<PAGE>
================================================================================
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 JUNE 30, 1998 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 August 11, 1998 36,129,103 Shares of Common Stock
================================================================================
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets - June 30, 1998 2
and December 31, 1997 (Restated)
Condensed Consolidated Statements of Operations for the three 4
months ended June 30, 1998 and 1997 (Restated)
Condensed Consolidated Statements of Operations for the six 5
months ended June 30, 1998 and 1997 (Restated)
Condensed Consolidated Statement of Stockholders' Equity 6
for the six months ended June 30, 1998
Condensed Consolidated Statements of Cash Flows for the 7
six months ended June 30, 1998 and 1997 (Restated)
Notes to Condensed Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of 13
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 2 - Changes in Securities 18
Item 5 - Other Information 18
Item 6 - Exhibits and Reports on Form 8-K 18
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
EASTERN ENVIRONMENTAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1998 1997
------------- ------------
(Restated)
<S> <C> <C>
Current assets:
Cash and cash equivalents $141,777,741 $ 7,298,606
Accounts receivable, less allowance for doubtful
accounts of $4,231,000 and $4,335,000 37,396,549 27,980,376
Tax refund receivable 4,726,398 4,726,398
Deferred income taxes 4,598,409 2,260,006
Prepaid expenses and other current assets 9,055,825 5,327,714
------------ ------------
Total current assets 197,554,922 47,593,100
Property and equipment:
Land 14,054,991 12,526,002
Landfill sites 108,589,353 84,979,749
Buildings and leasehold improvements 19,935,431 13,074,520
Vehicles 63,143,439 53,332,816
Machinery and equipment 47,791,381 34,245,731
Furniture and fixtures 3,030,929 2,605,735
------------ ------------
Total property and equipment 256,545,524 200,764,553
Accumulated depreciation and amortization 62,167,105 50,379,811
------------ ------------
194,378,419 150,384,742
Excess cost over fair market value of net assets acquired,
net of $3,346,824 and $2,264,824 accumulated amortization 96,442,890 67,522,005
Other intangible assets, net of $4,286,000 and
$3,545,000 accumulated amortization 18,685,447 16,086,302
Notes receivable from shareholders/officers 442,402 432,902
Other assets (including $3,335,000 and $3,248,000 of restricted
cash on deposit for landfill closure, insurance bonding and
debt service) 10,909,023 3,521,649
------------ ------------
TOTAL ASSETS $518,413,103 $285,540,700
============ ============
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
---------- ------------
(Restated)
<S> <C> <C>
Current liabilities:
Accounts payable $ 21,869,812 $ 11,916,759
Accrued expenses and other current liabilities 20,131,752 16,049,049
Income taxes payable 4,574,028 97,323
Current portion of accrued landfill closure and other
environmental costs 2,381,369 2,278,000
Current portion of long-term debt 5,776,506 6,262,430
Current portion of capital lease obligations 971,697 1,238,789
Notes payable to shareholders 706,474 873,871
Deferred revenue 4,756,087 4,248,990
------------ ------------
Total current liabilities 61,167,725 42,965,211
Deferred income taxes 8,256,883 3,927,658
Long-term debt, net of current portion 47,936,382 69,064,830
Capital lease obligations, net of current portion 836,080 1,258,993
Accrued landfill closure and other environmental costs 17,770,846 11,772,644
Other liabilities 16,963,542 13,221,023
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares - 150,000,000
Issued and outstanding shares 36,135,274 and 26,762,963 361,353 267,629
Additional paid-in capital 350,139,867 136,316,660
Retained earnings 15,056,684 6,822,311
------------ ------------
365,557,904 143,406,600
Less treasury stock at cost - 39,100 common shares (76,259) (76,259)
------------ ------------
Total stockholders' equity 365,481,645 143,330,341
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $518,413,103 $285,540,700
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------------
1998 1997
------------ ------------
(Restated)
<S> <C> <C>
Revenues $ 69,968,115 $ 53,150,048
Cost of revenues 42,464,237 36,815,178
Selling, general and administrative expenses 8,273,638 7,818,352
Depreciation and amortization 5,465,603 2,881,332
Merger costs 2,056,000 --
------------ ------------
Operating income 11,708,637 5,635,186
Interest expense, net (586,405) (1,582,206)
Other income (expense) 474,369 (129,303)
------------ ------------
Income before income taxes 11,596,601 3,923,677
Income tax expense 5,134,000 634,305
------------ ------------
Net income $ 6,462,601 $ 3,289,372
============ ============
Basic earnings per share $ .21 $ .17
============ ============
Weighted average number of shares outstanding 30,638,660 19,601,272
============ ============
Diluted earnings per share $ .20 $ .16
============ ============
Weighted average number of shares outstanding 32,177,913 20,893,307
============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------
1998 1997
------------- ------------
(Restated)
<S> <C> <C>
Revenues $ 132,753,198 $ 94,593,966
Cost of revenues 81,958,945 64,659,393
Selling, general and administrative expenses 16,841,343 14,975,651
Depreciation and amortization 10,017,363 5,311,776
Merger costs 3,816,000 1,480,452
------------- ------------
Operating income 20,119,547 8,166,694
Interest expense, net (1,932,546) (2,870,245)
Other income 472,271 411,731
------------- ------------
Income before income taxes 18,659,272 5,708,180
Income tax expense 9,909,172 1,102,730
------------- ------------
Net income $ 8,750,100 $ 4,605,450
============= ============
Basic earnings per share $ .30 $ .24
============= ============
Weighted average number of shares outstanding 28,820,261 19,065,147
============= ============
Diluted earnings per share $ .29 $ .23
============= ============
Weighted average number of shares outstanding 30,333,763 20,254,246
============= ============
</TABLE>
See accompanying notes.
5
<PAGE>
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
December 31, 1997 (Restated)............ $267,629 $136,316,660 $ 6,822,311 $(76,259) $143.330,341
Exercise of common stock
options and warrants.................... 2,424 998,481 1,000,905
Proceeds from sale of 8,125,000
shares of common stock, less
commissions and issuance expenses of
$12,300,639............................. 81,250 201,914,986 201,996,236
Common stock issued in
purchase acquisitions................... 5,472 9,615,822 9,621,294
Common stock issued for acquisitions
accounted for as poolings of interest.... 4,254 463,082 467,336
Transactions of pooled companies......... 660,298 660,298
Dividends paid to former
stockholders of pooled companies........ (1,176,025) (1,176,025)
Common stock issued for land............. 56 104,944 105,000
Common stock issued to satisfy debt
obligation.............................. 268 725,892 726,160
Net income............................... 8,750,100 8,750,100
--------- ------------- ------------ ---------- -------------
Balance at June 30, 1998................ $361,353 $350,139,867 $15,056,684 $(76,259) $365,481,645
========= ============= ============ ========== =============
</TABLE>
See accompanying notes.
6
<PAGE>
EASTERN ENVIRONMENTAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1998 1997
----------- -----------
(Restated)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,750,100 $ 4,605,450
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 10,017,363 5,311,776
Provision for losses on receivables 1,222,941 337,025
Landfill closure costs 817,469 350,858
Non-cash compensation -- 45,000
Deferred income taxes 2,873,827 263,294
Gain on sale of property and equipment (101,423) (466,829)
Changes in operating assets and liabilities:
Accounts receivable (8,395,206) (5,307,345)
Accounts payable 4,772,744 911,032
Accrued expenses (1,465,604) (1,161,945)
Income taxes 3,877,108 882,380
Deferred revenue 260,127 1,541,659
Prepaid expenses and other current assets (1,820,417) (542,926)
Other (6,580,734) (348,620)
------------ ------------
Net cash provided by operating activities 14,228,295 6,420,809
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired (22,580,077) (5,027,635)
Proceeds from sale of property and equipment 514,702 447,517
Development of landfill sites (13,123,782) (3,790,328)
Purchase of property and equipment (14,306,855) (6,549,002)
Payments for intangibles (1,274,275) (2,142,110)
Landfill closure and insurance bonding deposits (446,418) 84,908
Other, net -- 473,305
------------ ------------
Net cash used in investing activities (51,216,705) (16,503,345)
FINANCING ACTIVITIES
Proceeds from revolving line of credit, long-term debt
and capital lease obligations 33,758,371 29,040,107
Payments on revolving line of credit, long-term debt
and capital lease obligations (63,944,545) (20,453,228)
Proceeds from issuance of common stock, net of expenses and commissions 202,997,141 164,810
Net (payments) borrowings on note payable
to shareholder (167,397) 59,407
Cash dividends paid to former stockholders of
pooled companies (1,176,025) (683,595)
------------ ------------
Net cash provided by financing activities 171,467,545 8,127,501
------------ ------------
Net increase (decrease) in cash and cash equivalents 134,479,135 (1,955,035)
Cash and cash equivalents at beginning of period 7,298,606 7,845,160
------------ ------------
Cash and cash equivalents at end of period $141,777,741 $ 5,890,125
============ ============
</TABLE>
See accompanying notes.
7
<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
and six months ended June 30, 1997 to reflect the merger on June 26, 1998 with
All Waste Systems, Inc., ARB Enterprises, Inc., Northern Recycling, Inc., and
All Waste Recycling, Inc. (collectively, "All Waste" or the "All Waste
Companies") and the merger with Ulster County Sanitation, Inc., Ulster County
Rolloff, Inc., Art Sperl Disposal, L.L.C., Edgemere Development, Inc., and
Regional Recycling, Inc. (collectively, "Ulster" or the "Ulster Companies") on
June 26, 1998. Additionally, the balance sheet at December 31, 1997 has been
restated to reflect the All Waste and Ulster mergers. The results of operations
for the three and six month periods ended June 30, 1998 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 and the Company's
Transition Period Report on Form 10-K from July 1, 1997 to December 31, 1997.
