<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 16, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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 NUMBER)
----------------
LOUIS D. PAOLINO, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
1000 CRAWFORD PLACE 1000 CRAWFORD PLACE
MT. LAUREL, NEW JERSEY 08054 MT. LAUREL, NEW JERSEY 08054
(609) 235-6009 (609) 235-6009
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE,
TELEPHONE NUMBER, AND TELEPHONE
INCLUDING AREA CODE, OF REGISTRANT'S NUMBER, INCLUDING AREA CODE, OF AGENT
PRINCIPAL EXECUTIVE OFFICES) FOR SERVICE)
----------------
COPIES TO:
H. JOHN MICHEL, JR., ESQUIRE STEPHEN P. FARRELL, ESQUIRE
DRINKER BIDDLE & REATH LLP MORGAN LEWIS & BOCKIUS LLP
1345 CHESTNUT STREET 101 PARK AVENUE
PHILADELPHIA, PENNSYLVANIA 19107-3496 NEW YORK, NEW YORK 10178-0060
(215) 988-2700 (212) 309-6000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM OFFERING PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE PRICE PER AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. 5,175,000 $14.375 $74,390,625 $22,543
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</TABLE>
(1) Includes 675,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(c) solely for the purpose of calculating
the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
Unless otherwise indicated or the context requires otherwise, this
Registration Statement has been prepared on the assumption that, among other
things, (a) the Company has formally closed its acquisitions of Ameri-Carting,
Inc. and A-1 Carting, Inc., which have been closed into escrow pending receipt
by the Company of certain permits, (b) the Company has formally closed its
acquisitions of Coney Island Rubbish Removal, Inc. and Golden Gate Carting,
Co. Inc., which have been closed into escrow pending the satisfaction of
certain conditions, including the approval of the New York Trade Waste
Commission, and are being operated by the Company under the terms of a
management agreement, and (c) the Company has consummated the closing of its
purchase of the Illinois landfill for which it has exercised a purchase
option. Because there can be no assurances as to such matters, the Company
intends to amend this Registration Statement prior to the time it becomes
effective to reflect any material changes to the information contained herein.
The information contained in this Registration Statement should not be relied
upon for any purpose unless and until it becomes effective.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 16, 1997
PROSPECTUS
4,500,000 SHARES
[LOGO]
EASTERN ENVIRONMENTAL SERVICES, INC.
COMMON STOCK
--------
All of the 4,500,000 shares offered hereby are being sold by the Company. The
Company's Common Stock is traded on the Nasdaq National Market under the symbol
"EESI." The reported last sale price of the Company's Common Stock on the
Nasdaq National Market on May 14, 1997 was $15.125 per share. See "Price Range
of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share $ $ $
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Total(3) $ $ $
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</TABLE>
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(1) For information regarding indemnification of the several Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $ payable by the Company.
(3) The Company has granted the several Underwriters a 30-day option to
purchase up to 675,000 additional shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the Price to Public, Underwriting Discounts and Commissions, and
Proceeds to Company will be $ , $ , and $ , respectively.
--------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as, and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1997 at the office of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.
--------
SMITH BARNEY INC.
OPPENHEIMER & CO., INC.
SANDERS MORRIS MUNDY
PACIFIC GROWTH EQUITIES, INC. VAN KASPER & COMPANY
, 1997
<PAGE>
[Map of eastern United States indicating the location of the Company's
collection, transportation, and disposal operations]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 103 OF REGULATION M UNDER THE SECURITIES ACT. SEE "UNDERWRITING."
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements, and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy and information statements, and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549-1004 and at the
regional offices of the Commission located at 7 World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials may also be
obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549-1004 at prescribed rates. The Commission
maintains a web site at http://www.sec.gov that contains reports, proxy and
information statements, and other information regarding registrants, like the
Company, that file electronically with the Commission. The Common Stock is
quoted on the Nasdaq National Market, and reports and other information
concerning the Company may be inspected at the National Association of
Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006-1500.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus
omits certain of the information contained in the Registration Statement in
accordance with the rules and regulations of the Commission. Reference is
hereby made to the Registration Statement and related exhibits for further
information with respect to the Company and the securities offered hereby. Any
statements contained herein concerning the provisions of any document are not
necessarily complete, and, in such instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference.
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been previously filed by the Company with the
Commission and are hereby incorporated by reference in this Prospectus as of
their respective dates:
(i) the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1996 (filed September 27, 1996) (as amended on Form 10-K/A filed
October 28, 1996);
(ii) the Company's Current Reports on Form 8-K dated June 21, 1996, July
2, 1996 (as amended on Forms 8-K/A filed September 16, 1996 and May 13,
1997), September 27, 1996 (as amended on Form 8-K/A filed December 9,
1996), December 10, 1996 (as amended on Form 8-K/A filed February 11,
1997), January 31, 1997 (as amended on Form 8-K/A filed April 15, 1997),
and March 31, 1997 (as amended on Form 8-K/A filed May 15, 1997);
(iii) the Company's Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1996 (filed November 13, 1996), December 31, 1996 (filed
February 14, 1997), and March 31, 1997 (filed May 15, 1997); and
(iv) the description of the Common Stock contained in the Registration
Statement on Form 8-A (File No. 0-16102), including all amendments and
reports filed for the purpose of updating such description prior to the
termination of the Offering.
Additionally, all documents filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent
to the date of this Prospectus and prior to the termination of the Offering
shall be deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date of filing of such documents. Any statement or
information contained herein or in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that a statement or information contained herein or in any other
subsequently filed document that is also incorporated by reference herein
modifies or replaces such a statement or such information. Any such statement
or information so modified or replaced shall not be deemed, except as so
modified or replaced, to constitute a part of this Prospectus.
The Company will furnish without charge to each person to whom this
Prospectus is delivered, upon written or oral request, a copy of any and all
of the documents that have been incorporated by reference in this Prospectus,
other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the documents that this Prospectus
incorporates. Requests should be submitted by telephone to (609) 235-6009 or
in writing to Eastern Environmental Services, Inc., 1000 Crawford Place, Suite
101, Mt. Laurel, New Jersey 08054, Attention: Investor Relations.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus and other information incorporated by
reference herein. Unless otherwise noted, all financial information and share
and per share data in this Prospectus (i) assume no exercise of the
Underwriters' over-allotment option, (ii) exclude 3,073,153 shares of Common
Stock issuable upon exercise of outstanding options and warrants at May 14,
1997, and (iii) assume the completion of the acquisitions of Ameri-Carting,
Inc., A-1 Carting, Inc., Coney Island Rubbish Removal, Inc., Golden Gate
Carting, Co. Inc., and the Company's Illinois landfill. As used in this
Prospectus, the term the "Company" includes Eastern Environmental Services,
Inc. and its subsidiaries, unless the context otherwise indicates.
THE COMPANY
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, control of the Company was acquired by a
group of investors who repositioned the Company for the purpose of implementing
an aggressive acquisition program in the solid waste industry. The Company
appointed a new Board of Directors, hired a new management team with an average
of 17 years of experience in the waste management industry, raised a total of
approximately $10.0 million through two private placements of Common Stock, and
established a credit facility principally for acquisitions. Since July 1996,
the Company has acquired 20 solid waste management businesses, and thereby
entered new markets in Florida, Illinois, New Jersey, New York, and
Pennsylvania. The businesses acquired operate 17 solid waste collection and
transportation operations, four solid waste transfer and processing facilities,
two landfills, and one special waste services operation. Largely as a result of
these acquisitions, during the nine months ended March 31, 1997, the Company's
revenues increased by 80.7% (from $29.0 million to $52.4 million) and its
results of operations (excluding merger costs and related tax provisions
incurred as a result of such acquisitions) increased from a net loss of
$541,000 for the nine months ended March 31, 1996 to net income of $4.0 million
for the nine months ended March 31, 1997.
The Company currently operates solid waste collection and transportation
operations in southern Florida, southeastern Illinois, southern New Jersey, the
greater metropolitan New York City area, eastern and southcentral Pennsylvania
(including Philadelphia), and South Carolina, and owns a landfill in each of
Florida, Illinois, Kentucky, Pennsylvania, South Carolina, and West Virginia.
Of the Company's revenues for the nine months ended March 31, 1997,
approximately 81.0% was attributable to solid waste collection and
transportation operations, approximately 7.6% was attributable to solid waste
disposal operations, and approximately 11.4% was attributable to other waste
management services. The Company currently provides solid waste collection
services to approximately 30,000 commercial and industrial customers and
approximately 135,000 residential customers.
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. The Company's management philosophy is to retain
senior management of acquired companies and implement centralized financial and
administrative controls.
The Company believes that significant opportunities exist to acquire
additional solid waste collection, transportation, and disposal businesses in
the eastern United States and to develop within its existing markets. As part
of its acquisition program, the Company reviews acquisition opportunities on an
ongoing basis and is currently in various stages of negotiating the acquisition
of additional solid waste management businesses.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company..... 4,500,000 shares
Common Stock to be outstanding after the
Offering............................... 21,061,497 shares(1)
Use of proceeds......................... To repay outstanding indebtedness
under the Company's revolving credit
facility, which may be reborrowed for
future acquisitions and for working
capital. See "Use of Proceeds."
Nasdaq National Market symbol........... EESI
</TABLE>
- --------
(1) Based upon the shares of Common Stock outstanding at May 14, 1997. Excludes
3,073,153 shares of Common Stock issuable upon exercise of outstanding
options and warrants at May 14, 1997 and an additional 704,766 shares
reserved for issuance pursuant to future option grants under the Company's
stock option plans. See "Description of Capital Stock," "Shares Eligible
for Future Sale," and "Underwriting."
RISK FACTORS
An investment in the Common Stock involves significant risks. See "Risk
Factors" beginning on page 8 of this Prospectus for a discussion of certain
factors that should be considered by prospective purchasers of the Common Stock
offered hereby.
6
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
NINE MONTHS ENDED
MARCH 31, 1997(1)
-----------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................................... $ 77,938
Cost of revenues.............................................. 54,539
Selling, general and administrative expenses.................. 14,579
----------
Operating income.............................................. 8,820
Interest expense.............................................. (2,789)
Other income.................................................. 794
----------
Income before income taxes.................................... 6,825
Income taxes.................................................. 1,033
----------
Net income.................................................... $ 5,792
==========
Earnings per share............................................ $.36
Weighted average number of shares outstanding(2).............. 15,904,446
OTHER DATA:
EBITDA(3)..................................................... $ 13,389
EBITDA margin(4).............................................. 17.2%
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA AS ADJUSTED
MARCH 31, 1997(5) MARCH 31, 1997(5)(6)
----------------- --------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............... $ (700) $ 22,842
Total assets............................ 121,731 145,273
Long term debt, less current portion.... 43,207 3,431
Total liabilities....................... 77,456 37,679
Total stockholders' equity.............. 44,275 107,595
</TABLE>
- --------
(1) The pro forma financial information reflect significant acquisitions by the
Company since July 1, 1996, which include Allied Waste Services, Inc. and
its affiliates, R&A Bender, Inc. and its affiliates, Waste Services, Inc.
and its affiliates, Golden Gate Carting, Co. Inc., and Coney Island Rubbish
Removal, Inc., as if such acquisitions had occurred on July 1, 1996. It
also includes operating data for predecessor operations of Apex Waste
Services, Inc. for the three month period ended September 30, 1996. See
Unaudited Pro Forma Financial Information and notes thereto included
elsewhere in this Prospectus.
(2) Weighted shares outstanding has been calculated on a pro forma basis prior
to the shares issued in the Offering.
(3) EBITDA represents operating income plus depreciation and amortization.
While EBITDA data should not be construed as a substitute for operating
income, net income (loss), or cash flows from operations in analyzing the
Company's operating performance, financial position, and cash flows, the
Company has included EBITDA data (which is not a measure of financial
performance under generally accepted accounting principals) because it
understands that such data are commonly used by certain investors to
evaluate a company's performance in the solid waste management industry.
(4) EBITDA margin represents EBITDA expressed as a percentage of revenues.
(5) The pro forma financial information reflect significant acquisitions by the
Company since March 31, 1997, which include Waste Services, Inc. and its
affiliates, Golden Gate Carting, Co. Inc., and Coney Island Rubbish
Removal, Inc., as if such acquisitions had occurred as of March 31, 1997.
See Unaudited Pro Forma Financial Information and notes thereto included
elsewhere in this Prospectus.
(6) Adjusted to reflect the sale of 4,500,000 shares of Common Stock offered by
the Company hereby at an assumed public offering price of $15.125 per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
7
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock being offered by this Prospectus
involves a high degree of risk. In addition, this Prospectus contains forward-
looking statements that involve risks and uncertainties. Discussions
containing such forward-looking statements may be found in the material set
forth under "Prospectus Summary," "Risk Factors," "The Company," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business," as well as in this Prospectus generally. The Company's actual
results could differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including those set forth
in the following risk factors and elsewhere in this Prospectus. Accordingly,
prospective investors should consider carefully the following risk factors, in
addition to the other information concerning the Company and its business
contained in this Prospectus and in those documents incorporated by reference
in this Prospectus, before purchasing the shares of Common Stock offered
hereby.
HISTORY OF LOSSES; WORKING CAPITAL DEFICITS; CONTINUING CHARGES
The Company has recorded net losses to common stockholders of $55,000 and
$4.4 million (including $2.8 million in unusual items principally related to
the Company's June 1996 change of control) during the fiscal years ended June
30, 1995 and 1996, respectively, and had working capital deficits at June 30,
1996 and March 31, 1997 of approximately $1.9 million and $700,000,
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 that are accounted for under the "purchase" method of accounting.
Such goodwill is amortized over a period of 40 years depending on the business
acquired, resulting in an annual non-cash charge to earnings during that
period. As the Company continues to pursue its acquisition program, its
financial position and results of operations may fluctuate significantly from
period to period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
LIMITED OPERATING HISTORY IN REGARD TO SIGNIFICANT ASSETS
In June 1996, control of the Company was acquired by a group of investors
that elected a new Board of Directors, hired a new management team, and
implemented an aggressive acquisition program. Since then, the Company has
acquired 20 solid waste management companies. Of these acquisitions, the nine
completed by March 31, 1997 collectively contributed approximately $47.4
million or 90.0% of the Company's revenues for the nine months ended March 31,
1997 and approximately $72.5 million or 82.0% of the Company's assets at March
31, 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.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
ABILITY TO MANAGE GROWTH
The Company's strategy of growing primarily through acquisitions has placed,
and is expected to continue to place, significant burdens on the Company's
management and on its operational, financial, and other resources. The Company
will need 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. See "Business--Strategy," "--
Acquisition Program," and "--Competition."
8
<PAGE>
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. See "Business--Acquisition Program."
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 following the Offering 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 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. See "Business--Acquisition Program."
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. See
"Business--Strategy."
POTENTIAL LIABILITIES ASSOCIATED WITH ACQUISITIONS
The businesses acquired by the Company may have other 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 particularly
under CERCLA. 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. See "Business--Government
Regulation." Any indemnities or warranties, due to their limited scope, amount,
or duration, the financial limitations of the indemnitor or warrantor or other
reasons, may not fully cover such liabilities.
9
<PAGE>
NEED FOR ADDITIONAL CAPITAL
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 used with respect to completed acquisitions and
currently intends to use with respect to future acquisitions a combination of
Common Stock, cash, and the assumption of debt obligations as consideration. 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 additional equity and/or debt financing.
No assurance can be given that additional funding will be available on terms
favorable to the Company.
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 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.
See "Management."
DEPENDENCE ON THIRD PARTY LANDFILLS
A substantial portion of the solid waste collected by the Company is
delivered to third party landfills under informal arrangements or without long-
term contracts. If these third parties increase their disposal fees and the
Company is unable to pass along such increase to its customers, or if these
third parties discontinue their arrangements with the Company and the Company
is unable to locate alternative disposal sites, the Company's business and
results of operations would be materially adversely affected.
EXTENSIVE PERMITTING AND LICENSING REQUIREMENTS; KENTUCKY LANDFILL OBLIGATIONS
The Company is required to obtain and maintain in effect various federal,
state and local permits and licenses in connection with its solid waste
collection and transportation operations. The Company is also required to
obtain and maintain in effect various facility permits and other governmental
approvals, including those related to zoning, environmental and land use, in
order to develop and operate a landfill, a transfer station, or a waste hauling
operation, and is required to obtain additional permits and approvals to expand
its existing landfill 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, and may be dependent upon 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. In addition,
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.
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
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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. The
Company received a final permit to construct its expansion area on October 14,
1996. The planned development of the expansion area is currently expected to
begin in the summer of 1997. The capital costs required to meet the new state
requirements will be similar to those expended for the Company's West Virginia
and Pennsylvania landfills. 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 actual 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. The results of this investigation could have a
material adverse impact 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 also
requires closure of the original disposal area, which ceased operations on June
30, 1995, by August 15, 1997. Failure to complete closure activities by this
date would result in a violation of the final permit and could result in a
forfeiture of the existing $1.3 million payment bond posted by the Company to
assure a proper closure of this area.
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. If the Company does not construct the expansion area or
resume transfer station operations, and service Pulaski County under the
franchise agreement on or before July 21, 1997, there would be a default under
the franchise agreement with Pulaski County which could result in a forfeiture
of the Company's performance bond.
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.
See "Business--Permits and Licenses."
GOVERNMENT REGULATION
The Company is subject to extensive and evolving federal, state and local
environmental laws and regulations that have become increasingly stringent in
recent years as a result of greater public interest in protecting the
environment. These laws and regulations affect the Company's business in many
ways including the ways set forth below and under "Business--Government
Regulation," and will continue to impose substantial costs on the Company.
The design, operation, and closure of landfills is extensively regulated.
These regulations include, among others, the regulations establishing minimum
federal requirements adopted by the United States Environmental Protection
Agency ("EPA") in October 1991 under Subtitle D ("Subtitle D Regulations") of
the Resource Conservation and Recovery Act of 1976 ("RCRA"). Most states have
adopted extensive landfill regulations that have been updated or replaced with
new regulations consistent with, or more stringent than, the Subtitle D
Regulations. Failure to comply with these regulations could require the Company
to undertake investigatory or remedial activities, to curtail or modify
operations or to close a landfill temporarily or permanently. Future changes in
federal or state regulations may require the Company to modify, supplement, or
replace equipment or
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facilities at costs that may be substantial. The failure of regulatory agencies
to enforce these regulations vigorously or consistently may give an advantage
to competitors of the Company whose facilities do not comply with the Subtitle
D Regulations or its state counterparts. The Company's ultimate financial
obligations related to any failure to comply with these regulations could have
a material adverse effect on the Company's business and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company is also regulated under the Federal Water Pollution Control Act
of 1972 (the "Clean Water Act"), and the Clean Air Act, as amended in 1990 (the
"Clean Air Act"). The Clean Water Act regulates the discharge of pollutants
from a variety of sources, including landfills, into streams or other surface
waters. The Clean Air Act, including the 1990 amendments, provides for federal,
state, and local regulation of emissions of air pollutants into the atmosphere,
including emissions resulting from landfill operations. The EPA recently
promulgated new source performance standards regulating air emissions of
certain regulated pollutants from municipal solid waste landfills. These
standards, combined with the new permitting programs established under the 1990
Clean Air Act amendments, likely will subject four of the Company's landfills
to new permitting requirements and may require the installation of gas recovery
systems. In addition to these requirements, the Company's landfills are subject
to Clean Air Act regulations regulating the handling and disposal of asbestos-
containing materials. The Company's continued compliance with these existing
and future regulations may impose a significant expense upon the Company which
could have a material adverse effect on the Company's business and results of
operations.
In addition, most states and municipalities in which the Company operates or
may operate have adopted laws or requirements which limit or ban certain
categories of waste or mandate the disposal or recycling of local refuse. These
recycling laws and requirements have the effect of reducing landfill disposal
tonnage. Additionally, certain permits and approvals, as well as state and
local regulations, may seek to limit a landfill to accepting waste that
originates from specified geographic areas or seek to restrict the importation
of out-of-state waste. Generally, such legislative or regulatory restrictions
have not withstood judicial challenges. However, from time to time, federal
legislation is proposed which would allow individual states to prohibit the
disposal of out-of-state waste or to limit the amount that could be imported
for disposal. This legislation would also authorize in certain instances local
governmental units to mandate the flow of waste to certain designated
facilities. Although, to date, no such federal legislation has been enacted, if
such federal legislation should be enacted in the future, states in which the
Company operates landfills could act to limit or prohibit the importation of
out-of-state waste or require the Company's collection operations to utilize
certain designated sites. Such federal or state actions could have an adverse
effect on the Company's landfills that receive significant portion of waste
originating from other states and on the Company's collection operations. See
"Business--Government Regulation--Flow Control/Interstate Waste Restrictions."
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 accept 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. The landfill may accept asbestos from anywhere
in the United States for 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.
Such host county or host municipal restrictions could have a material adverse
effect on the Company's landfills that receive a significant portion of their
waste originating from other states, and in the Company's collection operations
which transport waste interstate. See "Business-Government Regulations--Flow
Control/Interstate Waste Restrictions."
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REGULATION BY 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. In considering applications for
licenses, which are now only temporary licenses, the TWC closely examines the
backgrounds of the applicant and the applicant's principals for any history of
criminal and other unlawful activity or involvement with members of organized
crime. The license issued to the Company by the TWC for the Company's New York
City collection operations is only a temporary license that is subject to
revocation by the TWC and there is no assurance that the Company will be issued
a permanent license. 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.
POSSIBLE LEGAL ACTION
Companies in the solid waste management business, including the Company, are
frequently subject in the normal course of business to judicial and
administrative proceedings involving federal, state or local agencies or
citizen groups. These governmental agencies 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. Any adverse outcome in
these proceedings could have an adverse effect on the Company's business and
results of operations and may subject the Company to adverse publicity. The
Company may also be subject to actions brought by local governments,
individuals or community groups in connection with the permitting or licensing
of its operations, any alleged violation of such permits or licenses or other
matters. See "Potential Environmental Liability" below and "Business--Legal and
Administrative Proceedings."
POTENTIAL ENVIRONMENTAL LIABILITY
The Company is subject to liability for any environmental damages that its
solid waste facilities may cause to neighboring landowners, particularly as a
result of the contamination of drinking water sources or soil, including damage
resulting from the conditions existing prior to the acquisition of such
facilities by the Company. The Company also may be subject to liability from
any off-site environmental contamination caused by pollutants or hazardous
substances whose transportation, treatment, or disposal was arranged by the
Company or its predecessors. Any substantial liability for environmental damage
incurred by the Company could have a material adverse effect on the Company's
business and results of operations. See "Business--Government Regulation."
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA" or "Superfund"), imposes strict, joint, and several
liability on the present owners and operators of facilities from which a
release of hazardous substances into the environment has occurred, as well as
any party that owned or operated the facility at the time of disposal of the
hazardous substances regardless of when the hazardous substance was first
detected. Similar liability is imposed upon the generators of waste that
contains hazardous substances and hazardous substance transporters that select
the treatment, storage, or disposal site. All
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such persons, who are referred to as potentially responsible parties ("PRPs"),
generally are jointly and severally liable for the expense of investigation,
cleanup, and natural resource damages relating to environmental contamination,
regardless of whether they exercised due care and complied with all relevant
laws and regulations. These costs can be very substantial. Liability can be
based upon the existence of even very small amounts of the more than 700
"hazardous substances" listed by the EPA and is not limited to the disposal of
"hazardous wastes," as statutorily defined. It is likely that hazardous
substances have in the past come to be located in landfills which the Company
has been associated as an owner or operator or as a result of its solid waste
collection operations. Moreover, the Company's solid waste collection
operations may have transported hazardous substances in the past and may do so
on occasion in the future.
Prior to 1990, the Company's Pennsylvania landfill, an active Subtitle D
disposal facility, 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 trash relocation, the
Company will operate a groundwater removal and treatment system which has
received a permit for the associated surface water discharge. Relocation of
trash began in April 1997, is coordinated with new pad construction, and is
scheduled to be completed in fiscal year 2008. An additional condition of the
permit modification requires groundwater monitoring of five private water
supply wells off-site. 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 voluntarily has supplied
one private residence with a carbon treatment unit on its water supply; the
other private residence is on 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. 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. However, there can be no assurance that the Company's ultimate
financial obligations related to these matters will not have a material adverse
effect on the Company's business and results of operations.
The permit issued October 14, 1996 (reissued February 26, 1997) for the
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. On December 30, 1994, the Company received a
notice on intent to sue from a neighbor of the Company's Kentucky landfill for
an alleged unauthorized discharge of hazardous substances resulting in damage
to the neighboring property. No lawsuit has been initiated. The Company
believes any lawsuit by this neighboring landowner would lack merit and
vigorously would defend such a lawsuit. 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. However, there can be no
assurance that the Company's ultimate financial obligations related to these
matters will not have a material adverse effect on the Company's business and
results of operations.
Although the Company's Illinois landfill has obtained all permits necessary
to operate a new landfill area, it has decided not to operate until a closure
permit for an unlined area located at an adjacent former landfill is issued.
Although the Company is not the owner or operator of this former landfill and
disclaims status as a successor owner or operator of the area and therefore
financial responsibility for its closure and any potential liability associated
with the former landfill, the Company has agreed to assist in funding a proper
closure. The Company currently anticipates opening the new landfill area in
October 1997 after completion of construction. The Company believes that
ultimate resolution of these matters should not have a material adverse effect
on its business and results of operations. However, there can be no assurance
that the Company's ultimate financial obligations related to these matters,
including a significant delay in commencement of operations, will not have a
material adverse effect on the Company's business and results of operations.
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The National Emission Standards for Hazardous Air Pollutants ("NESHAPs")
regulates 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. It
should be noted that a few states have classified asbestos as hazardous waste
and require appropriate handling and disposal practices. Additionally, asbestos
is listed as a hazardous substance under CERCLA. 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.
POTENTIAL INADEQUACY OF ACCRUALS FOR CLOSURE AND POST-CLOSURE COSTS
The Company has material financial obligations relating to closure and post-
closure costs of the landfills it operates. While the precise amounts of these
future obligations cannot be determined, at March 31, 1997, the Company
estimated the total costs (on a current dollar as opposed to a discounted
present value basis) to be approximately $13.6 million for final closure of its
operating facilities, of which $3.2 million has been accrued as of March 31,
1997. Post-closure monitoring costs pursuant to applicable regulations
(generally for a term of 30 to 40 years after final closure) are estimated at
$7.5 million. At March 31, 1997, the Company had accrued $1.5 million for such
projected post-closure costs. The Company will provide additional accruals
based on engineering estimates of consumption of permitted landfill airspace
over the useful lives of its landfills. There can be no assurance that the
Company's ultimate financial obligations for actual closing or post-closing
costs will not exceed the amount then accrued and reserved or amounts otherwise
receivable pursuant to insurance policies or trust funds. Such a circumstance
could have a material adverse effect on the Company's business and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources," "Business-Closure
and Post-Closure Obligations," and Note 8 of Notes to Consolidated Financial
Statements.
ABILITY TO MEET BONDING REQUIREMENTS
The Company is required to post a form of financial assurance at five of 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 payment 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 payment could have a material adverse impact on the
Company's business and results of operations. See "Business--Insurance and
Bonding."
LIMITS ON INSURANCE COVERAGE
The Company carries insurance covering its assets and operations, including
pollution liability coverage. Specifically, each of the Company's six 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 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, 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 liability resulting
therefrom could, consequently, have an adverse effect on the Company's business
and results of operations. See "Business--Insurance and Bonding."
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WASTE REDUCTION PROGRAMS
Alternatives to landfill disposal, such as recycling, incineration and
composting, are increasingly being used. There also 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 type 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 Illinois, Kentucky,
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.
COMPETITION
The solid waste management industry is highly competitive and the Company
believes that industry consolidation will increase competitive pressures even
further. 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., United Waste
Systems, Inc., and Allied Waste Industries, Inc. A number of these competitors
have significantly greater financial, technical, 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 and results of operations.
See "Business--Competition."
SEASONALITY; ECONOMIC CONDITIONS
The Company's revenues tend to be somewhat lower in the winter 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 which could
have a material adverse effect on the Company's business and results of
operations.
The Company's business is affected by general economic conditions, both
nationally and in the geographic regions in which the Company's operations are
currently located. There can be no assurance that a national or local economic
downturn will not result in a reduction in the volume of waste being collected,
transported and disposed of by the Company and/or the prices that the Company
can charge for its services.
ANTI-TAKEOVER PROVISIONS; SEVERANCE AGREEMENTS
The Company's Certificate of Incorporation authorizes the Board of Directors
to issue up to 10,000,000 shares of Class A Common Stock, of which 8,319,799
shares are available for issuance as of the date of this Prospectus. Holders of
Class A Common Stock are entitled to four votes for each share held on all
matters submitted to a vote of the stockholders. The issuance of Class A Common
Stock could have the effect of delaying or preventing a change in control of
the Company without further action by the stockholders. At May 14, 1997, no
shares of Class A Common Stock were outstanding, and the Company has no present
plans to issue any shares of Class A Common Stock in the future. See
"Description of Capital Stock--Common Stock and Class A Common Stock." In the
future, the Company may adopt other charter provisions, such as authorizing the
Board of Directors to issue undesignated preferred stock, that also may have an
anti-takeover effect.
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In addition, certain of the Company's executive officers that have entered
into employment agreements with the Company will be entitled to receive certain
bonuses in cash or Common Stock upon a change in control of the Company in such
amounts that, in the aggregate, could have an adverse effect on the Company's
liquidity and capital resources. Accordingly, such provisions could discourage
or prevent bids to takeover the Company and decrease values that would
otherwise be obtained by stockholders for their Common Stock. See "Management--
Employment Agreements" and "Description of Capital Stock--Anti-Takeover
Provisions."
The Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which prohibits the Company from engaging in
a "business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interest
stockholder, unless the business combination is approved in a prescribed
manner. The application of Section 203 also could have the effect of delaying
or preventing a change in control of the Company without further action by the
stockholders. See "Description of Capital Stock--Anti-Takeover Provisions."
CONTROL BY MANAGEMENT
At May 14, 1997, executive officers and directors of the Company as a group
beneficially owned 5,441,463 shares or approximately 24.9% of the outstanding
Common Stock after giving effect to the Offering. 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 other
matters submitted for stockholder consideration. See "Principal Stockholders."
VOLATILITY OF STOCK PRICE
The market price of the Common Stock has been and is likely to continue to be
highly volatile. Factors such as fluctuations in the Company's quarterly
revenues and operating results, the Company's on-going acquisition program,
governmental regulations, market conditions for waste management stocks in
general, and economic conditions generally may have a significant impact on the
market price of the Common Stock. In addition, as the Company pursues its
acquisition program, it may agree to issue shares of Common Stock that will
generally become available for resale which may have an impact on the market
price of the Common Stock. See "Price Range of Common Stock," "Business--
Acquisition Program," and "Shares Eligible for Future Sale."
SHARES ELIGIBLE FOR FUTURE SALE; SUBSEQUENT REGISTRATION
Sales in the public market of substantial amounts of Common Stock could have
an adverse effect on the market price of the Common Stock and may make it more
difficult for the Company to sell its equity securities in the future at times
and prices that it deems appropriate. Upon completion of the Offering, the
Company will have outstanding 21,061,497 shares of Common Stock. Of these
shares, approximately 8,925,576 shares of Common Stock, including the 4,500,000
shares of Common Stock being sold in the Offering, will generally be tradeable
without restriction or limitation under the Securities Act, except for any
shares owned by "affiliates" of the Company, which will be subject to the
resale limitations under Rule 144 of the Securities Act. The remaining
12,135,921 outstanding shares of Common Stock held by existing stockholders are
"restricted securities" and may not be sold in a public distribution except in
compliance with the registration requirements of the Securities Act or pursuant
to an exemption therefrom, including that provided by Rule 144. Of these
restricted securities, 6,469,467 shares will be saleable in the public market
180 days following the date of this Prospectus subject to compliance with Rule
144. At May 14, 1997, there were outstanding options and warrants to purchase a
total of 3,073,153 shares of Common Stock and an additional 704,766 shares
reserved for issuance pursuant to future option grants under the Company's
stock option plans. See "Shares Eligible for Future Sale."
