<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A-1
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. Employee
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 October 23, 1997, was approximately $422,295,000.
There were no shares of Class A Common Stock, par value $.01 per share, of the
Registrant outstanding as of October 23, 1997. The number of shares of Common
Stock, par value $.01 per share, of the Registrant outstanding as of October 23,
1997 was 22,033,831.
<PAGE>
This Report on Form 10-K/A filed with the Securities Exchange Commission
(the "Commission") by Eastern Environmental Services, Inc., a Delaware
corporation (together with its subsidiaries, the "Company") is being filed to
amend the Company's annual report on Form 10-K as filed with the Commission
on September 26, 1997 to include the information required by Part III of
Form 10-K in accordance with General Instruction G-3 of Form 10-K under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth information regarding the current directors
and executive officers of the Company. There are no family relationships among
any executive officers or directors of the Company except that Willard Miller is
Glen Miller's father.
<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
Glen Miller.............. 39 Executive Vice President
Willard Miller........... 60 Executive Vice President
George O. Moorehead...... 44 Director
Kenneth Chuan-kai Leung.. 53 Director
</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 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.
He also served on the Board of Directors of Metal Management, Inc., formerly
known as General Parametrics Corp., a publicly traded company, from November
1995 to January 1996. 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 as Vice President of Operations at Mid-America Waste Systems, Inc. from
November 1988 to April 1990. 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.
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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. Mr. Kramer has represented public and private companies in the
waste management industry for over 14 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).
GLEN MILLER has served as Executive Vice President of Collection
Operations since 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.
WILLARD MILLER has served as a Executive Vice President since September
1996. In 1972, Mr. Miller founded Super Kwik, Inc. where he held the positions
of President and Chief Executive Officer for 24 years.
GEORGE O. MOOREHEAD has served as a Director of the Company since June
1996. Mr. Moorehead has over 25 years of experience in the solid waste
management industry. Since 1993, Mr. Moorehead has been a director and
principal stockholder of EMCO Recycling Corp., a company engaged in the business
of metal recycling in Arizona and a subsidiary of Metal Management Inc., and has
served as President and Chief Executive Officer of EMCO Recycling Corp. since
February 1995. From 1990 to 1993, Mr. Moorehead was President and Chief
Executive Officer and a director of Custom Disposal, Inc., a solid waste
disposal company serving the Phoenix, Arizona area. Mr. Moorehead is a director
of Metal Management Inc.
KENNETH CHUAN-KAI LEUNG has served as a Director of the Company since June
1996. Mr. Leung has been a Managing Director of investment banking at Sanders
Morris Mundy since March 1995 and Chief Investment Officer of Environmental
Opportunities Fund, L.P. and Environmental Opportunities Fund (Cayman), L.P.
since January 1996. From 1988 to 1994, Mr. Leung was a Managing Director of
Smith Barney Inc. Mr. Leung has over 28 years of experience with the
environmental services industry as a securities analyst and investment banker.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, as well as persons beneficially owning more than 10% of the
Company's outstanding shares of Common Stock and certain other holders of such
shares (collectively, "Covered Persons"), to file with the Commission and the
NASDAQ
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Stock Market (the "NASDAQ"), within specified time periods, initial reports of
ownership, and subsequent reports of changes in ownership, of Common Stock and
other equity securities of the Company.
Based solely upon the Company's review of copies of such reports furnished
to it and upon representations of Covered Persons that no other reports were
required, to the Company's knowledge, all of the Section 16(a) filings required
to be made by the Covered Persons with respect to 1996 were made on a timely
basis, except that, Messrs. Grimm, Kramer, G. Miller, W. Miller, Moorehead,
Paolino, and Patrick, each of whom filed one Form 3 (reporting initial
beneficial ownership of the Company's Common Stock) late, Messrs. Kramer,
Krzemien, Leung, Moorehead, Paolino, and Patrick, each of whom has submitted
their Form 5 late for filing for the fiscal year ended June 30, 1997, Messrs. G.