On April 1, 1998, the Company's Board of Directors resolved to change the
Company's fiscal year end from June 30 to December 31; accordingly, the
condensed consolidated financial information included herein is for the three
month and six month periods ended June 30, 1998 and 1997. The Company filed a
transition report on Form 10-K for the period ended December 31, 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"). 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.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income
("Statement 130"). Statement 130 establishes standards for reporting and
presentation of comprehensive income and its components. Comprehensive income is
defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources and
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The Company adopted statement
130 effective January 1, 1998 and there was no effect on the Company's financial
statements upon adoption.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement 131"). Statement 131 establishes
standards for reporting information about operating segments in annual financial
statements that requires that those enterprises report selected information
about operating segments in the interim financial reports issued to
shareholders. Statement 131 is effective for fiscal years beginning after
December 15, 1997. Adoption is not required for interim periods in the initial
year of application. The Company believes that the adoption of Statement 131
will not have a material effect on the Company's Financial Statements.
8
<PAGE>
3. BUSINESS COMBINATIONS
From July 2, 1996 to June 30, 1998, the Company expanded its waste collection
and hauling operations through the acquisition of 50 businesses. The aggregate
of these business acquisitions is significant to the company. Thirty-five of the
50 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.
ACQUISITIONS ACCOUNTED FOR UNDER THE PURCHASE METHOD
On January 1, 1998, the Company acquired substantially all the assets of Lake
Region Sanitation in exchange for cash consideration of $60,000. This
transaction has been accounted for using the purchase method of accounting.
On January 7, 1998, the Company acquired substantially all the assets of J.
Scerbo Company, Recycling Center of New Jersey, Golden Gate Carting Co., Inc.,
Haulaway, Inc., and S.R.S. Recycling in exchange for 112,437 unregistered shares
of the Company's common stock and approximately $4.3 million of cash. The assets
consisted primarily of vehicles, containers, and customer lists. These
transactions have been accounted for using the purchase method of accounting.
On January 16, 1998, the Company acquired substantially all the assets of
Minchoff Sanitation in exchange for cash consideration of $650,000. The assets
consisted primarily of vehicles, containers, and customer lists. This
transaction has been accounted for using the purchase method of accounting.
On February 12, 1998, the Company acquired Kelly Run Sanitation, Inc. ("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 has been accounted for using the purchase method of accounting.
On February 24, 1998, the Company acquired the assets of Red Ball Sanitation
Corp. in exchange for 130,000 unregistered shares of the Company's common stock
and cash consideration of $500,000. The assets consisted primarily of vehicles,
containers, and customer lists. This transaction has been accounted for using
the purchase method of accounting.
On May 26, 1998, the Company acquired substantially all the assets of Kimmins
Corp., Transcor Waste Services, Inc., and Kimmins Recycling Corp. (collectively,
"Kimmins") in exchange for cash of approximately $11.6 million. The assets
consisted primarily of vehicles, containers, and customer lists. This
transaction has been accounted for using the purchase method of accounting.
On June 26, 1998, the Company acquired substantially all the assets of Vonger
Sanitation in exchange for cash of $4.2 million, and assumed debt of $47,000.
This transaction has been accounted for using the purchase method of accounting.
From April 1, 1998 to June 30, 1998, the Company acquired the assets of eight
other "tuck-in" collection operations in separate transactions. Total
consideration under the agreements consisted of approximately $4.3 million of
cash, approximately 90,000 shares of the Company's common stock and the
assumption of $124,000 of debt. These eight transactions were accounted for
using the purchase method of accounting.
9
<PAGE>
ACQUISITION ACCOUNTED FOR UNDER THE POOLING OF INTERESTS METHOD
On March 9, 1998, the Company completed its merger with Bluegrass and 198,224
unregistered shares of the Company's common stock were issued in exchange for
all the outstanding stock of Bluegrass. Bluegrass owns and operates a landfill
in Louisville, Kentucky. The transaction has been accounted for using the
pooling of interests method of accounting, and accordingly, the accompanying
financial statements include the accounts of Bluegrass for all periods
presented.
On March 31,1998, the Company completed its merger with the Ecology Companies
and 155,665 unregistered shares of the Company's common stock were issued in
exchange for all the outstanding stock of the Ecology Companies. The Ecology
Companies operate a hauling operation located in Lyndhurst, New Jersey. The
transaction has been accounted for using the pooling of interests method of
accounting, and accordingly, the accompanying financial statements include the
accounts of the Ecology Companies for all periods presented.
On March 31, 1998, the Company completed its merger with the Stamato Companies
and 1,386,344 shares of the Company's common stock were issued in exchange for
all the outstanding stock of the Stamato Companies. The Stamato Companies
provide municipal solid waste collection services in New Jersey. The transaction
has been accounted for using the pooling of interests method of accounting, and
accordingly, the accompanying financial statements include the accounts of the
Stamato Companies for all periods presented.
On June 26, 1998, the Company completed its merger with the All Waste Companies
and 1,696,058 shares of common stock of the Company were issued in exchange for
all outstanding shares of the All Waste Companies. The All Waste Companies
provide collection services to commercial and residential customers in southern
New York and operate a municipal solid waste transfer station in Goshen, New
York. The transaction has been accounted for using the pooling of interests
method of accounting; and accordingly, the accompanying consolidated financial
statements include the accounts of the All Waste Companies for all periods
presented.
Also on June 26, 1998, the Company completed its merger with the Ulster
Companies and 335,140 shares of common stock of the Company were issued in
exchange for all outstanding shares of the Ulster Companies. The Ulster
Companies provide collection services to commercial and residential customers in
southern New York and operate a municipal solid waste transfer station in
Kingston, New York. The transaction has been accounted for using the pooling of
interests method of accounting; and accordingly, the accompanying consolidated
financial statements include the accounts of the Ulster Companies for all
periods presented.
From April 1, 1998 to June 30, 1998, the Company completed merger transactions
with five additional companies and 425,478 shares of common stock of the Company
were issued in exchange for all outstanding shares of those companies. The
companies operate municipal solid waste collection and hauling operations in
eastern and central Pennsylvania and a municipal solid waste landfill in
southern Georgia. These transactions have been accounted for using the pooling
of interests method. Periods prior to the consummation of the mergers were not
restated to include the accounts and operations of these companies as combined
results are not materially different from the results as presented.
10
<PAGE>
The combined and separate results of operations of the Company, Hamm's,
Bluegrass, Stamato, Ecology, All Waste and Ulster for the six months ended June
30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
Revenues Net Income
------------ ------------
<S> <C> <C>
Eastern Environmental Services, Inc. $ 80,461,661 $5,310,166
Hamm's 7,669,812 1,325,868 (1)
Bluegrass 1,002,627 298,476 (1)
Stamato 12,494,935 300,780 (1)
Ecology 14,227,463 817,604 (1)
All Waste 11,845,701 386,162 (1)
Ulster 5,050,999 311,044 (1)
------------ ------------
Combined $132,753,198 $8,750,100
============ ============
SIX MONTHS ENDED JUNE 30, 1997
Revenues Net Income
------------ ------------
Eastern Environmental Services, Inc. $ 46,267,397 $2,709,591
Hamm's 7,979,678 199,803 (1)
Bluegrass 1,016,273 351,467 (1)
Stamato 11,938,386 1,192,932 (1)
Ecology 12,619,982 204,420 (1)
All Waste 10,135,992 (161,605) (1)
Ulster 4,636,258 108,842 (1)
------------ ------------
Combined $ 94,593,966 $4,605,450
============ ============
</TABLE>
(1) Includes merger costs and related tax provision.
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 recorded a tax provision of $9.9 million for the six months ended
June 30, 1998. This provision is comprised of $7.5 million of federal and state
taxes at statutory rates, and a $2.4 million one-time net tax expense related to
non-deductible merger costs, the establishment of deferred income tax
liabilities and the benefit of pre-pooling income taxed as S Corporations, for
pooled companies acquired during the six months ended June 30, 1998. The
11
<PAGE>
tax provision at June 30, 1997 principally relates to the recording of deferred
income tax liabilities for pooled companies acquired during the six months ended
June 30, 1997 which were S Corporations prior to the date of the merger, as well
as the recording of federal and state liabilities for other pooled companies. An
effective tax rate lower than the federal and state statutory rate for the six
months ended June 30, 1997 is primarily due to the use of net operating loss
carryforwards and income from pooled companies which were taxed as S
Corporations.
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
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
6/30/98 6/30/97 6/30/98 6/30/97
--------------- ----------- ----------- -------------
Numerator:
Net income $ 6,462,601 $ 3,289,372 $ 8,750,100 $ 4,605,450
=============== =========== ============ =============
Denominator:
Denominator for basic earnings
per share - weighted average shares 30,638,660 19,601,272 28,820,261 19,065,147
Effect of dilutive options and warrants 1,539,253 1,292,035 1,513,502 1,189,099
--------------- ----------- ----------- -------------
Denominator for diluted earnings per share 32,177,913 20,893,307 30,333,763 20,254,246
=============== =========== ============ =============
Basic earnings per share $ .21 $ .17 $ .30 $ .24
=============== =========== ============ =============
Diluted earnings per share $ .20 $ .16 $ .29 $ .23
=============== =========== ============ =============
</TABLE>
7. SUBSEQUENT EVENTS
On July 17, 1998, the Company acquired the City of Bethlehem Landfill (the
"Bethlehem Landfill") from the City of Bethlehem, Pennsylvania for an aggregate
purchase price of $26.1 million in cash.