Certain stockholders of the Company that hold restricted securities have
registration rights for an aggregate of up to 7,960,405 shares of Common Stock
and an additional 434,364 shares of Common Stock issuable upon exercise of
warrants. The Company expects that within 45 days after completion of the
Offering 5,121,805 of
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such shares will be covered by an effective registration statement permitting
such shares to be resold by certain of such stockholders. The Company has
agreed to pay substantially all expenses incident to such registration
statement, other than underwriting discounts and commissions. If such
stockholders cause a large number of shares to be sold in the market, such
sales could have an adverse effect on the market price for the Common Stock.
See "Shares Eligible for Future Sale."
The foregoing notwithstanding, the Company and the directors and certain
executive officers and stockholders of the Company who owned an aggregate of
2,996,655 shares of Common Stock and options and warrants to purchase 1,369,502
shares of Common Stock at May 14, 1997, have agreed, except for certain limited
exceptions, not to sell, offer to sell, solicit an offer to buy, contract to
sell, grant any option to purchase or otherwise transfer or dispose of, any
shares of Common Stock, or any securities convertible into or exercisable or
exchangeable for Common Stock for at least 120 days after the date of this
Prospectus without the prior written consent of Smith Barney Inc. In addition,
the other executive officers and certain other stockholders of the Company who
owned an aggregate of 7,224,198 shares of Common Stock and options and warrants
to purchase 1,428,751 shares of Common Stock at May 14, 1997 also have agreed
to such transferability restrictions, except that the restrictive period is for
90 days following the date of this Prospectus. See "Shares Eligible for Future
Sale" and "Underwriting."
The Company intends to register two million shares of Common Stock under the
Securities Act not earlier than 30 days after the date of the Prospectus for
its use in connection with future acquisitions. These shares generally will be
freely tradable after their issuance by persons not affiliated with the
Company; however, resales of these shares during the 180-day period following
the date of the related shelf registration statement would require the prior
written consent of Smith Barney Inc.
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors purchasing shares of Common Stock in the Offering will experience
immediate and substantial dilution in the net tangible book value of their
shares of approximately $11.185 per share from an assumed public offering price
of $15.125 per share. In the event the Company issues additional shares of
Common Stock in the future, purchasers of Common Stock in the Offering may
experience further dilution in the net tangible book value per share of the
Common Stock. See "Dilution."
LACK OF CASH DIVIDENDS ON COMMON STOCK
The Company does not expect to pay any cash dividends on the Common Stock in
the foreseeable future. Any cash otherwise available for such dividends will be
reinvested in the Company's business. In addition, the Company's credit
facility agreement prohibits the payment of cash dividends without prior bank
approval. See "Dividend Policy."
18
<PAGE>
THE COMPANY
Eastern Environmental Services, Inc. was incorporated in the State of
Delaware in April 1987. The Company's operations initially consisted of
asbestos abatement, which included asbestos waste hauling and laboratory
services. The Company subsequently expanded its solid waste management
services by acquiring landfills in West Virginia, Kentucky, and South Carolina
in August 1989, July 1990, and November 1990, respectively. In June 1994, the
Company discontinued and sold substantially all of the operating assets of its
asbestos abatement and laboratory services subsidiaries so that it could focus
on expanding its solid waste collection, transportation, and disposal
operations and other solid waste management services.
In June 1996, control of the Company was acquired by Louis D. Paolino, Jr.,
George O. Moorehead, Environmental Opportunities Fund L.P., and Environmental
Opportunities Fund (Cayman) L.P. In connection therewith, William C. Skuba,
formerly the Company's Chairman of the Board, Chief Executive Officer, and
President, converted 1,680,201 shares of Class A Common Stock, which entitles
the holder thereof to four votes per share on all matters submitted to a vote
of stockholders, to Common Stock, sold a total of 500,000 shares of Common
Stock to the aforementioned individuals and limited partnerships, and then
resigned as a director and an officer of the Company. Immediately thereafter,
the Company implemented an aggressive acquisition program in the solid waste
industry, elected a new Board of Directors, and hired a new management team
with an average of 17 years of experience in the waste management industry.
Additionally, the Company raised a total of approximately $10.0 million
through two private placements of Common Stock in the summer of 1996 and
established a $30.0 million revolving credit facility (which was subsequently
increased to $100.0 million in May 1997), principally for acquisitions.
Since July 1996, the Company has acquired 20 solid waste management
businesses, and thereby entered new markets in Florida, Illinois, New Jersey,
New York, and Pennsylvania. The businesses acquired operate 17 solid waste
collection and transportation operations, four solid waste transfer and
processing facilities, two landfills, and one special waste services
operation. The Company believes that significant opportunities exist to
acquire additional solid waste collection, transportation, and disposal
businesses in the eastern United States and to develop within its existing
markets. As part of its acquisition program, the Company reviews acquisition
opportunities on an ongoing basis and is currently in various stages of
negotiating the acquisition of additional solid waste management businesses.
The Company's principal executive offices are located at 1000 Crawford
Place, Suite 101, Mt. Laurel, New Jersey 08054, and its telephone number is
(609) 235-6009.
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,500,000 shares of
Common Stock offered hereby are estimated to be $63.3 million $73.0 million if
the Underwriters' over-allotment option is exercised in full), based on an
assumed public offering price of $15.125 per share after deduction of the
underwriting discounts and commissions and estimated offering expenses.
The net proceeds to the Company from the Offering will be used to reduce the
outstanding indebtedness under its credit facility. Following such reduction of
the credit facility, the Company will be able to redraw on the credit facility
as needed for future acquisitions and for working capital. The credit facility
provides for borrowing capacity, including letters of credit, of up to $100.0
million (approximately $51.9 million and $1.4 million in letters of credit were
outstanding at May 14, 1997), presently bears interest based on an adjusted
prime rate or Eurodollar rate (the applicable interest rate was 8.5% at April
30, 1997), and matures on April 30, 2000. The bank indebtedness was incurred
primarily to fund acquisitions, including 20 solid waste management businesses
between July 1996 and May 1997, and for working capital. For a description of
the Company's acquisition program, see "Business--Acquisition Program."
DIVIDEND POLICY
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.
20
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is included for quotation on the Nasdaq National Market
under the symbol EESI. The sale prices reflect inter-dealer quotations, do not
include retail markups, markdowns, or commissions, and do not necessarily
represent actual transactions. Prospective purchasers of the Common Stock are
urged to obtain current market quotations. The following table sets forth for
the periods indicated the high and low sale prices for the Common Stock as
reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
YEAR ENDED JUNE 30, 1995:
First Quarter............................................. $ 1 7/16 $ 1
Second Quarter............................................ 1 5/16 3/4
Third Quarter............................................. 1 1/2 7/8
Fourth Quarter............................................ 1 3/4 7/8
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
YEAR ENDING 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 (through May 14)........................... 15 5/8 11 3/8
</TABLE>
For a recent reported sale price of the Common Stock, see the cover page of
this Prospectus.
21
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) at
March 31, 1997, (ii) on a pro forma basis to reflect the acquisition of Waste
Services, Inc. and its affiliates, Coney Island Rubbish Removal, Inc., and
Golden Gate Carting, Co. Inc. as if such acquisitions had occurred at March
31, 1997, and (iii) on a pro forma as adjusted basis also to reflect the sale
by the Company of 4,500,000 shares of Common Stock in the Offering at an
assumed public offering price of $15.125 and the application of the estimated
net proceeds therefrom, after deducting the estimated underwriting discounts
and commissions and Offering expenses.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents............... $ 3,907 $ 3,907 $ 27,449
========== ========== ===========
Long-term debt, less current
portion(1)............................. $ 33,981 $ 43,207 $ 3,431
Stockholders' equity:
Common Stock, $.01 par value,
50,000,000 shares authorized;
14,095,834 shares issued; 15,544,634
shares issued pro forma; 20,044,634
shares issued pro forma as
adjusted(2).......................... 141 155 200
Additional paid-in capital.............. 27,927 44,864 108,139
Retained deficit........................ (668) (668) (668)
---------- ---------- -----------
27,400 44,351 107,671
Less treasury stock (39,100 shares)..... (76) (76) (76)
---------- ---------- -----------
Total stockholders' equity.......... 27,324 44,275 107,595
---------- ---------- -----------
Total capitalization................ $ 61,305 $ 87,482 $ 111,026
========== ========== ===========
</TABLE>
- --------
(1) The Company's long-term debt primarily reflects obligations of the Company
relating to its credit facility. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
(2) Excludes 3,073,153 shares of Common Stock issuable upon exercise of
outstanding options and warrants at March 31, 1997, an additional 704,766
shares reserved for issuance pursuant to future option grants under the
Company's stock option plans, and 10,000,000 shares of authorized Class A
Common Stock, of which no shares are issued or outstanding.
22
<PAGE>
DILUTION
The net tangible book value of the Company at March 31, 1997 was
approximately $9.8 million, or $.70 per share. Net tangible book value per
share is determined by dividing the net tangible book value before the Offering
by the number of shares of Common Stock outstanding before the Offering. For
purposes of calculating the net tangible book value as adjusted for the
Offering at March 31, 1997, the calculation gives effect to the sale of
4,500,000 shares of Common Stock offered by the Company hereby (after deducting
the estimated underwriting discounts and commissions and Offering expenses).
Net tangible book value per share as adjusted is determined by dividing the
number of shares of Common Stock outstanding after the Offering into the net
tangible book value after the Offering. Dilution is determined by subtracting
net tangible book value per share as adjusted for the Offering from the amount
of cash paid by a new investor for one share of Common Stock. The following
table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed offering price per share.............................. $15.125
Net tangible book value per share before the Offering....... .70
Increase in net tangible book value per share attributable
to new investors........................................... 3.24
----
Net tangible book value per share as adjusted................. 3.94
-------
Dilution per share to new investors........................... $11.185
=======
</TABLE>
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents (i) summary consolidated financial data of the
Company as of the dates and for the periods indicated, (ii) unaudited interim
consolidated financial data of the Company as of the date and for the periods
indicated, (iii) summary pro forma consolidated financial data of the Company
as of the date and for the periods indicated, after giving effect to the
events described below and in the Unaudited Pro Forma Financial Information
and notes thereto included elsewhere in this Prospectus, and (iv) summary pro
forma balance sheet information as of March 31, 1997 after giving effect to
the events described below and in the Unaudited Pro Forma Financial
Information and notes thereto included elsewhere in this Prospectus. The
financial information as of June 30, 1995 and 1996 and for each of the three
years in the period ended June 30, 1996 has been derived from the Company's
financial statements which have been audited by Ernst & Young LLP. The
unaudited interim consolidated financial data includes all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
financial position and results of operations as of the dates and for the
periods indicated. The summary pro forma information does not purport to
represent what the Company's results actually would have been if such events
had occurred at the date indicated, nor does such information purport to
project the results of the Company for any future period. The selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Consolidated Financial Statements and notes thereto and the Unaudited Pro
Forma Financial Information and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------
NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31, FISCAL YEAR NINE MONTHS
------------------------------- --------------------- ENDED JUNE 30, ENDED MARCH 31,
1994(1) 1995(1) 1996(1) 1996(1) 1997(2)(3) 1996(4) 1997(4)
--------- --------- --------- --------- ---------- -------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................ $ 37,314 $ 40,802 $ 39,519 $ 29,021 $ 52,409 $ 100,191 $ 77,938
Cost of revenues........ 30,380 33,686 33,417 23,666 38,027 75,486 54,539
Selling, general and
administrative
expenses............... 7,110 7,226 9,775 5,666 9,245 20,479 14,579
Merger costs............ -- -- -- -- 3,337 -- --
--------- --------- --------- --------- ---------- ---------- ----------
Operating (loss)
income................. (176) (110) (3,673) (311) 1,800 4,226 8,820
Interest expense........ (372) (580) (629) (417) (1,526) (3,504) (2,789)
Other income (expense).. 226 488 (131) 187 461 267 794
--------- --------- --------- --------- ---------- ---------- ----------
(Loss) income from
continuing operations
before income taxes.... (322) (202) (4,433) (541) 735 989 6,825
Income tax (benefit)
expense................ (229) (147) (10) -- 940 (10) 1,033
--------- --------- --------- --------- ---------- ---------- ----------
Net (loss) income from
continuing operations.. $ (93) $ (55) $ (4,423) $ (541) $ (205) $ 999 $ 5,792
========= ========= ========= ========= ========== ========== ==========
Net (loss) earnings per
share from continuing
operations............. $ (0.01) $ (0.01) $ (0.49) $ (0.06) $ (0.02) $ 0.08 $ 0.36
========= ========= ========= ========= ========== ========== ==========
Weighted average number
of shares outstanding.. 7,836,332 7,844,359 9,018,080 8,930,968 13,316,698 11,869,868 (5) 15,904,446 (5)
========= ========= ========= ========= ========== ========== ==========
OTHER DATA:
EBITDA(6)............... $ 2,686 $ 3,555 $ (779) $ 2,043 $ 4,874 $ 12,228 $ 14,101
EBITDA margin(7)........ 7.2% 8.7% (2.0%) 7.0% 9.3% 12.2% 18.1%
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA AS ADJUSTED
JUNE 30, 1995(1) JUNE 30, 1996(1) MARCH 31, 1997 MARCH 31, 1997(8) MARCH 31, 1997(8)(9)
---------------- ---------------- -------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit).............. $ 452 $(1,853) $ (700) $ (700) $ 22,842
Total assets............ 28,299 28,786 89,353 121,731 145,273
Long term debt, less
current portion........ 5,160 6,309 33,981 43,207 3,431
Total liabilities....... 14,559 18,365 62,029 77,456 37,679
Total stockholders'
equity................. 13,740 10,421 27,324 44,275 107,595
</TABLE>
- --------
SUMMARY FINANCIAL DATA FOOTNOTES
(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 all
periods prior to the acquisition to include the results of operations,
financial position and cash flows of Super Kwik and Donno.
(2) The acquisitions of Allied Waste Services, Inc. and its affiliates
("Allied") and R&A Bender, Inc. and its affiliates ("Bender") were
effective on July 2, 1996 and December 10, 1996, respectively. Both of
these acquisitions were accounted for as purchases. Accordingly, their
results of operations are included from the effective dates of the
acquisitions.
(3) The acquisition of Apex Waste Services, Inc. ("Apex") occurred on March
31, 1997 and was accounted for as a pooling of interests. Apex was formed
on October 1, 1996 as a result of the acquisition from the former owners
of certain assets of Waste Management, Inc. which was accounted for as a
purchase; accordingly, the results of operations are included only from
the date of inception of Apex.
(4) The pro forma financial information reflect significant acquisitions by
the Company since July 1, 1996, which include Allied, Bender, Waste
Services, Inc. and its affiliates ("WSI"), Golden Gate Carting, Co. Inc.
("Golden Gate"), and Coney Island Rubbish Removal, Inc. ("Coney Island"),
as if such acquisitions had occurred as of the beginning of the period
presented. It also includes operating data for predecessor operations of
Apex Waste Services, Inc. for the three month period ended September 30,
1996. See Unaudited Pro Forma Financial Information and notes thereto
included elsewhere in this Prospectus.
(5) Weighted shares outstanding has been calculated on a pro forma basis prior
to the shares issued in the Offering.
(6) EBITDA represents operating income plus depreciation and amortization.
While EBITDA data should not be construed as a substitute for operating
income, net income (loss), or cash flows from operations in analyzing the
Company's operating performance, financial position, and cash flows, the
Company has included EBITDA data (which is not a measure of financial
performance under generally accepted accounting principals) because it
understands that such data are commonly used by certain investors to
evaluate a company's performance in the solid waste management industry.
(7) EBITDA margin represents EBITDA expressed as a percentage of revenues.
(8) The pro forma financial information reflect significant acquisitions by
the Company since March 31, 1997, which include WSI, Golden Gate, and
Coney Island, as if such acquisitions had occurred as of March 31, 1997.
See Unaudited Pro Forma Financial Information and notes thereto included
elsewhere in this Prospectus.
(9) Adjusted to reflect the sale of 4,500,000 shares of Common Stock offered
by the Company hereby at an assumed public offering price of $15.125 per
share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds" and "Capitalization."
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1997 COMPARED
TO THE NINE MONTHS ENDED MARCH 31, 1996
The following discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto included elsewhere in this
Prospectus.
OVERVIEW
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 nine months ended March 31, 1997 were attributable
81.0% to solid waste collection and transportation operations, 7.6% to solid
waste disposal operations, and 11.4% to 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 a one to
three year service agreement. 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 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. 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 four owned
or operated transfer stations receive solid waste collected primarily by its
various collection operations, compact the waste and transfer it to larger
company owned 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 its own collection
companies and transfer stations, as well as from independent collection
operators. Over the nine months ended March 31, 1997, approximately 6.0% of
the solid waste collected by the Company was delivered for disposal at its own
landfills, and approximately 29.0% of the solid waste disposed of at the
Company's landfills was delivered by the Company.
The Company's prices for solid waste collection, transportation, and
disposal services are typically determined by the volume, weight, and 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 consist primarily of tipping fees paid to third party
landfills, amortization of capitalized direct landfill development costs,
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.
Certain direct engineering, legal, permitting, construction and other costs
associated with expansion of landfills, together with related interest
expense, are capitalized over the estimated useful life of the site using the
26
<PAGE>
unit of production method as airspace is consumed. Successful permitting of
additional landfill disposal capacity improves the Company's profitability by
extending the time period over which the Company may amortize capitalized
costs of the landfill. The Company's policy is to charge against net income
any unamortized capitalized expenditures and advances relating to any landfill
that is permanently closed or any landfill expansion project that is not
completed.
The Company capitalizes direct incremental costs associated with
acquisitions. Indirect development and acquisition costs, such as executive
and corporate overhead, public relations and other corporate services and
overhead are expensed as incurred. The Company also charges against net income
any unamortized capitalized expenditures relating to proposed acquisitions
that are not consummated. Property and equipment is depreciated over the
estimated useful life of the assets using the straight line method.
At March 31, 1997, capitalized costs related directly to the acquisition and
expansion of existing and future landfills and cell development were $30.6
million and capitalized costs related directly to proposed acquisitions that
are not consummated were $451,000. 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 probable of
completion.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of
management, clerical and administrative salaries and costs and overhead,
amortization expense related to intangible assets, professional services,
facility rentals and associated costs, financial insurance bonding premiums,
landfill related financial assurance bonding premiums, and costs relating to
marketing and sales.
Merger Costs
In connection with acquisitions accounted for as 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
The Company had a net operating loss carryforward for federal income tax
purposes of approximately $4.3 million at June 30, 1996 of which $900,000 was
utilized through March 31, 1997. After the Company utilizes the remaining net
operating loss carryforward, which may occur during fiscal 1998, the Company
will record a provision for taxes at statutory rates.
ACQUISITION PROGRAM
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. Approximately $47.4
million or 90.0% of the Company's revenues for the nine months ended March 31,
1997 and approximately $72.5 million or 82.0% of the Company's assets at March
31, 1997 resulted from the nine acquisitions consummated by the Company
between July 1996 and March 1997. Of the nine acquisitions (of its 20
acquisitions in total), six 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 six 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 non-cash charge to earnings during the
27
<PAGE>
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 non-cash charges relating to
goodwill.
In connection with each of its acquisitions, the Company attempts to
implement a number of cost saving measures, including reductions (in certain
instances) in management levels and other personnel, the imposition of
centralized management and cost controls, and the elimination of duplicative
collection routes.
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
On May 12, 1997, the Company acquired Waste Services, Inc. and its affiliates
("WSI") in consideration of 1,159,980 shares of Common Stock and the assumption
of $6.2 million of debt, subject to adjustment upon the occurrence of certain
events. The Company also acquired Coney Island Rubbish Removal, Inc. ("Coney
Island") and Golden Gate Carting, Co. Inc. ("Golden Gate"), which have been
closed into escrow pending approval of the transactions by the New York City
Trade Waste Commission, in consideration of 131,359 shares of Common Stock and
the assumption of $50,273 of debt, and 157,500 shares of Common Stock and the
assumption of $3.0 million of debt, respectively, subject to adjustment upon
the occurrence of certain events. The acquisitions of WSI, Coney Island, and
Golden Gate were accounted for under the purchase method of accounting. Each of
these companies provide principally commercial waste collection services in
Brooklyn, New York and had total revenues of $16.6 million for the nine months
ended March 31, 1997.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE
NINE MONTHS ENDED MARCH 31, 1996
The following table presents the percentage each item in the consolidated
statements of income bears to total revenues relating to continuing operations.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Revenues............................................... 100.0% 100.0%
Cost of revenues....................................... 81.6 72.6
Selling, general and administrative expenses........... 19.5 17.6
Merger costs........................................... -- 6.4
-------- --------
Operating income (loss)................................ (1.1) 3.4
Interest expense....................................... (1.4) (2.9)
Other income (expense)................................. .6 .9
-------- --------
Net income (loss) before income taxes.................. (1.9) 1.4
Income taxes........................................... -- 1.8
-------- --------
Net income (loss) from continuing operations........... (1.9)% (.4)%
======== ========
</TABLE>
Revenues for the nine months ended March 31, 1997 were $52.4 million compared
to $29.0 million for the nine months ended March 31, 1996, an increase of $23.4
million or 80.7%. The principal factor affecting the increase in revenues was
the impact of acquisitions, primarily of Allied Waste Services, Inc., K
Hydraulic Truck Services, Inc., R & A Bender, Inc., Bayside of Marion, Inc.,
Olney Sanitary Systems, Inc., and their respective affiliates, which
contributed aggregate revenues of $12.5 million for the nine months ended March
31, 1997. The
28
<PAGE>
acquisition of Super-Kwik, Inc. and Donno Company, Inc., which have been
accounted for under the pooling of interests method, contributed revenue of
$26.5 million for the nine months ended March 31, 1997 compared to $23.4
million for the nine months ended March 31, 1996, an increase of $3.1 million.
Additionally, Apex Waste Services, Inc., accounted for under the pooling of
interests method, contributed revenues of $8.6 million since its inception of
operations on October 1, 1996.
Cost of revenues for the nine months ended March 31, 1997 were $38.0 million
compared to $23.7 million for the nine months ended March 31, 1996, an increase
of $14.3 million. Cost of revenues as a percentage of revenues for the nine
months ended March 31, 1997 was 72.6% compared to 81.6% 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. A portion of the decrease was also attributable to economies of
scale relating to the Company's increase in size over the period.
Selling, general and administrative expenses for the nine months ended March
31, 1997 were $9.2 million compared to $5.7 million for the nine months ended
March 31, 1996, an increase of $3.5 million. These expenses as a percentage of
revenues for the nine months ended March 31, 1997 was 17.6% compared to 19.5%
for the same period in fiscal 1996. These reductions as a percentage of revenue
reflect certain cost savings related to economies of scale in restructuring the
Company's insurance programs and overall efficiencies gained through
integrating acquisitions partially offset by increases in corporate functions,
including accounting, finance, legal and administration, in connection with
providing these services.
Merger costs incurred during the nine months ended March 31, 1997 were a
total of $3.3 million relating to the acquisitions of Super Kwik, Inc., Donno
Company, Inc., and Apex Waste Services, Inc. Merger costs include $734,000 of
transactions costs and $2.6 million of costs related to integrating operations.
Interest expense for the nine months ended March 31, 1997 was $1.5 million
compared to $417,000 for the nine months ended March 31, 1996, an increase of
$1.1 million. This increase is principally the result of borrowings under the
Company's credit facility for the purchase of R&A Bender, Inc. and increased
interest expense related to Super Kwik, Inc. for the purchase of real estate
and an increase in equipment financing over the prior year.
Other income for the nine months ended March 31, 1997 was $461,000 compared
to $187,000 for the nine months ended March 31, 1996, an increase of $274,000.
This increase in other income included a $140,000 increase in interest income,
reflecting earnings on the net proceeds from private placements of Common Stock
in the summer of 1996, and a $126,000 increase in gains from dispositions of
fixed assets.
The tax provision for the nine months ended March 31, 1997 included $904,000
relating principally to the completion of the mergers with Super Kwik, Inc.,
Donno Company, Inc., and Apex Waste Services, Inc. and their respective
affiliates. 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 remainder of the tax provision
relates to state income taxes. An effective tax rate lower than the federal and
state statutory rates in the year is primarily due to the use of net operating
loss carryforwards and the reversal of a previously recorded valuation
allowance.
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.
29
<PAGE>
As of March 31, 1997, the Company had working capital deficit of $700,000,
including cash and cash equivalents of $3.9 million. For the first nine months
of fiscal 1997, net cash provided by operations was approximately $3.0
million, with net cash from financing activities of approximately $38.7
million, including net proceeds of $10.0 million from private placements of
Common Stock and net cash from investing activities of approximately $39.5
million. A significant portion of the capital expended during the period,
approximately $39.8 million, was used to fund the acquisition of property and
equipment, including $34.2 million relating to acquisitions of businesses,
$3.7 million for the purchase of operating equipment and real estate, and $1.9
million related to the permitting and development of landfill space.
The Company to date 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 of approximately $8.4 million
for the year ending June 30, 1997, of which $5.5 million has already been
expended through March 31, 1997, and $17.9 million for the year ending June
30, 1998. The Company has addressed its capital need through private
placements of Common Stock which generated net proceeds of $10.0 million in
the nine months ended March 31, 1997 and by establishing a revolving credit
facility.
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 $30.0 million (the
"Credit Facility"). The Credit Facility, which was increased to $50.0 million
on January 27, 1997 and to $100.0 million on May 8, 1997, is available for
repayment of debt, funding of acquisitions, working capital, and for up to
$15.0 million in standby letters of credit. As of May 12, 1997, $51.9 million
and $1.4 million in letters of credit were outstanding under the Credit
Facility. The net proceeds of the Offering will be used to reduce 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 agreement. At April 30, 1997, the applicable interest rate was 8.5%.
The facility expires on April 30, 2000. The Credit Facility requires the
payment of a commitment fee based in part on the unused balance, payable in
arrears, 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.
The Company will have 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 obligations cannot be
determined, the Company estimates that the costs of final closure of the
currently permitted and operating areas at the Company's six landfills will be
approximately $13.6 million, of which $3.2 million has been accrued as of
March 31, 1997. The Company has accrued $1.5 million for post-closure
obligations as of March 31, 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 March
31, 1997 were $1.6 million for the Kentucky landfill, $214,000 for the West
Virginia landfill, and $1.6 million for the Pennsylvania landfill. The bonds
are collateralized by irrevocable letters of credit and trust fund deposits.
Additionally, the Company has on deposit $408,000 as financial assurance for
landfill closure and post-closure 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. Additional collateral
requirements will be imposed upon the Company which will affect profitability
of the
30
<PAGE>
Company. The Company anticipates providing financial assurance incrementally
over the life of the facility as disposal cells are constructed and certified
for acceptance of waste.
SEASONALITY AND INFLATION
The Company's revenues tend to be somewhat lower in the winter months. This
is primarily attributable to the fact that 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 PRONOUNCEMENT
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.
31
<PAGE>
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, control of the Company
was acquired by a group of investors who repositioned the Company for the
purpose of implementing an aggressive acquisition program in the solid waste
industry. The Company appointed a new Board of Directors, hired a new
management team with an average of 17 years of experience in the waste
management industry, raised a total of approximately $10.0 million through two
private placements of Common Stock, and established a credit facility
principally for acquisitions. Since July 1996, the Company has acquired 20
solid waste management businesses, and thereby entered new markets in Florida,
Illinois, New Jersey, New York, and Pennsylvania. The businesses acquired
operate 17 solid waste collection and transportation operations, four solid
waste transfer and processing facilities, two landfills, and one special waste
services operation. Largely as a result of these acquisitions, during the nine
months ended March 31, 1997, the Company's revenues increased by 80.7% (from
$29.0 million to $52.4 million) and its results of operations (excluding
merger costs and related tax provisions incurred as a result of such
acquisitions) increased from a net loss of $541,000 for the nine months ended
March 31, 1996 to net income of $4.0 million for the nine months ended March
31, 1997.
The Company currently operates solid waste collection and transportation
operations in southern Florida, southeastern Illinois, southern New Jersey,
the greater metropolitan New York City area, eastern and southcentral
Pennsylvania (including Philadelphia), and South Carolina, and owns a landfill
in each of Florida, Illinois, Kentucky, Pennsylvania, South Carolina, and West
Virginia. Of the Company's revenues for the nine months ended March 31, 1997,
approximately 81.0% was attributable to solid waste collection and
transportation operations, approximately 7.6% was attributable to solid waste
disposal operations, and approximately 11.4% was attributable to other waste
management services. The Company currently provides solid waste collection
services to approximately 30,000 commercial and industrial customers and
approximately 135,000 residential customers.
The Company believes that significant opportunities exist to acquire
additional solid waste collection, transportation, and disposal businesses in
the eastern United States and to develop within its existing markets. As part
of its acquisition program, the Company reviews acquisition opportunities on
an ongoing basis and is currently in various stages of negotiating the
acquisition of additional solid waste management businesses.
INDUSTRY OVERVIEW
The United States non-hazardous solid waste management industry in which the
Company operates approximates $32.0 billion annually. The industry is
fragmented with numerous local, private, and municipal operators servicing
relatively localized areas. Industry experts estimate that approximately one-
third of the solid waste industry revenue is generated by more than 5,000
private, predominately small collection and disposal companies; one-third by
municipal governments that provide collection and disposal services; and the
remainder by publicly traded solid waste companies.
In recent years, the industry has experienced significant consolidation. The
Company believes that this consolidation has been caused primarily by four
factors: (i) increasingly stringent environmental regulation and enforcement,
especially with regard to landfill operations as a result of Subtitle D
Regulations; (ii) competition from other larger companies that have developed
or achieved economies of scale; (iii) an industry model that emphasizes
providing both collection and disposal capabilities; and (iv) the continuing
privatization by some municipalities of their collection or disposal
operations.
The overall consequences have been significant increases in the technical
and managerial expertise necessary to operate profitably, significant
increases in costs and capital requirements, and significant increases in the
competitive advantages enjoyed by larger and well capitalized companies. Many
smaller companies and
32
<PAGE>
municipalities have found the increased costs difficult to bear, and the
requisite technical and managerial sophistication difficult to obtain. As a
result, a large number of smaller operators and municipalities have either
closed or sold their operations. The Company anticipates that these trends
will continue, and possibly intensify, in the near-term future.
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. The Company's management philosophy is to retain
senior management of acquired companies and implement centralized financial
and administrative controls.
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 in which there are expected to be sufficient disposal
alternatives to ensure competitive disposal pricing. The Company may also
acquire solid waste landfills in its targeted new markets with
significant additional current and 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 its existing operations
without increases in infrastructure or that complement its 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 duplicative
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
imposing 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 aggressive marketing. The Company
also intends to selectively implement price increases when competitive
advantages and appropriate market conditions exist.
33
<PAGE>
ACQUISITION PROGRAM
Given the large size and fragmentation of the United States solid waste
industry, 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, meeting 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 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 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. The Company is continually analyzing and engaging in
discussions concerning potential acquisitions.
The Company's senior management spends a substantial portion of its time
identifying acquisition candidates, conducting due diligence investigations,
and other evaluations in connection with acquisitions, and negotiating and
consummating acquisitions. All material acquisitions are subject to the
approval of the Board of Directors of the Company. Since June 1996, the Company
has analyzed a substantially greater number of companies than it has acquired.
In considering a potential acquisition, the Company examines a large number of
factors, including the historical operating results of the entities to be
acquired, competition in the market served, the availability of alternative
disposal facilities or facilities that can be acquired on satisfactory terms
and conditions, the prospects for achieving synergies with existing operations
or through complementary acquisitions, the types of services provided, the
reputation of the entity, and the entity's customers, accounts receivable,
personnel, environmental and legal liability, capital needs, regulatory
compliance, and workplace productivity. Because the solid waste management
industry remains localized, a key component of the Company's acquisition
strategy for new markets entrance is to identify businesses with proven
management that can be retained following the acquisition.