Miller and W. Miller, each of whom filed one Form 4 late (reporting, in the case
of W. Miller, one divestiture by gift and, in the case of G. Miller, reporting
seven purchases of Common Stock during July 1997), and Messrs. Paolino and
Patrick, who are reporting on Form 5 transactions involving the acquisition of
Common Stock that should have been reported on an earlier filed Form 4. All of
the late filings involved either purchases of the Company's Common Stock or
option grants under the Company's Stock Option Plans. The Company has instituted
a compliance program to assist its directors and executive officers in timely
reporting transactions under Section 16.
ITEM 11: EXECUTIVE COMPENSATION
The following table sets forth certain information for the Company's last
three fiscal years concerning the annual, long-term, and other compensation of
the Chief Executive Officer of the Company and its next four most highly
compensated executive officers (collectively, the "Named Officers"):
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
Annual Compensation
Awards
Fiscal
Year Securities
Name and ended Underlying
Principal Position June 30, Salary Bonus Options
<S> <C> <C> <C> <C>
Louis D. Paolino, Jr........ 1997 $150,000(2) - 351,782
Chief Executive Officer 1996 $ 8,192(3) - 250,000
1995 - - -
Terry W. Patrick............ 1997 $158,954 $100,000(8) 100,000
Executive Vice President 1996 -(4) - 150,000
and Chief Operating 1995 - - -
Officer
Robert M. Kramer............ 1997 $125,000 - 80,562
General Counsel, 1996 -(5) - 175,000
Executive Vice President, 1995 - -
and Secretary
Glen Miller................. 1997 $109,615(6) - 281,907
Executive Vice President 1996 - - -
1995 - - -
Gregory M. Krzemien......... 1997 $ 95,500(7) $ 35,000(8) 26,885
Chief Financial Officer 1996 85,065 - 56,107
and Treasurer 1995 80,028 - -
=============================================================================
</TABLE>
(1) The columns captioned "Annual Compensation - Other Annual Compensation",
"Long-Term Compensation-Restricted Stock Awards", "-TIP Payouts" and "All
Other Compensation" have been omitted because, in the first case, none of
the Named Officers received other annual compensation exceeding either
$50,000 or 10% of such officer's total annual salary and bonus and, in the
other cases, because (i) the Company made no restricted stock awards (ii),
maintained no long-term incentive plan, and (iii) paid no other
compensation to the named officers, in each case during the fiscal year
ended June 30, 1997.
(2) Current annual base compensation is $350,000.
(3) Employment commenced on June 20, 1996.
(4) Employment commenced on June 20, 1996. No base compensation was paid in
the fiscal year ended June 30, 1996. Current annual base compensation is
$150,000.
(5) Employment commenced on June 20, 1996. No base compensation was paid in
the fiscal year ended June 30, 1996. Current annual base compensation is
$125,000.
(6) Employment commenced in September 1996. Current annual base compensation
is $150,000.
(7) Current annual base compensation is $110,000.
(8) This bonus remains unpaid.
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The following table sets forth certain information concerning individual
grants of stock options to the Named Officers during the fiscal year ended
June 30, 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted Fiscal Year(1) Per Share Date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Louis D. Paolino, Jr... 10,000 16.3% $ 6.38 7/1/06 $2,356,331 $5,969,918
161,782 $ 6.63 10/1/06
180,000 $14.50 6/20/07
Terry W. Patrick....... 100,000 4.6% $ 6.63 10/1/06 $ 417,000 $1,056,000
Robert M. Kramer....... 80,562 3.7% $ 6.63 10/1/06 $ 335,944 $ 850,735
Glen Miller............ 281,907 (2) 13.1% $ 6.75 10/7/06 $1,195,286 $3,033,319
Gregory M. Krzemien.... 6,885 1.2% $ 0.01(3) 10/7/01 $ 109,713 $ 188,248
20,000 $ 6.63 (4)
==========================================================================================================
</TABLE>
- ----------------------------
(1) The Company granted options and warrants to employees to purchase a total
of 2,154,550 shares of Common Stock during the fiscal year ended June 30,
1997. All of these grants were made at fair market value other than the
6,885 options granted to Mr. Krzemien.