On July 23, 1998, the Company acquired Atlantic Waste Disposal, Inc. ("AWD") and
Atlantic New York, Inc. ("Atlantic") from Brambles USA for an aggregate purchase
price of $91.0 million. AWD owns a Subtitle D landfill in Waverly, Virginia,
and Atlantic is a Brooklyn, New York transfer station. This transaction will be
accounted for using the purchase method of accounting.
Subsequent to June 30, 1998, the Company also acquired the assets of Berkely
Carting Corp. Consideration under the agreements consisted of 34,980
shares of common stock of the Company in exchange for all the issued and
outstanding shares of Berkely Carting Corp. This transaction will be accounted
for using the purchase method of accounting.
Also subsequent to June 30, 1998, the Company entered into a merger agreement
with the shareholders of the Savino Companies. This transaction is subject to
customary due diligence procedures and certain federal and state regulatory
approvals. Total consideration under the agreement consists of approximately
$15 million of common stock of the Company and the assumption of approximately
$14 million of debt in exchange for all issued and outstanding stock of the
Savino Companies. The Savino Companies provide collection services to
commercial and residential customers in several northern New Jersey counties.
This transaction is expected to be accounted for as a pooling of interests.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO
THE SIX MONTHS ENDED JUNE 30, 1997.
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 June 30, 1998 were comprised of
approximately 82% solid waste collection and transportation operations,
approximately 13% solid waste disposal operations, and approximately 5% other
waste management services.
The Company's solid waste collection operations earn revenues from fees
collected from residential, commercial, and industrial collection and transfer
station customers. Solid waste collection is provided under two primary types of
arrangements depending on the customers being served. Collection services for
commercial and industrial customers are generally performed under one to three
year service agreements. Collection services for residential customers generally
are performed under contracts with, or franchises granted by, municipalities or
regional authorities that grant the Company rights to service all or a portion
of the residents in their jurisdictions, 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 ten 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 June 30, 1998, approximately 53% of the
Company's volume of waste generated from its collection operations was delivered
for disposal at its own landfills, and approximately 40% of the Company's volume
received at its landfill disposal operations 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
13
<PAGE>
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 June 30, 1998, capitalized costs related directly to proposed acquisitions
that were not yet consummated were approximately $2.4 million. The Company
periodically reviews the future realization of these capitalized project costs
and makes provisions against capitalized costs that are associated with projects
that are not likely to be completed.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization consists primarily of depreciation of buildings,
vehicles, and machinery and equipment, amortization of capitalized direct
landfill development costs, and amortization expense related to intangible
assets including goodwill. Property and equipment is depreciated over the
estimated useful 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 June 30, 1998, capitalized costs related
directly to the acquisition and expansion of existing and future landfills and
cell development were $108.6 million.
The Company's policy is to charge as an expense any unamortized capitalized
expenditures and advances relating to any landfill that is permanently closed or
any landfill expansion project that is abandoned.
MERGER COSTS
Merger costs include transaction related expenses, contractual costs, severance
and other termination benefits and certain transition costs related to
integrating operations incurred in connection with acquisitions accounted for
under the pooling of interests method.
OTHER (EXPENSE) INCOME
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 Company recorded a tax provision of $9.9 million for the six months ended
June 30, 1998. This provision is comprised of $7.5 million of federal and state
taxes at statutory rates, and a $2.4 million one-time net tax expense related to
non-deductible merger costs, the establishment of deferred income tax
liabilities and the benefit of pre-pooling income taxed as S Corporations for
pooled companies acquired during the six months ended June 30, 1998. The tax
provision at June 30, 1997 principally relates to the recording of deferred
income tax liabilities for pooled companies acquired during the six months ended
June 30, 1997 which were S Corporations prior to the date of the merger, as well
as the recording of federal and state liabilities for other pooled companies. An
effective tax rate lower than the federal and state statutory rate for the
six months ended June 30, 1997 is primarily due to the use of net operating loss
carryforwards and income from pooled companies which were taxed as S
Corporations.
14
<PAGE>
The following table presents the percentage each item in the consolidated
statements of operations bears to total revenues
.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1998 1997
-------------------
(RESTATED)
<S> <C> <C>
Revenues 100.0% 100.0%
Cost of revenues 61.7 68.4
Selling, general and administrative expenses 12.7 15.8
Depreciation and amortization 7.5 5.6
Merger costs 2.9 1.6
----------------------
Operating income 15.2 8.6
Interest expense, net (1.5) (3.0)
Other income (expense) 0.4 0.4
----------------------
Income before income taxes 14.1 6.0
Income tax expense 7.5 1.1
----------------------
Net income 6.6% 4.9%
</TABLE> ======================
Revenues for the six months ended June 30, 1998 were $132.8 million compared to
$94.6 million for the six months ended June 30, 1997, an increase of $38.2
million, or 40.4%. 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, Inc., Pine Grove, Inc., Kelly Run
Sanitation, Inc. and several solid waste collection companies in the New York,
New Jersey and Florida markets, which contributed aggregate revenues of $35.6
million for the six months ended June 30, 1998 as compared to $5.3 million for
the six months ended June 30, 1997. The acquisitions accounted for as poolings
of interests (Super Kwik, Apex, Donno, Hamm's, Bluegrass, Stamato, Ecology, All
Waste and Ulster) contributed revenues of $82.1 million for the six months ended
June 30, 1998 compared to $74.8 million for the same period in 1997, an increase
of $7.3 million. An additional $5.9 million of revenue was generated in the six
months ended June 30, 1998 from two transfer stations which were not in
operation during the six months ended June 30, 1997.
Cost of revenues for the six months ended June 30, 1998, were $82.0 million
compared to $64.7 million for the six months ended June 30, 1997, an increase of
$17.3 million. Cost of revenues as a percentage of revenues for the six months
ended June 30, 1998, was 61.7 % compared to 68.4% for the same period in 1997.
This decrease in percentage was primarily due to (1) the acquisition by the
Company of five 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 June 30,
1998, were $16.8 million compared to $15.0 million for the six months ended June
30, 1997, an increase of $1.8 million or 12.0%. These expenses as a percentage
of revenues for the six months ended June 30, 1998, were 12.7 % compared to
15.8% for the same period in 1997. The decrease as a percentage of revenues
reflects the elimination of redundant overhead as acquisitions in certain
geographic areas are consolidated, as well as certain cost controls placed on
previously private pooled companies. This decrease was partially offset by the
increased infrastructure, including accounting, finance, legal and
administration, necessary to integrate the acquisitions consummated.
Depreciation and amortization totaled $10.0 million, or 7.5 % of revenues, for
the six months ended June 30, 1998, versus $5.3 million, or 5.6% of revenues,
for the same period in 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.
15
<PAGE>
Merger costs incurred during the six months ended June 30, 1998, were $3.8
million, related to the acquisitions of Bluegrass, Ecology, Stamato, All Waste,
and Ulster as well as four collection operations in eastern and central
Pennsylvania and the southern Georgia landfill. These acquisitions were
accounted for as poolings of interests. Merger costs for the same period in 1997
were $1.5 million and related to the acquisitions of Donno and Apex, and
included an adjustment related to Super Kwik. The Company determined that
certain transition merger costs, principally related to bringing acquired assets
into conformity with corporate safety and operational standards are more
appropriately recorded as merger costs when incurred. The Company restated the
first quarter of 1998 to reduce merger costs for the six month period ended
June 30, 1998 by approximately $2.2 million before income taxes, which increased
net income reported for the six months ended June 30, 1998 by approximately $1.3
million. The Company expects to incur and record merger costs of similar amounts
relating to these activities in future periods.
The Company recorded a tax provision of $9.9 million for the six months ended
June 30, 1998. This provision is comprised of $7.5 million of federal and state
taxes at statutory rates, and a $2.4 million one-time net tax expense related to
non-deductible merger costs, the establishment of deferred income tax
liabilities and the benefit of pre-pooling income taxed as S Corporations for
pooled companies acquired during the six months ended June 30, 1998. The tax
provision at June 30, 1997 principally relates to the recording of deferred
income tax liabilities for pooled companies acquired during the six months ended
June 30, 1997 which were S Corporations prior to the date of the merger, as well
as the recording of federal and state liabilities for other pooled companies. An
effective tax rate lower than the federal and state statutory rate for the
six months ended June 30, 1997 is primarily due to the use of net operating loss
carryforwards and income from pooled companies which were taxed as S
Corporations.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO
THE THREE MONTHS ENDED JUNE 30, 1997
As a result of the factors discussed above, the results of operations for the
three months ended June 30, 1998 compared to the three months ended June 30,
1997, reflects an increase in revenues of $16.8 million. Additionally, net
income for the three months ended June 30, 1998 was $6.5 million as compared to
$3.3 million for the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business requires substantial amounts of capital. The Company's
capital requirements include acquisitions, equipment purchases, and capital
expenditures for cell construction and expansion of its landfills. The Company
plans to meet these capital needs from various financing sources, including
borrowings, internally generated funds, and the issuance of common stock.
As of June 30, 1998, the Company had working capital of $136, including cash
and cash equivalents of $142 million. For the six months ended June 30, 1998,
net cash provided by operations was approximately $14.2 million, net cash
provided by financing activities was approximately $171.5 million and net cash
used in investing activities was approximately $51.2 million resulting in an
increase in cash and cash equivalents of $134.5 million during this period.
Capital expended during the period, included: (1) $22.6 million relating to
acquisitions, (2) $14.3 million for the purchase of operating equipment and real
estate, and (3) $13.1 million related to the permitting and development of
landfill space.
