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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 13, 1999
REGISTRATION STATEMENT NO. 333-81341
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
WASTE SYSTEMS INTERNATIONAL, INC.
AND THE SUBSIDIARY GUARANTORS IDENTIFIED IN FOOTNOTE (A) BELOW
(Exact name of Co-Registrants as specified in their Charters)
DELAWARE
(State or Other Jurisdiction of Organization)
(For Co-Registrants, please see Footnote (A) below.)
6794
(Primary Standard Industrial Classification Code)
95-420366
(I.R.S. Employer Identification No.)
(For Co-Registrants, please see Footnote (A) below.)
420 BEDFORD STREET, SUITE 300
LEXINGTON, MASSACHUSETTS 02420
(781) 862-3000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Co-Registrants' Principal Executive Office)
PHILIP W. STRAUSS
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
WASTE SYSTEMS INTERNATIONAL, INC.
420 BEDFORD STREET, SUITE 300
LEXINGTON, MASSACHUSETTS 02420
(781) 862-3000
(Name, Address, Including Zip Code,
and Telephone Number, Including Area Code, of Agent for Service)
------------------------------
COPY TO:
THOMAS P. STORER, P.C.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE
BOSTON, MA 02109
(617) 570-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED EXCHANGE OFFER: As soon as
practicable after this registration statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION FEE
SECURITIES TO BE REGISTERED REGISTERED PER NOTE (1) OFFERING PRICE (2)
<S> <C> <C> <C> <C>
11 1/2% Series B Senior Notes due 2006...... $77,500,000 100% $77,500,000 $21,545
Subsidiary Guarantees....................... -- -- -- $0 (3)
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(1) under the Securities Act of 1933, as amended
(the "Securities Act").
(2) The filing fee was paid June 23, 1999.
(3) Pursuant to Rule 457(n) under the Securities Act.
The Co-Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Co-Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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(A) The following direct or indirect wholly owned subsidiaries of Waste
Systems International, Inc. are guarantors of the notes and are co-registrants,
each of which is incorporated in the jurisdiction and has the I.R.S. Employer
Identification Number indicated:
WSI Medical Waste Systems, Inc., a Delaware corporation (04-3377563);
Biosafe Systems, Inc., a Delaware corporation (34-4027808);
WSI New York Holdings, Inc., a Delaware corporation (04-3428760);
WSI of New York, Inc., a Delaware corporation (04-3434005);
Palmer Resource Recovery Corp., a New York corporation (16-1557988);
WSI Camden Transfer Station, Inc., a Delaware corporation (04-3457679);
WSI Vermont Holdings, Inc., a Delaware corporation (04-0347845);
WSI of Vermont, Inc., a Delaware corporation (04-0354296);
WSI Moretown Landfill, Inc., a Delaware corporation (03-0355691);
WSI Burlington Transfer Station, Inc., a Delaware corporation (04-3374689);
WSI St. Johnsbury Transfer Station, Inc., a Delaware corporation
(03-0356503);
WSI Waitsfield Transfer Station, Inc., a Delaware corporation (04-3292469);
WSI Massachusetts Holdings, Inc., a Delaware corporation (04-3301441);
WSI Massachusetts Recycling, Inc., a Delaware corporation (04-3470404);
WSI of Massachusetts Hauling, Inc., a Delaware corporation (04-3301442);
WSI of South Hadley, Inc., a Delaware corporation (04-3086959);
WSI Oxford Transfer Station, Inc., a Delaware corporation (04-3454163);
WSI Maryland Holdings, Inc., a Delaware corporation (04-3428758);
Eastern Trans-Waste of Maryland, Inc., a Maryland corporation (52-1294346);
WSI Pennsylvania Holdings, Inc., a Delaware corporation (04-3301448);
WSI Altoona Hauling, Inc., a Delaware corporation (04-3301449);
WSI Hopewell Landfill, Inc., a Delaware corporation (04-3301445);
WSI Somerset Hauling, Inc., a Delaware corporation (04-3460153);
Community Refuse Service, Inc., a Pennsylvania corporation (23-1554822);
WSI Harrisburg Hauling, Inc., a Delaware corporation (04-3301450); and
Mostoller Landfill, Inc., a Pennsylvania corporation (25-1622775).
<PAGE>
PROSPECTUS
[LOGO]
WASTE SYSTEMS INTERNATIONAL, INC.
OFFER TO EXCHANGE $77,500,000 PRINCIPAL AMOUNT OF ITS 11 1/2% SERIES B SENIOR
NOTES
DUE 2006 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR THE SAME
PRINCIPAL AMOUNT OF ITS OUTSTANDING 11 1/2% SENIOR NOTES DUE 2006
$100,000,000 aggregate principal amount of 11 1/2% Senior Notes due 2006
outstanding.
MATERIAL TERMS OF THE EXCHANGE OFFER
- - We will exchange your validly tendered outstanding 11 1/2% Senior Notes for
an equal principal amount of registered 11 1/2% Series B Senior Notes due
2006.
- - The 11 1/2% Series B Senior Notes due 2006 we will issue in the exchange
offer are substantially identical to those of the currently outstanding
senior notes, except that some transfer restrictions and registration rights
relating to the outstanding Senior Notes will not apply to the new 11 1/2%
Series B Senior Notes due 2006.
- - The exchange offer expires at 5:00 p.m., New York City time, on August 11,
1999, unless we extend it.
- - There is currently no established trading market for the 11 1/2% Series B
Senior Notes due 2006, and we do not intend to apply to list the 11 1/2%
Series B Senior Notes due 2006 on any securities exchange.
- - The exchange offer is not subject to any condition other than its compliance
with applicable laws, with applicable interpretations of the staff of the
Securities and Exchange Commission, and other customary conditions.
- - You may tender outstanding 11 1/2% Senior Notes due 2006 only in
denominations of $10,000 and multiples of $10,000. You may withdraw your
tender of outstanding 11 1/2% Senior Notes due 2006 at any time before the
exchange offer's expiration.
- - We will not receive any cash proceeds from this offer.
- - The exchange of 11 1/2% Senior Notes due 2006 should not be a taxable
exchange for United States federal income tax purposes.
CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING
ON PAGE 14 OF THIS PROSPECTUS.
------------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT EXCHANGE THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE SENIOR NOTES TO BE DISTRIBUTED IN THE EXCHANGE
OFFER, NOR HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is July 13, 1999
<PAGE>
TABLE OF CONTENTS
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PAGE
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Prospectus Summary......................................................................................... 1
The Exchange Offer....................................................................................... 1
The Company.............................................................................................. 1
Summary of the Terms of the Exchange Offer............................................................... 5
Summary of Terms of the New Senior Notes................................................................. 9
Summary Historical Financial Data........................................................................ 12
Risk Factors............................................................................................... 14
Requirements for the resale of the New Senior Notes...................................................... 14
There may be a limited market for the New Senior Notes................................................... 14
The trading price for the Senior Notes may be volatile................................................... 15
Payment of principal and interest on the Senior Notes is subordinated to our secured debt and our
subsidiaries' secured debt............................................................................. 15
A court may declare the subsidiary guarantees void, subordinated or take other actions detrimental to
you.................................................................................................... 15
We may be unable to meet our obligations to repurchase the Senior Notes upon a change of control......... 16
Consequences of original issue discount.................................................................. 16
Failure to exchange the Old Senior Notes may have adverse consequences to you............................ 16
Your failure to follow the exchange offer procedures may prevent you from receiving New Senior Notes in
the exchange........................................................................................... 17
Our history of losses make the Senior Notes a highly speculative investment.............................. 17
Our high level of indebtedness could adversely affect our financial health............................... 17
Incurring more debt could further exacerbate the risks of our high level of indebtedness................. 18
We may not generate enough cash to service our indebtedness or our other liquidity needs................. 18
We have no control over many factors in our ability to finance planned growth............................ 19
Our future success depends upon our ability to manage rapid growth in operations and personnel........... 19
Our future success depends upon our ability to identify, acquire and integrate acquisition targets....... 19
Loss of key executives could affect Waste Systems' ability to achieve our business objectives............ 20
Failed acquisitions or projects may adversely affect our results of operations and financial condition... 20
Our business may not succeed due to the highly competitive nature of the solid waste management
industry............................................................................................... 20
Seasonal revenue fluctuations may negatively impact our operations....................................... 21
The geographic concentration of our operations magnifies the risks to our success........................ 21
Potential difficulties in acquiring landfill capacity could increase our costs........................... 21
Failure to obtain landfill closure performance bonds and letters of credit may adversely affect our
business............................................................................................... 22
Estimated accruals for landfill closure and post-closure costs may not meet our actual financial
obligations............................................................................................ 22
Environmental and other government regulations impose costs and uncertainty on our operations............ 22
We are exposed to potential liability for environmental damage and regulatory
noncompliance.......................................................................................... 23
Our environmental liability insurance may not cover all risks of loss.................................... 23
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Addressing local community concerns about our operations may adversely affect
our business........................................................................................... 23
Year 2000 problems could have an adverse impact on our business.......................................... 23
Use of Proceeds............................................................................................ 24
Capitalization............................................................................................. 25
Selected Consolidated Financial Data....................................................................... 26
Forward-Looking Statements................................................................................. 28
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 28
Business................................................................................................... 40
Management................................................................................................. 54
Principal Stockholders..................................................................................... 60
Certain Relationships and Related Transactions............................................................. 62
The Exchange Offer......................................................................................... 63
Description of Senior Notes................................................................................ 74
Summary of General Terms of the Senior Notes............................................................. 74
Subsidiary Guarantees.................................................................................... 77
Redemption............................................................................................... 79
Ranking.................................................................................................. 79
Change of Control........................................................................................ 80
Certain Covenants........................................................................................ 81
Merger, Consolidation or Sale of Assets.................................................................. 92
Events of Default........................................................................................ 92
Defeasance............................................................................................... 94
Satisfaction and Discharge of the Indenture.............................................................. 96
Transfer and Exchange.................................................................................... 96
Amendments and Waivers................................................................................... 96
Concerning the Trustee................................................................................... 97
Governing Law............................................................................................ 98
Certain Definitions...................................................................................... 98
Book-Entry; Delivery and Form.............................................................................. 109
Certain United States Federal Income Tax Consequences...................................................... 112
Plan of Distribution....................................................................................... 117
Legal Matters.............................................................................................. 118
Experts.................................................................................................... 118
Where You May Find More Information........................................................................ 118
Documents Incorporated by Reference........................................................................ 119
Index to Financial Statements.............................................................................. F-1
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PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus, but does
not contain all the information that may be important to you. This prospectus
includes or incorporates by reference specific terms of the exchange offer, as
well as information regarding our business and detailed financial data. We
encourage you to review the detailed information and data appearing elsewhere or
incorporated by reference in this prospectus. Except in discussing our business
and results of operations and where the context requires otherwise, references
in this prospectus to "we," "us," "our," "Waste Systems" or "Company" refer to
Waste Systems International, Inc., and not to any of our subsidiaries. The term
"Old Senior Notes" refers to the 11 1/2% Senior Notes due 2006 originally issued
on March 2, 1999 and currently outstanding. The term "New Senior Notes" refers
to the 11 1/2% Series B Senior Notes due 2006 offered by this prospectus. The
term "Senior Notes" refers to the Old Senior Notes and the New Senior Notes
collectively.
THE EXCHANGE OFFER
On March 2, 1999, we completed the private offering and sale of $100,000,000
principal amount of the Old Senior Notes to the initial purchaser, First Albany
Corporation. The Senior Notes are guaranteed by all of our current subsidiaries.
At the time of that private sale, Waste Systems and the guarantors of the
Senior Notes entered into a registration rights agreement with the initial
purchaser in which we agreed to deliver to you this prospectus and to complete
the exchange offer on or before October 28, 1999. As a holder of outstanding Old
Senior Notes, you are entitled in the exchange offer to exchange your Old Senior
Notes for a like principal amount of New Senior Notes which are being registered
under the Securities Act of 1933 and have substantially identical terms as the
Old Senior Notes. We are obligated to pay additional interest on the Old Senior
Notes if the Securities and Exchange Commission does not declare the
registration statement, of which this prospectus forms a part, effective on or
before September 28, 1999. You should read the discussion under the heading
"Summary of Terms of the New Senior Notes" and "Description of Senior Notes" for
further information regarding the New Senior Notes.
We believe that the New Senior Notes issued in the exchange offer may be
resold by you without compliance with the registration and prospectus delivery
provision of the Securities Act, subject to conditions described in this
prospectus. You should read the discussion under the headings "Summary of the
Terms of Exchange Offer" and "The Exchange Offer" for further information
regarding the exchange offer and the resale of Senior Notes.
THE COMPANY
We are an integrated non-hazardous solid waste management company that
provides waste collection, recycling, transfer and disposal services to
commercial, industrial, residential and municipal customers within some regional
markets in the Northeast and Mid-Atlantic states where we operate. We are
achieving significant growth by implementing an active acquisition strategy, and
plan to contribute to our growth by generating increased sales from existing
operations and achieving greater operating efficiencies. Waste Systems is a
Delaware corporation. Our principal executive offices are located at 420 Bedford
Street, Suite 300, Lexington, Massachusetts 02420, and our telephone number is
(781) 862-3000.
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CURRENT INTEGRATED OPERATIONS
We currently operate, and intend to expand, regional networks of integrated
waste collection and disposal operations. These integrated networks consist of
operating landfills, waste transfer stations, and waste collection operations.
- WASTE COLLECTION OPERATIONS
We own multiple waste collection operating subsidiaries which serve as
conduits of waste flow to our transfer stations and landfill operations. As of
June 9, 1999, our waste collection operations serve a total of approximately
72,000 commercial, industrial, residential and municipal customers in the
Vermont, Central Pennsylvania, Upstate New York and Central Massachusetts
markets. Since then, we have acquired an additional waste collection and
transfer station operation servicing the Baltimore, Maryland/Washington, D.C.
region. We have also announced, but not completed, the acquisition of an
established waste collection and transfer operation in Southern New Hampshire
and Eastern Massachusetts.
- LANDFILL OPERATIONS
We currently own four landfills, one in Vermont and three in Central
Pennsylvania. Two of these were operating in 1998, and generated approximately
20% of our 1998 revenues. Of the remaining two, one began operating in March
1999 with the acquisition of Community Refuse Service, Inc. and we expect to
begin operating the other in the fourth quarter of 1999. The aggregate remaining
estimated permitted capacity of our four owned landfills is approximately 24
million cubic yards. In addition, we have a 16-year contract with the Town of
South Hadley, Massachusetts to operate that town's landfill, subject to receipt
of required permits, which we expect to begin operating in the first quarter of
2000. The South Hadley landfill has an estimated capacity of 2.0 million cubic
yards available for future disposal.
- TRANSFER STATION OPERATIONS
We provide transfer station services supporting one of our landfills and
have acquired another transfer station that is permitted and has begun
construction. We recently completed the acquisition of an operation that
provides both waste collection and transfer station services. We have also
announced, but not completed, the acquisition of two additional transfer
stations. The transfer stations serve as gateways of waste streams by receiving
and compacting solid waste collected by us and by third parties, which we then
transfer by long-haul trucks for disposal at landfills we operate.
THE MOVEMENT OF THE SOLID WASTE MANAGEMENT INDUSTRY TOWARD CONSOLIDATION AND
INTEGRATION
The solid waste management industry is undergoing general trends toward
significant consolidation and integration. We believe these trends are due
primarily to the following factors:
- stringent environmental regulations which require increased capital to
maintain regulatory compliance;
- the inability of many smaller operators to achieve the competitive
economies of scale enjoyed by larger operators;
- the competitive and economic benefits of providing integrated collection,
recycling, transfer and disposal services; and
- the privatization of solid waste landfills, transfer stations, and
collection services by municipalities.
Although significant consolidation has occurred within the solid waste
management industry, we believe the industry remains highly fragmented and that
a substantial number of potential acquisition
2
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and privatization opportunities remain, including in the Northeast and
Mid-Atlantic states where we operate.
OUR STRATEGY TO CAPITALIZE ON INDUSTRY CONSOLIDATION AND INTEGRATION
We seek to acquire independent collection, transfer station and landfill
operations in appropriate locales to integrate those acquisitions into our
current operations. Our objective is to expand the geographic scope of our
operations and to become one of the leading non-hazardous solid waste management
companies in each local market that we serve. The primary elements of our
strategy for achieving these objectives are:
- EXECUTING OUR ACQUISITION PROGRAM. Our acquisition program consists of
identifying regional markets and acquiring non-hazardous solid waste
disposal assets in those targeted markets that we can operate as part of a
fully integrated solid waste management operation. To establish ourselves
within a selected market, we seek acquisitions that are consistent with
our plan to acquire long-term disposal capacity in targeted regional
markets, collection companies and transfer stations in the targeted
regions to secure a stable long-term waste flow, and small but
complementary "tuck-in" collection companies to increase a regional
operation's profitability.
- GENERATING INTERNAL GROWTH. We plan to generate internal growth from
existing operations by increasing sales penetration in our current and
adjacent markets, soliciting new commercial, industrial and residential
customers, marketing upgraded services to existing customers and, where
appropriate, raising prices.
- INCREASING OPERATING EFFICIENCY. We expect to increase our operating
efficiency through implementation of an organizational system that sets
operating standards and measures and analyzes operating criteria of our
collection, transfer, disposal and other services.
In connection with our growth strategy, Waste Systems currently is and at
any given time will be involved in potential acquisitions that are in various
stages of exploration and negotiation, ranging from initial discussions to the
execution of letters of intent and the preparation of definitive agreements.
Some of these potential acquisitions may be material. No assurance can be given,
however, that we will be successful in completing further acquisitions in
accordance with our growth strategy, or that acquisitions, if completed, will be
successful. For a description of the risks involved in our growth strategy,
please refer to the subsections of the "Risk Factors" section of this prospectus
on page 19 beginning with "We have no control over many factors in our ability
to finance planned growth."
OUR KEY STRENGTHS
Through the implementation of our growth strategy, we believe we demonstrate
the following key strengths:
- DEVELOPMENT OF FULLY INTEGRATED OPERATIONS
We continue to develop more fully integrated operations in our targeted
market areas. During 1998, over 95% of the solid waste from our Vermont
operations was delivered for disposal at our Moretown, Vermont landfill, and
approximately 40% of the solid waste delivered for disposal at the Moretown
landfill during this period was collected by us. During 1998, approximately 59%
of the solid waste from our Central Pennsylvania operations was delivered for
disposal at the Sandy Run landfill in Hopewell, Pennsylvania, and approximately
60% of the solid waste delivered for disposal at the Sandy Run landfill during
this period was collected by us. We expect to begin integration of our waste
collection operations and transfer station services in Central Massachusetts
once the South Hadley landfill is operational. We recently acquired our Upstate
New York waste collection and transfer station operations in anticipation of
landfill acquisition and privatization opportunities in that market area.
3
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- OPERATING EFFICIENCIES
We are achieving significant operating efficiencies and reducing costs
through consolidation and elimination of redundant corporate and service
functions in acquired businesses.
- SIGNIFICANT DISPOSAL CAPACITY
We have approximately 26.0 million cubic yards of landfill capacity in
landfills we own or operate, of which 9.9 million cubic yards are fully
permitted and operating. We recently began construction on an additional 14.2
million cubic yards of landfill capacity, and 2.0 million cubic yards are
engaged in the final permitting process. This significant disposal capacity
gives us the opportunity to achieve a high degree of internalization by allowing
room for disposal of the waste streams generated by our growing collection and
transfer operations.
- SUCCESSFUL ACQUIROR AND CONSOLIDATOR
We believe that we have demonstrated our ability to realize value in the
fragmented solid waste management industry by completing acquisitions of three
landfills, five transfer stations, and 41 solid waste collection operations
since January 1998. We have been effective in executing our acquisition program
to expand our solid waste assets in our targeted regional markets at prices we
believe will provide opportunities for increased profits and flexibility in
operations.
As a result of executing our acquisition program, we have realized
significant growth in revenue and earnings before interest, taxes, depreciation
and amortization or EBITDA. Our revenues have grown from approximately $3.5
million in the twelve months ended December 31, 1997 to approximately $21.0
million in the twelve months ended December 31, 1998. Over the same time period,
EBITDA has grown from approximately $(2.5) million to approximately $2.1
million, while Adjusted EBITDA has grown from approximately $(0.4) million to
approximately $4.2 million. In addition, for the three months ended March 31,
1999 compared to the same period of 1998, EBITDA has grown from $(0.3) million
to $0.9 million and Adjusted EBITDA has grown from $39,000 to $1.4 million.
Adjusted EBITDA is EBITDA after adjustment to exclude non-recurring write-offs
of project development costs and acquisition integration costs. For a more
detailed description of EBITDA and Adjusted EBITDA, please see Notes 4 and 5 to
the section of this prospectus entitled "Selected Consolidated Financial Data."
- STRONG MANAGEMENT TEAM
Our management team has a demonstrated track record of identifying,
acquiring, integrating and operating non-hazardous solid waste disposal assets.
Our executives and operation managers average 13.2 years of experience in the
solid waste disposal industry. In addition, senior management owns a significant
equity stake in Waste Systems, which motivates them to achieve our objectives to
maximize the value of their Waste Systems' stock.
4
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SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
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THE EXCHANGE OFFER................ We are offering to exchange $10,000 principal amount of
New Senior Notes of Waste Systems for each $10,000
principal amount of our outstanding Old Senior Notes
issued in the March 1999 private sale that is not held
by affiliates or other persons ineligible to participate
in the exchange offer. Old Senior Notes must be properly
tendered and accepted to be exchanged. All Old Senior
Notes that are validly tendered and not validly
withdrawn will be exchanged for a like principal amount
of New Senior Notes. As of this date, there is
$77,500,000 principal amount of Old Senior Notes
outstanding and not held by our affiliates which we
expect to exchange in the exchange offer. We will issue
the New Senior Notes on or promptly after the expiration
of the exchange offer.
EXPIRATION DATE................... The exchange offer will expire at 5:00 p.m., New York
City time, on August 11, 1999, unless we extend it, in
which case the term "expiration date" shall mean the
latest date and time to which we extend the exchange
offer.
CONDITIONS TO THE EXCHANGE
OFFER........................... The exchange offer is subject to customary conditions
including: that the exchange offer does not violate any
applicable law or applicable interpretation of law of
the staff of the Securities and Exchange Commission;
that no litigation materially impairs our ability to
proceed with the exchange offer; and that we obtain all
the governmental approvals we deem necessary to conduct
and complete the exchange offer.
We may terminate the exchange offer if, after using our
best efforts, we fail to meet all of the conditions to
the exchange offer. While we do not expect this to
happen, we cannot assure you that we will meet all of
the conditions to the exchange offer. Should we fail to
complete the exchange offer, holders of Old Senior Notes
will have specified rights against us under a
registration rights agreement.
REGISTRATION RIGHTS AGREEMENT..... You are entitled, under a registration rights agreement,
to exchange your Old Senior Notes for New Senior Notes,
with substantially identical terms, that have been
registered with the Securities and Exchange Commission.
This exchange offer is intended to satisfy this right.
Under the registration rights agreement, we are obliged
to use our best efforts to complete the exchange offer
by October 28, 1999; failure to meet this deadline will
result in the interest rate payable on the Senior Notes
increasing by 0.50% per annum until the exchange offer
is completed. After the exchange offer is completed for
your Senior Notes, you will no longer be entitled to any
exchange or registration rights accorded by your Senior
Notes.
We intend to file a shelf registration statement under
the Securities Act to register the Old Senior Notes held
by an
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affiliate of Waste Systems. In addition, under some
other limited circumstances, we may have to include
other holders' Old Senior Notes in the shelf
registration statement that we may file. These limited
circumstances may include a holder's inability to
participate in the exchange offer, or a change in
applicable laws which prohibits us from conducting the
exchange offer as described in this prospectus. A shelf
registration statement for the Old Senior Notes would
register the Old Senior Notes for direct resale by the
holder, in lieu of participating in the exchange offer
and receiving New Senior Notes that are registered under
the Securities Act.
RESALE OF NEW SENIOR NOTES........ We believe that the New Senior Notes issued in the
exchange offer may be offered for resale, resold and
otherwise transferred by you without compliance with the
registration and prospectus delivery provisions of the
Securities Act, provided that:
- the New Senior Notes issued in the exchange offer are
being acquired by you in the ordinary course of
business;
- you are not participating, do not intend to
participate, and have no arrangement or understanding
with any person to participate, in the distribution of
the New Senior Notes issued to you in the exchange
offer; and
- you are not an "affiliate" of Waste Systems as that
term is defined in Rule 405 under the Securities Act.
If our belief is inaccurate and you transfer any New
Senior Note issued to you in the exchange offer without
delivering a prospectus meeting the requirements of the
Securities Act or without an exemption from the
registration requirements of the Securities Act, you may
incur liability under the Securities Act. We will not
assume or indemnify you against this liability.
Each broker-dealer that is issued New Senior Notes in
the exchange offer for its own account, in exchange for
Old Senior Notes which were acquired by the
broker-dealer as a result of market-making or other
trading activities, must acknowledge that it will
deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of the New
Senior Notes issued to it in the exchange offer. A
broker-dealer may use this prospectus for an offer to
resell, resale or other transfer of the New Senior Notes
issued to it in the exchange offer.
PROCEDURES FOR TENDERING OLD
SENIOR NOTES.................... If you wish to tender your Old Senior Notes for exchange
in the exchange offer, you must transmit to the exchange
agent, IBJ Whitehall Bank & Trust Company, on or before
the expiration date, either:
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- a properly completed and duly executed letter of
transmittal, which accompanies this prospectus, or a
facsimile of the letter of transmittal, together with
your Old Senior Notes and any other required
documentation, to the exchange agent at the address
set forth in this prospectus under the heading "The
Exchange Offer--Exchange Agent," and on the front
cover of the letter of transmittal; or
- a computer generated message transmitted by means of
The Depository Trust Company's Automated Tender Offer
Program system and received by the exchange agent and
forming a part of a confirmation of book entry
transfer in which you acknowledge and agree to be
bound by the terms of the letter of transmittal.
By executing the letter of transmittal, each holder of
Senior Notes will make those representations to us
described under "The Exchange Offer--Procedures for
Tendering."
If either of these procedures cannot be satisfied on a
timely basis, then you should comply with the guaranteed
delivery procedures described below.
The exchange offer is not being made to, nor will we
accept tenders for exchange from, the following:
- holders of Old Senior Notes in any jurisdiction in
which this exchange offer or its acceptance would not be
in compliance with the applicable securities or "blue
sky" laws of that jurisdiction; and
- holders of Old Senior Notes who are "affiliates" of
Waste Systems as that term is defined in Rule 405 under
the Securities Act.
SPECIAL PROCEDURES FOR BENEFICIAL
OWNERS.......................... If you are a beneficial owner whose Old Senior Notes are
registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you wish to
tender your Old Senior Notes in the exchange offer, you
should contact the registered holder promptly and
instruct the registered holder to tender your Old Senior
Notes on your behalf. Alternatively, if you wish to
tender on your own behalf, you must, before completing
and executing the letter of transmittal and delivering
your Old Senior Notes, either make appropriate
arrangements to register ownership of the Old Senior
Notes in your name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable time and may
not be completed before the expiration date.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
GUARANTEED DELIVERY PROCEDURES.... If you wish to tender your Old Senior Notes and time
will not permit the documents required by the letter of
transmittal to reach the exchange agent before the
exchange offer's expiration date, or the procedure for
book entry transfer cannot be completed on a timely
basis, you must tender your Old Senior Notes according
to the guaranteed delivery procedures described in this
prospectus under the heading "The Exchange
Offer--Guaranteed Delivery Procedure."
ACCEPTANCE AND DELIVERY........... Subject to the conditions described in "The Exchange
Offer-- Conditions to the Exchange Offer," we will
accept for exchange any and all Old Senior Notes which
are validly tendered in the exchange offer and not
withdrawn, before midnight, New York City time, on the
expiration date.
WITHDRAWAL RIGHTS................. You may withdraw the tender of your notes at any time
before midnight, New York City time, on the expiration
date, subject to compliance with the procedures for
withdrawal described in this prospectus under the
heading "The Exchange Offer-- Withdrawal of Tenders."
FEDERAL INCOME TAX CONSEQUENCES... We believe that the exchange of the Old Senior Notes for
New Senior Notes will not be a taxable exchange for
United States federal income tax purposes, but you
should consult your tax adviser about tax consequences
of the exchange and see the section in this prospectus
entitled "Certain United States Federal Income Tax
Consequences."
EXCHANGE AGENT.................... IBJ Whitehall Bank & Trust Company, the trustee under
the indenture governing the Senior Notes, is serving as
the exchange agent. The address, telephone number and
facsimile number of the exchange agent are set forth in
this prospectus under the heading "The Exchange
Offer--Exchange Agent."
CONSEQUENCES OF FAILURE TO
EXCHANGE OLD SENIOR NOTES....... If you do not exchange your Old Senior Notes for New
Senior Notes in the exchange offer, you will continue to
be subject to the restrictions on transfer provided in
the Old Senior Notes and in the indenture governing the
Senior Notes. In general, the Old Senior Notes may not
be offered or sold, unless registered under the
Securities Act, except according to an exemption from,
or in a transaction not subject to, the Securities Act
and applicable state securities laws.
USE OF PROCEEDS................... We will not receive any proceeds from the issuance of
the New Senior Notes. We are making this exchange offer
solely to satisfy our obligations under our registration
rights agreement. Please refer to the sections in this
prospectus entitled "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of our use of
the proceeds from the sale of the Old Senior Notes.
</TABLE>
8
<PAGE>
SUMMARY OF TERMS OF THE NEW SENIOR NOTES
<TABLE>
<S> <C>
SECURITIES OFFERED................ $77,500,000 aggregate principal amount of 11 1/2% Series
B Senior Notes due 2006 of Waste Systems, which we are
registering under the Securities Act.
MATURITY DATE..................... January 15, 2006.
INTEREST ON THE NEW SENIOR
NOTES........................... The New Senior Notes will accrue interest at the rate of
11 1/2% per annum. Interest will accrue on the New
Senior Notes from the most recent date on which interest
has been paid on the Old Senior Notes, if any. We will
pay interest on the New Senior Notes semi-annually in
arrears on July 15 and January 15 of each year,
commencing July 15, 1999.
If we do not achieve an "Adjusted Stockholders' Equity"
of at least $40 million by the dates in the column
below, we must increase the interest rate payable on the
Senior Notes to the interest rate in the corresponding
column.
Date Interest rate
December 31, 1999 13%
June 30, 2000 14%
December 31, 2000 15%
For a definition of "Adjusted Stockholders' Equity,"
please refer to the section of this prospectus entitled
"Description of the Senior Notes--Summary of General
Terms of the Senior Notes--Changes in Interest Rate."
RANKING........................... The New Senior Notes and the subsidiary guarantees:
- are senior unsecured obligations;
- rank equally in right of payment with all other
existing and future senior unsecured obligations of
Waste Systems and the subsidiary guarantors; and
- are effectively subordinated to all of Waste Systems'
and our subsidiary guarantors' secured debt, including
any amounts that may be outstanding under any credit
facility and capital lease obligations, to the extent
of the value of the assets securing that debt.
SUBSIDIARY GUARANTEES............. The New Senior Notes are guaranteed on a senior
unsecured basis by all of our current subsidiaries,
which are wholly owned by Waste Systems and which
conduct substantially all of the operations of our
business. The subsidiary guarantees are joint and
several obligations of the subsidiary guarantors. The
Senior Notes indenture permits Waste Systems, in some
circumstances, to establish "unrestricted subsidiaries"
which will not guarantee the Senior Notes.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
OPTIONAL REDEMPTION............... Except as described below, we may not redeem the New
Senior Notes before March 2, 2003. After March 2, 2003,
we may redeem the New Senior Notes, in whole or in part,
at any time at the redemption price described in this
prospectus under the heading "Description of Senior
Notes-- Redemption," together with accrued and unpaid
interest, if any, to the date of redemption.
CHANGE OF CONTROL................. Upon the occurrence of an event considered a "change of
control" of Waste Systems, you will have the right to
sell back to us all of your New Senior Notes at a price
equal to 101% of the aggregate principal amount,
together with accrued and unpaid interest, if any, to
the date of sale. Please refer to the section in the
prospectus entitled "Description of Senior Notes--Change
of Control."
CERTAIN COVENANTS................. The indenture under which the New Senior Notes will be
issued limits our ability and the ability of our
subsidiary guarantors to, among other things:
- incur additional indebtedness,
- pay dividends on or redeem our capital stock,
- issue capital stock of our subsidiaries,
- make investments,
- create liens,
- issue guarantees,
- engage in transactions with affiliates,
- sell assets, and
- conduct certain mergers and consolidations.
All of the limitations and prohibitions described above,
as well as the other limitations and prohibitions
applicable under the indenture, are subject to a number
of important qualifications and exceptions. Please refer
to the sections in this prospectus entitled "Description
of Senior Notes--Certain Covenants."
FORM AND DENOMINATION............. The New Senior Notes are in registered form without
coupons, in denominations of $10,000. The New Senior
Notes will be represented by one or more permanent
global securities in bearer form deposited on behalf of
The Depository Trust Company with IBJ Whitehall Bank &
Trust Company, as custodian. You will not receive the
New Senior Notes in registered form unless one of the
events described in the section of this prospectus
entitled "Book Entry; Delivery and Form" occurs.
Instead, beneficial interests in the New
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Senior Notes will be shown on, and transfers of these
will be effected only through, records maintained in
book-entry form by The Depository Trust Company for its
participants.
ABSENCE OF A PUBLIC MARKET FOR THE
NEW SENIOR NOTES................ The New Senior Notes are new securities and there is
currently no established market for them. We cannot
assure you that a market for the New Senior Notes will
develop or be liquid. The Old Senior Notes are currently
eligible for trading in the Private Offering, Resales
and Trading through Automated Linkages or "PORTAL"
market. Following commencement of the exchange offer,
you may continue to trade the Old Senior Notes in the
PORTAL market. The New Senior Notes will not be eligible
for trading in the PORTAL market and we do not intend to
register the New Senior Notes on any securities
exchange.
</TABLE>
11
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
In the table below we provide you with summary historical financial data for
Waste Systems and its subsidiaries. The statement of operations data presented
for each of the years in the three years ended December 31, 1998 and the balance
sheet data as of December 31, 1998, 1997 and 1996 have been derived from our
audited financial statements for those periods. The audited financial statements
as of December 31, 1998 and 1997 and for each of the years in the three years
ended December 31, 1998 are included in this prospectus.
We encourage you to review the audited financial statements and the
accompanying notes, as well as the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which is also contained in this
prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
1999 1998 1998 1997 1996
------------- ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATION DATA:
Revenues.................................. $ 8,862 $ 1,528 $ 21,045 $ 3,458 $ 1,496
Operating expenses........................ 5,571 864 12,400 1,718 921
Depreciation and amortization............. 1,753 374 4,501 692 370
Acquisition integration costs............. 544 320 1,865 -- --
Write-off of project development costs.... -- -- 235 1,496 6,652
------------- ------------ ------------ ------------ ------------
Total cost of operations.............. 7,868 1,558 19,001 3,906 7,943
------------- ------------ ------------ ------------ ------------
Selling, general and administrative
expenses................................ 1,914 657 4,483 2,139 2,443
Other..................................... -- -- -- 596 2,576
------------- ------------ ------------ ------------ ------------
Loss from operations...................... (920) (687) (2,439) (3,183) (11,466)
------------- ------------ ------------ ------------ ------------
Loss from continuing operations........... (8,473) (1,107) (6,206) (5,449) (11,652)
Net loss.................................. (8,697) (1,107) (6,496) (5,589) (13,890)
Preferred stock dividends................. -- 243 888 -- --
------------- ------------ ------------ ------------ ------------
Net loss available for common
shareholders............................ $ (8,697) $ (1,350) $ (7,384) $ (5,589) $ (13,890)
------------- ------------ ------------ ------------ ------------
------------- ------------ ------------ ------------ ------------
Basic net loss per share.................. $ (0.74) $ (0.35) $ (1.00) $ (1.55) $ (4.90)
------------- ------------ ------------ ------------ ------------
------------- ------------ ------------ ------------ ------------
Weighted average number of shares used in
computation of basic net loss per
share................................... 11,737,727 3,904,969 7,389,547 3,612,623 2,834,841
------------- ------------ ------------ ------------ ------------
------------- ------------ ------------ ------------ ------------
OTHER FINANCIAL DATA:
EBITDA.................................... $ 857 $ (281) $ 2,130 $ (2,469) $ (9,909)
Adjusted EBITDA........................... 1,401 39 4,230 (378) (1,516)
Capital expenditures (excluding
acquisitions)........................... 2,179 343 9,032 998 6,599
Cash flow from operations................. 1,734 (1,020) 592 (4,586) (3,912)
Cash flow from investing activities....... (39,071) (7,280) (71,939) 706 (7,641)
Cash flow from financing activities....... 73,959 6,231 68,576 6,579 6,581
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents................. 36,817 894 194 2,964 265
Working capital........................... 34,140 (6,921) (6,520) 1,532 (4,508)
Total assets.............................. 173,884 23,878 96,117 18,560 16,858
Long-term debt, less current portion...... 151,801 6,970 74,861 7,201 9,450
Total stockholders' equity (deficit)...... 5,892 4,800 1,739 5,972 (1,849)
</TABLE>
(a) See notes 4 and 5 to "Selected Consolidated Financial Data" on page 27 for
definitions of EBITDA and Adjusted EBITDA.
12
<PAGE>
RISK FACTORS
You should consider carefully all of the information set forth in this
prospectus and, in particular, the specific factors set forth under the "Risk
Factors" section beginning on page 14 before deciding to tender your outstanding
notes in the exchange offer.