(2) The rights to purchase 281,907 shares of Common Stock, which were granted
to Mr. Miller as an incentive for Mr. Miller to accept employment with the
Company, consist of warrants with a term of ten years.
(3) The fair market value of the shares issuable pursuant to the option on the
date of grant was $6.875.
(4) Options to purchase 10,000 shares expire on June 20, 2002 and options to
purchase the remaining 10,000 shares expire on June 20, 2003.
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The table set forth below shows information regarding stock options
exercised by the Named Officers during the fiscal year ended June 30, 1997, the
number of shares acquired, and the value realized and the number and value of
exercisable and unexercisable stock options at June 30, 1997. There are no
outstanding shares.
AGGREGATED/SAR OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money
Fiscal Year End Options/SARs at Fiscal Year End(2)
--------------------------- ----------------------------------
Exercisable Unexercisable Exercisable Unexercisable
--------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Louis D. Paolino, Jr... 112,500 489,282 $1,072,875 $3,226,722
Terry W. Patrick....... 87,500 162,500 $ 852,875 $1,621,265
Robert M. Kramer....... 93,750 161,812 $ 916,938 $1,631,678
Glen Miller............ 81,907 200,000 $ 757,640 $1,850,000
Gregory M. Krzemien.... 192,992 10,000 $2,742,709 $ 93,700
===================================================== ===================================
</TABLE>
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(1) No options were exercised by any of the Named Officers during the fiscal
year ended June 30, 1997.
(2) In-the-money options are those for which the fair market value of the
underlying securities exceeds the exercise price of the option. Values
were calculated by multiplying the closing transaction price of the Common
Stock as reported on the NASDAQ on June 30, 1997 by the appropriate number
of shares of Common Stock and subtracting the exercise price, without
regard to termination or vesting contingencies. The closing transaction
price of the Company's Common Stock on June 30, 1997 was $16.00 per share.
COMPENSATION OF DIRECTORS
The directors of the Company did not receive any fees for attendance at
meetings during fiscal 1997. Each of the Company's directors, however, received
options or warrants to purchase shares of the Company's Common Stock. In July
1996, options to purchase 10,000 shares of the Company's Common Stock at an
exercise price $6.375 per share were issued to each of Mr. Leung, Mr. Moorehead,
and Mr. Paolino, with the options becoming fully vested one year after the date
of grant. In October 1996, Messrs. Moorehead and Leung each received options to
purchase 60,834 shares of Common Stock at a per share exercise price of $6.63.
Of these options, 50,000 vested immediately. The remainder vested in April,
1997. All expenses incurred by the Company's directors for attendance at board,
committee, and shareholders' meetings are reimbursed by the Company.
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EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL
ARRANGEMENTS
In May 1997, Mr. Paolino entered into an amended and restated employment
agreement with the Company that provides for an initial annual base salary of
$150,000, which has subsequently been increased by the Board to $350,000, and
certain fringe benefits, including life and health insurance and an automobile
allowance. Upon a change in control of the Company, Mr. Paolino is entitled to
receive a bonus in cash or Common Stock equal to $1.00 less than three times the
sum of (i) his annual salary, (ii) any bonus he was paid during the twelve
months prior to the change of control, and (iii) the value of any options
granted to him within the twelve months prior to the change in control. Mr.
Paolino's agreement terminates in June 2002, subject to earlier termination by
either party. If Mr. Paolino's employment is terminated for any reason, he will
be entitled to receive his annual salary in effect at the date of termination
through the term of his employment agreement. During the term of employment,
Mr. Paolino may not directly or indirectly engage in the waste disposal industry
within up to 75 miles of any Company business operation.