In October 1997, the Company amended its revolving credit facility with
BankBoston, N.A. to provide for borrowings up to $150 million. The facility is
available for repayment of debt, funding of acquisitions, working capital, and
for up to $50 million in letters of credit. As of August 11, 1998, approximately
$18.1 million in letters of credit were outstanding under the Credit Facility.
Also, at August 11, 1998, there were $20 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 August 11, 1998, the applicable interest rate was 6.375%.
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 June 1998, the Company completed its registration and sale of 8,625,000
shares, at $26.375 per share, which
16
<PAGE>
included the sale of 500,000 shares by selling shareholders and the sale by the
Company of 1,125,000 shares to cover overallotments. Net proceeds to the
Company, after deduction of fees and related costs, were approximately
$202,000,000. The net proceeds of the offering were used to reduce outstanding
debt under the Company's Revolving Credit Agreement by $52 million with the
remainder to be used for future acquisitions, capital expenditures and working
capital. The Company has invested the unused net proceeds in short-term interest
bearing securities.
To date the Company has required substantial amounts of capital and it expects
to continue to expend substantial amounts to support its acquisition program and
the expansion of its disposal and transportation operations. The Company
estimates aggregate capital expenditures, exclusive of acquisitions of
businesses, of approximately $35 million for the year ending December 31, 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 and the funds expected to be
generated from operations, and net proceeds from 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 $29.3 million,
of which $9.5 million has been accrued as of June 30, 1998. 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 $6.1 million for post-closure obligations as of June
30, 1998.
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, and
Maryland disposal facilities. Bonds outstanding at June 30, 1998 were $2.2
million for the Kentucky landfills, $214,000 for the West Virginia landfill,
$11.7 million for the Pennsylvania landfills, $220,000 for the Maryland
landfill, and $1.8 million for the Illinois landfill. The bonds are
collateralized by irrevocable letters of credit and trust fund deposits.
Additionally, the Company has on deposit $2.0 million 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. Additionally, the
Georgia landfill has insurance coverage of $1.1 million in effect for closure
and post closure assurance. 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
17
<PAGE>
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 May 14, 1998, the Company acquired through a subsidiary corporation
the stock of Middle Island Enterprises, Inc. in exchange for 6,863
unregistered share of the Company's common stock, par value $.01 per
share, and $225,000 of cash.
On May 28, 1998, the Company acquired the assets of Sunrise Sanitation,
Inc. in exchange for 9,852 unregistered shares of the Company's common
stock, par value $.01 per share, and $50,000 of cash. An additional
issuance of the Company's common stock of up to $175,000 of
consideration may be issuable pending the resolution of certain
contingencies.
On May 29, 1998, a subsidiary of the Company completed its merger with
Holgate Brothers, Inc. with 77,296 unregistered shares of the Company's
common stock, par value $.01 per share, issued in exchange for all
issued and outstanding shares of Holgate.
On June 1, 1998, a subsidiary of the Company completed its merger with
Fidati Refuse Removal, Inc. with 95,345 unregistered shares of the
Company's common stock, par value $.01 per share, issued in exchange
for all issued and outstanding shares of Fidati.
On June 1, 1998, the Company acquired the assets of Manfredi Brothers,
Inc. J. Marmo Carting Corp. and V&S Carting Corp. in exchange for
37,877 unregistered shares of the Company's common stock, par value
$.01 per share. An additional issuance of the Company's common stock of
up to 25,251 shares may be issuable pending the resolution of certain
contingencies.
On June 16, 1998, the Company acquired the stock of Peerless Waste
Industries, Inc. with 90,357 unregistered shares of the Company's
common stock, par value $.01 per share, issued in exchange for all
issued and outstanding shares of Peerless.
On June 30, 1998, the Company acquired the stock of Summit Transport
Group, Inc. and Summit Environmental Group, Inc. with 95,000
unregistered shares of the Company's common stock, par value $.01 per
share, issued in exchange for all issued and outstanding shares of
the two companies.
Under the private placements described above, the Company has agreed
under certain circumstances to register certain of the shares for the
above transactions, except for Bluegrass and Kelly Run Sanitation,
Inc., 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.
ITEM 5. OTHER INFORMATION
As a result of the Company's change in its fiscal year end from June 30
to December 31, the Company anticipates that its next Annual Meeting of
Stockholders will be held on or about May 24, 1999 (the "1999 Annual
Meeting").
The deadline for submission of proposals by stockholders pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the
"Act"), for inclusion in the proxy statement for the 1999 Annual
Meeting is December 21, 1998. Any proposals submitted other than
pursuant to Rule 14a-8 of the Act must be received by the Company no
later than March 8, 1999 or such proposals will be considered untimely,
and the Company may confer discretionary voting with respect to such
matters in its proxy for the 1999 Annual Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
18
<PAGE>
*3.1 Certificate of Incorporation, as amended, of the Company.
(Exhibit 3.1 to the Company's Transition Report on Form 10-K
for the period July 1, 1997 to December 31, 1997 (the
"December 1997 Form 10-K").
*3.2 By-laws, as amended, of the Company (Exhibit 3.2 to the
December 1997 Form 10-K).
*10.80 Agreement for the Sale and Purchase of Stock of Atlantic Waste
Disposal, Inc. dated March 25, 1998, by and among Atlantic
Waste Disposal, Inc., Brambles Waste Services, Inc., Atlantic
Transportation Services, Inc., Atlantic Collection, Inc.,
Resource Products, Inc. and the Registrant. (Exhibit 10.1 to
the Company's Current Report on Form 8-K dated April 20, 1998
(the "April 20, 1998 Form 8-K")).
*10.81 Agreement for the Sale and Purchase of Stock of Atlantic New
York, Inc. dated March 25, 1998, by and among Atlantic Waste
Disposal, Inc., Brambles Waste Services, Inc., Atlantic New
York, Inc. and the Registrant. (Exhibit 10.2 to the April 20,
1998 Form 8-K).
*10.82 Stock Purchase Agreement dated June 8, 1998, by and between
Eastern Environmental Services, Inc. and the shareholders of
All Waste Systems, Inc., ARB Enterprises, Inc., Northern
Recycling, Inc., and All Waste Recycling, Inc. (Exhibit 10.1
to the Company's Current Report on Form 8-K dated June 26,
1998).
*10.83 Stock Purchase Agreement dated June 8, 1998, by and between
Eastern Environmental Services, Inc. and the shareholders of
Ulster County Sanitation, Inc., Ulster County Rolloff, Inc.,
Art Sperl Disposal, L.L.C., Edgemere Development, Inc., and
Regional Recycling, Inc. (Exhibit 10.1 to the Company's
Current Report on Form 8-K dated June 26, 1998).
10.84 Employment Agreement between the Company and Gregory M.
Krzemien dated May 15, 1998. /(1)/
10.85 Employment Agreement between the Company and Matthew Paolino
dated June 1, 1998 /(1)/.
27 Financial Data Schedules (Electronic filed only).
* Incorporated by reference.
/(1)/ Indicates a management contract or compensation plan
or arrangement.
(b) Current Reports on Form 8-K or 8-K/A:
On April 8, 1998, the Company filed a report on Form 8-K/A dated March
9, 1998, under Item 7 to provide audited financial statements of the
businesses acquired for the year ended December 31, 1997 and unaudited
pro forma financial information for the year ended June 30, 1997 and
the six months ended December 31, 1997 with respect to its acquisition
of Bluegrass Containment, Inc.
On April 14, 1998, the Company filed a report on Form 8-K dated April
1, 1998, under Item 8 to report that at a meeting of the Board of
Directors of the Registrant held April 1, 1998, the Board of Directors
resolved to change the Registrant's fiscal year end from June 30 to
December 31.
On April 24, 1998, the Company filed a report on Form 8-K/A dated
March 31, 1998 under Item 7 to provide audited financial statements of
the businesses acquired for the two years ended December 31, 1997 and
unaudited pro forma financial information for the year ended June 30,
1997 and the six months ended December 31, 1997 with respect to its
acquisition of the Stamato Companies.
On April 27, 1997, the Company filed a report on Form 8-K/A dated
February 12, 1998 under Item 7 to report that historical financial
statements of the businesses acquired and pro forma financial
information of the Company were not required due to the Kelly Run
Landfill purchase transaction being below the financial statement
filing requirements as per applicable regulations under the Securities
and Exchange Act of 1934.
On April 29, 1998, the Company filed a report on Form 8-K dated April
24, 1998 under Item 5 to
19
<PAGE>
file audited supplemental consolidated financial statements and
selected consolidated financial data (supplemental) and Management's
Discussion and Analysis of Financial Condition and Results of
Operations (supplemental), which reflects the acquisition of Bluegrass
Containment, Inc. on March 9, 1998, the Stamato Companies on March 31,
1998 and the Ecology Companies on March 31, 1998.
On April 30, 1998, the Company filed a report on Form 8-K dated April
20, 1998 under Item 2 to report the pending acquisition of Atlantic
Waste Disposal, Inc. Financial statements of Atlantic Waste Disposal,
Inc. and pro forma financial information of the Company required under
"Item 7: Financial Statements and Exhibits" were filed on Form 8-K/A
on May 20, 1998.
On May 8, 1998, the Company filed a report on Form 8-K dated May 1,
1998 under Item 5 to report that the Board of Directors unanimously
approved an amendment to the Company's by-laws increasing the size of
the Board of Directors from three to five directors and that the
vacancies were filled by Matthew J. Paolino and Constantine N.
Papadakis.
