conditions.
On May 27, 1997, the Company consummated the acquisition of two additional
collection companies in south Florida, namely Ameri Carting, Inc. and A-1
Carting Corporation pursuant to separate Purchase and Sale of Assets Agreements.
Consideration for the acquisitions was approximately $6,934,000 including the
issuance of 592,451 shares of common stock of the Company, par value $.01 per
share, to the seller, and ten year stock warrants for 20,000 shares of common
stock of the Company at an exercise price of $14.525.
Under all of the private placements described above, the Company has agreed
to register the Shares for resale under the Securities Act of 1933 (the "Act")
under certain conditions. The sale of the Shares was exempt from the
registration provisions of the Act pursuant to Section 4(2) of the Act and/or
Regulation D promulgated under the Act for transactions not involving a public
offering, based on the fact that the private placements were made to accredited
investors who had access to financial and other relevant data concerning the
Company, its financial condition, business and assets. The securities sold in
the private placements may not be reoffered or resold absent registration under
the Act or available exemptions from such registration requirements.
26
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated statement of operations,
balance sheet and other operating data of the Company as of the dates and for
the periods indicated. The financial information has been derived from the
Company's audited consolidated financial statements. The selected consolidated
financial data below should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto at June 30, 1997 and 1996,
and for the three years in the period ended June 30, 1997, and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Years Ended June 30, /(1)/
---------------------------------------------------------------
1997 1996 1995 1994 1993
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues....................... $79,625 $39,519 $40,802 $37,314 $8,684
Cost of revenues............... 53,130 30,955 30,414 27,976 4,049
Selling, general and
administrative expenses....... 12,779 9,343 6,833 6,652 4,907
Depreciation and amortization.. 4,742 2,894 3,665 2,862 1,809
Merger costs................... 3,337 -- -- -- --
----------- ----------- ----------- ----------- -----------
Operating income (loss)........ 5,637 (3,673) (110) (176) (2,081)
Interest expense............... (2,663) (629) (580) (372) (229)
Other income (expense)......... 509 (131) 488 226 123
----------- ----------- ----------- ----------- -----------
Income (loss) from
continuing operations
before income taxes........... 3,483 (4,433) (202) (322) (2,187)
Income tax expense (benefit)... 1,341 (10) (147) (229) (715)
----------- ----------- ----------- ----------- -----------
Net income (loss) from
continuing operations......... $2,142 $(4,423) $(55) $(93) $(1,472)
=========== =========== =========== =========== ===========
Net earnings (loss) per share
from continuing
operations.................... $0.14 $(0.49) $(0.01) $(0.01) $(0.34)
=========== =========== =========== =========== ===========
Weighted average number of
shares outstanding............ 14,976,802 9,018,080 7,844,359 7,836,332 4,392,022
=========== =========== =========== =========== ===========
Other Operating Data:
EBITDA /(2)/................... $10,379 $(779) $3,555 $2,686 $(272)
<CAPTION>
June 30, /(1)/
---------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit)...... $(852) $(1,853) $452 $2,099 $2,199
Total assets................... $161,085 $28,786 $28,299 $26,484 $16,792
Long-term debt, less current
portion....................... $60,929 $6,309 $5,160 $3,721 $1,994
Total liabilities.............. $109,248 $18,365 $14,559 $12,362 $6,988
Total stockholders' equity..... $51,837 $10,421 $13,740 $14,122 $9,804
- -------------
</TABLE>
Selected Financial Data Footnotes
27
<PAGE>
(1) Subsequent to June 30, 1996, the Company acquired Super Kwik, Inc. and its
affiliates ("Super Kwik") and Donno Company, Inc. and its affiliates
("Donno") in two separate transactions. Each of these business combinations
was accounted for as a pooling of interests and, accordingly, the Company's
consolidated financial statements were restated for periods prior to the
acquisition to include the results of operations, financial position and
cash flows of Super Kwik and Donno. June 30, 1993 and the year then ended
included above has not been restated to include these acquisitions.
(2) EBITDA represents operating income plus depreciation and amortization.
EBITDA does not represent and should not be considered as an alternative to
net income or cash flow from operations as determined by generally accepted
accounting principles. Further, EBITDA does not necessarily indicate
whether cash flow will be sufficient for items such as working capital,
capital expenditures, or to react to changes in the Company's industry or
economic changes generally. The Company believes that EBITDA is a
frequently used measure that provides additional information for
determining its ability to meet debt service requirements and that it is
one of the indicators upon which the Company, its lenders, and certain
investors assess the Company's financial performance and its capacity to
service debt. The Company therefore interprets the trends that EBITDA
depicts as one measure of the Company's operating performance. Because
EBITDA is not calculated by all companies and analysts in the same fashion,
the EBITDA measures presented by the Company may not necessarily be
comparable to other similarly titled measures of other companies.
Therefore, in evaluating EBITDA data, investors should consider, among
other factors: the non-GAAP nature of EBITDA data; actual cashflows; the
actual availability of funds for debt service, capital expenditures and
working capital; and the comparability of the Company's EBITDA data to
similarly titled measures reported by other companies.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion reviews the Company's operations for the three
years ended June 30, 1997, and should be read in conjunction with the Company's
consolidated financial statements and related notes thereto included elsewhere
herein. The Company has restated its previously issued financial statements for
fiscal years 1996, 1995, and 1994 to reflect the acquisitions of Super Kwik and
Donno, which were consummated September 27, 1996 and January 31, 1997,
respectively, and accounted for under the pooling of interests method of
accounting.
The follow discussion includes statements that are forward-looking in
nature. The accuracy of such statements depends upon a variety of factors that
may affect the business and operations of the Company. Certain of these factors
are discussed under "Business --Factors Influencing Future Results and Accuracy
of Forward-Looking Statements" included in Item 1 of this report.
Introduction
Revenues
The Company is a non-hazardous solid waste management company specializing
in the collection, transportation, and disposal of residential, industrial,
commercial, and special waste, principally in the eastern United States. The
Company's revenues for the year ended June 30, 1997 were comprised of
approximately 81% solid waste collection and transportation operations,
approximately 8.5% solid waste disposal operations, and approximately 10.5%
other waste management services.
The Company's solid waste collection operations earn revenues from fees
collected from residential, commercial, and industrial collection and transfer
station customers. Solid waste collection is provided under two primary types of
arrangements depending on the customers being served. Collection services for
commercial and industrial customers are generally performed under one to three
year service agreements. Collection services for residential customers generally
are performed under contracts with, or franchises granted by, municipalities or
regional authorities that grant the Company rights to service all or a portion
of the residents in their jurisdictions,
28
<PAGE>
except in rural areas where the Company usually contracts directly with the
customer. Such contracts or franchises generally range in duration from one to
three years. Recently, some municipalities have bid their residential collection
contracts based on the volume of waste collected versus the number of households
serviced. Residential collection fees are either paid by the municipalities out
of tax revenues or service charges or paid directly by residents receiving the
services.
As part of its solid waste collection operations, the Company's five owned
or operated transfer stations receive solid waste collected primarily by its
various collection operations, compact the waste and transfer it to larger
vehicles for transport to landfills. This procedure reduces the Company's costs
by improving its use of collection personnel and equipment.
The Company's solid waste landfills earn revenues from disposal fees
charged to third parties and from disposal fees charged to the Company's
collection and transportation operations that dispose of solid waste at the
Company's landfills. These landfills receive solid waste from the Company's own
collection companies and transfer stations, as well as from independent
collection operators. For the year ended June 30, 1997, approximately 16% of the
Company's revenue generated from collection operations represented solid waste
collected by the Company that was delivered for disposal at its own landfills,
and approximately 20% of the Company's revenue generated from landfill disposal
operations represented solid waste disposed of at the Company's landfills that
was delivered by the Company.
The Company's prices for solid waste collection, transportation, and
disposal services are typically determined by the volume, weight, or type of
waste collected, as well as other factors including the competitive pricing
environment. The Company's ability to pass on cost increases may be limited by
the terms of its contracts.
Cost of Revenues
Cost of revenues consists primarily of tipping fees paid to third party
landfills, accruals for future landfill closure and post-closure costs, direct
labor and related taxes and benefits, subcontracted transportation and equipment
rental charges, maintenance and repairs of equipment and facilities,
environmental compliance costs and site maintenance costs for landfills, fuel,
and landfill assessment fees and taxes.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of
management, clerical and administrative salaries and costs and overhead,
professional services, facility rentals and associated costs, financial
insurance bonding premiums, landfill related financial assurance bonding
premiums, and costs relating to marketing and sales.
The Company capitalizes direct incremental costs associated with purchase
acquisitions. Indirect development and acquisition costs, such as executive
salaries, corporate overhead, public relations, and other corporate services and
overhead are expensed as incurred. The Company also charges as an expense any
unamortized capitalized expenditures relating to proposed acquisitions that will
not be consummated.
At June 30, 1997, capitalized costs related directly to proposed
acquisitions that were not yet consummated were $281,000 million. The Company
periodically reviews the future realization of these capitalized project costs
and makes provisions against capitalized costs that are associated with projects
that are not likely to be completed.
Depreciation and Amortization
Depreciation and amortization consists primarily of depreciation of
buildings, vehicles, and machinery and equipment, amortization of capitalized
direct landfill development costs, and amortization expense related to
intangible assets including goodwill. Property and equipment is depreciated over
the estimated useful life of the assets using the straight line method.
Intangible assets, including goodwill, are amortized over their useful lives
using the straight line method.
29
<PAGE>
Certain direct engineering, legal, permitting, construction, and other
costs associated with expansion of landfills, together with related interest
costs, are capitalized and are amortized over the estimated useful life of the
site using the unit of production method as airspace is consumed. Successful
permitting of additional landfill disposal capacity improves the Company's
profitability by increasing the airspace over which the Company may amortize
capitalized costs of the landfill. At June 30, 1997, capitalized costs related
directly to the acquisition and expansion of existing and future landfills and
cell development were $33.1 million.
The Company's policy is to charge as an expense any unamortized capitalized
expenditures and advances relating to any landfill that is permanently closed or
any landfill expansion project that is abandoned.
Merger Costs
In connection with acquisitions accounted for under the pooling of
interests method, the Company records various merger costs including
transaction-related expenses and costs to bring the acquired assets into
conformity with corporate safety and operational standards.
Other Income (Expense)
Other income and expense, which is composed primarily of interest income
and gains and losses on sales of equipment, has not historically been material
to the Company's results of operations.
Taxes
In fiscal 1997, the Company utilized approximately $3.8 million of net
operating loss carryforwards for federal income tax purposes. At June 30, 1997,
the Company has available approximately $571,000 of net operating loss
carryforwards for federal income tax purposes. In fiscal 1998, the Company's
provision for income taxes should more closely approximate the statutory tax
rates, increased by the effect of nondeductible amortization expense.
Acquisition Program
The Company has implemented an aggressive acquisition program to expand its
operations by acquiring solid waste collection, transportation, and disposal
businesses, principally in the eastern United States. Approximately $73 million
or 91.6% of the Company's revenues for the year ended June 30, 1997 and
approximately $136 million or 83.7% of the Company's assets at June 30, 1997
resulted from these 17 acquisitions consummated by the Company between July 1996
and June 30, 1997. Of these 17 acquisitions, 14 have been accounted for under
the purchase method of accounting and three have been accounted for under the
pooling of interests method of accounting.
With respect to the 14 acquisitions that have been accounted for under the
purchase method of accounting, goodwill is amortized over a period of 40 years,
resulting in an annual noncash charge to earnings during the amortization
period. Accordingly, if the Company completes additional acquisitions which are
accounted for under the purchase method of accounting, its financial position
and results of operations may fluctuate significantly from period to period, as
a result of additional noncash charges relating to goodwill. Amortization
expense of goodwill was approximately $435,000 for the year ended June 30, 1997.
In addition, the Company closed into escrow on May 12, 1997 the pending
acquisitions of Golden Gate Carting Co. Inc., ("Golden Gate") and Coney Island
Rubbish Removal, Inc. ("Coney Island") pending satisfaction of certain normal
conditions which the Company believes will be resolved. Estimated consideration
relating to the Golden Gate and Coney Island acquisitions consists of 288,820
unregistered shares of the Company's common stock and the assumption of
approximately $3.0 million of debt. The acquisitions of Golden Gate and Coney
Island will be accounted for under the purchase method.
In connection with each of its acquisitions, the Company attempts to
implement a number of cost saving measures, including possible reductions in
management levels and other personnel, the implementation of centralized
management and cost controls, and the elimination of duplicate collection
routes.
30
<PAGE>
Because of the relative importance of acquired businesses and assets to the
Company's financial performance, the Company does not believe that its
historical financial statements are necessarily indicative of future
performance.
Recent Developments
After June 30, 1997, the Company acquired two hauling and collection
companies, a special waste company, and a landfill in separate transactions.
Consideration included an aggregate of approximately 362,000 unregistered shares
of Common Stock, $12,150,000 cash to the sellers, and $574,000 of assumed debt.
These transactions will be accounted for using the purchase method of
accounting. Additionally, in August of 1997, the Company completed its merger
with a hauling and collection company for approximately 350,000 unregistered
shares of Common Stock. This transaction will be accounted for as a pooling of
interests. Periods prior to consummation of this acquisition will not be
restated to reflect the pooling of interests as combined financial position,
results of operations, and cash flows would not be materially different from the
results as presented.
Also, in two separate transactions, the Company acquired equipment, real
estate and permits necessary to operate a transfer station. Consideration
included approximately $200,000 cash to the sellers and notes totaling
$5,000,000. There is a contingent component to one of the transactions which
could require the company to pay up to an additional $4,000,000 upon the receipt
of an additional, final permit.
Results of Operations for each of the Three Years in the Period Ended June 30,
1997
The following table presents, for the periods indicated, the period to
period change in dollars (in thousands) and percent for the various Consolidated
Statements of Operations line items.
<TABLE>
<CAPTION>
Period to Period Increase (Decrease)
------------------------------------------------
For the Years Ended For the Years Ended
June 30, 1997 and 1996 June 30, 1996 and 1995
---------------------- ----------------------
<S> <C> <C> <C> <C>
Revenues................... $40,106 101.5% $(1,283) (3.1%)
Cost and expenses:
Cost of revenues........... 22,175 71.6 541 1.8
Selling, general and
administrative............ 3,436 36.8 2,510 36.7
Depreciation and
amortization.............. 1,848 63.9 (771) (21.0)
Merger costs............... 3,337 -- -- --
-------- --------
30,796 71.3 2,280 5.6
-------- --------
Operating income (loss).... 9,310 -- (3,563) --
-------- --------
Interest expense........... 2,034 323.4 49 8.4
Other income, net.......... 640 -- (619) (126.8)
-------- --------
1,394 -- (668) --
-------- --------
Income (loss) before
income taxes.............. 7,916 -- (4,231) --
Income tax expense
(benefit)................. 1,351 -- 137 93.2
-------- --------
Net income (loss).......... $ 6,565 -- $(4,368) --
======== ========
</TABLE>
31
<PAGE>
The following table presents the percentage each item in the consolidated
statements of operations bears to total revenues:
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Revenues ........................................... 100.0% 100.0% 100.0%
Cost of revenues ................................... 66.7 78.3 74.5
Selling, general and administrative expenses ....... 16.0 23.7 16.8
Depreciation and amortization ...................... 6.0 7.3 9.0
Merger costs ....................................... 4.2 -- --
------ ------- ------
Operating income (loss) ............................ 7.1 (9.3) (0.3)
Interest expense ................................... (3.3) (1.6) (1.4)
Other income (expense) ............................. 0.6 (0.3) 1.2
------ ------- ------
Income (loss) before income taxes .................. 4.4 (11.2) (0.5)
Income tax expense (benefit) ....................... 1.7 -- (0.4)
------ ------- ------
Net income (loss) .................................. 2.7% (11.2)% (0.1)%
====== ======= ======
</TABLE>
Revenues for the year ended June 30, 1997 were $79.6 million compared to
$39.5 million for the year ended June 30, 1996, an increase of $40.1 million or
101.5%. The principal factors affecting the increase in revenues were (1) the
impact of 14 acquisitions accounted for under the purchase method, which
contributed aggregate revenues of $24.1 million for the year ended June 30,
1997, including the acquisitions of Allied Waste Services, Inc., Waste Services,
Inc., Environmental Waste Systems, Inc., R & A Bender, Inc., and their
respective affiliates, and (2) the acquisitions of Super Kwik, Inc. and its
affiliates ("Super Kwik"), and Donno Company, Inc. and its affiliates ("Donno"),
which have been accounted for under the pooling of interests method, and which
contributed revenue of $35.8 million for the year ended June 30, 1997 compared
to $31.9 million for the year ended June 30, 1996, an increase of $3.9 million.
Additionally, the acquisition of Apex Waste Services, Inc. ("Apex"), which has
been accounted for under the pooling of interests method, contributed revenues
of $13.1 million since its inception of operations on October 1, 1996.
Revenues decreased $1.3 million or 3.1% in fiscal 1996 compared to fiscal
1995. The principal factors affecting the reduction in revenues were (1) a
decrease in collection revenues at Donno due primarily to the discontinuation of
a contract from a solid waste services company for collection services in New
York City and the termination of a contract to operate a transfer station in
Hempstead, Long Island, (2) the closure of the Company's collection operations
in South Carolina, and (3) declines in revenues at the Company's landfills in
South Carolina and Kentucky. Additionally, during the year ended June 30, 1995
Donno realized the benefit of a one-time contract termination settlement of
$660,000. Increased revenues at Super Kwik and at the Company's West Virginia
landfill, partially offset the decline in revenues.
Cost of revenues for the year ended June 30, 1997 were $53.1 million
compared to $30.9 million for the year ended June 30, 1996, an increase of $22.2
million or 71.6%. Cost of revenues as a percentage of revenues for the year
ended June 30, 1997 was 66.7% compared to 78.3% for the same period in fiscal
1996. Cost of revenues as a percentage of revenues decreased during this period
primarily due to the acquisition by the Company of two landfills, which operated
at relatively higher margins than the Company's other operations and due to the
operating efficiencies imposed on previously private acquired companies
accounted for as poolings of interests. A portion of the decrease was also
attributable to economies of scale relating to the Company's increase in size
over the period.
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<PAGE>
Cost of revenues increased approximately $541,000 in fiscal 1996 compared
to fiscal 1995. The principal factors affecting the increase in cost of revenues
for the year ended June 30, 1996 were (1) a charge of $900,000 for closure and
post-closure monitoring costs relating to the Company's Kentucky landfill, and
(2) and increase at Super Kwik due to acquisitions completed in January and
November of 1995. This increase was partially offset by (1) reduced operating
costs at Donno primarily due to the discontinuation of a collection services
contract in New York City and the termination of a contract to operate a
transfer station in Hempstead, Long Island, and (2) the Company's discontinuance
of its collection operation at the South Carolina landfill.
Selling, general and administrative expenses for the year ended June 30,
1997 were $12.8 million compared to $9.3 million for the year ended June 30,
1996, an increase of $3.5 million. These expenses as a percentage of revenues
for the year ended June 30, 1997 were 16.0% compared to 23.7% for the same
period in fiscal 1996. This reduction as a percentage of revenue was primarily
due to (1) certain cost savings related to economies of scale in restructuring
the Company's insurance program and (2) overall economies gained through
elimination of redundant overhead as a result of integration of acquisitions.
Additionally, in fiscal 1996 the Company incurred unusual operating costs
related to the change in control of the Company in June of 1996, and increases
in certain reserves.
Selling, general and administrative expenses increased $2.5 million, or
36.7% in fiscal 1996 as compared to fiscal 1995. These expenses as a percentage
of revenues for the year ended June 30, 1996 were 23.7% compared to 16.8% for
the same period in 1995. The increase resulted primarily from the aforementioned
special charges taken in fiscal 1996.
Depreciation and amortization totaled $4.7 million, or 6.0% of revenues, in
fiscal 1997 versus $2.9 million, or 7.3% of revenues, in fiscal 1996. This
increase was due primarily to increased depreciation and landfill amortization
as a result of businesses and assets acquired as well as amortization of
goodwill and other intangibles associated with the acquisitions.
Depreciation and amortization for the year ended June 30, 1996 of $2.9
million compared favorably to the fiscal 1995 amount of $3.7 million. The
year-to-year decrease was primarily due to the Company's cessation of waste
acceptance at its Kentucky landfill on June 30, 1995. Accordingly, since this
site was not utilizing airspace no landfill amortization was charged in fiscal
1996.
Merger costs incurred during the year ended June 30, 1997 totaled $3.3
million relating to the acquisitions of Super Kwik, Donno, and Apex. Merger
costs include $835,000 of transactions costs and $2.5 million of costs related
to integrating operations.
Interest expense for the year ended June 30, 1997 was $2.7 million compared
to $629,000 for the year ended June 30, 1996, an increase of approximately $2.1
million. This increase is principally the result of borrowings under the
Company's credit facility relating to (1) acquisitions, (2) the purchase of real
estate and (3) equipment financing in fiscal 1997. Interest expense for the year
ended June 30, 1996 was $629,000 as compared to $580,000 for the year ended June
30, 1995, an increase of $49,000. This increase was primarily due to additional
interest expense at Super Kwik, partially offset by reduced interest expense in
connection with borrowings under the Company's credit facility.
Other income, net, for the year ended June 30, 1997 was $509,000 compared
to other expense, net, of $131,000 for the year ended June 30, 1996, an increase
in income of $640,000. This change was primarily due to a $489,000 one-time
write down, in fiscal 1996, to estimated net realizable value of landfill,
hauling and real estate assets no longer considered integral to the operation of
the Company after its change of control in June 1996. Other expense, net, for
the year ended June 30, 1996 was $131,000 as compared to other income, net, of
$488,000 for the year ended June 30, 1995. This decrease in income of $619,000
was due primarily to the aforementioned write down in fiscal 1996.
The tax provision for the year ended June 30, 1997 included $904,000
relating to the completion of the mergers with Super Kwik, Donno, and Apex. The
provision reflects the recording of a deferred tax provision as of the date of
the respective mergers, at which time the pooled entities' S corporation
elections were terminated. The Company's effective tax rate, excluding the
impact of S Corporation status termination and income prior to the pooling
dates,
33
<PAGE>
was 29.1% for fiscal 1997. The effective tax rate was less than the federal and
state statutory rates primarily due to the reversal of the valuation allowance.
The Company's effective tax rate, including both federal and state taxes, was
72.9% for fiscal 1995 with a minimal tax benefit being recorded in 1996. In
1995, the Company's effective tax rate was higher than the federal statutory
rates primarily due to income generated from Super Kwik and Donno which were
taxed under Subchapter S of the Internal Revenue Code. In 1996, the effective
tax rate was less than the federal and state statutory rates primarily due to a
valuation allowance offsetting the current year tax benefit of net operating
loss carryforwards due to a lack of certainty of realization of these loss
carryforwards in future years as a result of historic reported operating losses.
Liquidity and Capital Resources
The Company's business requires substantial amounts of capital. The
Company's capital requirements include acquisitions, equipment purchases, and
capital expenditures for cell construction and expansion of its landfills. The
Company plans to meet these capital needs from various financing sources,
including borrowings, internally generated funds, and the issuance of Common
Stock.
As of June 30, 1997, the Company had working capital defecit
of $852,000, including cash and cash equivalents of $4.3 million. For fiscal
1997, net cash provided by operations was approximately $4.6 million, net cash
provided by financing activities was approximately $52.0 million (including net
proceeds of $10.4 million from private placements of Common Stock) and net cash
used in investing activities was approximately $54.1 million resulting in an
increase in cash and cash equivalents of $2.5 million during fiscal 1997. A
significant portion of the capital expended during the period, approximately
$52.2 million, was used to fund the acquisition of property and equipment,
including $39.3 million relating to acquisitions, $8.5 million for the purchase
of operating equipment and real estate, and $4.4 million related to the
permitting and development of landfill space.
On September 25, 1996, the Company entered into a revolving credit facility
with BankBoston, N.A. (formerly known as First National Bank of Boston) and Bank
of America Illinois to provide for borrowings up to $30 million (the "Credit
Facility"). The Credit Facility, which was increased to $50 million on January
27, 1997 and to $100 million on May 8, 1997, is available for repayment of debt,
funding of acquisitions, working capital, and for up to $15 million in standby
letters of credit. As of September 25, 1997, approximately $4.5 million in
letters of credit were outstanding under the Credit Facility. Also, at September
25, 1997, there were no borrowings under the Credit Facility as a result of the
net proceeds of the recently completed public offering being used to repay all
outstanding indebtedness under the Credit Facility.
At the Company's option, the interest rate on any loan under the Credit
Facility may be based on an adjusted prime rate or Eurodollar rate, as defined
in the loan agreement. On September 25, 1997, the applicable interest rate was
7.16%. The facility expires on April 30, 2000. The Credit Facility requires the
payment of a commitment fee, payable in arrears, based in part on the unused
balance and provides for certain restrictions on, among other things, the
ability of the Company to incur borrowings, sell assets, acquire assets, make
capital expenditures or pay cash dividends. The facility also requires the
maintenance of certain financial ratios, including interest coverage ratios and
balance sheet and cash flow leverage ratios, and requires profitable operations.
The facility is collateralized by all the stock of the Company's subsidiaries,
whether now owned or hereafter acquired.
In August 1997, the Company completed a secondary public offering in which
it issued 5,175,000 shares of Common Stock at $17.75 per share. The net proceeds
of $85.5 million after deducting underwriting discounts, commissions and other
offering expenses were used to reduce outstanding debt under the Company's
revolving credit agreement by $57.5 million with the remainder to be used for
future acquisitions, capital expenditures and working capital. The Company has
invested the unused net proceeds in short-term interest bearing securities.
To date the Company has required substantial amounts of capital and it
expects to continue to expend substantial amounts to support its acquisition
program and the expansion of its disposal and transportation operations. The
Company estimates aggregate capital expenditures, exclusive of acquisitions of
businesses, of approximately $16.0 million for the year ending June 30, 1998.