In November 1996 and May 1997, Messrs. Patrick and Kramer, respectively,
entered into amended and restated employment agreements with the Company that
provide for initial annual base salaries of $150,000 and $125,000, respectively,
and certain fringe benefits, including life and health insurance and automobile
allowances. Mr. Patrick is further entitled to an annual bonus of $100,000,
payable in cash or Common Stock. Upon a change in control of the Company, Mr.
Kramer is entitled to receive a bonus in cash or Common Stock equal to $1.00
less than three times the sum of (i) his annual salary and (ii) any bonus he was
paid during the twelve months, prior to the change of control. Upon a change in
control of the Company, Mr. Patrick is entitled to receive in cash or Common
Stock an amount equal to two times his annual salary plus the greater of (i)
$200,000 or (ii) two times the bonus he was paid by the Company during the
twelve months prior to the change in control. Mr. Patrick's and Mr. Kramer's
agreements terminate in June 2000, subject to earlier termination by either
party. If Mr. Kramer's employment is terminated by the Company for any reason,
including unsatisfactory performance of his duties, he will be entitled to
receive a severance payment of an amount equal to two times his then annual
salary. In addition, all of his outstanding options shall immediately vest.
During the term of employment and for a period of up to two years thereafter,
Mr. Patrick may not directly or indirectly engage in the waste disposal industry
within up to 75 miles of any Company business operation.
In September 1996, Glen Miller entered into an employment agreement with
the Company that provides for an initial annual base salary of $150,000 and
certain fringe benefits including life and health insurance and an automobile
allowance. The term of the agreement is four years, subject to earlier
termination by either party. Upon termination of employment, Mr. Miller is
entitled to receive up to six months annual salary. If a change of control of
the Company occurs within three months of resignation, Mr. Miller is entitled to
two years salary. The agreement also provides that during the term of
employment, and for a period of one year thereafter, Mr. Miller will not compete
with the Company in the waste disposal business in an area that includes
southern New Jersey and Philadelphia, Pennsylvania.
In June 1996, Mr. Krzemien entered into an 18-month employment agreement
with the Company, subject to earlier termination, that provides for an initial
annual base salary of $90,000 and certain fringe benefits, including life and
health insurance and automobile allowances. Mr. Krzemien's salary was
subsequently increased to $110,000, subject to earlier termination by either
party. Upon termination of employment, Mr. Krzemien is entitled to receive up
to the greater of six months of his annual salary or the balance of his annual
salary for the remainder of the term of the agreement, depending on the
circumstances of the termination. Upon a change in control, Mr. Krzemien is
entitled to receive one year's annual salary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Throughout fiscal 1997, the Compensation Committee of the Company's Board
of Directors consisted of the Company's three incumbent directors, Louis D.
Paolino, Jr., George O. Moorehead, and Kenneth Chuan-kai Leung. Louis D.
Paolino, Jr. is the Company's Chairman of the Board, Chief Executive Officer,
and President.
In July 1996, the Company entered into a five-year office lease with
Bluepointe, Inc., (formerly known as Girard Point Transfer, Inc.) a corporation
controlled by Louis D. Paolino, Jr., the Chairman of the Board, Chief Executive
Officer, and President of the Company, for the Company's executive offices in
Mt. Laurel, New Jersey. The lease provides for monthly rental payments of $6,250
plus increases resulting 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 is in the process of moving its headquarters
within the same building, and expects to renegotiate the lease to reflect the
increased size of the space that it will occupy.
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 $1.6 million in the aggregate. The stockholders of Eastern
Waste of Philadelphia, Inc. are Matthew Paolino and Donald Moorehead, brothers
of Louis D. Paolino, Jr. and George O. Moorehead, respectively. 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
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transactions with Tri-County Disposal & Recycling, Inc. and National Ecosystems
Inc. for an aggregate of $1.6 million in cash and Common Stock.
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.
