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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 1997 COMMISSION FILE NO. 0-16102
EASTERN ENVIRONMENTAL SERVICES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
59-2840783
(I.R.S. Employer Identification No.)
1000 CRAWFORD PLACE, SUITE 400, MOUNT LAUREL, NJ 08054
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NO., INCLUDING AREA CODE: (609) 235-6009
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
----
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock:
As of February 10, 1998 23,058,249 Shares of Common Stock
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EASTERN ENVIRONMENTAL SERVICES, INC.
FORM 10-Q
QUARTER ENDED DECEMBER 31, 1997
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1997
and June 30, 1997 (Restated) 1
Condensed Consolidated Statements of Operations for the three
months ended December 31, 1997 and 1996 (Restated) 3
Condensed Consolidated Statements of Operations for the six
months ended December 31, 1997 and 1996 (Restated) 4
Condensed Consolidated Statement of Stockholders' Equity
for the six months ended December 31, 1997 5
Condensed Consolidated Statements of Cash Flows for the
six months ended December 31, 1997 and 1996 (Restated) 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II - OTHER INFORMATION
Item 2 - Changes in Securities 15
Item 6 - Exhibits and Reports on Form 8-K 16
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
EASTERN ENVIRONMENTAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1997 1997
--------------- -------------
(RESTATED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,231,625 $ 4,327,824
Accounts receivable, less allowance for doubtful
accounts of $2,660,000 and $1,938,000 21,689,297 14,995,160
Deferred income taxes 1,410,000 3,369,014
Prepaid expenses and other current assets 3,660,110 4,891,017
--------------- -------------
Total current assets 31,991,032 27,583,015
Property and equipment:
Land 12,200,635 7,356,298
Landfill sites 84,504,765 33,780,283
Buildings and leasehold improvements 10,141,599 7,337,783
Vehicles 30,789,474 23,569,507
Machinery and equipment 25,842,594 19,960,249
Furniture and fixtures 2,180,206 1,536,847
--------------- -------------
Total property and equipment 165,659,273 93,540,967
Accumulated depreciation and amortization 30,663,542 25,222,460
--------------- -------------
134,995,731 68,318,507
Excess cost over fair market value of net assets acquired,
net of $1,656,000 and $875,000 accumulated amortization 71,285,712 60,302,159
Other intangible assets, net of $5,323,000 and
$3,550,000 accumulated amortization 14,412,328 6,594,967
Notes receivable from shareholders/officers 432,902 432,902
Other assets (including $556,000 and $533,000 of restricted
cash on deposit for landfill closure and
insurance bonding) 3,052,190 2,476,576
--------------- -------------
TOTAL ASSETS $256,169,895 $165,708,126
=============== =============
</TABLE>
1
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<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1997
--------------- -------------
(RESTATED)
<S> <C> <C>
Current liabilities:
Accounts payable $ 7,439,366 $ 9,067,337
Accrued expenses and other current liabilities 12,990,512 10,967,045
Income taxes payable 63,446 773,218
Current portion of accrued landfill closure and other
environmental costs 2,078,000 2,228,000
Current portion of long-term debt 1,235,245 2,075,059
Current portion of capital lease obligations 1,238,789 1,474,656
Deferred revenue 3,452,693 2,968,306
--------------- -------------
Total current liabilities 28,498,051 29,553,621
Deferred income taxes 2,880,576 5,716,590
Long-term debt, net of current portion 51,197,650 59,608,730
Capital lease obligations, net of current portion 1,258,993 1,843,914
Accrued landfill closure and other environmental costs 11,318,127 6,891,219
Other liabilities 13,221,023 9,151,246
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares - 50,000,000
Issued and outstanding shares 22,991,532 and 16,867,987 229,915 168,680
Additional paid-in capital 140,994,498 50,119,596
Retained earnings 6,647,321 2,730,789
--------------- -------------
147,871,734 53,019,065
Less treasury stock at cost - 39,100 common shares (76,259) (76,259)
--------------- -------------
Total stockholders' equity 147,795,475 52,942,806
--------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $256,169,895 $165,708,126
=============== =============
</TABLE>
See accompanying notes.
2
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EASTERN ENVIRONMENTAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
---------------------------
1997 1996
--------------- ----------
(RESTATED)
<S> <C> <C>
Revenues $39,104,944 $23,475,598
Cost of revenues 24,078,355 17,328,599
Selling, general and administrative expenses 5,712,901 2,996,648
Depreciation and amortization 3,041,203 1,253,144
Merger costs 2,225,000 --
--------------- ----------
Operating income 4,047,485 1,897,207
Interest expense, net (278,628) (549,297)
Other income (expense) 94,811 95,738
--------------- ----------
Income before income taxes 3,863,668 1,443,648
Income tax expense - See Note 5 1,742,000 32,978
--------------- ----------
Net income $ 2,121,668 $ 1,410,670
=============== ==========
Basic earnings per share $.09 $.10
=============== ==========
Weighted average number of shares outstanding 22,844,793 14,499,545
=============== ==========
Diluted earnings per share $.09 $.09
=============== ==========
Weighted average number of shares outstanding 24,400,127 15,337,261
=============== ==========
</TABLE>
3
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EASTERN ENVIRONMENTAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
------------------------
1997 1996
------------ ---------
(RESTATED)
<S> <C> <C>
Revenues $77,959,150 $41,348,532
Cost of revenues 49,437,429 31,139,743
Selling, general and administrative expenses 11,455,113 5,512,913
Depreciation and amortization 5,424,432 1,966,010
Merger costs 2,725,000 1,856,340
----------- -----------
Operating income 8,917,176 873,526
Interest expense, net (977,794) (688,313)
Other income (expense) 273,564 86,271
----------- -----------
Income before income taxes 8,212,946 271,484
Income tax expense - See Note 5 3,556,000 712,992
----------- -----------
Net income (loss) $ 4,656,946 $ (441,508)
=========== ===========
Basic earnings (loss) per share $.21 $(.03)
=========== ===========
Weighted average number of shares outstanding 21,681,129 13,640,798
=========== ===========
Diluted earnings (loss) per share $.20 $(.03)
=========== ===========
Weighted average number of shares outstanding 23,228,066 13,640,798
=========== ===========
</TABLE>
4
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EASTERN ENVIRONMENTAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
--------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at
June 30, 1997 (Restated) $168,680 $ 50,119,596 $2,730,789 $(76,259) $ 52,942,806
Exercise of
common stock
options and warrants 3,537 1,739,707 -- -- 1,743,244
Income tax benefit from
exercise of non-qualified
stock options -- 1,245,469 -- -- 1,245,469
Proceeds from sale of
5,175,000 shares
of common stock,
less commissions and
issuance expenses of
$6,579,880 51,750 85,224,620 -- -- 85,276,370
Common stock issued for
acquisition accounted for as
a pooling of interests 2,167 140,833 -- -- 143,000
Revaluation of common
stock issued in purchase
acquisition -- (2,203,966) -- -- (2,203,966)
Transactions of pooled
company -- -- (617,150) -- (617,150)
Common stock issued
to satisfy debt obligation 158 291,421 -- -- 291,579
Common stock issued
in purchase acquisitions 3,623 4,436,818 __ -- 4,440,441
Dividends paid to former
stockholders of pooled companies -- -- (123,264) -- (123,264)
Net income -- -- 4,656,946 -- 4,656,946
--------- ------------ ----------- ---------- ------------
Balance at
December 31, 1997 $229,915 $140,994,498 $6,647,321 $(76,259) $147,795,475
========= ============ =========== ========== ============
</TABLE>
See accompanying notes.
5
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
-----------------------------
1997 1996
-------------- ------------
(RESTATED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 4,656,946 $ (441,508)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 5,424,432 1,966,010
Provision for losses on receivables 711,864 431,567
Landfill closure costs 350,499 95,195
Deferred income taxes (680,000) 651,561
Gain on sale of property and equipment (79,188) (399)
Changes in operating assets and liabilities:
Accounts receivable (3,992,720) (3,501,548)
Accounts payable (3,056,022) 291,729
Accrued expenses (3,102,569) 1,680,057
Income taxes 405,747 (2,600)
Deferred revenue 421,595 1,035,536
Prepaid expenses and other current assets 1,111,782 342,966
Other (441,563) (201,447)
------------- ------------
Net cash provided by operating activities 1,730,803 2,347,119
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired (44,082,331) (34,309,203)
Proceeds from sale of property and equipment 605,501 28,476
Development of landfill sites (5,259,781) (1,275,711)
Purchase of property and equipment (9,778,577) (3,054,802)
Payments for intangibles (816,713) (540,000)
Landfill closure and insurance bonding deposits (549,650) (79,802)
------------- ------------
Net cash used in investing activities (59,881,551) (39,231,042)
FINANCING ACTIVITIES
Proceeds from revolving line of credit, long-term debt
and capital lease obligations 35,622,082 34,706,083
Payments on revolving line of credit, long-term debt
and capital lease obligations (63,463,883) (6,264,533)
Payments on note payable to shareholder/officer -- (31,000)
Proceeds from the incorporation of Apex -- 3,250,000
Proceeds from issuance of common stock, net of
expenses and commissions 87,019,614 10,221,503
Cash dividends paid to former stockholders of
pooled companies (123,264) (270,405)
------------- ------------
Net cash provided by financing activities 59,054,549 41,611,648
------------- ------------
Net increase in cash and cash equivalents 903,801 4,727,725
Cash and cash equivalents at beginning of period 4,327,824 1,706,965
------------- ------------
Cash and cash equivalents at end of period $ 5,231,625 $ 6,434,690
============= ============
</TABLE>
See accompanying notes.
6
<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. and its wholly owned
subsidiaries (the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation. These condensed
consolidated financial statements reflect all adjustments (consisting of normal
recurring accruals), which in the opinion of management, are necessary for a
fair presentation of results of operations for the interim periods presented.