The Company also evaluates each possible acquisition on a number of standard
industry measures, including the population density of the market served by the
acquired entity and the acquired entity's market share. Prior to consummating
an acquisition, the Company generally develops a pro forma budget which
includes capital needs, cash flow analysis, and operating details giving effect
to synergies, reductions, and eliminations expected to be achieved in the
acquisition, and which serves as the Company's principal financial tool in
evaluating acquisitions.
While the Company's typical acquisition target is a privately held collection
or transportation company or disposal facility, the Company believes that there
are currently significant opportunities to acquire solid waste collection,
transportation, and disposal operations, as well as particular collection
routes and lines of businesses from larger publicly held companies as these
companies restructure certain of their operations.
An integration plan is developed for each business prior to its acquisition.
In connection with each of its acquisitions, the Company seeks to maintain and
increase the profitability of the acquired company by imposing 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. In addition, the Company
implements 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. During the period
immediately following the acquisition, the Company closely monitors the
operations of the acquired business to assure conformity to the pre-closing
budget and pro forma analyses, and where deviations develop, to take corrective
action.
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 and the historic operating
results and future prospects of the business to be acquired. The Company
expects to finance future acquisitions through funds
34
<PAGE>
provided by operations, with lines of credit available under its credit
facility, and from the proceeds of future equity and debt financings. See
"Shares Eligible for Future Sale."
COMPLETED ACQUISITIONS. Since July 1996, the Company has acquired 20 solid
waste management businesses, which operate 17 solid waste collection and
transportation operations, four solid waste transfer and processing facilities,
two landfills, and one special waste services operation. These acquisitions are
detailed below:
COMPLETED ACQUISITIONS
JULY 1996--MAY 1997
<TABLE>
<CAPTION>
DATE ACQUIRED
COMPANY (ACCOUNTING METHOD) MARKET PRINCIPAL BUSINESS
- ------- ------------------- ------ ------------------
<S> <C> <C> <C>
A-1 Carting Corporation May , 1997 Southern Florida Solid waste
(Purchase) collection
Ameri Carting, Inc. May , 1997 Southern Florida Solid waste
(Purchase) collection
C & R Waste Removal, May 10, 1997 Southern Florida Solid waste
Inc. (Purchase) collection
Combined Waste Services, May 10, 1997 Southern Florida Solid waste
Inc. (Purchase) collection
Environmental Waste May 10, 1997 Southern Florida Solid waste
Systems Inc. (Purchase) collection
Environmental Waste May 10, 1997 Southern Florida Solid waste
Systems of Palm Beach, (Purchase) collection
Inc.
Waste Services, Inc., et May 12, 1997 Brooklyn, New York Solid waste
al. (Purchase) collection
Golden Gate Carting, Co. May , 1997 Brooklyn, New York Solid waste
Inc. (Purchase) collection
Coney Island Rubbish May , 1997 Brooklyn, New York Solid waste
Removal, Inc. (Purchase) collection
Five Towns Recycling, May 1, 1997 Long Island, New York Transfer station
Inc. (Purchase)
Big T Disposal, Inc. April 11, 1997 Southeastern Illinois Solid waste
(Purchase) collection and
transfer station
Apex Waste Services, March 31, 1997 Scranton, Solid waste
Inc. (Pooling of Pennsylvania collection; transfer
Interests) station and
processing
Donno Company, Inc., et January 31, Long Island, New York Solid waste
al. 1997 collection and
(Pooling of transfer station
Interests)
R&A Bender, Inc., et al. December 10, Southcentral Solid waste
1996 Pennsylvania collection and
(Purchase) landfill (municipal
solid waste)
Bayside of Marion, Inc. November 5, Central Florida Landfill
1996 (construction &
(Purchase) demolition)
Super Kwik, Inc., et al. September 27, Southern New Jersey Solid waste
1996 collection
(Pooling of
Interests)
Olney Sanitary System, September 17, Southeastern Illinois Solid waste
Inc. 1996 collection
(Purchase)
Eastern Waste of August 1, 1996 Philadelphia, Solid waste
Philadelphia, Inc., et (Purchase) Pennsylvania collection
al.
K Hydraulic Truck July 27, 1996 Philadelphia, Solid waste
Services, Inc. (Purchase) Pennsylvania transportation
Allied Waste Services, July 2, 1996 New York, New Jersey, Arranges for the
Inc., et al. (Purchase) Pennsylvania, transportation of
California construction and
demolition waste and
disposal of soil and
special waste
products
</TABLE>
35
<PAGE>
PENDING ACQUISITIONS. The Company believes that significant opportunities
exist to acquire additional solid waste collection, transportation, and
disposal operations in the eastern United States and to develop its existing
markets. As part of its acquisition program, the Company reviews acquisition
opportunities on an ongoing basis and is currently in various stages of
negotiating the acquisition 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. The Company currently provides 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 transfers the waste to a
Company-owned or third party landfill or incinerator for disposal or to a
transfer station for additional handling. After compacting and/or separating at
a Company-owned transfer station, the Company directs waste to its own
landfill, to a third party landfill, or to an incinerator.
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, although in certain instances 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 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. 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 part of its waste collection services, the Company provides steel
containers to most of its commercial and industrial customers to store its
solid wastes. These containers range in size from one to eight cubic yards and
are designed to be lifted mechanically and emptied into a collection vehicle's
compaction hopper. The Company also offers roll-off containers (industrial
dumpsters) that range in size from eight to 45 cubic yards. The use of
containers enables the Company to service most of its commercial and industrial
customers with collection vehicles operated by a single employee.
The Company's solid waste collection activities also include the ownership of
transfer stations in Long Island, New York and Scranton, Pennsylvania, and
southeastern Illinois, and the operation of an additional transfer station in
Long Island, New York. The Company's transfer stations receive solid waste
collected primarily from its collection operations, compact the waste and
transfer the waste to larger Company-owned 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.
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 April 30, 1997, the Company maintained a
fleet of approximately 170 trailers owned or leased by the Company, or operated
under arrangements with independent owners/operators, and has satellite
trucking
36
<PAGE>
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 $35.8
million and $42.4 million for the year ended June 30, 1996 and for the nine
months ended March 31, 1997, respectively, representing approximately 90.6% and
80.0%, respectively, of the Company's total revenue for such periods.
WASTE DISPOSAL. The Company owns six non-hazardous solid waste landfills, of
which four are currently operational and the other two are expected to be
operational in the fall of 1997. Disposal services generated revenues of $3.7
million and $4.0 million for the year ended June 30, 1996 and for the nine
months ended March 31, 1997, respectively, representing approximately 9.4% and
7.6%, respectively, of the Company's total revenue for such periods.
The following table summarizes certain information concerning the landfills
owned by the Company:
COMPANY-OWNED LANDFILLS
<TABLE>
<CAPTION>
TOTAL PERMITTED APPROXIMATE UNUSED APPROXIMATE LIFE
LOCATION TOTAL ACRES DISPOSAL ACRES PERMITTED CAPACITY(1) 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
Chambersburg,
Pennsylvania........... 278 142 14.3 million 35
Eastover, South
Carolina............... 73 39 3.1 million 25
Clarksburg, West
Virginia............... 145 45 4.8 million 24
</TABLE>
- --------
(1) Approximate cubic yards of airspace at March 31, 1997; total yards of
airspace does not represent total yards of actual waste volume because
daily, intermediate, and final soil cover consumes some airspace (thus
reducing the airspace available for waste disposal).
(2) Approximate figures based on existing volume limitations, anticipated
operations, and current permitted capacity at March 31, 1997. Life
expectancy will decrease with increases in the rate of waste disposed.
(3) The Illinois landfill is approved to accept municipal solid waste and
industrial and non-hazardous special waste and is expected to be fully
operational in October 1997.
(4) The Kentucky landfill received its final state construction permit on
October 14, 1996 (reissued February 26, 1997) and construction is planned
for the summer of 1997.
----------------
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-
petruscible 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. Purchased in May 1997, this landfill is located in
southeastern Illinois and is expected to be operational in October 1997 upon
completion of construction. The landfill is approved to accept municipal solid
waste and industrial and non-hazardous special waste.
37
<PAGE>
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 fall of 1997.
Pennsylvania Landfill. Purchased in December 1996, this landfill is located
near Chambersburg, Pennsylvania and is currently permitted to accept up to 821
tons of waste per day, with a permitted quarterly average of 657 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), plastic, fiberglass, trees, limbs, cardboard,
paper, and tires from anywhere within the continental United States. This site
may also accept limited 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.
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.
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 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 $6.0 million for the nine months ended March 31, 1997, representing
approximately 11.4% 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, and 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, however, is conducted
on a decentralized basis, with the management of each operating location
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.
MARKETING
Because of the local nature of the solid waste management industry, the
Company's marketing program is designed and implemented at the local level,
usually by experienced management retained by the Company from its acquired
businesses, under direct supervision of senior management. The Company
emphasizes providing quality services as well as customer satisfaction and
retention and believes that it will attract customers in the
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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 more than two percent of the Company's revenues for the nine months ended
March 31, 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.
PROPERTY AND EQUIPMENT
The principal fixed assets used by the Company are its landfills which are
described under "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 physical
properties that it employs in substantially all of its solid waste collection
and transportation operations.
The Company owns approximately 640 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. The Company has approximately 31,000 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 Company expects to make substantial
investments in additional equipment and property for expansion, for replacement
of assets, and in connection with future acquisitions.
COMPETITION
The solid waste management industry is highly competitive and the Company
believes that industry consolidation will increase competitive pressures even
further. 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., United Waste
Systems, Inc., and Allied Waste Industries, Inc. A number of these competitors
have significantly greater financial, technical, 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 and results of operations.
The Company competes for waste disposal business on the basis of tipping
fees, geographical location, and quality of operations. The Company's ability
to obtain landfill business may be limited by the fact that some major
collection companies also own or operate landfills, to which they send their
waste. 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.
The Company currently provides residential collection services under 53
municipal contracts with terms ranging between one to five years. As is the
case in the waste management industry, such contracts come up for competitive
bidding periodically and there is no assurance that the Company will be the
successful bidder and 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 time period or to use any
surplus equipment in other service areas, the Company's business and results of
operations could be adversely affected. However, during the year ended June 30,
1996 and the nine months ended March 31, 1997, no one commercial customer or
municipal contract accounted for more than two percent of the total revenue of
the Company.
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Increased public environmental awareness and certain mandated state
regulations have resulted in increased recycling efforts in many different
areas of the country that are currently, and will in the future, reduce the
amount of solid waste destined for landfills. However, such increased public
environmental awareness and certain mandated state regulations have also
increased the waste stream by programs of mandatory collection, disposal, and
clean-up programs. 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 different regions of the country as well as
within individual market areas in each region.
LEGAL AND ADMINISTRATIVE PROCEEDINGS
The Company is routinely involved in certain legal and administrative
proceedings. 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. However, a significant judgment against the Company
or the imposition of a significant fine or penalty could have a material
adverse effect upon the Company's business or results of operations.
Companies in the solid waste management business, including the Company, are
frequently subject in the normal course of business to judicial and
administrative proceedings involving federal, state or local agencies or
citizen groups. These governmental agencies 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. Any adverse outcome in
these proceedings could have an adverse effect on the Company's business and
results of operations and may subject the Company to adverse publicity. The
Company may also be subject to actions brought by local governments,
individuals or community groups in connection with the permitting or licensing
of its operations, any alleged violation of such permits or licenses or other
matters. See "Government Regulation."
EMPLOYEES
At May 12, 1997, the Company had approximately 720 full-time employees, of
which approximately 560 were employed in collection, transfer and disposal
operations, 120 in clerical, administrative, and sales positions and 40 in
management. Approximately 200 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.
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 currently 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. As a
result, 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 a landfill, a transfer station, and most
other solid waste management facilities, the Company typically must go through
several governmental review processes and obtain one or more permits and often
zoning or other land use approvals. Obtaining these permits and zoning or land
use approvals is difficult, time consuming, and expensive, and is 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
Company's expansion of its existing or any newly acquired landfills, it is
often necessary to expend considerable time, effort, and money in complying
with the governmental review and permitting process necessary to maintain or
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 the problems to the satisfaction of the government
authorities could lead to curtailed operations, fines, and penalties or even
closure of a landfill or other facility. See "Risk Factors--Government
Regulation" for a discussion of certain of the material risks and liabilities
applicable to the Company and investment therein relating to governmental
regulation.
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 that have been approved by the EPA. 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.
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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 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 possibly 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 which there
has been, or is threatened, 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 to be 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.
Prior to 1990, the Company's Pennsylvania landfill, an active Subtitle D
disposal facility, 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 trash relocation, the
Company will operate a groundwater removal and treatment system which has
received a permit for the associated surface water discharge. Relocation of
trash began in April 1997, is coordinated with new pad construction, and is
scheduled to be completed in fiscal year 2008. An additional condition of the
permit modification requires groundwater monitoring of five private water
supply wells off-site. 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 on 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. The
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Company currently believes that ultimate resolution of these matters will not
have a material adverse effect on the Company's business or results of
operations. However, there can be no assurance that the Company's ultimate
financial obligations related to these matters will not have a material adverse
effect on the Company's business and results of operations.
The permit issued October 14, 1996 (reissued February 26, 1997) for the
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. On December 30, 1994 the Company received a notice
on intent to sue from a neighbor of the Company's Kentucky landfill for an
alleged unauthorized discharge of hazardous substances resulting in damage to
the neighboring property. No lawsuit has been initiated. The Company believes
any lawsuit by this neighboring landowner would lack merit and vigorously would
defend such a lawsuit. 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. However, there can be no assurance that the
Company's ultimate financial obligations related to these matters will not have
a material adverse effect on the Company's business and results of operations.
Although the Company's Illinois landfill has obtained all permits necessary
to operate a new landfill area, it has decided not to operate until a closure
permit for an unlined area located at an adjacent former landfill is issued.
Although the Company is not the owner or operator of this former landfill, and
disclaims status as a successor owner or operator of the area and therefore
financial responsibility for its closure and any potential liability associated
with the former landfill, the Company has agreed to assist in funding a proper
closure. The Company currently anticipates opening the new landfill area in
October 1997 after completion of construction. The Company believes that
ultimate resolution of these matters should not have a material adverse effect
on its business and results of operations. However, there can be no assurance
that the Company's ultimate financial obligations related to these matters,
including a significant delay in commencement of operations, will not have a
material adverse effect on the Company's business and results of operations.
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 source
performance 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 Clear 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") regulates
the collection, packaging, transportation, and disposal of asbestos-containing
material. NESHAPs regulate visible emissions of asbestos fibers to outside air
and requires emissions controls and appropriate work practices. It should be
noted that a few states have classified asbestos as hazardous waste and require
appropriate handling and disposal practices. Additionally, asbestos is listed
as a hazardous substance under CERCLA. 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 the statutes.
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
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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 of waste that may be accepted at a landfill or the quantity of
waste that may be accepted at a landfill during a given time period. In
addition, certain permits and approvals, as well as certain state and local
regulations, may seek to limit a landfill to accepting waste that originates
from specified geographic areas or seek to restrict the importation of out-of-
state waste or otherwise discriminate against out-of-state waste. Generally,
such legislative or regulatory restrictions on the importation of out-of-state
waste have not to date withstood judicial challenge. However, from time to
time, federal legislation is proposed which would allow individual states to
prohibit the disposal of out-of-state waste or to limit the amount of out-of-
state waste that could be imported for disposal and would require states, under
certain circumstances, to reduce the amounts of waste exported to other states.
Although no such federal legislation has to date been enacted, if such federal
legislation should be enacted in the future, states in which the Company
operates landfills could act to limit or prohibit the importation of out-of-
state waste. Such state actions could adversely affect the Company's landfills
within those states that receive a significant portion of waste originating
from other states. 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.
In addition, 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
invalid, a local ordinance that sought to impose flow controls on taking waste
out of the locality. However, certain state and local jurisdictions continue to
seek to enforce such restrictions through legislation or contractually and, in
certain cases, the Company may elect not to challenge such restrictions based
upon various considerations. In addition, the aforementioned federal
legislation that has from time to time been proposed could, if enacted, allow
states and localities to impose certain flow control restrictions. These
restrictions could result in the volume of waste going to landfills being
reduced in certain areas, which may adversely affect the Company's ability to
operate its landfills at their full capacity and/or 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 accept 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. The landfill may accept asbestos from anywhere
in the United States for an initial three-
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year period; from Kentucky and states contiguous to Kentucky during years four
and five; and, from Kentucky in year six and the period thereafter.
Such host county or host municipal restrictions could have a material
adverse effect on the Company's landfills that receive a significant portion
of their waste originating from other states, and in the Company's collection
operations which transport waste interstate. See "Business--Government
Regulations--Flow Control/Interstate Waste Restrictions."
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. Acquisition, sale or merger transactions 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. In considering applications for licenses, which are
now only temporary licenses, the TWC closely examines the backgrounds of the
applicant and the applicant's principals for any history of criminal and other
unlawful activity or involvement with members of organized crime. The license
issued to the Company by the TWC for the Company's New York City collection
operations is only a temporary license that is subject to revocation by the
TWC and there is no assurance that the Company will be issued a permanent
license. 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.
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 will
gradually increase 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. In addition, many states 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, and some
provide for the imposition of liens on property owned by responsible parties.
Furthermore, 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 with respect to a landfill, as well
as state or local laws and regulations, 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
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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, which includes
the Company's South Carolina landfill. If passed in proposed form, these
regulations would impose additional operating, reporting, and record-keeping
requirements on the Company's South Carolina landfill as well as new closure,
post-closure, and design requirements. To operate after the effective date of
the proposed regulations, the Company may need to upgrade the landfill's
design. The type of upgrades required would depend on the type of industrial
wastes the Company would choose to accept for disposal. If the Company would
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 program. 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 fiscal 1997 may have
additional or substantially different requirements that could have a material
adverse effect on the Company's business and results of operations.
There has been an increasing trend at the state and local level to mandate
and encourage waste reduction at the source, waste recycling, and limit or
prohibit the disposal of certain types of solid waste in landfills. Some state
solid waste laws, for example, have for several years prohibited the
landfilling of lead acid batteries, major appliances, waste oil, and yard
waste, and, more recently, some states have substantially limited the
landfilling of certain plastic, aluminum, glass and steel containers, newsprint
and magazines, foam, polystyrene packaging, office papers, and waste tires. The
enactment of regulations reducing the volume and types of waste available for
transport to and disposal in landfills has reduced and may continue to reduce
the volume of waste disposed by the Company's customers.
PERMITS AND LICENSES
The Company is required to obtain and maintain in effect various federal,
state and local permits and licenses in connection with its solid waste
collection and transportation operations. The Company is also required to
obtain and maintain in effect various facility permits and other governmental
approvals, including those related to zoning, environmental and land use, in
order to develop and operate a landfill or transfer station, and is required to
obtain additional permits and approvals to expand its existing landfill
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,
and may be dependent upon 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. In addition, 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.
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
46
<PAGE>
effect on the Company's operating results and the Company discontinued its
transfer station operation on July 1, 1996. The Company received a final permit
to construct its expansion area on October 14, 1996. The planned development of
the expansion area is currently expected to begin in the summer of 1997. The
capital costs required to meet the new state requirements will be similar to
those expended for the Company's West Virginia and Pennsylvania landfills. 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 actual 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.
The results of this investigation could have a material adverse impact 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 also
requires closure of the original disposal area, which ceased operations on June
30, 1995, by August 15, 1997. Failure to complete closure activities by this
date would result in a violation of the final permit and could result in a
forfeiture of the existing $1.3 million payment bond posted by the Company to
assure a proper closure of this area.
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. If the Company does not construct the expansion area or
resume transfer station operations, and service Pulaski County under the
franchise agreement on or before July 21, 1997, there would be a default under
the franchise agreement with Pulaski County which could result in a forfeiture
of the Company's performance bond.
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.
CLOSURE AND POST-CLOSURE OBLIGATIONS
The Company will also incur costs in connection with state regulatory
requirements governing closure and post-closure monitoring and maintenance of
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 1997), and approximately $3.7 million in West
Virginia. Closure costs for the original permit area at the 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 $4.8 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 permitted
Illinois landfill are expected to be similar to those for the Kentucky 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. 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.
47
<PAGE>
INSURANCE AND BONDING
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 $5.0 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 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,
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
liability resulting therefrom 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 five of 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 a bonding facility pursuant to certain statutory
requirements regarding financial assurance for the closure and post-closure
monitoring cost requirements for its Kentucky, Pennsylvania 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,
1996 by certificates of deposit totalling $196,000 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 $3.0 million for closure and $3.6 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.
Pennsylvania requires a total closure and post-closure amount of
approximately $5.3 million for financial assurance of its currently permitted
area. The financial assurance is provided through a payment bond of $3.4
million and a phased 10-year cash collateral deposit of $185,737 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 totalling
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 $120,000 U.S. Government security
deposit in a trust fund.
Florida has required $127,884 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 December 1996 is approximately $79,800.
48
<PAGE>
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.
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. See "Risk Factors--Potential Inadequacy of Accruals for Closure and
Post-Closure Costs."
49
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the directors and
certain executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Louis D. Paolino, Jr............... 40 Chairman of the Board, President, and
Chief Executive Officer
Terry W. Patrick................... 50 Executive Vice President and Chief
Operating Officer
Gregory M. Krzemien................ 37 Chief Financial Officer and Treasurer
Robert M. Kramer................... 44 General Counsel, Executive Vice
President and Secretary
John W. Poling..................... 51 Vice President--Finance
George O. Moorehead................ 44 Director
Kenneth Chuan-kai Leung............ 52 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 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.
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.
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.
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 with various firms, including Blank Rome Comisky & McCauley,
Philadelphia, Pennsylvania and Arent Fox Kitner Plotkin & Kahn, Washington,
D.C., since 1979. 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.
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 Corporation from 1994 to 1996,
Vice President, Finance and Chief Financial Officer of Envirogen, Inc. from
1993 to 1994, Vice President--Finance and Chief Financial Officer of Roy F.
Weston, Inc. from 1989 to 1992.
50
<PAGE>
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.
EMPLOYMENT AGREEMENTS
In October 1996, Messrs. Paolino, Patrick, and Kramer entered into amended
and restated employment agreements with the Company that provide for initial
annual base salaries of $150,000, $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,
Messrs. Paolino, Patrick, and Kramer are each entitled to receive a bonus in
cash or Common Stock of the Company equal to two times their respective
salaries. In addition, Messrs. Paolino and Kramer are entitled to an additional
amount of two times the bonuses each was paid by the Company during the 12
months prior to the change in control and Mr. Patrick is entitled to the
greater of (i) $200,000 or (ii) two times the bonus he was paid by the Company
during the 12 months prior to the change in control. Each agreement terminates
in June 2000, subject to earlier termination by either party. If Mr. Paolino's
or Mr. Kramer's employment is terminated for any reason, including
unsatisfactory performance of his duties, the terminated executive will be
entitled to receive two years' annual salary and all of his outstanding options
shall vest. During the term of employment and for a period of up to two years
thereafter, Messrs. Paolino and Patrick may not directly or indirectly engage
in the waste disposal industry within up to 75 miles of any Company business
operation.
In June and November 1996, Messrs. Krzemien and Poling entered into
employment agreements with the Company that provide for initial annual base
salaries of $90,000 and certain fringe benefits, including life and health
insurance and automobile allowances. Mr. Krzemien's agreement is for a term of
18 months, and Mr. Poling's agreement is for a term of three years, in each
case 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, and Mr. Poling is
entitled to up to three months salary. Upon a change in control, Messrs.
Krzemien and Poling are further entitled to receive one year's annual salary.
Dennis Grimm is currently a manager of operations and acquisitions for the
Company under a four year employment agreement. The Company intends to appoint
Mr. Grimm Vice President of Operations in May 1997, and he will report directly
to Terry Patrick, the Company's Chief Operating Officer.
At May 14, 1997, the Company's executive officers held options to purchase an
aggregate of 831,566 shares of Common Stock (which generally vest over a period
of two years) at exercise prices ranging between $5.75 and $8.00 per share, of
which 339,857 shares were purchasable under options and warrants that are
currently exercisable or exercisable within 60 days after the date of this
Prospectus. In addition, one executive held options to purchase 166,885 shares
of Common Stock at exercise prices ranging between $.01 and $1.50 per share,
all of which are currently exercisable.
51
<PAGE>
CERTAIN 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 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
that 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.
Pursuant to the Severance Agreement, the Company also entered into two leases
with a company controlled by Mr. Skuba pursuant to which the Company agreed to
lease back a portion of the Drums Real Property. One of the leases has since
expired; one of the leases remains in force. The Company paid an aggregate of
approximately $10,885 in rent for such property under both leases.
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 such services,
the Company has agreed to reimburse Mr. Skuba for of his reasonable expenses
and secretarial support incurred in connection with such consulting services.
Mr. Skuba is receiving no other compensation for such services. The initial
term of the Consulting Agreement was for a period of six months, which has been
extended to June 20, 1997.
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, President, and
Chief Executive Officer 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.
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
transactions with Tri-County Disposal & Recycling, Inc. and National Ecosystems
Inc. for an aggregate of $1.6 million in cash and stock.
In October 1996, the Company hired Premier Concrete, Inc., a corporation
owned by Matthew Paolino ("Premier"), to excavate a new cell for the Company's
landfill in West Virginia. The Company estimates that the total amount to be
paid to Premier for the job will be approximately $480,000. Premier was the
lowest bidder that satisfied all bid requirements for such job.
52
<PAGE>
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 May 15, 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 and is 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 May 15, 1997 was $750,000.
Robert J. Powell, a former director of the Company, is the sole shareholder
of The Law Offices of Robert J. Powell, Hazelton, Pennsylvania, which provided
legal services to the Company from fiscal 1994 through July 1996. The Company
paid such firm approximately $78,000 in fiscal 1996 for such legal services.
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 paid such
corporation approximately $46,384 during the nine months ended March 31, 1997
for such legal services.
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.
53
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of May 12, 1997 the beneficial ownership of
the Common Stock and as adjusted to reflect the sale of the shares offered
hereby by (i) each person or entity known to the Company to own beneficially
five percent more of the Common Stock, (ii) each director of the Company, and
(iii) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENTAGE OF SHARES
NAME OF BENEFICIAL OWNER OWNED(1)(2) PRIOR TO OFFERING AFTER OFFERING
- ------------------------ ---------------- ----------------- --------------
<S> <C> <C> <C>
Willard Miller............. 1,361,688(3) 8.2% 6.4%
230 Orono Place
Sommerdale, NJ 08083
Sanders Morris Mundy, 1,156,250(4) 6.9% 5.5%
Inc.......................
126 East 56th Street
24th Floor
New York, NY 10105
Louis D. Paolino, Jr. ..... 1,151,397(5) 6.9% 5.4%
1000 Crawford Place
Mount Laurel, NJ 08054
Glen Miller................ 1,110,302(6) 6.7% 5.3%
429 Ocean Avenue
Ocean City, NJ 08226
Kenneth Chuan-kai Leung.... 1,060,000(7) 6.4% 5.0%
126 East 56th Street
24th Floor
New York, NY 10022
William C. Skuba........... 932,351(8) 5.6% 4.4%
RR #4, Box 4452
Drums, PA 18222
Environmental Opportunities 889,697 5.4% 4.2%
Fund, L.P. ...............
126 East 56th Street
24th Floor
New York, NY 10022
George O. Moorehead........ 395,000(9) 2.3% 1.9%
3700 West Lower Buckeye
Phoenix, AZ 85009
All executive officers and
directors as a group
(nine persons)............ 5,441,463(10) 31.4% 24.9%
</TABLE>
- --------
(1) The inclusion herein of any shares as beneficially owned does not
constitute an admission of beneficial ownership of those shares. Except as
otherwise indicated, each person has sole voting power and sole investment
power with respect to all shares beneficially owned by such person.
(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 are treated as outstanding for purposes of determining
beneficial ownership and the percentage beneficially owned by such
individual.
(3) Includes 19,415 shares held of record by W&G Miller Family Limited
Partnership, of which Mr. Miller serves as a general partner, and 81,907
shares purchasable under currently exercisable warrants held by such
partnership.
(Footnotes continued on next page)
54
<PAGE>
(Footnotes continued from previous page)
(4) Includes 156,250 shares purchasable under currently exercisable warrants.
Also includes 889,697 shares held of record by the Environmental
Opportunity Fund, L.P. and 110,303 shares held of record by the
Environmental Opportunity Fund (Cayman), L.P., entities for which
Environmental Opportunities Management Company, LLC, in which Sanders
Morris Mundy, Inc., a representative of the Underwriters in the Offering,
holds a 75% membership interest, serves as the sole general partner.
(5) Includes 35,000 shares held of record by entities controlled by Mr.
Paolino, 176,166 shares held by family members, and 122,500 shares
purchasable under currently exercisable options.
(6) Includes 81,907 shares purchasable under currently exercisable warrants.
(7) Includes 60,000 shares purchasable under currently exercisable options.
Also includes 889,697 and 110,303 shares held of record by the
Environmental Opportunity 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.
(8) Includes 25,000 shares purchasable under currently exercisable warrants.
(9) Includes 60,000 shares purchasable under currently exercisable options.
(10) See footnotes 3, 5, 6, 7 and 9 above. Also includes an aggregate of
190,000 shares and 294,242 shares issuable upon exercise of currently
exercisable options held by four executive officers of the Company who
are not listed in the table.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, $.01 par value per share, and 10,000,000 shares of Class A Common
Stock, $.01 par value per share (the "Class A Common Stock"). At May 14, 1997,
there were 16,561,497 shares of Common Stock outstanding and no shares of Class
A Common Stock outstanding. Based upon the number of shares outstanding as of
that date and giving effect to the issuance of the 4,500,000 shares of Common
Stock offered hereby, there will be 21,061,497 shares of Common Stock
outstanding upon the closing of the Offering. In addition, at May 14, 1997,
there were outstanding stock options and warrants for the purchase of a total
of 3,073,153 shares of Common Stock and an additional 704,766 shares reserved
for issuance pursuant to future option grants under the Company's stock option
plans. All 1,680,201 shares of Class A Common Stock previously issued and
outstanding have been converted to Common Stock and are not subject to
reissuance pursuant to terms of the Class A Common Stock. See "Description of
Capital Stock."
COMMON STOCK AND CLASS A COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held and the
holders of Class A Common Stock are entitled to four votes for each share held
on all matters submitted to a vote of stockholders. Both the Common Stock and
Class A Common Stock have non-cumulative voting rights and vote together as a
single class on all matters, except matters specified otherwise by Delaware
law. Issuance of shares of Class A Common Stock could have the effect of
delaying or preventing a change in control of the Company without further
action by the stockholders. The Company has no present plans to issue any
shares of Class A Common Stock in the future.
The respective holders of record of the issued and outstanding Common Stock
and Class A Common Stock are entitled to receive in respect of all said shares
taken as single class, any dividends which may be declared by the Board of
Directors and/or any distributions that may be made, except that in the case of
dividends payable in shares of the Company, or in the case of rights to
subscribe to such shares, holders of shares of Class A Common Stock shall
receive their dividends in, or shall have rights to subscribe to, shares of
Class A Common Stock and holders of shares of Common Stock shall receive their
dividends in, or shall have rights to subscribe to, shares of Common Stock; and
except further that whenever either shares of Common Stock or shares of Class A
Common Stock are split-up or combined, the shares of the other class shall be
proportionately split-up or combined. Upon the liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, after payment or
provision for payment of the debts or liabilities of the Company, holders of
Common Stock shall be entitled to receive out of the net assets of the Company
the amount of $1.00 per share, prior to any distribution with respect to Class
A Common Stock. After such payment or provision for such payment to the holders
of Common Stock, the holders of Common Stock and the holders of Class A Common
Stock shall be entitled to share ratably (i.e. an equal amount of assets for
each share of either Common Stock or Class A Common Stock) in the remaining
assets of the Company. Each holder of record of a share of Class A Common Stock
may, at any time or from time to time, without cost to such holder and at such
holder's option, convert any whole number or all of such holder's shares of
Class A Common Stock into fully paid and non-assessable shares of Common Stock
at the rate of one share of Common Stock for each share of Class A Common Stock
surrendered for conversion. No shares of Class A Common Stock that are
converted to Common Stock will be reissued. Except as described above, holders
of the Common Stock and Class A Common Stock have no preemptive, subscription,
redemption or conversion rights, nor are they entitled to the benefit of any
sinking fund. The outstanding shares of Common Stock are, and the shares
offered by the Company in the Offering will be, when issued and paid for,
validly issued, fully paid and nonassessable by the Company.