BOARD REPORT ON EXECUTIVE COMPENSATION
Throughout the fiscal year ended June 30, 1997 the Compensation Committee
was composed of all members of the Board of Directors, including the Company's
two non-employee directors, George O. Moorehead and Kenneth C. Leung, and Louis
D. Paolino, Jr., the Company's Chairman of the Board, Chief Executive Officer,
and President.
The following report of the Compensation Committee is required by the rules
of the Commission to be included in this report on Form 10-K and addresses the
Company's executive compensation policies for the fiscal year ended June 30,
1997 and certain subsequent developments. This report shall not be deemed
incorporated by reference into any filing under the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act, by virtue of any general
statement in such filing incorporating this Report on Form 10-K/A by reference,
except to the extent that the Company specifically incorporates the information
contained in this section by reference, and shall not otherwise be deemed filed
under either the Securities Act or the Exchange Act.
GENERAL. The Company's compensation policies for executives are intended
to further the interests of the Company and its stockholders by encouraging
growth of its business through securing, retaining, and motivating management
employees of high caliber who possess the skills necessary to the development
and growth of the Company.
The Company's compensation package consists of three major components:
base compensation, stock options, and performance bonuses. Together these
elements comprise total compensation value. The total compensation paid to the
Company's executive officers is influenced significantly by the need (i) to
attract management employees with a high level of expertise and (ii) to motivate
and retain key executives for the long-term success of the Company and its
stockholders.
Fiscal year ended June 30, 1997 was an important year for the Company.
Following the change of control of the Company in June 1996, the Company's
executive management team pursued an aggressive acquisition and growth strategy.
The implementation and management of this strategy, which included the
acquisition of 17 solid waste management businesses, required unusual amounts of
time, attention, and effort from the Company's executive officers while the
financing of the Company's expansion demanded significant additional time and
attention. The Compensation Committee considered these numerous developments in
formulating its executive compensation policies and practices for fiscal 1997.
The Committee commissioned Coopers & Lybrand LLP to conduct studies of
compensation levels in comparable companies and companies engaged in turn-around
situations for each executive position and in connection with each significant
adjustment to executive officer compensation made during the fiscal year ended
June 30, 1997.
BASE COMPENSATION. The Committee establishes annual base salary levels for
executives based on competitive data, level of experience, position,
responsibility, and individual and Company performance. The Company has sought
to align base compensation levels in the middle to top seventy-five percent of
the range of survey data, which includes direct competitors and companies in
turnaround situations. The Committee has used comparative data provided by
Coopers & Lybrand LLP.
STOCK OPTIONS. The Company grants stock options to its executive
management under its employee stock option plans. Option grants are intended to
bring the total compensation to a level that the Compensation Committee believes
is competitive with amounts paid by the Company's competitors and which will
offer significant returns if the Company is successful and, therefore,
significant incentives to devote the effort called for by the Company's
strategy. The Compensation Committee believes that executives' interests are
directly tied to enhanced stockholder value. Thus, stock options are used to
provide the executive management team with a strong incentive to perform in a
manner that will benefit the long-term success of the Company and its
stockholders.
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PERFORMANCE BONUSES AND STOCK OPTIONS. The Company supplements base
compensation with awards of compensation performance bonuses in the form of cash
and stock options. In establishing bonuses for the fiscal year ended June 30,
1997, the Board sought to reward the extraordinary efforts undertaken by several
of its key executive officers and achievements made by them in accomplishing
successfully the many transitions occurring during this period.
CHIEF EXECUTIVE OFFICER COMPENSATION. Mr. Paolino, in his capacity as
Chairman of the Board, Chief Executive Officer, and President, participates in
the same compensation programs as the other executive officers. The Committee
has targeted Mr. Paolino's total compensation, including base compensation,
bonuses, and stock options, at a level it believes is competitive with the
amount paid by the Company's competitors and companies in turnaround situations.
Mr. Paolino joined the Company in June 1996 at a base salary of $150,000.