The Company has addressed its capital needs through private and public
34
<PAGE>
offerings of Common Stock and by establishing a revolving credit facility. The
Company believes that the revolving credit facility, the funds expected to be
generated from operations, the net proceeds of the recently completed public
offering and possible future equity offerings will provide adequate cash to fund
the Company's working capital and other cash needs for the foreseeable future.
The Company has financial obligations related to closure and post-closure
monitoring and maintenance of the currently permitted and operating landfills.
While the exact amount of future closure and post-closure obligations cannot be
determined, the Company estimates that the costs of final closure of the
currently permitted and operating areas at the Company's landfills will be
approximately $13.7 million, of which $3.2 million has been accrued as of June
30, 1997. The Company makes an accrual for these costs based on consumed
airspace in relation to Management's estimate of total available airspace of the
landfills. In addition, the Company has accrued $1.5 million for post-closure
obligations as of June 30, 1997. 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, West
Virginia and Pennsylvania disposal facilities. Bonds outstanding at June 30,
1997 were $1.6 million for the Kentucky landfill, $214,000 for the West Virginia
landfill, and $3.8 million for the Pennsylvania landfill. The bonds are
collateralized by irrevocable letters of credit and trust fund deposits.
Additionally, the Company has on deposit $204,000 as financial assurance for
landfill closure and post-closure obligations for closed disposal areas. The
trust fund and the certificates of deposit are restricted from current
operations and are included within other noncurrent assets. The Company's
Kentucky landfill bonding requirement will increase by $3.0 million for closure
and $300,000 for post-closure of the expansion area permitted October 14, 1996
(reissued February 26, 1997). The Company anticipates that the West Virginia
bonding requirements will substantially increase when West Virginia's solid
waste program is approved by the federal government. Financial assurance
requirements could increase to approximately $3.1 million for closure and $3.7
million for post-closure monitoring and care. In connection with the Illinois
landfill, which the Company has exercised an option to acquire, the Company has
agreed to indemnify a surety providing financial assurance for closure and
post-closure care requirements for an unlined landfill located adjacent to the
Illinois landfill in the amount of $646,000 in the event the owner of the
adjacent landfill defaults on its closure and/or post-closure care obligations.
Additional collateral requirements may be imposed upon the Company as a result
of additional landfill acquisitions or changes in current regulations which may
adversely effect its profitability. The Company anticipates providing financial
assurance incrementally, as permitted by regulations, over the life of a
facility as disposal cells are constructed and certified for acceptance of
waste.
Seasonality and Inflation
The Company's revenues tend to be somewhat higher in the spring and summer
months. This is primarily attributable to the fact that (i) the volume of waste
relating to construction and demolition activities tends to increase in the
spring and summer months and (ii) the volume of industrial and residential waste
in the regions in which the Company operates tends to decrease during the winter
months. In addition, particularly harsh weather conditions may affect the
Company's operations by interfering with collection, transportation, and
disposal operations, delaying the development of landfill capacity, and/or
reducing the volume of waste generated by the Company's customers.
The Company believes that inflation and changing prices have not had, and
are not expected to have, any material adverse effect on its results of
operations in the near future.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which is required to be adopted for fiscal
periods ending after December 15, 1997 (fiscal 1998 for the Company). At that
time, the Company will be required to change the method currently used to
compute earnings per share. Under the new standard, the dilutive effect of stock
options and stock warrants will be excluded from basic earnings per share. If
earnings per share had been calculated under the new requirements, the effect
would not have been material to the periods presented.
35
<PAGE>
In October 1996, the AICPA issued SOP 96-1, Environmental Remediation
Liabilities. The SOP provides guidance with respect to the recognition,
measurement, and disclosure of environmental remediation liabilities. The
Company will adopt SOP 96-1 in the first quarter of fiscal 1998 and, based on
current circumstances, does not believe the effect of such adoption will be
material.
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.
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 appearing in the sections entitled
"Election of Directors" in the Company's definitive proxy statement to be filed
with the Securities and Exchange Commission in connection with the Company's
1997 annual meeting of stockholders ("Proxy Statement") is incorporated herein
by this reference. The information concerning executive officers is set forth in
Part I herein.
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 SCHEDULES AND REPORTS
ON FORM 8-K.
(a)(1) Consolidated Financial Statements:
Report of Independent Auditors
Consolidated Balance Sheets as of June 30, 1997 and 1996
Consolidated Statements of Operations for the years ended June 30,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended June 30,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
36
<PAGE>
(a)(2) The requirements of Schedule II have been included in the notes to the
financial statements. 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.
(a)(3) 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 Certificate of Amendment and Certificate of Incorporation of the
Company.
* 3.4 By-Laws (Exhibit 3.3 to the 1987 Registration Statement).
* 10.2 1987 Stock Option Plan (Exhibit 10.9 to the 1987 Registration
Statement)./(1)/
* 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 filed on October 24, 1988)./(1)/
* 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)./(1)/
* 10.5 1991 Stock Option Plan (Exhibit 10.10 to 1991 Form 10-K)./(1)/
* 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).
* 10.10 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")).
* 10.18 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).
37
<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).
* 10.24 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. (Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1995 (the "1995 Form 10-K")).
* 10.25 Sixth Amendment to Loan Documents dated September 26, 1995, between
the Company, its subsidiaries and CoreStates Bank, N.A. (Exhibit
10.25 to the "1995 Form 10-K").
* 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). (Exhibit 10.26 to the "1995 Form 10-K").
* 10.27 Term Loan Agreement dated September 26, 1995, between the Company,
its subsidiaries and First Fidelity Bank, N.A. (Exhibit 10.27 to the
"1995 Form 10-K").
* 10.28 Landfill Management Agreement by and between Lawrence County Disposal
Centre, Inc. ("LCDC"), Gary Simmons, individually and as sole
shareholder of LCDC, Big T Disposal, Inc. ("Big T"), Sandra F.
Simmons, individually and as sole shareholder of Big T, and S&S
Grading of Illinois, Inc. ("S&S") dated April 20, 1995. (Exhibit
10.28 to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996 (the "March 1996 Form 10-Q"))./(1)/
* 10.29 Amendment dated February 29, 1996 to Severance Agreement dated August
20, 1993, by and between Eastern Environmental Services, Inc. and
William C. Skuba (Pursuant to instruction 2 to Item 601 of Regulation
S-K, the Amendments to the Severance 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 and Michael A. Fioravante).
(Exhibit 10.29 to the "March 1996 Form 10-Q").
* 10.30 Severance Agreement dated as of June 20, 1996 between Eastern
Environmental Services, Inc. and William C. Skuba. (Exhibit 10.1 to
the Company's Current Report on Form 8-K dated June 21, 1996, (the
"June 1996 Form 8-K"))./(1)/
* 10.31 Consulting Agreement dated as of June 20, 1996 between Eastern
Environmental Services, Inc. and William C. Skuba. (Exhibit 10.2 to
the June 1996 Form 8-K)./(1)/
* 10.32 Registration Rights Agreement dated as of June 20, 1996 between
Eastern Environmental Services, Inc. and William C. Skuba. (Exhibit
10.3 to the June 1996 Form 8-K).
* 10.33 Agreement for the Sale and Purchase Assets dated June 27, 1996
between Allied Waste Services, Inc. and Global Spill Management,
Inc., Allied Environmental Services, Inc., Allied Environmental
Services West, Inc., Stuart H. Berry and Alan Hershkowitz. (Exhibit
10.1 to the Company's Current Report on Form 8-K dated July 2, 1996).
38
<PAGE>
10.34 Amended Employment Agreement between the Company and Louis D.
Paolino, Jr., dated May 12, 1997./(1)/
10.35 Employment Agreement between the Company and Terry Patrick dated
November 13, 1996./(1)/
10.36 Amended Employment Agreement between the Company and Robert M. Kramer
dated May 12, 1997./(1)/
*10.37 Employment Agreement between the Company and Gregory Krzemien dated
June 26, 1996./(1)/
*10.38 1996 Stock Option Plan. (Exhibit 4 to the Company's Registration
Statement on Form S-8, Registration No. 333-28627 filed on
June 6, 1997, as subsequently amended on June 18, 1997.)/(1)/
*10.39 Revolving Credit Agreement dated September 25, 1996, between the
Company, its subsidiaries, the First National Bank of Boston and Bank
of America, Illinois (Exhibit 10.39 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996).
*10.40 First Amendment dated November 14, 1996 to the Revolving Credit
Agreement dated September 25, 1996, between the Company, its
subsidiaries, the First National Bank of Boston and Bank of America,
Illinois (Exhibit 10.40 to the Company's Quarterly Report on Form 10-
Q for the quarter ended December 31, 1996 (the "December 1996 Form
10-Q")).
*10.41 Second Amendment dated November 26, 1996 to the Revolving Credit
Agreement dated September 25, 1996, between the Company, its
subsidiaries, the First National Bank of Boston and Bank of America,
Illinois (Exhibit 10.41 to the "December 1996 Form 10-Q").
*10.42 Employment Agreement between the Company and Willard Miller dated
September 27, 1996 (Exhibit 10.42 to the "December 1996 Form 10-
Q")./(1)/
*10.43 Employment Agreement between the Company and Glen Miller dated
September 27, 1996 (Exhibit 10.43 to the "December 1996 Form 10-
Q")./(1)/
*10.44 Warrant Agreement dated September 27, 1996, between Eastern
Environmental Services, Inc. and Willard Miller for 281,907 shares
(Pursuant to instruction 2 to Item 601 of Regulation S-K, the Warrant
Agreement, which is substantially identical in all material respects
except as to the party thereto between the Registrant and Glen Miller
has not been filed). (Exhibit 10.44 to the "December 1996 Form 10-
Q").
*10.45 Third Amendment dated January 27, 1997 to the Revolving Credit
Agreement dated September 25, 1996, between the Company, its
subsidiaries, the First National Bank of Boston and Bank of America,
Illinois (Exhibit 10.45 to the Company's Quarterly Report on Form 10-
Q for the quarter ended March 31, 1997 (the "March 1997 Form 10-Q")).
*10.46 Fourth Amendment dated March 31, 1997 to the Revolving Credit
Agreement dated September 25, 1996, between the Company, its
subsidiaries, the First National Bank of Boston and Bank of America,
Illinois (Exhibit 10.46 to the "March 1997 Form 10-Q").
*10.47 Fifth Amendment dated May 8, 1997 to the Revolving Credit Agreement
dated September 25, 1996, between the Company, its subsidiaries, the
First National Bank of Boston and Bank of America, Illinois (Exhibit
10.47 to the "March 1997 Form 10-Q").
*10.48 Agreement of Merger dated July 29, 1996 between Eastern Environmental
Services, Inc. and Super Kwik, Inc., Waste Maintenance Services,
Inc., Willard Miller and Glen Miller (Exhibit 10.1 to the Company's
Current Report on Form 8-K dated September 27, 1996 (the "September
27, 1996 Form 8-K")).
39
<PAGE>
*10.49 Registration Rights Agreement dated September 27, 1996 between
Eastern Environmental Services, Inc. and Willard Miller. (Pursuant to
Instruction 2 to Item 601 of Regulation S-K, the Registration Rights
Agreement, which is substantially identical in all material respects
except as to the party thereto, between the Registrant and Glen
Miller is not being filed) (Exhibit 10.2 to the "September 27, 1996
Form 8-K").
*10.50 Agreement for the Sale and Purchase of Stock and Real Estate dated
December 2, 1996 between Richard G Bender, Sr., Alice L. Fields
Bender, Richard G. Bender, Jr., Karen L. Bender, Teresa A. Bender
Miller, Lynetta K. Bender Mowery, Stephen R. Bender, Jeffrey L.
Bender, Douglas R. Bender, (collectively referred to as the
"Stockholders"), and R & A Bender Property, Ltd., a Pennsylvania
limited partnership ("Partnership") and Eastern Environmental
Services, Inc., a Delaware corporation.(Exhibit 10.1 to the Company's
Current Report on Form 8-K dated December 10, 1996 (the "December 10,
1996 Form 8-K")).
*10.51 Escrow Agreement dated December 2, 1996, between Richard G. Bender,
Sr., Alice L. Fields Bender, Richard G. Bender, Jr., Karen L. Bender,
Teresa A. Bender Miller, Lynetta K. Bender Mowery, Stephen R. Bender,
Jeffrey L. Bender, Douglas R. Bender (collectively the
"Stockholders"), R&A Bender Property, Ltd. ("Partnership"), Eastern
Environmental Services, Inc. ("Purchaser'), Robert M. Kramer &
Associates, P.C. ("RMK") and McNees, Wallace & Nurick ("MWN").
(Exhibit 10.2 to the "December 10, 1996 Form 8-K").
*10.52 Warrant Agreement dated December 2, 1996, between Eastern
Environmental Services, Inc. and Karen L. Bender for 8,970 shares
(pursuant to instruction 2 to Item 601 of Regulation S-K, the Warrant
Agreements, which are substantially identical in all material
respects except as to the parties thereto and amount of shares of
common stock issuable upon exercise of the warrant, between the
Registrant and the following individuals not being filed: Richard G.
Bender (3,905 shares), Alice L. Fields (7,380 shares), Richard G.
Bender, Jr. (6,660 shares), Teresa A. Bender Miller (2,680 shares),
Lynetta K. Bender Mowery (4,475 shares), Stephen R. Bender (6,625
shares), Jeffrey L. Bender (6,625 shares), and Douglas R. Bender
(2,680 shares) (Exhibit 10.3 to the "December 10, 1996 Form 8-K").
* 10.53 Reorganization Plan and Agreement dated December 31,1996, between
Norman Taylor, Thomas King, Robert Donno, Eastern Environmental
Services, Inc., and Eastern Waste of Long Island, Inc. and amendment
thereto (Exhibit 10.1 to the Company's Current Report on Form 8-K
dated January 31, 1997).
*10.54 Reorganization Plan and Agreement dated March 31, 1997, by and among
Robert A. Kinsley, Scott R. Wagner, Dennis M. Grimm, William J.
Holbrook (each individually a "Shareholder" and collectively the
"Shareholders"), Apex Waste Services, Inc. ("Company") and Eastern
Environmental Services, Inc. ("Registrant") (Exhibit 10.1 to the
Company's Current Report on Form 8-K dated March 31, 1997).
*10.55 Agreement and Plan of Reorganization made on October 23, 1996 by and
among "Shareholders" ("Shareholder"), Waste Services, Inc. ("Waste"),
New York Waste, Inc. ("NY Waste"), Long Island Waste Services, Inc.
("L.I. Waste"), KC Waste Services, Inc. ("KC Waste") and Curbside
Leasing, Inc. ("Curbside"), Eastern Environmental Services, Inc.
("EESI"), Eastern Waste of New York, Inc. ("EESI New York"), Eastern
Waste of Long Island, Inc. ("EESI L.I.") and Eastern Container
Corporation ("EESI Container"). For the purposes of this Agreement,
EESI, EESI New York, EESI L.I. and EESI Container are collectively
referred to as "Purchasers," Waste, NY Waste, L.I. Waste, KC Waste
and Curbside are collectively referred to as the "Companies" and
individually known as a "Company" and the Companies and the
Shareholders are collectively referred to as the "Sellers." Amendment
No. 1, dated April 14, 1997 to the Agreement and Plan of
Reorganization made on October 23, 1996. Amendment No. 2 dated May
12, 1997, to the Agreement and Plan of Reorganization made on October
23, 1996. (Exhibit 10.1 to the Company's Current Report on Form 8-K
dated May 12, 1997 (the "May 12, 1996 Form 8-K")).
*10.56 The Agreement and Plan of Reorganization ("Agreement") is made on
April 7, 1997 by and among Christopher Pittas, Nicholas Pittas, Jr.
("Shareholders"), Golden Gate Carting Co., Inc. ("Golden Gate"),
Eastern Environmental Services, Inc. ("EESI"), and Eastern Waste of
New York, Inc. ("EESI NY".) For
40
<PAGE>
purposes of this Agreement, EESI and EESI NY are collectively
referred to as "Purchasers," Golden Gate may also be referred to as
"Company," and the Company and the Shareholders are collectively
referred to as "Sellers." Amendment No. 1 dated May 12, 1997 to
Agreement and Plan of Reorganization made on April 7, 1997 (Exhibit
10.2 to the "May 12, 1997 Form 8-K").
*10.57 The Agreement and Plan of Reorganization (the "Agreement") is made as
of April 7, 1997, by and among Vincent Morea ("Shareholder"), Coney
Island Rubbish Removal, Inc. ("Coney Island"), Eastern Environmental
Services, Inc. ("EESI"), and Eastern Waste of New York, Inc. ("EESI
NY"). For purposes of this Agreement, EESI and EESI NY are
collectively referred to as "Purchasers", Coney Island may also be
referred to as "Company" and the Company and the Shareholder are
collectively referred to as the "Sellers". Amendment No. 1 dated as
of May 12, 1997 to Agreement and Plan of Reorganization made as of
April 7, 1997 (Exhibit 10.3 to the "May 12, 1997 Form 8-K")./(1)/
*10.58 The Agreement "Management Agreement" is made on May 12, 1997, by and
between Golden Gate Carting Co., Inc. and New York Corporation (the
"Company") and Eastern Waste of New York, Inc., a Delaware
corporation (the "Manager") (Exhibit 10.4 to the "May 12, 1997 Form
8-K")./(1)/
*10.59 The Agreement ("Management Agreement") is made as of May 12, 1997, by
and between Coney Island Rubbish Removal, Inc., a New York
corporation (the "Company") and Eastern Waste of New York, Inc., a
New York corporation (the "Manager") (Exhibit 10.5 to the "May 12,
1997 Form 8-K")./(1)/
*10.60 Amended and Restated Agreement for the Purchase and Sale of Assets
agreement dated May 8, 1997 by and among Eastern Environmental
Services, Inc., a Delaware Corporation ("EESI"); Eastern
Environmental Services of Florida, Inc., a Florida Corporation
("Buyer"); Environmental Waste Systems, Inc., a Florida Corporation
("Seller"); and Carl Casagrande and Albert Casagrande, the sole
shareholders of Seller (the "Shareholders") (Exhibit 10.1 to the
Company's Current Report on Form 8-K dated May 8, 1997 (the "May 8,
1997 Form 8-K")).
*10.61 Amended and Restated Agreement for the Purchase and Sale of assets
agreement is dated May 8, 1997 by and among Eastern Environmental
Services, Inc., a Delaware Corporation ("EESI"); Eastern
Environmental Services of Florida, Inc., a Florida Corporation
("Buyer"); Environmental Waste Systems of Palm Beach, Inc., a Florida
Corporation ("Seller"); and Carlo Casagrande, Albert Casagrande and
Dominick Marzono, the sole shareholders of Seller (the "Sellers").
(Exhibit 10.2 to the "May 8, 1997 Form 8-K").
10.62 Amended and Restated Employment Agreement between the Company and
Dennis Grimm dated May 16, 1997./(1)/
10.63 Employment Agreement between the Company and John Poling dated
November 1, 1996./(1)/
10.64 Amended and Restated 1996 Stock Option Plan./(1)/
11.1 Statement Re: Computation of Per Share Earnings
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule
- -------------------
* Incorporated by reference
/(1)/ Indicates a management contract or compensation plan or arrangement.
41
<PAGE>
(b) Current Reports on Form 8-K or 8-K/A:
1. The Company filed a report on Form 8-K, dated March 31, 1997, under
Item 2, to report the acquisition and merger with Apex Waste Services,
Inc. ("Apex"). Historical financial statements of Apex and pro forma
financial information of the Company required under "Item 7. Financial
Statements and Exhibits" was filed on Form 8-K/A Amendment No. 1 on
May 15, 1997.
2. On April 15, 1997, the Company filed a report on Form 8-K/A, Amendment
No.1, dated January 31, 1997, under Item 7, to provide historical
combined audited financial statements of the businesses acquired, the
Donno Company, Inc., Suffolk Waste Systems, Inc. and Residential
Services, Inc. and N.R.T. Realty Corporation (collectively, the "Donno
Companies") for the years ended June 30, 1996, 1995 and 1994, and
unaudited pro forma financial information for the Company for the
years ended June 30, 1996, 1995 and 1994 and the six months ended
December 31, 1996 with respect to the Donno Companies.
3. The Company filed a report on Form 8-K, dated May 8, 1997, under Item
2, to report the acquisition of substantially all of the assets of
Environmental Waste Systems, Inc. and Environmental Waste Systems of
Palm Beach, Inc. Historical financial statements of the businesses
acquired and pro forma financial information of the Company were not
required due to the transactions being below the financial statement
filing requirements as per applicable regulations under the Securities
Exchange Act of 1934.
4. The Company filed a report on Form 8-K, dated May 12, 1997, under Item
2, to report the acquisition of substantially all of the assets of KC
Waste Services, Inc., Curbside Leasing, Inc., Waste Services, Inc.,
New York Waste Services, Inc. and Long Island Waste Services, Inc.
(collectively referred to as the "Waste Services, Inc. and
affiliates," or "WSI"). Historical financial statements of WSI and pro
forma financial information of the Company required under "Item 7.
Financial Statement and Exhibits" was filed on Form 8-K/A, Amendment
No. 1, on July 11, 1997.
5. On May 13, 1997, the Company filed a report on Form 8-K/A, dated July
2, 1996, under Item 5, to provide as additional information relating
to the acquisition of Allied Environmental Services, Inc. and
affiliates audited financial statements year ended June 30, 1996 and
the periods seven months ended June 30, 1995 and five months ended
November 30, 1994.
6. On May 15, 1997, the Company filed a report on Form 8-K/A, dated March
31, 1997, under Item 7, to provide historical audited financial
statements of the business acquired, Apex Waste Services, Inc. (Apex),
for the three months ended December 31, 1996 and the nine months ended
September 30, 1996 (Predecessor Company) and unaudited pro forma
financial information for the Company for the year ended June 30, 1996
and the nine months ended March 31, 1997 with respect to its
acquisition and merger with Apex.
7. On June 6, 1997, the Company filed a report on Form 8-K/A, dated July
2, 1996, under Item 7, to provide a new consent of B.J. Klinger &
Company P.C. with respect to the acquisition of Allied Environmental
Services, Inc.
8. On June 6, 1997, the Company filed a report on Form 8-K/A, dated
September 27, 1996, under Item 7, to provide a new consent of Bardall,
Weintraub, P.C. with respect to the acquisition of Super Kwik, Inc.
and Waste Maintenance Services, Inc.
9. On June 6, 1997, the Company filed a report on Form 8-K/A, dated
December 10, 1996, under Item 7, to provide a new consent of Boyer &
Ritter, CPAs with respect to the acquisition of R.&A. Bender, Inc.
and R.&A. Bender Property, Ltd.
42
<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/ Louis D. Paolino, Jr.
-------------------------------
Louis D. Paolino, Jr.
Chairman of the Board,
Chief Executive Officer,
and President
DATED the 26th day of September, 1997.
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute
and appoint Louis D. Paolino, Jr. and Gregory M. Krzemien, or either of them
acting alone, his true and lawful attorney-in-fact and agent, with full power of
substitution and revocation for him and in his name, place and stead, in any and
all capacities, to sign this Report on Form 10-K of Eastern Environmental
Services, Inc. and any and all amendments to the Report and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
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:
Name Title Date
- ---- ----- ----
/s/ Louis D. Paolino, Jr. Chairman of the Board, 9/26/97
- --------------------------- Chief Executive Officer,
Louis D. Paolino, Jr. President and Director
(Principal Executive Officer)
/s/ Gregory M. Krzemien Chief Financial Officer 9/26/97
- --------------------------- and Treasurer (Principal
Gregory M. Krzemien Financial and Accounting Officer)
/s/ George O. Moorehead Director 9/26/97
- ---------------------------
George O. Moorehead
/s/ Kenneth C. Leung Director 9/26/97
- ---------------------------
Kenneth C. Leung
43
<PAGE>
EXHIBIT INDEX
3.3 Certificate of Amendment of Certificate of Incorporation of the
Company.
10.34 Amended Employment Agreement between the Company and Louis D.
Paolino, Jr., dated May 12, 1997.
10.35 Employment Agreement between the Company and Terry Patrick dated
November 13, 1996.
10.36 Amended Employment Agreement between the Company and Robert M. Kramer
dated May 12, 1996.
10.62 Amended and Restated Employment Agreement between the Company and
Dennis Grimm dated May 16, 1997.
10.63 Employment Agreement between the Company and John Poling dated
November 1, 1996.
10.64 Amended and Restated 1996 Stock Option Plan.
11.1 Statement Re: Computation of Per Share Earnings
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
<PAGE>
Eastern Environmental Services, Inc.
Consolidated Financial Statements
Years ended June 30, 1997, 1996 and 1995
Contents
Report of Independent Auditors..............................F-2
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-7
Notes to Consolidated Financial Statements..................F-8
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. as of June 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1996 and 1995 financial statements of Super
Kwik, Inc. and Donno Company, Inc. and affiliates, wholly owned subsidiaries,
which statements reflect total assets constituting 46% in 1996, and total
revenues constituting 81% in 1996, and 79% in 1995, of the related consolidated
totals. Those statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to data included for
Super Kwik, Inc. and Donno Company, Inc. and affiliates, is based solely on the
reports of the other auditors.