ANTI-TAKEOVER PROVISIONS
The Company is a Delaware corporation and is subject to Section 203 ("Section
203") of the Delaware General Corporation Law (the "DGCL"). In general, Section
203 prevents an "interested stockholder" (defined generally as a person owning
15% or more of a corporation's outstanding voting stock) from engaging in a
56
<PAGE>
"business combination" (as defined) with a Delaware corporation for three years
following the time such person became an interested stockholder unless: (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (ii)
upon consummation of the transaction that resulted in the interested
stockholder's becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding stock held by directors who are also
officers of the corporation and by employee stock plans that do not provide
employees with the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer); or (iii)
at the time of or following the time of the transaction in which such person
became an interested stockholder, the business combination was approved by the
board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of 66 2/3% of the
outstanding voting stock of the corporation not owned by the interested
stockholder. Under Section 203, the restrictions described above also do not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of one of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors or during certain prescribed times, if such extraordinary transaction
is approved or not opposed by a majority of the directors who were directors
prior to any person becoming an interested stockholder during the previous
three years or were recommended for election or elected to succeed such
directors by a majority of such directors.
Section 203 defines a business combination to include: (i) any merger or
consolidation of the corporation with the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation which has the effect of increasing
the proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation.
In addition, certain of the Company's executive officers that have entered
into employment agreements with the Company will be entitled to receive certain
bonuses in cash or Common Stock upon a change in control of the Company in such
amounts that, in the aggregate, could have an adverse effect on the Company's
liquidity and capital resources. Accordingly, such provisions could discourage
or prevent bids to takeover the Company and decrease values that would
otherwise be obtained by stockholders for their Common Stock. See "Management--
Employment Agreements."
LIMITATIONS ON LIABILITY
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware
law, directors are accountable to corporations and their stockholders for
monetary damages for conduct constituting gross negligence in the exercise of
their duty of care. Delaware law enables corporations to limit available relief
to equitable remedies such as injunction or rescission. The Company's
Certificate of Incorporation ("Certificate of Incorporation") limits the
liability of directors of the Company to the fullest extent permitted by
Delaware law. Specifically, directors of the Company will not be personally
liable for monetary damages for breach of a director's fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from
which the director derived an improper personal benefit.
57
<PAGE>
The inclusion of this provision in the Certificate of Incorporation may have
the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefited the Company and its
stockholders. The Certificate of Incorporation provides indemnification to its
officers and directors and certain other persons with respect to certain
matters, and the Company has entered into agreements with each of its directors
and executive officers providing for indemnification with respect to certain
matters.
STOCK TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales in the public market of substantial amounts of Common Stock could have
an adverse effect on the market price of the Common Stock and may make it more
difficult for the Company to sell its equity securities in the future at times
and prices that it deems appropriate. Upon completion of the Offering, the
Company will have outstanding 21,061,497 shares of Common Stock. Of these
shares, approximately 8,925,576 shares of Common Stock, including the 4,500,000
shares of Common Stock sold in the Offering, will be tradeable without
restriction or limitation under the Securities Act, except to the extent such
shares are subject to the agreement with the Underwriters described below, and
except for any shares owned by "affiliates" of the Company which will be
subject to the resale limitations under Rule 144 of the Securities Act. The
remaining 12,135,921 outstanding shares of Common Stock held by existing
stockholders are "restricted securities" that were issued and sold by the
Company in private transactions in reliance upon exemptions from registration
under the Securities Act and may not be sold in a public distribution except in
compliance with the registration requirements of the Securities Act or pursuant
to an exemption therefrom, including that provided by Rule 144. Of these
restricted securities, 6,469,467 shares will be saleable in the public market
180 days following the date of this Prospectus subject to compliance with Rule
144.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the date of acquisition of restricted shares from the Company or an
affiliate of the Company, the acquiror or subsequent holder thereof would be
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the then-outstanding shares of Common Stock
(approximately 210,615 shares after the Offering, assuming no exercise
thereafter of outstanding options or warrants) or the average weekly trading
volume in the Common Stock during the four calendar weeks immediately preceding
the date on which the notice of sale is filed with the Commission, provided
certain manner of sale and notice requirements and requirements as to the
availability of current public information about the Company are satisfied. In
addition, affiliates of the Company must comply with the restrictions and
requirements of Rule 144, other than the one-year holding period requirement,
in order to sell shares of Common Stock that are not restricted securities
(such as shares of Common Stock acquired by affiliates in the Offering). Under
Rule 144(k) as currently in effect, if two years have elapsed since the date of
acquisition of restricted shares from the Company or any "affiliate" of the
Company and the acquiror or subsequent holder is not deemed to have been an
affiliate of the Company for at least 90 days prior to a proposed transaction,
such person would be entitled to sell such shares under Rule 144(k) without
regard to the limitations and requirements described above. As defined in Rule
144, an affiliate of an issuer is a person that directly, or indirectly through
the use of one or more intermediaries, controls, or is controlled by, or is
under common control with, such issuer.
Upon consummation of the Offering, the Company will have outstanding options
and warrants to purchase a total of 3,073,153 shares of Common Stock, 1,456,091
of which will then be exercisable, and an additional 704,766 shares reserved
for issuance pursuant to future option grants under the Company's stock option
plans. The Company has filed registration statements on Form S-8 under the
Securities Act that registers all shares of Common Stock issuable under the
Company's 1987 stock option plan and 1991 stock option plan. Shares covered by
such registration statements are eligible for resale in the public market
subject to Rule 144 limitations applicable to affiliates, the vesting
provisions of each option grant (generally up to five years), and the lock-up
agreement described below, if applicable.
Certain stockholders of the Company that hold restricted securities have
registration rights for an aggregate of up to 7,960,405 shares of Common Stock
and an additional 434,364 shares of Common Stock issuable upon exercise of
warrants. The Company expects that within 45 days after completion of the
Offering 5,127,430 of such shares will be covered by an effective registration
statement permitting such shares to be resold by certain of such stockholders.
The Company has agreed to pay substantially all expenses incident to such
registration statement, other than underwriting discounts and commissions.
The Company and the directors and certain executive officers and stockholders
of the Company, who own an aggregate of 2,996,655 shares of Common Stock and
options and warrants to purchase 1,369,502 shares of
59
<PAGE>
Common Stock at May 14, 1997, have agreed, except for certain limited
exceptions or with the prior written consent of Smith Barney Inc., that they
will not sell, offer to sell, solicit an offer to buy, contract to sell, grant
any option to purchase, or otherwise transfer or dispose of, any shares of
Common Stock, or any securities convertible into or exercisable or exchangeable
for Common Stock, for a period of 120 days after the date of this Prospectus.
In addition, the other executive officers and certain other stockholders of the
Company, who own an aggregate of 7,224,198 shares of Common Stock and options
and warrants to purchase 1,428,751 shares of Common Stock at May 14, 1997, have
also agreed to such transferability restrictions, except that the restrictive
period is for 90 days following the date of this Prospectus. See
"Underwriting."
The Company intends to register two million shares of Common Stock under the
Securities Act not earlier than 30 days after the date of the Prospectus for
its use in connection with future acquisitions. These shares generally will be
freely tradable after their issuance by persons not affiliated with the
Company; however, resales of these shares during the 180-day period following
the date of the related shelf registration statement would require the prior
written consent of Smith Barney Inc.
Since the Company has issued, and may continue to issue, a significant number
of shares of Common Stock in connection with acquisitions of other businesses,
the number of outstanding shares of Common Stock that are likely to be eligible
for sale in the future is likely to increase significantly.
60
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, each of
the Underwriters named below have severally agreed to purchase from the
Company, and the Company has agreed to sell to such Underwriter, the respective
number of shares of Common Stock set forth opposite the name of such
Underwriter.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Smith Barney Inc...................................................
Oppenheimer & Co., Inc.............................................
Sanders Morris Mundy, Inc..........................................
Pacific Growth Equities, Inc.......................................
Van Kasper & Company...............................................
---------
Total............................................................ 4,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all shares
of Common Stock offered hereby (other than those covered by the over-allotment
option described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., Oppenheimer & Co., Inc.,
Sanders Morris Mundy, Inc., Pacific Growth Equities, Inc., and Van Kasper &
Company are acting as representatives (the "Representatives"), propose to offer
part of the shares of Common Stock directly to the public at the offering price
set forth on the cover page of this Prospectus and part of the shares to
certain dealers at a price which represents a concession not in excess of
$ per share under the public offering price. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. The Representatives of the Underwriters have advised the
Company that the Underwriters do not intend to confirm any shares to any
accounts over which they exercise discretionary authority. After the public
offering, the offering price and other selling terms may be changed by the
Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional 675,000
shares of Common Stock at the price to the public set forth on the cover page
of this Prospectus, minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering over-
allotments, if any, in connection with the Offering. To the extent such option
is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares set forth opposite each Underwriter's name in
the proceeding table bears to the total number of shares listed in such table.
The Company, its executive officers and directors, and certain stockholders
(the "Stockholders") of the Company designated by the Representatives have
agreed that, for a period of 120 days from the date of this Prospectus, they
will not, without the prior written consent of Smith Barney Inc., sell, offer
to sell, solicit an offer to buy, contract to sell, grant any option to
purchase, or otherwise transfer or dispose of, any shares of Common Stock, or
any securities convertible into or exercisable or exchangeable for Common
Stock, except for (a) in the case of the Company, (i) the Common Stock offered
hereby; (ii) certain exceptions pertaining to the Company's stock option plans,
(iii) issuances of Common Stock upon the conversion of securities or the
exercise of warrants outstanding on the date the Underwriting Agreement is
executed and (iv) issuances and sales of
61
<PAGE>
Common Stock in connection with acquisitions by the Company, and (b) in the
case of the Stockholders and the directors and executive officers of the
Company, shares of Common Stock disposed of as a gift to his or her "immediate
family" or to one or more trusts established for the benefit of his or her
immediate family, provided that the recipient of such Common Stock agrees to
the foregoing restrictions on transferability. In addition, certain other
stockholders of the Company designated by the Representatives have also agreed
to such transferability restrictions, except that the restrictive period is for
90 days following the date of this Prospectus.
In August 1996, Sanders Morris Mundy, Inc., one of the Representatives and
the beneficial owner of approximately 6.9% of the issued and outstanding shares
of Common Stock at May 14, 1997, 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 connection therewith, Sanders Morris Mundy, Inc. 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, LLC,
in which Sanders Morris Mundy, Inc. holds a 75% membership interest, serves as
the sole general partner, purchased an aggregate of 750,000 shares of Common
Stock.
Kenneth Chuan-kai Leung, a Managing Director of Sanders Morris Mundy, Inc.,
is a director of the Company. Sanders Morris Mundy has provided and is
currently providing financial advisory services for the Company.
The Company and the Underwriters each have agreed to indemnify the other
against certain liabilities, including liabilities under the Securities Act, or
will contribute to payments that the Underwriters may be required to make in
respect thereof.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid or the purchase of the Common Stock on behalf of the Underwriters
for the purpose of fixing or maintaining the price of the Common Stock. A
"syndicate covering transaction" is the bid for or the purchase of the Common
Stock on behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the Offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the Offering
if the Common Stock originally sold by such underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Drinker Biddle & Reath LLP, Philadelphia,
Pennsylvania, counsel for the Company. Certain legal matters relating to the
offering of the Common Stock will be passed upon for the Underwriters by
Morgan, Lewis & Bockius LLP, New York, New York.
62
<PAGE>
EXPERTS
The consolidated financial statements of the Company at June 30, 1996 and
1995, and for each of the three years in the period ended June 30, 1996,
appearing in this Prospectus and the Registration Statement of which this
Prospectus forms a part have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement which is based in part on the reports of Bardall,
Weintraub P.C. and Paternostro, Callahan & DeFreitas, LLP, independent
auditors. The financial statements referred to above are included in reliance
upon such reports given upon the authority of such firms as experts in
accounting and auditing.
The combined financial statements of Allied Environmental Services, Inc. and
affiliates as of June 30, 1996 and 1995 and for the years then ended appearing
in the Company's Current Report on Form 8-K dated July 2, 1996, as amended by
its Forms 8-K/A filed September 16, 1996 and May 13, 1997, have been audited by
BDO Seidman LLP, independent auditors, as set forth in their report thereon
included therein and incorporated by reference herein. Such financial
statements are incorporated by reference herein in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The combined financial statements of Allied Environmental Services, Inc.,
Allied Environmental Services, West, Inc., Allied Mid-Atlantic, Inc., and
Allied Waste Management, Inc. as of June 30, 1994 and for the year then ended
appearing in the Company's Current Report on Form 8-K dated July 2, 1996, as
amended by its Form 8-K/A filed September 16, 1996, have been audited by B.J.
Klinger & Co., P.C., independent auditors, as set forth in their report thereon
included therein and incorporated by reference herein. Such financial
statements are incorporated by reference herein in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The combined financial statements of Super Kwik, Inc. and Waste Maintenance
Services, Inc. appearing in the Company's Current Report on Form 8-K dated
September 27, 1996, as amended by its Form 8-K/A filed December 9, 1996, have
been audited by Bardall, Weintraub P.C., independent auditors, as set forth in
their report thereon included therein and incorporated by reference herein.
Such financial statements are incorporated by reference herein in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of R&A Bender, Inc. and R&A Properties, Ltd.
appearing in the Company's Current Report on Form 8-K dated December 10, 1996,
as amended by its Form 8-K/A filed February 11, 1997, have been audited by
Boyer & Ritter, CPAs, independent auditors, as set forth in their reports
thereon included therein and incorporated by reference herein. Such financial
statements are incorporated by reference herein in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The combined financial statements of Donno Company, Inc. and affiliates
appearing in the Company's Current Report on Form 8-K dated January 31, 1997,
as amended by its Form 8-K/A filed April 15, 1997, have been audited by
Paternostro, Callahan & DeFreitas, LLP, independent auditors, as set forth in
their report thereon included therein and incorporated by reference herein.
Such financial statements are incorporated by reference herein in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Apex Waste Services, Inc. appearing in the
Company's Current Report on Form 8-K dated March 31, 1997, as amended by its
Form 8-K/A filed May 13, have been audited by Daniel P. Irwin & Associates,
P.C., independent auditors, as set forth in their report thereon included
therein and incorporated by reference herein. Such financial statements are
incorporated by reference herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
63
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Summary Pro Forma Financial Information.................................. F-2
Pro Forma Consolidated Balance Sheet at March 31, 1997................... F-4
Pro Forma Consolidated Statement of Operations for the Year Ended June
30, 1996................................................................ F-5
Pro Forma Consolidated Statement of Operations for the Nine Months Ended
March 31, 1997.......................................................... F-6
Notes to Unaudited Pro Forma Consolidated Financial Information.......... F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets.................................... F-10
Condensed Consolidated Statements of Operations.......................... F-12
Condensed Consolidated Statement of Stockholders' Equity................. F-13
Condensed Consolidated Statements of Cash Flows.......................... F-14
Notes to Condensed Consolidated Financial Statements..................... F-15
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors........................................... F-18
Consolidated Balance Sheets.............................................. F-19
Consolidated Statements of Operations.................................... F-21
Consolidated Statements of Stockholders' Equity.......................... F-22
Consolidated Statements of Cash Flows.................................... F-23
Notes to Consolidated Financial Statements............................... F-24
</TABLE>
F-1
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Financial Statements give
effect to certain acquisition transactions described below and to this
offering.
On July 2, 1996, the Company consummated the acquisition of Allied
Environmental Services, Inc. and affiliates ("Allied") in exchange for 116,667
unregistered shares of the Company's common stock. The acquisition has been
accounted for as a purchase.
On December 10, 1996, the Company consummated the acquisition of R&A Bender,
Inc. and certain real estate owned by R&A Bender Property, Ltd. ("Bender").
The total purchase price was approximately $17,500,000 and the acquisition has
been accounted for as a purchase.
The Company completed the acquisition of Waste Services, Inc. and affiliates
on May 12, 1997 in exchange for 1,159,980 unregistered shares of the Company's
common stock and the assumption of $6,176,690 of debt. The Company has accrued
a reserve as part of its purchase price allocation of $6.2 million which is
contingent upon the resolution of certain events and is payable in either cash
or a future-maximum issuance of 357,849 shares of common stock. The Company
has accounted for this acquisition as a purchase. In connection with this
acquisition, the company has also executed Definitive Purchase Agreements for
Coney Island Rubbish Removal, Inc. and Golden Gate Carting Co., Inc., two
hauling companies which operate under common operational and management
control with Waste Services, Inc. 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 $3,050,273 of debt. The
Golden Gate and Coney Island acquisitions are contingent upon the approval of
the New York Trade Waste Commission. Pending closing of the acquisitions, the
Company is operating the business of Golden and Coney Island under management
agreements. Waste Services, Golden Gate and Coney Island are collectively
referred to as ("WSI").
The pro forma consolidated statements of operations for the year ended June
30, 1996 and the nine months ended March 31, 1997 reflects the results of
operations of the Company as if the above acquisitions of Allied, Bender and
WSI had occurred at the beginning of the periods presented. The pro forma
consolidated balance sheet as of March 31, 1997 reflects the financial
position of the Company as if the acquisition of WSI and this offering had
occurred as of March 31, 1997.
During fiscal 1997, the Company also acquired Super Kwik, Inc. and Waste
Management, Inc. ("Super Kwik") and Donno Company and affiliates, Inc.
("Donno"). These business combinations, which have been accounted for under
the pooling of interests method, were consummated on September 27, 1996 and
January 31, 1997, respectively. In connection with these acquisitions, the
Company recorded merger costs to integrate these operations into the Company.
In addition, Super Kwik and Donno had been S Corporations prior to the
consummation date of the business combination with the Company. Effective as
of the date of each of the mergers, the S corporation status was eliminated,
and the Company recorded a tax provision to reflect the deferred tax liability
at the date of the merger. The merger costs and the tax provision have been
eliminated from the pro forma financial statements as they are not recurring
in nature.
The Company also acquired Apex Waste Services, Inc. ("Apex") on March 31,
1997. This business combination has been accounted for under the pooling of
interests method. Apex began operations on October 1, 1996 as a result of its
acquisition of certain assets of Waste Management, Inc., Northeast
Pennsylvania Division. The results of operations of Apex have been included in
the Company's consolidated financial statements since the date of inception of
Apex. The pro forma consolidated financial information includes the results of
operations of the predecessor company of Apex for the year ended June 30, 1996
and for the period July 1, 1996 to September 30, 1996. In connection with this
acquisition, the Company recorded merger costs to integrate these operations
into the Company. In addition, Apex had been an S corporation prior to the
business combination
F-2
<PAGE>
with the Company. Effective as of the date of the merger, the S corporation
status was eliminated, and the Company recorded a tax provision to reflect the
deferred tax liability at the date of the merger. The merger costs and the tax
provision have been eliminated from the pro forma financial statements as they
are not recurring in nature.
The unaudited pro forma consolidated financial statements are based upon
preliminary estimates, available information and certain assumptions that
management deems appropriate. Management does not expect material changes to
the final transaction adjustments. The unaudited pro forma consolidated
financial information presented herein is not necessarily indicative of the
results of operations or financial position that the Company would have
obtained had such events occurred at the beginning of the period, as assumed,
or the future results of the Company. The pro forma consolidated financial
information should be read in connection with the consolidated financial
statements and notes thereto include in this Prospectus.
F-3
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT MARCH 31, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA ADJUSTMENTS PRO FORMA
THE COMPANY WSI ADJUSTMENTS CONSOLIDATED FROM OFFERING AS ADJUSTED
----------- ----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash
equivalents........... $ 3,906,902 $ 26,650 $ (26,650)(1) $ 3,906,902 $ 23,542,099 (2) $ 27,449,001
Accounts receivable,
net of allowance...... 7,694,765 2,210,957 (2,210,957)(1) 7,694,765 7,694,765
Deferred income taxes.. 1,568,000 -- 1,568,000 1,568,000
Prepaid expenses and
other current assets.. 2,173,656 305,278 (305,278)(1) 2,173,656 2,173,656
----------- ----------- ------------ ------------ ------------ ------------
TOTAL CURRENT ASSETS... 15,343,323 2,542,885 (2,542,885) 15,343,323 23,542,099 38,885,422
NET PROPERTY, PLANT &
EQUIPMENT.............. 54,171,729 943,756 992,244 (1) 56,107,729 56,107,729
Assets held for resale.. 395,059 -- 395,059 395,059
Excess cost over fair
market value of net
assets acquired........ 15,764,939 13,164,368 16,478,011 (1) 45,407,318 45,407,318
Intangible assets, net.. 1,720,740 -- 800,000 (1) 2,520,740 2,520,740
Notes receivable from
shareholders /
officers............... 463,902 1,535,411 (1,535,411)(1) 463,902 463,902
Other assets............ 1,493,005 243,735 (243,735)(1) 1,493,005 1,493,005
----------- ----------- ------------ ------------ ------------ ------------
TOTAL ASSETS........... $89,352,697 $18,430,155 $ 13,948,224 $121,731,076 $ 23,542,099 $145,273,175
=========== =========== ============ ============ ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities
Current maturities on
long-term debt........ $ 1,285,312 $ 2,801,426 $(2,801,426)(1) $ 1,285,312 -- $ 1,285,312
Current maturities of
obligations under
capital leases........ 1,445,100 -- 1,445,100 1,445,100
Accounts payable........ 3,835,667 3,586,644 (3,586,644)(1) 3,835,667 3,835,667
Accrued expenses and
other current
liabilities............ 8,361,616 -- 8,361,616 8,361,616
Income taxes payable.... 45,880 779,531 (779,531)(1) 45,880 45,880
Due to officers......... -- 470,115 (470,115)(1) -- --
Current portion of
accrued landfill
closure and other
environmental costs.... 1,070,000 -- 1,070,000 1,070,000
----------- ----------- ------------ ------------ ------------ ------------
TOTAL CURRENT
LIABILITIES........... 16,043,575 7,637,716 (7,637,716) 16,043,575 -- 16,043,575
Deferred income taxes... 3,832,203 -- 3,832,203 3,832,203
Long-term debt.......... 31,736,086 14,160,900 (4,933,937)(1) 40,963,049 (39,776,963)(2) 1,186,086
Capital lease
obligations--
long-term.............. 2,244,432 -- 2,244,432 2,244,432
Accrued landfill closure
and other environmental
costs.................. 8,172,364 -- 8,172,364 8,172,364
Other long-term
liabilities............ 6,200,000 (1) 6,200,000 6,200,000
STOCKHOLDERS' EQUITY
Common stock........... 140,958 65,620 (51,132)(1) 155,446 45,000 (2) 200,446
Additional paid-in
capital............... 27,927,552 -- 16,936,928 (1) 44,864,480 63,274,062 (2) 108,138,542
Retained earnings
(deficit)............. (668,214) (3,434,081) 3,434,081 (1) (668,214) (668,214)
Less treasury stock at
cost--
39,100 common shares.. (76,259) -- (76,259) (76,259)
----------- ----------- ------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS'
EQUITY................ 27,324,037 (3,368,461) 20,319,877 44,275,453 63,319,062 107,594,515
----------- ----------- ------------ ------------ ------------ ------------
TOTAL LIABILITY AND
STOCKHOLDERS' EQUITY.. $89,352,697 $18,430,155 $ 13,948,224 $121,731,076 $ 23,542,099 $145,273,175
=========== =========== ============ ============ ============ ============
</TABLE>
F-4
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
JUNE 30, 1996
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY TO PRO FORMA PRO FORMA
THE COMPANY ALLIED BENDER APEX WSI ADJUSTMENTS CONSOLIDATED
----------- ----------- ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........ $39,519,173 $10,549,739 $8,461,111 $19,042,380 $22,802,271 $ (183,919)(8) $100,190,755
(734,001)(2)
(390,709)(8)
-----------
Cost of
revenues........ 33,417,442 8,211,825 5,812,906 16,115,293 13,053,202 (1,124,710) 75,485,958
(137,032)(1)
172,515 (2)
(785,723)(3)
(955,898)(6)
(9,807)(8)
(831,450)(9)
(2,526,066)(10)
-----------
Selling, general
and
administrative
expenses........ 9,774,422 3,231,358 2,262,009 2,221,336 8,063,449 (5,073,461) 20,479,113
----------- ----------- ---------- ----------- ----------- ----------- ------------
Operating (loss)
income.......... (3,672,691) (893,444) 386,196 705,751 1,685,620 6,014,252 4,225,684
(1,168,191)(7)
1,311,073 (11)
-----------
Interest
expense......... (629,009) (108,881) (113,115) (746,152) (2,049,230) 142,882 (3,503,505)
Other (expense)
income.......... (130,640) (1,817,733) 280,550 31,365 86,024 1,817,733 (4) 267,299
----------- ----------- ---------- ----------- ----------- ----------- ------------
(Loss) income
from continuing
operations
before income
taxes
(benefit)....... (4,432,340) (2,820,058) 553,631 (9,036) (277,586) 7,974,867 989,478
Income tax
(benefit)....... (9,687) -- -- -- 589,746 (589,746)(12) (9,687)
----------- ----------- ---------- ----------- ----------- ----------- ------------
Net (loss)
income from
continuing
operations...... $(4,422,653) $(2,820,058) $ 553,631 $ (9,036) $ (867,332) $ 8,564,613 $ 999,165
=========== =========== ========== =========== =========== =========== ============
Net (loss)
income per
share........... $ 0.08
============
Weighted avg #
of shares
outstanding..... 11,869,868 (5)
============
<CAPTION>
ADJUSTMENTS PRO FORMA
FROM OFFERING AS ADJUSTED
----------------- ----------------
<S> <C> <C>
Revenues........ $ -- $100,190,755
Cost of
revenues........ 75,485,958
Selling, general
and
administrative
expenses........ -- 20,479,113
----------------- ----------------
Operating (loss)
income.......... 4,225,684
Interest
expense......... 3,182,157 (13) (321,348)
Other (expense)
income.......... 267,299
----------------- ----------------
(Loss) income
from continuing
operations
before income
taxes
(benefit)....... 3,182,157 4,171,635
Income tax
(benefit)....... (9,687)
----------------- ----------------
Net (loss)
income from
continuing
operations...... $3,182,157 $ 4,181,322
================= ================
Net (loss)
income per
share........... $ 0.26
================
Weighted avg #
of shares
outstanding..... 16,369,868(14)
================
</TABLE>
F-5
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY TO PRO FORMA OTHER PRO FORMA
THE COMPANY BENDER APEX WSI ADJUSTMENTS ADJUSTMENTS CONSOLIDATED
----------- ---------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........ $52,409,183 $4,298,280 $4,675,156 $16,596,545 $ (41,019)(4) $77,938,145
(196,402)(1)
(206,352)(4)
-----------
Cost of 38,026,625 2,694,590 3,901,842 10,318,674 54,538,977
revenues........ (402,754)
76,769 (1)
(1,035,367)(2)
(6,085)(4)
(713,231)(5)
(1,686,714)(6)
-----------
Selling, general
and
administrative
expenses........ 9,245,947 1,756,647 563,087 6,378,446 (3,364,628) 14,579,499
Merger costs.... 3,336,792 (3,336,792)(9) 0
----------- ---------- ---------- ----------- ----------- ----------- -----------
Operating income 1,799,819 (152,957) 210,227 (100,575) 3,336,792 8,819,669
(loss).......... 3,726,363
714,024 (7)
Interest (1,525,509) (7,243) (172,534) (1,267,642) (2,788,658)
(expense)
income.......... (529,754)(3)
Other income
(expense)....... 461,089 245,746 3,596 83,997 0 794,428
----------- ---------- ---------- ----------- ----------- ----------- -----------
Income (loss)
from continuing
operations
before income
taxes........... 735,399 85,546 41,289 (1,284,220) 3,910,633 3,336,792 6,825,439
659,633 (11)
(904,500)(9)
-----------
Income tax
expense......... 940,405 0 0 337,689 0 (244,710) 1,033,384
----------- ---------- ---------- ----------- ----------- ----------- -----------
Net income
(loss) from
continuing
operations...... $ (205,006) $ 85,546 $ 41,289 $(1,621,909) $ 3,910,633 $ 3,581,502 $ 5,792,055
=========== ========== ========== =========== =========== =========== ===========
Net income per
shares.......... $ 0.36
===========
Weighted avg #
of shares....... 15,904,446 (8)
===========
<CAPTION>
ADJUSTMENTS PRO FORMA
FROM OFFERING AS ADJUSTED
---------------- ---------------
<S> <C> <C>
Revenues........ $77,938,145
Cost of 54,538,977
revenues........
Selling, general
and
administrative
expenses........ 14,579,499
Merger costs.... 0
---------------- ---------------
Operating income 0 8,819,669
(loss)..........
0
Interest 2,386,618(10) (402,040)
(expense)
income..........
Other income
(expense)....... 794,428
---------------- ---------------
Income (loss)
from continuing
operations
before income
taxes........... 2,386,618 9,212,057
Income tax
expense......... 1,002,380(11) 2,035,764
---------------- ---------------
Net income
(loss) from
continuing
operations...... $ 1,384,238 $ 7,176,293
================ ===============
Net income per
shares.......... $ 0.35
===============
Weighted avg #
of shares....... 20,404,446(12)
===============
</TABLE>
F-6
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS
THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997 HAS
BEEN ADJUSTED TO REFLECT THE FOLLOWING:
(1) Reflects the acquisition of Waste Services, Inc. and affiliates and the
pending acquisitions of Golden Gate and Coney Island Rubbish Removal, Inc.
accounted for using the purchase method. Pursuant to the Purchase Agreements,
only property and equipment and intangible assets were acquired for
consideration of $16,951,416 in EESI stock, and the assumption of debt of
$9,226,963 and the recording of a purchase accounting reserve of $6,200,000.
The excess purchase price over the estimated fair value of the net assets
acquired is being amortized on a straight-line basis for forty (40) years from
the date of acquisition. The preliminary allocation of the purchase price is
as follows:
<TABLE>
<S> <C>
Property and equipment....................................... $ 1,936,000
Cost over fair value of net assets acquired.................. 29,642,329
Identifiable intangible assets............................... 800,000
-----------
$32,378,379
===========
</TABLE>
(2) To record the issuance of 4,500,000 shares of common stock offered in
connection with this offering at an assumed offering price of $15.125 per
share, and the application of the estimated net proceeds therefrom.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS
THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED JUNE 30, 1996 HAS BEEN ADJUSTED TO REFLECT THE FOLLOWING:
(1) To adjust depreciation and amortization expenses for the change in the
basis of property and equipment, net of historical depreciation and
amortization of Allied Environmental Services, Inc. and affiliates had the
purchase of the assets of Allied been completed July 1, 1995.
(2) To adjust depreciation, amortization expense and the provision for
closure and post-closure costs for the change in the basis of property,
equipment, landfill site costs and intangible assets, net of historical
depreciation, amortization, closure and post closure costs of R&A Bender, Inc.
and R&A Bender Property, Ltd. had the purchase of Bender been completed July
1, 1995.
(3) To eliminate intercompany administrative expenses and other intercompany
charges that, in the opinion of management, would not have been necessary to
operate Allied as a wholly owned subsidiary of Eastern Environmental Services,
Inc.