The Company has restated the previously issued financial statements for the
three months and six months ended December 31, 1996 to reflect mergers with the
Donno Company, Inc. and Affiliates ("Donno"), on January 31, 1997, Apex Waste
Services, Inc. ("Apex"), on March 31, 1997, and Hamm's Sanitation, Inc., and
H.S.S., Inc. ("Hamm's") on December 1, 1997 which were accounted for using the
"pooling of interests" method. Additionally, the balance sheet at June 30, 1997,
has been restated to reflect the Hamm's merger. The results of operations for
the three and six month periods ended December 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, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share. Statement 128, replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where necessary, restated to conform to the
Statement 128 requirements.
3. BUSINESS COMBINATIONS
From July 2, 1996 to December 31, 1997, the Company expanded its waste
collection and hauling operations through the acquisition of twenty five
businesses. The aggregate of these business acquisitions is significant to the
company. Twenty of the twenty five acquisitions completed were accounted for
using the purchase method of accounting. Accordingly, assets acquired and
liabilities assumed have been recorded at their estimated fair values at the
dates of acquisition and their results of operations are included in the
accompanying condensed consolidated statements of operations since the date of
acquisition. The excess of purchase price over the estimated fair market value
of identifiable net assets acquired is being amortized on a straight-line basis
over forty years from the date of acquisition. The purchase price allocations
are based on preliminary estimates as of the acquisition dates and are finalized
within one year from the date of acquisition.
On July 9, 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Reuben Smith Rubbish Removal Service, Inc.
("Reuben Smith") in exchange for 92,369 unregistered shares of the Company's
common stock and the assumption of $574,000 of debt. Reuben Smith, which
conducts a waste collection business in Atlantic City, New Jersey, was
integrated into Super Kwik, the Company's southern New Jersey regional
collection operation. This transaction was accounted for as a purchase.
On August 15, 1997, the Company completed the purchase of all the stock of
Pappy's, Inc. ("Pappy's") for total consideration of approximately $12,000,000
in cash. Pappy's operates as the Oak Avenue Landfill and is permitted to accept
construction and demolition debris and other residual wastes. The facility is
located north of Baltimore, Maryland. In addition to local waste, Pappy's will
accept waste for the Company's various collection operations located in New
York, New Jersey, and Pennsylvania markets. This transaction was accounted for
as a purchase.
7
<PAGE>
On August 20, 1997, the Company purchased all of the stock of Soil Remediation
of Philadelphia, Inc. ("SRP") in exchange for 270,000 unregistered shares of the
Company's common stock. SRP provides remediation services for petroleum
contaminated soil. This transaction was accounted for as a purchase.
On August 14, 1997, the Company completed its merger with Waste X and
approximately 216,667 unregistered shares of the Company's common stock were
issued in exchange for all outstanding stock of Waste X. An additional issuance
of the Company's common stock of up to 30% of the total consideration given may
be issuable pending the resolution of certain specific and general
contingencies. Waste X operates a municipal solid waste collection business in
the Miami and Ft. Lauderdale, Florida markets and was integrated into the
Company's South Florida regional operation. The transaction has been accounted
for using the pooling of interests method, and accordingly, the accompanying
condensed consolidated financial statements include the accounts of Waste X for
the three months and six months ended December 31, 1997. Periods prior to the
consummation of the merger were not restated to include the accounts and
operations of Waste X as combined results are not materially different from the
results as presented.
On December 1, 1997, the Company completed its merger with Hamm's Sanitation,
Inc., and H.S.S., Inc. (collectively "Hamm's") and 715,032 unregistered shares
of the Company's common stock were issued in exchange for all the outstanding
stock of Hamm's. Hamm's provides municipal solid waste collection services to
approximately 21,000 commercial and residential customers in several
northwestern New Jersey counties. The transaction has been accounted for using
the pooling of interests method of accounting and, accordingly, the accompanying
condensed consolidated financial statements include the accounts of Hamm's for
all periods presented.
On December 1, 1997, the Company acquired from Delmarva Capital Technology all
of the outstanding stock of Pine Grove, Inc. ("Pine Grove"), its wholly owned
subsidiary, for approximately $46 million. The purchase price was comprised of
approximately $34.3 million in cash and the assumption of approximately $11.7
million of debt. Pine Grove, Inc. owns 100% of the outstanding stock of Pine
Grove Landfill, Inc., a 174 acre subtitle D solid waste disposal facility
located in east-central Pennsylvania, and Pine Grove Hauling Company, an
integrated solid waste collection company servicing residential and commercial
customers. This transaction was accounted for using the purchase method of
accounting.
On December 31, 1997, the Company acquired substantially all the assets of
Berger Waste Management, Inc. ("Berger") in exchange for $200,000 in cash. The
assets consisted primarily of vehicles, containers and customer lists. Berger,
which conducted a waste collection business in Illinois, was integrated into
Olney Sanitary System, Inc., the Company's Illinois collection operation. This
transaction was accounted for using the purchase method of accounting.
The combined and separate results of operations of the Company and Hamm's for
the six months ended December 31, 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
Eastern
Six months ended Environmental
December 31, 1997 Services, Inc. Hamm's Adjustments(1) Combined
- ------------------- -------------- ------- ----------- --------
<S> <C> <C> <C> <C>
Revenues $69,589 $8,370 - $77,959
Net income $ 5,569 $1,038 $(1,950) $ 4,657
</TABLE>
(1) merger costs relating to the acquisition of Hamm's of $1,950,000.
Combined and separate results of operations of the Company, the Donno Companies,
Apex, and Hamm's for the six months ended December 31, 1996 were as follows (in
thousands):
<TABLE>
<CAPTION>
Eastern
Six months ended Environmental Donno
December 31, 1996 Services, Inc. Companies Apex Hamm's Combined
- ------------------- --------------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $21,984 $6,537 $4,376 $8,452 $41,349
Net income (loss) $ (845) $ 146 $ 132 $ 125 $ (442)
</TABLE>
8
<PAGE>
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.
5. INCOME TAXES
The Company has recorded income tax provisions of $1.7 million and $3.6 million
for the three and six months ended December 31, 1997 respectively. These
provisions primarily relate to the recording of federal and state tax
liabilities at statutory rates, adjusted for certain non-deductible items.
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
-------------------------- ------------------------
12/31/97 12/31/96 12/31/97 12/31/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ 2,121,668 $ 1,410,670 $ 4,656,946 $ (441,508)
============ ============ ============ ============
Denominator:
Denominator for basic earnings
per share-weighted average shares 22,844,793 14,499,545 21,681,129 13,640,798
Effect of dilutive options and warrants 1,555,334 837,716 1,546,937 -
------------ ----------- ----------- ------------
Denominator for diluted earnings per
share 24,400,127 15,337,261 23,228,066 13,640,798
============ ============ ============ ============
Basic earnings (loss) per share $.09 $.10 $.21 $(.03)
============ ============ ============ ============
Diluted earnings (loss) per share $.09 $.09 $.20 $(.03)
============ ============ ============ ============
</TABLE>
7. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company acquired the assets of seven
collection companies in separate transactions. Total consideration under the
agreements consists of approximately 110,000 unregistered shares of the
Company's stock, and cash of approximately $5.1 million to the sellers. These
transactions will be accounted for using the purchase method of accounting.
Also subsequent to December 31, 1997, the Company entered into a merger
agreement with the shareholders of the Stamato Companies. This transaction is
subject to customary due diligence procedures and contain federal and state
regulatory approvals. Total consideration under the agreement consists of
approximately $31 million of common stock of the Company and the assumption of
approximately $8 milion of debt in exchange for all issued and outstanding stock
of the Stamato companies. The Stamato companies provide collection services to
commercial and residential customers in several nothern New Jersey counties.
This transaction is expexted to be accounted for as a pooling of interests.
9
<PAGE>
On February 12, 1998, the Company acquired The Kelly Run Landfill from USA Waste
Services, Inc. Consideration under the agreement consisted of 250,000
unregistered shares of common stock of the Company in exchange for all the
issued and outstanding shares of Kelly Run Landfill. This transaction will be
accounted for using the purchase method of accounting.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE
SIX MONTHS ENDED DECEMBER 31, 1996.
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 six months ended December 31, 1997 were comprised of
approximately 82% solid waste collection and transportation operations,
approximately 10% solid waste disposal operations, and approximately 8% other
waste management services.
The Company's solid waste collection operations earn revenues from fees
collected from residential, commercial, and industrial collection and transfer
station customers. Solid waste collection is provided under two primary types of
arrangements depending on the customers being served. Collection services for
commercial and industrial customers are generally performed under one to three
year service agreements. Collection services for residential customers generally
are performed under contracts with, or franchises granted by, municipalities or
regional authorities that grant the Company rights to service all or a portion
of the residents in their jurisdictions, except in rural areas where the Company
usually contracts directly with the customer. Such contracts or franchises
generally range in duration from one to three years. Recently, some
municipalities have bid their residential collection contracts based on the
volume of waste collected versus the number of households serviced. Residential
collection fees are either paid by the municipalities out of tax revenues or
service charges or paid directly by residents receiving the services.
As part of its solid waste collection operations, the Company's six owned or
operated transfer stations receive solid waste collected primarily by its
various collection operations, compact the waste and transfer it to larger
vehicles for transport to landfills. This procedure reduces the Company's costs
by improving its use of collection personnel and equipment.
The Company's solid waste landfills earn revenues from disposal fees charged to
third parties and from disposal fees charged to the Company's collection and
transportation operations that dispose of solid waste at the Company's
landfills. These landfills receive solid waste from the Company's own collection
companies and transfer stations, as well as from independent collection
operators. For the six months ended December 31, 1997, approximately 23% of the
Company's revenue generated from collection operations represented solid waste
collected by the Company that was delivered for disposal at its own landfills,
and approximately 31% of the Company's revenue generated from landfill disposal
operations represented solid waste disposed of at the Company's landfills that
was delivered by the Company.
The Company's prices for solid waste collection, transportation, and disposal
services are typically determined by the volume, weight, or type of waste
collected, as well as other factors including the competitive pricing
environment. The Company's ability to pass on cost increases may be limited by
the terms of its contracts.
