<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1994
REGISTRATION NO. 33-54191
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
CLEAN HARBORS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
MASSACHUSETTS 04-2997780
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
(continued on next page)
----------------
1200 CROWN COLONY DRIVE,
QUINCY, MASSACHUSETTS 02169
(617) 849-1800
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
C. MICHAEL MALM, ESQ.
DAVIS, MALM & D'AGOSTINE, P.C.
ONE BOSTON PLACE
BOSTON, MASSACHUSETTS 02108
(617) 367-2500
(NAME, ADDRESS INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
----------------
WITH COPIES TO:
ETTORE A. SANTUCCI, P.C.
GOODWIN, PROCTER & HOAR
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109
(617) 570-1000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
possible following the effectiveness of this Registration Statement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
(Continued from previous page)
ADDITIONAL REGISTRANTS
CLEAN HARBORS ENVIRONMENTAL SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2698999
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
CLEAN HARBORS OF BRAINTREE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2507498
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
CLEAN HARBORS OF NATICK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2481234
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
CLEAN HARBORS OF BALTIMORE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-2091580
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
CLEAN HARBORS OF CHICAGO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 06-1287127
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
CLEAN HARBORS OF CLEVELAND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ILLINOIS 06-1335175
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
MURPHY'S WASTE OIL SERVICE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2490849
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
CLEAN HARBORS KINGSTON FACILITY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-3074299
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
CLEAN HARBORS OF CONNECTICUT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CONNECTICUT 06-1025746
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
MR. FRANK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ILLINOIS 36-2542803
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
CLEAN HARBORS TECHNOLOGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-3172766
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
SPRING GROVE RESOURCE RECOVERY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0313183
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
<PAGE>
CLEAN HARBORS, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-2
<TABLE>
<CAPTION>
PROSPECTUS LOCATION
FORM S-2 ITEM NUMBER HEADING HEADING
---------------------------- -------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus............... Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus........ Inside Front and Outside Back Cover
Pages; Available Information;
Incorporation of Certain Documents by
Reference
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges.......................... Prospectus Summary; Risk Factors;
Selected Consolidated Financial Data
4. Use of Proceeds................... Use of Proceeds; Capitalization
5. Determination of Offering Price... Front Cover Page
6. Dilution.......................... Not Applicable
7. Selling Security Holders.......... Not Applicable
8. Plan of Distribution.............. Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered....................... Description of the Senior Notes
10. Interests of Named Experts and
Counsel.......................... Legal Matters
11. Information with Respect to the
Registrant....................... Prospectus Summary; Capitalization;
Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Environmental
Regulation; Directors and Executive
Officers of the Company; Description of
Other Indebtedness; Consolidated
Financial Statements
12. Incorporation of Certain
Information by Reference......... Incorporation of Certain Documents by
Reference
13. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities.................. Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 28, 1994
$75,000,000
[LOGO OF CLEAN HARBORS APPEARS HERE]
% Senior Notes Due 2004
Interest payable January and July Due July , 2004
--------
The % Senior Notes Due 2004 (the "Senior Notes") are not redeemable prior to
July , 1999. On or after July , 1999, the Senior Notes are redeemable in whole
or in part, at the option of the Company, at the redemption prices set forth
herein plus accrued interest to the date of redemption. The Company will not be
required to make mandatory redemption or sinking fund payments with respect to
the Senior Notes prior to maturity. Upon a Change of Control (as defined
herein), each holder of Senior Notes may require the Company to repurchase such
holder's Senior Notes at 101% of the principal amount thereof plus accrued
interest to the date of repurchase.
The Senior Notes will be unsecured obligations of the Company, ranking pari
passu with all other senior indebtedness of the Company. The Senior Notes will
be unconditionally guaranteed on a senior unsecured basis by each of the
Company's direct subsidiaries. After giving pro forma effect to this offering
(the "Offering") and the application of the net proceeds therefrom described
herein, the Company and its subsidiaries on a consolidated basis will have
outstanding $5.0 million of unsecured senior indebtedness in addition to the
Senior Notes and expect to have a $35.0 million senior secured revolving credit
agreement (the "Bank Revolver"). See "Capitalization" and "Description of the
Senior Notes."
--------
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SENIOR NOTES.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-TIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions Company(1)(2)
--------- ------------- -------------
<S> <C> <C> <C>
Per Senior Note ........................... % % %
Total ..................................... $ $ $
</TABLE>
(1)Plus accrued interest, if any, from , 1994.
(2)Before deduction of expenses payable by the Company estimated at $ .
--------
The Senior Notes are offered by the several Underwriters when, as and if
issued by the Company, delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected
that delivery of the Senior Notes in book-entry form will be made through the
facilities of The Depository Trust Company on or about .
CS First Boston Alex. Brown & Sons
Incorporated
The date of this Prospectus is , 1994
<PAGE>
(ART)
WASTE MANAGEMENT FACILITIES
. BRAINTREE, MA
. KINGSTON, MA
. NATICK, MA
. WOBURN, MA
. BRISTOL, CT
. CHICAGO, IL
. PORTLAND, ME
. BALTIMORE, MD
. CINCINNATI, OH
. CLEVELAND, OH
<TABLE>
<CAPTION>
[_] MIDWEST [_] CENTRAL [_] MID-ATLANTIC [_] NORTHEAST
<S> <C> <C> <C> <C>
SERVICE CENTERS . CHICAGO, IL . CINCINNATI, OH . BALTIMORE, MD . SHREWSBURY, MA
. WAUKEGAN, IL . CLEVELAND, OH . METRO PHILADELPHIA . BOSTON, MA
. ST. LOUIS, MO . PITTSBURGH, PA . METRO NYC . NEW BRITAIN, CT
. ALBANY, NY . BANGOR, ME
. SYRACUSE, NY . PORTLAND, ME
. RICHMOND, VA . HOOKSETT, NH
. SAN JUAN, PR . PORTSMOUTH, NH
. PROVIDENCE, RI
SALES OFFICES . GRAND RAPIDS, MI . COLUMBUS, OH . RALEIGH/DURHAM, NC . QUINCY, MA
. MINNEAPOLIS, MN . INDIANAPOLIS, IN
. LOUISVILLE, KY
. BUFFALO, NY
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain of the information contained elsewhere
in this Prospectus. This summary is not intended to be complete and is
qualified in its entirety by reference to the detailed information and
financial statements, including the notes thereto, contained elsewhere in this
Prospectus. Unless the context otherwise requires, references to the "Company"
include Clean Harbors, Inc. and its subsidiaries.
THE COMPANY
The Company provides a wide range of industrial waste management services to
a diversified customer base in 25 states. It is one of the largest providers of
industrial waste management services in the Northeast, with a growing presence
in the Mid-Atlantic, Central, and Midwest regions of the United States. The
Company seeks to be recognized by customers as the premier supplier of a broad
range of value-added industrial waste management services based upon quality,
responsiveness, customer service, variety of risk containment systems, and cost
effectiveness. The Company currently maintains a network of eight sales
offices, 21 service centers and ten waste management facilities. The service
centers perform site specific services and ultimately direct collected waste to
the waste management facilities for treatment and processing. The Company does
not own or operate end disposal sites such as landfills or incinerators.
The United States industrial waste management industry had total revenues in
1992 of approximately $18.6 billion. The demand for industrial waste management
services has resulted primarily from the adoption and enforcement of
increasingly stringent federal, state and local environmental laws and
regulations over the past 20 years. These laws and regulations have
significantly increased the costs and potential liabilities associated with the
handling of industrial wastes. Under these laws and regulations, a broad list
of industrial wastes are classified as "hazardous," and generators of hazardous
wastes retain potential legal liability for the proper treatment of such wastes
through and including their ultimate disposal. In response to these laws and
regulations, many generators of both hazardous and nonhazardous wastes have
chosen not to maintain their own treatment and disposal facilities nor to
develop the technical expertise necessary to assure regulatory compliance.
These generators have instead sought to have their waste streams managed by
firms that possess collection, transportation, recycling, treatment, disposal
and waste-tracking capabilities and have the expertise and financial capacity
necessary to comply with applicable environmental laws and regulations.
The principal services provided by the Company fit within three categories:
treatment and disposal of industrial wastes; field services provided at
customer sites; and specialized repackaging, treatment and disposal services
for laboratory chemicals and household hazardous wastes. The Company markets
these services on an integrated basis and, in many instances, services in one
area of the business support or lead to a project undertaken in another area.
Since January 1994, the Company has executed approximately 2,500 work orders
per month for over 4,400 customers. The Company's sales efforts are directed
toward establishing and maintaining relationships with businesses which have
ongoing requirements for one or more of the Company's services. The Company's
customer list includes 296 of the companies on the 1994 Forbes 500 list of
largest United States companies. In addition, the Company's customers include
most of the major utilities in the Northeast and Mid-Atlantic regions. The
Company's customers are primarily chemical, petroleum, transportation, utility
and industrial firms, other waste management companies and government agencies.
Management believes that the Company's diverse customer base, in terms of
number, industry and geographic location, as well as its large presence in New
England, provide it with a recurring stream of revenue and stability of cash
flow. The Company estimates that in excess of 80% of its revenues is derived
from previously served customers with recurring needs for the Company's
services.
3
<PAGE>
The Company's consolidated revenues grew 52% between the fiscal year ended
February 28, 1990 and the fiscal year ended December 31, 1993, from $131.4
million to $200.1 million. Consolidated EBITDA (as defined below) increased 88%
over the same period from $12.4 million to $23.3 million.
As a large industrial waste management firm, the Company has significant cost
advantages over many of its competitors in terms of its ability to efficiently
utilize its waste management facilities and to negotiate more favorable terms
for end disposal of waste. Several recent industry trends provide the Company
with opportunities to grow by focusing on technological innovation, sound
waste-tracking capabilities, cost reduction and a heightened commitment to
customer service and responsiveness. These trends include: (i) efforts by many
generators of industrial wastes to decrease the number of service providers
that they utilize to a select group of industry leaders in order to minimize
the potential liability inherent in using less qualified firms; (ii) efforts by
waste generators to reduce or recycle their waste through utilizing service
providers which offer alternative disposal and treatment technologies; and
(iii) a reduction in the cost of end disposal as a result of surplus landfill
and incinerator capacity and the emergence of new disposal alternatives. These
trends are leading to a significant consolidation of the industrial waste
management industry. The Company has benefited and expects to continue to
benefit from these trends through attractive acquisitions, increased market
share and new market opportunities.
The Company was incorporated in Massachusetts in 1980. The principal offices
of the Company are located at 1200 Crown Colony Drive, Quincy, Massachusetts
02169, and the telephone number is (617) 849-1800.
BUSINESS STRATEGY
In order to maintain and enhance its leading position in the industrial waste
management industry, the Company has implemented a strategy of internal growth
through the increased utilization of existing facilities, the addition of new
sales offices and service centers, and the development of new waste management
services. In addition, the Company achieves external growth through strategic
acquisitions.
Increased Utilization of Waste Management Facilities. The Company currently
has ten waste management facilities which represent a substantial investment in
permits, plant and equipment. These facilities provide the Company with
significant operating leverage. There are opportunities to expand capacity at
these facilities by modifying the terms of the existing permits and by adding
capital equipment and new technology. Through selected permit modifications,
the Company can expand the range of treatment services which it offers to its
customers without the large capital investment necessary to acquire or build
new waste management facilities. The Company believes that permits for new
industrial waste management facilities will become increasingly difficult to
obtain, thereby placing new entrants and weaker competitors at a disadvantage.
Sales Office/Service Center Expansion. The Company opens sales offices in
attractive target markets which can be serviced by existing facilities and
expand the Company's service areas. As demand at a particular sales office
reaches a sufficient level, the sales office can be upgraded to a service
center with field service capabilities by the addition of field technicians,
service personnel and equipment. The Company's sales offices and service
centers direct waste into the Company's waste management facilities. This
allows the Company to expand its service areas with low risk capital investment
and to maximize throughput with minimal incremental cost by obtaining
additional wastes to be handled by the Company's service centers and waste
management facilities. Since January 1, 1993, the Company has added eight sales
offices and three sales offices have been upgraded to service centers.
4
<PAGE>
New Waste Management Services. Industrial waste generators are demanding
alternatives to traditional waste disposal methods in order to increase
recycling and reclamation and to minimize the end disposal of hazardous waste
into the environment. The Company utilizes its technological expertise and
innovation to improve and expand the range of services which it offers to its
customers. The Company has commercialized a hazardous waste treatment system,
the Clean Extraction System ("CES"), to extract toxic compounds from industrial
wastewaters by utilizing non-toxic liquid carbon dioxide at high pressures. CES
offers for certain wastewater streams a recycling alternative to incineration
or injection into deep underground wells. The Company has also recently signed
a development agreement with Molten Metal Technology, Inc., an environmental
technology company developing a proprietary technology known as Catalytic
Extraction Processing which uses a molten metal bath as a catalyst and solvent
to break down the molecular structures of various hazardous wastes into their
elements for recycling or reuse.
Capitalization on Industry Consolidation. The Company believes that its large
industrial customers will ultimately require a comprehensive range of waste
treatment capabilities to be provided by a select number of service providers.
This trend will put smaller operators at a competitive disadvantage due to
their size and limited financial resources. To respond to its customers' needs,
the Company has increased the range of waste management services it offers and
has followed a strategy of acquiring companies in existing, contiguous and new
market areas. Since its formation in 1980, the Company has completed 12
acquisitions, each of which has proven successful in expanding the Company's
market share and cash flow. The Company continues to investigate and discuss
other potential acquisitions of permitted facilities in order to enhance
service to its existing customer base and expand its customer base to include
new regional and super-regional waste generators. Acquisitions within the
Company's existing areas of operation serve to capture incremental market
share, while geographic expansion creates new market opportunities.
RISK FACTORS
Prospective purchasers of the Senior Notes should carefully consider the
information set forth under "Risk Factors," as well as the other information
and data in this Prospectus.
THE OFFERING
Senior Notes Offered.. $75,000,000 aggregate principal amount of % Senior
Notes Due 2004.
Interest Payment
Dates................ January and July , commencing January , 1995.
Optional Redemption... The Senior Notes are not redeemable prior to July ,
1999. On or after July , 1999, the Senior Notes are
redeemable at the option of the Company, in whole or in
part, at the redemption prices set forth herein plus
accrued interest to the date of redemption. See "De-
scription of the Senior Notes--Optional Redemption."
Mandatory Redemption.. None.
Change of Control..... Upon a Change of Control (as defined herein) and sub-
ject to the satisfaction of certain conditions, each
holder of Senior Notes may require the Company to re-
purchase such Senior Notes at 101% of the principal
amount thereof plus accrued interest to the date of re-
purchase. See "Description of the Senior Notes--Change
of Control."
5
<PAGE>
Subsidiary
Guarantees........... The Company's obligations under the Senior Notes will
be unconditionally guaranteed, jointly and severally,
by guarantees (the "Subsidiary Guarantees") provided by
each of the Company's direct subsidiaries (the "Guaran-
tor Subsidiaries"). Each Subsidiary Guarantee is a se-
nior unsecured obligation of the subsidiary providing
such Subsidiary Guarantee and ranks pari passu with all
other senior unsecured indebtedness of such subsidiary.
See "Description of the Senior Notes--Subsidiary Guar-
antees."
Ranking............... The Senior Notes will be senior unsecured obligations
of the Company, will rank pari passu with other senior
unsecured indebtedness of the Company, will rank senior
to all present and future subordinated obligations, and
will be effectively subordinated to all senior secured
obligations of the Company and its subsidiaries. After
giving pro forma effect to the Offering and the appli-
cation of the net proceeds therefrom as described in
"Use of Proceeds," the Company and its subsidiaries on
a consolidated basis will have outstanding $5.0 million
of unsecured senior indebtedness in addition to the Se-
nior Notes and expect to have a $35.0 million Bank Re-
volver. Following consummation of the Offering, the
Company and its subsidiaries will also have the ability
to incur additional senior and other indebtedness, and
to make additional guarantees, subject to certain limi-
tations contained in the Note Indenture (as defined
herein). See "Description of the Senior Notes--Rank-
ing."
Certain Covenants..... The indenture under which the Senior Notes will be is-
sued (the "Note Indenture") will limit among other
things (i) the creation of liens on the assets of the
Company and its subsidiaries, (ii) sale/leaseback
transactions, (iii) the issuance of additional debt by
the Company, (iv) the issuance of debt and preferred
stock by the Company's subsidiaries, (v) the payment of
dividends on, and redemption of, capital stock of the
Company and its subsidiaries and the redemption of cer-
tain subordinated obligations of the Company and the
making of investments, (vi) the issuance and sale of
equity interests of subsidiaries, (vii) sales of as-
sets, including subsidiary stock, (viii) restrictions
on distributions from subsidiaries, (ix) transactions
with affiliates, and (x) consolidations, mergers and
transfers of all or substantially all of the Company's
assets. However, all of these limitations are subject
to a number of important qualifications. See "Descrip-
tion of the Senior Notes--Certain Covenants" and "--
Successor Company."
Use of Proceeds....... The net proceeds from the Offering will be used: (i) to
prepay in full all of the Company's currently outstand-
ing indebtedness for borrowed money (except for $5.0
million of unsecured senior convertible notes and a
$1.2 million junior subordinated note); (ii) to redeem
all of the Company's currently outstanding preferred
stock; and (iii) for general corporate purposes. See
"Use of Proceeds."
6
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents, for the periods and dates indicated, summary
consolidated historical and pro forma financial data for the Company. Such data
should be read in conjunction with the "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operation," and the consolidated financial statements and the related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED YEAR ENDED
ENDED MARCH 31, DECEMBER 31, TEN-MONTH FEBRUARY 28,
---------------- ------------------ PERIOD ENDED ------------------
1994 1993 1993 1992 DECEMBER 31, 1991(1) 1991 1990
------- ------- -------- -------- -------------------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................ $51,285 $43,452 $200,114 $176,193 $127,473 $142,906 $131,441
Gross profit............ 15,371 15,063 65,589 59,720 41,552 44,178 37,086
Restructuring costs and
RKI write-off(2)....... -- -- -- -- -- 19,898 --
Income (loss) from
operations............. 2,925 3,224 12,974 14,913 11,095 (7,312) 5,402
Interest expense (net).. 1,819 1,737 7,198 7,064 5,925 6,428 4,585
Net income (loss)....... 597 835 3,131 5,075 3,603 (12,632) 695
OTHER DATA:
EBITDA(3)............... $ 5,488 $ 5,687 $ 23,293 $ 23,797 $ 17,696 $ 20,514 $ 12,432
Ratio of EBITDA to
interest expense(3).... 3.02x 3.27x 3.24x 3.37x 2.99x 3.19x 2.71x
Ratio of earnings to
fixed charges(4)....... 1.50x 1.77x 1.70x 1.89x 1.58x -- --
Capital expenditures.... $ 630 $ 2,179 $ 7,874 $ 9,815 $ 9,531 $ 5,300 $ 11,994
Depreciation and
amortization of
intangible assets...... 2,563 2,463 10,319 8,884 6,601 7,928 7,030
PRO FORMA DATA(5):
Interest expense........ $ 2,381 $ 9,558
Ratio of EBITDA to
interest expense(3).... 2.30x 2.44x
Ratio of earnings to
fixed charges(4)....... 1.16x 1.30x
Ratio of total debt to
EBITDA................. -- 3.52x
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1994
--------------------- DECEMBER 31,
ACTUAL PRO FORMA(5) 1993
-------- ------------ ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............................. $ 18,694 $ 28,352 $ 18,320
Total assets................................. 164,816 166,642 167,358
Total debt................................... 69,319 78,847 71,424
Total stockholders' equity................... 67,883 60,948 67,371
</TABLE>
- --------
(1) In January 1992, the Company elected to change its fiscal year to coincide
with the calendar year rather than maintain a February 28 fiscal year end.
As a result, the Company had a ten-month transition period, from March 1,
1991 to December 31, 1991, between fiscal years.
(2) In the fall of 1990, the Company abandoned an effort it began in 1987 to
obtain a permit to install a high temperature rotary kiln incinerator
("RKI") at its facility in Braintree, Massachusetts. During its fiscal year
ended February 28, 1991, the Company wrote off its investment in the
project and exited certain unprofitable businesses, resulting in
restructuring charges of $19.9 million.
(3) EBITDA is defined as income from operations before depreciation and
amortization of intangible assets and the restructuring costs and RKI
write-off described in note (2). EBITDA is not required by generally
accepted accounting principles but is presented because it is a widely
accepted financial indicator of a company's ability to service and incur
debt. EBITDA should not be considered by an investor as an alternative to
net income as an indicator of the Company's operating performance or to
cash flows as a measure of liquidity.
7
<PAGE>
(4) The ratio of earnings to fixed charges is expressed as the ratio of: (i)
fixed charges plus income from operations, to (ii) fixed charges. Fixed
charges consist of interest expense, amortization of deferred financing
fees and the interest component of operating leases. The pro forma ratio is
computed in a similar manner. Earnings were insufficient by $14.6 million
and $1.3 million to cover fixed charges for the fiscal years ended February
28, 1991 and 1990, respectively.
(5) Gives effect to the sale of the Senior Notes and the application of the net
proceeds therefrom as described in "Use of Proceeds." Assumes a prepayment
penalty of $1.0 million and the write-off of deferred financing fees of
$1.1 million ($1.1 million combined net of tax).
8
<PAGE>
RISK FACTORS
In addition to the other information set forth in this Prospectus,
prospective purchasers should carefully consider the following factors in
evaluating an investment in the Senior Notes.
SIGNIFICANT LEVERAGE
After consummation of the Offering and the application of the net proceeds
therefrom, the Company will have substantial indebtedness. As a result, the
Company will have significant debt service obligations. As of March 31, 1994 on
a pro forma basis the Company would have had total outstanding long-term
indebtedness (including the current portion thereof) of $81.7 million
(including the Senior Notes and excluding the effect of deferred financing fees
of $2.9 million) and stockholders' equity of $60.9 million, resulting in a debt
to equity ratio of 1.3 to 1. The Company also expects to have a $35.0 million
Bank Revolver, under which no borrowings and $9.5 million of letters of credit
would have been outstanding on March 31, 1994 on a pro forma basis. See
"Capitalization" and "Description of Other Indebtedness."
The Company's substantial level of leverage could have important consequences
to the holders of the Senior Notes, including the following: (i) a substantial
portion of the Company's net cash provided by operations will be committed to
the payment of the Company's interest expense and principal repayment
obligations and will not be available to the Company for its operations,
capital expenditures, acquisitions or other purposes; (ii) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures or acquisitions may be limited; (iii) the Company will be
more highly leveraged than certain of its competitors which may place it at a
competitive disadvantage and limit the Company's flexibility in reacting to
changes in its business; and (iv) the Company's borrowings under its Bank
Revolver are at variable rates of interest, which would result in higher
interest expense in the event of an increase in interest rates. See
"Description of Other Indebtedness" and "Description of the Senior Notes." The
ability of the Company to make scheduled payments or to refinance its
obligations with respect to its indebtedness depends on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors beyond its control.
LIMITATIONS IMPOSED BY CERTAIN INDEBTEDNESS
The documents governing the indebtedness of the Company expected to be in
effect upon consummation of the Offering (including the Note Indenture and the
Bank Revolver) contain significant covenants that limit the Company's ability
to engage in various transactions and, in certain cases, require satisfaction
of specified financial performance criteria. In addition, under each of the
foregoing documents, the occurrence of certain events (including, without
limitation, failure to comply with the foregoing covenants, material
inaccuracies of representations and warranties, certain defaults under or
acceleration of other indebtedness and events of bankruptcy or insolvency)
would, in certain cases after notice and grace periods, constitute an event of
default permitting acceleration of the indebtedness covered by such documents.
The limitations imposed by such documents are substantial, and failure to
comply with them could have a material adverse effect on the Company. See
"Description of Other Indebtedness" and "Description of the Senior Notes."
PLEDGE OF ASSETS
As collateral under the Bank Revolver, the Company and most of its
subsidiaries have granted security interests in substantially all of their
assets to the Company's bank lenders. The stock of the principal subsidiaries
of the Company also has been pledged. The Senior Notes offered hereby are
unsecured obligations of the Company. In the event of bankruptcy or liquidation
of the Company, there can be no assurance that sufficient assets would be
available for payment of the Senior Notes.
9
<PAGE>
The Note Indenture limits, but does not prohibit, the incurrence of secured
indebtedness by the Company and its subsidiaries. See "Description of Other
Indebtedness" and "Description of the Senior Notes."
FRAUDULENT CONVEYANCE CONSIDERATIONS
The incurrence by the Company and the Guarantor Subsidiaries of indebtedness
under the Senior Notes and the Subsidiary Guarantees may be subject to review
under relevant federal and state fraudulent conveyance laws if a bankruptcy
case or a lawsuit (including in circumstances where bankruptcy is not involved)
were commenced by or on behalf of unpaid creditors of the Company or the
Guarantor Subsidiaries. Under these laws, a "fraudulent conveyance" would be
deemed to have occurred with respect to the Company or a Guarantor Subsidiary
if at the time the Senior Notes or the Subsidiary Guarantee of such entity were
issued, both: (1) either (a) the Company or such Guarantor Subsidiary incurred
debt represented by the Senior Notes or such Subsidiary Guarantee with the
intent of hindering, delaying or defrauding creditors, or (b) the Company or
such Guarantor Subsidiary received less than reasonably equivalent value or
consideration for incurring the indebtedness represented by the Senior Notes or
such Subsidiary Guarantee; and (2) the Company or such Guarantor Subsidiary
either (i) was insolvent or was rendered insolvent by reason of such
transaction, (ii) was engaged in a business or transaction for which the assets
remaining with such entity constituted unreasonably small capital, or (iii)
intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they matured. If a court were to find that the Company or a
Guarantor Subsidiary had effected a "fraudulent conveyance" by issuing the
Senior Notes or a Subsidiary Guarantee, such court might subordinate the Senior
Notes or such Subsidiary Guarantee to presently existing and future
indebtedness of such entity, void the issuance of the Senior Notes or such
Subsidiary Guarantee, direct the repayment of any amounts paid thereunder to
such entity or to a fund for the benefit of such entity's creditors, or take
other action detrimental to the holders of the Senior Notes.
The measure of insolvency for purposes of the foregoing would vary depending
upon the law of the relevant jurisdiction. Generally, however, the Company or a
Guarantor Subsidiary would be considered insolvent for purposes of the
foregoing if the sum of such entity's debts were greater than all of such
entity's property at a fair valuation, or if the present fair saleable value of
such entity's assets were less than the amount that would be required to pay
its probable liability on its existing debts as they become absolute and
matured.
The Company and the Guarantor Subsidiaries believe they will receive
equivalent value at the time the indebtedness represented by the Senior Notes
and the Subsidiary Guarantees is incurred. In addition, neither the Company nor
any of the Guarantor Subsidiaries believes that it, as a result of the issuance
of the Senior Notes or the Subsidiary Guarantees, (i) will be insolvent or
rendered insolvent under the foregoing standards, (ii) will be engaged in a
business or transaction for which its remaining assets constitute unreasonably
small capital, or (iii) intends to incur, or believes that it will incur, debts
beyond its ability to pay such debts as they mature. These beliefs are based on
the Company's and the Guarantor Subsidiaries' operating history, net worth and
management's analysis of internal cash flow projections and estimated values of
assets and liabilities of each entity at the time of the Offering. There can be
no assurance, however, that a court passing on these issues would make the same
determination.
As a result of the obligations of the Company and the Guarantor Subsidiaries
in connection with the Note Indenture, the Senior Notes and the Subsidiary
Guarantees, in the event of an insolvency proceeding of the Company, creditors
of the Company might argue that, because the Guarantor Subsidiaries are
affiliates of the Company and "insiders" within the context of the federal
insolvency laws, the preference period under the Federal Bankruptcy Code should
be extended from 90 days to one year. This argument, if successful, could have
an adverse effect on the holders of the Senior
10
<PAGE>
Notes with respect to interest and principal payments received during the
preference period. In an attempt to avoid this result, the Guarantor
Subsidiaries have waived in the Note Indenture any rights of subrogation or
contribution against the Company, but there is no controlling legal precedent
that assures that this attempt would be successful if challenged by other
unpaid creditors of the Company.
HOLDING COMPANY STRUCTURE
As a holding company, Clean Harbors, Inc., derives substantially all of its
operating income and cash flow from its subsidiaries. The Company's ability to
make required principal and interest payments with respect to its indebtedness,
including the Senior Notes, depends on the earnings of its subsidiaries through
inter-company payments. The ability of the Company's subsidiaries to make such
payments will be subject to, among other limitations, applicable state laws and
restrictions that may be entered into by such subsidiaries. The Note Indenture
will, however, require Clean Harbors, Inc. to prohibit its subsidiaries from
agreeing to certain restrictions on distributions to the Company. See
"Description of the Senior Notes--Certain Covenants--Limitation on Restrictions
on Distributions from Subsidiaries."
Substantially all of the Company's operations are conducted, and
substantially all of its assets are owned, by its subsidiaries. The Senior
Notes will be guaranteed by all of the Company's direct subsidiaries under the
Subsidiary Guarantees. However, in the event such Subsidiary Guarantees were
held to be invalid as "fraudulent conveyances", the Senior Notes would
effectively be subordinated to all existing and future liabilities of the
Company's subsidiaries, including the obligations of most of the Company's
subsidiaries with respect to indebtedness incurred under the Bank Revolver. Any
right of Clean Harbors, Inc. to participate in any distribution of the assets
of any of the Company's subsidiaries upon the subsidiary's liquidation,
reorganization or insolvency (and the consequent right of the holders of the
Senior Notes to participate in the distribution of those assets) would then be
subject to the claims of the creditors (including trade creditors) of such
subsidiary, except to the extent Clean Harbors, Inc. has a valid claim against
such subsidiary as a creditor of such subsidiary. The ability of subsidiaries
to incur indebtedness and to guarantee debt will, however, be limited by
certain of the restrictive covenants in the Note Indenture and the Bank
Revolver. See "Description of Other Indebtedness" and "Description of the
Senior Notes--Certain Covenants--Limitation on Subsidiary Debt and Preferred
Stock."
POTENTIAL LIABILITIES ARISING OUT OF ENVIRONMENTAL LAWS AND REGULATIONS
Although the Company believes that it generally benefits from increased
environmental regulations and from enforcement of those regulations, increased
regulation and enforcement also create significant risks for the Company. The
assessment, analysis, remediation, transportation, handling and management of
hazardous substances necessarily involve significant risks, including the
possibility of damages or personal injuries caused by the escape of hazardous
materials into the environment, and the possibility of fines, penalties or
other regulatory action. These risks include potentially large civil and
criminal liabilities to customers and to third parties for damages arising from
performing services for customers. See "Environmental Regulation."
All facets of the Company's business are conducted in the context of a
rapidly developing and changing statutory and regulatory framework. The
Company's operations and services are affected by and subject to regulation by
a number of federal agencies including the Environmental Protection Agency (the
"EPA") and the Occupational Safety and Health Administration, as well as
applicable state and local regulatory agencies.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (the "Superfund Act"), addresses the cleanup of sites at which
there has been a release or threatened release of hazardous substances into the
environment. Increasingly, there are efforts to
11
<PAGE>
expand the reach of the Superfund Act to make hazardous waste management
companies responsible for cleanup costs of Superfund sites not owned or
operated by such management companies by claiming that such management
companies are "owners" or "operators" (as those terms are defined in the
Superfund Act) of such sites or that such management companies arranged for
"treatment, transportation or disposal" (as those terms are defined in the
Superfund Act) of hazardous substances to or in such sites. Several recent
court decisions have accepted such claims. Should the Company be held
responsible under the Superfund Act for cleanup costs as a result of performing
services or otherwise, it might be forced to bear significantly more than its
proportional share of such cleanup costs if other responsible parties do not
pay their share. See "Business--Legal Proceedings."
The Resource Conservation and Recovery Act of 1976, as amended in 1984
("RCRA"), is the principal federal statute governing hazardous waste
generation, treatment, transportation, storage and disposal. RCRA or EPA
approved state programs at least as stringent govern waste handling activities
involving wastes classified as "hazardous." See "Environmental Regulation--
Federal Regulation of Hazardous Wastes." Substantial fees and penalties may be
imposed under RCRA and similar state statutes for any violation of such
statutes and regulations thereunder.
POTENTIAL LIABILITIES INVOLVING CUSTOMERS AND THIRD PARTIES
In performing services for its customers, the Company potentially could be
liable for breach of contract, personal injury, property damage (including
environmental impairment), and negligence, including claims for lack of timely
performance or for failure to deliver the service promised (including improper
or negligent performance or design, failure to meet specifications, and
breaches of express or implied warranties). The damages available to a client,
should it prevail in its claims, are potentially large and could include
consequential damages.
Industrial waste management companies, in connection with work performed for
customers, also potentially face liabilities to third parties from various
claims including claims for property damage or personal injury stemming from a
release of hazardous substances or otherwise. Claims for damage to third
parties could arise in a number of ways, including: through a sudden and
accidental release or discharge of contaminants or pollutants during
transportation of wastes or the performance of services; through the inability,
despite reasonable care, of a remedial plan to contain or correct an ongoing
seepage or release of pollutants; through the inadvertent exacerbation of an
existing contamination problem; or through reliance on reports prepared by such
waste management companies. Personal injury claims could arise
contemporaneously with performance of the work or long after completion of
projects as a result of alleged exposure to toxic or hazardous substances. In
addition, increasing numbers of claimants assert that companies performing
environmental remediation should be adjudged strictly liable for damages even
though their services were performed using reasonable care, on the grounds that
such services involved "abnormally dangerous activities."
Customers of industrial waste management companies frequently attempt to
shift various of the liabilities arising out of disposal of their wastes or
remediation of their environmental problems to contractors through contractual
indemnities. Such provisions seek to require the contractors to assume
liabilities for damage or personal injury to third parties and property and for
environmental fines and penalties (including potential liabilities for cleanup
costs arising under the Superfund Act). Moreover, the EPA has increasingly
constricted the circumstances under which it will indemnify its contractors
against liabilities incurred in connection with cleanup of Superfund sites.
There are other proposals both in Congress and at the regulatory agencies to
further restrict indemnification of contractors from third party claims. While
such restrictions might have some adverse impact upon the Company, such impact
should be immaterial because projects relating to the cleanup of Superfund
sites have historically represented less than 5% of the Company's business. See
"Business--Services."
12
<PAGE>
Although the Company attempts to investigate thoroughly each other company
that it acquires, there may be liabilities that the Company fails or is unable
to discover, including liabilities arising from non-compliance with
environmental laws by prior owners, and for which the Company, as a successor
owner, might be responsible. The Company seeks to minimize the impact of these
liabilities by obtaining indemnities and warranties from sellers of companies
which may be supported by deferring payment of or by escrowing a portion of the
purchase price. However, these indemnities and warranties, if obtained, may not
fully cover the liabilities due to their limited scope, amounts, or duration,
the financial limitations of the indemnitors or warrantors or other reasons.
See "Business--Legal Proceedings."
COMPETITION
The market for industrial waste management services is highly competitive.
The Company competes with many other firms, including large multinational firms
having substantially greater financial, management and marketing resources than
the Company. Competitive factors include quality of services, technical
qualifications, reputation, geographic presence, price and the availability of
key professional personnel. See "Business--Competition."
FLUCTUATIONS IN QUARTERLY FINANCIAL RESULTS; SEASONALITY
The Company's operations may be affected by the commencement and completion
of major site remediation projects, seasonal fluctuations due to weather and
budgetary cycles influencing the timing of customers' spending for remedial
activities, and the timing of regulatory decisions relating to hazardous waste
management projects. Accordingly, fluctuations in quarterly performance should
be expected. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations."
DEPENDENCE ON KEY OFFICERS
The Company is dependent upon the services of several of its key officers,
particularly its Chairman, President and Chief Executive Officer, Alan S.
McKim, the loss of any of whom could have a material adverse effect on the
Company.
CHANGE OF CONTROL PROVISIONS WITH RESPECT TO THE SENIOR NOTES
In the event of a Change of Control (as defined herein), the Company would be
required, subject to certain conditions, to offer to purchase all outstanding
Senior Notes at a price equal to 101% of the principal amount thereof, plus
accrued interest thereon. There can be no assurance that, at the time of a
Change of Control, the Company would have sufficient cash to repay all amounts
due under the Senior Notes. The terms of the Bank Revolver prohibit the
optional payment or prepayment or any redemption of the Senior Notes. If,
following a Change of Control, the Company has insufficient funds to purchase
all the Senior Notes tendered pursuant to such an offer, or is prohibited from
purchasing the Senior Notes pursuant to the terms of the Bank Revolver or other
agreements, an event of default in respect of the Senior Notes would occur.
ABSENCE OF PUBLIC MARKET FOR THE SENIOR NOTES
The Senior Notes will constitute a new issue of securities with no
established trading market. The Company does not intend to list the Senior
Notes on any national securities exchange or to seek the admission thereof to
trading in the National Association of Securities Dealers Automated Quotation
System. The Underwriters have advised the Company that they currently intend to
make a market in the Senior Notes, but they are not obligated to so do and may
discontinue such market activity at any time. In addition, such market making
activity will be subject to the limits imposed by the Securities Act of 1933,
as amended (the "Securities Act"). Accordingly, no assurance can be given that
an active public or other market will develop for the Senior Notes or as to the
liquidity of the trading market for the Senior Notes. If a trading market does
not develop or is not maintained, holders of the Senior Notes may experience
difficulty in reselling the Senior Notes or may be unable to sell them at all.
Future trading prices of such securities will depend on many factors,
including, among other things, prevailing interest rates, the Company's results
of operations and the market for similar securities.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Senior Notes offered
hereby are estimated to be approximately $72.1 million after deduction of
underwriting discounts and estimated expenses. The Company intends to use such
net proceeds as follows:
<TABLE>
<CAPTION>
USE AMOUNT OF PROCEEDS
--- ------------------
(IN MILLIONS)
<S> <C>
Prepay in full outstanding 13.25% senior subordinated
notes(1)................................................ $23.5
Prepay in full outstanding balance under the Bank Revolv-
er(2)................................................... 35.5
Prepay in full certain other outstanding indebtedness(3). 2.6
Redeem in full outstanding Series B convertible preferred
stock(4)................................................ 5.6
General corporate purposes............................... 4.9
-----
Total................................................ $72.1
</TABLE>
- --------
(1) These notes have a final maturity of May 15, 1997, and bear interest at
the rate of 13.25%. The amount of proceeds shown includes prepayment
penalties of approximately $1.0 million.
(2) Amount outstanding as of June 15, 1994. The Bank Revolver has a final
maturity of July 1, 1996, and as of May 31, 1994 bore interest at an
average rate of 7.4%. See "Description of Other Indebtedness."
(3) Such indebtedness has final maturities ranging from April 30, 1996 to
December 31, 1997, and currently bears interest from 8.25% to 12.75%.
(4) Each share of Series B convertible preferred stock entitles the holder to
receive cumulative cash dividends at the rate of 8.0% (which is an implied
pre-tax equivalent rate of 14.8% based on the Company's effective annual
tax rate at December 31, 1993 of 46%) or, at the election of the Company,
a common stock dividend of equivalent value.
Pending the application of the net proceeds of the Offering to the uses
described above, the Company intends to invest such net proceeds in
investment-grade, short-term, interest-bearing securities.
14
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company at March 31, 1994, and the pro forma capitalization of the Company as
of such date as adjusted to give effect to the sale of the Senior Notes being
offered hereby and the application of the estimated net proceeds to the
Company. See "Use of Proceeds." This table should be read in conjunction with
the consolidated financial statements of the Company and the related notes
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1994
-------------------------
ACTUAL PRO FORMA
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt:
13.25% senior subordinated notes(1)................ $ 7,500 $ --
Junior subordinated note........................... 377 377
Other.............................................. 1,021 232
----------- -----------
$ 8,898 $ 609
=========== ===========
Long-term debt (excluding current portion):
Bank Revolver(1)................................... $ 31,005 $ --
Senior Notes....................................... -- 75,000
10.0% senior convertible notes..................... 5,000 5,000
13.25% senior subordinated notes................... 22,500 --
Junior subordinated note........................... 847 847
Other.............................................. 2,177 291
Deferred financing fees............................ (1,108) (2,900)
----------- -----------
Total long-term debt (excluding current portion). $ 60,421 $ 78,238
Stockholders' equity:
Preferred stock, Series B convertible; authorized--
156,416 shares; issued and outstanding--112,000
shares (liquidation preference of $5.6 million)
(no shares as adjusted)........................... $ 1 $ --
Common stock; authorized--20,000,000 shares; issued
and outstanding--9,428,504 shares................. 95 95
Additional paid-in capital......................... 58,576 52,977
Retained earnings.................................. 9,211 7,876
----------- -----------
Total stockholders' equity....................... $ 67,883 $ 60,948
----------- -----------
Total capitalization............................. $ 128,304 $ 139,186
=========== ===========
</TABLE>
- --------
(1) On May 15, 1994, the Company prepaid the $7.5 million current portion of
the 13.25% senior subordinated notes by increasing its borrowings under
the Bank Revolver by a corresponding amount.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
In January 1992, the Company elected to change its fiscal year to coincide
with the calendar year rather than maintain a February 28 fiscal year end. As
a result, the Company had a ten-month transition period, from March 1, 1991 to
December 31, 1991, between fiscal years. Set forth below are income statement
and balance sheet data for the Company which should be read in conjunction
with the consolidated financial statements and notes thereto included
elsewhere in this Prospectus. In the opinion of management, the interim
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for
such interim period.
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED YEAR ENDED
ENDED MARCH 31, DECEMBER 31, TEN-MONTH FEBRUARY 28,
---------------- ------------------ PERIOD ENDED ------------------
1994 1993 1993 1992 DEC. 31, 1991 1991 1990
------- ------- -------- -------- ------------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................ $51,285 $43,452 $200,114 $176,193 $127,473 $142,906 $131,441
Cost of revenues........ 35,914 28,389 134,525 116,473 85,921 98,728 94,355
------- ------- -------- -------- -------- -------- --------
Gross profit............ 15,371 15,063 65,589 59,720 41,552 44,178 37,086
Restructuring costs and
RKI
write-off (1).......... -- -- -- -- -- 19,898 --
Selling, general and
administrative
expenses............... 9,883 9,376 42,296 35,923 23,856 23,664 24,654
Depreciation and
amortization of
intangible assets...... 2,563 2,463 10,319 8,884 6,601 7,928 7,030
------- ------- -------- -------- -------- -------- --------
Income (loss) from oper-
ations................. 2,925 3,224 12,974 14,913 11,095 (7,312) 5,402
Interest expense (net).. 1,819 1,737 7,198 7,064 5,925 6,428 4,585
------- ------- -------- -------- -------- -------- --------
Income (loss) before
provision for income
taxes.................. 1,106 1,487 5,776 7,849 5,170 (13,740) 817
Provision (benefit) for
income taxes........... 509 652 2,645 2,774 1,567 (1,108) 122
------- ------- -------- -------- -------- -------- --------
Net income (loss)....... $ 597 $ 835 $ 3,131 $ 5,075 $ 3,603 $(12,632) $ 695
Net income (loss) per
common and common
equivalent share....... .05 .08 .28 .52 .37 (1.40) .08
OTHER DATA:
EBITDA(2)............... $ 5,488 $ 5,687 $ 23,293 $ 23,797 $ 17,696 $ 20,514 $ 12,432
Ratio of EBITDA to
interest expense(2).... 3.02x 3.27x 3.24x 3.37x 2.99x 3.19x 2.71x
Ratio of earnings to
fixed charges(3)....... 1.50x 1.77x 1.70x 1.89x 1.58x -- --
Capital expenditures.... $ 630 $ 2,179 $ 7,874 $ 9,815 $ 9,531 $ 5,300 $ 11,994
Depreciation and
amortization of
intangible assets...... 2,563 2,463 10,319 8,884 6,601 7,928 7,030
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, FEBRUARY 28,
----------------- -------------------------- -----------------
1994 1993 1993 1992 1991 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (defi-
cit)................... $ 18,694 $ 17,976 $ 18,320 $ 15,487 $ 14,529 $ 12,850 $ (3,451)
Total assets............ 164,816 160,720 167,358 153,939 138,844 135,881 156,449
Long-term debt, less
current portion........ 60,421 66,942 62,507 64,565 63,381 62,645 51,932
Total stockholders' eq-
uity................... 67,883 65,189 67,371 58,065 50,787 46,776 59,331
</TABLE>
- --------
(1) In the fall of 1990, the Company abandoned an effort it began in 1987 to
obtain a permit to install a high temperature rotary kiln incinerator
("RKI") at its facility in Braintree, Massachusetts. During its fiscal
year ended February 28, 1991, the Company wrote off its investment in the
project and exited certain unprofitable businesses, resulting in
restructuring charges of $19.9 million.
(2) EBITDA is defined as income from operations before depreciation and
amortization of intangible assets and the restructuring costs and RKI
write-off described in note (1). EBITDA is not required by generally
accepted accounting principles but is presented because it is a widely
accepted financial indicator of a company's ability to service and incur
debt. EBITDA should not be considered by an investor as an alternative to
net income as an indicator of the Company's operating performance or to
cash flows as a measure of liquidity.
(3) The ratio of earnings to fixed charges is expressed as the ratio of: (i)
fixed charges plus income from operations, to (ii) fixed charges. Fixed
charges consist of interest expense, amortization of deferred financing
fees and the interest component of operating leases. Earnings were
insufficient by $14.6 million and $1.3 million to cover fixed charges for
the fiscal years ended February 28, 1991 and 1990, respectively.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The Company has analyzed its results of operations to reflect the
geographical locations of its service centers. The Company believes this method
of analysis is appropriate because geographical areas differ in types of
customers; the scope and maturity of the Company's operations; the Company's
investments in facilities and the number of service centers and sales offices;
degree of competition; and local economic and regulatory conditions.
As part of its growth strategy, the Company seeks to expand into additional
service areas by opening new service centers and sales offices, and by
acquiring additional hazardous waste management facilities. In 1992, the
Company made two acquisitions (Connecticut Treatment Corporation and Mr. Frank,
Inc.). During the first half of 1993, the Company made one acquisition (Spring
Grove Resource Recovery, Inc.) and opened nine sales offices and a service
center in Waukegan, Illinois. During the third quarter of 1993, as part of its
efforts to consolidate its gains in market share and focus on areas where the
Company has obtained substantial business, the Company closed two of the nine
new sales offices (in Detroit, Michigan and Kansas City, Missouri), while
opening another sales office (in Buffalo, New York) and a new service center in
Portsmouth, New Hampshire.
Sales offices may become service centers as business around a sales office
develops and the Company adds staff and equipment to support the increasing
level of business. During the first quarter of 1994, the Company's sales office
in St. Louis, Missouri became a service center, by relocating to larger space
and adding field technicians and personnel to service customers. Also during
the quarter, the Company relocated its sales personnel from its sales office in
Newburgh, New York to other sales locations. The Company now has 21 service
centers and eight sales offices.
During 1993, the Company's cost of revenues increased to 67.2% of revenues,
as compared to 66.1% of revenues in 1992. During the first quarter of 1994, the
Company's cost of revenues increased to 70.0% of revenues, as compared to 65.3%
for the first quarter of 1993. Although the Company's total revenues increased
from $176,193,000 in 1992 to $200,114,000 in 1993, and from $43,452,000 in the
first quarter of 1993 to $51,285,000 in the first quarter of 1994, this
increase was less than the Company had anticipated at the beginning of 1993
primarily because of intense price competition for industrial waste management
services which developed during 1993.
In August 1993, the Company began a company-wide reengineering program to
improve gross margins by increasing the ratio of billable to nonbillable
personnel, improving bidding and execution of jobs, improving the pricing of
remediation work, and declining jobs with less than acceptable margins. At
March 31, 1994, the Company had 1,459 regular employees (compared to 1,533 at
September 30, 1993), and approximately 58% of its workforce at March 31, 1994
was billable personnel (compared to 57% at September 30, 1993). As part of the
reengineering program, the Company has also implemented a new computerized
service center job margin system, which allows daily tracking of margins on all
work orders executed each month. Cost control efforts continue as the Company
attempts to utilize its own resources more efficiently and reduce expenses paid
to outside vendors for lab work, subcontract work, transportation and disposal.
The Company does not foresee further deterioration in gross margins in the
near future. However, the various factors affecting its revenues and costs
described above are expected to continue through 1994.
Primarily as a result of the reengineering program described above, selling,
general and administrative expenses were reduced to below 20% of revenues in
the first quarter of 1994.
17
<PAGE>
Management of the Company is determined to continue to hold costs at no more
than that level and to improve productivity in order to offset the
deterioration in gross margins caused by the current pricing environment.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain operating
data associated with the Company's results of operations.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
-----------------------------------------------------------
THREE MONTHS TWELVE-MONTH TWELVE-MONTH
ENDED YEAR ENDED TEN-MONTH FISCAL YEAR ENDED
MARCH 31, DECEMBER 31, PERIOD ENDED FEBRUARY 28,
------------- ------------- DECEMBER 31, ------------------
1994 1993 1993 1992 1991 1991 1990
------ ------ ------ ------ ------------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues:
Disposal costs paid to
third parties........ 12.8 15.7 15.4 18.2 20.6 17.7 17.3
Other costs........... 57.2 49.6 51.8 47.9 46.8 51.4 54.5
------ ------ ------ ------ ------ ------ ------
Total cost of
revenues........... 70.0 65.3 67.2 66.1 67.4 69.1 71.8
Restructuring costs..... -- -- -- -- -- 13.9 --
Selling, general and
administrative
expenses............... 19.3 21.6 21.1 20.4 18.7 16.6 18.8
Depreciation and
amortization of
intangible assets ..... 5.0 5.7 5.2 5.0 5.2 5.5 5.3
------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............. 5.7 7.4 6.5 8.5 8.7 (5.1) 4.1
Interest expense (net).. 3.5 4.0 3.6 4.0 4.7 4.5 3.5
------ ------ ------ ------ ------ ------ ------
Income (loss) before
provision for income
taxes................ 2.2 3.4 2.9 4.5 4.0 (9.6) 0.6
Provision (benefit) for
income taxes........... 1.0 1.5 1.3 1.6 1.2 (0.8) 0.1
------ ------ ------ ------ ------ ------ ------
Net income (loss)..... 1.2% 1.9% 1.6% 2.9% 2.8% (8.8)% 0.5%
</TABLE>
The Company's operations are subject to seasonal fluctuations. Typically
during the first quarter there is less demand for environmental remediation due
to the cold weather, particularly in the Northeast and Midwest regions. In
addition, factory closings for the year-end holidays reduce the volume of
industrial waste generated, which results in lower volumes of waste handled by
the Company during the first quarter of the following year. Customer spending
for environmental remediation services is also influenced by budgetary cycles
and constraints, and remediation projects are typically fewer in the first
quarter of the budget year, with more projects occurring in subsequent quarters
as customers seek to complete budgeted projects before the end of the year.
18
<PAGE>
The following table sets forth for the periods indicated the Company's
revenues by region, based upon the locations of its 21 service centers.
<TABLE>
<CAPTION>
NUMBER OF THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
SERVICE ---------------------------------------------------------
REGION CENTERS 1994 1993 1993 1992
- ------ --------- ------------------------------------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Northeast............... 8 $ 17,216 34% $ 18,506 43% $ 84,906 42% $ 77,872 44%
Mid-Atlantic............ 7 21,382 42% 14,047 32% 63,894 32% 55,317 31%
Central................. 3 6,413 12% 5,583 13% 26,044 13% 22,240 13%
Midwest................. 3 6,274 12% 5,316 12% 25,270 13% 20,764 12%
--- -------- ----- -------- ----- -------- ---- -------- ----
21 $ 51,285 100% $ 43,452 100% $200,114 100% $176,193 100%
</TABLE>
Beginning in 1993, the Company also began to analyze its revenues on a
product line basis based upon the type of principal services provided. The
principal services provided by the Company fit within three categories:
treatment and disposal of industrial wastes ("Treatment and Disposal"); field
services provided at customer sites ("Field Services"); and specialized
repackaging, treatment and disposal services for laboratory chemicals and
household hazardous wastes ("LabPacks"). The following table sets forth such
product line data for the periods indicated. Comparable data for prior periods
is not available.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
------------------------- YEAR ENDED
TYPE OF SERVICE 1994 1993 DECEMBER 31, 1993
- --------------- ------------ ------------ -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Treatment and Disposal.............. $18,974 37% $20,671 47% $ 90,181 45%
Field Services...................... 25,591 50% 17,220 40% 80,940 40%
LabPacks............................ 6,720 13% 5,561 13% 28,993 15%
------- ---- ------- ---- ---------- ------
$51,285 100% $43,452 100% $ 200,114 100%
</TABLE>
THREE MONTHS ENDED MARCH 31, 1994 COMPARED TO THREE MONTHS ENDED MARCH 31, 1993
Revenues. Revenues for the first quarter of 1994 increased 18% to
$51,285,000, from revenues of $43,452,000 in the first quarter of the prior
year. Combined revenues of the Mid-Atlantic, Midwest, and Central regions grew
37%, offsetting a 7% decline in the Northeast region, which was particularly
hard-hit by winter weather in 1994. The Mid-Atlantic region includes the
Company's service center in Puerto Rico, which had approximately $7 million of
revenue during the first quarter of 1994 from the clean-up of the oil spill
from a barge off the coast of Puerto Rico.