On May 20, 1998 the Company filed a report on Form 8-K/A dated April
20, 1998 under Item 7 to provide unaudited financial statements of the
businesses acquired for the three months ended March 31, 1998 and 1997
and unaudited pro forma information for the three months ended March
31, 1998 with respect to its acquisition of Atlantic Waste Disposal,
Inc.
On May 20, 1998, the Company filed a report on Form 8-K dated May 20,
1998 under Item 5 to file restated historical financial statements for
the three years ended June 30, 1997 including notes thereto, the
selected consolidated financial data and the information contained
under Management's Discussion and Analysis and Condition and Results
of Operations to reflect the mergers with Bluegrass Containment, Inc.,
the Stamato Companies and the Ecology Companies, each of which was
accounted for as a pooling of interests.
On May 27, 1998, the Company filed a report on Form 8-K dated May 7,
1998 under Item 5 to report that on May 20, 1998, an Underwriting
Agreement was executed by the Registrant, certain stockholders of the
Registrant and Smith Barney, Inc. CIBC Oppenheimer Corp., Merrill
Lynch, Pierce Fenner and Smith, Incorporated and Pacific Growth
Equities, Inc. as representatives of the several underwriters named
therein, relating to the public offering of 7,000,000 shares of the
Registrant's common stock par value $.01 per share plus an additional
1,125,000 shares of common stock to cover over-allotments to be issued
and sold by the Registrant and 500,000 shares of common stock to be
sold by certain stockholders.
On July 13, 1998, the Company filed a report on Form 8-K dated June
26, 1998 under Item 2 to report the acquisition of the All Waste
Companies.
On July 13, 1998, the Company filed a report on Form 8-K dated June
26, 1998 under Item 2 to report the acquisition of the Ulster
Companies.
20
<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
BY: /s/ Ronald R. Pirollo
-----------------------------------
Ronald R. Pirollo, Controller (Principal Accounting Officer)
DATE: August 14, 1998
21
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.84 Employment Agreement between the Company and Gregory M. Krzemien dated
May 15, 1998.
10.85 Employment Agreement between the Company and Matthew Paolino dated June
1, 1998
27 Financial Data Schedules (Electronic filed only).
22
<PAGE>
EXHIBIT 10.84
EMPLOYMENT CONTRACT
This Employment Contract ("Agreement") is executed and delivered as of May
15, 1998, by and between Eastern Environmental Services, Inc., a Delaware
corporation ("Company"), and Gregory M. Krzemien, an individual ("Employee").
RECITALS
Employee and Company previously entered into an Employment Agreement dated
June 26, 1996 (the "1996 Agreement"). The original term of the 1996 Agreement
was completed, and has continued on a month-to-month basis. This Agreement is
intended to restate the terms and conditions under which Employee is employed by
Company, and to supersede the 1996 Agreement. Employee has been an employee of
Company who, under the 1996 Agreement, became employed by the Company in a
capacity which has given Employee access to and familiarity with confidential
information and business methods used by the Company. Employee will continue to
be employed by Company in a confidential relationship wherein Employee, in the
course of employment with Company, will become familiar with and aware of
information as to the specific manner of doing business and the customers of
Company and its affiliates and the Company's future plans. The information
Employee has and will have knowledge of are trade secrets and constitute
valuable goodwill of Company.
Employee recognizes that the business of Company is dependent upon a number
of trade secrets and confidential business information, including customer lists
and customer data. The protection of these trade secrets is of critical
importance to Company. Company will sustain great loss and damage if, for
whatever reason, during the term of this Agreement or Employee's employment with
Company and for a period following the termination of this Agreement or
Employee's employment, Employee should violate the provisions of paragraph 4 of
this Agreement. Further, Employee acknowledges that any such violation would
cause irreparable harm to Company and that Company would be entitled, without
limitation, to injunctive relief to remedy such violation.
NOW, THEREFORE, in consideration of the mutual promises, terms and
conditions set forth herein and the performance of each, the parties hereby
agree as follows:
1. SERVICES.
(a) Company hereby employs Employee as its Chief Financial Officer, the
duties of Employee may not be changed without the Employee's consent.
<PAGE>
(b) Employee hereby accepts employment upon the terms and conditions
contained in this Agreement. Employee shall faithfully adhere to, execute and
fulfill all directions and policies established by the Company for its
employees.
(c) Employee shall not, during the term of his employment hereunder,
without the prior written consent of Company, be engaged in any other business
activity pursued for gain, profit or other pecuniary advantage, if such activity
interferes with Employee's duties and responsibilities under this Agreement.
Employee's employment is for a full-time position. Employee may make personal
investments in such form or manner as will neither require Employee's services
in the operation or affairs of the companies or enterprises in which such
investments are made nor violate the terms of Paragraph 4.
2. COMPENSATION.
(a) For all services to be rendered by Employee to Company, Company shall
pay Employee a salary computed and earned ratably over twelve months at the rate
of One Hundred Fifty Thousand Dollars ($150,000) per year, commencing on the
date hereof, payable in accordance with Company's normal payroll procedures.
(b) To the extent that Company, from time to time in its sole discretion,
offers or provides any of the following to its employees, then Employee, on an
equal basis with such other employees, shall be entitled to: (i) participation
in all, if any, life, health, medical, hospital, accident and disability
insurance programs of Company in existence for the benefit of its employees and
for which Employee qualifies; (ii) participation in all, if any, pension,
retirement, profit sharing or stock purchase plans for which Employee qualifies;
and (iii) participation in any other employee benefits which Company accords to
its employees and for which Employee qualifies.
(c) During the term of Employee's employment with Company, Employee shall
be entitled to reimbursement for reasonable business expenses, including
gasoline, incurred on behalf of Company. Reimbursement for business expenses
will be provided to Employee on the same basis and under the same guidelines as
are applicable to all of Company's employees. Employee shall be entitled to the
Employee Benefits set forth in Schedule A attached.
(d) Upon a Change of Control, as hereafter defined, Company shall pay
Employee a bonus equal to two times his then annual salary payable under
Paragraph 2(a), plus two times the amount of any bonus paid to Employee in the
twelve months prior to such Change of Contro. Such bonus
<PAGE>
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. For purposes of
this Agreement a Change of Control shall exist upon:
(i) There shall be a "Change of Control", upon the acquisition in one or
more transactions by any "Person" (as the term "Person" is used for purposes of
Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
"1934 Act")) of "Beneficial Ownership" (as the term beneficial ownership is used
for purposes of Rule 13d-3 promulgated under the 1934 Act) of forty five percent
(45%) or more of the combined voting power of the Company's then outstanding
voting securities (the "Voting Securities"). For purposes of this Paragraph
2(d), the Voting Securities acquired directly from the Company by any Person
shall be excluded from the determination of such Person's Beneficial Ownership
of Voting Securities (but such Voting Securities shall be included in the
calculation of the total number of Voting Securities then outstanding). For
purposes of this Paragraph 2(d) the acquisition of Employee of the Beneficial
Ownership of 45% or more of the Voting Securities shall not be a Change of
Control.
(ii) There shall be a "Change of Control" upon approval by the shareholders
of the Company of: (A) a merger, reorganization or consolidation involving the
Company, if the shareholders of the Company immediately before such merger,
reorganization or consolidation do not or will not own directly or indirectly
immediately following such merger, reorganization or consolidation, more than
fifty-one (51%) percent of the combined voting power of the outstanding voting
securities of the corporation resulting from or surviving such merger,
reorganization or consolidation in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger,
reorganization or consolidation, or (B) a complete liquidation or dissolution of
the company, or (C) a sale or other disposition of all or substantially all of
the assets of the Company.
(iii) There shall be a "Change of Control" upon acceptance by shareholders
of the Company of shares in a share exchange, if the shareholders of the company
immediately before such share exchange do not or will not own directly or
indirectly immediately following such share exchange more than fifty-one percent
(51%) of the combined voting power of the outstanding voting securities of the
corporation resulting from or surviving such share exchange in substantially the
same proportion as the ownership of the Voting Securities outstanding
immediately before such share exchange.
<PAGE>
3. TERM. The period of Employee's employment with the Company shall
commence on the date of this Agreement and shall continue for three years
thereafter, unless sooner terminated in accordance with the provisions of this
Agreement ("Term"). After expiration of the Term, Employee's employment shall
continue thereafter on an at-will month-to-month basis, until terminated by
either party to the Agreement.
4. NONCOMPETITION COVENANTS.
(a) Employee agrees that the noncompetition covenants contained in this
Paragraph 4 are a material and substantial part of this Agreement.
(b) Employee covenants that during Employee's employment with Company and
for three months following the termination of Employee's employment (regardless
of the reason for the termination) the Employee shall not, directly or
indirectly, without the prior express written consent of Company, do any of the
things set forth in item (i) through (v) below:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, agent, or in a managerial capacity, whether as an employee,
independent contractor, consultant, advisor or sales representative, in the
waste disposal industry, including, without limitation, waste hauling, waste
disposal, land filling, handling demolition waste, handling special waste,
collecting or disposing of municipal special waste, and recycling waste, in each
case within fifty miles of the any of the Company's operating businesses ("the
Territory");
(ii) call upon any person who is, at the time of the contact, an
employee of Company or its affiliates, if the purpose and intent of the contact
is to entice such employee away from or out of the employ of Company or its
affiliates;
(iii) call upon any person or entity which is, at the time of the
contact, a customer of the Company or its affiliates for the purpose of
soliciting or selling any of the services which are the services offered by the
Company or its affiliates;
(iv) disclose the identity of the customers of Company or its
affiliates, whether in existence or proposed, to any person, firm, partnership,
corporation or other entity whatsoever, for any reason or purpose whatsoever;
(v) promote, or assist, financially or otherwise, any person, firm,
partnership, corporation or other entity whatsoever to do any of the above;
For the purposes of this Agreement, the term "affiliates" shall mean one or
more of: (A) each
<PAGE>
subsidiary of Company, and (B) each other entity under the direct or indirect
control of the Company.