Following a competitive compensation analysis conducted by Coopers & Lybrand,
the Compensation Committee reviewed Mr. Paolino's salary in the context of (i)
the Company's performance and growth discussed above, and (ii) compensation
packages of chief executive officers at comparable companies. Based on this
review, the Compensation Committee increased Mr. Paolino's salary to $350,000, a
level that was determined to be more analogous with competition and to more
adequately compensate Mr. Paolino for his services and contributions to the
success of the Company.
Submitted by the Compensation Committee of the Board of Directors:
Louis D. Paolino, Jr.
George O. Moorehead
Kenneth C. Leung
PERFORMANCE GRAPH
The following line graph and table compare, for the five most recently
concluded fiscal years, the yearly percentage change in the cumulative total
shareholder return, assuming reinvestment of dividends, on the Company's Common
Stock with the cumulative total return of companies on the NASDAQ, and an index
comprised of certain companies in the solid waste industry (the "Selected Peer
Group Index")./1/
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG EASTERN ENVIRONMENTAL SERVICES, INC.,
THE NASDAQ MARKET INDEX, AND SELECTED PEER GROWTH INDEX
<TABLE>
<CAPTION>
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<S> <C> <C> <C> <C> <C> <C> <C>
6/92 6/93 6/94 6/95 6/96 6/97
EASTERN ENVIRONMENTAL SVCS EESI 100 42 68 68 335 826
PEER GROUP PEER (1) 100 102 93 106 114 126
NASDAQ STOCK MARKET (U.S.) NAS 100 126 127 169 218 265
</TABLE>
_____________________________
(1) The Selected Peer Group Index is comprised of securities of the following
companies: Browning-Ferris Industries, Inc., Waste Management, Inc.,
U.S.A. Waste Services, Inc., Allied Waste Industries, Inc., and Superior
Services, Inc.
There can be no assurance that the Company's stock performance will
continue into the future with the same or similar trends depicted by the
graph above. The Company neither makes nor endorses any predictions as to
future stock performance.
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<PAGE>
[PERFORMANCE GRAPH]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG EASTERN ENVIRONMENTAL SERVICES, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX,
AND A PEER GROUP
6/92 6/93 6/94 6/95 6/96 6/97
---- ---- ---- ---- ---- ----
EASTERN ENVIRONMENTAL
SERVICES, INC. $100 $ 42 $ 68 $ 68 $335 $826
PEER GROUP 100 102 93 106 114 126
NASDAQ STOCK MARKET
(U.S.) 100 126 127 169 218 265
- ---------
* $100 INVESTED ON 5/30/92 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JUNE 30.
The Performance Graph set forth above shall not be deemed incorporated by
reference into any filing under the Securities Act or the Exchange Act by virtue
of any general statement in such filing incorporating this Report on Form 10-K
by reference, except to the extent that the Company specifically incorporates
the information contained in this selection by reference, and shall not
otherwise be deemed filed under either the Securities Act or the Exchange Act.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 1997, certain
information regarding the beneficial ownership of the Common Stock by: (i) each
person or entity known to the Company to own beneficially, as defined in Rule
13d-3 under the Exchange Act, five percent or more of the outstanding shares of
Common Stock, based upon Company Commission records; (ii) each of the Company's
directors; (iii) each of the Named Officers; and (iv) all executive officers and
directors of the Company as a group. Except as otherwise indicated, each person
has sole voting power and sole investment power with respect to all shares
beneficially owned by such person.