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 and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and, for each of the two years in the period
ended June 30, 1996, the reports of other auditors, the financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Eastern Environmental Services, Inc. at June 30, 1997 and
1996, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended June 30, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
August 29, 1997
F-2
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
-----------------------------
1997 1996
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 4,292,278 $ 1,776,112
Accounts receivable, less allowance for doubtful accounts
of $1,599,000 and $604,000............................................. 13,508,730 3,349,159
Deferred income taxes..................................................... 3,369,014 372,445
Tax refund receivable..................................................... -- 74,467
Prepaid expenses and other current assets................................. 4,538,198 1,698,753
-------------- ------------
Total current assets................................................. 25,708,220 7,270,936
Property and equipment:
Land...................................................................... 6,973,871 236,517
Landfill sites............................................................ 33,138,713 12,673,250
Buildings and leasehold improvements...................................... 7,112,761 2,098,512
Vehicles.................................................................. 18,923,388 11,806,417
Machinery and equipment................................................... 18,936,782 7,553,325
Furniture and fixtures.................................................... 1,524,087 1,485,868
-------------- ------------
Total property and equipment......................................... 86,609,602 35,853,889
Accumulated depreciation and amortization................................. 20,465,969 17,510,520
-------------- ------------
66,143,633 18,343,369
Assets held for sale........................................................... 358,758 859,262
Excess cost over fair market value of net assets acquired, net of
$875,000 and $440,000 accumulated amortization.............................. 60,302,159 372,096
Other intangible assets, net of $3,460,000 and $3,202,000 accumulated
amortization................................................................ 6,079,686 662,685
Notes receivable from officers................................................. 432,902 432,902
Other assets (including $533,000 and $433,000 of restricted
cash on deposit for landfill closure and insurance bonding)................. 2,060,054 844,837
-------------- ------------
Total assets......................................................... $ 161,085,412 $ 28,786,087
============== ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
-----------------------------
1997 1996
-------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..................................................... $ -- $ 595,000
Accounts payable.......................................................... 8,036,964 3,559,131
Accrued expenses and other current liabilities............................ 10,421,694 2,028,359
Income taxes payable...................................................... 387,342 57,739
Current portion of accrued landfill closure and other environmental
costs.................................................................. 2,228,000 870,000
Current portion of long-term debt......................................... 1,803,269 773,702
Current portion of capital lease obligations.............................. 1,249,769 1,240,358
Deferred revenue.......................................................... 2,432,897 --
-------------- ------------
Total current liabilities............................................ 26,559,935 9,124,289
Deferred income taxes.......................................................... 5,716,590 507,623
Long-term debt, net of current portion......................................... 59,303,672 3,534,716
Capital lease obligations, net of current portion.............................. 1,625,741 2,774,124
Accrued landfill closure and other environmental costs......................... 6,891,219 2,424,137
Other liabilities.............................................................. 9,151,246 --
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares--50,000,000
Issued and outstanding shares--16,152,955 and 9,523,785............... 161,530 95,238
Class A common stock (convertible to common stock), $.01 par value:
Authorized shares--10,000,000
Issued and outstanding shares--none -- --
Additional paid-in capital................................................ 50,072,591 10,661,427
Retained earnings (deficit)............................................... 1,679,147 (259,208)
-------------- ------------
51,913,268 10,497,457
Less treasury stock at cost--39,100 common shares.......................... (76,259) (76,259)
-------------- ------------
Total stockholders' equity........................................... 51,837,009 10,421,198
-------------- ------------
Total liabilities and stockholders' equity........................... $ 161,085,412 $ 28,786,087
============== ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------
1997 1996 1995
--------------- ------------- -------------
<S> <C> <C> <C>
Revenues................................... $ 79,625,420 $ 39,519,173 $ 40,802,062
Cost of revenues........................... 53,130,199 30,954,798 30,413,607
Selling, general, and administrative
expenses................................ 12,778,548 9,343,354 6,832,510
Depreciation and amortization.............. 4,742,370 2,893,712 3,665,360
Merger costs............................... 3,336,792 -- --
--------------- ------------- -------------
Operating income (loss).................... 5,637,511 (3,672,691) (109,415)
Interest expense........................... (2,662,729) (629,009) (580,632)
Other income (expense)..................... 508,778 (130,640) 488,384
--------------- ------------- -------------
Income (loss) before income taxes.......... 3,483,560 (4,432,340) (201,663)
Income tax expense (benefit)............... 1,341,205 (9,687) (147,093)
--------------- ------------- -------------
Net income (loss).......................... $ 2,142,355 $ (4,422,653) $ (54,570)
=============== ============= =============
Earnings (loss) per share.................. $ .14 $ (.49) $ (.01)
=============== ============= =============
Weighted average number of shares
outstanding............................. 14,976,802 9,018,080 7,844,359
=============== ============= =============
</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 Additional Retained
Common Common Common Common Paid-In Earnings Treasury
Stock Stock Stock Stock Capital (Deficit) Stock Total
----- ----- ----- ----- ------- -------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 ....... 6,284,231 1,591,201 $ 62,842 $ 15,912 $ 8,989,991 $ 5,130,015 $(76,259) $ 14,122,501
Exercise of common stock
options .................... 30,000 -- 300 -- 25,950 -- -- 26,250
Issuance of common stock ..... 300,000 -- 3,000 -- 297,000 -- -- 300,000
Net loss ..................... -- -- -- -- -- (54,570) -- (54,570)
Dividends paid to former
stockholders of Donno
Company, Inc. and affiliates -- -- -- -- -- (654,000) -- (654,000)
---------- ---------- -------- -------- ----------- ----------- -------- ------------
Balance at June 30, 1995 ....... 6,614,231 1,591,201 66,142 15,912 9,312,941 4,421,445 (76,259) 13,740,181
Exercise of common stock
options .................... 140,000 -- 1,400 -- 141,100 -- -- 142,500
Exercise of common stock
warrants ................... 303,353 -- 3,034 -- 424,312 -- -- 427,346
Issuance of common stock ..... 875,000 -- 8,750 -- 783,074 -- -- 791,824
Conversion of common stock ... 1,591,201 (1,591,201) 15,912 (15,912) -- -- -- --
Net loss ..................... -- -- -- -- -- (4,422,653) -- (4,422,653)
Dividends paid to former
stockholders of Donno
Company, Inc. and affiliates -- -- -- -- -- (258,000) -- (258,000)
---------- ---------- -------- -------- ----------- ----------- -------- ------------
Balance at June 30, 1996 ....... 9,523,785 -- 95,238 -- 10,661,427 (259,208) (76,259) 10,421,198
Exercise of common stock
options and warrants ....... 478,076 -- 4,781 -- 425,780 -- -- 430,561
Proceeds from sale of
common stock, less
commissions and issuance
expenses of $724,248 ....... 2,670,000 -- 26,700 -- 9,929,052 -- -- 9,955,752
Common stock issued in
connection with the
incorporation of Apex ...... 796,927 -- 7,970 -- 3,242,030 -- -- 3,250,000
Common stock issued in
purchase acquisitions ...... 2,636,542 -- 26,365 -- 25,255,278 -- -- 25,281,643
Common stock issued for
consulting services ........ 5,625 -- 56 -- 44,944 -- -- 45,000
Stock issued to satisfy debt
obligation ................. 42,000 -- 420 -- 514,080 -- -- 514,500
Net income ................... -- -- -- -- -- 2,142,355 -- 2,142,355
Dividends paid to former
stockholders of Donno
Company, Inc. and affiliates -- -- -- -- -- (204,000) -- (204,000)
---------- ---------- -------- -------- ----------- ----------- -------- ------------
Balance at June 30, 1997 ....... 16,152,955 -- $161,530 $ -- $50,072,591 $ 1,679,147 $(76,259) $ 51,837,009
========== ========== ======== ======== =========== =========== ======== ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Operating activities
Net income (loss) ................................................ $ 2,142,355 $ (4,422,653) $ (54,570)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization ................................ 4,742,370 2,893,712 3,665,360
Provision for losses on receivables .......................... 410,636 304,496 300,481
Landfill closure costs ....................................... 311,627 1,006,211 281,619
Noncash severance and transition costs ....................... -- 740,827 --
Noncash compensation expense ................................. 45,000 138,173 --
Deferred income taxes ........................................ 900,286 (21,788) (167,974)
Loss on write-down of assets held for sale ................... -- 402,616 --
(Gain) loss on sale of property and equipment ................ (109,927) 52,490 (77,579)
Changes in operating assets and liabilities:
Accounts receivable ........................................ (6,928,975) (231,655) 749,534
Income taxes ............................................... 638,544 76,637 (53,165)
Accounts payable ........................................... 1,859,052 581,632 (384,252)
Deferred revenue ........................................... 2,432,897 -- --
Other ...................................................... (1,893,712) 910,770 454,049
------------ ------------ ------------
Net cash provided by operating activities ........................ 4,550,153 2,431,468 4,713,503
Investing activities
Acquisition of businesses, net of cash acquired .................. (39,336,838) -- --
Development of landfill sites .................................... (4,424,469) (1,868,661) (1,361,955)
Proceeds from sale of property and equipment ..................... 368,643 225,309 362,235
Purchase of property and equipment ............................... (8,457,484) (3,213,874) (3,633,556)
Payments received on notes receivable ............................ -- (213,930) 197,428
Payments for intangible assets ................................... (2,142,110) (122,500) (574,950)
Landfill closure and insurance bonding deposits .................. (57,837) 111,485 (18,145)
------------ ------------ ------------
Net cash used in investing activities ............................ (54,050,095) (5,082,171) (5,028,943)
Financing activities
Proceeds from revolving line of credit, long-term
debt and capital lease obligations ............................. 62,946,037 3,801,500 4,916,792
Payments on revolving line of credit, long-term debt
and capital lease obligations .................................. (24,362,242) (3,408,086) (3,235,517)
Net (payments) borrowings on note payable to
shareholder/officer ............................................ -- (42,457) 42,457
Proceeds from the incorporation of Apex .......................... 3,250,000 -- --
Proceeds from issuance of common stock, net
of expenses .................................................... 10,386,313 1,361,670 326,250
Dividends paid to former stockholders of
Donno Company, Inc. and affiliates ............................. (204,000) (258,000) (654,000)
------------ ------------ ------------
Net cash provided by financing activities ........................ 52,016,108 1,454,627 1,395,982
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ............. 2,516,166 (1,196,076) 1,080,542
Cash and cash equivalents at beginning of year ................... 1,776,112 2,972,188 1,891,646
------------ ------------ ------------
Cash and cash equivalents at end of year ......................... $ 4,292,278 $ 1,776,112 $ 2,972,188
============ ============ ============
</TABLE>
See accompanying notes.
F-7
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Eastern Environmental Services, Inc. and its wholly owned subsidiaries (the
"Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
Description of Business
The Company is engaged in the business of providing integrated solid waste
management services, consisting of collection, transportation, and disposal
services through nonhazardous waste disposal facilities and waste hauling
operations. The Company's customers include municipal, commercial, industrial,
and residential customers, both local and national companies, in various
geographic regions throughout principally the eastern United States.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions regarding the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. Such
estimates include the Company's accounting for closure and post-closure
obligations, amortization of landfill development costs, and estimates of
reserves such as the allowance for doubtful accounts.
Property and Equipment
Property and equipment is stated on the basis of cost. The Company provides
depreciation over the estimated useful lives of assets using the straight-line
method for its property and equipment except for landfill sites. The estimated
useful lives are 20 to 40 years for buildings and improvements, five to ten
years for vehicles, machinery, and equipment, five to twelve years for
containers and five to ten years for furniture and fixtures.
Landfill site costs include expenditures for acquisition of land and
related airspace, engineering, permitting, legal, capitalized interest, and
certain direct site preparation costs which management believes are recoverable.
The Company commences depreciation of landfill site costs when the construction
is completed and the constructed area begins to accept waste. Landfill site
costs for facilities currently in use are 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 under development for future expansion and thus
excluded from depreciation totaled $2,517,000 and $2,701,000 at June 30, 1997
and 1996, respectively.
F-8
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment (continued)
The Company capitalizes interest costs as part of the cost of developing
landfill sites and constructing disposal space. Interest costs of $178,000,
$84,000, and $48,000 were capitalized for the fiscal years ended June 30, 1997,
1996, and 1995, respectively.
Depreciation expense includes depreciation recognized on assets under
capitalized lease obligations.
Excess Cost over Fair Market Value of Net Assets Acquired
The excess cost over fair market value of net assets acquired is amortized
on a straight-line basis over 40 years commencing on the dates of the respective
acquisitions. Amortization expense of excess cost over fair value of net assets
acquired was $435,000, $81,000, and $75,000, for the fiscal years ended June 30,
1997, 1996, and 1995, respectively.
Other Intangible Assets
Other intangible assets consist principally of noncompete agreements and
waste collection and hauling contracts acquired in the acquisition of landfill
sites and waste collection operations. Noncompete agreements and waste
collection and hauling contracts are currently being amortized over a period of
three to twelve years. Amortization of other intangible assets was $258,000,
$151,000, and $230,000, for the fiscal years ended June 30, 1997, 1996, and
1995, respectively.
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 costs 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 on the unit-of-production method based on
consumed airspace in relation to management's estimate of total available
airspace. Environmental costs relating to remediation work are accrued and
charged to operations in the period the potential environmental liability is
known.
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 $2,200,000, $22,000, and $109,000 and financed insurance premiums of
$1,211,000, $462,000, and $458,000 for the fiscal years ended 1997, 1996, and
1995, respectively.
F-9
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
The Company recognizes revenues upon receipt and acceptance of waste
material at its landfills and upon collection of waste material at its waste
collection and hauling operations. Amounts billed prior to services being
performed are classified as deferred revenue.
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 approximates fair value based on current
rates and terms.
Long-Lived Assets
Long-lived assets consist primarily of property and equipment, excess cost
over fair market value of net assets acquired and other intangible assets. The
recoverability of long-lived assets is evaluated at the operating unit level by
an analysis of operating results and consideration of other significant events
or changes in the business environment. If an operating unit has current
operating losses and based upon projections there is a likelihood that such
operating losses will continue, the Company will evaluate whether impairment
exists on the basis of undiscounted expected future cash flows from operations
before interest for the remaining period. If impairment exists, the carrying
amount of the long-lived assets is reduced to its estimated fair value.
Reclassifications
Certain previously reported amounts have been reclassified to conform to
the 1997 presentation.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which is required to be adopted for fiscal
periods ending after December 15, 1997 (fiscal 1998 for the Company). At that
time, the Company will be required to change the method currently used to
compute earnings per share. Under the new standard, the dilutive effect of stock
options and stock warrants will be excluded from basic earnings per share. If
earnings per share had been calculated under the new requirement, the effect
would not have been material to the periods presented.
In October 1996, the AICPA issued SOP 96-1, Environmental Remediation
Liabilities. The SOP provides guidance with respect to the recognition,
measurement and disclosure of environmental remediation liabilities. The Company
will adopt SOP 96-1 in the first quarter of fiscal 1998 and, based on current
circumstances, does not believe the effect of adoption will be material.
F-10
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. ACQUISITIONS
Acquisitions Accounted for Under the Pooling of Interests Method
On September 27, 1996, the Company completed its merger with Super Kwik,
Inc. (Super Kwik) and 2,308,176 unregistered shares of the Company's common
stock, par value $.01, were issued in exchange for all outstanding shares of
Super Kwik. Super Kwik operates a municipal solid waste collection business in
southern New Jersey, operating over 75 collection vehicles and serving more than
29,000 customers. The transaction has been accounted for using the pooling of
interests method; and, accordingly, the accompanying consolidated financial
statements include the accounts of Super Kwik for all periods presented.
On January 31, 1997, the Company completed its merger with Donno Company,
Inc., Suffolk Waste Systems, Inc., Residential Services, Inc. and N.R.T. Realty
Corporation (collectively referred to as the "Donno Companies" or "Donno") with
1,137,951 unregistered shares of the Company's common stock, par value $.01,
issued in exchange for all issued and outstanding shares of the Donno Companies.
The Donno Companies operate over 75 vehicles and a transfer station and service
over 60,000 residential and commercial customers in Nassau and Suffolk Counties
of Long Island, New York. The transaction has been accounted for using the
pooling of interests method; and, accordingly, the accompanying consolidated
financial statements include the accounts of the Donno Companies for all periods
presented.
On March 31, 1997, the Company completed its merger with Apex Waste
Services, Inc. ("Apex"), with 796,927 unregistered shares of the Company's
common stock, par value $.01, (including 2,482 shares representing an adjustment
for long-term debt being less than $15,000,000 at March 31, 1997, the date of
closing) issued in exchange for all issued and outstanding shares of Apex. Apex
operates over 65 collection vehicles and a transfer and processing station and
provides services to approximately 10,000 residential and 4,000 commercial
customers in Northeastern Pennsylvania. The transaction has been accounted for
using the pooling of interests method. Apex was formed on October 1, 1996 as a
result of the acquisition of certain assets from Waste Management of
Pennsylvania, Incorporated, including $6.2 million excess cost over fair market
value of net assets acquired. The results of operations of Apex have been
included in the Company's consolidated financial statements since the date of
inception of Apex.
Revenues and net income (loss) of the separate companies were as follows:
<TABLE>
<CAPTION>
Net Income
Revenues (Loss)
----------- --------------
<S> <C> <C>
Year ended June 30, 1997 (Unaudited)
Eastern Environmental Services, Inc. ........... $30,759,984 $ 1,499,755
Super Kwik ..................................... 22,723,221 1,072,502
Donno........................................... 12,992,919 (115,938)
Apex............................................ 13,149,296 (313,964)
----------- ------------
Combined........................................ $79,625,420 $ 2,142,355
=========== ============
Year ended June 30, 1996
Eastern Environmental Services, Inc. ........... $ 7,632,503 $ (3,500,043)
Super Kwik ..................................... 20,521,676 (282,313)
Donno........................................... 11,364,994 (640,297)
----------- ------------
Combined........................................ $39,519,173 $ (4,422,653)
=========== ============
Year ended June 30, 1995
Eastern Environmental Services, Inc. ........... $ 8,650,945 $ (1,547,550)
Super Kwik ..................................... 18,865,547 541,287
Donno........................................... 13,285,570 951,693
----------- ------------
Combined........................................ $40,802,062 $ (54,570)
=========== ============
</TABLE>
F-11
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. ACQUISITIONS (Continued)
Acquisitions Accounted for Under the Pooling of Interests Method (Continued)
Super Kwik, Donno, and Apex were Subchapter S Corporations prior to the
mergers, whereby, the taxable income or loss flowed through to the individual
shareholders. The effects of providing pro forma income taxes as a C Corporation
were not presented as such amounts are not material.
In the fiscal year ended June 30, 1997, the Company incurred approximately
$1,148,000, $955,000, and $1,234,000 in merger-related costs associated with the
Super Kwik, Donno, and Apex mergers, respectively, of which approximately
$2,040,000 is remaining in accrued liabilities at June 30, 1997. The $3,337,000
of merger costs includes $835,000 of transaction-related expenses and $2,502,000
of costs to integrate operations. Additionally, tax provisions of $660,000,
$8,000, and $236,000 were recorded at the date of the mergers relating to net
deferred tax liabilities with respect to the termination of the previous S
Corporation elections of Super Kwik, Donno, and Apex, respectively. This total
tax provision of $904,000 is included within income tax expense for 1997.
Acquisitions Accounted for Under the Purchase Method
During the fiscal year ended June 30, 1997, the Company consummated
fourteen acquisitions that were accounted for under the purchase method of
accounting. Results of operations of companies that were acquired and subject to
purchase accounting are included from the dates of such acquisitions. The total
costs of acquisitions, including liabilities assumed, accounted for under the
purchase method were $88,229,000. The excess cost over the fair market value of
the net assets acquired was $54,208,000. This amount is being amortized over 40
years from the dates of respective acquisitions on a straight-line basis.
Certain purchase price allocations are based on preliminary estimates as of the
acquisition dates.
The unaudited pro forma information set forth below assumes the three
significant acquisitions accounted for under the purchase method had occurred at
the beginning of the periods presented. In addition this information includes
the predecessor operations of Apex. Apex was formed on October 1, 1996 as a
result of the acquisition of certain assets from Waste Management of
Pennsylvania, Incorporated. The unaudited pro forma information is presented for
informational purposes only and is not necessarily indicative of the results of
operations that actually would have been achieved had the acquisitions been
consummated at that time:
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues......................................... $106,964,000 $100,191,000
Net income....................................... $3,990,000 $1,030,000
Earnings per share............................... $.25 $.09
</TABLE>
The Company closed into Escrow on May 12, 1997 the pending acquisitions of
Golden Gate Carting Co. Inc., ("Golden Gate") and Coney Island Rubbish Removal,
Inc. ("Coney Island") pending satisfaction of certain normal conditions which
the Company believes will be resolved. Estimated consideration relating to the
Golden Gate and Coney Island acquisitions consists of 288,820 unregistered
shares of the Company's stock and the assumption of approximately $3.0 million
of debt. The acquisitions of Golden Gate and Coney Island will be accounted for
under the purchase method.
F-12
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. ACCOUNTS RECEIVABLE
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. The following is a rollforward of the Company's
allowance for bad debts:
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year................... $604,000 $600,000 $445,000
Additions (charged to expense)................. 411,000 304,000 300,000
Deductions..................................... (611,000) (300,000) (145,000)
Other - purchase price allocation.............. 1,195,000 -- --
---------- -------- --------
Balance at end of year......................... $1,599,000 $604,000 $600,000
========== ======== ========
</TABLE>
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
In September 1996, the Company entered into a new revolving credit facility
with two major banks, Bank Boston, N.A. and Bank of America Illinois, which
provides for borrowings of up to $100,000,000 (as amended on May 8, 1997) for
repayment of certain debt, funding of acquisitions, and includes up to
$15,000,000 of standby letters of credit availability. At the Company's option,
the interest rate on any loan under the revolving credit facility will be based
on an adjusted prime rate or Eurodollar rate, as defined in the agreement. The
facility matures on April 30, 2000. The revolving credit facility, among other
conditions, requires the payment of a commitment fee range of .25% to .50% on
the unused balance, payable in arrears, and provides for certain restrictions on
the ability of the Company, to incur borrowings, sell assets, or pay cash
dividends. The facility also requires the maintenance of certain financial
ratios, including interest coverage ratios, leverage ratios, and profitable
operations. The facility is collateralized by all the stock of the Company's
subsidiaries, whether now owned or hereafter acquired. A portion of the credit
facility was utilized to refinance the remaining balances of an existing
revolving credit facility and note payable.
Debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
June 30,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Note payable to BankBoston, N.A. and Bank of America Illinois, maturity date of
April 30, 2000, variable interest rates ranging from
8.0% to 8.5% ................................................................ $55,500,000 $ --
Revolving credit facility ...................................................... -- 237,500
Note payable ................................................................... -- 1,096,875
Note payable secured by certain real estate. Interest at 8.5% payable
monthly, principal due June 2002 ........................................... 1,450,000 --
Notes payable to various financial institutions, with various
maturities payable through September 2013, interest rates (fixed and
variable) ranging from 8.25% to 9.25%, and monthly installments
ranging from $6,092 to $12,500 .............................................. 1,293,567 1,608,287
Machinery and equipment notes payable, secured by equipment, with
various maturities payable through February 2005, interest rates ranging from
6% to 12%, payable monthly in installments ranging from
$599 to $13,225 ............................................................. 3,419,680 5,191,365
Other .......................................................................... 2,319,204 188,873
----------- -----------
63,982,451 8,322,900
Less current portion ........................................................... 3,053,038 2,014,060
----------- -----------
$60,929,413 $ 6,308,840
=========== ===========
</TABLE>
F-13
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (Continued)
Certain machinery and equipment notes payable discussed above have been
classified as capital lease obligations in the balance sheet. Cost and
accumulated depreciation related to assets under capital leases are as follows:
<TABLE>
<CAPTION>
June 30,
--------------------------
1997 1996
----------- ----------
<S> <C> <C>
Cost..................................... $ 3,465,886 $3,677,649
Accumulated depreciation................. 969,705 659,828
----------- ----------
$ 2,496,181 $3,017,821
=========== ==========
</TABLE>
Maturities of long-term debt are as follows: 1998--$3,053,038;
1999--$1,148,733; 2000--$57,060,500; 2001--$474,775; 2002 and
thereafter--$2,245,405.
Interest paid on all indebtedness was $2,509,000, $699,000, and $582,000,
for the fiscal years ended 1997, 1996, and 1995, respectively.
Letters of credit have been provided to the Company supporting performances
of landfill closure and post-closure requirements, insurance contracts, and
other contracts. Letters of credit outstanding at June 30, 1997 aggregated
$4,242,000.
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
<TABLE>
<CAPTION>
June 30,
--------------------------
1997 1996
----------- ----------
<S> <C> <C>
Accrued compensation.................. $ 889,497 $ 417,631
Accrued professional fees............. 277,148 165,500
Miscellaneous taxes................... 590,492 112,941
Accrued severance costs............... 165,869 583,832
Accrued transition costs.............. 5,136,451 97,000
Other................................. 3,362,237 651,455
----------- ----------
$10,421,694 $2,028,359
=========== ==========
</TABLE>
6. ACCRUED LANDFILL CLOSURE AND OTHER ENVIRONMENTAL COSTS
The Company owns or operates six nonhazardous solid waste landfills, all of
which are permitted and four of which are 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. The closure and post-closure requirements are
established under the standards of the U.S. Environmental Protection Agency's
Subtitle D regulations as implemented and applied on a state-by-state basis.
Final closure and post-closure accruals consider estimates for the final cap and
cover for the site, methane gas control, leachate management and groundwater
monitoring, and other operational and maintenance costs to be incurred after the
site discontinues accepting waste, which is generally expected to be for a
period of up to thirty years after final site closure. For disposal sites that
were previously operated by others, the Company assessed and recorded a final
closure and post-closure liability at the time the Company assumed closure
responsibility based upon the estimated total closure and post-closure costs and
the percentage of airspace utilized as of such date. Thereafter, the difference
between the final closure and post-closure costs accrued and the total estimated
closure and post-closure costs to be incurred is accrued and charged to expense
as airspace is consumed. As of June 30, 1997, the
F-14
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. ACCRUED LANDFILL CLOSURE AND OTHER ENVIRONMENTAL COSTS (Continued)
Company estimates that the costs of final closure of the currently permitted and
operating areas at the Company's landfills will be approximately $13,665,000, of
which $3,246,000 has been accrued as of June 30, 1997. In addition, 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 $90,000--$125,000 per year for 30 years after
closure at each of the Company's two municipal solid waste accepting facilities
and $13,000--$16,000 per year for 30 years after closure at the Company's
industrial landfill sites. The Company has accrued $1,541,000 for post-closure
obligations as of June 30, 1997.