For the first quarter of 1994, Treatment and Disposal comprised 37% of total
revenues, while Field Services comprised 50% and LabPacks comprised 13%. For
the first quarter of 1993, Treatment and Disposal comprised 47% of total
revenues, while Field Services comprised 40% and LabPacks comprised 13%. The
increase in Field Services in the first quarter of 1994 was due primarily to
the impact of the Puerto Rico oil spill. Without such spill, the revenues by
product line would have been 43% for Treatment and Disposal; 42% for Field
Services; and 15% for LabPacks.
The severe winter weather adversely impacted operations throughout the
Company's service territory in January and February, causing business to be
postponed or canceled. Although the weather caused a shortfall in revenue from
its base business in January and February, the Company believes some of the
postponed business was realized in March, since overall business in March was
better than planned. The Company was also able during the quarter to reallocate
its resources to facilitate the emergency response in Puerto Rico.
Cost of Revenues. For the three months ended March 31, 1994, the cost of
revenues as a percentage of revenues increased to 70.0% as compared to 65.3%
for the same period of the prior year, reflecting the competitive pricing
trends in the hazardous waste industry. However, the first quarter's cost of
revenues as a percentage of revenues was the same as it was for the preceding
19
<PAGE>
quarter ended December 31, 1993. Despite the bad weather during January and
February, the Company realized a slight gross margin improvement in its base
business from the fourth quarter of 1993. The gross margin on the revenue from
the Puerto Rico oil spill was substantially below the gross margin on the
Company's base business, since most of the labor involved in the spill cleanup
was subcontracted locally for the project as required by local law. The cost of
revenues as a percentage of total revenues would have been 69.1% without the
Puerto Rico spill. The Company managed to utilize resources efficiently and
control costs during the quarter, so that profitability did not suffer.
One of the largest components of cost of revenues is the cost of sending
waste to other companies for disposal. Internal waste disposal capabilities
have expanded as a result of continued modifications and upgrades at the
Company's facilities, and acquisitions of facilities with waste treatment
systems not found at other Company plants. For example, in February 1993, the
Company acquired Spring Grove Resource Recovery, Inc., the operator of a
hazardous waste management facility in Cincinnati, Ohio ("Spring Grove"), which
provides hazardous wastewater treatment and pretreatment of waste to stabilize
it before it is sent to landfills. The Company continues to benefit from a
competitive pricing environment among disposal vendors, such as landfills and
incinerators, to whom the Company sends waste for ultimate disposal. As a
result, the Company's outside disposal costs decreased to 12.8% of revenues in
the first quarter of 1994 (calculated excluding revenue from the Puerto Rico
oil spill), from 15.7% of revenues in the first quarter of 1993.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended March 31, 1994 decreased to
19.3% of revenues as compared to 21.6% for the three months ended March 31,
1993. This decrease is primarily due to the reengineering program begun in
August 1993, which focuses on improving productivity and the ratio of billable
to nonbillable staff. See "General" above. Since June 30, 1993, the Company has
reduced its nonbillable staff by 13%, while increasing its billable staff by
2%. The Company has managed to reduce its payroll base 6% since June 30, 1993,
and improve its ratio of billable to nonbillable staff. At March 31, 1994, the
Company had 1,459 regular employees; approximately 58% of its workforce was
billable personnel, compared to 54% at June 30, 1993. Management of the Company
has accomplished the goal it set in August 1993 of driving selling, general and
administrative costs to below 20% of revenues.
Interest Expense. Interest expense for the three month periods ended March
31, 1994 and March 31, 1993 was $1,819,000 and $1,737,000, respectively. No
interest was capitalized during either quarter. Approximately half of the
Company's debt outstanding as of March 31, 1994 consisted of amounts drawn
under its Bank Revolver. Interest on amounts outstanding under the Bank
Revolver are payable monthly in arrears and accrue at The First National Bank
of Boston's base rate plus 1%, or at the Company's option, at a rate which is
3% over the "Eurodollar Rate" offered to the bank by prime banks in the
Eurodollar interbank market. At May 31, 1994, the Company had elected the
Eurodollar option with respect to $32,000,000 of the amounts outstanding under
the Bank Revolver; the Eurodollar Rate was 4.38% and the bank's base rate was
7.25%. See "Liquidity and Capital Resources" below.
Income Taxes. The effective income tax rate for the first quarter of 1994 was
46%, as compared to 44% in the first quarter of 1993. The effective rates are
higher than the combined state and federal statutory rates due in part to the
amortization of goodwill for accounting purposes, which is nondeductible for
income tax reporting purposes. The effective rate fluctuates depending on the
amount of goodwill amortization and other nondeductible amounts as compared to
income before taxes. The Company expects its effective income tax rate for 1994
to be approximately 46%.
20
<PAGE>
1993 COMPARED WITH 1992
Revenues. Revenues for 1993 were $200,114,000, a 13.6% increase over 1992
revenues of $176,193,000. As shown in the regional revenue table above, the
Mid-Atlantic, Central, and Midwest regions showed the benefit of the Company's
expansion efforts, as the combined revenues in those three regions grew 17%, in
contrast to the Northeast region, where revenues grew 9%. Despite the
recessionary economy, industry-wide pricing pressures, and efforts by customers
to minimize the amount of hazardous waste generated, the Company continued to
experience growth in revenues, primarily from gains in market share in all
regions, by expanding the range of services offered and the geographic
territory served. New services not previously offered included: pretreatment of
waste to stabilize it before it is sent to landfills, treatment and disposal of
special categories of hazardous wastewaters (so-called "listed" waste and "lean
water") previously sent to competitors for disposal; blending of waste used as
supplemental fuel by industrial furnaces; and the introduction of new waste
treatment technology, such as the Clean Extraction System ("CES"). The
territory served expanded through opening new sales offices in areas outside
the existing service area, such as Minnesota, Missouri, Kentucky, and Puerto
Rico.
Revenue in the Mid-Atlantic region grew 16% from 1992 to 1993, primarily
through gains in market share. No new sales offices were opened in the region
in 1993. In addition to expanding its base business in the Mid-Atlantic region,
the Company also benefited from rapid growth of its Puerto Rico business, which
accounted for approximately one-half of the $8.5 million increase in revenue
from 1992 to 1993.
Revenue in the Central region grew 17% from 1992 to 1993. The Central region
benefited from the February 1993 acquisition of Spring Grove, the operator of a
hazardous waste management facility in Cincinnati, and the opening of two sales
offices (Buffalo and Columbus). The Company experienced significant gains in
market share in the Central region over the past several years. For example,
1992 revenues were 53% higher than 1991 revenues. The Company expected even
higher revenue growth in the Central region in 1993, leveraging off the Spring
Grove acquisition. While volumes of waste handled at the Spring Grove facility
and its revenues have grown since the acquisition, Central region revenue
growth overall was lower than expected, largely because of lower remediation
activity in the region in 1993.
Revenue in the Midwest region grew 22% from 1992 to 1993. The Midwest region
benefited from the July 1992 acquisition of Mr. Frank, Inc., an established
transportation and environmental services company located near Chicago,
Illinois, and the opening of a service center in Waukegan, Illinois and four
sales offices (Grand Rapids, St. Louis, Minneapolis, and Indianapolis).
However, gains in market share in this region were increasingly difficult to
achieve, due to competition from many smaller firms offering industrial
maintenance and waste disposal services at lower cost.
The Northeast region continued to show improved business levels, despite a
decline in industrial activity in the region. Revenue in the Northeast region
grew 9% from 1992 to 1993. The Company believes it has regained market share
from competitors, partly as a result of capitalizing on the July 1992
acquisition of Connecticut Treatment Corporation, a hazardous waste management
facility located in Bristol, Connecticut, which treats "listed" wastewater.
Although results for 1993 show an increase in revenues in the Northeast,
revenues from 1991 to 1992 declined 6%. The prevailing trend over the past few
years has been flat, as major industries in the region, such as defense,
aerospace, computers, and high-technology, have experienced cutbacks in
production.
Recent gains in revenue in the Northeast exceeded the Company's expectations,
while revenue growth in the other three regions did not meet expectations,
primarily because of significantly lower remediation activity, particularly in
the Central and Midwest regions. While waste disposal volumes
21
<PAGE>
were strong, competition put downward pressure on prices, which contributed to
a shortfall in revenues, relative to expectations.
Cost of Revenues. One of the largest components of cost of revenues is the
cost of sending waste to other companies for disposal. The Company has been
able to upgrade the quality and efficiency of its waste treatment services
through the development of new technology, strategic acquisitions, and
continued modifications and upgrades at its facilities. These actions reduce
the Company's costs and its dependence on outside disposal vendors. Internal
waste disposal capabilities expanded as a result of the CES beginning
commercial operations in June 1992, the acquisition of Connecticut Treatment
Corporation in the third quarter of 1992, the issuance of a new permit at the
Baltimore facility in September 1992, and the acquisition of Spring Grove in
the first quarter of 1993. The Company has also benefited from a competitive
pricing environment among disposal facilities, such as landfills and
incinerators, to which the Company sends waste for ultimate disposal. As a
result, the Company's outside disposal costs decreased to 15.4% of revenue in
1993 from 18.2% of revenue in 1992.
However, the benefits the Company experiences from price competition among
disposal vendors can be outweighed when the Company reduces its waste treatment
prices in response to price reductions by others. For example, price reductions
by incinerators of "lean water" streams have forced the Company to reduce its
prices for processing such waste streams in the CES in Baltimore, reducing
profitablility since most of its costs for depreciation and labor are fixed.
Employee costs grew significantly in 1993, as the Company increased its staff
in anticipation of double-digit revenue growth. At December 31, 1992, the
Company had 1,310 regular employees. Employment peaked during September 1993;
at September 30, 1993 the Company had 1,533 regular employees. The Company's
cost of revenues, excluding disposal costs paid to third parties, increased
from 47.9% of total revenues in 1992 to 51.8% in 1993, as intense price
competition and increased labor costs combined to offset the benefits the
Company experienced from a competitive pricing environment among disposal
facilities. As a result, the cost of revenues increased to 67.2% of revenues in
1993, as compared to 66.1% of revenues in 1992, reflecting the competitive
pricing trends in the hazardous waste industry.
In August 1993, the Company began a company-wide reengineering program to
improve gross margins, by increasing the ratio of billable to nonbillable
personnel, improved bidding and execution of jobs, better pricing of
remediation work, and declining jobs with less than acceptable margins. See
"General" above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $42,296,000 or 21.1% of revenues in 1993,
as compared to $35,923,000 or 20.4% of revenues for 1992. This increase was
primarily due to the costs associated with the expansion in the Mid-Atlantic,
Central and Midwest regions, and the administrative infrastructure required to
support new sales offices and service centers. During the third quarter of
1993, as part of its efforts to consolidate its gains in market share and
control costs, the Company closed two of the nine sales offices opened earlier
in the year (in Detroit, Michigan and Kansas City, Missouri), while opening
another sales office (in Buffalo, New York) and a new service center in
Portsmouth, New Hampshire. At December 31, 1993, the Company maintained 29
service centers and sales offices.
One of the goals of the reengineering program begun in August 1993 is to
reduce the number of nonbillable personnel, through elimination of positions
and reassigning some people from nonbillable overhead positions to billable
positions included in gross margin, in an effort to reduce selling, general and
administrative costs to a quarterly rate of approximately $10 million in 1994.
Management of the Company has set a goal of driving selling, general and
administrative costs down from the 1993 level of $42.3 million, and reducing
these costs approximately 5% in 1994.
22
<PAGE>
Interest Expense. Interest expense for 1993 decreased to 3.6% of revenues, as
compared to 4.0% of revenues for 1992. The decrease resulted primarily from a
series of reductions in the interest rates of the Company's Bank Revolver and
certain subordinated notes which occurred in the fourth quarter of 1992. The
benefits of reduced interest rates were offset somewhat by the additional
indebtedness incurred for acquisitions since the first half of 1992. Total debt
at December 31, 1993 was approximately $5,000,000 higher than at December 31,
1992. No interest was capitalized during 1993, as compared to $301,000 of
interest capitalized during 1992, primarily for the CES in Baltimore before it
commenced commercial operation on June 1, 1992.
Provision for Income Taxes. The effective income tax rate for 1993 was 46%,
an increase over the 35% effective income tax rate for 1992. The rate for 1992
was lower than the combined state and federal statutory rate due in part to the
utilization of certain alternative minimum tax credit carryforwards. The rate
for 1993 was higher than the combined state and federal statutory rate due in
part to the amortization of goodwill which is nondeductible for income tax
reporting purposes. The rate fluctuates depending on the amount of income
before taxes, as compared to the fixed amount of goodwill and other
nondeductible amounts. The Omnibus Budget Reconciliation Act of 1993 did not
impact 1993's effective income tax rate; the Company expects the Act to have a
minimal impact on its rate in 1994, currently estimated to be 45%.
TWELVE-MONTH YEAR ENDED DECEMBER 31, 1992 VERSUS TEN-MONTH TRANSITION PERIOD
ENDED DECEMBER 31, 1991
Revenues. Revenues for the year ended December 31, 1992 increased 16.5% to
$176,193,000 from $151,278,000 for the unaudited twelve-month period ended
December 31, 1991. Combined revenues in the Mid-Atlantic, Central and Midwest
regions increased to 56% of total revenues for the year ended December 31, 1992
from 45% of total revenues for the unaudited twelve-month period ended December
31, 1991. The Company continued to experience growth in those three regions,
which demonstrated the Company's ability to diversify successfully from its New
England base while maintaining its leading position in the Northeast. The
growth in revenues in those regions resulted from gains in market share in the
new markets and increased volumes of business in both environmental remediation
and hazardous waste management.
During the third quarter of 1992, the Company acquired Connecticut Treatment
Corporation. This acquisition expanded the Company's range of waste processing
capabilities and service lines, providing the Company with increased capacity
as well as the ability to treat "listed" wastewaters, which the Company
previously sent for outside disposal. During the third quarter of 1992, the
Company also acquired Mr. Frank, Inc. which generated increased volumes of
waste disposal, primarily for the Company's Chicago facility. These two
acquisitions, along with the commencement of commercial operations of the CES
in Baltimore in June 1992 and gains in market share in all regions, contributed
to the 1992 revenue increase. In addition, during the fourth quarter of 1992
the Company completed a large factory decontamination project in the Mid-
Atlantic region, which produced revenues in excess of $3,000,000.
Cost of Revenues. The Company's cost of revenues for the year ended December
31, 1992 decreased to 66.1% of revenues, as compared to 67.4% of revenues for
the ten-month transition period ended December 31, 1991. This decrease
reflected the Company's efforts to control costs through overtime minimization
and the utilization of temporary labor, as well as the implementation of
selective price increases on hazardous waste disposal. In addition, the Company
benefited in 1992 from a competitive pricing environment among operators of
disposal facilities, such as landfills and incinerators, to which the Company
sends waste for ultimate disposal.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1992 increased to 20.4%
of revenues, as compared to 18.7% of revenues during the ten-month transition
period ended December 31, 1991. This increase resulted
23
<PAGE>
in substantial part from costs associated with the expansion of the Company in
the Mid-Atlantic, Central and Midwest regions, and the administrative
infrastructure required to support new sales offices and service centers.
During 1992, the Company furnished and staffed 16 new locations.
Interest Expense. Interest expense for the year ended December 31, 1992
declined to 4.0% of revenues, as compared to 4.7% of revenues for the ten-month
transition period ended December 31, 1991. Although the average balance of
borrowings under the Company's Bank Revolver was approximately $29,000,000 for
both 1991 and 1992, a decline in the prevailing "prime" lending rate from 10.3%
in 1991 to 7.8% in 1992, and an adjustment to the Company's borrowing rate
after its interest coverage ratio exceeded 2:1, both contributed to lowering
interest expense. In addition, the interest rate charged on approximately
$8,000,000 of other indebtedness was reduced from 10.0% to 8.0% in October
1992. These interest rate reductions were offset in part by additional
indebtedness resulting from the July 1992 acquisitions of Connecticut Treatment
Corporation, Mr. Frank, Inc., and the office building adjacent to the Company's
Natick facility.
Provision for Income Taxes. The effective income tax rate was 35.3% during
the year ended December 31, 1992, as compared to 30.3% for the transition
period ended December 31, 1991. The effective income tax rate for both periods
was lower than the statutory rate due to the Company's utilization of
alternative minimum tax and net operating loss carryforwards. The rate for the
transition period was lower than the 1992 rate because of tax benefits
remaining from the 1990 write-off of the rotary kiln incinerator project.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's future operating results may be affected by a number of
factors, including the Company's ability to: realize and make permanent the
anticipated cost reduction benefits associated with its reengineering program
initiated in August of 1993; utilize its facilities and workforce profitably,
in the face of intense price competition; successfully increase market share in
its existing service territory while expanding its product offerings into other
markets; and integrate additional hazardous waste management facilities and
generate incremental volumes of waste to be handled through such facilities
from existing sales offices and service centers and others which may be opened
in the future.
The Company's operations may be affected by the commencement and completion
of major site remediation projects; seasonal fluctuations due to weather and
budgetary cycles influencing the timing of customers' spending for remedial
activities; the timing of regulatory decisions relating to hazardous waste
management projects; secular changes in the process waste industry towards
waste minimization and the propensity for delays in the remedial market;
suspension of governmental permits; and fines and penalties for noncompliance
with the myriad regulations governing the Company's diverse operations. As a
result of these factors, the Company's revenues and net income could vary
significantly from quarter to quarter, and past financial performance should
not be considered a reliable indicator of future performance.
The Company participates in a highly volatile industry, with multiple
competitors, many of which have recently taken large write-offs and asset
write-downs and undergone major restructurings, while others have announced
they will undergo such restructurings and incur special charges in the near
future. The Company's participation in a highly dynamic industry often results
in significant volatility of the Company's common stock price, as well as that
of its competitors.
ENVIRONMENTAL CONTINGENCIES
While increasing environmental regulation often presents new business
opportunities to the Company, it likewise often results in increased operating
costs as the Company expands its compliance staff to cope with myriad federal,
state and local regulations. The Company strives to
24
<PAGE>
conduct its operations in compliance with applicable laws and regulations,
including environmental rules and regulations, and has as its goal 100%
compliance. This effort requires programs to promote compliance, such as
training employees and customers, purchasing health and safety equipment, and
in some cases hiring outside consultants and lawyers. Even with these programs,
management believes that in the ordinary course of doing business, companies in
the environmental services and waste disposal industry are faced with
governmental enforcement proceedings resulting in fines or other sanctions and
will likely be required to pay civil penalties or to expend funds for remedial
work on waste management facilities.
From time to time, the Company has paid fines or penalties in governmental
environmental enforcement proceedings, usually involving its waste treatment,
storage and disposal facilities. The possibility always exists that substantial
expenditures could result from governmental proceedings, which would have a
negative impact on earnings for a particular reporting period. More
importantly, federal, state and local regulators have the power to suspend or
revoke permits or licenses needed for operation of the Company's plants,
equipment, and vehicles, based on the Company's compliance record, and
customers may decide not to use a particular disposal facility or do business
with a company because of concerns about the compliance record. Suspension or
revocation of permits or licenses would impact the Company's operations and
could have a material adverse impact on financial results.
Certain Company subsidiaries have transported or generated waste sent to
sites which have been designated state or federal Superfund sites. As a result,
the Company has been named as a potentially responsible party at 18 state and
federal Superfund sites. Ten of these sites involve two subsidiaries which the
Company acquired from Chemical Waste Management, Inc. ("ChemWaste"), a public
company 77%-owned by WMX Technologies, Inc., and one site involves a subsidiary
which the Company acquired from Southdown, Inc., a public company. As part of
these acquisitions, ChemWaste and Southdown, Inc. agreed to indemnify the
Company with respect to any liability of such subsidiaries for waste disposed
of before the Company acquired them. With respect to the other Superfund sites
at which the Company believes it may face liability, the Company has
established reserves or escrows which it believes are appropriate. Therefore,
the Company believes that any future settlement costs arising from any or all
of the 18 Superfund sites will not be material to the Company's operations or
financial position. As of June 1, 1994, the Company had accrued environmental
costs of $455,000 for cleanup of Superfund sites. See "Business--Legal
Proceedings."
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and capital expenditures primarily by
cash flow from operations and additions to long-term debt. Cash provided by
operations, before changes in current assets and current liabilities, was
$15,404,000 in 1993, as compared to $15,850,000 in 1992. Net additions to long-
term debt provided $4,928,000 and $220,000 in those years, respectively. Cash
provided by operations, before changes in current assets and current
liabilities, was $3,087,000 for the three months ended March 31, 1994 and
$3,398,000 for the three months ended March 31, 1993.
During the three months ended March 31, 1994, net reductions in long-term
debt were $2,105,000, and the Company spent $630,000 on additions to plant and
equipment, as compared to the same period of the prior year when its capital
expenditures were $2,179,000 (excluding the cost to acquire Spring Grove), and
net additions to long-term debt were $2,255,000. The Company anticipates that
its capital expenditures for the remainder of 1994 will be approximately
$5,400,000. The Company expects to fund these requirements through cash flow
from operations.
25
<PAGE>
In February 1993, the Company purchased Spring Grove for $7,000,000. The
consideration consisted of $1,400,000 in cash and 112,000 shares of Series B
convertible preferred stock with a stated value of $5,600,000. During 1993, the
Company spent $8,078,000 on additions to property, plant, and equipment and
construction in progress, excluding the cost to purchase Spring Grove.
At December 31, 1993, the Bank Revolver provided for a $50,000,000 revolving
line of credit. The obligations of the Company under the Bank Revolver are
collateralized by substantially all of the Company's assets. On November 5,
1993, the Company and its banks had amended the Bank Revolver to increase the
limits on certain debt and operating lease obligations from $4,000,000 to
$9,000,000, which allows the Company to add vehicles and equipment needed to
support the growth of the Company's business. On February 1, 1994, the Company
and its banks further amended the Bank Revolver to modify certain covenants and
increase the amount of the Bank Revolver to $55,000,000. The Bank Revolver
permits borrowings of up to $40,000,000 in loans, and allows the Company to
have up to $20,000,000 in letters of credit outstanding. The combination of
loans and letters of credit outstanding may not exceed $55,000,000 at any one
time.
At May 31, 1994, the loans outstanding under the Bank Revolver were
$33,152,641, the letters of credit aggregated $8,547,102 and the Company had
available borrowing capacity of $6,847,359 under the Bank Revolver. After
giving effect to the Offering and the application of net proceeds, the Company
will have outstanding no indebtedness for borrowed money, except for (i) the
Senior Notes, (ii) $5.0 million of 10.0% senior unsecured convertible notes
having a final maturity in October 1999, and (iii) a $1.2 million junior
subordinated note. This will increase the Company's ability to utilize its
future cash flow from operations and borrowings under the Bank Revolver for
operations and potential acquisitions. The Company believes that it will have
adequate liquidity over the next 12 months based upon its cash flow from
operations and available borrowing capacity under the Bank Revolver.
26
<PAGE>
BUSINESS
The Company provides a wide range of industrial waste management services to
a diversified customer base in 25 states. It is one of the largest providers of
industrial waste management services in the Northeast, with a growing presence
in the Mid-Atlantic, Central, and Midwest regions of the United States. The
Company seeks to be recognized by customers as the premier supplier of a broad
range of value-added industrial waste management services based upon quality,
responsiveness, customer service, variety of risk containment systems, and cost
effectiveness. The Company currently maintains a network of eight sales
offices, 21 service centers and ten waste management facilities. The service
centers perform site specific services and ultimately direct collected waste to
the waste management facilities for treatment and processing. The Company does
not own or operate end disposal sites such as landfills or incinerators.
THE INDUSTRIAL WASTE MANAGEMENT INDUSTRY
According to industry sources, the United States industrial waste management
industry had total revenues in 1992 of approximately $18.6 billion. The demand
for industrial waste management services has resulted primarily from the
adoption and enforcement of increasingly stringent federal, state and local
environmental laws and regulations over the past 20 years. See "Environmental
Regulation." These laws and regulations have significantly increased the costs
and potential liabilities associated with the handling of industrial wastes.
Under these laws and regulations, a broad list of industrial wastes are
classified as "hazardous," and generators of hazardous wastes retain potential
legal liability for the proper treatment of such wastes through and including
their ultimate disposal. In response to these laws and regulations, many
generators of both hazardous and nonhazardous wastes have chosen not to
maintain their own treatment and disposal facilities nor to develop the
technical expertise necessary to assure regulatory compliance. These generators
have instead sought to have their waste streams managed by firms that possess
collection, transportation, recycling, treatment, disposal and waste-tracking
capabilities and have the expertise and financial capacity necessary to comply
with applicable environmental laws and regulations.
The laws and regulations which govern the industrial waste management
industry are complex and wide-reaching. The most significant of such laws
affecting the Company are the following federal laws:
. The Resource Conservation and Recovery Act of 1976, as amended
("RCRA")--Governs hazardous waste generation, treatment, transportation,
storage and disposal.
. The Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended (the "Superfund Act")--Provides for immediate
response and removal actions coordinated by the EPA to releases of
hazardous substances into the environment, and authorizes the EPA to
order potentially responsible parties to perform any necessary clean-up.
. The Federal Water Pollution Control Act, as amended by the Clean Water
Act and subsequent amendments (the "Clean Water Act")--Prohibits
discharges of wastes into waters of the United States without
governmental authorization.
. The Toxic Substances Control Act ("TSCA")--Authorizes the EPA to
regulate over 60,000 commercially produced chemical substances,
including the proper disposal of polychlorinated biphenyls ("PCBs").
. The Clean Air Act--Authorizes the EPA to regulate major sources of air
emissions.
According to industry sources, the five industries which produced in 1992 the
largest amounts of industrial hazardous wastes (by dollar amount of spending
paid for management services) were chemicals (28.3%), oil (15.9%), paper and
pulp (13.2%), primary metals (8.7%) and automotive (5.0%). In 1992,
approximately 81% of the total industrial hazardous wastes in the United States
(by dollar amount of spending paid for management services) were produced by
plants located in 20 states. By order of spending in 1992, such states were
Texas, California, Ohio, Louisiana, Illinois,
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<PAGE>
Pennsylvania, Georgia, New York, Indiana, Michigan, New Jersey, Alabama, North
Carolina, Tennessee, Washington, Wisconsin, Kentucky, South Carolina, Florida
and Missouri. The Company currently operates service centers or sales offices
in 11 of these 20 states and has plans to expand into an additional four of the
20 states.
As a large industrial waste management firm, the Company has significant cost
advantages over many of its competitors in terms of its ability to efficiently
utilize its waste management facilities and to negotiate more favorable terms
for end disposal of waste. Several recent industry trends provide the Company
with opportunities to grow by focusing on technological innovation, sound
waste-tracking capabilities, cost reduction and a heightened commitment to
customer service and responsiveness. These trends include: (i) efforts by many
generators of industrial wastes to decrease the number of service providers
that they utilize to a select group of industry leaders in order to minimize
potential liability inherent in using less qualified firms; (ii) efforts by
waste generators to reduce or recycle their waste through utilizing service
providers which offer alternative disposal and treatment technologies; and
(iii) a reduction in the cost of end disposal as a result of surplus landfill
and incinerator capacity and the emergence of new disposal alternatives. These
trends are leading to a significant consolidation of the industrial waste
management industry. The Company has benefited and expects to continue to
benefit from these trends through attractive acquisitions, increased market
share and new market opportunities.
BUSINESS STRATEGY
In order to maintain and enhance its leading position in the industrial waste
management industry, the Company has implemented a strategy of internal growth
through the increased utilization of existing facilities, the addition of new
sales offices and service centers, and the development of new waste management
services. In addition, the Company achieves external growth through strategic
acquisitions.
Increased Utilization of Waste Management Facilities. The Company currently
has ten waste management facilities which represent a substantial investment in
permits, plant and equipment. These facilities provide the Company with
significant operating leverage. There are opportunities to expand capacity at
these facilities by modifying the terms of the existing permits and by adding
capital equipment and new technology. Through selected permit modifications,
the Company can expand the range of treatment services which it offers to its
customers without the large capital investment necessary to acquire or build
new waste management facilities. The Company believes that permits for new
industrial waste management facilities will become increasingly difficult to
obtain, thereby placing new entrants and weaker competitors at a disadvantage.
Sales Office/Service Center Expansion. The Company opens sales offices in
attractive target markets which can be serviced by existing facilities and
expand the Company's service areas. As demand at a particular sales office
reaches a sufficient level, the sales office can be upgraded to a service
center with field service capabilities by the addition of field technicians,
service personnel and equipment. The Company's sales offices and service
centers direct waste into the Company's waste management facilities. This
allows the Company to expand its service areas with low risk capital investment
and to maximize throughput with minimal incremental cost by obtaining
additional wastes to be handled by the Company's service centers and waste
management facilities. Since January 1, 1993, the Company has added eight sales
offices and three sales offices have been upgraded to service centers.
New Waste Management Services. Industrial waste generators are demanding
alternatives to traditional waste disposal methods in order to increase
recycling and reclamation and to minimize the end disposal of hazardous waste
into the environment. The Company utilizes its technological expertise and
innovation to improve and expand the range of services which it offers to its
customers. The Company has commercialized a hazardous waste treatment system,
the Clean Extraction System ("CES"), to extract toxic compounds from industrial
wastewaters by utilizing non-
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<PAGE>
toxic liquid carbon dioxide at high pressures. CES offers for certain
wastewater streams a recycling alternative to incineration or injection into
deep underground wells. The Company has also recently signed a development
agreement with Molten Metal Technology, Inc., an environmental technology
company developing a proprietary technology known as Catalytic Extraction
Processing which uses a molten metal bath as a catalyst and solvent to break
down the molecular structures of various hazardous wastes into their elements
for recycling or reuse.
Capitalization on Industry Consolidation. The Company believes that its
large industrial customers will ultimately require a comprehensive range of
waste treatment capabilities to be provided by a select number of service
providers. This trend will put smaller operators at a competitive disadvantage
due to their size and limited financial resources. To respond to its
customers' needs, the Company has increased the range of waste management
services it offers and has followed a strategy of acquiring companies in
existing, contiguous and new market areas. Since its formation in 1980, the
Company has completed 12 acquisitions, each of which has proven successful in
expanding the Company's market share and cash flow. The Company continues to
investigate and discuss other potential acquisitions of permitted facilities
in order to enhance service to its existing customer base and expand its
customer base to include new regional and super-regional waste generators.
Acquisitions within the Company's existing areas of operation serve to capture
incremental market share, while geographic expansion creates new market
opportunities. See "Acquisitions" below.
ACQUISITIONS
The Company has made five acquisitions since January 1, 1989.
<TABLE>
<CAPTION>
DATE OF ACQUISITION COMPANY ACQUIRED PURCHASE PRICE
- ------------------- ---------------- --------------
<S> <C> <C>
1989 ChemClear Inc., a publicly-traded company in the $27.6 million
business of treating liquid and semi-liquid
hazardous and nonhazardous industrial wastes at
treatment plants in Baltimore, Maryland; Cleveland,
Ohio; Chicago, Illinois; and Chester, Pennsylvania
1989 Murphy's Waste Oil Service, Inc., the operator of a $0.2 million
waste oil treatment and storage facility in Woburn,
Massachusetts
1992 Connecticut Treatment Corporation, the operator of a $2.4 million
hazardous waste treatment facility in Bristol,
Connecticut
1992 Mr. Frank, Inc., a Chicago-based transportation and $2.2 million
environmental services company serving industrial
companies primarily in Illinois, Indiana and
Michigan
1993 Spring Grove Resource Recovery, Inc., the operator $7.0 million
of a hazardous waste treatment facility in
Cincinnati, Ohio
</TABLE>
Prior to closing any acquisition, the Company attempts to investigate
thoroughly the current and contingent liabilities of the company to be
acquired, including potential liabilities arising from noncompliance with
environmental laws by prior owners for which the Company, as a successor
owner, might become responsible. The Company also seeks to minimize the impact
of potential liabilities by obtaining indemnities and warranties from the
sellers which may be supported by deferring payment of or by escrowing a
portion of the purchase price. See "Legal Proceedings" below for a description
of the indemnities which the Company has received in connection with past
acquisitions.
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<PAGE>
As part of its growth strategy the Company continues to investigate and
discuss other potential acquisitions. However, no definitive agreements have
been entered into by the Company relating to any potential material
acquisition, and there can be no assurance that such discussions will result in
additional acquisitions.
SERVICES
The principal services provided by the Company fit within three categories:
treatment and disposal of industrial wastes ("Treatment and Disposal"); field
services provided at customer sites ("Field Services"); and specialized
repackaging, treatment and disposal services for laboratory chemicals and
household hazardous wastes ("LabPacks"). The Company markets these services on
an integrated basis and, in many instances, services in one area of the
business support or lead to a project undertaken in another area.
[WHEEL CHART SHOWING THE TYPES OF SERVICES PROVIDED BY THE COMPANY AND THEIR
RESPECTIVE PERCENTAGES OF TOTAL REVENUES]
In addition to these three principal services, the Company also provides
technical services such as analytical testing and engineering services and
personnel training. Such technical services primarily support the Company's
principal services, although technical services are also offered to a limited
extent on a stand-alone commercial basis.
The Company currently maintains a network of ten waste management facilities,
21 service centers and eight sales offices. The service centers and sales
offices accommodate sales personnel
30
<PAGE>
who develop and maintain contact with the Company's customers. Customers are
generally covered by a two person team: an "account manager" who is responsible
for sales and a "customer service account manager" who is responsible for order
taking, handling customer inquiries and other administrative tasks. Account
managers utilize the expertise of product specialists in order to evaluate the
scope of a potential job, quote a job and ultimately detail the work order,
including personnel and equipment necessary to complete the job. The service
centers also serve as depots for the specialized equipment and trained
technical personnel which respond to customers' waste management requirements.
The Company utilizes a "hub and spoke" organization where service centers and
sales offices feed waste disposal business into the Company's ten waste
management facilities.
As an integral part of the Company's services, industrial wastes are
collected from customers and transported by the Company to and between its
facilities for treatment or bulking for shipment to final disposal locations.
In providing this service, the Company utilizes a variety of specially designed
and constructed tank trucks and semi-trailers, as well as other third-party
transporters, including railroads. Liquid waste is frequently transported in
bulk, but may also be transported in drums. Heavier sludges or bulk solids are
transported in sealed, roll-off containers or bulk dump trailers.
TREATMENT AND DISPOSAL. The Company transports, treats and disposes of
industrial wastes for commercial and industrial customers, health care
providers, educational and research organizations, other waste management
companies and governmental entities. The wastes handled include substances
which are classified as "hazardous" because of their corrosive, ignitable,
infectious, reactive or toxic properties, and other substances subject to
federal and state environmental regulation. Waste types processed or
transferred in drummed or bulk quantities include:
. flammables, combustibles and other organics,
. acids and caustics,
. cyanides and sulfides,
. solids and sludges,
. industrial wastewaters,
. PCB materials and electrical light ballasts,
. medical waste,
. other regulated wastes, and
. nonhazardous industrial waste.
Before the Company receives hazardous waste from a customer, detailed
paperwork and analysis are completed to document the nature of the waste. A
representative sample of the expected waste is analyzed in a Company-owned
laboratory in order to establish a waste profile and to enable the Company to
recommend the best method of treatment and disposal. Prior to unloading at the
Company's treatment facility, a representative sample of the delivered waste is
tested and analyzed to insure that it conforms to the customer's waste profile
record. Once the wastes are characterized, compatible groups are consolidated
to achieve economies in storage, handling, transportation and ultimate
treatment and disposal. At the time of acceptance of a customer's waste at the
Company's facility, a unique computer "bar code" identification character is
assigned to each container of waste, enabling the Company to use sophisticated
computer systems to track and document the status, location and disposition of
the waste.
Wastewater Treatment. The Company's treatment and resource recovery
operations involve processing hazardous wastes through the use of physical,
chemical, thermal or other methods, and the reclamation and reuse of certain
wastes. The nonrecoverable materials produced by these interim processing
operations are then disposed of off-site at facilities owned and operated by
unrelated businesses.
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<PAGE>
The Company treats a broad range of industrial liquid and semi-liquid wastes
containing heavy metals, organics and suspended solids, including:
. acids and caustics,
. ammonias, sulfides, and cyanides,
. heavy metals, ink wastes, and plating solutions,
. landfill leachates and scrubber waters, and
. oily wastes and water soluble coolants.
Wastewater treatment can be economical as well as environmentally sound, by
combining different wastewaters in a "batching" process that reduces costs for
multiple waste stream disposal. Acidic waste from one source can be neutralized
with alkaline from a second source to produce a neutral solution.
Physical Treatment. Physical treatment methods include distillation,
separation and stabilization. These methods are used to reduce the volume of
waste material or to make it suitable for further treatment, reuse, or
disposal. Distillation uses heat to remove liquids from solids or sludges.
Separation utilizes techniques such as sedimentation, filtration, flocculation
and centrifugation to remove solid materials from liquids. Stabilization refers
to a category of waste treatment processes designed to reduce contaminant
mobility or solubility and convert waste to a more chemically stable form.
Stabilization technology includes many classes of immobilization systems and
applications. Examples include low-temperature processes such as adding a sand-
like cement material, and high-temperature processes such as vitrification.
Stabilization is a frequent treatment method for metal-bearing wastes received
at several Company facilities, which treat the waste to meet specific federal
land disposal restrictions. After treatment, the waste is tested to confirm
that it has been rendered nonhazardous. It can then be sent to a nonhazardous
waste landfill, at significantly lower cost than disposal at a hazardous waste
landfill.
Thermal Treatment. Thermal treatment refers to processes that use high
temperature incineration as the principal means of waste destruction. The
Company operates an incinerator at its Braintree facility which was previously
used to destroy hospital waste. In late 1991, approvals were granted to allow
the incinerator to destroy nonhazardous wastes which were previously sent to
landfills or municipal incinerators. It also generates steam which is used in
steam distillation equipment for reclaiming solvents. Other waste residues are
incinerated in off-site facilities owned and operated by other companies.
Resource Recovery. Resource recovery involves the treatment of wastes using
various methods which will effectively remove contaminants from the original
material to restore its fitness for its intended purpose, and to reduce the
volume of waste requiring disposal. In conjunction with recent regulatory
provisions restricting the burial of various types of hazardous wastes, the
Company substantially upgraded its existing facilities for the reclamation and
reuse of certain wastes, particularly solvent-based wastes generated by
industrial cleaning operations, metal finishing and other manufacturing
processes.
Spent solvents that can be recycled are processed through thin film
evaporators and other processing equipment and are distilled into clean, usable
products. Upon recovery of these products, the Company either returns the
recovered solvents to the original generator or sells them to third parties.
Other nonrecoverable organic liquids with sufficient heat value are blended
to meet strict specifications for use as supplemental fuels for cement kilns,
blast furnaces and other high-efficiency boilers. The Company has established
relationships with a number of supplemental fuel users that are licensed to
accept the blended fuel material. Although the Company pays a fee to the users
who accept this product, this disposal method is substantially less costly than
other disposal methods.
Clean Extraction System. The Clean Extraction System ("CES") is a hazardous
waste treatment system commercialized by the Company which extracts organic
compounds from
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<PAGE>
industrial wastewater. CES uses carbon dioxide that has been compressed at high
pressure into a liquid. Under these "supercritical" conditions, carbon dioxide
acts as a powerful solvent for most commonly occurring contaminants. CES uses
supercritical carbon dioxide as a solvent to remove organic contaminants, such
as gasoline, acetone, methylene chloride, pesticides and other chemicals, from
industrial wastewater called "lean water." Lean water is generated by oil
companies, utilities, and manufacturers of specialty chemicals and
pharmaceuticals.
The CES was installed at the Company's Baltimore facility, and began
commercial operation in June 1992. The system includes specialized pretreatment
and post-treatment systems and techniques, in addition to a central extractor
unit, to maximize extraction efficiency. In the Baltimore CES, wastewater
receives chemical and physical pretreatment before entering a central extractor
unit. The wastewater is fed into the top of a 40-foot tall pressurized chamber,
and flows down through a stack of perforated plates as a continual supply of
liquefied carbon dioxide rises from the bottom of the chamber. As the
wastewater and carbon dioxide mix, organic contaminants separate from the water
and dissolve in the carbon dioxide. The liquid carbon dioxide flows from the
top of the chamber into a decompression vessel. As the pressure decreases, the
carbon dioxide vaporizes into a gas, leaving the organic contaminants at the
bottom of the vessel, where they are collected. The concentrated organics can
be recycled or burned as a supplemental fuel for resource recovery. The
cleansed water flows from the bottom of the chamber, through a series of
decompression and post-treatment tanks. After treatment, the cleansed water is
discharged to the City of Baltimore sewer treatment works.
This process enables the Company to handle a broad range of complex,
difficult to treat organic and inorganic "lean waters" formerly sent to other
companies for disposal. CES offers the Company's industrial customers, such as
chemical or pharmaceutical companies, an attractive recycling alternative to
disposal of their "lean water" by incineration or injection into deep
underground wells. Current treatment capacity is between six and ten million
gallons per year, depending on the characteristics of the wastewater being
treated.
Proposed Catalytic Extraction Processing. In May 1994, the Company signed a
development agreement with Molten Metal Technology, Inc. of Waltham,
Massachusetts ("MMT"), an environmental technology company developing an
innovative, proprietary processing technology known as Catalytic Extraction
Processing ("CEP"). CEP utilizes a molten metal bath as a catalyst and solvent
to break down the molecular structures of various hazardous wastes into their
elements. With the addition of various other elements, industrial compounds are
made into products for reuse as a raw material by the feedstock generator or
for sale to other industrial users. Under the development agreement, the
Company and MMT have agreed to install a CEP system at one of the Company's
waste management facilities. Under the proposed arrangement, MMT will be
primarily responsible for the design, engineering, financing, construction,
start-up and operation of the CEP system, while the Company will provide the
site and infrastructure around a building which will house the CEP system. MMT
will then build, own and operate the CEP system and be responsible for the
disposition of CEP products generated from the processing of feedstocks, while
the Company will be responsible for delivery of feedstocks. The Company will
pay MMT market prices to process the feedstocks and will share in any profits
generated by the CEP system. However, development of the CEP system pursuant to
the development agreement is subject to a number of conditions and
uncertainties, including the negotiation and execution of definitive
agreements, and no assurances can be given that the CEP system will be
successfully developed or operated.
Disposal. After treatment of industrial wastes at the Company's facilities,
the hazardous waste residues (such as sludges) which remain after such
treatment are disposed of in facilities operated by third parties. The Company
also arranges for the disposal of its customers' hazardous wastes which cannot
be treated at Company-owned facilities. Arrangements are made for disposal
33
<PAGE>
primarily in incinerators, landfills, or other permitted disposal facilities
operated by third parties. These arrangements are typically made before the
Company accepts waste. Although the Company's facilities are licensed to store
waste, such storage is for a short period of time, usually a matter of days,
before the waste is sent for ultimate disposal. On occasion, a service center
may also arrange to ship a customer's waste direct to another disposal company,
such as a landfill or incinerator, if the size of the waste shipment or its
characteristics are such that the waste does not need to pass through one of
the Company's own waste management facilities. As the volume of waste handled
by the Company has grown, the Company has negotiated favorable disposal
arrangements with numerous companies. The Company is not dependent on any one
disposal company, and the loss of any particular outlet for disposal of waste
would not have a material impact on the Company.
The Company's wastewater treatment operations are dependent upon access to
publicly owned treatment works and to hazardous or nonhazardous waste landfills
for the disposal of its byproduct wastes. Generally, the Company has not
experienced significant difficulty in obtaining the necessary permits from
local sewer authorities.
FIELD SERVICES. The Company provides a wide range of environmental field
services to maintain industrial facilities and process equipment, as well as
clean up or contain actual or threatened releases of hazardous materials into
the environment. These services are provided primarily to large chemical,
petroleum, transportation, utility, industrial and waste management companies,
and to governmental agencies. The Company's strategy is to identify, evaluate,
and solve its customers' environmental problems, on a planned or emergency
basis, by providing a comprehensive interdisciplinary response to the specific
requirements of each project.
Industrial Maintenance. Many of the Company's customers have a recurring need
to clean equipment and facilities periodically in order to continue operations,
maintain and improve operating efficiencies of their plants, and satisfy safety
requirements. Industrial maintenance involves chemical cleaning, hydroblasting,
vacuuming, and other methods to remove deposits from process equipment, such as
paint booths and plating lines, and storage facilities for material used in the
manufacturing or production process, such as feedstocks, chemicals, fuels,
paints, oils, inks, metals and many other items. Service centers are equipped
with specialty equipment, such as high volume pumps, pressure washers,
nonsparking and chemical resistant tools, and a variety of personal protective
equipment, to perform maintenance services quickly, usually during "off
periods" to minimize downtime from production.
Project Management. An increasingly important area of the Company's
operations is the management of complex environmental remediation projects.
These projects may include surface remediation, groundwater restoration, site
and facility decontamination, and emergency response. An interdisciplinary team
of managers, chemists, engineers, and compliance experts design and implement
result-oriented remedial programs, incorporating both off-site removal and on-
site treatment, as needed. The remedial projects group functions as a single
source management team, relieving the customer of the administrative and
operational burdens associated with environmental remediation. As a full-
service environmental services provider, the Company eliminates the need for
multiple subcontractors.
These projects vary widely in scope, duration and revenue, and they are
typically performed under service agreements between the customer and the
Company. Environmental remediation projects may be undertaken in conjunction
with or lead to contracts for additional remediation work or for hazardous
waste management services, and typically involve the Company's analytical
laboratory and engineering group.
34
<PAGE>
Surface Remediation. Surface remediation projects arise in two principal
areas: the planned cleanup of hazardous waste sites and the cleanup of
accidental spills and discharges of hazardous materials, such as those
resulting from transportation and industrial accidents. In addition, some
surface remediation projects involve the cleanup and maintenance of industrial
lagoons, ponds and other surface impoundments on a recurring basis. In all of
these cases, an extremely broad range of hazardous substances may be
encountered.
Surface remediation projects generally require considerable interaction
among engineering, project management and analytical services. Following the
selection of the preferred remedial alternative, the project team identifies
the processes and equipment for cleanup. Simultaneously, the Company's health
and safety staff develops a site safety plan for the project. Remedial
approaches usually include physical removal, mechanical dewatering,
stabilization or encapsulation.
Groundwater Restoration. The Company's groundwater restoration services
typically involve response to above-ground spills, leaking underground tanks
and lines, hazardous waste landfills and leaking surface impoundments.
Groundwater restoration efforts often require complex recovery systems,
including recovery drains or wells, air strippers, biodegradation or carbon
filtration systems, and containment barriers. These systems and technologies
can be used individually or in combination to remove a full range of floating
or dissolved organic compounds from groundwater. The Company internally
designs and fabricates most mobile or fixed site groundwater treatment
systems.
Site and Facility Decontamination. Site and facility decontamination
involves the cleanup and restoration of buildings, equipment and other sites
and facilities that have been contaminated by exposure to hazardous materials
during a manufacturing process, or by fires, process malfunctions, spills or
other accidents. The Company's projects have included decontamination of
electrical generating stations, electrical and electronics components,
transformer vaults and commercial, educational, industrial, laboratory,
research and manufacturing facilities.
Emergency Response. The Company undertakes environmental remediation
projects on both a planned and emergency basis. Emergency response actions may
develop into planned remedial action projects when soil, groundwater,
buildings, or facilities are extensively contaminated. The Company has
established specially trained emergency response teams which operate on a 24-
hour basis from service centers covering 20 states. Many of the Company's
remediation activities result from a response to an emergency situation by one
of its response teams. These incidents can result from transportation
accidents involving chemical substances, fires at chemical facilities or
hazardous waste sites, transformer fires or explosions involving PCBs, and
other unanticipated developments when the substances involved pose an
immediate threat to public health or the environment, such as possible
groundwater contamination.
Emergency response projects require trained personnel, equipped with
protective gear and specialized equipment, prepared to respond promptly
whenever these situations occur. To meet the staffing requirements for
emergency response projects, the Company relies in part upon a network of
trained personnel who are available on a contract basis for specific project
assignments. The Company's health and safety specialists and other skilled
personnel closely supervise these projects during and subsequent to the
cleanup. The steps performed by the Company include rapid response,
containment and control procedures, analytical testing and assessment,
neutralization and treatment, collection, and transportation of the substances
to an appropriate treatment or disposal facility.
LABPACKS. The Company provides specialized repackaging, treatment and
disposal services for laboratory chemicals and household hazardous wastes.
Such chemicals and wastes are put into
35
<PAGE>
LabPacks, which are packages smaller than a 55-gallon drum, generally less than
five gallons or 50 pounds. The Company offers generators of LabPack quantity
waste the same economical and environmentally sound disposal services that have
been offered for years to large industrial generators. The LabPack operation
services a wide variety of customers, including:
. engineering and research and development divisions of industrial
companies,
. college, university and high school labs,
. EPA labs and Veterans Administration facilities,
. hospitals and medical care labs,
. state and local municipalities, and
. tens of thousands of residents through household hazardous waste
collection days.
The Company provides a team of qualified personnel with science degrees and
special training to collect, label and package waste at the customer's site.
LabPacks are then transported to one of the Company's facilities for
consolidation into full-size containers, which are then sent for further
treatment or disposal as part of the Company's treatment and disposal services
described above. As described above, disposal options include reclamation,
fuels blending, incineration, aqueous treatment, and secure chemical landfill.
TECHNICAL SERVICES. Technical services consist primarily of analytical
testing, engineering services and personnel training. Many of the Company's
principal services as described above involve the selection and application of
various technologies. The Company's analytical testing laboratories perform a
wide range of quantitative and qualitative analyses to determine the existence,
nature, level, and extent of contamination in various media. The Company's
engineering staff identifies, evaluates and implements the appropriate
environmental solution.
Analytical Testing and Engineering Services. The Company provides analytical
testing and engineering services as technical support to complement its primary
services. For example, if the Company is engaged to perform an entire
environmental remediation project, it will first perform a site or situation
assessment. A site assessment begins with the determination of the existence of
contamination. If present, the nature and extent of the contamination is
defined by gathering samples and then analyzing them at one of the Company's
laboratories in order to establish or verify the nature and extent of the
contaminants. The Company's engineering staff then develops, evaluates and
presents alternative solutions to remedy the particular situation. Often
treatment systems are completely designed, engineered and fabricated by the
Company in house. It then implements the mitigation and decontamination program
mutually selected by the customer and the Company.
Analytical testing and engineering services are also provided as a separate
service if a customer requires an analysis with respect to certain material, or
if a customer is searching for an appropriate solution to an environmental
problem or if an environmental assessment is required to allow a transfer of
property.
The Company operates an EPA-qualified and state-certified analytical testing
laboratory in Braintree, Massachusetts which tests samples provided by
customers to identify and quantify toxic pollutants in virtually every
component of the environment. The laboratory staff evaluates the properties of
a given material, selects appropriate analytical methods, and executes a
laboratory work plan that results in a comprehensive technical report. The
Company operates a laboratory in Bedford, Massachusetts to test samples of
"lean water" to determine suitability for treatment through the CES in
Baltimore.
The Company also maintains laboratories at its waste management facilities to
identify and characterize waste materials prior to acceptance for treatment and
disposal, and operates mobile laboratory facilities for field use in emergency
response and remedial action situations.
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Personnel Training. The Company provides comprehensive personnel training
programs for its own employees and those of its customers on a commercial
basis. Such programs are designed to promote safe work practices under
potential hazardous environmental conditions, whether or not toxic chemicals
are present, in compliance with stringent regulations promulgated under RCRA
and the federal Occupational Safety and Health Act ("OSHA"). The Company's
Technical Training Center at its Kingston, Massachusetts facility includes a
2,000 gallon tank for confined space entry, exit, and extraction, an air-system
demonstration maze, respirator fit testing room, leak and spill response
equipment, and a layout of a mock decontamination zone, all designed to fulfill
the requirements of OSHA Hazardous Waste and Emergency Response Standards.
CUSTOMERS
Since January 1994, the Company has executed approximately 2,500 work orders
per month for over 4,400 customers. The Company's sales efforts are directed
toward establishing and maintaining relationships with businesses which have
ongoing requirements for one or more of the Company's services. The Company's
customer list includes 296 of the companies on the 1994 Forbes 500 list of
largest United States companies. In addition, the Company's customers include
most of the major utilities in the Northeast and Mid-Atlantic regions. The
Company's customers are primarily chemical, petroleum, transportation, utility
and industrial firms, other waste management companies and government agencies.
Management believes that the Company's diverse customer base, in terms of
number, industry and geographic location, as well as its large presence in New
England, provide it with a recurring stream of revenue and stability of cash
flow. The Company estimates that in excess of 80% of its revenues is derived
from previously served customers with recurring needs for the Company's
services. The Company believes the loss of any single customer would not have a
material adverse effect on the Company's financial condition or results of
operations.