COST OF REVENUES
Cost of revenues consists primarily of tipping fees paid to third party
landfills, accruals for future landfill closure and post-closure costs, direct
labor and related taxes and benefits, subcontracted transportation and equipment
rental charges, maintenance and repairs of equipment and facilities,
environmental compliance costs and site maintenance costs for landfills, fuel,
and landfill assessment fees and taxes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses consist primarily of management,
clerical and administrative salaries and costs and overhead, professional
services, facility rentals and associated costs, financial assurance bonding
premiums, and costs relating to marketing and sales.
The Company capitalizes direct incremental costs associated with purchase
acquisitions. Indirect development and acquisition costs, such as executive
salaries, corporate overhead, public relations, and other corporate services and
overhead are expensed as incurred. The Company also charges as an expense any
unamortized capitalized expenditures relating to proposed acquisitions that will
not be consummated.
At December 31, 1997, capitalized costs related directly to proposed
acquisitions that were not yet consummated were $492,000. 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 likely to be completed.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization consists primarily of depreciation of buildings,
vehicles, and machinery and equipment, amortization of capitalized direct
landfill development costs, and amortization expense related to intangible
assets including goodwill. Property and equipment is depreciated over the
estimated useful lives of the assets using the straight line method. Intangible
assets, including goodwill, are amortized over their useful lives using the
straight line method.
Certain direct engineering, legal, permitting, construction, and other costs
associated with expansion of landfills, together with related interest costs,
are capitalized and are amortized over the estimated useful life of the site
using the unit of production method as airspace is consumed. Successful
permitting of additional landfill disposal capacity improves the Company's
profitability by increasing the airspace over which the Company may amortize
capitalized costs of the landfill. At December 31, 1997, capitalized costs
related directly to the acquisition and expansion of existing and future
landfills and cell development were $84.5 million.
10
<PAGE>
The Company's policy is to charge as an expense any unamortized capitalized
expenditures and advances relating to any landfill that is permanently closed or
any landfill expansion project that is abandoned.
MERGER COSTS
In connection with acquisitions accounted for under the pooling of interests
method, the Company records various merger costs including transaction-related
expenses, contractual costs and certain transition costs including the cost to
bring the acquired assets into conformity with corporate safety and operational
standards.
OTHER INCOME (EXPENSE)
Other income and expense, which includes gains and losses on the sale of
equipment, has not historically been material to the Company's results of
operations.
TAXES
The tax provision of $3.6 million for the six months ended December 31, 1997,
principally relates to the recording of federal and state tax liabilities at
statutory rates, adjusted for certain non-deductible items. The tax provision
at December 31, 1996, principally relates to the completion of the merger with
Super Kwik, Inc., and reflects the recording of a deferred tax liability as of
the date of the merger, the date Super Kwik's S Corporation election was
terminated.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE
SIX MONTHS ENDED DECEMBER 31, 1996.
The following table presents the percentage each item in the consolidated
statements of operations bears to total revenues.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
------------
1997 1996
--------- ----------
(RESTATED)
<S> <C> <C>
Revenues 100.0 100.0
Cost of revenues 63.4 75.3
Selling, general and administrative expenses 14.7 13.3
Depreciation and amortization 7.0 4.8
Merger costs 3.5 4.5
--------- ----------
Operating income 11.4 2.1
Interest expense, net (1.3) (1.7)
Other income (expense) 0.4 0.2
--------- ----------
Income before income taxes 10.5 0.6
Income tax expense 4.5 1.7
--------- ----------
Net income (loss) 6.0 (1.1)
========= ==========
</TABLE>
11
<PAGE>
Revenues for the six months ended December 31, 1997, were $78.0 million compared
to $41.3 million for the six months ended December 31, 1996, an increase of
$36.7 million, or 89%. The principal factor affecting the increase in revenues
was the impact of acquisitions accounted for as purchases made in the past
twelve months, primarily consisting of Pappy's, Inc., Pine Grove, Inc., and
several solid waste collection companies in the New York and Florida markets,
which contributed aggregate revenues of $19.7 million for the six months ended
December 31, 1997. The acquisitions of Super Kwik, Inc., Donno Company, Inc.,
and Hamm's which have been accounted for as poolings of interests, contributed
revenue of $29.0 million for the six months ended December 31, 1997 compared to
$26.5 million for the six months ended December 31, 1996, an increase of $2.5
million. Additionally, Apex Waste Services, Inc. contributed revenues of $8.7
million for the six months ended December 31, 1997, as compared to $4.4 million
for the six months ended December 31, 1996. The primary reason for this increase
is that, although this was accounted for as a pooling of interests, Apex did not
commence operations until October 1, 1996, thus it had no impact on the revenues
or expenses of the Company for the quarter ended September 30, 1996. Also,
because R&A Bender, Inc. was acquired December 10, 1996, it contributed only
$526,000 to revenues for the six months ended December 31, 1996, as compared to
revenues of $4.4 million for the six months ended December 31, 1997.
Cost of revenues for the six months ended December 31, 1997, were $49.4 million
compared to $31.1 million for the six months ended December 31, 1996, an
increase of $18.3 million. Cost of revenues as a percentage of revenues for the
six months ended December 31, 1997, was 63.4% compared to 75.3% for the same
period in fiscal 1997. This decrease in percentage was primarily due to (1) the
acquisition by the Company of three landfills, which operate at higher margins
than the Company's other operations, (2) economies of scale relating to the
Company's increase in size over the period, and (3) operating efficiencies.
Selling, general and administrative expenses for the six months ended December
31, 1997, were $11.5 million compared to $5.5 million for the six months ended
December 31, 1996, an increase of $6.0 million or 109%. These expenses as a
percentage of revenues for the six months ended December 31, 1997, were 14.7%
compared to 13.3% for the same period in fiscal 1997. The slight increase as a
percentage of revenues reflects the increased infrastructure, including
accounting, finance, legal and administration, necessary to integrate the
acquisitions consummated. This increase was partially offset by the elimination
of redundant overhead as acquisitions in certain geographic areas are
consolidated.
Depreciation and amortization totaled $5.4 million, or 7.0% of revenues, for the
six months ended December 31, 1997, versus $2.0 million, or 4.8% of revenues,
for the same period in fiscal 1997. This increase was primarily due to
increased depreciation and landfill amortization as a result of businesses and
assets acquired as well as amortization of goodwill and other intangibles
associated with the acquisitions.
Merger costs incurred during the six months ended December 31, 1997, were $2.7
million, related to the acquisitions of Waste X Services, Inc., a solid waste
collection company acquired on August 14, 1997, Hamm's, acquired on December 1,
1997, and an additional charge for Apex, which was acquired on March 31, 1997.
These acquisitions were accounted for as poolings of interests. Merger costs
for the same period in fiscal 1997 were $1.9 million and related to the
acquisition of Super Kwik, Inc.
The tax provision of $3.6 million for the six months ended December 31, 1997,
principally relates to the recording of federal and state tax liabilities at
statutory rates, adjusted for certain non-deductible items. The tax provision
for the six months ended December 31, 1996, principally relates to the
completion of the merger with Super Kwik, Inc., and reflects the recording of a
deferred tax liability as of the date of the merger, the date Super Kwik's S
Corporation election was terminated.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO
THE THREE MONTHS ENDED DECEMBER 31, 1996
As a result of the factors discussed above, the results of operations for the
three months ended December 31, 1997, compared to the three months ended
December 31, 1996, reflects an increase in revenues of $15.6 million.
Additionally, net income for the three months ended December 31, 1997 was $2.1
million as compared to $1.4 million for the same period in fiscal 1997.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's business requires substantial amounts of capital. The Company's
capital requirements include acquisitions, equipment purchases, and capital
expenditures for cell construction and expansion of its landfills. The Company
plans to meet these capital needs from various financing sources, including
borrowings, internally generated funds, and the issuance of common stock.
As of December 31, 1997, the Company had working capital of $3.5 million,
including cash and cash equivalents of $5.2 million. For the first six months of
fiscal 1998, net cash provided by operations was approximately $1.7 million, net
cash provided by financing activities was approximately $59.1 million (including
net proceeds of $85.3 million from the Company's recently completed public
offering of common stock) and net cash used in investing activities was
approximately $59.9 million resulting in an increase in cash and cash
equivalents of $0.9 million during this period. Capital expended during the
period, included: (1) $44.9 million relating to acquisitions, (2) $9.8 million
for the purchase of operating equipment and real estate, and (3) $5.2 million
related to the permitting and development of landfill space.
On September 25, 1996, the Company entered into a revolving credit facility with
BankBoston, N.A. (formerly known as First National Bank of Boston) and Bank of
America Illinois to provide for borrowings up to $30 million (the ''Credit
Facility''). The Credit Facility, which was increased to $50 million on January
27, 1997 and to $100 million on May 8, 1997 (revised in October 1997 to provide
borrowings up to $150 million pursuant to the revised and expanded credit
agreement), is available for repayment of debt, funding of acquisitions, working
capital, and for up to $50 million in letters of credit. As of February 10,
1998, approximately $17.3 million in letters of credit were outstanding under
the Credit Facility. Also, at February 10, 1998, there were $37 million of
borrowings under the Credit Facility.
At the Company's option, the interest rate on any loan under the Credit Facility
may be based on an adjusted prime rate or Eurodollar rate, as defined in the
loan agreement. On February 10, 1998, the applicable interest rate was 6.37%.
The facility expires on October 2002. The Credit Facility requires the payment
of a commitment fee, payable in arrears, based in part on the unused balance and
provides for certain restrictions on, among other things, the ability of the
Company to incur borrowings, sell assets, acquire assets, make capital
expenditures or pay cash dividends. The facility also requires the maintenance
of certain financial ratios, including interest coverage ratios and balance
sheet and cash flow leverage ratios, and requires profitable operations. The
facility is collateralized by all the stock of the Company's subsidiaries,
whether now owned or hereafter acquired.