13
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS IN ADDITION TO THE OTHER
INFORMATION AND DATA SET FORTH IN THIS PROSPECTUS BEFORE TENDERING YOUR OLD
SENIOR NOTES IN THE EXCHANGE OFFER AND MAKING AN INVESTMENT IN THE NEW SENIOR
NOTES. THE RISK FACTORS DESCRIBED BELOW ARE GENERALLY APPLICABLE TO THE OLD
SENIOR NOTES AS WELL AS THE NEW SENIOR NOTES, WITH THE EXCEPTION OF
"REQUIREMENTS FOR THE RESALE OF THE NEW SENIOR NOTES" AND "THERE MAY BE A
LIMITED MARKET FOR THE NEW SENIOR NOTES."
REQUIREMENTS FOR THE RESALE OF THE NEW SENIOR NOTES.
Based on prior interpretations by the staff of the Securities and Exchange
Commission, we believe that you may offer for resale, resell or otherwise
transfer the New Senior Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act if you are:
- acquiring the New Senior Notes in the ordinary course of your business;
- not participating, do not intend to participate and have no arrangement or
understanding with any person to participate, in the "distribution" of the
New Senior Notes within the meaning of the Securities Act; and
- not an affiliate of Waste Systems, in other words, a person that directly,
or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with Waste Systems.
If any of the above statements is not true and you transfer any New Senior
Note without delivering a prospectus meeting the requirements of the Securities
Act or without an exemption from registration of your New Senior Notes under the
Securities Act, you may incur liability under the Securities Act. We do not and
will not assume responsibility for or indemnify you against this liability. If
you want to exchange your Old Senior Notes in the exchange offer for the purpose
of participating in a distribution of the New Senior Notes, you may be deemed to
have received restricted securities, and, if so, you will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. In addition, the New Senior Notes may
not be offered or sold in specified states unless they are registered or
qualified for sale in compliance with the securities laws of such jurisdictions
or an exemption from registration or qualification is available.
Any broker-dealer that receives New Senior Notes for its own account in
exchange for Old Senior Notes which were acquired by the broker-dealer as a
result of market making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act. Each broker-dealer must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of the New Senior Notes.
THERE MAY BE A LIMITED MARKET FOR THE NEW SENIOR NOTES.
The Old Senior Notes have been designated for trading by qualified buyers in
the PORTAL Market. However, there is currently no existing trading market for
the New Senior Notes, and we cannot assure you that a market for the New Senior
Notes will develop in the future, or that the holders of the New Senior Notes
will be able to sell their New Senior Notes at prices they deem reasonable. If a
trading market were to develop, the New Senior Notes could trade at prices that
may be higher or lower than the initial offering price, depending upon
prevailing interest rates, the market for similar securities, our financial
condition and other factors beyond our control, including general economic
conditions. We do not intend to register the New Senior Notes on any securities
exchange.
14
<PAGE>
THE TRADING PRICE FOR THE SENIOR NOTES MAY BE VOLATILE.
The trading price of the Senior Notes could be subject to significant
fluctuations in response to changes in our prospects and financial condition. In
addition, factors such as announcements of fluctuations in our competitors'
operating results, changes in interest rates and general market conditions could
have a significant impact on the future trading prices of the Senior Notes. Any
of these factors may have an adverse effect on the level and stability of the
trading prices of the Senior Notes. Historically, the market for non-investment
grade debt, such as the Senior Notes, has been subject to disruptions that have
caused substantial volatility in the prices of non-investment grade debt.
PAYMENT OF PRINCIPAL AND INTEREST ON THE SENIOR NOTES IS SUBORDINATED TO OUR
SECURED DEBT AND OUR SUBSIDIARIES' SECURED DEBT.
The Senior Notes are senior unsecured obligations of Waste Systems and the
subsidiary guarantors, and rank equal in right of payment with all other
existing and future senior unsecured indebtedness of Waste Systems and the
subsidiary guarantors. As unsecured obligations, however, the Senior Notes are
effectively subordinated to all of Waste Systems' and our subsidiaries' secured
debt, including loans outstanding under any bank credit facility, our capital
lease obligations and all liabilities, including trade payables, of our
subsidiaries that do not guarantee the Senior Notes. Currently all of our
subsidiaries guarantee the Senior Notes, but the indenture permits subsidiary
guarantors to be released from the guarantees in some circumstances and permits
Waste Systems to establish, in some circumstances, new subsidiaries that have no
obligation to guarantee the Senior Notes. Please refer to the section of this
prospectus entitled "Description of Senior Notes---Subsidiary Guarantees" for a
detailed discussion of the subsidiary guarantees.
In the event of a bankruptcy, liquidation, dissolution, reorganization or
similar proceeding of Waste Systems, the assets of Waste Systems will be
available to satisfy obligations of our and our subsidiaries' secured debt
before any payment may be made on the Senior Notes. In addition, to the extent
the secured assets cannot fully satisfy the secured indebtedness, the secured
creditors would have a claim for any shortfall that would rank equal in right of
payment with the Senior Notes.
A COURT MAY DECLARE THE SUBSIDIARY GUARANTEES VOID, SUBORDINATED OR TAKE OTHER
ACTIONS DETRIMENTAL TO YOU.
Various fraudulent conveyance laws enacted for the protection of creditors
may apply to the subsidiary guarantors' issuance of the subsidiary guarantees. A
court may void or subordinate a subsidiary guarantee if it were to find that:
- the subsidiary guarantor incurred the guarantee with the intent to
hinder, delay or defraud any present or future creditor;
- the subsidiary guarantor contemplated insolvency with a design to prefer
one or more creditors to the exclusion in whole or in part of others; or
- the subsidiary guarantor
(1) did not receive fair consideration or reasonably equivalent value for
issuing its subsidiary guarantee; and
(2) at the time the subsidiary guarantee was issued,
-- was insolvent or rendered insolvent by the issuance of the
subsidiary guarantee;
-- was engaged or about to engage in a business or transaction for
which its remaining assets constituted unreasonably small capital
to carry on its business; or
15
<PAGE>
-- intended to incur, or believed that it would incur, debts beyond
its ability to pay them as they matured.
If this happened, your claims as a holder of the Senior Notes against the
issuer of an invalid subsidiary guarantee would be subordinated to the prior
payment of all liabilities, including trade payables, of the subsidiary
guarantor.
A court's method for determining insolvency for purposes of the above
considerations will vary depending upon the law applied in each case. In most
cases, however, a court may find a subsidiary guarantor insolvent if the sum of
its debts, including contingent liabilities, is greater than the fair value of
all of its assets or if the amount required to pay its probable liability on its
existing debts, as they mature, is greater than the present fair saleable value
of its assets.
We cannot assure you, however, that a court passing on these issues will
find that the subsidiary guarantees were not fraudulent conveyances. Please
refer to the section in this prospectus entitled "Description of Senior
Notes--Subsidiary Guarantees" for further discussion of this important issue.
WE MAY BE UNABLE TO MEET OUR OBLIGATIONS TO REPURCHASE THE SENIOR NOTES UPON A
CHANGE OF CONTROL.
In the event of a change of control of Waste Systems, the indenture requires
us to make an offer to repurchase all outstanding Senior Notes at a price equal
to 101% of their principal amount, plus accrued and unpaid interest to the date
of repurchase. However, if a change of control occurs, we cannot assure you that
we will have the sufficient funds available to make any required repurchases of
the Senior Notes, or that restrictions in our other indebtedness will allow us
to make any required repurchases. Please refer to the section in this prospectus
entitled "Description of Senior Notes-- Change of Control" for a more detailed
description of the events constituting a change of control under the Senior
Notes indenture.
CONSEQUENCES OF ORIGINAL ISSUE DISCOUNT.
Because the Senior Notes have contingent interest, they have been issued
with original issue discount for federal income tax purposes. Therefore, holders
of Senior Notes are required to include amounts in gross income for federal
income tax purposes before they receive the cash payments to which the income is
attributable. Please refer to the section of this prospectus entitled "Certain
United States Federal Income Tax Consequences" for a more detailed discussion of
the federal income tax consequences of original issue discount.
FAILURE TO EXCHANGE THE OLD SENIOR NOTES MAY HAVE ADVERSE CONSEQUENCES TO YOU.
The Old Senior Notes were not registered under the Securities Act or under
the securities laws of any state and you may not resell them, offer them for
resale or otherwise transfer them unless they are subsequently registered or
resold under an exemption from the registration requirements of the Securities
Act and applicable state securities laws. If you do not exchange your Old Senior
Notes for New Senior Notes in the exchange offer, the Old Senior Notes you
continue to hold will still be subject to these transfer restrictions.
In addition, because of the registration of the New Senior Notes, we will
not be required to register the Old Senior Notes under the Securities Act except
in the limited circumstances provided under our registration rights agreement.
The trading market, if any, for the Old Senior Notes that remain outstanding
after the exchange is completed, would be adversely affected because the
exchange offer reduces the number of Old Senior Notes outstanding and available
for trading and provides potential purchasers with the opportunity to invest in
registered New Senior Notes.
16
<PAGE>
YOUR FAILURE TO FOLLOW THE EXCHANGE OFFER PROCEDURES MAY PREVENT YOU FROM
RECEIVING NEW SENIOR NOTES IN THE EXCHANGE.
We will issue New Senior Notes to you in conformity with the exchange offer
only after the timely receipt of your Old Senior Notes, or a properly completed
and duly executed notice of guaranteed delivery, a properly completed and duly
executed letter of transmittal, and all other required documents. Please allow
sufficient time for the delivery to us of the required exchange offer documents.
We are under no duty to give notification of defects or irregularities regarding
any holder's tender of Old Senior Notes for exchange. Any defect or irregularity
in a holder's tender may prevent that holder from receiving New Senior Notes.
Please refer to the section in this prospectus entitled "The Exchange
Offer--Procedures for Tendering" for a detailed explanation of exchange offer
procedures.
OUR HISTORY OF LOSSES MAKE THE SENIOR NOTES A HIGHLY SPECULATIVE INVESTMENT.
From Waste Systems' inception through March 31, 1999, we have had aggregate
net losses of approximately $43.9 million on aggregate revenues of approximately
$36.2 million and had an accumulated loss from operations of $26.0 million.
Following Waste Systems' restructuring in 1996, we directed our focus on
becoming an integrated solid waste management company by implementing a business
strategy based on aggressive growth through acquisitions. Our ability to become
profitable and to maintain profitability as we pursue our business strategy will
depend upon several factors, including our ability to:
- execute our acquisition strategy and expand our revenue generating
operations while maintaining or reducing our proportionate administrative
expenses;
- locate sufficient financing to fund acquisitions; and
- adapt to changing conditions in the competitive market in which we
operate.
External factors, such as the economic and regulatory environments in which we
operate will also have an effect on our business and its profitability. However,
continued losses and negative cash flow may not only prevent us from achieving
our strategic objectives, it may also limit our ability to meet financial
obligations, including our obligations under the Senior Notes.
OUR HIGH LEVEL OF INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH.
We currently have a high level of indebtedness relative to stockholders'
equity. The following table illustrates our level of indebtedness:
<TABLE>
<CAPTION>
AS OF MARCH 31,
1999
-------------------
<S> <C>
(DOLLARS IN
THOUSANDS)
Long-term indebtedness................................................... $ 152,057
Stockholders' equity..................................................... $ 5,892
Debt to equity ratio..................................................... 25.7:1
</TABLE>
Our high level of indebtedness could:
- limit our flexibility in planning for, or reacting to, changes in
business, industry and economic conditions;
- require us to dedicate a substantial portion of our cash flow from
operations to repaying indebtedness, thereby reducing the availability of
our cash flow to fund working capital, capital expenditures and other
general corporate purposes;
17
<PAGE>
- place us at a competitive disadvantage compared to our competitors with
lower levels of indebtedness; and
- limit our ability to borrow additional funds, either because of
restrictive covenants in the Senior Notes indenture or because of a
potential lender's limits on borrower indebtedness.
Our high level of indebtedness may have a direct negative impact on our
operations. It may also result in an event of default under our debt instruments
which, if not cured or waived, could have a material adverse effect on our
finances. Please refer to the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" for further discussion of this important issue.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED FOR THE YEARS ENDED
MARCH 31, DECEMBER 31,
--------------- ------------------------
1999 1998 1997
--------------- ----------- -----------
<S> <C> <C> <C>
Ratio of Earnings to Fixed Charges....................... N/A N/A N/A
</TABLE>
For the three months ended March 31, 1999, we incurred net losses that did
not cover fixed charges by approximately $8.8 million; for the year ended
December 31, 1998, we incurred net losses that did not cover fixed charges by
approximately $6.6 million; and for the year ended December 31, 1997, we
incurred net losses that did not cover fixed charges by approximately $5.5
million. For purposes of computing this financial relationship of earnings to
fixed charges, earnings consist of pretax income (loss) from continuing
operations plus fixed charges. Fixed charges consist of interest expense and
financing costs, including capitalized interest and amortization of deferred
financing costs, and an estimated portion of rentals representing interest
costs.
INCURRING MORE DEBT COULD FURTHER EXACERBATE THE RISKS OF OUR HIGH LEVEL OF
INDEBTEDNESS.
Despite our current high level of indebtedness, the indenture does not fully
prohibit us or our subsidiaries from incurring substantial additional
indebtedness in the future. We may increase our level of indebtedness by
obtaining additional bank financing. Borrowings and other indebtedness which
Waste Systems or our subsidiaries may incur may be secured and therefore would
rank senior to the Senior Notes and the subsidiary guarantees. If new debt is
added to our current level of debt, the related risks of indebtedness could
intensify both for us and for the holders of the Senior Notes.
WE MAY NOT GENERATE ENOUGH CASH TO SERVICE OUR INDEBTEDNESS OR OUR OTHER
LIQUIDITY NEEDS.
Our ability to make payments on and to refinance our indebtedness, including
the Senior Notes, and to fund planned capital expenditures will depend on our
ability to generate cash in the future. This ability depends in part on our
operating performance and the execution of our business strategy. It is also
subject to influence by general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control.
We cannot assure you that our business will generate sufficient cash flow
from operations, that we will realize anticipated cost savings from operating
efficiency improvements, or that we will be able to obtain future financing in
amounts sufficient to enable us to pay our indebtedness, including the Senior
Notes, or to fund our other liquidity needs.
18
<PAGE>
The following table outlines the schedule of our required debt amortization
payments:
<TABLE>
<CAPTION>
BALANCE AT PRINCIPAL PAYMENTS DUE DURING
MARCH 31, ----------------------------------------------------------------
1999 1999 2000 2001 2002 2003 2004
----------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt
Bank Credit Facility.......................... $ -- -- -- -- -- -- --
Capital Leases, Equipment and Other Notes
Payable..................................... 2,106 216 281 306 334 282 139
Senior Notes.................................. 100,000 -- -- -- -- -- --
10% Convertible Subordinated Debentures....... 400 -- 400 -- -- -- --
7% Convertible Subordinated Notes............. 49,551 -- -- -- -- -- --
----------- --------- --------- --------- --------- --------- ---------
Total................................... $ 152,057 216 681 306 334 282 139
----------- --------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- --------- ---------
<CAPTION>
2005 2006 REMAINDER TOTAL
--------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Long-Term Debt
Bank Credit Facility.......................... -- -- -- --
Capital Leases, Equipment and Other Notes
Payable..................................... 153 169 226 2,106
Senior Notes.................................. -- 100,000 -- 100,000
10% Convertible Subordinated Debentures....... -- -- -- 400
7% Convertible Subordinated Notes............. 49,551 -- -- 49,551
--------- --------- ------ ---------
Total................................... 49,704 100,169 226 152,057
--------- --------- ------ ---------
--------- --------- ------ ---------
</TABLE>
We may need to refinance all or a portion of our indebtedness, including the
Senior Notes, on or before maturity. We cannot assure you that we will be able
to refinance any of our indebtedness, including the Senior Notes, on
commercially reasonable terms or at all. Please refer to the section in this
prospectus entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" for further
discussion of this important issue.
WE HAVE NO CONTROL OVER MANY FACTORS IN OUR ABILITY TO FINANCE PLANNED GROWTH.
We require substantial funds to complete and bring to commercial viability
all of our currently planned projects. We also anticipate that future business
acquisitions will be financed not only through cash from operations and the
proceeds from the Old Senior Notes offering, but also by future borrowings under
bank credit facilities, offerings of Waste Systems stock as consideration for
acquisitions, or from the proceeds of additional equity or debt financings.
Therefore, our ability to satisfy our future capital and operating requirements
for planned growth is dependent on a number of pending or future financing
activities, and we cannot assure you that any of these financing activities will
be successfully completed.
OUR FUTURE SUCCESS DEPENDS UPON OUR ABILITY TO MANAGE RAPID GROWTH IN OPERATIONS
AND PERSONNEL.
Our objective is to continue to grow by expanding our services in selected
markets where we can be one of the largest and most profitable fully-integrated
solid waste management companies. Accordingly, we may experience periods of
substantial rapid growth. This growth could place a significant strain on our
operational, financial and other resources. Any failure to expand our
operational and financial systems and controls in an efficient manner at a pace
consistent with our growth could have a material adverse effect on our business,
financial condition and results of operations.
Our future success is also highly dependent upon our continuing ability to
identify, hire, train and motivate a sufficient number of highly qualified
personnel for our planned growth. We face competition for recruiting qualified
personnel from our competitors, other companies not in the waste management
industry, government entities and other organizations. We cannot assure you that
we will be successful in attracting and retaining qualified personnel as
required for our present and future planned operations. Our inability to attract
and retain a sufficient number of qualified personnel could have a material
negative impact on our business, financial condition and results of operations.
OUR FUTURE SUCCESS DEPENDS UPON OUR ABILITY TO IDENTIFY, ACQUIRE AND INTEGRATE
ACQUISITION TARGETS.
Our future success is highly dependent upon our continued ability to
successfully identify, acquire and integrate additional solid waste collection,
recycling, transfer and disposal businesses. As the solid waste management
industry continues to consolidate, competition for acquisition candidates within
the industry increases and the availability of suitable candidates on terms
favorable to us may decrease. We
19
<PAGE>
compete for acquisition candidates with larger, more established companies that
may have significantly greater capital resources than we do, which can further
decrease the availability of suitable acquisition candidates at prices
affordable to us. We cannot assure you that we will be able to identify suitable
acquisition candidates, to successfully negotiate acquisitions on terms
reasonable to us given our resources, to obtain financing for those targets on
favorable terms, or to successfully integrate any acquired targets with our
current operations.
We believe that a significant factor in our ability to consummate
acquisitions will be the attractiveness of our common stock as consideration for
potential acquisition targets. This attractiveness may be, in large part,
dependent upon the relative market price and capital prospects of our equity
securities as compared to the equity securities of our competitors. Our stock is
traded on the Nasdaq Stock Market, Inc.'s SmallCap Market, while some of our
competitors' stock is traded on larger, more recognized markets. In addition,
some of our competitors have a significantly larger capitalization than we do,
which generally results in a more liquid market for their publicly traded
securities. If the market price of our common stock were to decline, we might be
unable to use our common stock as consideration for future acquisitions.
LOSS OF KEY EXECUTIVES COULD AFFECT WASTE SYSTEMS' ABILITY TO ACHIEVE ITS
BUSINESS OBJECTIVES.
We depend to a high degree on the services of Philip Strauss, Chairman,
Chief Executive Officer and President, and Robert Rivkin, Director, Executive
Vice President--Acquisitions, Chief Financial Officer, Secretary and Treasurer,
in planning to achieve our business objectives. We have obtained $1 million key
executive insurance policies for each of Messrs. Strauss and Rivkin. However, if
we lost the services of either of these executives, our business, financial
condition and results of operations could suffer material adverse effects.
FAILED ACQUISITIONS OR PROJECTS MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.
In accordance with generally accepted accounting principles, we record some
expenditures and advances relating to acquisitions, pending acquisitions and
landfill projects as assets on our balance sheet, then amortize or depreciate
these capitalized expenditures and advances over time, usually matching an
asset's depreciation against the revenues it generates. We also have an
accounting policy to record as an expense in the current accounting period all
unamortized capital expenditures and advances relating to any operation that is
permanently shut down, any acquisition that will not be consummated, and any
landfill project that is terminated. As a result of these accounting practices,
we may have to record the entire capitalized expenditure of any failed
acquisition or terminated project as a charge against earnings in the accounting
period in which the failure or termination occurs. A large, unexpected expense
against typical earnings could have a material adverse effect on our results of
operations, financial condition and our business.
OUR BUSINESS MAY NOT SUCCEED DUE TO THE HIGHLY COMPETITIVE NATURE OF THE SOLID
WASTE MANAGEMENT INDUSTRY.
The solid waste management industry is highly competitive and very
fragmented, and requires substantial labor and capital resources. Competition
exists for collection, recycling, transfer and disposal service customers, as
well as for acquisition targets. The markets we compete in or are likely to
compete in usually are served by one or more national, regional or local solid
waste companies who may have a respected market presence, and who may have
greater financial, marketing or technical resources than those available to us.
Competition for waste collection and disposal business is based on price, the
quality of service and geographical location. From time to time, competitors may
reduce the price of their services in an effort to expand or maintain market
share or to win competitively bid contracts.
20
<PAGE>
We also compete with counties, municipalities and operators of alternative
disposal facilities that operate their own waste collection and disposal
facilities. The availability of user fees, charges or tax revenues and the
availability of tax-exempt financing may provide a competitive advantage to
public sector competitors in solid waste management. Additionally, alternative
disposal facilities such as recycling and incineration may reduce the demand for
the landfill-based solid waste disposal services that we provide and on which
our strategy is based. We cannot assure you that we will be able to remain
competitive with our larger and better capitalized private competitors or with
tax-advantaged public sector operators.
SEASONAL REVENUE FLUCTUATIONS MAY NEGATIVELY IMPACT OUR OPERATIONS.
Our revenues and results of operations tend to vary seasonally. We tend to
have lower revenues in the winter months of the fourth and first quarters of the
calendar year than in the warmer months of the second and third quarters. The
primary reasons for lower revenues in the winter months include:
- harsh winter weather conditions may interfere with collection and
transportation activities;
- the volume of winter month waste in our operating regions is generally
lower than that which occurs in warmer months; and
- the construction and demolition activities which generate landfill waste
are primarily performed in the warmer seasons.
We believe that the seasonality of the revenue stream will not have a material
adverse effect on our business, financial condition and results of operations on
an annualized basis. Still, higher warm weather revenues may not offset lower
cold season revenues, and seasonal revenue fluctuations may make it more
difficult to manage and finance our business successfully.
THE GEOGRAPHIC CONCENTRATION OF OUR OPERATIONS MAGNIFIES THE RISKS TO OUR
SUCCESS.
Waste Systems has established solid waste management operations in Central
Pennsylvania, Vermont, Upstate New York and Central Massachusetts. Since our
current primary source of revenues will be concentrated in these geographic
locations, our business, financial condition and results of operations could be
materially affected by downturns in these local economies, severe weather
conditions in these regions, and Pennsylvania, Vermont, New York and
Massachusetts state and local regulations. Factors that have a greater impact on
our selected markets than on other regions of the country are more likely to
have a negative effect on our business than on our larger regional and national
competitors in the waste management industry.
Industry consolidation in our operating regions has also increased the
competition for customers who generate waste streams. This may make it
increasingly difficult to expand operations within our selected markets. We
cannot assure you that we will be able to continue to increase the local waste
streams to our operating landfills or be able to expand our geographic markets
to mitigate the effects of adverse economic events that may occur in these
regions. As a result of our geographic concentration, we are exposed to a higher
degree of risks than our geographically more diverse competitors.
POTENTIAL DIFFICULTIES IN ACQUIRING LANDFILL CAPACITY COULD INCREASE OUR COSTS.
Our operations depend on our ability to expand the landfills we own or
operate and to develop or acquire new landfill sites. We cannot assure you that
we will be successful in obtaining new landfill sites or expanding the permitted
capacity of our existing landfills. The process of obtaining required permits
and approvals to open new landfills, and to operate and expand existing
landfills has become increasingly difficult and expensive. The process can take
several years and involves hearings and compliance with zoning, environmental
and other requirements. We cannot assure you that we will be
21
<PAGE>
successful in obtaining and maintaining required permits to open new landfills
or expand the existing landfills we own or operate.
Even when granted, final permits to expand landfills are often not approved
until the remaining capacity of a landfill is very low. In the event we exhaust
our permitted capacity at one of our landfills, our ability to expand internally
will be limited and we will be required to cap and close that landfill.
Furthermore, as the solid waste management industry continues to consolidate,
there will be greater competition for potential landfill acquisitions. As a
result of insufficient landfill capacity, we could be forced to transport waste
greater distances to our own landfills that have capacity, or to dispose of
waste locally at landfills operated by our competitors. In either case, the
additional costs we would incur could have a material adverse effect on our
business.
FAILURE TO OBTAIN LANDFILL CLOSURE PERFORMANCE BONDS AND LETTERS OF CREDIT MAY
ADVERSELY AFFECT OUR BUSINESS.
We may be required to post a performance bond, surety bond or letter of
credit to ensure proper closure and post-closure monitoring and maintenance at
some of our landfills and transfer stations. Our failure to obtain performance
bonds, surety bonds or letters of credit in sufficient amounts or at acceptable
rates may have a material adverse effect on our business, financial condition
and results of operations.
ESTIMATED ACCRUALS FOR LANDFILL CLOSURE AND POST-CLOSURE COSTS MAY NOT MEET OUR
ACTUAL FINANCIAL OBLIGATIONS.
The closure and post-closure costs of our existing landfills and any
landfill we may own or operate in the future represent material financial
obligations. To meet these future obligations, we estimate and accrue closure
and post-closure costs based on engineering estimates of landfill usage and
remaining landfill capacity. We cannot assure you that the amount of funds
estimated and accrued for landfill closure and post-closure costs will be enough
to meet these future financial obligations. Any failure to meet these
obligations when they become due, or any use of significant funds to cover a gap
between such accruals and actual landfill closure and post-closure costs
incurred, may have a material adverse effect on our business, financial
condition and results of operations.
ENVIRONMENTAL AND OTHER GOVERNMENT REGULATIONS IMPOSE COSTS AND UNCERTAINTY ON
OUR OPERATIONS.
We and our customers operate in a highly regulated environment, and our
landfill projects in particular usually will require federal, state and local
government permits and environmental approvals. Maintaining awareness of and
attempting to comply with applicable environmental legislation and regulations
require substantial expenditures of our personnel and financial resources. These
efforts, however, do not guarantee that we will meet all of the applicable
regulatory criteria necessary to obtain required permits and approvals.
Government regulators generally have broad discretion to deny, revoke, or
modify regulatory permits or approvals under a wide variety of circumstances. In
addition, government regulators may adopt new environmental legislation or
regulations or amend existing legislation, and may interpret or enforce existing
legislation in new ways. All of these circumstances may require us or our
customers to obtain additional permits or approvals.
22
<PAGE>
Any delay in obtaining required regulatory permits or approvals may delay
our ability to obtain project financing, thereby increasing our need to invest
working capital in projects before obtaining more permanent financing. These
delays may also reduce our project returns by deferring the receipt of project
revenues to a later project completion date. If we are required to cancel any
planned project because we were unable to obtain required permits or as a result
of any other regulatory impediments, we may lose any investment we have made in
the project up to that point. The cancellation, or any substantial delay in
completion, of any project may have a significant negative effect on our
financial condition and results of operations.
WE ARE EXPOSED TO POTENTIAL LIABILITY FOR ENVIRONMENTAL DAMAGE AND REGULATORY
NONCOMPLIANCE.
We are engaged in the collection, transfer and disposal of waste described
as non-hazardous, and we believe that we are currently in material compliance
with all applicable environmental laws. Despite these circumstances, if harmful
substances escape into the environment and cause damages or injuries as a result
of our operating activities, we are exposed to the risk that we will be held
liable for any damages and injuries, as well as for significant fines for
regulatory noncompliance.
OUR ENVIRONMENTAL LIABILITY INSURANCE MAY NOT COVER ALL RISKS OF LOSS.
We maintain environmental impairment liability insurance covering particular
claims for the sudden or gradual onset of environmental damage to the extent of
$5 million per landfill. If we were to incur liability for environmental damage
in excess of our insurance limits, our financial condition could be adversely
affected. We also carry a comprehensive general liability insurance policy,
which management considers adequate at this time to protect our assets and
operations from other risks.
ADDRESSING LOCAL COMMUNITY CONCERNS ABOUT OUR OPERATIONS MAY ADVERSELY AFFECT
OUR BUSINESS.
Members of the public in the communities where we do business could raise
concerns with government regulators and others about the effects on their
communities of our existing or planned operations and, in some areas, the
proposed development of solid waste facilities. These concerns cannot always be
anticipated, and our attempts to address these concerns may result in unforseen
delays, costs and litigation that could adversely affect our ability to achieve
our business objectives.
YEAR 2000 PROBLEMS COULD HAVE AN ADVERSE IMPACT ON OUR BUSINESS.
We utilize and are dependent upon general accounting and industry-specific
customer information and billing software to conduct our business that are
likely to be affected by the date change in the year 2000. This purchased
software is run on in-house computer networks. In addition, embedded technology
that is contained in a substantial number of our items of hauling, disposal and
communications equipment may be affected by the date change in the year 2000. We
have initiated a review and assessment of all hardware, software and related
technologies to determine whether it will function properly in the year 2000. We
currently believe that costs associated with the compliance efforts will not
have a significant impact on our ongoing results of operations, although we
cannot assure you in this regard. Computer software and related technologies
used by our customers, service providers, vendors and suppliers are also likely
to be affected by the year 2000 date change. To date, those vendors which have
been contacted have indicated that their hardware or software is or will be year
2000 compliant in time frames that meet our requirements. We have also initiated
communications with our significant suppliers regarding the year 2000 issue.
However, we cannot assure you that the systems of such suppliers, or of
customers, will be year 2000 compliant. Failure by us or any of the parties
mentioned above, to properly process dates for the year 2000 and thereafter
could result in unanticipated expenses and delays to us, including delays in the
payment by our customers for services provided and our ability to make payments
on the Senior Notes.
23
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the New Senior
Notes in exchange for the outstanding Old Senior Notes. We are making this
exchange offer solely to satisfy our obligations under our Senior Notes
registration rights agreement. In consideration for issuing the New Senior
Notes, we will receive Old Senior Notes in like aggregate principal amount.
The net proceeds to Waste Systems from the original issuance of the Old
Senior Notes and warrants to purchase an aggregate of 1,500,000 shares of Waste
Systems common stock, after deducting the original offering expenses, were
approximately $97.3 million. We have used and intend to use the net proceeds as
follows:
<TABLE>
<CAPTION>
APPORTIONED AMOUNT USE OR INTENDED USE
- ------------------------------- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 20.0 million - repayment of all outstanding 13% Short Term Notes due June 30, 1999
10.0 - repayment of BankNorth Group, N.A. bank credit facility
1.7 - repayment of capital leases and other notes payable
2.8 - repurchase of approximately 500,000 shares of common stock from the Federal Deposit
Insurance Company
1.45 - redemption of $1.45 million principal amount of 10% Convertible Subordinated Debentures
due October 6, 2005
61.35 - the acquisition of Cumberland Waste Service, Inc. and Cumberland Refuse Service, Inc.
and future acquisitions, as well as general corporate purposes, including working
capital
---------
---------
Total $ 97.3 million
</TABLE>
24
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Waste Systems as of
March 31, 1999. Please refer to the section of this prospectus entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." This table should be read in
conjunction with the Consolidated Financial Statements.
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------
<S> <C>
(DOLLARS IN
THOUSANDS)
Long-term debt:
11 1/2% Senior Notes...................................................................... $ 100,000
10% Convertible Subordinated Debentures................................................... $ 400
Capital leases, equipment and other notes payable......................................... 2.107
7% Convertible Subordinated Notes......................................................... 49,551
--------
152,058
Less current portion...................................................................... 257
--------
Long-term debt, less current portion........................................................ 151,801
--------
Stockholders' equity:
Common stock, par value $.01 per share; authorized 30,000,000 shares; 13,465,094(1) shares
issued and outstanding;................................................................. 135
Additional paid-in capital................................................................ 50,643
Accumulated deficit....................................................................... (44,886)
--------
Total stockholders' equity................................................................ 5,892
--------
Total capitalization...................................................................... $ 157,693
--------
--------
</TABLE>
- ------------------------------
(1) Excludes 43,649 shares of common stock issuable upon conversion of
outstanding 10% Convertible Subordinated Debentures. Excludes 4,955,143
shares of common stock issuable upon conversion of outstanding 7%
Convertible Subordinated Notes. Excludes 1,500,000 shares of common stock
issuable upon exercise of outstanding warrants. Excludes 2,341,793 and
77,480 shares of common stock issuable upon exercise of stock options
outstanding at December 31, 1998 under our 1995 Stock Option and Incentive
Plan and 1995 Stock Option Plan for Non-Employee Directors, respectively, of
which 340,573 and 22,370 shares, respectively, were vested at such date.
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following selected consolidated financial data for the five years ended
December 31, 1998 have been derived from our Consolidated Financial Statements,
which have been audited by KPMG LLP. The unaudited selected consolidated
financial data for the periods March 31, 1999 and 1998 reflect, in the opinion
of management, all adjustments, including only normal recurring adjustments,
considered necessary for a fair presentation of the financial information
presented. The selected consolidated financial data presented below should be
read in conjunction with our Consolidated Financial Statements and notes
included herein or incorporated by reference in this prospectus, and in the
sections entitled "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
----------------------- ----------------------------------------------
MARCH 31, MARCH 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1999 1998 1998 1997 1996 1995
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenues.......................................... $ 8,862 $ 1,528 $ 21,045 $ 3,458 $ 1,496 $ 1,344
Cost of operations:
Operating expenses.............................. 5,571 864 12,400 1,719 921 766
Depreciation and amortization................... 1,752 374 4,501 692 370 72
Acquisition integration costs(1)................ 544 320 1,865 -- -- --
Write-off of landfill development costs......... -- -- 235 1,495 6,652 --
----------- ---------- ---------- ---------- ---------- ----------
Total cost of operations...................... 7,868 1,558 1,901 3,906 7,943 838
----------- ---------- ---------- ---------- ---------- ----------
Gross profit (loss)........................... 994 (30) 2,044 (448) (6,447) 506
Selling, general and administrative expenses...... 1,914 657 4,482 2,138 2,843 3,286
Amortization of prepaid consulting fees........... -- -- -- -- 834 501
Restructuring(2).................................. -- -- -- 596 1,741 --
----------- ---------- ---------- ---------- ---------- ----------
Loss from operations............................ (919) (687) (2,439) (3,182) (11,465) (3,281)
Other income (expense):
Royalty and related income (expense), net....... (132) (14) (134) (516) 935 852
Interest expense and financing costs............ (2,006) (434) (4,074) (1,183) (1,004) (182)
Write-off of accounts and notes receivable...... -- -- -- (568) -- (2,975)
Other income (expense).......................... (5,416) 28 441 -- (118) (91)
----------- ---------- ---------- ---------- ---------- ----------
Total other income (expense).................... (7,554) (420) (3,767) (2,266) (186) (2,396)
----------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes, discontinued
operations and extraordinary item............... (8,474) (1,107) (6,206) (5,449) (11,652) (5,677)
Federal and state income tax expense (benefit).... -- -- 43 6 (23) (110)
Discontinued operations........................... -- -- -- -- (2,261) (2,303)
Extraordinary item--loss on extinguishment of
debt............................................ (223) -- (247) (134) -- --
----------- ---------- ---------- ---------- ---------- ----------
Net income (loss)................................. $ (8,697) $ (1,107) $ (6,496) $ (5,589) $ (13,890) $ (7,870)
----------- ---------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ---------- ----------
Preferred stock dividend.......................... -- 243 888 -- -- 10
----------- ---------- ---------- ---------- ---------- ----------
Net income (loss) available for common
stockholders(3)............................... $ (8,697) $ (1,350) $ (7,384) $ (5,589) $ (13,890) $ (7,880)
----------- ---------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ---------- ----------
Basic net income (loss) per share--continuing
operations...................................... $ (0.72) $ (0.35) $ (0.97) $ (1.51) $ (4.10) $ (2.88)
Weighted average number of shares used in
computation of basic net income (loss) per
share........................................... 11,737,727 3,904,969 7,389,547 3,612,623 2,834,841 1,932,809
EBITDA (4)........................................ $ 857 $ (281) $ 2,130 $ (2,469) $ (9,909) $ (2,592)
Adjusted EBITDA(5)................................ $ 1,401 $ 39 $ 4,230 $ (378) $ (1,516) $ (2,592)
Capital expenditures (excluding acquisitions)..... $ 2,179 $ 343 $ 9,032 $ 998 $ 6,599 $ 9,749
Cash flow from operating activities............... $ 1,734 $ (1,020) $ 592 $ (4,586) $ (3,912) $ (3,083)
Cash flow from investing activities............... $ (39,071) $ (7,280) $ (71,939) $ 706 $ (7,641) $ (10,267)
Cash flow from financing activities............... $ 73,959 $ 6,231 $ 68,576 $ 6,579 $ 6,581 $ 18,416
Ratio of Earnings to Fixed Charges(6)............. -- -- -- -- -- --
<CAPTION>
DEC. 31,
1994
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................................... $ 0
Cost of operations:
Operating expenses.............................. --
Depreciation and amortization................... --
Acquisition integration costs(1)................ --
Write-off of landfill development costs......... --
---------
Total cost of operations...................... --
---------
Gross profit (loss)........................... --
Selling, general and administrative expenses...... 1,485
Amortization of prepaid consulting fees........... --
Restructuring(2).................................. --
---------
Loss from operations............................ (1,485)
Other income (expense):
Royalty and related income (expense), net....... 1,850
Interest expense and financing costs............ (152)
Write-off of accounts and notes receivable...... --
Other income (expense).......................... 214
---------
Total other income (expense).................... 1,912
---------
Income (loss) before income taxes, discontinued
operations and extraordinary item............... 427
Federal and state income tax expense (benefit).... 185
Discontinued operations........................... --
Extraordinary item--loss on extinguishment of
debt............................................ --
---------
Net income (loss)................................. $ 242
---------
---------
Preferred stock dividend.......................... 108
---------
Net income (loss) available for common
stockholders(3)............................... $ 134
---------
---------
Basic net income (loss) per share--continuing
operations...................................... $ 0.15
Weighted average number of shares used in
computation of basic net income (loss) per
share........................................... 899,727
EBITDA (4)........................................ $ (1,476)
Adjusted EBITDA(5)................................ $ (1,476)
Capital expenditures (excluding acquisitions)..... $ 807
Cash flow from operating activities............... $ (209)
Cash flow from investing activities............... $ (1,588)
Cash flow from financing activities............... $ 1,965
Ratio of Earnings to Fixed Charges(6)............. 3.26
</TABLE>
(BALANCE SHEET DATA AND FOOTNOTES ON FOLLOWING PAGE)
26
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, DEC. 31, DEC. 31, DEC. 31,
1999 1998 1997 1996
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 36,817 $ 194 $ 2,964 $ 265
Working capital.................................................. 34,140 (6,520) 1,532 (4,508)
Total assets..................................................... 173,884 96,117 18,560 16,858
Long-term debt, less current portion............................. 151,801 74,861 7,201 9,450
Total stockholders' equity (deficit)............................. 5,892 1,739 5,972 (1,849)
<CAPTION>
DEC. 31, DEC. 31,
1995 1994
----------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 5,237 $ 171
Working capital.................................................. 2,393 659
Total assets..................................................... 23,508 4,369
Long-term debt, less current portion............................. 12,266 1,263
Total stockholders' equity (deficit)............................. 3,292 597
</TABLE>
- ----------------------------------
(1) Acquisition integration costs consist of one-time, non-recurring costs,
which we believe have no future value and, therefore, are expensed. Such
costs include severance and other termination and retention costs, as well
as specific costs related to integrating the acquired companies (I.E., truck
painting, sign changes, lease terminations, integration of information
systems, etc.) into Waste Systems's operations.