The Company's customer base is diverse, and generally not concentrated in
particular industries, such as the petroleum or defense sectors, where business
activity may be cyclical. In addition to serving industrial customers such as
utilities, railroads, pipelines, pharmaceutical manufacturers, and chemical
companies, the Company serves health care and educational institutions,
federal, state and local governmental bodies, and thousands of small quantity
generators who have recurring needs for multiple services in managing their
environmental exposure.
Under applicable environmental laws and regulations (see "Environmental
Regulation"), generators of hazardous wastes retain potential legal liability
for the proper treatment of such wastes through and including their ultimate
disposal. In response to these potential liability concerns, many large
generators of industrial wastes and other purchasers of waste management
services (such as general contractors on major remediation projects) have
increasingly sought to decrease the number of providers of such services that
they utilize. Waste management companies which are selected as "approved
vendors" by such large generators and other purchasers are firms, such as the
Company, that possess sound collection, recycling, treatment, transportation,
disposal and waste tracking capabilities and have the expertise and financial
capacity necessary to comply with applicable environmental laws and
regulations. By becoming an "approved vendor" of a large waste generator or
other purchaser, the Company becomes eligible to provide waste management
services to the various plants and projects of such generator or purchaser
which are located in the Company's service areas. However, in order to obtain
such "approved vendor" status, it may be necessary for the Company to bid
against other qualified competitors in terms of the services and pricing to be
provided. Furthermore, large generators or other purchasers of waste management
services often periodically audit the Company's facilities and operations to
insure that the Company's waste management services to such customers are being
performed in compliance with applicable laws and regulations and with other
criteria established by the Company and by such customers.
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COMPLIANCE
The Company regards compliance with applicable environmental regulations as
a critical component of its overall operations, both from the standpoint of
the health and safety of its employees and as a service to its customers. See
"Environmental Regulation." The Company strives to maintain the highest
professional standards in its compliance activities; its internal operating
requirements are in many instances more stringent than those imposed by
regulation. The Company's compliance program has been developed for each of
its operational facilities under the direction of the Company's corporate
compliance staff. The compliance staff consists of approximately 40 full-time
employees who are responsible for facilities permitting and compliance, health
and safety, field safety, compliance training, transportation compliance, and
related record keeping. The Company also performs periodic audits and
inspections of the disposal facilities of other firms utilized by the Company.
The Company's treatment, storage and recovery facilities are frequently
inspected and audited by regulatory agencies, as well as by customers.
Although the Company's facilities have been cited on occasion for regulatory
violations, the Company believes that each facility is in substantial
compliance with applicable requirements. All major facilities and service
centers have a full-time compliance or health and safety representative to
oversee the implementation of the Company's compliance program at the facility
or service center. These highly-trained regulatory specialists are independent
from operations and report to corporate compliance, which in turn reports
directly to the Chief Executive Officer.
MANAGEMENT OF RISKS
The Company follows a program of risk management policies and practices
designed to reduce potential liability, as well as to manage customers'
ongoing regulatory responsibility. This program includes employee training,
environmental auditing, and policy decisions restricting the types of wastes
handled. The Company evaluates all revenue opportunities and declines those
which it believes involve unacceptable risks. The Company avoids handling
high-hazard waste such as explosives, and frequently utilizes specialty
subcontractors to handle such materials when confronted at a job site.
The Company only disposes of its wastes at facilities owned and operated by
firms which the Company has approved as prudent and financially sound.
Typically, the Company applies established technologies to the treatment,
storage and recovery of hazardous wastes. The Company believes its operations
are conducted in a safe and prudent manner and in substantial compliance with
applicable laws and regulations.
INSURANCE
The Company's present insurance programs cover the potential risks
associated with its multifaceted operations from two primary exposures: direct
physical damage and third-party liability. The Company maintains a casualty
insurance program providing coverage for vehicles, workers compensation,
employers liability, and comprehensive general liability in the aggregate
amount of $25,000,000 per year, subject to a retention of $250,000 per
occurrence, except on general liability where the retention is $500,000. Since
the early 1980s, casualty insurance policies have typically excluded liability
for pollution, which is covered under a separate pollution liability program.
The Company has pollution liability insurance policies covering the
Company's potential risk in three areas: as a contractor performing services
at customer sites; as a transporter of waste; and while it handles waste at
the Company's facilities. Acstar Insurance Company provides contractor's
liability insurance of $2,000,000 per occurrence and $5,000,000 in the
aggregate, covering off-site remedial activities and associated liabilities.
Lloyds of London provides pollution liability coverage
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for waste in-transit with single occurrence and aggregate liability limits of
$29,000,000. This Lloyds of London policy covers liability in excess of
$1,000,000 for pollution caused by sudden and accidental occurrences during
transportation of waste and at the Company's facilities, from the time waste is
picked up from a customer until its delivery to the final disposal site.
Both federal and state regulations require liability insurance coverage for
all facilities that treat, store, or dispose of hazardous waste. In 1989, the
Company established a captive insurance company pursuant to the Federal Risk
Retention Act of 1986. This company qualifies as a licensed insurance company
and is authorized to write professional liability and pollution liability
insurance for the Company and its operating subsidiaries. RCRA and comparable
state hazardous waste regulations require hazardous waste handling facilities
to maintain pollution liability insurance in the amount of $3,000,000 per
occurrence and $6,000,000 in the aggregate per year for sudden and non-sudden
occurrences. Currently, the Company uses its captive insurance company to
provide (i) the first $1,000,000 of insurance against liability from sudden
occurrences at its facilities, with the excess coverage provided by Lloyds of
London, and (ii) the full policy limits of insurance for non-sudden
occurrences.
The Company's ability to continue conducting its industrial waste management
operations could be adversely affected if the Company should become unable to
obtain sufficient insurance to meet its business and regulatory requirements in
the future. The availability of insurance may also be influenced by
developments within the insurance industry, although other businesses in the
industrial waste management industry would be similarly impacted by such
developments.
Under the Company's insurance programs, coverage is obtained for catastrophic
exposures as well as those risks required to be insured by law or contract. It
is the policy of the Company to retain a significant portion of certain
expected losses related primarily to workers' compensation, physical loss to
property, and comprehensive general and vehicle liability. Provisions for
losses expected under these programs are recorded based upon the Company's
estimates of the aggregate liability for claims. The Company has been
successful in negotiating lower premiums recently, due in part to its favorable
historical loss experience. The cancellation terms applicable to the Company
are similar to those of other companies in other industries.
COMPETITION
The Company competes with numerous large and small companies, each of which
is able to provide one or more of the industrial waste management services
offered by the Company and some of which have access to greater financial
resources. The Company believes it offers a more comprehensive range of
industrial waste management services than any of its competitors in its service
territory. The Company also believes that its ability to market and provide its
services on an integrated basis constitutes a significant competitive advantage
for the Company.
The Company's competitive position with respect to its treatment and disposal
services is enhanced by the proximity of its facilities to hazardous waste
generators and the barriers to market entry provided by capital and licensing
requirements. However, treatment, recovery and disposal operations are
conducted by a number of national and regional waste management firms. The
Company believes that physical proximity of treatment and disposal facilities,
comprehensiveness of services, safety, and quality of services and efficiency
are the most significant factors in the market for treatment and disposal
services.
In field services, the Company's competitors include major national and
regional environmental services firms which have environmental remediation
staffs. The availability of skilled technical professional personnel, quality
of performance, diversity of services and, to a certain extent, price, are the
key competitive factors.
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EMPLOYEES
As of May 31, 1994, the Company employed approximately 1,450 people on a
regular basis. None of the Company's employees is subject to a collective
bargaining agreement, and the Company believes that its relationship with its
employees is satisfactory.
PROPERTIES
The properties of the Company consist primarily of ten waste management
facilities, 21 service centers, various environmental remediation equipment
and a fleet of approximately 600 transportation vehicles. The ten waste
management facilities are described below. All of such facilities are owned by
the Company, except for the Chicago hazardous waste management facility which
is leased under a lease which (with extensions) expires September 2000 and the
Woburn, Massachusetts waste oil treatment and storage facility which is leased
under a lease which (with extensions) expires February 2004.
Hazardous Waste Management Facilities. The Company currently maintains seven
hazardous waste management facilities at which it processes, treats and
temporarily stores hazardous wastes for later resale, reuse or off-site
treatment or disposal. Every facility that treats, stores or disposes of
hazardous wastes must obtain a license from the federal EPA or an authorized
state agency and must comply with certain operating requirements. See
"Environmental Regulation--Federal Regulation of Hazardous Waste" below for a
description of licenses issued under the Resource Conservation and Recovery
Act of 1976 ("RCRA"). Seven of the Company's ten waste management facilities
are subject to RCRA licensing; all seven have been issued RCRA Part B
licenses, one of which is under appeal.
The Company has made substantial modifications and improvements to the
physical plant and treatment and process equipment at its treatment
facilities. These modifications are consistent with the Company's strategy to
upgrade the quality and efficiency of treatment services, to expand the range
of services provided and to ensure regulatory compliance and operating
efficiencies at these facilities. Major features of this program are the
addition of new treatment systems, such as the CES in Baltimore, expansion of
analytical testing laboratories, drum storage and processing facilities, and
equipment rearrangement and replacement to improve operating efficiency.
Braintree, MA. The Company's largest facility is located in Braintree,
Massachusetts, just south of Boston. The facility is primarily engaged in
drummed waste processing and consolidation, solvent recovery, transformer
decommissioning, PCB storage and processing, blending of waste used as
supplemental fuel by industrial furnaces, and incineration of small quantities
of nonhazardous waste. The facility has been operated under a state Interim
Hazardous Waste Facility License, which gave it Part A Interim Status, since
1981. The Company acquired the facility in 1985. In June 1992, the
Massachusetts Department of Environmental Protection (the "DEP") approved the
Company's application for a final Hazardous Waste Facility License, which
would give the facility a final Part B license for a five-year term. The Town
of Braintree and two adjoining communities have appealed the DEP's decision to
issue the final Part B license, and requested an adjudicatory hearing before
the DEP, which is the normal appeal process. The appeal is an administrative
proceeding before the DEP, and the facility will continue to operate normally
pursuant to its state license and Interim Status authority under RCRA while
the DEP considers the appeal. The Company is confident the review will result
in confirmation of the license as granted. The authority from the federal EPA
to handle PCBs is not impacted by the towns' appeal of the Part B license.
Natick, MA. The Natick, Massachusetts facility is located just west of
Boston. Its primary services are collecting LabPacks and repackaging the small
quantities of laboratory and household chemicals into 55-gallon drum
quantities, consolidating wastes for shipment to other Company facilities or
third parties for further treatment or disposal, and serving as a transfer
station for the Northeast region. The facility has a state Hazardous Waste
Facility License (the state equivalent of a Part B license), which was issued
in 1986 and expired in 1991. The Company applied for a new license in timely
fashion. The law allows operations to continue under the expired license while
the
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state reviews the renewal application. The facility is also authorized by the
federal EPA to handle PCBs.
Chicago, IL. The Chicago, Illinois facility is located on the south side of
Chicago, on Lake Calumet. It provides treatment of nonhazardous and hazardous
industrial wastewaters, drummed waste processing and consolidation, and
transfer and repackaging of laboratory chemicals into LabPacks. In 1991 a new
drum storage warehouse was constructed, which increased storage capacity from
552 drums to 1,240 drums and expanded the range of hazardous wastes which can
be processed at the facility. In November 1993, the Illinois EPA issued a Part
B license for a ten-year term, which significantly expanded the waste handling
and storage capacity of the facility. The new license increased drum storage
capacity from 1,240 drums to 1,875 drums and allows handling of material
destined for blending of waste used as supplemental fuel by industrial
furnaces, pretreatment of waste to stabilize it before it is sent to landfills,
and rail shipment of hazardous and nonhazardous waste. The Company plans to
make substantial expenditures to implement this increased permitted capacity
and is engaged in ongoing negotiations with government regulators and the owner
of an adjoining hazardous waste facility concerning the possibility,
feasibility and relative costs of utilizing the adjoining facility for this
purpose.
Cleveland, OH. The Cleveland, Ohio facility is located south of downtown
Cleveland. It is a wastewater treatment facility that treats nonhazardous and
hazardous industrial wastewaters, and serves as a transfer station for various
types of containerized nonhazardous waste. The facility is licensed by the
state as a wastewater treatment facility. The facility is not subject to Part B
licensing requirements, since its on-site wastewater treatment activities are
regulated pursuant to the Clean Water Act, and therefore are exempt from RCRA.
Baltimore, MD. The Baltimore, Maryland facility is located adjacent to
Interstate 95 in central Baltimore. It provides treatment of nonhazardous and
hazardous industrial aqueous wastes, drummed waste processing, pretreatment of
waste to stabilize it before it is sent to landfills, and transfer of LabPacks.
It is the only commercial hazardous waste treatment facility in Maryland. The
facility has a state Controlled Hazardous Substances permit (the state
equivalent of a Part B license), which was issued in 1987. In 1990, the Company
received a permit modification to expand the range of waste streams the
facility can accept and to install the CES, which allows the facility to treat
a wide range of hazardous wastewaters contaminated with gasoline, chlorinated
solvents and many other organic contaminants, which were formerly sent to other
companies for incineration. In 1992, the Maryland Department of the Environment
issued a new Controlled Hazardous Substances permit for a three-year term,
which significantly expanded the waste handling and storage capacity of the
facility. The new permit also allows handling of LabPacks and material destined
for fuels-blending, pretreatment of waste to stabilize it before it is sent to
landfills, and rail shipment of hazardous and nonhazardous waste.
Bristol, CT. In July 1992, the Company acquired Connecticut Treatment
Corporation ("CTC"), located in Bristol, Connecticut, approximately 20 miles
southwest of Hartford. It provides hazardous wastewater treatment, drummed
waste processing and consolidation, and transfer of LabPacks. This facility
offers two services not offered at the Company's other facilities: equipment
"de-manufacturing," such as dismantling outdated computers, and treatment of
special categories of hazardous wastewaters known as "listed" wastewaters
resulting from industrial processes such as electroplating. The facility has a
Part B license issued by the EPA and the Connecticut DEP, which was issued in
1987 and expired in 1991. CTC applied for a new license in timely fashion, and
continues to operate under the expired license while the renewal application is
reviewed. The facility is also authorized by the federal EPA to handle PCBs.
CTC's name has been changed to Clean Harbors of Connecticut, Inc.
Cincinnati, OH. In February 1993, the Company acquired Spring Grove Resource
Recovery, Inc. ("Spring Grove"), located north of downtown Cincinnati, Ohio. It
provides hazardous
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wastewater treatment, drummed waste processing and consolidation, pretreatment
of waste to stabilize it before it is sent to landfills, and transfer of
LabPacks. The facility holds a federal Part B license, which was issued in 1985
and expires in 1995, and a state Hazardous Waste Facility Installation and
Operation permit which was renewed in December 1993 for a five-year term. The
facility is also authorized to handle PCBs. On March 31, 1994, the Ohio EPA
approved the Company's application for a revised, comprehensive state permit
that expands the range of waste that may be received and treated at the
facility and allows installation of equipment for handling and processing
material to be sent to boilers and industrial furnaces and used as supplemental
fuel. The transfer of ownership to the Company is subject to approval by
regulatory authorities, which is expected during 1994. The regulatory
authorities have granted an exemption allowing the Company to acquire the stock
of Spring Grove and operate the facility in the interim. If the transfer of
ownership is not approved, then the seller has agreed to repurchase Spring
Grove for a price equal to what the Company paid for Spring Grove ($7,000,000)
with adjustments for depreciation and improvements.
Waste Oil Treatment and Storage Facilities. The Company has three waste oil
treatment and storage facilities: two in Massachusetts and one in Maine. The
Massachusetts facilities are located in Kingston and Woburn, in the Boston
area. The Kingston facility has a state recycling permit and is able to store
oil collected from various activities, ranging from routine cleaning of oil
storage terminals to oil spill cleanups. The facility is also used for
maintenance activities and for training of employees of the Company and third
party customers. The Woburn facility is a waste oil storage and transfer
facility, and received a Part B license in October 1993 for a five-year term.
The facility in South Portland, Maine is a petroleum reclamation facility that
handles most of the waste oil received by the Company, which comes primarily
from the Company's remediation activities. It has a municipal sewer user permit
allowing the discharge of water separated from oil. The Company also owns
another property in South Portland located on Main Street. It has a license to
store virgin oil, but it also is permitted for the temporary storage and
transfer of containerized hazardous waste.
LEGAL PROCEEDINGS
In April 1988, the Board of Selectmen of Braintree, Massachusetts, approved a
cease and desist order with respect to the handling of flammable materials
stored at the Company's Braintree facility. The Board concluded that, when the
Company purchased the land on which the Braintree facility is located, a
license for the storage of flammable liquids was not conveyed as an incident of
ownership. The Company petitioned the Massachusetts Land Court for a
declaratory judgment that either the Company possesses such a license by
operation of law or that the statute requiring the license is pre-empted by the
pervasive state regulation of hazardous waste facilities. In March 1994, the
Land Court issued a favorable ruling, concluding that the statute is pre-empted
by state hazardous waste laws and regulations and no local flammable storage
license is required. The town has appealed this ruling.
In August 1990, an action was filed in the New York Supreme Court, Albany
County, in connection with the accidental death of an employee of a Company
subsidiary who was working on the Hudson River in September 1989 while
responding to an oil spill. The complaint sought $10 million under the federal
Longshoremen's and Harborworker's Compensation Act (the "Jones Act"). The
Company sought to dismiss the Jones Act claims on the grounds that the employee
was not a "seaman" within the meaning of the Jones Act and that the case was
governed by the New York Workers' Compensation statute. In March 1994, the
trial court judge granted the Company's motion for a summary judgment that the
Jones Act does not apply. The decision has been appealed.
On June 13, 1994, the Company was served with a third party complaint filed
in the Ulster County Superior Court of the State of New York by the Dormitory
Authority of the State of New York ("DASNY"). The complaint arises out of an
accident which occurred in December 1991 when a motor vehicle struck a utility
pole near the State University of New York at New Paltz causing an electrical
surge to overheat transformers which discharged toxic chemicals throughout
various student dormitories and classroom buildings. The Company was hired by
the State University of New York to perform technical supervisory and
laboratory work for the cleanup. The actual work of cleaning the buildings was
performed by numerous other contractors over approximately 15
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months. In March 1993, a group of students sued DASNY claiming that they were
exposed to toxic chemicals when DASNY allowed them to re-occupy the buildings
after the accident and prior to a complete removal of the toxic chemicals,
causing them increased risk of future illnesses. DASNY has denied the students'
claims but recently decided to sue the Company along with 16 other third party
defendants claiming that if DASNY is liable to the students, these third party
defendants should indemnify DASNY. The Company was hired by the State
University of New York to perform representative sampling for toxic chemicals
but, according to its contract, was not responsible for decisions as to when
students should re-occupy the buildings. The Company does not believe that it
should incur any material liability as a result of this lawsuit; however, in
view of the fact that the Company has only recently been served with the
complaint, and only preliminary investigation and no discovery have been
conducted, the Company is not in a position to evaluate the merits of the
lawsuit.
Certain Company subsidiaries have transported or generated waste sent to
sites which have been designated state or federal Superfund sites. See
"Environmental Regulation--Federal Regulation of Hazardous Waste--The Superfund
Act." As a result, the Company has been named as a potentially responsible
party ("PRP") in a number of lawsuits arising from the disposal of wastes at 18
state and federal Superfund sites.
Ten of these sites involve two subsidiaries which the Company acquired from
Chemical Waste Management, Inc. ("ChemWaste"), a public company 77%-owned by
WMX Technologies, Inc. As part of the acquisition, ChemWaste agreed to
indemnify the Company with respect to any liability of its Natick and Braintree
subsidiaries for waste disposed of before the Company acquired them.
Accordingly, ChemWaste is paying all costs of defending the Company's Natick
and Braintree subsidiaries in these cases, including legal fees and settlement
costs.
The Company's subsidiary which owns the Bristol, Connecticut facility is
involved in one Superfund site. As part of the acquisition of the Bristol and
Cincinnati, Ohio facilities, the seller and its parent company, Southdown,
Inc., agreed to indemnify the Company with respect to any liability for waste
disposed of before the Company acquired the facilities, which would include any
liability arising from Superfund sites.
With respect to the other Superfund sites at which the Company believes it
may face liability, the Company has established reserves or escrows which it
believes are appropriate. Therefore, the Company believes that any future
settlement costs arising from any or all of the 18 Superfund sites will not be
material to the Company's operations or financial position. Management
routinely reviews each Superfund site in which the Company's subsidiaries are
involved, considers each subsidiary's role at each site and its relationship to
the other PRPs at the site, the quantity and content of the waste it disposed
of at the site, and the number and financial capabilities of the other PRPs at
the site. Based on reviews of the various sites and currently available
information, and management's judgment and prior experience with similar
situations, expense accruals are provided by the Company for its share of
future site cleanup costs, and existing accruals are revised as necessary. As
of June 1, 1994, the Company had accrued environmental costs of $455,000 for
cleanup of Superfund sites. Superfund legislation permits strict joint and
several liability to be imposed without regard to fault, and as a result, one
PRP might be required to bear significantly more than its proportional share of
the cleanup costs if other PRPs do not pay their share of such costs.
Five of the 18 sites involve former subsidiaries of ChemClear Inc. One of the
five sites is the Strasburg Landfill site in Pennsylvania. The Company and two
other parties identified as PRPs received an order from the EPA in 1989 to
perform certain emergency measures at the site. The Company responded by
installing a leachate treatment and discharge system and repairing the landfill
slope. Since early 1990, the Company has spent approximately $350,000 in
complying with the EPA order. In 1992, the EPA issued its Record of Decision
for the site which proposes recapping and revegetating the landfill and
installing certain air emission and leachate treatment systems. The estimated
capital cost of the remediation plan for the site is approximately $6.5 million
with annual operating and maintenance costs of approximately $300,000. The EPA
has identified more than 20
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additional PRPs at the site. In addition, the Company and several other PRPs
are attempting to identify other companies that sent waste to the landfill and
have them named as PRPs. In January 1993, the Company and eight other PRPs
submitted to the EPA a Response to Notice Letter, which recommended additional
study be performed at the site by the PRP group and that a final remedy be
based on the additional data developed during the study. No reply has been
received from the EPA. The Company believes its ultimate exposure in this case
will not have a material impact on its financial position or results of
operations.
Mr. Frank, Inc., which was acquired by the Company in July 1992, is involved
in two Superfund sites, as a transporter of waste generated by others prior to
the Company's purchase of Mr. Frank, Inc. The Company acquired Mr. Frank, Inc.
in exchange for 233,000 shares of the Company's common stock, of which 33,222
shares were deposited into an escrow account for a minimum of two years as
security for the sellers' agreement to indemnify the Company against potential
liabilities, including environmental liabilities arising from prior ownership
and operation of Mr. Frank, Inc.
ENVIRONMENTAL REGULATION
While the Company's business has benefited substantially from increased
governmental regulation of hazardous waste transportation, storage and
disposal, the industrial waste management industry itself has become the
subject of extensive and evolving regulation by federal, state and local
authorities. The Company makes a continuing effort to anticipate regulatory,
political and legal developments that might affect its operations, but is not
always able to do so. The Company cannot predict the extent to which any
environmental legislation or regulation that may be enacted or enforced in the
future may affect its operations.
The Company is required to obtain federal, state and local licenses or
approvals for each of its hazardous waste facilities. Such licenses are
difficult to obtain and, in many instances, extensive studies, tests, and
public hearings are required before the approvals can be issued. The Company
has acquired or is in the process of applying for all operating licenses and
approvals required for the current operation of its business and has applied
for or is in the process of applying for all licenses and approvals needed in
connection with planned expansion or modifications of its operations.
FEDERAL REGULATION OF HAZARDOUS WASTE
The most significant federal environmental laws affecting the Company are
RCRA, the Superfund Act and the Clean Water Act.
RCRA. RCRA is the principal federal statute governing hazardous waste
generation, treatment, transportation, storage and disposal. Pursuant to RCRA,
the EPA has established a comprehensive, "cradle-to-grave" system for the
management of a wide range of materials identified as hazardous waste. States,
such as Massachusetts, Connecticut, Illinois, Maryland and Ohio, that have
adopted hazardous waste management programs with standards at least as
stringent as those promulgated by the EPA, have been authorized by the EPA to
administer their facility permitting programs in lieu of the EPA's program.
Every facility that treats, stores or disposes of hazardous waste must
obtain a RCRA license from the EPA or an authorized state agency and must
comply with certain operating requirements. Under RCRA, hazardous waste
management facilities in existence on November 19, 1980 were required to
submit a preliminary license application to the EPA, the so-called Part A
Application. By virtue of this filing, a facility obtained Interim Status,
allowing it to operate until licensing proceedings are instituted pursuant to
more comprehensive and exacting regulations (the Part B licensing process).
Interim Status facilities may continue to operate pursuant to the Part A
Application until their Part B licensing process is concluded. Of the
Company's ten waste management facilities, seven are subject to RCRA
licensing; all seven have been issued Part B licenses, one of which is under
appeal.
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RCRA requires that Part B licenses contain a schedule of required on-site
study and cleanup activities, known as "corrective action," including detailed
compliance schedules and provisions for assurance of financial responsibility.
The EPA estimates that there are approximately 4,300 facilities that treat,
store or dispose of hazardous wastes, which can be compelled to take corrective
action when necessary. Some facilities are very large and have extensive
contamination problems which rival the largest Superfund sites. Other
facilities have relatively minor environmental problems. Still others will not
need remedial action at all. It is the EPA's policy to compel corrective action
at the "worst sites first." As a result, the EPA has developed a system for
assessing the relative environmental cleanup priority of RCRA facilities,
called the National Corrective Action Prioritization System, with a High,
Medium or Low ranking for each facility. Although several facilities of its
competitors have been assessed a High cleanup priority, none of the Company's
RCRA facilities have been assessed as a High priority.
The EPA has begun RCRA corrective action investigations at the Company's Part
B licensed facilities in Braintree, Natick, Baltimore, Chicago, and Woburn. The
Company is also involved in site studies at its non-RCRA facilities in
Cleveland, Ohio; Kingston, Massachusetts; and on Main Street in South Portland,
Maine. The Company spent approximately $600,000 on corrective action at the
foregoing facilities in 1993.
The Company may become involved in a RCRA corrective action investigation at
a site in Chester, Pennsylvania owned by Philadelphia Electric Company
("PECO"). The site consists of approximately 30 acres which PECO has leased to
various companies over the years. In 1989, the Company acquired by merger a
public company called ChemClear Inc., which operated a hazardous waste
treatment facility on approximately eight acres of the Chester site leased from
PECO. The Company ceased operations at the Chester site, decontaminated the
plant and equipment, engaged an independent engineer to certify closure, and
obtained final approval from the Pennsylvania regulatory authorities,
certifying final closure of the facility. In 1993, the EPA ordered PECO to
perform a RCRA corrective action investigation at the Chester site, and PECO
has asked the Company to participate in the site studies. The cost of these
studies is now estimated to be in the range of $2 million. The Company and PECO
are currently negotiating the sharing of these costs and seeking to establish
the liability of an additional third party.
While the final scope of the work to be done at these facilities has not yet
been agreed upon, the Company believes, based upon information known to date
about the nature and extent of contamination at these sites, that such costs
will not have a material effect on its results of operations or its competitive
position, and that it will be able to finance from operating revenues any
additional corrective action required at its facilities. Environmental
expenditures that relate to current operations are expensed or capitalized as
appropriate.
The Bristol, Connecticut and Cincinnati, Ohio facilities were acquired from a
subsidiary of Southdown, Inc., which has agreed to indemnify the Company
against any costs incurred or liability arising from contamination on-site,
including the cost of corrective action, or waste disposed of off-site,
including any liability under the Superfund Act.
The Superfund Act. The Superfund Act provides for immediate response and
removal actions coordinated by the EPA to releases of hazardous substances into
the environment, and authorizes the government to respond to the release or
threatened release of hazardous substances or to order persons responsible for
any such release to perform any necessary cleanup. The statute assigns joint
and several liability for these responses and other related costs, including
the cost of damage to natural resources, to the parties involved in the
generation, transportation and disposal of such hazardous substances. Under the
statute, the Company may be deemed liable as a generator or transporter of a
hazardous substance which is released into the environment, or as the owner or
operator of a facility from which there is a release of a hazardous substance
into the environment. See also "Business--Legal Proceedings."
Clean Water Act. This legislation prohibits discharges to the waters of the
United States without governmental authorization. The EPA has promulgated
"pretreatment" regulations under the Clean Water Act, which establish
pretreatment standards for introduction of pollutants into
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<PAGE>
publicly owned treatment works. In the course of its treatment process, the
Company's wastewater treatment facilities generate waste water which they
discharge to publicly owned treatment works pursuant to permits issued by the
appropriate governmental authority. The Clean Water Act also serves to create
business opportunities for the Company in that it may prevent industrial users
from discharging their untreated wastewaters to the sewer. If these industries
cannot meet their discharge specifications, then they may utilize the services
of an off-site pretreatment facility such as those of the Company.
Other Federal Laws. Company operations are also subject to the Toxic
Substances Control Act ("TSCA"), pursuant to which the EPA regulates over
60,000 commercially produced chemical substances, including the proper disposal
of PCBs. TSCA has established a comprehensive regulatory program for PCBs,
under the jurisdiction of the EPA, which oversees the storage, treatment and
disposal of PCBs at the Company's facilities in Braintree and Natick,
Massachusetts; Cincinnati, Ohio; and Bristol, Connecticut. Under the Clean Air
Act, the EPA also regulates emissions into the air of potentially harmful
substances. In its transportation operations, the Company is regulated by the
U.S. Department of Transportation and the Interstate Commerce Commission, as
well as by the regulatory agencies of each state in which it operates or
through which its trucks pass. Health and safety standards under the
Occupational Safety and Health Act are also applicable.
STATE AND LOCAL REGULATIONS
Pursuant to the EPA's authorization of their RCRA equivalent programs,
Massachusetts, Connecticut, Illinois, Maryland and Ohio have regulatory
programs governing the operations and permitting of hazardous waste facilities.
Accordingly, the hazardous waste treatment, storage and disposal activities of
the Company's Braintree, Natick, Woburn, Bristol, Chicago, Baltimore and
Cincinnati facilities are regulated by the relevant state agencies in lieu of
federal EPA regulation.
Some states, such as Connecticut and Massachusetts, classify as hazardous
some wastes which are not regulated under RCRA. For example, Massachusetts
considers PCBs and used oil as "hazardous wastes," while RCRA does not.
Accordingly, the Company must comply with state requirements for handling state
regulated wastes, and when necessary obtain state licenses for treating,
storing, and disposing of such wastes at its facilities.
The Company believes that each of its facilities is in substantial compliance
with the applicable requirements of RCRA and state laws and regulations. All
ten of the Company's waste management facilities have been issued final
licenses, one of which is under appeal. Once issued, such licenses have maximum
fixed terms of a given number of years, which differ from state to state,
ranging from three years to ten years. The issuing state agency may review or
modify a license at any time during its term. The Company anticipates that once
a license is issued with respect to a facility, the license will be renewed at
the end of its term if the facility's operations are in compliance with
applicable requirements. However, there can be no assurance that regulations
governing future licensing will remain static, or that the Company will be able
to comply with such requirements.
The Company's wastewater treatment facilities are also subject to local
regulation, most significantly sewer discharge regulations adopted by the
municipalities which receive treated wastewater from the treatment processes.
The Company's continued ability to operate its liquid waste treatment process
at each such facility is dependent upon its ability to continue these sewer
discharges.
The Company's facilities are regulated pursuant to state statutes, including
those addressing clean water and clean air. Local sewer discharge and flammable
storage requirements are applicable to certain of the Company's facilities. The
Company's facilities are subject to local siting, zoning and land use
restrictions. Although the Company's facilities occasionally have been cited
for regulatory violations, the Company believes it is in substantial compliance
with all federal, state and local laws regulating its business.
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DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Alan S. McKim............... 39 Chairman of the Board of Directors,
President and Chief Executive Officer
John F. Kaslow.............. 61 Director
John O. Peterson............ 64 Director
Lorne R. Waxlax............. 60 Director
Daniel J. McCarthy.......... 62 Director
Christy W. Bell............. 71 Director
James A. Pitts.............. 54 Executive Vice President of Finance and
Administration, Treasurer and Chief
Financial Officer
Mary-Ellen Drinkwater....... 35 Vice President and Corporate Controller
Jorgen H. Vestergaard....... 57 President, Clean Harbors Technology
Corporation
Lawton T. Hemans II......... 56 Senior Vice President of Operations*
Michael R. Hatch............ 40 Senior Vice President of Corporate Training
and Development*
John P. Lawton.............. 33 Vice President of Sales*
</TABLE>
- --------
* Officer of Clean Harbors Environmental Services, Inc., a wholly-owned
subsidiary of the parent holding company, Clean Harbors, Inc.
Alan S. McKim founded the Company in 1980 and is Chairman of the Board of
Directors, President, and Chief Executive Officer of the Company. He serves as
a director of most of the Company's subsidiaries. Mr. McKim served as
President of the Company and its predecessor from 1980 to 1988. Mr. McKim
holds an MBA from Northeastern University.
John F. Kaslow serves as Executive Director of the Northeast Region for the
Electric Power Research Institute ("EPRI"), a collaborative research
organization which provides advanced science and technology to its member
electric utilities and their customers. Prior to joining EPRI, Mr. Kaslow
served for 34 years with an electric utility company, the New England Electric
System ("NEES"), where he held a number of engineering, operating and general
management positions, including serving prior to his retirement as a director,
Executive Vice President and Chief Operating Officer of NEES, and as a
director and President of its New England Power Company subsidiary. Mr. Kaslow
is a director of Doble Engineering Company, which designs and manufactures
electric test equipment, and a trustee of Merrimack College, North Andover,
Massachusetts.
John O. Peterson is a consultant and a director of several venture capital
investment firms. He served as Vice President of Venture Founders Corporation,
a venture capital investment firm, from May 1973 through December 1988. Mr.
Peterson has served as a consultant to the Company since December 1986. He is
currently a director of Canadian Venture Founders Corp. and Canadian Venture
Founders Mgt. Ltd., both of which are Canadian venture capital investment
companies. Mr. Peterson holds an MBA degree from Harvard Business School.
Lorne R. Waxlax served as Executive Vice President of The Gillette Company
from 1985 to 1993, with worldwide responsibility for Braun AG, Oral-B
Laboratories, and Jafra Cosmetics International. He is a director of three
other public companies, Waban Inc., HON Industries Inc., and AMTROL Inc., and
of The Iams Company, a private company. He also is a member of the advisory
board of Deutsche Bank in Germany, where he was a resident for ten years. Mr.
Waxlax holds an MBA degree from Northwestern University.
Daniel J. McCarthy has been a Professor of Strategic Management at
Northeastern University since July 1972, prior to which he was President of
Computer Environments Corporation, a
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computer services company. He serves as a director and on the Finance Committee
of Tufts Associated Health Plan, a health maintenance organization, and as a
director of MANAGEDCOMP, Inc., which manages worker's compensation for
employers. Mr. McCarthy holds an MBA degree from Dartmouth College and a DBA
degree from Harvard Business School.
Christy W. Bell was Chairman of the Board of ChemClear Inc., a public company
which was primarily engaged in the business of treating industrial wastewaters
at its plants in Baltimore, Cleveland, and Chicago, for more than five years
prior to its merger into a subsidiary of the Company in 1989. Mr. Bell had also
served as President of ChemClear prior to the merger. Mr. Bell is President and
an owner of Electro-Petroleum, Inc., Electro-Pyrolysis, Inc., and Arc
Technologies, Inc., all of which are involved in the development of
technologies for the production of energy. He is also a director of Thoratec
Laboratories Corporation.
James A. Pitts joined the Company in March 1992 as Senior Vice President of
Finance and Administration, Treasurer and Chief Financial Officer. He was
appointed Executive Vice President of Finance and Administration of the Company
in May 1994. Prior to joining the Company, Mr. Pitts was, from September 1991
to February 1992, acting Chief Financial Officer for the office of The
Commonwealth of Massachusetts-appointed Receiver for the City of Chelsea,
Massachusetts and, from July 1988 to August 1991, Vice President and Chief
Financial Officer of Bain & Company, Inc., an international business consulting
firm, where he was responsible for the finance and administration operations of
Bain. From 1986 to 1988, he was Executive Vice President of Cullinet Software,
Inc., where he was responsible for the finance, human resources and
administration operations of Cullinet. Mr. Pitts is a certified public
accountant, holds a BBA from Niagara University, an MBA from the University of
Connecticut, and is a graduate of the Advanced Management Program at Harvard
Business School.
Mary-Ellen Drinkwater joined the Company in March 1989 as Manager of
Financial Analysis. Prior to joining the Company, she spent seven years with
the public accounting firm of Coopers & Lybrand, including two years as an
audit manager. Since joining the Company, Ms. Drinkwater has held positions as
Director of Accounting and Director of Financial Planning and Analysis. She was
promoted to Vice President and Corporate Controller of Clean Harbors
Environmental Services, Inc. in January 1993, and became Vice President of
Clean Harbors, Inc. in May 1993. As Corporate Controller, she is the principal
accounting officer for the Company and its subsidiaries. Ms. Drinkwater is a
Certified Public Accountant and holds a BS degree in Business Administration
from Northeastern University.
Jorgen H. Vestergaard joined the Company in October 1992, as President of
Clean Harbors Technology Corporation, a subsidiary aimed at expanding the
market for the Company's Clean Extraction System technology, and developing
other leading-edge technology to solve complex environmental problems. Mr.
Vestergaard is also responsible for operations of the Company's Baltimore
facility, where the Clean Extraction System is located. Prior to joining the
Company, he spent 28 years with GE Plastics, a component of General Electric
Company. He graduated from the Technical University of Denmark, with a Master's
in Chemical Engineering, and holds four patents on process technology
applications developed during his career with GE Plastics.
Lawton T. Hemans II joined the Company in March 1994, as Senior Vice
President of Clean Harbors Environmental Services, Inc., responsible for all
field operations. From 1985 to 1993, he was with Rollins Environmental
Services, Inc., a hazardous waste incineration company, and served as President
of several operating divisions and subsidiaries of Rollins. From 1989 to 1993
he was Group Vice President--Services of Rollins. Mr. Hemans holds a BBA degree
from Michigan State University.
Michael R. Hatch is a Senior Vice President of Clean Harbors Environmental
Services, Inc., responsible for corporate training and development. From 1990
to 1994, he was responsible for
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<PAGE>
operations of the Company's waste treatment facilities. From 1989 to 1990 he
was Vice President of Hazardous Waste Management of the Company's Environmental
Services subsidiary and from 1990 to 1992 he was in charge of Northeast Region
Operations. From 1987 to 1989, he was Senior Vice President of the Company and,
since 1986 has been President of its Braintree subsidiary. Mr. Hatch joined the
Company in 1981 as Operations Manager and became Vice President of Operations
in 1983. In 1985 and 1986, he served as Vice President and General Manager of
the Braintree subsidiary. Mr. Hatch received a BS degree from Bridgewater State
College and holds an MBA from Boston University.
John P. Lawton is a Vice President of Clean Harbors Environmental Services,
Inc., responsible for sales and service for all Company subsidiaries. Mr.
Lawton joined the Company in 1988 as a Customer Service Account Manager at its
Braintree facility. In 1989, he became Sales Manager for the Midwest region. In
1992, he became Director of Sales for all service areas outside New England.
Mr. Lawton held various management positions with New York Air and Pan American
World Airlines from 1983 to 1988 before joining the Company. He received a BA
degree from North Adams State College.
DESCRIPTION OF OTHER INDEBTEDNESS
BANK REVOLVER
The Company has a revolving credit agreement (the "Bank Revolver") with three
banks, for which The First National Bank of Boston serves as agent (the
"Agent"). The Bank Revolver permits borrowings of up to $40,000,000 in cash and
allows the Company to have a maximum of $20,000,000 of letters of credit
outstanding. The combination of cash and letters of credit outstanding is
limited to $55,000,000 at any one time. The maximum amount of the Bank Revolver
reduces on April 1, 1995 to $50,000,000. The entire balance of the Bank
Revolver matures on July 1, 1996. All borrowings under the Bank Revolver are
collateralized by substantially all of the Company's assets.
Interest on amounts outstanding under the Bank Revolver are payable monthly
in arrears and accrue at the Agent's base rate plus 1%, or at the Company's
option, at a rate which is 3% over the "Eurodollar Rate" offered to the Agent
by prime banks in the Eurodollar interbank market. At May 31, 1994, the Company
had elected the Eurodollar option with respect to $32,000,000 of the amounts
outstanding under the Bank Revolver; the Eurodollar Rate was 4.38% and the
Agent's base rate was 7.25%. The Company also pays a commitment fee at the rate
of one-half of 1% per annum on the unused portion of the total commitment.
The Bank Revolver provides for the maintenance of certain restrictive
covenants including, among others, restrictions on the ratio of accounts
receivable to current liabilities, total liabilities to tangible net worth, and
earnings before interest and taxes to total interest expense. The Company is
also restricted from making certain dividend payments, incurring certain
additional debt, and capital expenditures are limited to $12,000,000 each year.
At May 31, 1994, the loans outstanding under the Bank Revolver were
$33,152,641, the letters of credit aggregated $8,547,102, and the Company had
available borrowing capacity of $6,847,359 under the Bank Revolver. As
described under "Use of Proceeds," the Company anticipates that it will repay
from the net proceeds of the Offering all of its then outstanding balance under
the Bank Revolver.
The Company is engaged in discussions relating to a proposed modification of
the current terms of the Bank Revolver or its replacement with a new revolving
credit agreement. Under the revised terms currently being discussed, the
maximum amount of $55,000,000 now available for borrowings and letters of
credit under the Bank Revolver would be reduced to $35,000,000 upon the sale by
49
<PAGE>
the Company of the Senior Notes. The entire amount would be available for
borrowings, and up to $20,000,000 would be available for letters of credit,
provided that the combination of cash and letters of credit outstanding would
be limited to $35,000,000 at any one time. The terms of the proposed
modification of the Bank Revolver or its replacement with a new revolving
credit agreement have not been fully negotiated and may differ from those
described above.
SENIOR CONVERTIBLE NOTES
On November 12, 1991, the Company issued to a financial institution a
$3,500,000 subordinated convertible note due in 1999, which is convertible into
common stock at $15 per share. On July 17, 1992, the Company issued to the same
financial institution an additional $1,500,000 subordinated convertible note
due in 1999, which is convertible into common stock at $10 per share, bringing
the total amount of convertible notes to $5,000,000 (the "Senior Convertible
Notes"). These notes are payable in five equal annual installments of
$1,000,000 each, beginning on October 31, 1995 and ending on October 31, 1999.
The Company has the right to convert the notes into common stock at $25 per
share. In connection with the sale of the Senior Notes, the holder of these
notes has agreed that, upon completion of the Offering, (i) these notes will
remain outstanding and will rank pari passu with the Senior Notes (consequently
they will be renamed "senior convertible notes"); (ii) the rate of interest on
these notes will be increased from 8% to 10%; (iii) all security interests
securing these notes will be released; and (iv) the covenants in these notes
will be amended so that they are identical to the covenants in the Note
Indenture.
JUNIOR SUBORDINATED NOTE
The Company has outstanding a $1,883,000 Junior Subordinated Note dated June
30, 1992, of which the outstanding principal balance was $1,223,950 as of May
31, 1994. The remaining principal is payable in equal quarterly installments of
$94,150, with the final installment due on June 30, 1997. The note bears
interest at a floating rate equal to the base rate of The First National Bank
of Boston plus 2.0% per annum. The note is unsecured and is subordinated to the
outstanding balance under the Bank Revolver, the Senior Convertible Notes and
the Senior Notes.
DESCRIPTION OF THE SENIOR NOTES
The Senior Notes will be issued under the Note Indenture, dated as of July ,
1994, between the Company, the directly held Subsidiaries of the Company and
, as trustee (the "Trustee"), a copy of the form of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
following summary, which describes the Note Indenture and the Senior Notes,
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Note Indenture and the Senior Notes, including
the definitions therein of terms not defined in this Prospectus. As used in
"Description of the Senior Notes" (i) capitalized or defined terms shall have
the meanings ascribed to them within the portion of the Prospectus captioned
"Description of the Senior Notes," and (ii) the term "Company" shall mean Clean
Harbors, Inc., and shall not include its Subsidiaries.
GENERAL
The Senior Notes will be senior unsecured obligations of the Company, will be
limited to $75.0 million aggregate principal amount, will mature on July ,
2004 and will bear interest at the rate per annum stated on the cover page
hereof from , 1994, payable semiannually in arrears on January and July
of each year, commencing January , 1995, to the persons who are registered
holders thereof at the close of business on the January or July preceding
such interest payment date. Interest on overdue principal and (to the extent
permitted by law) on overdue installments of interest will accrue at a rate of
1.0% in excess of the rate per annum stated on the cover page.
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<PAGE>
Interest on the Senior Notes will be computed on the basis of a 360-day year
of 12 30-day months. Principal and interest will be payable at the office of
the Trustee, but, at the option of the Company, interest may be paid by check
mailed to the registered holders at their registered addresses. The Senior
Notes will be transferable and exchangeable at the office of the Trustee and
will be issued in fully registered form, without coupons, in denominations of
$1,000 and any integral multiple thereof.
The Company's obligations under the Senior Notes will be unconditionally
guaranteed on an unsecured, senior basis, jointly and severally, by each of the
Guarantor Subsidiaries. See "Subsidiary Guarantees" below.
OPTIONAL REDEMPTION
On or after July , 1999, the Senior Notes may be redeemed at the option of
the Company, at any time as a whole, or from time to time in part, on not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below:
if redeemed during the 12-month period commencing July of the years
indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1999............................................................ %
2000............................................................ %
2001............................................................ %
2002 and thereafter............................................. 100.000%
</TABLE>
together, in the case of any such redemption, with accrued interest (if any) to
the redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date). If
less than all of the Senior Notes are to be redeemed, the Senior Notes will be
chosen for redemption by the Trustee on a pro rata basis or by lot or by a
method that complies with applicable legal and securities exchange
requirements.
RANKING
The Senior Notes will be senior unsecured obligations of the Company ranking
pari passu with other senior unsecured indebtedness of the Company and senior
to all Subordinated Obligations. After giving pro forma effect to the Offering
and the application of the net proceeds therefrom, the Company and its
subsidiaries on a consolidated basis will have outstanding $5.0 million of
unsecured senior indebtedness other than the Senior Notes and expect to have a
$35.0 million Bank Revolver. Following consummation of the Offering, the
Company will also have the ability to incur, subject to certain limitations
contained in the Note Indenture, additional senior indebtedness. See "Certain
Covenants--Limitation on Liens" and "--Limitation on Debt" below.
The Company is a holding company which derives substantially all of its
income from its Subsidiaries. The Company must rely on dividends or other
intercompany transfers from its Subsidiaries to generate the funds necessary to
meet its debt service and other obligations, including payment of principal and
interest on the Senior Notes. The ability of such Subsidiaries to pay such
dividends or other intercompany transfers is subject to applicable state laws.
Claims of creditors of the Subsidiaries, including trade creditors, secured
creditors and creditors holding guarantees of the Subsidiaries and claims of
holders of Preferred Stock (if any), will generally have priority as to the
assets of such Subsidiaries over the claims and equity interests of the Company
and, thereby indirectly, the holders of indebtedness of the Company. Certain
Subsidiaries of the Company have
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<PAGE>
guaranteed or are co-borrowers with respect to all of the Company's obligations
under the Bank Revolver. Although the Note Indenture limits the incurrence of
Debt and issuance of Preferred Stock by the Company's Subsidiaries, such
limitation is subject to a number of significant qualifications; moreover, the
Note Indenture does not impose any limitation on the incurrence by such
Subsidiaries of liabilities that are not considered Debt or Preferred Stock
under the Note Indenture. See "Certain Covenants--Limitation on Subsidiary Debt
and Preferred Stock" below.
SUBSIDIARY GUARANTEES
Each Guarantor Subsidiary will unconditionally guarantee on a joint and
several basis the payment and performance by the Company of the Senior Notes
and will pay all expenses (including, without limitation, fees and
disbursements of counsel) paid or incurred by the Trustee or the holders in
enforcing their rights under the Subsidiary Guarantees. Each of the Subsidiary
Guarantees will be a senior unsecured obligation of the Guarantor Subsidiary
providing such Subsidiary Guarantee, and will rank pari passu with other senior
unsecured Debt of such Guarantor Subsidiary. The Note Indenture provides that
all Subsidiaries created or acquired subsequent to the date of the Note
Indenture and prior to the termination of the Subsidiary Guarantees will become
Guarantor Subsidiaries with respect to the Senior Notes. Following any sale or
other disposition of all or substantially all of the assets of a Guarantor
Subsidiary or all of the Capital Stock of a Guarantor Subsidiary permitted by
and in accordance with the terms of the Note Indenture, such Guarantor
Subsidiary will be released from its Subsidiary Guarantee obligations. The
obligations of each Guarantor Subsidiary under its Subsidiary Guarantee will be
limited so as not to constitute a fraudulent conveyance under applicable law.
See "Risk Factors--Fraudulent Conveyance Considerations."
Separate financial statements of the Guarantor Subsidiaries are not included
herein because the Guarantor Subsidiaries have jointly and severally and fully
and unconditionally guaranteed the Company's obligations with respect to the
Senior Notes. There is one Subsidiary of the Company which is not a Guarantor
Subsidiary. That Subsidiary is an indirect Subsidiary of the Company which is
wholly owned by the Guarantor Subsidiaries and the assets, liabilities,
operations and equity of that Subsidiary are insignificant.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder of Senior Notes will have the right to require the
Company to repurchase all or any part of such holder's Senior Notes at a
repurchase price equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date):
(i) except to the extent caused by the issuance of securities by the
Company subsequent to the date on which the Senior Notes were originally
issued, the Permitted Holders cease, at any time prior to the death or
disability (as defined in Section 22(e)(3) of the Internal Revenue Code) of
Alan McKim, to be the "beneficial owners" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of at least 20% in the aggregate
of the total voting power of the Voting Stock of the Company, whether as a
result of any merger, consolidation, liquidation or dissolution of the
Company, any direct or indirect transfer of securities or otherwise (for
purposes of this clause (i) and clause (ii) below, the Permitted Holders
shall be deemed to beneficially own any Voting Stock of a corporation (the
"specified corporation") held by any other corporation (the "parent
corporation") so long as the Permitted Holders beneficially own (as so
defined), directly or indirectly, in the aggregate a majority of the voting
power of the Voting Stock of the parent corporation);
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<PAGE>
(ii) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in clause (i) above), directly or
indirectly, of more than 35% of the total voting power of the Voting Stock
of the Company; provided, however, that the Permitted Holders "beneficially
own" (as so defined), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of the Company
than such other person and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the Board of Directors of the Company (for the purposes of this clause
(ii), such other person shall be deemed to beneficially own any Voting
Stock of a specified corporation held by a parent corporation, if such
other person "beneficially owns" (as so defined), directly or indirectly, a
majority of the voting power of the Voting Stock of such parent corporation
and the Permitted Holders "beneficially own" (as so defined), directly or
indirectly, in the aggregate a lesser percentage of the voting power of the
Voting Stock of such parent corporation and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of such parent corporation);
or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the shareholders of the Company was
approved by a vote of at least 66 2/3% of the directors of the Company then
still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of Directors of
the Company then in office.
Within 30 days following any Change of Control, the Company will mail a
notice to each holder stating (i) that a Change of Control has occurred and
that such holder has the right to require the Company to repurchase all or any
part of such holder's Senior Notes at a repurchase price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if any, to
the date of repurchase; (ii) the circumstances and relevant facts regarding
such Change of Control (including information with respect to pro forma
historical income, cash flow and capitalization after giving effect to such
Change of Control); (iii) the repurchase date (which will be no earlier than 30
days nor later than 60 days from the date such notice is mailed in the event of
a Change of Control); and (iv) the instructions, determined by the Company
consistent with the Note Indenture, that a holder must follow in order to have
its Senior Notes repurchased.
The Change of Control purchase feature of the Senior Notes may in certain
circumstances make more difficult or discourage a sale or takeover of the
Company, and, thus, the removal of incumbent management. The Change of Control
purchase feature, however, is not part of a plan by management to adopt a
series of antitakeover provisions. Instead, the Change of Control purchase
feature is a result of negotiations between the Company and the Underwriters.
Subject to the limitations discussed below, the Company or any "person" meeting
the definition of a Permitted Holder could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Note Indenture, but
that could increase the amount of indebtedness outstanding at such time or
otherwise affect the Company's capital structure or credit ratings.