In August 1997, the Company completed a secondary public offering in which it
issued 5,175,000 shares of Common Stock at $17.75 per share. The net proceeds
of $85.3 million after deducting underwriting discounts, commissions and other
offering expenses were used to reduce outstanding debt under the Company's
revolving credit agreement by $57.5 million with the remainder used for
acquisitions, capital expenditures and working capital.
To date the Company has required substantial amounts of capital and it expects
to continue to expend substantial amounts to support its acquisition program and
the expansion of its disposal and transportation operations. The Company
estimates aggregate capital expenditures, exclusive of acquisitions of
businesses, of approximately $25 million for the year ending June 30, 1998.
The Company has addressed its capital needs through private and public offerings
of Common Stock and by establishing a revolving credit facility. The Company
believes that the revolving credit facility, the funds expected to be generated
from operations, the net proceeds of the recently completed public offering and
possible future equity offerings will provide adequate cash to fund the
Company's working capital and other cash needs for the foreseeable future.
The Company has financial obligations related to closure and post-closure
monitoring and maintenance of the Company's landfills. While the exact amount of
future closure and post-closure obligations cannot be determined, the Company
estimates that the costs of final closure of the currently permitted and
operating areas at the Company's landfills will be approximately $19.3 million,
of which $4.1 million has been accrued as of December 31, 1997. The Company
makes an accrual for these costs based on consumed airspace in relation to
Management's estimate of total available airspace of the landfills. In addition,
the Company has accrued $3.5 million for post-closure obligations as of December
31, 1997.
13
<PAGE>
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, Pennsylvania,
Florida, and Maryland disposal facilities. Bonds outstanding at December 31,
1997 were $1.7 million for the Kentucky landfill, $214,000 for the West Virginia
landfill, $7.2 million for the Pennsylvania landfills, and $220,000 for the
Maryland landfill. The bonds are collateralized by irrevocable letters of credit
and trust fund deposits. Additionally, the Company has on deposit $430,000 as
financial assurance for landfill closure and post-closure obligations for closed
disposal areas. The trust fund and the certificates of deposit are restricted
from current operations and are included within other noncurrent assets. The
Company's Kentucky landfill bonding requirement will increase by $3.0 million
for closure and $300,000 for post-closure of the expansion area permitted
October 14, 1996 (reissued February 26, 1997). The Company anticipates that the
West Virginia bonding requirements will substantially increase when West
Virginia's solid waste program is approved by the federal government. Financial
assurance requirements could increase to approximately $3.1 million for closure
and $3.7 million for post-closure monitoring and care. In connection with the
Illinois landfill, which the Company has exercised an option to acquire, the
Company has agreed to indemnify a surety providing financial assurance for
closure and post-closure care requirements for an unlined landfill located
adjacent to the Illinois landfill in the amount of $646,000 in the event the
owner of the adjacent landfill defaults on its closure and/or post-closure care
obligations. Additional collateral requirements may be imposed upon the Company
as a result of additional landfill acquisitions or changes in current
regulations which may adversely effect its profitability. The Company
anticipates providing financial assurance incrementally, as permitted by
regulations, over the life of a facility as disposal cells are constructed and
certified for acceptance of waste.
SEASONALITY AND INFLATION
The Company's revenues tend to be somewhat higher in the spring and summer
months. This is primarily attributable to the fact that (i) the volume of waste
relating to construction and demolition activities tends to increase in the
spring and summer months and (ii) the volume of industrial and residential waste
in the regions in which the Company operates tends to decrease during the winter
months. In addition, particularly harsh weather conditions may affect the
Company's operations by interfering with collection, transportation, and
disposal operations, delaying the development of landfill capacity, and/or
reducing the volume of waste generated by the Company's customers.
The Company believes that inflation and changing prices have not had, and are
not expected to have, any material adverse effect on its results of operations
in the near future.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(C) Private Placements:
On December 1, 1997, the Company completed its merger with Hamm's
Sanitation, Inc. ("Hamm's") and H.S.S., Inc. ("H.S.S.") with 715,032 shares
of common stock of the Company, par value $.01 per share issued in exchange
for all issued and outstanding shares of Hamm's and H.S.S.
Under the private placements described above, the Company has agreed to
register one-third of the Shares for resale under the Securities Act of
1933 (the "Act"). The sale of the Shares was exempt from the registration
provisions of the Act pursuant to Section 4(2) of the Act and/or Regulation
D promulgated under the Act for transactions not involving a public
offering, based on the fact that the private placements were made to
accredited investors who had access to financial and other relevant data
concerning the Company, its financial condition, business and assets. The
securities sold in the private placements may not be reoffered or resold
absent registration under the Act or available exemptions from such
registration requirements.
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.65 First Amendment dated November 18, 1997 to the Amended and
Restated Revolving Credit Agreement dated October 27, 1997
between the Company, its subsidiaries, Bank Boston, N.A.,
Banque Paribas, Bank of America National Trust and Savings
Association, Fleet Bank, N.A., and Summit Bank.
10.66 Amendment No. 1 to Amended and Restated Employment Contract
dated December 17, 1997 by and between the Company and Dennis
M. Grimm.
10.67 Eastern Environmental Services, Inc. 1997 Stock Option Plan.
27 Financial Data Schedules (Electronic filed only).
(b) Current Reports on Form 8-K or 8-K/A:
On October 10, 1997, the Company filed a report on Form 8-K/A dated
August 15, 1997, under Item 7, to provide audited financial statements
of the businesses acquired for the year ended December 31, 1996 and
unaudited pro forma financial information for the year ended June 30,
1997 with respect to its acquisition of Pappy, Inc.
The Company filed reports on Form 8-K, dated October 17, 1997 and
December 1, 1997 under Item 2, to report the pending and completed
acquisition of the outstanding shares of stock of Pine Grove, Inc.
Financial statements of Pine Grove, Inc. and pro forma financial
information of the Company required under "Item 7: Financial
Statements and Exhibits" were filed on Form 8-K/A Amendment No. 1 on
February 17, 1998.
The Company filed a report on Form 8-K, dated October 27, 1997, under
Item 5, to report a revision to the Company's existing Revolving
Credit Facility.
On November 3, 1997, the Company filed a report on Form 8-K/A dated
August 20, 1997, under Item 7, to provide audited financial statements
of the business acquired for the year ended December 31, 1996 and
certain unaudited pro forma financial information for the year ended
June 30, 1997 with respect to its acquisition of Soil Remediation of
Philadelphia, Inc. ("SRP").
The Company filed a report on Form 8-K, dated December 1, 1997, under
Item 2, to report the acquisition and merger with Hamm's Sanitation,
Inc. ("Hamm's") and H.S.S., Inc. ("H.S.S."). Historic financial
statements of the businesses acquired and pro forma financial
information of the Company were not required due to the transaction
being below the financial statement filing requirements as per
applicable regulations under the Securities Exchange Act of 1934.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
EASTERN ENVIRONMENTAL SERVICES, INC.
BY: /s/ Louis D. Paolino, Jr.
--------------------------------------------
Louis D. Paolino, Jr., Chairman
BY: /s/ Gregory M. Krzemien
----------------------------------------
Gregory M. Krzemien, Chief Financial Officer
DATE: February 17, 1998
16
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
10.65 First Amendment dated November 18, 1997 to the Amended and
Restated Revolving Credit Agreement dated October 27, 1997
between the Company, its subsidiaries, Bank Boston, N.A.,
Banque Paribas, Bank of America National Trust and Savings
Association, Fleet Bank, N.A., and Summit Bank.
10.66 Amendment No. 1 to Amended and Restated Employment Contract
dated December 17, 1997 by and between the Company and Dennis
M. Grimm.
10.67 Eastern Environmental Services, Inc. 1997 Stock Option Plan.
27 Financial Data Schedules (Electronic filed only).
<PAGE>
Exhibit 10.65
FIRST AMENDMENT TO AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
--------------------------
THIS FIRST AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT
AGREEMENT (this "First Amendment") is made and entered into as of the 18th day
of November, 1997, by and among EASTERN ENVIRONMENTAL SERVICES, INC., a Delaware
corporation (the "Parent"), its Subsidiaries listed on the signature pages
hereto (the Parent and such Subsidiaries each a "Borrower" and, collectively,
the "Borrowers"), each Borrower having its principal place of business at 1000
Crawford Place, Mount Laurel, New Jersey 08054 and BANKBOSTON, N.A., a national
banking association having its principal place of business at 100 Federal
Street, Boston, Massachusetts 02110 ("BKB"), BANQUE PARIBAS, an agency of a bank
incorporated under the laws of France having an office at 1200 Smith, Suite
3100, Houston, TX 77002, UNION BANK OF CALIFORNIA, a bank organized under the
laws of California having its principal place of business at 445 South Figueroa
Street, Los Angeles, California 90071-1602, BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, a national banking association having an office at 231
South LaSalle Street, Chicago, Illinois 60697 ("B of A"), FLEET BANK, N.A., a
national banking association having an office at 1185 Avenue of the Americas,
New York, New York 10036, and SUMMIT BANK, a bank organized under the laws of
New Jersey having its principal place of business at 210 Main Street,
Hackensack, New Jersey 07602, and such banks or other financial institutions
which become a party thereto (each a "Bank," and, collectively, the "Banks"), B
of A as documentation agent, and BKB as agent for the Banks (the "Agent").
WHEREAS, the Borrowers, the Banks and the Agent have entered into an
Amended and Restated Revolving Credit Agreement dated as of October 27, 1997,
(as the same may be amended and in effect from time to time, the "Credit
Agreement") pursuant to which the Banks extended credit to the Borrowers on the
terms set forth therein;
WHEREAS, the Parent will indirectly acquire Pine Grove Landfill, Inc.
("Pine Landfill"), a Pennsylvania corporation;
WHEREAS, the Schuylkill County Industrial Development Authority has
issued its Variable Rate Demand Revenue Bonds (Pine Grove Landfill, Inc.