(4) To eliminate the loss on the write-off of certain intangible assets of
Allied and therefore, such intangible assets received a zero basis in purchase
accounting.
(5) For the purposes of determining pro forma earnings per share, the
issuance of 116,667, 1,114,800, 106,667, and 796,927 shares of common stock as
consideration for the purchase of assets of Allied, WSI, the stock of R&A
Bender, Inc., and to reflect the shares issued relating to the Apex merger,
respectively, were considered to have been outstanding from July 1, 1995.
(6) To reflect the decrease in Bender's selling, general and administrative
expenses consisting of contractual reductions to former owners' salaries of
$606,815, and for the termination of R&A Bender's pension plans of $349,083.
F-7
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION--(CONTINUED)
(7) To record additional interest expense of $1,168,191 from borrowings
under the Company's Revolving Credit Facility of $15,818,595 incurred to
consummate the acquisition of Bender, net of historical interest expense of
$113,115.
(8) To reflect the elimination of revenues and operating expenses relating
to certain operations of Bender not acquired by EESI.
(9) To reflect a reduction in WSI's selling, general, and administrative
salaries of employees terminated at the time of acquisition net of the
estimated cost of replacement employees.
(10) To adjust depreciation and amortization expense for the change in the
basis of equipment and intangible assets, and the change in the useful lives
and amortization period to conform to Company policies net of historical
depreciation and amortization which would have occurred had the acquisition of
WSI been completed at the beginning of the period.
(11) To reflect a reduction in interest expense of $1,311,073 resulting from
debt not acquired net of EESI interest on borrowings to finance acquisitions.
(12) The Company's pro forma effective tax provision is due to the
realization of federal net operating loss carryforwards and the reversal of
the related valuation allowance previously recorded. Excluding the effect of
the valuation allowance, pro forma income taxes would be approximately $1.75
million, or $.11 per share at an effective rate of 42%.
(13) Reduction in interest expense to reflect the use of proceeds of the
Offering to pay down the debt assumed to be outstanding of $39.8 million
resulting from the business combinations at an average interest rate of 8.0%.
(14) For the purpose of determining pro forma earnings per share as
adjusted, the issuance of 4,500,000 shares relating to this Offering were
considered to have been outstanding since July 1, 1995.
THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED MARCH 31, 1997 HAS BEEN ADJUSTED TO REFLECT THE FOLLOWING:
(1) To adjust depreciation and amortization expense and the provision for
closure and post closure costs for the change in the basis of property,
equipment, landfill site costs and intangible assets, net of historical
depreciation, amortization, closure and post closure costs of R&A Bender, Inc.
and R&A Bender Property, Ltd. ("Bender") had the purchase of Bender been
completed July 1, 1996.
(2) To reflect the decrease in Bender's selling, general and administrative
expenses consisting of a contractual reduction made to the former owners'
salaries of $706,807 and for the termination of Bender's pension plans of
$328,560.
(3) To record additional interest expense of $529,754 resulting from
borrowings under the Company's Revolving Credit Facility of $15,818,595
incurred to consummate the acquisition of R&A Bender, net of historical
interest expense of $38,291.
(4) To reflect the elimination of revenues and operating expenses relating
to certain operations of Bender not acquired by EESI.
(5) To reflect a reduction in WSI's selling, general, and administrative
salaries of employees terminated at the time of acquisition net of the
estimated cost of replacement employees.
F-8
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION--(CONTINUED)
(6) To adjust depreciation and amortization expense for the change in the
basis of equipment and intangible assets, net of historical depreciation and
amortization which would have occurred had the purchase of WSI been completed
at July 1, 1996.
(7) To reflect a reduction in interest expense of $714,024 resulting from
debt not acquired net of EESI interest on borrowings to finance acquisitions.
(8) For the purposes of determining pro forma earnings per share, the
issuance of 106,667 shares of common stock as partial consideration for the
purchase of the stock of R&A Bender, Inc., and 1,448,800 shares related to the
acquisition of WSI were considered to have been outstanding from July 1, 1996.
(9) To eliminate the effect of non-recurring merger costs relating to the
acquisitions of Super Kwik, Donno, and Apex of $3,336,792 and a tax provision
of $904,500 relating to the recording of a deferred tax liability with the
termination of Super Kwik, Donno, and Apex's previous S Corporation status at
the date of the merger.
(10) Reduction in interest expense to reflect the use of proceeds of this
Offering to pay down the balance outstanding at March 31, 1997 on the
revolving credit facility of $39,776,963 at an average interest rate of 8.0%.
(11) The Company's pro forma effective tax provision is after consideration
of the realization of federal net operating loss carryforwards and the
reversal of the related valuation allowance previously recorded. Excluding the
effect of the valuation allowance, pro forma taxes at an effective rate of 42%
would be $3.9 million, an increase of $1.8 million, or $.09 per share.
(12) For the purpose of determining pro forma earnings per share as
adjusted, the issuance of 4,500,000 shares relating to this Offering were
considered to have been outstanding since July 1, 1996.
F-9
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 3,906,902 $ 1,776,112
Accounts receivable, less allowance for doubtful
accounts of $1,519,000 and $604,000............ 7,694,765 3,349,159
Deferred income taxes........................... 1,568,000 372,445
Tax refund receivable........................... -- 74,467
Prepaid expenses and other current assets....... 2,173,656 1,698,753
------------ ------------
Total current assets.......................... 15,343,323 7,270,936
Property and equipment:
Land............................................ 4,166,178 236,517
Landfill sites.................................. 30,571,790 12,673,250
Buildings and leasehold improvements............ 6,441,336 2,098,512
Vehicles........................................ 15,623,804 11,806,417
Machinery and equipment......................... 15,098,307 7,553,325
Furniture and fixtures.......................... 1,390,761 1,485,868
------------ ------------
Total property and equipment.................. 73,292,176 35,853,889
Accumulated depreciation and amortization......... (19,120,447) (17,510,520)
------------ ------------
54,171,729 18,343,369
Assets held for resale............................ 395,059 859,262
Excess cost over fair market value of net assets
acquired, net of $663,000 and $440,000
accumulated amortization......................... 15,764,939 372,096
Other intangible assets, net of $3,344,000 and
$3,202,000 accumulated amortization.............. 1,720,740 662,685
Notes receivable from shareholders/officers....... 463,902 432,902
Other assets, (including $538,000 and $433,000 of
restricted cash on deposit for landfill closure
and insurance bonding)........................... 1,493,005 844,837
------------ ------------
TOTAL ASSETS.................................. $ 89,352,697 $ 28,786,087
============ ============
</TABLE>
F-10
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.............................. $ -- $ 595,000
Current maturities on long-term debt............... 1,285,312 773,702
Current maturities on capital lease obligations.... 1,445,100 1,240,358
Accounts payable................................... 3,835,667 3,559,131
Accrued expenses................................... 8,361,616 2,028,359
Income taxes payable............................... 45,880 57,739
Current portion of accrued landfill closure and
other environmental costs......................... 1,070,000 870,000
----------- -----------
Total current liabilities........................ 16,043,575 9,124,289
Deferred income taxes................................ 3,832,203 507,623
Long-term debt....................................... 31,736,086 3,534,716
Capital lease obligations--long-term................. 2,244,432 2,774,124
Accrued landfill closure and other environmental
costs............................................... 8,172,364 2,424,137
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares--50,000,000 Issued and
outstanding shares--14,095,834 and 9,523,785..... 140,958 95,238
Additional paid-in capital......................... 27,927,552 10,661,427
Retained earnings (deficit)........................ (668,214) (259,208)
----------- -----------
27,400,296 10,497,457
Less treasury stock at cost--39,100 common shares.. (76,259) (76,259)
----------- -----------
Total stockholders' equity........................... 27,324,037 10,421,198
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $89,352,697 $28,786,087
=========== ===========
</TABLE>
See accompanying notes.
F-11
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues............................................. $52,409,183 $29,020,986
Cost of revenues..................................... 38,026,625 23,666,269
Selling, general and administrative expenses......... 9,245,947 5,665,268
Merger costs--See Note 2............................. 3,336,792 --
----------- -----------
Operating income (loss).............................. 1,799,819 (310,551)
Interest expense..................................... (1,525,509) (416,590)
Other income......................................... 461,089 186,538
----------- -----------
Income (loss) before income taxes.................... 735,399 (540,603)
Income tax expense--See Note 3....................... 940,405 --
----------- -----------
Net loss............................................. $ (205,006) $ (540,603)
=========== ===========
Net loss per share................................... $ (.02) $ (.06)
=========== ===========
Weighted average number of shares outstanding........ 13,316,698 8,930,968
=========== ===========
</TABLE>
See accompanying notes.
F-12
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS TREASURY GRAND
STOCK CAPITAL (DEFICIT) STOCK TOTAL
-------- ----------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996
....................... $ 95,238 $10,661,427 $(259,208) $(76,259) $10,421,198
Exercise of common stock
options and warrants... 4,055 324,004 -- -- 328,059
Proceeds from sale of
2,670,000 shares of
common stock, less
commissions and
issuance expenses of
$724,248............... 26,700 9,929,052 -- -- 9,955,752
Common stock issued in
connection with
incorporation of Apex.. 7,970 3,242,030 -- -- 3,250,000
Common stock issued in
purchase acquisitions.. 6,970 3,751,064 -- -- 3,758,034
Common stock issued for
consulting services.... 25 19,975 -- -- 20,000
Cash dividends paid to
former stockholders of
Donno Co., Inc. and
affiliates............. -- -- (204,000) -- (204,000)
Net loss................ -- -- (205,006) -- (205,006)
-------- ----------- --------- -------- -----------
Balance at March 31,
1997................... $140,958 $27,927,552 $(668,214) $(76,259) $27,324,037
======== =========== ========= ======== ===========
</TABLE>
See accompanying notes.
F-13
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-------------------------
1997 1996
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss........................................... $ (205,006) $ (540,603)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization.................... 3,073,817 2,354,427
Provision for losses on receivables.............. 172,834 95,908
Landfill closure costs........................... 206,816 68,517
Deferred income taxes............................ 904,067 (13,349)
Gain on sale of property and equipment........... (136,353) (428)
Changes in operating assets and liabilities:
Accounts receivable.............................. (1,992,988) 28,718
Accounts payable................................. (1,955,278) (120,968)
Accrued expenses................................. 2,745,026 (307,912)
Income taxes payable............................. 62,608 75,680
Other............................................ 113,309 731,263
------------ -----------
Net cash provided by operating activities.......... 2,988,852 2,371,253
INVESTING ACTIVITIES
Proceeds from sale of property and equipment....... $ 268,727 $(2,075,914)
Acquisition of businesses, net of cash acquired.... (34,232,130) (122,500)
Development of landfill sites...................... (1,857,546) (1,624,597)
Purchase of property and equipment................. (3,660,007) (135,037)
Landfill closure and insurance bonding deposits.... (53,209) 146,021
Marketable securities.............................. -- 37,383
Increase in other assets........................... -- (66,883)
------------ -----------
Net cash used in investing activities.............. (39,534,165) (3,841,527)
FINANCING ACTIVITIES
Proceeds from revolving line of credit, long-term
debt and capital lease obligations................ 31,693,650 3,498,942
Payments on revolving line of credit, long-term
debt and capital lease obligations................ (6,316,358) (3,330,561)
Net payments on note payable to
shareholder/officer............................... (31,000) (42,457)
Proceeds from the incorporation of Apex............ 3,250,000 --
Net proceeds from issuance of common stock......... 10,283,811 861,824
Cash dividends paid to former stockholders of Donno
Company, Inc. and affiliates...................... (204,000) (153,000)
------------ -----------
Net cash provided by financing activities.......... 38,676,103 834,748
Net increase (decrease) in cash and cash
equivalents....................................... 2,130,790 (635,526)
Cash and cash equivalents at beginning of period... 1,776,112 2,972,188
------------ -----------
Cash and cash equivalents at end of period......... $ 3,906,902 $ 2,336,662
============ ===========
</TABLE>
See accompanying notes.
F-14
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Eastern Environmental Services, Inc. (the "Company")
and its subsidiaries, all of which are wholly-owned. All significant inter-
company accounts and transactions have been eliminated in consolidation. These
condensed financial statements reflect all adjustments (consisting of normal
recurring accruals), which in the opinion of management, are necessary for a
fair statement of results of operations for the interim periods presented. The
financial statements for the nine months ended March 31, 1996 reflect the
business combinations of Super Kwik and Donno, accounted for using the pooling
of interests method. The June 30, 1996 condensed consolidated balance sheet
was also restated to include the business combinations of Super Kwik and
Donno. The results of operations for the period ended March 31, 1997 are not
necessarily indicative of the operating results for the full year. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These interim financial statements should be read in
conjunction with the audited financial statements and notes contained in the
Company's Annual Report on Form 10-K for the year ended June 30, 1996.
2. BUSINESS COMBINATIONS
From July 2, 1996 to March 31, 1997, the Company expanded its waste
collection and hauling operations through the acquisition of nine businesses.
The aggregate of these business acquisitions is significant to the company.
Six of the nine acquisitions noted below were accounted for using the purchase
method of accounting, accordingly, assets acquired and liabilities assumed
have been recorded at their estimated fair value at the date of acquisition
and their results of operations are included in the accompanying combined
statements of operations since the date of acquisition. The excess of purchase
price over the estimated fair market value of identifiable net tangible assets
acquired is being amortized on a straight-line basis over forty (40) years
from the date of acquisition. The purchase price allocation is based on
preliminary estimates as of the acquisition date.
On July 2, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of Allied in exchange for 116,667 unregistered
shares of the Company's common stock. Allied was founded in 1991 and is in the
business of arranging for the transportation and disposal of soils and special
waste products.
On July 27, 1996, the Company purchased certain assets of K Hydraulics in
exchange for 33,333 unregistered shares of the Company's common stock. "K"
conducted a municipal solid waste collection business in Philadelphia,
Pennsylvania performing principally long-haul transportation of municipal and
other special wastes.
On August 1, 1996, the Company purchased the assets of Eastern Waste for
391,250 unregistered shares of the Company's common stock. Eastern Waste
conducts a municipal solid waste collection business in Philadelphia,
Pennsylvania.
On September 17, 1996, the Company purchased certain assets of Olney for
$410,000 in cash. Olney operates a municipal solid waste collection business
in the southeast Illinois market. The waste collected by Olney will be
disposed of at the Company's Illinois landfill upon construction.
On September 27, 1996, the Company completed its merger with Super Kwik and
approximately 2,308,176 unregistered shares of the Company's common stock were
issued in exchange for all outstanding shares of Super Kwik and 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 condensed consolidated financial statements
include the accounts of Super Kwik for all periods presented.
F-15
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. BUSINESS COMBINATIONS (CONTINUED)
On December 10, 1996, the Company completed the purchase of the stock of R&A
Bender, Inc. and certain real estate owned by R&A Bender Property, Ltd. ("R&A
Bender") for total consideration of approximately $17,484,000, including
106,667 unregistered shares of the Company's common stock. R&A Bender operates
a 278-acre Subtitle D municipal solid waste landfill and a waste collection
business in south central Pennsylvania. The collection operation includes over
25 collection vehicles and serves more than 24,000 customers. Waste collected
by the collection operation is disposed of in the landfill as well as a portion
of the special waste collected by the Company's existing long haul
transportation operations.
On January 31, 1997, the Company completed its merger with the Donno Company,
Inc., Suffolk Waste Systems, Inc. and Residential Services, Inc. and N.R.T.
Realty Corporation (collectively referred to as the "Donno Companies") with
1,137,951 unregistered shares of the Company's common stock 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 condensed consolidating
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 ("additional 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. The results of operations of Apex
have been included in the Company's condensed consolidated financial statements
since the date of inception of Apex.
Combined and separate results of operations of the Company, from Super Kwik,
Inc., the Donno Companies, and Apex Waste Services, Inc. for the restated
periods included in this report are as follows (in thousands):
<TABLE>
<CAPTION>
EASTERN SUPER
ENVIRONMENTAL KWIK, DONNO APEX WASTE
SERVICES, INC. INC. COMPANIES SERVICES, INC. ADJUSTMENTS(1) COMBINED
-------------- ------- --------- -------------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Nine months ended March
31, 1997
Revenues............... $17,265 $16,936 $9,564 $8,644 $ -- $52,409
Net income (loss)...... 26 2,846 537 627 (4,241) (205)
Nine months ended March
31, 1996
Revenues............... $ 5,714 $15,154 $8,153 $ -- $ -- $29,021
Net income (loss)...... (483) 87 (145) -- -- (541)
</TABLE>
<TABLE>
<CAPTION>
EASTERN
ENVIRONMENTAL DONNO APEX WASTE
SERVICES, INC. COMPANIES SERVICES, INC. ADJUSTMENTS COMBINED
-------------- --------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Six months ended
December 31, 1996
Revenues............... $21,984 $6,537 $4,376 $-- $32,897
Net income (loss)...... (845) 146 132 -- (567)
</TABLE>
- --------
(1) As discussed within this report, adjustments include merger costs relating
to the acquisition of Super Kwik, Inc., Donno Company, Inc., and Apex Waste
Services, Inc. of $1,148,000, $955,000, and $1,234,000 respectively, and a
tax provision of $660,000, $8,000, and $236,000 relating to the recording
of a deferred tax liability with respect to the termination of the Super
Kwik, Inc., the Donno Companies, and Apex Waste Services, Inc.,
respectively, on the previous S corporation elections at the date of the
merger.
F-16
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INCOME TAXES
The Company has recorded an income tax provision of $940,405 for the nine
months ended March 31, 1997. This provision is primarily related to the
completion of the mergers with Super Kwik, Inc., the Donno Companies and Apex.
Prior to the merger date, Super Kwik, Inc., the Donno Companies and Apex were
S Corporations for income tax reporting purposes. Effective as of the date of
the merger, the S Corporation elections were terminated. The Company has
recorded net deferred tax liabilities as of the date of the mergers resulting
in a cumulative income tax provision of approximately $904,865. The Company's
net deferred tax liability is attributable primarily to the differences
between the net book and tax bases of assets held as of the merger date. The
Company has recorded a nominal current tax provision due to the realization of
net operating loss carryforwards and the reversal of related deferred tax
reserves previously recorded.
4. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements.
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 receivable, and the Company's estimate of merger costs.
The Company reduced its estimate of accrued merger costs related to the Super
Kwik business combination by $708,000, or $.05 per share, during the three
months ended March 31, 1997.
5. 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.
6. SUBSEQUENT EVENTS
Subsequent to March 31, 1997 the Company acquired the assets of six (6)
waste hauling and collection companies and a waste transfer facility in
separate transactions. The Company issued approximately 465,000 unregistered
shares of the Company's stock, paid cash of approximately $3.6 million to the
sellers and assumed debt of approximately $7.2 million. These transactions
will be accounted for using the purchase method of accounting.
On May 12, 1997, the Company completed the acquisition of Waste Services,
Inc. and affiliates, accounted for using the purchase method. Pursuant to the
Purchase Agreement, property and equipment and intangible assets were acquired
for consideration consisting of 1,159,980 unregistered shares of the Company's
common stock and the assumption of approximately $6.2 million of debt. The
Company has accrued an obligation of $6.2 million as additional purchase price
which is contingent upon the resolution of certain events and is payable in
either cash or a future maximum issuance of 357,849 shares of the Company's
Common Stock. As part of this contingency, the Company also posted a Letter of
Credit in the amount of $2.6 million and agreed to pay up to $630,000 relating
to a debt WSI owed to one of its creditors. Such future payment is contingent
upon authorization from the New York City Trade Waste Commission or a court
having jurisdiction. The Company also closed on May 12, 1992 into Escrow 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. WSI, Golden Gate and
Coney Island are operated under common management control and provide
principally commercial waste collection services in Brooklyn, Queens, and Long
Island, New York. The acquisitions of Golden Gate and Coney Island will also
be accounted for under the purchase method of accounting.
F-17
<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, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended June 30, 1996. 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 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 44% in 1995, and
total revenues constituting 81% in 1996, 79% in 1995, and 77% in 1994 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 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, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended June 30, 1996, in conformity with generally accepted accounting
principles.
Philadelphia, Pennsylvania
May 13, 1997
F-18
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 1,776,112 $ 2,972,188
Accounts receivable, less allowance for doubtful
accounts of $604,000 and $600,000................... 3,349,159 3,422,000
Deferred income taxes................................ 372,445 168,186
Tax refund receivable................................ 74,467 152,871
Prepaid expenses and other current assets............ 1,698,753 1,728,149
----------- -----------
Total current assets............................... 7,270,936 8,443,394
Property and equipment:
Land................................................. 236,517 331,352
Landfill sites....................................... 12,673,250 10,804,589
Buildings and leasehold improvements................. 2,098,512 2,392,784
Vehicles............................................. 11,806,417 10,886,874
Machinery and equipment.............................. 7,553,325 8,264,117
Furniture and fixtures............................... 1,485,868 1,315,043
----------- -----------
Total property and equipment....................... 35,853,889 33,994,759
Accumulated depreciation and amortization.............. 17,510,520 16,882,942
----------- -----------
18,343,369 17,111,817
Assets held for sale................................... 859,262 517,659
Intangible assets, net of $3,642,000 and $3,391,000
accumulated amortization.............................. 1,034,781 1,145,428
Notes receivable from officers......................... 432,902 204,001
Other assets (including $433,000 and $545,000 of
restricted cash on deposit for landfill closure and
insurance bonding).................................... 844,837 876,899
----------- -----------
Total assets....................................... $28,786,087 $28,299,198
=========== ===========
</TABLE>
See accompanying notes.
F-19
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.............................. $ 595,000 $ 650,000
Accounts payable................................... 3,559,131 2,977,499
Accrued expenses and other current liabilities..... 2,028,359 1,161,367
Note payable to stockholder/officer................ -- 42,457
Income taxes payable............................... 57,739 59,506
Current portion of accrued landfill closure and
other environmental costs......................... 870,000 870,000
Current portion of long-term debt.................. 773,702 1,098,985
Current portion of capital lease obligations....... 1,240,358 1,131,924
----------- -----------
Total current liabilities........................ 9,124,289 7,991,738
Deferred income taxes................................ 507,623 325,152
Long-term debt, net of current portion............... 3,534,716 2,962,451
Capital lease obligations, net of current portion.... 2,774,124 2,197,430
Accrued landfill closure and other environmental
costs............................................... 2,424,137 1,082,246
Commitments and contingencies........................ -- --
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares--20,000,000
Issued and outstanding shares--9,523,785 and
6,614,231........................................ 95,238 66,142
Class A common stock (convertible to common stock),
$.01 par value:
Authorized shares--10,000,000
Issued and outstanding shares--0 and 1,591,201... -- 15,912
Additional paid-in capital......................... 10,661,427 9,312,941
Retained earnings (deficit)........................ (259,208) 4,421,445
----------- -----------
10,497,457 13,816,440
Less treasury stock at cost--39,100 common shares.. (76,259) (76,259)
----------- -----------
Total stockholders' equity....................... 10,421,198 13,740,181
----------- -----------
Total liabilities and stockholders' equity....... $28,786,087 $28,299,198
=========== ===========
</TABLE>
See accompanying notes.
F-20
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues................................ $39,519,173 $40,802,062 $37,314,442
Cost of revenues........................ 33,417,442 33,685,537 30,380,304
Selling, general, and administrative
expenses............................... 9,774,422 7,225,940 7,109,857
----------- ----------- -----------
Operating loss.......................... (3,672,691) (109,415) (175,719)
Interest expense........................ (629,009) (580,632) (371,918)
Other (expense) income.................. (130,640) 488,384 226,289
----------- ----------- -----------
Loss from continuing operations before
income taxes........................... (4,432,340) (201,663) (321,348)
Income tax benefit...................... (9,687) (147,093) (228,700)
----------- ----------- -----------
Loss from continuing operations......... (4,422,653) (54,570) (92,648)
Discontinued operations:
Gain on disposal of discontinued
operations, net of applicable income
taxes of $260,784.................... -- -- 525,309
----------- ----------- -----------
Net (loss) income....................... $(4,422,653) $ (54,570) $ 432,661
=========== =========== ===========
Earnings (loss) per share
Continuing operations................. $ (.49) $ (.01) $ (.01)
Discontinued operations............... -- -- .07
----------- ----------- -----------
$ (.49) $ (.01) $ .06
=========== =========== ===========
Weighted average number of shares
outstanding............................ 9,018,080 7,844,359 7,836,332
=========== =========== ===========
</TABLE>
See accompanying notes.
F-21
<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,
1993................... 6,284,231 1,591,201 $62,842 $15,912 $ 8,989,991 $5,066,354 $(76,259) $14,058,840
Net income............. -- -- -- -- -- 432,661 -- 432,661
Dividends declared and
paid to former Donno
Company, Inc. and
affiliates
stockholders.......... -- -- -- -- -- (369,000) -- (369,000)
--------- ---------- ------- ------- ----------- ---------- -------- -----------
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 declared and
paid to former Donno
Company, Inc. and
affiliates
stockholders.......... -- -- -- -- -- (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 declared and
paid to former Donno
Company, Inc. and
affiliates
stockholders.......... -- -- -- -- -- (258,000) -- (258,000)
--------- ---------- ------- ------- ----------- ---------- -------- -----------
Balance at June 30,
1996................... 9,523,785 -- $95,238 $ -- $10,661,427 $ (259,208) $(76,259) $10,421,198
========= ========== ======= ======= =========== ========== ======== ===========
</TABLE>
See accompanying notes.
F-22
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Loss from continuing operations........ $(4,422,653) $ (54,570) $ (92,648)
Adjustments to reconcile loss from
continuing operations to net cash
provided by operating activities of
continuing operations:
Depreciation and amortization........ 2,893,712 3,665,360 2,861,884
Provision for losses on receivables.. 304,496 300,481 203,893
Landfill closure costs............... 1,006,211 281,619 312,360
Non-cash severance and transition
costs............................... 740,827 -- --
Non-cash compensation expense........ 138,173 -- --
Deferred income taxes................ (21,788) (167,974) 19,573
Loss on write-down of assets held for
sale................................ 402,616 -- --
Loss (gain) on sale of property and
equipment........................... 52,490 (77,579) (21,946)
Changes in operating assets and
liabilities:
Accounts receivable................ (231,655) 749,534 (667,759)
Income taxes....................... 76,637 (53,165) 575,093
Other.............................. 910,770 454,049 132,943
Accounts payable................... 581,632 (384,252) 1,154,502
----------- ----------- -----------
Net cash provided by operating
activities of continuing operations... 2,431,468 4,713,503 4,477,895
Net cash provided by discontinued
operations............................ -- -- 1,533,360
INVESTING ACTIVITIES
Development of landfill sites.......... (1,868,661) (1,361,955) (3,836,701)
Proceeds from sale of property and
equipment............................. 225,309 362,235 532,758
Purchase of property and equipment..... (3,213,874) (3,633,556) (1,544,529)
Payments received on notes receivable.. (213,930) 197,428 234,119
Payments for intangible assets......... (122,500) (574,950) (92,500)
Landfill closure and insurance bonding
deposits.............................. 111,485 (18,145) 83,398
----------- ----------- -----------
Net cash used in investing activities.. (5,082,171) (5,028,943) (4,623,455)
FINANCING ACTIVITIES
Proceeds from revolving line of credit,
long term debt and capital lease
obligations........................... 3,801,500 4,916,792 2,523,142
Payments on revolving line of credit,
long term debt and capital lease
obligations........................... (3,408,086) (3,235,517) (3,711,181)
Net (payments) borrowings on note
payable to shareholder/officer........ (42,457) 42,457 --
Proceeds from issuance of common stock,
less expenses of $83,176 and $0....... 1,361,670 326,250 --
Dividends paid to former stockholders
of Donno Company, Inc. and
affiliates............................ (258,000) (654,000) (369,000)
----------- ----------- -----------
Net cash provided by (used in)
financing activities.................. 1,454,627 1,395,982 (1,557,039)
----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents...................... (1,196,076) 1,080,542 (169,239)
Cash and cash equivalents at beginning
of year............................... 2,972,188 1,891,646 2,060,885
----------- ----------- -----------
Cash and cash equivalents at end of
year.................................. $ 1,776,112 $ 2,972,188 $ 1,891,646
=========== =========== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Eastern Environmental Services, Inc. (the Company) and its subsidiaries, all
of which are wholly owned. All significant intercompany accounts and
transactions have been eliminated in consolidation. The Company has restated
the previously issued financial statements to include the combined accounts of
Super Kwik, Inc. and Waste Management Services, Inc. (collectively referred to
as Super Kwik) which was acquired on September 27, 1996, and the combined
accounts of Donno Company, Inc. and affiliates (Donno) which was acquired on
January 31, 1997. Both transactions were accounted for under the pooling of
interest method.
DESCRIPTION OF BUSINESS
Eastern Environmental Services, Inc. (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.
Landfill site costs include expenditures for acquisition of land and related
airspace, in addition to, engineering, permitting, legal, and certain direct
site preparation costs which management believes are recoverable. Landfill
site costs for facilities currently in use are generally depreciated based
upon consumed airspace using the unit-of-production method of airspace filled
during the fiscal year in relation to estimates of total available airspace.
Annually, the Company prepares topographic analyses of the sites, using
various survey techniques to confirm airspace utilization during the current
year and remaining capacity. Engineering, legal, and other costs associated
with the expansion of permitted capacity of existing sites are deferred until
receipt of all necessary operating permits. Such costs are capitalized and
amortized after receipt of the necessary operating permits. The Company
reviews the realization of landfill development projects on a periodic basis.
The portion of landfill sites currently under development for future expansion
and thus excluded from depreciation totaled $2,701,000 and $1,341,000 at June
30, 1996 and 1995, respectively.
The Company capitalizes interest costs as part of the cost of developing
landfill sites and constructing disposal space. Interest costs of $84,000,
$48,000 and $139,000 were capitalized in fiscal 1996, 1995, and 1994,
respectively.
Depreciation expense includes depreciation recognized as assets under
capitalized lease obligations.
F-24
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist principally of goodwill, noncompete agreements, and
waste collection and hauling contracts acquired in the acquisition of landfill
sites and waste collection operations. Goodwill, noncompete agreements, and
waste collection and hauling contracts are currently being amortized over a
period of five to fifteen years. Amortization of intangible assets was
$232,000, $305,000 and $316,000 in 1996, 1995, and 1994, 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 value of the future obligation associated
with maintaining and monitoring the landfill for generally a 30-year period
subsequent to the closure of the landfill. The Company estimates the future
cost of closure and post-closure costs based on its interpretation of the U.S.
Environmental Protection Agency's Subtitle D technical standards. The Company
periodically updates its estimates of future closure and post-closure costs
with the impact of changes in estimates accounted for on a prospective basis.
The Company recognizes these costs 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 is 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 $21,500, $109,420, and $267,237 and financed insurance premiums of
$462,196, $458,387 and $309,575 for fiscal years 1996, 1995, and 1994,
respectively. In fiscal 1996 and 1994, the Company also sold property and
equipment in exchange for a note receivable of $39,500 and $449,236,
respectively.
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.
EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of
common shares outstanding including the effect of stock options and warrants,
if dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, investments in closure trust funds, trade
payables and debt instruments. The book value of cash and cash equivalents,
trade receivables, investments in closure trust funds and trade payables are
considered to be representative of their respective fair values. The carrying
value of the Company's long-term debt is similar to fair value based on current
rates and terms.
F-25
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The Company will adopt SFAS 121 in the first quarter of
fiscal 1997 and, based upon current circumstances, does not believe the effect
of the adoption will be material.
SFAS No. 123, "Accounting for Stock-Based Compensation," is effective for
fiscal years beginning after December 15, 1995. SFAS 123 provides companies
with a choice to follow the provisions of SFAS 123 in determining stock-based
compensation expense or to continue with the provisions of APB 25, "Accounting
for Stock Issued to Employees." The Company expects to continue to follow APB
25 with respect to its Stock Option Plans and will provide proforma
disclosures as required by SFAS 123 in the June 30, 1997 notes to the
financial statements.