NUMBER OF SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1)(2) PERCENTAGE OF SHARES
- --------------------------- -------------------- --------------------
Willard Miller............. 1,415,688 (3) 6.4%
230 Orono Place
Sommerdale, NJ 08083
William Leone.............. 1,186,982 (4) 5.4%
444 Foch Boulevard
Mineola, NY 11051
Sanders Morris Mundy Inc... 1,156,252 (5) 5.2%
3100 Texas Commerce Tower
Houston, TX 77002
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Louis D. Paolino, Jr....... 1,227,298 (6) 5.5%
1000 Crawford Place
Mount Laurel, NJ 08054
Glen Miller................ 1,161,362 (7) 5.2%
42 Ocean Avenue
Ocean City, NJ 08226
Kenneth Chuan-kai Leung.... 1,070,836 (8) 4.9%
126 East 56th Street
24th Floor
New York, NY 10022
George O. Moorehead........ 405,834 (9) 1.8%
3700 West Lower Buckeye
Phoenix, AZ 85009
Terry W. Patrick........... 292,500(10) 1.3%
1000 Crawford Place
Mount Laurel, NJ 08054
Gregory M. Krzemien........ 192,992(11) *
1000 Crawford Place
Mount Laurel, NJ 08054
Robert M. Kramer........... 119,031(12) *
1150 First Avenue
Suite 900
King of Prussia, PA 19406
All executive officers
and directors as a
group (ten persons)........ 6,176,131(13) 26.9
____________________
* Less than 1%
(1) The inclusion herein of any shares as beneficially owned does not
constitute an admission of beneficial ownership of those shares.
(2) Shares not outstanding but deemed beneficially owned by virtue of the right
of an individual to acquire them within 60 days upon the exercise of an
option ("currently exercisable options") are treated as outstanding for
purposes of determining beneficial ownership and the percentage
beneficially owned by such individual.
(3) Includes 19,412 shares held of record by W&G Miller Family Limited
Partnership, of which Mr. Miller serves as a general partner, and 131,907
shares purchasable under currently exercisable warrants held by such
partnership.
(4) Includes 25,000 shares purchasable under currently exercisable warrants.
Also includes 1,159,982 shares held of record by five entities controlled
by either Mr. Leone or WSI Holding Corp. The Vito Leone Trust, of which
Mr. Leone and his brother Paul Leone are the trustees, is the controlling
shareholder of WSI Holding Corp.
(5) Includes 156,250 shares purchasable under currently exercisable warrants.
Also includes 889,699 shares held of record by the Environmental
Opportunities Fund, L.P. and 110,303 shares held of record by the
Environmental Opportunities Fund (Cayman), L.P., entities for which
Environmental Opportunities Management Company, LLC, in which Sanders
Morris Mundy Inc. holds a 75% membership interest, serves as the sole
general partner.
(6) Includes 35,000 shares held of record by entities controlled by Mr.
Paolino, 171,166 shares held by family members, and 198,391 shares
purchasable under currently exercisable options.
(7) Includes 131,907 shares purchasable under currently exercisable warrants.
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<PAGE>
(8) Includes 70,834 shares purchasable under currently exercisable options.
Also includes 889,699 and 110,303 shares held of record by the
Environmental Opportunities Fund, L.P. and the Environmental Opportunities
Fund (Cayman), L.P., respectively, for which Mr. Leung serves as Chief
Investment Officer and as to which Environmental Opportunities Management
Company LLC, in which Sanders Morris Mundy Inc. holds a 75% membership
interest and Quirk Carson Peppet Inc. holds a 25% membership interest,
serves as the sole general partner. Does not include 156,250 shares
purchasable under currently exercisable warrants held by Sanders Morris
Mundy Inc.
(9) Includes 70,834 shares purchasable under currently exercisable options.
(10) Includes 112,500 shares purchasable under currently exercisable options.
(11) Includes 112,992 shares purchasable under currently exercisable options.
(12) Includes 109,031 shares purchasable under currently exercisable options.