Project-1995 Series) (the "Bonds") under an Indenture of Trust dated as of
December 1, 1994 (the "Indenture"), between the Schuylkill County Industrial
Development Authority and Wilmington Trust Company, as trustee (the "Trustee"),
the proceeds of which Bonds have been loaned to Pine Landfill;
<PAGE>
-2-
WHEREAS, the Borrowers have requested that the Agent issue a direct-
pay letter of credit to support Pine Landfill's obligations to make payments on
the Bonds and other direct-pay letters of credit, and the Agent and the Banks
are willing to issue such letters of credit on the terms set forth below;
WHEREAS, the Banks and the Borrowers have agreed to amend the Credit
Agreement as hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS. Capitalized terms used herein without definition
-----------
have the meanings assigned to them in the Credit Agreement.
2. PINE LANDFILL DIRECT-PAY LETTER OF CREDIT. The Agent and the
-----------------------------------------
Banks agree to issue a direct-pay Letter of Credit substantially on the terms
set forth in the attached materials to support Pine Landfill's obligations to
make payments on the Bonds, provided that, in addition to the conditions set
forth in Sections 7.4.1 and 10 of the Credit Agreement, the following conditions
are met:
(a) The Borrowers agree that if an Event of Default has occurred
and is continuing under the Credit Agreement, the Agent is entitled to
give written notice of such Event of Default to the Trustee, requiring
the Trustee to declare an event of default under the Indenture and, as
a result, to declare all amounts outstanding in connection with the
Bonds due and payable, and the Borrowers shall be obligated to
reimburse the Banks for all amounts drawn by the Trustee under the
direct-pay letter of credit;
(b) The Borrowers shall deliver to the Agent certified copies of
the Bond Documents (as defined in the Indenture), as well as any
pledge agreement, preliminary official statement and official
statement referring to the Bonds, in form and substance satisfactory
to the Agent;
(c) The Borrowers shall deliver to the Agent a duly executed
bond pledge and security agreement, pledging all of the interests of
Pine Landfill in the Bonds to the Agent, and an opinion of counsel as
to the due authorization and enforceability of such pledge, in form
and substance satisfactory to the Agent;
(d) The Borrowers shall deliver to the Agent opinions of counsel
stating that the Bonds are the legal, valid and binding obligations of
the Schuylkill County Industrial Development Authority, and regarding
such other matters as the Banks may reasonably request, all in form
and substance satisfactory to the Agent; and
<PAGE>
-3-
(e) The Borrowers shall not permit, consent to, or enter into any
amendment of the Bond Documents (as defined in the Indenture), or any
pledge agreement, preliminary official statement and official statement
referring to the Bonds, or any other agreement related to the Bonds,
without the prior written consent of the Agent.
3. AMENDMENT TO (S)1.1 OF THE CREDIT AGREEMENT. The following definition
--------- -- --- -- --- ------ ---------
appearing in (S)1.1 of the Credit Agreement is hereby deleted in its entirety
and the following substituted in place thereof:
"Letters of Credit. Standby or direct-pay Letters of Credit issued or
------- -- ------
to be issued by the Agent under (S)3 hereof for the account of the
Borrowers."
4. AMENDMENT TO (S)3.1 OF THE CREDIT AGREEMENT. Section 3.1 of the
-------------------------------------------
Credit Agreement is hereby amended to insert the words "or direct-pay"
immediately following the words "agrees to issue standby" appearing in the first
sentence of clause (a) thereof.
5. RATIFICATION, ETC. Except as expressly amended hereby, the Credit
------------ ---
Agreement, the other Loan Documents and all documents, instruments and
agreements related thereto are hereby ratified and confirmed in all respects and
shall continue in full force and effect. This First Amendment and the Credit
Agreement shall hereafter be read and construed together as a single document,
and all references in the Credit Agreement or any related agreement or
instrument to the Credit Agreement shall hereafter refer to the Credit Agreement
as amended by this First Amendment.
6. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY AND
--------- ---
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW) AND SHALL TAKE
EFFECT AS A SEALED INSTRUMENT IN ACCORDANCE WITH SUCH LAWS.
7. COUNTERPARTS. This First Amendment may be executed in any number of
------------
counterparts and by different parties hereto on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
counterparts taken together shall be deemed to constitute one and the same
instrument. Complete sets of counterparts shall be lodged with the Banks.
<PAGE>
-4-
8. EFFECTIVENESS. This First Amendment shall become effective upon the
-------------
execution and delivery of this First Amendment by the respective parties hereto.
9. ENTIRE AGREEMENT. THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS
------ ---------
AS AMENDED REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
<PAGE>
-5-
IN WITNESS WHEREOF, the undersigned have duly executed this First Amendment
under seal as of the date first set forth above.
THE BORROWERS:
--------------
EASTERN ENVIRONMENTAL SERVICES, INC.
SUPER KWIK, INC.
PULAKSI GRADING, INC.
CAROLINA GRADING, INC.
S&S GRADING, INC.
ALLIED WASTE SERVICES, INC.
OLNEY SANITARY SYSTEM, INC.
EASTERN WASTE OF NEW YORK, INC.
R&A BENDER, INC.
BAYSIDE OF MARION, INC.
EASTERN WASTE OF L.I., INC.
EASTERN CONTAINER CORPORATION
APEX WASTE SERVICES, INC.
DONNO COMPANY, INC.
RESIDENTIAL SERVICES, INC.
SUFFOLK WASTE SYSTEMS, INC.
N.R.T. REALTY CORP.
EASTERN ENVIRONMENTAL SERVICES OF INDIANA, INC.
EASTERN ENVIRONMENTAL SERVICES OF FLORIDA, INC.
WASTE SERVICES OF SOUTH FLORIDA, INC.
WASTE-X SERVICES, INC.
PAPPY, INC.
HARFORD DISPOSAL, INC.
SOIL REMEDIATION OF PHILADELPHIA, INC.
EASTERN TRANSFER OF NEW YORK, INC.
By:/s/ Gregory M. Krzemien
--------------------------------
Title: Treasurer
<PAGE>
-6-
THE BANKS:
---------
BANQUE PARIBAS
By:/s/ Scott Clingan
--------------------------------
Title:Vice President
-----------------------------
By:/s/ Larry Robinson
--------------------------------
Title:Vice President
-----------------------------
UNION BANK OF CALIFORNIA
By:/s/ Julie B. Bloomfield
--------------------------------
Title:Vice President
-----------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
INDIVIDUALLY AND AS DOCUMENTATION AGENT
By:/s/ Robert P. Rospierski
--------------------------------
Title: Managing Director
-----------------------------
FLEET BANK, N.A.
By:/s/ Christopher Mayrose
--------------------------------
Title: Vice President
-----------------------------
SUMMIT BANK
By:/s/ Adrian M. Marquez
--------------------------------
Title: Vice President
----------------------------
<PAGE>
-7-
BANKBOSTON, N.A.,
INDIVIDUALLY AND AS AGENT
By:/s/ Lindsay W. McSweeney
--------------------------------
Title:Vice President
-----------------------------
<PAGE>
EXHIBIT 10.66
AMENDMENT NO. 1 TO
AMENDED AND RESTATED EMPLOYMENT CONTRACT
This Amendment No. 1 to Amended and Restated Employment Contract
("Amendment") is executed and delivered as of December 17, 1997, by and between
Eastern Environmental Services, Inc., a Delaware corporation ("Company"), and
Dennis M. Grimm, an individual ("Employee").
RECITALS
Employee and Company previously entered into an Amended and Restated
Employment Agreement dated May 16, 1997 (the "Agreement"). The parties wish to
amend and revise certain terms of the Agreement, as more fully set forth below.
All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Agreement.
NOW, THEREFORE, in consideration of the mutual promises, terms and
conditions set forth herein and the performance of each, the parties hereby
agree to amend the Agreement as follows:
1. AMENDMENTS.
(a) Paragraph 1(a) of the Agreement is amended to provide that Employee is
employed as Company's Chief Operating Officer.
(b) Paragraph 1(c) of the Agreement is hereby amended and restated in its
entirety to read as follows:
"Employee shall not, during the term of his employment hereunder,
without the prior written consent of Company, be engaged in any
other business activity pursued for gain, profit or other
pecuniary advantage, if such activity interferes with Employee's
duties and responsibilities under this Agreement. Employee's
employment is for a full-time position. Company acknowledges that
Employee may maintain ownership interests in the Permitted
Businesses as hereinafter defined. Employee represents that he
will not spend more than ten hours per month during normal
business hours on matters pertaining to the Permitted Businesses.
For purposes of this Agreement, the Permitted Businesses shall
consist solely of: (i) National Earth Products, Inc. (including
the chairmanship of such company), the sole business of which is
landfill construction, environmental remediation projects and
earth materials processing and sales; and (ii) D. M. Grimm, Inc.,
the sole business of which is the brokerage of and receipt of
payments under an ash disposal agreement. Employee may make
personal investments in such form or manner as will neither
require Employee's services in the operation or affairs of the
companies or enterprises in which such investments are made nor
violate the terms of Paragraph 4."
<PAGE>
(c) Paragraph 2(a) of the Agreement shall be amended to provide that the
Company shall pay Employee a salary at the rate of $300,000, instead of
$150,000.
(b) Paragraph 2(e) of the Agreement is hereby amended and restated in its
entirety to read as follows:
"In addition to any options granted in the prior paragraph or in the March
Agreement, Employee shall be granted stock options ("Additional Options")
exercisable for One Hundred Thousand (100,000) shares of the Company's common
stock at a per-share exercise price equal to the closing price of the stock on
the Nasdaq Stock Market on December 17, 1997. The Additional Options shall be
granted under the Company's 1996 stock option plan. The Additional Options
shall vest over four years, one-quarter of the Options vesting on each
anniversary date of the date of grant. Notwithstanding the above schedule, the
Additional Options shall vest and be exercisable immediately upon the Company's
merger, consolidation, or other business combination with another entity where
the Company is not the surviving entity, or upon the Company's sale of
substantially all of its assets."