(c) The Company will sustain significant losses and damages, if Employee
breaches the covenants in this Paragraph 4. There is no adequate monetary remedy
for the immediate and irreparable damage that would be caused to Company by
Employee's breach of its non-competition covenants. Employee agrees that, in the
event of a breach by him of the foregoing covenants, such covenants may be
enforced by Company by, without limitation, injunctions and restraining orders.
(d) It is agreed by the parties that the covenants in this Paragraph 4
impose a reasonable restraint on Employee in light of the activities and
business of Company on the date of the execution of this Agreement and the
future plans of Company.
(e) The covenants in this Paragraph 4 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. If any court of competent jurisdiction shall determine that the
scope, time or territorial restrictions set forth are unreasonable, then it is
the intention of the parties that such restrictions be enforced to the fullest
extent which the court deems reasonable, and the Agreement shall thereby be
reformed.
(f) The covenants in this Paragraph 4 shall be construed as independent of
any other provision of this Agreement and the existence of any claim or cause of
action of Employee against Company whether predicated on this Agreement, or
otherwise, shall not constitute a defense to the enforcement by Company of such
covenants. It is specifically agreed that the duration of the noncompetition
covenants stated above shall be computed by excluding from such computation all
time during which Employee is in violation of any provision of this Paragraph 4
and all time during which there is pending in any court of competent
jurisdiction any action (including any appeal from any judgment) brought by any
person, whether or not a party to this Agreement, in which action Company seeks
to enforce the agreements and covenants of Employee or in which any person
contests the validity of such agreements and covenants or their enforceability
or seeks to avoid their performance or enforcement. Provided that, no such
exclusion shall include the period of time within which Employee has ceased
violating this paragraph, whether or not as a result of being in compliance with
Court injunction or doing so voluntarily, and whether or not any action is
pending against Employee, and provided that no such exclusion shall include the
time an action is pending, if the action is finally determined in Employee's
favor.
<PAGE>
5. CONFIDENTIAL INFORMATION. It is expressly acknowledged by the Employee
that customer lists, orders, current and closed out orders, prospect lists,
documents containing the names or addresses of existing or potential customers,
information regarding the Company's financial condition or business plans, the
methods by which the Company serves its customers or conducts its operations, as
well as other business procedures, are the property of the Company and
constitute confidential information or trade secrets of the Company
("Confidential Information"). Employee agrees to maintain the confidentiality
of the Confidential Information and further agrees that Employee will not,
directly or indirectly, use or disclose Confidential Information to any natural
or legal person, other than authorized employees or agents of the Company,
during the Term or thereafter. All Confidential Information and all
correspondence, reports, charts, products, records, designs, patents, plans,
manuals, "field guides," memoranda, advertising materials, lists and other data
or property collected by or delivered to Employee by or on behalf of Company,
its representatives, customers and government entities (including, without
limitation, customers obtained for Company by Employee), and all other materials
compiled by Employee which pertain to the business of Company shall be and shall
remain the property of Company, shall be subject at all times to its discretion
and control and shall be delivered, together with any and all copies thereof,
promptly to Company upon request at any time and without request upon completion
or other termination of Employee's employment hereunder.
6. INVENTIONS. Employee shall disclose promptly to Company any and all
conceptions and ideas for inventions, improvements, and valuable discoveries,
whether patentable or not, which are conceived or made by Employee solely or
jointly with another during the period of employment or within one year
thereafter and which are related to the business or activities of Company.
Employee hereby assigns and agrees to assign all his interests therein to
Company or its nominee. Whenever requested to do so by Company, Employee shall
execute any and all applications, assignments or other instruments that Company
shall deem necessary to apply for and obtain Letters Patent of the United States
or any foreign country or to otherwise protect Company's interest therein.
These obligations shall continue beyond the termination of employment with
respect to inventions, improvements and valuable discoveries, whether patentable
or not, conceived, made or acquired by Employee during the period of employment,
and shall be binding upon Employee's heirs, assigns, executors, administrators
and other legal representatives.
<PAGE>
7. TERMINATION; RIGHTS OF TERMINATION. Employee's employment under this
Agreement may terminated during the term hereof in any one or more of the
following ways:
(a) Automatically upon the death or resignation of Employee, the parties
agreeing that Employee may resign at any time without such resignation
constituting a breach of this Agreement;
(b) By Company upon written notice to Employee upon:
(i) Employee's unsatisfactory performance of his duties or other
obligations under this Agreement, as determined in good faith by the Company
after having given Employee notice of the unsatisfactory performance, including
without limitation, Employee's refusal or inability to competently perform his
obligations under this Agreement, as determined by the Company, except where
non-performance is caused by disability;
(ii) Employee's inability to perform his duties under this Agreement
because of illness or physical or mental disability or other incapacity which
continues for a period of 90 days, either consecutive or cumulative during any
one-year period;
(iii) any type of harassment, violence or threat thereof, or other
behavior toward other employees of the Company or toward third parties of a kind
that may tend to result in liability being incurred by the Company toward such
employee or third party;
(iv) alcohol abuse, use of controlled substances during employment
hours, or a positive test for use of controlled substances; or
(v) gross negligence or willful misconduct with respect to the
Company or any of its affiliates or subsidiaries, including without limitation
fraud, embezzlement, theft or proven dishonesty in the course of employment, or
a conviction of a felony or a misdemeanor involving moral turpitude, or a
finding of adjudication withheld, with imposition of a sentence, to either a
felony or a misdemeanor involving moral turpitude, or the entering of a plea of
guilty or nolo contendere to a felony.
---- ----------
The written notice provided for herein shall state the reason for
Employee's termination.
(c) Upon termination of Employee's employment under this Paragraph 7 for
any reason, Employee shall be entitled to receive Employee's salary accrued
through the date of termination, plus any employee benefits which by their terms
and provisions continue after such termination and plus one months salary.
(d) In the event of termination of Employee's employment under this
Agreement for any
<PAGE>
reason provided in this paragraph 7, or if Employee resigns prior to the
expiration of the term of this Agreement, all rights and obligations of Company
and Employee under this Agreement shall cease immediately, except that
Employee's obligations under this subparagraph and paragraphs 4, 5, and 6, and
the Company's obligations under Paragraph 7(c) herein shall survive such
termination. After such termination Employee shall have no right to receive any
compensation hereunder, except as set forth in paragraph 7(c).
8. COMPLETE AGREEMENT. This Agreement is the final, complete and
exclusive statement and expression of the agreement between Company and
employee, it being understood that there are no oral representations,
understandings or agreements covering the same subject matter as this Agreement.
This Agreement supersedes, and cannot be varied, contradicted or supplemented by
evidence of any prior or contemporaneous discussions, correspondence, or oral or
written agreements of any kind. This Agreement may be modified, altered or
otherwise amended only by a written instrument executed by both Company and
Employee.
9. NO WAIVER; REMEDIES CUMULATIVE. No waiver by the parties hereto of any
default or breach of any term, condition or covenant of this Agreement shall be
deemed to be a waiver of any subsequent default or breach of the same or any
other term, condition or covenant contained herein. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or in
equity.
10. ASSIGNMENT; BINDING EFFECT. Employee understands that Employee has
been selected by Company on the basis of Employee's personal qualifications,
experience and skills. Employee agrees, therefore, that he cannot assign all or
any portion of this Agreement. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and Company's successors and assigns. It is
further understood and agreed that Company may be merged or consolidated with
another entity and that any such entity shall automatically succeed to the
rights, powers and duties of Company hereunder.
11. NOTICE. All notices or other communications required or permitted
hereunder shall be in writing and may be given by depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, by overnight courier or
by delivering the same in person to such party.
To Company: Chief Executive Officer
<PAGE>
1000 Crawford Place
Mount Laurel, New Jersey 08054
To Employee: Gregory M. Krzemien
109 Burrell Blvd.
Allentown, PA 18104
Notice shall be deemed given and effective the day personally delivered, the day
after being sent by overnight courier and three days after the deposit in the U.
S. mail of a writing addressed as above and sent first class mail, certified,
return receipt requested, or when actually received, if earlier. Either party
may change the address for notice by notifying the other party of such change in
accordance with this paragraph 11.
12. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in nay way to describe, interpret, define or limit the extent or intent of this
Agreement or of any part hereof.
13. GENDER. The use of the masculine pronoun in this Agreement has been
used for convenience and shall apply to the Employee even where the Employee is
a female.
14. GOVERNING LAW. This Agreement shall in all respects be construed in
accordance with the laws of the Commonwealth of Pennsylvania.
15. INSURANCE AND INDEMNIFICATION.
(a) Subject to applicable law, for a period of six (6) years following
completion of the Term, the Company will: (i) indemnify Employee and his heirs
and representatives to the extent provided in the Company's Certificate of
Incorporation in effect on the date of this Agreement and will not amend, reduce
or limit rights of indemnity afforded to them or the ability of the Company to
indemnify them, not hinder, delay or make more difficult the exercise of such
rights of indemnity and (ii) maintain director and officer liability insurance
coverage providing Employee with coverage (1) at least as favorable as the
policies in effect for the current directors and officers of the Company or (2)
as favorable as is available at a cost to the Company of up to 125% of the
premiums currently being paid by the Company.