The Company's other indebtedness may contain prohibitions of certain events
which would constitute a Change of Control. In addition, the exercise by the
holders of the Senior Notes of their right to require the Company to repurchase
the Senior Notes could cause a default under the terms of agreements between
the Company and bank or other lenders, if the Change of Control itself does
not, due to the financial effect of such repurchase on the Company. Finally,
the Company's ability to pay cash to the holders of the Senior Notes upon a
repurchase may be limited by the
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Company's then existing financial resources. The failure of the Company to
repurchase Senior Notes in accordance with this provision would constitute an
Event of Default. See "Defaults" below.
The Company will comply with any applicable tender offer rules under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") which may
then be applicable, including Rule 14e-1, and any other securities laws or
regulations, in connection with any offer required to be made by the Company
to repurchase the Senior Notes as a result of a Change of Control.
CERTAIN COVENANTS
Set forth below are certain covenants contained in the Note Indenture:
Limitation on Debt. The Company shall not issue, directly or indirectly, any
Debt unless immediately after giving effect to the issuance of such Debt and
the receipt and application of the proceeds thereof, the Consolidated EBITDA
Coverage Ratio for the period of the most recently completed four fiscal
quarters of the Company ending at least 45 days prior to the date such Debt is
issued exceeds 2.5 to 1.0; provided, however, that nothing herein shall limit
the ability of the Subsidiaries to incur Debt in accordance with "--Limitation
on Subsidiary Debt and Preferred Stock" below.
Notwithstanding the foregoing, the Company may issue the following Debt: (1)
Debt issued pursuant to the Bank Revolver or any other Bank Debt in an
aggregate principal amount outstanding at any one time not to exceed the
greater of $35.0 million or 80% of Eligible Accounts Receivable; provided,
however, that such amount shall be reduced by the aggregate outstanding
principal amount of all Debt issued pursuant to clauses (5), (6) and (7) below
and clause (3) under "--Limitation on Subsidiary Debt and Preferred Stock"
below; (2) Debt owed to and held by a Wholly Owned Subsidiary; provided,
however, that any subsequent issuance or transfer of any Capital Stock which
results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary or any transfer of such Debt (other than to a Wholly Owned
Subsidiary) shall be deemed, in each case, to constitute the issuance of such
Debt by the Company; (3) the Senior Notes and Debt issued in exchange for, or
the proceeds of which are used to refund or refinance, any Debt permitted by
this clause (3); provided, however, that (i) the principal amount of the Debt
so issued shall not exceed the principal amount of the Debt so exchanged,
refunded or refinanced and (ii) the Debt so issued (A) shall not mature prior
to the Stated Maturity of the Debt so exchanged, refunded or refinanced and
(B) shall have an Average Life equal to or greater than the remaining Average
Life of the Debt so exchanged, refunded or refinanced; (4) Debt (other than
Debt described in clause (1), (2) or (3) above) outstanding on the date on
which the Senior Notes were originally issued and Debt issued in exchange for,
or the proceeds of which are used to refund or refinance, any Debt permitted
by this clause (4) or by clause (4) under "--Limitation on Subsidiary Debt and
Preferred Stock" below, or any Debt issued as permitted by the first paragraph
of "Limitation on Debt" above; provided, however, that (i) the principal
amount of the Debt so issued shall not exceed the principal amount of the Debt
so exchanged, refunded or refinanced and (ii) the Debt so issued (A) shall not
mature prior to the Stated Maturity of the Debt so exchanged, refunded or
refinanced and (B) shall have an Average Life equal to or greater than the
remaining Average Life of the Debt so exchanged, refunded or refinanced; (5)
Debt issued with respect to obligations that are tax-exempt pursuant to
Section 103 of the Internal Revenue Code of 1986, as from time to time amended
(the "Code"), and that are issued in connection with pollution control
facilities or other plant and equipment or other facilities of the Company or
a Subsidiary; provided, however, that the aggregate principal amount of all
Debt permitted by this clause (5) outstanding at any one time shall not exceed
$10.0 million; (6) Debt issued by the Company, whether or not secured by a
Lien, constituting all or a part of the purchase price of assets or property
acquired or constructed in the ordinary course of business after the date on
which the Senior Notes were originally issued and Debt issued by the Company
in exchange for, or the proceeds of which are
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used to refund or refinance, any then outstanding Debt permitted by this clause
(6); provided, however, that (i) the principal amount of the Debt so issued
shall not exceed the principal amount of the Debt so exchanged, refunded or
refinanced, and (ii) the Debt so issued (A) shall not mature prior to the
Stated Maturity of the Debt so exchanged, refunded or refinanced and (B) shall
have an Average Life equal to or greater than the remaining Average Life of the
Debt so exchanged, refunded or refinanced; provided further, however, that the
aggregate principal amount of all Debt permitted by this clause (6) outstanding
at any one time shall not exceed $10.0 million; and (7) Debt (other than Debt
described in clauses (1) through (6) above and in the immediately preceding
paragraph) in an aggregate principal amount outstanding at any one time not to
exceed $10.0 million minus the aggregate outstanding principal amount of all
Debt of Subsidiaries issued pursuant to clause (3) under "--Limitation on
Subsidiary Debt and Preferred Stock" below.
Notwithstanding the two preceding paragraphs, the Company shall not issue any
Debt (i) if the proceeds thereof are used, directly or indirectly, to repay,
prepay, redeem, defease, retire, refund or refinance any Subordinated
Obligations unless such Debt shall be subordinated to the Senior Notes to at
least the same extent as such Subordinated Obligations or (ii) if such Debt is
subordinate or junior in ranking in any respect to any other indebtedness
unless such Debt is expressly subordinated in right of payment to the Senior
Notes.
Limitation on Subsidiary Debt and Preferred Stock. The Company shall not
permit any Subsidiary to issue, directly or indirectly, any Debt or Preferred
Stock except: (1) any Subsidiary Guarantee and any Bank Guarantee; (2) Debt or
Preferred Stock issued to and held by the Company or a Wholly Owned Subsidiary;
provided, however, that (i) any subsequent issuance or transfer of any Capital
Stock which results in any such Wholly Owned Subsidiary ceasing to be a Wholly
Owned Subsidiary, or (ii) any subsequent transfer of such Debt or Preferred
Stock (other than to the Company or a Wholly Owned Subsidiary) shall be deemed,
in each case, to constitute the issuance of such Debt or Preferred Stock by the
issuer thereof; (3) Debt or Preferred Stock of a Subsidiary issued and
outstanding on or prior to the date on which such Subsidiary was acquired by
the Company (other than Debt or Preferred Stock issued as consideration in, or
to provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to which
such Subsidiary became a Subsidiary or was acquired by the Company); provided,
however, that the aggregate principal amount or liquidation value of such Debt
and Preferred Stock permitted by this clause (3) outstanding at any one time
shall not exceed $10.0 million; (4) Debt or Preferred Stock (other than Debt or
Preferred Stock described in clauses (1) through (3) above) outstanding on the
date of the Note Indenture; and (5) Debt or Preferred Stock issued in exchange
for, or the proceeds of which are used to refinance, Debt or Preferred Stock
referred to in the foregoing clause (3) or (4); provided, however, that (i) the
principal amount or liquidation value of such Debt or Preferred Stock so issued
shall not exceed the principal amount or liquidation value of the Debt or
Preferred Stock so exchanged, refunded or refinanced and (ii) the Debt or
Preferred Stock so issued (A) shall have a Stated Maturity later than the
Stated Maturity of the Debt or Preferred Stock so exchanged, refunded or
refinanced and (B) shall have an Average Life equal to or greater than the
remaining Average Life of the Debt or Preferred Stock so exchanged, refunded or
refinanced.
Limitation on Liens. The Company shall not, and shall not permit any
Subsidiary to, create or permit to exist any Lien upon any of its property or
assets, now owned or hereafter acquired, securing any obligation unless
concurrently with the creation of such Lien effective provision is made to
secure the Senior Notes equally and ratably with such obligation for so long as
such obligation is so secured; provided, however, that if such obligation is a
Subordinated Obligation, the Lien securing such obligation shall be
subordinated and junior to the Lien securing the Senior Notes with the same or
lesser relative priority as such Subordinated Obligation shall have with
respect to the Senior Notes. The preceding restriction shall not require the
Company or any Subsidiary to equally and ratably secure the Senior Notes if the
Lien consists of the following: (1) Liens created
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by the Note Indenture and Liens existing as of the date on which the Senior
Notes were originally issued; (2) Permitted Liens; (3) Liens to secure Debt
issued by the Company for the purpose of financing all or a part of the
purchase price of assets or property acquired or constructed in the ordinary
course of business after the date on which the Senior Notes were originally
issued; provided, however, that (i) the aggregate principal amount (or accreted
value in the case of Debt issued at a discount) of Debt so issued shall not
exceed the lesser of cost or Fair Market Value, as determined in good faith by
the Board of Directors of the Company, of the assets or property so acquired or
constructed, (ii) the Debt secured by such Liens shall have been permitted to
be issued under clause (6) of "--Limitation on Debt" above and (iii) such Liens
shall not encumber any other assets or property of the Company or any of its
Subsidiaries other than such assets or property or any improvement on such
assets or property and shall attach to such assets or property within 90 days
of the construction or acquisition of such assets or property; (4) Liens on the
assets or property of a Subsidiary existing at the time such Subsidiary became
a Subsidiary and not issued as a result of (or in connection with or in
anticipation of) such Subsidiary becoming a Subsidiary; provided, however, that
(i) the Debt secured by such Liens shall have been permitted to be issued under
clause (3) of "--Limitation on Subsidiary Debt and Preferred Stock" above and
(ii) such Liens do not extend to or cover any other property or assets of the
Company or any of its other Subsidiaries; (5) Liens on the assets of the
Company or any Subsidiary that is a guarantor thereof securing Debt under the
Bank Revolver or other Bank Debt permitted under clause (1) of "--Limitation on
Debt" above; (6) Liens securing industrial revenue or pollution control bonds
issued by the Company; provided, however, that (i) the aggregate principal
amount of Debt secured by such Liens shall not exceed the lesser of cost or
Fair Market Value, as determined in good faith by the Board of Directors of the
Company, of the assets or property so financed, (ii) the Debt secured by such
Liens shall have been permitted to be issued under clause (5) of "--Limitation
on Debt" above, and (iii) such Liens do not extend to or cover any other
property or assets of the Company; or (7) Liens securing Debt issued to
refinance Debt which has been secured by a Lien permitted under the Note
Indenture and is permitted to be refinanced under the Note Indenture; provided,
however, that such Liens do not extend to or cover any property or assets of
the Company or any of its Subsidiaries not securing the Debt so refinanced, and
the principal amount (or accreted value) of the Debt so secured is not
increased except as otherwise permitted pursuant to the Note Indenture.
Limitation on Sale/Leaseback Transactions. The Company shall not, and shall
not permit any Subsidiary to, enter into, Guarantee or otherwise become liable
with respect to any Sale/Leaseback Transaction unless at least one of the
following conditions is satisfied:
(1) The Company or such Subsidiary, under clauses (2) through (7) of "--
Limitation on Liens" above, could create a Lien on the property to secure
Debt in an amount at least equal to the Attributable Debt in respect of
such Sale/Leaseback Transaction and the Company or such Subsidiary, as the
case may be, receives consideration at least equal to the Fair Market
Value, as determined in good faith by the Board of Directors of the
Company, of the property transferred; or
(2) the Sale/Leaseback Transaction is treated as an Asset Disposition and
all the conditions of "--Limitation on Sales of Assets and Subsidiary
Stock" below are satisfied with respect to such Sale/Leaseback Transaction
(without giving effect to the exceptions for Net Available Cash, as set
forth in the second paragraph of "--Limitation on Sales of Assets and
Subsidiary Stock" below).
Limitation on Restricted Payments. The Company shall not, and shall not
permit any Subsidiary, directly or indirectly, to (i) declare or pay any
dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
the Company) or to the direct or indirect holders of its Capital Stock (except
dividends or distributions payable solely in its Non-Convertible Capital Stock
or in options, warrants or other rights to purchase its Non-Convertible Capital
Stock and except dividends or distributions payable to the Company or a Wholly
Owned Subsidiary), (ii) purchase, redeem or otherwise acquire or retire for
value any of its Capital Stock (except Capital Stock of a Wholly Owned
Subsidiary) , (iii)
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purchase, repurchase, redeem, defease or otherwise acquire or retire for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment, any Subordinated Obligations (other than the purchase, repurchase or
other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition), or (iv) make any
Investment other than Permitted Investments (any such dividend, distribution,
purchase, redemption, repurchase, defeasance, other acquisition, retirement or
Investment being herein referred to as a "Restricted Payment"), if at the time
the Company or such Subsidiary makes such Restricted Payment: (1) a Default
shall have occurred and be continuing (or would result therefrom); or (2) upon
giving effect to such Restricted Payment, the Company is not able to incur an
additional $1.00 of Debt pursuant to the Consolidated EBITDA Coverage Ratio as
set forth in the first paragraph of "--Limitation on Debt" above; or (3) upon
giving effect to such Restricted Payment, the aggregate amount of such
Restricted Payment and all other Restricted Payments since the date on which
the Senior Notes were originally issued would exceed the sum of: (a) 50% of the
Consolidated Net Income accrued during the period (treated as one accounting
period) from the first day of the first month of the fiscal quarter in which
the Senior Notes were originally issued through the last full fiscal quarter
for which quarterly or annual financial statements are available prior to the
date of such Restricted Payment (or, in case such Consolidated Net Income shall
be a deficit, minus 100% of such deficit); provided, however, that if a Public
Offering as described in "--Limitation on Issuance and Sale of Capital Stock of
Subsidiaries" below has been consummated, Consolidated Net Income for purposes
of this clause (iv) (3) (a) shall be reduced by an amount equal to the net
income of CHTC from the date of original issuance of the Senior Notes to the
date of the closing of the Public Offering determined in accordance with
generally accepted accounting principles; (b) the aggregate Net Cash Proceeds
received by the Company from the issue or sale of its Capital Stock (other than
Redeemable Stock or Exchangeable Stock) subsequent to the date on which the
Senior Notes were originally issued (other than an issuance or sale to a
Subsidiary or an employee stock ownership plan or similar trust); (c) the
aggregate Net Cash Proceeds received by the Company from the issue or sale of
its Capital Stock (other than Redeemable Stock or Exchangeable Stock) to an
employee stock ownership plan subsequent to the date on which the Senior Notes
were originally issued but (if such employee stock ownership plan incurs any
Debt) only to the extent that any such proceeds are equal to any increase in
the Consolidated Net Worth of the Company resulting from principal repayments
made by such employee stock ownership plan with respect to indebtedness
incurred by it to finance the purchase of such Capital Stock; and (d) the
amount by which consolidated Debt of the Company is reduced on the Company's
balance sheet upon the conversion or exchange (other than by a Subsidiary)
subsequent to the date on which the Senior Notes were originally issued of any
Debt of the Company convertible or exchangeable for Capital Stock (other than
Redeemable Stock or Exchangeable Stock) of the Company (less the amount of any
cash, or other property, distributed by the Company upon such conversion or
exchange).
So long as no Default shall have occurred and be continuing (or would result
therefrom), the foregoing limitations on Restricted Payments shall not
prohibit: (i) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company (other than
Redeemable Stock or Exchangeable Stock and other than Capital Stock issued or
sold to a Subsidiary or an employee stock ownership plan); provided, however,
that (A) such purchase or redemption shall be excluded in the calculation of
the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale
shall be excluded from clauses (3)(b) and (3)(c) of the previous paragraph;
(ii) any purchase or redemption of Subordinated Obligations of the Company made
by exchange for, or out of the proceeds of the substantially concurrent sale
of, Debt of the Company other than to a Subsidiary; provided, however, that
such Debt (A) shall be subordinated to the Senior Notes to at least the same
extent as the Subordinated Obligations so exchanged, purchased or redeemed, (B)
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shall have a Stated Maturity later than the Stated Maturity of the Senior Notes
and (C) shall have an Average Life greater than the remaining Average Life of
the Senior Notes; provided further, however, that such purchase or redemption
shall be excluded in the calculation of the amount of Restricted Payments;
(iii) any purchase or redemption of Subordinated Obligations from Net Available
Cash to the extent permitted by the covenant described below under "--
Limitation on Sales of Assets and Subsidiary Stock"; provided, however, that
such purchase or redemption shall be excluded in the calculation of the amount
of Restricted Payments; or (iv) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would have
complied with this provision; provided, however, that such dividend shall be
included in the calculation of the amount of Restricted Payments.
Limitation on Issuance and Sale of Capital Stock of Subsidiaries. The Company
shall not permit any Subsidiary to issue or sell any Capital Stock to any
person, or permit any person in either case, other than the Company and its
Wholly Owned Subsidiaries, to own or hold an interest, other than any interest
or right to receive any interest owned or held on the date on which the Senior
Notes were originally issued by a person other than the Company and its Wholly
Owned Subsidiaries, in any Capital Stock of any Subsidiary; provided, however,
that the foregoing limitation shall not apply to (i) the sale of all but not
less than all of the Capital Stock of any Subsidiary made in accordance with
"--Limitation on Sales of Assets and Subsidiary Stock,"and (ii) the issuance
and sale of Capital Stock of CHTC pursuant to one or more firm commitment
underwritten public offerings by CHTC (each a "Public Offering"); provided,
however, that (1) following each Public Offering the Company shall continue to
own at least 75% of the outstanding Capital Stock of CHTC, (2) the net proceeds
from each Public Offering shall be invested by CHTC in the business of CHTC,
(3) CHTC may not within 18 months after the closing of each Public Offering (A)
declare or pay any dividend or make any distribution on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving CHTC) or to the direct or indirect holders of its
Capital Stock (except dividends or distributions payable solely in its Non-
Convertible Capital Stock or in options, warrants or other rights to purchase
its Non-Convertible Capital Stock) or (B) purchase, redeem or otherwise acquire
or retire for value any Capital Stock of CHTC, and (4) as of the date of
commencement of each Public Offering the Adjusted EBITDA for the period of the
most recently completed four fiscal quarters of the Company ending at least 45
days prior to such date exceeds 95% of EBITDA for such period, provided,
however, that (A) if the Company or any Subsidiary has issued any Debt since
the beginning of such period that remains outstanding, EBITDA and Adjusted
EBITDA for such period shall be calculated after giving effect on a pro forma
basis to such Debt as if such Debt had been issued on the first day of such
period and the discharge of any other Debt refinanced, refunded, exchanged or
otherwise discharged with the proceeds of such new Debt as if any such
discharge had occurred on the first day of such period, (B) if since the
beginning of such period the Company or any Subsidiary shall have made any
Asset Disposition, EBITDA and Adjusted EBITDA for such period shall be reduced
by an amount equal to the EBITDA (if positive) directly attributable to the
assets which are the subject of such Asset Disposition for such period, or
increased by an amount equal to the EBITDA (if negative) directly attributable
thereto for such period, and (C) if since the beginning of such period the
Company or any Subsidiary (by merger or otherwise) shall have made an
Investment in any Subsidiary (or any person which becomes a Subsidiary) or an
acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all of an operating unit of a business, EBITDA and Adjusted EBITDA
for such period shall be calculated after giving pro forma effect thereto
(including the issuance of any Debt), as if such Investment or acquisition
occurred on the first day of such period. For purposes of this calculation,
whenever pro forma effect is to be given to an acquisition of assets, the
amount of income or earnings relating thereto, and the amount of Consolidated
Interest Expense associated with any Debt issued in connection therewith, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company. If any Debt bears a floating
rate of interest and is being given pro forma effect, the interest on such Debt
shall be
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calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period.
Limitation on Restrictions on Distributions from Subsidiaries. The Company
shall not, and shall not permit any Subsidiary to, create or otherwise cause or
permit to exist or become effective any consensual encumbrance or restriction
on the ability of any Subsidiary to (i) pay dividends or make any other
distributions on its Capital Stock or pay any Debt or other obligation owed to
the Company or any Subsidiary, (ii) make any Investment in or loans or advances
to the Company or any Subsidiary, or (iii) transfer any of its property or
assets to the Company or any Subsidiary. Notwithstanding the foregoing, the
Company may, and may permit any Subsidiary to, suffer to exist: (1) any
encumbrance or restriction pursuant to an agreement in effect at or entered
into on or prior to the date on which the Senior Notes were originally issued;
(2) any encumbrance or restriction with respect to a Subsidiary pursuant to an
agreement relating to any Debt issued by such Subsidiary on or prior to the
date on which such Subsidiary became a Subsidiary (other than Debt issued as
consideration in, or to provide all or any portion of the funds utilized to
consummate, the transaction or series of related transactions pursuant to which
such Subsidiary became a Subsidiary or was acquired by the Company) and
outstanding on such date; (3) any encumbrance or restriction pursuant to an
agreement effecting a refinancing or extension of Debt issued pursuant to an
agreement referred to in clause (1) or (2) above or contained in any amendment
to an agreement referred to in clause (1) or (2) above; provided, however, that
the encumbrances and restrictions contained in any such refinancing or
extension agreement or amendment are not materially less favorable to the
holders of the Senior Notes than encumbrances and restrictions contained in
such agreement referred to in clause (1) or (2) above; (4) any encumbrance or
restriction consisting of customary nonassignment provisions in leases
governing leasehold interests to the extent such provisions restrict the
transfer of the lease; (5) in the case of clause (iii) above, restrictions
contained in security agreements securing Debt of a Subsidiary otherwise
permitted by the Note Indenture to the extent such restrictions restrict the
transfer of the property subject to such security agreements; and (6)
restrictions imposed pursuant to clause (ii) of "--Limitation on Issuance and
Sale of Capital Stock of Subsidiaries" above.
Limitation on Sales of Assets and Subsidiary Stock. The Company shall not,
and shall not permit any Subsidiary to, make any Asset Disposition unless: (i)
the Company or such Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the Fair Market Value, as determined in good
faith, with or without independent appraisal, by the Board of Directors of the
Company (including as to the value of all non-cash consideration), of the
shares and assets subject to such Asset Disposition and at least 85% of the
consideration thereof received by the Company or such Subsidiary is in the form
of cash or Cash Equivalents; and (ii) an amount equal to 100% of the Net
Available Cash from such Asset Disposition is applied by the Company (or such
Subsidiary, as the case may be) (A) first, to the extent the Company is
required by the terms of any Debt to prepay, repay or purchase Debt (other than
any Redeemable Stock) of the Company, such Subsidiary or any Wholly Owned
Subsidiary (in each case other than Debt owed to the Company or an Affiliate of
the Company) within 60 days from the later of the date of such Asset
Disposition or the receipt of such Net Available Cash; (B) second, to the
extent of the balance of such Net Available Cash after application in
accordance with clause (A), at the Company's election to the investment by the
Company, such Subsidiary or any Wholly Owned Subsidiary in assets to replace
the assets that were the subject of such Asset Disposition or in assets that
(as determined by the Board of Directors) will be used in the businesses of the
Company and its Wholly Owned Subsidiaries existing on the date on which the
Senior Notes were originally issued or in businesses reasonably related
thereto, in all cases within the later of one year from the date of such Asset
Disposition or the receipt of such Net Available Cash; (C) third, to the extent
of the balance of such Net Available Cash after application in accordance with
clauses (A) and (B) above, to make an offer pursuant to and subject to the Note
Indenture, to the holders of the Senior Notes to purchase Senior Notes at a
purchase price of 100% of the principal amount thereof plus accrued and unpaid
interest; and (D) fourth, to the extent of the balance of such Net Available
Cash after application in accordance with clauses
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(A), (B) and (C) above, to the prepayment, repayment or purchase of Debt (other
than any Redeemable Stock) of the Company (other than Debt owed to an Affiliate
of the Company) or Debt of any Subsidiary (other than Debt owed to the Company
or an Affiliate of the Company), in each case within one year from the later of
the receipt of such Net Available Cash and, if applicable, the date the offer
described in the next paragraph below is consummated; provided, however, that
in connection with any prepayment, repayment or purchase of Debt pursuant to
clause (A) or clause (D) above, the Company shall cause the related loan
commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased; and provided, further,
however, that in connection with an offer pursuant to clause (C) above, if the
principal amount of such Senior Notes, together with accrued and unpaid
interest, tendered for acceptance pursuant to such offer exceeds the balance of
Net Available Cash, then the Company will accept for purchase the Senior Notes
of each such tendering holder on a pro rata basis in accordance with the
principal amount so tendered.
Notwithstanding the provisions of clause (ii) above, in the event that the
Net Available Cash resulting from any Asset Disposition is less than $2.5
million, the application of an amount equal to such Net Available Cash in
accordance with such clause (ii) may be deferred until such time as such Net
Available Cash from any prior or subsequent Asset Dispositions not otherwise
applied in accordance with such clause (ii), is at least equal to $2.5 million.
In the event that the Net Available Cash resulting from any Asset Disposition,
after giving effect to clauses (A) and (B) above, is less than $2.5 million,
the application of such amount equal to such Net Available Cash to make an
offer to purchase Senior Notes in accordance with clause (C) above may be
deferred until such time as such Net Available Cash, together with Net
Available Cash from any prior or subsequent Asset Dispositions not otherwise
applied in accordance with this provision, is at least equal to $2.5 million.
Pending application of Net Available Cash pursuant to this provision, such Net
Available Cash shall be invested in Cash Equivalents. To the extent any portion
of the amount of Net Available Cash remains after compliance with this
provision and provided that all holders of Senior Notes have been given the
opportunity to tender their Senior Notes for repurchase as provided in clause
(C) above, the Company may use such remaining amount for general corporate
purposes.
In the event of an Asset Disposition that requires the purchase of the Senior
Notes pursuant to clause (ii)(C) above, the Company will be required to
purchase the Senior Notes tendered pursuant to an offer by the Company for the
Senior Notes (the "Offer") at the purchase price set forth above in accordance
with the procedures (including prorationing in the event of oversubscription)
set forth in the Note Indenture.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Senior Notes pursuant to the preceding
paragraphs. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the Note Indenture, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under the Note Indenture by virtue
thereof.
Limitation on Transactions with Affiliates. The Company shall not, and shall
not permit any Subsidiary to, conduct any business or enter into any
transaction or series of similar transactions (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
Affiliate of the Company or any legal or beneficial owner of 5% or more of any
class of Capital Stock of the Company or with any Affiliate of any such owner
(other than (i) a Wholly Owned Subsidiary or (ii) an employee stock ownership
plan for the benefit of the Company's or a Subsidiary's employees), unless the
terms of such business, transaction or series of transactions are (A) set forth
in writing, (B) as favorable to the Company or such Subsidiary as terms that
would be obtainable at the time for a comparable transaction or series of
similar transactions in arm's-length dealings with an unrelated third person,
and (C) if such business or transaction or series of transactions involves in
excess of $1.0 million, (x) the Board of Directors of the Company has, by
resolution approved by a majority of the disinterested directors, determined in
good faith that such
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business or transaction or series of transactions meets the criteria set forth
in clause (B) above, and (y) the Company has obtained an opinion of a
nationally recognized expert with experience in appraising the terms and
conditions of the type of business or transaction or series of transactions
stating that such business or transaction or series of transactions is fair
(from a financial point of view) to the Company or such Subsidiary, as the case
may be. The foregoing, however, will not prohibit (1) any transactions between
the Company or a Subsidiary and its own employee stock ownership plan or (2)
any Restricted Payment permitted under "--Limitation on Restricted Payments"
above, and (3) management compensation arrangements approved by the
disinterested members of the Board of Directors.
Lines of Business. The Company shall not, and shall not permit any of its
Subsidiaries to, enter into any business, either directly or through any
Subsidiary, except for those businesses in which the Company and its
Subsidiaries were engaged on the date on which the Senior Notes were originally
issued or businesses reasonably related thereto.
SEC Reports. Each of the Company and the Guarantor Subsidiaries shall file
with the Trustee and provide holders of the Senior Notes, within 15 days after
it files them with the Securities and Exchange Commission (the "Commission"),
copies of its annual report and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the Commission may by
rules and regulations prescribe) which the Company or such Guarantor Subsidiary
is required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall continue to file with the Commission and provide the
Trustee and holders of the Senior Notes with such annual reports and such
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) which
are specified in Sections 13 and 15(d) of the Exchange Act.
SUCCESSOR COMPANY
The Company may not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any person unless:
(i) the resulting, surviving or transferee person (if not the Company) is
organized and existing under the laws of the United States of America or any
state thereof or the District of Columbia and such person expressly assumes by
a supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the Note
Indenture and the Senior Notes; (ii) immediately after giving effect to such
transaction (and treating any Debt which becomes an obligation of the
resulting, surviving or transferee person or any Subsidiary as a result of such
transaction as having been issued by such person or such Subsidiary at the time
of such transaction), no Default has occurred and is continuing; (iii)
immediately after giving effect to such transaction, on a pro forma basis, the
resulting, surviving or transferee Person would be able to issue at least $1.00
of Debt pursuant to the Consolidated EBITDA Coverage Ratio as set forth in the
first paragraph of "Certain Covenants--Limitation on Debt"; (iv) immediately
after giving effect to such transaction, on a pro forma basis, the resulting,
surviving or transferee person has Consolidated Net Worth in an amount which is
not less than the Consolidated Net Worth of the Company immediately prior to
such transaction; and (v) the Company delivers to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Note Indenture.
The resulting, surviving or transferee person will be the successor company.
DEFAULTS
An Event of Default is defined in the Note Indenture as: (i) a default in any
payment of interest on the Senior Notes when due, continued for 30 days; (ii) a
default in the payment of principal of any Note when due at its Stated
Maturity, upon redemption, upon acceleration or otherwise, or the
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failure to redeem or purchase the Senior Notes when required pursuant to the
Note Indenture or the Senior Notes; (iii) the failure by the Company to comply
with its obligations under "Successor Company" above, to make or consummate an
Offer in accordance with the provisions of "Certain Covenants--Limitation on
Sales of Assets and Subsidiary Stock" or to make or consummate a Change of
Control Offer in accordance with the provisions of "Change of Control," (iv)
the failure by the Company to observe or comply with any of the agreements in
the Senior Notes or the Note Indenture (other than those referred to in clauses
(i), (ii) or (iii) above), which continues for 60 days after there has been
given to the Company by the Trustee or to the Company and the Trustee by the
holders of at least 25% in principal amount of Senior Notes then outstanding a
written notice specifying such failure; (v) Debt of the Company or any
Subsidiary is not paid within any applicable grace period after final maturity
or is accelerated by the holders thereof because of a default and the total
amount of such Debt unpaid or accelerated exceeds $5.0 million, (vi) any
Subsidiary Guarantee ceases to be in full force and effect, other than in
accordance with its terms, or any Guarantor Subsidiary shall deny or disaffirm
its obligations under its Subsidiary Guarantee, (vii) certain events of
bankruptcy, insolvency or reorganization of the Company or a Subsidiary (a
"bankruptcy default"), or (viii) any judgment or decree for the payment of
money in excess of $5.0 million is rendered and entered against the Company or
a Subsidiary and is not discharged and either (A) an enforcement proceeding has
been commenced by any creditor upon such judgment or decree or (B) there is a
period of 60 days following such judgment or decree during which such judgment
or decree is not discharged, waived or the execution thereof stayed.
If an Event of Default (other than a bankruptcy default) occurs and is
continuing, the Trustee or the holders of at least 25% in principal amount of
the outstanding Senior Notes may declare the principal of and accrued interest
on all the Senior Notes to be due and payable. Upon such a declaration, such
principal and interest shall be due and payable immediately. If a bankruptcy
default occurs, the principal of and interest on all the Senior Notes will ipso
facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holders of the Senior Notes. Under
certain circumstances, the holders of a majority in principal amount of the
outstanding Senior Notes may rescind any such acceleration with respect to the
Senior Notes and its consequences if the rescission would not conflict with any
judgment or decree and if all Events of Default, other than the nonpayment of
accelerated principal of, premium, if any, and interest on the Senior Notes,
have been cured or waived as provided in the Note Indenture. The holders of at
least a majority in principal amount of the Senior Notes may waive any past
default under the Note Indenture, except a default in the payment of principal,
premium or interest on a Note or default with respect to certain covenants
under the Indenture. See "Amendment, Supplement, Waiver" below.
Subject to the provisions of the Note Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the Note
Indenture at the request or direction of any of the holders of the Senior Notes
unless such holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right to
receive payment of principal, premium (if any) or interest when due, no holder
of a Senior Note may pursue any remedy with respect to the Note Indenture or
the Senior Notes unless (i) such holder has previously given the Trustee notice
that an Event of Default is continuing, (ii) holders of at least 25% in
principal amount of the Senior Notes make a written request to the Trustee to
pursue the remedy, (iii) such holders have offered the Trustee reasonable
security or indemnity against any loss, liability or expense, (iv) the Trustee
has not complied with such request within 60 days after the receipt thereof and
the offer of security or indemnity, and (v) the holders of a majority in
principal amount of the outstanding Senior Notes have not given the Trustee a
direction inconsistent with such request within such 60-day period. Subject to
certain restrictions, the holders of a majority in principal amount of the
outstanding Senior Notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
of exercising any trust or
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power conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Note Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other holder of a Senior
Note or that would involve the Trustee in personal liability.
The Note Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Senior Notes
and to the Company notice of the Default within 90 days after it occurs. Except
in the case of a Default in the payment of principal of, premium (if any) or
interest on any Senior Note, the Trustee may withhold notice if and so long as
a committee of its trust officers determines in good faith that withholding
notice is in the interest of the holders of the Senior Notes. In addition, the
Company and the Guarantor Subsidiaries are required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. Each of the Company and the Guarantor Subsidiaries are also
required to deliver to the Trustee, within 30 days after the Company or such
Guarantor Subsidiary becomes aware or should reasonably become aware thereof,
written notice of any event which would constitute certain Defaults, their
status and what action the Company is taking or proposes to take in respect
thereof.
AMENDMENT, SUPPLEMENT, WAIVER
Subject to certain exceptions, the Note Indenture may be amended or
supplemented with the written consent of the holders of a majority in principal
amount of the Senior Notes then outstanding and any past default or compliance
with any provisions may be waived with the consent of the holders of a majority
in principal amount of the Senior Notes then outstanding. However, without the
consent of each holder of an outstanding Senior Note, no amendment may, among
other things, (i) reduce the amount of Senior Notes whose holders must consent
to an amendment, (ii) reduce the rate of or extend the time for payment of
interest on any Senior Note, (iii) reduce the principal of or extend the Stated
Maturity of any Senior Note, (iv) reduce the premium payable upon the
redemption of any Senior Note or change the time at which any Senior Note may
or shall be redeemed as described under "Optional Redemption" above, (v) make
any Senior Note payable in money other than that stated in the Senior Note,
(vi) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions, (vii) make any change in provisions
regarding Change of Control, or (viii) make any change adversely affecting the
rights of any holder of the Senior Notes.
Without notice to or consent of any holder of the Senior Notes, the Company
and the Trustee may amend or supplement the Note Indenture to cure any
ambiguity, omission, defect or inconsistency, to provide for the assumption by
a successor corporation of the obligations of the Company under the Note
Indenture, to provide for uncertificated Senior Notes in addition to or in
place of certificated Senior Notes (provided that the uncertificated Senior
Notes are issued in registered form for purposes of Section 163(f) of the Code,
or in a manner such that the uncertificated Senior Notes are described in
Section 163(f)(2)(B)of the Code), to add Guarantees of the Senior Notes, to add
to the covenants of the Company for the benefit of the holders of the Senior
Notes or to surrender any right or power conferred upon the Company, to reflect
the release of any Guarantor Subsidiary from its Subsidiary Guarantee, or the
addition of any Subsidiary of the Company as a Guarantor Subsidiary in the
manner provided in the Note Indenture or to make any change that does not
adversely affect the rights of any holder of the Senior Notes or to comply with
any requirement of the Commission in connection with the qualification of the
Note Indenture under the Trust Indenture Act of 1939, as amended.
The consent of the holders of the Senior Notes is not necessary under the
Note Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
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After an amendment under the Note Indenture becomes effective, the Company is
required to mail to holders of the Senior Notes a notice briefly describing
such amendment. However, the failure to give such notice to all holders of the
Senior Notes, or any defect therein, will not impair or affect the validity of
the amendment.
TRANSFER
The Senior Notes will be issued in registered form and will be transferable
only upon the surrender of the Senior Notes being transferred for registration
of transfer. The Company may require payment of a sum sufficient to cover any
tax, assessment or other governmental charge payable in connection with certain
transfers and exchanges.
DEFEASANCE
The Company at any time may terminate all its obligations under the Senior
Notes and the Note Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the Senior Notes, to replace mutilated,
destroyed, lost or stolen Senior Notes and to maintain a registrar and paying
agent in respect of the Senior Notes. The Company at any time may terminate its
obligations under the covenants described under "Certain Covenants" and "Change
of Control," the operation of the cross acceleration provision, the bankruptcy
defaults with respect to Subsidiaries and the judgment default provision
described under "Defaults" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Senior Notes may not be accelerated
because of an Event of Default with respect thereto. If the Company exercises
its covenant defeasance option, payment of the Senior Notes may not be
accelerated because of an Event of Default specified in clause (iii) or (iv) of
the first paragraph of "Defaults" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Senior Notes to redemption or maturity, as the case may be, and
must comply with certain other conditions, including delivering to the Trustee
an opinion of counsel to the effect that holders of the Senior Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance and will be subject to federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such opinion of counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable federal income tax law).
CONCERNING THE TRUSTEE
is to be the Trustee under the Note Indenture and has been appointed by
the Company as registrar and paying agent with regard to the Senior Notes.
The Trustee may become owner or pledgee of Senior Notes and may otherwise
deal with the Company or Affiliates of the Company with the same rights it
would have if it were not Trustee.
The Note Indenture will provide that in case an Event of Default shall occur
and be continuing, the Trustee will exercise the rights and powers vested in it
by the Note Indenture and use the same degree of care and skill in their
exercise as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs.
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GOVERNING LAW
The Note Indenture provides that it and the Senior Notes will be governed by,
and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Adjusted EBITDA" means for any period (i) EBITDA for such period minus (ii)
for such period, the sum of (A) the net income of CHTC plus (B) taxes, if any,
of CHTC, the total interest expense of CHTC, depreciation expense of CHTC,
amortization expense of CHTC and all other non-cash charges to the extent
included in the calculation of net income of CHTC, in each case determined in
accordance with generally accepted accounting principles.
"Affiliate" of any specified person means (i) any other person which,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified person or (ii) any other person who is a director
or officer (A) of such specified person, (B) of any subsidiary of such
specified person, or (C) of any person described in clause (i) above. For
purposes of this definition, control of a person means the power, direct or
indirect, to direct or cause the direction of the management and policies of
such person whether by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions), including any such
disposition by means of a merger, consolidation or similar transaction, of
shares of Capital Stock of a Subsidiary (other than directors' qualifying
shares), property or other assets (each referred to for the purposes of this
definition as a "disposition") by the Company or any of its Subsidiaries, but
excluding the following: (i) a disposition by a Subsidiary to the Company or by
the Company or a Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of
tangible property or assets which have become obsolete or are otherwise not
used or useful, so long as such disposition is at Fair Market Value (as
determined by the Board of Directors of the Company in good faith) in the
ordinary course of business, (iii) a disposition that constitutes a Restricted
Payment, a Sale/Leaseback Transaction, or a Public Offering, in each case so
long as effected in accordance with all applicable provisions of the Note
Indenture, and (iv) a disposition of inventory in the ordinary course of
business.
"Attributable Debt", in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the lower of the
interest rate of such Sale/Leaseback Transaction and the interest rate borne by
the Bank Revolver at the time, compounded annually) of the total obligations of
the lessee for rental payments during the remaining term of the lease included
in such Sale/Leaseback Transaction (including any period for which such lease
has been extended).
"Average Life" means, as of the date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of the
products of the numbers of years from the date of determination to the dates of
each successive scheduled principal payment of such Debt or redemption or
similar payment with respect to such Preferred Stock multiplied by the amount
of such payment by (ii) the sum of all such payments.
"Bank Debt" means any and all amounts payable under or in respect of the Bank
Revolver (or if all the obligations under the Bank Revolver shall be replaced,
refinanced or refunded one or more times with obligations under one or more
other agreements and the Trustee shall receive notice thereof from time to time
from the Company designating such other agreements at any given time as the
agreements constituting Bank Debt for purposes of this definition of Bank Debt,
the agreements from time to time so designated), as amended and supplemented
from time to time,
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including principal, premium (if any), interest (including interest accruing on
or after the filing of any petition in bankruptcy or for reorganization
relating to the Company whether or not a claim for post-filing interest is
allowed in such proceeding), fees, charges, expenses, letters of credit,
reimbursement obligations, guarantees and all other amounts payable thereunder
or in respect thereof.
"Bank Guarantee" means for any Subsidiary, the Guarantee by such Subsidiary
of the Bank Debt and any other Debt of any Subsidiary which Debt, directly or
indirectly, Guarantees or secures any Bank Debt.
"Bank Revolver" means the Amended and Restated Revolving Credit Agreement
among the Company and The First National Bank of Boston, National Westminster
Bank USA, and USTrust, and The First National Bank of Boston, as Agent, as in
effect on the date on which the Senior Notes are originally issued.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board of Directors.
"Business Day" means each day which is not a Legal Holiday.
"CHTC" means Clean Harbors Technology Corporation and any successor thereto.
"Capital Lease Obligations" of a person means any obligation which is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such person prepared in accordance with generally accepted
accounting principles; the amount of such obligation shall be the capitalized
amount thereof, determined in accordance with generally accepted accounting
principles; and the Stated Maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) corporate stock, including any Preferred Stock.
"Cash Equivalents" means:
(i) Investments in U.S. Government Obligations maturing within 365 days
of the date of acquisition thereof;
(ii) Investments in certificates of deposit or Eurodollar deposits
maturing within 365 days of the date of acquisition thereof issued by a
bank or trust company which is organized under the laws of the United
States or any state thereof and which has a combined capital and surplus of
at least $1.0 billion and rated at least A3 by Moody's Investors Service,
Inc.;
(iii) Investments in repurchase agreements, involving Investments in U.S.
Government Obligations or other Cash Equivalents entered into with any
bank, trust company or investment bank rated at least A- and A-1 by
Standard & Poor's Corporation and at least A3 and P-1 by Moody's Investors
Service, Inc.;
(iv) Investments in commercial paper maturing not more than 90 days from
the date of acquisition thereof and rated at least A-1 by Standard & Poor's
Corporation and at least P-1 by Moody's Investors Service, Inc. issued by a
corporation (except the Company or an Affiliate of the Company) that is
organized under the laws of any state of the United States or the District
of Columbia; and
(v) Investments in money market accounts or funds substantially all of
the assets of which consist of cash or securities of the types described in
clauses (i) through (iv) above.
"Company" means Clean Harbors, Inc., and does not include any Subsidiary.
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"Consolidated EBITDA Coverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to such
determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Subsidiary has
issued any Debt since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated EBITDA
Coverage Ratio is an issuance of Debt, or both, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to such Debt as if such Debt had been issued on the first day
of such period and the discharge of any other Debt refinanced, refunded,
exchanged or otherwise discharged with the proceeds of such new Debt as if any
such discharge had occurred on the first day of such period, (2) if since the
beginning of such period the Company or any Subsidiary shall have made any
Asset Disposition, EBITDA for such period shall be reduced by an amount equal
to the EBITDA (if positive) directly attributable to the assets which are the
subject of such Asset Disposition for such period, or increased by an amount
equal to the EBITDA (if negative) directly attributable thereto for such period
and Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any Debt of
the Company or any Subsidiary refinanced, refunded, exchanged or otherwise
discharged with respect to the Company and its continuing Subsidiaries in
connection with such Asset Dispositions for such period (or if the Capital
Stock of any Subsidiary is sold, the Consolidated Interest Expense for such
period directly attributable to the Debt of such Subsidiary to the extent the
Company and its continuing Subsidiaries are no longer liable for such Debt
after such sale), and (3) if since the beginning of such period the Company or
any Subsidiary (by merger or otherwise) shall have made an Investment in any
Subsidiary (or any person which becomes a Subsidiary) or an acquisition of
assets, including any acquisition of assets occurring in connection with a
transaction causing a calculation to be made hereunder, which constitutes all
of an operating unit of a business, EBITDA and Consolidated Interest Expense
for such period shall be calculated after giving pro forma effect thereto
(including the issuance of any Debt), as if such Investment or acquisition
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the
amount of income or earnings relating thereto, and the amount of Consolidated
Interest Expense associated with any Debt issued in connection therewith, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company. If any Debt bears a floating
rate of interest and is being given pro forma effect, the interest on such Debt
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period.
"Consolidated Interest Expense" means, for any period, the aggregate total
interest expense of the Company and its consolidated Subsidiaries determined in
accordance with generally accepted accounting principles, including (i)
interest expense attributable to capital leases, (ii) amortization of debt
discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash
interest payments, (v) commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, (vi) net
costs under Hedging Obligations (including amortization of fees), (vii)
Preferred Stock dividends in respect of all Preferred Stock held by persons
other than the Company or a Wholly Owned Subsidiary, (viii) interest incurred
in connection with investments in discontinued operations, and (ix) interest
actually paid by the Company or any of its consolidated Subsidiaries under any
Guarantee of Debt or other obligation of any other person.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(i) any net income of any person if such person is not a Subsidiary,
except that (A) the Company's equity in the net income of any such person
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such person during such
period to the Company or a Subsidiary as a dividend or other distribution
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(subject, in the case of a dividend or other distribution to a Subsidiary,
to the limitations contained in clause (iii) below) and (B) the Company's
equity in a net loss of any such person for such period shall be included
in determining such Consolidated Net Income;
(ii) any net income of any person acquired by the Company or a Subsidiary
in a pooling of interests transaction for any period prior to the date of
such acquisition;
(iii) any net income of any Subsidiary if such Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the
making of distributions by such Subsidiary, directly or indirectly, to the
Company, except that (A) the Company's equity in the net income of any such
Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Subsidiary during such period to the Company or another Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution to another Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Subsidiary
for such period shall be included in determining such Consolidated Net
Income;
(iv) any gain or loss realized upon the sale or other disposition of any
property, plant or equipment of the Company or its consolidated
Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which
is not sold or otherwise disposed of in the ordinary course of business and
any gain or loss realized upon the sale or other disposition of any Capital
Stock of any person; and
(v) the cumulative effect of a change in accounting principles.
"Consolidated Net Tangible Assets" of any person means the total assets of
such person and its consolidated subsidiaries after deducting therefrom all
intangible assets, current liabilities (excluding any thereof which are by
their terms extendible or renewable at the option of the obligor thereon to a
time more than 12 months after the time as of which the amount thereof is being
computed) and minority interests, if any, in any assets of such person's
subsidiaries.
"Consolidated Net Worth" of any person means the total of the amounts shown
on the balance sheet of such person and its consolidated subsidiaries,
determined on a consolidated basis in accordance with generally accepted
accounting principles, as of the end of the most recent fiscal quarter of such
person ending at least 45 days prior to the taking of any action for the
purpose of which the determination is being made, as (i) the par or stated
value of all outstanding Capital Stock of such person plus (ii) paid-in capital
or capital surplus relating to such Capital Stock plus (iii) any retained
earnings or earned surplus less (A) any accumulated deficit, (B) any amounts
attributable to Redeemable Stock, and (C) any amounts attributable to
Exchangeable Stock.
"Debt" of any person means, without duplication:
(i) the principal of and premium (if any) in respect of (A) indebtedness
of such person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which
such person is responsible or liable;
(ii) all Capital Lease Obligations of such person;
(iii) all obligations of such person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such person
and all obligations of such person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(iv) all obligations of such person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in (i) through (iii) above)
which are the functional equivalent of commercial surety or fidelity bonds
and not issued in connection with the borrowing of money, or are entered
into in the ordinary course of business of such person to the extent such
letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the third Business Day following
receipt by such person of a demand for reimbursement following payment on
the letter of credit);
68
<PAGE>
(v) the amount of all obligations of such person with respect to the
redemption, repayment or other repurchase of any Redeemable Stock (but
excluding any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through (v)
of other persons and all dividends of other persons for the payment of
which, in either case, such person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
agreement which has the economic effect of a Guarantee; and
(vii) all obligations of the type referred to in clauses (i) through (vi)
of other persons secured by any Lien on any property or asset of such
person (whether or not such obligation is assumed by such person or is
otherwise its legal liability), the amount of such obligation being deemed
to be the lesser of the value of such property or assets or the amount of
the obligation so secured.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"EBITDA" for any period means the Consolidated Net Income for such period,
plus the following to the extent included in calculating such Consolidated Net
Income: (i) income tax expense, (ii) Consolidated Interest Expense, (iii)
depreciation expense, (iv) amortization expense, (v) all other non-cash charges
(excluding any non-cash charge which requires an accrual of or a reserve for
cash charges for any future period), and (vi) without duplication, cash and
non-cash charges associated with the early extinguishment of debt incurred in
connection with the issuance of the Senior Notes and the application of the
proceeds therefrom.
"Eligible Accounts Receivable" means all accounts, accounts receivable,
notes, bills, drafts, acceptances, instruments, documents, and all other Debt,
obligations and liabilities in whatever form owing from any person for goods
sold or for services rendered, at any time existing on the books of the Company
which, at the time of determination, are not more than 90 days from the date of
invoice.
"Exchangeable Stock" means any Capital Stock which is exchangeable for or
convertible into another security (other than Capital Stock of the Company
which is neither Exchangeable Stock nor Redeemable Stock).
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer under no compulsion to buy.
"Guarantee" means any obligation, contingent or otherwise, of any person
directly or indirectly guaranteeing any Debt or other obligation of any person
and any obligation, direct or indirect, contingent or otherwise, of such person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or other obligation of such person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of
assuring in any other manner the obligee of such Debt or other obligation of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Guarantor Subsidiaries" means each of Clean Harbors Environmental Services,
Inc., Clean Harbors of Natick, Inc., Clean Harbors of Braintree, Inc., Clean
Harbors of Chicago, Inc., Clean Harbors of Cleveland, Inc., Clean Harbors of
Baltimore, Inc., Clean Harbors of Connecticut, Inc., Clean Harbors Kingston
Facility Corporation, Murphy's Waste Oil Service, Inc., Clean Harbors
Technology Corporation, Mr. Frank, Inc., and Spring Grove Resource Recovery,
Inc. and (ii) any other Subsidiary of the Company that executes a Subsidiary
Guarantee in accordance with the provisions of the Note Indenture, and their
respective successors and assigns.
69
<PAGE>
"Hedging Obligations" of any person means the obligations of such person
pursuant to any interest rate swap agreement, foreign currency exchange
agreement, interest rate collar agreement, option or futures contract or other
similar agreement or arrangement designed to protect such person against
changes in interest rates or foreign exchange rates.
"Investment" in any person means any loan or advance to, any acquisition of
Capital Stock, equity interest, obligation or other security of, or capital
contribution or other investment in, such person.
"issue" means issue, assume, Guarantee, incur or otherwise become liable for;
provided, however, that any Debt or Capital Stock of a person existing at the
time such person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be issued by such Subsidiary at
the time it becomes a Subsidiary.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York or the
principal office of the Trustee.
"Lien" means any mortgage, pledge, security interest, conditional sale or
other title retention agreement or other similar lien.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring person of Debt or other obligations relating to
such properties or assets or received in any other non-cash form) therefrom, in
each case net of all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all federal, state, provincial, foreign
and local taxes required to be accrued as a liability under generally accepted
accounting principles, as a consequence of such Asset Disposition, and in each
case net of all payments made on any Debt which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon or other security agreement of any kind with respect to such assets, or
which must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law be repaid out of the proceeds from such
Asset Disposition, and net of all distributions and other payments required to
be made to minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Convertible Capital Stock" means, with respect to any corporation, any
non-convertible Capital Stock of such corporation and any Capital Stock of such
corporation convertible solely into non-convertible common stock of such
corporation; provided, however, that Non-Convertible Capital Stock shall not
include any Redeemable Stock or Exchangeable Stock.
"Officer" means the Chairman of the Board, the President, any Vice President,
the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Permitted Holders" means (i) Alan McKim, (ii) the trustees of a trust for
the benefit of Mr. McKim, which trust is revocable solely by Mr. McKim, (iii)
Mr. McKim's spouse or children, (iv) a trust created for the exclusive benefit
of Mr. McKim's spouse or children or for the exclusive benefit of Mr. McKim and
such persons, and (iv) any charitable trust or foundation qualified under
Section 501(3)(c) of the Internal Revenue Code established by Mr. McKim and for
which he serves as a trustee or director.
70
<PAGE>
"Permitted Investments" means:
(a) Cash Equivalents;
(b) Investments in a Wholly Owned Subsidiary (or any person which will
become a Wholly Owned Subsidiary as a result of such Investment);
(c) loans and reasonable advance to employees of the Company or its
Subsidiaries for travel, entertainment and relocation expenses in the
ordinary course of business; and
(d) other Investments not to exceed $5.0 million at any one time
outstanding.