(e) Paragraph 2(f) shall be added to the Agreement to read as follows:
"Company shall pay Employee a cash bonus of $50,000 as of December 31,
1997. Employee shall be paid additional bonuses at the discretion of the
Compensation Committee of the Board of Directors of Company."
(f) Paragraph 2(g) shall be added to the Agreement to read as follows:
"Upon the Company's merger, consolidation, or other business combination
with another entity where the Company is not the surviving entity and Louis D.
Paolino, Jr., is not the Chief Executive Officer or Chairman of the Board of
Directors of the surviving entity, or upon the Company's sale of substantially
all of its assets, Company shall pay Employee a bonus equal to two times his
then annual salary. Such bonus may be paid in cash or in common stock of the
Company (which is registered under the Securities Act of 1933 or which shall be
registered under such Act within 120 days of its delivery to Employee) at the
Company's option."
(g) Paragraph 3 of the Agreement shall be amended to provide that the Term
shall expire on December 17, 2001.
2. MISCELLANEOUS.
(a) All references in the Agreement to "this Agreement" or like terms
shall mean and be a reference to the Agreement as amended by this Amendment and
all references to "the Agreement" or a like term in any agreement executed in
connection with the Agreement shall mean and be a reference to the Agreement as
amended by this Amendment.
(b) Except as specifically amended by this Amendment, the Agreement shall
remain in full force and effect.
<PAGE>
(c) This Amendment hereby incorporates, includes and is subject to
Paragraphs 8 through and including 15 of the Agreement.
IN WITNESS WHEREOF, the undersigned parties have executed this Amendment on
the year and day above written.
EASTERN ENVIRONMENTAL SERVICES, INC
/s/ Louis D. Paolino, Jr.
-----------------------------------
BY: LOUIS D. PAOLINO, JR.
ITS: PRESIDENT
/S/ DENNIS M. GRIMM
-----------------------------------
DENNIS M. GRIMM
<PAGE>
EXHIBIT 10.67
EASTERN ENVIRONMENTAL SERVICES, INC.
1997 STOCK OPTION PLAN
EFFECTIVE DATE: NOVEMBER 14, 1997
Approved by Shareholders: ___________
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC. 1997 STOCK OPTION PLAN
<TABLE>
<S> <C>
ARTICLE I................................................................... 31
PURPOSE AND EFFECTIVE DATE................................................ 31
(S)1.1 Purpose......................................................... 31
(S)1.2 Effective Date and Expiration of Plan........................... 31
ARTICLE II.................................................................. 31
DEFINITIONS............................................................... 31
(S)2.1 "Board"......................................................... 31
(S)2.2 "Cause"......................................................... 31
(S)2.3 "Code".......................................................... 31
(S)2.4 "Committee"..................................................... 31
(S)2.5 "Company"....................................................... 31
(S)2.6 "Company Stock"................................................. 31
(S)2.7 "Effective Date"................................................ 31
(S)2.8 "Eligible Individual"........................................... 31
(S)2.9 "Fair Market Value"............................................. 31
(S)2.10 "Incentive Stock Option"........................................ 32
(S)2.11 "Non-Employee Director"......................................... 32
(S)2.12 "Nonqualified Stock Option"..................................... 32
(S)2.13 "Option"........................................................ 32
(S)2.14 "Option Price".................................................. 32
(S)2.15 "Optionee"...................................................... 32
(S)2.16 "Personal Representative"....................................... 32
(S)2.17 "Plan".......................................................... 32
(S)2.18 "Related Corporation"........................................... 32
(S)2.19 "Stock Option Agreement"........................................ 32
ARTICLE III................................................................. 32
ADMINISTRATION............................................................ 32
(S)3.1 Committee to Administer......................................... 32
(S)3.2 Powers of Committee............................................. 33
ARTICLE IV.................................................................. 33
OPTIONS................................................................... 33
(S)4.1 Eligibility for Options......................................... 33
(S)4.2 Shares Available Under the Plan................................. 33
ARTICLE V................................................................... 34
TERMS OF OPTIONS.......................................................... 34
(S)5.1 Grant of Stock Options.......................................... 34
(S)5.2 Period of Option................................................ 34
(S)5.3 Stock Option Agreement.......................................... 34
(S)5.4 Option Price, Exercise and Payment.............................. 34
(S)5.5 Limitations on Incentive Stock Options.......................... 35
(S)5.6 Termination of Employment or Service............................ 35
(S)5.7 Shareholder Rights and Privileges............................... 36
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI.................................................................. 36
MISCELLANEOUS PROVISIONS.................................................. 36
(S)6.1 Nontransferability.............................................. 36
(S)6.2 Adjustments Upon Changes in Stock............................... 36
(S)6.3 Amendment, Suspension, and Termination of Plan.................. 37
(S)6.4 Nonuniform Determinations....................................... 38
(S)6.5 General Restriction............................................. 38
(S)6.6 No Right To Employment.......................................... 38
(S)6.7 Governing Law................................................... 38
(S)6.8 Application of Funds............................................ 38
</TABLE>
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC. 1997 STOCK OPTION PLAN
ARTICLE I
Purpose and Effective Date
(S)1.1 Purpose. The purpose of the Plan is to provide incentives, through
the grant of stock options, for selected employees, directors, and consultants
of the Company and Related Corporations to promote the long-term growth and
financial success of the Company and Related Corporations.
(S)1.2 Effective Date and Expiration of Plan. The Plan shall be effective on
the date on which it is adopted by the Board. Unless earlier terminated by the
Board pursuant to Section 6.3, the Plan shall terminate on the tenth
anniversary of its Effective Date. No Option shall be granted pursuant to the
Plan after its termination date, but Options granted prior to the termination
date may extend beyond that date.
ARTICLE II
Definitions
The following words and phrases, as used in the Plan, shall have these
meanings:
(S)2.1 "Board" means the Board of Directors of the Company.
(S)2.2 "Cause" means a good faith determination by the Board that an
Optionee has (i) breached any material term or provision of the Optionee's
employment agreement; (ii) engaged in any type of disloyalty to the Company or
a Related Corporation, including without limitation fraud, embezzlement,
theft, or dishonesty in the course of his employment or service to the Company
and Related Corporations; (iii) been convicted of a felony; (iv) disclosed any
proprietary information of the Company or a Related Corporation without the
consent of the Company or the Related Corporation; or (v) breached the terms
of any written confidentiality agreement or any non-competition agreement with
the Company or a Related Corporation in any material respect.
(S)2.3 "Code" means the Internal Revenue Code of 1986, as amended.
(S)2.4 "Committee" means the Compensation Committee of the Board which shall
consist of not less than two directors of the Company who shall be appointed
by, and shall serve at the pleasure of, the Board. Each member of the
Committee, while serving as such, shall be deemed to be acting in his or her
capacity as a director of the Company. It is intended that each member of the
Committee shall be an "outside director" within the meaning of Treas. Reg. (S)
1.162-27(e)(3) or any successor thereto, and shall be a Non-Employee Director.
Notwithstanding the foregoing, if the Committee does not consist solely of two
(2) or more Non-Employee Directors, each Option must be approved by the full
Board.
(S)2.5 "Company" means Eastern Environmental Services, Inc. and its
successors and assigns.
(S)2.6 "Company Stock" means the common stock of the Company, par value
$0.01 per share.
(S)2.7 "Effective Date" means November 14, 1997, the date the Plan is
adopted by the Board.
(S)2.8 "Eligible Individual" means an employee, director (who may, but need
not, be an employee), or consultant of the Company or a Related Corporation.
(S)2.9 "Fair Market Value" means, as of any specified date, an amount
arrived at by a good faith determination of the Committee and shall be (i) the
quoted closing price, if there is a market for Company Stock on a registered
securities exchange or in an over the counter market, on the specified date;
(ii) the weighted average of the quoted closing price on the nearest date
before and the nearest date after the specified date, if there are no sales on
the specified date but there are sales on dates within a reasonable period
both before and
<PAGE>
after the specified date; (iii) the mean between the bid and asked prices, as
reported by the National Quotation Bureau on the specified date, if actual
sales are not available during a reasonable period beginning before and ending
after the specified date; or (iv) the value determined under such other method
of determining fair market value as shall be authorized by the Code, or the
rules or regulations thereunder, and adopted by the Committee. Where the fair
market value of the optioned shares of Company Stock is determined under (ii)
above, the average of the quoted closing prices on the nearest date before and
the nearest date after the specified date is to be weighted inversely by the
respective numbers of trading days between the selling dates and the specified
date (i.e., the valuation date), in accordance with Treas. Reg. (S) 20.2031-
2(b)(1).
(S)2.10 "Incentive Stock Option" means an option within the meaning of
section 422 of the Code.
(S)2.11 "Non-Employee Director" means a director who:
(1) Is not currently an officer (as defined in 17 CFR (S)240.16a-1(f))
of, or otherwise currently employed by, the Company or a parent or
subsidiary of the Company within the meaning of 17 CFR (S)240.16b-3(b)(3);
(2) Does not receive compensation, either directly or indirectly, from
the Company or a parent or subsidiary of the Company within the meaning of
17 CFR (S)240.16b-3(b)(3) for services rendered as a consultant or in any
other capacity other than as a director, except for an amount that does not
exceed the dollar amount for which disclosure would be required under 17
CFR (S)229.404(a);
(3) Does not possess an interest in any other transaction for which
disclosure would be required pursuant to 17 CFR (S)229.404(a); and
(4) Is not engaged in a business relationship for which disclosure would
be required pursuant to 17 CFR (S)229.404(b).
(S)2.12 "Nonqualified Stock Option" means an option other than an Incentive
Stock Option.
(S)2.13 "Option" means either a Nonqualified Stock Option or an Incentive
Stock Option to purchase Company Stock which is granted under the Plan.
(S)2.14 "Option Price" means the price at which Company Stock may be
purchased under an Option as provided in Section 5.4.
(S)2.15 "Optionee" means an Eligible Individual who receives an Option.