(2) Before March 27, 1996, we had been actively developing environmental
technologies with potential application in a number of business areas. On
March 27, 1996, we announced our intention to take meaningful actions to
conserve cash and working capital, including restructuring our operations to
focus our resources and activities on developing an integrated solid waste
management operation instead of developing environmental technologies.
(3) In May and July 1998 we met the mandatory conversion trading requirements
and elected to convert all of the remaining shares of Waste Systems's
preferred stock into shares of common stock and the board of directors
declared and paid cash dividends of approximately $888,000.
(4) EBITDA is defined as operating income or loss from continuing operations
excluding depreciation and amortization, which includes depreciation and
amortization included in selling, general and administrative expenses.
EBITDA does not represent, and should not be considered as an alternative
to, net income or cash flows from operating activities, each as determined
in accordance with GAAP. Moreover, EBITDA does not necessarily indicate
whether cash flow will be sufficient for such items as working capital or
capital expenditures, or to react to changes in the solid waste management
industry or to the economy in general. We believe that EBITDA is a measure
commonly used by lenders and some investors to evaluate a company's
performance in our industry. We also believe that EBITDA data may help
investors understand our performance because such data may reflect our
ability to generate cash flows, which is an indicator of its ability to
satisfy our debt service, capital expenditures and working capital
requirements. Because EBITDA is not calculated by all companies and analysts
in the same fashion, the EBITDA measures presented by Waste Systems may not
be comparable to the similarly-titled measures reported by other companies.
Therefore, in evaluating EBITDA data, investors should consider, among other
factors: the non-GAAP nature of EBITDA, actual cash flows, the actual
availability of funds for debt service, capital expenditures and working
capital, and the comparability of our EBITDA data to similarly-titled
measures reported by other companies.
(5) Adjusted EBITDA is EBITDA after adjusting for one-time charges for write-off
of landfill development costs, acquisition integration costs and
restructuring charges.
(6) For the three months ended March 31, 1999 and 1998 and for the years ended
December 31, 1998, 1997, 1996 and 1995 we incurred net losses that did not
cover fixed charges by approximately $(8,809,000), $(1,107,000),
$(6,566,000), $(5,473,000), $(11,694,000) and $(5,746,000) respectively. For
the purposes of computing the ratio of earnings to fixed charges, earnings
consist of pretax income (loss) from continuing operations plus fixed
charges. Fixed charges consist of interest expense and financing costs,
including capitalized interest and amortization of deferred financing costs,
and an estimated portion of rentals representing interest costs.
27
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FORWARD-LOOKING STATEMENTS
This prospectus includes both historical and forward-looking statements.
These forward-looking statements are not facts; rather, they are intentions and
expectations relating to our plans, strategies and prospects under the headings
"Prospectus Summary," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Business." The forward-looking
statements in these sections of the prospectus can generally be identified by
our use of words such as "plan," "intend," "believe," "expect," and other words
of similar import. Although we believe that our plans, intentions and
expectations reflected in or suggested by such forward-looking statements are
reasonable, we cannot assure you that such we will achieve such plans,
intentions or expectations. We urge you to consider carefully the important
factors that could cause actual results to differ materially from the
forward-looking statements. Such factors are described in the section entitled
"Risk Factors" and elsewhere in this prospectus. We make all the forward-looking
statements in this prospectus only as of the date of this prospectus, and we
undertake no obligation to publicly update such forward-looking statements to
reflect subsequent events.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF WASTE SYSTEMS SHOULD BE READ IN CONJUNCTION WITH THE INFORMATION
SET FORTH IN THE SECTION OF THIS PROSPECTUS ENTITLED "SELECTED CONSOLIDATED
FINANCIAL DATA." PLEASE REFER TO THE PRECEDING SECTION OF THIS PROSPECTUS
ENTITLED "FORWARD-LOOKING STATEMENTS" FOR IMPORTANT INFORMATION REGARDING THE
FORWARD-LOOKING STATEMENTS IN THIS SECTION.
INTRODUCTION
Waste Systems is an integrated non-hazardous solid waste management company.
Waste Systems provides solid waste collection, recycling, transfer and disposal
services to commercial, industrial, residential and municipal customers within
particular regional markets in the Northeast and Mid-Atlantic states where we
operate. Waste Systems operates an integrated non-hazardous solid waste
management business, including the ownership and operation of landfills,
transfer stations and solid waste collection services. Waste Systems'
acquisition strategy is to acquire substantial collection operations and
transfer stations in association with its landfills to enhance our overall
profitability and to increase our control over revenue sources. See the section
of this prospectus entitled "Business-- Our business strategy is to achieve
growth by capitalizing on industry consolidation and integration."
From January 1998 through July 6, 1999, Waste Systems acquired or entered
into agreements to acquire a total of 41 companies including three landfills,
five transfer stations and 41 collection companies, three of which included a
transfer station. Due to the significance of the acquired business operations to
Waste Systems' financial performance, we do not believe that our historical
financial statements are necessarily indicative of future performance and, as a
result of our substantial growth, the comparability of the financial information
included in this prospectus.
REVENUES
Revenues represent fees charged to customers for solid waste collection,
transfer, recycling and disposal services provided. Arrangements with customers
include both long-term contractual arrangements and as-received disposal at
prices quoted by Waste Systems. Revenues for the periods
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<PAGE>
presented in the consolidated statements of operations on a percentage basis
were derived from the following sources:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
Collection.................................. 85.5% 40.7% 73.5% 12.8% --%
Landfill.................................... 10.4 27.8 20.1 78.1 100.0
Transfer.................................... 4.1 31.5 6.4 9.1 --
--------- --------- --------- --------- ---------
Total Revenue............................... 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
For purposes of this table, revenue is fully attributed to the operation
where Waste Systems first receives the waste. For example, revenue received from
waste collected by Waste Systems and disposed in its own landfill is entirely
attributed to collection. The increase in our collection revenues as a
percentage of total revenues during 1998 compared to 1997 is due primarily to
the impact of the collection companies acquired during 1998. The decrease in
landfill and transfer station revenue as a percentage of revenues in 1998
compared to 1997 is due primarily to the acquisition of collection companies
that had been disposing of their waste at Waste Systems' transfer stations and
landfills. These acquired revenues are now being recorded as collection revenue.
The increase in Waste Systems' collection revenues as a percentage of
revenues in the three months ended March 31, 1999 compared to the same period in
1998 is due primarily to the impact of the collection companies acquired during
1998 and the first quarter of 1999. During 1998 and three months ended March 31,
1999, Waste Systems acquired 31 and 5 collection companies, respectively. The
decrease in landfill and transfer station revenue as a percentage of revenues in
the three months ended March 31, 1999 compared to the same period in 1998 is due
primarily to the acquisition of collection companies that had been disposing of
their waste at Waste Systems' transfer stations and landfills. These acquired
revenues are now being recorded as collection revenue.
RECENT BUSINESS DEVELOPMENTS
SENIOR NOTES OFFERING AND DEBT REPAYMENT. On March 2, 1999, Waste Systems
completed a private placement of $100.0 million principal amount of the Old
Senior Notes and warrants to purchase an aggregate of 1,500,000 shares of common
stock at an exercise price of $6.25 per share. Please refer to the section of
this prospectus entitled "Description of Senior Notes" for an explanation of the
material terms of the Old Senior Notes. The warrants are exercisable from
September 2, 1999, through March 2, 2004. The number of shares for which, and
the price per share at which, a warrant is exercisable, are subject to
adjustment upon the occurrence of events specified in the warrant agreement. The
net proceeds to Waste Systems from the offering, after deducting the discount to
the initial purchaser and related issuance costs, was approximately $97.3
million. Waste Systems used a portion of the proceeds from the offering to repay
the $20.0 million of Waste Systems' 13% short term notes due June 30, 1999. In
addition, the $10.0 million BankNorth Group, N.A. credit facility and
approximately $1.7 million of capital leases and other notes payable were paid
with the proceeds. Also, Waste Systems redeemed approximately $1.45 million
principal amount of Waste Systems' 10% Convertible Subordinated Debentures due
October 6, 2000 and completed several acquisitions as described below. Waste
Systems intends to use the balance of the proceeds for general corporate
purposes, including possible future acquisitions and working capital.
Upon the offering of the Old Senior Notes, we entered into a registration
rights agreement with the initial purchaser. This registration rights agreement
requires us to register for resale the Old Senior Notes held by our affiliates
or other persons ineligible to participate in the exchange offer under the
interpretations of the Securities and Exchange Commission of applicable federal
securities rules. It is
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<PAGE>
our current understanding that an affiliate of Waste Systems holds Old Senior
Notes. Accordingly, we currently intend to file with the Securities and Exchange
Commission a shelf registration statement to register for resale those Old
Senior Notes. For a more detailed description of the registration for resale of
those Old Senior Notes, please refer to the section of this prospectus entitled
"The Exchange Offer--Purpose and Effect of the Exchange Offer."
When we offered the Old Senior Notes, we also offered warrants to purchase
1,500,000 shares of common stock. We also entered into a registration rights
agreement with the initial purchaser relating to registration of those warrants.
The warrant registration rights agreement requires us to register for resale
those warrants and any common stock that is issuable upon exercise of the
warrants. Under the warrant registration rights agreement, we must file that
registration statement on or prior to August 27, 1999, and cause it to be
declared effective by the Securities and Exchange Commission on or prior to
October 28, 1999. If we fail to meet either of those deadlines, or if that shelf
registration statement ceases to be effective during the period provided for in
the warrant registration rights agreement, the annual interest rate on the Old
Senior Notes then outstanding will increase by 0.50% until we file the
registration statement or make it or keep it effective, respectively.
Accordingly, we currently intend to file with the Securities and Exchange
Commission a shelf registration statement to register the warrants and the
common stock issued or issuable upon exercise of the warrants as described
above.
CONVERSION OF DEBT INTO EQUITY. On March 31, 1999, Waste Systems completed
a private exchange offer in which we issued a total of 2,244,109 shares of
common stock in exchange for $10,449,000 aggregate principal amount of the
outstanding 7% Convertible Subordinated Notes due May 13, 2005 previously issued
in a private placement. The exchange price per share of $4.656 was equal to the
closing price of our common stock on the Nasdaq SmallCap Market as reported by
NASDAQ on March 31, 1999. Accrued but unpaid interest on the notes exchanged was
paid in cash. As a result of the private exchange offer, Waste Systems retired
$10,449,000 of its 7% Convertible Subordinated Notes. The remaining 7%
Convertible Subordinated Notes are convertible by holders into common stock at
$10.00 per share.
To conduct the private exchange offer, we also entered into exchange
agreements with the participating note holders. In each exchange agreement, we
agreed to register for resale the shares of common stock issued in the private
exchange offer, or an aggregate of 2,244,109 shares of common stock. We
currently intend to file with the Securities and Exchange Commission a shelf
registration statement to register those shares of common stock.
STOCK REPURCHASE. With the proceeds from the private offering of Old Senior
Notes, Waste Systems repurchased 497,778 shares of its common stock from the
Federal Deposit Insurance Corporation for an aggregate purchase price of
approximately $2.8 million.
ACQUISITIONS. From January 1, 1999 to May 1, 1999, Waste Systems completed
eleven acquisitions, consisting of eight collection operations, one transfer
station and one landfill. The aggregate purchase price for these acquisitions
was approximately $42.1 million which was paid in cash and the assumption of
approximately $3 million of debt. These acquisitions have combined annual
revenue of approximately $12.0 million. The acquisitions have all been recorded
using the purchase method of accounting.
On June 4, 1999, we signed a definitive agreement to acquire the assets of
C&J Trucking, Inc. and affiliates, with collection operations throughout Eastern
Massachusetts and Southern New Hampshire. The acquired assets also include two
transfer stations located in Lynn, Massachusetts and Londonderry, New Hampshire,
which are initially expected to handle in excess of 1,000 tons of waste per day.
We have received the necessary regulatory approval under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, and we expect to close the transaction
before July 31, 1999. On July 6, 1999, we acquired Eastern Trans-Waste of
Maryland, Inc., a well-established commercial and industrial collection
operation servicing the Baltimore, Maryland and Washington, D.C. region. Its
operations include a
30
<PAGE>
53,000 square foot transfer station located in Washington, D.C., which is
permitted to operate twenty-four hours per day with no capacity restrictions. As
part of its customer base, Eastern Trans-Waste serves the White House and
numerous federal agencies. The total purchase price for these acquisitions is
approximately $70 million, in cash and stock. The acquisitions are expected to
add annualized revenues of approximately $30 million and will be recorded using
the purchase method of accounting.
The following table sets forth, for the periods indicated, specific data
derived from Waste Systems' Consolidated Statements of Operations, expressed as
a percentage of revenues:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
Revenues........................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses................................................. 62.9 56.5 58.9 49.7 61.6
Depreciation and amortization...................................... 19.8 24.5 21.4 20.0 24.7
Acquisition integration costs...................................... 6.1 20.9 8.9 -- --
Write-off of project development costs............................. -- -- 1.1 43.3 444.7
--------- --------- --------- --------- ---------
Total cost of operations....................................... 88.8 101.9 90.3 113.0 531.0
--------- --------- --------- --------- ---------
Gross profit (loss)................................................ 11.2 (1.9) 9.7 (13.0) (431.0)
Selling, general and administrative expenses....................... 21.6 43.0 21.3 61.8 163.3
Restructuring...................................................... -- -- -- 17.2 116.5
Amortization of prepaid consulting fees............................ -- -- -- -- 55.8
--------- --------- --------- --------- ---------
Loss from operations........................................... (10.4) (44.9) (11.6) (92.0) (766.6)
Royalty and other income (expense), net............................ (1.5) (0.9) (0.6) (14.9) 62.5
Interest income.................................................... 1.9 1.8 2.1 5.0 11.9
Interest expense and financing costs............................... (22.6) (28.4) (19.4) (39.2) (79.0)
Equity in loss of affiliate........................................ -- -- -- -- (6.4)
Write off of assets................................................ -- -- -- -- (1.5)
Write off of accounts receivable................................... -- -- -- (16.4) --
Non cash charge for debt conversion................................ (63.0) -- -- -- --
--------- --------- --------- --------- ---------
Total other income (expense)................................... (85.2) (27.5) (17.9) (65.5) (12.5)
Income tax expense................................................. -- -- 0.2 0.2 (1.6)
--------- --------- --------- --------- ---------
Loss from continuing operations................................ (95.6) (72.4) (29.7) (157.7) (777.5)
Discontinued operations............................................ -- -- -- -- (151.2)
--------- --------- --------- --------- ---------
Loss before extraordinary item................................. (95.6) (72.4) (29.7) (157.7) (928.7)
Extraordinary item................................................. (2.5) -- (1.2) (3.9) --
--------- --------- --------- --------- ---------
Net loss....................................................... (98.1)% (72.4)% (30.9)% (161.6)% (928.7)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
EBITDA............................................................. 9.7% (18.4)% 10.1% (71.4)% (662.0)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Adjusted EBITDA.................................................... 15.8% 2.6% 20.9% (10.9)% (101.3)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
REVENUES. Revenues increased $7,334,000, or 480%, to $8,862,000 for the
three month period ended March 31, 1999 compared with $1,528,000 for the same
period in 1998. The increase was primarily due to the impact of operations
acquired during 1998 and the first quarter ended March 31, 1999. Revenue from
acquisitions totaled approximately $7,150,000. The balance of the increase is
the result of the internal growth within the Vermont operation, which was the
only existing operation in the first quarter of 1998. The growth in the Vermont
operations was due to increased volume and prices at the landfill and internal
growth at Waste Systems' collection operation.
COST OF OPERATIONS. Operating expenses increased $4,708,000, or 545% to
$5,571,000 from $864,000 for the three months ended March 31, 1999, compared
with the same period in 1998. As a percentage of revenues, operating expenses
increased from 56.5% in the first quarter of 1998 to 62.9% in the first quarter
of 1999. Operating expenses increased primarily due to the acquisitions. The
increase in operating expenses as a percentage of revenues was primarily due to
the change in revenue mix, with a
31
<PAGE>
much larger portion of the revenue coming from collection operations, which
typically experience much higher operating expenses than landfill operations.
Waste Systems internalizes a significant portion of the waste collected in
Vermont and Central Pennsylvania, which substantially reduces costs of
operations as a percentage of revenue. Waste Systems' Upstate New York and
Central Massachusetts operations consist of only collection and transfer station
operations at this time.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
includes depreciation of property and equipment over their useful lives using
the straight-line method, amortization of goodwill and other intangible assets
over their useful lives using the straight-line method, and amortization of
landfill development costs using the units-of-production method. Depreciation
and amortization expense increased $1,378,000 or 368% to $1,753,000 for the
three months ended March 31, 1999 from $374,000 for the comparable period in
1998. The increase is the result of increased depreciation costs of the
additional assets acquired through acquisition and increased amortization due to
the substantial increases in intangible assets related to acquisitions.
Additionally, amortization of landfill development costs increased as a result
of the increase in the amount of waste accepted at Waste Systems' Vermont
landfill and the additions of the Sandy Run and Community Refuse, Inc. landfills
in Central Pennsylvania. As a percentage of revenues, depreciation and
amortization expense decreased to 19.8% in the first quarter of 1999 from 24.5%
in the first quarter of 1998. The decrease in depreciation and amortization
expense as a percentage of revenues is primarily attributable to higher 1999
revenues.
ACQUISITION INTEGRATION COSTS. Acquisition integration costs consist of
one-time, non-recurring costs, which in the opinion of management have no future
value and, therefore, are expensed. Such costs include termination and retention
of employees, lease termination costs, costs related to the integration of
information systems and costs related to the change of name of the acquired
company or business. These charges are estimated and accrued at the time the
acquisition is closed. The estimates are reviewed frequently by Waste Systems
management and the related operation teams integrating the new acquisitions and
adjusted as required. Acquisition integration costs totaled approximately
$544,000 and $320,000 for the three months ended March 31, 1999 and 1998,
respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist of corporate development activities, marketing
and public relations costs, administrative compensation and benefits, legal and
accounting and other professional fees as well as other administrative costs and
overhead. Selling, general and administrative costs increased $1,256,000, or
191%, to $1,914,000 for the three month period ended March 31, 1999 from
$657,000 in the comparable period in 1998. As a percentage of revenue, selling,
general and administrative expenses decreased to 21.6% for the three months
ended March 31, 1999 from 43.0% for the same period in 1998. The dollar increase
was due to efforts by Waste Systems to build an infrastructure to sustain our
significant growth through acquisition and to support the several corporate
initiatives designed to implement our strategy. Waste Systems expects spending
growth to continue moderately through 1999 as Waste Systems continues to
implement our growth through acquisition strategy. The decrease as a percentage
of revenue was primarily due to the expanded revenue base and related
efficiencies, as Waste Systems is able to purchase "tuck-in" acquisitions that
increase revenues and improve margins without adding significant administrative
costs. Waste Systems anticipates that in future periods our selling, general and
administrative expenses should continue to decrease as a percentage of revenue
as it leverages our current corporate overhead to revenue growth primarily
through acquisitions.
INTEREST INCOME. Interest income increased $140,000, or 502% to $168,000
for the three months ended March 31, 1999, from $28,000 in the comparable period
in 1998. The increase was the result of higher average cash and investment
balances due to the proceeds from the 11 1/2% Senior Notes that closed on March
2, 1999.
INTEREST EXPENSE AND FINANCING COSTS. Interest expense and financing costs,
net of capitalized interest costs increased $1,572,000, or 362%, to $2,006,000
for the three month period ended March 31,
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1999, from $434,000 for comparable period in 1998. The increase resulted
primarily from increased indebtedness incurred in connection with the 11 1/2%
Senior Notes, the 7% Convertible Subordinated Notes, and other debt. Interest is
capitalized on landfill development costs related to permitting, site
preparation, and facility construction during the period that these assets are
undergoing activities necessary for their intended use. For the three months
ended March 31, 1999 and 1998, Waste Systems capitalized $335,692 and $0 of
interest costs, respectively.
ROYALTY AND OTHER INCOME (EXPENSE). Royalty and other income (expense) was
($132,000) and ($14,000) for the three month periods ended March 31, 1999 and
1998, respectively. Royalty and other income (expense) primarily relates to
Waste Systems' medical waste treatment proprietary technologies. The increase in
1999 was due to travel and professional fees related to an ongoing patent
infringement lawsuit discussed in Note 15 to Waste Systems' Consolidated
Financial Statements for the year ended December 31, 1998.
The net loss for the three months ended March 31, 1999 includes a non-cash
charge of $5,584,000 in connection with the conversion of debt into equity.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues for 1998 increased by $17,587,000 or 509% to $21,045,000
from $3,458,000 in 1997. The 34 completed acquisitions in 1998 accounted for
approximately $15.8 million or 90% of the increase. The balance of the increase
is the result of the internal growth within our Vermont operations during 1998.
The growth in our Vermont operations was due to the full year's operation of the
Chittenden Solid Waste District or "CSWD" transfer station, which was acquired
in the fourth quarter of 1997, increased volume and prices at the Moretown
landfill and internal growth at our collection operations.
COST OF OPERATIONS. Operating expenses for 1998 was approximately
$12,400,000 compared to $1,719,000 for 1997. The increase of $10,681,000 was
primarily due to the 34 acquisitions completed in 1998 and the related increase
in revenue. As a percentage of sales, operating expenses increased to
approximately 59% in 1998 from approximately 50% in 1997. This increase was
primarily due to the change in revenue mix, with a much larger portion of the
revenue coming from collection operations, which typically have much higher
operating expenses than landfill operations. Waste Systems disposes of a
significant portion of the waste collected in Vermont and Pennsylvania in our
landfills, which significantly reduces costs of operations as a percentage of
revenue. Waste Systems' Upstate New York and Central Massachusetts operations do
not yet have operating landfills where waste can be disposed.
Operating costs, disposal costs, and collection fees vary widely throughout
the geographic areas in which Waste Systems operates. The prices that Waste
Systems charges are determined locally, and typically vary by the volume or
weight, type of waste collected, frequency of collections, distance to final
disposal sites, labor costs and amount and type of equipment furnished to the
customer.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
$4,501,000 and $692,000 for the years ended 1998 and 1997, respectively. The
increase of $3,809,000 was primarily due to the additional depreciation and
amortization related to Waste Systems' 34 completed acquisitions. During 1998,
Waste Systems purchased property and equipment of approximately $24,298,000
related to the acquisitions and $7,522,000 of this amount was for assets under
development but not placed into service in 1998. Goodwill and other intangible
assets totaling approximately $35,171,000 were also recorded in connection with
the acquisitions. In addition, Waste Systems purchased approximately $3,094,000
of property and equipment necessary for its ongoing operations, including costs
to improve efficiencies at several of the acquired companies. Finally, landfill
amortization costs in Vermont increased due to increased usage of the Moretown
landfill in 1998. Waste Systems had costs of approximately $5,456,000 for
construction of Cell 2 at the Moretown landfill and other development
33
<PAGE>
costs related to the Mostoller and South Hadley landfill and the transfer
station in Oxford, Massachusetts totaling approximately $480,000. These costs
did not impact operating results as they were not placed into service in 1998.
ACQUISITION INTEGRATION COSTS. Acquisition integration costs consist of
one-time, non-recurring costs, which in the opinion of management have no future
value and, therefore, are expensed. These costs include termination and
retention of employees, lease termination costs, costs related to the
integration of information systems and costs related to the change of name of
the acquired company or business. These costs are estimated and accrued at the
time the acquisition is closed. The estimates are reviewed frequently by
management and the related operation teams integrating the new acquisitions and
adjusted as required. Acquisition integration costs totaled $1,864,000 for 1998.
WRITE-OFF OF LANDFILL DEVELOPMENT COSTS. Write-off of landfill development
costs were $236,000 and $1,495,000 for 1998 and 1997, respectively. The
write-off of landfill development costs is related to the termination of Waste
Systems's contract for remodeling and operating a landfill in Fairhaven,
Massachusetts. Waste Systems had previously entered into a contract with the
Town of Fairhaven, Massachusetts to operate and remodel the town's existing
26-acre landfill. However, litigation against Waste Systems and others over the
project extensively delayed the landfill's continued operation and remodeling,
which caused uncertainty over the long-term economic viability of the project.
As a result, Waste Systems agreed with the town to terminate the project. Waste
Systems wrote off our capital investment in the project at December 31, 1996,
and completed termination of this project in 1998. Waste Systems' write-off of
project development costs in 1998 and 1997 primarily represent our cost to
liquidate project equipment and to close the landfill as Waste Systems had
agreed with the town. The 1998 expense of $236,000 represents the final charges
related to the termination of the project. There were no remaining accruals at
December 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $2,344,000 in 1998 to $4,482,000 from
$2,138,000 in 1997. As a percentage of revenue, selling, general and
administrative expenses decreased to 21.3% in 1998 from 61.8% in 1997. The
dollar increase was due to efforts by Waste Systems to build infrastructure to
sustain our significant growth through acquisition and to support the several
corporate initiatives designed to implement our strategy. Waste Systems expect
spending growth to continue moderately into 1999 as Waste Systems continues to
implement our growth through acquisition strategy. The decrease as a percentage
of revenue was primarily due to the expanded revenue base and related
efficiencies, as Waste Systems is able to purchase "tuck-in" acquisitions that
increase revenues and improve margins without adding significant administrative
costs. Waste Systems anticipates that in future periods our selling, general and
administrative expenses should continue to decrease as a percentage of revenue
as Waste Systems leverages our current corporate overhead to revenue growth
primarily through acquisitions.
RESTRUCTURING. During 1996, we announced our intention to restructure Waste
Systems' operations to focus our resources and activities on developing an
integrated solid waste management operation. For a detailed description of the
restructuring, please see the subsection below entitled "Year Ended December 31,
1997 Compared to Year Ended December 31, 1996." The restructuring was completed
in 1997. At December 31, 1998 and 1997, Waste Systems had reserves and
liabilities associated with restructuring activities and discontinued operations
of $0 and $778,609, respectively. Restructuring charges for 1997 totaled
$596,000 which consisted of costs incurred for employee severance,
non-cancelable lease commitments, professional fees and litigation costs. No
charges were recorded in 1998.
ROYALTY AND OTHER INCOME (EXPENSE). Royalty and other income (expense) was
approximately ($134,000) and ($516,000) in 1998 and 1997, respectively. Royalty
and other income (expense) relates to Waste Systems's proprietary medical waste
treatment technologies.
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<PAGE>
INTEREST EXPENSE AND FINANCING COSTS, NET. Interest expense for 1998 was
approximately $3,633,000, net of interest income of $441,000 as compared to
approximately $1,182,000 net of interest income of $172,000 for 1997. The
increase resulted primarily from significant increases in debt necessary to
finance the acquisitions and capital needs of Waste Systems. During 1998 and
1997, Waste Systems capitalized interest expense of $360,000 and $24,000,
respectively related to construction costs for the Mostoller and South Hadley
landfills and the transfer station in Oxford, Massachusetts discussed above.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES. Revenues for 1997 increased by $1,962,000 to $3,458,000 from
$1,496,000 in 1996. The increase of 131% was due primarily to the increased
waste volume accepted at the Moretown landfill, in its first full year of
operation, the acquisition through a lease/purchase arrangement on October 6,
1997 of the CSWD transfer station located in Williston, Vermont and the internal
growth of Waste Systems' collection operations. All 1997 revenues were generated
from Waste Systems' Vermont operations, as compared to 1996, where approximately
$1,157,000 or 77% was generated from Waste Systems' operations at the Fairhaven
landfill, which has since ceased operations.
COST OF OPERATIONS. Operating expense for 1997 was approximately $1.7
million compared to $921,000 in 1996. The increase of $797,000 was primarily due
to the growth of Waste Systems' Vermont operations. During 1997, Waste Systems'
Vermont operations expanded as a result of Waste Systems' purchase of a
collection company and our acquisition through a lease/purchase arrangement of
the CSWD transfer station.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
$692,000 and $370,000 for the years ended 1997 and 1996, respectively. The
increase of $322,000 or 87% was due primarily to the growth in the operation at
the Moretown landfill which resulted in increased amortization of capitalized
landfill costs and to a substantial increase in capital equipment used in Waste
Systems' other Vermont operations.
WRITE-OFF OF LANDFILL DEVELOPMENT COSTS. Write-off of landfill development
costs was $1,495,000 and $6,652,000 for the years ended 1997 and 1996,
respectively. The write-off of landfill development costs is related to the
termination of operations at the Fairhaven landfill as described above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1997 were approximately $2.1 million, a decrease of
12.5% from 1996. The decrease was due to the restructuring undertaken in March
of 1996 and to the cessation of operations at the Fairhaven landfill. The
decrease was partially offset by increases in selling, general and
administrative expenses at Waste Systems' Vermont operations and general
corporate expenses due to the building of an infrastructure necessary to support
increases in acquisition, operating and administrative activities.
RESTRUCTURING. Prior to March 27, 1996, Waste Systems had been actively
developing environmental technologies with potential application in a number of
business areas. On March 27, 1996, Waste Systems announced our intention to take
meaningful actions to conserve cash and working capital, including restructuring
Waste Systems' operations to focus our resources and activities on developing an
integrated solid waste management operation. As part of the restructuring, Waste
Systems ceased operations at our technology center in Woburn, Massachusetts, and
discharged all employees and consultants previously engaged in developing
technologies with potential application in particular environmental related
activities, including the manufacture of useful materials from tires and other
recycled materials, contaminated soil cleanup and recycling, industrial sludge
disposal, size reduction equipment design and manufacture. Waste Systems also
ceased operations of a subsidiary engaged in a business unrelated to the
environmental industry. No substantial revenues were received from the
technology center operations or the discontinued subsidiary's activities.
Restructuring charges for 1997
35
<PAGE>
and 1996 were $596,000 and $1,742,000, respectively, which consisted of costs
incurred for employee severance, non-cancelable lease commitments, professional
fees and litigation costs.
ROYALTY AND OTHER INCOME (EXPENSE). Royalty and other income (expense)
decreased approximately $1,451,000 in 1997 to ($516,000) from $935,000 in 1996.
The decrease in 1997 was due to the termination of one of Waste Systems'
licensing agreements with ScotSafe Limited. Waste Systems had entered into a
licensing and royalty agreement in 1996 with ScotSafe, a Glasgow, Scotland based
company, for ScotSafe to have exclusive rights to use specific Waste Systems'
medical waste processing technology throughout Europe. During the fourth quarter
of 1997, Waste Systems terminated our licensing agreement with ScotSafe and
wrote off the receivable due from ScotSafe of approximately $568,000 because
ScotSafe was in default for failure to pay Waste Systems royalties due under the
terms of the agreement.
INTEREST EXPENSE AND FINANCING COSTS. Interest expense for 1997 was
approximately $1,182,000 net of interest income of $172,000 as compared to
approximately $1,004,000 net of interest income of $178,000 for 1996. The
increase resulted primarily from additional indebtedness incurred in connection
with acquisitions and capital expenditures for Waste Systems' Vermont
operations. During 1997 and 1996, Waste Systems capitalized interest expense of
$24,000 and $42,000, respectively related to construction costs.
WRITE-OFF OF ACCOUNTS RECEIVABLE. During the fourth quarter of 1997, Waste
Systems wrote-off the uncollectible receivable due from ScotSafe of
approximately $568,000.
LIQUIDITY AND CAPITAL RESOURCES
Waste Systems' business is capital intensive. Waste Systems' capital
requirements, which are substantial, include acquisitions, property and
equipment purchases and capital expenditures for landfill cell construction,
landfill development and landfill closure activities. Principally due to these
factors, Waste Systems may incur working capital deficits. Waste Systems plans
to meet our capital needs through various financing sources, including
internally generated funds, equity securities and debt. On May 13, 1998, Waste
Systems closed on an offering of $60.0 million 7% Convertible Subordinated Notes
which resulted in net proceeds to Waste Systems of approximately $58.3 million.
On March 2, 1999, Waste Systems completed a private offering of the Old Senior
Notes in the aggregate principal amount of $100 million which resulted in net
proceeds to Waste Systems of approximately $97.3 million. Waste Systems has used
the proceeds from these debt offerings to complete various acquisitions during
1998 and 1999. In addition, Waste Systems has repaid other outstanding debt
obligations, repurchased 497,778 shares of Waste Systems' common stock from the
Federal Deposit Insurance Corporation for an aggregate purchase price of
approximately $2.8 million, and funded Waste Systems' growth, including
infrastructure. Waste Systems intends to use the balance of the proceeds for
general corporate purposes, including possible future acquisitions and working
capital. In addition, approximately $10.4 million of the 7% Convertible
Subordinated Notes were exchanged into 2,244,109 shares of common stock during
March 1999 through a private exchange offering. Waste Systems intends to
continue our strategy to aggressively pursue and develop an integrated solid
waste management company, primarily through acquisitions. There can be no
assurance that additional debt or equity financing will be available, or
available on terms acceptable to Waste Systems. Any failure of Waste Systems to
obtain required financing would have a material adverse effect on Waste Systems'
financial condition and results of operations. Please see the section of this
prospectus entitled "Risk Factors" for a description of the various risks
related to, among other things, Waste Systems' growth strategy.
Waste Systems maintains an acquisitions department that is responsible for
the identification, due diligence, negotiation and closing of acquisitions.
Waste Systems believes that a combination of internally generated funds,
additional debt and equity financing and the proceeds from the Old Senior
36
<PAGE>
Notes offering will provide adequate funds to support Waste Systems' cost
structure, acquisition strategy and working capital requirements for the
foreseeable future.
During the three months ended March 31, 1999, Waste Systems acquired three
collection companies and a landfill in central Pennsylvania, one collection
company in central Massachusetts, and one collection company in upstate New
York. The aggregate cost of the acquisitions was approximately $37.9 million
consisting of $36.0 million in cash and $1.9 million in assumed liabilities.
During 1998, Waste Systems acquired a total of 34 companies, including
eleven collection companies and one transfer station in Vermont, five collection
companies and two landfills in central Pennsylvania, three collection companies
and a transfer station in central Massachusetts and twelve collection companies
and one transfer station in upstate New York. The aggregate cost of these
acquisitions was approximately $63.2 million consisting of approximately $58.3
million in cash, $3.4 million in common stock and approximately $1.5 million in
assumed liabilities. Integration costs for the year ended December 31, 1998,
related to the acquisitions in Central Pennsylvania, Vermont, Upstate New York
and Central Massachusetts were approximately $1.9 million.
Waste Systems generated net cash from operating activities for the three
months ended March 31, 1999 of $1,735,000. During the same period in 1998, Waste
Systems used ($1,020,000) for operating activities. The improved cash flow from
operations in 1999 was due primarily to the increased revenues which were offset
by related increases in cost of operations, acquisition integration costs and
selling, general and administrative expenses. The remainder of the cash flow
increases was due to changes in the operating assets and liabilities including
increases in accounts payable, accrued expenses and deferred revenue. These were
offset by an increase in accounts receivable.
Waste Systems generated net cash from operating activities for 1998 of
approximately $592,000. In 1997, Waste Systems used approximately $4.6 million
for operating activities. The improved cash flow from operating activities in
1998 was due primarily to the increased revenues which were offset by related
increases in cost of operations, integration costs and selling, general and
administrative expenses. The remainder of the cash flow increase was due to
changes in the operating assets and liabilities including increases in accounts
payable, accrued expenses and deferred revenue. These were offset by an increase
in accounts receivable.
EBITDA increased by $1,138,000 during the first quarter of 1999 to $857,000
from negative EBITDA of ($281,000) during the same period in 1998. As a
percentage of revenue, EBITDA increased to 9.7% during the first quarter of 1999
from (18.4%) in the first quarter of 1998. Adjusted EBITDA increased by
$1,362,000 during the first quarter of 1999 to $1,401,000 from $39,000 during
the same period of 1998. As a percentage of the revenue, Adjusted EBITDA
increased to 15.8% during the first quarter of 1999 from 2.6% in the first
quarter of 1998.