"Permitted Liens" means, with respect to any person, (i) pledges or deposits
by such person under workers' compensation laws, unemployment insurance laws or
similar legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Debt) or leases to which such person
is a party, or deposits to secure public or statutory obligations of such
person or deposits or cash or United States government bonds to secure surety
or appeal bonds to which such person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, in each case
incurred in the ordinary course of business; (ii) Liens imposed by law, such as
carriers', warehousemen's and mechanics' Liens, in each case for sums not yet
due or being contested in good faith by appropriate proceedings; or other Liens
arising out of judgments or awards against such person with respect to which
such person shall then be proceeding with an appeal or other proceedings for
review or time for appeal has not yet expired; (iii) Liens for property taxes
not yet subject to penalties for non-payment or which are being contested in
good faith by appropriate proceedings; (iv) Liens in favor of issuers of surety
bonds or letters of credit issued pursuant to the request of and for the
account of such person in the ordinary course of its business; provided,
however, that such letters of credit do not constitute Debt; (v) survey
exceptions, encumbrances, easements or reservations of, or rights of others
for, licenses, rights of way, sewers, electric lines, telegraph and telephone
lines and other similar purposes, or zoning or other restrictions as to the use
of real properties or Liens incidental to the conduct of the business of such
Person or to the ownership of its properties which were not incurred in
connection with Debt and which do not in the aggregate materially adversely
affect the value of said properties or materially impair their use in the
operation of the business of such person; (vi) Liens securing a Hedging
Obligation so long as the related Debt is, and is permitted to be under the
Note Indenture, secured by a Lien on the same property securing the Hedging
Obligation; and (vii) leases and subleases of real property which do not
interfere with the ordinary conduct of the business of such person or the
ownership of its properties which were not incurred in connection with Debt and
which do not in the aggregate materially adversely affect the value of said
properties or materially impair their use in the operation of the business of
such person, and which are made on customary and usual terms applicable to
similar properties.
"person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Principal" of any Senior Note means the principal of such Senior Note plus
the premium (if any) payable on the Senior Note which is due or overdue or is
to become due at the relevant time.
71
<PAGE>
"Redeemable Stock" means any Capital Stock that by its terms or otherwise is
required to be redeemed on or prior to the first anniversary of the Stated
Maturity of the Senior Notes or is redeemable at the option of the holder
thereof at any time on or prior to the first anniversary of the Stated Maturity
of the Senior Notes.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Subsidiary transfers such
property to a person and the Company or a Subsidiary leases it from such
person.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the principal of such security is due
and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency).
"Subordinated Obligation" means any Debt of the Company (whether outstanding
on the date hereof or hereafter incurred) which is subordinate or junior in
right of payment to the Senior Notes.
"Subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) the Company, (ii) the Company and one or more
Subsidiaries, or (iii) one or more Subsidiaries.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of a
corporation outstanding and normally entited to vote in the election of
directors or other governing body of such corporation.
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which
(other than directors' qualifying shares) is owned by the Company or another
Wholly Owned Subsidiary.
72
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated July , 1994 (the "Underwriting Agreement"), the underwriters
named below (the "Underwriters") have severally but not jointly agreed to
purchase from the Company the following respective principal amounts of the
Senior Notes:
<TABLE>
<CAPTION>
UNDERWRITERS AMOUNT
------------ -----------
<S> <C>
CS First Boston Corporation..................................
Alex. Brown & Sons Incorporated..............................
-----------
Total...................................................... $75,000,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the Senior Notes, if any are purchased. The
Underwriting Agreement provides that, in the event of a default by an
Underwriter, in certain circumstances, the purchase commitments of the non-
defaulting Underwriter may be increased or the Underwriting Agreement may be
terminated.
The Company has been advised by the Underwriters that they propose to offer
the Senior Notes to the public initially at the public offering price set forth
on the cover page of this Prospectus, and to certain dealers at such price less
a concession not in excess of % of the principal amount per Senior Note; that
the Underwriters and such dealers may allow a discount of % of such principal
amount on sales to certain other dealers; and that after the Offering, the
public offering price and concession and discount to dealers may be changed.
The Senior Notes are a new issue of securities with no established trading
market. The Underwriters have advised the Company that they intend to act as
market makers for the Senior Notes. However, the Underwriters are not obligated
to do so and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of the trading market for the Senior
Notes.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriters may be required to make in
respect thereof.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Senior Notes in Canada is being made only on a
private placement basis exempt from the requirement that the Company prepare
and file a prospectus with the securities regulatory authorities in each
province where trades of Senior Notes are effected. Accordingly, any resale of
the Senior Notes in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of the Senior Notes.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Senior Notes in Canada who receives a purchase confirmation
will be deemed to represent to the Company and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase
73
<PAGE>
such Senior Notes without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is purchasing
as principal and not as agent, and (iii) such purchaser has reviewed the text
above under "Resale Restrictions".
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Ontario purchasers to effect service of process within Canada upon
the issuer or such persons. All or a substantial portion of the assets of the
issuer and such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or such persons in
Canada or to enforce a judgment obtained in Canadian courts against such issuer
or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Senior Notes to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Senior Notes acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #88/5, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Senior Notes acquired on the same date
and under the same prospectus exemption.
LEGAL MATTERS
The validity of the Senior Notes offered hereby will be passed upon for the
Company by Davis, Malm & D'Agostine, P.C., One Boston Place, Boston,
Massachusetts, and certain legal matters in connection with the Offering will
be passed upon for the Underwriters by Goodwin, Procter & Hoar, Exchange Place,
Boston, Massachusetts. C. Michael Malm, a shareholder of Davis, Malm &
D'Agostine, P.C., is the Clerk of the Company and the holder of an option to
purchase 11,112 shares of the Company's Common Stock at $2.70 per share. Mr.
Malm and other shareholders in Davis, Malm & D'Agostine, P.C., beneficially
owned an aggregate of 13,760 additional shares of Common Stock of the Company
as of June 15, 1994. In addition, two shareholders of that firm are trustees of
a trust for the benefit of the children of Alan S. McKim, the Company's
principal stockholder, which owns an additional 60,000 shares of Common Stock.
EXPERTS
The consolidated balance sheets of the Company and its subsidiaries as of
December 31, 1993 and 1992, and the related consolidated statements of income,
stockholders' equity and cash flows for the years ended December 31, 1993 and
1992, and the ten-month period ended December 31, 1991, included herein and in
the Registration Statement of which this Prospectus is a part have been
included herein and in the Registration Statement in reliance upon the reports
of Coopers & Lybrand, independent accountants, upon the authority of said firm
as experts in accounting and auditing.
74
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
concerning the Company may be inspected and copied at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549-1004, and at the following regional offices of the
Commission: New York Office, 7 World Trade Center, 13th Floor, New York, New
York 10048 and Chicago Office, Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material also can
be obtained at prescribed rates by writing to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition,
such reports, proxy statements and other information concerning the Company may
be inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006-1506.
The Company has filed a registration statement on Form S-2 (together with all
amendments and exhibits filed or to be filed in connection therewith, the
"Registration Statement") under the Securities Act with respect to the Senior
Notes offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which have been omitted
in accordance with the rules and regulations of the Commission. Statements
contained or incorporated by reference herein concerning the provisions of
documents are necessarily summaries of such documents, and each statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the Commission.
In accordance with the Note Indenture, the Company will furnish to holders of
the Senior Notes annual reports containing audited financial statements and
quarterly reports containing unaudited summary financial information for the
first three quarters of each fiscal year. See "Description of the Senior
Notes--SEC Reports."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company has filed with the Commission under the Exchange Act its Annual
Report on Form 10-K for the year ended December 31, 1993, and its Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994 (Commission File No.
0-16379), and hereby incorporates such reports by reference herein. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all of the documents
incorporated herein by reference (not including the exhibits to such documents,
unless such exhibits are specifically incorporated by reference in such
documents). Requests for such copies should be directed to John S. Ingalls,
Vice President, Clean Harbors Environmental Services, Inc., P.O. Box 9137,
Quincy, Massachusetts 02269-9137, Telephone (617) 849-1800, ext. 4454.
75
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements for the Years Ended December 31, 1993
and 1992 and the Ten-Month Period Ended December 31, 1991:
Report of Independent Accountants....................................... F-2
Consolidated Statements of Income for the Two Years Ended December 31,
1993 and 1992 and the Ten-Month Period Ended December 31, 1991......... F-3
Consolidated Balance Sheets as of December 31, 1993 and 1992............ F-4
Consolidated Statements of Stockholders' Equity for the Two Years Ended
December 31, 1993 and 1992 and the Ten-Month Period Ended December 31,
1991................................................................... F-6
Consolidated Statements of Cash Flows for the Two Years Ended December
31, 1993 and 1992 and the Ten-Month Period Ended December 31, 1991..... F-7
Notes to Consolidated Financial Statements.............................. F-9
Consolidated Financial Statements for the Three Months Ended March 31,
1994 and 1993 (Unaudited):
Consolidated Statements of Income for the Three Months Ended March 31,
1994 and 1993 (Unaudited).............................................. F-23
Consolidated Balance Sheets as of March 31, 1994 (Unaudited) and Decem-
ber 31, 1993........................................................... F-24
Consolidated Statements of Cash Flows for the Three Months Ended March
31, 1994 and 1993 (Unaudited).......................................... F-26
Consolidated Statements of Stockholders' Equity for the Three Months
Ended March 31, 1994 (Unaudited)....................................... F-28
Notes to Consolidated Financial Statements (Unaudited).................. F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Clean Harbors, Inc.:
We have audited the accompanying consolidated balance sheets of Clean
Harbors, Inc. and its subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years ended December 31, 1993 and 1992 and the ten-month period ended
December 31, 1991. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Clean Harbors,
Inc. and its subsidiaries as of December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1993 and 1992 and the ten-month period ended December 31,
1991, in conformity with generally accepted accounting principles.
Coopers & Lybrand
Boston, Massachusetts
February 1, 1994
F-2
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWO YEARS ENDED DECEMBER 31, 1993 AND 1992 AND THE TEN-MONTH PERIOD
ENDED DECEMBER 31, 1991
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1993 1992 1991
(TWELVE MONTHS) (TWELVE MONTHS) (TEN MONTHS)
--------------- --------------- ------------
<S> <C> <C> <C>
Revenues.......................... $200,114 $176,193 $127,473
Cost of revenues.................. 134,525 116,473 85,921
Selling, general and administra-
tive expenses.................... 42,296 35,923 23,856
Depreciation and amortization of
intangible assets................ 10,319 8,884 6,601
-------- -------- --------
Income from operations............ 12,974 14,913 11,095
Interest expense (net)............ 7,198 7,064 5,925
-------- -------- --------
Income before provision for income
taxes............................ 5,776 7,849 5,170
Provision for income taxes........ 2,645 2,774 1,567
-------- -------- --------
Net income...................... $ 3,131 $ 5,075 $ 3,603
======== ======== ========
Net income per common and common
equivalent share................. $ .28 $ .52 $ .37
======== ======== ========
Weighted average common and common
equivalent shares outstanding.... 9,884 9,743 9,739
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992
-------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 816 $ 625
Restricted cash............................................ 1,037 1,023
Accounts receivable, less reserves of $1,372 and $1,592,
respectively.............................................. 46,736 38,512
Prepaid expenses........................................... 2,353 2,875
Supplies inventories....................................... 2,428 2,214
Income tax receivable...................................... 607 416
-------- --------
Total current assets..................................... 53,977 45,665
-------- --------
Property, plant and equipment:
Land....................................................... 8,209 7,166
Buildings and improvements................................. 31,737 27,872
Vehicles and equipment..................................... 70,946 61,955
Furniture and fixtures..................................... 2,201 2,000
Construction in progress................................... 1,903 2,842
-------- --------
114,996 101,835
Less--Accumulated depreciation and amortization............ 40,925 32,279
-------- --------
74,071 69,556
-------- --------
Other assets:
Goodwill (net)............................................. 23,650 24,463
Permits (net).............................................. 14,906 13,573
Other...................................................... 754 682
-------- --------
39,310 38,718
-------- --------
Total assets............................................. $167,358 $153,939
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current maturities of long-term obligations................ $ 8,917 $ 1,816
Accounts payable........................................... 9,564 12,462
Accrued disposal costs..................................... 6,724 4,046
Other accrued expenses..................................... 10,452 11,726
Income tax payable......................................... -- 128
-------- --------
Total current liabilities................................ 35,657 30,178
-------- --------
Long-term obligations, less current maturities............... 62,507 64,565
Deferred income taxes........................................ 1,823 1,131
Commitments and contingent liabilities (Notes 6, 7, 8, 10, 11
and 12)
Stockholders' equity:
Preferred stock, $.01 par value:
Series A convertible preferred stock
Authorized--2,000,000 shares; Issued and outstanding--
None..................................................... -- --
Series B convertible preferred stock
Authorized--156,416 shares; Issued and outstanding--
112,000 shares at December 31, 1993 (liquidation
preference of $5,600,000)................................ 1 --
Common stock, $.01 par value:
Authorized--20,000,000 shares; Issued and outstanding--
9,425,829 shares at December 31, 1993 and 9,327,275
shares at December 31, 1992.............................. 95 93
Additional paid-in capital................................. 58,556 52,034
Retained earnings.......................................... 8,719 5,938
-------- --------
Total stockholders' equity............................... 67,371 58,065
-------- --------
Total liabilities and stockholders' equity............... $167,358 $153,939
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE TWO YEARS ENDED DECEMBER 31, 1993 AND 1992
AND THE TEN-MONTH PERIOD ENDED DECEMBER 31, 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES B
PREFERRED STOCK COMMON STOCK
------------------ ------------
NUMBER $.01 NUMBER $.01 ADDITIONAL RETAINED TOTAL
OF PAR OF PAR PAID-IN EARNINGS STOCKHOLDERS'
SHARES VALUE SHARES VALUE CAPITAL (DEFICIT) EQUITY
-------- -------- ------ ----- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, at February 28,
1991................... -- $ -- 9,004 $90 $49,426 $(2,740) $46,776
------- -------- ----- --- ------- ------- -------
Proceeds from exercise
of stock options..... -- -- 80 1 387 -- 388
Deferred compensation
on stock options..... -- -- -- -- 20 -- 20
Net income............ -- -- -- -- -- 3,603 3,603
------- -------- ----- --- ------- ------- -------
Balance, at December 31,
1991................... -- $ -- 9,084 $91 $49,833 $ 863 $50,787
------- -------- ----- --- ------- ------- -------
Proceeds from exercise
of stock options..... -- -- 10 -- 40 -- 40
Deferred compensation
on stock options..... -- -- -- -- 8 -- 8
Issuance of common
stock for
acquisition.......... -- -- 233 2 2,153 -- 2,155
Net income............ -- -- -- -- -- 5,075 5,075
------- -------- ----- --- ------- ------- -------
Balance, at December 31,
1992................... -- $ -- 9,327 $93 $52,034 $ 5,938 $58,065
------- -------- ----- --- ------- ------- -------
Issuance of preferred
stock for
acquisition.......... 112 1 -- -- 5,599 -- 5,600
Preferred stock divi-
dends:
Series B, $3.50 per
share.............. -- -- -- -- -- (350) (350)
Proceeds from exercise
of stock options..... -- -- 98 2 644 -- 646
Tax benefit from
exercise of stock
options.............. -- -- -- -- 279 -- 279
Net income............ -- -- -- -- -- 3,131 3,131
------- -------- ----- --- ------- ------- -------
Balance, at December 31,
1993................... 112 $ 1 9,425 $95 $58,556 $ 8,719 $67,371
======= ======== ===== === ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWO YEARS ENDED DECEMBER 31, 1993 AND 1992
AND THE TEN-MONTH PERIOD ENDED DECEMBER 31, 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991
(TWELVE MONTHS) (TWELVE MONTHS) (TEN MONTHS)
--------------- --------------- ------------
<S> <C> <C> <C>
Cash flows from operating activi-
ties:
Net income...................... $ 3,131 $ 5,075 $ 3,603
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization. 10,319 8,884 6,588
Allowance for doubtful ac-
counts....................... 709 942 365
Deferred compensation......... -- 8 20
Amortization of deferred fi-
nancing costs................ 408 645 488
Deferred income taxes......... 692 339 192
(Gain) loss on sale of fixed
assets....................... 145 (43) 49
Changes in assets and
liabilities, net of effects of
businesses acquired:
Accounts receivable........... (8,454) (6,565) (1,764)
Refundable income taxes....... (191) (416) 2,095
Prepaid expenses.............. 531 430 (650)
Supplies inventories.......... (157) (72) 365
Accounts payable.............. (2,898) 2,353 (1,036)
Accrued disposal costs........ 2,336 102 786
Other accrued expenses........ (1,865) 3,088 (2,281)
Income tax payable............ 151 (189) 217
------- -------- --------
Net cash provided by operating
activities..................... 4,857 14,581 9,037
------- -------- --------
Cash flows from investing
activities:
Payment for businesses acquired,
net of cash acquired........... (1,394) (315) --
Additions to property, plant and
equipment...................... (7,874) (9,815) (9,531)
(Increase) decrease in re-
stricted cash accounts......... (14) (529) (112)
(Increase) decrease in other as-
sets........................... (97) (340) (228)
Proceeds from sale of fixed as-
sets........................... 34 50 166
Increase in intangible assets... (147) (205) (304)
------- -------- --------
Net cash used in investing ac-
tivities....................... (9,492) (11,154) (10,009)
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
FOR THE TWO YEARS ENDED DECEMBER 31, 1993 AND 1992
AND THE TEN-MONTH PERIOD ENDED DECEMBER 31, 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991
(TWELVE MONTHS) (TWELVE MONTHS) (TEN MONTHS)
--------------- --------------- ------------
<S> <C> <C> <C>
Cash flows from financing activi-
ties:
Preferred stock dividend dis-
tribution..................... $ (251) $ -- $ --
Proceeds from long-term
borrowings.................... -- 1,500 7,107
Payments on long-term obliga-
tions......................... (1,906) (2,651) (5,161)
Additions to deferred financing
costs......................... (293) (72) (147)
Net borrowings (payments) under
long-term revolver............ 6,630 (1,968) (1,213)
Proceeds from exercise of stock
options....................... 646 40 388
------- ------- -------
Net cash (used in) provided by
financing activities.......... 4,826 (3,151) 974
------- ------- -------
Increase in cash................. 191 276 2
Cash, beginning of year.......... 625 349 347
------- ------- -------
Cash, end of year................ $ 816 $ 625 $ 349
======= ======= =======
Supplemental Information:
<CAPTION>
1993 1992 1991
(TWELVE MONTHS) (TWELVE MONTHS) (TEN MONTHS)
--------------- --------------- ------------
<S> <C> <C> <C>
Cash Payments for Interest and
Income Taxes:
Interest....................... $ 6,536 $ 7,123 $ 6,475
Income Taxes................... 2,117 2,697 1,549
Liabilities assumed in
conjunction with business
acquisitions:
Fair value of assets acquired.. $ 7,834 $ 2,448 --
Cash paid...................... 1,400 (500) --
Issuance of common stock for
acquisition................... -- 2,155 --
Issuance of preferred stock for
acquisition................... 5,600 -- --
Liabilities assumed............ 834 1,948 --
Noncash Investing and Financing
Activities:
Capital lease obligations in-
curred........................ $ 154 $ 208 --
Note payable to seller of
equipment acquired............ 50 -- --
Dividends declared but not
paid.......................... 99 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) OPERATIONS
Clean Harbors, Inc. and its wholly-owned subsidiaries (collectively, the
"Company") are engaged in the business of hazardous waste management,
environmental remediation and technical services.
(2) SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements of the Company reflect the
application of certain significant accounting policies as described below:
(a) Principles of Consolidation
The accompanying consolidated statements include the accounts of Clean
Harbors, Inc. and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
In 1992 the Company reformatted its consolidated statement of income in order
to conform its internal and external reporting. The new format reclassifies
depreciation expense previously included in cost of revenue and selling,
general and administrative expenses and combines it with amortization in order
to reveal on one line, within the consolidated statement of income, the non-
cash portion of expenses. The Company believes that the new format is more
informative and is consistent with other companies in the industry.
(b) Change in Year End
Effective with the ten-month period ended December 31, 1991, the Company
adopted a December 31 or calendar year end. The accompanying consolidated
financial statements include audited financial statements for the ten-month
transition period ended December 31, 1991. Certain comparative, unaudited
information for the twelve-month period ended December 31, 1991 is presented in
Note 17 below.
(c) Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company depreciates and
amortizes the cost of these assets, less the estimated salvage value, using the
straight-line method as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
-------------------- -----------
<S> <C>
Buildings and improvements.......................................... 5-30 years
Vehicles and equipment.............................................. 3-15 years
Furniture and fixtures.............................................. 5-8 years
</TABLE>
Leaseholds are amortized over the shorter of the life of the lease or the
asset. Upon retirement or other disposition, the cost and related accumulated
depreciation of the assets are removed from the accounts and the resulting gain
or loss is reflected in income. Site preparation and improvement costs are
included in land.
(d) Revenue Recognition
The Company recognizes revenues and accrues the related cost of treatment and
disposal upon the receipt of waste materials. Other revenues are recognized as
the related costs are incurred.
F-9
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(e) Income Taxes
The Company has adopted the Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Under the liability method specified by
SFAS No. 109, the deferred tax liability is determined based upon the
difference between the financial statement and tax basis of assets and
liabilities as measured by the enacted tax rates which will be in effect when
these differences reverse. Deferred tax expense is the result of changes in the
liability for deferred taxes. The principal types of differences between assets
and liabilities for financial statement and tax return purposes are accumulated
depreciation, business combinations accounted for by the purchase method, and
provisions for doubtful accounts. The deferred tax liability is reduced by net
operating losses being carried forward for tax purposes.
(f) Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is computed using the
weighted average number of common and common equivalent shares outstanding
during each of the respective years. Fully diluted net income per common share
has not been presented as the amount would not differ significantly from that
presented.
(g) Capitalization of Interest
The Company capitalizes interest on funds used to finance the construction of
major capital additions. The Company capitalized interest costs aggregating
$301,000 in the year 1992 and $408,000 in the ten-month period ended December
31, 1991. No interest was capitalized during the year 1993.
(h) Intangible Assets
Intangible assets, as further discussed in Notes 4 and 5, are stated at cost
and are being amortized using the straight line method over periods ranging
from 20 years for permits and from 20 to 40 years for costs in excess of
identifiable net assets acquired.
(i) Supplies Inventory
Supplies inventory, stated at the lower of cost or market, is charged to
operations on a first in, first out basis.
(j) Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with a maturity
of less than three months to be cash equivalents.
(k) Letters of Credit
In its fiscal year ended February 28, 1991, the Company adopted Statement of
Financial Accounting Standard No. 105, which requires disclosure of information
about financial instruments with off-balance-sheet risk and about
concentrations of credit risk for all financial instruments.
The Company utilizes letters of credit to provide collateral assurance to
issuers of performance bonds for certain contracts, and to assure regulatory
authorities that certain funds will be available for closure of hazardous waste
storage and disposal facilities. As of December 31, 1993 and 1992, the Company
had outstanding letters of credit amounting to $12,471,000 and $10,845,000,
respectively.
F-10
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1993, the Company had no significant concentrations of
credit risk.
(l) Reclassifications
Certain reclassifications have been reflected in prior years' financial
statements to conform the presentations to that as of December 31, 1993.
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, restricted cash, and long-
term obligations approximate fair value. The Company believes similar terms for
long-term obligations would be attainable, except for its senior subordinated
debt. The fair value of its senior subordinated debt was determined by
discounting the future cash flows of this debt using the Company's incremental
borrowing rate. At December 31, 1993, the estimated fair values of the
Company's financial instruments are as follows (in thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -------
<S> <C> <C>
Cash and cash equivalents.................................. $ 816 $ 816
Restricted cash............................................ 1,037 1,037
Long-term obligations...................................... 42,476 42,476
Senior subordinated notes.................................. 30,000 33,594
</TABLE>
(4) BUSINESS ACQUISITIONS
On February 16, 1993, the Company acquired all of the outstanding shares of
Spring Grove Resource Recovery, Inc. ("Spring Grove"), a hazardous waste
treatment, storage and disposal facility located in Cincinnati OH, from
Southdown Environmental Treatment Systems, Inc. ("SETS") in exchange for
$1,400,000 in cash and 112,000 shares of newly issued Series B Convertible
Preferred Stock with a stated value of $5,600,000. The transfer of ownership
from the seller to the Company is subject to approval by regulatory
authorities, which is expected to be received during 1994.
On June 30, 1992, the Company acquired all of the outstanding shares of
Connecticut Treatment Corporation ("CTC"), a hazardous waste treatment, storage
and disposal facility located in Bristol CT, from SETS in exchange for $500,000
in cash and a promissory note in the amount of $1,883,000. The first principal
installment on the note was $376,600, due on June 30, 1993, with installments
of $94,150 due at the end of each quarter thereafter, until the remaining
balance is paid in full. The note bears interest at the corporate base rate
announced by The First National Bank of Boston (the "Bank") (6.0% at December
31, 1993) plus 2%.
SETS' parent Southdown, Inc. has indemnified the Company against on-site and
off-site environmental liabilities arising from the prior ownership and
operation of Spring Grove and CTC. The assets acquired consist primarily of
real estate and operating machinery for wastewater treatment and related
facilities and equipment. Both acquisitions were accounted for as a purchase.
In each case the total acquisition cost equaled the fair value of the assets
acquired; therefore, no goodwill was recorded.
On July 30, 1992, the Company acquired all of the outstanding shares of Mr.
Frank, Inc., located in Matteson IL in exchange for 233,000 shares of the
Company's common stock, with a fair market value of $2,155,000. The assets
acquired consist primarily of vehicles, equipment and a leasehold interest in
real estate. The acquisition was accounted for as a purchase, with
approximately $2,113,000 excess of acquisition cost over the fair value of Mr.
Frank, Inc.'s identifiable assets being
F-11
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
assigned to goodwill. Upon closing, 32,222 of the exchanged shares of the
Company's common stock valued at $300,000 were deposited into an escrow account
for a minimum of two years as security for the sellers' agreement to indemnify
the Company against potential liabilities, including certain environmental
liabilities arising from prior ownership and operation of Mr. Frank, Inc.
The results of operations of Spring Grove, CTC and Mr. Frank, Inc. are
included in the consolidated financial statements subsequent to the dates of
acquisition by the Company. Pro forma information has not been included
concerning these acquisitions since the assets and operations acquired were not
material to those of the Company.
(5) INTANGIBLE ASSETS
Below is a summary of intangible assets at December 31, 1993 and 1992 (in
thousands):
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Permits..................................................... $17,303 $15,350
Costs in excess of identifiable net assets acquired......... 27,529 27,529
------- -------
44,832 42,879
Less--Accumulated amortization.............................. 6,276 4,843
------- -------
$38,556 $38,036
======= =======
</TABLE>
Amortization expense approximated $1,433,000 and $1,325,000 for the years
1993 and 1992, respectively, and $1,076,000 for the ten-month period ended
December 31, 1991.
The Company continually reevaluates the propriety of the carrying amount of
permits and goodwill as well as the amortization period to determine whether
current events and circumstances warrant adjustments to the carrying value and
estimates of useful lives. At this time, the Company believes that no
significant impairment of goodwill or other intangibles has occurred and that
no reduction of the estimated useful lives is warranted.
(6) RELATED PARTY TRANSACTIONS
The Company leases certain facilities from a partnership of which the
Company's principal stockholder is a limited partner. Under the terms of the
lease, the Company agreed to make aggregate lease payments of $5,633,000 from
the inception of the lease through June 1, 1996. In addition, the Company has
an option to renew the lease for a five-year period. Total rent expense charged
to operations was $703,000 during each of the years 1993 and 1992, and $553,000
during the ten-month period ended December 31, 1991. See Note 12 for further
discussion of lease commitments. The Company has subleased a portion of these
facilities to an unrelated third party.
(7) RESTRICTED CASH
The Company has deposited funds into interest-bearing accounts administered
by various state environmental regulatory agencies. These accounts were
established under requirements that companies engaged in the treatment and
disposal of hazardous materials provide assurance that certain funds will be
available for closure of hazardous waste storage and disposal facilities and to
satisfy claims made by creditors in the event of insolvency. At December 31,
1993 and 1992, the balance in these accounts was $31,000 and $234,000,
respectively. As described in Note 2(k), the Company's practice is to utilize
letters of credit to satisfy closure obligations, in lieu of maintaining
restricted cash accounts. In addition, there are funds which are restricted for
the payment of
F-12
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
insurance claims. The balance of these insurance funds was $1,006,000 and
$789,000 as of December 31, 1993 and 1992, respectively.
(8) FINANCING ARRANGEMENTS
At December 31, 1993, the Company had a Revolving Credit Agreement (the
"Revolver") with three banks, which permitted borrowings of up to $38,000,000
in cash and allowed the Company to have a maximum of $20,000,000 of letters of
credit outstanding. The combination of cash and letters of credit outstanding
was limited to $50,000,000 at any one time. At December 31, 1993 and 1992,
borrowings under the Revolver were $32,705,000 and $26,077,000, respectively
(exclusive of outstanding letters of credit). The entire balance of the
Revolver matures on July 1, 1996. All borrowings under the Revolver are
collateralized by substantially all of the Company's assets.
On February 1, 1994, the Company and its banks amended the Revolver to
increase the amount of the Revolver to $55,000,000. The amended Revolver
permits borrowings of up to $40,000,000 in cash, and allows the Company to have
up to $20,000,000 of letters of credit outstanding. The combination of cash and
letters of credit outstanding may not exceed $55,000,000 at any one time. The
amount of the Revolver reduces on April 1, 1995 to $50,000,000.
Interest on amounts outstanding under the Revolver are payable monthly in
arrears and accrue at the Bank's base rate plus 1%, or at the Company's option,
at a rate which is 3% over the "Eurodollar Rate" offered to the Bank by prime
banks in the Eurodollar interbank market. At December 31, 1993, the Company had
elected the Eurodollar option with respect to $29,000,000 of the amounts
outstanding under the Revolver; the Eurodollar Rate was 3.25% and the Bank's
base rate was 6%. The Company also pays a commitment fee at the rate of one-
half of 1% per annum on the unused portion of the total commitment.
The Revolver provides for the maintenance of certain restrictive covenants
including, among others, restrictions on the ratio of accounts receivable to
current liabilities, total liabilities to tangible net worth, and earnings
before interest and taxes to total interest expense. The Company is also
restricted from making certain dividend payments, incurring certain additional
debt, and capital expenditures are limited to $12,000,000 each year.
On May 25, 1989, the Company issued senior subordinated notes and warrants to
purchase 100,000 shares of common stock for aggregate proceeds, before issuance
costs, of $30,300,000. The $30,000,000 of notes bear interest at 13.25%,
payable semiannually, and mature at the rate of $7,500,000 per year commencing
on May 15, 1994. At December 31, 1993, current liabilities included the first
$7,500,000 principal installment due May 15, 1994. The note agreement provides
for the maintenance of certain restrictive covenants including, among others,
restrictions on the ratio of current assets to current liabilities, the levels
of net worth and the percentage of debt in an aggregate unpaid principal amount
to total capitalization. Should an event of default occur with respect to the
specified restrictive covenants, all notes become immediately payable and the
Company can be required to pay a premium ranging from 8% to 13% of the
outstanding principal balance, depending on when such event of default occurs.
At December 31, 1993, the Company owed $2,150,000 on a term loan from a
financial institution at a floating interest rate equal to the greater of 8% or
the financial institution's "prime" rate plus 1%. Principal payments of $50,000
each are due monthly, with a balloon payment at maturity of the loan,
originally scheduled to be April 30, 1994. On November 3, 1993, the financial
institution agreed to extend the maturity date of the loan to April 30, 1996.
F-13
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On November 12, 1991, the Company issued to a financial institution a
$3,500,000 unsecured subordinated convertible note due in 1999, which is
convertible into common stock at $15 per share. On July 17, 1992, the Company
issued to the same financial institution an additional $1,500,000 unsecured
subordinated convertible note due in 1999, which is convertible into common
stock at $10 per share, bringing the total amount of unsecured convertible
notes to $5,000,000. The notes bear interest at 8%, and principal is payable in
five equal installments of $1,000,000 each, beginning on October 31, 1995 and
ending on October 31, 1999. The Company has the right to convert the notes into
common stock at $25 per share. The notes provide for the maintenance of certain
restrictive covenants including, among others, restrictions on the ratio of
current assets to current liabilities, senior liabilities to net worth, and
level of net worth.
The following table is a summary of the Company's long-term debt obligations
reflecting the transactions discussed above.
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1993 1992
------- -------
<S> <C> <C>
Revolving credit agreement bearing interest at the
Eurodollar Rate (3.25% at December 31, 1993) plus 3%, or
the Bank's base rate (6% at December 31, 1993) plus 1%,
collateralized by substantially all assets................ $32,705 $26,077
Senior subordinated notes payable, bearing interest at
13.25% per year, collateralized by substantially all
assets.................................................... 30,000 30,000
Subordinated note payable to a financial institution,
bearing interest at the greater of (i) 8% or (ii) the
financial institution's prime rate (6.75% at December 31,
1993) plus 1%............................................. 2,150 2,750
Subordinated convertible notes bearing interest at 8%...... 5,000 5,000
Junior subordinated note payable to Southdown Environmental
Treatment Systems, Inc. bearing interest at the Bank's
base rate plus 2%......................................... 1,318 1,883
Junior subordinated notes to the former owners of Mr.
Frank, Inc. bearing interest at the Bank's base rate plus
1%........................................................ 170 287
Various notes payable collateralized by real property,
vehicles and equipment at varying interest rates.......... -- 190
Obligations under capital leases........................... 546 708
Other long-term obligations................................ 587 653
------- -------
72,476 67,548
Less--Current maturities................................... 8,917 1,816
Less--Unamortized financing costs.......................... 1,052 1,167
------- -------
Long-term obligations...................................... $62,507 $64,565
======= =======
</TABLE>
F-14
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Below is a summary of minimum payments due under the Company's long-term
obligations (in thousands), exclusive of obligations under capital leases
discussed in Note 12:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
1994................................................................ $ 8,705
1995................................................................ 9,645
1996................................................................ 42,706
1997................................................................ 8,874
1998................................................................ 1,000
Thereafter.......................................................... 1,000
-------
Total minimum payments due under long-term obligations including
current maturities................................................. $71,930
=======
</TABLE>
(9) FEDERAL AND STATE INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
(TWELVE MONTHS) (TWELVE MONTHS) (TEN MONTHS)
--------------- --------------- ------------
<S> <C> <C> <C>
Federal--
Current................. $ 958 $2,370 $ 908
Deferred................ 1,222 314 275
State --
Current................. 995 235 375
Deferred................ (530) (145) 9
------ ------ ------
Net provision for income
taxes.................... $2,645 $2,774 $1,567
====== ====== ======
</TABLE>
Effective January 1, 1992 the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The Company had previously adopted SFAS 96. The adoption of SFAS 109 did not
have a material impact on the Company's financial condition or results of
operations.
The sources of significant timing differences which gave rise to deferred
taxes were as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
(TWELVE MONTHS) (TWELVE MONTHS) (TEN MONTHS)
--------------- --------------- ------------
<S> <C> <C> <C>
Accelerated depreciation....... $501 $(495) $(404)
Provision for doubtful ac-
counts........................ 88 25 341
Vacation accrual............... 88 115 48
Rent holiday................... (28) (66) 57
Insurance reserves............. (127) 386 7
Restructuring reserves......... -- (148) 159
Litigation..................... 98 211 --
Tax attributes, net of valua-
tion allowance................ 639 -- --
Other.......................... (567) 141 76
---- ----- -----
Total deferred tax provision... $692 $ 169 $ 284
==== ===== =====
</TABLE>
F-15
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The effective income tax rate varies from the amount computed using the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1993 1992 1991
(TWELVE MONTHS) (TWELVE MONTHS) (TEN MONTHS)
--------------- --------------- ------------
<S> <C> <C> <C>
Statutory rate................. 34.0% 34.0% 20.0%
Increase (decrease) in taxes
resulting from:
State income taxes, net of
federal benefit............. 5.0 2.0 5.8
Goodwill amortization........ 4.7 6.0 --
Other permanent differences.. 3.9 .6 --
Utilization of alternative
minimum tax credit.......... -- (7.3) --
Benefit of net operating loss
carryforward................ -- -- (4.4)
Settlement of state and
federal audits.............. -- -- 8.9
Valuation allowance adjust-
ment........................ (1.8) -- --
---- ---- ----
Net provision for income taxes. 45.8% 35.3% 30.3%
==== ==== ====
</TABLE>
The components of the total deferred tax asset at December 31, 1993 and 1992
were as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
Current:
Provision for doubtful accounts............................ $ 543 $ 631
Accrued vacation pay....................................... 67 155
Litigation accruals........................................ 495 592
Miscellaneous.............................................. 675 230
Deferred:
Accrued rent holiday....................................... 105 77
Deferred compensation...................................... 36 46
Insurance reserve.......................................... 1,131 1,004
Other...................................................... 142 79
Various tax attributes..................................... 5,226 5,970
Valuation allowance........................................ (763) (868)
------ ------
Total deferred tax asset................................... $7,657 $7,916
====== ======
The components of the total deferred tax liability at December 31, 1993 and
1992 were as follows (in thousands):
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
Current:
Prepaid insurance.......................................... $ -- $ 12
Deferred:
Permits.................................................... 3,130 3,198
Property, plant and equipment.............................. 6,350 5,837
------ ------
Total deferred tax liability............................... $9,480 $9,047
------ ------
Net deferred tax liability................................... $1,823 $1,131
====== ======
</TABLE>
F-16
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For federal income tax purposes at December 31, 1993, as a result of the
acquisition of ChemClear Inc. ("ChemClear") in January 1989, the Company has
regular tax net operating loss carryforwards of $4,338,000 and alternative
minimum tax net operating loss carryforwards of $3,440,000, which may be used
to offset future taxable income, if any, of the former ChemClear entities,
subject to certain limitations. These net operating loss carryforwards expire
commencing in 2002.
(10) EMPLOYEE BENEFIT PLAN
The Company has a profit-sharing plan under Section 401(k) of the Internal
Revenue Code covering substantially all employees. The plan allows employees to
make contributions up to a specified percentage of their compensation, a
portion of which is matched by the Company. During the years 1993 and 1992 and
the ten-month period ended December 31, 1991, the Company's nonelective
contributions aggregated approximately $743,000, $609,000 and $281,000,
respectively.
(11) LEGAL MATTERS AND OTHER CONTINGENCIES
(a) Legal Matters
In August 1990, a lawsuit was filed against the Company in New York state
court in connection with the accidental death of an employee who was responding
to an oil spill on the Hudson River in 1989. The complaint seeks punitive
damages and $10 million for wrongful death. The Company believes the claims are
barred by worker's compensation laws and that it has insurance coverage for any
liability up to $10 million. The Company does not believe that the ultimate
liability in this case will exceed the limits of available insurance, although
there can be no assurance in this regard.
In the ordinary course of conducting its business, the Company becomes
involved in environmentally related lawsuits and administrative proceedings.
Some of these proceedings may result in fines, penalties or judgments against
the Company. The Company does not believe that these proceedings, individually
or in the aggregate, are material to its business.
As of December 31, 1993, the Company has been named in a number of lawsuits
arising from the disposal of wastes by certain Company subsidiaries at 18 state
and federal Superfund sites. Ten of these cases involve two subsidiaries which
the Company acquired from Chemical Waste Management, Inc. ("ChemWaste"). As
part of the acquisition, ChemWaste agreed to indemnify the Company with respect
to any liability of its Braintree and Natick subsidiaries for waste disposed of
before the Company acquired them. Accordingly, ChemWaste is paying all costs of
defending the Natick and Braintree subsidiaries in these 10 cases, including
legal fees and settlement costs. Two cases involve Mr. Frank, Inc. and one case
involves CTC. As discussed in Note 4, Southdown, Inc. has agreed to indemnify
the Company with respect to any liability for waste disposed of by CTC before
the Company acquired CTC, and the sellers of Mr. Frank, Inc. have agreed to
indemnify the Company against certain environmental liabilities arising from
prior ownership of Mr. Frank, Inc.
The remaining five pending cases involve former ChemClear subsidiaries. The
Company is unable to predict accurately its potential liability with respect to
these cases, but believes that any future settlement costs will not be material
to the Company's operations or financial position.
Management routinely reviews each Superfund site in which the Company's
subsidiaries are involved, considers each subsidiary's role at each site and
its relationship to the other potentially
F-17
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
responsible parties ("PRPs") at the site, the quantity and content of the waste
it disposed of at the site, and the number and financial capabilities of the
other PRPs at the site. Based on reviews of the various sites and currently
available information, and management's judgment and prior experience with
similar situations, expense accruals are provided by the Company for its share
of future site cleanup costs, and existing accruals are revised as necessary.
As of December 31, 1993, the Company had accrued environmental costs of
$470,000 for cleanup of Superfund sites. Superfund legislation permits strict
joint and several liability to be imposed without regard to fault, and as a
result, one PRP might be required to bear significantly more than its
proportional share of the cleanup costs if other PRPs do not pay their share of
such costs.
(b) Environmental Matters
Under the Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), every facility that treats, stores or disposes of hazardous waste
must obtain a RCRA permit from EPA or an authorized state agency and must
comply with certain operating requirements. Of the Company's 10 waste
management facilities, seven are subject to RCRA licensing; all seven have been
issued Part B permits, one of which is under appeal. RCRA requires that Part B
permits contain a schedule of required on-site study and cleanup activities,
known as "corrective action", including detailed compliance schedules and
provisions for assurance of financial responsibility.
The EPA has begun RCRA corrective action investigations at the Company's Part
B licensed facilities in Baltimore MD, Chicago IL, Braintree MA, Natick MA, and
Woburn MA. The Company is also involved in site studies at its non-RCRA
facilities in Cleveland OH, Kingston MA and South Portland ME. The Company
spent approximately $600,000 on corrective action at the foregoing facilities
in 1993. The Company may become involved in a RCRA corrective action
investigation at a site in Chester PA where a Company subsidiary operated a
hazardous waste treatment facility prior to closing the facility in 1989. As
discussed in Note 4, the Company's other two RCRA facilities in Bristol CT and
Cincinnati OH were acquired from a subsidiary of Southdown, Inc., which has
agreed to indemnify the Company against any costs incurred or liability arising
from contamination on-site, including the cost of corrective action.
While the final scope of the work to be done at these facilities has not yet
been agreed upon, the Company believes, based upon information known to date
about the nature and extent of contamination at these sites, that such costs
will not have a material effect on its results of operations or its financial
position, and that it will be able to finance from operating revenues any
additional corrective action required at its facilities.
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Costs incurred to obtain or renew required permits
are capitalized to the related permit account as incurred and are amortized
over the permit's remaining life. Costs incurred to remediate properties owned
by the Company are capitalized in property, plant and equipment only if the
costs extend the life, increase the capacity or improve the safety or
efficiency of the property or the costs mitigate or prevent environmental
contamination that has yet to occur and that otherwise may result from future
operations or activities. Remediation costs incurred in excess of the fair
market value of the property being remediated are expensed as incurred.
(c) Other Contingencies
The Company is subject to various regulatory requirements, including the
procurement of requisite licenses and permits at its facilities. These licenses
and permits are subject to periodic renewal without which the Company's
operations would be adversely affected. The Company
F-18
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
anticipates that, once a license or permit is issued with respect to a
facility, the license or permit will be renewed at the end of its term if the
facility's operations are in compliance with the applicable regulatory
requirements.
Under the Company's insurance programs, coverage is obtained for catastrophic
exposures as well as those risks required to be insured by law or contract. It
is the policy of the Company to retain a significant portion of certain
expected losses related primarily to workers' compensation, physical loss to
property, and comprehensive general and vehicle liability. Provisions for
losses expected under these programs are recorded based upon the Company's
estimates of the aggregate liability for claims.
(12) LEASES
(a) Capital Leases
The Company possesses certain equipment under capital leases. The capitalized
cost of this equipment was $6,603,000 and $6,450,000 with related accumulated
amortization of $4,630,000 and $4,392,000 at December 31, 1993 and 1992,
respectively. The obligations of the Company under such leases are
collateralized by the leased equipment.
Future minimum lease payments under capital leases are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1994.................................................................. $ 253
1995.................................................................. 197
1996.................................................................. 84
1997.................................................................. 72
1998.................................................................. 9
Thereafter............................................................ --
-----
Total minimum lease payments.......................................... $ 615
Less--Amounts representing interest................................. 69
-----
Present value of minimum lease payments............................... $ 546
=====
</TABLE>
(b) Operating Leases
The Company leases facilities and personal property under certain operating
leases in excess of one year. Some of these lease agreements contain an
escalation clause for increased taxes and operating expenses and are renewable
at the option of the Company. Future minimum lease payments under operating
leases are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
1994................................................................. $ 3,834
1995................................................................. 3,419
1996................................................................. 2,520
1997................................................................. 1,787
1998................................................................. 1,433
Thereafter........................................................... 4,651
-------
$17,644
=======
</TABLE>
F-19
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the years 1993 and 1992 and the ten-month period ended December 31,
1991, rent expense was approximately $9,796,000, $9,483,000, and $5,764,000,
respectively.
(13) STOCK PURCHASE AGREEMENT
In connection with the acquisition of its Braintree and Natick subsidiaries
from ChemWaste, the Company entered into a disposal agreement with ChemWaste
under which the Company is entitled to quantity discounts if it delivers
specified minimum amounts of hazardous waste to ChemWaste's disposal
facilities. At the same time, the Company and its principal stockholder entered
into a stock purchase agreement with ChemWaste under which the Company and its
principal stockholder agreed that, through the term of the disposal agreement,
they will not, subject to certain exceptions, sell the stock or substantially
all of the assets of the Company or any of its subsidiaries to any third party
without first offering to sell such stock or assets to ChemWaste on the same
terms as those offered by a third party or, in the case of a proposed public
offering, at 90% of the proposed public offering price. These agreements, as
amended, expire on March 31, 1995.
(14) STOCKHOLDERS' EQUITY
(a) Stock Option Plans
In 1987, the Company adopted a nonqualified stock option plan (the "1987
Plan"). In 1992, the Company adopted a nonqualified equity incentive plan which
provides for a variety of incentive awards, including stock options (the "1992
Plan"). As of December 31, 1993, all awards under the 1992 Plan were in the
form of stock options. These options generally become exercisable after a
period of one to five years from the date of grant, subject to certain
employment requirements, and terminate ten years from the date of grant. At
December 31, 1993, the Company had reserved 955,600 and 495,000 shares of
common stock for issuance under the 1987 and 1992 Plans, respectively.
Under the terms of the 1987 and 1992 Plans, as amended, options may be
granted to purchase shares of common stock at an exercise price not less than
85% of the fair market value on the date of grant. The difference between the
exercise price and fair market value at the date of grant is charged to
operations ratably over the option vesting period. Total compensation expense
charged to operations in the year 1992 and the ten-month period ended December
31, 1991 was approximately $8,000 and $20,000, respectively. All existing
deferred compensation was fully amortized during 1992. No options were granted
during 1993 with exercise prices lower than the fair market value of the common
stock at the date of grant.
On September 17, 1990, the Board of Directors approved a plan whereby all
employees who previously were awarded stock options in October 1987 and as a
result of the ChemClear merger in January 1989 at prices in excess of $7.65 per
share be given the opportunity to surrender those options in exchange for new
options awarded at fair market value ($7.65 per share) with a five year vesting
period commencing upon the date of the award of their original option
agreement. On January 4, 1994, the Board of Directors approved a plan whereby
certain employees (excluding senior management) who previously were awarded
stock options in May 1993 at $15.00 per share be given the opportunity to
surrender those options in exchange for new options awarded at fair market
value ($7.00 per share) with a five year vesting period commencing upon the
date of the award of their original option agreement.
F-20
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Below is a summary of the stock option activity under the 1987 and 1992 Plans
through December 31, 1993:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- --------------
<S> <C> <C>
Outstanding at February 28, 1991................... 695,307 $2.70- 7.75
Granted.......................................... 183,000 6.50-15.00
Exercised........................................ (79,532) 2.70- 7.65
Forfeited........................................ (7,121) 7.65-10.00
--------- -----------
Outstanding at December 31, 1991................... 791,654 $2.70-15.00
--------- -----------
Exercisable at December 31, 1991................... 657,679 $2.70- 7.65
--------- -----------
Granted.......................................... 348,500 8.25-13.25
Exercised........................................ (10,049) 2.70- 7.65
Forfeited........................................ (69,610) 7.65-15.00
--------- -----------
Outstanding at December 31, 1992................... 1,060,495 $2.70-15.00
--------- -----------
Exercisable at December 31, 1992................... 475,563 $2.70-10.00
--------- -----------
Granted.......................................... 445,750 7.00-15.00
Exercised........................................ (98,457) 2.70- 8.25
Forfeited........................................ (517,867) 6.50-15.00
--------- -----------
Outstanding at December 31, 1993................... 889,921 $2.70-15.00
========= ===========
Exercisable at December 31, 1993................... 398,969 $2.70-10.00
========= ===========
</TABLE>
(b) Warrants
In connection with the issuance of senior subordinated notes payable in May
1989, the Company issued warrants to purchase 100,000 shares of common stock at
$20.75 per share in exchange for $300,000. In April 1990, the exercise price of
the warrants was reduced to $9 per share. In February 1991, in connection with
the refinancing of the Company's short term debt, the exercise price was
further reduced to fair market value ($5 per share). These warrants are
exercisable at any time until February 1, 2001.
In connection with the refinancing of the Company's short term debt in
February 1991, the Company issued warrants to purchase 425,000 shares of common
stock at fair market value ($5 per share) to the three banks which provided the
Revolver. These warrants are exercisable at any time until February 6, 2001.
(c) Preferred Stock
On February 16, 1993 the Company issued 112,000 shares of Series B
Convertible Preferred Stock, $.01 par value ("Preferred Stock"), for the
acquisition of Spring Grove. The liquidation value of each preferred share is
the liquidation preference of $50 plus unpaid dividends. The Company has the
option to redeem the Preferred Stock in whole or in part at any time on or
before August 16, 1994 at liquidation value. Thereafter, any unredeemed
Preferred Stock may be converted by the holder into Common Stock at a
conversion rate of $18.63, and the Company will have the option to redeem such
Preferred Stock at liquidation value plus a redemption premium of 7% which
declines 1% each year thereafter. Each preferred share entitles its holder to
receive a cumulative annual cash dividend of $3.50 per share from February 16,
1993 to February 16, 1994 and $4.00
F-21
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
per share thereafter, or at the election of the Company, a common stock
dividend of equivalent value. At December 31, 1993, the Company had reserved
450,000 shares of common stock for issuance upon the conversion of, or as
dividends upon, the Preferred Stock.
(15) ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Insurance................................................... $ 2,971 $ 3,171
Accrued payroll and fringe benefits......................... 799 1,016
Other....................................................... 6,682 7,539
------- -------
$10,452 $11,726
======= =======
</TABLE>
(16) QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1993
Revenue................................ $ 43,452 $ 51,847 $ 52,038 $ 52,777
Income from operations................. 3,224 4,369 2,391 2,990
Net income............................. 835 1,440 275 581
Net income per common and common equiv-
alent share........................... $ .08 $ .13 $ .02 $ .05
1992
Revenue................................ $37,691 $ 41,683 $ 46,255 $ 50,564
Income from operations................. 2,348 3,509 4,390 4,666
Net income............................. 489 1,153 1,674 1,759
Net income per common and common equiv-
alent share........................... $ .05 $ .12 $ .17 $ .18
</TABLE>
The above information reflects all adjustments that are necessary to fairly
state the results of the interim periods presented. Any adjustments required
are of a normal recurring nature.