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.
2. ACQUISITIONS
On September 27, 1996, the Company completed its merger with Super Kwik,
Inc. and issued 2,308,176 shares of the Company's common stock in exchange for
all of the outstanding shares of Super Kwik, Inc.
On January 31, 1997, the Company completed its merger with Donno and issued
1,137,951 shares of the Company's common stock in exchange for all of the
outstanding shares of Donno.
F-26
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITIONS (CONTINUED)
The Super Kwik and Donno acquisitions were both accounted for under the
pooling of interest method, accordingly the consolidated financial statements
have been restated to include the consolidated accounts of Super Kwik and
Donno for all periods presented. Revenues and income (loss) from continuing
operations of the separate companies for the periods preceding the
acquisitions were as follows:
<TABLE>
<CAPTION>
INCOME (LOSS)
FROM CONTINUING
REVENUES OPERATIONS
----------- ---------------
<S> <C> <C>
Year ended June 30, 1996
Eastern Environmental Services, Inc. ............. $ 7,632,503 $(3,500,043)
Super Kwik, Inc. ................................. 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, Inc. ................................. 18,865,547 541,287
Donno............................................. 13,285,570 951,693
----------- -----------
Combined.......................................... $40,802,062 $ (54,570)
=========== ===========
Year ended June 30, 1994
Eastern Environmental Services, Inc. ............. $ 8,480,955 $ (722,973)
Super Kwik, Inc. ................................. 16,000,394 219,293
Donno............................................. 12,833,093 411,032
----------- -----------
Combined.......................................... $37,314,442 $ (92,648)
=========== ===========
</TABLE>
Super Kwik and Donno 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.
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,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year...................... $600,000 $445,000 $301,000
Additions (charged to expense).................... 304,000 300,000 204,000
Deductions........................................ (300,000) (145,000) (60,000)
-------- -------- --------
Balance at end of year............................ $604,000 $600,000 $445,000
======== ======== ========
</TABLE>
F-27
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1995
---------- ----------
<S> <C> <C>
Insurance.............................................. $ 398,391 $ 617,307
Landfill deposits...................................... 341,522 325,382
Non-trade receivables.................................. 112,722 308,475
Performance bonds...................................... 121,811 86,344
Other.................................................. 724,307 390,641
---------- ----------
$1,698,753 $1,728,149
========== ==========
</TABLE>
5. SHORT-TERM BORROWINGS
The Company has a demand loan with a maximum credit line of $750,000 that
expires on June 15, 1997. Interest on the outstanding balance accrues at 9.5%
per annum. Outstanding borrowings on this line at June 30, 1996 were $345,000.
This credit facility was paid off subsequent to June 30, 1996.
The remaining $250,000 included in short-term borrowings on the balance sheet
is a note payable to the Bank of New York. This note matures in October 1996
and bears interest at the rate of 5.2%.
6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
The Company has a $1,500,000 secured revolving credit facility with
CoreStates Bank, N.A. (CoreStates or the Bank), that provides for working
capital, equipment purchases and performance letters of credit.
Borrowings under the revolving credit facility are limited to the Company's
qualified trade accounts receivable as defined in the credit agreement less
outstanding performance letters of credit. Interest is payable monthly at the
Bank's prime rate plus 1/4%. The weighted average interest rate was 9.70% and
9.32% in fiscal 1996 and 1995, respectively. Performance letters of credit
outstanding in the amount of $921,000 reduced the borrowing capacity under the
revolving credit facility to $579,000 at June 30, 1996. Borrowings outstanding
on the revolving credit facility at June 30, 1996, were $237,500.
The Company is required to pay quarterly a fee at an annual rate of 1/2% of
the average daily unused amount of the revolving credit facility.
The CoreStates credit arrangement contains warranties and financial covenants
to maintain certain levels of working capital and tangible net worth; to meet
certain fixed charge, leverage, and cash flow ratios; and to attain certain
quarterly performance levels. In addition, the credit arrangement requires the
Company to follow certain written approval procedures for borrowing under the
Company's secured revolving credit facility and imposes restrictions on capital
expenditures based upon the Company's cash flow from operations and the
liquidation of certain assets the Company holds for sale.
The CoreStates credit arrangement is secured by first mortgage liens on
certain mortgaged properties and a pledge by the Company of all of the issued
and outstanding capital stock of certain of its landfill subsidiaries.
The Company has a four-year secured term loan with First Union National Bank,
N.A. ("First Union") which provides for borrowings up to $1,350,000. The term
loan is payable in equal monthly principal installments through September 1999,
plus interest at a fixed rate of 7.03%, and is secured by a first lien security
F-28
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
interest in certain equipment and vehicles of the Company. The agreement
contains certain affirmative and negative covenants similar to those of the
CoreStates credit arrangement including requirements to maintain certain
levels of tangible net worth, certain debt coverage and working capital
ratios.
On September 25, 1996, the Company entered into a new revolving credit
facility with two major banks, the Bank of Boston and Bank of America, 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
$16,000,000 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 three years from the anniversary date of its
closing. The revolving credit facility, among other conditions, requires the
payment of a 3/8 of 1% commitment fee 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 balance of the CoreStates Bank, N.A. revolving credit
facility, and the note payable to First Union National Bank. Accordingly,
certain debt has been classified as long-term to reflect the term of the new
credit facility.
Debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1995
---------- ----------
<S> <C> <C>
CoreStates Bank, N.A. revolving credit facility,
refinanced in September 1996............................ $ 237,500 $ --
Note payable to First Union National Bank in monthly
installments of $28,125 plus interest at 7.03%,
refinanced in September 1996............................ 1,096,875 --
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.............................................. 1,608,287 2,440,919
Installment loan that bears interest at 6% and is being
repaid in monthly installments of $11,600 through
February 2000, decreasing to $6,283 per month through
February 2005........................................... 772,359 881,525
Machinery and equipment notes payable, secured by
equipment, with various maturities payable through April
2000, interest rates ranging from 9.25% to 12%, payable
monthly in installments ranging from $599 to $13,225.... 4,419,006 3,837,358
Other.................................................... 188,873 230,988
---------- ----------
8,322,900 7,390,790
Less current portion..................................... 2,014,060 2,230,909
---------- ----------
$6,308,840 $5,159,881
========== ==========
</TABLE>
F-29
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. 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,
---------------------
1996 1995
---------- ----------
<S> <C> <C>
Cost............................................... $3,677,649 $1,994,490
Accumulated depreciation........................... 659,828 197,099
---------- ----------
$3,017,821 $1,797,391
========== ==========
</TABLE>
Maturities of long-term debt are as follows: 1997--$2,014,000; 1998--
$1,898,000; 1999--$1,158,000; 2000--$2,364,000; 2001 and thereafter--$889,000.
Interest paid on all indebtedness was $699,000, $582,000, and $520,000 for
fiscal 1996, 1995, and 1994, respectively.
7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1995
---------- ----------
<S> <C> <C>
Accrued compensation.................................. $ 417,631 $ 104,075
Workers' compensation................................. 117,382 67,981
Damage claims......................................... 277,609 187,000
Accrued professional fees............................. 165,500 46,138
Miscellaneous taxes................................... 112,941 214,108
Operating loss accrual................................ -- 170,000
Accrued severance costs............................... 583,832 --
Accrued transition costs.............................. 97,000 --
Other................................................. 256,464 372,065
---------- ----------
$2,028,359 $1,161,367
========== ==========
</TABLE>
8. ACCRUED LANDFILL CLOSURE AND OTHER ENVIRONMENTAL COSTS
The Company owns three solid waste landfills, all of which are permitted and
two 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. As of June 30, 1996, the Company estimates that the costs of
final closure of the currently permitted and operating areas at the Company's
three landfills will be approximately $5,893,000, of which $1,886,000 has been
accrued as of June 30, 1996. The Company estimates that the costs of post-
closure monitoring of groundwater and methane gas and other required
maintenance procedures for the currently permitted and expansion areas will
approximate $27,000--$120,000 per year for 30 years after closure at each of
the Company's two municipal solid waste accepting facilities and $10,000 per
year for 30 years after closure
F-30
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. ACCRUED LANDFILL CLOSURE AND OTHER ENVIRONMENTAL COSTS (CONTINUED)
at the Company's industrial landfill site. The Company has accrued $1,073,000
for post-closure obligations as of June 30, 1996.
Funding of closure and post-closure obligations are estimated as follows:
1997--$870,000; 1998--$722,000; 1999--$0; 2000--$0; 2001 and thereafter--
$9,100,000.
The Company maintains a bonding facility pursuant to certain statutory
requirements regarding financial assurance for the closure and post-closure
monitoring cost requirements for its Kentucky and West Virginia disposal
facilities. Bonds outstanding at June 30, 1996, total $1,322,000 and $315,000,
as closure and post-closure financial assurance, respectively, for the
Company's Kentucky landfill and $214,000 as closure financial assurance for
the Company's West Virginia facility. The bonds are collateralized by
irrevocable letters of credit of $626,000 and trust fund deposits of $120,000.
Additionally, the Company has on deposit $196,000 as financial assurance for
landfill closure and post-closure for the closed disposal area of its West
Virginia disposal facility. The trust fund and cash deposits are restricted
from current operations and are included within other noncurrent assets.
9. COMMON STOCK AND STOCK PLANS
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, 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 to expire on the earlier of June 20, 1997 or the
date upon which Mr. Skuba disposes of such remaining shares.
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 of
stock contain warrants to purchase a total of 525,000 additional shares of
common stock at an exercise price of $1.50 per share expiring three years from
the date of grant. As of June 30, 1996, 150,000 of these warrants have been
exercised. The Company registered these securities in February of 1996.
The Company's Stock Option Plans provide for the grant of incentive stock
options or non-qualified stock options to directors, officers or employees of
the Company. Under the Option Plans, as amended, 700,000 shares are reserved
effective January 1, 1991, for issuance upon the exercise of such options.
Incentive stock options have an exercise price of at least 100% of the fair
market value of the common stock at the date of grant (or 110% of fair market
value in the case of employees or officers holding ten percent or more of the
voting stock of the Company). Non-qualified options have an exercise price of
not less than 90% of the fair market value of the common stock at the date of
grant. The options generally expire five years from the date of grant and are
generally exercisable after two years based upon graduated vesting schedules.
F-31
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. COMMON STOCK AND STOCK PLANS (CONTINUED)
In August 1996, the Company's stockholders approved the 1996 Stock Option
Plan providing for the granting of incentive stock options or non-qualified
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. Non-qualified options have an exercise price which is determined by the
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. 575,000
options have been granted under this Plan (subject to stockholders' approval)
as of June 30, 1996.
Options outstanding have been granted to officers and employees to purchase
common stock at prices ranging from $.87 to $8.00 per share. A summary of the
option transactions are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1996 1995 1994
----------- ------- --------
<S> <C> <C> <C>
Options outstanding, beginning of period...... 366,900 417,200 482,800
Options granted............................... 687,433 20,000 45,000
Options exercised............................. (140,000) (30,000) --
Exercise price................................ $.87--$1.87 $.87 --
Options canceled.............................. (1,000) (40,300) (110,600)
----------- ------- --------
Options outstanding, end of period............ 913,333 366,900 417,200
=========== ======= ========
Options exercisable........................... 338,333 350,650 337,450
=========== ======= ========
Options available for grant................... 2,113,667 300,100 279,800
=========== ======= ========
</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 common shares at a purchase price of 85% of the fair
market value at the date of purchase. A total of 450,000 common shares are
reserved under the Employee Plans. At June 30, 1996, 27,311 shares have been
issued under these plans.
At June 30, 1996, the Company has 500,250 warrants outstanding and
exercisable to purchase shares of Common Stock. Terms of warrants have been
established by the Board of Directors prices between $.87 and $3.56 expiring
at various dates through 2001.
F-32
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES
At June 30, 1996, the Company has net operating loss carryforwards for
federal and state income tax purposes of $4,365,000 and $15,000 respectively,
that expire through 2011. However, due to a change in control, these net
operating loss carryforwards may be limited for federal and state income tax
purposes. For financial reporting purposes, a valuation allowance has been
recognized to offset the deferred tax assets related to those carryforwards as
realization is not assumed.
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,
-----------------------
1996 1995
----------- ----------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation.......................... $ (629,024) $ (624,511)
Other, net.......................................... (123,583) (113,507)
----------- ----------
Total deferred tax liabilities.................... (752,607) (738,018)
Deferred tax assets:
Allowance for doubtful accounts..................... 158,915 176,810
Discontinued operations accrual..................... -- 68,260
Reserve for loss on assets held for sale............ 255,933 122,767
Net operating loss carryforwards.................... 1,484,833 642,216
AMT credit.......................................... 24,376 24,376
Reserve for severance and transition costs.......... 269,232 --
Other, net.......................................... 68,140 36,623
----------- ----------
Total deferred assets............................. 2,261,429 1,071,052
Valuation allowance for deferred tax assets........... (1,644,000) (490,000)
----------- ----------
Net deferred tax assets............................... 617,429 581,052
----------- ----------
Net deferred tax liabilities.......................... $ (135,178) $ (156,966)
=========== ==========
</TABLE>
Significant components of the provision for income taxes (benefit)
attributable to continuing operations are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- ---------
<S> <C> <C> <C>
Current
Federal...................................... $ -- $ -- $(309,317)
State........................................ 12,101 20,881 61,044
-------- --------- ---------
12,101 20,881 (248,273)
Deferred
Federal...................................... -- (66,052) 177,955
State........................................ (21,788) 37,188 4,724
Operating loss carryforward.................. -- (139,110) (163,106)
-------- --------- ---------
(21,788) (167,974) 19,573
-------- --------- ---------
Provision for income taxes (benefit)......... $ (9,687) $(147,093) $(228,700)
======== ========= =========
</TABLE>
F-33
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES (CONTINUED)
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense is:
<TABLE>
<CAPTION>
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
Tax at U.S. statutory rates............... $(1,190,015) $(608,505) $(346,369)
State income taxes, net of federal tax
benefit.................................. (9,687) 70,652 50,983
Nondeductible amortization................ 24,918 24,918 24,918
Valuation allowance for deferred tax
assets................................... 1,154,000 340,000 --
Other..................................... 11,097 25,842 41,768
----------- --------- ---------
Provision for income taxes (benefit)...... $ (9,687) $(147,093) $(228,700)
=========== ========= =========
</TABLE>
Net income tax refunds (payments) received in fiscal 1996, 1995, and 1994
were $64,000, $(14,000), and $840,000, 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 noncancellable lease terms in
excess of one year as of June 30, 1996, are as follows: 1997--$335,000, 1998--
$316,000, 1999--$199,000, 2000--$152,000, and 2001--$81,000. Total rental
expense relating to continuing operations under operating leases was
approximately $353,000, $411,000, and $388,000 for fiscal 1996, 1995, and
1994, respectively.
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, 1996, the Company has accrued for certain 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 evaluation. 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
combined financial position of the Company.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material effect on the Company's
consolidated financial position or results of operations.
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 $1.1 million. 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 $2,692,000 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 as a valuation allowance for
possible impairments of
F-34
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. UNUSUAL OPERATING COSTS (CONTINUED)
this asset as the Company is working on finalizing the draft permit which is
currently being adjudicated. Additionally, charges totaling approximately
$879,000 were charged to selling, general and administrative expenses relating
to the change in control of the Company. Of the $879,000 charge; $672,000
relates to recorded severance costs; $97,000 reflects management's estimate of
various transition costs in moving the Company's corporate offices; and
$110,000 relates to certain legal and other professional costs incurred in
completing the transaction. Additionally, in the fourth quarter, management
refined its estimates of necessary reserves against past due receivables,
outstanding contingencies, and deferred acquisitions costs and increased such
reserves by $221,000 $133,000, and $70,000, respectively. Finally, 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.
Unusual operating costs of $532,000 were included in the fourth quarter of
fiscal 1995 results of operations. A total charge to cost of revenues of
$339,000 relates to the Company's cessation of waste acceptance at the Kentucky
landfill on June 30, 1995, and the Company's decision to simultaneously permit
and operate a waste transfer facility to continue to service the waste needs of
the local host county under the ten-year waste disposal franchise agreement
previously awarded to the Company expiring in the year 2002. Of the $339,000 of
unusual operating costs, $150,000 reflects the Company's estimate of operating
losses at the Kentucky facility through fiscal 1996, while the first disposal
cell is constructed following approval of the expansion permit, and $189,000
reflects a noncash charge to write-off remaining capitalized costs relating to
a disposal cell closed on June 30, 1995.
Additionally, a charge of $78,000 was recorded in the fourth quarter of
fiscal 1995 to reduce the remaining net assets of All Waste Refuse Services,
Inc. (AWRS), the Company's waste collection business located in Beaufort
County, South Carolina, to their estimated net realizable value at June 30,
1995. The $78,000 charge includes a write-down of $58,000 for certain operating
assets, receivables, and supplies inventory and the establishment of a reserve
at June 30, 1995, for anticipated operating loss on final divestiture of assets
of $20,000. During fiscal 1995, the Board of Directors of the Company made a
decision to exit the local hauling business in Beaufort County as a result of
limited integration with the Company's landfill operation and continued
operating losses resulting from significant competitive pressures. The majority
of the operating assets of AWRS were sold in fiscal 1995 through several asset
sale transactions.
Also in 1995, the Company refined its estimate of necessary reserves against
past due receivables resulting in a charge to operations of $118,000.
13. RELATED PARTY TRANSACTIONS
In connection with the consummation of the Stock Purchase Agreement (see Note
9), the Company entered into a series of agreements with Mr. Skuba, including a
Severance Agreement dated June 20, 1996, with an aggregate of $259,600 of
compensation. The Company also entered into an agreement of sale with Mr. Skuba
for certain real estate and equipment of the Company. The Company has recorded
a reserve for the estimated loss on the sale of these assets of $156,000.
The Company has entered into an agreement in June 1996 to lease office space
from a company that is controlled by one of the directors 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 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 $590,000, $414,000, and $320,000 for the fiscal years ended June
30, 1996, 1995, and 1994, respectively.
F-35
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. RELATED PARTY TRANSACTIONS (CONTINUED)
During 1995, the Company entered into a joint venture with Resource N.E. of
Long Island, Inc. to bid on and service municipal contracts. The resulting
entity operates under the name of Residential Services of Suffolk. The Company
holds a one third interest in this joint venture, and the amount of the
Company's investment is included in other assets on the balance sheet. Gross
annual billings for these contracts will approximate $1,601,000.
The notes receivable from officers are non-specific as to payment terms. The
interest rate on these loans was 6% at June 30, 1996, and 8% at June 30, 1995.
14. SUBSEQUENT EVENTS
Subsequent to June 30, 1996, the Company acquired the assets of six
different companies in separate transactions. Four of these companies are
engaged in the waste hauling and transportation business while one company
operates a landfill. The Company issued a total of 587,254 unregistered shares
of the Company's common stock, paid cash of $920,000, and assumed certain
liabilities and debt to effect the six separate transactions. Each of these
transactions will be accounted for using the purchase method of accounting.
Additionally, on December 10, 1996, the Company completed the purchase of
the stock of R&A Bender, Inc. and certain real estate owned by R&A Bender
Property, Ltd. (R&A Bender) for total consideration of approximately
$17,484,000 including 106,667 unregistered shares of the Company's common
stock. R&A Bender operates a 278-acre Subtitle D municipal solid waste
landfill and a waste collection business in south central Pennsylvania. The
collection operation includes over 25 collection vehicles and serves more than
24,000 customers. Waste collected by the collection operation is disposed of
in the landfill, as well as a portion of the special waste collected by the
Company's existing long-haul transportation operations. This transaction will
be accounted for using the purchase method of accounting.
On March 31, 1997, the Company acquired all of the stock of a commercial,
municipal and residential waste collection and recycling operation (Apex Waste
Services, Inc. which began business on October 1, 1996) in exchange for
approximately 797,000 shares of the Company's common stock. This combination
is anticipated to be accounted for using the pooling of interests method of
accounting.
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.
Additionally, subsequent to June 30, 1996, the Company increased its
authorized shares of common stock from 20,000,000 to 50,000,000 shares.
Subsequent to March 31, 1997 the Company acquired the assets of six (6)
waste hauling and collection companies and a waste transfer facility in
separate transactions. The Company issued approximately 465,000 unregistered
shares of the Company's stock, paid cash of approximately $3.6 million to the
sellers and assumed debt of approximately $7.2 million. These transactions
will be accounted for using the purchase method of accounting.
F-36
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. SUBSEQUENT EVENTS (CONTINUED)
Additionally on May 12, 1997, the Company completed the acquisition of Waste
Services, Inc. and affiliates, accounted for using the purchase method.
Pursuant to the Purchase Agreement, property and equipment and intangible
assets were acquired for consideration consisting of 1,159,980 unregistered
shares of the Company's common stock and the assumption of approximately $6.2
million of debt. The Company has accrued an obligation of $6.2 million as
additional purchase price which is contingent upon the resolution of certain
events and is payable in either cash or a future maximum issuance of 357,849
shares of the Company's Common Stock. As part of this contingency, the Company
also posted a Letter of Credit in the amount of $2.6 million and agreed to pay
up to $630,000 relating to a debt WSI owed to one of its creditors. Such
future payment is contingent upon authorization from the New York City Trade
Waste Commission or a court having jurisdiction. The Company also closed on
May 12, 1992 into Escrow 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. WSI,
Golden Gate and Coney Island are operated under common management control and
provide principally commercial waste collection services in Brooklyn, Queens,
and Long Island, New York. The acquisitions of Golden Gate and Coney Island
will also be accounted for under the purchase method of accounting.
F-37
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PRO-
SPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDER-
WRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITA-
TION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK
TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AF-
FAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 3
Incorporation of Certain Documents by Reference.......................... 4
Prospectus Summary....................................................... 5
Risk Factors............................................................. 8
The Company.............................................................. 19
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 20
Price Range of Common Stock.............................................. 21
Capitalization........................................................... 22
Dilution................................................................. 23
Selected Consolidated Financial Data..................................... 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 26
Business................................................................. 32
Management............................................................... 50
Certain Transactions..................................................... 52
Principal Stockholders................................................... 54
Description of Capital Stock............................................. 56
Shares Eligible for Future Sale.......................................... 59
Underwriting............................................................. 61
Legal Matters............................................................ 62
Experts.................................................................. 63
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,500,000 SHARES
EASTERN ENVIRONMENTAL SERVICES, INC.
COMMON STOCK
[LOGO]
-------
PROSPECTUS
, 1997
-------
SMITH BARNEY INC.
OPPENHEIMER & CO., INC.
SANDERS MORRIS MUNDY
PACIFIC GROWTH EQUITIES, INC.
VAN KASPER & COMPANY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses of the issuance and
distribution of the securities being registered hereby, all of which are being
borne by the Company.
<TABLE>
<S> <C>
SEC registration fee................................................ $22,543
NASD filing fee..................................................... 8,165
Nasdaq National Market listing fee..................................
Legal fees and expenses.............................................
Accounting fees and expenses........................................
Printing expenses...................................................
Blue sky filing and counsel fees and expenses.......................
Transfer agent and Registrar fees and expenses......................
Miscellaneous expenses..............................................
-------
Total............................................................. $
=======
</TABLE>
- --------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides, in general, that a corporation incorporated under the laws
of the State of Delaware, such as the Company, may indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding (other than an action by or
in the right of the corporation) by reason of the fact that such person is or
was a director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee, or
agent of another enterprise, against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit, or proceeding if
such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe such person's conduct was unlawful. In the case of an action
by or in the right of the corporation, a Delaware corporation may indemnify
any such person against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that
the court determines upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses.
Article Tenth, Paragraph (a) of the Certificate of Incorporation provides
that each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit, or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Company or is or was
serving at the request of the Company as a director, officer, employee, or
agent of another company or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
or not the basis of such proceeding is alleged action in an official capacity
as a director, officer, employee, or agent, or in any other capacity while
serving as a director, officer, employee, or agent, shall be indemnified and
held harmless by the Company to the fullest extent authorized by the DGCL, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment
II-1
<PAGE>
permits the Company to provide broader indemnification rights than said law
permitted the Company to provide prior to such amendment), against all
expense, liability, and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith. Such
indemnification continues as to a person who has ceased to be a director,
officer, employee, or agent or in any other capacity while serving as a
director, officer, employee, or agent and inures to the benefit of his or her
heirs, executors, and administrators; provided, however, that except as
provided in Paragraph (b) of the Article Tenth (described below), the Company
shall indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the board of directors of the Company.
Article Tenth Paragraph (a) further provides that such right to
indemnification shall be a contract right and shall include the right to be
paid by the Company the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the DGCL
requires, the payment of such expenses incurred by a director or officer (in
his or her capacity as a director or officer and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding shall be made only upon delivery to
the Company of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under the Certificate of
Incorporation or otherwise. The Company may, by action of its Board of
Directors, provide indemnification to employees and agents of the Company with
the same scope and effect as the foregoing indemnification of directors and
officers. The foregoing right to indemnification and advancement of expenses
is not exclusive.
Article Tenth, Paragraph (b) of the Certificate of Incorporation provides
further that if a claim described under Paragraph (a) of Article Tenth is not
paid in full by the Company within thirty days after a written claim has been
received by the Company, the claimant may at any time thereafter bring suit
against the Company to recover the unpaid amount of the claim and, if
successful, in whole or in part, the claimant shall be entitled to be paid
also the expense of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred
in defending any proceeding in advance of its final disposition where the
required undertaking, if any is required, has been tendered to the Company)
that the claimant has not met the standards of conduct which make it
permissible under the DGCL for the Company to indemnify the claimant for the
amount claimed, but the burden of providing such defense shall be on the
Company. Neither the failure of the Company (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant
is proper in the circumstances because he or she has met the applicable
standard of conduct set forth in the DGCL, nor an actual determination by the
Company (including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
As permitted by Article Eleventh of the Certificate of Incorporation and
Section 145(g) of the DGCL, the directors and officers of the Company and its
subsidiaries are covered by policies of insurance under which they are
insured, within limits and subject to certain limitations, against certain
expenses in connection with the defense of actions, suits or proceedings, and
certain liabilities which might be imposed as a result of such actions, suits
or proceedings, in which they are parties by reason of being or having been
directors or officers; the Company is similarly insured, with respect to
certain payments it might be required to make to its directors or officers
under the applicable statutes and its charter provisions.
Reference is also made to the indemnification provisions of the Underwriting
Agreement to be filed as Exhibit 1 and to the first undertaking contained in
Item 17 of this Registration Statement.
II-2
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
<C> <S> <C>
1 Form of Underwriting Agreement.......... (1)
4.1 Certificate of Incorporation............ (2)(Exh. 3.1, pp. 2-4)
4.2 Bylaws.................................. (2)(Exh. 3.3, pp. 1-6, 8)
5 Opinion of Drinker Biddle & Reath LLP
regarding legality of securities being
registered............................. (3)
23.1 Consent of Ernst & Young LLP............ (1)
23.2 Consent of B. J. Klinger & Co. P.C. .... (1)
23.3 Consent of BDO Seidman, LLP............. (1)
23.4 Consent of Bardall, Weintraub P.C. ..... (1)
23.5 Consent of Boyer & Ritter............... (1)
23.6 Consent of Paternostro, Callahan &
DeFreitas, LLP......................... (1)
23.7 Consent of Daniel P. Irwin and
Associates P.C. .......................
23.8 Consent of Drinker Biddle & Reath LLP
(contained in their opinion to be filed
as Exhibit 5).......................... (3)
24 Powers of Attorney...................... (4)
27 Financial Data Schedule................. (1)
</TABLE>
- --------
(1) Filed herewith.
(2) Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form S-1 (Reg. No. 33-14918) filed June 9, 1987,
as subsequently amended on August 4, 1987 and August 11, 1987.
(3) To be filed by amendment.
(4) Included on signature page.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual reports pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(2) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Mt. Laurel, New Jersey on May 16, 1997.
Eastern Environmental Services, Inc.
By: /s/ Louis D. Paolino, Jr.
---------------------------------
LOUIS D. PAOLINO, JR. CHAIRMAN OF
THE BOARD AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
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 Registration Statement on Form S-3 of
Eastern Environmental Services, Inc. (and any Registration Statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended),
relating to the offer and sale of shares of its Common Stock and any and all
amendments (including post-effective amendments) to the Registration Statement
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 Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities indicated, on May 16, 1997.
SIGNATURE TITLE
--------- -----
/s/ Louis D. Paolino, Jr. Chairman of the Board, President
- ------------------------------------- and Chief Executive Officer
LOUIS D. PAOLINO, JR. (Principal Executive Officer)
/s/ Gregory M. Krzemien Chief Financial Officer and
- ------------------------------------- Treasurer (Principal Financial
GREGORY M. KRZEMIEN and Accounting Officer)
/s/ George O. Moorehead Director
- -------------------------------------
GEORGE O. MOOREHEAD
/s/ Kenneth C. Leung Director
- -------------------------------------
KENNETH C. LEUNG
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1 Form of Underwriting Agreement
23.1 Consent of Ernst & Young LLP
23.2 Consent of B. J. Klinger & Co. P.C.
23.3 Consent of BDO Seidman, LLP
23.4 Consent of Bardall, Weintraub P.C.
23.5 Consent of Boyer & Ritter
23.6 Consent of Paternostro, Callahan & DeFreitas, LLP
23.7 Consent of Daniel P. Irwin and Associates P.C.
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 1
_________ Shares
EASTERN ENVIRONMENTAL SERVICES, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
, 1997
SMITH BARNEY INC.
OPPENHEIMER & CO., INC.
SANDERS MORRIS MUNDY
PACIFIC GROWTH EQUITIES, INC.
VAN KASPER & COMPANY
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Eastern Environmental Services, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell an aggregate of 4,500,000 shares ("Firm
Shares") of its common stock, $0.01 par value per share (the "Common Stock"), to
the several Underwriters named in Schedule I hereto (the "Underwriters"). The
Company also proposes to sell to the Underwriters, upon the terms and conditions
set forth in Section 2 hereof, up to an additional 675,000 shares (the
"Additional Shares") of Common Stock. The Firm Shares and, to the extent such
Additional Shares are issued, the Additional Shares are hereinafter collectively
referred to as the "Shares".
The Company has implemented an aggressive acquisition program in the waste
management industry. As a consequence, the Company is continually reviewing
acquisition opportunities and is in various stages of negotiations with certain
solid waste collection, transportation and disposal operations. Any company
whose stock or assets is proposed to be acquired by the Company pursuant to a
signed, definitive acquisition agreement is hereinafter referred to as an
"Acquiree Company."
<PAGE>
The Company wishes to confirm as follows its agreement with you (the
"Representatives") and the other several Underwriters on whose behalf you are
acting, in connection with the several purchases of the Shares by the
Underwriters.
1. Registration Statement and Prospectus. The Company has prepared and
-------------------------------------
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-3 under the Act, including a
prospectus subject to completion relating to the Shares. The term "Registration
Statement" as used in this Agreement means such registration statement
(including all financial schedules and exhibits), as amended at the time it
becomes effective, or, if such registration statement became effective prior to
the execution of this Agreement, as supplemented or amended prior to the
execution of this Agreement. If it is contemplated, at the time this Agreement
is executed, that a post-effective amendment to the registration statement will
be filed and must be declared effective before the offering of the Shares may
commence, the term "Registration Statement" as used in this Agreement means the
registration statement as amended by said post-effective amendment. The term
"Prospectus" as used in this Agreement means the prospectus in the form included
in the Registration Statement, or, if the prospectus included in the
Registration Statement omits information in reliance on Rule 430A under the Act
and such information is included in a prospectus filed with the Commission
pursuant to Rule 424(b) under the Act, the term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement as supplemented by the addition of the Rule 430A information contained
in the prospectus filed with the Commission pursuant to Rule 424(b). The term
"Prepricing Prospectus" as used in this Agreement means the prospectus subject
to completion in the form included in the registration statement at the time of
the initial filing of the registration statement with the Commission, and as
such prospectus shall have been amended from time to time prior to the date of
the Prospectus. Any reference in this Agreement to the registration statement,
the Registration Statement, any Prepricing Prospectus or the Prospectus shall be
deemed to refer to and include the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the Act, as of the date of the
registration statement, the Registration Statement, such Prepricing Prospectus
or the Prospectus, as the case may be, and any reference to any amendment or
supplement to the registration statement, the Registration Statement, any
Prepricing Prospectus or the Prospectus shall be deemed to refer to and include
any documents filed after such date under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") which, upon filing, are incorporated by
reference therein, as required by paragraph (b) or Item 12 of Form S-3. As used
herein, the term "Incorporated Documents" means the documents which at the time
are incorporated by reference in the registration statement, the Registration
Statement, any Prepricing Prospectus, the Prospectus, or any amendment or
supplement thereto.