(b) If any claim is (or claims are) made against Employee and his heirs and
representatives,
<PAGE>
including legal counsel, arising from Employee's services as a director, officer
and employee of the Company, within six (6) years from the expiration of the
Term, the provisions of this Paragraph 3 respecting the Company's Certificate of
Incorporation shall continue in effect until the final disposition of all such
claims.
(c) The Company agrees to provide written notice to Employee immediately
upon learning of any claim or threatened claim against Executive by any third
party relating to or arising out of the business of the Company or Employee's
prior service as a director, officer or controlling shareholder of the Company.
The Company further agrees to provide to Executive any complaints and other
relevant documentation related to such claims immediately upon receipt of such
documentation.
(d) Employee agrees that he will cooperate with and assist the Company, as
is reasonably requested by the Company, in its defense of any action or
proceeding against the Company, its directors, officers, employees or affiliates
arising out of or in any way related to any transactions, events or other
matters which occurred during the period of his employment with the Company, to
the extent that such cooperation and assistance will not impair Employee's legal
rights or remedies or increase the likelihood that Employee will incur any
liabilities as a result thereof. This Agreement shall not preclude Employee
from testifying in such action or proceeding. In the event that Employee does
not cooperate with and assist the Company in its defenses of such an action or
proceeding, the Company agrees to reimburse Employee for all reasonable expenses
incurred by Employee in providing such assistance.
16. Arbitration.
(a) Each and every controversy or claim arising out of or relating to this
Agreement shall be settled by arbitration in Philadelphia, Pennsylvania, in
accordance with the commercial rules (the "Rules") of the American Arbitration
Association then obtaining, and judgment upon the award rendered in such
arbitration shall be final and binding upon the parties and may be confirmed in
any court having jurisdiction thereof. Notwithstanding the foregoing, this
Agreement to arbitrate shall not bar any party from seeking temporary or
provisional remedies in any Court having jurisdiction. Notice of the demand for
arbitration shall be filed in writing with the other party to this Agreement,
which such demand shall set forth in the same degree of particularity as
required for complaints under the Federal Rules of Civil Procedure the claims to
be submitted to arbitration. Additionally, the demand for arbitration shall be
stated with reasonable particularity with respect to such demand
<PAGE>
with documents attached as appropriate. In no event shall the demand for
arbitration be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in question would be
barred by the applicable statutes of limitations.
(b) The arbitrators shall have the authority and jurisdiction to determine
their own jurisdiction and enter any preliminary awards that would aid and
assist the conduct of the arbitration or preserve the parties' rights with
respect to the arbitration as the arbitrators shall deem appropriate in their
discretion. The award of the arbitrators shall be in writing and it shall
specify in detail the issues submitted to arbitration and the award of the
arbitrators with respect to each of the issues so submitted.
(c) Within sixty (60) days after the commencement of any arbitration
proceeding under this Agreement, each party shall file with the arbitrators its
contemplated discovery plan outlining the desired documents to be produced, the
depositions to be take, if ordered by the arbitrators in accordance with the
Rules, and any other discovery action sought in the arbitration proceeding.
After a preliminary hearing, the arbitrators shall fix the scope and content of
each party's discovery plan as the arbitrators deem appropriate. The
arbitrators shall have the authority to modify, amend or change the discovery
plans of the parties upon application by either party, if good cause appears for
doing so.
(d) The award pursuant to such arbitration will be final, binding and
conclusive.
(e) Counsel to Company and Employee in connection with the negotiation of
and consummation of this Agreement shall be entitled to represent their
respective party in any and all proceedings under this Paragraph or in any other
proceeding (collectively, "Proceedings"). Company and Employee, respectively,
waive the right and agree they shall not seek to disqualify any such counsel in
any such Proceedings for any reason, including but not limited to the fact that
such counsel or any member thereof may be a witness in any such Proceedings or
possess or have learned of information of a confidential or financial nature of
the party whose interests are adverse to the party represented by such counsel
in any such Proceedings.
IN WITNESS WHEREOF, the undersigned parties have executed this Agreement on
the year and day above written.
EASTERN ENVIRONMENTAL SERVICES, INC
<PAGE>
/s/ Louis D. Paolino, Jr.
----------------------------------------
BY: LOUIS D. PAOLINO, JR.
ITS: PRESIDENT
/s/ Gregory M. Krzemien
----------------------------------------
GREGORY M. KRZEMIEN
<PAGE>
EXHIBIT 10.85
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
This Amended and Restated Employment Agreement ("Agreement") is executed
and delivered as of June 1, 1998, by and between Eastern Environmental Services,
Inc., a Delaware corporation ("Company"), and Matthew Paolino, an individual
("Employee").
RECITALS
--------
The Company conducts a diversified waste management business, including,
without limitation, waste hauling operations, landfills and other waste
management, recycling and waste testing operations ("Business"). The Employee
and the Company entered into an employment contract on July 24, 1996. The
Company and the Employee desire to amend and restate in their entirety the terms
of Employee's employment with Company.
The position of the Employee with the Company has given and will give the
Employee access to and familiarity with confidential information and business
methods used in the operation of the Business. During the course of Employee's
employment, Employee has and will become familiar with and aware of information
as to the specific manner of doing business and the customers of the Company and
the Company's future plans. Employee has and will have knowledge of trade
secrets of the Company which are valuable assets of the Company.
Employee recognizes that the business of the Company is dependent upon a
number of trade secrets and confidential business information, including
customer lists, customer data and operational information. The protection of
these trade secrets is of critical importance to the Company. The Company will
sustain great loss and damage if, for whatever reason, during the term of this
Agreement or Employee's employment with Company and for a period following the
-1-
<PAGE>
termination of this Agreement or Employee's employment, Employee should violate
the provisions of paragraph 4 of this Agreement. Further, Employee acknowledges
that any such violation would cause irreparable harm to Company and that Company
would be entitled, without limitation, to injunctive relief to remedy such
violation.
NOW, THEREFORE, in consideration of Ten Dollars ($10), and the mutual
promises, terms and conditions set forth herein and the performance of each, the
parties hereby agree as follows:
1. Services.
--------
(a) Company hereby employs Employee as a Vice President. Employee has
also been appointed to serve as a Director of the Company. Additional or
different duties, titles or positions may be assigned to Employee or may be
taken from Employee from time to time by the President of the Company.
Employee's place of employment may not be relocated without his consent.
(b) Employee hereby accepts employment upon the terms and conditions
contained in this Agreement. Employee shall faithfully adhere to, execute and
fulfill all directions and policies established by the Officers of the Company,
to the extent such instructions do not violate applicable laws.
(c) Employee shall not, during the term of his employment hereunder,
without the prior written consent of Company, be engaged in any other business
activity pursued for gain, profit or other pecuniary advantage, if such activity
prevents the Employee from fulfilling his duties and responsibilities under this
Agreement. Employee may make personal investments and conduct his personal
business affairs, including, without limitation, participating in the management
of businesses which the Employee owns directly or through affiliated entities,
as long as such investments do not violate the terms of Paragraph 4.
-2-
<PAGE>
2. Compensation.
------------
(a) For all services to be rendered by Employee to Company, Company shall
pay Employee a salary computed at the rate of Ninety Thousand Dollars ($90,000)
per year, payable in accordance with Company's normal payroll procedures. The
Company, at its discretion, may from time to time grant bonuses and raises to
the Employee.
(b) To the extent that Company, from time to time in its sole discretion,
offers or provides any of the following to its employees, then Employee, on an
equal basis with such other employees, shall be entitled to: (i) participation
in all, if any, life, health, medical, hospital, accident and disability
insurance programs of Company in existence for the benefit of the Company's
executives and for which Employee qualifies; (ii) participation in all, if any,
pension, retirement, profit sharing or stock purchase plans for which Employee
qualifies; and (iii) participation in any other employee benefits which Company
accords to its employees.
(c) During the term of Employee's employment with Company, Employee shall
be entitled to reimbursement for reasonable business expenses incurred on behalf
of Company. Employee shall be paid an automobile allowance of Five Hundred
Dollars ($500.00) a month.
(d) If a Change of Control occurs, as hereinafter defined, Employee shall
be entitled to a bonus in the amount of $200,000. Such bonus shall be payable
in cash or common stock of the Company (which stock shall be registered under
the Securities Act of 1933 or shall be registered by the Company within 120 days
after the date it is issued to Employee), at the Company's option. For purposes
of this Agreement, a "Change of Control" shall mean the occurrence of any of the
events set forth in items (i) or (ii) below:
(i) The Company's merger, consolidation, or other business
combination with
-3-
<PAGE>
another entity where the Company is not the surviving entity or the Company's
sale of substantially all of its assets; or
(ii) Louis D. Paolino, Jr., no longer serving as President and Chief
Executive Officer of the Company, or Chairman of the Board of directors.
3. Term. The term of this Agreement shall begin on the date of this
----
Agreement and continue until July 24, 2001. Employee's employment under this
Agreement may be terminated during the term hereof only as set forth in
Paragraph 7 of this Agreement.
4. Noncompetition Covenants.
------------------------
(a) Employee agrees that the noncompetition covenants contained in this
Paragraph 4 are a material and substantial part of this Agreement.
(b) Employee covenants that during Employee's employment with Company and
for two years following the termination of Employee's employment (regardless of
the reason for the termination) the Employee shall not, directly or indirectly,
without the prior express written consent of Company, do any of the things set
forth in item (i) through (iv) below.