Funding of closure and post-closure obligations and other environmental
costs accrued to date are estimated as follows: 1998--$2,228,000;
1999--$1,102,000; 2000--$700,000; 2001 and thereafter--$5,089,000.
Also included in accrued landfill closure and other environmental costs is
approximately $4.0 million for waste relocation costs at the Company's
Pennsylvania landfill.
Pursuant to certain statutory requirements regarding financial assurance
for the closure and post-closure monitoring cost requirements at each of the
Company's landfills, the Company maintains bonding facilities collateralized by
irrevocable letters of credit and cash deposits. Financial assurance as of June
30, 1997, and pending is as follows:
<TABLE>
<CAPTION>
Current
Financial Assurance
Requirements Bonds Deposits Pending
------------------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Kentucky $1,637,000 $1,637,000 $128,000 $3,300,000
Pennsylvania $6,380,000 $3,780,000 $2,600,000
West Virginia $ 382,000 $ 214,000 $204,000 $6,600,000
Florida $ 608,000 $ 81,000 $ 527,000
Illinois $ 646,000 $ 646,000
</TABLE>
Irrevocable letters of credit outstanding at June 30, 1997 related to
closure and post-closure care are $1,126,000.
7. OTHER LIABILITIES
In connection with certain acquisitions made by the Company during 1997,
the Company has accrued liabilities totaling $9,151,246 for common stock and/or
cash issuable to sellers upon satisfactory resolution of certain contingencies.
These amounts have been included in the purchase price allocations of the
respective acquisitions.
8. COMMON STOCK
Each share of the Company's Common Stock is entitled to one vote.
In 1996, William C. Skuba, the former President, Chief Executive Officer,
Chairman of the Board, and controlling stockholder of the Company, sold 500,000
shares of the Company's common stock ("Skuba Stock") at a price of $2.00 per
share to a group of investors ("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 that expired on June 20, 1997.
In fiscal 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. In
fiscal 1996, the Company, through additional private placements of stock with
accredited investors, issued an additional 875,000 shares of its common stock
for cash of $1.00 per share or $875,000. Certain of the private placements
included the issuance of 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 Company registered these securities in
February of 1996.
F-15
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. COMMON STOCK (Continued)
On August 9, 1996, the Company completed a private placement ("Placement")
of 2,500,000 shares of its common stock at $4 per share with various accredited
investors for the purpose of raising funds to construct disposal space at the
Company's landfills, to provide for closure of certain filled disposal areas,
and to provide working capital. Net proceeds, after deduction of agent fees and
related costs, were $9,350,000. The shares sold in the private placement are not
registered, and registration rights do not commence for two years.
The Company also issued 125,000 shares of its common stock at $4 per share
to a bank at substantially the same terms as the August 9, 1996 Placement.
9. STOCK OPTION PLANS
The Company's Stock Option Plans provide for the grant of incentive stock
options or nonqualified stock options to directors, officers or employees of the
Company. Under the 1987 and 1991 Stock Option Plans, as amended, 700,000 total
shares were 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). Nonqualified 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.
In August 1996, the Company's stockholders approved the 1996 Stock Option
Plan providing for the granting of incentive stock options or nonqualified stock
options to directors, officers, or employees of the Company. Under this plan,
2,500,000 shares are reserved for issuance. Incentive stock options have an
exercise price consistent with the provisions of the previously existing plans.
Nonqualified options have an exercise price which is determined by the Company's
Stock Option Committee ("the Committee") in its discretion. The options
generally expire ten years from the date of grant and are exercisable based upon
graduated vesting schedules as determined by the Committee. As of June 30, 1997,
2,140,745 options have been granted under this Plan including 1,243,922
nonqualified stock options.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that are not developed for use in valuing employee stock
options. Under APB 25, if the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions for grants in 1997 and 1996; risk-free interest rate of 6%; dividend
yield of 0%; expected volatility of the market price of the Company's common
stock of 70%; and a weighted-average expected life of the option of 4 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-16
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. STOCK OPTION PLANS (Continued)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Pro forma
results are not likely to be representative of the effects on reported or pro
forma results of operations for future years. The Company's pro forma
information is as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996
------------- -------------
<S> <C> <C>
Pro forma net income (loss) $ 449,000 $ (4,658,000)
Pro forma earnings (loss) per share $ .03 $ (.52)
</TABLE>
Options outstanding have been granted to officers and employees to purchase
common stock at prices ranging from $.01 to $14.50 per share. A summary of the
option transactions is as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------
1997 1996 1995
--------- ----------- ---------
<S> <C> <C> <C>
Options outstanding, beginning of period....... 880,900 366,900 417,200
Options granted................................ 1,590,736 655,000 20,000
Options exercised.............................. (76,945) (140,000) (30,000)
Options canceled............................... (1,000) (40,300)
--------- ----------- --------
Options outstanding, end of period............. 2,394,691 880,900 366,900
========= =========== ========
Options exercisable............................ 657,379 338,333 350,650
========= =========== ========
Options available for grant.................... 359,264 2,113,667 300,100
========== =========== ========
</TABLE>
The weighted average fair values of options granted during fiscal 1997 and
1996 were $5.14 and $3.14 per share, respectively. The weighted average exercise
price of options outstanding and exercisable at June 30, 1997 was $4.41.
Compensation expense has been recognized for those options granted with
exercise prices below the fair market value of the Company's stock on the date
of grant.
Stock options outstanding at June 30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
Weighted Average Weighted
Remaining Average
Range of Number Contractual Exercise
Exercise Prices Outstanding Life Price
- --------------- ----------- ---- --------
<S> <C> <C> <C>
$.01 - $5.00 253,946 1.5 years $ 1.02
$5.01 - $10.00 1,527,945 8.9 years $ 6.41
$10.01 - $14.50 612,800 9.8 years $ 13.19
-----------
$.01 - $14.50 2,394,691 8.4 years $ 7.57
==========
</TABLE>
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 shares of common stock 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, 1997, 27,311
shares have been issued under the Employee Plans.
At June 30, 1997, the Company has 973,464 warrants outstanding of which
573,464 are exercisable to purchase shares of common stock. Terms of warrants
have been established by the Board of Directors at prices between $1.25 and
$14.53 expiring at various dates through 2007.
F-17
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. INCOME TAXES
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,
---------------------------
1997 1996
------------ ----------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation and amortization.................. $ (3,162,683) $ (629,024)
Landfill permitting costs.................................... (3,366,989) --
Other, net................................................... (906,429) (123,583)
-------------- ----------
Total deferred tax liabilities.......................... (7,436,101) (752,607)
Deferred tax assets:
Allowance for doubtful accounts.............................. 906,998 158,915
Accrued refurbishing costs................................... 2,191,797 --
Reserve for loss on assets held for sale..................... 62,205 255,933
Net operating loss carryforwards............................. 194,284 1,484,833
Environmental costs.......................................... 1,623,741 --
AMT credit................................................... 109,500 24,376
Reserve for severance and transition costs................... -- 269,232
Other, net................................................... -- 68,140
------------- ----------
Total deferred assets................................... 5,088,525 2,261,429
Valuation allowance for deferred tax assets....................... -- (1,644,000)
------------- ----------
Net deferred tax assets........................................... 5,088,525 617,429
------------- ----------
Net deferred tax liabilities...................................... $ (2,347,576) $ (135,178)
============= ==========
</TABLE>
At June 30, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of $571,000 that expire through 2011. However, due
to a change in control, these net operating loss carryforwards may be limited.
For financial reporting purposes, the valuation allowance has been reversed due
to the fact that the Company has concluded that it is more likely than not that
the tax benefits will be realized in the future.
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
1997 1996 1995
------------ ------------- -----------
<S> <C> <C> <C>
Current:
Federal........................................ $ 82,510 $ -- $ --
State.......................................... 358,409 12,101 20,881
------------ ----------- -----------
440,919 12,101 20,881
Deferred:
Federal........................................ 837,904 -- (66,052)
State.......................................... 62,382 (21,788) 37,188
Operating loss carryforward.................... -- -- (139,110)
------------ ----------- -----------
900,286 (21,788) (167,974)
------------ ----------- -----------
Provision for income taxes..................... $ 1,341,205 $ (9,687) $ (147,093)
============ =========== ===========
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to the provision for income taxes is:
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------
1997 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
Tax at U.S. federal statutory rates ............ $ 1,183,743 $(1,190,015) $ (608,505)
S Corporation income prior to pooling date ..... (310,672) -- --
State income taxes, net of federal tax benefit . 180,684 (9,687) 70,652
Nondeductible costs and other acquisition
accounting adjustments ......................... 1,019,829 24,918 24,918
S Corporation status termination ............... 904,563 -- --
Valuation allowance for deferred tax assets .... (1,644,000) 1,154,000 340,000
Other .......................................... 7,058 11,097 25,842
----------- ----------- -----------
Provision for income taxes ..................... $ 1,341,205 $ (9,687) $ (147,093)
=========== =========== ===========
</TABLE>
F-18
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. INCOME TAXES (Continued)
Net income tax payments made (refunds received) during fiscal 1997, 1996,
and 1995 were $87,000, $(64,000), and $14,000, respectively.
11. 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 noncancelable lease terms in excess
of one year as of June 30, 1997, are as follows: 1998--$896,000, 1999--$731,000,
2000--$405,000, 2001--$164,000, and 2002--$35,000. Total rental expense under
operating leases was approximately $606,000, $353,000, and $411,000 for the
fiscal years 1997, 1996, and 1995, respectively.
The Company is subject to extensive and evolving federal, state, and local
environmental laws and regulations in the United States and elsewhere that have
been enacted in response to technological advances and the public's increased
concern over environmental issues. The majority of expenditures necessary to
comply with environmental laws and regulations are made in the normal course of
business. Although the Company, to the best of its knowledge, is in compliance
in all material respects with the laws and regulations affecting its operations,
there is no assurance that the Company will not have to expend substantial
amounts for compliance in the future.
In October 1996, the Company received a final permit to construct its
expansion area at its Kentucky landfill. Prior to the actual construction of the
expansion area, the Company is required to complete certain investigations to
confirm the adequacy of the groundwater monitoring program approved in the final
permit. The final permit also requires closure of the original disposal area. In
addition, the Company has entered into an exclusive waste disposal franchise
agreement with Pulaski County, Kentucky, to service the municipal waste needs of
the county at the Company's Kentucky landfill through the year 2002. The
Company's obligations under this franchise agreement were suspended on July 1,
1996 for a one-year period ending July 1, 1997 due to the Company's cessation of
operations at the original permit area and delay in initiating operations at the
expansion area. As of July 1, 1997, the Company has resumed operation of the
transfer station in accordance with the franchise agreement and expects to
continue such operations until construction begins on the expansion area.
Failure to continue to comply with the franchise agreement, or timely closure of
the original disposal area, could result in the forfeiture of the performance
bond of $1.3 million.
The Company is subject to various contingencies pursuant to environmental
laws and regulations that in the future may require the Company to take action
to correct the effects on the environment of prior disposal practices or
releases of chemicals or petroleum substances by the companies or other parties.
At June 30, 1997, the Company has accrued for certain potential environmental
remediation activities as other long-term accrued environmental costs. Such
accrual amounted to $335,680, and in management's opinion, was appropriate based
on existing facts and circumstances. Under the most adverse circumstances,
however, this potential liability could reach $860,000 as provided in
independent engineering studies and evaluations. In the event that future
remediation expenditures are in excess of amounts accrued, management does not
anticipate that they will have a material adverse effect on the consolidated
financial position, results of operations, or liquidity of the Company.
The Company carries insurance covering its assets and operations, including
pollution liability coverage. Specifically, each of the Company's five landfills
has pollution liability coverage of $5,000,000 per occurrence or $5,000,000 in
the aggregate subject to a $500,000 deductible per occurrence. Nevertheless,
there can be no assurance that the Company's insurance will provide sufficient
coverage in the event an environmental claim were made against the Company or
that the Company will be able to maintain in place such insurance at reasonable
costs. An uninsured or underinsured claim against the Company of sufficient
magnitude could have a material adverse effect on its business and results of
operations. The Company also is subject to the risk of claims by employees and
others made after the expiration of the policy coverage period, including
asbestos-related illnesses (such as asbestosis, lung cancer, mesothelloma and
other cancers), which 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. Any claims presented on the basis of exposure during
that period may not be covered by insurance and any liability resulting
therefrom could, consequently, have an adverse effect on the consolidated
financial position, results of operations, or liquidity of the Company.
F-19
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. 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, results of operations, or liquidity.
Certain of the Company's executive officers have entered into employment
agreements whereby they will be entitled to receive certain bonuses in cash or
common stock upon a change in control of the Company. The Company estimates that
the total of these payments based on current salaries would be approximately
$1,835,000. Such agreements also include severance provisions and immediate
vesting provisions of issued options should the officer be terminated.
12. UNUSUAL OPERATING COSTS
Unusual operating costs and other adjustments of $3,027,000 were included
in the fourth quarter of fiscal 1996 results of operations. A charge of $900,000
to cost of revenues to accrue for certain closure and post-closure monitoring
costs was recorded for the Kentucky landfill resulting from a reduction in the
Company's estimate of future probable airspace since the draft permit was being
adjudicated, providing a valuation allowance for possible impairment of this
asset. In October 1996, the Company received approval of its expansion permit,
and in May 1997, the Company decided to continue to operate the Kentucky
landfill. As the Company proceeds with construction of the Kentucky landfill,
the adequacy of the closure and post-closure accruals will be reevaluated based
on current assessments of future probable airspace and closure and post-closure
cost estimates. Additionally, charges totaling approximately $879,000 were
charged to selling, general, and administrative expenses relating to the change
in control of the Company, as discussed in Note 8. Of the $879,000 charge;
$672,000 related to recorded severance costs; $97,000 reflected management's
estimate of various transition costs in moving the Company's corporate offices;
and $110,000 related to certain legal and other professional costs incurred in
completing the transaction. Additionally, management refined its estimates of
necessary reserves against past-due receivables, outstanding contingencies, and
deferred acquisition costs and increased such reserves by $221,000, $468,000,
and $70,000, respectively. The increase in contingency reserves included the
$336,000 accrued for certain long-term environmental remediation activities (see
Note 11). Additionally, in the fourth quarter, management made a decision to
replace certain of its equipment utilized in the landfill and hauling
operations, in addition to selling certain real estate previously used in
operations and currently being leased to unrelated parties. A charge of $489,000
was recorded to other expenses to write down these assets held for sale to
estimated net realizable value. Finally, in the second quarter, management
recorded a provision of $331,000 related to a severance agreement settlement
with a unionized workforce.
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 related 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 reflected the Company's estimate of operating
losses at the Kentucky facility through fiscal 1996, and $189,000 reflected 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 included 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 the anticipated 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 1995, the Company refined its estimate of necessary reserves against
past-due receivables resulting in a charge to operations of $118,000.
F-20
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. RELATED PARTY TRANSACTIONS
In connection with the consummation of the Stock Purchase Agreement (see
Note 8), the Company entered into a series of agreements with Mr. Skuba,
including a Severance Agreement dated June 20, 1996. Pursuant to the severance
agreement, virtually all prior agreements between Mr. Skuba and the Company were
terminated, including the Company's obligation to make certain cash payments to
Mr. Skuba upon his resignation from the Company, and in consideration therefor;
the Company, among other benefits (i) conveyed to Mr. Skuba or a company
controlled by Mr. Skuba (a) all of the outstanding capital stock of a
corporation that owns certain real property, (b) certain real and personal
property, and (c) certain vehicles owned by the Company, (ii) transferred to Mr.
Skuba certain potential business opportunities that the Company decided that it
had no interest in pursuing, (iii) agreed to provide Mr. Skuba with certain
health benefits at the Company's cost until June 1997, and (iv) agreed to
indemnify Mr. Skuba to the extent provided by the Company's Certificate of
Incorporation and to maintain director and officer liability insurance for him
until June 2002. The Company recorded a total of $459,100 noncash expense
related to the Severance Agreement including $259,600 of compensation expense,
loss on the sale of certain assets of $156,000, and $43,500 of benefits related
to a Consulting Agreement with Mr. Skuba that expires in June 1998.
The Company entered into an agreement in July 1996 to lease office space
from a company that is controlled by an officer of the Company. The lease is for
a period of five years and provides for a monthly rental of $6,250 subject to
annual increases derived from increases in the Consumer Price Index. The lease
is terminable at any time by the Company by payment of a termination fee equal
to one year's rent.
The Company received management services from a company that is 50% owned
by certain stockholders of the Company. The amount of these services charged to
expense was $56,000, $590,000, and $414,000 for the fiscal years ended June 30,
1997, 1996, and 1995, respectively.
The notes receivable from officers are due in fiscal 2006. The interest
rate on these loans was 6% at June 30, 1997 and 1996, and 8% at June 30, 1995.
In August 1996, the Company acquired all of the assets of Eastern Waste of
Philadelphia, Inc. in consideration of 391,250 shares of common stock valued at
$4.00 per share, or $1,600,000 in the aggregate. The stockholders of Eastern
Waste of Philadelphia, Inc. are brothers of directors of the Company.
Substantially all of the assets the Company acquired from Eastern Waste of
Philadelphia, Inc. were acquired by Eastern Waste of Philadelphia, Inc. in May
1996 in separate transactions with Tri-County Disposal & Recycling, Inc. and
National Ecosystems Inc. for an aggregate of approximately $1,600,000 in cash
and stock.
In connection with the Company's acquisition of Super Kwik in September
1996, the Company executed a $750,000 mortgage note in favor of Spruce Avenue
Associates, a general partnership whose partners are two officers of the
Company. The note bears interest at the rate of ten percent per annum and is due
and payable on September 27, 1999. The note is secured by mortgage on certain
real property of the Company located in Voorhees, New Jersey. The principal
amount outstanding under the mortgage note at June 30, 1997 was $750,000.
The Company paid a professional corporation owned by an officer of the
Company approximately $76,000 during fiscal 1997 for legal services rendered to
the Company.
In October 1996, the Company hired a corporation owned by an employee of
the Company for excavation services for the Company's landfills in West Virginia
and Pennsylvania. The Company estimates that the total amount to be paid will be
approximately $850,000. The selected corporation was the lowest bidder that
satisfied all bid requirements for such job.
The Company believes that each of the transactions described above was
entered into on an arm's-length basis in the ordinary course of the Company's
business and on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
F-21
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. SUBSEQUENT EVENTS
Subsequent to June 30, 1997, the Company acquired a hauling and collection
company, a special waste company, and a landfill in separate transactions.
Consideration included approximately 362,000 unregistered shares of common
stock, $12,000,000 cash to the sellers, and $574,000 of assumed debt. These
transactions will be accounted for using the purchase method of accounting.
Additionally, in August of 1997, the Company completed its merger with Waste X
Services, Inc. for approximately 350,000 unregistered shares of common stock,
par value $.01, in exchange for all issued and outstanding shares of Waste X
Services, Inc. This transaction will be accounted for as a pooling of interests.
Periods prior to consummation of this acquisition will not be restated to
reflect the pooling of interests as combined financial position, results of
operations, and cash flows would not be materially different from the results as
presented.
In August 1997, the Company completed its registration and sale of
5,175,000 shares of common stock, par value $.01, for $17.75 per share, for the
purpose of reducing its outstanding indebtedness under its credit facility, and
to fund future acquisitions, capital expenditures and working capital needs. Net
proceeds, after deduction of fees and related costs, were approximately $85.5
million. The unaudited pro forma earnings per share for the year ended June 30,
1997, assuming the issuance of these shares and receipt of related proceeds on
July 1, 1996, and the reduction of outstanding indebtedness and related interest
expense, net of income taxes, would have been $.18 per share.
F-22
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
EASTERN ENVIRONMENTAL SERVICES, INC.
The undersigned being the President and Secretary of Eastern Environmental
Services, Inc. (the "Corporation"), hereby certify that:
FIRST: The name of the Corporation is Eastern Environmental Services, Inc.
SECOND: The Certificate of Incorporation was filed by the Secretary of
State on April 8, 1987.
THIRD: The Certificate of Incorporation is hereby amended to delete a
provision therein allowing for a court-supervised compromise of the
Company's debts upon the agreement of the Company and three-fourths
of the Company's creditor class.
FOURTH: To accomplish the foregoing amendment, Article SEVENTH is hereby
deleted in its entirety, and shall henceforth be of no further
force and effect. The remaining Articles EIGHTH, NINTH, TENTH, and
ELEVENTH shall be re-numbered accordingly, to henceforth be known
as Articles SEVENTH, EIGHTH, NINTH, and TENTH, respectively.
FIFTH: The foregoing amendment was adopted by the directors and
shareholders of the Corporation at duly called meetings of the
board and shareholders, respectively, in accordance with the
provisions of Section 242 of the General Corporation Law.
IN WITNESS WHEREOF, this Certificate is subscribed this 22nd day of July,
1997, by the undersigned who affirm under penalties of perjury that the
statements contained herein are true and correct.
/s/ Louis D. Paolino
--------------------------------
Louis D. Paolino, Jr., President
/s/ Robert M. Kramer
ATTEST: --------------------------------
Robert M. Kramer, Secretary
<PAGE>
Exhibit 10.34
AMENDED EMPLOYMENT AGREEMENT
----------------------------
This Amended Employment Agreement ("Agreement") is executed and delivered
as of May 12, 1997, by and between Eastern Environmental Services, Inc., a
Delaware corporation ("Company"), and Louis D. Paolino, Jr., an individual
("Employee").
RECITALS
--------
The Company conducts a diversified waste management business, including,
without limitation, waste hauling operations, landfills and other waste
management, recycling and waste testing operations ("Business"). The Employee
is an executive with extensive experience in the waste industry. The Company and
Employee entered into a contract of Employment of June 20, 1996 (the "June
Agreement"), as amended on October 1, 1996. The Company desires to continue to
employ Employee as its President and Chief Executive Officer and the Employee
desires to continue such employment upon the revised terms and conditions set
forth herein.
The position of the Employee with the Company has given and will give the
Employee access to and familiarity with confidential information and business
methods used in the operation of the Business. During the course of Employee's
employment, Employee has and will become familiar with and aware of information
as to the specific manner of doing business and the customers of the Company and
the Company's future plans. Employee has and will have knowledge of trade
secrets of the Company which are valuable assets of the Company.
Employee recognizes that the business of the Company is dependent upon a
number of trade secrets and confidential business information, including
customer lists, customer data and operational information. The protection of
these trade secrets is of critical importance to the Company. The Company will
sustain great loss and damage if, for whatever reason, during the term of this
Agreement or Employee's employment with Company and for a period following the
termination of this Agreement or Employee's employment, Employee should violate
the provisions of paragraph 4 of this Agreement. Further, Employee acknowledges
that any such violation would cause irreparable harm to Company and that Company
would be entitled, without limitation, to injunctive relief to remedy such
violation.
NOW, THEREFORE, in consideration of Ten Dollars ($10), and the mutual
promises, terms and conditions set forth herein and the performance of each, the
parties hereby agree as follows:
1. Services.
--------
-1-
<PAGE>
(a) Company hereby continues to employ Employee as its President and Chief
Executive Officer. Additional or different duties, titles or positions may be
assigned to Employee or may be taken from Employee from time to time by the
Company's Board of Directors ("Board"); provided, that the Employee consents to
such changes.
(b) Employee hereby accepts employment upon the terms and conditions
contained in this Agreement. Employee shall faithfully adhere to, execute and
fulfill all directions and policies established by the Board, to the extent such
instructions do not violate applicable laws.
(c) Employee shall not, during the term of his employment hereunder,
without the prior written consent of Company, be engaged in any other business
activity pursued for gain, profit or other pecuniary advantage, if such activity
prevents the Employee from fulfilling his duties and responsibilities under this
Agreement. Employee may make personal investments and conduct his personal
business affairs, including, without limitation, participating in the management
of businesses which the Employee owns directly or through affiliated entities,
as long as such investments do not violate the terms of Paragraph 4.
2. Compensation.
------------
(a) For all services to be rendered by Employee to Company, Company shall
pay Employee an annual salary at the rate of One Hundred Fifty Thousand
($150,000) Dollars per year, payable in accordance with Company's normal payroll
procedures. The Company, at its discretion, may from time to time grant bonuses
and raises to the Employee.
(b) Under the June Agreement, Employee was granted stock options
("Options") exercisable for Two Hundred Fifty Thousand (250,000) shares of the
Company's common stock at a per-share exercise price equal to 110% of the lowest
bid price of the Company's common stock on June 20, 1996, the day that Employee
and Company agreed to the terms of the June Agreement. The Options were granted
under the Company's 1996 Stock Option Plan. The Options were granted on the
date the June Agreement was executed by the Company. The Options vest over the
term of the June Agreement, one-fourth of the Options vesting on each
anniversary date of the June Agreement's execution. The Options shall be fully
vested on the last day of the June Agreement's term. Notwithstanding the prior
sentence the Options shall all vest immediately, upon Employee's no longer
serving as President and Chief Executive Officer of the Company.
-2-
<PAGE>
(c) In the event of a Change of Control as hereinafter defined, Employee
shall be entitled to, and Company shall immediately pay, a bonus ("Change of
Control Bonus") in an amount equal to one dollar ($1.00) less than three times
the sum of (i) his then annual salary, plus (ii) any cash or stock bonus paid to
him within the twelve months prior to the Change of Control, plus (iii) the
value of any options granted to him as a bonus within the twelve months prior to
the change of Control, valued using the Black-Scholes method at the time of
grant. The Change of Control Bonus may be paid in cash or in common stock of the
Company (which is registered under the Securities Act of 1933 or which shall be
registered under such Act within 120 days of its delivery to Employee) at the
Company's option. If the Company pays the Change of Control Bonus in stock and
not cash, and the stock is not registered under such Act, then the Company shall
cause the stock to be registered under such Act in accordance with the
Registration Rights Agreement dated even date hereof and executed by and between
the Company and Employee.