(S)2.16 "Personal Representative" means the person or persons who, upon the
death, disability, or incompetency of an Optionee, shall have acquired, by
will or by the laws of descent and distribution or by other legal proceedings,
the right to exercise an Option theretofore granted to such Optionee.
(S)2.17 "Plan" means the Eastern Environmental Services, Inc. 1997 Stock
Option Plan.
(S)2.18 "Related Corporation" means either a corporate subsidiary of the
Company, as defined in section 424(f) of the Code, or the corporate parent of
the Company, as defined in section 424(e) of the Code.
(S)2.19 "Stock Option Agreement" means an agreement entered into between an
Optionee and the Company under Section 5.3.
ARTICLE III
Administration
(S)3.1 Committee to Administer. The Plan shall be administered by the
Committee. The Committee shall have full power and authority to interpret and
administer the Plan, to establish and amend rules and regulations for its
administration, and to make such determinations and interpretations under, or
in connection with, the Plan
<PAGE>
as it deems necessary or advisable. The Committee's decisions shall be final
and conclusive with respect to the interpretation of the Plan and any Option
made under it. No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option granted under it.
The Committee shall select one of its members as chairman, and shall hold
meetings at such time and places as it may determine. The acts of a majority
of the Committee at a meeting at which a quorum is present, or acts reduced to
or approved in writing by a majority of the members of the Committee, shall be
valid acts of the Committee.
(S)3.2 Powers of Committee.
(a) Subject to the provisions of the Plan, the Committee shall have
authority, in its discretion, to determine those Eligible Individuals who
shall receive Options, the time or times when such Options shall be granted,
whether an Incentive Stock Option or a Nonqualified Stock Option shall be
granted, and the number of shares to be subject to each Option.
(b) The Committee shall determine the terms, restrictions, and provisions of
the agreement relating to each Option, including the period over which the
Option shall vest and such terms, restrictions, and provisions as shall be
necessary to cause certain options to qualify as Incentive Stock Options. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Stock Option Agreement, in such manner and
to the extent the Committee shall determine in order to carry out the purposes
of the Plan.
ARTICLE IV
Options
(S)4.1 Eligibility for Options. An Option may be granted to any Eligible
Individual selected by the Committee. In making this selection and in
determining the form of Option and the number of shares of Company Stock
subject to the Option, the Committee may give consideration to the functions
and responsibilities of the respective Eligible Individual, his or her present
and potential contributions to the success of the Company and Related
Corporations, the value of his or her services to the Company and Related
Corporations, and such other factors deemed relevant by the Committee;
provided, however, that Incentive Stock Options shall not be granted to any
Eligible Individual who is not an employee of the Company or a Related
Corporation. The Committee may provide in an Option that said Option may be
exercised only if certain conditions, as determined by the Committee, are
fulfilled.
(S)4.2 Shares Available Under the Plan. The Company Stock to be offered
under the Plan pursuant to Options may be authorized but unissued shares or
reacquired shares, and the Company may purchase shares required for this
purpose, from time to time, if it deems such purchase to be advisable. Subject
to adjustment under Section 6.2, no more than 5,000,000 shares of Company
Stock shall be issuable upon exercise of Options; provided, however, that no
Eligible Individual who is an employee of the Company or a Related Corporation
shall receive Options for more than 1,000,000 shares of Company Stock. Any
shares of Company Stock subject to an Option which for any reason is cancelled
or terminated without having been exercised shall again be available for the
granting of Options; provided, however, that (i) if an Option is cancelled,
the cancelled Option is counted against the maximum number of shares for which
Options may be granted to an employee, and (ii) if the Option Price is reduced
after the date of grant, the transaction is treated as a cancellation of an
Option and the grant of a new Option for purposes of counting the maximum
number of shares for which Options may be granted to an employee.
<PAGE>
ARTICLE V
Terms of Options
(S)5.1 Grant of Stock Options. The Committee may, from time to time, subject
to the provisions of the Plan and such terms and conditions as the Committee
may prescribe, grant Options to any Eligible Individual, provided that
Incentive Stock Options shall not be awarded to any Eligible Individual who is
not an employee of the Company or a Related Corporation. Grants of Incentive
Stock Options and Nonqualified Stock Options shall be separate and not in
tandem. The granting of an Option shall not be deemed either to entitle the
Eligible Individual to, or to disqualify the Eligible Individual from, any
participation in any other grant of Options under the Plan.
(S)5.2 Period of Option. Options shall be vested and exercisable in such
installments and on such dates as the Committee may specify, provided that the
Committee may accelerate the vesting and/or exercise date of any outstanding
Options, in its discretion, if it deems such acceleration to be desirable. Any
Option shares, the right to the purchase of which has accrued, may be
purchased at any time up to the expiration or termination of the Option.
Subject to Section 5.5(b) (relating to the grant of Incentive Stock Options to
more-than-10% shareholders), the duration of each Option shall not be more
than ten years from the date of grant.
(S)5.3 Stock Option Agreement. Each Option shall be evidenced by a Stock
Option Agreement, in such form and containing such provisions not inconsistent
with the provisions of the Plan as the Committee from time to time shall
approve. Each Stock Option Agreement shall specify whether the Option is an
Incentive Stock Option or Nonqualified Stock Option; provided, however, if the
Option is not designated in the Stock Option Agreement as an Incentive Stock
Option or Nonqualified Stock Option, the Option shall constitute an Incentive
Stock Option if it complies with the terms of section 422 of the Code, and
otherwise, it shall constitute a Nonqualified Stock Option.
(S)5.4 Option Price, Exercise and Payment.
(a) The Option Price of Company Stock under each Option shall be determined
and fixed by the Committee at the time the Option is granted, but, subject to
Section 5.5(b) (relating to the grant of Incentive Stock Options to more-than-
10% shareholders), shall be a price not less than the greater of 100 percent
of the Fair Market Value of Company Stock or the par value thereof at the date
such Option is granted.
(b) Options may be exercised from time to time by giving written notice to
the Company, specifying the number of shares to be purchased. No Option may be
exercised for less than 100 shares unless the issue of a lesser number is
enough to exhaust the Option. The notice of exercise shall be accompanied by
payment in full of the Option Price for the shares being purchased.
(c) The Option Price shall be payable in cash or its equivalent, or if the
Committee, in its discretion, so provides in the related Stock Option
Agreement or, in the case of Options which are not Incentive Stock Options, so
determines at or prior to the time of exercise, in whole or in part:
(i) through the transfer to the Company of shares of Company Stock
previously acquired by the Optionee, provided that, unless otherwise provided
in the related Stock Option Agreement, if such shares of Company Stock were
acquired through the exercise of an Incentive Stock Option and are used to
pay the Option Price of an Incentive Stock Option, such shares have been held
by the Optionee for a period of not less than the holding period described in
section 422(a)(1) of the Code on the date of exercise, or if such shares of
Company Stock were acquired through exercise of a Nonqualified Stock Option
or through exercise of an Incentive Stock Option and are used to pay the
Option Price of a Nonqualified Stock Option, such shares have been held by
the Optionee for a period of more than one year on the date of exercise;
(ii) through the transfer to the Company of any combination of cash, or
its equivalent, and (i) above; or
<PAGE>
(iii) by delivering a properly executed notice of exercise of the Option
to the Company and a broker, with irrevocable instructions to the broker
promptly to deliver to the Company the amount of sale or loan proceeds
necessary to pay the exercise price of the Option.
However, in no event may the Option Price of an Option be paid through the
transfer to the Company of shares of Company Stock newly acquired by the
Optionee upon exercise of such Option.
In the event such Option Price is paid in whole, or in part, with previously
acquired shares of Company Stock, the portion of the Option Price so paid
shall be equal to the value, as of the date of exercise of the Option, of such
shares. The value of such shares shall be equal to the number of such shares
multiplied by the Fair Market Value of such shares on the date of exercise (or
the immediately preceding trading day if the date of exercise is not a trading
day). The Company shall not issue or transfer Company Stock upon exercise of
an Option until the Option Price is fully paid. If the related Stock Option
Agreement so provides, the Optionee may satisfy any amount required to be
withheld by the Company under applicable federal, state and/or local tax laws
in effect from time to time, by electing to have the Company withhold a
portion of the shares of Company Stock to be delivered for the payment of such
taxes on such terms and conditions as the Stock Option Agreement specifies.
(S)5.5 Limitations on Incentive Stock Options.
(a) The aggregate Fair Market Value (determined as of the date the Incentive
Stock Option is granted) of the Company Stock with respect to which Incentive
Stock Options are exercisable for the first time by an Optionee during any
calendar year (under this Plan and any other plan of the Company) may not
exceed one hundred thousand dollars ($100,000).
(b) If the Optionee owns more than ten percent (10%) of the total combined
voting power of all shares of stock of the Company or of a Related Corporation
at the time an Incentive Stock Option is granted to him or her, the Option
price for the Incentive Stock Option shall be not less than the greater of (i)
one hundred ten percent (110%) of the Fair Market Value of the optioned shares
of Company Stock on the date the Incentive Stock Option is granted, or (ii)
the par value thereof, and such Incentive Stock Option, by its terms, shall
not be exercisable after the expiration of five (5) years from the date the
Incentive Stock Option is granted.
(c) The conditions set forth in this Section 5.5 shall not apply to
Nonqualified Stock Options granted under the Plan.
(d) If an Option intended to be an Incentive Stock Option is granted to an
Eligible Individual and such Option may not be treated in whole or in part as
an Incentive Stock Option pursuant to the limitation in (a) above, such Option
shall be treated as an Incentive Stock Option to the extent it may be so
treated under such limitation, and as a Nonqualified Stock Option as to the
remainder. For purposes of determining whether an Incentive Stock Option would
cause such limitation to be exceeded, Incentive Stock Options shall be taken
into account in the order granted.
(S)5.6 Termination of Employment or Service.