EBITDA increased by approximately $4,599,000 during 1998 to approximately
$2,130,000 from negative EBITDA of approximately $2.5 million in 1997. As a
percentage of revenue, EBITDA increased to 10.1% during 1998 from (71.4%) in
1997. Adjusted EBITDA increased by approximately $4.6 million during 1998 to
approximately $4.2 million from negative Adjusted EBITDA of approximately
$378,000 in 1997. As a percentage of revenue, Adjusted EBITDA increased to 20.9%
in 1998 compared to (10.9%) in 1997.
Net cash used by investing activities during the first three months of 1999
was $39,071,000 compared to $7,280,000 in the same period of 1998. Of the net
cash used by investing activities in 1999, approximately $36.0 million was used
for the acquisition of landfill, collection and transfer operations. Additional
capital expenditures of approximately $2.2 million were made to increase
operating efficiencies at Waste Systems existing operations. Other investing
activity included the acquisition of various long-term permits necessary to
operate the landfills and for long-term prepaid disposal costs.
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<PAGE>
Net cash used by investing activities during 1998 was approximately $71.9
million compared to cash generated of approximately $706,000 in 1997. Of the net
cash used by investing activities in 1998, approximately $58.3 million was used
for the acquisition of landfill, collection and transfer operations in Central
Pennsylvania, Vermont, Upstate New York and Central Massachusetts. In addition,
Waste Systems placed deposits for future acquisitions totaling $2.2 million.
Additional capital expenditures of approximately $9.0 million were made to
develop Cell 2 at Waste Systems' Moretown landfill and to increase operating
efficiencies at Waste Systems' Central Pennsylvania, Vermont, Upstate New York
and Central Massachusetts operations. Other investing activity included the
acquisition of various long-term permits necessary to operate the landfills and
for long-term prepaid disposal costs. The net cash generated by investing
activities for 1997 was primarily due to the reduction in collateral
requirements on the Vermont landfill closure and post-closure performance bond
of approximately $1.0 million and the proceeds from the sale of the Fairhaven
equipment for approximately $800,000. These were offset by capital expenditures
at Waste Systems' Vermont operations.
Waste Systems' capital expenditures and capital needs for acquisitions have
increased significantly, reflecting Waste Systems' rapid growth by acquisition
and development of revenue producing assets, and will increase further as Waste
Systems continues to complete acquisitions. Total capital expenditures are
expected to further increase during 1999 due to acquisitions, ongoing
construction of Cell 2 at the Moretown landfill, the development and
construction of the Mostoller and South Hadley landfills and construction of the
transfer station in central Massachusetts.
Net cash provided by financing activities during the first three months of
1999 was approximately $74.0 million. The primary source of cash was due to the
proceeds of approximately $97.3 million, net of expenses, from the $100 million
Senior Notes offering. The proceeds were offset by repayment of existing debt of
approximately $30.6 million. In addition, Waste Systems repurchased 497,778
shares of our common stock from the FDIC for approximately $2.8 million.
Net cash provided by financing activities during 1998 was approximately
$68.6 million compared to $6.6 million in 1997. The increase in 1998 was due
primarily to the receipt of the net proceeds of $58.3 million related to the 7%
Convertible Subordinated Notes, borrowings under Waste Systems' bank credit
facility of $10 million, $7.5 million in additional short-term financing from a
related party stockholder and borrowings for equipment purchases of
approximately $9.0 million. The proceeds were offset by principal repayments of
debt of approximately $15.2 million and dividend payments on the preferred stock
of approximately $888,000.
At December 31, 1998 Waste Systems had a $10.0 million line of credit
facility with The BankNorth Group, N.A. which was fully drawn as of December 31,
1998. The entire balance was repaid on March 2, 1999 with the proceeds from the
Senior Notes. Waste Systems is currently negotiating a new larger credit
facility with The BankNorth Group, N.A. that it expects to close in the third
quarter of 1999.
We had combined short-term and long-term debt of approximately $152.1
million at March 31, 1999 and $83.1 million at December 31, 1998.
Based upon our current operating plan, Waste Systems believes that our cash
and cash equivalents, available borrowings, future cash flow from operations and
the proceeds of future debt and equity financings will satisfy Waste Systems'
working capital needs for the foreseeable future. However, it remains uncertain.
Please refer to "Factors Affecting Future Operating Results."
FACTORS AFFECTING FUTURE OPERATING RESULTS
Waste Systems' future operating results will be affected by various factors.
Some of these factors will be internal and some will be external and beyond our
control. For a more detailed description of these factors, please refer to the
section in this prospectus entitled "Risk Factors" under the following
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<PAGE>
subheadings: "--Our history of losses make the Senior Notes a highly speculative
investment;" "--Our high level of indebtedness could adversely affect our
financial health;" "--We have no control over many factors in our ability to
finance planned growth;" "--Our future success depends upon our ability to
manage rapid growth in operations and personnel;" "--Our future success depends
on our ability to identify, acquire and integrate acquisition targets;"
"--Potential difficulties in acquiring landfill capacity could increase our
costs;" "--Loss of key executives could affect Waste Systems' ability to achieve
our business objectives;" "--Our business may not succeed due to the highly
competitive nature of the solid waste management industry;" "--The geographic
concentration of our operations magnifies the risks to our success;" "--Seasonal
revenue fluctuations may negatively impact our operations;" "--Environmental and
other government regulations impose costs and uncertainty on our operations;"
"--We are exposed to potential liability for environmental damage and regulatory
noncompliance;" "--Addressing local community concerns about our operations may
adversely affect our business;" "--Failure to obtain landfill closure
performance bonds and letters of credit may adversely affect our business;"
"--Our environmental liability insurance may not cover all risks of loss;"
"--Estimated accruals for landfill closure and post-closure costs may not meet
our actual financial obligations;" and "--Year 2000 problems could have an
adverse impact on our business."
INFLATION
Waste Systems does not believe its operations have been materially affected
by inflation.
SEASONALITY
Waste Systems revenues and results of operations tend to vary seasonally.
The winter months of the fourth and first quarters of the calendar year tend to
yield lower revenues than those experienced in the warmer months of the second
and third quarters. The primary reasons for lower revenues in the winter months
include harsh winter weather conditions which can interfere with collection and
transportation, the construction and demolition activities which generate waste
are primarily performed in the warmer seasons and the volume of waste in the
region is generally lower than that which occurs in warmer months. Waste Systems
believes that the seasonality of the revenue stream will not have material
adverse effect on our business, financial condition and results of operations on
an annualized basis.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Although Waste Systems does not presently have a credit facility in place,
we are currently in negotiations to secure one. It is likely that any credit
agreement that we enter will provide for an adjustable interest rate that will
fluctuate based on changes in the overall credit market. Waste Systems does not
believe that our market risk is material to our financial condition and results
of operations.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and financial statement schedules filed as part of
this prospectus are listed on the Index to Financial Statements on page F-1.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
YEAR 2000 COMPLIANCE
Please refer to the section of this prospectus entitled "Risk
Factors"--"Year 2000 problems could have an adverse impact on our business."
39
<PAGE>
BUSINESS
THE COMPANY
OVERVIEW. We are an integrated non-hazardous solid waste management company
that provides solid waste collection, recycling, transfer and disposal services
to commercial, industrial, residential and municipal customers within particular
regional markets in the Northeast and Mid-Atlantic states where we operate. We
are achieving significant growth by implementing an active acquisition strategy,
and plan to contribute to our growth through generating increased sales from
existing operations and achieving greater operating efficiencies.
We focus on the operation of an integrated non-hazardous solid waste
management business, including the ownership and operation of landfills,
transfer stations and collection operations, including collection routes and
equipment. We derive revenue from collecting waste from our customers which we
dispose of in our own landfills, and also from unaffiliated waste collection
companies who pay to dispose of waste in our landfills. Arrangements with
customers include both long-term contractual arrangements and as-received
disposal at our quoted prices. We seek through our acquisition strategy to
acquire substantial collection operations in association with our landfills to
enhance overall profitability and to increase our control over sources of
revenue.
CURRENT INTEGRATED OPERATIONS. Our current operations consist of regional
networks of integrated waste collection and disposal services, consisting of
landfills, transfer stations and collection services.
We own four landfills, one in Vermont and three in central Pennsylvania. The
fourth landfill, which we acquired in March of 1999, is located in the city of
Shippensburg in Central Pennsylvania and significantly increased our disposal
capacity in that region. Our Moretown landfill in Moretown, Vermont and Sandy
Run landfill in Hopewell, Pennsylvania are currently operating and permitted to
accept 120,000 and 86,000 tons per year, respectively. Our Mostoller landfill in
Somerset, Pennsylvania is permitted to accept 624,000 tons per year and is
scheduled to commence operations in the fourth quarter of 1999. As of March 31,
1999, the aggregate remaining estimated permitted capacity of our four owned
landfills was approximately 24.0 million cubic yards. In addition, we have
contracted with the Town of South Hadley, Massachusetts to operate that town's
landfill which has estimated capacity of approximately 2.0 million cubic yards
available for future disposal, subject to receipt of required permits.
We provide transfer station services supporting one landfill and have
acquired another transfer station facility that has the necessary permits and is
ready for construction. Transfer stations serve as gateways to our landfill
facilities by receiving and compacting solid waste collected by us and by third
parties for transfer by long-haul trucks for disposal at landfills we operate.
We own and operate multiple waste collection subsidiaries in each of our
regional markets. Each of these collection services helps to provide our
landfill facilities with an adequate waste flow. As of June 9, 1999, our waste
collection operations serve a total of approximately 72,000 commercial,
industrial, residential and municipal customers in the Central Pennsylvania,
Vermont, Upstate New York and Central Massachusetts markets. We have also
announced, but not completed, the acquisition of an established waste collection
and transfer station operation in Eastern Massachusetts and Southern New
Hampshire.
GOALS AND STRATEGIES. Our objective is to expand the current geographic
scope of our operations primarily in the Northeast and Mid-Atlantic regions of
the United States, and to become one of the leading providers of non-hazardous
solid waste management services in each local market that we serve. Our primary
growth strategy is to acquire landfills in or near urban areas within targeted
markets, and to secure dedicated waste streams for such landfills by acquisition
or development of collection operations and transfer stations. To complement
this growth strategy, we plan to increase operating efficiencies at existing and
acquired businesses through the application of an organizational
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system that sets operating standards, then measures and analyzes the performance
of our collection, transfer, disposal and other functions.
RECENT DEVELOPMENTS AND OUTLOOK. We believe that we have demonstrated our
ability to realize value in the fragmented solid waste management industry by
completing acquisitions of three landfills, five transfer stations, and 41 solid
waste collection operations since January 1998. During 1998, we completed 34
acquisitions within four states in the Northeast and Mid-Atlantic regions.
We have completed eleven acquisitions since January 1, 1999 which have
significantly increased our presence within the geographic regions in which we
operate. Included in these acquisitions are Community Refuse Services, Inc.,
which is a landfill located in the city of Shippensburg in Central Pennsylvania,
Cumberland Waste Service, Inc., a collection operation serving over 2,300
customers in the geographical area surrounding the landfill and Eastern
Trans-Waste of Maryland, Inc., a collection service and transfer station
operator servicing the Baltimore, Maryland/Washington, D.C. region. The
Shippensburg landfill will add approximately 5.6 million cubic yards of capacity
for the region and is permitted to accept 306,000 tons of municipal solid waste
per year. Eastern Trans-Waste of Maryland, Inc. is a well-established commercial
and industrial collection operation with a 53,000 square foot transfer station
located in Washington, D.C., which is permitted to operate twenty-four hours per
day with no capacity restrictions. As part of its customer base, Eastern
Trans-Waste serves the White House and numerous federal agencies. In addition,
on June 4, 1999, we signed a definitive agreement to acquire the assets of C&J
Trucking, Inc. and affiliates, with collection operations throughout Eastern
Massachusetts and Southern New Hampshire, and with two transfer stations located
in Lynn, Massachusetts and Londonderry, New Hampshire, which are initially
expected to handle in excess of 1,000 tons per day. We have received the
necessary regulatory approval under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, and we expect to close the transaction before July 31, 1999. The
acquisition is intended to allow us further leverage of our Central
Massachusetts operations. As a result, we believe that we are poised to continue
our growth in these areas and to enhance our profitability through the
implementation of operating efficiencies.
AT PRESENT, THE SOLID WASTE MANAGEMENT INDUSTRY IS UNDERGOING SIGNIFICANT
CONSOLIDATION AND INTEGRATION.
OVERVIEW. Based on published industry information, the solid waste
management industry generated approximately $38 billion in revenue during 1997.
Of this $38 billion aggregate revenue, approximately 44% was generated by public
companies, approximately 33% was generated by municipal governments, and the
remaining 23% was generated by numerous private solid waste operators.
INDUSTRY TRENDS. The solid waste management industry is experiencing
general trends toward significant consolidation and integration. We believe that
these trends are due in part to the following factors: stringent environmental
regulations which require increased capital to maintain regulatory compliance;
the inability of many smaller operators to achieve the economies of scale
enjoyed by larger operators; the competitive and economic benefits of providing
integrated collection, recycling, transfer and disposal services; and the
privatization of solid waste landfills, transfer station, and collection
services by municipalities. Although significant consolidation has occurred
within the solid waste management industry, we believe the industry remains
highly fragmented and that a substantial number of potential acquisition and
privatization opportunities remain, including the Northeast and Mid-Atlantic
states where we operate.
ENVIRONMENTAL REGULATIONS. Stringent environmental regulations have
resulted in rising costs for owners of landfills while permits required for
landfill development, expansion or construction have also become increasingly
difficult to obtain. These ongoing costs are coupled with increased financial
reserve requirements for landfill closure and post-closure monitoring. Some of
the smaller industry participants have found these costs and regulations
burdensome and have decided either to close their operations
41
<PAGE>
or to sell them to larger operators. As a result, the number of operating
landfills has decreased while the size of landfills has increased.
ECONOMIES OF SCALE AND INTEGRATION. Economies of scale, driven by the high
fixed costs of landfill assets and the associated profitability of each
incremental ton of waste, have led to the development of higher volume, regional
landfills. Integrated operators achieve economies of scale in the solid waste
collection and disposal industry through vertical integration of their
operations that may generate a significant waste stream for these high-volume
landfills. Integrated companies gain further competitive advantage over
non-integrated operators by being able to control the waste stream. The ability
of larger integrated companies to internalize the collected solid waste (i.e.,
collecting the waste at the source, transferring it through their own transfer
stations and disposing of it at their own disposal facility), coupled with
access to significant capital resources to make acquisitions, has created an
environment in which large integrated companies can operate more cost
effectively and competitively than smaller and less integrated operators.
PRIVATIZATION. The trend toward consolidation in the solid waste services
industry is further supported by the increasing tendency of a number of
municipalities to privatize their waste disposal operations. Privatization is
often an attractive alternative for municipalities for several reasons. For
example, the ability of integrated operators to leverage their economies of
scale to provide the community with a broader range of services while enabling
the municipality to reduce its own capital asset requirements. We believe that
the financial ability of municipalities to own and operate landfills was
adversely affected by the 1994 United States Supreme Court decision which
declared "flow control" laws unconstitutional, particularly in the Northeastern
states. These laws had required waste generated in counties or districts to be
disposed of at the respective county or district-owned landfills or
incinerators. The reduction in the captive waste stream to these facilities,
resulting from the invalidation of such flow control laws, forced the counties
that owned them to increase their per ton tipping fees to meet municipal bond
payments. As county or district owned landfills increase their per ton tipping
fees, they are less competitive in an open market in attracting waste streams
from price conscious customers who may freely choose any waste disposal company.
We believe that these market dynamics are factors causing municipalities
throughout the Northeastern states to consider the privatization of public
facilities.
OUR BUSINESS STRATEGY IS TO ACHIEVE GROWTH BY CAPITALIZING ON INDUSTRY
CONSOLIDATION AND INTEGRATION.
Our objective is to expand the geographic scope of our operations primarily
within the Northeast and Mid-Atlantic regions of the United States, and to
become one of the leading non-hazardous solid waste management companies in each
local market that we serve. The primary elements of our business strategy are:
- executing our acquisition program,
- generating internal growth from existing operations by increasing sales to
new and existing customers, and
- increasing our organizational and operating efficiency.
EXPANSION THROUGH ACQUISITIONS. We intend to continue to expand by
identifying regional markets and acquiring non-hazardous solid waste disposal
assets in those targeted markets that we can operate as part of a fully
integrated solid waste management operation. In considering new markets, we
evaluate the opportunities to acquire or otherwise control sufficient landfills,
transfer stations and collection operations which would enable us to generate an
integrated waste stream and achieve the disposal economies of scale necessary to
meet our market share and financial objectives. We have established criteria
which enable us to evaluate prospective acquisition opportunities and target
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markets. Historically, we have entered new markets which are contiguous to our
existing markets; however, we are considering new markets in non-contiguous
geographic areas which meet our criteria.
INTERNAL GROWTH. In order to generate continued internal growth, we have
focused on increasing sales penetration in our current and adjacent markets,
soliciting new commercial, industrial and residential customers, marketing
upgraded services to existing customers and, where appropriate, raising prices.
As customers are added in existing markets, our revenue per routed truck is
improved, which generally increases our collection efficiency and profitability.
We use transfer stations, which serve to link disparate collection operations
with our landfills, as an important part of our internal growth strategy.
OPERATING ENHANCEMENTS FOR ACQUIRED AND EXISTING BUSINESSES. We have
implemented a system that establishes standards for each of our markets and
tracks operating criteria for our collection, transfer, disposal and other
services to facilitate improved profitability in existing and acquired
operations. These measurement criteria include collection and disposal routing
efficiency, equipment utilization, cost controls, commercial weight tracking and
employee training and safety procedures. We believe that by establishing
standards and closely monitoring compliance, we are able to improve existing and
acquired operations. Moreover, where we are able to internalize the waste stream
of acquired operations, we are further able to increase operating efficiencies
and improve capacity utilization.
WE ARE EXECUTING AN ACTIVE ACQUISITION PROGRAM IN OUR REGIONAL MARKETS.
We are pursuing an active acquisition strategy to achieve our objective of
expanding the current geographical scope of our operations and becoming a
leading provider of integrated solid waste management services in each of the
regional markets we serve. We seek acquisitions that are consistent with our
three-step acquisition program designed to acquire long-term disposal capacity
in targeted regional markets, acquire collection companies and transfer stations
which will serve as platforms in the targeted regions to secure a stable
long-term waste flow, and secure "tuck-in acquisitions" of small but
complementary collection companies to increase a regional operation's
profitability.
The following table sets forth acquisitions completed by Waste Systems
through June 3, 1999:
CENTRAL PENNSYLVANIA REGION
<TABLE>
<CAPTION>
ACQUISITION MONTH ACQUIRED PRINCIPAL BUSINESS LOCATION
- ------------------------------------- ------------------------ --------------------------- ----------------------
<S> <C> <C> <C>
Pro-Disposal......................... April 1999 Collection Bellwood, PA
Cumberland Waste Service, Inc. ...... March 1999 Collection Cumberland, PA
Community Refuse Service, Inc. ...... March 1999 Landfill Shippensburg, PA
Koontz Disposal...................... January 1999 Collection Boswell, PA
Jim's Hauling, Inc. ................. January 1999 Collection Duncansville, PA
Mostoller Landfill, Inc. ............ August 1998 Landfill Somerset, PA
Worthy's Refuse Service.............. August 1998 Collection McVey Town, PA
Sandy Run Landfill................... July 1998 Landfill Hopewell, PA
Patterson's Hauling.................. May 1998 Collection Altoona, PA
Pleasant Valley Hauling.............. May 1998 Collection Altoona, PA
McCardle Refuse Company.............. May 1998 Collection Burham, PA
Horvath Sanitation, Inc. ............ May 1998 Collection Altoona, PA
</TABLE>
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<PAGE>
VERMONT REGION
<TABLE>
<CAPTION>
ACQUISITION MONTH ACQUIRED PRINCIPAL BUSINESS LOCATION
- ------------------------------------- ------------------------ --------------------------- ----------------------
<S> <C> <C> <C>
B.B. & B. Trucking................... April 1999 Collection Burlington, VT
Grady Majors Rubbish Removal......... September 1998 Collection St. Albans, VT
Cota Sanitation...................... June 1998 Collection Newport, VT
Vincent Moss......................... June 1998 Collection Newport, VT
Austin Rubbish Removal............... June 1998 Collection Newport, VT
Surprenant Rubbish, Inc. ............ June 1998 Collection Newport, VT
Fortin's Trucking of Williston....... May 1998 Collection Williston, VT
John Leo & Sons, Ltd. ............... March 1998 Collection Burlington, VT
Rapid Rubbish Removal, Inc. ......... February 1998 Collection/Transfer Station St. Johnsbury, VT
Greenia Trucking..................... February 1998 Collection St. Albans, VT
Doyle Disposal....................... January 1998 Collection Barre, VT
Perkins Disposal..................... January 1998 Collection St. Johnsbury, VT
CSWD Transfer Station................ October 1997 Transfer Station Williston, VT
The Hartigan Company................. January 1997 Collection Stowe, VT
Waitsfield Transfer Station.......... November 1995 Transfer Station Waitsfield, VT
Moretown Landfill.................... July 1995 Landfill Moretown, VT
</TABLE>
UPSTATE NEW YORK REGION
<TABLE>
<CAPTION>
ACQUISITION MONTH ACQUIRED PRINCIPAL BUSINESS LOCATION
- ------------------------------------- ------------------------ --------------------------- ----------------------
<S> <C> <C> <C>
Palmer Resource Recovery Corp. ...... May 1999 Transfer Station Syracuse, NY
Tri-Valley Sanitation, Inc. ......... April 1999 Collection Whitesboro, NY
Santaro Trucking Co., Inc. .......... January 1999 Collection Syracuse, NY
Richard A. Bristol, Sr. ............. November 1998 Collection Rome, NY
Bristol Trash and Recycling II ...... November 1998 Collection Rome, NY
Shepard Disposal Service............. October 1998 Collection Oneida, NY
Emmons Trash Removal................. October 1998 Collection Sherill, NY
Wayne Wehrle......................... September 1998 Collection Clinton, NY
Phillip Trucking..................... September 1998 Collection Wampsville, NY
Mary Lou Mauzy....................... September 1998 Collection Cazenovia, NY
Costello's Trash Removal............. September 1998 Collection Cazenovia, NY
Bliss Rubbish Removal, Inc. ......... September 1998 Collection/Transfer Station Camden, NY
Besig & Sons......................... September 1998 Collection Westmoreland, NY
Larry Baker Disposal, Inc. .......... September 1998 Collection Oneida, NY
</TABLE>
CENTRAL MASSACHUSETTS REGION
<TABLE>
<CAPTION>
ACQUISITION MONTH ACQUIRED PRINCIPAL BUSINESS LOCATION
- ------------------------------------- ------------------------ --------------------------- ----------------------
<S> <C> <C> <C>
Troiano Trucking, Inc. .............. March 1999 Collection Worcester, MA
Steve Provost Rubbish Removal........ December 1998 Collection Rochdale, MA
Sunrise Trucking..................... December 1998 Collection Spencer, MA
Trashworks........................... November 1998 Collection Worcester, MA
Mattei-Flynn Trucking, Inc. ......... August 1998 Collection Auburn, MA
Mass Wood Recycling, Inc. ........... July 1998 Transfer Station Oxford, MA
</TABLE>
SOUTHERN NEW HAMPSHIRE/EASTERN MASSACHUSETTS REGION
<TABLE>
<CAPTION>
ACQUISITION MONTH ACQUIRED PRINCIPAL BUSINESS LOCATION
- ------------------------------------- ------------------------ --------------------------- ----------------------
<S> <C> <C> <C>
C&J Trucking Company, Inc............ (subject to completion) Collection/Transfer Station Hookset, NH
</TABLE>
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<PAGE>
BALTIMORE, MD/WASHINGTON, D.C. REGION
<TABLE>
<CAPTION>
ACQUISITION MONTH ACQUIRED PRINCIPAL BUSINESS LOCATION
- ------------------------------------- ------------------------ --------------------------- ----------------------
<S> <C> <C> <C>
Eastern Trans-Waste of Maryland,
Inc................................ July 1999 Collection/Transfer Station Capitol Heights, MD
</TABLE>
In connection with our growth strategy, we are currently, and at any given
time will be, involved in potential acquisitions that are in various stages of
exploration and negotiation. The stages of the acquisitions range from initial
discussions to the execution of letters of intent and the preparation of
definitive agreements. Some of the acquisitions, if consummated, may be
material. No assurance can be given, however, that we will be successful in
completing further acquisitions in accordance with our growth strategy, or that
such acquisitions, if completed, will be successful.
OUR SOLID WASTE MANAGEMENT OPERATIONS ARE BECOMING INCREASINGLY INTEGRATED.
Our operations include the ownership or operation, or both, of solid waste
collection services, transfer stations and landfills. As we execute our
acquisition strategy and integrate the solid waste management assets acquired,
our rate of internalization of our operations is increasing. Since January 1998,
and for each successive quarter more of the waste we have collected has been
disposed at our own landfills, and more of the waste we have disposed of at our
own landfills has been collected by us.
Operating costs, disposal costs, and collection fees vary widely throughout
the geographic areas in which we operate. The prices that we charge are
determined locally, and typically vary by the volume or weight, type of waste
collected, frequency of collections, distance to final disposal sites, labor
costs and amount and type of equipment furnished to the customer.
LANDFILLS. The Moretown landfill in Moretown, Vermont, the Sandy Run
landfill in Hopewell, Pennsylvania, and Community Refuse Service, Inc. in
Shippensburg, Pennsylvania are Waste Systems' currently operating landfills and
each includes leachate collection systems, groundwater monitoring systems and,
where required, active methane gas extraction and recovery systems.
During 1998, over 95% of the solid waste from our Vermont waste collection
operations was disposed of at the Moretown landfill, which represented
approximately 40% of the solid waste disposed of at the Moretown landfill during
this period. During 1998, approximately 59% of the solid waste from our central
Pennsylvania waste collection operations was disposed of at the Sandy Run
Landfill, which represented approximately 60% of the solid waste disposed of at
the Sandy Run landfill during this period. Revenue from landfill operations
accounted for approximately 20.1% of our revenues for the year ended December
31, 1998.
The following table provides certain information regarding the landfills
that we operate. All information is provided as of March 31, 1999.
Remaining Estimated Permitted Capacity
<TABLE>
<CAPTION>
ESTIMATED
TOTAL REMAINING CAPACITY IN
PERMITTED PERMITTING
CAPACITY PROCESS
LANDFILL LOCATION (CUBIC YARDS) (CUBIC YARDS)
- ---------------------------------------------- ------------------------------- ----------------- -------------
<S> <C> <C> <C>
Mostoller..................................... Somerset, PA 14,200,000 --
Sandy Run..................................... Hopewell, PA 2,835,000 --
Community Refuse Service, Inc................. Shippensburg, PA 5,600,000
Moretown...................................... Moretown, VT 1,425,000 --
South Hadley.................................. South Hadley, MA -- 2,000,000
</TABLE>
The South Hadley landfill will be operated according to an operating
agreement expiring in 2015.
The landfill capacity figure given for South Hadley represents capacity for
which we have begun the permitting process.
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<PAGE>
Once the permitted capacity of a landfill is reached, the landfill must be
closed and capped if additional capacity is not authorized. We establish
reserves for the estimated costs associated with such closure and post-closure
costs over the anticipated useful life of such landfill. Please refer to the
section of this prospectus entitled "Risk Factors--Estimated accruals for
landfill closure and post-closure costs may not meet our actual financial
obligations."
SOLID WASTE COLLECTION. A majority of our commercial and industrial
collection services are performed under service agreements with terms ranging
from one to three years, and fees are determined by such factors as collection
frequency, type of equipment and containers furnished, the type, volume and
weight of the solid waste collected, the distance to the disposal or processing
facility and the cost of disposal or processing. Our residential collection and
disposal services are performed either on a subscription basis with no
underlying contract with individuals, or under contracts with municipalities,
homeowners associations, apartment owners or mobile home park operators.
Revenues from collection operations accounted for approximately 73.5% of our
revenues for the year ended December 31, 1998.
TRANSFER STATION SERVICES. The transfer stations receive, compact and
transfer solid waste collected from our various collection operations and from
third parties to long-haul vehicles for transport to landfills. We believe that
transfer stations increase the amount of waste that has access to our landfills
and reduce our costs through improved utilization of our collection personnel
and equipment. Revenues from transfer station services accounted for
approximately 6.4% of our revenues for the year ended December 31, 1998.
OUR REGIONAL OPERATIONS ARE CENTRAL PENNSYLVANIA, VERMONT, UPSTATE NEW YORK,
CENTRAL MASSACHUSETTS, SOUTHERN NEW HAMPSHIRE/EASTERN MASSACHUSETTS AND
BALTIMORE, MARYLAND/WASHINGTON, D.C.
Our current or planned solid waste management operations are as follows:
CENTRAL PENNSYLVANIA OPERATIONS. In May 1998, we commenced operations in
Central Pennsylvania, through the acquisition of Horvath Sanitation, Inc. and
Eagle Recycling, Inc. ("Eagle"), which are based in Altoona, Pennsylvania.
Subsequently, we completed six tuck-in collection operation acquisitions that
have been integrated with Eagle's operations. The central Pennsylvania
operations serve approximately 24,000 residential customers and 2,500 other
customers, including commercial, industrial and municipal customers. In July
1998, we acquired the Sandy Run landfill in Hopewell, Pennsylvania that is
currently permitted to receive approximately 86,000 tons per year and had
remaining estimated permitted capacity at March 31, 1999 of approximately 2.8
million cubic yards. In August 1998, we acquired the Mostoller landfill in
Somerset County, Pennsylvania that, subject to the requirement that it commence
operation before December 31, 1999, is permitted to receive approximately
624,000 tons of waste per year. Construction has begun and we expect to begin
operations at Mostoller during the fourth quarter of 1999.
On March 11, 1999, we acquired the Community Refuse Services, Inc. landfill,
located in Shippensburg, and Cumberland Waste Service, Inc., a collection
operation serving over 2,300 customers in the Harrisburg area. The landfill
acquisition adds approximately 5.6 million cubic yards of capacity for the
region and is permitted to accept 306,000 tons of municipal solid waste per
year.
VERMONT OPERATIONS. We established our first integrated solid waste
management operations in the geographical area surrounding our landfill in
Moretown, Vermont. In addition to the Moretown landfill, we own three transfer
stations, and collection operations serving commercial, industrial, residential
and municipal customers in the Burlington, St. Albans, St. Johnsbury, Newport
and Barre-Montpelier, Vermont areas. The Vermont operations serve approximately
6,200 residential customers and approximately 2,600 other customers, including
commercial, industrial and municipal customers.
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<PAGE>
Currently, the Moretown Landfill is permitted to receive approximately 120,000
tons per year and had remaining estimated permitted capacity at March 31, 1999
of approximately 1,425,000 cubic yards.
UPSTATE NEW YORK OPERATIONS. During the four months ended December 31,
1998, we entered the upstate New York market with the acquisition of eleven
collection operations and a transfer station in the general area between
Syracuse and Utica, New York, and two additional collection companies have been
acquired thus far in 1999. These waste collection operations serve approximately
11,300 residential customers and 2,000 other customers, including commercial,
industrial and municipal customers. We selected the upstate New York market for
acquisition of collection operations and transfer stations in anticipation of
acquisition and privatization opportunities of landfills. We are currently
evaluating opportunities for expansion and integration of our New York
operations.
CENTRAL MASSACHUSETTS OPERATIONS. Waste Systems and the town of South
Hadley, Massachusetts have entered into a contract whereby we will operate the
town's 30-acre municipal solid waste landfill. The town of South Hadley will
retain full ownership of the South Hadley landfill while we operate the
facility. The South Hadley landfill is currently expected to have approximately
2.0 million cubic yards of new capacity for disposal when we begin operations in
the first quarter of 2000. In July 1998, we acquired Mass Wood Recycling, Inc.
in Oxford, Massachusetts. This is a permitted transfer station facility which is
in construction, and we expect to commence operations there during the fourth
quarter of 1999. Since August 1998, we have acquired Mattei-Flynn Trucking, Inc.
in Auburn, Massachusetts and four tuck-in acquisitions. These waste collection
operations have an established customer base of over 1,500 residential customers
and 2,300 other customers, including commercial, industrial and municipal
customers. We intend to integrate these collection operations with the Oxford
transfer station and to eventually dispose of their collected waste at the South
Hadley landfill. In addition, we have a long-term disposal agreement with a
third party landfill in Southbridge, Massachusetts at favorable rates through
the year 2019. As a part of the agreement, we have a right of first refusal to
purchase the landfill.
SOUTHERN NEW HAMPSHIRE/EASTERN MASSACHUSETTS OPERATIONS. We do not have any
current operations in this region. However, on June 4, 1999, we signed a
definitive agreement to acquire the assets of C & J Trucking, Inc. and
affiliates, with collection operations throughout Eastern Massachusetts and
Southern New Hampshire, and with two transfer stations located in Lynn,
Massachusetts and Londonderry, New Hampshire, which are initially expected to
handle in excess of 1,000 tons per day. We have received the necessary
regulatory approval under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, and we expect to close the transaction before July 31, 1999.
BALTIMORE, MARYLAND/WASHINGTON, D.C. OPERATIONS.
On July 6, 1999, we acquired Eastern Trans-Waste of Maryland, Inc., a
well-established commercial and industrial collection operation servicing the
Baltimore, Maryland/Washington, D.C. region. Its operations include a 53,000
square foot transfer station located in Washington, D.C., which is permitted to
operate twenty-four hours per day with no capacity restrictions. As part of its
customer base, Eastern Trans-Waste serves the White House and numerous federal
agencies. We believe this acquisition strategically fits with our existing
landfill assets in Central Pennsylvania, and presents an opportunity to support
our future growth in the Mid-Atlantic States.
OUR COMPETITORS ARE NATIONAL AND LOCAL, AND INCLUDE PRIVATE COMPANIES AND PUBLIC
OPERATORS.
Though the solid waste management industry has become substantially
consolidated in particular markets, it generally is highly competitive and
fragmented and requires substantial labor and capital resources. Competition
exists for collection, recycling, transfer and disposal services. The markets in
which we compete or are likely to compete are usually served by one or more
national, regional or local solid waste companies who may have already
established a respected market presence, who may
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<PAGE>
have greater financial, marketing or technical resources than us and who may be
able to achieve greater economies of scale than we can. We also compete with
counties, municipalities and operators of alternative disposal facilities that
operate their own waste collection and disposal facilities. The availability of
user fees, charges or tax revenues and the availability of tax-exempt financing
may provide a competitive advantage to the public sector operations.
Additionally, alternative disposal facilities such as recycling and incineration
may reduce the demand for landfill disposal.
We compete for waste collection and disposal business on the basis of price,
quality of service and geographical location. Competitors may reduce the price
of their services in an effort to expand or maintain market share or to win
competitively bid contracts. Competition also exists within the industry for
acquisition targets where we will usually compete with publicly-owned national
or regional solid waste management companies.
OUR MARKETING AND SALES EFFORTS ARE FOCUSED ON ACHIEVING OUR STRATEGIC
OBJECTIVES.
We have a coordinated marketing and sales strategy to obtain solid waste
streams, which is formulated at the corporate level and implemented through
regional management. We market our services locally through regional managers
and direct sales representatives who focus on commercial, industrial, municipal
and residential customers. We also obtain new customers from referral sources,
our general reputation and local market print advertising. Leads are also
developed from new building permits, business licenses and other public records.
Additionally, each regional operation generally advertises in the yellow pages
and other local business print media that cover our service area.
Maintenance of a local presence and identity is an important aspect of our
marketing plan, and many of our managers are involved in local governmental,
civic and business organizations. Our name and logo, or, where appropriate, that
of our regional operations, are displayed on all of our containers and trucks.
In addition, we attend and make presentations at municipal and state conferences
and advertise in governmental associations' membership publications.
We market our commercial, industrial and municipal services through our
sales representatives who visit customers on a regular basis and make sales
calls to potential new customers. These sales representatives receive a
significant portion of their compensation based upon meeting specific incentive
targets. We emphasize customer satisfaction and retention, and believe that our
focus on quality service will help retain existing and attract additional
customers.
No single customer of Waste Systems individually accounted for more than 10%
of our revenues in the year ended December 31, 1998.
WE MUST COMPLY WITH EXTENSIVE GOVERNMENT REGULATIONS.
Waste Systems and our customers are subject to extensive and evolving
environmental laws and regulations that have been enacted in response to
increased concern over environmental issues and technological advances for the
disposal of waste. These regulations are administered by the United States
Environmental Protection Agency ("EPA") and various other federal, state and
local environmental, transportation and health and safety agencies. We believe
that such laws and regulations have the effect of enhancing the potential market
in which we operate by allowing us to offer economical solutions for regulatory
problems to our customers and acquisition candidates. On the other hand, such
laws and regulations represent a potential constraint on, and added expense to,
our operation of projects for our customers or for our own account.
We must go through several governmental review processes and obtain one or
more permits and often zoning or other land use approvals, to develop and
operate a landfill project. These permits and
zoning or land use approvals are difficult and time consuming to obtain and may
be opposed by various local authorities, abutters, and AD HOC citizens' groups.
In connection with our preliminary development
48
<PAGE>
of landfill projects, we will expend considerable time, effort and resources in
complying with the governmental review and permitting process necessary to
develop or increase the capacity of these landfills. Once obtained, operating
permits generally must be periodically renewed and are subject to modification
and revocation by the issuing agency. Furthermore, landfill operations are
subject to challenge under statutory and common law regulation of "nuisances,"
in addition to statutes and regulations concerning permits and other approvals.