(d) To the extent that Company, from time to time in its sole discretion,
offers or provides any of the following to its employees, then Employee, on an
equal basis with such other employees, shall be entitled to: (i) participation
in all, if any, life, health, medical, hospital, accident and disability
insurance programs of Company in existence for the benefit of the Company's
executives and for which Employee qualifies; (ii) participation in all, if any,
pension, retirement, profit sharing or stock purchase plans for which Employee
qualifies; and (iii) participation in any other employee benefits which Company
accords to its employees.
(e) During the term of Employee's employment with Company, Employee shall
be entitled to reimbursement for reasonable business expenses incurred on behalf
of Company. Employee shall be paid a monthly car allowance of Five Hundred
Dollars ($500) a month.
(f) For purposes of this Agreement, a "Change of Control" shall mean the
occurrence of any of the events set forth in items (i) through and including
(iv) below.
(i) There shall be a "Change of Control" upon the acquisition in one
or more transactions by any "Person" (as the term "Person" is used for purposes
of Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act")) of "Beneficial Ownership" (as the term beneficial ownership is
used for purposes of Rule 13d-3 promulgated under the 1934 Act) of thirty
percent (30%) or more of the combined voting power of the Company's then
outstanding voting securities (the "Voting Securities"). For purposes of this
Paragraph 2(f), the
-3-
<PAGE>
Voting Securities acquired directly from the Company by any Person shall be
excluded from the determination of such Person's Beneficial Ownership of Voting
Securities (but such Voting Securities shall be included in the calculation of
the total number of Voting Securities then outstanding). For purposes of this
Paragraph 2(f), the acquisition by Employee of the Beneficial Ownership of 30%
percent or more of the Voting Securities shall not be a Change of Control.
(ii) There shall be a "Change of Control" upon approval by the
shareholders of the Company of: (A) a merger, reorganization or consolidation
involving the Company, if the shareholders of the Company immediately before
such merger, reorganization or consolidation do not or will not own directly or
indirectly immediately following such merger, reorganization or consolidation,
more than seventy percent (70%) of the combined voting power of the outstanding
voting securities of the corporation resulting from or surviving such merger,
reorganization or consolidation in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger,
reorganization or consolidation, or (B) a complete liquidation or dissolution of
the company, or (C) an agreement for the sale or other disposition of all or
substantially all of the assets of the Company.
(iii) There shall be a "Change of Control" upon acceptance by
shareholders of the Company of shares in a share exchange, if the shareholders
of the Company immediately before such share exchange do not or will not own
directly or indirectly immediately following such share exchange more than
seventy percent (70%) of the combined voting power of the outstanding voting
securities of the corporation resulting from or surviving such share exchange in
substantially the same proportion as the ownership of the Voting Securities
outstanding immediately before such share exchange.
(iv) There shall be a "Change of Control" in the event that Louis D.
Paolino, Jr., is no longer Chairman, President and Chief Executive Officer of
the Company, for any reason.
3. Term. The term of this Agreement shall begin on the date of this
----
Agreement and continue until June 20, 2002. Employee's employment as President
and Chief Executive Officer under this Agreement may be terminated during the
term hereof only as set forth in Paragraph 7 of this Agreement.
-4-
<PAGE>
4. Noncompetition Covenants.
------------------------
(a) Employee agrees that the noncompetition covenants contained in this
Paragraph 4 are a material and substantial part of this Agreement.
(b) Employee covenants that while Employee is serving as President and
Chief Executive Officer, the Employee shall not, directly or indirectly, without
the prior express written consent of Company, do any of the things set forth in
item (i) through (v) below.
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, agent, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales representative, in
the waste disposal industry, including, without limitation, waste hauling, waste
disposal, land filling, handling demolition waste, handling special waste,
collecting or disposing of municipal special waste, and recycling waste, in each
case within fifty (50) miles of any Company business operation (the
"Territory");
(ii) call upon any person who is, at the time of the contact, an
employee of Company or its affiliates within the Territory, if the employee
serves the Company in a managerial capacity and if the purpose and intent of the
contact is to entice such employee away from or out of the employ of Company or
its affiliates;
(iii) call upon any person or entity, which is, at the time of the
contact, a customer of the Company or its affiliates within the Territory, for
the purpose of soliciting or selling any of the services which are the services
offered by the Company within the Territory;
(iv) disclose the identity of the customers of Company or its
affiliates, whether in existence or proposed, to any person, firm, partnership,
corporation or other entity whatsoever, for any reason or purpose whatsoever,
except if approved by the Board or if compelled to do so by a governmental
agency, Court Order or subpoena; or
(v) promote, or assist, financially or otherwise, any person, firm,
partnership, corporation or other entity whatsoever to do any of the above.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Employee from acquiring as an investment not more than twenty-five
percent of the capital stock of a competing business, the stock of which is
traded on a national securities exchange or over-the-counter.
-5-
<PAGE>
For the purposes of this Agreement, the term "affiliates" shall mean one or
more of: (A) each subsidiary of Company, and (B) each other entity under the
direct or indirect control of the Company.
(c) The Company will sustain significant losses and damages, if Employee
breaches the covenants in this Paragraph 4. There is no adequate monetary
remedy for the immediate and irreparable damage that would be caused to Company
by Employee's breach of its non-competition covenants. Employee agrees that, in
the event of a breach by him of the foregoing covenants, such covenants may be
enforced by Company by, without limitation, injunctions and restraining orders.
(d) It is agreed by the parties that the covenants in this Paragraph 4
impose a reasonable restraint on Employee in light of the activities and
business of Company on the date of the execution of this Agreement and the
future plans of Company.
(e) The covenants in this Paragraph 4 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. If any court of competent jurisdiction shall determine that the
scope, time or territorial restrictions set forth are unreasonable, then it is
the intention of the parties that such restrictions be enforced to the fullest
extent which the court deems reasonable, and the Agreement shall thereby be
reformed.
(f) The covenants in this Paragraph 4 shall be construed as independent of
any other provision of this Agreement and the existence of any claim or cause of
action of Employee against Company whether predicated on this Agreement, or
otherwise, shall not constitute a defense to the enforcement by Company of such
covenants. It is specifically agreed that the duration of the noncompetition
covenants stated above shall be computed by excluding from such computation all
time during which Employee is in violation of any provision of this Paragraph 4
and all time during which there is pending in any court of competent
jurisdiction any action (including any appeal from any judgment) brought by any
person, whether or not a party to this Agreement, in which action Company seeks
to enforce the agreements and covenants of Employee or in which any person
contests the validity of such agreements and covenants or their enforceability
or seeks to avoid their performance or enforcement. Provided that, no such
exclusion shall include the period of time within which Employee has ceased
violating this paragraph, whether or not as a result of being in compliance with
Court injunction or doing so voluntarily, and whether or not any action is
pending against Employee.
-6-
<PAGE>
5. Return of Company Property. All correspondence, reports, charts,
--------------------------
products, records, designs, patents, plans, manuals, "field guides," memoranda,
advertising materials, lists and other data or property collected by or
delivered to Employee by or on behalf of the Company or its representatives,
customers and government entities (including, without limitation, customers
obtained for Company by Employee), and all other materials compiled by Employee
which pertain to the business of Company shall be and shall remain the property
of Company, shall be subject at all times to the Company's discretion and
control and shall be delivered promptly to Company upon request at any time and
without request upon completion or other termination of Employee's employment
hereunder.
6. Inventions. Employee shall disclose promptly to Company any and all
----------
conceptions and ideas for inventions, improvements, and valuable discoveries,
whether patentable or not, which are conceived or made by Employee solely or
jointly with another during the period of employment which are related to the
business or activities of the Company. Employee hereby assigns and agrees to
assign all his interests therein to Company or its nominee. Whenever requested
to do so by Company, Employee shall execute any and all applications,
assignments or other instruments that Company shall deem necessary to apply for
and obtain Letters Patent of the United States or any foreign country or to
otherwise protect Company's interest therein. These obligations shall continue
beyond the termination of employment with respect to inventions, improvements
and valuable discoveries, whether patentable or not, conceived, made or acquired
by Employee during the period of employment, and shall be binding upon
Employee's heirs, assigns, executors, administrators and other legal
representatives.
7. Termination; Rights of Termination.
----------------------------------
(a) The Company may terminate Employee as the Company's President and Chief
Executive Officer upon the occurrence of the following items:
(i) Automatically upon the death of Employee.
(ii) Automatically upon the resignation of the Employee.
(iii) By Company upon written notice to Employee in the event of:
(A) Employee's inability to perform his duties under this
Agreement because of illness or physical or mental disability or other
incapacity which continues for a period of 120 days; or
-7-
<PAGE>
(B) Employee's unsatisfactory performance of his duties or
other obligations hereunder, as determined in good faith by the Board. If
Employee's service as President and Chief Executive Officer is terminated by the
Company upon written notice, such notice shall state the reason for Employee's
termination.
(b) In the event of the termination of Employee as the President and Chief
Executive Officer of the Company, Employee shall no longer be obligated to
render any services to Company, but Company shall continue to pay Employee the
annual salary of Employee which was in effect prior to the termination through
the term of this Agreement, as though Employee was not terminated as the
President and Chief Executive Officer of the Company.
8. Authority. Employee shall be authorized to obligate the Company in
---------
accordance with the Company's policies and procedures from time to time in
effect.
9. Representations of Employee. Employee represents and warrants to
---------------------------
Company that he is not subject to any restriction or noncompetition covenant in
favor of a former employer or any other person or entity, and that the execution
of this Agreement by Employee and his provision of services to Company and the
performance of his obligations hereunder will not violate or be a breach of any
agreement with a former employer or any other person or entity. Further,
Employee agrees to indemnify Company for any claim, including, but not limited
to, attorneys' fees and expenses of investigation, by any such third party that
such third party may now have or may hereafter come to have against Company
based upon or arising out of any noncompetition agreement or invention and
secrecy agreement between Employee and such third party.
10. Indemnification and Insurance.
-----------------------------
(a) Subject to applicable law, for a period of six (6) years following
completion of the Term, the Company will: (i) indemnify Employee and his heirs
and representatives to the extent provided in the Company's Certificate of
Incorporation in effect on the date of this Agreement and will not amend, reduce
or limit rights of indemnity afforded to them or the ability of the Company to
indemnify them, not hinder, delay or make more difficult the exercise of such
rights of indemnity and (ii) maintain director and officer liability insurance
coverage providing Employee with coverage (1) at least as favorable as the
policies in effect immediately prior to the date hereof covering the Company's
directors and offices or (2) as favorable as is available at a cost to the
Company of up to 125% of the premiums currently being paid by the Company.
-8-
<PAGE>
(b) If any claim is (or claims are) made against Employee and his heirs
and representatives, including legal counsel, arising from Employee's services
as a director, officer and employee of the Company, within six (6) years from
the expiration of the Term, the provisions of this Paragraph 10 respecting the
Company's Certificate of Incorporation shall continue in effect until the final
disposition of all such claims.
(c) The Company agrees to provide written notice to Employee immediately
upon learning of any claim or threatened claim against Executive by any third
party relating to or arising out of the business of the Company or Employee's
prior service as a director, officer or controlling shareholder of the Company.
The Company further agrees to provide to Executive any complaints and other
relevant documentation related to such claims immediately upon receipt of such
documentation.
(d) Employee agrees that he will cooperate with and assist the Company,
as is reasonably requested by the Company, in its defense of any action or
proceeding against the Company, its directors, officers, employees or affiliates
arising out of or in any way related to any transactions, events or other
matters which occurred during the period of his employment with the Company, to
the extent that such cooperation and assistance will not impair Employee's legal
rights or remedies or increase the likelihood that Employee will incur any
liabilities as a result thereof. This Agreement shall not preclude Employee
from testifying in such action or proceeding. In the event that Employee does
cooperate with and assist the Company in its defenses of such an action or
proceeding, the Company agrees to reimburse Employee for all reasonable expenses
incurred by Employee in providing such assistance.
11. Complete Agreement. This Agreement is the final, complete and
------------------
exclusive statement and expression of the agreement between Company and
employee, it being understood that there are no oral representations,
understandings or agreements covering the same subject matter as this Agreement.
This Agreement supersedes, and cannot be varied, contradicted or supplemented by
evidence of any prior or contemporaneous discussions, correspondence, or oral or
written agreements of any kind. This Agreement may be modified, altered or
otherwise amended only by a written instrument executed by both Company and
Employee.
12. No Waiver; Remedies Cumulative. No waiver by the parties hereto of
------------------------------
any default or breach of any term, condition or covenant of this Agreement shall
be deemed to be a waiver of any subsequent default or breach of the same or any
other term, condition or covenant contained herein.
-9-
<PAGE>
No right, remedy or election given by any term of this Agreement shall be deemed
exclusive but each shall be cumulative with all other rights, remedies and
elections available at law or in equity.
13. Assignment; Binding Effect. Employee understands that he has been
--------------------------
selected by Company on the basis of his personal qualifications, experience and
skills. This Agreement is not assignable. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and Company's successors.
14. Notice. All notices or other communications required or permitted
------
hereunder shall be in writing and may be given by depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified
with return receipt requested, by overnight courier or by delivering the same in
person to such party.
To Company: President
1000 Crawford Place
Mt. Laurel, New Jersey 08054
with a copy to:
Robert M. Kramer & Associates, P.C.
1150 First Avenue, Suite 900
King of Prussia, Pennsylvania 19406
To Employee: Louis D. Paolino, Jr.
500 East Mantua Ave.
Wenonah, New Jersey 08090
Notice shall be deemed given and effective the day personally delivered, the day
after being sent by overnight courier and three days after the deposit in the U.
S. mail of a writing addressed as above and sent first class mail, certified,
return receipt requested, or when actually received, if earlier. Either party
may change the address for notice by notifying the other party of such change in
accordance with this paragraph 14.
15. Severability; Headings. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in nay way to describe, interpret, define or limit the extent or intent of this
Agreement or of any part hereof.
-10-
<PAGE>
16. Governing Law. This Agreement shall in all respects be construed in
-------------
accordance with the laws of the Commonwealth of Pennsylvania.
EASTERN ENVIRONMENTAL SERVICES, INC.
By: /s/ Robert M. Kramer
------------------------------------------
Robert M. Kramer, Executive Vice President
/s/ Louis D. Paolino, Jr.
------------------------------------------
Louis D. Paolino, Jr.
-11-
<PAGE>
Exhibit 10.35
EMPLOYMENT AGREEMENT
--------------------
This Amended Employment Agreement ("Agreement") is executed and delivered
as of November 13, 1996, by and between Eastern Environmental Services, Inc., a
Delaware corporation ("Company"), and Terry Patrick, an individual ("Employee").
RECITALS
--------
The Company conducts a diversified waste management business, including,
without limitation, waste hauling operations, landfills and other waste
management, recycling and waste testing operations (the "Business"). The
Employee is an executive with extensive experience in the waste industry. The
Company desires to retain Employee as an Executive Vice President and Chief
Operations Officer and the Employee desires to accept the position offered.
The position of the Employee with the Company will give the Employee access
to and familiarity with confidential information and business methods used in
the operation of the Business. During the course of Employee's employment,
Employee will become familiar with and aware of information as to the specific
manner of doing business and the customers of the Company and the Company's
future plans. Employee has and will have knowledge of trade secrets of the
Company which are valuable assets of the Company.
Employee recognizes that the business of the Company is
-1-
<PAGE>
dependent upon a number of trade secrets and confidential business information,
including customer lists, customer data and operational information. The
protection of these trade secrets is of critical importance to the Company. The
Company will sustain great loss and damage if, for whatever reason, during the
term of this Agreement or Employee's employment with Company and for a period
following the termination of this Agreement or Employee's employment, Employee
should violate the provisions of paragraph 3 of this Agreement. Further,
Employee acknowledges that any such violation would cause irreparable harm to
Company and that Company would be entitled, without limitation, to injunctive
relief to remedy such violation.
Employee and Company previously entered into an Employment Agreement dated
June 20, 1996 (the "June Agreement"). This Agreement is intended to restate and
supersede the June Agreement.
NOW, THEREFORE, in consideration of Ten Dollars ($10), and the mutual
promises, terms and conditions set forth herein and the performance of each, the
parties hereby agree as follows:
1. Services.
--------
(a) Company hereby employs Employee as its Senior Executive Vice President
and Chief Operations Officer. Additional or different duties, titles or
positions may be assigned to Employee or may be taken from Employee from time to
time by the President of
-2-
<PAGE>
Company; provided, that the Employee consents to such changes.
(b) Employee hereby accepts employment upon the terms and
conditions contained in this Agreement. Employee shall faithfully adhere to,
execute and fulfill all directions and policies established by the Company, to
the extent such instructions do not violate applicable laws.
(c) Employee shall not, during the term of his employment
hereunder, without the prior written consent of Company, be engaged in any other
business activity pursued for gain, profit or other pecuniary advantage, if such
activity interferes with Employee's duties and responsibilities under this
Agreement. Employee's employment is for a full time position. Employee may
make personal investments in such form or manner as will neither require his
services in the operation or affairs of the enterprises in which such
investments are made nor violate the terms of Paragraph 3.
2. Compensation.
------------
(a) For all services to be rendered by Employee to Company, Company shall
pay Employee an annual salary at the rate of One Hundred Fifty Thousand
($150,000) Dollars per year, payable in accordance with Company's normal payroll
procedures. In addition, beginning on June 30 after the end of each of the
fiscal years beginning with fiscal year 1997, the Company shall pay Employee a
bonus in the amount of $100,000, payable in cash or common stock of
-3-
<PAGE>
the Company (which stock shall be registered under the Securities Act of 1933 or
shall be registered by the Company within 120 days after the date it is issued
to Employee), at the Company's option. If Employee leaves the employ of the
Company prior to the completion of any fiscal year, the $100,000 bonus described
in the prior sentence will be paid pro rata for the days Employee was employed
--- ----
by the Company during such fiscal year. The Company, at its discretion, may from
time to time grant additional bonuses and raises to the Employee.
(b) The Employee was granted stock options ("Options") exercisable for One
Hundred Fifty Thousand (150,000) shares of the Company's common stock at a per
share exercise price equal to the lowest bid price of the Company's common stock
on June 20, 1996, the day that Employee and Company agreed to the terms of the
June Agreement. The Options were granted under the Company's 1996 Stock Option
Plan. The Options shall vest on December 1, 1997, provided Employee remains in
the employ of the Company until December 1, 1997. Notwithstanding the prior
sentence the Options shall all vest immediately, if the Company's board of
directors accepts a binding agreement of a merger, consolidation or other
business combination in which the Company is not the surviving entity.
(c) To the extent that Company, from time to time in its sole discretion,
offers or provides any of the following to its
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<PAGE>
employees, then Employee, on an equal basis with such other employees, shall be
entitled to: (i) participation in all, if any, life, health, medical, hospital,
accident and disability insurance programs of Company in existence for the
benefit of its employees and for which Employee qualifies; (ii) participation in
all, if any, pension, retirement, profit sharing or stock purchase plans for
which Employee qualifies; and (iii) participation in any other employee benefits
which Company accords to its employees. Company shall also pay the premium on
the $1,000,000 term life insurance policy currently held by Employee.
(d) Employee shall be paid a bonus in either cash or common stock of the
Company (which stock shall be registered under the Securities Act of 1933 or
shall be registered by the Company within 120 days after the date it is issued
to Employee), at the Company's option, upon a change of control, as hereinafter
defined, equal to two times Employee's then salary plus the greater of (i)
$200,000 or (ii) two times the bonus Employee was paid during the last twelve
months the Employee worked for the Company ("Change of Control Bonus"). A change
of control shall occur upon the Company's merger, consolidation, or other
business combination with another entity where the Company is not the surviving
entity or upon the Company's sale of substantially all of its assets. If
Employee remains in the employ of the Company through December 1,
-5-
<PAGE>
1997, Employee shall be entitled to receive, and shall be paid, the Change of
Control Bonus upon the occurrence of a change of control, notwithstanding that
the change of control occurred after the Employee left the employment of the
Company due to the Employee having resigned.
(e) During the term of Employee's employment with Company, Employee shall
be entitled to reimbursement for reasonable business expenses incurred on behalf
of Company, to the extent that Company provides such reimbursement to its
employees who are employed in the same capacity as Employee.
3. Noncompetition Covenants.
------------------------
(a) Employee agrees that the noncompetition covenants contained in this
Paragraph 3 are a material and substantial part of this Agreement.
(b) Employee covenants that during Employee's employment with Company and
for one year following the termination of Employee's employment (regardless of
the reason for the termination) the Employee shall not, directly or indirectly,
without the prior express written consent of Company, do any of the things set
forth in item (i) below. Employee covenants that during Employee's employment
with Company and for two years following the termination of Employee's
employment (regardless of the reason for the termination) the Employee shall
not, directly or indirectly,
-6-
<PAGE>
without the prior express written consent of Company, do any of the things set
forth in items (ii) through (vi) below.
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, agent, or in a managerial capacity, whether as
an employee, independent contractor, consultant or advisor, or as a
sales representative, in the waste disposal industry, including,
without limitation, waste hauling, waste disposal, land filling,
handling demolition waste, handling special waste, collecting or
disposing of municipal special waste, and recycling waste, in each case
within seventy-five (75) miles of any Company business operation (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Company or its affiliates in a managerial
capacity, for the purpose or with the intent of enticing such employee
away from or out of the employ of Company or its affiliates;
(iii) call upon any person or entity, which is, at that time, or
which has been, within one year prior to that time, a customer of the
Company or its affiliates within the Territory, for the purpose of
soliciting or selling any of the services which are the services
offered by the Company within the Territory;
-7-
<PAGE>
(iv) call upon any prospective acquisition candidate located
within the Territory, on his own behalf or on behalf of any competitor
of Company or its affiliates, which candidate was known to Employee as
an acquisition candidate of the Company or Company's affiliates;
(v) disclose the identity of the customers of Company or its
affiliates, whether in existence or proposed, to any person, firm,
partnership, corporation or other entity whatsoever, for any reason or
purpose whatsoever, except if compelled to do so by a governmental
agency, Court Order or subpoena; or
(vi) promote, or assist, financially or otherwise, any person,
firm, partnership, corporation or other entity whatsoever to do any of
the above.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Employee from acquiring as an investment not more than two percent of
the capital stock of a competing business, the stock of which is traded on a
national securities exchange or over-the-counter.
For the purposes of this Agreement, the term "affiliates" shall mean
one or more of: (A) each subsidiary of Company, and (B) each other entity under
the direct or indirect control of the Company.
-8-
<PAGE>
(c) The Company will sustain significant losses and damages as a result of
the breach by Employee of the covenants in this Paragraph 3. There is no
adequate monetary remedy for the immediate and irreparable damage that would be
caused to Company by Employee's breach of its non-competition covenants.
Employee agrees that, in the event of a breach by him of the foregoing
covenants, such covenants may be enforced by Company by, without limitation,
injunctions and restraining orders.
(d) It is agreed by the parties that the covenants in this Paragraph 3
impose a reasonable restraint on Employee in light of the activities and
business of Company on the date of the execution of this Agreement and the
future plans of Company.
(e) The covenants in this Paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. If any court of competent jurisdiction shall determine that the
scope, time or territorial restrictions set forth are unreasonable, then it is
the intention of the parties that such restrictions be enforced to the fullest
extent which the court deems reasonable, and the Agreement shall thereby be
reformed.
(f) The covenants in this Paragraph 3 shall be construed as independent of
any other provision of this Agreement and the existence of any claim or cause of
action of Employee against
-9-
<PAGE>
Company whether predicated on this Agreement, or otherwise, shall not constitute
a defense to the enforcement by Company of such covenants. It is specifically
agreed that the duration of the noncompetition covenants stated above shall be
computed by excluding from such computation all time during which Employee is in
violation of any provision of this Paragraph 3 and all time during which there
is pending in any court of competent jurisdiction any action (including any
appeal from any judgment) brought by any person, whether or not a party to this
Agreement, in which action Company seeks to enforce the agreements and covenants
of Employee or in which any person contests the validity of such agreements and
covenants or their enforceability or seeks to avoid their performance or
enforcement. Provided that, no such exclusion shall include the period of time
within which Employee has ceased violating this paragraph, whether or not as a
result of being in compliance with Court injunction or doing so voluntarily, and
whether or not any action is pending against Employee.
4. Return of Company Property. All correspondence, reports, charts,
--------------------------
products, records, designs, patents, plans, manuals, "field guides," memoranda,
advertising materials, lists and other data or property collected by or
delivered to Employee by or on behalf of the Company or its representatives,
customers and government entities (including, without limitation, customers
obtained for
-10-
<PAGE>
Company by Employee), and all other materials compiled by Employee which pertain
to the business of Company shall be and shall remain the property of Company,
shall be subject at all times to the Company's discretion and control and shall
be delivered promptly to Company upon request at any time and without request
upon completion or other termination of Employee's employment hereunder.
5. Inventions. Employee shall disclose promptly to Company any and all
----------
conceptions and ideas for inventions, improvements, and valuable discoveries,
whether patentable or not, which are conceived or made by Employee solely or
jointly with another during the period of employment or within one year
thereafter and which are related to the business or activities of the Company.
Employee hereby assigns and agrees to assign all his interests therein to
Company or its nominee. Whenever requested to do so by Company, Employee shall
execute any and all applications, assignments or other instruments that Company
shall deem necessary to apply for and obtain Letters Patent of the United States
or any foreign country or to otherwise protect Company's interest therein.
These obligations shall continue beyond the termination of employment with
respect to inventions, improvements and valuable discoveries, whether patentable
or not, conceived, made or acquired by Employee during the period of employment
or within one year thereafter, and shall be binding upon Employee's heirs,
assigns, executors,
-11-
<PAGE>
administrators and other legal representatives.