(17) TRANSITION PERIOD DATA (UNAUDITED)
The change in the Company's fiscal year end resulted in a ten-month period
ended December 31, 1991. The unaudited results for the twelve-month period
ended December 31, 1991 are presented for comparative purposes below:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues................................... $ 200,114 $ 176,193 $ 151,278
Income from operations..................... 12,974 14,913 12,957
Income taxes............................... 2,645 2,774 1,792
Net income from operations................. $ 3,131 $ 5,075 $ 4,000
Net income per share....................... $ .28 $ .52 $ .41
</TABLE>
F-22
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
UNAUDITED
(IN THOUSANDS EXCEPT FOR EARNINGS PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1994 1993
--------- ---------
<S> <C> <C>
Revenues................................................... $51,285 $43,452
Cost of revenues........................................... 35,914 28,389
Selling, general and administrative expenses............... 9,883 9,376
Depreciation and amortization.............................. 2,563 2,463
--------- ---------
Income from operations..................................... 2,925 3,224
Interest expense (net)..................................... 1,819 1,737
--------- ---------
Income before provision for income taxes................... 1,106 1,487
Provision for income taxes................................. 509 652
--------- ---------
Net income................................................. $ 597 $ 835
========= =========
Net income per common and common equivalent share.......... $ .05 $ .08
========= =========
Weighted average common and common equivalent shares out-
standing.................................................. 9,715 10,181
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1994 AND DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
1994 DECEMBER 31,
(UNAUDITED) 1993
----------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash................................................ $ 1,318 $ 816
Restricted cash..................................... 1,037 1,037
Accounts receivable, net of allowance for doubtful
accounts........................................... 45,763 46,736
Prepaid expenses.................................... 2,157 2,353
Supplies inventories................................ 2,571 2,428
Income tax receivable............................... 537 607
-------- --------
Total current assets.............................. 53,383 53,977
Property, plant and equipment:
Land................................................ 8,209 8,209
Buildings and improvements.......................... 31,737 31,737
Vehicles and equipment.............................. 70,677 70,946
Furniture and fixtures.............................. 2,203 2,201
Construction in progress............................ 2,410 1,903
-------- --------
115,236 114,996
Less--Accumulated depreciation and amortization....... 42,694 40,925
-------- --------
Net fixed assets...................................... 72,542 74,071
-------- --------
Other Assets:
Goodwill (net)...................................... 23,469 23,650
Permits (net)....................................... 14,683 14,906
Other............................................... 739 754
-------- --------
38,891 39,310
-------- --------
$164,816 $167,358
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1994 AND DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
1994 DECEMBER 31,
(UNAUDITED) 1993
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations......... $ 8,898 $ 8,917
Accounts payable.................................... 8,816 9,564
Accrued disposal costs.............................. 4,541 6,724
Other accrued expenses.............................. 12,371 10,452
Income tax payable.................................. 63 --
-------- --------
Total current liabilities......................... 34,689 35,657
-------- --------
Long-term obligations, less current maturities........ 60,421 62,507
Deferred income taxes................................. 1,823 1,823
Stockholders' equity:
Preferred Stock, $.01 par value:
Series A Convertible;
Authorized--2,000,000 shares; Issued and outstand-
ing--none......................................... -- --
Series B Convertible;
Authorized--156,416 shares; Issued and outstanding
112,000 shares at March 31, 1994 (liquidation
preference of $5.6 million)....................... 1 1
Common Stock, $.01 par value;
Authorized--20,000,000 shares; Issued and outstand-
ing--9,428,504 shares at March 31, 1994 and
9,425,829 shares at December 31, 1993.............. 95 95
Additional paid-in capital.......................... 58,576 58,556
Retained earnings................................... 9,211 8,719
-------- --------
Total stockholders' equity........................ 67,883 67,371
-------- --------
$164,816 $167,358
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................. $ 597 $ 835
Adjustments to reconcile net income to net cash pro-
vided by operating activities:
Depreciation and amortization........................ 2,563 2,463
Deferred taxes payable............................... -- 100
Gain on sale of fixed assets......................... (74) --
Changes in assets and liabilities, net of businesses
acquired:
Accounts receivable.................................. 973 1,702
Refundable income taxes.............................. 70 153
Prepaid expenses..................................... 196 (346)
Supplies inventories................................. (143) 12
Accounts payable..................................... (748) (2,668)
Accrued disposal costs............................... (2,183) (364)
Other accrued expenses............................... 1,914 (372)
Taxes payable........................................ 63 (128)
--------- ---------
Net cash provided by operating activities.............. 3,228 1,387
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment............. (630) (2,179)
Increase in permits.................................... -- (15)
Increase in intangible assets.......................... -- (53)
Decrease (increase) in other assets.................... 13 (60)
Proceeds from sale of fixed assets..................... 76 --
Payment for business acquired, net of cash acquired.... -- (1,394)
--------- ---------
Net cash used in investing activities.................. (541) (3,701)
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividend distribution................... (100) (50)
Net (payments) borrowings on long-term debt............. (2,105) 2,255
Proceeds from exercise of stock options................. 20 478
Tax benefit from stock option exercises................. -- 261
--------- ---------
Net cash (used in) provided by financing activities..... (2,185) 2,944
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS..................... 502 630
Cash and equivalents, beginning of year................. 816 625
--------- ---------
Cash and equivalents, end of period..................... $ 1,318 $ 1,255
========= =========
Supplemental Information:
</TABLE>
Supplemental schedule of noncash investing and financing activities:
On February 16, 1993, the Company acquired all the outstanding capital stock
of Spring Grove Resource Recovery, Inc., in exchange for cash and 112,000
shares of Series B Convertible Preferred Stock of Clean Harbors, Inc., with a
liquidation value of $5,600,000.
F-27
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1994
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES B
PREFERRED STOCK COMMON STOCK
----------------- ------------
NUMBER $0.01 NUMBER $0.01 ADDITIONAL TOTAL
OF PAR OF PAR PAID-IN RETAINED STOCKHOLDERS'
SHARES VALUE SHARES VALUE CAPITAL EARNINGS EQUITY
-------- ------- ------ ----- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... 112 $ 1 9,425 $95 $58,556 $8,719 $67,371
Preferred stock divi-
dends:
Series B.............. -- -- -- -- -- (105) (105)
Proceeds from exercise
of stock options....... -- -- 3 -- 20 -- 20
Net Income.............. -- -- -- -- -- 597 597
------- ------- ----- --- ------- ------ -------
Balance at March 31,
1994................... 112 $ 1 9,428 $95 $58,576 $9,211 $67,883
======= ======= ===== === ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE>
CLEAN HARBORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The consolidated interim financial statements included herein have been
prepared by the Company, pursuant to the rules and regulations of the
Securities and Exchange Commission, and include, in the opinion of management,
all adjustments (consisting of only normal recurring accruals) necessary for
the fair presentation of interim period results. The operating results for the
three months ended March 31, 1994 are not necessarily indicative of those to be
expected for the full fiscal year. Reference is made to the audited
consolidated financial statements and notes thereto for the years ended
December 31, 1993 and 1992 and for the ten-month period ended December 31, 1991
included elsewhere in this Prospectus.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
(A) Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is based on net income less
preferred stock dividend requirements divided by the weighted average number of
common and common equivalent shares outstanding during each of the respective
periods. Fully diluted net income per common share has not been presented as
the amount would not differ significantly from that presented.
NOTE 3 FINANCIAL ARRANGEMENTS
At December 31, 1993, the Company had a Revolving Credit Agreement (the
"Revolver") with three banks, which permitted borrowings of up to $38,000,000
in cash and allowed the Company to have a maximum of $20,000,000 of letters of
credit outstanding. The combination of cash and letters of credit outstanding
was limited to $50,000,000 at any one time. At March 31, 1994, borrowings under
the Revolver were $31,004,569 (exclusive of outstanding letters of credit). The
entire balance of the Revolver matures on July 1, 1996. All borrowings under
the Revolver are collateralized by substantially all of the Company's assets.
On February 1, 1994, the Company and its banks amended the Revolver to
increase the amount of the Revolver to $55,000,000. The amended Revolver
permits borrowings of up to $40,000,000 in cash, and allows the Company to have
up to $20,000,000 of letters of credit outstanding. The combination of cash and
letters of credit outstanding may not exceed $55,000,000 at any one time. The
amount of the Revolver reduces on April 1, 1995 to $50,000,000.
F-29
<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DE-
LIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 14
Capitalization............................................................ 15
Selected Consolidated Financial Data...................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 27
Environmental Regulation.................................................. 44
Directors and Executive Officers of the Company........................... 47
Description of Other Indebtedness......................................... 49
Description of the Senior Notes........................................... 50
Underwriting.............................................................. 73
Notice to Canadian Residents.............................................. 73
Legal Matters............................................................. 74
Experts................................................................... 74
Available Information..................................................... 75
Incorporation of Certain Documents by Reference........................... 75
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(ARTWORK)
$75,000,000
% Senior Notes Due 2004
PROSPECTUS
CS First Boston
Alex. Brown & Sons
Incorporated
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate of all expenses in connection with
the issuance and distribution of the Senior Notes being registered, other than
underwriting compensation:
<TABLE>
<S> <C>
Registration Fee................................................... $25,862
NASD Filing Fee.................................................... 8,000
Printing and Engraving............................................. *
Accounting Fees and Expenses....................................... *
Legal Fees and Expenses............................................ *
Blue Sky Fees and Expenses......................................... *
Trustee Fees....................................................... *
Miscellaneous...................................................... *
-------
Total............................................................ *
=======
</TABLE>
- --------
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) Section 67 of the Massachusetts Business Corporation Law, as amended,
gives Massachusetts corporations the power to indemnify each of their present
and former officers or directors under certain circumstances if such person
acted in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interest of the corporation. In its Restated Articles
of Organization, the Registrant provides for such indemnification of its
officers and directors to the extent permitted by law.
(b) Reference is made to Article 6 of the Registrant's Restated Articles of
Organization filed as Exhibit 3.1 to the Registrant's Form S-1 Registration
Statement (No. 33-17565), and incorporated herein by reference, for the
applicable provisions regarding the indemnification of directors and officers.
(c) Reference is made to Section 7 of the Underwriting Agreement (the form of
which will be included in Exhibit 1 to this Registration Statement) for
provisions regarding the indemnification under certain circumstances of the
Registrant, its directors and certain of its officers by the Underwriters.
ITEM 16. EXHIBITS
Unless otherwise indicated, the exhibits described below have heretofore been
filed with the Commission by the Registrant under its filings identified below,
and such exhibits are incorporated herein by reference.
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
**1 --Proposed form of Underwriting Agreement.
3.1 --Restated Articles of Organization of Clean Harbors, Inc. and
amendments thereto [Exhibit 3.1 to Form S-1 Registration Statement
(File No. 33-17565)].
3.2 --Certificate of Vote of Directors Establishing a Series of a Class of
Stock (Series B Convertible Preferred Stock). [Exhibit 3.2 to Form
10-K Annual Report for the Year ended December 31, 1992 (File No. 0-
16379)].
3.3 --Amended and Restated By-laws of Clean Harbors, Inc. [Exhibit 3.4A to
Form 10-K Annual Report for the Fiscal Year ended February 28, 1991
(File No. 0-16379)].
*4.1 --Revised proposed form of Indenture (including form of Senior Note)
between Clean Harbors, Inc., the Guarantor Subsidiaries, and , as
Trustee, relating to the proposed issuance of the Senior Notes.
4.2A --Note Agreements dated as of May 15, 1989 by and between Clean
Harbors, Inc. and certain affiliates of Kemper Financial Services,
Inc. [Exhibit 10.32 to Form 10-K Annual Report for the Fiscal Year
ended February 29, 1989 (File No. 0-16379)].
4.2B --Amendment Agreement dated as of February 1, 1991 to Note Agreements
originally dated as of May 15, 1989 by and among Clean Harbors, Inc.
and certain affiliates of Kemper Financial Services, Inc. and to
Warrants originally dated May 25, 1989 [Exhibit 4.2 to Form 10-K
Annual Report for the Fiscal Year ended February 28, 1991 (File No.
0-16379)].
4.2C --Subordinated Guaranty Agreement dated as of January 15, 1991 by the
subsidiaries of Clean Harbors, Inc., as guarantors of the Senior
Notes and Note Agreements originally dated as of May 15, 1989 by and
among Clean Harbors, Inc. and certain affiliates of Kemper Financial
Services, Inc. [Exhibit 4.3 to Form 10-K Annual Report for the Fiscal
Year ended February 28, 1991 (File No. 0-16379)].
4.2D --Second Amendment Agreement dated as of November 7, 1991 to Note
Agreements originally dated as of May 15, 1989 by and among Clean
Harbors, Inc. and certain affiliates of Kemper Financial Services,
Inc. and to Warrants originally dated May 25, 1989 [Exhibit 4.6 to
Form 10-Q Quarterly Report for the Quarter ended November 30, 1991
(File No. 0-16379)].
4.2E --Third Amendment Agreement dated as of June 29, 1992 to Note
Agreements originally dated as of May 15, 1989 by and among Clean
Harbors, Inc. and certain affiliates of Kemper Financial Services,
Inc. [Exhibit 4.7 to Form 10-Q Quarterly Report for the Quarter ended
September 30, 1992 (File No. 0-16379)].
4.3A --Amended and Restated Revolving Credit Agreement dated as of February
19, 1993 by and among Clean Harbors, Inc., the Subsidiaries listed on
Schedule 1 thereto, Clean Harbors of Baltimore, as Guarantor, and The
First National Bank of Boston, National Westminster Bank USA, and
USTrust, and The First National Bank of Boston, as Agent [Exhibit 4.8
to Form 10-K Annual Report for the Year ended December 31, 1992 (File
No. 0-16379)].
4.3B --First Amendment dated November 5, 1993 to Amended and Restated
Revolving Credit Agreement dated as of February 19, 1993 by and among
Clean Harbors, Inc., the Subsidiaries listed on Schedule 1 thereto,
Clean Harbors of Baltimore, as Guarantor, and The First National Bank
of Boston, National Westminster Bank USA, and USTrust, and The First
National Bank of Boston, as Agent [Exhibit 4.9 to Form 10-Q Quarterly
Report for the Quarter ended September 30, 1993 (File No. 0-16379)].
4.3C --Second Amendment dated February 1, 1994 to Amended and Restated
Revolving Credit Agreement dated as of February 19, 1993 by and among
Clean Harbors, Inc., the Subsidiaries listed on Schedule 1 thereto,
Clean Harbors of Baltimore, as Guarantor, and The First National Bank
of Boston, National Westminster Bank USA, and USTrust, and The First
National Bank of Boston, as Agent [Exhibit 4.10 to Form 10-K Annual
Report for the Year ended December 31, 1993 (File No. 0-16379)].
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
**5 --Opinion of Davis, Malm & D'Agostine, P.C.
10.1 --Employment Agreement between Clean Harbors, Inc. and James A. Pitts
dated March 20, 1992 [Exhibit 10.34 to Form 10-K Annual Report for
the Year ended December 31, 1992 (File No. 0-13679)].
10.2 --Stock Purchase Agreement among Clean Harbors, Inc., Southdown
Environmental Treatment Systems, Inc. and Southdown, Inc. dated as of
June 23, 1992 [Exhibit 10.35 to Form 10-K Annual Report for the Year
ended December 31, 1992 (File No. 0-13679)].
10.3 --Stock Purchase Agreement among Clean Harbors, Inc., Southdown
Environmental Treatment Systems, Inc. and Southdown, Inc. dated as of
February 16, 1993 [Exhibit 10.36 to Form 10-K Annual Report for the
Year ended December 31, 1992 (File No. 0-13679)].
10.4 --Clean Harbors, Inc. 1987 Stock Option Plan [Exhibit 10.37 to Form
10-K Annual Report for the Year ended December 31, 1992 (File No. 0-
13679)].
10.5 --Clean Harbors, Inc. 1992 Equity Incentive Plan [Exhibit 10.38 to
Form 10-K Annual Report for the Year ended December 31, 1992 (File
No. 0-13679)].
***12 --Computation of Ratio of Earnings to Fixed Charges.
*23.1 --Consent of Coopers & Lybrand.
**23.2 --Consent of Davis, Malm & D'Agostine, P.C., will be contained in
their opinion filed as Exhibit 5 to this Registration Statement.
***24 --Powers of Attorney.
**25 --Statement of Eligibility and Qualification of Trustee on Form T-1.
</TABLE>
- --------
* Filed herewith.
** To be filed by amendment.
*** Previously filed under this Registration Statement.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
REGISTRANT
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS
AMENDMENT TO ITS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOSTON, COMMONWEALTH OF
MASSACHUSETTS, ON JUNE 27, 1994.
Clean Harbors, Inc.
By: Alan S. McKim*
---------------------------------
ALAN S. MCKIM, CHAIRMAN OF
THE BOARD OF DIRECTORS AND
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED THIS
AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
Alan S. McKim* Chairman of the Board June 27, 1994
- ------------------------------------- of Directors,
ALAN S. MCKIM President and Chief
Executive Officer
James A. Pitts Executive Vice June 27, 1994
- ------------------------------------- Presidentof Finance
JAMES A. PITTS and Administration
and Chief Financial
Officer (principal
financial officer)
Mary-Ellen Drinkwater* Vice President and June 27, 1994
- ------------------------------------- Controller (principal
MARY-ELLEN DRINKWATER accounting officer)
Daniel J. McCarthy* Director June 27, 1994
- -------------------------------------
DANIEL J. MCCARTHY
John O. Peterson* Director June 27, 1994
- -------------------------------------
JOHN O. PETERSON
John F. Kaslow* Director June 27, 1994
- -------------------------------------
JOHN F. KASLOW
Christy W. Bell* Director June 27, 1994
- -------------------------------------
CHRISTY W. BELL
Lorne R. Waxlax* Director June 27, 1994
- -------------------------------------
LORNE R. WAXLAX
*By: James A. Pitts
--------------------------------
JAMES A. PITTS, ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
ADDITIONAL REGISTRANT
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, EACH
OF THE ADDITIONAL REGISTRANTS CERTIFIES THAT IT HAS REASONABLE GROUNDS TO
BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-2 AND HAS
DULY CAUSED THIS AMENDMENT TO ITS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOSTON,
COMMONWEALTH OF MASSACHUSETTS, ON JUNE 27, 1994.
Clean Harbors Environmental
Services, Inc.
By: Alan S. McKim*
---------------------------------
ALAN S. MCKIM, PRESIDENT
Clean Harbors of Braintree, Inc., Clean Harbors of Natick, Inc., Clean Harbors
of Baltimore, Inc., Clean Harbors of Chicago, Inc., Clean Harbors of
Cleveland, Inc., Murphy's Waste Oil Service, Inc., Clean Harbors Kingston
Facility Corporation, Clean Harbors of Connecticut, Inc., Mr. Frank, Inc.,
Spring Grove Resource Recovery, Inc.
By: James A. Pitts
---------------------------------
JAMES A. PITTS,
VICE PRESIDENT
Clean Harbors Technology Corporation
By:Jorgen H. Vestergaard*
---------------------------------
JORGEN H. VESTERGAARD,
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
President (principal June 27, 1994
Alan S. McKim* executive officer) of
- ------------------------------------ Clean Harbors
ALAN S. MCKIM Environmental
Services, Inc.; sole
Director of each of
the Additional
Registrants (other
than Clean Harbors
Technology
Corporation); and
Director of Clean
Harbors Technology
Corporation
President (principal June 27, 1994
Jorgen H. Vestergaard* executive officer)
- ------------------------------------ and Director of Clean
JORGEN H. VESTERGAARD Harbors Technology
Corporation
Treasurer (principal June 27, 1994
James A. Pitts financial and
- ------------------------------------ accounting officer)
JAMES A. PITTS of each of the
Additional
Registrants
Director of Clean
Harbors Technology
- ------------------------------------ Corporation
JOHN T. PRESTON
*By: James A. Pitts
-------------------------------
JAMES A. PITTS, ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
**1 --Proposed form of Underwriting Agreement.
3.1 --Restated Articles of Organization of Clean Harbors, Inc. and
amendments thereto [Exhibit 3.1 to Form S-1 Registration Statement
(File No. 33-17565)].
3.2 --Certificate of Vote of Directors Establishing a Series of a Class of
Stock (Series B Convertible Preferred Stock). [Exhibit 3.2 to Form
10-K Annual Report for the Year ended December 31, 1992 (File No. 0-
16379)].
3.3 --Amended and Restated By-laws of Clean Harbors, Inc. [Exhibit 3.4A to
Form 10-K Annual Report for the Fiscal Year ended February 28, 1991
(File No. 0-16379)].
*4.1 --Revised proposed form of Indenture (including form of Senior Note)
between Clean Harbors, Inc., the Guarantor Subsidiaries, and , as
Trustee, relating to the proposed issuance of the Senior Notes.
4.2A --Note Agreements dated as of May 15, 1989 by and between Clean
Harbors, Inc. and certain affiliates of Kemper Financial Services,
Inc. [Exhibit 10.32 to Form 10-K Annual Report for the Fiscal Year
ended February 29, 1989 (File No. 0-16379)].
4.2B --Amendment Agreement dated as of February 1, 1991 to Note Agreements
originally dated as of May 15, 1989 by and among Clean Harbors, Inc.
and certain affiliates of Kemper Financial Services, Inc. and to
Warrants originally dated May 25, 1989 [Exhibit 4.2 to Form 10-K
Annual Report for the Fiscal Year ended February 28, 1991 (File No.
0-16379)].
4.2C --Subordinated Guaranty Agreement dated as of January 15, 1991 by the
subsidiaries of Clean Harbors, Inc., as guarantors of the Senior
Notes and Note Agreements originally dated as of May 15, 1989 by and
among Clean Harbors, Inc. and certain affiliates of Kemper Financial
Services, Inc. [Exhibit 4.3 to Form 10-K Annual Report for the Fiscal
Year ended February 28, 1991 (File No. 0-16379)].
4.2D --Second Amendment Agreement dated as of November 7, 1991 to Note
Agreements originally dated as of May 15, 1989 by and among Clean
Harbors, Inc. and certain affiliates of Kemper Financial Services,
Inc. and to Warrants originally dated May 25, 1989 [Exhibit 4.6 to
Form 10-Q Quarterly Report for the Quarter ended November 30, 1991
(File No. 0-16379)].
4.2E --Third Amendment Agreement dated as of June 29, 1992 to Note
Agreements originally dated as of May 15, 1989 by and among Clean
Harbors, Inc. and certain affiliates of Kemper Financial Services,
Inc. [Exhibit 4.7 to Form 10-Q Quarterly Report for the Quarter ended
September 30, 1992 (File No. 0-16379)].
4.3A --Amended and Restated Revolving Credit Agreement dated as of February
19, 1993 by and among Clean Harbors, Inc., the Subsidiaries listed on
Schedule 1 thereto, Clean Harbors of Baltimore, as Guarantor, and The
First National Bank of Boston, National Westminster Bank USA, and
USTrust, and The First National Bank of Boston, as Agent [Exhibit 4.8
to Form 10-K Annual Report for the Year ended December 31, 1992 (File
No. 0-16379)].
4.3B --First Amendment dated November 5, 1993 to Amended and Restated
Revolving Credit Agreement dated as of February 19, 1993 by and among
Clean Harbors, Inc., the Subsidiaries listed on Schedule 1 thereto,
Clean Harbors of Baltimore, as Guarantor, and The First National Bank
of Boston, National Westminster Bank USA, and USTrust, and The First
National Bank of Boston, as Agent [Exhibit 4.9 to Form 10-Q Quarterly
Report for the Quarter ended September 30, 1993 (File No. 0-16379)].
4.3C --Second Amendment dated February 1, 1994 to Amended and Restated
Revolving Credit Agreement dated as of February 19, 1993 by and among
Clean Harbors, Inc., the Subsidiaries listed on Schedule 1 thereto,
Clean Harbors of Baltimore, as Guarantor, and The First National Bank
of Boston, National Westminster Bank USA, and USTrust, and The First
National Bank of Boston, as Agent [Exhibit 4.10 to Form 10-K Annual
Report for the Year ended December 31, 1993 (File No. 0-16379)].
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
**5 --Opinion of Davis, Malm & D'Agostine, P.C.
10.1 --Employment Agreement between Clean Harbors, Inc. and James A. Pitts
dated March 20, 1992 [Exhibit 10.34 to Form 10-K Annual Report for
the Year ended December 31, 1992 (File No. 0-13679)].
10.2 --Stock Purchase Agreement among Clean Harbors, Inc., Southdown
Environmental Treatment Systems, Inc. and Southdown, Inc. dated as of
June 23, 1992 [Exhibit 10.35 to Form 10-K Annual Report for the Year
ended December 31, 1992 (File No. 0-13679)].
10.3 --Stock Purchase Agreement among Clean Harbors, Inc., Southdown
Environmental Treatment Systems, Inc. and Southdown, Inc. dated as of
February 16, 1993 [Exhibit 10.36 to Form 10-K Annual Report for the
Year ended December 31, 1992 (File No. 0-13679)].
10.4 --Clean Harbors, Inc. 1987 Stock Option Plan [Exhibit 10.37 to Form
10-K Annual Report for the Year ended December 31, 1992 (File No. 0-
13679)].
10.5 --Clean Harbors, Inc. 1992 Equity Incentive Plan [Exhibit 10.38 to
Form 10-K Annual Report for the Year ended December 31, 1992 (File
No. 0-13679)].
***12 --Computation of Ratio of Earnings to Fixed Charges.
*23.1 --Consent of Coopers & Lybrand.
**23.2 --Consent of Davis, Malm & D'Agostine, P.C., will be contained in
their opinion filed as Exhibit 5 to this Registration Statement.
***24 --Powers of Attorney.
**25 --Statement of Eligibility and Qualification of Trustee on Form T-1.
</TABLE>
- --------
* Filed herewith.
** To be filed by amendment.
*** Previously filed under this Registration Statement.
<PAGE>
GRAPHICS APPENDIX LIST
----------------------
Page Where
Graphic Appears Description of Graphics
- --------------- -----------------------
TX 2 Map depicting Waste Management Facilities,
Service Centers and Sales Offices.
TX 30 Wheel chart showing the types of services
provided by the Company and their
respective percentages of total revenues.
<PAGE>
================================================================================
CLEAN HARBORS, INC.
___% Senior Notes Due 2004
_______________________
INDENTURE
Dated as of July __, 1994
_______________________
[ ], Trustee
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Section Indenture Section
- ----------- -----------------
<S> <C> <C>
310 (a)(1)........................................... 7.10
(a)(2)........................................... 7.10
(a)(3)........................................... N.A.
(a)(4)........................................... N.A.
(b).............................................. 7.08; 7.10
(c).............................................. N.A.
311 (a).............................................. 7.11
(b).............................................. 7.11
(c).............................................. N.A.
312 (a).............................................. 2.05
(b).............................................. 11.03
(c).............................................. 11.03
313 (a).............................................. 7.06
(b)(1)........................................... N.A.
(b)(2)........................................... 7.06
(c).............................................. 11.02
(d).............................................. 7.06
314 (a).............................................. 4.02; 4.16; 11.02
(b).............................................. N.A.
(c)(1)........................................... 11.04
(c)(2)........................................... 11.04
(c)(3)........................................... N.A.
(d).............................................. N.A.
(e).............................................. 11.05
(f).............................................. 4.18
315 (a).............................................. 7.01
(b).............................................. 7.05; 11.02
(c).............................................. 7.01
(d).............................................. 7.01
(e).............................................. 6.11
316 (a) (last sentence).............................. 11.06
(a)(1)(A)........................................ 6.05
(a)(1)(B)........................................ 6.04
(a)(2)........................................... N.A.
(b).............................................. 6.07
317 (a)(1)........................................... 6.08
(a)(2)........................................... 6.09
(b).............................................. 2.04
318 (a).............................................. 11.01
</TABLE>
N.A. means Not Applicable
_____________________
Note: This Cross-Reference Table shall not, for any purpose, be deemed to
be part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - Definitions and Incorporation by Reference...................... 1
------------------------------------------
SECTION 1.01 Definitions............................................ 1
-----------
SECTION 1.02 Other Definitions...................................... 12
-----------------
SECTION 1.03 Incorporation by Reference of Trust Indenture Act...... 13
-------------------------------------------------
SECTION 1.04 Rules of Construction.................................. 13
---------------------
ARTICLE 2 - The Securities.................................................. 14
--------------
SECTION 2.01 Form and Dating........................................ 14
---------------
SECTION 2.02 Execution and Authentication........................... 15
----------------------------
SECTION 2.03 Registrar and Paying Agent............................. 15
--------------------------
SECTION 2.04 Paying Agent to Hold Money in Trust.................... 16
-----------------------------------
SECTION 2.05 Securityholder Lists................................... 16
--------------------
SECTION 2.06 Transfer and Exchange.................................. 16
---------------------
SECTION 2.07 Replacement Securities................................. 17
----------------------
SECTION 2.08 Outstanding Securities................................. 17
----------------------
SECTION 2.09 Temporary Securities................................... 18
--------------------
SECTION 2.10 Cancellation........................................... 18
------------
SECTION 2.11 Defaulted Interest..................................... 18
------------------
ARTICLE 3 - Redemption...................................................... 18
----------
SECTION 3.01 Notices to Trustee..................................... 18
------------------
SECTION 3.02 Selection of Securities to be Redeemed................. 19
--------------------------------------
SECTION 3.03 Notice of Redemption................................... 19
--------------------
SECTION 3.04 Effect of Notice of Redemption......................... 20
------------------------------
SECTION 3.05 Deposit of Redemption Price............................ 20
---------------------------
SECTION 3.06 Securities Redeemed in Part............................ 20
---------------------------
ARTICLE 4 - Covenants....................................................... 21
---------
SECTION 4.01 Payment of Securities.................................. 21
---------------------
SECTION 4.02 SEC Reports............................................ 21
-----------
SECTION 4.03 Limitation on Debt..................................... 21
------------------
SECTION 4.04 Limitation on Subsidiary Debt and Preferred Stock...... 23
-------------------------------------------------
SECTION 4.05 Limitation on Liens.................................... 24
-------------------
SECTION 4.06 Limitation on Sale/Leaseback Transactions.............. 25
-----------------------------------------
SECTION 4.07 Limitation on Restricted Payments...................... 26
---------------------------------
SECTION 4.08 Limitation on Issuance and Sale of Capital Stock of
---------------------------------------------------
Subsidiaries........................................... 28
------------
SECTION 4.09 Limitation on Restrictions on Distributions from
------------------------------------------------
Subsidiaries........................................... 29
------------
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 4.10 Limitation on Sales of Assets and Subsidiary Stock..... 30
--------------------------------------------------
SECTION 4.11 Limitation on Transactions with Affiliates............. 34
------------------------------------------
SECTION 4.12 Lines of Business...................................... 34
-----------------
SECTION 4.13 Compliance Certificate................................. 34
----------------------
SECTION 4.14 Change of Control...................................... 35
-----------------
SECTION 4.15 Additional Subsidiary Guarantees....................... 36
--------------------------------
SECTION 4.16 Corporate Existence.................................... 36
-------------------
SECTION 4.17 Further Instruments and Acts........................... 36
----------------------------
ARTICLE 5 - Successor Company............................................... 37
-----------------
SECTION 5.01 When Company May Merge or Transfer Assets.............. 37
-----------------------------------------
ARTICLE 6 - Defaults and Remedies........................................... 38
---------------------
SECTION 6.01 Events of Default...................................... 38
-----------------
SECTION 6.02 Acceleration........................................... 40
------------
SECTION 6.03 Other Remedies......................................... 40
--------------
SECTION 6.04 Waiver of Past Defaults................................ 40
-----------------------
SECTION 6.05 Control by Majority.................................... 40
-------------------
SECTION 6.06 Limitation on Suits.................................... 41
-------------------
SECTION 6.07 Rights of Holders to Receive Payment................... 41
------------------------------------
SECTION 6.08 Collection Suit by Trustee............................. 41
--------------------------
SECTION 6.09 Trustee May File Proofs of Claim....................... 42
--------------------------------
SECTION 6.10 Priorities............................................. 42
----------
SECTION 6.11 Undertaking for Costs.................................. 42
---------------------
SECTION 6.12 Waiver of Stay or Extension Laws....................... 42
--------------------------------
ARTICLE 7 - Trustee......................................................... 43
-------
SECTION 7.01 Duties of Trustee...................................... 43
-----------------
SECTION 7.02 Rights of Trustee...................................... 44
-----------------
SECTION 7.03 Individual Rights of Trustee........................... 44
----------------------------
SECTION 7.04 Trustee's Disclaimer................................... 45
--------------------
SECTION 7.05 Notice of Defaults..................................... 45
------------------
SECTION 7.06 Reports by Trustee to Holders.......................... 45
-----------------------------
SECTION 7.07 Compensation and Indemnity............................. 45
--------------------------
SECTION 7.08 Replacement of Trustee................................. 46
----------------------
SECTION 7.09 Successor Trustee by Merger............................ 47
---------------------------
SECTION 7.10 Eligibility; Disqualification.......................... 47
-----------------------------
SECTION 7.11 Preferential Collection of Claims Against Company...... 47
-------------------------------------------------
ARTICLE 8 - Discharge of Indenture; Defeasance.............................. 48
----------------------------------
SECTION 8.01 Discharge of Liability on Securities; Defeasance....... 48
------------------------------------------------
SECTION 8.02 Conditions to Defeasance............................... 48
------------------------
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 8.03 Application of Trust Money............................. 50
--------------------------
SECTION 8.04 Repayment to Company................................... 50
--------------------
SECTION 8.05 Indemnity for Government Obligations................... 50
------------------------------------
SECTION 8.06 Reinstatement.......................................... 50
-------------
ARTICLE 9 - Amendments...................................................... 51
----------
SECTION 9.01 Without Consent of Holders............................. 51
--------------------------
SECTION 9.02 With Consent of Holders................................ 52
-----------------------
SECTION 9.03 Compliance with Trust Indenture Act.................... 53
-----------------------------------
SECTION 9.04 Revocation and Effect of Consents and Waivers.......... 53
---------------------------------------------
SECTION 9.05 Notation on or Exchange of Securities.................. 53
-------------------------------------
SECTION 9.06 Trustee to Sign Amendments............................. 53
--------------------------
SECTION 9.07 Payment for Consent.................................... 53
-------------------
ARTICLE 10 - Subsidiary Guarantees.......................................... 54
---------------------
SECTION 10.01 Unconditional Subsidiary Guarantee..................... 54
----------------------------------
SECTION 10.02 Limitation of Guarantor Subsidiary's Liability......... 56
----------------------------------------------
SECTION 10.03 Execution and Delivery of Subsidiary Guarantees........ 56
-----------------------------------------------
SECTION 10.04 Addition of Guarantor Subsidiary....................... 57
--------------------------------
SECTION 10.05 Release of the Subsidiary Guarantees................... 57
------------------------------------
ARTICLE 11 - Miscellaneous.................................................. 58
-------------
SECTION 11.01 Trust Indenture Act Controls........................... 58
----------------------------
SECTION 11.02 Notices................................................ 58
-------
SECTION 11.03 Communication by Holders with Other Holders............ 58
-------------------------------------------
SECTION 11.04 Certificate and Opinion as to Conditions Precedent..... 59
--------------------------------------------------
SECTION 11.05 Statements Required in Certificate or Opinion.......... 59
---------------------------------------------
SECTION 11.06 When Securities Disregarded............................ 59
---------------------------
SECTION 11.07 Rules by Trustee, Paying Agent and Registrar........... 60
--------------------------------------------
SECTION 11.08 Legal Holidays......................................... 60
--------------
SECTION 11.09 Governing Law.......................................... 60
-------------
SECTION 11.10 No Recourse Against Others............................. 60
--------------------------
SECTION 11.11 Successors............................................. 60
----------
SECTION 11.12 Multiple Originals..................................... 60
------------------
SECTION 11.13 Table of Contents; Headings............................ 60
---------------------------
SECTION 11.14 Separability Clause.................................... 60
-------------------
SECTION 11.15 Benefits of Indenture.................................. 61
---------------------
EXHIBIT A - FORM OF FACE OF SECURITY........................................ A-1
EXHIBIT B - FORM OF SUPPLEMENTAL INDENTURE TO BE
DELIVERED BY FUTURE GUARANTOR SUBSIDIARIES..................... B-1
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
EXHIBIT C - FORM OF NOTATION ON
SENIOR NOTE RELATING TO SUBSIDIARY GUARANTEE.................... C-1
</TABLE>
(iv)
<PAGE>
INDENTURE dated as of July ___, 1994, between CLEAN HARBORS, INC., a
Delaware corporation (the "Company"), the Guarantor Subsidiaries set forth on
the signature pages hereof and [_________________], a national banking
association, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the Holders of the Company's ___% Senior
Notes Due July __, 2004 (the "Securities"):
ARTICLE 1 - Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01 Definitions.
-----------
"Adjusted EBITDA" means for any period (i) EBITDA for such period
minus (ii) for such period, the sum of (A) the net income of CHTC plus (B)
taxes, if any, of CHTC, the total interest expense of CHTC, depreciation
expense of CHTC, amortization expense of CHTC and all other non-cash charges
to the extent included in the calculation of net income of CHTC, in each case
determined in accordance with generally accepted accounting principles.
"Affiliate" of any specified person means (i) any other person which,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified person or (ii) any other person who is a director
or officer (A) of such specified person, (B) of any subsidiary of such
specified person or (C) of any person described in clause (i) above. For
purposes of this definition, control of a person means the power, direct or
indirect, to direct or cause the direction of the management and policies of
such person whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions),
including any such disposition by means of a merger, consolidation or similar
transaction, of shares of Capital Stock of a Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the
purposes of this definition as a "disposition") by the Company or any of its
Subsidiaries, but excluding the following: (i) a disposition by a Subsidiary
to the Company or by the Company or a Subsidiary to a Wholly Owned Subsidiary,
(ii) a disposition of tangible property or assets which have become obsolete
or are otherwise not used or useful, so long as such disposition is at Fair
Market Value (as determined by the Board of Directors of the Company in good
faith) in the ordinary course of business, (iii) a disposition that
constitutes a Restricted Payment, a Sale/Leaseback Transaction, or a Public
Offering, in each case so long as effected in accordance with all applicable
provisions of this Indenture, and (iv) a disposition of inventory in the
ordinary course of business.
<PAGE>
"Attributable Debt" means, in respect of a Sale/Leaseback Transaction,
at the date of determination, the present value (discounted at the lower of
the interest rate of such Sale/Leaseback Transaction and the interest rate
borne by the Bank Revolver at the time, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to
any Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of
the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Debt or
redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.
"Bank Debt" means any and all amounts payable under or in respect of
the Bank Revolver (or if all the obligations under the Bank Revolver shall be
replaced, refinanced or refunded one or more times with obligations under one
or more other agreements and the Trustee shall receive notice thereof from
time to time from the Company designating such other agreements at any given
time as the agreements constituting Bank Debt for purposes of this definition
of Bank Debt, the agreements from time to time so designated), as amended and
supplemented from time to time, including principal, premium (if any),
interest (including interest accruing on or after the filing of any petition
in bankruptcy or for reorganization relating to the Company whether or not a
claim for post-filing interest is allowed in such proceeding), fees, charges,
expenses, letters of credit, reimbursement obligations, Guarantees and all
other amounts payable thereunder or in respect thereof.
"Bank Guarantee" means, for any Subsidiary, the Guarantee by such
Subsidiary of the Bank Debt and any other Debt or any Subsidiary which Debt,
directly or indirectly, Guarantees or secures any Bank Debt.
"Bank Revolver" means the Amended and Restated Revolving Credit
Agreement among the Company and The First National Bank of Boston, National
Westminster Bank USA, and USTrust, and The First National Bank of Boston, as
agent, as in effect on the date on which the Securities are originally issued.
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" of a person means any obligation which is
required to be classified and accounted for as a capital lease on the face of
a balance sheet of such person prepared in accordance with generally accepted
accounting principles; the amount of such
2
<PAGE>
obligation shall be the capitalized amount thereof, determined in accordance
with generally accepted accounting principles; and the Stated Maturity thereof
shall be the date of the last payment of rent or any other amount due under
such lease.
"Capital Stock" means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock, including any Preferred
Stock.
"Cash Equivalents" means: (i) Investments in U.S. Government
Obligations maturing within 365 days of the date of acquisition thereof; (ii)
Investments in certificates of deposit or Eurodollar deposits maturing within
365 days of the date of acquisition thereof issued by a bank or trust company
which is organized under the laws of the United States or any state thereof
and which has a combined capital and surplus of at least $1.0 billion and
rated at least A3 by Moody's Investors Service, Inc.; (iii) Investments in
repurchase agreements, involving Investments in U.S. Government Obligations or
other Cash Equivalents entered into with any bank, trust company or investment
bank rated at least A- and A-1 by Standard & Poor's Corporation and at least
A3 and P-1 by Moody's Investors Service, Inc.; (iv) Investments in commercial
paper maturing not more than 90 days from the date of acquisition thereof and
rated at least A-1 by Standard & Poor's Corporation and at least P-1 by
Moody's Investors Service, Inc. issued by a corporation (except the Company or
an Affiliate of the Company) that is organized under the laws of any state of
the United States or the District of Columbia; and (v) Investments in money
market accounts or funds substantially all of the assets of which consist of
cash or securities of the types described in clauses (i) through (iv) above.
"Change of Control" means the occurrence of any of the following events:
(i) except to the extent caused by the issuance of
securities by the Company subsequent to the date on which the Senior
Notes were originally issued, the Permitted Holders cease, at any time
prior to the death or disability (as defined in Section 22(e)(3) of the
Internal Revenue Code) of Alan McKim, to be the "beneficial owners" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all shares that
any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of at least 20% in the aggregate of the total voting power
of the Voting Stock of the Company, whether as a result of any merger,
consolidation, liquidation or dissolution of the Company, any direct or
indirect transfer of securities or otherwise (for purposes of this
clause (i) and clause (ii) below, the Permitted Holders shall be deemed
to beneficially own any Voting Stock of a corporation (the "specified
corporation") held by any other corporation (the "parent corporation")
so long as the Permitted Holders beneficially own (as so defined),
directly or indirectly, in the aggregate a majority of the voting power
of the Voting Stock of the parent corporation);
3
<PAGE>
(ii) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than one or more Permitted
Holders, is or becomes the beneficial owner (as defined in clause (i)
above), directly or indirectly, of more than 35% of the total voting
power of the Voting Stock of the Company; provided, however, that the
-------- -------
Permitted Holders "beneficially own" (as so defined), directly or
indirectly, in the aggregate a lesser percentage of the total voting
power of the Voting Stock of the Company than such other person and do
not have the right or ability by voting power, contract or otherwise
to elect or designate for election a majority of the Board of
Directors of the Company (for the purposes of this clause (ii), such
other person shall be deemed to beneficially own any Voting Stock of a
specified corporation held by a parent corporation, if such other
person "beneficially owns" (as so defined), directly or indirectly,
a majority of the voting power of the Voting Stock of such parent
corporation and the Permitted Holders "beneficially own" (as so
defined), directly or indirectly, in the aggregate a lesser percentage
of the voting power of the Voting Stock of such parent corporation and
do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board
of Directors of such parent corporation); or
(iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board
of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election
by the shareholders of the Company was approved by a vote of at least
66 2/3% of the directors of the Company then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the
Company then in office.
"Company" means the party named as such in the caption of this
Indenture until a successor replaces it and, thereafter, means the successor
and, for purposes of any provision contained herein and required by the TIA,
each other obligor on the indenture securities.
"Consolidated EBITDA Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of EBITDA for the period of the
most recent four consecutive fiscal quarters ending at least 45 days prior to
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Subsidiary has
-------- -------
issued any Debt since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
EBITDA Coverage Ratio is an issuance of Debt, or both, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to such Debt as if such Debt had been issued on the first day
of such period and the discharge of any other Debt refinanced, refunded,
exchanged or otherwise discharged with the proceeds of such new Debt as if any
such discharge had occurred on the first day of such period, (2) if
4
<PAGE>
since the beginning of such period the Company or any Subsidiary shall have
made any Asset Disposition, EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets
which are the subject of such Asset Disposition for such period, or increased
by an amount equal to the EBITDA (if negative) directly attributable thereto
for such period and Consolidated Interest Expense for such period shall be
reduced by an amount equal to the Consolidated Interest Expense directly
attributable to any Debt of the Company or any Subsidiary refinanced,
refunded, exchanged or otherwise discharged with respect to the Company and
its continuing Subsidiaries in connection with such Asset Dispositions for
such period (or if the Capital Stock of any Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Debt of such Subsidiary to the extent the Company and its continuing
Subsidiaries are no longer liable for such Debt after such sale), and (3) if
since the beginning of such period the Company or any Subsidiary (by merger or
otherwise) shall have made an Investment in any Subsidiary (or any person
which becomes a Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all of an operating unit
of a business, EBITDA and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto as if such Investment or
acquisition occurred on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto (including the
issuance of any Debt), and the amount of Consolidated Interest Expense
associated with any Debt issued in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting Officer of the Company. If any Debt bears a floating rate of
interest and is being given pro forma effect, the interest on such Debt shall
be calculated as if the rate in effect on the date of determination had been
the applicable rate for the entire period.
"Consolidated Interest Expense" means, for any period, the aggregate
total interest expense of the Company and its consolidated Subsidiaries
determined in accordance with generally accepted accounting principles,
including (i) interest expense attributable to capital leases, (ii)
amortization of debt discount and debt issuance cost, (iii) capitalized
interest, (iv) non-cash interest payments, (v) commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (vi) net costs under Hedging Obligations (including
amortization of fees), (vii) Preferred Stock dividends in respect of all
Preferred Stock held by persons other than the Company or a Wholly Owned
Subsidiary, (viii) interest incurred in connection with investments in
discontinued operations and (ix) interest actually paid by the Company or any
of its consolidated subsidiaries under any Guarantee of Debt or other
obligation of any other person.
"Consolidated Net Income" means, for any period, the aggregate net
income of the Company and its consolidated Subsidiaries, determined in
accordance with generally accepted accounting principles; provided, however,
-------- -------
that there shall not be included in such Consolidated Net Income: (i) any net
income of any person if such person is not a
5
<PAGE>
Subsidiary, except that (A) the Company's equity in the net income of any such
person for such period shall be included in such Consolidated Net Income up to
the aggregate amount of cash actually distributed by such person during such
period to the Company or a Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution to a Subsidiary, to
the limitations contained in clause (iii) below) and (B) the Company's equity
in a net loss of any such person for such period shall be included in
determining such Consolidated Net Income; (ii) any net income of any person
acquired by the Company or a Subsidiary in a pooling of interest transaction
for any period prior to the date of such acquisition; (iii) any net income of
any Subsidiary if such Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Subsidiary, directly or indirectly, to the Company, except that (A) the
Company's equity in the net income of any such Subsidiary for such period
shall be included in such Consolidated Net Income up to the aggregate amount
of cash actually distributed by such Subsidiary during such period to the
Company or another Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution to another Subsidiary, to the
limitation contained in this clause) and (B) the Company's equity in a net
loss of any such Subsidiary for such period shall be included in determining
such Consolidated Net Income; (iv) any gain or loss realized upon the sale or
other disposition of any property, plant or equipment of the Company or its
consolidated Subsidiaries (including pursuant to any Sale/Leaseback
Transaction) which is not sold or otherwise disposed of in the ordinary course
of business and any gain or loss realized upon the sale or other disposition
of any Capital Stock of any person; and (v) the cumulative effect of a change
in accounting principles.
"Consolidated Net Tangible Assets" of any person means the total
assets of such person and its consolidated subsidiaries after deducting
therefrom all intangible assets, current liabilities (excluding any thereof
which are by their terms extendible or renewable at the option of the obligor
thereon to a time more than 12 months after the time as of which the amount
thereof is being computed) and minority interests, if any, in any assets of
such person's subsidiaries.
"Consolidated Net Worth" of any person means the total of the amounts
shown on the balance sheet of such person and its consolidated subsidiaries,
determined on a consolidated basis in accordance with generally accepted
accounting principles, as of the end of the most recent fiscal quarter of such
person ending at least 45 days prior to the taking of any action for the
purpose of which the determination is being made, as (i) the par or stated
value of all outstanding Capital Stock of such person plus (ii) paid-in
capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit, (B) any
amounts attributable to Redeemable Stock and (C) any amounts attributable to
Exchangeable Stock.
6
<PAGE>
"Debt" of any person means, without duplication: (i) the principal of
and premium (if any) in respect of (A) indebtedness of such person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such person is responsible or
liable; (ii) all Capital Lease Obligations of such person; (iii) all
obligations of such person issued or assumed as the deferred purchase price of
property, all conditional sale obligations of such person and all obligations
of such person under any title retention agreement (but excluding trade
accounts payable arising in the ordinary course of business); (iv) all
obligations of such person for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (i) through (iii) above) which are the functional
equivalent of commercial surety or fidelity bonds and not issued in connection
with the borrowing of money or entered into in the ordinary course of business
of such person to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is reimbursed no later than the
third Business Day following receipt by such person of a demand for
reimbursement following payment on the letter of credit); (v) the amount of
all obligations of such person with respect to the redemption, repayment or
other repurchase of any Redeemable Stock (but excluding any accrued
dividends); (vi) all obligations of the type referred to in clauses (i)
through (v) of other persons and all dividends of other persons for the
payment of which, in either case, such person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise, including by means
of any agreement which has the economic effect of a Guarantee; and (vii) all
obligations of the type referred to in clauses (i) through (vi) of other
persons secured by any Lien on any property or asset of such person (whether
or not such obligation is assumed by such person or is otherwise its legal
liability), the amount of such obligation being deemed to be the lesser of the
value of such property or assets or the amount of the obligation so secured.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"EBITDA" for any period means the Consolidated Net Income for such
period, plus the following to the extent included in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization expense, (v) all other
non-cash charges (excluding any non-cash charge which requires an accrual of
or a reserve for cash charges for any future period), and (vi) without
duplication, cash and non-cash charges associated with the early
extinguishment of debt incurred in connection with the issuance of the Senior
Notes and the application of the proceeds therefrom.
"Eligible Accounts Receivable" means all accounts, accounts
receivable, notes, bills, drafts, acceptances, instruments, documents, and all
other Debt, obligations and liabilities in whatever form owing from any person
for goods sold or for services rendered, at any time
7
<PAGE>
existing on the books of the Company which, at the time of determination, are
not more than 90 days from the date of invoice.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchangeable Stock" means any Capital Stock which is exchangeable or
convertible into another security (other than Capital Stock of the Company
which is neither Exchangeable Stock nor Redeemable Stock).
"Fair Market Value" means, with respect to any asset or property, the
sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"Guarantee" means any obligation, contingent or otherwise, of any
person directly or indirectly guaranteeing any Debt or other obligation of any
person and any obligation, direct or indirect, contingent or otherwise, of
such person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation of such person (whether
arising by virtue of partnership arrangements, or by agreement to keep-well,
to purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise) or (ii) entered into for
purposes of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided, however, that the term
-------- -------
"guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "guarantee" used as a verb has a
corresponding meaning.
"Guarantor Subsidiaries" means each of (i) Clean Harbors Environmental
Services, Inc., Clean Harbors of Natick, Inc., Clean Harbors of Braintree,
Inc., Clean Harbors of Chicago, Inc., Clean Harbors of Cleveland, Inc., Clean
Harbors of Baltimore, Inc., Clean Harbors of Connecticut, Inc., Clean Harbors
Kingston Facility Corporation, Murphy's Waste Oil Service, Inc., Clean Harbors
Technology Corporation, Mr. Frank, Inc. and Spring Grove Resource Recovery,
Inc. and (ii) any other Subsidiary that executes a Subsidiary Guarantee, and
their respective successors and assigns.
"Hedging Obligations" of any person means the obligations of such
person pursuant to any interest rate swap agreement, foreign currency exchange
agreement, interest rate collar agreement, option or futures contract or other
similar agreement or arrangement designed to protect such person against
changes in interest rates or foreign exchange rates.
"Holder" or "Securityholder" means the person in whose name a Security
is registered on the Registrar's books.
"Indenture" means this Indenture as amended or supplemented from time
to time.
8
<PAGE>
"Investment" in any person means any loan or advance to, any
acquisition of Capital Stock, equity interest, obligation or other security
of, or capital contribution or other investment in, such person.
"issue" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Debt or Capital Stock of a person
-------- -------
existing at the time such person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be issued by such
Subsidiary at the time it becomes a Subsidiary.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York or the
principal office of the Trustee.
"Lien" means any mortgage, pledge, security interest, conditional
sale, encumbrance, charge or adverse claim affecting title or resulting in an
encumbrance against real or personal property, or a security interest of any
kind.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only
as and when received, but excluding any other consideration received in the
form of assumption by the acquiring person of Debt or other obligations
relating to such properties or assets or received in any other non-cash form)
therefrom, in each case net of all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be accrued as a liability
under generally accepted accounting principles, as a consequence of such Asset
Disposition, and in each case net of all payments made on any Debt which is
secured by any assets subject to such Asset Disposition, in accordance with
the terms of any Lien upon or other security agreement of any kind with
respect to such assets, or which must by its terms, or in order to obtain a
necessary consent to such Asset Disposition, or by applicable law be repaid
out of the proceeds from such Asset Disposition, and net of all distributions
and other payments required to be made to minority interest holders in
Subsidiaries or joint ventures as a result of such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Convertible Capital Stock" means, with respect to any
corporation, any non-convertible Capital Stock of such corporation and any
Capital Stock of such corporation convertible solely into non-convertible
common stock of such corporation; provided,
--------
9
<PAGE>
however, that Non-Convertible Capital Stock shall not include any Redeemable
- -------
Stock or Exchangeable Stock.
"Non-Guarantor Subsidiary" means Northeast Casualty Risk Retention
Group, Inc.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Holders" means (i) Mr. Alan McKim, (ii) the trustees of
a trust for the benefit of Alan McKim, which trust is revocable solely by Mr.
McKim, (iii) Mr. McKim's spouse or children, (iv) a trust created for
the exclusive benefit of Mr. McKim's spouse or children or for the exclusive
benefit of Mr. McKim and such persons, and (iv) any charitable trust or
foundation qualified under Section 501(3)(c) of the Internal Revenue Code
established by Mr. McKim and for which he serves as a trustee or director.
"Permitted Investments" means: (i) Cash Equivalents; (ii) Investments
in a Wholly Owned Subsidiary (or any person which will become a Wholly Owned
Subsidiary as a result of such Investment); (iii) loans and reasonable
advances to employees of the Company or its Subsidiaries for travel,
entertainment and relocation expenses in the ordinary course of business; and
(iv) other Investments not to exceed $5.0 million at any one time outstanding.