Similar permits and approvals are required for the development and operation of
transfer stations, although the regulatory reviews of applications pertaining to
transfer stations are generally less costly and time-consuming than the
procedures conducted regarding the permitting of landfills.
Our landfill operations and transfer stations subject us to laws and
regulations governing operational, monitoring, site maintenance, closure and
post-closure, and financial assurance obligations which change from time to time
and which could give rise to increased capital expenditures and operating costs.
In connection with our operation of landfills and transfer stations, we will
expend considerable time, effort and resources in complying with these laws and
regulations. Governmental authorities have the power to enforce compliance with
these laws and regulations and to obtain injunctions or impose civil or criminal
penalties in the case of violations. Failure to correct the problems to the
satisfaction of the authorities could lead to curtailed operations, additional
costs or even closure of a landfill or transfer station.
The principal federal, state, and local statutes and regulations applicable
to Waste Systems's operations are as follows:
THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976 ("RCRA"). RCRA regulates
the generation, treatment, storage, handling, transportation and disposal of
solid waste and requires states to develop programs to ensure the safe disposal
of solid waste. RCRA divides solid waste into two groups, hazardous and
non-hazardous. Wastes are generally classified as hazardous wastes if they (1)
either (a) are specifically included on a list of hazardous wastes or (b)
exhibit specific hazardous characteristics and (2) are not specifically
designated as non-hazardous. Wastes classified as hazardous under RCRA are
subject to much stricter regulation than wastes classified as non-hazardous, and
businesses that deal with hazardous waste are subject to regulatory obligations
in addition to those imposed on handlers of non-hazardous waste.
Among the wastes that are specifically designated as non-hazardous waste are
household waste and "special" waste, including items such as petroleum
contaminated soils, asbestos, shredder fluff and most non-hazardous industrial
waste products.
The EPA regulations issued under Subtitle C of RCRA (the "Subtitle C
Regulations") impose a comprehensive "cradle to grave" system for tracking the
generation, transportation, treatment, storage and disposal of hazardous wastes.
The Subtitle C Regulations impose obligations on generators, transporters and
disposers of hazardous waste, and require permits that are costly to obtain and
maintain for sites where such material is treated, stored or disposed. Subtitle
C requirements include detailed operating, inspection, training and emergency
preparedness and response standards, as well as requirements for manifesting,
record keeping and reporting, corrective action, facility closure, post-closure
and financial responsibility. Most states have promulgated regulations modeled
on some or all of the Subtitle C provisions issued by the EPA. Some state
regulations impose different, additional or more stringent obligations.
We are not involved with transportation or disposal of hazardous wastes,
except for the occasional collection, at some transfer stations, of hazardous
wastes generated by "conditionally exempt small quantity generators," as defined
by RCRA. These hazardous wastes are then transported by properly permitted
hazardous waste transporters for disposal at properly permitted hazardous waste
disposal facilities that are owned by third parties.
49
<PAGE>
In October 1991, the EPA adopted new regulations pursuant to Subtitle D of
RCRA (the "Subtitle D Regulations"). Except for specific municipal solid waste
landfills accepting less than 100 tons per day, as to which the effective date
was April 9, 1994, and new financial assurance requirements, which became
effective April 9, 1997, the new regulations became generally effective in
October 1993. These regulations include location restrictions, facility design
standards, operating criteria, closure and post-closure requirements, financial
assurance requirements, groundwater monitoring requirements, groundwater
remediation standards and corrective action requirements. In addition, these
regulations require that new landfills meet more stringent liner design criteria
(typically, composite soil and synthetic liners or two or more synthetic liners)
designed to keep leachate out of groundwater and have extensive collection
systems to control leachate for treatment before disposal. Groundwater wells
must also be installed at virtually all landfills to monitor groundwater
quality. The regulations also require, where threshold test levels are present,
that methane gas generated at landfills be controlled in a manner that protects
human health and the environment. Each state is required to revise its landfill
regulations to meet these requirements or such requirements will be
automatically imposed upon it by the EPA. Each state is also required to adopt
and implement a permit program or other appropriate system to ensure that
landfills within the state comply with the Subtitle D criteria. Many states,
including Massachusetts, have adopted regulations or programs more stringent
than the Subtitle D Regulations.
THE FEDERAL WATER POLLUTION CONTROL ACT OF 1972 (THE "CLEAN WATER
ACT"). The Clean Water Act establishes rules regulating the discharge of
pollutants from a variety of sources, including solid waste disposal sites, into
waters of the United States. If runoff or collected leachate from our landfills
and transfer stations are discharged into streams, rivers or other surface
waters of the United States, the Clean Water Act would require us to apply for
and obtain a discharge permit, conduct sampling and monitoring and, under
certain circumstances, reduce the quantity of pollutants in such discharge.
Also, virtually all landfills are required to comply with federal storm water
regulations, which are designed to prevent possibly contaminated storm water
from flowing into surface waters. We are working with the appropriate regulatory
agencies to ensure that our facilities are in compliance with Clean Water Act
requirements, particularly as they apply to treatment and discharge of leachate
and storm water. We have secured or have applied for the required discharge
permits under the Clean Water Act or comparable state-delegated programs. To
ensure compliance with the Clean Water Act pretreatment and discharge
requirements, we have either installed wastewater treatment systems at our
facilities to treat our effluent to acceptable levels before discharge or have
arranged to discharge our effluent to municipal wastewater treatment facilities.
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT OF
1980 ("SUPERFUND" OR "CERCLA"). CERCLA establishes a regulatory and remedial
program intended to provide for the investigation and cleanup of facilities from
which there has been, or is threatened, a release of any hazardous substance
into the environment. CERCLA's primary mechanism for remedying such problems is
to impose strict joint and several liability for cleanup of facilities on
current owners and operators of the site, former owners and operators of the
site at the time of the disposal of the hazardous substances, as well as the
generators of the hazardous substances and the transporters who arranged for
disposal or transportation of the hazardous substances. The costs of CERCLA
investigation and cleanup can be very substantial. Liability under CERCLA does
not depend upon the existence or disposal of "hazardous waste" but can also be
based upon the existence of even very small amounts of the numerous "hazardous
substances" listed by the EPA, many of which can be found in household waste.
If, for example, we were found to be a responsible party for a CERCLA cleanup at
one of our owned or operated facilities, the enforcing agency could hold us
completely responsible for all investigative and remedial costs even if others
may also have been liable. CERCLA also authorizes the imposition of a lien in
favor of the United States upon all real property subject to or affected by a
remedial action for all costs for which a party is liable. Waste Systems's
ability to obtain reimbursement from others for their allocable share of such
costs would be limited by our ability to find other
50
<PAGE>
responsible parties and prove the extent of their responsibility and by the
financial resources of such other parties. In the past, legislation has been
introduced in Congress to limit the liability of municipalities and others under
CERCLA as generators and transporters of municipal solid waste. Although such
legislation has not been enacted, if it were to pass it would limit our ability
to seek full contribution from municipalities for CERCLA cleanup costs even if
the hazardous substances that were released and caused the need for cleanup at
one of our facilities were generated by or transported to the facility by a
municipality.
THE CLEAN AIR ACT. The Clean Air Act provides for regulation, through state
implementation of federal requirements, of the emission of air pollutants from
particular landfills based upon the date of the landfill construction and volume
per year of emissions of regulated pollutants. The EPA has recently promulgated
new source performance standards regulating air emissions of specific regulated
pollutants, such as methane and non-methane organic compounds, from solid waste
landfills. The EPA may also issue regulations controlling the emissions of
particular regulated air pollutants from solid waste landfills. Landfills
located in areas with air pollution problems may be subject to even more
extensive air pollution controls and emission limitations. In addition, the EPA
has issued standards regulating the removal, handling and disposal of
asbestos-containing materials.
Each of the federal statutes described above contains provisions
authorizing, under certain circumstances, the bringing of lawsuits by private
citizens to enforce the requirements of the statutes.
THE HAZARDOUS MATERIALS TRANSPORTATION ACT. The transportation of hazardous
waste is regulated both by the EPA in conformity with RCRA and by the federal
Department of Transportation ("DOT") according to the Hazardous Materials
Transportation Act ("HMTA"). Pursuant to the HMTA, DOT has enacted regulations
governing the transport of hazardous waste. These regulations govern, among
other things, packaging of the hazardous waste during transport, labeling and
marking requirements, and reporting of and response to spills of hazardous waste
during transport. In addition, under both the HMTA and RCRA, transporters of
hazardous waste must comply with manifest and record keeping requirements, which
are designed to ensure that a shipment of hazardous waste is properly identified
and can be tracked from its point of generation to point of disposal at a
permitted hazardous waste treatment, storage or disposal facility.
THE OCCUPATIONAL SAFETY AND HEALTH ACT OF 1970 ("OSHA"). OSHA authorizes
the Occupational Safety and Health Administration to promulgate occupational
safety and health standards. Various of those promulgated standards, including
standards for notices of hazards, safety in all aspects of the workplace, and
specific standards relating to excavation, and the handling of asbestos, may
apply to some of our operations. OSHA regulations set forth requirements for the
training of employees handling, or who may be exposed in the workplace to,
concentrations of asbestos-containing materials that exceed specified action
levels. The OSHA regulations also set standards for employee protection,
including medical surveillance, the use of respirators, protective clothing and
decontamination units, during asbestos demolition, removal or encapsulation as
well as its storage, transportation and disposal. In addition, OSHA specifies a
maximum permissible exposure level for airborne asbestos in the workplace. Apart
from receiving asbestos waste at our landfills and transfer stations, we have no
direct involvement in asbestos removal or abatement projects.
STATE AND LOCAL REGULATION. Each state in which we now operate or may
operate in the future has laws and regulations governing the generation,
storage, treatment, handling, transportation and disposal of solid and hazardous
waste, water and air pollution and, in most cases, the siting, design,
operation, maintenance, closure and post-closure maintenance of landfills and
transfer stations. Some state laws also contain provisions authorizing, under
certain circumstances, the bringing of lawsuits by private citizens to enforce
the requirements of those laws. In addition, many states have adopted
"Superfund" statutes comparable to, and in some cases more stringent than,
CERCLA. These statutes impose requirements for investigation and cleanup of
contaminated sites and liability for costs and damages
51
<PAGE>
associated with such sites, and some provide for the imposition of liens on
property owned by responsible parties. Furthermore, many municipalities also
have ordinances, local laws and regulations affecting our operations. These
include zoning and health measures that limit solid waste management activities
to specified sites or activities, flow control provisions that direct the
delivery of solid wastes to specific facilities, laws that grant the right to
establish franchises for collection services and then put out for bid for the
right to provide collection services, and bans or other restrictions on the
movement of solid wastes into a municipality.
Some permits and approvals may limit the types of waste that may be accepted
at a landfill or the quantity of waste that may be accepted at a landfill during
a given time period. In addition, particular permits and approvals, as well as
certain state and local regulations, may limit a landfill to accepting waste
that originates from specified geographic areas or seek to restrict importing
out-of-state waste or otherwise discriminate against out-of-state waste. In
general, restrictions on importing out-of-state waste have not withstood
judicial challenge. However, proposed federal legislation would allow individual
states to prohibit the disposal of out-of-state waste or to limit the amount of
out-of-state waste that could be imported for disposal and would require states,
under certain circumstances, to reduce the amounts of waste exported to other
states. If this or similar legislation is enacted, states in which we operate
landfills could act to limit or prohibit the importation of out-of-state waste.
Such state actions could adversely affect landfills within those states that
receive a significant portion of waste originating from out-of-state.
In addition, some states and localities may for economic or other reasons
restrict the exportation of waste from their jurisdiction or require that a
specified amount of waste be disposed of at facilities within their
jurisdiction. In 1994, the United States Supreme Court held unconstitutional,
and therefore invalid, a local ordinance that sought to impose flow controls on
taking waste out of the locality. However, some state and local jurisdictions
continue to seek to enforce such restrictions and, in certain cases, we may
elect not to challenge such restrictions based upon various considerations. In
addition, the previously mentioned proposed federal legislation would allow
states and localities to impose specific flow control restrictions. These
restrictions could result in the volume of waste going to landfills being
reduced in particular areas, which may adversely affect our ability to operate
our landfills at their full capacity or affect the prices that can be charged
for landfill disposal services, or both.
There has been an increasing trend at the federal, state and local level to
mandate and encourage waste reduction at the source and waste recycling and to
prohibit the disposal of certain types of solid wastes, such as yard wastes, in
landfills. The enactment of regulations reducing the volume and types of wastes
available for transport to and disposal in landfills could affect our ability to
operate our facilities at their full capacity.
We believe that we are in material compliance with federal, state and local
regulations based on our internal review process which has not identified any
material non-compliance and we have not received any verbal or written
notification from any governmental agency to the contrary. Please refer to the
following paragraphs of the "Risk Factors" section of this prospectus for a
description of some important risks to Waste Systems resulting from
environmental regulations:
"Environmental and other government regulations impose costs and uncertainty
on our operations."
"We are exposed to potential liability for environmental damage and
regulatory noncompliance."
"Our environmental liability insurance may not cover all risks of loss."
"Addressing local community concerns about our operations may adversely
affect our business."
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OUR EMPLOYEES ARE A KEY FACTOR IN OUR SUCCESS.
As of March 31, 1999, we had 357 full time employees. We believe our future
success will depend in part on our continued ability to recruit and retain
highly qualified technical and managerial personnel. Please refer to the
following paragraphs of the "Risk Factors" section of this prospectus for a
description of some important risks relating to our employees:
"Our future success depends upon our ability to manage rapid growth in
operations and personnel."
"Loss of key executives could affect Waste Systems's ability to achieve our
business objectives."
Our employees are not subject to any collective bargaining agreement. We
consider relations with our employees to be good.
WE OWN AND LEASE PROPERTIES IN CONNECTION WITH OUR BUSINESS OPERATIONS.
We own or lease, and operate landfills, transfer stations, offices and other
facilities in connection with our integrated solid waste management operations
as described under the subsection entitled "Current integrated operations." In
addition, we lease our corporate headquarters, located at 420 Bedford Street,
Suite 300, Lexington, Massachusetts. We occupy approximately 11,000 square feet
at the Lexington location under the terms of a lease expiring in March 2003,
with annual rent of approximately $200,000 subject to escalation in future
years.
WE BELIEVE THE LEGAL PROCEEDINGS INVOLVING US WILL NOT IMPAIR OUR POTENTIAL FOR
SUCCESS.
MARTIN S. STOLZOFF. Martin S. Stolzoff, along with other former
shareholders of Waste Systems, commenced an action against Waste Systems, and
other named defendants, in Middlesex County Superior Court. The plaintiffs
allege that from January 1995 to February 1997, defendants disseminated false
and misleading statements about Waste Systems' operations amounting to common
law fraud, negligent misrepresentation and violations of state securities laws.
Plaintiffs claim that this course of conduct resulted in losses totaling close
to $1.0 million. Specifically, their complaint alleges that between March 28,
1995 and August 9, 1996, plaintiffs purchased Waste Systems stock in reliance
upon representations made by the various defendants concerning the future
prosperity of Waste Systems. In particular, the complaint points to specific
representations made by Stanley Hollander, Jay Matulich, Richard Rosen and
Robert Davis. Further, plaintiffs claim they relied upon false and misleading
information contained in our 1995 private placement prospectus and other
documents disseminated to the public, including press releases and brochures, in
purchasing the stock. We believe that these claims are without merit and intend
to vigorously defend against these claims.
In addition to the matters set forth above, from time to time, in the
ordinary course of our business, we are subject to legal proceedings and claims
arising from the conduct of our business operations. In our opinion, the
ultimate disposition of such matters on an aggregate basis will not have a
material adverse effect on our financial position or results of operations.
53
<PAGE>
MANAGEMENT
The following table sets forth information regarding the directors and
executive officers of Waste Systems:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH WASTE SYSTEMS
- ----------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Philip W. Strauss............ 51 Chairman, Chief Executive Officer and President
Robert Rivkin................ 40 Director, Executive Vice President--Acquisitions, Chief
Financial Officer, Secretary and Treasurer
Michael J. Leannah........... 46 Senior Vice President and Chief Operating Officer
Joseph E. Motzkin............ 57 Vice President--Acquisitions
Mark Popham.................. 44 Vice President--Capital Project Development
Arthur Streeter.............. 39 Vice President and General Counsel
David J. Breazzano........... 42 Director
Charles Johnston............. 64 Director
Jay J. Matulich.............. 44 Director
Judy K. Mencher.............. 42 Director
William B. Philipbar......... 73 Director
</TABLE>
PHILIP W. STRAUSS has been the Chief Executive Officer and President since
March 27, 1996 and Chairman of the Board since June 24, 1996. Previously, Mr.
Strauss had been Executive Vice President and Chief Operating Officer of Waste
Systems since September 19, 1995. He has 24 years of experience in project,
business and corporate development. Mr. Strauss was co-founder of BioMedical
Waste Systems, Inc., a publicly-held waste management firm, where he served as
Executive Vice President from its inception in 1987 until May 1992 and as a
director from inception until May 1993.
ROBERT RIVKIN has been Executive Vice President--Acquisitions of Waste
Systems since April 1998, Vice President and Chief Financial Officer since March
1995, Secretary since May 1995 and Treasurer since June 1996. Mr. Rivkin was
first elected to the board of directors in June 1997. For the six years before
joining Waste Systems, Mr. Rivkin was a principal at The Envirovision Group
Inc., a full service environmental engineering, consulting and contracting
company, where he was responsible for finance, marketing and strategic planning.
Previously, Mr. Rivkin, a Certified Public Accountant, practiced public
accounting in New York, where he specialized in mergers and acquisitions,
initial public offerings and SEC reporting.
MICHAEL J. LEANNAH has been a Senior Vice President and the Chief Operating
Officer of Waste Systems since July 1998. Prior to joining Waste Systems, he was
an Operating Vice President at Superior Services, Inc. From 1986 to 1997 he held
various management positions at Waste Management, Inc., most recently serving as
Vice President--Operations and State President.
JOSEPH E. MOTZKIN has been a Vice President of Waste Systems since August
1996. From 1994 to 1996, Mr. Motzkin was a General Manager at Prins Recycling
Corporation where he established recycling programs, and directed sales programs
and customer service activities. From 1989 to 1994, he was a General manager at
Laidlaw Waste Systems where he was responsible for their New England operations.
Mr. Motzkin has 26 years in the solid waste management business.
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<PAGE>
MARK POPHAM has been Vice President--Capital Project Development since April
1999 and previously was Director of Engineering since 1994. From 1988 to 1993,
he was Vice President/Director at United Waste Systems, Inc.
ARTHUR STREETER has been Vice President and General Counsel since February
1998. Before Waste Systems he was a Partner at Goldstein & Manello, P.C., a law
firm based in Boston, Massachusetts, where he gained 12 years of experience
representing both private and public companies.
DAVID J. BREAZZANO has been a member of the board of directors since June
1997. Mr. Breazzano is one of the two principals at DDJ Capital Management, LLC,
which was established in 1996. He has over 18 years of investment experience and
served as a Vice President and Portfolio Manager at Fidelity Investments
("Fidelity") from 1990 to 1996. Prior to joining Fidelity, Mr. Breazzano was
President and Chief Investment Officer of the T. Rowe Price Recovery Fund. Mr.
Breazzano also serves as a director of Key Energy Group, Inc. and Samuels
Jewelers, Inc.
CHARLES JOHNSTON has been a member of the board of directors since June
1997. During the past 10 years he has served on various boards. Mr. Johnston is
currently Chairman of Ventex Technology in Riviera Beach, Florida and has held
that position since 1993. He is also currently Chairman of AFD Technologies in
Jupiter, Florida. He was previously founder, Chairman, and CEO of ISI Systems, a
public company on the American Stock Exchange before being sold to Teleglobe
Corporation of Montreal, Quebec. Mr. Johnston also serves as a Trustee of
Worcester Polytechnic Institute in Worcester, Massachusetts as well as a Trustee
for the Institute of Psychiatric Research, University of Pennsylvania in
Philadelphia, Pennsylvania. In addition, he serves as director of the following
companies: Kideo Productions and Infosafe Systems both of New York City, Hydron
Technologies Inc. of Boca Raton, Florida and Spectrum Signal Processing of
Vancouver, British Columbia.
JAY J. MATULICH has been a member of the board of directors since March
1995. Mr. Matulich is a Senior Vice President of GlobalNet Financial.Com, Inc.,
formerly Capital Growth International L.L.C. and U.S. Sachem Financial
Consultants, L.P. He has held this position since 1994. From May 1990 to October
1994, Mr. Matulich was a Vice President of Gruntal & Co., Incorporated,
investment bankers.
JUDY K. MENCHER has been a member of the board of directors since August
1997. Ms. Mencher is one of the two principals at DDJ Capital Management, LLC,
which was established in 1996. From 1990 to 1996, Ms. Mencher was at Fidelity
working in the Distressed Investing Group. Before joining Fidelity in 1990, Ms.
Mencher was a Partner at the law firm of Goodwin, Procter & Hoar LLP
specializing in bankruptcy and creditors' rights.
WILLIAM B. PHILIPBAR became a director of Waste Systems in May 1996. He
resigned as a director of Waste Systems in June 1997 and was reelected to the
board of directors in August 1997. Since December 1997, Mr. Philipbar has been a
part-time consultant for Waste Systems in connection with our consideration of
proposed acquisitions and other strategic matters. Before becoming a director of
Waste Systems, Mr. Philipbar served as Chairman of the Delaware Solid Waste
Authority from 1977 to 1987 and was the President and Chief Executive Officer of
Rollins Environmental Corp. from 1973 to 1984. He has been a Director of Matlack
Systems, Inc. and Rollins Truck Leasing Corp. since 1993. Until 1995, he was
also an advisor to Charles River Ventures.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
Our board of directors consists of seven members, a majority of whom are
independent of our management. Each director holds office for a term from
election to the next annual meeting of our stockholders and until his or her
successor is duly elected and qualified.
The board of directors has appointed a Compensation Committee and an Audit
Committee.
55
<PAGE>
COMPENSATION COMMITTEE. The Compensation Committee currently consists of
Messrs. Johnston and Strauss and Ms. Mencher. The Compensation Committee makes
recommendations and exercises all powers of the board of directors in connection
with compensation matters, including incentive compensation and benefit plans.
The Compensation Committee, with the exception of Mr. Strauss, administers, and
has authority to grant awards under, our employee benefit plans to the employee
directors and our management Waste Systems and our subsidiaries and other key
employees.
AUDIT COMMITTEE. The Audit Committee currently consists of Messrs.
Breazzano, Matulich and Philipbar. The Audit Committee is empowered to recommend
to the board of directors the appointment of our independent public accountants
and to periodically meet with such accountants to discuss their fees, audit and
non-audit services, and the internal controls and audit results for us. Also,
the Audit Committee is empowered to meet with the our accounting personnel to
review accounting policies and reports.
We do not have a standing Nominating Committee.
COMPENSATION OF DIRECTORS
We do not currently pay cash compensation to our directors. Non-employee
directors are entitled to stock option grants under the Amended and Restated
Waste Systems International, Inc. 1995 Stock Option Plan for non-employee
directors. The stock option plan provides for the automatic granting to
non-employee directors of stock options that do not qualify as incentive stock
options under Section 422 of the Internal Revenue Code of 1986. Under the terms
of the stock option plan, each non-employee director who first becomes a
director of Waste Systems on or after June 30, 1997 shall automatically be
granted, on the date he or she becomes a director of Waste Systems, a stock
option to purchase 20,000 shares of Waste Systems common stock. In addition, the
stock option plan provides that each non-employee director shall automatically
be granted, at the beginning of each calendar year in which he or she is serving
as a non-employee director, a stock option to acquire 10,000 shares of Waste
Systems common stock. Each non-employee director entering service after the
start of any calendar year will automatically be granted on the effective date
of his or her board membership a stock option to acquire a portion of 10,000
shares of Waste Systems common stock prorated to reflect the remaining portion
of such calendar year. The exercise price per share for the Waste Systems common
stock covered by any stock option granted under the stock option plan shall be
equal to the fair market value of the Waste Systems common stock on the date
such option is granted.
Other than stock options to acquire 20,000 shares of Waste Systems common
stock granted automatically to each new non-employee director joining the board
of directors on or after June 30, 1997, which stock options vest immediately
upon grant, stock options granted under the stock option plan vest at a rate of
25% of the total number of shares of common stock purchasable under the stock
option plan for each year that the optionee remains a director of Waste Systems,
such vesting to take place at the end of each of the first four calendar years
following issuance of such stock options. A stock option issued under the stock
option plan shall not be exercisable after the expiration of ten years from the
date of grant.
On December 15, 1997, the board of directors voted to retain Mr. William
Philipbar, a non-employee director of Waste Systems, as a part-time consultant
in connection with our considerations of proposed acquisitions and other
strategic matters. Mr. Philipbar's compensation for providing consulting
services for up to four days per month, as requested by us, consists of grants
of options to acquire 25,000 shares of Waste Systems common stock on January 1,
1998 and each succeeding year so long as Mr. Philipbar continues to be retained
by Waste Systems. The grants are made under our stock option plan that permits
the grant of options and other benefits to non-employee directors, consultants
and other key persons. Please refer to the section of this prospectus entitled
"Certain Relationships and Related Transactions."
56
<PAGE>
SUMMARY OF EXECUTIVE COMPENSATION
The following table provides you with information on the compensation
awarded to, earned by or paid to our Chief Executive Officer and our other
executive officers whose total annual salary and bonus exceeded $100,000 for the
fiscal year ended December 31, 1998 for services rendered in all capacities to
us and our subsidiaries. The persons listed in the table below are referred to
as the "named executive officers."
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL -------------
COMPENSATION SHARES
------------- UNDERLYING
SALARY OPTIONS(1)
NAME AND PRINCIPAL POSITION YEAR ($) (#)
- ---------------------------------------------------------------------------- --------- ------------- -------------
<S> <C> <C> <C>
Philip Strauss.............................................................. 1998 1997 188,172 250,000(2)
Chairman of the Board, 1996 162,504 522,859
President and Chief 150,000 50,000
Executive Officer
Robert Rivkin............................................................... 1998 1997 187,506 250,000
Executive Vice President--Acquisitions, 1996 162,504 522,859
Chief Financial Officer, Secretary, Treasurer and Director 150,000 41,250
Joseph Motzkin(3)........................................................... 1998 1997 118,060 40,000 19,300
Vice President--Acquisitions 110,000
Arthur Streeter(4).......................................................... 1998 118,428 40,000
Vice President and General Counsel
</TABLE>
- ------------------------
(1) All information regarding outstanding options, including shares issuable or
issued and exercise prices payable or paid per share, has been adjusted to
reflect the 1-for-5 reverse stock split of Waste Systems' common stock
effected February 13, 1998.
(2) Includes the options to acquire 40,000 shares of Waste Systems' common stock
granted in 1995 and repriced in 1996.
(3) Includes Mr. Motzkin's salary for 1998 and 1997 only, as Mr. Motzkin did not
join Waste Systems until the third quarter of 1996.
(4) Includes Mr. Streeter's salary for 1998 only, as Mr. Streeter joined Waste
Systems in February 1998.
57
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides you with information on stock options granted
during the fiscal year ended December 31, 1998 to our named executive officers
and the value of the options held as of December 31, 1998.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF OPTIONS GRANTED EXERCISE OR GRANT DATE
SHARES UNDERLYING TO EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME OPTIONS GRANTED(#)(1) FISCAL YEAR ($ SHARE) DATE VALUE$(2)
- ------------------------------ --------------------- --------------------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Philip Strauss................ 250,000 24% $ 6.25 4/17/08 $ 767,000
Robert Rivkin................. 250,000 24% $ 6.25 4/17/08 $ 767,000
Joseph Motzkin................ 40,000 4% $ 6.25 4/17/08 $ 122,720
Arthur Streeter............... 30,000 3% $ 3.44 2/2/08 $ 50,610
Arthur Streeter............... 10,000 1% $ 6.25 4/17/08 $ 30,680
</TABLE>
- ------------------------
(1) All information regarding outstanding options, including shares issuable or
issued and exercise prices payable or paid per share, has been adjusted to
reflect the 1-for-5 reverse stock split of Waste Systems's common stock
effected February 13, 1998.
(2) The grant date present value was determined using the Black-Scholes option
pricing model with the following weighted average assumptions: volatility,
50%; expected dividend yield, 0%; risk free interest rate, 4.75%; and
expected life, 5 years.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides you with information on stock options exercised
during the fiscal year ended December 31, 1998, and the value of unexercised
options held as of December 31, 1998, by our named executive officers.
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF SHARES OF IN-THE-MONEY
WSI COMMON STOCK OPTIONS
UNDERLYING AT FISCAL
UNEXERCISED OPTIONS YEAR-END
SHARES AT FISCAL YEAR-END(#) ($)
ACQUIRED ON VALUE -------------------------- -----------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE
- ---------------------------------------- ----------------- ----------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Philip Strauss.......................... 0 0 180,715 642,144 $ 739,847
Robert Rivkin........................... 0 0 180,715 642,144 $ 739,847
Joseph Motzkin.......................... 0 0 9,825 59,475 $ 40,224
Arthur Streeter......................... 0 0 0 40,000 $ 0
<CAPTION>
NAME UNEXERCISABLE
- ---------------------------------------- -------------
<S> <C>
Philip Strauss.......................... $ 2,628,937
Robert Rivkin........................... $ 2,628,937
Joseph Motzkin.......................... $ 79,731
Arthur Streeter......................... $ 163,760
</TABLE>
EMPLOYMENT AGREEMENTS
On June 30, 1998, we entered into employment agreements with Messrs. Strauss
and Rivkin. The terms of these agreements provide that:
(a) Mr. Strauss shall serve as our President and Chief Executive Officer and
that Mr. Rivkin shall serve as Executive Vice President--Acquisitions,
Chief Financial Officer, Secretary and Treasurer;
(b) each shall receive a salary of $200,000 per year through June 30, 1999
and $225,000 per year through June 30, 2000; and
(c) each shall agree not to compete with Waste Systems following termination
of his employment for a period of one year following termination. If
either executive is terminated without cause, the executive will not be
bound to the non-competition provisions. Our agreements with
58
<PAGE>
Messrs. Strauss and Rivkin are effective until June 30, 1999 and, absent
ninety-day notice from either party to the contrary, are automatically
renewable for subsequent one-year terms. Each of the agreements may be
terminated at any time by the mutual consent of the parties.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with some officers and
directors. The indemnification agreements provide for indemnification of such
directors and officers to the fullest extent authorized or permitted by law. The
indemnification agreements also provide that we will advance all expenses
incurred by the director or officer in defending certain litigation, in some
circumstances, we will appoint an independent legal counsel to determine whether
the director or officer is entitled to indemnification and we will continue to
maintain directors' and officers' liability insurance, which currently consists
of $5 million of primary coverage.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Currently, Philip W. Strauss, Charles Johnston and Judy K. Mencher serve on
the Compensation Committee. Philip W. Strauss, in addition to serving as a
member of the Compensation Committee, is the Chief Executive Officer and
President. No other members of the Compensation Committee in 1998 ever served as
an officer of Waste Systems.
59
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial ownership
of the Waste Systems's common stock as of April 30, 1999, by each person known
by Waste Systems to be a beneficial owner of more than 5.0% of the outstanding
Waste Systems's common stock, by each director and named executive officer and
by all directors and executive officers as a group:
BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------
# OF SHARES % OF CLASS
BENEFICIALLY BENEFICIALLY
DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS(1) OWNED OWNED(2)
- --------------------------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
B-III Capital Partners, L.P.(3) ....................................................... 7,019,426 44.7%
c/o DDJ Capital Management, LLC
141 Linden Street
Wellesley, MA 02181
The Prudential Insurance Company of America(4) ........................................ 838,184 6.2%
100 Mulberry Street
Newark, NJ 07102
Mitchell Hutchins Asset Management(5) ................................................. 1,950,058 13.7%
1285 Avenue of the Americas
New York, NY 10019
John Hancock Advisers(6) .............................................................. 1,417,794 9.9%
101 Huntington Avenue
Boston, MA 02199
Credit Suisse Asset Management(7) ..................................................... 700,000 5.0%
153 East 53 Street, 57th Floor
New York, NY 10022
David J. Breazzano(8).................................................................. 7,000 *
Charles Johnston(9).................................................................... 7,000 *
Jay Matulich(10)....................................................................... 7,500 *
Judy K. Mencher(8)..................................................................... 6,685 *
Joseph Motzkin(11)..................................................................... 52,878 *
William B. Philipbar(12)............................................................... 31,685 *
Robert Rivkin(13)...................................................................... 391,883 2.9%
Philip W. Strauss(14).................................................................. 391,708 2.9%
Arthur Streeter(15).................................................................... 10,000 *
All directors and executive officers as a group (11 persons)........................... 950,889 7.0%
</TABLE>
- ------------------------
* Less than 1%
(1) The persons named in the table have sole voting and investment power with
respect to all shares shown as beneficially owned by them subject to
community property laws where applicable and the information contained in
footnotes to this table.
60
<PAGE>
(2) Based on 13,464,654 shares of common stock issued and outstanding as of
April 30, 1999. As of April 30, 1999 Waste Systems had outstanding 7%
Convertible Subordinated Notes due 2005 which are currently convertible at
the option of the holder into an aggregate 4,955,143 shares of common stock
at a conversion price of $10.00 principal amount per share as set forth in
the Notes.
(3) Includes 4,787,504 shares of common stock currently owned and 2,231,922
shares issuable upon conversion of 7% Convertible Subordinated Notes at a
conversion price of $10.00 as set forth in the Notes. DDJ Capital
Management, LLC ("DDJ") serves as the investment manager to B-III Capital
Partners, L.P. ("B-III"); an affiliate of DDJ acts as the general partner of
B-III.
(4) Includes 678,761 shares of common stock currently owned and 159,423 shares
issuable upon conversion of 7% Convertible Subordinated Notes at a
conversion price of $10.00 as set forth in the Notes. The common stock and
Notes are held for the benefit of particular registered investment companies
over which Prudential or The Prudential Investment Corporation may have
direct or indirect voting and investment discretion, with respect to which
Prudential has advised Waste Systems that Prudential and The Prudential
Investment Corporation disclaim beneficial ownership.
(5) Includes 1,152,993 shares of common stock currently owned and 797,115 shares
issuable upon conversion of 7% Convertible Subordinated Notes at a
conversion price of $10.00 as set forth in the Notes.
(6) Includes 501,112 shares issuable upon conversion of 7% Convertible
Subordinated Notes at a conversion price of $10.00 as set forth in the
Notes.
(7) Includes 700,000 shares issuable upon conversion of 7% Convertible
Subordinated Notes at a conversion price of $10.00 as set forth in the
Notes.
(8) Includes 7,000 shares subject to stock options which are fully vested and
currently exercisable and excludes those shares owned by B-III, which Mr.
Breazzano and Ms. Mencher may be deemed to beneficially own as a result of
Mr. Breazzano's and Ms. Mencher's interest in DDJ, however, such beneficial
ownership is disclaimed. Both Mr. Breazzano and Ms. Mencher are managing
members of DDJ.
(9) Includes 7,000 shares subject to stock options which are fully vested and
currently exercisable.
(10) Includes 2,000 shares of common stock currently owned and 5,500 shares
subject to stock options which are fully vested and currently exercisable.
(11) Includes 18,403 shares of common stock currently owned and 34,475 shares
subject to stock options which are fully vested and currently exercisable.
(12) Includes 31,685 shares subject to stock options which are fully vested and
currently exercisable.
(13) Includes 17,953 shares of common stock currently owned and 373,930 shares
subject to stock options which are fully vested and currently exercisable.
(14) Includes 17,778 shares of common stock currently owned and 373,930 shares
subject to stock options which are fully vested and currently exercisable.
(15) Includes 10,000 shares subject to stock options which are fully vested and
currently exercisable.
61
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 15, 1997, the board of directors voted to retain Mr. William
Philipbar, a non-employee director of Waste Systems, as a part-time consultant
in connection with our consideration of proposed acquisitions and other
strategic matters. Mr. Philipbar's compensation for providing consulting
services for up to four days per month, as requested by us, consists of grants
of options to acquire 25,000 shares of our common stock, to be granted on
January 1 of each year beginning on January 1, 1998 so long as Mr. Philipbar
continues to be retained by us in this capacity. Under the consulting
arrangement, Mr. Philipbar received options on January 1, 1998 and 1999 to
acquire 25,000 shares of our common stock, vesting according to the terms
described below. The grants were made under an amendment to Waste Systems'
Amended and Restated 1995 Stock Option and Incentive Plan permitting the grant
of options and other benefits under the 1995 Stock Option Plan to non-employee
directors, consultants and other key persons, which was approved by our
stockholders at the 1998 annual meeting of stockholders. Each option granted to
Mr. Philipbar under his consulting arrangement: (a) shall remain outstanding for
a term of ten years, subject to termination 90 days following the date of
termination of Mr. Philipbar's consulting arrangement with us; (b) shall be
exercisable at an exercise price per share equal to the closing price of our
common stock on its principal trading market on the first trading day on or
after the date of issuance; (c) shall initially be unvested, and shall vest in
full on the date one year after the date of issuance, provided that Mr.
Philipbar has been retained as a consultant by us and has been ready, willing
and able to perform services as a consultant during that one year period; and
(d) shall be a non-qualified stock option for federal income tax purposes.