6. Term; Termination; Rights of Termination. The term of this Agreement
----------------------------------------
shall begin on the date of the June Agreement and continue for a term of four
(4) years. Employee's employment under this Agreement may be terminated during
the term hereof in any one or more of the following ways:
(a) Automatically upon the death or resignation of Employee.
(b) By Company upon written notice to Employee in the event of:
(i) Employee's breach of this Agreement;
(ii) Employee's unsatisfactory performance of his duties or other
obligations hereunder, as determined in good faith by the Company;
(iii) The Company's merger, consolidation, or other business
combination with another entity where the Company is not the surviving
entity or the Company's sale of substantially all its assets ("Change of
Control");
(iv) Default of the Company in performing its obligations under
contracts with other persons or entities, if directly or indirectly caused
by Employee;
(v) Employee's inability to perform his duties under this Agreement
because of illness or physical or mental disability or other incapacity
which continues for a period of
-12-
<PAGE>
90 days;
(vi) Employee's fraud with respect to the business or affairs of
Company or if Employee is convicted of a crime. If the Agreement is
terminated by the Company, the Employee shall be provided with a written
notice of termination which shall state the reason for Employee's
termination.
(c) Upon termination of Employee's employment under Paragraph 6(b)(ii),
Employee shall be entitled to receive, and shall immediately be paid in full,
two months annual salary that would have been paid under Paragraph 2(a) above,
if the Agreement had not been terminated. Upon termination of Employee's
employment under Paragraph 6(b)(iii), or upon Employee's resignation for any
reason except to avoid termination under Paragraph 6(b)(vi), Company shall
continue all of Employee's insurance benefits for two years after the date of
termination or resignation.
(d) In the event of termination of Employee's employment under this
Agreement for any reason provided in paragraph 6(a) or 6(b), all rights and
obligations of Company and Employee under this Agreement shall cease
immediately, except that Employee's obligations under this subparagraph and
paragraphs 3, 4, 5, and 8 herein and Company's obligations under paragraph 6(c)
shall survive such termination. After such termination Employee shall have no
right to receive any compensation hereunder, except as set forth in
-13-
<PAGE>
paragraph 6(c).
7. Authority. Employee may take orders from customers of the Company in
---------
accordance with the standard Company form of agreement and all Company policies
and procedures from time to time in effect and at all times subject to
acceptance by Company. Employee does not have any power or authority to
contract for, bind or commit Company in any manner, unless given express
permission in advance. Without limiting the generality of the foregoing
statement, but as illustrative of its intent, Employee shall not have or
exercise or purport to have any powers or rights to make, explain, amplify or
modify any warranties as may be contained in said standard Company form of
agreement.
8. Representations of Employee. Employee represents and warrants to
---------------------------
Company that he is not subject to any restriction or noncompetition covenant in
favor of a former employer or any other person or entity, and that the execution
of this Agreement by Employee and his provision of services to Company and the
performance of his obligations hereunder will not violate or be a breach of any
agreement with a former employer or any other person or entity. Further,
Employee agrees to indemnify Company for any claim, including, but not limited
to, attorneys' fees and expenses of investigation, by any such third party that
such third party may now have or may hereafter come to have against Company
based upon
-14-
<PAGE>
or arising out of any noncompetition agreement or invention and secrecy
agreement between Employee and such third party.
9. Complete Agreement. This Agreement is the final, complete and
------------------
exclusive statement and expression of the agreement between Company and
employee, it being understood that there are no oral representations,
understandings or agreements covering the same subject matter as this Agreement.
This Agreement supersedes, and cannot be varied, contradicted or supplemented by
evidence of any prior or contemporaneous discussions, correspondence, or oral or
written agreements of any kind. This Agreement may be modified, altered or
otherwise amended only by a written instrument executed by both Company and
Employee.
10. No Waiver; Remedies Cumulative. No waiver by the parties hereto of
------------------------------
any default or breach of any term, condition or covenant of this Agreement shall
be deemed to e a waiver of any subsequent default or breach of the same or any
other term, condition or covenant contained herein. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
11. Assignment; Binding Effect. Employee understands that he has been
--------------------------
selected by Company on the basis of his personal qualifications, experience and
skills. This Agreement is not
-15-
<PAGE>
assignable. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and Company's successors.
12. Notice. All notices or other communications required or permitted
------
hereunder shall be in writing and may be given by depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, by overnight courier or
by delivering the same in person to such party.
To Company: President
1000 Crawford Place
Mt. Laurel, N.J. 08054
with a copy to:
Robert M. Kramer & Assoc., P.C.
1150 First Avenue, Suite 900
King of Prussia, PA 19406
To Employee: Terry Patrick
5705 Seville Court
Plano, Texas 75093
Notice shall be deemed given and effective the day personally delivered, the day
after being sent by overnight courier and three days after the deposit in the U.
S. mail of a writing addressed as above and sent first class mail, certified,
return receipt requested, or when actually received, if earlier. Either party
may change the address for notice by notifying the other party of such
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<PAGE>
change in accordance with this paragraph 12.
13. Severability; Headings. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in nay way to describe, interpret, define or limit the extent or intent of this
Agreement or of any part hereof.
14. Governing Law. This Agreement shall in all respects be construed in
-------------
accordance with the laws of the Commonwealth of Pennsylvania.
EASTERN ENVIRONMENTAL SERVICES, INC.
By: /s/ Louis D. Paolino, Jr.
----------------------------------------
Louis D. Paolino, Jr. President
/s/ Terry Patrick
----------------------------------------
Terry Patrick
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<PAGE>
Exhibit 10.36
AMENDED EMPLOYMENT AGREEMENT
----------------------------
This Amended Employment Agreement ("Agreement") is executed and delivered
as of May 12, 1997, by and between Eastern Environmental Services, Inc., a
Delaware corporation ("Company"), and Robert M. Kramer, an individual
("Employee").
RECITALS
--------
The Company conducts a diversified waste management business, including,
without limitation, waste hauling operations, landfills and other waste
management, recycling and waste testing operations ("Business"). The Employee
is an attorney with extensive experience representing clients in the waste
industry. The Company and Employee entered into a contract of Employment of
June 20, 1996 (the "June Agreement"), as amended on October 1, 1996. The
Company desires to continue to employ Employee as its Vice President and General
Counsel and the Employee desires to continue such employment upon the revised
terms and conditions set forth herein.
The position of the Employee with the Company has given and will give the
Employee access to and familiarity with confidential information and business
methods used in the operation of the Business. During the course of Employee's
employment, Employee has and will become familiar with and aware of information
as to the specific manner of doing business and the customers of the Company and
the Company's future plans. Employee has and will have knowledge of trade
secrets of the Company which are valuable assets of the Company.
Employee recognizes that the business of the Company is dependent upon a
number of trade secrets and confidential business information, including
customer lists, customer data and operational information. The protection of
these trade secrets is of critical importance to the Company. The Company will
sustain great loss and damage if, for whatever reason, during the term of this
Agreement or Employee's employment with Company and for a period following the
termination of this Agreement or Employee's employment, Employee should violate
the provisions of paragraph 4 of this Agreement. Further, Employee acknowledges
that any such violation would cause irreparable harm to Company and that Company
would be entitled, without limitation, to injunctive relief to remedy such
violation.
NOW, THEREFORE, in consideration of Ten Dollars ($10), and the mutual
promises, terms and conditions set forth herein and the performance of each, the
parties hereby agree as follows:
-1-
<PAGE>
1. Services.
--------
(a) Company hereby continues to employ Employee as its Executive Vice
President and General Counsel. Additional or different duties, titles or
positions may be assigned to Employee or may be taken from Employee from time to
time by the Company's President or Board of Directors ("Board"), provided that
the Employee consents to such changes.
(b) Employee hereby accepts employment upon the terms and conditions
contained in this Agreement. Employee shall faithfully adhere to, execute and
fulfill all directions and policies established by the Board, to the extent such
instructions do not violate applicable laws.
(c) Employee shall not, during the term of his employment hereunder,
without the prior written consent of Company, be engaged in any other competing
business activity pursued for gain, profit or other pecuniary advantage.
Company acknowledges that Employee is engaged in the private practice of law
through Robert M. Kramer & Associates, P.C., and the Company acknowledges that
Employee may remain employed by Robert M. Kramer & Associates, P.C.; provided,
that Employee devotes an average of sixty (60) hours a month on duties assigned
to Employee by the President of the Company. Employee may make personal
investments and conduct his personal business affairs, including, without
limitation, participating in the management of businesses which the Employee
owns directly or through affiliated entities, as long as such investments do not
violate the terms of Paragraph 4.
2. Compensation.
------------
(a) For all services to be rendered by Employee to Company, Company shall
pay Employee an annual salary at the rate of One Hundred Twenty Five Thousand
($125,000) Dollars per year, payable in accordance with Company's normal payroll
procedures. The Company, at its discretion, may from time to time grant bonuses
and raises to the Employee.
(b) Under the June Agreement, Employee was granted stock options
("Options") exercisable for One Hundred Seventy Five Thousand (175,000) shares
of the Company's common stock at a per share exercise price equal to the lowest
bid price of the Company's common stock on June 20, 1996, the day that Company
and Employee agreed to the terms of the June Agreement. The Options were
granted under the Company's 1996 Stock Option Plan. The Options were granted on
the date the June Agreement was executed by the Company. The Options vest over
the term of the June Agreement, one-fourth of the Options vesting on each
anniversary date of the June Agreement's
-2-
<PAGE>
execution. The Options shall be fully vested on the last day of the June
Agreement's term. Notwithstanding the prior sentence the Options shall all vest
immediately, upon termination of Employee's employment with the Company, for any
reason.
(c) In the event of a Change of Control as hereinafter defined, Employee
shall be entitled to, and Company shall immediately pay, a bonus ("Change of
Control Bonus") in an amount equal to one dollar ($1.00) less than three times
the sum of (i) his then annual salary, plus (ii) any cash or stock bonus paid to
him within the twelve months prior to the Change of Control. The Change of
Control Bonus may be paid in cash or in common stock of the Company (which is
registered under the Securities Act of 1933 or which shall be registered under
such Act within 120 days of its delivery to Employee) at the Company's option.
If the Company pays the Change of Control Bonus in stock and not cash, and the
stock is not registered under such Act, then the Company shall cause the stock
to be registered under such Act in accordance with the Registration Rights
Agreement dated even date hereof and executed by and between the Company and
Employee.
(d) To the extent that Company, from time to time in its sole discretion,
offers or provides any of the following to its employees, then Employee, on an
equal basis with such other employees, shall be entitled to: (i) participation
in all, if any, life, health, medical, hospital, accident and disability
insurance programs of Company in existence for the benefit of the Company's
executives and for which Employee qualifies; (ii) participation in all, if any,
pension, retirement, profit sharing or stock purchase plans for which Employee
qualifies; and (iii) participation in any other employee benefits which Company
accords to its employees.
(e) Employee shall be providing his services to the Company from the King
of Prussia offices of Robert M. Kramer & Associates, P.C. During the term of
Employee's employment with Company, Employee shall be entitled to reimbursement
for reasonable business expenses incurred on behalf of Company, including,
without limitation, federal express mail delivery charges, copying charges and
facsimile phone transmission charges incurred by Employee in the conduct of his
duties to the Company. Employee shall be paid a monthly car allowance of Five
Hundred Dollars ($500) per month.
(f) For purposes of this Agreement, a "Change of Control" shall mean the
occurrence of any of the events set forth in items (i) through and including
(iv) below.
-3-
<PAGE>
(i) There shall be a "Change of Control", upon the acquisition in one or
more transactions by any "Person" (as the term "Person" is used for purposes of
Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
"1934 Act")) of "Beneficial Ownership" (as the term beneficial ownership is used
for purposes of Rule 13d-3 promulgated under the 1934 Act) of thirty percent
(30%) or more of the combined voting power of the Company's then outstanding
voting securities (the "Voting Securities"). For purposes of this Paragraph
2(f), the Voting Securities acquired directly from the Company by any Person
shall be excluded from the determination of such Person's Beneficial Ownership
of Voting Securities (but such Voting Securities shall be included in the
calculation of the total number of Voting Securities then outstanding). For
purposes of this Paragraph 2(f) the acquisition of Employee of the Beneficial
Ownership of 30% percent or more of the Voting Securities shall not be a Change
of Control.
(ii) There shall be a "Change of Control" upon approval by the
shareholders of the Company of: (A) a merger, reorganization or consolidation
involving the Company, if the shareholders of the Company immediately before
such merger, reorganization or consolidation do not or will not own directly or
indirectly immediately following such merger, reorganization or consolidation,
more than seventy percent (70%) of the combined voting power of the outstanding
voting securities of the corporation resulting from or surviving such merger,
reorganization or consolidation in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger,
reorganization or consolidation, or (B) a complete liquidation or dissolution of
the company, or (C) an agreement for the sale or other disposition of all or
substantially all of the assets of the Company.
(iii) There shall be a "Change of Control" upon acceptance by shareholders
of the Company of shares in a share exchange, if the shareholders of the Company
immediately before such share exchange do not or will not own directly or
indirectly immediately following such share exchange more than seventy percent
(70%) of the combined voting power of the outstanding voting securities of the
corporation resulting from or surviving such share exchange in substantially the
same proportion as the ownership of the Voting Securities outstanding
immediately before such share exchange.
(iv) There shall be a "Change of Control" in the event that Louis D.
Paolino, Jr., is no longer Chairman, President and Chief Executive Officer of
the Company, for any reason.
-4-
<PAGE>
3. Term. The term of this Agreement shall begin on the date of this
----
Agreement and continue until June 20, 2000. Employee's employment under this
Agreement may be terminated during the term hereof only as set forth in
Paragraph 7 of this Agreement.
4. Noncompetition Covenants.
------------------------
(a) Employee agrees that the noncompetition covenants contained in this
Paragraph 4 are a material and substantial part of this Agreement.
(b) Employee covenants that during Employee's employment with Company and
for two years following the termination of Employee's employment (regardless of
the reason for the termination) the Employee shall not, directly or indirectly,
without the prior express written consent of Company, do any of the things set
forth in item (i) through (iv) below.
(i) call upon any person who is, at the time of the contact, an
employee of Company or its affiliates within the Territory, if the employee
serves the Company in a managerial capacity and if the purpose and intent of the
contact is to entice such employee away from or out of the employ of Company or
its affiliates;
(ii) call upon any person or entity, which is, at the time of the
contact, a customer of the Company or its affiliates within the Territory, for
the purpose of soliciting or selling any of the services which are the services
offered by the Company within the Territory;
(iii) disclose the identity of the customers of Company or its
affiliates, whether in existence or proposed, to any person, firm, partnership,
corporation or other entity whatsoever, for any reason or purpose whatsoever,
except if approved by the Board or if compelled to do so by a governmental
agency, Court Order or subpoena; or
(iv) promote, or assist, financially or otherwise, any person, firm,
partnership, corporation or other entity whatsoever to do any of the above.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Employee from acquiring as an investment not more than ten percent of
the capital stock of a competing business, the stock of which is traded on a
national securities exchange or over-the-counter.
For the purposes of this Agreement, the term "affiliates" shall mean one or
more of: (A) each subsidiary of Company, and (B) each other entity under the
direct or indirect control of the Company.
-5-
<PAGE>
(c) The Company will sustain significant losses and damages, if Employee
breaches the covenants in this Paragraph 4. There is no adequate monetary
remedy for the immediate and irreparable damage that would be caused to Company
by Employee's breach of its non-competition covenants. Employee agrees that, in
the event of a breach by him of the foregoing covenants, such covenants may be
enforced by Company by, without limitation, injunctions and restraining orders.
(d) It is agreed by the parties that the covenants in this Paragraph 4
impose a reasonable restraint on Employee in light of the activities and
business of Company on the date of the execution of this Agreement and the
future plans of Company.
(e) The covenants in this Paragraph 4 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. If any court of competent jurisdiction shall determine that the
scope, time or territorial restrictions set forth are unreasonable, then it is
the intention of the parties that such restrictions be enforced to the fullest
extent which the court deems reasonable, and the Agreement shall thereby be
reformed.
(f) The covenants in this Paragraph 4 shall be construed as independent of
any other provision of this Agreement and the existence of any claim or cause of
action of Employee against Company whether predicated on this Agreement, or
otherwise, shall not constitute a defense to the enforcement by Company of such
covenants. It is specifically agreed that the duration of the noncompetition
covenants stated above shall be computed by excluding from such computation all
time during which Employee is in violation of any provision of this Paragraph 4
and all time during which there is pending in any court of competent
jurisdiction any action (including any appeal from any judgment) brought by any
person, whether or not a party to this Agreement, in which action Company seeks
to enforce the agreements and covenants of Employee or in which any person
contests the validity of such agreements and covenants or their enforceability
or seeks to avoid their performance or enforcement. Provided that, no such
exclusion shall include the period of time within which Employee has ceased
violating this paragraph, whether or not as a result of being in compliance with
Court injunction or doing so voluntarily, and whether or not any action is
pending against Employee.
5. Return of Company Property. All correspondence, reports, charts,
--------------------------
products, records, designs, patents, plans, manuals, "field guides," memoranda,
advertising materials, lists and other data or property collected by or
delivered to Employee by or on behalf of the Company or its
-6-
<PAGE>
representatives, customers and government entities (including, without
limitation, customers obtained for Company by Employee), and all other materials
compiled by Employee which pertain to the business of Company shall be and shall
remain the property of Company, shall be subject at all times to the Company's
discretion and control and shall be delivered promptly to Company upon request
at any time and without request upon completion or other termination of
Employee's employment hereunder.
6. Inventions. Employee shall disclose promptly to Company any and all
----------
conceptions and ideas for inventions, improvements, and valuable discoveries,
whether patentable or not, which are conceived or made by Employee during the
period of employment which are related to the business or activities of the
Company. Employee hereby assigns and agrees to assign all his interests therein
to Company or its nominee. Whenever requested to do so by Company, Employee
shall execute any and all applications, assignments or other instruments that
Company shall deem necessary to apply for and obtain Letters Patent of the
United States or any foreign country or to otherwise protect Company's interest
therein. These obligations shall continue beyond the termination of employment
with respect to inventions, improvements and valuable discoveries, whether
patentable or not, conceived, made or acquired by Employee during the period of
employment, and shall be binding upon Employee's heirs, assigns, executors,
administrators and other legal representatives.
7. Termination; Rights of Termination.
----------------------------------
(a) Employee's employment under this Agreement may be terminated during the
term hereof upon the occurrence of any of the items set forth below. If any
one or more of the following items occur this Agreement shall be terminated as
follows:
(i) Automatically upon the death of Employee.
(ii) Automatically upon the resignation of the Employee.
(iii) By Company upon written notice to Employee in the event of:
(A) Employee's inability to perform his duties under this
Agreement because of illness or physical or mental disability or other
incapacity which continues for a period of 90 days; or
(B) Employee's unsatisfactory performance of his duties or
other obligations hereunder, as determined in good faith by the Board.
-7-
<PAGE>
If the Agreement is terminated by the Company upon written notice, such notice
shall state the reason for Employee's termination.
(b) Employee's employment under this Agreement may be terminated during
the term hereof by Company upon written notice to Employee in the event of
Employee's unsatisfactory performance of his duties or other obligations
hereunder, as determined in good faith by the Board. If Employee's employment
under this Agreement is terminated for the reason set forth in the previous
sentence, Employee shall be entitled to receive, and shall immediately be paid
in full, the greater of $250,000 or the amount equal to two times Employee's
then annual salary.
8. Authority. Employee shall be authorized to obligate the Company in
---------
accordance with the Company's policies and procedures from time to time in
effect, and as authorized by the Board or the President of the Company.
9. Representations of Employee. Employee represents and warrants to
---------------------------
Company that he is not subject to any restriction or noncompetition covenant in
favor of a former employer or any other person or entity, and that the execution
of this Agreement by Employee and his provision of services to Company and the
performance of his obligations hereunder will not violate or be a breach of any
agreement with a former employer or any other person or entity. Further,
Employee agrees to indemnify Company for any claim, including, but not limited
to, attorneys' fees and expenses of investigation, by any such third party that
such third party may now have or may hereafter come to have against Company
based upon or arising out of any noncompetition agreement or invention and
secrecy agreement between Employee and such third party.
10. Indemnification and Insurance
-----------------------------
(a) Subject to applicable law, for a period of six (6) years following
completion of the Term, the Company will: (i) indemnify Employee and his heirs
and representatives to the extent provided in the Company's Certificate of
Incorporation in effect on the date of this Agreement and will not amend, reduce
or limit rights of indemnity afforded to them or the ability of the Company to
indemnify them, not hinder, delay or make more difficult the exercise of such
rights of indemnity and (ii) maintain director and officer liability insurance
coverage providing Employee with coverage (1) at least as favorable as the
policies in effect immediately prior to the date hereof covering the Company's
directors and offices or (2) as favorable as is available at a cost to the
Company of up to 125% of the premiums currently being paid by the Company.
-8-
<PAGE>
(b) If any claim is (or claims are) made against Employee and his heirs
and representatives, including legal counsel, arising from Employee's services
as a director, officer and employee of the Company, within six (6) years from
the expiration of the Term, the provisions of this Paragraph 10 respecting the
Company's Certificate of Incorporation shall continue in effect until the final
disposition of all such claims.
(c) The Company agrees to provide written notice to Employee immediately
upon learning of any claim or threatened claim against Executive by any third
party relating to or arising out of the business of the Company or Employee's
prior service as a director, officer or controlling shareholder of the Company.
The Company further agrees to provide to Executive any complaints and other
relevant documentation related to such claims immediately upon receipt of such
documentation.
(d) Employee agrees that he will cooperate with and assist the Company,
as is reasonably requested by the Company, in its defense of any action or
proceeding against the Company, its directors, officers, employees or affiliates
arising out of or in any way related to any transactions, events or other
matters which occurred during the period of his employment with the Company, to
the extent that such cooperation and assistance will not impair Employee's legal
rights or remedies or increase the likelihood that Employee will incur any
liabilities as a result thereof. This Agreement shall not preclude Employee
from testifying in such action or proceeding. In the event that Employee does
cooperate with and assist the Company in its defenses of such an action or
proceeding, the Company agrees to reimburse Employee for all reasonable expenses
incurred by Employee in providing such assistance.
11. Complete Agreement. This Agreement is the final, complete and
------------------
exclusive statement and expression of the agreement between Company and
Employee, it being understood that there are no oral representations,
understandings or agreements covering the same subject matter as this Agreement.
This Agreement supersedes, and cannot be varied, contradicted or supplemented by
evidence of any prior or contemporaneous discussions, correspondence, or oral or
written agreements of any kind. This Agreement may be modified, altered or
otherwise amended only by a written instrument executed by both Company and
Employee.
12. No Waiver; Remedies Cumulative. No waiver by the parties hereto of
------------------------------
any default or breach of any term, condition or covenant of this Agreement shall
be deemed to be a waiver of any subsequent default or breach of the same or any
other term, condition or covenant contained herein.
-9-
<PAGE>
No right, remedy or election given by any term of this Agreement shall be deemed
exclusive but each shall be cumulative with all other rights, remedies and
elections available at law or in equity.
13. Assignment; Binding Effect. Employee understands that he has been
--------------------------
selected by Company on the basis of his personal qualifications, experience and
skills. This Agreement is not assignable. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and Company's successors.
14. Notice. All notices or other communications required or permitted
------
hereunder shall be in writing and may be given by depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, by overnight courier or
by delivering the same in person to such party.
To Company: President
1000 Crawford Place
Mt. Laurel, New Jersey 08054
To Employee: Robert M. Kramer
1150 First Avenue, Suite 900
King of Prussia, Pennsylvania 19406
Notice shall be deemed given and effective the day personally delivered, the day
after being sent by overnight courier and three days after the deposit in the U.
S. mail of a writing addressed as above and sent first class mail, certified,
return receipt requested, or when actually received, if earlier. Either party
may change the address for notice by notifying the other party of such change in
accordance with this paragraph 14.
15. Severability; Headings. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in nay way to describe, interpret, define or limit the extent or intent of this
Agreement or of any part hereof.
-10-
<PAGE>
16. Governing Law. This Agreement shall in all respects be construed in
-------------
accordance with the laws of the Commonwealth of Pennsylvania.
EASTERN ENVIRONMENTAL SERVICES, INC.
By:/s/ Louis D. Paolino, Jr.
--------------------------------------
Louis D. Paolino, Jr., President
/s/ Robert M. Kramer
--------------------------------------
Robert M. Kramer
-11-
<PAGE>
Exhibit 10.62
AMENDED AND RESTATED EMPLOYMENT CONTRACT
This Amended and Restated Employment Contract ("Agreement") is executed
and delivered as of May 16, 1997, by and between Eastern Environmental Services,
Inc., a Delaware corporation ("Company"), and Dennis M. Grimm, an individual
("Employee").
RECITALS
--------
Employee and Company previously entered into an Employment Agreement dated
March 31, 1997 (the "March Agreement"). This Agreement is intended to restate
and supersede the March Agreement. This Agreement does not supersede or cancel
any stock options which were issued to Employee under the March Agreement.
In March 1997, the Company entered into a Reorganization Plan and Agreement
by and between the Company and the shareholders of Apex Waste Services, Inc.
("Apex") ("Purchase Agreement"). At closing under the Purchase Agreement, all of
the outstanding stock of Apex was acquired by Company, which became the sole
shareholder of Apex. Employee was an employee of Apex who, under the March
Agreement, became employed by the Company in a capacity which has given Employee
access to and familiarity with confidential information and business methods
used by the Company. Employee will continue to be employed by Company in a
confidential relationship wherein Employee, in the course of employment with
Company, will become familiar with and aware of information as to the specific
manner of doing business and the customers of Company and its affiliates and the
Company's future plans. The information Employee has and will have knowledge of
are trade secrets and constitute valuable goodwill of Company.