"Permitted Liens" means, with respect to any person, (i) pledges or
deposits by such person under workers' compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in connection
with bids, tenders, contracts (other than for the payment of Debt) or leases
to which such person is a party, or deposits to secure public or statutory
obligations of such person or deposits or cash or United States government
bonds to secure surety or appeal bonds to which such person is a party, or
deposits as security for contested taxes or import duties or for the payment
of rent, in each case incurred in the ordinary course of business; (ii) Liens
imposed by law, such as carriers', warehousemen's and mechanics' Liens, in
each case for sums not yet due or being contested in good faith by appropriate
proceedings; or other Liens arising out of judgments or awards against such
person with respect to which such person shall then be proceeding with an
appeal or other proceedings for review or time for appeal has not yet expired;
(iii) Liens for property taxes not yet subject to penalties for non-payment or
which are being contested in good faith by appropriate proceedings; (iv) Liens
in favor of issuers of surety bonds or letters of credit issued pursuant to
the request of and for the account of such person in the ordinary course of
its business; provided, however, that such letters of credit do not constitute
-------- -------
Debt; (v) survey exceptions, encumbrances, easements or reservations of, or
rights of others for, licenses,
10
<PAGE>
rights of way, sewers, electric lines, telegraph and telephone lines and other
similar purposes, or zoning or other restrictions as to the use of real
properties or Liens incidental to the conduct of the business of such person
or to the ownership of its properties which were not incurred in connection
with Debt and which do not in the aggregate materially adversely affect the
value of said properties or materially impair their use in the operation of
the business of such person; (vi) Liens securing a Hedging Obligation so long
as the related Debt is, and is permitted to be under this Indenture, secured
by a Lien on the same property securing the Hedging Obligation; and (vii)
leases and subleases of real property which do not interfere with the ordinary
conduct of the business of such person, and which are made on customary and
usual terms applicable to similar properties.
"person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Security means the principal of the Security plus the
premium (if any) payable on the Security which is due or overdue or is to
become due at the relevant time.
"Redeemable Stock" means any Capital Stock that by its terms or
otherwise is required to be redeemed on or prior to the first anniversary of
the Stated Maturity of the Securities or is redeemable at the option of the
holder thereof at any time on or prior to the first anniversary of the Stated
Maturity of the Securities.
"Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby the Company or a Subsidiary transfers
such property to a person and the Company or a Subsidiary leases it from such
person.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Securities issued under this Indenture.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency).
11
<PAGE>
"Subordinated Obligation" means any Debt of the Company (whether
outstanding on the date hereof or hereafter incurred) which is subordinated or
junior in right of payment to the Securities.
"Subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interest) entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) the Company, (ii) the Company and one or more
Subsidiaries or (iii) one or more Subsidiaries.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)77aaa-
77bbbb) as in effect on the date of this Indenture.
"Trustee" means the party named as such in the caption of this
Indenture until a successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the Untied States of America
is pledged and which are not callable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of
a corporation then outstanding and normally entitled to vote in the election
of directors or other governing body of such corporation.
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of
which (other than directors' qualifying shares) is owned by the Company or
another Wholly Owned Subsidiary.
SECTION 1.02 Other Definitions.
-----------------
Defined in
Term Section
- ---- ----------
12
<PAGE>
<TABLE>
<S> <C>
"Bankruptcy Law"..................................... 6.01
"Benefitted Party"................................... 10.01
"covenant defeasance option"......................... 8.01
"Change of Control Payment Date"..................... 4.14
"CHTC"............................................... 4.08
"Custodian".......................................... 6.01
"Event of Default"................................... 6.01
"legal defeasance option"............................ 8.01
"Legal Holiday"...................................... 11.08
"Offer".............................................. 4.10
"Offer Amount"....................................... 4.10
"Offer Period"....................................... 4.10
"Paying Agent"....................................... 2.03
"Public Offering".................................... 4.08
"Purchase Date"...................................... 4.10
"Registrar".......................................... 2.03
"Restricted Payment"................................. 4.07
</TABLE>
SECTION 1.03 Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have
the meanings assigned to them by such definitions.
SECTION 1.04 Rules of Construction. Unless the context otherwise
---------------------
requires:
13
<PAGE>
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles as
in effect on the date of this Indenture;
(3) "or" is not exclusive;
(4) "including" means including, without limitation;
(5) words in the singular include the plural and words in
the plural include the singular;
(6) unsecured Debt shall not be deemed to be subordinated
or junior to secured Debt merely by virtue of its nature as unsecured Debt;
(7) the principal amount of any noninterest bearing or other
discount security at any date shall be the principal amount thereof that would
be shown on a balance sheet of the issuer dated such date prepared in
accordance with generally accepted accounting principles and accretion of
principal on such security shall be deemed to be the issuance of Debt;
(8) the principal amount of any Preferred Stock shall be
(i) the maximum liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemption or mandatory repurchase price with respect to such
Preferred Stock, whichever is greater.
ARTICLE 2 - The Securities
--------------
SECTION 2.01 Form and Dating. The Securities and the Trustee's
---------------
certificate of authentication shall be substantially in the form of Exhibit A,
which is hereby incorporated in and expressly made a part of this Indenture.
The notation on each Security relating to the Subsidiary Guarantees shall be
substantially in the form set forth on Exhibit C, which is hereby incorporated
in and expressly made a part of this Indenture. The Securities may have
notations, legends or endorsements required by law, stock exchange rule,
agreements to which the Company is subject, if any, or usage (provided that
any such notation, legend or endorsement is in a form acceptable to the
Company). Each Security shall be dated the date of its authentication. The
terms of the Securities set forth in Exhibit A are part of the terms of this
Indenture.
14
<PAGE>
SECTION 2.02 Execution and Authentication. Two Officers shall sign
----------------------------
the Securities for the Company by manual or facsimile signature. The Company's
seal shall be impressed, affixed, imprinted or reproduced on the Securities
and may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall
be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.
The Trustee shall authenticate and deliver Securities for original
issue in an aggregate principal amount of $75,000,000, upon a written order of
the Company signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of the Company. Such order shall specify
the amount of the Securities to be authenticated and the date on which the
original issue of Securities is to be authenticated. The aggregate amount of
Securities outstanding at any time may not exceed that amount except as
provided in Section 2.07.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Securities. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by
the Trustee includes authentication by such agent. An authenticating agent has
the same rights as any Registrar, Paying Agent or agent for service of notices
and demands.
SECTION 2.03 Registrar and Paying Agent. The Company may maintain an
--------------------------
office or agency where Securities may be presented for registration or
transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange.
The Company may have one or more co-registrars and one or more additional
paying agents.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall
notify the Trustee of the name and address of any such agent. If the Company
fails to maintain a Registrar or Paying Agent, the Trustee shall act as such
and shall be entitled to appropriate compensation therefor pursuant to Section
7.07. The Company or any of its domestically incorporated Wholly Owned
Subsidiaries may act as Paying Agent, Registrar, co-registrar or transfer
agent.
15
<PAGE>
The Company initially appoints [the Trustee] as Registrar and Paying
Agent in connection with the Securities.
SECTION 2.04 Paying Agent to Hold Money in Trust. Prior to each due
-----------------------------------
date of the principal and interest on any Security, the Company shall deposit
with the Paying Agent a sum sufficient to pay such principal and interest when
so becoming due. The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent shall hold in trust for the
benefit of Securityholders or the Trustee all money held by the Paying Agent
for the payment of principal of or interest on the Securities and shall notify
the Trustee of any default by the Company in making any such payment. If the
Company or a Subsidiary acts as Paying Agent, it shall segregate the money
held by it as Paying Agent and hold it as a separate trust fund. The Company
at any time may require a Paying Agent to pay all money held by it to the
Trustee and to account for any funds disbursed by the Paying Agent. Upon
complying with this Section, the Paying Agent shall have no further liability
for the money delivered to the Trustee.
SECTION 2.05 Securityholder Lists. The Trustee shall preserve in
--------------------
as current a form as is reasonably practicable the most recent list available
to it of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee, in writing at least five
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Securityholders.
SECTION 2.06 Transfer and Exchange. The Securities shall be issued
---------------------
in registered form and shall be transferable only upon the surrender of a
Security for registration of transfer. When a Security is presented to the
Registrar or a co-registrar with a request to register a transfer, the
Registrar shall register the transfer as requested if the requirements of
section 8-401(1) of the Uniform Commercial Code are met. When Securities are
presented to the Registrar or a co-registrar with a request to exchange them
for an equal principal amount of Securities of other denominations, the
Registrar shall make the exchange as requested if the same requirements are
met. To permit registration of transfers and exchanges, the Company shall
execute and the Trustee shall authenticate Securities at the Registrar's or co-
registers's request. The Company may require payment of a sum sufficient to
pay all taxes, assessments or other governmental charges in connection with
any transfer or exchange pursuant to this Section (other than any such tax
assessment or other governmental charges payable upon exchanges pursuant to
Sections 2.09, 3.06 or 9.05, which the Company shall pay). The Company shall
not be required to make and the Registrar need not register transfers or
exchanges of Securities selected for redemption (except, in the case of
Securities to be redeemed in part, the portion thereof not to be redeemed) or
any Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
16
<PAGE>
Prior to the due presentation for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-
registrar may deem and treat the person in whose name a Security is registered
as the absolute owner of such Security for the purpose of receiving payment of
principal of and interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the Company,
the Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
All Securities issued upon any transfer or exchange pursuant to the
terms of this Indenture will evidence the same debt and will be entitled to
the same benefit under this Indenture as the Securities surrendered upon such
transfer or exchange.
SECTION 2.07 Replacement Securities. If a mutilated Security is
----------------------
surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements
of Section 8-405 of the Uniform Commercial Code are met and the Holder
satisfies any other reasonable requirements of the Trustee. If required by the
Trustee or the Company, such Holder shall furnish an indemnity bond sufficient
in the judgment of the Company and the Trustee to protect the Company, the
Trustee, the Paying Agent, the Registrar and any co-registrar from any loss
which any of them may suffer if a Security is replaced. The Company and the
Trustee may charge the Holder for their expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
SECTION 2.08 Outstanding Securities. Securities outstanding at any
----------------------
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding. A Security does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date money sufficient to pay
all principal and interest payable on that date with respect to the Securities
(or portions thereof) to be redeemed or maturing, as the case may be, and the
Paying Agent is not prohibited from paying such money to the Securityholders
on that date pursuant to the terms of this Indenture, then on and after that
date such Securities (or portions thereof) cease to be outstanding and
interest on them ceases to accrue.
17
<PAGE>
SECTION 2.09 Temporary Securities. Until definitive Securities are
--------------------
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form
of definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities and
deliver them in exchange for temporary Securities. Until such exchange,
temporary Securities shall be entitled to the same rights, benefits and
privileges as definitive Securities.
SECTION 2.10 Cancellation. The Company at any time may deliver
------------
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for
registration of transfer, exchange or payment. The Trustee and no one else
shall cancel and destroy (subject to the record retention requirements of the
Exchange Act) all Securities surrendered for registration of transfer,
exchange, payment or cancellation and deliver a certificate of such
destruction to the Company unless the Company directs the Trustee to deliver
canceled Securities to the Company. The Company may not issue new Securities
to replace Securities it has redeemed, paid or delivered to the Trustee for
cancellation.
SECTION 2.11 Defaulted Interest. If the Company defaults in a
------------------
payment of interest on the Securities, the Company shall pay defaulted
interest (plus interest on such defaulted interest to the extent lawful) in
any lawful manner. The Company may pay the defaulted interest to the persons
who are Securityholders on a subsequent special record date, which date shall
be at least five Business Days prior to the payment date. The Company shall
fix or cause to be fixed any such special record date and payment date, and,
at least 15 days before any such special record date, the Company shall mail
to each Securityholder a notice that states the special record date, the
payment date and the amount of defaulted interest to be paid.
ARTICLE 3 - Redemption
----------
SECTION 3.01 Notices to Trustee. If the Company elects to redeem
------------------
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date, the principal amount of Securities
to be redeemed and the paragraph of the Securities pursuant to which the
redemption will occur.
The Company shall give each notice to the Trustee provided for in this
Section at least 60 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with the conditions herein. If fewer than all the
Securities are to be redeemed, the record date relating to such redemption
18
<PAGE>
shall be selected by the Company and given to the Trustee, which record date
shall be not less than 15 days after the date of notice to the Trustee. If the
Trustee is not the Registrar, the Company shall, concurrently with delivery of
its notice to the Trustee of redemption, cause the Registrar to deliver to the
Trustee a certificate (upon which the Trustee may rely) setting forth the name
of, and the aggregate principal amount of Securities held by each Holder.
SECTION 3.02 Selection of Securities to be Redeemed. If fewer than
--------------------------------------
all the Securities are to be redeemed, the Trustee shall select the Securities
to be redeemed pro rata or by lot or by a method that complies with applicable
legal and securities exchange requirements, if any, and that the Trustee
considers fair and appropriate and in accordance with methods generally used
at the time of selection by fiduciaries in similar circumstances. The Trustee
shall make the selection from outstanding Securities not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Securities that have denominations larger than $1,000. Securities and portions
of them the Trustee selects shall be in amounts of $1,000 or a whole multiple
of $1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be redeemed.
SECTION 3.03 Notice of Redemption. At least 30 days but not more
--------------------
than 60 days before a date for redemption of Securities, the Company shall
mail a notice of redemption by first-class mail to each Holder of Securities
to be redeemed.
The notice shall identify the Securities or portions thereof to be
redeemed and shall state:
(1) the redemption date;
(2) the redemption price and the amount of unpaid and
accrued interest on such Securities as of the date of redemption;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption price for
and any accrued but unpaid interest on such Securities;
(5) if fewer than all the outstanding Securities are to be
redeemed, the identification and principal amounts of the particular
Securities to be redeemed and, that, after the redemption date, upon
surrender of such Security, a new Security or a Security in principal
amount of the unredeemed portions will be issued;
19
<PAGE>
(6) that, unless the Company defaults in making such
redemption payment or the Paying Agent is prohibited from making such
payment pursuant to the terms of this Indenture, interest on
Securities (or portions thereof) called for redemption ceases to
accrue on and after the redemption date and that the only remaining
right of the Holders of such Securities is to receive payment of the
redemption price upon surrender to the Paying Agent of the Securities
redeemed; and
(7) the paragraph of the Securities pursuant to which the
Securities called for redemption are being redeemed.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee at least 10 days prior to the date that
notice of the redemption is to be mailed to Holders, an Officer's Certificate
that (i) requests the Trustee to give notice of the redemption to Holders,
(ii) sets forth the information to be provided to Holders in the notice of
redemption, as set forth in the preceding paragraph, and (iii) sets forth the
aggregate principal amount of Securities to be redeemed and the amount of
accrued and unpaid interest thereon as of the redemption date. If the Trustee
is not the Registrar, the Company shall, concurrently with any such request,
cause the Registrar to deliver to the Trustee a certificate (upon which the
Trustee may rely) setting forth the name of, the address of, and the aggregate
principal amount of Securities held by, each Holder.
SECTION 3.04 Effect of Notice of Redemption. Once notice of
------------------------------
redemption is mailed, Securities called for redemption become due and payable
on the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest to the redemption date.
Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.
SECTION 3.05 Deposit of Redemption Price. Prior to the redemption
---------------------------
date, the Company shall deposit with the Paying Agent (or, if the Company or a
Subsidiary is the Paying Agent, shall segregate and hold in trust) money
sufficient to pay the redemption price of and accrued interest on all
Securities to be redeemed on that date other than Securities or portions of
Securities called for redemption which have been delivered by the Company to
the Trustee for cancellation.
SECTION 3.06 Securities Redeemed in Part. Upon surrender of a
---------------------------
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's request) a new Security
equal in principal amount to the unredeemed portion of the Security
surrendered.
20
<PAGE>
ARTICLE 4 - Covenants
---------
SECTION 4.01 Payment of Securities. The Company shall promptly pay
---------------------
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the
case may be, is not prohibited from paying such money to the Securityholders
on that date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest (without regard to any applicable grace period) at
the same rate to the extent lawful.
SECTION 4.02 SEC Reports. Each of the Company and the Guarantor
-----------
Subsidiaries shall file with the Trustee and provide Securityholders, within
15 days after it files them with the SEC, copies of its annual report and of
the information, documents and other reports (or copies of such portions of
any of the foregoing as the SEC may by rules and regulations prescribe) which
the Company or such Guarantor Subsidiary is required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that the
Company may not be required to remain subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall continue to file
with the SEC and provide the Trustee and Securityholders with such annual
reports and such information, documents and other reports (or copies of such
portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which are specified in Sections 13 and 15(d) of the Exchange Act.
The Company also shall comply with the other provisions of TIA (S)314(a).
SECTION 4.03 Limitation on Debt.
------------------
(a) The Company shall not issue, directly or indirectly,
any Debt unless immediately after giving effect to the issuance of such Debt
and the receipt and application of the proceeds thereof the Consolidated
EBITDA Coverage Ratio for the period of the most recently completed four
fiscal quarters of the Company ending at least 45 days prior to the date such
Debt is issued exceeds 2.5 to 1.0; provided, however, that nothing herein
-------- -------
shall limit the ability of the Subsidiaries to incur Debt in accordance with
Section 4.04.
(b) Notwithstanding Section 4.03(a), the Company may issue
the following Debt:
(1) Debt issued pursuant to the Bank Revolver or
any other Bank Debt in an aggregate principal amount outstanding at
any one time not to exceed the greater of $35.0 million or 80% of
Eligible Accounts Receivable;
21
<PAGE>
provided, however, that such amount shall be reduced by the aggregate
-------- -------
outstanding principal amount of all Debt issued pursuant to
clauses (5), (6) and (7) below and clause (3) under Section 4.04
below;
(2) Debt owed to and held by a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or
-------- -------
transfer of any Capital Stock which results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any transfer of
such Debt (other than to a Wholly Owned Subsidiary) shall be deemed,
in each case, to constitute the issuance of such Debt by the Company;
(3) the Securities and Debt issued in exchange
for, or the proceeds of which are used to refund or refinance, any
Debt permitted by this clause (3); provided, however, that (i) the
-------- -------
principal amount of the Debt so issued shall not exceed the principal
amount of the Debt so exchanged, refunded or refinanced and (ii) the
Debt so issued (A) shall not mature prior to the Stated Maturity of
the Debt so exchanged, refunded or refinanced and (B) shall have an
Average Life equal to or greater than the remaining Average Life of
the Debt so exchanged, refunded or refinanced;
(4) Debt (other than Debt described in clause (1),
(2) or (3) above) outstanding on the date on which the Securities were
originally issued and Debt issued in exchange for, or the proceeds of
which are used to refund or refinance, any Debt permitted by this
clause (4), by clause (4) under Section 4.04 below, or any Debt issued
as permitted by Section 4.03(a); provided, however, that (i) the
principal amount of the Debt so issued shall not exceed the principal
amount of the Debt so exchanged, refunded or refinanced and (ii) the
Debt so issued (A) shall not mature prior to the Stated Maturity of
the Debt so exchanged, refunded or refinanced and (B) shall have an
Average Life equal to or greater than the remaining Average Life of
the Debt so exchanged, refunded or refinanced;
(5) Debt issued with respect to obligations that
are tax-exempt pursuant to Section 103 of the Internal Revenue Code of
1986, as from time to time amended (the "Code"), and that are issued
in connection with pollution control facilities or other plant and
equipment or other facilities of the Company or a Subsidiary;
provided, however, that the aggregate principal amount of all Debt
-------- -------
permitted by this clause (5) outstanding at any one time shall not
exceed $10.0 million;
(6) Debt issued by the Company, whether or not
secured by a Lien, constituting all or a part of the purchase price of
assets or property acquired or constructed in the ordinary course of
business after the date on which the Securities
22
<PAGE>
were originally issued and Debt issued by the Company in
exchange for, or the proceeds of which are used to refund or
refinance, any then outstanding Debt permitted by this clause (6);
provided, however, that (i) the principal amount of the Debt so issued
-------- -------
shall not exceed the principal amount of the Debt so exchanged,
refunded or refinanced, and (ii) the Debt so issued (A) shall not
mature prior to the Stated Maturity of the Debt so exchanged, refunded
or refinanced and (B) shall have an Average Life equal to or greater
than the remaining Average Life of the Debt so exchanged, refunded or
refinanced; provided further, however, that the aggregate principal
---------------- -------
amount of all Debt permitted by this clause (6) outstanding at any one
time shall not exceed $10.0 million; and
(7) Debt (other than Debt described in clauses (1)
through (6) above and in Section 4.03(a)) in an aggregate principal
amount outstanding at any one time not to exceed $10.0 million minus the
aggregate outstanding principal amount of all Debt of Subsidiaries
issued pursuant to clause (3) of Section 4.04 below.
(c) Notwithstanding Sections 4.03(a) and 4.03(b), the
Company shall not issue any Debt (i) if the proceeds thereof are used,
directly or indirectly, to repay, prepay, redeem, defease, retire, refund or
refinance any Subordinated Obligations unless such Debt shall be subordinated
to the Securities to at least the same extent as such Subordinated Obligations
or (ii) if such Debt is subordinate or junior in ranking in any respect to any
other indebtedness unless such Debt is expressly subordinated in right of
payment to the Securities.
SECTION 4.04 Limitation on Subsidiary Debt and Preferred Stock. The
-------------------------------------------------
Company shall not permit any Subsidiary to issue, directly or indirectly, any
Debt or Preferred Stock except:
(1) Any Subsidiary Guarantee and any Bank Guarantee;
(2) Debt or Preferred Stock issued to and held by
the Company or a Wholly Owned Subsidiary; provided, however, that (i)
-------- -------
any subsequent issuance or transfer of any Capital Stock which results
in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary, or (ii) any subsequent transfer of such Debt or Preferred
Stock (other than to the Company or a Wholly Owned Subsidiary) shall
be deemed, in each case, to constitute the issuance of such Debt or
Preferred Stock by the issuer thereof;
(3) Debt or Preferred Stock of a Subsidiary issued
and outstanding on or prior to the date on which such Subsidiary was
acquired by the Company (other than Debt or Preferred Stock issued as
consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Subsidiary became a
Subsidiary or was
23
<PAGE>
acquired by the Company); provided, however, that the aggregate
-------- -------
principal amount or liquidation value of such Debt and Preferred Stock
permitted by this clause (3) outstanding at any one time shall not
exceed $10.0 million;
(4) Debt or Preferred Stock (other than Debt or
Preferred Stock described in clauses (1) through (3) above) outstanding
on the date of this Indenture; and
(5) Debt or Preferred Stock issued in exchange for,
or the proceeds of which are used to refinance, Debt or Preferred
Stock referred to in the foregoing clause (3) or (4); provided,
--------
however, that (i) the principal amount or liquidation value of such
-------
Debt or Preferred Stock so issued shall not exceed the principal
amount or liquidation value of the Debt or Preferred Stock so
exchanged, refunded or refinanced and (ii) the Debt or Preferred Stock
so issued (A) shall have a Stated Maturity later than the Stated
Maturity of the Debt or Preferred Stock so exchanged, refunded or
refinanced and (B) shall have an Average Life equal to or greater than
the remaining Average Life of the Debt or Preferred Stock so
exchanged, refunded or refinanced.
SECTION 4.05 Limitation on Liens. The Company shall not, and shall
-------------------
not permit any Subsidiary to, create or permit to exist any Lien upon any of
its property or assets, now owned or hereafter acquired, securing any
obligation unless concurrently with the creation of such Lien effective
provision is made to secure the Securities equally and ratably with such
obligation for so long as such obligation is so secured; provided, however,
-------- -------
that if such obligation is a Subordinated Obligation, the Lien securing such
obligation shall be subordinated and junior to the Lien securing the
Securities with the same or lesser relative priority as such Subordinated
Obligation shall have with respect to the Securities. The preceding
restriction shall not require the Company or any Subsidiary to equally and
ratably secure the Securities if the Lien consists of the following:
(1) Liens created by the Indenture and Liens
existing as of the date on which the Securities were originally issued;
(2) Permitted Liens;
(3) Liens to secure Debt issued by the Company for
the purpose of financing all or a part of the purchase price of assets
or property acquired or constructed in the ordinary course of business
after the date on which the Securities were originally issued;
provided, however, that (i) the aggregate principal amount (or
-------- -------
accreted value in the case of Debt issued at a discount) of Debt so
issued shall not exceed the lesser of cost or Fair Market Value, as
determined in good faith by the Board of Directors of the Company, of
the assets or property so acquired or constructed, (ii) the Debt
secured by such Liens shall have been permitted to be
24
<PAGE>
issued under Section 4.03(b)(6) and (iii) such Liens shall not
encumber any other assets or property of the Company or any of its
Subsidiaries other than such assets or property or any improvement on
such assets or property and shall attach to such assets or property
within 90 days of the construction or acquisition of such assets or
property;
(4) Liens on the assets or property of a
Subsidiary existing at the time such Subsidiary became a Subsidiary
and not issued as a result of (or in connection with or in
anticipation of) such Subsidiary becoming a Subsidiary; provided,
--------
however, that (i) the Debt secured by such Liens shall have been
-------
permitted to be issued under clause (3) of Section 4.04 above and (ii)
such Liens do not extend to or cover any other property
or assets of the Company or any of its other Subsidiaries;
(5) Liens on the assets of the Company or any
Subsidiary that is a guarantor thereof securing Debt under the Bank
Revolver or other revolving credit agreement permitted under Section
4.03(b)(1) above;
(6) Liens securing industrial revenue or pollution
control bonds issued by the Company; provided, however, that (i) the
-------- -------
aggregate principal amount of Debt secured by such Liens shall not
exceed the lesser of cost or Fair Market Value, as determined in good
faith by the Board of Directors of the Company, of the assets or
property so financed, (ii) the Debt secured by such Lien shall have
been permitted to be issued under clause (5) of Section 4.03 above, and
(iii) such Liens do not extend to or cover any other property or assets
of the Company; or
(7) Liens securing Debt issued to refinance Debt
which has been secured by a Lien permitted under this Indenture and is
permitted to be refinanced under this Indenture; provided, however,
-------- -------
that such Liens do not extend to or cover any property or assets of
the Company or any of its Subsidiaries not securing the Debt so
refinanced, and the principal amount (or accreted value) of the Debt
so secured is not increased except as otherwise permitted pursuant to
this Indenture.
SECTION 4.06 Limitation on Sale/Leaseback Transactions. The Company
-----------------------------------------
shall not, and shall not permit any Subsidiary to, enter into, Guarantee or
otherwise become liable with respect to any Sale/Leaseback Transaction unless
at least one of the following conditions is satisfied:
(1) The Company or such Subsidiary, pursuant to
Sections 4.05(2) through (7) could create a Lien on the property to
secure Debt in an amount at least equal to the Attributable Debt in
respect of such Sale/Leaseback Transaction and the Company or such
Subsidiary, as the case may be, receives consideration at least equal
to the Fair Market Value, as determined in good faith by the Board of
Directors of the Company, of the property transferred; or
25
<PAGE>
(2) the Sale/Leaseback Transaction is treated as an
Asset Disposition and all the conditions of Section 4.10 are satisfied
with respect to such Sale/Leaseback Transaction (without giving effect
to the exceptions for Net Available Cash, as set forth in Section
4.10(a)).
SECTION 4.07 Limitation on Restricted Payments.
---------------------------------
(a) The Company shall not, and shall not permit any Subsidiary,
directly or indirectly, to (i) declare or pay any dividend or make any
distribution on or in respect of its Capital Stock (including any payment in
connection with any merger of consolidation involving the Company) or to the
direct or indirect holders of its Capital Stock (except dividends or
distributions payable solely in its Non-Convertible Capital Stock or in
options, warrants or other rights to purchase its Non-Convertible Capital
Stock and except dividends or distributions payable to the Company or a Wholly
Owned Subsidiary), (ii) purchase, redeem or otherwise acquire or retire for
value any of its Capital Stock (except Captial Stock of a Wholly Owned
Subsidiary), (iii) purchase, repurchase, redeem, defease or otherwise acquire
or retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment, any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date of
acquisition) or (iv) make any Investment other than Permitted Investments,
(any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or Investment being herein referred
to as a "Restricted Payment") if at the time the Company or such Subsidiary
makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or
would result therefrom); or
(2) upon giving effect to such Restricted Payment, the
Company is not able to incur an additional $1.00 of Debt pursuant to
the Consolidated EBITDA Coverage Ratio as set forth in Section 4.03
(a); or
(3) upon giving effect to such Restricted Payment, the
aggregate amount of such Restricted Payment and all other Restricted
Payments since the date on which the Securities were originally
issued, would exceed the sum of:
(a) 50% of the Consolidated Net Income accrued during
the period (treated as one accounting period) from the first day
of the first month of the fiscal quarter in which Securities were
originally issued through the last full fiscal quarter for which
quarterly or annual financial statements are available prior to
the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such
deficit);
26
<PAGE>
provided, however, that if a Public Offering as described in
-------- -------
Section 4.08 below has been consummated, Consolidated Net Income
for the purposes of this clause (iv)(3)(a) shall be reduced by an
amount equal to the net income of CHTC from the
date of the original issuance of the Senior Notes to the date of
the closing of the Public Offering;
(b) the aggregate Net Cash Proceeds received by the
Company from the issue or sale of its Capital Stock (other than
Redeemable Stock or Exchangeable Stock) subsequent to the date
on which the Securities were originally issued (other than an
issuance or sale to a Subsidiary or an employee stock ownership
plan or similar trust);
(c) the aggregate Net Cash Proceeds received by the
Company from the issue or sale of its Capital Stock (other than
Redeemable Stock or Exchangeable Stock) to an employee stock
ownership plan subsequent to the date on which the Securities
were originally issued, but (if such employee stock ownership
plan incurs any Debt) only to the extent that any such proceeds
are equal to any increase in the Consolidated Net Worth of the
Company resulting from principal repayments made by such
employee stock ownership plan with respect to indebtedness
incurred by it to finance the purchase of such Capital Stock;
and
(d) the amount by which Consolidated Debt of the
Company is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary) subsequent
to the date on which the Securities were originally issued, of
any Debt of the Company convertible or exchangeable for Capital
Stock (other than Redeemable Stock or Exchangeable Stock) of the
Company (less the amount of any cash, or other property,
distributed by the Company upon such conversion or exchange).
(b) So long as no Default shall have occurred and be continuing
(or would result therefrom) the provisions of Section 4.05(a) shall not
prohibit:
(i) any purchase or redemption of Capital Stock or
Subordinated Obligations of the Company made by exchange for, or out
of the proceeds of the substantially concurrent sale of, Capital Stock
of the Company (other than Redeemable Stock or Exchangeable Stock and
other than Capital Stock issued or sold to a Subsidiary or an employee
stock ownership plan); provided, however, that
-------- -------
27
<PAGE>
(A) such purchase or redemption shall be excluded in the calculation of
the amount of Restricted Payments and (B) the Net Cash Proceeds from
such sale shall be excluded from clauses (3)(b) and (3)(c) of Section
4.05(a);
(ii) any purchase or redemption of Subordinated
Obligations of the Company made by exchange for, or out of the proceeds
of the substantially concurrent sale of, Debt of the Company other than
to a Subsidiary; provided, however, that such Debt (A) shall be
-------- -------
subordinated to the Securities to at least the same extent as the
Subordinated Obligations so exchanged, purchased or redeemed, (B) shall
have a Stated Maturity later than the Stated Maturity of the Securities
and (C) shall have an Average Life greater than the remaining Average
Life of the Securities; provided further, however, that such purchase or
-------- ------- -------
redemption shall be excluded in the calculation of the amount of
Restricted Payments;
(iii) any purchase or redemption of Subordinated
Obligations from Net Available Cash to the extent permitted by Section
4.10; provided, however, that such purchase or redemption shall be
-------- -------
excluded in the calculation of the amount of Restricted Payments; or
(iv) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would
have complied with this Section; provided, however, that at the time of
-------- -------
payment of such dividend, no other Default shall have occurred and be
continuing (or result therefrom); provided further, however, that such
-------- ------- -------
dividend shall be included in the calculation of the amount of
Restricted Payments.
SECTION 4.08 Limitation on Issuance and Sale of Capital Stock of
---------------------------------------------------
Subsidiaries. The Company shall not permit any Subsidiary to issue or sell any
- ------------
Capital Stock to any person, or permit any person in either case, other than the
Company and its Wholly Owned Subsidiaries, to own or hold an interest, other
than any interest or right to receive any interest owned or held on the date on
which the Securities were originally issued by a person other than the Company
and its Wholly Owned Subsidiaries, in any Capital Stock of any Subsidiary;
provided, however, that the foregoing limitation shall not apply to (i) the sale
- -------- -------
of all but not less than all of the Capital Stock of any Subsidiary made in
accordance with Section 4.10 hereof, and (ii) the issuance and sale of Capital
Stock of Clean Harbors Technology Corporation ("CHTC") pursuant to one or more
firm commitment underwritten public offerings (each a "Public Offering");
provided, however, that (1) following each Public Offering the Company shall
- -------- -------
continue to own at least 75% of the outstanding Capital Stock of CHTC, (2) the
net proceeds from each Public Offering shall be invested by CHTC in the
business of CHTC, (3) CHTC may not within 18 months after the closing of the
Public Offering (A) declare or pay any dividend or make any distribution on or
in respect of its Capital Stock (including any payment in connection with any
merger of consolidation
28
<PAGE>
involving CHTC) or to the direct or indirect holders of its Capital Stock
(except dividends or distributions payable solely in its Non-Convertible
Capital Stock or in options, warrants or other rights to purchase its Non-
Convertible Capital Stock or (B) purchase, redeem or otherwise acquire or
retire for value any Capital Stock of CHTC, and (4) as of the date of
commencement of each Public Offering the Adjusted EBITDA for the period of the
most recently completed four fiscal quarters of the Company ending at least 45
days prior to such date exceeds 95% of EBITDA for such period, provided,
--------
however, that (A) if the Company or any Subsidiary has issued any Debt since
- -------
the beginning of such period that remains outstanding, EBITDA and Adjusted
EBITDA for such period shall be calculated after giving effect on a pro forma
basis to such Debt as if such Debt had been issued on the first day of such
period and the discharge of any other Debt refinanced, refunded, exchanged or
otherwise discharged with the proceeds of such new Debt as if any such
discharge had occurred on the first day of such period, (B) if since the
beginning of such period the Company or any Subsidiary shall have made any
Asset Disposition, EBITDA and Adjusted EBITDA for such period shall be reduced
by an amount equal to the EBITDA (if positive) directly attributable to the
assets which are the subject of such Asset Disposition for such period, or
increased by an amount equal to the EBITDA (if negative) directly attributable
thereto for such period, and (C) if since the beginning of such period the
Company or any Subsidiary (by merger or otherwise) shall have made an
Investment in any Subsidiary (or any person which becomes a Subsidiary) or an
acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder,
which constitutes all of an operating unit of a business, EBITDA and Adjusted
EBITDA for such period shall be calculated after giving pro forma effect
thereto (including the issuance of any Debt), as if such Investment or
acquisition occurred on the first day of such period. For purposes of this
calculation, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto, and the amount of
Consolidated Interest Expense associated with any Debt issued in connection
therewith, the pro forma calculations shall be determined in good faith by a
responsible financial or accounting Officer of the Company. If any Debt bears a
floating rate of interest and is being given pro forma effect, the interest on
such Debt shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period.
SECTION 4.09 Limitation on Restrictions on Distributions from
------------------------------------------------
Subsidiaries. The Company shall not, and shall not permit any Subsidiary to,
- ------------
create or otherwise cause or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Subsidiary to (i)
pay dividends or make any other distributions on its Capital Stock or pay any
Debt or other obligation owed to the Company or any Subsidiary, (ii) make any
loans or advances to the Company or any Subsidiary or (iii) transfer any of
its property or assets to the Company or any Subsidiary. Notwithstanding the
foregoing, the Company may, and may permit any Subsidiary to, suffer to exist:
29
<PAGE>
(1) any encumbrance or restriction pursuant to an agreement
in effect at or entered into on or prior to the date on which the
Securities were originally issued;
(2) any encumbrance or restriction with respect to a
Subsidiary pursuant to an agreement relating to any Debt issued by
such Subsidiary on or prior to the date on which such Subsidiary
became a Subsidiary of the Company (other than Debt issued as
consideration in, or to provide all or any portion of the funds
utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a Subsidiary or
was acquired by the Company) and outstanding on such date;
(3) any encumbrance or restriction pursuant to an agreement
effecting a refinancing or extension of Debt issued pursuant to an
agreement referred to in clause (1) or (2) of this Section or
contained in any amendment to an agreement referred to in clause (1)
or (2) of this Section; provided, however, that the encumbrances and
-------- -------
restrictions contained in any such refinancing or extension agreement
or amendment are not materially less favorable to the Securityholders
than encumbrances and restrictions contained in such agreements
referred to in clause (1) or (2) above;
(4) any encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests to
the extent such provisions restrict the transfer of the lease;
(5) in the case of clause (iii) above, restrictions
contained in security agreements securing Debt of a Subsidiary
(otherwise permitted by this Indenture) to the extent such
restrictions restrict the transfer of the property subject to such
security agreements; and
(6) restrictions imposed pursuant to Section 4.08(ii) above.
SECTION 4.10 Limitation on Sales of Assets and Subsidiary Stock.
--------------------------------------------------
(a) The Company shall not, and shall not permit any Subsidiary
to, make any Asset Disposition unless: (i) the Company or such Subsidiary
receives consideration at the time of such Asset Disposition at least equal to
the Fair Market Value, as determined in good faith, with or without
independent appraisal, by the Board of Directors of the Company (including as
to the value of all non-cash consideration), of the shares and assets subject
to such Asset Disposition and at least 85% of the consideration thereof
received by the Company or such Subsidiary is in the form of cash or Cash
Equivalents; and (ii) an amount equal to 100% of the Net Available Cash from
such Asset Disposition is applied by the
30
<PAGE>
Company (or such Subsidiary, as the case may be) (A) first, to the extent the
Company is required by the terms of any Debt to prepay, repay or purchase Debt
(other than any Redeemable Stock) of the Company, such Subsidiary or any
Wholly Owned Subsidiary (in each case other than Debt owed to the Company or
an Affiliate of the Company) within 60 days from the later of the date of such
Asset Disposition or the receipt of such Net Available Cash; (B) second, to
the extent of the balance of such Net Available Cash after application in
accordance with clause (A), at the Company's election to the investment by the
Company, such Subsidiary or any Wholly Owned Subsidiary in assets to replace
the assets that were the subject of such Asset Disposition or in assets that
(as determined by the Board of Directors) will be used in the businesses of
the Company and its Wholly Owned Subsidiaries existing on the date on which
the Securities were originally issued or in businesses reasonably related
thereto, in all cases within the later of one year from the date of such Asset
Disposition or the receipt of such Net Available Cash; (C) third, to the
extent of the balance of such Net Available Cash after application in
accordance with clauses (A) and (B) above, to make an offer pursuant to and
subject to this Indenture, to the holders of the Securities to purchase
Securities at a purchase price of 100% of the principal amount thereof plus
accrued and unpaid interest; and (D) fourth, to the extent of the balance of
such Net Available Cash after application in accordance with clauses (A), (B)
and (C) above, to the prepayment, repayment or purchase of Debt (other than
any Redeemable Stock) of the Company (other than Debt owed to an Affiliate of
the Company) or Debt of any Subsidiary (other than Debt owed to the Company or
an Affiliate of the Company), in each case within one year from the later of
the receipt of such Net Available Cash and, if applicable, the date the offer
described in the next paragraph below is consummated; provided, however, that
-------- -------
in connection with any prepayment, repayment or purchase of Debt pursuant to
clause (A) or clause (D) above, the Company shall cause the related loan
commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased; and provided, further,
-------- -------
however, that in connection with an offer pursuant to clause (C) above, if the
- -------
principal amount of such Securities, together with accrued and unpaid
interest, tendered for acceptance pursuant to such offer exceeds the balance
of Net Available Cash, then the Company will accept for purchase the
Securities of each such tendering holder on a pro rata basis in accordance
with the principal amount so tendered.
Notwithstanding the provisions of clause (ii) above, in the event that
the Net Available Cash resulting from any Asset Disposition is less than $2.5
million, the application of an amount equal to such Net Available Cash in
accordance with such clause (ii) may be deferred until such time as such Net
Available Cash from any prior or subsequent Asset Dispositions not otherwise
applied in accordance with such clause (ii), is at least equal to $2.5
million. In the event that the Net Available Cash resulting from any Asset
Disposition, after giving effect to clauses (A) and (B) above, is less than
$2.5 million, the application of such amount equal to such Net Available Cash
to make an offer to purchase Securities in accordance with clause (C) above
may be deferred until such time as such Net Available Cash, together with Net
Available Cash from any prior or subsequent Asset Dispositions not
31
<PAGE>
otherwise applied in accordance with this provision, is at least equal to $2.5
million. Pending application of Net Available Cash pursuant to this Section
4.10, such Net Available Cash shall be invested in Cash Equivalents. To the
extent any portion of the amount of Net Available Cash remains after
compliance with this Section 4.10 and provided that all holders of Securities
have been given the opportunity to tender their Securities for repurchase as
provided in subsection (a)(ii)(C) above, the Company may use such remaining
amount for general corporate purposes.
(b) In the event of an Asset Disposition that requires the
purchase of Securities pursuant to Section 4.10(a)(ii)(C), the Company will be
required to purchase Securities tendered pursuant to an offer by the Company
for the Securities (the "Offer") at a purchase price set forth in Section
4.10(a) in accordance with the procedures (including prorationing in the event
of oversubscription) set forth in Section 4.10(c).
(c) (1) Promptly, and in any event within 5 days after the date
by which the Company must have applied Net Available Cash pursuant to Section
4.10(a)(ii)(B), the Company shall be obligated to deliver to the Trustee and
send, by first-class mail to each Holder, a written notice stating that the
Holder may elect to have his Securities purchased by the Company either in
whole or in part (subject to prorationing as hereinafter described in the
event the Offer is oversubscribed) in integral multiples of $1,000 of
principal amount, at the applicable purchase price. The notice shall specify a
purchase date not less than 30 days nor more than 60 days after the date of
such notice (the "Purchase Date") and shall contain information concerning the
business of the Company which the Company in good faith believes will enable
such Holders to make an informed decision (which at a minimum will include (i)
the most recently filed Annual Report on Form 10-K (including audited
consolidated financial statements) of the Company, the most recent
subsequently filed Quarterly Report on Form 10-Q and any Current Report on
Form 8-K of the Company filed subsequent to such Quarterly Report, other than
Current Reports describing Asset Dispositions otherwise described in the
offering materials (or corresponding successor reports), (ii) a description of
material developments in the Company's business subsequent to the date of the
latest of such Reports, and (iii) if material, appropriate pro forma financial
information and all instructions and materials necessary to tender Securities
pursuant to the Offer, together with the information contained in subsection
(c)(3) below.
(2) Not later than the date upon which written notice of an
Offer is delivered to the Trustee as provided in subsection (c)(1), above the
Company shall deliver to the Trustee an Officers' Certificate as to (i) the
amount of the Offer (the "Offer Amount"), (ii) the allocation of the Net
Available Cash from the Asset Dispositions pursuant to which such Offer is
being made and (iii) the compliance of such allocation with the provisions of
Section 4.10. On such date, the Company shall irrevocably deposit with the
Trustee or with a paying agent (or, if the Company or a Subsidiary is acting
as its own paying agent, segregate and hold in trust) in immediately available
funds an amount equal to the Offer
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Amount to be held for payment in accordance with the provisions of this
Section 4.10. The amount so deposited, at the option of, and pursuant to the
specific written direction of, the Company, may be invested in Cash
Equivalents the maturity date of which is not later than the Purchase Date.
The Company shall be entitled to any interest or dividends accrued, earned or
paid on such Cash Equivalents. Upon the expiration of the period for which the
Offer remains open (the "Offer Period"), the Company shall deliver to the
Trustee the Securities or portions thereof which have been properly tendered
to and are to be accepted by the Company. The Trustee shall, on the Purchase
Date, mail or deliver payment to each tendering Holder in the amount of the
purchase price. In the event that the aggregate purchase price of the
Securities delivered by the Company to the Trustee is less than the Offer
Amount, the Trustee shall deliver the excess to the Company immediately after
the expiration of the Offer Period.
(3) Holders electing to have a Security purchased will be
required to surrender the Security, with an appropriate form duly completed,
to the Company at the address specified in the notice at least 10 Business
Days prior to the Purchase Date. Holders will be entitled to withdraw their
election if the Trustee or the Company receives not later than three Business
Days prior to the Purchase Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the
Security which was delivered for purchase by the Holder and a statement that
such Holder is withdrawing its election to have such Security purchased. If at
the expiration of the Offer Period the purchase price of Securities
surrendered by Holders exceeds the Offer Amount, the Company shall select the
Securities and such other Senior Subordinated Debt to be purchased on a pro
rata basis (with such adjustments as may be deemed appropriate by the Company
so that only Securities in denominations of $1,000, or integral multiples
thereof, shall be purchased). Holders whose Securities are purchased only in
part will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered. The Company shall promptly
execute, and the Guarantor Subsidiaries shall promptly execute their
Subsidiary Guarantees to be endorsed thereon and thereafter the Trustee shall
promptly authenticate and mail or deliver to such Holders a new Security equal
in principal amount to any unpurchased portion of the Security surrendered.
Any Security not accepted for payment shall be promptly mailed or delivered by
the Company to the Holder thereof. The Company shall publicly announce the
results of the Offer on or as soon as practicable after the Purchase Date.
(4) At the time the Company delivers Securities to the
Trustee which are to be accepted for purchase, the Company will also deliver
an Officers' Certificate stating that such Securities are to be accepted by
the Company pursuant to and in accordance with the terms of this Section. A
Security shall be deemed to have been accepted for purchase at the time the
Trustee, directly or through an agent, mails or delivers payment therefor to
the surrendering Holder.
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(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section.
SECTION 4.11 Limitation on Transactions with Affiliates. The
------------------------------------------
Company shall not, and shall not permit any Subsidiary to, conduct any
business or enter into any transaction or series of similar transactions
(including the purchase, sale, lease or exchange of any property or the
rendering of any service) with any Affiliate of the Company or any legal or
beneficial owner of 5% or more of any class of Capital Stock of the Company or
with any Affiliate of any such owner (other than (i) a Wholly Owned Subsidiary
or (ii) an employee stock ownership plan for the benefit of the Company's or a
Subsidiary's employees), unless the terms of such business, transaction or
series of transactions are (A) set forth in writing, (B) as favorable to the
Company or such Subsidiary as terms that would be obtainable at the time for a
comparable transaction or series of similar transactions in arm's-length
dealings with an unrelated third person and (C) if such business or
transaction or series of transactions involves in excess of $1.0 million, (x)
the Board of Directors of the Company has, by resolution approved by a
majority of the disinterested directors, determined in good faith that such
business or transaction or series of transactions meets the criteria set forth
in clause (B) above, and (y) the Company has obtained an opinion of a
nationally recognized expert with experience in appraising the terms and
conditions of the type of business or transaction or series of transactions
stating that such business or transaction or series of transactions is fair
(from a financial point of view) to the Company or such Subsidiary, as the
case may be. This Section, however, will not prohibit (1) any transactions
between the Company or a Subsidiary and its own employee stock ownership plan,
(2) Restricted Payments permitted under Section 4.07 or (3) management
compensation arrangements approved by the disinterested members of the Board
of Directors.
SECTION 4.12 Lines of Business. The Company shall not, and shall
-----------------
not permit any of its Subsidiaries to, enter into any business, either
directly or through any Subsidiary, except for those businesses in which the
Company and its Subsidiaries were engaged on the date on which the Securities
were originally issued or businesses reasonably related thereto.
SECTION 4.13 Compliance Certificate.
----------------------
(a) The Company and the Guarantor Subsidiaries shall deliver to
the Trustee, within 120 days after the end of each fiscal year, an Officers'
Certificate, one of the signers of which shall be the principal executive
officer, principal financial officer or principal accounting officer, stating
whether or not to the best knowledge of the signers thereof the Company or the
Guarantor Subsidiaries, as the case may be, has fulfilled all its obligations
hereunder, is not in default in the performance and observance of any of the
terms, and if the Company or the Guarantor Subsidiaries, as the case may be,
shall be in default, specifying all such defaults and the nature and status
thereof of which they may have
34
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knowledge. For purposes of this Section 4.13, such compliance or default shall
be determined without regard to any period of grace or requirement of notice
provided under this Indenture.
(b) The Company and each Guarantor Subsidiary shall deliver to
the Trustee, as soon as possible and in any event within 30 days after the
Company or any Guarantor Subsidiary becomes aware or should reasonably become
aware of the occurrence of an Event of Default or an event which, with notice
or the lapse of time or both, would constitute an Event of Default, an
Officers' Certificate setting forth the details of such Event of Default or
default, and the action which the Company or any Guarantor Subsidiary proposes
to take with respect thereto.
SECTION 4.14 Change of Control.
-----------------
(a) Upon a Change of Control, each Holder shall have the right
to require that the Company repurchase such Holder's Securities at a purchase
price in cash equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase, in accordance with the
terms contemplated in this Section 4.14.
(b) Within 30 days following any Change of Control, the Company
shall send by first-class mail, postage prepaid a notice to each Holder at his
address appearing in the Security register, with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such
Holder has the right to require the Company to purchase such Holder's
Securities at a repurchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to
the date of repurchase;
(2) the circumstances and relevant facts regarding such
Change of Control (including information with respect to pro forma
historical income, cash flow and capitalization after giving effect to
such Change of Control);
(3) the repurchase date (the "Change of Control Payment
Date") which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed; and
(4) the instructions determined by the Company, consistent
with this Section, that a Holder must follow in order to have its
Securities purchased.
(c) Holders electing to have a Security purchased will be
required to surrender the Security, with an appropriate form duly completed, to
the Company at the address specified in the notice at least three Business Days
prior to the purchase date.
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Holders will be entitled to withdraw their election if the Trustee or the
Company receives not later than three Business Days prior to the purchase
date, a telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Securities which were
delivered for repurchase by the Holder as to which his election is to be
withdrawn and a statement that such Holder is withdrawing his election to have
such Securities repurchased. Holders whose Securities are repurchased only in
part will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered.
(d) On the Change in Control Payment Date, the Company shall (i)
accept for payment Securities or portions thereof tendered pursuant to the
Change in Control Offer, (ii) deposit with the Paying Agent money sufficient
to pay the purchase price of all Securities or portions thereof so tendered,
and (iii) deliver to the Trustee Securities so accepted together with an
Officers' Certificate stating the Securities or portions thereof tendered to
the Company. The Paying Agent shall promptly mail to the Holder of Securities
so accepted payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such Holders a new Security equal in
principal amount to any unpurchased portion of the Security surrendered.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to a
Change of Control.
SECTION 4.15 Additional Subsidiary Guarantees. If the Company or
--------------------------------
any of its Subsidiaries shall, after the date of this Indenture, create or
acquire any Subsidiary, then such newly created or acquired Subsidiary shall
execute and deliver to the Trustee a supplemental indenture substantially in
the form of Exhibit B hereof, pursuant to which such Subsidiary shall
Guarantee all of the Obligations of the Company with respect to the Notes as
provided in Article 10 hereof, together with an Opinion of Counsel to the
effect that such supplemental indenture has been duly executed and delivered
by such Subsidiary and is in compliance with the terms of this Indenture.
SECTION 4.16 Corporate Existence. Subject to Article 5 hereof, the
-------------------
Company will do or cause to be done all things necessary to preserve and keep
in full force and effect the corporate existence, rights (charter and
statutory), licenses and franchises of the Company and each Guarantor
Subsidiary.
SECTION 4.17 Further Instruments and Acts. Upon request of the
----------------------------
Trustee, the Company and each Guarantor Subsidiary will execute and deliver
such further instruments and do such further acts as may be reasonably
necessary or proper to carry out more effectively the purpose of this
Indenture.
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ARTICLE 5 - Successor Company
-----------------
SECTION 5.01 When Company May Merge or Transfer Assets. The Company
-----------------------------------------
shall not consolidate with or merge with or into, or convey, transfer or lease
all or substantially all its assets to, any person, unless:
(i) the resulting, surviving or transferee person (if
not the Company) shall be a person organized and existing under the
laws of the United States of America, any State thereof or the
District of Columbia and such person shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee,
in form satisfactory to the Trustee, all the obligations of the Company
under the Securities and this Indenture;
(ii) immediately after giving effect to such
transaction (and treating any Debt which becomes an obligation of the
resulting, surviving or transferee person or any Subsidiary as a result
of such transaction as having been issued by such person or such
Subsidiary at the time of such transaction), no Default shall have
occurred and be continuing;
(iii) immediately after giving effect to such
transaction, on a pro forma basis, the resulting, surviving or
transferee person would be able to issue at least $1.00 of Debt
pursuant to Section 4.03(a) hereof;
(iv) immediately after giving effect to such
transaction, on a pro forma basis, the resulting, surviving or
transferee person shall have Consolidated Net Worth in an amount which
is not less than the Consolidated Net Worth of the Company immediately
prior to such transaction; and
(v) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such supplemental indenture
(if any) comply with this Indenture;
The resulting, surviving or transferee person shall be the successor
Company and shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under this Indenture, but the predecessor
Company in the case of a conveyance, transfer or lease shall not be released
from the obligation to pay the principal of and interest on the Securities.