62
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Senior Notes were originally sold by Waste Systems on March 2, 1999
(the "Issue Date") pursuant to a purchase agreement dated February 25, 1999, by
and among Waste Systems, the subsidiary guarantors and First Albany Corporation,
as the initial purchaser. The initial purchaser subsequently resold the Old
Senior Notes to qualified institutional buyers in reliance on and subject to the
restrictions imposed by Rule 144A under the Securities Act. Waste Systems, the
subsidiary guarantors and the initial purchaser also entered into a registration
rights agreement which requires, among other things, that following the issuance
and sale of the Old Senior Notes, Waste Systems:
(1) files a registration statement with the Securities and Exchange
Commission for the registration of the New Senior Notes within 180 days
after the Issue Date;
(2) uses its best efforts to cause the registration statement to become
effective under the Securities Act within 210 days after the Issue Date;
(3) uses its best effort to cause the registration statement to remain
effective until the closing of the exchange offer; and
(4) uses its best efforts to consummate the exchange offer within 240 days
after the Issue Date.
Upon the effectiveness of the registration statement, Waste Systems and the
subsidiary guarantors will offer to the holders of the Old Senior Notes the
opportunity to exchange their Old Senior Notes for a like principal amount of
New Senior Notes. The New Senior Notes will be issued without a restrictive
legend and may be reoffered and resold by the holder without restrictions or
limitations under the Securities Act, subject to specific exceptions described
below. We have agreed to keep the exchange offer effective for not less than 20
business days, or longer if required by applicable law, after the date that
notice of the exchange offer is mailed to holders of the Old Senior Notes.
For each Old Senior Note surrendered to us in the exchange offer, the holder
will receive a New Senior Note having a principal amount equal to that of the
surrendered Old Senior Note. This exchange offer is intended to satisfy our
exchange offer obligations under the registration rights agreement. The term
"holder" in conjunction with the exchange offer means any person in whose name
Old Senior Notes are registered on our books or any other person who has
obtained a properly completed bond power from the registered holder or any
person whose Old Senior Notes are held of record by The Depository Trust Company
("DTC") who desires to deliver Old Senior Notes by book-entry transfer of DTC.
Under existing interpretations of the staff of the Securities and Exchange
Commission, as provided in no-action letters issued to third parties, the New
Senior Notes, including the related subsidiary guarantees, would in general be
freely transferable by their holders after the exchange offer without further
registration under the Securities Act. However, any purchaser of Old Senior
Notes who is an "affiliate" as defined in Rule 405 of the Securities Act, of
Waste Systems or who intends to participate in the exchange offer for the
purpose of distributing the New Senior Notes:
(1) will not be able to tender its Old Senior Notes in the exchange offer;
(2) will not be able to rely on the interpretations of the staff of the
Securities and Exchange Commission; and
(3) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the Old
Senior Notes, unless such sale or transfer is made according to an
exemption form such requirements.
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<PAGE>
Each holder who wishes to exchange Old Senior Notes for New Senior Notes
will be required to execute and deliver to Waste Systems a letter of
transmittal, in which the holder will represent to Waste Systems that:
(a) any New Senior Notes received by the holder will be acquired in the
ordinary course of its business;
(b) the holder has no arrangement or understanding with any person to
participate in the distribution, within the meaning of the Securities
Act, of the New Senior Notes in violation of the Securities Act;
(c) the holder is not an "affiliate" of Waste Systems as that term is
defined in Rule 405 under the Securities Act;
(d) if the holder is not a broker-dealer, it is not engaged in, and does not
intend to engage in, the distribution of New Senior Notes; and
(e) if the holder is a broker dealer and will receive New Senior Notes for
its own account in exchange for Old Senior Notes that are acquired as a
result of market-making or other trading activities, it will deliver a
prospectus in connection with any resale of such New Senior Notes.
The Securities and Exchange Commission has taken the position that
broker-dealers may fulfill their prospectus delivery requirements relating to
New Senior Notes by delivering a copy of the prospectus contained in the
registration statement of which this prospectus forms a part. We have agreed to
keep the registration statement effective for 180 days following the closing of
the exchange offer and make available a prospectus meeting the requirements of
the Securities Act for use by broker-dealers and other persons, if any, with
similar prospectus delivery requirements for use in connection with any resale
of New Senior Notes.
However, if:
(1) because of any change in law or in currently prevailing interpretations
of the staff of the Securities and Exchange Commission, Waste Systems is
not permitted to effect the exchange offer;
(2) the exchange offer is not consummated within 240 days after the Issue
Date;
(3) any holder of the Old Senior Notes other than the initial purchaser is
not eligible to participate in the exchange offer or does not receive
freely tradable New Senior Notes in the exchange offer; or
(4) upon the request of the initial purchaser of the Old Senior Notes
following the consummation of the exchange offer, the initial purchaser
shall hold registrable notes which it acquired directly from Waste
Systems and the initial purchaser is not permitted, in the opinion of
counsel to the initial purchaser, in conformity with applicable law or
applicable interpretation of the staff of the Securities and Exchange
Commission to participate in the exchange offer,
then, promptly upon becoming aware of any of the matter contemplated by clauses
(1)-(4) above, we will:
(a) deliver to the holders and the trustee written notice;
(b) as promptly as practicable, file a shelf registration statement covering
resales of the Old Senior Notes;
(c) use our best efforts to cause the shelf registration statement to be
declared effective by the Securities and Exchange Commission under the
Securities Act;
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(d) use our best efforts to keep the shelf registration statement
continuously effective in order to permit the prospectus forming a part
of that registration statement to be usable by holders until the earlier
of:
- the time when the Old Senior Notes covered by the shelf registration
statement can be sold pursuant to Rule 144 under the Securities Act
without any limitations under clauses (c), (e), (f) and (h) of Rule
144, and
- two years from the Issue Date; and
(e) use our best efforts to ensure that:
- any shelf registration statement and any amendment to it, and any
prospectus forming a part of that registration statement and any
supplement to that prospectus complies in all material respects with
the Securities Act and the rules and regulations of the Securities Act;
- any shelf registration statement and any amendment to it does not, when
it becomes effective, contain an untrue statement of a material fact or
omit to state a material fact required to be stated or necessary to
make the statement not misleading; and
- any prospectus forming part of any shelf registration statement and any
supplement to such prospectus (as amended or supplemented from time to
time), excludes an untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
It is our current understanding that an affiliate of Waste Systems holds Old
Senior Notes. Thus, we currently intend to file a shelf registration statement
to register those Old Senior Notes. If we are required to register any other Old
Senior Notes, we will include them in that shelf registration statement. We will
provide each holder of copies of the prospectus that is a part of the shelf
registration statement, notify the holders when the shelf registration statement
has become effective and take other actions as are required to permit
unrestricted resales of the Old Senior Notes. A holder that sells Old Senior
Notes under the shelf registration statement will be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to some of the civil liability provisions under the
Securities Act in connection with its sales and will be bound by the provisions
of the registration rights agreement that are applicable to the holder including
particular indemnification rights and obligations.
The annual interest rate on the Old Senior Notes will increase by 0.50% until
any defaults in clauses (1)--(5) below are cured, if:
(1) we have not filed the exchange offer registration statement with the
Securities and Exchange Commission within 180 days after the Issue Date;
(2) the Securities and Exchange Commission has not declared the registration
statement effective within 210 days after the Issue Date;
(3) we do not complete the exchange offer within 240 days after the Issue
Date;
(4) a shelf registration statement for any Old Senior Notes is necessary as
described above, and the Securities and Exchange Commission has not
declared a shelf registration statement effective within 240 days after
the Issue Date;
(5) either (a) the exchange offer registration statement ceases to be
effective at any time before the time that the exchange offer is
consummated or (b) if applicable, the shelf registration statement for
the Old Senior Notes has been declared effective and it ceases to be
effective at any time before the second anniversary of the Issue Date,
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This summary highlights the material provisions of the registration rights
agreement, but does not restate the agreement in its entirety. We urge you to
review all of the provisions of the registration rights agreement, because it,
and not this description, defines your rights as holders to exchange your Old
Senior Notes for registered New Senior Notes. A copy of the registration rights
agreement is as an exhibit to the registration statement of which this
prospectus forms a part.
Following the consummation of the exchange offer, holders of Old Senior
Notes who were eligible to participate in the exchange offer but who did not
tender their Old Senior Notes will not have any further registration rights and
the Old Senior Notes will continue to be subject to specific restrictions on
transfer. Accordingly, the liquidity of the market for the Old Senior Notes
could be adversely affected. Please refer to "Risk Factors--Failure to exchange
the Old Senior Notes may have adverse consequences to you," for a discussion of
these risks.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The term "expiration date" shall mean midnight, New York City time, on
August 11, 1999, unless Waste Systems, in its sole discretion, extends the
exchange offer, in which case the term "expiration date" shall mean the latest
date and time to which the exchange offer is extended. We may extend the
exchange offer at any time and from time to time by giving oral or written
notice to the exchange agent and by timely public announcement.
We expressly reserve the right to:
(1) delay acceptance of any Old Senior Notes, to extend the exchange offer
or to terminate the exchange offer and to refuse to accept Old Senior
Notes not previously accepted, if any of the conditions preventing
completion of the exchange offer, as described in the subsection of this
portion of this prospectus entitled, "--Conditions to the Exchange Offer"
shall have occurred and shall not have been waived by us by giving oral
or written notice of such delay, extension or termination to the exchange
agent, and
(2) amend the terms of the exchange offer in any manner consistent with
applicable law.
We will promptly notify the registered holders of the Old Senior Notes of
any delay in acceptance, extension, termination or amendment to the exchange
offer. If we determine that any amendment to the exchange offer constitutes a
material change, we will promptly inform the holders of the amendment and will
extend the exchange offer to the extent required by law.
PROCEDURES FOR TENDERING
To tender your Old Senior Notes in the exchange offer, you must complete,
sign and date the letter of transmittal, or a facsimile thereof, in accordance
with its instructions and the instructions contained in this prospectus. You
must then mail or otherwise deliver the letter of transmittal, or the facsimile,
together with the Old Senior Notes to be exchanged and any other required
documentation to IBJ Whitehall Bank & Trust Company, as exchange agent, at the
address indicated in the letter of transmittal. You may also effect a tender of
Old Senior Notes pursuant to the procedures for book-entry transfer as provided
for in the letter of transmittal and as described below under the subsection of
this portion of the prospectus entitled "Book-Entry Transfer."
Any financial institution that is a participant in DTC's book-entry transfer
facility system may make book-entry delivery of the Old Senior Notes by causing
DTC to transfer its Old Senior Notes into the exchange agent's account in
accordance with DTC's procedure for transfer. Although delivery of Old Senior
Notes may be effected through book-entry transfer into the exchange agent's
account at DTC, the letter of transmittal, or facsimile thereof, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the exchange agent at its address set
forth in this prospectus under "--Exchange Agent" before midnight, New York City
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time, on the expiration date. Delivery of documents to DTC in accordance with
its procedures does not constitute delivery to the exchange agent.
Only a holder may tender its Old Senior Notes in the exchange offer. To
tender in the exchange offer, a holder must:
(1) complete, sign and date the letter of transmittal or a facsimile
thereof;
(2) have the signatures thereof guaranteed if required by the letter of
transmittal; and
(3) unless the tender is being effected in conformity with the procedure for
book-entry transfer, mail or otherwise deliver the letter of transmittal
or the facsimile, together with the Old Senior Notes and other required
documents, to the exchange agent, before midnight, New York City time, on
the expiration date.
The tender by a holder will constitute an agreement between the holder,
Waste Systems and the exchange agent in accordance with the terms and subject to
the conditions set forth in this prospectus and in the letter of transmittal. If
less than all of the Old Senior Notes are tendered, a tendering holder should
fill in the amount of Old Senior Notes being tendered in the appropriate box on
the letter of transmittal. The entire amount of Old Senior Notes delivered to
the exchange agent will be deemed to have been tendered unless otherwise
indicated.
The letter of transmittal will include representations to Waste Systems
that:
(1) the New Senior Notes acquired in the exchange offer are being acquired
in the ordinary course of business of the person receiving the New Senior
Notes, whether or not the person is the holder;
(2) neither the holder nor any other person receiving the Senior Notes is
engaged in, intends to engage in or has any arrangement or understanding
with any person to participate in the distribution of such New Senior
Notes;
(3) neither the holder nor any other person receiving the Senior Notes is an
"affiliate" of Waste Systems as that term is defined in Rule 405 of the
Securities Act; and
(4) if the tendering holder is a broker or dealer as defined in the Exchange
Act, then
(a) it acquired the Old Senior Notes for its own account as a result of
market-making activities or other trading activities, and
(b) it has not entered into any arrangement or understanding with Waste
Systems or any affiliate to distribute the New Senior Notes to be
received in the exchange offer.
In the case of a broker-dealer that receives New Senior Notes for its own
account in exchange for Old Senior Notes which were acquired by it as a result
of market-making or other trading activities, the letter of transmittal will
also include an acknowledgment that the broker-dealer will deliver a copy of
this prospectus in connection with the resale by it of New Senior Notes received
pursuant to the exchange offer; however, by so acknowledging and by delivering a
prospectus, the broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Please refer to the
section of this prospectus entitled "Plan of Distribution" for further
information.
The method of delivery of the Old Senior Notes, the letter of transmittal
and all other required documents is at your election and risk. Instead of
delivery by mail, we recommend that you use an overnight or hand-delivery
service. If you choose the mail, we recommend that you use registered mail,
properly insured with return receipt requested. In all cases, you should allow
sufficient time to assure timely delivery to the exchange agent. No letters of
transmittal or Old Senior Notes should be sent to Waste Systems. You may also
request your respective brokers, dealers, commercial banks, trust companies or
nominees to tender your Old Senior Notes on your behalf.
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If you are the beneficial owner of Old Senior Notes that are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
and you wish to tender your Old Senior Notes, you should contact such registered
holder promptly and instruct such registered holder to tender on your behalf. If
you wish to tender on your own behalf, you must, before completing and executing
the letter of transmittal and delivering your Old Senior Notes, either make
appropriate arrangements to register ownership of the Old Senior Notes in your
name or obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or an "eligible guarantor" institution within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934 (each, an "Eligible Institution"),
unless the Old Senior Notes are tendered:
(1) by a registered holder, or by a participant in DTC whose name appears on
a security position listing as the owner, who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal if the New Senior Notes are
being issued directly to such registered holder, or deposited into the
participant's account at DTC, or
(2) for the account of an Eligible Institution.
If the letter of transmittal is signed by the registered holder(s) of the
Old Senior Notes tendered, the signature must correspond with the name(s)
written on the face of the Old Senior Notes without alteration, enlargement or
any change whatsoever. If the letter of transmittal is signed by a participant
in DTC, the signature must correspond with the name as it appears on the
security position listing as the holder of the Old Senior Notes.
If the letter of transmittal is signed by a person other than the registered
holder of any Old Senior Notes listed, such Old Senior Notes must be endorsed or
accompanied by bond powers and a proxy that authorize that person to tender the
Old Senior Notes on behalf of the registered holder in satisfactory form to us
as determined in our sole discretion, in each case as the name of the registered
holder or holders appears on the Old Senior Notes.
If the letter of transmittal or any Old Senior Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, these persons should so indicate when signing. Unless waived by us,
evidence satisfactory to us of their authority to so act must also be submitted
with the letter of transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed letter of transmittal accompanied by the Old
Senior Notes tendered, or a timely confirmation received of a book-entry
transfer of Old Senior Notes into the exchange agent's account at DTC with an
agent's message, or a notice of guaranteed delivery from an Eligible Institution
is received by the exchange agent. Issuances of New Senior Notes in exchange for
Old Senior Notes tendered through a notice of guaranteed delivery by an Eligible
Institution will be made only against delivery of the letter of transmittal, and
any other required documents, and the tendered Old Senior Notes, or a timely
confirmation received of a book-entry transfer of Old Senior Notes into the
exchange agent's account at DTC with an agent's message, with the exchange
agent.
We will determine, in our sole discretion, all questions as to the validity,
form, eligibility (including time of receipt), acceptance and withdrawal of the
tendered Old Senior Notes and those determinations will be final and binding. We
reserve the absolute right to reject any and all Old Senior Notes not properly
tendered or any Old Senior Notes which, if accepted, would, in our opinion or
our
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counsel's opinion, be unlawful. We also reserve the absolute right to waive any
conditions of the exchange offer or irregularities or defects in tender as to
particular Old Senior Notes. Our interpretation of the terms and conditions of
the exchange offer, including the instructions in the letter of transmittal,
will be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
Old Senior Notes must be cured within such time as we shall determine. Neither
Waste Systems, the exchange agent nor any other person will be under any duty to
give notification of defects or irregularities concerning tenders of Old Senior
Notes, nor will any of us incur any liability for failure to give such
notification. Tenders of Old Senior Notes will not be deemed to have been made
until such irregularities have been cured or waived. Any Old Senior Notes
received by the exchange agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
without cost by the exchange agent to the tendering holders of such Old Senior
Notes, unless otherwise provided in the letter of transmittal, as promptly as
practicable following the expiration date.
In addition, we reserve the right in our sole discretion, subject to the
provisions of the Senior Notes indenture, to:
(1) purchase or make offers for any Old Senior Notes that remain outstanding
after the expiration date, or, as described in the subsection of this
prospectus entitled "--Expiration Date; Extensions; Amendments;
Termination", to terminate the exchange offer in accordance with the
terms of our registration rights agreement, and
(2) to the extent permitted by applicable law, purchase Old Senior Notes in
the open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers could differ from the terms of the
exchange offer.
ACCEPTANCE OF OLD SENIOR NOTES FOR EXCHANGE; DELIVERY OF NEW SENIOR NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer
and promptly after the expiration date, we will accept all Old Senior Notes
properly tendered, then we will issue the New Senior Notes. Please refer to the
section of this prospectus entitled "--Conditions to the Exchange Offer" below.
For purposes of the exchange offer, Old Senior Notes will be deemed to have been
accepted as validly tendered for exchange when, as and if we have given oral or
written notice to the exchange agent.
In all cases, issuance of New Senior Notes for Old Senior Notes that are
accepted for exchange in the exchange offer will be made only after timely
receipt by the exchange agent of certificates for such Old Senior Notes or a
timely book-entry confirmation of such Old Senior Notes into the exchange
agent's account at the book-entry transfer facility, a properly completed and
duly executed letter of transmittal or an agent's message and all other required
documents, in each case, in form satisfactory to us and the exchange agent. If
any tendered Old Senior Notes are not rejected for any reason set forth in the
terms and conditions of the exchange offer or if Old Senior Notes submitted are
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Old Senior Notes will be returned without expense to
the tendering holder thereof (or, in the case of Old Senior Notes tendered by
book-entry transfer procedures described below, such non-exchanged Old Senior
Notes will be credited to an account maintained with such book-entry transfer
facility) as promptly as practicable after withdrawal, rejection of tender, the
expiration date or earlier termination of the exchange offer.
BOOK-ENTRY TRANSFER
We understand that the exchange agent will make a request promptly after the
date of this prospectus to establish accounts regarding the Old Senior Notes at
DTC, the book-entry transfer
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facility, for the purpose of facilitating the exchange offer. Subject to the
establishment thereof, any financial institution that is a participant in the
book-entry transfer facility's system may make book-entry delivery of Old Senior
Notes by causing such book-entry transfer facility to transfer such Old Senior
Notes into the exchange agent's account with respect to the Old Senior Notes in
accordance with the book-entry transfer facility's automated tender offer
program procedures for such transfer. However, the exchange for the Old Senior
Notes so tendered will only be made after a timely confirmation of a book-entry
transfer of such Old Senior Notes into the exchange agent's account, and timely
receipt by the exchange agent of an agent's message and any other documents
required by the letter of transmittal.
The term "agent's message" means a message, transmitted by the book-entry
transfer facility and received by the exchange agent and forming part of the
confirmation of a book-entry transfer, which states that the book-entry transfer
facility has received an express acknowledgment from a participant tendering Old
Senior Notes and that such participant has received the letter of transmittal
and agrees to be bound by the terms of the letter of transmittal, and we may
enforce such agreement against the participant. Although delivery of Old Senior
Notes may be effected through book-entry transfer into the exchange agent's
account at the book-entry transfer facility, an appropriate letter of
transmittal properly completed and duly executed with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the exchange agent at its address set forth below
on or before the expiration date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures. Delivery of documents to the book-entry transfer facility does not
constitute delivery to the exchange agent.
GUARANTEED DELIVERY PROCEDURE
If you are a registered holder of Old Senior Notes and desire to tender your
Old Senior Notes, and the Old Senior Notes are not immediately available, or
time will not permit your Old Senior Notes or other required documents to reach
the exchange agent before the expiration date, or the procedures for book-entry
transfer cannot be completed and an agent's message delivered on a timely basis,
you may still tender in the exchange offer if:
(1) you tender through an Eligible Institution;
(2) before the expiration date, the exchange agent receives from such
Eligible Institution a properly completed and duly executed letter of
transmittal, or facsimile thereof, and notice of guaranteed delivery,
substantially in the form provided by us (by facsimile transmission, mail
or hand delivery), setting forth your name and address as holder of the
Old Senior Notes and the amount of Old Senior Notes tendered, stating
that the tender is being made thereby and guaranteeing that within five
business days after the expiration date the certificates for all tendered
Old Senior Notes, in proper form for transfer, or a book-entry
confirmation with an agent's message, as the case may be, and any other
documents required by the letter of transmittal will be deposited by the
Eligible Institution with the exchange agent; and
(3) the certificates for all tendered Old Senior Notes, in proper form for
transfer, or a book-entry confirmation as the case may be, and all other
documents required by the letter of transmittal are received by the
exchange agent within five business days after the expiration date.
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WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw tenders of
Old Senior Notes at any time before midnight, New York City time, on the
expiration date.
For a withdrawal to be effective, you must send a written or facsimile
transmission notice of withdrawal to the exchange agent before midnight, New
York City time, on the expiration date at the address provided below under
"--Exchange Agent" and before acceptance for exchange thereof by us. Any notice
of withdrawal must:
(1) specify the name of the person having tendered the Old Senior Notes to
be withdrawn;
(2) identify the Old Senior Notes to be withdrawn, including, if applicable,
the registration number or numbers and total principal amount of such Old
Senior Notes;
(3) be signed by the person having tendered the Old Senior Notes to be
withdrawn in the same manner as the original signature on the letter of
transmittal by which such Old Senior Notes were tendered, including any
required signature guarantees, or be accompanied by documents of transfer
sufficient to permit the trustee of the Old Senior Notes to register the
transfer of such Old Senior Notes into the name of the person having made
the original tender and withdrawing the tender;
(4) specify the name in which any such Old Senior Notes are to be
registered, if different from that of the person having tendered the Old
Senior Notes to be withdrawn; and
(5) if applicable because the Old Senior Notes have been tendered according
to the book-entry procedures, specify the name and number of the
participant's account at DTC to be credited, if different than that of
the person having tendered the Old Senior Notes to be withdrawn.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of such notices and our determination will be final
and binding on all parties. Any Old Senior Notes so withdrawn will be deemed not
to have been validly tendered for exchange for purposes of the exchange offer.
Any Old Senior Notes which have been tendered for exchange which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder as promptly as practicable after withdrawal, rejection of tender,
expiration date or earlier termination of the exchange offer. Also, in the case
of Old Senior Notes tendered by book-entry transfer into the exchange agent's
account at DTC in conformity with the book-entry transfer procedures described
above, such Old Senior Notes will be credited to an account maintained with DTC
for the Old Senior Notes. Properly withdrawn Old Senior Notes may be retendered
by following one of the procedures described in the subsections above entitled
"--Procedures for Tendering" and "--Book-Entry Transfer" at any time on or
before the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the exchange offer, we will not be
required to accept Old Senior Notes for exchange, or issue New Senior Notes in
exchange for any Old Senior Notes, and we may terminate or amend the exchange
offer as provided in this prospectus before the acceptance of such Old Senior
Notes, if:
(1) an action or proceeding has been instituted or threatened in any court
or before any governmental agency or body that in our judgment would
reasonably be expected to prohibit, prevent or otherwise impair our
ability to proceed with the exchange offer;
(2) a change occurs in the current interpretation of the staff of the
Securities and Exchange Commission, which current interpretation before
such change permitted the New Senior Notes
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that are issued pursuant to the exchange offer to be offered for resale,
resold or otherwise transferred by holders thereof (other than in certain
circumstances);
(3) a law, statute, rule or regulation has been adopted or enacted which, in
our judgment, would reasonably be expected to impair our ability to
proceed with the exchange offer;
(4) a stop order has been issued by the Securities and Exchange Commission
or any state securities authority suspending the effectiveness of the
registration statement of which this prospectus is a part or the
qualification of the Senior Notes indenture under the Trust Indenture Act
of 1939 or proceedings shall have been initiated or, to our knowledge,
threatened for that purpose;
(5) a governmental approval has not been obtained, which approval we deem in
our sole discretion, necessary for the consummation of the exchange
offer; or
(6) a change, or a development involving a prospective change, in our
business or financial affairs has occurred which, in our sole judgment,
might materially impair our ability to proceed with the exchange offer.
These conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us, in whole or in part, at any time and from time to time, if we
determine in our reasonable discretion that any of the preceding events or
conditions has occurred or exists or has not been satisfied, subject to
applicable law. Our failure at any time to exercise any of the preceding rights
will not be deemed a waiver of any such right and each such right will be deemed
an ongoing right which we may assert at any time and from time to time.
If we determine that we may terminate the exchange offer, as provided above,
we may:
(a) refuse to accept any Old Senior Notes and return any Old Senior Notes
that have been tendered to the holders thereof;
(b) extend the exchange offer and retain all Old Senior Notes tendered
before the expiration date, subject to the rights of holders of tendered
Old Senior Notes to withdraw their tendered Old Senior Notes before the
new, extended expiration date; or
(c) waive such termination event regarding the exchange offer and accept all
properly tendered Old Senior Notes that have not been withdrawn or
otherwise amend the terms of the exchange offer in any respect as
provided under this section of this prospectus under the subheading
entitled "--Expiration Date; Extensions; Amendments; Termination."
Old Senior Notes tendered in the exchange offer must be in $10,000 in
principal amount or any integral multiple thereof.
We have no obligation to, and will not knowingly, permit acceptance of
tenders of Old Senior Notes from our affiliates or from any other holder or
holders who are not eligible to participate in the exchange offer under
applicable law or interpretations thereof by the Securities and Exchange
Commission, or if the New Senior Notes to be received by the holder or holders
of Old Senior Notes in the exchange offer, upon receipt, will not be tradable by
such holder without restriction under the Securities Act and the Exchange Act
and without material restrictions under the "blue sky" or securities laws of
substantially all of the states of the United States.
ACCOUNTING TREATMENT
We will record the New Senior Notes at the same carrying value as the Old
Senior Notes, as reflected in our accounting records on the date of the
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes. We will amortize the costs of the exchange offer and the
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unamortized expenses related to the issuance of the New Senior Notes over the
term of the New Senior Notes.
EXCHANGE AGENT
We have appointed IBJ Whitehall Bank & Trust Company as exchange agent for
the exchange offer. You should direct all questions and requests for assistance
or additional copies of this prospectus or the letter of transmittal to the
exchange agent as follows:
<TABLE>
<S> <C>
By Mail: IBJ Whitehall Bank & Trust Company
P.O. Box 84, Bowling Green Station
New York, NY 10274-0084
ATTN.: Reorganization Operations Department
By Hand/ IBJ Whitehall Bank & Trust Company
Overnight Delivery: One State Street, New York, NY 10004
ATTN.: Securities Processing Window, Subcellar One, (SC-1)
Facsimile (212) 858-2611
Transmission:
Confirm by Telephone: (212) 858-2103
Via Telex No.: 177754
</TABLE>
FEES AND EXPENSES
We will bear the expenses of soliciting tenders in the exchange offer. The
principal solicitation for tenders pursuant to the exchange offer is being made
by mail; however, our offices and regular employees may make additional
solicitations by telegraph, telephone, telecopy or in person.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. However, we will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses in connection with the
exchange offer. We may also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of the prospectus, letters of transmittal and related
documents to the beneficial owners of the Old Senior Notes, and in handling or
forwarding tenders for exchange.
We will pay the expenses incurred in connection with the exchange offer,
including fees and expenses of the exchange agent and trustee and accounting,
legal, printing and related fees and expenses.
We will pay all transfer taxes, if any, applicable to the exchange of Old
Senior Notes according to the exchange offer. However, whether imposed on the
registered holder or any other persons, tendering holders will pay the amount of
any such transfer taxes if:
(a) certificates representing New Senior Notes or Old Senior Notes for
principal amounts not tendered or accepted for exchange are to be
delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Old Senior Notes tendered;
or
(b) tendered Old Senior Notes are registered in the name of any person other
than the person signing the letter of transmittal; or
(c) a transfer tax is imposed for any reason other than the exchange of Old
Senior Notes in the exchange offer.
If satisfactory evidence of payment of such taxes or exemption therefrom is
not submitted with the letter of transmittal, the amount of transfer taxes will
be billed directly to the tendering holder.
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DESCRIPTION OF SENIOR NOTES
You can find the definitions of the capitalized terms used in this section
of the prospectus under the subheading "--Certain Definitions."
The Senior Notes are issued under an indenture, dated as of March 2, 1999 by
and among Waste Systems, the subsidiary guarantors and IBJ Whitehall Bank &
Trust Company, as trustee. The terms of the notes include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939, as amended.
The following description is a summary of the material provisions of the
indenture. It does not restate that agreement in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of these notes. We have filed a copy of the indenture as an exhibit to
the registration statement which includes this prospectus.
SUMMARY OF GENERAL TERMS OF THE SENIOR NOTES
<TABLE>
<S> <C>
SECURITIES ISSUED............. $100,000,000 of 11 1/2% Senior Notes due 2006
MATURITY DATE................. January 15, 2006
INTEREST RATE................. The Senior Notes accrue interest at the rate of 11 1/2% per
annum. Interest will accrue on the New Senior Notes from the
most recent date on which interest has been paid on the Old
Senior Notes.
CHANGES IN INTEREST RATE...... We must increase the interest rate payable on the Old Senior
Notes to 0.5% per year higher than the then-current rate of
interest:
- if the Securities and Exchange Commission has not
declared the registration statement, of which this
prospectus forms a part, effective on or before
September 28, 1999; or
- if we have not completed the exchange offer on or
before October 28, 1999; or
- if we have not filed the shelf registration statement
for the resale of Old Senior Notes held by persons not
eligible to participate in the exchange offer by
August 29, 1999, or the Securities and Exchange
Commission has not declared that shelf registration
statement effective on or before October 28, 1999.
</TABLE>
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<TABLE>
<S> <C>
We must increase the interest rate payable on the Senior
Notes to 13%, 14% and 15% per year if we do not achieve an
Adjusted Stockholders' Equity, as defined below, of at least
$40 million on each of December 31, 1999, June 30, 2000, and
December 31, 2000, respectively. "Adjusted Stockholders'
Equity" means our stockholders' equity as shown on our
consolidated balance sheets filed as part of our regular
reports with the Securities and Exchange Commission, less
the amount of any increase therein resulting from the
issuance of shares of common stock in exchange for
outstanding 7% Convertible Subordinated Notes of Waste
Systems, to the extent, if any, that such issuance exceeds
2,343,646 shares of common stock in the aggregate.
Each Senior Note will cease to bear interest from the
maturity date or any redemption date unless, upon due
presentation, payment of principal is improperly withheld or
refused. In the event of improper nonpayment, the relevant
Senior Note shall continue to bear interest at the rate of
11 1/2% per year until the day on which all sums due in
respect of the Senior Note up to that day are received by or
on behalf of the relevant holder.
INTEREST PAYMENT DATES........ We will pay interest on the New Senior Notes semi-annually
in arrears on July 15, to holders of record as of July 1,
and January 15, to holders of record as of January 1, of
each year, commencing July 15, 1999. Interest will be
computed on the basis of a 360-day year of twelve 30-day
months.
PAYMENT PROCEDURES............ The principal of, premium, if any, and interest on the
Senior Notes will be payable, and the Senior Notes may be
exchanged or transferred, at the office or agency of Waste
Systems maintained for the purpose in the Borough of
Manhattan, The City of New York. Initially, the office or
agency will be the corporate trust office of IBJ Whitehall
Bank & Trust Company, the trustee of the Senior Notes,
located at One State Street, New York, New York 10004.
Principal and interest will be payable at the office of the
trustee but, at our option, interest may be paid by check
mailed to the registered holders at their registered
addresses or by wire transfer to accounts specified by them.
No service charge will be made for any registration of
transfer or exchange of the Senior Notes, but we may require
payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection with
the registration.
Subject to applicable law, the trustee and the paying agents
shall pay to Waste Systems upon written request any monies
held by them for the payment of principal or interest that
remains unclaimed for two years, and, after two years,
holders entitled to such monies must look to Waste Systems
for payment as general creditors.
</TABLE>
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<TABLE>
<S> <C>
RANKING....................... The New Senior Notes and the subsidiary guarantees:
- are senior unsecured obligations;
- rank equally in right of payment with all other
existing and future senior obligations of Waste Systems
and the subsidiary guarantors; and
- are effectively subordinated to all of our and our
subsidiary guarantor's secured debt, including amounts
outstanding under any credit facility and capital
lease obligations, to the extent of the value of the
assets securing such loan.
Any Old Senior Notes that remain outstanding after the
consummation of the exchange offer and the New Senior Notes
will be treated as a single class of Senior Notes under the
indenture.
SUBSIDIARY GUARANTEES......... The New Senior Notes are guaranteed on a senior unsecured
basis by all of our wholly owned subsidiaries, which conduct
substantially all of the operations of our business. The
subsidiary guarantees are joint and several obligations of
the subsidiary guarantors.
All of our subsidiary guarantors are considered restricted
subsidiaries under the indenture. Subject to the
requirements of the indenture, Waste Systems will be
permitted to designate current or future subsidiaries as
unrestricted subsidiaries, which will not be subject to many
of the restrictive covenants in the indenture applicable to
the subsidiary guarantors.
OPTIONAL REDEMPTION........... Except as described below, we may not redeem the New Senior
Notes before March 2, 2003. After March 2, 2003, we may
redeem the New Senior Notes in whole or in part, at any time
at the redemption price fixed by the indenture, together
with accrued and unpaid interest, if any, to the date of
redemption.
In addition to our right to repurchase Senior Notes pursuant
to optional redemption, we may at any time purchase Senior
Notes in the open market or otherwise at any price. Any
Senior Notes that are redeemed or purchased by us will be
canceled and may not be reissued or resold.
CHANGE OF CONTROL............. Upon the occurrence of an event considered a "change of
control" of Waste Systems, you will have the right to sell
back to us all of your New Senior Notes at a price equal to
101% of the aggregate principal amount of such New Senior
Notes, together with accrued and unpaid interest, if any, to
the date of such sale.
CERTAIN COVENANTS............. The indenture under which the New Senior Notes will be
issued limits our ability and the ability of our
subsidiaries guaranteeing the New Senior Notes to, among
other things:
- incur additional indebtedness,
</TABLE>
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<TABLE>
<S> <C>
- pay dividends on or redeem our capital stock,
- issue capital stock of our subsidiaries,
- make investments,
- create liens,
- issue guarantees,
- engage in transactions with affiliates,
- sell assets, and
- conduct certain mergers and consolidations.
All of these limitations and prohibitions are subject to a
number of important qualifications and exceptions. Please
refer to the "Risk Factors" section in this prospectus.
FORM AND DENOMINATION......... The New Senior Notes are in registered form without coupons,
in denominations of $10,000. The New Senior Notes will be
represented by one or more permanent global securities in
bearer form deposited on behalf of The Depository Trust
Company with IBJ Whitehall Bank & Trust Company, as
custodian. You will not receive the New Senior Notes in
registered form unless one of the events described in the
section of this prospectus entitled "Book Entry; Delivery
and Form" occurs. Instead, beneficial interests in the New
Senior Notes will be shown on, and transfers of these will
be effected only through, records maintained in book-entry
form by The Depository Trust Company for its participants.
ABSENCE OF A PUBLIC MARKET FOR
THE NEW SENIOR NOTES........ The New Senior Notes are new securities and there is
currently no established market for them. We cannot assure
you that a market for the New Senior Notes will develop or
be liquid. The Old Senior Notes are currently eligible for
trading in the Private Offering, Resales and Trading through
Automated Linkages ("PORTAL") market following commencement
of the exchange offer, you may continue to trade the Old
Senior Notes in the PORTAL market. The New Senior Notes will
not be eligible for trading in the PORTAL market.
</TABLE>
SUBSIDIARY GUARANTEES
Payment of the principal of, and premium, if any, and interest on the Senior
Notes, when and as the same become due and payable, will be guaranteed jointly
and severally, on a senior unsecured basis by each of the following subsidiary
guarantors of Waste Systems:
BioSafe Systems, Inc.
Community Refuse Service, Inc.
Mostoller Landfill, Inc.
Palmer Resource Recovery Corp.
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WSI Burlington Transfer Station, Inc.
WSI Camden Transfer Station, Inc.
WSI Harrisburg Hauling, Inc.
WSI Hopewell Landfill, Inc.
WSI Maryland Holdings, Inc.
Eastern Trans-Waste of Maryland, Inc.
WSI of Massachusetts Hauling, Inc.
WSI Massachusetts Holdings, Inc.
WSI Massachusetts Recycling, Inc.
WSI Medical Waste Systems Inc.
WSI Moretown Landfill, Inc.
WSI New York Holdings, Inc.
WSI of New York, Inc.
WSI Oxford Transfer Station, Inc.
WSI Pennsylvania Holdings, Inc.
WSI Altoona Hauling, Inc.
WSI Somerset Hauling, Inc.
WSI of South Hadley, Inc.
WSI St. Johnsbury Transfer Station, Inc.
WSI Vermont Holdings, Inc.
WSI of Vermont, Inc.
WSI Waitsfield Transfer Station, Inc.
The obligations of each subsidiary guarantor under its subsidiary guarantee will
be limited so as not to constitute a fraudulent conveyance or fraudulent
transfer under applicable law. Please refer to the "Risk Factors" section of
this prospectus under the heading"--A court may declare the subsidiary
guarantees void, subordinated or take other actions detrimental to you."