(i) call upon any person who is, at the time of the contact, an employee
of Company or its affiliates, if the employee serves the Company in a managerial
capacity and if the purpose and intent of the contact is to entice such employee
away from or out of the employ of Company or its affiliates;
(ii) call upon any person or entity, which is, at the time of the contact,
a customer of the Company or its affiliates, for the purpose of soliciting or
selling any of the services which are the services offered by the Company within
the Territory;
(iii) disclose the identity of the customers of Company or its affiliates,
whether in existence
-4-
<PAGE>
or proposed, to any person, firm, partnership, corporation or other entity
whatsoever, for any reason or purpose whatsoever, except if approved by the
Board or if compelled to do so by a governmental agency, Court Order or
subpoena; or
(iv) promote, or assist, financially or otherwise, any person, firm,
partnership, corporation or other entity whatsoever to do any of the above.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Employee from acquiring as an investment not more than ten percent of
the capital stock of a competing business, the stock of which is traded on a
national securities exchange or over-the-counter. For the purposes of this
Agreement, the term "affiliates" shall mean one or more of: (a) each subsidiary
of Company, and (B) each other entity under the direct or indirect control of
the Company.
(c) The Company will sustain significant losses and damages, if Employee
breaches the covenants in this Paragraph 4. There is no adequate monetary
remedy for the immediate and irreparable damage that would be caused to Company
by Employee's breach of its non-competition covenants. Employee agrees that, in
the event of a breach by him of the foregoing covenants, such covenants may be
enforced by Company by, without limitation, injunctions and restraining orders.
(d) It is agreed by the parties that the covenants in this Paragraph 4
impose a reasonable restraint on Employee in light of the activities and
business of Company on the date of the execution of this Agreement and the
future plans of Company.
(e) The covenants in this Paragraph 4 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. If any court of competent jurisdiction shall determine that the
scope, time or territorial restrictions set forth are unreasonable, then it is
the intention of the parties that such restrictions be enforced to the fullest
-5-
<PAGE>
extent which the court deems reasonable, and the Agreement shall thereby be
reformed.
(f) The covenants in this Paragraph 4 shall be construed as independent of
any other provision of this Agreement and the existence of any claim or cause of
action of Employee against Company whether predicated on this Agreement, or
otherwise, shall not constitute a defense to the enforcement by Company of such
covenants. It is specifically agreed that the duration of the noncompetition
covenants stated above shall be computed by excluding from such computation all
time during which Employee is in violation of any provision of this Paragraph 4
and all time during which there is pending in any court of competent
jurisdiction any action (including any appeal from any judgment) brought by any
person, whether or not a party to this Agreement, in which action Company seeks
to enforce the agreements and covenants of Employee or in which any person
contests the validity of such agreements and covenants or their enforceability
or seeks to avoid their performance or enforcement. Provided that, no such
exclusion shall include the period of time within which Employee has ceased
violating this paragraph, whether or not as a result of being in compliance with
Court injunction or doing so voluntarily, and whether or not any action is
pending against Employee.
5. Return of Company Property. All correspondence, reports, charts,
--------------------------
products, records, designs, patents, plans, manuals, "field guides," memoranda,
advertising materials, lists and other data or property collected by or
delivered to Employee by or on behalf of the Company or its representatives,
customers and government entities (including, without limitation, customers
obtained for Company by Employee), and all other materials compiled by Employee
which pertain to the business of Company shall be and shall remain the property
of Company, shall be subject at all times to the Company's discretion and
control and shall be delivered promptly to Company upon
-6-
<PAGE>
request at any time and without request upon completion or other termination of
Employee's employment hereunder.
6. Inventions. Employee shall disclose promptly to Company any and all
----------
conceptions and ideas for inventions, improvements, and valuable discoveries,
whether patentable or not, which are conceived or made by Employee solely or
jointly with another during the period of employment which are related to the
business or activities of the Company. Employee hereby assigns and agrees to
assign all his interests therein to Company or its nominee. Whenever requested
to do so by Company, Employee shall execute any and all applications,
assignments or other instruments that Company shall deem necessary to apply for
and obtain Letters Patent of the United States or any foreign country or to
otherwise protect Company's interest therein. These obligations shall continue
beyond the termination of employment with respect to inventions, improvements
and valuable discoveries, whether patentable or not, conceived, made or acquired
by Employee during the period of employment, and shall be binding upon
Employee's heirs, assigns, executors, administrators and other legal
representatives.
7. Termination; Rights of Termination.
----------------------------------
(a) Employee's employment under this Agreement may be terminated during the
term hereof upon the occurrence of any of the items set forth below. If
Employee's employment under this Agreement is terminated for any of the reasons
set forth below, Employee shall be entitled to receive, and shall immediately be
paid in full, one months annual salary that would have been paid under Paragraph
2(a) above, if this Agreement had not been terminated. If any one or more of
the following items occur this Agreement shall be terminated as follows:
(i) Automatically upon the death of Employee.
-7-
<PAGE>
(ii) Automatically upon the resignation of the Employee.
(iii) By Company upon written notice to Employee in the event of:
(A) Employee's breach of this Agreement;
(B) Employee's inability to perform his duties under this
Agreement because of illness or physical or mental disability or other
incapacity which continues for a period of 90 days; or
(C) Employee's theft or fraud with respect to the business or
affairs of Company or if Employee is convicted of a crime involving
fraud or theft.
If the Agreement is terminated by the Company, the Employee shall be
provided with a written notice of termination which shall state the reason for
Employee's termination.
(b) If Employee's employment under this Agreement is terminated under
Paragraph 7(a)(ii) above subsequent to any Change of Control, Employee shall be
entitled to receive, and shall immediately be paid in full, one years annual
salary that would have been paid under Paragraph 2(a) above, if this Agreement
had not been terminated, and Company shall continue Employee's medical insurance
benefits for two years following such termination.
(b) In the event of termination of Employee's employment under this
Agreement for any reason provided in paragraph 7(a) or 7(b), all rights and
obligations of Company and Employee under this Agreement shall cease
immediately, except that Employee's obligations under this subparagraph and
paragraphs 4, 5, 6, and 9 herein and Company's obligations to pay the amounts to
be paid under Paragraph 7(a) or 7(b), as applicable, and the Company's
obligations under Paragraph 10 shall survive such termination. After such
termination Employee shall have no right to receive any compensation hereunder,
except as set forth in Paragraph 7(a) or 7(b).
-8-
<PAGE>
8. Authority. Employee shall be authorized to obligate the Company in
---------
accordance with the Company's policies and procedures from time to time in
effect.
9. Representations of Employee. Employee represents and warrants to
---------------------------
Company that he is not subject to any restriction or noncompetition covenant in
favor of a former employer or any other person or entity, and that the execution
of this Agreement by Employee and his provision of services to Company and the
performance of his obligations hereunder will not violate or be a breach of any
agreement with a former employer or any other person or entity. Further,
Employee agrees to indemnify Company for any claim, including, but not limited
to, attorneys' fees and expenses of investigation, by any such third party that
such third party may now have or may hereafter come to have against Company
based upon or arising out of any noncompetition agreement or invention and
secrecy agreement between Employee and such third party.
10. Complete Agreement. This Agreement is the final, complete and
------------------
exclusive statement and expression of the agreement between Company and
employee, it being understood that there are no oral representations,
understandings or agreements covering the same subject matter as this Agreement.
This Agreement supersedes, and cannot be varied, contradicted or supplemented by
evidence of any prior or contemporaneous discussions, correspondence, or oral or
written agreements of any kind. This Agreement may be modified, altered or
otherwise amended only by a written instrument executed by both Company and
Employee.
11. No Waiver; Remedies Cumulative. No waiver by the parties hereto of
------------------------------
any default or breach of any term, condition or covenant of this Agreement shall
be deemed to be a waiver of any subsequent default or breach of the same or any
other term, condition or covenant contained herein. No right, remedy or election
given by any term of this Agreement shall be deemed exclusive but
-9-
<PAGE>
each shall be cumulative with all other rights, remedies and elections available
at law or in equity.
12. Assignment; Binding Effect. Employee understands that he has been
--------------------------
selected by Company on the basis of his personal qualifications, experience and
skills. This Agreement is not assignable. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and Company's successors.
13. Notice. All notices or other communications required or permitted
------
hereunder shall be in writing and may be given by depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, by overnight courier or
by delivering the same in person to such party.
To Company: President
1000 Crawford Place
Mt. Laurel, N.J. 08054
with a copy to:
Robert M. Kramer & Assoc., P.C.
1150 First Avenue, Suite 900
King of Prussia, PA 19406
To Employee: Matthew Paolino
___________________
__________________
Notice shall be deemed given and effective the day personally delivered, the day
after being sent by overnight courier and three days after the deposit in the U.
S. mail of a writing addressed as above and sent first class mail, certified,
return receipt requested, or when actually received, if earlier. Either party
may change the address for notice by notifying the other party of such change in
accordance with this paragraph 13.
-10-
<PAGE>
14. Severability; Headings. If any portion of this Agreement is held
----------------------
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in nay way to describe, interpret, define or limit the extent or intent of this
Agreement or of any part hereof.
15. Governing Law. This Agreement shall in all respects be construed in
-------------
accordance with the laws of the State of New Jersey.
EASTERN ENVIRONMENTAL SERVICES, INC.
By: /s/ Louis D. Paolino, Jr.
Louis D. Paolino, Jr., President
/s/ Matthew Paolino
Matthew Paolino
-11-
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<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
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<PP&E> 256,545,524 256,545,524
<DEPRECIATION> 62,167,105 62,167,105
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<LOSS-PROVISION> 461,046 1,222,941
<INTEREST-EXPENSE> 586,405 1,932,546
<INCOME-PRETAX> 11,596,601 18,659,272
<INCOME-TAX> 5,134,000 9,909,172
<INCOME-CONTINUING> 6,462,601 8,750,100
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