Employee recognizes that the business of Company is dependent upon a number
of trade secrets and confidential business information, including customer lists
and customer data. The protection of these trade secrets is of critical
importance to Company. Company will sustain great loss and damage if, for
whatever reason, during the term of this Agreement or Employee's employment with
Company and for a period following the termination of this Agreement or
Employee's employment, Employee should violate the provisions of paragraph 4 of
this Agreement. Further, Employee acknowledges that any such violation would
cause irreparable harm to Company and that Company would be entitled, without
limitation, to injunctive relief to remedy such violation.
NOW, THEREFORE, in consideration of the mutual promises, terms and
conditions set forth herein and the performance of each, the parties hereby
agree as follows:
1
<PAGE>
1. Services.
--------
(a) Company hereby employs Employee as its Vice President of Operations.
Employee shall not be required to relocate his residence from Lancaster County,
Pennsylvania.
(b) Employee hereby accepts employment upon the terms and conditions
contained in this Agreement. Employee shall faithfully adhere to, execute and
fulfill all directions and policies established by the Company for its
employees.
(c) Employee shall not, during the term of his employment hereunder,
without the prior written consent of Company, be engaged in any other business
activity pursued for gain, profit or other pecuniary advantage, if such activity
interferes with Employee's duties and responsibilities under this Agreement.
Employee's employment is for a full-time position. Company acknowledges that
Employee may maintain ownership interests in the Permitted Businesses as
hereinafter defined. Employee represents that he will not spend more than ten
hours per month during normal business hours on matters pertaining to the
Permitted Businesses. For purposes of this Agreement, the Permitted Businesses
shall consist solely of: (i) National Earth Products, Inc. (including the
chairmanship of such company), the sole business of which is landfill
construction, environmental remediation projects and earth materials processing
and sales; (ii) D. M. Grimm, Inc., the sole business of which is the brokerage
of and receipt of payments under an ash disposal agreement; (iii) Explorer,
Inc., the sole business of which is the exploration and development of earth
materials removal operations; (iv) NEP Sand & Gravel, Inc., the sole business of
which is a quarry in Shippensburg, Pennsylvania; and (v) the completion of the
brokerage of one business in process as of the date of this Agreement. Employee
may make personal investments in such form or manner as will neither require
Employee's services in the operation or affairs of the companies or enterprises
in which such investments are made nor violate the terms of Paragraph 4.
2. Compensation.
------------
(a) For all services to be rendered by Employee to Company, Company shall
pay Employee a salary computed and earned ratably over twelve months at the rate
of One Hundred Fifty Thousand Dollars ($150,000) per year, commencing on the
date hereof, payable in accordance with Company's normal payroll procedures.
2
<PAGE>
(b) To the extent that Company, from time to time in its sole discretion,
offers or provides any of the following to its employees, then Employee, on an
equal basis with such other employees, shall be entitled to: (i) participation
in all, if any, life, health, medical, hospital, accident and disability
insurance programs of Company in existence for the benefit of its employees and
for which Employee qualifies; (ii) participation in all, if any, pension,
retirement, profit sharing or stock purchase plans for which Employee qualifies;
and (iii) participation in any other employee benefits which Company accords to
its employees and for which Employee qualifies.
(c) During the term of Employee's employment with Company, Employee shall
be entitled to reimbursement for reasonable business expenses, including
gasoline, incurred on behalf of Company. Reimbursement for business expenses
will be provided to Employee on the same basis and under the same guidelines as
are applicable to all of Company's employees. Employee shall also be entitled to
an automobile allowance of $450 per month while Employee is employed by the
Company.
(d) In addition to the options to purchase 62,500 shares of stock which
were granted in connection with the March Agreement, Employee shall be granted
stock options ("Options") exercisable for One Hundred Thirty-seven Thousand Five
Hundred (137,500) shares of the Company's common stock at a per-share exercise
price equal to the lowest bid price of the stock on the NASDAQ National Market
System on the date of this Agreement. The Options shall be granted under the
Company's 1996 stock option plan. The Options shall vest over the four-year term
of this Agreement, one-quarter of the Options vesting on each anniversary date
of this Agreement. Notwithstanding the above schedule, the Options shall vest
and be exercisable immediately upon the Company's merger, consolidation, or
other business combination with another entity where the Company is not the
surviving entity, or upon the Company's sale of substantially all of its assets.
(e) During the term of this Agreement, beginning on July 31 after the end
of each of the Company's fiscal years beginning with the fiscal year ending June
30, 1998, Company shall pay Employee a bonus in the amount of $50,000, provided
Employee is employed by Company on the last day of the fiscal year. Such bonus
shall be payable in cash or common stock of the Company (which stock shall be
registered under the Securities Act of 1933 or shall be registered by the
Company within 120 days after the date it is issued to Employee), at the
Company's option.
3
<PAGE>
3. Term. The period of Employee's employment with the Company shall
----
commence on the date of this Agreement and shall continue for four years
thereafter, unless sooner terminated in accordance with the provisions of this
Agreement ("Term"). After expiration of the Term, Employee's employment shall
continue thereafter on an at-will month-to-month basis, until terminated by
either party to the Agreement.
4. Noncompetition Covenants.
------------------------
(a) Employee agrees that the noncompetition covenants contained in this
Paragraph 4 are a material and substantial part of this Agreement.
(b) Employee covenants that during Employee's employment with Company and
for one year following the termination of Employee's employment (regardless of
the reason for the termination) the Employee shall not, directly or indirectly,
without the prior express written consent of Company, do any of the things set
forth in item (i) through (v) below:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, agent, or in a managerial capacity, whether as an employee,
independent contractor, consultant, advisor or sales representative, in the
waste disposal industry, including, without limitation, waste hauling, waste
disposal, land filling, handling demolition waste, handling special waste,
collecting or disposing of municipal special waste, and recycling waste, in each
case within fifty miles of the any of the Company's operating businesses ("the
Territory"), except for the Permitted Businesses;
(ii) call upon any person who is, at the time of the contact, an
employee of Company or its affiliates, if the purpose and intent of the contact
is to entice such employee away from or out of the employ of Company or its
affiliates;
(iii) call upon any person or entity which is, at the time of the
contact, a customer of the Company or its affiliates for the purpose of
soliciting or selling any of the services which are the services offered by the
Company or its affiliates;
(iv) disclose the identity of the customers of Company or its
affiliates, whether in existence or proposed, to any person, firm, partnership,
corporation or other entity whatsoever, for any reason or purpose whatsoever;
(v) promote, or assist, financially or otherwise, any person, firm,
partnership, corporation or other entity whatsoever to do any of the above,
except for the Permitted Businesses.
4
<PAGE>
For the purposes of this Agreement, the term "affiliates" shall mean
one or more of: (A) each subsidiary of Company, and (B) each other entity under
the direct or indirect control of the Company.
(c) The Company will sustain significant losses and damages, if
Employee breaches the covenants in this Paragraph 4. There is no adequate
monetary remedy for the immediate and irreparable damage that would be caused to
Company by Employee's breach of its non-competition covenants. Employee agrees
that, in the event of a breach by him of the foregoing covenants, such covenants
may be enforced by Company by, without limitation, injunctions and restraining
orders.
(d) It is agreed by the parties that the covenants in this Paragraph 4
impose a reasonable restraint on Employee in light of the activities and
business of Company on the date of the execution of this Agreement and the
future plans of Company.
(e) The covenants in this Paragraph 4 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. If any court of competent jurisdiction shall determine that the
scope, time or territorial restrictions set forth are unreasonable, then it is
the intention of the parties that such restrictions be enforced to the fullest
extent which the court deems reasonable, and the Agreement shall thereby be
reformed.
(f) The covenants in this Paragraph 4 shall be construed as independent of
any other provision of this Agreement and the existence of any claim or cause of
action of Employee against Company whether predicated on this Agreement, or
otherwise, shall not constitute a defense to the enforcement by Company of such
covenants. It is specifically agreed that the duration of the noncompetition
covenants stated above shall be computed by excluding from such computation all
time during which Employee is in violation of any provision of this Paragraph 4
and all time during which there is pending in any court of competent
jurisdiction any action (including any appeal from any judgment) brought by any
person, whether or not a party to this Agreement, in which action Company seeks
to enforce the agreements and covenants of Employee or in which any person
contests the validity of such agreements and covenants or their enforceability
or seeks to avoid their performance or enforcement. Provided that, no such
exclusion shall include the period of time within which Employee has ceased
violating this paragraph, whether or not as a result of being in compliance with
Court injunction or doing so voluntarily, and whether or not any action is
pending
5
<PAGE>
against Employee, and provided that no such exclusion shall include the time an
action is pending, if the action is finally determined in Employee's favor.
5. Confidential Information. It is expressly acknowledged by the Employee
------------------------
that customer lists, orders, current and closed out orders, prospect lists,
documents containing the names or addresses of existing or potential customers,
information regarding the Company's financial condition or business plans, the
methods by which the Company serves its customers or conducts its operations, as
well as other business procedures, are the property of the Company and
constitute confidential information or trade secrets of the Company
("Confidential Information"). Employee agrees to maintain the confidentiality of
the Confidential Information and further agrees that Employee will not, directly
or indirectly, use or disclose Confidential Information to any natural or legal
person, other than authorized employees or agents of the Company, during the
Term or thereafter. All Confidential Information and all correspondence,
reports, charts, products, records, designs, patents, plans, manuals, "field
guides," memoranda, advertising materials, lists and other data or property
collected by or delivered to Employee by or on behalf of Company, its
representatives, customers and government entities (including, without
limitation, customers obtained for Company by Employee), and all other materials
compiled by Employee which pertain to the business of Company shall be and shall
remain the property of Company, shall be subject at all times to its discretion
and control and shall be delivered, together with any and all copies thereof,
promptly to Company upon request at any time and without request upon completion
or other termination of Employee's employment hereunder.
6. Inventions. Employee shall disclose promptly to Company any and all
----------
conceptions and ideas for inventions, improvements, and valuable discoveries,
whether patentable or not, which are conceived or made by Employee solely or
jointly with another during the period of employment or within one year
thereafter and which are related to the business or activities of Company.
Employee hereby assigns and agrees to assign all his interests therein to
Company or its nominee. Whenever requested to do so by Company, Employee shall
execute any and all applications, assignments or other instruments that Company
shall deem necessary to apply for and obtain Letters Patent of the United States
or any foreign country or to otherwise protect Company's interest therein. These
obligations shall continue beyond the termination of employment with respect to
inventions, improvements and valuable discoveries, whether patentable or not,
conceived, made or acquired by
6
<PAGE>
Employee during the period of employment, and shall be binding upon Employee's
heirs, assigns, executors, administrators and other legal representatives.
7. Termination; Rights of Termination. Employee's employment under this
----------------------------------
Agreement may terminated during the term hereof in any one or more of the
following ways:
(a) Automatically upon the death or resignation of Employee, the parties
agreeing that Employee may resign at any time without such resignation
constituting a breach of this Agreement;
(b) By Company upon written notice to Employee upon:
(i) Employee's unsatisfactory performance of his duties or other
obligations under this Agreement, as determined in good faith by the Company,
including without limitation: (A) a default of the Company in performing its
obligations under a contract with any other person or entity, caused directly or
indirectly by Employee, or (B) Employee's refusal or inability to competently
perform his obligations under this Agreement, as determined by the Company,
except where non-performance is caused by disability;
(ii) Employee's inability to perform his duties under this Agreement
because of illness or physical or mental disability or other incapacity which
continues for a period of 90 days, either consecutive or cumulative during any
one-year period;
(iii) any type of harassment, violence or threat thereof, or other
behavior toward other employees of the Company or toward third parties of a kind
that may tend to result in liability being incurred by the Company toward such
employee or third party;
(iv) alcohol abuse, use of controlled substances during employment
hours, or a positive test for use of controlled substances; or
(v) gross negligence or willful misconduct with respect to the
Company or any of its affiliates or subsidiaries, including without limitation
fraud, embezzlement, theft or proven dishonesty in the course of employment, or
a conviction of a felony or a misdemeanor involving moral turpitude, or a
finding of adjudication withheld, with imposition of a sentence, to either a
felony or a misdemeanor involving moral turpitude, or the entering of a plea of
guilty or nolo contendere to a felony.
---- ----------
The written notice provided for herein shall state the reason for
Employee's termination.
(c) Upon termination of Employee's employment under this Paragraph 7 for
any reason, Employee shall be entitled to receive Employee's salary accrued
through the date of termination, plus
7
<PAGE>
any employee benefits which by their terms and provisions continue after such
termination, including the right to exercise vested stock options pursuant to an
Incentive Stock Option Agreement. If the Company merges, consolidates or
consummates any other business combination in which the Company is not the
surviving entity, and this Agreement is thereafter terminated by the Company,
Employee shall be also entitled to two years' salary compensation payable under
Paragraph 2(a).
(d) In the event of termination of Employee's employment under this
Agreement for any reason provided in this paragraph 7, or if Employee resigns
prior to the expiration of the term of this Agreement, all rights and
obligations of Company and Employee under this Agreement shall cease
immediately, except that Employee's obligations under this subparagraph and
paragraphs 4, 5, and 6, and the Company's obligations under Paragraph 7(c)
herein shall survive such termination. After such termination Employee shall
have no right to receive any compensation hereunder, except as set forth in
paragraph 7(c).
8. Complete Agreement. This Agreement is the final, complete and exclusive
------------------
statement and expression of the agreement between Company and employee, it being
understood that there are no oral representations, understandings or agreements
covering the same subject matter as this Agreement. This Agreement supersedes,
and cannot be varied, contradicted or supplemented by evidence of any prior or
contemporaneous discussions, correspondence, or oral or written agreements of
any kind. This Agreement may be modified, altered or otherwise amended only by a
written instrument executed by both Company and Employee.
9. No Waiver; Remedies Cumulative. No waiver by the parties hereto of any
------------------------------
default or breach of any term, condition or covenant of this Agreement shall be
deemed to be a waiver of any subsequent default or breach of the same or any
other term, condition or covenant contained herein. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
10. Assignment; Binding Effect. Employee understands that Employee has been
--------------------------
selected by Company on the basis of Employee's personal qualifications,
experience and skills. Employee agrees, therefore, that he cannot assign all or
any portion of this Agreement. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and Company's successors and assigns. It is
further understood and agreed that Company may be merged or consolidated with
another entity
8
<PAGE>
and that any such entity shall automatically succeed to the rights, powers and
duties of Company hereunder.
11. Notice. All notices or other communications required or permitted
------
hereunder shall be in writing and may be given by depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, by overnight courier or
by delivering the same in person to such party.
To Company: Chief Executive Officer
1000 Crawford Place
Mount Laurel, New Jersey 08054
To Employee: Dennis M. Grimm
1035 Eshelman Mill Road
Lancaster, Pennsylvania 17602
Notice shall be deemed given and effective the day personally delivered, the day
after being sent by overnight courier and three days after the deposit in the
U.S. mail of a writing addressed as above and sent first class mail, certified,
return receipt requested, or when actually received, if earlier. Either party
may change the address for notice by notifying the other party of such change in
accordance with this paragraph 11.
12. Severability; Headings. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in nay way to describe, interpret, define or limit the extent or intent of this
Agreement or of any part hereof.
13. Gender. The use of the masculine pronoun in this Agreement has been
------
used for convenience and shall apply to the Employee even where the Employee is
a female.
14. Governing Law. This Agreement shall in all respects be construed in
-------------
accordance with the laws of the Commonwealth of Pennsylvania.
15. Arbitration.
-----------
(a) Each and every controversy or claim arising out of or relating to this
Agreement shall be settled by arbitration in Philadelphia, Pennsylvania, in
accordance with the commercial rules (the "Rules") of the American Arbitration
Association then obtaining, and judgment upon the award
9
<PAGE>
rendered in such arbitration shall be final and binding upon the parties and may
be confirmed in any court having jurisdiction thereof. Notwithstanding the
foregoing, this Agreement to arbitrate shall not bar any party from seeking
temporary or provisional remedies in any Court having jurisdiction. Notice of
the demand for arbitration shall be filed in writing with the other party to
this Agreement, which such demand shall set forth in the same degree of
particularity as required for complaints under the Federal Rules of Civil
Procedure the claims to be submitted to arbitration. Additionally, the demand
for arbitration shall be stated with reasonable particularity with respect to
such demand with documents attached as appropriate. In no event shall the demand
for arbitration be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in question would be
barred by the applicable statutes of limitations.
(b) The arbitrators shall have the authority and jurisdiction to determine
their own jurisdiction and enter any preliminary awards that would aid and
assist the conduct of the arbitration or preserve the parties' rights with
respect to the arbitration as the arbitrators shall deem appropriate in their
discretion. The award of the arbitrators shall be in writing and it shall
specify in detail the issues submitted to arbitration and the award of the
arbitrators with respect to each of the issues so submitted.
(c) Within sixty (60) days after the commencement of any arbitration
proceeding under this Agreement, each party shall file with the arbitrators its
contemplated discovery plan outlining the desired documents to be produced, the
depositions to be take, if ordered by the arbitrators in accordance with the
Rules, and any other discovery action sought in the arbitration proceeding.
After a preliminary hearing, the arbitrators shall fix the scope and content of
each party's discovery plan as the arbitrators deem appropriate. The arbitrators
shall have the authority to modify, amend or change the discovery plans of the
parties upon application by either party, if good cause appears for doing so.
(d) The award pursuant to such arbitration will be final, binding and
conclusive.
(e) Counsel to Company and Employee in connection with the negotiation of
and consummation of this Agreement shall be entitled to represent their
respective party in any and all proceedings under this Paragraph or in any other
proceeding (collectively, "Proceedings"). Company and Employee, respectively,
waive the right and agree they shall not seek to disqualify any such counsel in
any such Proceedings for any reason, including but not limited to the fact that
such
10
<PAGE>
counsel or any member thereof may be a witness in any such Proceedings or
possess or have learned of information of a confidential or financial nature of
the party whose interests are adverse to the party represented by such counsel
in any such Proceedings.
IN WITNESS WHEREOF, the undersigned parties have executed this Agreement on
the year and day above written.
EASTERN ENVIRONMENTAL SERVICES, INC
/s/ Louis D. Paolino, Jr.
-------------------------------------
By: Louis D. Paolino, Jr.
Its: President
/s/ Dennis M. Grimm
-------------------------------------
Dennis M. Grimm
11
<PAGE>
Exhibit 10.63
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is executed and delivered as of
November 1, 1996, by and between Eastern Environmental Services, Inc., a
Delaware corporation ("Company"), and John Poling, an individual ("Employee").
RECITALS
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The Company conducts a diversified waste management business, including,
without limitation, waste hauling operations, landfills and other waste
management, recycling and waste testing operations ("Business"). The Employee
is an executive with extensive experience in the waste industry. The Company
desires to hire Employee as Vice President of investor relations and the
Employee desires to accept the position offered.
The position of the Employee with the Company will give the Employee access
to and familiarity with confidential information and business methods used in
the operation of the Business. During the course of Employee's employment,
Employee will become familiar with and aware of information as to the specific
manner of doing business and the customers of the Company and the Company's
future plans. Employee has and will have knowledge of trade secrets of the
Company which are valuable assets of the Company.
Employee recognizes that the business of the Company is dependent upon a
number of trade secrets and confidential business information, including
customer lists, customer data and operational information. The protection of
these trade secrets is of critical importance to the Company. The Company will
sustain great loss and damage if, for whatever reason, during the term of this
Agreement or Employee's employment with Company and for a period following the
termination of this Agreement or Employee's employment, Employee should violate
the provisions of paragraph 4 of this Agreement. Further, Employee acknowledges
that any such violation would cause irreparable harm to Company and that Company
would be entitled, without limitation, to injunctive relief to remedy such
violation.
NOW, THEREFORE, in consideration of Ten Dollars ($10), and the mutual
promises, terms and conditions set forth herein and the performance of each, the
parties hereby agree as follows:
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1. Services.
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(a) Company hereby employs Employee as a Vice President. Additional or
different duties, titles or positions may be assigned to Employee or may be
taken from Employee from time to time by the Chief Executive Officer or Chief
Operating Officer of the Company.
(b) Employee hereby accepts employment upon the terms and conditions
contained in this Agreement. Employee shall faithfully adhere to, execute and
fulfill all directions and policies established by the Company, to the extent
such instructions do not violate applicable laws.
(c) Employee shall not, during the term of his employment hereunder,
without the prior written consent of Company, be engaged in any other business
activity pursued for gain, profit or other pecuniary advantage, if such activity
interferes with Employee's duties and responsibilities under this Agreement.
Employee's employment is for a full-time position. Employee may make personal
investments in such form or manner as will neither require his services in the
operation or affairs of the enterprises in which such investments are made nor
violate the terms of Paragraph 4.
2. Compensation.
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(a) For all services to be rendered by Employee to Company, Company shall
pay Employee a salary computed at the rate of Ninety Thousand Dollars ($90,000)
per year, payable in accordance with Company's normal payroll procedures.
Although the salary is stated as an annual amount, the Employee shall earn and
be entitled to receive the salary in pro-rated amounts only for the periods the
Employee was employed by the Company.
(b) The Employee shall be granted stock options ("Options") exercisable
for Thirty-five Thousand (35,000) shares of the Company's common stock at a per
share exercise price equal to the lowest bid price of the stock on the NASDAQ
National Market System on the date of this Agreement. The Options shall be
granted under the Company's 1996 stock option plan. The Options shall vest over
the three-year term of this Agreement, one-third of the Options vesting on each
anniversary date of this Agreement. Notwithstanding the prior sentence, the
Options shall all vest immediately if the Company merges, consolidates or
consummates any other business combination in which the Company is not the
surviving entity.
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(c) To the extent that Company, from time to time in its sole discretion,
offers or provides any of the following to its employees, then Employee, on an
equal basis with such other employees, shall be entitled to: (i) participation
in all, if any, life, health, medical, hospital, accident and disability
insurance programs of Company in existence for the benefit of its employees and
for which Employee qualifies; (ii) participation in all, if any, pension,
retirement, profit-sharing or stock purchase plans for which Employee qualifies;
(iii) participation in any other incentive compensation plans which Company
accords to its employees of a similar position to Employee, as determined by the
Board of Directors.
(d) During the term of Employee's employment with Company, Employee shall
be entitled to reimbursement for properly documented, reasonable business
expenses, including lodging and meals, incurred on behalf of Company, to the
extent that Company provides such reimbursement to its employees who are
employed in the same capacity as Employee. In addition, Employee shall be
entitled to an automobile allowance of $450 per month during the term of this
Agreement.
3. Term. The term of this Agreement shall begin on the date of this
----
Agreement and continue for a term of three (3) years.
4. Noncompetition Covenants.
------------------------
(a) Employee agrees that the noncompetition covenants contained in this
Paragraph 4 are a material and substantial part of this Agreement.
(b) Employee covenants that during Employee's employment with Company and
for two years following the termination of Employee's employment (regardless of
the reason for the termination) the Employee shall not, directly or indirectly,
without the prior express written consent of Company, do any of the things set
forth in items (i) through (v) below.
(i) call upon any person who is an employee of Company or its
affiliates in a managerial capacity, for the purpose or with the intent of
enticing such employee away from or out of the employ of Company or its
affiliates;
(ii) call upon any person or entity, which is, at that time, or
which has been, within one year prior to that time, a customer of the
Company for the purpose of soliciting or selling any of the services which
are the services offered by the Company;
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(iii) call upon any prospective acquisition candidate on his own
behalf or on behalf of any competitor of Company or its affiliates, which
candidate was known to Employee as an acquisition candidate of the Company
or Company's affiliates;
(iv) disclose the identity of the customers of Company or its
affiliates, whether in existence or proposed, to any person, firm,
partnership, corporation or other entity whatsoever, for any reason or
purpose whatsoever, except if compelled to do so by a governmental agency,
Court Order or subpoena; or
(v) promote, or assist, financially or otherwise, any person, firm,
partnership, corporation or other entity whatsoever to do any of the above.
For the purposes of this Agreement, the term "affiliates" shall mean one or
more of: (a) each subsidiary of the Company, and (b) each other entity under
the direct or indirect control of the Company.
(c) The Company will sustain significant losses and damages as a result of
the breach by Employee of the covenants in this Paragraph 4. There is no
adequate monetary remedy for the immediate and irreparable damage that would be
caused to Company by Employee's breach of its non-competition covenants.
Employee agrees that, in the event of a breach by him of the foregoing
covenants, such covenants may be enforced by Company by, without limitation,
injunctions and restraining orders.
(d) It is agreed by the parties that the covenants in this Paragraph 4
impose a reasonable restraint on Employee in light of the activities and
business of Company on the date of the execution of this Agreement and the
future plans of Company.
(e) The covenants in this Paragraph 4 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. If any court of competent jurisdiction shall determine that the
scope, time or territorial restrictions set forth are unreasonable, then it is
the intention of the parties that such restrictions be enforced to the fullest
extent which the court deems reasonable, and the Agreement shall thereby be
reformed.
(f) The covenants in this Paragraph 4 shall be construed as independent of
any other provision of this Agreement and the existence of any claim or cause of
action of Employee against Company whether predicated on this Agreement, or
otherwise, shall not constitute a
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defense to the enforcement by Company of such covenants. It is specifically
agreed that the duration of the noncompetition covenants stated above shall be
computed by excluding from such computation all time during which Employee is in
violation of any provision of this Paragraph 4 and all time during which there
is pending in any court of competent jurisdiction any action (including any
appeal from any judgment) brought by any person, whether or not a party to this
Agreement, in which action Company seeks to enforce the agreements and covenants
of Employee or in which any person contests the validity of such agreements and
covenants or their enforceability or seeks to avoid their performance or
enforcement. Provided that, no such exclusion shall include the period of time
within which Employee has ceased violating this paragraph, whether or not as a
result of being in compliance with Court injunction or doing so voluntarily, and
whether or not any action is pending against Employee.