The indenture requires that each of Waste Systems' current and future
Restricted Subsidiaries be a subsidiary guarantor. As of the date of this
prospectus, each of the subsidiaries of Waste Systems listed above is a
Restricted Subsidiary. The indenture permits Waste Systems, in certain
circumstances, to establish "Unrestricted Subsidiaries" which do not guarantee
the Senior Notes. Any subsidiary guarantor that is designated an Unrestricted
Subsidiary in accordance with the terms of the indenture shall be free from any
subsidiary guarantee or, if previously a Restricted Subsidiary, released from
and relieved of its obligations under its subsidiary guarantee, according to a
supplemental indenture satisfactory to the trustee.
The indenture provides that no subsidiary guarantor may merge with or into
or consolidate with any other person or convey, sell, assign, transfer, lease or
otherwise dispose of all or substantially all its properties and assets to any
other Person, other than Waste Systems or a Wholly Owned Restricted Subsidiary,
unless (1) immediately after the transaction, and giving effect to the
transaction, no Default or Event of Default has occurred and is continuing; (2)
the transaction was subject to, and consummated in compliance with, as
appropriate, either the covenant described under the caption "--Certain
Covenants--LIMITATION ON ASSET SALES" or the covenant described under the
caption "--Merger, Consolidation and Sale of Assets"; and (3) Waste Systems
shall have delivered to the trustee an officers' certificate and an opinion of
counsel, each stating that the transaction complies with the above provisions
and that all conditions precedent relating to the transaction have been complied
with.
The indenture further provides that, in the event of (a) a sale, transfer or
other disposition of all of the capital stock of a subsidiary guarantor to a
Person that is not an Affiliate of Waste Systems, the net proceeds of which are
applied by Waste Systems in accordance with the applicable provisions of the
indenture; (b) a sale, transfer or other disposition of all or substantially all
of the assets of a subsidiary
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guarantor to a Person that is not an Affiliate of Waste Systems, the Net Cash
Proceeds of which are applied by Waste Systems in accordance with the
"Limitation on Asset Sales" covenant; or (c) the designation of the subsidiary
guarantor as an Unrestricted Subsidiary, in any the case in compliance with the
terms of the indenture, then the subsidiary guarantor will be deemed
automatically and unconditionally released and discharged from all of its
obligations under its subsidiary guarantee without any further action on the
part of the trustee or any holder of the Senior Notes.
REDEMPTION
MANDATORY REDEMPTION. The Senior Notes will not be subject to any mandatory
sinking fund redemption before maturity.
OPTIONAL REDEMPTION. The Senior Notes will be redeemable at our option, in
whole or in part, at any time on or after March 2, 2003, upon not less than 30
nor more than 60 days prior notice mailed by first class mail to each Senior
Note holder's last address as it appears in the security register. The Senior
Notes will be redeemable at the prices, expressed as percentages of the
principal amount of the Senior Notes, set forth below, plus in each case accrued
and unpaid interest, if any, to the date of redemption, if redeemed during the
periods set forth below (subject to the right of holders of record on the
relevant record date to receive interest due on an interest payment date):
<TABLE>
<CAPTION>
APPLICABLE PERIOD PERCENTAGE
- ------------------------------------------------------------------------------------ -------
<S> <C>
From March 2, 2003 to March 1, 2004................................................. 106 7/8%
From March 2, 2004 to March 1, 2005................................................. 103 7/16%
From March 2, 2005 to January 14, 2006.............................................. 101 23/32%
January 15, 2006 (Maturity)......................................................... 100 %
</TABLE>
In the case of any partial redemption, selection of the Senior Notes for
redemption will be made by the trustee in compliance with the requirements of
the principal national securities exchange or automated quotation system, if
any, on which the Senior Notes are listed or, if the Senior Notes are not listed
on a national securities exchange or automated quotation system, by lot or by
any other method as the trustee in its sole discretion shall deem to be fair and
appropriate; PROVIDED that no Senior Note of $10,000 in principal amount or less
shall be redeemed in part. If any Senior Note is to be redeemed in part only,
the notice of redemption relating to the Senior Note shall state the portion of
the principal amount thereof to be redeemed. A new Senior Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon cancellation of the original Senior Note. Such new Senior
Notes can be obtained at the offices of the paying agents and transfer agents.
RANKING
The Senior Notes and the subsidiary guarantees will be senior unsecured
obligations of the respective obligors and will rank equally in right of payment
with all other existing and future senior unsecured obligations of Waste Systems
and the subsidiary guarantors, respectively. The Senior Notes and the subsidiary
guarantees will be effectively subordinated to all of Waste Systems's and our
subsidiaries' secured debt, including amounts outstanding under any bank credit
facility and Capital Lease Obligations, to the extent of the value of the assets
securing such loans. The Senior Notes will also be structurally subordinated to
all liabilities, including trade payables, of any subsidiaries that are not
subsidiary guarantors. As of March 31, 1999, Waste Systems and the subsidiary
guarantors had approximately $52.1 million of consolidated debt and Capital
Lease Obligations outstanding other than the Senior Notes, excluding accounts
payable, of which none would have been senior secured debt of a subsidiary
guarantor and $1.3 million were Capital Lease Obligations. Subject to particular
limitations, Waste Systems and our Restricted Subsidiaries may incur additional
Indebtedness in the future.
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CHANGE OF CONTROL
In the event of a Change of Control, each holder of Senior Notes will have
the right to require that Waste Systems purchase the holder's Senior Notes, in
whole or in part in integral multiples of $10,000, at a purchase price in cash
equal to 101% of the aggregate principal amount plus accrued and unpaid
interest, if any, to the date of purchase. This purchase price is referred to in
the indenture as the "Change of Control Purchase Price," in accordance with the
terms set forth in the indenture, which is referred to in the indenture as the
"Change of Control Offer."
Within 30 days following any Change of Control, Waste Systems will notify
the trustee and will mail a notice to each holder by first class mail, postage
prepaid, at the address of the holder appearing in the security register
stating, among other things: (1) that a Change of Control has occurred and that
the holder has the right to require Waste Systems to purchase the holder's
Senior Notes at the Change of Control Purchase Price in cash, subject to the
right of holders of record on a record date to receive interest on the relevant
interest payment date; (2) the repurchase date, which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date the notice is mailed
or any later date as is necessary to comply with requirements under the Exchange
Act; (3) that any Senior Note not tendered will continue to accrue interest; (4)
that unless Waste Systems defaults in the payment of the Change of Control
Purchase Price, any Senior Note accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest after the Change of Control purchase
date; and (5) the procedures determined by Waste Systems, consistent with the
indenture, that a holder must follow to accept the Change of Control Offer or
withdraw his, her or its acceptance.
Waste Systems will 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 according to a
Change of Control Offer. To the extent that the provisions of any securities
laws or regulations conflict with provisions of the indenture, Waste Systems
will comply with the applicable securities laws and regulations and shall not be
deemed to have breached our obligations described in the indenture by complying
with applicable securities laws and regulations.
The term "Change of Control" includes, among other transactions, a
disposition of "all or substantially all" of the property and assets of Waste
Systems. The phrase "all or substantially all" as used in the indenture when
referring to the disposition of property or assets, varies according to the
facts and circumstances of the subject transaction. This phrase has no clearly
established meaning under the law which governs the indenture, New York law, and
is subject to judicial interpretation. Accordingly, in some circumstances there
may be a degree of uncertainty in ascertaining whether a particular transaction
would involve a disposition of "all or substantially all" of the property or
assets of a Person, and therefore it may be unclear as to whether a Change of
Control has occurred and whether Waste Systems is required to make an offer to
repurchase the Senior Notes as described above.
If a Change of Control Offer is made, we cannot assure you that we will have
available funds sufficient to pay the purchase price for all of the Senior Notes
that might be tendered by holders of the Senior Notes seeking to accept the
Change of Control Offer. Our failure to make or consummate the Change of Control
Offer or pay the applicable Change of Control Purchase Price when due would
result in an Event of Default and would give the trustee and the holders of the
Senior Notes the rights described below under the heading "--Events of Default."
The existence of a holder's right to require Waste Systems to purchase the
holder's Senior Notes upon a Change of Control may deter a third party from
acquiring Waste Systems in a transaction that constitutes a Change of Control.
The definition of "Change of Control" in the indenture is limited in scope.
The provisions of the indenture may not afford holders of Senior Notes the right
to require Waste Systems to repurchase the
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Senior Notes in the event of a highly leveraged transaction or particular
transactions with our management or our affiliates, including a reorganization,
restructuring, merger or similar transaction involving Waste Systems, including,
in some circumstances, an acquisition of Waste Systems by management or our
affiliates, that may adversely affect holders of the Senior Notes, if the
transaction is not a transaction defined as a Change of Control. A transaction
involving our management or our affiliates, or a transaction involving a
recapitalization of Waste Systems, would result in a Change of Control if it is
the type of transaction specified in the definition.
Waste Systems will not, and will not permit any Restricted Subsidiary to,
create any restriction, other than restrictions existing under Indebtedness as
in effect on the Closing Date or in refinancings of Indebtedness in effect, that
would materially impair the ability of Waste Systems to make a Change of Control
Offer to purchase the Senior Notes or, if a Change of Control Offer is made, to
pay for the Senior Notes tendered for purchase.
CERTAIN COVENANTS
The indenture contains certain covenants for the benefit of the holders of
the Senior Notes, including, without limitation, the following:
LIMITATION ON INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
(a) Waste Systems will not, and will not permit any of our Restricted
Subsidiaries to, Incur any Indebtedness, including Acquired Indebtedness, and
Waste Systems will not issue any Disqualified Stock and will not permit any of
our Restricted Subsidiaries to issue any shares of Preferred Stock or
Disqualified Stock; PROVIDED, HOWEVER, that: (1) Waste Systems may Incur
Indebtedness which is expressly subordinate and junior in right of payment to
the Senior Notes, and (2) Waste Systems and our Restricted Subsidiaries may
Incur Indebtedness, including Acquired Indebtedness, or issue Disqualified Stock
if:
(A) the Consolidated Fixed Charge Coverage Ratio for Waste Systems's
most recently ended full fiscal quarter for which financial statements are
available immediately preceding the date on which the Indebtedness is
Incurred or the Disqualified Stock is issued would have been at least 1.5 to
1, if the last day of such fiscal quarter is on or before December 31, 1999,
or at least 2 to 1, if the last day of such fiscal quarter is on or after
January 1, 2000, in each case determined on a pro forma basis in the manner
set forth in the immediately following full paragraph; and
(B) no Default or Event of Default has occurred and is continuing.
In making the preceding calculation referred to in subparagraph (A) above,
pro forma effect will be given to: (1) the incurrence of the Indebtedness or the
issuance of Disqualified Stock and, if applicable, the application of the net
proceeds therefrom, including to refinance other Indebtedness, as if the
Indebtedness or Disqualified Stock was Incurred or issued, as the case may be,
and the application of the proceeds occurred at the beginning of the quarter;
(2) the Incurrence, issuance, repayment or retirement of any other Indebtedness
or Disqualified Stock, as the case may be, by Waste Systems or our Restricted
Subsidiaries since the first day of the quarter as if the Indebtedness or
Disqualified Stock, as the case may be, was Incurred, issued, repaid or retired
at the beginning of the quarter; and (3) the acquisition, whether by purchase,
merger or otherwise, or disposition, whether by sale, merger or otherwise, of
any company, entity or business acquired or disposed of by Waste Systems or our
Restricted Subsidiaries, as the case may be, since the first day of the quarter,
as if the acquisition or disposition occurred at the beginning of such quarter.
In making a computation under the preceding clause (1) or (2), (x) interest on
Indebtedness bearing a floating interest rate will be computed as if the rate in
effect on the date of computation had been the applicable rate for the entire
quarter, (y) if the Indebtedness bears, at the option of Waste Systems, a fixed
or floating rate of interest, interest thereon will be computed by applying, at
the option of Waste Systems, either the fixed or floating rate and (z) the
amount of Indebtedness under a revolving credit facility will be computed based
upon the average daily balance of the Indebtedness during such quarter.
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Waste Systems's Consolidated Fixed Charge Coverage Ratio for the quarter
ended March 31, 1999 was (2.34) to 1.
(b) Notwithstanding the preceding paragraph (a), Waste Systems and any of
our Restricted Subsidiaries may Incur each and all of the following ("Permitted
Indebtedness"):
(1) Indebtedness under [the Credit Facility and] one or more loan or
credit agreements with one or more banks or financial institutions;
PROVIDED, that the aggregate principal amount of all Indebtedness of Waste
Systems and our Restricted Subsidiaries outstanding under all credit
facilities after giving effect to the Incurrence does not exceed an amount
equal to the greater of (A) $25 million and (B) an amount as, when added to
all other Indebtedness then outstanding, would result in total Indebtedness
equal to twenty times the Adjusted EBITDA of Waste Systems for the most
recently ended fiscal quarter for which financial statements are available
immediately preceding the date on which the Indebtedness was incurred,
calculated on a pro forma basis in the manner described in the penultimate
paragraph of subsection (a) above, MINUS in either case (x) the aggregate
amount of all mandatory repayments of the principal of any term Indebtedness
under a credit facility made by Waste Systems or any of our Restricted
Subsidiaries after the second anniversary of the date of the indenture,
except for repayments in connection with refinancing Indebtedness permitted
under clause (7) below, and (y) without duplication, the aggregate amount of
all Net Cash Proceeds of Asset Sales applied by Waste Systems or any of our
Restricted Subsidiaries to permanently reduce the Indebtedness or
commitments under the credit facilities pursuant to the "Limitation on Asset
Sales" covenant;
(2) Indebtedness of Waste Systems and its Restricted Subsidiary
Guarantors represented by the Senior Notes and the subsidiary guarantees;
(3) Existing Indebtedness;
(4) Indebtedness owed by Waste Systems to any Wholly-Owned Restricted
Subsidiary or owed by a subsidiary guarantor to Waste Systems or any
Wholly-Owned Restricted Subsidiary; PROVIDED, that the Indebtedness is held
by Waste Systems or the Restricted Subsidiary and constitutes Subordinated
Indebtedness; PROVIDED FURTHER, that the incurrence of such Indebtedness
does not violate the "Limitation on Restricted Payments" covenant;
(5) Indebtedness of Waste Systems or any Restricted Subsidiary arising
with respect to Interest Rate Agreement Obligations and Currency Agreement
Obligations incurred for the purpose of fixing or hedging interest rate risk
or currency risk;
(6) Indebtedness incurred by Waste Systems or any of its Restricted
Subsidiaries regarding letters of credit, bankers' acceptances, surety or
performance bonds or other instruments issued in the ordinary course of
business in amounts and for purposes customary in Waste Systems's industry;
(7) Refinancing Indebtedness incurred by Waste Systems or any of the
Restricted Subsidiaries in connection with or given in exchange for the
renewal, extension, modification, amendment, refunding, defeasance,
refinancing or replacement of any of the Senior Notes or any Existing
Indebtedness or any Indebtedness issued after the Closing Date and not
incurred in violation of the indenture; PROVIDED, HOWEVER, that (A) the
principal amount of the Refinancing Indebtedness shall not exceed the
principal amount, or accreted amount, if less, of the Indebtedness so
refinanced at the time outstanding, or obtainable under any outstanding
credit agreement, plus the premiums paid and the reasonable expenses
incurred in connection therewith; (B) with respect to Indebtedness being
refinanced, the Stated Maturity of the Refinancing Indebtedness shall be not
earlier than the Stated Maturity of the Indebtedness being refinanced, and
the Refinancing Indebtedness shall have an Average Life at the time the
Refinancing Indebtedness is incurred that is equal to or greater than the
remaining Average Life of the Indebtedness being Refinanced;
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(C) concerning Subordinated Indebtedness of Waste Systems being refinanced,
the Refinancing Indebtedness shall rank no more senior than, and shall be at
least as subordinated in right of payment to the Senior Notes as, the
Indebtedness being refinanced; and (D) the obligor of such Refinancing
Indebtedness shall be the obligor on the Indebtedness being refinanced of
Waste Systems or a Restricted Subsidiary;
(8) The Incurrence by Waste Systems or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or Purchase Money Obligations, in each case incurred for
the purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of Waste Systems or any Restricted Subsidiary, in an aggregate
principal amount not to exceed $5.0 million at any time outstanding;
(9) Guarantees by Waste Systems or any Restricted Subsidiary of
Indebtedness of Waste Systems or any Restricted Subsidiary that was
permitted to be Incurred in conformity with another provision of this
covenant;
(10) Guarantees by any Restricted Subsidiary made in accordance with the
provisions of the covenant in this section of the prospectus entitled
"--LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS; ADDITIONAL
GUARANTORS";
(11) Incurrence by Waste Systems's Unrestricted Subsidiaries, if any, of
non-recourse Indebtedness; PROVIDED, HOWEVER, that if any of this
Indebtedness ceases to be Non-Recourse Indebtedness of an Unrestricted
Subsidiary, that event shall be deemed to constitute an Incurrence of
Indebtedness by a Restricted Subsidiary of Waste Systems that was not
permitted by this clause;
(12) The accrual of interest, accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends on
Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock; PROVIDED, in each case, that the amount is included in
Fixed Charges of Waste Systems as accrued; and
(13) Indebtedness of Waste Systems or any Restricted Subsidiary in
addition to that described in clauses (1) through (12) above, and any
refinancings of that Indebtedness, so long as the aggregate principal amount
of all the Indebtedness Incurred according to this clause (13) does not
exceed $5.0 million at any one time outstanding.
Any Indebtedness of a Person existing at the time that Person becomes a
Restricted Subsidiary, whether by merger, consolidation, acquisition or
otherwise, an "Acquired Person," shall be deemed to be Incurred by each
Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
For purposes of determining compliance with this "LIMITATION ON INDEBTEDNESS
AND ISSUANCE OF PREFERRED STOCK" covenant, if an item of proposed Indebtedness
meets the criteria of more than one of the categories of Permitted Indebtedness
described above, or is entitled to be Incurred according to the first paragraph
of this covenant, Waste Systems will be permitted to classify, or reclassify,
that item of Indebtedness on the date of its Incurrence in any manner that
complies with this covenant.
LIMITATION ON RESTRICTED PAYMENTS. Waste Systems will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend on, or make any other payment or
distribution on account of Waste Systems's or any of its Restricted
Subsidiaries' capital stock, including, without limitation, any payment in
connection with any merger or consolidation involving Waste Systems or any
of its Restricted Subsidiaries, or to the direct or indirect holders of
Waste Systems's or any of its Restricted Subsidiaries' capital stock in
their capacity as such, other than (A) dividends or distributions payable in
capital stock, other than Disqualified Stock, of Waste Systems, or
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(B) dividends or distributions by a Restricted Subsidiary payable to Waste
Systems or another Restricted Subsidiary;
(2) purchase, redeem or otherwise acquire or retire for value,
including, without limitation, in connection with any merger or
consolidation involving Waste Systems or any Waste Systems subsidiary, any
shares of capital stock or any options, warrants or other rights to acquire
shares of capital stock of Waste Systems or any Waste Systems subsidiary,
other than any capital stock owned by Waste Systems or any Restricted
Subsidiary of Waste Systems;
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value, any Indebtedness that is
subordinated to the Senior Notes or the subsidiary guarantees, except a
payment of interest or principal at the Stated Maturity thereof; or
(4) make any Investment, other than a Permitted Investment;
all payments and other actions set forth in clauses (1) through (4) above being
collectively referred to as "Restricted Payments," unless, at the time of and
immediately after giving effect to a Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing;
(b) Waste Systems could Incur at least $1.00 of additional Indebtedness,
other than Permitted Indebtedness pursuant to the first paragraph of the
"--LIMITATION ON INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK" covenant; and
(c) the aggregate amount of all Restricted Payments declared or made by
Waste Systems and its Restricted Subsidiaries after the date of the indenture
does not exceed the sum of:
(1) 50% of the Consolidated Net Income of Waste Systems for the period,
taken as one accounting period, from the beginning of Waste Systems's first
fiscal quarter commencing after the date of the indenture to the end of
Waste Systems's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment
or, if such Consolidated Net Income for such period is a loss, less 100% of
such loss, plus
(2) 100% of the aggregate Net Proceeds received by Waste Systems since
the date of the indenture from the issuance or sale, other than to a
subsidiary, of capital stock of Waste Systems, other than Disqualified
Stock, or from the issue or sale of convertible or exchangeable Disqualified
Stock or convertible or exchangeable debt securities of Waste Systems that
have been converted into or exchanged for such equity interests, other than
capital stock, or Disqualified Stock or debt securities, sold to a Waste
Systems' subsidiary, plus
(3) to the extent that any Restricted Payment that was made after the
date of the indenture is sold for cash, other than to a subsidiary, or
otherwise liquidated or repaid for cash, the lesser of (x) the cash return
of capital regarding such Restricted Payment, less the cost of disposition,
if any, and (y) the initial amount of such Restricted Payment.
In addition, so long as no Default or Event of Default has occurred and is
continuing or would be caused thereby, the following payments and other actions
shall be expressly permitted notwithstanding anything contained in this
"LIMITATIONS ON RESTRICTED PAYMENTS" covenant described above (collectively,
"Permitted Payments"):
(A) the payment of any dividend within 60 days after the date of declaration
thereof, if at said declaration date such payment would have been permitted
under the indenture and such payment shall be deemed to have been paid on such
date of declaration for purposes of clause (4) of the preceding paragraph (c);
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(B) the redemption, repurchase, retirement, defeasance or other acquisition
of any capital stock or any Indebtedness of Waste Systems or any Restricted
Subsidiary that is subordinated in right of payment to the Senior Notes in
exchange for, or out of the Net Proceeds of, the substantially concurrent sale,
other than to a subsidiary, of capital stock of Waste Systems, other than any
Disqualified Stock; PROVIDED that the amount of any Net Proceeds that are
utilized for any redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (c)(2) of the preceding paragraph;
(C) the defeasance, redemption, repurchase or other acquisition of
Subordinated Indebtedness of Waste Systems or any subsidiary guarantor with the
net proceeds from an Incurrence of Permitted Refinancing Indebtedness;
(D) any purchase or defeasance of Subordinated Indebtedness of Waste Systems
or any subsidiary guarantor to the extent required upon a Change of Control or
Asset Sale by the indenture or other agreement or instrument pursuant to which
Subordinated Indebtedness was issued, but only if Waste Systems (x) in the case
of a Change of Control, has complied with our obligations under the provisions
described under "--Change of Control" or (y) in the case of an Asset Sale has
applied the Net Cash Proceeds from that Asset Sale in accordance with the
provisions under the "LIMITATION ON ASSET SALES" covenant;
(E) any Restricted Payments made with the proceeds of the substantially
concurrent sale of capital stock other than Disqualified Stock;
(F) the repurchase of capital stock of Waste Systems or any Restricted
Subsidiary, including options, warrants or other rights to acquire the capital
stock, from directors, officers or employees, or their nominees, of Waste
Systems or our subsidiaries according to the terms of an employee benefit plan
or employment agreement or similar arrangement; PROVIDED that the aggregate
amount of all repurchases, net of repayments or cancellations of indebtedness as
a result of repurchases, shall not exceed $0.5 million in any twelve-month
period;
(G) the repurchase by Waste Systems of 500,000 shares of the common stock
from the Federal Deposit Insurance Corporation for an aggregate purchase price
not to exceed $2.8 million out of the net proceeds of the sale of the Senior
Notes;
(H) the payment by Waste Systems out of the net proceeds of the sale of the
Senior Notes of $20.0 million, representing the entire principal amount
outstanding of Waste Systems's 13% short term notes due June 30, 1999;
(I) the repayment by Waste Systems out of the net proceeds of the sale of
the Senior Notes of capital leases and equipment notes payable outstanding on
the closing date in an aggregate amount not to exceed $4.0 million;
(J) the redemption out of the net proceeds of the sale of the Senior Notes
of some of Waste Systems's 10% convertible subordinated debentures due October
6, 2000 in an aggregate principal amount not to exceed $1.85 million; and
(K) Restricted Payments, other than a dividend or other distribution
declared on any capital stock of Waste Systems or a payment to purchase, redeem
or otherwise acquire or retire for value any capital stock of Waste Systems, not
to exceed $5.0 million in the aggregate.
The amount of all Restricted Payments, other than cash, shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by Waste Systems or any Restricted
Subsidiary, pursuant to the Restricted Payment. The fair market value of any
assets or securities that are required to be valued by this covenant shall be
determined by the board of directors whose resolution concerning such valuation
shall be delivered to the trustee. The board of directors' determination must be
based upon an opinion or appraisal issued by an accounting, appraisal
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or investment banking firm of national standing if the fair market value exceeds
$10.0 million. Not later than the date of making any Restricted Payment, Waste
Systems shall deliver to the trustee an officers' certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this "Limitation on Restricted Payments" covenant were
computed, together with a copy of any fairness opinion or appraisal required by
the indenture.
LIMITATION ON ASSET SALES.
(a) Waste Systems will not, and will not permit any Restricted Subsidiary
to, consummate any Asset Sale unless (1) Waste Systems or such Restricted
Subsidiary, as the case may be, receives consideration at the time of such Asset
Sale at least equal to the fair market value of the assets or other property
sold or disposed of in the Asset Sale and (2) at least 75% of such consideration
consists of either cash or cash equivalents.
(b) Within 365 days after any Asset Sale, Waste Systems may elect to apply
the Net Cash Proceeds from any Asset Sale to: (1) permanently reduce or redeem
amounts outstanding under the Credit Facility or any credit facility referred to
in clause (b)(1) of the "LIMITATION ON INDEBTEDNESS AND ISSUANCE OF PREFERRED
STOCK" covenant or to the repayment of other senior Indebtedness of Waste
Systems or a Restricted Subsidiary; and/or (2) make, or enter into a legally
binding agreement to make, an Investment, in, or acquire assets and properties
that will be used in the business of Waste Systems and our Restricted
Subsidiaries at the Closing Date. Any balance of Net Cash Proceeds exceeding
$10.0 million and not applied or invested as provided in clauses (1) and (2)
within 365 days of any Asset Sale, will be deemed to constitute "Excess
Proceeds" and will be applied to make an offer to purchase the Senior Notes,
which is referred to as an Asset Sale Offer, to the holders of the Senior Notes.
Pending the final application of any Net Cash Proceeds, Waste Systems may
temporarily invest Net Cash Proceeds in cash or cash equivalents.
For the purposes of this covenant, the following will be deemed to be cash:
(x) the assumption by the transferee of Indebtedness of Waste Systems or
Indebtedness of any Restricted Subsidiary of Waste Systems and the release of
Waste Systems or the Restricted Subsidiary from all liability on the
Indebtedness in connection with the Asset Sale, in which case Waste Systems
shall, without further action, be deemed to have applied the assumed
Indebtedness in accordance with clause (1) of the preceding paragraph (b), and
(y) securities received by Waste Systems or any Restricted Subsidiary of Waste
Systems from the transferee that are promptly, and in any event within 120 days,
converted by Waste Systems or the Restricted Subsidiary into cash.
(c) In the event of an Asset Sale that requires Waste Systems to make an
Asset Sale Offer in conformity with paragraph (b) above, Waste Systems will be
required to purchase the Senior Notes tendered pursuant to an offer by Waste
Systems for the Senior Notes at a purchase price of 100% of their principal
amount plus accrued and unpaid interest, if any, to the purchase date in
accordance with the procedures, including prorating in the event of
oversubscription, set forth in the indenture. If the aggregate purchase price of
the Senior Notes tendered according to the offer is less than the Net Cash
Proceeds allotted to the purchase of the Senior Notes, Waste Systems will apply
the remaining Net Cash Proceeds to general corporate purposes not prohibited by
the indenture. If the aggregate principal amount of Senior Notes validly
tendered and not withdrawn by holders exceeds the Excess Proceeds, the Senior
Notes to be purchased will be selected on a pro rata basis. Upon the
consummation of any Asset Sale Offer, the amount of Excess Proceeds shall be
deemed to be reset to zero.
(d) Waste Systems will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other applicable
securities laws or regulations in connection with the repurchase of the Senior
Notes pursuant to the indenture and will not be deemed to have breached its
obligations under the indenture by virtue thereof.
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LIMITATION ON LIENS. Waste Systems will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist any
Lien on any of its assets or properties of any character, or any shares of
capital stock or Indebtedness of any Restricted Subsidiary, without making
effective provision for all of the Senior Notes and all other amounts due under
the Indenture to be directly secured equally and ratably with, or before, if the
obligation or liability to be secured by any Lien is subordinated in right of
payment to the Senior Notes, the obligation or liability secured by any Lien.
The preceding limitation does not apply to:
(1) Liens existing on the Closing Date, including Liens securing
obligations under the Credit Facility or any other credit facility
outstanding on the date of the indenture or permitted to be incurred under
clause (b)(1) of the "LIMITATION ON INDEBTEDNESS AND ISSUANCE OF PREFERRED
STOCK" covenant;
(2) Liens granted after the Closing Date on any assets or capital stock
of Waste Systems or our Restricted Subsidiaries created in favor of the
holders;
(3) Liens regarding the assets of a Restricted Subsidiary granted by the
Restricted Subsidiary to Waste Systems or a Wholly Owned Restricted
Subsidiary to secure Indebtedness owing to Waste Systems or the other
Restricted Subsidiary;
(4) Liens securing Indebtedness which is incurred owing to Waste Systems
or another Restricted Subsidiary;
(5) Liens securing Indebtedness which is incurred to refinance secured
Indebtedness which is permitted to be Incurred under the second paragraph of
the "LIMITATION ON INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK" covenant;
PROVIDED that the Liens do not extend to or cover any property or assets of
Waste Systems or any Restricted Subsidiary other than the property or assets
securing the Indebtedness being refinanced;
(6) Liens on any property or assets of Waste Systems or any Restricted
Subsidiary securing Indebtedness of Waste Systems or any Restricted
Subsidiary permitted under the "LIMITATION ON INDEBTEDNESS AND ISSUANCE OF
PREFERRED STOCK" covenant;
(7) Liens concerning real property to secure Indebtedness Incurred in
conformity with clause (b)(8) of the "LIMITATION ON INDEBTEDNESS AND
ISSUANCE OF PREFERRED STOCK" covenant; or
(8) Permitted Liens, as defined below.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. Waste Systems will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
any transaction or series of related transactions, including, without
limitation, the sale, purchase, exchange or lease of assets, property or
services, with any Affiliate, other than Waste Systems or a Restricted
Subsidiary of Waste Systems, unless:
(1) the transaction or series of transactions is on terms that are no
less favorable to Waste Systems or the Restricted Subsidiary, as the case
may be, than would be available in a comparable transaction in arm's-length
dealings with an unrelated third party; and
(2) Waste Systems delivers to the trustee, (A) regarding any transaction
or series of related transactions involving aggregate consideration in
excess of $1.0 million, a resolution of the board of directors set forth in
an officers' certificate certifying that the transaction or series of
related transactions complies with this covenant and has been approved by a
majority of the disinterested members of the board of directors of Waste
Systems, and (B) regarding any transaction or series of transactions
involving aggregate consideration in excess of $10.0 million, an opinion as
to the
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fairness of the transaction to Waste Systems or any Restricted Subsidiary,
from a financial point of view, issued by an accounting, appraisal or
investment banking firm of national standing.
The preceding covenant will not restrict any of the following:
(a) employment agreements, compensation or employee benefit
arrangements, stock options or stock purchase plans or agreements with or
for the benefit of any officer, director or employee of Waste Systems
entered into in the ordinary course of business and approved by the board of
directors of Waste Systems, including customary fringe benefits and
reimbursement or advancement of out of pocket expenses, loans to employees
in the ordinary course of business, and director's and officer's liability
insurance and indemnification arrangements;
(b) any transaction solely between or among Waste Systems and any of its
Restricted Subsidiaries or solely between Restricted Subsidiaries;
(c) the payment of reasonable and customary regular fees to directors of
Waste Systems or any Restricted Subsidiary who are not employees of Waste
Systems or any Restricted Subsidiary;
(d) any Restricted Payment not prohibited by the "LIMITATION ON
RESTRICTED PAYMENTs" covenant;
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. Waste Systems will not sell, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell, any shares of capital
stock of a Restricted Subsidiary, including options, warrants or other rights to
purchase shares of capital stock, except:
(1) to Waste Systems or a Wholly Owned Restricted Subsidiary;
(2) issuances of director's qualifying shares or sales to foreign
nationals of shares of capital stock of foreign Restricted Subsidiaries, to
the extent required by applicable law;
(3) if, immediately after giving effect to any issuance or sale, the
Restricted Subsidiary would no longer constitute a Restricted Subsidiary and
any Investment in that Person remaining after giving effect to the issuance
or sale would have been permitted to be made under the "LIMITATION ON
RESTRICTED PAYMENTS" covenant if made on the date of the issuance or sale;
or
(4) the issuance or sale of common stock of any Restricted Subsidiaries
if the proceeds thereof are applied in accordance with the "LIMITATION ON
ASSET SALES" covenant.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. Waste Systems will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Restricted Subsidiary to:
(1) pay dividends, in cash or otherwise, or make any other distributions
permitted by applicable law on or in respect of its capital stock,
(2) pay any Indebtedness owed to Waste Systems or any other Restricted
Subsidiary,
(3) make loans or advances to Waste Systems or any other Restricted
Subsidiary,
(4) transfer any of its property or assets to Waste Systems or any other
Restricted Subsidiary, or
(5) Guarantee Indebtedness of Waste Systems or any other Restricted
Subsidiary.
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The preceding provisions shall not restrict any encumbrances or restrictions
under or as a result of any of the following:
(a) any agreement in effect on the Closing Date, and any extensions,
refinancings, renewals or replacement of those agreements; PROVIDED that the
encumbrances and restrictions in any extensions, refinancings, renewals or
replacements are no less favorable to Waste Systems or any Restricted
Subsidiary than those encumbrances or restrictions in the original
agreement;
(b) existing under or as a result of applicable law;
(c) the indenture, the Senior Notes and the subsidiary guarantees;
(d) with respect to any Person or the property or assets of a Person
acquired by Waste Systems or any Restricted Subsidiary, existing at the time
of the acquisition and not incurred in contemplation of any acquisition,
which encumbrances or restrictions are not applicable to any Person or the
property or assets of any Person other than the Person or the property or
assets of the Person so acquired;
(e) in the case of clause (4) of the first paragraph of this "LIMITATION
ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES" covenant,
(1) that restrict in a customary manner the subletting, assignment or
transfer of any property or asset that is a lease, license, conveyance or
contract or similar property or asset,
(2) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on any property or assets of
Waste Systems or any Restricted Subsidiary not otherwise prohibited by
the indenture, or
(3) arising or agreed to in the ordinary course of business, not
relating to any Indebtedness, and that do not, individually or in the
aggregate, detract from the value of property or assets of Waste Systems
or any Restricted Subsidiary in any manner material to Waste Systems or
any Restricted Subsidiary;
(f) with respect to a Restricted Subsidiary and imposed according to an
agreement that has been entered into for the sale or disposition of all or
substantially all of the capital stock of, or property and assets of, that
Restricted Subsidiary;
(g) Permitted Refinancing Indebtedness; PROVIDED that the restrictions
contained in the agreements governing the Permitted Refinancing Indebtedness
are no more restrictive, taken as a whole, than those contained in the
agreements governing the Indebtedness being refinanced;
(h) provisions concerning the disposition or distribution of assets or
property in joint venture agreements and other similar agreements entered
into in the ordinary course of business;
(i) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
and
(j) restrictions imposed with respect to a subsidiary of Waste Systems
imposed pursuant to a binding agreement which has been entered into for the
sale or disposition of all or substantially all of the capital stock or
assets of such subsidiary, provided that the disposition will comply with
the covenant entitled "LIMITATION ON ASSET SALES."
Nothing contained in this "LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES" covenant shall prevent Waste Systems or any
Restricted Subsidiary from creating, incurring, assuming or suffering to exist
any Liens otherwise permitted in the "LIMITATION ON LIENS" covenant or
restricting the sale or other disposition of property or assets of Waste Systems
or any of its Restricted Subsidiaries that secure Indebtedness of Waste Systems
or any of its Restricted Subsidiaries.
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LIMITATION ON SALE-LEASEBACK TRANSACTIONS. Waste Systems will not, and will
not permit any Restricted Subsidiary to, enter into any sale-leaseback
transaction involving any of its assets or properties whether now owned or
hereafter acquired, where Waste Systems or a Restricted Subsidiary sells or
transfers assets or properties and then or thereafter leases the transferred
assets or properties or any part thereof or any other assets or properties which
Waste Systems or a Restricted Subsidiary, intends to use for substantially the
same purpose or purposes as the assets or properties sold or transferred.
The preceding restriction does not apply to any sale-leaseback transaction
if:
(1) Waste Systems or the Restricted Subsidiary could have Incurred
Indebtedness in an amount equal to the attributable Indebtedness relating to
the sale and leaseback transaction under the Consolidated Fixed Charge
Coverage Ratio test in the first paragraph of the covenant described above
under the caption "--LIMITATION ON INDEBTEDNESS AND ISSUANCE OF PREFERRED
STOCK" and Incurred a Lien to secure the Indebtedness pursuant to the
covenant described above under the caption "--LIMITATION ON LIENS";
(2) the gross cash proceeds of that sale and leaseback transaction are
at least equal to the fair market value, as determined in good faith by the
board of directors and set forth in an officers' certificate delivered to
the trustee, of the property that is the subject of the sale and leaseback
transaction; and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and Waste Systems applies the proceeds of that transaction in
compliance with, the covenant described above under the caption
"--LIMITATION ON ASSET SALES."