(a) If the employment or service as a director or consultant of an Optionee
with the Company and Related Corporations terminates for a reason other than
(i) Cause, (ii) retirement (in the case of an Optionee who is an employee of
the Company or a Related Corporation), (iii) disability (as defined in section
22(e)(3) of the Code), or (iv) death prior to the expiration date fixed for
his or her Option, such Option may be exercised at any time within three
months after such termination, unless otherwise provided in the related Stock
Option Agreement, to the extent of the number of shares covered by such Option
which were vested and purchasable at the date of such termination, or to any
greater extent permitted by the Committee; provided, however, that an Option
shall not be so exercisable on any date beyond the expiration date of such
Option.
<PAGE>
(b) If the employment or service as a director or consultant of an Optionee
with the Company and Related Corporations is terminated by the Company or a
Related Corporation for Cause prior to the expiration date fixed for his or
her Option, such Option shall terminate immediately.
(c) If the employment of an Optionee with the Company and Related
Corporations terminates due to the Optionee's retirement prior to the
expiration date fixed for his or her Option, such Option may be exercised at
any time within one year following such retirement, unless otherwise provided
in the related Stock Option Agreement, to the extent of the number of shares
covered by such Option which were vested and purchasable at the date of such
retirement, or to any greater extent permitted by the Committee; provided,
however, that an Option shall not be so exercisable on any date beyond the
expiration date of such Option.
(d) If the employment or service as a director or consultant of an Optionee
with the Company and Related Corporations terminates due to the Optionee's
disability (as defined in section 22(e)(3) of the Code) prior to the
expiration date fixed for his or her Option, such Option may be exercised at
any time within one year after such termination, unless otherwise provided in
the related Stock Option Agreement, to the extent of the number of shares
covered by such Option which were vested and purchasable at the date of such
termination, or to any greater extent permitted by the Committee; provided,
however, that an Option shall not be so exercisable on any date beyond the
expiration date of such Option. In the event of the Optionee's legal
disability, such Option may be so exercised by the Optionee's Personal
Representative.
(e) Should an Optionee die either while in the employ or while serving as a
director or consultant of the Company and Related Corporations, or after
termination of such employment or service (other than for Cause), the Option
rights of such deceased Optionee may be exercised by his or her Personal
Representative at any time within one year after the Optionee's death, unless
otherwise provided in the related Stock Option Agreement, to the extent of the
number of shares covered by such Option which were vested and purchasable at
the date of such death, or to any greater extent permitted by the Committee;
provided, however, that an Option shall not be so exercisable on any date
beyond the expiration date of such Option.
(S)5.7 Shareholder Rights and Privileges. An Optionee shall have no rights
as a shareholder with respect to any shares of Company Stock covered by an
Option until the issuance of a stock certificate to the Optionee representing
such shares.
ARTICLE VI
Miscellaneous Provisions
(S)6.1 Nontransferability. No Option shall be transferable otherwise than by
will or, if the Optionee dies intestate, by the laws of descent and
distribution. All Options shall be exercisable during the Optionee's lifetime
only by such Optionee or his or her Personal Representative. Any transfer
contrary to this Section 6.1 shall nullify the Option. If the Optionee is
married at the time of exercise and if the Optionee so requests at the time of
exercise, the certificate or certificates shall be registered in the name of
the Optionee and the Optionee's spouse, jointly, with right of survivorship.
(S)6.2 Adjustments Upon Changes in Stock.
(a) The number of shares of Company Stock which may be issued under the Plan
and the maximum number of shares of Company Stock with respect to which
Options may be granted to any Eligible Individual who is an employee of the
Company or a Related Corporation, as stated in Section 4.2 hereof, and the
number of shares issuable upon exercise of outstanding Options under the Plan
(as well as the Option Price per share under such outstanding Options) shall,
subject to the provisions of section 424(a) of the Code, be adjusted, as may
be deemed appropriate by the Committee, to reflect any stock dividend, stock
split, share combination, or similar change in the capitalization of the
Company.
<PAGE>
(b) In the event of a corporate transaction (as that term is described in
section 424(a) of the Code and the Treasury Regulations issued thereunder as,
for example, a merger, consolidation, acquisition of property or stock,
separation, reorganization, or liquidation), each outstanding Option shall be
assumed by the surviving or successor corporation or by a parent or subsidiary
of such corporation; provided, however, that, in the event of a proposed
corporate transaction, the Committee may terminate all or a portion of the
outstanding Options if it determines that such termination is in the best
interests of the Company. If the Committee decides to terminate outstanding
Options, the Committee shall give each Optionee holding an Option to be
terminated not less than seven (7) days' notice prior to any such termination
by reason of such a corporate transaction, and any such Option which is to be
so terminated may be exercised (if and only to the extent that it is then
exercisable) up to, and including the date immediately preceding such
termination. Further, as provided in Section 3.2(c) hereof the Committee, in
its discretion, may accelerate, in whole or in part, the date on which any or
all Options become exercisable.
(c) The Committee also may, in its discretion, change the terms of any
outstanding Option to reflect any such corporate transaction; provided,
however, that the Committee may not change the terms of an outstanding
Incentive Stock Option in a manner that would constitute a "modification"
under section 424(h) of the Code without the consent of the Optionee affected
thereby.
(S)6.3 Amendment, Suspension, and Termination of Plan.
(a) The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in any respect whatsoever,
except that the following amendments shall require shareholder approval (given
in the manner set forth in (b) below):
(i) With respect to Options which are Incentive Stock Options, any
amendment which would: (A) increase the number of shares of Company Stock
with respect to which Incentive Stock Options may be granted under the
Plan, except as provided in Section 6.2; (B) change the class of employees
eligible to receive Incentive Stock Options under the Plan; or (C) extend
the termination date of the Plan with respect to any Incentive Stock
Options granted hereunder; and
(ii) Any amendment which would require shareholder approval pursuant to
Treas. Reg. ((S)) 1.162-27(e)(4)(vi) or any successor thereto, if
compliance with Treas. Reg. ((S)) 1.162-27(e) or any successor thereto is
intended.
Notwithstanding the foregoing, no such amendment, suspension, or termination
shall alter or impair any outstanding Option without the consent of the
Optionee affected thereby.
(b) Shareholder approval must meet the following requirements:
(i) The approval of shareholders must be by a majority of the outstanding
shares of Company Stock present, or represented, and entitled to vote at a
meeting duly held in accordance with the applicable laws of the State of
Delaware; and
(ii) The approval of shareholders must comply with all applicable
provisions of the corporate charter, bylaws, and applicable state law
prescribing the method and degree of shareholder approval required for the
issuance of corporate stock or options. If the applicable state law does
not prescribe a method and degree of shareholder approval in such case, the
approval of shareholders must be effected:
(A) By a method and in a degree that would be treated as adequate
under applicable state law in the case of an action requiring
shareholder approval (i.e., an action on which shareholders would be
entitled to vote if the action were taken at a duly held shareholders'
meeting); or
(B) By a majority of the votes cast at a duly held shareholders'
meeting at which a quorum representing a majority of all outstanding
voting stock is, either in person or by proxy, present and voting on
the plan.
(c) With the consent of the Optionee affected thereby, the Committee may
amend or modify any outstanding Option in any manner to the extent that the
Committee would have had the authority under the Plan initially to grant such
Option as so modified or amended, including without limitation, to change the
date or dates as of which such Option may be exercised.
<PAGE>
(S)6.4 Nonuniform Determinations. The Committee's determinations under the
Plan, including without limitation, (i) the determination of the Eligible
Individuals to receive Options, (ii) the form, amount, and timing of such
Options, (iii) the terms and provisions of such Options, and (iv) the
agreements evidencing the same, need not be uniform and may be made by it
selectively among Eligible Individuals who receive, or who are eligible to
receive, Options under the Plan, whether or not such Optionees are similarly
situated.
(S)6.5 General Restriction. Each Option under the Plan shall be subject to
the condition that, if at any time the Committee shall determine that (i) the
listing, registration, or qualification of the shares of Company Stock subject
thereto upon any securities exchange or under any state or federal law, (ii)
the consent or approval of any government or regulatory body, or (iii) an
agreement by the Optionee with respect thereto, is necessary or desirable,
then such Option shall not become exercisable in whole or in part unless such
listing, registration, qualification, consent, approval, or agreement shall
have been effected or obtained free of any conditions not acceptable to the
Committee. Without limiting the generality of the foregoing, each Optionee or
his legal representative or beneficiary may also be required to give
satisfactory assurance that shares purchased upon exercise of an Option are
being purchased for investment and not with a view to distribution, and
certificates representing such shares may be legended accordingly.
(S)6.6 No Right To Employment. Neither the action of the Company in
establishing the Plan, nor any action taken by it or by the Board or the
Committee under the Plan, nor any provision of the Plan, shall be construed as
giving to any person the right to be retained in the employ of the Company or
any Related Corporation.
(S)6.7 Governing Law. With respect to any Incentive Stock Options granted
pursuant to the Plan and the related Stock Option Agreements, the Plan, such
Incentive Stock Options, and such related Stock Option Agreements shall be
governed by the applicable Code provisions to the maximum extent possible.
Otherwise, the laws of the State of Delaware shall govern the operation of,
and the rights of Optionees under, the Plan, Options granted hereunder, and
the related Stock Option Agreements.
(S)6.8 Application of Funds. The proceeds received by the Company from the
sale of Company Stock pursuant to Options granted under the Plan shall be used
for general corporate purposes. Any cash received in payment for shares upon
exercise of an Option to purchase Company Stock shall be added to the general
funds of the Company and shall be used for its corporate purposes. Any Company
Stock received in payment for shares upon exercise of an Option to purchase
Company Stock shall become treasury stock.
IN WITNESS WHEREOF, EASTERN ENVIRONMENTAL SERVICES, INC. has caused these
presents to be duly executed this 14th day of November, 1997.
Eastern Environmental Services, Inc.
LOGO
/s/ Louis D. Paolino, Jr.
By: -------------------------------
President
Attest:
LOGO
/s/ Robert M. Kramer
--------------------
Secretary
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