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ARTICLE 6 - Defaults and Remedies
---------------------
SECTION 6.01 Events of Default. Wherever used herein, "Event of
-----------------
Default" means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative agency or
governmental body):
(1) a default in any payment of interest on the Securities
when due, continued for 30 days;
(2) a default in the payment of principal of any Note when
due at its Stated Maturity, upon redemption, upon acceleration or
otherwise, or the failure to redeem or purchase the Securities when
required pursuant to the Indenture or the Securities;
(3) the failure by the Company to comply with its
obligations under Section 5.01 hereof, to make or consummate an Offer
in accordance with the provisions of Section 4.10 hereof or to make or
consummate a Change of Control Offer in accordance with the provisions
of Section 4.14 hereof;
(4) the failure by the Company to observe or comply with
any of the agreements in the Securities or this Indenture (other than
those referred to in clauses (1), (2) or (3) above), which continues
for 60 days after there has been given to the Company by the Trustee
or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the then outstanding Securities a written notice
specifying such failure;
(5) Debt of the Company or any Subsidiary is not paid
within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Debt unpaid or accelerated exceeds $5.0 million;
(6) any judgment or decree for the payment of money in
excess of $5.0 million is rendered and entered against the Company or
a Subsidiary and is not discharged and either (A) an enforcement
proceeding has been commenced by any creditor upon such judgment or
decree or (B) there is a period of 60 days following such judgment or
decree during which such judgment or decree is not discharged, waived
or the execution thereof stayed; or
(7) any Subsidiary Guarantee issued by any Guarantor
Subsidiary ceases to be in full force and effect other than in
accordance with its terms, or any
38
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Guarantor Subsidiary shall deny or disaffirm its obligations under its
Subsidiary Guarantee; or
(8) the Company or any Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief
against it in an involuntary case;
(C) consents to the appointment of a Custodian of it
or for any substantial part of its property;
(D) makes a general assignment for the benefit of its
creditors; or
(E) admits in writing its inability to pay any debts
as the same become due.
(9) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any
Subsidiary or for all or any substantial part of its property; or
(C) orders the winding up or liquidation of the
Company or any Subsidiary;
and the order or decree remains unstayed and in effect for 60 days.
The term "Bankruptcy Law" means Title 11, United States Code, or any
------------------
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar
official under any Bankruptcy Law.
The Company shall deliver to the Trustee, within 30 days after the
Company learns of the existence thereof, written notice in the form of an
Officers' Certificate of any event which with the giving of notice and the
lapse of time would become an Event of Default
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under clause (4), (5), (6) or (9) of this Section 6.01, its status and what act
ion the Company is taking or proposes to take with respect thereto.
SECTION 6.02 Acceleration. If an Event of Default (other than an
------------
Event of Default specified in Section 6.01(8) or (9) with respect to the
Company) occurs and is continuing, the Trustee by notice to the Company, or
the Holders of at least 25% in principal amount of the Securities by notice to
the Company and the Trustee, may declare the principal of and accrued interest
on all the Securities to be due and payable. Upon such a declaration, such
principal and interest shall be due and payable immediately. If an Event of
Default specified in Section 6.01(8) or (9) with respect to the Company
occurs, the principal of and interest on all the Securities shall ipso facto
---- -----
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Securityholders. The Holders of a majority
in principal amount of the Securities by notice to the Trustee may rescind an
acceleration and its consequences if the rescission would not conflict with
any judgment or decree and if all existing Events of Default have been cured
or waived except nonpayment of principal or interest that has become due
solely because of acceleration. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
SECTION 6.03 Other Remedies. If an Event of Default occurs and is
--------------
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provisions of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Securityholder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. No remedy
is exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04 Waiver of Past Defaults. The Holders of a majority in
-----------------------
principal amount of the Securities by notice to the Trustee may waive an
existing Default or Event of Default and its consequences except (i) a Default
or Event of Default in the payment of the principal of or interest on a
Security or (ii) a Default or Event of Default in respect of a provision that
under Section 9.02 cannot be amended without the consent of each
Securityholder affected. When a Default is waived, it is deemed cured, but no
such waiver shall extend to any subsequent or other Default or impair any
consequent right.
SECTION 6.05 Control by Majority. The Holders of a majority in
-------------------
principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or
40
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this Indenture or, subject to Section 7.01, that the Trustee determines is
unduly prejudicial to the rights of other Securityholders or would involve the
Trustee in personal liability; provided, however, that the Trustee may take
-------- -------
any other action deemed proper by the Trustee that is not inconsistent with
such direction. Prior to taking any action hereunder, the Trustee shall be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action.
SECTION 6.06 Limitation on Suits. A Securityholder may not pursue
-------------------
any remedy with respect to this Indenture or the Securities unless:
(1) the Holder shall have previously given to the Trustee
written notice stating that an Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the
Securities make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable
security or indemnity against any loss, liability or expense;
(4) the Trustee shall have failed to comply with the
request within 60 days after receipt of the request and the offer of
security or indemnity; and
(5) the Holders of a majority in principal amount of the
Securities do not give the Trustee a direction inconsistent with the
request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07 Rights of Holders to Receive Payment. Notwithstanding
------------------------------------
any other provision of this Indenture, the right of any Holder to receive
payment of principal of and interest on the Securities held by such Holder, on
or after the respective due dates expressed in the Securities, or to bring
suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08 Collection Suit by Trustee. If an Event of Default in
--------------------------
payment of interest or principal specified in Section 6.01(1) or (2) occurs
and is continuing, the Trustee may recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal and interest remaining unpaid (together with interest on such unpaid
interest to the extent lawful) and the amounts provided for in Section 7.07.
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SECTION 6.09 Trustee May File Proofs of Claim. The Trustee may
--------------------------------
file such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
person performing similar functions, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make payments to the Trustee
and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and its counsel, and any other amounts due the Trustee
under Section 7.07.
SECTION 6.10 Priorities. If the Trustee collects any money or
----------
property pursuant to this Article 6, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
THIRD: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall mail to each Securityholder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11 Undertaking for Costs. In any suit for the enforcement
---------------------
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion
may require the filing by the party litigant in the suit of an undertaking to
pay the costs of the suit, and the court in its discretion may assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section does not apply to
a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit
by Holders of more than 10% in principal amount of the Securities.
SECTION 6.12 Waiver of Stay or Extension Laws. The Company (to the
--------------------------------
extent it may lawfully do so) shall not at any time insist upon, or plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever
42
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enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage of any
such law, and shall not hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE 7 - Trustee
-------
SECTION 7.01 Duties of Trustee.
-----------------
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise the rights and powers vested in it by this Indenture
and use the same degree of care and skill in their exercise as a prudent
person would exercise or use under the circumstances in the conduct of such
person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(1) this subsection (c) does not limit the effect of
paragraph (b) of this Section;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05.
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(d) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that
repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
SECTION 7.02 Rights of Trustee.
-----------------
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on the Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Trustee's conduct does not
-------- -------
constitute wilful misconduct, negligence or bad faith.
(e) The Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture
and the Securities shall be full and complete authorization and protection
from liability in respect to any action taken, omitted or suffered by it
hereunder in good faith and in accordance with the advance or opinion of such
counsel.
SECTION 7.03 Individual Rights of Trustee. The Trustee in its
----------------------------
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal
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with the Company or its Affiliates with the same rights it would have if it
were not Trustee. Any Paying Agent, Registrar, co-registrar or co-paying agent
may do the same with like rights. However, the Trustee must comply with
Sections 7.10 and 7.11.
SECTION 7.04 Trustee's Disclaimer. The Trustee shall not be
--------------------
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement of the Company in the Indenture or in any
document issued in connection with the sale of the Securities or in the
Securities other than the Trustee's certificate of authentication.
SECTION 7.05 Notice of Defaults. If a Default occurs and is
------------------
continuing and if it is known to the Trustee, the Trustee shall mail to each
Securityholder and to the Company notice of the Default within 90 days after
it occurs. Except in the case of a Default in payment of principal of or
interest on any Security, the Trustee may withhold the notice if and so long
as a committee of its Trust Officers in good faith determines that withholding
the notice is in the interest of Securityholders.
SECTION 7.06 Reports by Trustee to Holders. As promptly as
-----------------------------
practicable after each _______________ beginning with the ___________________
following the date of this Indenture, and in any event prior to ________ in
each year, the Trustee shall mail to each Securityholder a brief report dated
as ____________ of __________________ that complies with TIA (S)313(a). The
Trustee also shall comply with TIA (S)313(b).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any
delisting thereof.
SECTION 7.07 Compensation and Indemnity. The Company shall pay to
--------------------------
the Trustee form time to time reasonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred or made by it,
including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and
expenses, disbursements and advances of the Trustee's agents, counsel,
accountants and experts. The Company shall indemnify the Trustee against any
and all loss, liability or reasonable expense (including attorneys' fees)
incurred by it in connection with the administration of this trust and the
performance of its duties hereunder. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. Failure by the Trustee
to so notify the Company shall not relieve the Company of its obligations
hereunder. The Company shall defend the claim and the Trustee may have
separate counsel and the
45
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Company shall pay the fees and expenses of such counsel. The Company need not
reimburse any expense or indemnify against any loss, liability or expense
incurred by the Trustee through the Trustee's own wilful misconduct,
negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Securities on all money or property
held or collected by the Trustee other than money or property held in trust to
pay principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses
after the occurrence of a Default specified in Section 6.01(8) or (9) with
respect to the Company, the expenses are intended to constitute expenses of
administration under the Bankruptcy Law.
SECTION 7.08 Replacement of Trustee. The Trustee may resign at any
----------------------
time by so notifying the Company. The Holders of a majority in principal
amount of the Securities may remove the Trustee by so notifying the Trustee
and may appoint a successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, subject to the
Lien provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of a majority in
46
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principal amount of the Securities may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this Section,
the Company's obligations under Section 7.07 shall continue for the benefit of
the retiring Trustee.
SECTION 7.09 Successor Trustee by Merger. If the Trustee
---------------------------
consolidates with, mergers or converts into, or transfers all or substantially
all its corporate trust business or assets to another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not delivered,
any such successor to the Trustee may adopt the certificate of authentication of
any predecessor Trustee, and deliver such Securities so authenticated; and in
case at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor to the Trustee; and in
all such cases such certificates shall have the full force which it is anywhere
in the Securities or in this Indenture provided that the certificate of the
Trustee shall have.
SECTION 7.10 Eligibility; Disqualification. The Trustee shall at all
-----------------------------
times satisfy the requirements of TIA (S)310(a). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
(S)310(b), including the optional provision permitted by the second sentence of
TIA (S)310(b)(9); provided, however, that there shall be excluded from the
-------- -------
operation of TIA (S)310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Company are outstanding if the requirements for such exclusion set forth in
TIA (S)310(b)(1) are met.
SECTION 7.11 Preferential Collection of Claims Against Company. The
-------------------------------------------------
Trustee shall comply with TIA (S)311(a), excluding any creditor relationship
listed in TIA (S)311(b). A Trustee who has resigned or been removed shall be
subject to TIA (S)311(a) to the extent indicated.
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ARTICLE 8 - Discharge of Indenture; Defeasance
----------------------------------
SECTION 8.01 Discharge of Liability on Securities; Defeasance.
------------------------------------------------
(a) When (i) the Company delivers to the Trustee all
outstanding Securities (other than Securities replaced pursuant to Section 2.07)
for cancellation or (ii) all outstanding Securities have become due and payable
and the Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity all outstanding Securities, including interest thereon (other than
Securities replaced pursuant to Section 2.07), and if in either case the Company
pays all other sums payable hereunder by the Company, then this Indenture shall,
subject to Sections 8.01(c) and 8.06, cease to be of further effect. The Trustee
shall acknowledge satisfaction and discharge of this Indenture on demand of the
Company accompanied by an Officers' Certificate and an Opinion of Counsel and at
the cost and expense of the Company.
(b) Subject to Sections 8.01(c), 8.02 and 8.06, the Company
at any time may terminate (i) all its obligations under the Securities and this
Indenture ("legal defeasance option") or (ii) its obligations under Sections
4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09 and 4.10 and the operation of
Section 6.01(3) and Section 6.01(4) (with respect to the aforementioned Sections
only) ("covenant defeasance option"). The Company may exercise its legal
defeasance option notwithstanding its prior exercise of its covenant defeasance
option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the Company
exercises its covenant defeasance option, payment of the Securities may not be
accelerated because of an Event of Default specified in Section 6.01(3) or
6.01(4) (with respect to compliance with the aforementioned Sections).
Upon satisfaction of the conditions set forth herein and upon request of
the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 7.07, 7.08, 8.04, 8.05 and
8.06 shall survive until the Securities have been paid in full. Thereafter, the
Company's obligations in Sections 7.07, 8.04 and 8.05 shall survive.
SECTION 8.02 Conditions to Defeasance. The Company may exercise its
------------------------
legal defeasance option or its covenant defeasance option only if:
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<PAGE>
(1) the Company irrevocably deposits in trust with the
Trustee money or U.S. Government Obligations for the payment of
principal, premium (if any) and interest on the Securities to maturity or
redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate
from a nationally recognized firm of independent accountants expressing
its opinion that the payments of principal and interest when due and
without reinvestment on the deposited U.S. Government Obligations plus
any deposited money without investment will provide cash at such times
and in such amounts (but, in the case of the legal defeasance option
only, not more than such amounts) as will be sufficient to pay principal
and interest when due on all the Securities to maturity or redemption, as
the case may be;
(3) 123 days pass after the deposit is made and during
the 123-day period no Default specified in Section 6.01(8) or (9) with
respect to the Company occurs which is continuing at the end of the
period;
(4) no Default has occurred and is continuing on the
date of such deposit and after giving effect thereto;
(5) the deposit does not constitute a default under any
other agreement binding on the Company;
(6) the Company delivers to the Trustee an Opinion of
Counsel to the effect that the trust resulting from the deposit does not
constitute, or is qualified as, a regulated investment company under the
Investment Company Act of 1940;
(7) in the case of the legal defeasance option, the
Company shall have delivered to the Trustee an Opinion of Counsel stating
that (i) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling, or (ii) since the date of this
Indenture there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such Opinion of
Counsel shall confirm that, the Securityholders will not recognize
income, gain or loss for Federal income tax purposes as a result of such
defeasance and will be subject to Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such deposit and defeasance had not occurred;
(8) in the case of the covenant defeasance option, the
Company shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Securityholders will not recognize income, gain or loss
for Federal income tax purposes as a result of such covenant defeasance
and will be subject to Federal
49
<PAGE>
income tax on the same amounts, in the same manner and at the same time
as would have been the case if such covenant defeasance had not occurred;
and
(9) the Company delivers to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance and discharge of the Securities as
contemplated by this Article 8 have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date
in accordance with Article 3.
SECTION 8.03 Application of Trust Money. The Trustee shall hold in
--------------------------
trust money or U.S. Government Obligations deposited with it pursuant to this
Article 8. It shall apply the deposited money and the money from U.S. Government
Obligations through the Paying Agent and in accordance with this Indenture to
the payment of principal of and interest on the Securities.
SECTION 8.04 Repayment to Company. The Trustee and the Paying Agent
--------------------
shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for two years, and,
thereafter, Securityholders entitled to the money must look to the Company for
payment as general creditors.
SECTION 8.05 Indemnity for Government Obligations. The Company shall
------------------------------------
pay and shall indemnify the Trustee against any tax, fee or other charge imposed
on or assessed against deposited U.S. Government Obligations or the principal
and interest received on such U.S. Government Obligations.
SECTION 8.06 Reinstatement. If the Trustee or Paying Agent is unable
-------------
to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; provided, however, that, if the
-------- -------
Company has made any payment of interest on or principal of any Securities
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders or such Securities
50
<PAGE>
to receive such payment from the money or U.S. Government Obligations held by
the Trustee or Paying Agent.
ARTICLE 9 - Amendments
----------
SECTION 9.01 Without Consent of Holders. The Company and the Trustee
--------------------------
may amend this Indenture or the Securities without notice to or consent of any
Securityholder:
(1) to cure any ambiguity, omission, defect or
inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to
or in place of certificated Securities; provided, however, that the
-------- -------
uncertificated Securities are issued in registered form for purposes of Section
163(f) of the Internal Revenue Code of 1986, as amended, or in a manner such
that the uncertificated Securities are described in Section 163(f)(2)(B) of the
Internal Revenue Code of 1986, as amended;
(4) to add Guarantees with respect to the Securities;
(5) to add to the covenants of the Company or the Guarantor
Subsidiaries for the benefit of the Holders or to surrender any right or power
herein conferred upon the Company;
(6) to reflect the release of any Guarantor Subsidiary from
its Subsidiary Guarantee, or the addition of any Subsidiary of the Company as a
Guarantor Subsidiary, in the manner provided by this Indenture;
(7) to comply with any requirements of the SEC in connection
with qualifying this Indenture under the TIA; or
(8) to make any change that does not adversely affect the
rights of any Securityholder.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
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<PAGE>
SECTION 9.02 With Consent of Holders. The Company and the Trustee
-----------------------
may amend this Indenture or the Securities without notice to any Securityholder
but with the written consent of the Holders of at least a majority in principal
amount of the then outstanding Securities. However, without the consent of each
Securityholder affected, an amendment may not:
(1) reduce the amount of Securities whose Holders must
consent to an amendment;
(2) reduce the rate of or extend the time for payment of
interest on any Security;
(3) reduce the principal of or extend the Stated Maturity of
any Security;
(4) reduce the premium payable upon the redemption of any
Security or change the time at which any Security may be redeemed in accordance
with Article 3;
(5) make any Security payable in money other than that
stated in the Security;
(6) make any change in the provisions concerning waiver of
Defaults by Holders of Securities or the rights of Holders to receive payments
of principal and interest in Section 6.04 or 6.07 or the second sentence of this
Section;
(7) make any change in Section 4.14 hereof or the definition
"Change of Control";
(8) make any change adversely affecting the rights of any
holder; or
(9) make any change in this Section 9.02.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
52
<PAGE>
SECTION 9.03 Compliance with Trust Indenture Act. Every amendment to
-----------------------------------
this Indenture or the Securities shall comply with the TIA as than in effect.
SECTION 9.04 Revocation and Effect of Consents and Waivers. A
---------------------------------------------
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any such
Holder or subsequent Holder may revoke the consent or waiver as to such Holder's
Security or portion of the Security if the Trustee receives the notice of
revocation before the date the amendment or waiver becomes effective. After an
amendment or waiver becomes effective, it shall bind every Securityholder.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those persons who were Securityholders at such
record date (or their duly designated proxies), and only those persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such persons continue to the be Holders
after such record date. No such consent shall be valid or effective for more
than 120 days after such record date.
SECTION 9.05 Notation on or Exchange of Securities. If an amendment
-------------------------------------
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06 Trustee to Sign Amendments. The Trustee shall sign any
--------------------------
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.01) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that such
amendment is authorized or permitted by this Indenture.
SECTION 9.07 Payment for Consent. Neither the Company, any Affiliate
-------------------
of the Company nor any Subsidiary shall, directly or indirectly, pay or cause to
be paid any consideration, whether by way of interest, fee or otherwise, to any
Holder for or as an
53
<PAGE>
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Securities unless such consideration is offered to be
paid or agreed to be paid to all Holders which so consent, waive or agree to
amend in the time frame set forth in solicitation documents relating to such
consent, waiver or agreement.
ARTICLE 10 - Subsidiary Guarantees
---------------------
SECTION 10.01 Unconditional Subsidiary Guarantee.
----------------------------------
(a) Each Guarantor Subsidiary set forth on the signature
pages hereof and each Guarantor Subsidiary of the Company which in accordance
with Section 4.15 hereof is required to Guarantee the obligations of the Company
under the Securities, upon execution of a counterpart of this Indenture, hereby
jointly and severally unconditionally Guarantees to each Holder of a Security
authenticated and delivered by the Trustee irrespective of the validity or
enforceability of this Indenture, the Securities or the obligations of the
Company under this Indenture or the Securities, that: (i) the principal of and
interest on the Securities will be paid in full when due, whether at maturity or
interest payment, by acceleration, call for redemption or otherwise, and
interest on the overdue principal of and interest, if any, on the Securities and
all other obligations of the Company to the Holders or the Trustee under this
Indenture or the Securities will be promptly paid in full or performed, all in
accordance with the terms of this Indenture and the Securities; and (ii) in the
case of any extension of time or payment or renewal of any Securities or any of
such other obligations, they will be paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at maturity, by
acceleration or otherwise. Failing payment when due of any amount so Guaranteed
for whatever reason, each Guarantor Subsidiary will be obligated to pay the same
whether or not such failure to pay has become an Event of Default which could
cause acceleration pursuant to Section 6.02 hereof. Each Guarantor Subsidiary
agrees that this is a Guarantee of payment, not a Guarantee of collection.
(b) Each Guarantor Subsidiary hereby jointly and severally
agrees that its obligations with regard to this Subsidiary Guarantee shall be
joint and several, unconditional, irrespective of the validity or enforceability
of the Securities or the obligations of the Company under this Indenture, the
absence of any action to enforce the same, the recovery of any judgment against
the Company or any other obligor with respect to this Indenture, the Securities
or the obligations of the Company under this Indenture or the Securities, any
action to enforce the same or any other circumstances (other than complete
performance) which might otherwise constitute a legal or equitable discharge or
defense of a Guarantor Subsidiary. Each Guarantor Subsidiary further waives and
relinquishes all claims, rights and remedies accorded by applicable law to
guarantors and agrees not to assert or take advantage of any such claims, right
or remedies, including but not limited to: (a) any right to require the Trustee,
the Holders or the Company (each, a "Benefitted Party") to proceed against the
54
<PAGE>
Company or any other person or to proceed against or exhaust any security held
by a Benefitted Party at any time or to pursue any other remedy in any
Benefitted Party's power before proceeding against such Guarantor Subsidiary;
(b) the defense of the statute of limitations in any action hereunder or in any
action for the collection of any indebtedness or the performance of any
obligation hereby Guaranteed; (c) any defense that may arise by reason of the
incapacity, lack of authority, death or disability of any other person or the
failure of a Benefitted Party to file or enforce a claim against the estate (in
administration, bankruptcy or any other proceeding) of any other person; (d)
demand, protest and notice of any kind including but not limited to notice of
the existence, creation or incurring of any new or additional indebtedness or
obligation or of any action or non-action on the part of such Guarantor
Subsidiary, the Company, any Benefitted Party, any creditor of such Guarantor
Subsidiary, the Company or on the part of any other person whomsoever in
connection with any indebtedness or obligations hereby Guaranteed; (e) any
defense based upon an election of remedies by a Benefitted Party, including but
not limited to an election to proceed against such Guarantor Subsidiary for
reimbursement; (f) any defense based upon any statute or rule of law which
provides that the obligation of a surety must be neither larger in amount nor in
other respects more burdensome than that of the principal; (g) any defense
arising because of a Benefitted Party's election, in any proceeding instituted
under the Federal Bankruptcy Code, of the application of Section 1111(b)(2) of
the Federal Bankruptcy Code; or (h) any defense based on any borrowing or grant
of a security interest under Section 364 of the Federal Bankruptcy Code. Each
Guarantor Subsidiary hereby covenants that its Subsidiary Guarantee will not be
discharged except by complete performance of the obligations contained in its
Subsidiary Guarantee and this Indenture.
Each Guarantor Subsidiary agrees that if, after the occurrence and
during the continuance of an Event of Default, the Trustee or any of the Holders
are prevented by applicable law from exercising their respective rights to
accelerate the maturity of the Securities, to collect interest on the
Securities, or to enforce or exercise any other right or remedy with respect to
the Securities, such Guarantor Subsidiary agrees to pay to the Trustee for the
account of the Holders, upon demand therefor, the amount that would otherwise
have been due and payable had such rights and remedies been permitted to be
exercised by the Trustee or any of the Holders.
(c) Each Guarantor Subsidiary shall be subrogated to all
rights of the Holders of the Securities upon which its Subsidiary Guarantee is
endorsed against the Company in respect of any amounts paid by such Guarantor
Subsidiary on account of such Security pursuant to the provisions of its
Subsidiary Guarantee or this Indenture; provided, however, that no Guarantor
-------- -------
Subsidiary shall be entitled to enforce or to receive any payments arising out
of, or based upon, such right of subrogation until the principal of (and
premium, if any) and interest on all Securities issued hereunder shall have been
paid in full.
55
<PAGE>
(d) Each Subsidiary Guarantee shall remain in full force
and effect and continue to be effective should any petition be filed by or
against the Company for liquidation or reorganization, should the Company
become insolvent or make an assignment for the benefit of creditors or should
a receiver or trustee be appointed for all or any significant party of the
Company's assets, and shall, to the fullest extent permitted by law, continue
to be effective or be reinstated, as the case may be, if at any time payment
and performance of the Securities, is, pursuant to applicable law, rescinded
or reduced in amount, or must otherwise be restored or returned by an obligee
on the Securities, whether as a "voidable preference," "fraudulent transfer,"
or otherwise, all as though such payment or performance had not been made. In
the event that any payment, or any part thereof, is rescinded, reduced,
restored or returned, the Securities shall, to the fullest extent permitted by
law, be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.
(e) Each Guarantor Subsidiary shall have the right to seek
contribution from any non-paying Guarantor Subsidiary so long as the exercise
of such right does not impair the rights of the Holders under the Subsidiary
Guarantees.
SECTION 10.02 Limitation of Guarantor Subsidiary's Liability. Each
----------------------------------------------
Guarantor Subsidiary and by its acceptance hereof, each Holder, hereby
confirms that it is its intention that the Subsidiary Guarantee by such
Guarantor Subsidiary not constitute a fraudulent transfer or conveyance for
purposes of any federal or state law to the extent applicable to any
Subsidiary Guarantees. To effectuate the foregoing intention, each such person
hereby irrevocably agrees that the obligation of such Guarantor Subsidiary
under its Subsidiary Guarantee under this Article 10 shall be limited to the
maximum amount as will, after giving effect to such maximum amount and all
other (contingent or otherwise) liabilities of such Guarantor Subsidiary that
are relevant under such laws, and after giving effect to any collections from,
rights to receive contribution from or payments made by or on behalf of any
other Guarantor Subsidiary in respect of the obligations of such other
Guarantor Subsidiary under this Article 10, result in the obligations of such
Guarantor Subsidiary in respect of such maximum amount not constituting a
fraudulent conveyance.
SECTION 10.03 Execution and Delivery of Subsidiary Guarantees. To
-----------------------------------------------
further evidence the Subsidiary Guarantees set forth in Section 10.1 hereof,
each Guarantor Subsidiary and the Company hereby agree that a notation
relating to such Subsidiary Guarantees substantially in the form of Exhibit C
hereto shall be endorsed on each Security authenticated and delivery by the
Trustee and executed by either manual or facsimile signature of an Officer of
each Guarantor Subsidiary.
A Subsidiary Guarantee bearing the manual or facsimile signature of
individuals who were at any time the Officers of a Guarantor Subsidiary shall
bind such Guarantor Subsidiary, notwithstanding that such individuals or any
of them have ceased to hold such
56
<PAGE>
offices prior to the authentication and delivery of the Security on which such
Subsidiary Guarantee is endorsed or did not hold such offices at the date of
such Subsidiary Guarantee.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee
endorsed thereon on behalf of the Guarantor Subsidiary. Each Guarantor
Subsidiary hereby jointly and severally agrees that its Subsidiary Guarantee
set forth in Section 10.1 hereof shall remain in full force and effect
notwithstanding any failure to endorse a Subsidiary Guarantee on any Security.
SECTION 10.04 Addition of Guarantor Subsidiary. For as long as any
--------------------------------
Subsidiary Guarantees are required to remain in effect pursuant to the terms
of this Indenture, promptly but in no event later than 15 days following the
date any person shall become a Subsidiary (other than the Non-Guarantor
Subsidiary) after the date of this Indenture, the Company shall cause such
Subsidiary to become a Guarantor Subsidiary with respect to the Securities by
executing and delivering to the Trustee (i) a supplemental indenture, a form
of which is attached hereto as Exhibit B, in form and substance satisfactory
to the Trustee, which subjects such person to the provisions (including the
representations and warranties) of this Indenture as a Guarantor Subsidiary
and (ii) an Opinion of Counsel to the effect that such supplemental indenture
has been duly authorized and executed by such person and constitutes the
legal, valid, binding and enforceable obligation of such person (subject to
such customary exceptions concerning creditors' rights and equitable
principles as maybe acceptable to the Trustee in its discretion).
SECTION 10.05 Release of the Subsidiary Guarantees.
------------------------------------
(a) Concurrently with any sale or other disposition by way
of merger, consolidation or otherwise of all or substantially all the assets
of a Guarantor Subsidiary or all the capital stock of a Guarantor Subsidiary
permitted by and in accordance with the terms of this Indenture, and upon
delivery by the Company to the Trustee of an Officers' Certificate and an
Opinion of Counsel to the effect that such sale or other disposition was made
by the Company in accordance with the provisions of this Indenture, the
Trustee shall execute any documents reasonably required and reasonably
acceptable in form and substance to the Trustee to evidence the release of
such Guarantor Subsidiary from the obligations under its Subsidiary Guarantee.
Any Guarantor Subsidiary not released from its obligations under its
Subsidiary Guarantee endorsed on the Securities and under this Article 10
shall remain liable for the obligations under its Subsidiary Guarantee
endorsed on the Securities and under this Article 10.
(c) Concurrently with the defeasance of the Securities or
the covenant defeasance of the Securities under Article 8 hereof, the
Guarantor Subsidiaries shall be released from all of their obligations under
their Subsidiary Guarantees endorsed on the
57
<PAGE>
Securities and under this Article 10, without any action on the part of the
Trustee or any Holder of Securities.
ARTICLE 11 - Miscellaneous
-------------
SECTION 11.01 Trust Indenture Act Controls. If any provision of
----------------------------
this Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 11.02 Notices. Any notice or communication shall be in
-------
writing and delivered in person or mailed by first-class mail addressed as
follows:
if to the Company: Clean Harbors, Inc.
1200 Crown Colony Drive
Quincy, Massachusetts 02169
Attention of: [ ]
if to the Trustee:
Attention of:
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be mailed
to the Securityholder at the Securityholder's address as it appears on the
registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 11.03 Communication by Holders with Other Holders.
-------------------------------------------
Securityholders may communicate pursuant to TIA (S)312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA (S)312(c).
58
<PAGE>
SECTION 11.04 Certificate and Opinion as to Conditions Precedent.
---------------------------------------------------
Upon any request or application by the Company to the Trustee to take or
refrain from taking any action under this Indenture, the Company shall furnish
to the Trustee:
(1) an Officers' Certificate in form and substance
reasonably satisfactory to the Trustee stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel, all
such conditions precedent have been complied with.
SECTION 11.05 Statements Required in Certificate or Opinion. Each
---------------------------------------------
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained
in such certificate or opinions are based;
(3) a statement that, in the opinion of such person, he
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of
such person, such covenant or condition has been complied with.
SECTION 11.06 When Securities Disregarded. In determining whether
---------------------------
the Holders of the required principal amount of Securities have concurred in
any direction, waiver or consent, Securities owned by the Company or by any
person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Company shall be disregarded and deemed not
to be outstanding, except that, for the purpose of determining whether the
Trustee shall be protected in relying on any such direction, waiver or
consent, only Securities which the Trustee knows are so owned shall be so
disregarded. Also, subject to the foregoing, only Securities outstanding at
the time shall be considered in any such determination.
59
<PAGE>
SECTION 11.07 Rules by Trustee, Paying Agent and Registrar. The
--------------------------------------------
Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar and the Paying Agent may make reasonable rules
for their functions.
SECTION 11.08 Legal Holidays. A "Legal Holiday" is a Saturday, a
--------------
Sunday or a day on which banking institutions are not required to be open in
the State of New York or the principal office of the Trustee. If a payment
date is a Legal Holiday, payment shall be made on the next succeeding day that
is not a Legal Holiday, and no interest shall accrue for the intervening
period. If a regular record date is a Legal Holiday, the record date shall not
be affected.
SECTION 11.09 Governing Law. This Indenture, the Securities and the
-------------
Subsidiary Guarantees shall be governed by, and construed in accordance with,
the laws of the State of New York but without giving effect to applicable
principles of conflicts of law to the extent that the application of the laws
of another jurisdiction would be required thereby.
SECTION 11.10 No Recourse Against Others. A director, officer,
--------------------------
employee or stockholder, as such, of the Company or any Guarantor Subsidiary
shall not have any liability for any obligations of the Company or any
Guarantor Subsidiary under the Securities, the Subsidiary Guarantees or this
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security and the related
Subsidiary Guarantees, each Securityholder shall waive and release all such
liability. The waiver and release shall be part of the consideration for the
issue of the Securities.
SECTION 11.11 Successors. All agreements of the Company in this
----------
Indenture and the Securities shall bind their respective successors. All
agreements of the Trustee in this Indenture shall bind its successors.
SECTION 11.12 Multiple Originals. The parties may sign any number
------------------
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
SECTION 11.13 Table of Contents; Headings. The table of contents,
---------------------------
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any
of the terms or provisions hereof.
SECTION 11.14 Separability Clause. In case any provision in this
-------------------
Indenture or in the Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
60
<PAGE>
SECTION 11.15 Benefits of Indenture. Nothing in this Indenture or
---------------------
in the Securities, express or implied, shall give to any person, other than
the parties hereto and their successors hereunder and the Holders, any benefit
or any legal or equitable right, remedy or claim under this Indenture.
61
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
Attest: CLEAN HARBORS, INC.
By:
- -------------------------------- --------------------------------
Title: Title:
Attest: CLEAN HARBORS ENVIRONMENTAL
SERVICES, INC.
CLEAN HARBORS OF NATICK, INC.
CLEAN HARBORS OF BRAINTREE, INC.
CLEAN HARBORS OF CHICAGO, INC.
CLEAN HARBORS OF CLEVELAND, INC.
CLEAN HARBORS OF BALTIMORE, INC.
CLEAN HARBORS OF CONNECTICUT, INC.
CLEAN HARBORS KINGSTON FACILITY
CORPORATION
MURPHY'S WASTE OIL SERVICE, INC.
CLEAN HARBORS TECHNOLOGY
CORPORATION
MR. FRANK, INC.
SPRING GROVE RESOURCE RECOVERY,
INC.
By:
- -------------------------------- --------------------------------
Title: Name:
Title:
Attest: [ ], as Trustee
By:
- -------------------------------- --------------------------------
Title: Title:
62
<PAGE>
EXHIBIT A - [FORM OF FACE OF SECURITY]
No._______ $__________
CLEAN HARBORS, INC.
_____% Senior Note Due July __, 2004
GUARANTEED AS TO PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST,
BY CLEAN HARBORS ENVIRONMENTAL SERVICES, INC., CLEAN HARBORS OF NATICK, INC.,
CLEAN HARBORS OF BRAINTREE, INC., CLEAN HARBORS OF CHICAGO, INC., CLEAN
HARBORS OF CLEVELAND, INC., CLEAN HARBORS OF BALTIMORE, INC., CLEAN HARBORS OF
CONNECTICUT, INC., CLEAN HARBORS KINGSTON FACILITY CORPORATION, MURPHY'S WASTE
OIL SERVICE, INC., CLEAN HARBORS TECHNOLOGY CORPORATION, MR. FRANK, INC.,
SPRING GROVE RESOURCE RECOVERY, INC. AND ANY OTHER SUBSIDIARY THAT EXECUTES A
SUBSIDIARY GUARANTEE (THE "GUARANTOR SUBSIDIARIES").
Clean Harbors, Inc., a Massachusetts corporation, promises to pay to
_______________, or registered assigns, the principal sum of ____________
Dollars on _____________, ____.
Interest Payment Dates: January __ and July __.
Record Dates: January __and July __.
Additional provisions of this Security are set forth on the other side
of this Security.
Dated:
CLEAN HARBORS, INC.
By:
--------------------------------
President
--------------------------------
Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
[ ]
as Trustee, certifies that this is one of [Seal]
the Securities referred to in the Indenture.
By:
------------------------------------
Authorized Signatory
A-1
<PAGE>
[FORM OF REVERSE SIDE OF SECURITY]
CLEAN HARBORS, INC.
____ % Senior Note Due July __, 2004
1. Interest
--------
Clean Harbors, Inc., a Massachusetts corporation (such corporation,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the "Company"), promises to pay interest on the principal
amount of this Security at the rate per annum shown above. The Company will
pay interest semiannually on January __ and July __ of each year. Interest on
the Securities will accrue from the most recent date to which interest has
been paid or, if no interest has been paid, from _____________, 1994. Interest
will be computed on the basis of a 360-day year of twelve 30-day months. The
Company shall pay interest on overdue principal at the rate borne by the
Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
2. Method of Payment
-----------------
The Company will pay interest on the Securities (except defaulted
interest) to the persons who are registered holders of Securities at the close
of business on the ___________ or _____________ next preceding the interest
payment date even if Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Company may pay
principal and interest by check payable in such money. It may mail an interest
check to a Holder's registered address.
3. Paying Agent and Registrar
--------------------------
Initially, ______________, a national banking association (the
"Trustee"), will act as Paying Agent and Registrar. The Company may appoint
and change any Paying Agent, Registrar or co-registrar without notice. The
Company or any of its domestically incorporated Wholly Owned Subsidiaries may
act as Paying Agent, Registrar or co-registrar.
4. Indenture
---------
The Company issued the Securities under an Indenture dated as of July
__, 1994 (the "Indenture"), between the Company, each of the Guarantor
Subsidiaries listed on the face of this Security and the Trustee. The terms of
the Securities include those stated in the
A-2
<PAGE>
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. (S)(S)77aaa-77bbbb) as in effect on the date of
the Indenture (the "Act"). Capitalized terms used herein and not defined
herein have the meanings ascribed thereto in the Indenture. The Securities are
subject to all such terms, and Securityholders are referred to the Indenture
and the Act for a statement of those terms.
The Securities are general unsecured obligations of the Company
limited to $75,000,000 aggregate principal amount (subject to Section 2.07 of
the Indenture). The Indenture imposes certain limitations on, among other
things, the issuance of additional Debt by the Company, the issuance of Debt
and Preferred Stock by any Subsidiary, the incurrence of Liens on the assets
of the Company and its Subsidiaries, the payment of dividends on, and
redemption of capital stock of the Company and its Subsidiaries and the
redemption of certain subordinated obligations of the Company and the making
of Investments by the Company or its Subsidiaries, the issuance and sale of
equity interests of the Subsidiaries, sales of assets, including Subsidiary
Capital Stock, transactions with Affiliates, and consolidations, mergers and
transfers of all or substantially all of the Company's assets. The Indenture
also will prohibit certain restrictions on distributions from Subsidiaries and
the incurrence by the Company or the Subsidiaries of indebtedness that is
senior in any respect in right of payment to the Securities or the Subsidiary
Guarantees. In addition, the Indenture requires the Company, under certain
circumstances, to offer to purchase Securities in the event of a Change of
Control.
5. Optional Redemption
-------------------
Except as set forth in the next paragraph, the Securities may not be
redeemed prior to July __, 1999. On and after that date, the Company may
redeem the Securities in whole at any time or in part at the following
redemption prices (expressed in percentages of principal amount), plus accrued
interest to the redemption date:
If redeemed during the 12-month period beginning July __ of the years
indicated:
<TABLE>
<CAPTION>
Year Percentage
<S> <C>
1999 ................................ ___%
2000 ................................ ___%
2001 ................................ ___%
2002 and thereafter ................. 100%
</TABLE>
6. Notice of Redemption
--------------------
Notice of redemption will be mailed by first class mail at least 30
days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at its registered address. Securities in
denominations larger than $1,000 may be redeemed in part
A-3
<PAGE>
but only in whole multiples of $1,000. If money sufficient to pay the
redemption price of and accrued interest on all Securities (or portions
thereof) to be redeemed on the redemption date is deposited with the Paying
Agent on or before the redemption date and certain other conditions are
satisfied, on and after such date interest ceases to accrue on such Securities
(or such portions thereof) called for redemption.
7. Put Provisions
--------------
Upon a Change of Control, any Holder of Securities will have the right
to cause the Company to repurchase all or any part of the Securities of such
Holder at a repurchase price equal to 101% of the principal amount of the
Securities to be repurchased plus accrued interest to the date of repurchase
as provided in, and subject to the terms of, the Indenture.
8. Subsidiary Guarantees
---------------------
As provided in the Indenture and subject to certain limitations
therein set forth, the obligations of the Company under the Indenture and this
Security are Guaranteed on a senior basis pursuant to Subsidiary Guarantees
endorsed hereon by each Guarantor Subsidiary. The Indenture provides that a
Guarantor Subsidiary shall be released from its Subsidiary Guarantee and that
the Holder shall have no further claim against such Guarantor Subsidiary upon
compliance with certain conditions.
9. Denominations; Transfer; Exchange
---------------------------------
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not register the transfer of or exchange any
Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
10. Persons Deemed Owners
---------------------
The registered Holder of this Security may be treated as the owner of
it for all purposes.
11. Unclaimed Money
---------------
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless
A-4
<PAGE>
an abandonment property law designates another person. After any such payment,
Holders entitled to the money must look only to the Company and not to the
Trustee for payment.
12. Defeasance
----------
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
13. Amendment, Waiver
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the
Securities and (ii) any default or noncompliance with any provision may be
waived with the written consent of the Holders of a majority in principal
amount outstanding of the Securities. Subject to certain exceptions set forth
in the Indenture, without the consent of any Securityholder, the Company and
the Trustee may amend the Indenture or the Securities to cure any ambiguity,
omission, defect or inconsistency, or to comply with Article 5 of the
Indenture, or to provide for uncertificated Securities in addition to or in
place of certificated Securities, or to add Guarantees with respect to the
Securities, or to add to the covenants of the Company or the Guarantor
Subsidiaries for the benefit of the Holders or surrender any right or power
conferred upon the Company, or to reflect either the release of any Guarantor
Subsidiary from its Subsidiary Guarantee or the addition of any Subsidiary as
a Guarantor Subsidiary to the extent permitted by the Indenture, or to comply
with any requirements of the SEC in connection with qualifying the Indenture
under the Act, or to make any change that does not adversely affect the rights
of any Securityholder.
14. Defaults and Remedies
---------------------
Under the Indenture, Events of Default include (a) default in any
payment of interest on any Security when the same becomes due and payable, and
such default continues for a period of 30 days, (b) default in the payment of
the principal of any Security when the same becomes due and payable at its
Stated Maturity, upon redemption, upon acceleration or otherwise, or failure
to redeem or purchase Securities when required pursuant to the Indenture and
the Securities, (c) failure to (i) comply with the covenant described under
Section 5.1 of the Indenture (ii) make or consummate an Offer in accordance
with the provisions of Section 4.10 of the Indenture or (iii) make or
consummate a Change in Control Offer in accordance with the provisions of
Section 4.14 of the Indenture, (d) failure to comply with any of the
agreements in the Securities or the Indenture (other than those referred to in
subsection (a), (b) or (c) above), which continues for 60 days after there has
been given to the Company by the Trustee or to the Company and the Trustee by
the Holders of at least 25% in principal amount of Securities then outstanding
a written notice specifying
A-5
<PAGE>
such failure, (e) Debt of the Company or any Subsidiary is not paid within any
applicable grace period after final maturity or is accelerated by the holder
thereof because of a default, and the total amount of such Debt unpaid or
accelerated exceeds $_________ , (f) any judgment or decree for the payment of
money in excess of $__________ is rendered against the Company or a Subsidiary
and is not discharged and either (i) an enforcement proceeding has been
commenced by any creditor upon such judgment or decree or (ii) there is a
period of 60 days following such judgement during which such judgment or
decree is not discharged, waived or the execution thereof stayed, (g) any
Subsidiary Guarantee issued by any Guarantor Subsidiary ceases to be in full
force and effect other than in accordance with its terms, or any Guarantor
Subsidiary shall deny or disaffirm its obligations under its Subsidiary
Guarantee, and (h) certain events in bankruptcy, insolvency or reorganization
with respect to the Company or any Subsidiary.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Securities may declare all
the Securities to be due and payable immediately. Certain events of bankruptcy
or insolvency with respect to the Company or any Subsidiary are Events of
Default which will result in the Securities being due and payable immediately
upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture
or the Securities unless it receives reasonable indemnity or security. Subject
to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in their interest.
15. Trustee Dealings with the Company
---------------------------------
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner
or pledgee of Securities and may otherwise deal with and collect obligations
owed to it by the Company or its affiliates and may otherwise deal with the
Company or its affiliates with the same rights it would have if it were not
Trustee.
16. No Recourse Against Others
--------------------------
A director, officer, employee or stockholder, as such, of the Company,
any Guarantor Subsidiary or the Trustee shall not have any liability for any
obligations of the Company or any Guarantor Subsidiary under the Securities or
the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each Securityholder
waives and releases all such liability. The waiver and release are part of the
consideration of the issue of the Securities.
A-6
<PAGE>
17. Authentication
--------------
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
-------------
Customarily abbreviations may be used in the name of a Securityholder
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
19. CUSIP Numbers
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation
is made as to the accuracy of such numbers either as printed on the Securities
or as contained in any notice of redemption and reliance may be placed only on
the other identification numbers place thereon.
The Company will furnish to any Securityholder upon written request
and without charge to the Securityholder a copy of the Indenture which has in
it the text of this Security in larger type. Requests may be made to:
Clean Harbors, Inc.
1200 Crown Colony Drive
Quincy, Massachusetts 02169
Attention: Chief Financial Officer
A-7
<PAGE>
- --------------------------------------------------------------------------------
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint __________________________ agent to transfer
this Security on the books of the Company. The agent may substitute another to
act for him.
- --------------------------------------------------------------------------------
Date:________________ Your Signature:___________________________________________
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
A-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.10 or 4.14 of the Indenture, check the box: [_]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.10 or 4.14 of the Indenture, state the
amount: $_____________
Date:________________ Your Signature:________________________________________
(sign exactly as your name appears on the
other side of the Security)
Signature Guarantee:____________________________________________________________
(Signature must be guaranteed by a member firm of the
New York Stock Exchange or a commercial bank or trust
company)
A-9
<PAGE>
EXHIBIT B - FORM OF SUPPLEMENTAL INDENTURE TO BE
DELIVERED BY FUTURE GUARANTOR SUBSIDIARIES
Supplemental Indenture (the "Supplemental Indenture"), dated as of
_______________, between _______________ (the "Guarantor Subsidiary"), a
subsidiary of [Clean Harbors, Inc. (or its successor), a Massachusetts
corporation (the "Company")], [Applicable subsidiary] and
_____________________, a national banking association, as trustee under the
indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, Clean Harbors Inc., a Massachusetts corporation has
heretofore executed and delivered to the Trustee an indenture (the
"Indenture"), dated as of July __, 1994, providing for the issuance of an
aggregate principal amount of $75,000,000 of ____% Senior Notes due July __,
2004 (the "Securities");
WHEREAS, Section 4.15 of the Indenture provides that under certain
circumstances the Company is required to cause any Guarantor Subsidiary to
execute and deliver to the Trustee a supplemental indenture pursuant to which
the Guarantor Subsidiary shall unconditionally Guarantee all of the Company's
obligations under the Securities pursuant to a Subsidiary Guarantee on the
terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other good
an valuable consideration, the receipt of which is hereby acknowledged, the
Guarantor Subsidiary and the Trustee mutually covenant and agree for the equal
and ratable benefit of the Holders of the Securities as follows:
1. Capitalized Terms. Capitalized terms used herein without
-----------------
definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Guarantor Subsidiary hereby
----------------------
agrees that its obligations to the Holder and the Trustee pursuant to this
Subsidiary Guarantee shall be as expressly set forth in Article 10 of the
Indenture and in such other provisions of the Indenture as are applicable to
Guarantor Subsidiaries, and reference is made to the Indenture for the precise
terms of this Supplemental Indenture. The terms of Article 10 of the Indenture
and such other provisions of the Indenture as are applicable to Guarantor
Subsidiaries are incorporated herein by reference.
B-1
<PAGE>
3. Execution and Delivery of Subsidiary Guarantees.
-----------------------------------------------
(a) To evidence its Subsidiary Guarantee set forth in this
Supplemental Indenture, the Guarantor Subsidiary hereby agrees that a
notation of such Subsidiary Guarantee substantially in the form of
Exhibit C to the Indenture shall be endorsed by an Officer of such
Guarantor Subsidiary on each Senior Note authenticated and delivered
by the Trustee after the date hereof.
(b) Notwithstanding the foregoing, the Guarantor Subsidiary
hereby agrees that its Subsidiary Guarantee set forth herein shall
remain in full force and effect notwithstanding any failure to endorse
on each Senior Note a notation of such Subsidiary Guarantee.
(c) If an Officer whose signature is on this Supplemental
Indenture or on the Subsidiary Guarantee no longer holds that office
at the time the Trustee authenticates the Senior Note on which a
Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall be
valid nevertheless.
(d) The delivery of any Note by the Trustee, after the
authentication thereof under the Indenture, shall constitute due
delivery of the Subsidiary Guarantee set forth in this Supplemental
Indenture on behalf of the Guarantor Subsidiary.
6. No Recourse Against Others. No past, present or future
--------------------------
director, officer, employee, incorporator, or stockholder of the Guarantor
Subsidiary, as such, shall have any liability for any obligations of the
Company or any Guarantor Subsidiary, as such, under the Securities, any
Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of the Securities by accepting a Senior Note waives and
releases all such liability. The waiver and releases are part of the
consideration for issuance of the Securities.
7. New York Law to Govern. The internal law of the State of New
----------------------
York shall govern and be used to construe this Supplemental Indenture and the
Subsidiary Guarantee.
8. Counterparts. The parties may sign any number of copies of
------------
this Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
9. Effect of Headings. The Section headings herein are for
------------------
convenience only and shall not affect the construction hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
B-2
<PAGE>
Dated: [Guarantor Subsidiary ]
----------------------------
By:
---------------------------
Name:
Title:
Dated:
---------------------------- --------------------------------
as Trustee
By:
--------------------------------
Name:
Title:
B-3
<PAGE>
EXHIBIT C - FORM OF NOTATION ON
SENIOR NOTE RELATING TO SUBSIDIARY GUARANTEE
Each Guarantor Subsidiary set forth below and each Subsidiary of the
Company which in accordance with Section 4.15 of the Indenture is required to
Guarantee the obligations of the Company under the Securities upon execution
of a counterpart of the Indenture, has jointly and severally, unconditionally
and absolutely Guaranteed (i) the due and punctual payment of the principal of
and interest on the Securities, whether at the maturity or interest payment or
mandatory redemption date, by acceleration, call for redemption or otherwise,
and of interest on the overdue principal of and interest, if any, on the
Securities and all other obligations of the Company to the Holders or the
Trustee under the Indenture or the Securities and (ii) in case of any
extension of time of payment or renewal of any Securities or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at maturity,
by acceleration or otherwise.
The obligations of each Guarantor Subsidiary to the Holder and to the
Trustee pursuant to this Subsidiary Guarantee and the Indenture are as
expressly set forth in Article 10 of the Indenture and in such other
provisions of the Indenture as are applicable to Guarantor Subsidiaries, and
reference is hereby made to such Indenture for the precise terms of this
Subsidiary Guarantee. The terms of Article 10 of the Indenture and such other
provisions of the Indenture as are applicable to Guarantor Subsidiaries are
incorporated herein by reference.
This is a continuing Guarantee and shall remain in full force and
effect and shall be binding upon each Guarantor Subsidiary and its successors
and assigns until full and final payment of all of the Company's obligations
under the Securities and the Indenture and shall inure to the benefit of the
successors and assigns of the Trustee and the Holders and, in the event of any
transfer or assignment of rights by any Holder or the Trustee, rights and
privileges herein conferred upon that party shall automatically extend to and
be vested in such transferee or assignee, all subject to the terms and
conditions hereof. This is a Guarantee of payment, not a Guarantee of
collection.
This Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificates of authentication on the Senior Note upon which
this Subsidiary Guarantee is
C-1
<PAGE>
noted shall have been executed by the Trustee under the Indenture by the
manual signature of one of its authorized officers.
By:
-------------------------------
Name:
Title:
C-2
<PAGE>
CONSENT OF COOPERS & LYBRAND
We consent to the inclusion in or the incorporation by reference in the
registration statement of Clean Harbors, Inc. on Form S-2 of our reports dated
February 1, 1994 on our audits of the consolidated financial statements and
financial statement schedules of Clean Harbors, Inc. as of December 31, 1993
and 1992 and for the years ended December 31, 1993, 1992 and 1991, which
reports are included in the Clean Harbors, Inc. Annual Report on Form 10-K, for
the year ended December 31, 1993. We also consent to the reference to our Firm
under the caption "Experts."
Coopers & Lybrand
Boston, Massachusetts
June 27, 1994