2. Agreements to Sell and Purchase. Subject to such adjustments as you
-------------------------------
may determine in order to avoid fractional shares, the Company hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the
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terms and conditions set forth herein, each Underwriter agrees, severally and
not jointly, to purchase from the Company, at a purchase price of $_____ per
Share (the "purchase price per share"), the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto (or such number of
Firm Shares increased as set forth in Section 10 hereof).
The Company also agrees, subject to all the terms and conditions set forth
herein, to sell to the Underwriters, and, upon the basis of the representations,
warranties and agreements of the Company herein contained and subject to all the
terms and conditions set forth herein, the Underwriters shall have the right to
purchase from the Company, at the purchase price per share, pursuant to an
option (the "over-allotment option") which may be exercised at any time and from
time to time prior to 9:00 P.M., New York City time, on the 30th day after the
date of the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a
holiday, on the next business day thereafter when the New York Stock Exchange is
open for trading), up to an aggregate of 675,000 Additional Shares from the
Company. Additional Shares may be purchased only for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. Upon
any exercise of the over-allotment option, each Underwriter, severally and not
jointly, agrees to purchase from the Company the number of Additional Shares
(subject to such adjustments as you may determine in order to avoid fractional
shares) which bears the same proportion to the aggregate number of Additional
Shares to be purchased by the Underwriters as the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto (or such number
of Firm Shares increased as set forth in Section 10 hereof) bears to the
aggregate number of Firm Shares.
3. Terms of Public Offering. The Company has been advised by you that the
------------------------
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Shares upon the terms set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Subject to Section 8
-------------------------------------------
hereof, delivery to the Underwriters of and payment by the Underwriters for the
Firm Shares shall be made at the office of Smith Barney Inc., 388 Greenwich
Street, New York, NY 10013, at 10:00 A.M., New York City time, on
, 1997 (the "Closing Date"). The place of closing for the Firm Shares and the
Closing Date may be varied by agreement between you and the Company.
Subject to Section 8 hereof, delivery to the Underwriters of and payment
for any Additional Shares to be purchased by the Underwriters shall be made at
the aforementioned office of Smith Barney Inc. at such time on such date (the
"Option Closing Date"), which may be the same as the Closing Date but shall in
no event be earlier than the Closing Date nor earlier than two nor later than
ten business days after the giving of the notice hereinafter referred to, as
shall be specified in a written notice from you on behalf of the Underwriters to
the Company of the Underwriters' determination to purchase a number, specified
in such notice, of Additional Shares. The place of closing for any Additional
Shares and the Option Closing Date for such Shares may be varied by agreement
between you and the Company.
3
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Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 9:30 A.M., New York City time, on the second
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Option Closing Date, as the case may be, against payment of the purchase
price therefor in immediately available funds.
5. Agreements of the Company. The Company agrees with the several
-------------------------
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
Company will endeavor to cause the Registration Statement or such post-effective
amendment to become effective as soon as possible and will advise you promptly
and, if requested by you, will confirm such advice in writing, when the
Registration Statement or such post-effective amendment has become effective.
(b) The Company will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the Company's condition (financial or other), business,
prospects, properties, net worth or results of operations, or of the happening
of any event or any new information, which makes any statement of a material
fact made in the Registration Statement or the Prospectus (as then amended or
supplemented) untrue or which requires the making of any additions to or changes
in the Registration Statement or the Prospectus (as then amended or
supplemented) in order to state a material fact required by the Act to be stated
therein or necessary in order to make the statements therein not misleading, or
of the necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Act or any other law. In addition, the Company
shall advise you promptly of any agreement in principle, whether or not reduced
to writing, or any definitive agreement looking to the acquisition or
disposition of any assets or business. If at any time the Commission shall issue
any stop order suspending the effectiveness of the Registration Statement, the
Company will make every reasonable effort to obtain the withdrawal of such order
at the earliest possible time.
(c) The Company will furnish to you, without charge, (i) six signed
copies of the registration statement as originally filed with the Commission and
of each amendment thereto, including financial statements and all exhibits
thereto, (ii) such number of conformed copies of the
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<PAGE>
registration statement as originally filed and of each amendment thereto, but
without exhibits, as you may request, (iii) such number of copies of the
Incorporated Documents, without exhibits, as you may request, and (iv) six
copies of the exhibits to the Incorporated Documents.
(d) The Company will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus or make any
amendment or supplement to the Prospectus or, prior to the end of the period of
time referred to in the first sentence in subsection (f) below, file any
document which, upon filing becomes an Incorporated Document, of which you shall
not previously have been advised in writing or to which, after you shall have
received a copy of the document proposed to be filed, you shall object.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you, without charge, in such quantities as you have
requested, copies of each form of the Prepricing Prospectus. The Company
consents to the use, in accordance with the provisions of the Act and with the
securities or Blue Sky laws of the jurisdictions in which the Shares are offered
by the several Underwriters and by dealers, prior to the date of the Prospectus,
of each Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the Act to be delivered
in connection with sales by any Underwriter or dealer, the Company will
expeditiously deliver to each Underwriter and each dealer, without charge, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
you may request. The Company consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by all dealers to whom Shares
may be sold, both in connection with the offering and sale of the Shares and for
such period of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer. If during such
period of time any event shall occur that in the judgment of the Company or in
the opinion of counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Prospectus (or to file under the Exchange Act any document which, upon
filing, becomes an Incorporated Document) to comply with the Act or any other
law, the Company will forthwith promptly prepare and, subject to the provisions
of paragraph (d) above, file with the Commission an appropriate supplement or
amendment thereto (or to such document), and will expeditiously furnish to the
Underwriters and dealers a reasonable number of copies thereof. In the event
that the Company and you, as Representatives of the several Underwriters, agree
that the Prospectus should be amended or supplemented, the Company, if requested
by you, will promptly issue a press release announcing or disclosing the matters
to be covered by the proposed amendment or supplement.
5
<PAGE>
(g) The Company will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such domestic and foreign jurisdictions as you
may designate and will file such consents to service of process or other
documents necessary or appropriate in order to effect such registration or
qualification; provided that in no event shall the Company be obligated to
qualify to do business in any jurisdiction where it is not now so qualified or
to take any action which would subject it to service of process in suits, other
than those arising out of the offering or sale of the Shares, in any
jurisdiction where it is not now so subject.
(h) The Company will make generally available to its security holders
a consolidated earnings statement, which need not be audited, covering a twelve-
month period commencing after the effective date of the Registration Statement
and ending not later than 15 months thereafter, as soon as practicable after the
end of such period, which consolidated earnings statement shall satisfy the
provisions of Section ll(a) of the Act.
(i) During the period of five years hereafter, the Company will
furnish to you (i) as soon as available, a copy of each report of the Company
mailed to stockholders or filed with the Commission, and (ii) from time to time
such other information concerning the Company as you may request.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 10 hereof or by notice given by you terminating this
Agreement pursuant to Section 10 or Section 11 hereof) or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on the
part of the Company to comply with the terms or fulfill any of the conditions of
this Agreement, the Company agrees to reimburse the Representatives for all out-
of-pocket expenses (including fees and expenses of counsel for the Underwriters)
incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale of the
Shares substantially in accordance with the description set forth in the
Prospectus.
(l) If Rule 430A of the Act is employed, the Company will timely file
the Prospectus pursuant to Rule 424(b) under the Act and will advise you of the
time and manner of such filing.
(m) Except as provided in this Agreement, the Company will not sell,
contract to sell or otherwise dispose of any Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or grant any
options or warrants to purchase Common Stock, for a period of 120 days after
the date of the Prospectus (the "120-Day Lock-Up Period"), without the prior
written consent of Smith Barney Inc., except that the Company may (i) issue
shares of Common Stock ("Acquisition Shares") in connection with additional
acquisitions so long as the
6
<PAGE>
purchaser of such Acquisition Shares agrees to be bound by a lock-up letter in
the same form as those being delivered to you pursuant to paragraph (n) below
pursuant to which such purchaser agrees with the Company not to sell, offer to
sell, solicit an offer to buy, contract to sell, grant any option to purchase,
or otherwise transfer or dispose of, any such Acquisition Shares at any time
before the expiration of the 120-Day Lock-up Period and that the certificates
evidencing such Acquisition Shares shall bear a legend to such effect, and (ii)
issue shares of Common Stock pursuant to the exercise of options outstanding on
the date hereof under the Company's 1987 Stock Option Plan, 1991 Stock Option
Plan and 1996 Stock Option Plan and warrants outstanding on the date hereof, as
described in the Registration Statement. The Company further agrees for the
express benefit of the Underwriters that, during the 120-Day Lock-Up Period, it
will not, without the prior written consent of Smith Barney Inc., waive any
provision of any acquisition or related agreement imposing restrictions on the
transfer or other disposition of shares of Common Stock or securities
convertible into or exercisable or exchangeable for Common Stock and will take
reasonable steps to cause its transfer agent to enforce any such provision so as
to limit the transfer or other disposition of shares of Common Stock or
securities convertible into or exercisable or exchangeable for Common Stock
during the 120-Day Lock-Up Period.
(n) The Company has furnished or will furnish to you "lock-up"
letters, signed by each of its current officers and directors in the form of
Exhibit A hereto and each stockholder designated by you in the form of Exhibit B
hereto.
(o) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(p) The Company will cause the shares of Common Stock which it agrees
to sell under this Agreement to be listed, subject to notice of issuance, on the
Nasdaq National Market on or before the Closing Date.
(q) The Company will not file any registration statement under the
Act seeking to register any Common Stock, any options or warrants, or any other
securities convertible into or exercisable or exchangeable for Common Stock for
a period of 180 days following the Closing Date, except that the Company may (i)
file a shelf registration statement seeking to register for resale up to
5,121,805 shares of Common Stock within 15 days following the Closing Date;
provided, however that the Company shall not cause or otherwise permit such
- -------- -------
shelf registration statement to be declared effective at any time prior to the
45th day following the Closing Date; and (ii) file a registration statement on
Form S-8 seeking to register up to 2,500,000 shares of Common Stock which may be
obtained upon exercise of stock options granted pursuant to the Company's 1996
Stock Option Plan.
6. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to each Underwriter that:
7
<PAGE>
(a) Each Prepricing Prospectus included as part of the registration
statement as originally filed or as part of any amendment or supplement thereto,
or filed pursuant to Rule 424 under the Act, complied when so filed in all
material respects with the provisions of the Act. The Commission has not issued
any order preventing or suspending the use of any Prepricing Prospectus.
(b) The Company and the transactions contemplated by this Agreement
meet the requirements for using Form S-3 under the Act. The Registration
Statement in the form in which it became or becomes effective and also in such
form as it may be when any post-effective amendment thereto shall become
effective and the Prospectus and any supplement or amendment thereto when filed
with the Commission under Rule 424(b) under the Act complied or will comply with
the provisions of the Act and did not or will not at any such times contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except that this representation and warranty does not apply to statements in or
omissions from the Registration Statement or the Prospectus or any amendment or
supplement thereto made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Company in writing by or on behalf
of any Underwriter through you expressly for use therein.
(c) The Incorporated Documents heretofore filed, when they were filed
(or, if any amendment with respect to any such document was filed, when such
amendment was filed), conformed with the requirements of the Exchange Act and
the rules and regulations thereunder, and any further Incorporated Documents so
filed will, when they are filed, conform with the requirements of the Exchange
Act and the rules and regulations thereunder; no such document when it was
filed, (or, if an amendment with respect to any such document was filed, when
such amendment was filed), contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading; and no such further
document, when it is filed, will contain an untrue statement of a material fact
or will omit to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading.
(d) The Company has an authorized, issued and outstanding
capitalization as set forth in the Registration Statement and the Prospectus.
All the outstanding shares of capital stock of the Company have been duly
authorized and validly issued, fully paid and nonassessable and free of and not
issued in violation of any preemptive or similar rights; the Shares to be issued
and sold by the Company have been duly authorized and, when issued and delivered
to the Underwriters against payment therefor in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable and will be free of
and will not have been issued in violation of any preemptive or other rights.
Except as described in the Prospectus, (a) there are no outstanding options,
warrants or other rights calling for the issuance of, and there are no
commitments to issue any shares of, capital stock of the Company or any security
convertible into or exchangeable or exercisable for capital stock of the
Company, and (b) there is no holder of any securities of the Company or any
other person who has the right, contractual or otherwise, to cause the Company
to sell or otherwise issue to him or her, or permit him or her to underwrite the
sale of, any of the Shares. The capital
8
<PAGE>
stock of the Company conforms to the description thereof in the Registration
Statement and the Prospectus.
(e) The Company is a corporation duly organized and validly existing
in good standing under the laws of the State of Delaware with full corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus, and is
duly registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure so to register or qualify does not have a material adverse effect on the
condition (financial or other), business, properties, net worth or results of
operations of the Company and the Subsidiaries (as hereinafter defined) taken as
a whole.
(f) All the Company's subsidiaries (collectively, the "Subsidiaries")
[are identified in an exhibit to the Registration Statement] or [are listed in
an exhibit to the Company's Annual Report on Form 10-K, as amended on Form 10-
K/A, which is incorporated by reference into the Registration Statement]. Each
Subsidiary is a corporation duly organized, validly existing and in good
standing in the jurisdiction of its incorporation, with full corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Registration Statement and the Prospectus, and is duly
registered and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
so to register or qualify does not have material adverse effect on the condition
(financial or other), business, properties, net worth or results of operations
of such Subsidiary; all the outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable, and are owned by the Company free and clear of any lien, adverse
claim, security interest, equity or other encumbrance. Other than with respect
to the Subsidiaries, the Company does not have, directly or indirectly, any
ownership interest or agreement or agreement in principle to acquire any
ownership interest in any corporation, partnership, joint venture, association
or other business organization.
(g) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened, against the Company, any of the
Subsidiaries or any of the Acquiree Companies or to which the Company, any of
the Subsidiaries or the Acquiree Companies, or to which any of their respective
properties, is subject that are required to be described in the Registration
Statement or the Prospectus but are not described as required, and there are no
agreements, contracts, indentures, leases or other instruments that are required
to be described in the Registration Statement or to any Incorporated Document or
the Prospectus or to be filed as an exhibit to the Registration Statement or to
any Incorporated Document that are not described or filed as required by the Act
or the Exchange Act.
(h) Neither the Company nor any of the Subsidiaries nor, to the
knowledge of the Company, any of the Acquiree Companies is in violation of its
certificate or articles of incorporation
9
<PAGE>
or by-laws, or other organizational documents, or of any statute, law,
ordinance, administrative or governmental rule or regulation applicable to the
Company, the Subsidiaries or the Acquiree Companies or of any judgment,
injunction, order or decree of any court or governmental agency or body having
jurisdiction over the Company, the Subsidiaries or the Acquiree Companies, or in
default in any material respect in the performance of any obligation, agreement
or condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any material agreement, indenture, lease or other instrument
to which the Company, any of the Subsidiaries or, to the knowledge of the
Company, any of the Acquiree Companies is a party or by which any of them or any
of their respective properties may be bound.
(i) Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement by the Company nor the consummation by
the Company of the transactions contemplated hereby (A) requires any consent,
approval, authorization or other order of or registration or filing with, any
court, regulatory body, administrative agency or other governmental body, agency
or official (except such as may be required for the registration of the Shares
under the Act and the Exchange Act and compliance with the securities or Blue
Sky laws of various jurisdictions, all of which have been or will be effected in
accordance with this Agreement) or conflicts or will conflict with or
constitutes or will constitute as of the date hereof and on the Closing Date and
any Option Closing Date a breach of, or a default under, the certificate or
articles of incorporation or bylaws, or other organizational documents, of the
Company, any of the Subsidiaries or, to the knowledge of the Company, any of the
Acquiree Companies or (B) conflicts or will conflict with or constitutes or will
constitute as of the date hereof and on the Closing Date and any Option Closing
Date a breach of, or a default under, any agreement, indenture, lease or other
instrument to which the Company, any of the Subsidiaries, or, to the knowledge
of the Company, any of the Acquiree Companies is a party or by which any of them
or any of their respective properties may be bound, or violates or will violate
as of the date hereof and on the Closing Date and any Option Closing Date any
statute, law, regulation or filing or judgment, injunction, order or decree
applicable to the Company, any of the Subsidiaries or, to the knowledge of the
Company, any of the Acquiree Companies or any of their respective properties, or
as of the date hereof and on the Closing Date and any Option Closing Date will
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company, any of the Subsidiaries or, to the knowledge
of the Company, any of the Acquiree Companies pursuant to the terms of any
agreement or instrument to which any of them is a party or by which any of them
may be bound or to which any of the property or assets of any of them is
subject.
(j) All of the accountants who have certified or shall certify any of
the financial statements included or incorporated by reference in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto) are independent public accountants as required by the Act.
(k) The historical consolidated financial statements, together with
the related schedules and notes, included or incorporated by reference in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) and the supplemental consolidated financial
10
<PAGE>
statements, together with the related schedules and notes, included or
incorporated by reference in the Registration Statement and the Prospectus (and
any amendment or supplement thereto), present fairly the consolidated financial
position, results of operations, stockholders' equity (and deficit) and cash
flows of the Company and its Subsidiaries and of one or more of the Acquiree
Companies, as the case may be, on the basis stated in the Registration Statement
and in such Incorporated Document at the respective dates or for the respective
periods to which they apply. The historical financial statements, together with
the related schedules and notes, contained in each Current Report on Form 8-K,
as amended, included among the Incorporated Documents presented fairly, as of
the date of such Report, the separate financial position, results of operations,
stockholders equity (and deficit) and cash flows of the subject company on the
basis stated in such Report and for the respective periods to which they apply;
all such financial statements and related schedules and notes have been prepared
in accordance with generally accepted accounting principles in the United States
consistently applied throughout the periods involved, except as disclosed
therein; and the summary and selected consolidated financial and statistical
information and data included in the Registration Statement and the Prospectus
(and any amendment or supplement thereto) present fairly the information shown
therein and such data have been compiled on a basis consistent with the
financial statements presented therein and the books and records of the Company,
and its Subsidiaries. The pro forma consolidated financial statements of the
Company and its Subsidiaries, together with the related schedules and notes, as
set forth in the Registration Statement and the Prospectus (and any amendment or
supplement thereto), present fairly the information shown therein, have been
prepared in accordance with the applicable provisions of Article 11 of
Regulation S-X promulgated by the Commission with respect to pro forma financial
statements and have been properly compiled on the pro forma bases described
therein and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein, and the other financial and statistical information and data included
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto) are accurately presented and prepared on a basis consistent
with such financial statements and the books and records of the Company and the
Subsidiaries.
(l) The execution and delivery of, and the performance by the Company
of its obligations under, this Agreement have been duly and validly authorized
by the Company, and this Agreement has been duly executed and delivered by the
Company and constitutes the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except that (i)
enforceability may be subject to the effect of any applicable bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium or other laws
affecting the creditors' rights generally and general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law), and (ii) rights to indemnity and contribution hereunder may
be limited by Federal or state securities laws. The execution and delivery of,
and the performance by the Company of its obligations under, each of the
definitive acquisition agreements, if any, relating to acquisition of any of the
Acquiree Companies (collectively, the "Acquisition Agreements") have been duly
and validly authorized by the Company and each Acquisition Agreement has been
duly authorized, executed and delivered by the Company, and constitutes the
legal, valid and binding agreement of the respective parties thereto,
enforceable against them in
11
<PAGE>
accordance with its terms, except as enforceability thereof may be subject to
the effect of (i) any applicable bankruptcy, fraudulent conveyance, insolvency,
reorganizations, moratorium or other laws affecting creditors' rights generally,
and (ii) general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity of at law).
(m) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in the
ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, and there has not been any change in the capital
stock, or material increase in the short-term debt or long-term debt, of the
Company or any of the Subsidiaries or any material adverse change, or any
development involving or which may reasonably be expected to involve, a
prospective material adverse effect on the condition (financial or other),
business, properties, net worth or results of operations of the Company and the
Subsidiaries taken as a whole.
(n) Each of the Company and the Subsidiaries has good and marketable
title to all property (real and personal) described in the Registration
Statement and the Prospectus or in a document filed as an exhibit to the
Registration Statement as being owned by it, free and clear of all liens,
claims, security interests or other encumbrances, except such as are described
in the Registration Statement and the Prospectus or in a document filed as an
exhibit to the Registration Statement or which are not material to the Company
and/or the applicable Subsidiary, and all the property described in the
Prospectus as being held under lease by the Company or any Subsidiary is held by
the Company or such Subsidiary under valid, subsisting and enforceable leases.
(o) The Company has not distributed and, prior to the later to occur
of (i) the Closing Date and (ii) completion of the distribution of the Shares,
will not distribute any offering material in connection with the offering and
sale of the Shares other than the Registration Statement, the Prepricing
Prospectus, the Prospectus or other materials, if any, permitted by the Act.
(p) The Company and each of the Subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits") as are necessary to own its respective properties and to
conduct its business in the manner described in the Prospectus, subject to such
qualifications as may be set forth in the Prospectus and except where the
failure to have such permits would not have a material adverse effect on the
condition (financial or other), business, properties, net worth or results of
operations of the Company and the Subsidiaries taken as a whole; the Company and
each of the Subsidiaries has fulfilled and performed all its material
obligations with respect to such permits, licenses, franchises and
authorizations and no event has occurred which allows, or after notice or lapse
of time would allow, revocation or termination thereof or results, or after
notice or lapse of time would result, in any other material impairment of the
rights of the holder of any such permit, license, franchise or authorization,
subject in each case to such qualification as may be set forth in the
Prospectus; and, except as described in
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the Prospectus, none of such permits, licenses, franchises or authorizations
contains any restriction that is materially burdensome to the Company or any of
the Subsidiaries.
(q) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(r) Neither the Company nor any of its Subsidiaries nor any employee
or agent of the Company or any Subsidiary has made any payment of funds of the
Company or any Subsidiary or received or retained any funds in violation of any
statute, law, rule or regulation, which payment, receipt or retention of funds
is of a character required to be disclosed in the Prospectus.
(s) The Company and each of the Subsidiaries have filed in a timely
manner all tax returns required to be filed with any taxing authority, which
returns are complete and correct and, to the best knowledge of the Company, are
not the subject of any audit proceedings, and neither the Company nor any
Subsidiary is in default in the payment of any taxes which were payable pursuant
to said returns or any assessments with respect thereto.
(t) The Company and each of the Subsidiaries have conducted their
respective businesses in compliance with all applicable Federal, state,
provincial, foreign and local laws, regulations, orders, codes and common law
including, without limitation, those promulgated under the Resource Conservation
and Recovery Act of 1976 ("RCRA"), including the Subtitle D Regulations, the
Federal Water Pollution Control Act of 1972 (the "Clean Water Act"), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Clean Air Act, and the Occupational Safety and Health Act
("OSHA") and those laws, regulations, orders, codes and common law applicable to
protection of the environment, waste management and waste disposal, health and
safety (collectively, "Environmental Laws") and, to the knowledge of the
Company, under current law there are no existing circumstances that would
prevent, interfere with, or materially increase the cost of the Company's
compliance with RCRA, the Subtitle D Regulations, the Clean Water Act, CERCLA,
the Clean Water Act, OSHA or any other Environmental Laws in the future, except
for any lack of compliance or the existence of any such circumstance as would
not have, individually or in the aggregate, a material adverse effect on the
condition (financial or other), business, properties, net worth or results of
operations of the Company and the Subsidiaries taken as a whole.
(u) Except as set forth in the Registration Statement and the
Prospectus, there is no material claim under any of Environmental Law, including
common law, pending or threatened against the Company or any of the Subsidiaries
(an "Environmental Claim") and, to the Company's knowledge, there are no past or
present actions, activities, circumstances, events or incidents,
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including, without limitation, releases of any material into the environment,
that would reasonably be expected to form the basis of any material claim
against the Company or any of the Subsidiaries or, to the knowledge of the
Company, and of the Acquiree Companies.
(v) The Company and each of the Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as are customary in the businesses in which they are engaged; (ii) all
policies of insurance and fidelity or surety bonds insuring the Company or any
of its Subsidiaries or their respective businesses, assets, employees, officers
and directors are in full force and effect; (iii) the Company and its
Subsidiaries are in compliance with the terms of such policies and instruments
in all material respects; and (iv) there are no claims by the Company or any of
its Subsidiaries under any such policy or instrument as to which any insurance
company is denying liability or defending under a reservation of rights clause.
(w) Each holder of a security of the Company that has any right to
require registration of shares of Common Stock or any other security of the
Company because of the filing of the Registration Statement or consummation of
the transactions contemplated by this Agreement has been notified of the
Company's intent to file the Registration Statement with the Commission and has
agreed in writing to waive such holder's registration rights with respect to the
public offering contemplated hereby.
(x) The Company and the Subsidiaries own or possess valid and
enforceable rights to use all patents, trademarks, trademark registrations,
service marks, service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets and rights described in the Prospectus as being owned
by them or any of them or material to the conduct of their respective
businesses, and the Company is not aware of any claim to the contrary or any
challenge by any other person or entity to the rights of the Company and the
Subsidiaries with respect to the foregoing or of any infringement by any other
person or entity with respect to the foregoing.
(y) The Company is not now, and after sale of the Shares to be sold
by it hereunder and application of the net proceeds from such sale as described
in the Prospectus under the caption "Use of Proceeds" will not be, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(z) The Shares have been approved for quotation, upon notice of
issuance, on the Nasdaq National Market.
7. Indemnification and Contribution. (a) The Company agrees to indemnify
--------------------------------
and hold harmless each of you and each other Underwriter and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act from and against any and all losses, claims,
damages, liabilities and expenses (including, without limitation, reasonable
costs of investigation and reasonable attorneys fees and expenses) arising out
of, based upon or relating to any untrue statement or alleged untrue statement
of a material fact
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contained in the Registration Statement or in any Prepricing Prospectus or the
Prospectus or in any amendment or supplement thereto, or arising out of, based
upon or relating to any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or omission of a
material fact or alleged untrue statement or omission of a material fact which
has been made therein or omitted therefrom in reliance upon and in conformity
with the information relating to such Underwriter furnished in writing to the
Company by or on behalf of any Underwriter through you expressly for use in
connection therewith; provided, however, that the indemnification contained in
this paragraph (a) with respect to any Prepricing Prospectus shall not inure to
the benefit of any Underwriter (or to the benefit of any person controlling such
Underwriter) on account of any such loss, claim, damage, liability or expense
arising from the sale of the Shares by such Underwriter to any person if a copy
of the Prospectus shall not have been delivered or sent to such person within
the time required by the Act, and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Prepricing Prospectus was corrected in the Prospectus, provided that the Company
has delivered the Prospectus to the several Underwriters in requisite quantity
on a timely basis to permit such delivery or sending. The foregoing indemnity
agreement shall be in addition to any liability which the Company may otherwise
have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company and the Company shall
assume the defense thereof, including the employment of counsel which shall be
of nationally recognized standing and satisfactory to Smith Barney Inc. and
payment of all fees and expenses. The Company shall not agree to settle any such
action, suit or proceeding without the written consent of Smith Barney Inc.,
which consent shall not be unreasonably withheld. Such Underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action, suit or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Underwriter or
such controlling person unless (i) the Company agreed in writing to pay such
fees and expenses, (ii) the Company failed promptly to assume the defense and
employ counsel, or (iii) the named parties to any such action, suit or
proceeding (including any impleaded parties) include both such Underwriter or
such controlling person and the Company and such Underwriter or such controlling
person shall have been advised by its counsel that representation of such
indemnified party and the Company by the same counsel would be inappropriate
under applicable standards of professional conduct (whether or not such
representation by the same counsel has been proposed) due to actual or potential
differing interests between them (in which case the Company shall not have the
right to assume the defense of such action, suit or proceeding on behalf of such
Underwriter or such controlling person). It is understood, however, that the
Company shall, in connection with any one such action, suit or proceeding or
separate but substantially similar or related actions, suits or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Underwriters and controlling persons having actual or potential
differing interests,
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which firm shall be designated in writing by Smith Barney Inc., and that all
such fees and expenses shall be reimbursed promptly as they are incurred. The
Company shall not be liable for any settlement of any such action, suit or
proceeding effected without its written consent, but if settled with such
written consent, or if there be a final judgment for the plaintiff in any such
action, suit or proceeding, the Company agrees to indemnify and hold harmless
any Underwriter, to the extent provided in the preceding paragraph, and any such
controlling person from and against any loss, claim, damage, liability or
expense by reason of such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from the Company to each Underwriter, but only
with respect to information relating to such Underwriter furnished in writing by
or on behalf of such Underwriter expressly for use in the Registration
Statement, the Prospectus or any Prepricing Prospectus, or any amendment or
supplement thereto. If any action, suit or proceeding shall be brought against
the Company, any of its directors, any such officer, or any such controlling
person based on the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto, and in respect of which
indemnity may be sought against any Underwriter pursuant to this paragraph (c),
such Underwriter shall have the rights and duties given to the Company by
paragraph (b) above (except that if the Company shall have assumed the defense
thereof such Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at such Underwriter's expense), and the
Company, its directors, any such officer, and any such controlling person shall
have the rights and duties given to the Underwriters by paragraph (b) above. The
foregoing indemnity agreement shall be in addition to any liability which any
Underwriter may otherwise have.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus; provided that, in the event that the
Underwriters shall have purchased
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any Additional Shares hereunder, any determination of the relative benefits
received by the Company, or the Underwriters from the offering of the Shares
shall include the net proceeds (before deducting expenses) received by the
Company , and the underwriting discounts and commissions received by the
Underwriters, from the sale of such Additional Shares, in each case computed on
the basis of the respective amounts set forth in the notes to the table on the
cover page of the Prospectus. The relative fault of the Company on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or by the Underwriters on
the other hand and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(e) The Company and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined by a
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages,
liabilities and expenses referred to in paragraph (d) above shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
any claim or defending any such action, suit or proceeding. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price of the Shares
underwritten by it and distributed to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
indemnify or contribute, as applicable, pursuant to this Section 7 are several
in proportion to the respective numbers of Firm Shares set forth opposite their
names in Schedule I hereto (or such numbers of Firm Shares increased as set
forth in Section 10 hereof) in relation to the aggregate number of Firm Shares
and not joint.
(f) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative
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and in full force and effect, regardless of (i) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter, the
Company, its directors or officers or any person controlling the Company, (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Company, its directors or officers, or
any person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
7.
8. Conditions of Underwriters' Obligations. The several obligations of
---------------------------------------
the Underwriters to purchase the Firm Shares hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
registration statement or such post-effective amendment shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made; no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall have
been instituted or, to the knowledge of the Company or any Underwriter,
threatened by the Commission, and any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change, or any development involving a prospective
change, in or affecting the condition (financial or other), business,
properties, net worth, or results of operations of the Company or the
Subsidiaries not contemplated by the Prospectus, which in your opinion, as
Representatives of the several Underwriters, would adversely affect the market
for the Shares, or (ii) any event or development relating to or involving the
Company, any Subsidiary, any Acquiree Company or any officer or director of the
Company or any Subsidiary, or any Acquiree Company which makes any statement
made in the Prospectus an untrue statement of a material fact or which, in the
opinion of the Company and its counsel or the Underwriters and their counsel,
requires the making of any addition to or change in the Prospectus in order to
state a material fact required by the Act or any other law to be stated therein
or necessary in order to make the statements therein not misleading, if amending
or supplementing the Prospectus to reflect such event or development would, in
your opinion, as Representatives of the several Underwriters, adversely affect
the market for the Shares.