5. Return of Company Property. All correspondence, reports, charts,
--------------------------
products, records, designs, patents, plans, manuals, "field guides," memoranda,
advertising materials, lists and other data or property collected by or
delivered to Employee by or on behalf of the Company or its representatives,
customers and government entities (including, without limitation, customers
obtained for Company by Employee), and all other materials compiled by Employee
which pertain to the business of Company shall be and shall remain the property
of Company, shall be subject at all times to the Company's discretion and
control and shall be delivered promptly to Company upon request at any time and
without request upon completion or other termination of Employee's employment
hereunder.
6. Termination; Rights of Termination. Employee's employment under
----------------------------------
this Agreement may be terminated during the term hereof in any one or more of
the following ways:
(a) Automatically upon the death or resignation of Employee.
(b) By Company upon written notice to Employee upon:
(i) Employee's unsatisfactory performance of his duties or other
obligations hereunder, as determined in good faith by the Company;
(ii) The Company's merger, consolidation, or other business
combination with another entity where the Company is not the surviving
entity or the Company's sale of substantially all its assets;
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(iii) Employee's breach of this Agreement;
(iv) Employee's inability to perform his duties under this Agreement
because of illness or physical or mental disability or other incapacity
which continues for a period of 30 days or more;
(v) Any incident or circumstance where Employee is determined to be
involved in any one or more of the following: (1) alcohol abuse or use of
controlled substances during employment hours, (2) conduct of Employee
involving insubordination toward more senior officers of the Company, (3)
any type of harassment, violence or threat thereof, or other behavior
toward other employees of the Company or toward third parties of a kind
that may tend to result in liability being incurred by the Company toward
such employee or third party, (4) any type of disloyalty to the Company or
any of its affiliates or subsidiaries, (5) gross negligence or willful
misconduct with respect to the Company or any of its affiliates or
subsidiaries, including without limitation fraud, embezzlement, theft or
proven dishonesty in the course of his employment, or (6) a conviction of
any felony or a misdemeanor involving moral turpitude or the entering of a
plea of guilty or nolo contendere to a felony.
---- ----------
If the Agreement is terminated by the Company, the Employee shall be provided
with a written notice of termination which shall state the reason for Employee's
termination.
(c) Upon termination of Employee's employment under Paragraph 6(b)(i),
Employee shall be entitled to receive, and shall immediately be paid in full, an
amount equal to the pro-rated salary for three months. Upon termination of
Employee's employment under Paragraph 6(b)(ii), Employee shall be entitled to
receive, and shall immediately be paid in full, an amount equal to one year's
salary.
(d) In the event of termination of Employee's employment under this
Agreement for any reason provided in paragraph 6(a) or 6(b), all rights and
obligations of Company and Employee under this Agreement shall cease
immediately, except that Employee's obligations under this subparagraph and
paragraphs 4, 5, and 7 herein and Company's obligations under paragraph 6(a) or
6(c) shall survive such termination. After such termination, Employee shall
have no right to receive any compensation hereunder, except as set forth in
paragraph 6(a) or 6(c).
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7. Representations of Employee. Employee represents and warrants to
---------------------------
Company that he is not subject to any restriction or noncompetition covenant in
favor of a former employer or any other person or entity, and that the execution
of this Agreement by Employee and his provision of services to Company and the
performance of his obligations hereunder will not violate or be a breach of any
agreement with a former employer or any other person or entity. Further,
Employee agrees to indemnify Company for any claim, including, but not limited
to, attorneys' fees and expenses of investigation, by any such third party that
such third party may now have or may hereafter come to have against Company
based upon or arising out of any noncompetition agreement or invention and
secrecy agreement between Employee and such third party.
8. Complete Agreement. This Agreement is the final, complete and
------------------
exclusive statement and expression of the agreement between Company and
employee, it being understood that there are no oral representations,
understandings or agreements covering the same subject matter as this Agreement.
This Agreement supersedes, and cannot be varied, contradicted or supplemented by
evidence of any prior or contemporaneous discussions, correspondence, or oral or
written agreements of any kind. This Agreement may be modified, altered or
otherwise amended only by a written instrument executed by both Company and
Employee.
9. No Waiver; Remedies Cumulative. No waiver by the parties hereto of
------------------------------
any default or breach of any term, condition or covenant of this Agreement shall
be deemed to e a waiver of any subsequent default or breach of the same or any
other term, condition or covenant contained herein. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
10. Assignment; Binding Effect. Employee understands that he has been
--------------------------
selected by Company on the basis of his personal qualifications, experience and
skills. This Agreement is not assignable. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and Company's successors.
11. Notice. All notices or other communications required or permitted
------
hereunder shall be in writing and may be given by depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, by overnight courier or
by delivering the same in person to such party.
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To Company: President
1000 Crawford Place
Mt. Laurel, New Jersey 08054
with a copy to:
Robert M. Kramer & Associates, P.C.
1150 First Avenue, Suite 900
King of Prussia, Pennsylvania 19406
To Employee: John Poling
1308 Barkway Lane
West Chester, Pennsylvania 19380
Notice shall be deemed given and effective the day personally delivered, the day
after being sent by overnight courier and three days after the deposit in the U.
S. mail of a writing addressed as above and sent first class mail, certified,
return receipt requested, or when actually received, if earlier. Either party
may change the address for notice by notifying the other party of such change in
accordance with this paragraph 11.
12. Severability; Headings. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of this
Agreement or of any part hereof.
14. Governing Law. This Agreement shall in all respects be construed in
-------------
accordance with the laws of the State of New Jersey.
EASTERN ENVIRONMENTAL SERVICES, INC.
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By: /s/ Robert M. Kramer
------------------------------------
Robert M. Kramer, Vice President
/s/ John Poling
---------------------------------------
John Poling
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Exhibit 10.64
EASTERN ENVIRONMENTAL SERVICES, INC.
AMENDED AND RESTATED
1996 STOCK OPTION PLAN
ARTICLE I
General
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1.1 Purpose. This incentive stock option and nonqualified stock option
-------
plan (the "Plan") is established to promote the interests of Eastern
Environmental Services, Inc. (the "Corporation") and its stockholders by
enabling the Corporation, through the granting of stock options, to attract and
retain personnel for the Corporation and its subsidiaries, and to provide
additional incentive to such personnel to increase their stock ownership in the
Corporation. It is intended that those options issued pursuant to the
provisions of the Plan relating to incentive stock options shall constitute
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder, or
any statute or regulation of similar import. The Plan has been amended and
restated on May 12, 1997 to bring the Plan into compliance with the requirements
of Section 422 and correct minor typographical errors.
1.2 Administration.
--------------
(a) The incentive stock option and nonqualified stock option
provisions of the Plan shall be administered by the Board of Directors of the
Corporation, and the Board of Directors may delegate such administration to a
committee appointed by the Board of Directors of the Corporation (the
"Committee"). The Committee shall consist of not less than two (2) nor more than
five (5) persons, each of whom shall be a member of the Corporation's Board of
Directors. The Board of Directors may from time to time remove members from, or
add members to, the Committee. Vacancies on the Committee, howsoever caused,
shall be filled by the Board of Directors. In the event that the Board of
Directors elects not to delegate such administration to the Committee, all
references herein to the Committee shall be deemed to refer to the Board of
Directors.
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(b) The Committee shall select one of its members as chairman, and
shall hold meetings at such time and places as it may determine. The acts of a
majority of the Committee at which a quorum is present, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall be
valid acts of the Committee.
(c) Subject to the provisions of the Plan, the Committee shall have
full authority, in its discretion: (1) to determine the employees of the
Corporation and its subsidiaries to whom stock options shall be granted; (2) to
determine the time or times at which stock options shall be granted; (3) to
determine whether an eligible employee shall be granted an incentive stock
option, a nonqualified stock option or any combination thereof; (4) to determine
the option price of the shares subject to each stock option; (5) to determine
the time or times when each stock option becomes exercisable and the duration of
any stock option period; and (6) to interpret the Plan and the stock options
granted hereunder, and to prescribe, amend and rescind rules and regulations
with respect thereto. The interpretation and construction by the Committee of
any provision of the Plan over which it has discretionary authority or of any
option granted hereunder shall be final and conclusive.
(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any stock option
granted hereunder.
1.3 Eligible Employees. A stock option may be granted to any employee or
------------------
member of the Board of Directors of the Corporation or of a subsidiary (who may
or may not be an officer or member of the Board of Directors). With respect to
the incentive stock options granted under the Plan, employees who cannot qualify
for the benefits of incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended, may not be granted incentive stock options.
1.4 Stock Subject to the Plan.
-------------------------
(a) The stock subject to the stock options under the Plan shall be
shares of common stock of the Corporation, par value $0.01 per share, which
shares may be, in whole or in part, either authorized but unissued shares or
issued shares held in the treasury. The aggregate number of shares that may be
issued upon
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the exercise of stock options granted under the Plan shall not exceed 2,500,000
shares of common stock, which limitation shall be subject to adjustment as
provided in Article IV of the Plan.
(b) If a stock option is surrendered or for any other reason ceases
to be exercisable in whole or in part, the shares of common stock that are
subject to such option, but as to which the option has not been exercised, shall
again become available for offering under the Plan.
1.5 Termination of Options.
----------------------
(a) Unless sooner terminated as provided in this Plan, each stock
option shall be exercisable for the period of time as shall be determined by the
Committee and set forth in each stock option agreement evidencing a stock option
("Option Agreement"), and shall be void and unexercisable thereafter.
(b) Except as otherwise provided herein or in an Option Agreement,
upon the termination of the optionee's employment with the Company for any
reason, stock options exercisable on the date of termination of employment shall
be exercisable by the optionee (or in the case of the optionee's death
subsequent to termination of employment, by the optionee's executor(s) or
administrator(s)) for a period of three (3) months from the date of the
optionee's termination of employment.
(c) Except as otherwise provided herein or in an Option Agreement,
upon the termination of the optionee's employment due to disability (within the
meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended) or
death, the stock options held by such optionee shall be exercisable for a period
of twelve (12) months commencing on the date of the optionee's termination of
employment. If the Optionee is mentally disabled or dead, the stock options may
be exercised, as applicable, by the Optionee's legal guardian, by his
executor(s) or administrator(s).
(d) Stock options may be terminated at any time by agreement between
the Company and the optionee.
1.6 Forfeiture. Notwithstanding any other provision of this Plan, if the
----------
optionee's employment is terminated by the Company and the Board makes a good
faith determination that the optionee (i) has breached any material term or
provision of the optionee's employment agreement, or (ii) engaged in any type of
disloyalty to
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the Company, including without limitation, fraud, embezzlement, theft, or
dishonesty in the course of his employment, (iii) has been convicted of a
felony, (iv) has disclosed any proprietary information of the Company without
the consent of the Company, or (v) has breached the terms of any written
confidentiality agreement or any non-competition agreement with the Company in
any material respect, all unexercised stock options held by such optionee shall
terminate upon the date of such a finding.
1.7 Method of Payment. Each stock option shall state the method of
-----------------
payment of the stock option price upon the exercise of the stock option. The
method of payment stated in the stock option shall include payment (a) in United
States dollars in cash or by check, bank draft or money order payable to the
order of the corporation, or (b) in the discretion of and in the manner
determined by the Committee, by the delivery of shares of common stock of the
Corporation already owned by the optionee, or (c) by any other legally
permissible means acceptable to the Committee at the time of grant of the stock
option, or (d) in the discretion of the Committee, through a combination of (a),
(b) and (c) of this paragraph 1.7. If the option price is paid in whole or in
part through the delivery of shares of common stock, the decision of the
Committee with respect to the fair market value of such shares shall be final
and conclusive.
1.8 Term and Exercise of Options. No stock option shall be exercisable
----------------------------
either in whole or in part prior to the date it is vested. No stock option
shall be exercisable after the expiration of ten (10) years from the date it is
granted; or, in the case of a 10% stockholder with respect only to an ISO, no
stock option shall be exercisable after the expiration of five (5) years from
the date it is granted. Not less than one hundred (100) shares may be exercised
at any one time unless the number exercised is the total number at the time
exercisable under the stock option.
Within the limits described above, the Committee may impose additional
requirements on the exercise of stock options, including, but without
limitation, the number of shares covered by the stock option that become
eligible to be exercised in any year and the expiration date of the stock
option. Subject to the provisions of the Plan and any of the terms and
conditions the Committee deems appropriate, the Committee in its discretion also
may accelerate the time at which a stock option may be exercised if, under
previously established exercise terms, such stock option was not immediately
exercisable in full.
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1.9 Rights as a Stockholder. An optionee shall have no rights as a
-----------------------
stockholder with respect to any shares covered by his stock option until the
date of the issuance of a stock certificate to him for such shares after
exercise of the stock option. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Article IV.
1.10 Modification, Extension and Renewal of Options. Subject to the terms
----------------------------------------------
and conditions and within the limitations of the Plan, the committee may modify,
extend or renew outstanding stock options granted under the Plan, or accept the
surrender of outstanding stock options (to the extent not theretofore exercised)
and authorize the granting of new options in substitution therefor (to the
extent not theretofore exercised). Notwithstanding the foregoing, however, no
modification of any stock option shall, without the consent of the optionee,
alter or impair any of the rights or obligations under any stock option
theretofore granted under the Plan.
1.11 Listing and Registration of Shares. Each stock option shall be
----------------------------------
subject to the requirement that if at any time the Committee shall determine, in
its discretion, that the listing, registration or qualification of the shares
covered thereby upon any securities exchange or under any state or federal laws,
or the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of such stock
option or the issuance or purchase of shares thereunder, such stock option may
not be exercised unless and until such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Committee. Notwithstanding anything in the Plan to the
contrary, if the provisions of this paragraph 1.11 become operative, and if, as
a result thereof, the exercise of an stock option is delayed, then and in that
event, the term of the stock option shall not be affected.
1.12 Other Provisions. The stock option certificates or agreements
----------------
authorized under the Plan shall contain such other provisions, including,
without limitation, restrictions upon the exercise of the stock option, as the
Committee shall deem advisable. Any such certificate or agreement shall contain
such limitations and restrictions upon the exercise of the stock option as shall
be necessary in order that such incentive stock option
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will be an incentive stock option as defined in Section 422 of the Internal
Revenue Code of 1986, as amended, or to conform to any change in the law.
ARTICLE II
Terms and Conditions of Incentive Stock Options
-----------------------------------------------
Any incentive stock option ("ISO") granted pursuant to the Plan shall be
authorized by the Committee and shall be evidenced by certificates or agreements
in such form as the committee from time to time shall approve, which
certificates or agreements shall comply with and be subject to the terms and
conditions hereinafter specified.
2.1 Number of Shares. Each ISO shall state the number of shares to which
----------------
it pertains.
2.2 Option Price. Each ISO shall state the option price, which price
------------
shall be determined by the Committee in its discretion. In no event, however,
shall such price be less than 100% of the fair market value of the shares of
common stock of the Corporation (determined under Article IV of the Plan) on the
date of the granting of the ISO; or, in the case of an individual who owns (at
the time the option is granted) more than 10% of the total combined voting power
of all classes of stock of the Corporation or of a parent or subsidiary
corporation (a "10% stockholder"), shall such price be less than 110% of such
fair market value.
2.3 Additional Limitations on Exercise of Options. An optionee may hold
---------------------------------------------
and exercise more than one ISO, but only on the terms and subject to the
restrictions hereafter set forth. The aggregate fair market value (determined
as of the time an ISO is granted) of the common stock of the Corporation with
respect to which ISOs are exercisable for the first time by any employee in any
calendar year under the Plan and under all other incentive stock option plans of
the Corporation and any parent and subsidiary corporations of the Corporation
(as those terms are defined in Section 424 of the Internal Revenue Code of 1986,
as amended) shall not exceed $100,000.
2.4 Notice of Grant of Option. Upon the granting of any ISO to an
-------------------------
employee, the Committee shall promptly cause such employee to be notified of the
fact that such ISO has been granted. The date
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on which the Committee approves the grant of an ISO shall be considered to be
the date on which such ISO is granted.
2.5 Assignment.
----------
(a) No stock option shall be transferable by the optionee otherwise
than by will or the laws of descent and distribution.
(b) During the lifetime of the optionee, the stock option shall be
exercisable only by him and shall not be assignable or transferable and no other
person shall acquire any rights therein.
ARTICLE III
Terms and Conditions of Nonqualified Stock Options
--------------------------------------------------
Any nonqualified stock option ("NSO") granted pursuant to the Plan shall be
authorized by the Committee and shall be evidenced by certificates or agreements
in such form as the Committee from time to time shall approve, which
certificates or agreements shall comply with an d be subject to the terms and
conditions hereinafter specified.
3.1 Number of Shares. Each NSO shall state the number of shares to which
----------------
it pertains.
3.2 Option Price. Each NSO shall state the option price, which price
------------
shall be determined by the Committee in its discretion.
3.3 Assignment.
----------
(a) No NSO shall be transferable by the optionee otherwise than by
will or the laws of descent and distribution.
(b) During the lifetime of the optionee, the NSO shall be exercisable
only by him and shall not be assignable or transferable and no other person
shall acquire any rights therein.
3.4 Notice of Grant of Option. Upon the granting of any NSO to an
-------------------------
employee, the Committee shall promptly cause such employee to be notified of the
fact that such NSO has been granted. The date
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on which the Committee approves the grant of an NSO shall be considered to be
the date on which such NSO is granted.
3.5 Rights as a Stockholder. An optionee shall have no rights as a
-----------------------
stockholder with respect to any shares covered by his NSO until the date of the
issuance of a stock certificate to him for such shares after exercise of the
NSO. No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is issued,
except as provided in Article IV.
ARTICLE IV
Miscellaneous
-------------
4.1 Stock Adjustments.
-----------------
(a) In the event of any increase or decrease in the number of issued
shares of common stock of the Corporation resulting from a stock split or other
division or consolidation of shares or the payment of a stock dividend (but only
on the common stock) or any other increase or decrease in the number of such
shares effected without any receipt of consideration by the Corporation, then,
in any such event, the number of shares of common stock that remain available
under the Plan, the number of shares of common stock covered by each outstanding
option, and the purchase price per share of common stock covered by each
outstanding option shall be proportionately and appropriately adjusted for any
such increase or decrease.
(b) Subject to any required action by the stockholders, if any change
occurs in the shares of common stock of the Corporation by reason of any
recapitalization, reorganization, merger, consolidation, split-up, combination
or exchange of shares, or of any similar change affecting the shares of common
stock of the Corporation, then, in any such event, the number and type of shares
covered by each outstanding option, and the purchase price per share of common
stock covered by each outstanding option, shall be proportionately and
appropriately adjusted for any such change. A dissolution or liquidation of the
corporation shall cause each outstanding option to terminate.
8
<PAGE>
(c) In the event of a change in the common stock of the Corporation
as presently constituted that is limited to a change of all of its authorized
shares with par value into the same number of shares with a different par value
or without par value, the shares resulting from any change shall be deemed to be
shares of common stock within the meaning of the Plan.
(d) To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by, and in the
discretion of, the Committee, whose determination in that respect shall be
final, binding and conclusive; provided, however, that any ISO granted pursuant
to this Plan shall not be adjusted in a manner that causes such ISO to fail to
continue to qualify as an incentive stock option within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended.
(e) Except as hereinabove expressly provided in this paragraph 4.1,
an optionee shall have no rights by reason of any division or consolidation of
shares of stock of any class or the payment of any stock dividend or any other
increase or decrease in number of shares of stock of any class or by reason of
any dissolution, liquidation, merger or consolidation, or spin-off of assets or
stock of another corporation; and any issuance by the Corporation of shares of
stock of any class, securities convertible into shares of stock of any class or
warrants or options for shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of common stock subject to the option.
(f) The grant of any option pursuant to the Plan shall not affect in
any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capita or business
structure or to merge or to consolidate, or to dissolve, to liquidate, to sell,
or to transfer all or any part of its business or assets.
4.2 Fair Market Value of Stock. For purposes of this Plan, the "fair
--------------------------
market value of the shares of the common stock of the Corporation" shall mean a
price, on the date of grant of any ISO no lower than the low of the day and as
high as established by the Committee. The price of the Corporation's common
stock shall be as reported on the Composite Tape, or if not reported thereon,
then such price as reported in the trading reports of the principal securities
exchange in the United States on which such stock is
9
<PAGE>
listed, or if such stock is not listed on a securities exchange in the United
States, the closing price on the over-the-counter market as reported by the
NASDAQ (NASDAQ), or NASDAQ's successor, or if not reported on NASDAQ, the fair
market value of such stock as determined by the Committee in good faith and
based on all relevant factors.
4.3 Term of the Plan. The ISOs and NSOs may be granted pursuant to the
----------------
provisions of the Plan from time to time within a period of ten (10) years from
the date the Plan is adopted by the Board of Directors of the Corporation, or
the date the Plan is approved by the stockholders, whichever is earlier.
4.4 Amendment of the Plan. The Board of Directors of the Corporation may,
---------------------
insofar as permitted by law, from time to time, with respect to any shares at
the time not subject to stock options, suspend, discontinue or terminate the
Plan or revise or amend it in any respect whatsoever. However, the Plan may
not, without the approval of the stockholders, be amended in any manner that
will cause incentive stock options issued under it to fail to meet the
requirements of incentive stock options as defined in Section 422 of the
Internal Revenue Code of 1986, as amended.
4.5 Incentive Stock Option Plan. Except as provided in the Plan, the Plan
---------------------------
shall not affect the terms and conditions of any incentive stock options
heretofore or hereafter granted to any employee of the Corporation under any
incentive stock option plan of the Corporation or any parent or subsidiary
corporation; nor shall the Plan affect any of the rights of any employee to whom
such incentive stock option or options have been granted.
4.6 Application of Funds. The proceeds received by the Corporation from
--------------------
the sale of common stock pursuant to stock options will be used for general
corporate purposes.
4.7 No Obligation to Exercise. The granting of any stock option under the
-------------------------
Plan shall impose no obligation upon any optionee to exercise such stock option.
4.8 No Implied Rights to Employees. The existence of the Plan, and the
------------------------------
granting of options under the Plan, shall in no way give any employee the right
to continued employment, give any employee the right to receive any options or
any additional options under the Plan, or otherwise provide any employee any
rights not
10
<PAGE>
specifically set forth in the Plan or in any options granted under the Plan.
11
<PAGE>
Exhibit 11.1
Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Year ended June 30,
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
Primary
Average shares outstanding 13,764,994 9,018,080 7,844,359
Net effect of dilutive stock options
based on the treasury stock method
using average market price 1,211,808 - -
-------------------------------------
Total 14,976,802 9,018,080 7,844,359
=====================================
Net income (loss) $ 2,142,355 $(4,422,653) $ (54,570)
=====================================
Per share amount $ 0.14 $ (0.49) $ (0.01)
=====================================
Fully Diluted
Average shares outstanding 13,764,994 9,018,080 7,844,359
Net effect of dilutive stock options
based on the treasury stock method
using the year-end market price, if
higher than average market price 1,265,463 - -
Effect of withheld shares 103,758 - -
-------------------------------------
Total 15,134,215 9,018,080 7,844,359
=====================================
Net income (loss) $ 2,142,355 $(4,422,653) $ (54,570)
=====================================
Per share amount $ 0.14 $ (0.49) $ (0.01)
=====================================
</TABLE>
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES
--------------------
<TABLE>
<CAPTION>
SUBSIDIARY STATE OF INCORPORATION
- -------------------------------------- ----------------------
<S> <C>
Pulaski Grading, Inc. Kentucky
Carolina Grading, Inc. South Carolina
S & S Grading, Inc. West Virginia
Allied Waste Services, Inc. Delaware
Olney Sanitary System, Inc. Illinois
Eastern Waste of New York, Inc. Delaware
Bayside of Marion, Inc. Florida
Super Kwik, Inc. Pennsylvania
Donno Company, Inc. New York
R & A Bender, Inc. Pennsylvania
Eastern Waste of L.I., Inc. Delaware
Eastern Container Corporation Delaware
Aper Waste Services, Inc. Pennsylvania
Eastern Environmental Services of
Indiana, Inc. Delaware
Eastern Environmental Services of
Florida, Inc. Florida
Waste Services of South Florida, Inc. Florida
Residential Services, Inc. New York
Suffolk Waste Systems, Inc. New York
N.R.T. Realty Corp. New York
EESI of Fairless Hills, Inc. Delaware
Eastern Transfer of New York, Inc. Delaware
Soil Remediation of Philadelphia, Inc. Delaware
Harford Disposal, Inc. Maryland
Pappy, Inc. Maryland
Waste X Services, Inc. Florida
</TABLE>
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
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), the
Registration Statement on Form S-8 (Registration No. 33-45250, filed on January
27, 1992), the Registration Statement on Form S-3 (Registration No. 333-00283,
filed on February 14, 1996), and the Registration Statement on Form S-8 (Post-
Effective Amendment No. 1 to Registration No. 333-28627, filed on June 20, 1997)
of our report dated August 29, 1997, with respect to the consolidated financial
statements of Eastern Environmental Services, Inc. included in this Annual
Report (Form 10-K) for the year ended June 30, 1997.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
September 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 4,292,278
<SECURITIES> 0
<RECEIVABLES> 15,107,730
<ALLOWANCES> 1,599,000
<INVENTORY> 0
<CURRENT-ASSETS> 25,708,220
<PP&E> 86,609,602
<DEPRECIATION> 20,465,969
<TOTAL-ASSETS> 161,085,412
<CURRENT-LIABILITIES> 26,559,935
<BONDS> 60,929,413
0
0
<COMMON> 161,530
<OTHER-SE> 51,675,479
<TOTAL-LIABILITY-AND-EQUITY> 161,085,412
<SALES> 79,625,420
<TOTAL-REVENUES> 79,625,420
<CGS> 53,130,199
<TOTAL-COSTS> 53,130,199
<OTHER-EXPENSES> 20,857,710
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,662,729
<INCOME-PRETAX> 3,483,560
<INCOME-TAX> 1,341,205
<INCOME-CONTINUING> 2,142,355
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,142,355
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