(13) See footnotes 3, 6, 7, 8, 9, 10, 11, and 12 above. Also includes an
aggregate of 278,924 shares and 11,666 shares purchasable under currently
exercisable options held by two executive officers of the Company who are
not listed in the table.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1996, the Company elected a new Board of Directors as a result of
the acquisition of 500,000 shares of Common Stock from William C. Skuba by Louis
D. Paolino, Jr., George O. Moorehead, Environmental Opportunities Fund, L.P.,
and Environmental Opportunities Fund, (Cayman), L.P.. Mr. Skuba resigned as the
Company's Chairman of the Board, Chief Executive Officer, and President on June
20, 1996. In connection with Mr. Skuba's resignation, the Company entered into
a Severance Agreement with Mr. Skuba (the "Severance Agreement") pursuant to
which 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 things, (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 located in Drums, Pennsylvania (the
"Drums Real Property"), (b) certain real and personal property located in Jasper
County, South Carolina, and (c) certain vehicles owned by the Company, (ii)
transferred to Mr. Skuba certain potential business opportunities that the
Company decided it had no interest in pursuing, (iii) agreed to provide Mr.
Skuba with certain health insurance 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.
In June 1996, the Company and Mr. Skuba entered into a consulting agreement
(the "Consulting Agreement"), whereby Mr. Skuba has agreed to serve as a general
advisor and consultant to the Company on matters relating to the Company's
acquisition program. In consideration for performing these services, the Company
has agreed to reimburse Mr. Skuba for his secretarial support and reasonable
expenses incurred in connection with them, as well as a car allowance. When Mr.
Skuba is instrumental in locating an acquisition which the Company closes, the
Company pays Mr. Skuba a commission mutually agreed upon by the Company and Mr.
Skuba. The initial term of the Consulting Agreement was for a period of six
months, which has been extended to December 31, 1997.
In December 1995 and May 1996, Glen Miller and Willard Miller, executive
officers of the Company, executed promissory notes in favor of Super Kwik, Inc.
in the principal amounts of $83,741 and $350,902, respectively. The notes bear
interest at the rate of six percent per annum and become due and payable on
December 30, 2005 and May 1, 2006, respectively. The total principal amount
outstanding under the notes at June 30, 1997 was $432,902. The Company acquired
Super Kwik, Inc. in September 1996.
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 Glen Miller and Willard
Miller. The note bears interest at the rate of ten percent per annum, payable
semi-annually, and the principal amount becomes due and payable on September 27,
1999. The note is secured by a 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.
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<PAGE>
Robert M. Kramer, the Company's General Counsel, Executive Vice President,
and Secretary, is engaged in the practice of law through Robert M. Kramer &
Associates, P.C., a professional corporation owned by Mr. Kramer, which has
rendered legal services to the Company since June 1996. The Company has paid
such corporation approximately $93,740 since July 1, 1996.
Kenneth Leung, a director and nominee for the Company, is a Managing
Director of Sanders Morris Mundy Inc., which has provided financial advisory
services for the Company and acted as placement agent in connection with a
private placement of 2,500,000 shares of Common Stock by the company for $4.00
per share in August 1996. In connection therewith, Sanders Morris Mundy
received a warrant to purchase 156,250 shares of Common Stock at an exercise
price of $5.00 per share and a placement fee of $650,000. In the private
placement, Environmental Opportunities Fund, L.P. and Environmental
Opportunities Fund (Cayman), L.P., for which Environmental Opportunities
Management Company, L.L.C., in which Sanders Morris Mundy holds a 75% membership
interest, serves as the sole general partner, purchased an aggregate of 750,000
shares of Common Stock. Sanders Morris Mundy also acted as an underwriter in
the public offering of 5,175,000 shares of Common Stock in August 1997.
Certain other transactions involving the Company and in which its Chairman,
Chief Executive Officer, and President had a direct or indirect material
interest are described above under the caption "Compensation Committee
Interlocks and Insider Participation."
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports, proxy statements, and
other information with the Commission. Such reports, proxy statements, and other
information may be inspected and copied at the offices of the Commission, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the
following Regional Offices of the Commission: Northwest Atrium Center, 5000 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such materials may be obtained
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a web site that contains reports, proxy statements, and other
information regarding registrants that are filed electronically with the
Commission, and the address of such site is (http://www.sec.gov).
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<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 on Form 10-K/A to be signed
pursuant to Rule 12b-15 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 28th day of October, 1997.
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