(c) You shall have received on the Closing Date, an opinion of
Drinker Biddle & Reath LLP, counsel for the Company, dated the Closing Date and
addressed to you, as `Representatives of the several Underwriters, to the effect
that:
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(i) The Company is a corporation duly incorporated and
validly existing in good standing under the laws of the State of Delaware with
full corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), and is duly qualified to
conduct its business and is in good standing in each jurisdiction or place where
the nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify does not have a material adverse effect on the condition (financial or
other), business, properties, net worth or results of operations of the Company
and the Subsidiaries taken as a whole;
(ii) Each of the Subsidiaries is a corporation duly
incorporated and validly existing in good standing under the laws of the
jurisdiction of its organization, with full corporate power and authority to
own, lease, and operate its properties and to conduct its business as described
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto) and is duly qualified to conduct its business and is in good
standing in each jurisdiction or place where the nature of its properties or the
conduct of its business requires such registration or qualification, except
where the failure so to register or qualify does not have a material adverse
effect on the condition (financial or other), business, properties, net worth or
results of operations of the Company and the Subsidiaries taken as a whole; and
all the outstanding shares of capital stock of each of the Subsidiaries have
been duly authorized and validly issued, are fully paid and nonassessable, and,
except as otherwise set forth in the Prospectus, are owned by the Company, free
and clear of any security interest, lien, adverse claim, equity or other
encumbrance;
(iii) The authorized and outstanding capital stock of the
Company is as set forth under the caption "Capitalization" in the Prospectus;
and the authorized capital stock of the Company conforms in all material
respects as to legal matters to the description thereof contained in the
Prospectus under the caption "Description of Capital Stock";
(iv) All the shares of capital stock of the Company
outstanding prior to the issuance of the Shares to be issued and sold by the
Company hereunder have been duly authorized and validly issued, and are fully
paid and nonassessable and were not issued in violation of any preemptive or
other rights of any holder of capital stock;
(v) The Shares to be issued and sold to the Underwriters by
the Company hereunder have been duly authorized and, when issued and delivered
to the Underwriters against payment therefor in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable and will not have
been issued in violation of any statutory preemptive or, to the knowledge of
such counsel after reasonable inquiry, other similar rights that entitle or will
entitle any person to acquire any shares upon the issuance thereof by the
Company. No holders of capital stock of the Company are entitled to have such
securities registered under the Registration Statement which rights have not
been waived;
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(vi) The form of certificates for the Shares conforms to the
requirements of the Delaware General Corporation Law;
(vii) Based on telephonic confirmation from the Commission on
________, 1997, the Registration Statement and all post-effective amendments, if
any, have become effective under the Act and, to the knowledge of such counsel
after reasonable inquiry, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose are
pending before or contemplated by the Commission; and any required filing of the
Prospectus pursuant to Rule 424(b) has been made in accordance with Rule 424(b);
(viii) The Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver the Shares to be sold
by it to the Underwriters as provided herein. This Agreement has been duly
authorized, executed and delivered by the Company and is a valid, legal and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as enforcement of rights to indemnity and contribution
hereunder may be limited by Federal or state securities laws or principles of
public policy and subject to the qualification that enforceability of the
Company's obligations hereunder may be limited by any applicable bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium or other laws
affecting the creditors' rights generally and by general principles of equity;
(ix) None of the Company, the Subsidiaries is in violation of
its certificate or articles of incorporation or bylaws, or other organizational
documents, or is in default in the performance or observance of any material
obligation, agreement or condition contained in any bond, debenture, note or
other evidence of indebtedness, or other material agreement, lease or instrument
that is filed as an exhibit to the Registration Statement, except as may be
disclosed in the Prospectus;
(x) Neither the issuance, offer, sale or delivery of the
Shares, the execution, delivery or performance of this Agreement, compliance by
the Company with the provisions hereof, nor consummation by the Company of the
transactions contemplated hereby conflicts or will conflict with or constitutes
or will constitute a breach of, or a default under, the certificate or articles
of incorporation or bylaws, or other organizational documents, of the Company or
any of the Subsidiaries or any agreement, indenture, lease or other instrument
to which the Company or any of the Subsidiaries is a party or by which any of
them or any of their respective properties is bound which has been described in
or filed as an exhibit to the Registration Statement or to an Incorporated
Document, or is known to such counsel after reasonable inquiry, or will result
in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of the Subsidiaries, nor (assuming
compliance with all applicable state or foreign securities and Blue Sky laws)
will any such action result in any violation of any existing statute, law, rule,
regulation, ruling, judgment, injunction, order or decree applicable to the
Company, the Subsidiaries, or any of their respective properties;
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(xi) No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency, or official is required on the part of the
Company (except as have been obtained under the Act and the Exchange Act or such
as may be required under state or foreign securities or Blue Sky laws governing
the purchase and distribution of the Shares) for the valid issuance and sale of
the Shares to the Underwriters as contemplated by this Agreement;
(xii) The Registration Statement and the Prospectus and any
supplements or amendments thereto (except for the financial statements and the
notes thereto and the schedules and other financial and statistical data
included therein, as to which such counsel need not express any opinion) comply
as to form in all material respects with the requirements of the Act; and each
of the Incorporated Documents (except for the financial statements and the notes
thereto and the schedules and other financial and statistical data included
therein, as to which counsel need not express any opinion) complies as to form
in all material respects with the Exchange Act and the rules and regulations of
the Commission thereunder;
(xiii) (A) Other than as described in the Prospectus (or any
amendment or supplement thereto), there are no legal or governmental proceedings
pending or, to the knowledge of such counsel after reasonable inquiry threatened
against the Company or any of the Subsidiaries, or to which the Company or any
of the Subsidiaries, or any of their property, is subject which are required to
be described in the Registration Statement or Prospectus (or any amendment or
supplement thereto), (B) there are no agreements, contracts, indentures, leases
or other instruments that are required to be described in the Registration
Statement or the Prospectus (or any amendment or supplement thereto) or to be
filed as an exhibit to the Registration Statement or to an Incorporated
Document, as the case may be, that are not described or filed as required and
(C) other than as described in the Prospectus (or any amendment or supplement
thereto), there are no outstanding options, warrants or other rights calling for
the issuance of, and such counsel knows of no commitment, plan or arrangement to
issue any share of capital stock of the Company or any security convertible into
or exercisable or exchangeable for capital stock of the Company or of any
Subsidiary;
(xiv) To the knowledge of such counsel after reasonable
inquiry, neither the Company nor any of the Subsidiaries is in violation of any
statute, law, ordinance, administrative or governmental rule or regulation
applicable to the Company or any of the Subsidiaries or of any judgment,
injunction, order or decree of any court or governmental agency or body having
jurisdiction over the Company or any of the Subsidiaries;
(xv) The statements in the Registration Statement and
Prospectus (including in the Incorporated Documents), insofar as they are
descriptions of contracts, agreements, instruments or other legal documents, or
refer to statements of law or legal conclusions, are accurate in all material
respects and present fairly the information required to be shown;
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(xvi) Upon delivery of the Shares pursuant to this Agreement
and payment therefor as contemplated herein the Underwriters will acquire good
and marketable title to the Shares free and clear of any lien, claim, security
interest, or other encumbrance, restriction on transfer or other defect in
title;
(xvii) The Shares, subject to official notice of issuance, have
been approved for listing on the Nasdaq National Market; and
(xviii) The Company is not an "investment company" or a person
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
In addition, such counsel shall state that although such counsel has not
undertaken to determine independently, and does not assume any responsibility
for, the accuracy or completeness of the statements in the Registration
Statement, such counsel has participated in conferences with officers and other
representatives of the Company and its Subsidiaries, representatives of the
independent public accountants of the Company and representatives of the
Underwriters at which the contents of the Registration Statement and the
Prospectus (including the Incorporated Documents) and related matters were
reviewed and discussed, and participated in the preparation of the Registration
Statement and the Prospectus and nothing has come to the attention of such
counsel that has caused such counsel to believe that the Registration Statement
(including the Incorporated Documents) at the time the Registration Statement
became effective, or the Prospectus, as of its date and as of the Closing Date
or the Option Closing Date, as the case may be, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that any amendment
or supplement to the Prospectus, as of its respective date, and as of the
Closing Date or the Option Closing Date, as the case may be, contained any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need express no opinion with respect to the financial
statements and the notes thereto and the schedules and other financial and
statistical data included in the Registration Statement or the Prospectus or any
Incorporated Document).
In rendering such opinion as aforesaid, counsel may rely upon an opinion or
opinions, each dated the Closing Date, of other counsel retained by them or the
Company as to laws of any jurisdiction other than the United States, the State
of New York, the State of New Jersey or the Commonwealth of Pennsylvania or the
General Corporation Law of Delaware, provided that (1) each such local counsel
is acceptable to the Representatives, (2) such reliance is expressly authorized
by each opinion so relied upon and a copy of each such opinion is addressed and
delivered to the Representatives and is in form and substance satisfactory to
them and their counsel, and (3) counsel shall state in their opinion that they
believe that he and the Underwriters are justified in relying thereon.
22
<PAGE>
(d) You shall have received on the Closing Date, an opinion of Robert M.
Kramer, Esq., corporate counsel for the Company, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, to the effect
that:
(i) The Company and each of the Subsidiaries has full corporate
power and authority, and all necessary governmental authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental regulatory officials and bodies (except where the failure so to
have any such authorizations, approvals, orders, licenses, certificates,
franchises or permits, individually or in the aggregate, would not have a
material adverse effect on the condition (financial or other), business,
properties, net worth or results of operations of the Company and the
Subsidiaries taken as a whole, to own their respective properties and to conduct
their respective businesses as now being conducted, as described in the
Prospectus;
(ii) Except as disclosed in the Prospectus, the Company owns of
record, all the outstanding shares of capital stock of each of the Subsidiaries
free and clear of any lien, adverse claim, security interest, equity, or other
encumbrance;
(iii) Other than as described or contemplated in the Prospectus (or
any supplement thereto), there are no legal or governmental proceedings pending
or threatened against the Company or any of the Subsidiaries, or to which the
Company or any of the Subsidiaries or any of their property, is subject, which
are required to be described in the Registration Statement or Prospectus (or any
amendment or supplement thereto);
(iv) There are no agreements, contracts, indentures, leases or
other instruments that are required to be described in the Registration
Statement or the Prospectus (or any amendment or supplement thereto) or to be
filed as an exhibit to the Registration Statement or any Incorporated Document
that are not described or filed as required, as the case may be;
(v) The Company and the Subsidiaries own all patents, trademarks,
trademark registrations, service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights described in the
Prospectus as being owned by them or any of them or necessary for the conduct of
their respective businesses, and such counsel is not aware of any claim to the
contrary or any challenge by any other person to the rights of the Company and
the Subsidiaries with respect to the foregoing;
(vi) Neither the Company nor any of the Subsidiaries is in
violation of any law, ordinance, administrative or governmental rule or
regulation applicable to the Company or any of the Subsidiaries or of any decree
of any court or governmental agency or body having jurisdiction over the Company
or any of the Subsidiaries;
(vii) Except as described in the Prospectus, there are no
outstanding options, warrants or other rights calling for the issuance of, and
such counsel does not know of any
23
<PAGE>
commitment, plan or arrangement to issue, any shares of capital stock of the
Company or any security convertible into or exchangeable or exercisable for
capital stock of the Company; and
(viii) Except as described in the Prospectus, there is no holder of
any security of the Company or any other person who has the right, contractual
or otherwise, to cause the Company to sell or otherwise issue to them, or to
permit them to underwrite the sale of, the Shares or the right to have any
Common Stock or other securities of the Company included in the registration
statement or the right, as a result of the filing of the registration statement,
to require registration under the Act of any shares of Common Stock or other
securities of the Company, which right has not been waived.
(e) You shall have received on the Closing Date an opinion of Morgan,
Lewis & Bockius LLP, counsel for the Underwriters, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, with respect
to the matters referred to in the first sentence of clause (v), clause (vii),
the first sentence of (viii) and clause (xii) of the foregoing paragraph (c) and
such other related matters as you may request.
(f) You shall have received letters addressed to you, as Representatives
of the several Underwriters, and dated the date hereof and the Closing Date from
each of (i) Ernst & Young LLP, (ii) BDO Seidman, LLP, (iii) B.J. Klinger & Co.,
P.C., (iv) Bardall, Weintraub, P.C., (v) Boyer and Ritter, CPAs, (vi)
Paternostro, Callahan & DeFreitas, LLP, (vii) Serra & McGrath, LLP, and (viii)
Erwin & Associates, each of which are independent certified public accountants,
substantially in the forms heretofore approved by you.
(g) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been taken or, to the knowledge of the Company or the Underwriters, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there shall
not have been any change in the capital stock of the Company nor any material
increase in the short-term or long-term debt of the Company (other than in the
ordinary course of business) from that set forth or contemplated in the
Registration Statement or the Prospectus (or any amendment or supplement
thereto); (iii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement and the Prospectus (or
any amendment or supplement thereto), except as may otherwise be stated in the
Registration Statement and Prospectus (or any amendment or supplement thereto),
any material adverse change in the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company and the
Subsidiaries taken as a whole; (iv) the Company and the Subsidiaries shall not
have any liabilities or obligations, direct or contingent (whether or not in the
ordinary course of business), that are material to the Company and the
Subsidiaries, taken as a whole, other than those reflected in the Registration
Statement or the Prospectus (or any amendment or supplement thereto); and (v)
all the representations and warranties of the Company contained in this
Agreement shall be true and correct on and as of the date hereof and on and as
of the Closing Date as if made on and as of the Closing Date, and you shall have
received a certificate, dated the Closing Date and signed by the chief executive
officer and the chief financial officer of the Company (or such other officers
as
24
<PAGE>
are acceptable to you), to the effect set forth in this Section 8(f) and in
Section 8(g), 8(h) and 8(j) hereof.
(h) The acquisitions of Waste Services Inc., Golden Gate Carting, Co.
Inc., Coney Island Rubbish Removal, Inc., Combined Waste Services, Inc., Ameri
Carting, Inc., A-1 Carting Corp., C&R Waste Removal, Inc. and Environmental
Waste Systems Inc. shall have been consummated as of the Closing Date on
substantially the terms set forth in the Registration Statement and the
Acquisition Agreements relating thereto without waiver or modifications of any
material term or provision of such Acquisition Agreements, except as may be
approved by you.
(i) The Company shall not have failed at or prior to the Closing Date
to have performed or complied with any of its agreements herein contained and
required to be performed or complied with by it hereunder at or prior to the
Closing Date.
(j) The Shares shall have been listed or approved for quotation upon
notice of issuance on the Nasdaq National Market.
(k) The Company shall have furnished or caused to be furnished to you
such further certificates and documents as you shall have requested.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and your counsel.
Any certificate or document signed by any officer of the Company and
delivered to you, as Representatives of the Underwriters, or to counsel for the
Underwriters, shall be deemed a representation and warranty by the Company to
each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the satisfaction on and as of any Option Closing Date
of the conditions set forth in this Section 8, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (g) and (k) shall be dated the
Option Closing Date in question and the opinions and letter called for by
paragraphs (c), (d) and (e) shall be revised to reflect the sale of Additional
Shares.
9. Expenses. The Company agrees to pay the following costs and expenses
--------
and all other costs and expenses incident to the performance by it of its
obligations hereunder: (i) the preparation, printing or reproduction, and filing
with the Commission of the Registration Statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight or similar charges
and charges for counting and packaging) of such copies of the Registration
Statement, each Prepricing Prospectus, the Prospectus, the Incorporated
Documents and all amendments or supplements to any of them as may be reasonably
requested for use in connection with the offering and sale of the Shares; (iii)
the preparation, printing, authentication, issuance and
25
<PAGE>
delivery of certificates for the Shares, including any stamp taxes in connection
with the original issuance and sale of the Shares; (iv) the printing (or
reproduction) and delivery of this Agreement, the Blue Sky Memorandum and all
other agreements or documents printed (or reproduced) and delivered in
connection with the offering of the Shares; (v) the quotation of the Shares on
the Nasdaq National Market; (vi) the registration or qualification of the Shares
for offer and sale under the securities or Blue Sky laws of the several states
as provided in Section 5(g) hereof (including the reasonable fees, expenses and
disbursements of counsel for the Underwriters relating to the preparation,
printing or reproduction, and delivery of the Blue Sky Memorandum and such
registration and qualification); (vii) the filing fees and the fees and expenses
of counsel for the Underwriters in connection with any filings required to be
made with the National Association of Securities Dealers, Inc.; (viii) the
transportation and other expenses incurred by or on behalf of Company
representatives in connection with presentations to prospective purchasers of
the Shares; and (ix) the fees and expenses of the Company's accountants and the
fees and expenses of counsel (including local and special counsel) for the
Company.
10. Effective Date of Agreement. This Agreement shall become effective:
---------------------------
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
registration statement or a post-effective amendment thereto to be declared
effective before the offering of the Shares may commence, when notification of
the effectiveness of the registration statement or such post-effective amendment
has been released by the Commission. Until such time as this Agreement shall
have become effective, it may be terminated by the Company, by notifying you, or
by you, as Representatives of the several Underwriters, by notifying the
Company.
If any one or more of the Underwriters shall fail or refuse to purchase
Shares which it or they are obligated to purchase hereunder on the Closing Date,
and the aggregate number of Shares which such defaulting Underwriter or
Underwriters are obligated but fail or refuse to purchase is not more than one-
tenth of the aggregate number of Shares which the Underwriters are obligated to
purchase on the Closing Date, each non-defaulting Underwriter shall be
obligated, severally, in the proportion which the number of Firm Shares set
forth opposite its name in Schedule I hereto bears to the aggregate number of
Firm Shares set forth opposite the names of all non-defaulting Underwriters or
in such other proportion as you may specify in accordance with Section 20 of the
Master Agreement Among Underwriters of Smith Barney Inc., to purchase the Shares
which such defaulting Underwriter or Underwriters are obligated, but fail or
refuse, to purchase. If any one or more of the Underwriters shall fail or
refuse to purchase Shares which it or they are obligated to purchase on the
Closing Date and the aggregate number of Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Shares which
the Underwriters are obligated to purchase on the Closing Date and arrangements
satisfactory to you and the Company for the purchase of such Shares by one or
more non-defaulting Underwriters or other party or parties approved by you and
the Company are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case which does not result in termination of this
Agreement, either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required
26
<PAGE>
changes, if any, in the Registration Statement and the Prospectus or any other
documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve any defaulting Underwriter from liability in respect
of any such default of any such Underwriter under this Agreement. The term
"Underwriter" as used in this Agreement includes, for all purposes of this
Agreement, any party not listed in Schedule I hereto who, with your approval and
the approval of the Company, purchases Shares which a defaulting Underwriter is
obligated, but fails or refuses, to purchase.
Any notice under this Section 10 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
11. Termination of Agreement. This Agreement shall be subject to
------------------------
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company by notice to the Company, if prior to the Closing
Date or any Option Closing Date (if different from the Closing Date and then
only as to the Additional Shares), as the case may be, (i) trading in securities
generally on the New York Stock Exchange, American Stock Exchange or the Nasdaq
National Market shall have been suspended or materially limited, (ii) a general
moratorium on commercial banking activities in New York or New Jersey shall have
been declared by either federal or state authorities, or (iii) there shall have
occurred any outbreak or escalation of hostilities or other international or
domestic calamity, crisis or change in political, financial or economic
conditions, the effect of which on the financial markets of the United States is
such as to make it, in your judgment, impracticable or inadvisable to commence
or continue the offering of the Shares at the offering price to the public set
forth on the cover page of the Prospectus or to enforce contracts for the resale
of the Shares by the Underwriters. Notice of such termination may be given to
the Company by telegram, telecopy or telephone and shall be subsequently
confirmed by letter.
12. Information Furnished by the Underwriters. The statements set forth
-----------------------------------------
in the last paragraph on the cover page, the stabilization legend on the inside
cover page, and the statements in the first, third and ninth paragraphs under
the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 6(b) and 7 hereof.
13. Miscellaneous. Except as otherwise provided in Sections 5, 10 and 11
-------------
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at 1000 Crawford Place, Mt. Laurel, NJ 08054, Attention: Chief Executive
Officer; or (ii) if to you, as Representatives of the several Underwriters, in
care of Smith Barney Inc., 388 Greenwich Street, New York, New York 10013,
Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of the several
Underwriters, the Company, its directors and officers, and the other controlling
persons referred to in Section 7 hereof and their respective successors and
assigns, to the extent provided herein, and no other person shall acquire or
have any right under or by virtue of this Agreement. Neither the term
"successor" nor the
27
<PAGE>
term "successors and assigns" as used in this Agreement shall include a
purchaser from any Underwriter of any of the Shares in his status as such
purchaser.
14. Applicable Law; Counterparts. This Agreement shall be governed by and
----------------------------
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
28
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters with respect to the matters
addressed herein.
Very truly yours,
EASTERN ENVIRONMENTAL SERVICES, INC.
By:
------------------------------------------
Name:
Title:
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SMITH BARNEY INC.
OPPENHEIMER & CO., INC.
SANDERS MORRIS MUNDY
PACIFIC GROWTH EQUITIES, INC.
VAN KASPER & COMPANY
As Representatives of the Several Underwriters
By: SMITH BARNEY INC.
By:
------------------------------
Name:
Title:
29
<PAGE>
SCHEDULE I
EASTERN ENVIRONMENTAL SERVICES, INC.
<TABLE>
<CAPTION>
Number of
Underwriter Firm Shares
- ------------ -----------
<S> <C>
Smith Barney Inc. ................
Oppenheimer & Co., Inc. ..........
Sanders Morris Mundy..............
Pacific Growth Equities, Inc. ....
Van Kasper & Company .............
-----------
Total ........................... 4,500,000
-----------
</TABLE>
<PAGE>
Exhibit A
to Underwriting Agreement
EASTERN ENVIRONMENTAL SERVICES INC.
LOCK-UP LETTER
, 1997
SMITH BARNEY INC.
OPPENHEIMER & CO., INC.
SANDERS MORRIS MUNDY INC.
PACIFIC GROWTH EQUITIES, INC.
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, NY 10013
Ladies and Gentlemen:
The undersigned understands that you and certain other firms propose to
enter into an Underwriting Agreement (the "Underwriting Agreement") providing
for the purchase by you and such other firms (the "Underwriters") of shares (the
"Shares") of Common Stock, par value $0.01 per share (the "Common Stock"), of
Eastern Environmental Services, Inc. (the "Company") and that the Underwriters
propose to reoffer the Shares to the public.
In consideration of the execution of the Underwriting Agreement by the
Underwriters, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that without the prior written consent of Smith Barney
Inc. the undersigned will not sell, offer to sell, solicit an offer to buy,
contract to sell, grant any option to purchase, or otherwise transfer or dispose
of, any shares of Common Stock, or any securities convertible into or
exercisable or exchangeable for Common Stock, for a period of 120 days after the
date of the final Prospectus relating to the offering of the Shares to the
public by the Underwriters, except that the undersigned may make gifts of such
securities to members of the undersigned's "immediate family" (as such term is
defined under Item 404 of Regulation S-K under the Securities Act of 1933) or
transfer such securities to one or more trusts established for the benefit of
members of the undersigned's immediate family; provided, that any such
--------
transferee agrees in writing to be bound by the terms hereof. Notwithstanding
the foregoing, nothing herein shall prohibit the undersigned from exercising any
options granted to the undersigned under any Company stock option or other
benefit or incentive plan or warrants held by
<PAGE>
Smith Barney Inc., et al.
, 1997
Page 2
the undersigned so long as the shares of Common Stock underlying such options or
warrants are held subject to the terms of this letter.
The undersigned agrees that the provisions of this agreement shall be
binding also upon the successors, assigns, heirs and personal representatives of
the undersigned.
In furtherance of the foregoing, the Company and American Stock Transfer
and Trust Company, its transfer agent, are hereby authorized to decline to make
any transfer of securities if such transfer would constitute a violation or
breach of this letter agreement.
It is understood that, if the Underwriting Agreement does not become
effective in accordance with its terms on or before December 31, 1997, or if the
Underwriting Agreement (other than the provisions thereof which survive
termination) shall terminate or be terminated prior to payment for and delivery
of the Shares, shall become null and void and of no further force or effect.
Very truly yours,
--------------------------------------
[Name of Signatory]
<PAGE>
Exhibit B
to Underwriting Agreement
EASTERN ENVIRONMENTAL SERVICES INC.
LOCK-UP LETTER
, 1997
SMITH BARNEY INC.
OPPENHEIMER & CO., INC.
SANDERS MORRIS MUNDY INC.
PACIFIC GROWTH EQUITIES, INC.
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, NY 10013
Ladies and Gentlemen:
The undersigned understands that you and certain other firms propose to
enter into an Underwriting Agreement (the "Underwriting Agreement") providing
for the purchase by you and such other firms (the "Underwriters") of shares (the
"Shares") of Common Stock, par value $0.01 per share (the "Common Stock"), of
Eastern Environmental Services, Inc. (the "Company") and that the Underwriters
propose to reoffer the Shares to the public.
In consideration of the execution of the Underwriting Agreement by the
Underwriters, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that without the prior written consent of Smith Barney
Inc. the undersigned will not sell, offer to sell, solicit an offer to buy,
contract to sell, grant any option to purchase, or otherwise transfer or dispose
of, any shares of Common Stock, or any securities convertible into or
exercisable or exchangeable for Common Stock, for a period of 90 days after the
date of the final Prospectus relating to the offering of the Shares to the
public by the Underwriters, except that the undersigned may make gifts of such
securities to members of the undersigned's "immediate family" (as such term is
defined under Item 404 of Regulation S-K under the Securities Act of 1933) or
transfer such securities to one or more trusts established for the benefit of
members of the undersigned's immediate family; provided, that any such
--------
transferee agrees in writing to be bound by the terms hereof. Notwithstanding
the foregoing, nothing herein shall prohibit the undersigned from exercising any
options granted to the undersigned under any Company stock option or other
benefit or incentive plan or warrants held by
<PAGE>
Smith Barney Inc., et al.
, 1997
Page 2
the undersigned so long as the shares of Common Stock underlying such options or
warrants are held subject to the terms of this letter.
The undersigned agrees that the provisions of this agreement shall be
binding also upon the successors, assigns, heirs and personal representatives of
the undersigned.
In furtherance of the foregoing, the Company and American Stock Transfer
and Trust Company, its transfer agent, are hereby authorized to decline to make
any transfer of securities if such transfer would constitute a violation or
breach of this letter agreement.
It is understood that, if the Underwriting Agreement does not become
effective in accordance with its terms on or before December 31, 1997, or if the
Underwriting Agreement (other than the provisions thereof which survive
termination) shall terminate or be terminated prior to payment for and delivery
of the Shares, shall become null and void and of no further force or effect.
Very truly yours,
--------------------------------------
[Name of Signatory]
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the references to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
May 13, 1997, in this Registration Statement and related Prospectus of Eastern
Environmental Services, Inc. for the registration of 4,500,000 shares of its
common stock.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
May 13, 1997
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in this
Registration Statement on Form S-3 and related Prospectus of Eastern
Environmental Services, Inc. and 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 this Registration Statement on Form S-3
and related Prospectus of Eastern Environmental Services, Inc., of our report
dated August 19, 1996, with respect to the combined financial statements of
Allied Environmental Services, Inc., Allied Environmental Services West, Inc.,
Allied Mid-Atlantic Inc., and Allied Waste Management, Inc. included in Eastern
Environmental Services, Inc.'s and affiliates included in Eastern Environmental
Services, Inc.'s Current Report on Form 8-K dated July 2, 1996 (as amended on
Forms 8-K/A dated September 16, 1996), both filed with the Securities and
Exchange Commission.
/s/ B.J. Klinger & Co., P.C.
Great Neck, New York
May 12, 1997
<PAGE>
EXHIBIT 23.3
Consent of Independent Auditors
Allied Environmental Services, Inc. and Affiliates
Merrick, New York
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 and related Prospectus of Eastern Environmental Services,
Inc. of our reports relating to the combined financial statements of Allied
Environmental Services, Inc. and affiliates dated October 12, 1995 (except for
Notes 1 and 7 which are June 25, 1996) for the five month period ended November
30, 1994 and seven month period ended June 30, 1995 and November 12, 1996 for
the year ended June 30, 1996, included in Eastern Environmental Services, Inc.'s
Form 8-K dated July 2, 1996 (as amended on Form 8-K/A dated September 16, 1996
and May 13, 1997).
We also consent to the reference to us under the caption "Experts" in the
Prospectus constituting a part of the Registration Statement on Form S-3.
/s/ BDO Seidman, LLP
Philadelphia, Pennsylvania
May 13, 1997
<PAGE>
Exhibit 23.4
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in this
Registration Statement on Form S-3 and related Prospectus of Eastern
Environmental Services, Inc. and 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 this Registration Statement on Form S-3
and related Prospectus of Eastern Environmental Services, Inc., of our report
dated September 30, 1996, with respect to the combined comparative financial
statements of Super Kwik, Inc. and Waste Maintenance Services, Inc. included in
Eastern Environmental Services, Inc.'s Current Report on Form 8-K dated
September 27, 1996 (as amended on Form 8-K/A filed December 9, 1996), both filed
with the Securities and Exchange Commission.
/s/ Bardall, Weintraub P.C.
Turnersville, New Jersey
May 12, 1997
<PAGE>
Exhibit 23.5
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in this
Registration Statement on Form S-3 and related Prospectus of Eastern
Environmental Services, Inc. and 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 this Registration Statement on Form S-3
and related Prospectus of Eastern Environmental Services, Inc., of our reports
dated December 27, 1996, with respect to the audited financial statements of R&A
Bender, Inc., and R&A Bender Properties, Ltd., and of our reports dated January
24, 1997; January 27, 1997; and January 29, 1997 with respect to the compiled
financial statements of R&A Bender, Inc., and R&A Bender Properties, LTD.,
included in Eastern Environmental Services, Inc.'s Current Report on Form 8-K
dated December 10, 1996 (as amended on Form 8-K/A filed February 11, 1997), both
filed with the Securities and Exchange Commission.
/s/ Boyer & Ritter
Chambersburg, Pennsylvania
May 12, 1997
<PAGE>
Exhibit 23.6
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in this
Registration Statement on Form S-3 and related Prospectus of Eastern
Environmental Services, Inc. and 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 this Registration Statement on Form S-3
and related Prospectus of Eastern Environmental Services, Inc., of our report
dated March 3, 1997, with respect to the combined financial statements of Donno
Company, Inc. and affiliates included in Eastern Environmental Services, Inc.'s
Current Report on Form 8-K dated January 31, 1997 (as amended on Form 8-K/A
filed April 15, 1997), both filed with the Securities and Exchange Commission.
/s/ Paternostro, Callahan & DeFreitas, LLP
Mineola, New York
May 14, 1997
<PAGE>
Exhibit 23.7
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in this
Registration Statement on Form S-3 and related Prospectus of Eastern
Environmental Services, Inc. and 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 this Registration Statement on Form S-3
and related Prospectus of Eastern Environmental Services, Inc., of our report
dated April 22, 1997, with respect to the financial statements of Apex Waste
Services, Inc. included in Eastern Environmental Services, Inc.'s Current Report
on Form 8-K dated March 31, 1997 (as amended on Form 8-K/A filed May 14, 1997),
both filed with the Securities and Exchange Commission.
/s/ DANIEL P. IRWIN AND ASSOCIATES P.C.
Stafford-Wayne, Pennsylvania
May 14, 1997
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