LIMITATION ON DESIGNATION OF UNRESTRICTED SUBSIDIARIES. Waste Systems will
not designate any Waste Systems subsidiary, other than a newly created
subsidiary in which no Investment in excess of $1,000 has previously been made,
as an Unrestricted Subsidiary under the indenture after the Closing Date unless:
(1) no Default shall have occurred and be continuing at the time of or
after giving effect to the designation as an Unrestricted Subsidiary; and
(2) Waste Systems would not be prohibited under the indenture from
making an Investment at the time of the designation in an amount equal to
the fair market value of the Restricted Subsidiary on that date.
If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, all
outstanding Investments owned by Waste Systems and our Restricted Subsidiaries
in the subsidiary so designated will be deemed to be an Investment made as of
the time of the designation and will reduce the amount available for Restricted
Payments under the covenant described above under the caption "--LIMITATION ON
RESTRICTED PAYMENTS" for all purposes of the indenture in the requisite amount.
The indenture will further provide that neither Waste Systems nor any Restricted
Subsidiary shall at any time (x) provide a Guarantee of or similar undertaking,
including any undertaking, agreement or instrument evidencing any Indebtedness,
concerning any Indebtedness of an Unrestricted Subsidiary; PROVIDED that Waste
Systems and our Restricted Subsidiaries may pledge capital stock or Indebtedness
of any Unrestricted Subsidiary on a nonrecourse basis in order that the pledgee
has no claim whatsoever against Waste Systems other than to obtain the pledged
property; or (y) be directly or indirectly liable for any Indebtedness of any
Unrestricted Subsidiary, except to the extent permitted under the covenants
described above under the "LIMITATION ON RESTRICTED PAYMENTS" covenant.
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Waste Systems will not revoke any designation of a subsidiary as an
Unrestricted Subsidiary, unless:
(1) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(2) all Liens and Indebtedness of that Unrestricted Subsidiary
outstanding immediately following that revocation shall be deemed to have
been incurred at that time and shall have been permitted to be incurred for
all purposes of the indenture.
All requisite designations and requisite revocations must be evidenced by
resolutions of the board of directors of Waste Systems delivered to the trustee
certifying compliance with the preceding provisions.
LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS; ADDITIONAL
GUARANTORS. Waste Systems will not permit any of its Restricted Subsidiaries,
directly or indirectly, to guarantee or pledge any assets to secure the payment
of any Indebtedness of Waste Systems under any credit facility unless the
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture providing for the guarantee of the payment of the Senior Notes by the
Restricted Subsidiary on a senior unsecured basis.
Notwithstanding the preceding paragraph, each subsidiary guarantee of the
Senior Notes will provide by its terms that it will be automatically and
unconditionally released and discharged under the circumstances described above
under the caption "--SUBSIDIARY GUARANTEES."
REPORTS. Whether or not required by the Securities and Exchange Commission,
so long as any Senior Notes are outstanding, Waste Systems will furnish to the
holders of the Senior Notes, within the time periods specified in the Securities
and Exchange Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Securities and Exchange
Commission on Forms 10-Q and 10-K if Waste Systems were required to file
these forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report on the annual financial statements by Waste
Systems' certified independent accountants; and
(2) all current reports that would be required to be filed with the
Securities and Exchange Commission on Form 8-K if Waste Systems were
required to file these reports.
If Waste Systems has designated any of its subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph shall include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes, and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," of the financial condition and results of operations of Waste
Systems and the Restricted Subsidiaries separate from the financial condition
and results of operations of the Unrestricted Subsidiaries of Waste Systems.
In addition, whether or not required by the Securities and Exchange
Commission, Waste Systems will file a copy of all of the information and reports
referred to in clauses (1) and (2) above with the Securities and Exchange
Commission for public availability within the time periods specified in the
Securities and Exchange Commission's rules and regulations, unless the
Securities and Exchange Commission will reject such a filing, and make such
information available to securities analysts and prospective investors upon
request.
ADDITIONAL COVENANTS. The indenture will also contain covenants concerning
the following matters:
- payment of principal, premium and interest;
- maintenance of an office or agency in the City of New York;
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- maintenance of corporate existence; and
- provision of financial statements.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Waste Systems will not consolidate with or merge with or into, or convey or
transfer or lease in one transaction or a series of related transactions, all or
substantially all of its assets to, another Person unless:
(1) the resulting, surviving or transferred successor corporation is a
corporation organized and existing under the laws of the United States or
any state thereof or the District of Columbia and, if other than Waste
Systems, assumes by supplemental indenture all the obligations of Waste
Systems under the Senior Notes and the indenture;
(2) immediately after giving effect to the transaction, no Default or
Event of Default exists; and
(3) immediately after giving pro forma effect to the transaction and any
related financing transactions, the successor corporation would be permitted
to incur at least $1.00 of Indebtedness according to the Consolidated Fixed
Charge Coverage Ratio test set forth in the first paragraph of the
"LIMITATION ON INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK" covenant.
The successor corporation shall be the successor to Waste Systems under the
indenture, and in the case of any transfer, Waste Systems shall be released from
its obligations under the indenture and the Senior Notes. Notwithstanding the
preceding, this "MERGER, CONSOLIDATION AND SALE OF ASSETS" covenant will not
apply to a sale, assignment, transfer, conveyance or other disposition of assets
between or among Waste Systems and any of its Wholly Owned Restricted
Subsidiaries or any of the subsidiary guarantors.
EVENTS OF DEFAULT
Each of the following constitutes an event of default under the indenture:
(a) Default for 30 days in the payment when due of interest on any
Senior Note, whether or not prohibited by the subordination provisions of
the indenture;
(b) Default in the payment when due of principal of or premium, if any,
with respect to any Senior Note at its stated maturity, upon optional
redemption, upon required repurchase, upon declaration or otherwise;
(c) failure by Waste Systems or any Restricted Subsidiaries to comply
with the provisions described under the captions "--Merger, Consolidation
and Sale of Assets" and "--Change of Control" and under the covenants
described under "--Certain Covenants--LIMITATION ON ASSET SALES,"
"--LIMITATION ON RESTRICTED PAYMENTS" or "--LIMITATION ON INDEBTEDNESS AND
ISSUANCE OF PREFERRED STOCK" above;
(d) failure by Waste Systems to observe or perform any of its
non-payment covenants or agreements contained in the indenture, other than a
default in the performance, or breach, of a covenant or agreement
specifically described in paragraph (c) above, and such default continues
for 30 days after notice.
(e) Default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Waste Systems or any Restricted
Subsidiaries, or the payment of which is Guaranteed by Waste Systems
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or any Restricted Subsidiaries, whether the Indebtedness or Guarantee now
exists, or is created after the date of the indenture, if that default:
(1) is caused by a failure to pay principal of or premium, if any, or
interest on the Indebtedness before the expiration of the grace period
provided in that Indebtedness on the date of the default (a "Payment
Default"); or
(2) results in the acceleration of the Indebtedness before its
express maturity;
and, in each case, the principal amount of any Indebtedness, together with
the principal amount of any other Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$5.0 million or more;
(f) any judgment or decree for the payment of money in excess of $5.0
million, to the extent not covered by insurance, is entered against Waste
Systems or a Restricted Subsidiary, remains outstanding for a period of 60
days after the judgment or decree becomes final and non-appealable, and is
not discharged, waived or the execution thereof stayed for a period of 10
days after notice;
(g) except as permitted by the indenture, any subsidiary guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any subsidiary
guarantor, or any Person acting on behalf of any subsidiary guarantor, shall
deny or disaffirm its obligations under its subsidiary guarantee; and
(h) specific events of bankruptcy, insolvency or reorganization of Waste
Systems or a subsidiary guarantor. However, a default under clause (d), (e)
or (f) above will not constitute an Event of Default until the trustee or
the holders of 25% in principal amount of the outstanding Senior Notes
notify Waste Systems of the Default and Waste Systems does not cure the
Default within the time specified after receipt of such notice.
If an Event of Default, other than as specified in clause (h) above, occurs
and is continuing, the trustee may, and at the request of at least 25% in
principal amount of the outstanding Senior Notes shall, by notice to Waste
Systems declare the principal of and accrued and unpaid interest, if any, on all
the Senior Notes to be immediately due and payable. Upon a declaration,
principal and accrued and unpaid interest shall be due and payable immediately.
If an Event of Default relating to particular events of bankruptcy, insolvency
or reorganization of Waste Systems occurs and is continuing, then the principal
of and accrued and unpaid interest, if any, on all the Senior Notes will become
and be immediately due and payable without any declaration or other act on the
part of the trustee or any holder. Under certain circumstances, the holders of a
majority in principal amount of the outstanding Senior Notes may (1) rescind
acceleration concerning the Senior Notes and their consequences and (2) waive,
on behalf of the holders of all of the Senior Notes, any existing Default or
Event of Default and its consequences under the indenture except a continuing
Default or Event of Default in the payment of interest on, or the principal of
or premium, if any, regarding the Senior Notes.
Subject to the provisions of the indenture relating to the duties of the
trustee, if 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 indenture
at the request or direction of any of the holders unless the 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 may pursue any
remedy concerning the indenture or the Senior Notes unless:
(1) the holder has previously given the trustee notice that an Event of
Default is continuing;
(2) holders of at least 25% in principal amount of the outstanding
Senior Notes have requested the trustee to pursue the remedy;
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(3) the holders have offered the trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the trustee has not complied with a request within 60 days after the
receipt of the request and the offer of security or indemnity; and
(5) the holders of a majority in principal amount of the outstanding
Senior Notes have not given the trustee a direction that, in the opinion of
the trustee, is inconsistent with the request within the 60-day period.
Subject to specific 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 to exercise any trust or power conferred on the trustee. The trustee,
however, may refuse to follow any direction that conflicts with law or the
indenture or that the trustee determines is unduly prejudicial to the rights of
any other holder or that would involve the trustee in personal liability. Prior
to taking any action under the indenture, the trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The indenture provides that if a Default occurs and is continuing and is
known to the trustee, the trustee must mail to each holder 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 its board of directors, a committee of its
board of directors or a committee of its trust officers in good faith determines
that withholding notice is in the interests of the holders of the Senior Notes.
In addition, Waste Systems is required to deliver to the trustee, within 90 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. Waste
Systems also is required to deliver to the trustee, within 30 days after the
occurrence thereof, written notice of any events which constitute certain
Defaults.
In the case of any Event of Default occurring as a result of any willful
action or inaction taken or not taken by or on behalf of Waste Systems with the
intention of avoiding payment of the premium that Waste Systems would have had
to pay if Waste Systems then had elected to redeem the Senior Notes in
conformity with the optional redemption provisions of the indenture, an
equivalent premium shall also become and be immediately due and payable to the
extent permitted by law upon the acceleration of the Senior Notes. If an Event
of Default occurs before March 2, 2003 as a result of any willful action, or
inaction, taken, or not taken, by or on behalf of Waste Systems with the
intention of avoiding the prohibition on redemption of the Senior Notes before
March 2, 2003, then the premium specified in the indenture shall also become
immediately due and payable to the extent permitted by law upon the acceleration
of the Senior Notes.
DEFEASANCE
LEGAL DEFEASANCE. Waste Systems, at its option and at any time may
terminate all its obligations discharged with respect to the outstanding Senior
Notes and the indenture and all obligations of the subsidiary guarantors may be
discharged with respect to the subsidiary guarantees except for:
(1) the rights of holders of outstanding Senior Notes to receive
payments in respect of the principal of, premium, if any, and interest on
such Senior Notes when such payments are due;
(2) Waste Systems's obligations to issue temporary Senior Notes,
register the transfer or exchange of any Senior Notes, replace mutilated,
destroyed, lost or stolen Senior Notes and maintain an office or agency for
payments in respect of the Senior Notes outstanding and hold the payments in
trust;
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(3) the rights, powers, trusts, duties and immunities of the trustee,
and Waste Systems's obligations in connection therewith; and
(4) the legal defeasance provisions of the indenture.
COVENANT DEFEASANCE. Waste Systems may, at its option and at any time,
elect to have the obligations of Waste Systems and the subsidiary guarantors
released with regard to specific covenants set forth in the indenture and
described under "--Certain Covenants" above and, after release, any omission to
comply with these covenants shall not constitute a Default or Event of Default
with respect to the Senior Notes. In the event covenant defeasance occurs,
certain events, not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events, described under "--Events of Default" will
no longer constitute an Event of Default with respect to the Senior Notes.
In order to exercise either legal defeasance or covenant defeasance:
(1) Waste Systems must irrevocably deposit or cause to be deposited with
the trustee, as trust funds in trust, for the benefit of the holders of the
Senior Notes, cash in United States dollars, noncallable United States
government obligations or a combination of the above, in amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
on the outstanding Senior Notes on the stated maturity or on the applicable
redemption date, as the case may be, of the principal, premium, if any, or
installment of interest and Waste Systems must specify whether the Senior
Notes are being defeased to maturity or to a particular redemption date;
(2) no Default or Event of Default has occurred and is continuing
either: (A) on the date of such deposit, other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit;
or (B) insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date
of deposit;
(3) the legal defeasance or covenant defeasance may not result in a
breach or violation of, or constitute a default under any material agreement
or instrument, other than the indenture, to which Waste Systems or any
subsidiary guarantor is a party or by which it is bound;
(4) in the case of legal defeasance, Waste Systems must deliver to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that (A) Waste Systems has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of
the indenture, there has been a change in applicable federal income tax law,
in either case to the effect, and based thereon such opinion of counsel
shall confirm, the holders of the outstanding Senior Notes will not
recognize income, gain or loss for federal income tax purposes as a result
of the legal 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 the legal defeasance had not occurred;
(5) in the case of covenant defeasance, Waste Systems must deliver to
the trustee an opinion of counsel reasonably acceptable to the trustee
confirming that the holders of the outstanding Senior Notes will not
recognize income, gain or loss for federal income tax purposes as a result
of the covenant 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 the covenant defeasance had not occurred;
(6) Waste Systems must deliver to the trustee an opinion of counsel to
the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(7) Waste Systems must deliver to the trustee an officers' certificate
stating that the deposit was not made by Waste Systems with the intent of
preferring the holders of Senior Notes over the
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other creditors of Waste Systems with the intent of defeating, hindering,
delaying or defrauding creditors of Waste Systems or others; and
(8) Waste Systems must deliver to the trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent
relating to the legal defeasance or the covenant defeasance have been
complied with.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The indenture will cease to be of further effect, except as otherwise
expressly provided for in the indenture, when either all outstanding Senior
Notes have been delivered, other than lost, stolen or destroyed Senior Notes
which have been replaced, to the trustee for cancellation or all outstanding
Senior Notes have become due and payable, whether at maturity or as a result of
the mailing of a notice of redemption pursuant to the terms of the indenture and
Waste Systems has irrevocably deposited with the trustee funds sufficient to pay
at maturity or upon redemption all outstanding Senior Notes, including interest
thereon, other than lost, stolen, mutilated or destroyed Senior Notes which have
been replaced, and, in either case, Waste Systems has paid all other sums
payable under the indenture. The trustee is required to acknowledge satisfaction
and discharge of the indenture on demand of Waste Systems accompanied by an
officer's certificate and an opinion of counsel at the cost and expense of Waste
Systems.
TRANSFER AND EXCHANGE
Upon any transfer of a Senior Note, the registrar may require a holder to
furnish appropriate endorsements and transfer documents, and to pay any taxes
and fees required by law or permitted by the indenture. The registrar is not
required to transfer or exchange any Senior Notes selected for redemption nor is
the registrar required to transfer or exchange any Senior Notes for a period of
15 days before a selection of Senior Notes to be redeemed. The registered holder
of a Senior Note may be treated as the owner of it for all purposes.
AMENDMENTS AND WAIVERS
Except as set forth in this prospectus, the indenture and any subsidiary
guarantee may be modified and amended by Waste Systems, each subsidiary
guarantor and the trustee with the consent of the holders of a majority in
aggregate 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
affected, no amendment or waiver may, among other things,
(1) reduce the principal amount of Senior Notes whose holders must
consent to an amendment, supplement or waiver;
(2) reduce the rate of or extend the time for payment of interest on any
Senior Note;
(3) reduce the principal of or extend the Stated Maturity of any Senior
Note;
(4) reduce the premium payable upon the redemption or repurchase of any
Senior Note or change the time at which any Senior Note may be redeemed as
described under "Redemption" above;
(5) make any Senior Note payable in money other than that stated in the
Senior Note;
(6) impair the right of any holder to receive payment of principal of
and interest on the holder's Senior Notes on or after the due dates therefor
or to institute suit for the enforcement of any payment on or concerning the
holder's Senior Notes;
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(7) make any change in the provisions of the indenture relating to
waivers of past Defaults or Events of Default or the rights of holders of
Senior Notes to receive payments of principal of or premium, if any, or
interest on the Senior Notes;
(8) waive a redemption payment concerning any Senior Note; or
(9) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the indenture
relating to a Change of Control or the Change of Control Offer that adversely
affects the rights of the holders of the Senior Notes will require the consent
of the holders of at least 75% in aggregate principal amount of Senior Notes
then outstanding.
Notwithstanding the preceding, without the consent of any holder of Senior
Notes, Waste Systems, the subsidiary guarantors and the trustee may amend or
supplement the indenture or the Senior Notes:
(1) to cure any ambiguity, defect or inconsistency; PROVIDED that those
actions do not adversely affect the interests of holders of the Senior Notes
in any material respect;
(2) to provide for uncertificated Senior Notes in addition to or in
place of certificated Senior Notes;
(3) to provide for the assumption by a successor corporation of Waste
Systems's obligations to holders of Senior Notes in the case of a merger or
consolidation or sale of all or substantially all of Waste Systems's assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of Senior Notes or that does not adversely affect
the legal rights under the indenture of any holder;
(5) to comply with any requirement of the Securities and Exchange
Commission in order to effect or maintain the qualification of the indenture
under the Trust Indenture Act;
(6) to add additional Events of Default;
(7) to evidence and provide for the acceptance of appointment under the
indenture by a successor trustee;
(8) to secure the Senior Notes; and
(9) to add new subsidiary guarantors or release subsidiary guarantors in
accordance with the terms of the indenture.
CONCERNING THE TRUSTEE
IBJ Whitehall Bank & Trust Company is to be the trustee under the indenture
and has been appointed by Waste Systems as registrar and paying agent with
regard to the Senior Notes. The trustee's current address is One State Street,
New York, New York 10004.
The indenture contains certain limitations on the rights of the trustee,
should it become a creditor of Waste Systems, to obtain payment of claims in
particular cases or to realize on certain property received in respect of any
such claim as security or otherwise. The trustee will be permitted to engage in
other transactions, however, if it acquires any conflicting interest, as
defined, it must eliminate any conflict or resign.
The holders of a majority in aggregate principal amount of the
then-outstanding Senior Notes issued under the indenture will have the right to
direct the time, method and place of conducting any proceeding for exercising
any remedy available to the trustee. The indenture provides that in case an
Event of Default shall occur, which shall not be cured, the trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to this
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limitation, the trustee will be under no obligation to exercise any of its
rights or powers under the indenture at the request of any of the holders of the
Senior Notes issued under the indenture unless they shall have offered to the
trustee security and indemnity satisfactory to it.
GOVERNING LAW
The 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
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person existing at the time
such Person is merged with or into Waste Systems or becomes a Restricted
Subsidiary or assumed by Waste Systems or a Restricted Subsidiary in connection
with the acquisition of assets from such Person and not Incurred in connection
with, or in anticipation of, such Person becoming a Restricted Subsidiary or
such acquisition of assets.
"ADJUSTED EBITDA" means, with respect to Waste Systems and the Restricted
Subsidiaries for any period, the EBITDA of Waste Systems and the Restricted
Subsidiaries for such period plus the following: (a) one-time charges incurred
during such period associated with the write-off of landfill development costs;
(b) costs incurred during such period associated with the integration of
acquired companies and businesses into Waste Systems' operations, including,
without limitation, costs related to termination and retention of employees,
lease termination costs, costs related to the integration of information
systems, and costs related to the change of the name of the acquired company or
business; and (c) restructuring costs incurred during such period.
"AFFILIATE" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control," including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with," of any Person means the
possession, directly or indirectly, of the power 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.
"ASSET SALE" means any sale, issuance, lease, conveyance, transfer or other
disposition, including, without limitation, by way of merger or consolidation,
collectively, a "transfer," by Waste Systems or any Restricted Subsidiary, other
than to Waste Systems or a Restricted Subsidiary and other than directors'
qualifying shares, directly or indirectly, in one transaction or in a series of
related transactions of (a) any capital stock, other than Disqualified Stock, of
any Restricted Subsidiary, (b) all or substantially all of the properties and
assets of Waste Systems and its Restricted Subsidiaries representing a division
or line of business or (c) any other properties or assets of Waste Systems or
any Restricted Subsidiary, other than in the ordinary course of business;
PROVIDED, HOWEVER, the following transactions shall not be deemed Asset Sales:
(1) the transfer of accounts receivable (or participations therein) in
connection with any accounts receivables financing;
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(2) the transfer of capital stock or Indebtedness or other securities of
an Unrestricted Subsidiary;
(3) the transfer of assets pursuant to and in accordance with the
limitation on mergers, sales or consolidations provisions in the indenture;
(4) the making of Restricted Payments permitted by the Restricted
Payments covenant in the indenture;
(5) the creation or assumption of, or foreclosure thereon, a Lien
securing Indebtedness to the extent that such Lien does not violate the
"--LIMITATION ON LIENS" covenant above; and
(6) the consummation of any sale or series of related sales of assets or
properties of Waste Systems and any Restricted Subsidiary having an
aggregate fair market value for all such sales of less than $1 million in
any fiscal year.
"AVERAGE LIFE" means, as of the date of determination, concerning any
Indebtedness or Preferred Stock, the quotient obtained by dividing (a) the sum
of the product of the numbers of years, rounded upwards to the nearest month,
from the date of determination to the dates of each successive scheduled
principal payment of such Indebtedness or redemption or similar payment
regarding such Preferred Stock multiplied by the amount of such payment by (b)
the sum of all such payments.
"BUSINESS DAY" means any day except Saturday, Sunday and any day on which
banks in The City of New York are required or permitted by law or executive
order to close.
"CAPITAL LEASE OBLIGATION" means, with respect to any Person, an obligation
that is required to be classified and accounted for as a capital lease for
financial reporting purposes in accordance with GAAP, and the amount of
Indebtedness represented by such obligation shall be the capitalized amount of
such obligation determined in accordance with GAAP; and the Stated Maturity
thereof shall be the date of the last payment of rent or any other amount due
under such lease before the first date upon which such lease may be terminated
by the lessee without payment of a penalty.
"CAPITAL STOCK" of any Person means any and all shares, interests,
partnership interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in, however designated, the equity of such
Person, including any Preferred Stock, but excluding debt securities convertible
into such equity.
"CASH EQUIVALENTS" means:
(a) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States;
(b) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Rating Services
("Standard & Poor's") or Moody's Investors Service, Inc. ("Moody's");
(c) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's or at least P-1 from Moody's;
(d) certificates of deposit or bankers' acceptances or, with regard to
foreign banks, similar instruments, maturing within one year from the date
of acquisition thereof issued by any bank organized under the laws of the
United States of America or any state thereof or the District of
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Columbia or any United States branch of a foreign bank having at the date of
acquisition thereof combined capital and surplus of not less than $200
million;
(e) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (a) above entered
into with any bank meeting the qualifications specified in clause (d) above;
and
(f) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (a) through (e)
above.
"CHANGE OF CONTROL" means the occurrence of any of the following events:
(1) any "person" or "group," as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act, is or becomes the "beneficial owner," as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for
purposes of this clause (1) such person or group shall be deemed to have
"beneficial ownership" of all shares that any said person or group has the
right to acquire, whether such right is exercisable immediately or only
after the passage of time, directly or indirectly, of more than 50% of the
total voting power of the outstanding Voting Stock of Waste Systems; or
(2) individuals who on the Closing Date constitute the board of
directors, together with any new or successor directors whose election by
the board of directors or whose nomination by the board of directors for
election by Waste Systems's stockholders was approved by a vote of at least
two-thirds of the members of the board of directors on the date of their
election or nomination, cease for any reason to constitute a majority of the
members of the board of directors then in office; or
(3) the sale, lease or other transfer, in one transaction or a series of
related transactions, of all or substantially all of the assets of Waste
Systems and its Restricted Subsidiaries to any person or group, as so
defined, excluding any such sale, lease or other transfer to or among Waste
Systems's Restricted Subsidiaries.
"CLOSING DATE" means the date on which the Old Senior Notes were originally
issued under the indenture.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any Person
for any period, the ratio of Adjusted EBITDA of such Person for such period to
the Consolidated Fixed Charges of such Person for such period; PROVIDED,
HOWEVER, that:
(1) if Waste Systems or any Restricted Subsidiary has incurred any
Indebtedness since the beginning of such period and through the date of
determination of the Consolidated Fixed Charge Coverage Ratio that remains
outstanding or if the transaction giving rise to the need to calculate
Consolidated Fixed Charge Coverage Ratio is an incurrence of Indebtedness or
both, the Adjusted EBITDA and Consolidated Fixed Charges for such period
shall be calculated after giving effect on a pro forma basis to
(A) such Indebtedness as if such Indebtedness had been incurred on
the first day of such period, provided that if such Indebtedness is
incurred under a revolving credit facility or similar arrangement or
under any predecessor revolving credit or similar arrangement only that
portion of such Indebtedness that constitutes the one year projected
average balance of such Indebtedness, as determined in good faith by the
board of directors of Waste Systems, shall be deemed outstanding for
purposes of this calculation, and
(B) the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such
period;
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(2) if since the beginning of such period any Indebtedness of Waste
Systems or its Restricted Subsidiaries has been repaid, repurchased,
defeased or otherwise discharged, other than Indebtedness under a revolving
credit or similar arrangement unless such revolving credit Indebtedness has
been permanently repaid and the underlying commitment terminated and not
replaced, Consolidated Fixed Charges for such period shall be calculated
after giving pro forma effect thereto as if such Indebtedness had been
repaid, repurchased, defeased or otherwise discharged on the first day of
such period;
(3) if since the beginning of such period Waste Systems or any of its
Restricted Subsidiaries shall have made any Asset Sale, Adjusted EBITDA for
such period shall be reduced by an amount equal to the Adjusted EBITDA, if
positive, attributable to the assets which are the subject of such Asset
Sale for such period or increased by an amount equal to the Adjusted EBITDA,
if negative, attributable to it for such period, the denominator in
Consolidated Fixed Charge Coverage Ratio shall be Consolidated Fixed Charges
for such period
(A) reduced by an amount equal to the Consolidated Fixed Charges
attributable to any Indebtedness of Waste Systems or any of its
Restricted Subsidiaries repaid, repurchased, defeased or otherwise
discharged with respect to Waste Systems and its continuing Restricted
Subsidiaries in connection with such Asset Sale for such period, or if
the capital stock of any Restricted Subsidiary is sold, the Consolidated
Interest for such period directly attributable to the Indebtedness of
Restricted Subsidiary to the extent Waste Systems and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after
such sale, and
(B) increased by interest income attributable to the assets which are
the subject of such Asset Sale for such period;
(4) if since the beginning of such period Waste Systems or any of its
Restricted Subsidiaries, by merger or otherwise, shall have made an
Investment in any Restricted Subsidiary, or any Person which becomes a
Restricted Subsidiary as a result thereof, or an acquisition of assets
occurring in connection with a transaction causing a calculation to be made
hereunder which constitutes all or substantially all of an operating unit of
a business, Adjusted EBITDA and Consolidated Fixed Charges for such period
shall be calculated after giving pro forma effect thereto, including the
incurrence of any Indebtedness, as if such Investment or acquisition
occurred on the first day of such period; and
(5) if since the beginning of such period any Person, that subsequently
became a Restricted Subsidiary of Waste Systems or was merged with or into
Waste Systems or any other Restricted Subsidiary since the beginning of such
period, shall have made any Asset Sale, Investment or acquisition of assets
that would have required an adjustment according to clause (3) or (4) above
if made by Waste Systems or a Restricted Subsidiary during such period,
Adjusted EBITDA and Consolidated Fixed Charges for such period shall be
calculated after giving pro forma effect thereto as if such Asset Sale,
Investment or acquisition had occurred on the first day of such period.
For the purposes of this definition, whenever pro forma effect is to be given to
an acquisition of assets, the amount of income or earnings in relation to and
the amount of Consolidated Fixed Charges associated with any Indebtedness
incurred in connection with an acquisition of assets, the pro forma calculations
shall be determined in good faith by a responsible financial or accounting
officer of Waste Systems. If any Indebtedness bears a floating rate of interest
and is being given pro forma effect, the interest expense on such Indebtedness
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period.
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"CONSOLIDATED FIXED CHARGES" means, with respect to any period without
duplication, the sum of:
(1) the amount that in conformity with GAAP would be set forth opposite
the caption
"interest expense" or any like caption on the consolidated statement of
operations of Waste Systems and its Restricted Subsidiaries for such period,
including, without limitation,
(A) amortization of debt discount,
(B) the net cash payments, if any, under interest rate contracts,
including amortization of discounts,
(C) the interest portion of any deferred payment obligation,
(D) accrued interest; PLUS
(2) the interest component of the Capital Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by Waste Systems and its
Restricted Subsidiaries during such period, of Waste Systems and its
Restricted Subsidiaries; PLUS
(3) all cash dividends paid during such period by Waste Systems and its
Restricted Subsidiaries concerning any Preferred Stock and Disqualified
Stock, in each case as determined on a consolidated basis in accordance with
GAAP; PLUS
(4) all interest on any Indebtedness of any person guaranteed by Waste
Systems or any of its Restricted Subsidiaries; PROVIDED, that Consolidated
Fixed Charges shall not include (x) the amortization of debt issuance costs
and (y) the fixed charges of a Restricted Subsidiary to the extent, and in
the same proportion, that the net income of such Restricted Subsidiary was
excluded in calculating Consolidated Net Income pursuant to clause (5) of
the definition thereof for such period.
"CONSOLIDATED NET INCOME" means, with respect to any period, the net income,
or loss, of Waste Systems and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP, adjusted to the
extent included in calculating such net income, or loss, by excluding, without
duplication,
(1) extraordinary gains and losses;
(2) the portion of net income, or loss, of Waste Systems and its
Restricted Subsidiaries allocable to interests in unconsolidated Persons or
Unrestricted Subsidiaries, except that Waste Systems's equity in the net
income of such Person or Subsidiary shall be included in Consolidated Net
Income to the extent of the amount of dividends or distributions actually
paid to Waste Systems or its Restricted Subsidiaries by such Person or
Subsidiary during such period;
(3) net income, or loss, of any Person combined with Waste Systems or
any of its Restricted Subsidiaries on a "pooling of interests" basis
attributable to any period before the date of combination;
(4) net gain or loss in respect of any sale, transfer or disposition of
assets, including without limitation, pursuant to sale and leaseback
transactions, other than in the ordinary course of business; and
(5) the net income, but not the net loss, of any Restricted Subsidiary
to the extent that the declaration of dividends or similar distributions by
that Restricted Subsidiary of that income to Waste Systems is not at the
date of determination permitted, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to the Restricted
Subsidiary or its stockholders, other than pursuant to the Senior Notes or
the indenture.
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"CREDIT FACILITY" means the Credit Facility established under the Business
Loan Agreement dated September 11, 1998, with regards to which Waste Systems is
a guarantor, by and among Waste Systems Vermont Holdings, Inc. and Waste Systems
Pennsylvania Holdings, Inc. and The BankNorth Group, N.A., including collateral
documents, instruments and agreements executed in connection therewith and any
amendments, supplements, substitutions, qualifications, extensions, renewals,
restatements, replacements, refinancings or refunding thereof.
"CURRENCY AGREEMENT OBLIGATIONS" means the obligations of any Person under a
foreign exchange contract, currency swap agreement or other similar agreement or
arrangement to protect such Person against fluctuations in currency values.
"DEFAULT" means any event that is, or after the giving of notice or passage
of time or both would be, an Event of Default.
"DISQUALIFIED STOCK" means:
(1) any Preferred Stock of any Restricted Subsidiary, and
(2) any class or series of capital stock of Waste Systems that, either
by its terms, or by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise
(A) is, or upon the happening of an event or passage of time would
be, required to be redeemed before one year after the final Stated
Maturity of the Senior Notes;
(B) is redeemable at the option of the holder thereof at any time
before one year after such final Stated Maturity; or
(C) at the option of the holder thereof, is convertible into or
exchangeable for debt securities at any time before one year after such
final Stated Maturity; provided that any capital stock that would not
constitute Disqualified Stock but for provisions therein giving holders
thereof the right to cause the issuer thereof to repurchase or redeem
such capital stock upon the occurrence of an "asset sale" or "change of
control" occurring before the Stated Maturity of the Senior Notes will
not constitute Disqualified Stock if the "asset sale" or "change of
control" provisions applicable to such capital stock are not more
favorable to the holders of such capital stock than the provisions
contained in the "Limitation on Asset Sales" covenant and "Change of
Control" described above and such capital stock specifically provides
that the issuer will not repurchase or redeem any such stock according to
such provision before Waste Systems's repurchase of such Senior Notes as
are required to be repurchased in conformity with the "Limitation on
Asset Sales" covenant and "Change of Control" described above.
"EBITDA" means, with respect to any Person for any period, the sum of
Consolidated Net Income of such Person for such period PLUS
(a) the following to the extent deducted in calculating such
Consolidated Net Income:
(1) provision for taxes based on the net income or profits of such
Person;
(2) Consolidated Fixed Charges, including for this purpose the
amortization of debt issuance costs;
(3) consolidated depreciation and amortization, calculated in
accordance with GAAP; and
(4) any other non-cash charges, excluding any non-cash items that
represent an accrual of or reserve for cash charges reasonably expected
to be disbursed in any subsequent period before the Stated Maturity of
the Senior Notes, deducted in computing Consolidated Net Income, MINUS
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(b) non-cash items increasing Consolidated Net Income, excluding any
items which represent an accrual for cash receipts or the reduction of
required future cash disbursements reasonably expected to be received or
disbursed in a subsequent period before the Stated Maturity of the Senior
Notes.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXISTING INDEBTEDNESS" means Indebtedness of Waste Systems or its
Restricted Subsidiaries in existence on the Closing Date plus any premium or
interest accrued thereon.
"GAAP" means generally accepted accounting principles in the United States
set forth in the Statements of Financial Accounting Standards and the
Interpretations, Accounting Principles Board Opinions and AICPA Accounting
Research Bulletins which are applicable as of December 31, 1998 except as
otherwise specified in this Prospectus.
"GUARANTEE" means any obligation, contingent or otherwise, of any Person
guaranteeing Indebtedness of another Person, including, without limitation,
obligations, agreements to purchase assets, securities or services, to
take-or-pay, or to maintain financial statement conditions, or similar
arrangements or agreements entered into for the purpose of assuring the obligee
of such Indebtedness of the payment thereof or to protect such obligee against
loss in respect thereof, in whole or in part, but excluding (a) endorsements of
negotiable instruments for collection or deposit in the ordinary course of
business, and (b) contingent obligations in connection with the sale or discount
of accounts receivable and similar paper.
"INCUR" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Acquired Indebtedness; PROVIDED that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"INDEBTEDNESS" means, with respect to any Person, without duplication:
(1) the principal of and the premium, if any, on all indebtedness of
such Person for money borrowed or which is evidenced by a note, bond,
debenture or similar instrument for payment;
(2) all obligations of such Person under any conditional sale, title
retention or similar agreement in respect of the deferred or unpaid purchase
price of property or services acquired by such Person;
(3) all Capital Lease Obligations of such Person;
(4) all reimbursement obligations of such Person in respect of letters
of credit, bankers' acceptances or similar facilities issued or created for
the account of such Person;
(5) all net obligations of such Person under Interest Rate Agreement
Obligations or Currency Agreement Obligations of such Person;
(6) all liabilities of others of the kind described in the preceding
clauses (1), (2) or (3) secured by any Lien on any property owned by such
Person even though such Person has not assumed or become liable for the
payment of such liabilities; PROVIDED, HOWEVER, the amount of such
Indebtedness for purposes of this definition shall be limited to the lesser
of the amount of Indebtedness secured by such Lien or the value of the
property subject to such Lien;
(7) all Disqualified Stock issued by such Person and all Preferred Stock
issued by a Restricted Subsidiary of such Person;
(8) the amount of every Capital Lease Obligation of such Person; and
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(9) to the extent not otherwise included, any Guarantee by such Person
of any other Person's Indebtedness or other obligations described in clauses
(1) through (8) above.
For purposes of this definition, the maximum fixed repurchase price of any
Disqualified Stock that does not have a fixed repurchase price will be
calculated in accordance with the terms of such Disqualified Stock as if such
Disqualified Stock were repurchased on any date on which Indebtedness is
required to be determined pursuant to the Indenture, and if such price is based
upon, or measured by, the fair market value of such Disqualified Stock, such
fair market value will be determined in good faith by the board of directors of
the issuer of such Disqualified Stock. "Indebtedness" of Waste Systems and the
Restricted Subsidiaries shall not include:
(1) trade payables incurred in the ordinary course of business; and
(2) contingent obligations incurred in connection with the sale or
discount of accounts receivable and similar paper in the ordinary course of
business.
The principal amount outstanding of any Indebtedness issued with original issue
discount is the accreted value of such Indebtedness and Indebtedness shall not
include any liability for federal, state, local or other taxes. Accrued
liabilities arising in the ordinary course of business and any liability for
federal, state or local taxes or other taxes owed by such person will not be
considered Indebtedness for purposes of this definition.
"INTEREST RATE AGREEMENT OBLIGATIONS" means, with respect to any Person, the
Obligations of such Person under (a) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (b) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"INVESTMENT" in any Person means any direct or indirect advance, loan or
other extension of credit to, including, without limitation, by way of Guarantee
or similar arrangement but excluding advances to customers and employees in the
ordinary course of business, capital contribution to, by means of any transfer
of cash or other property to others or any payment for property or services for
the account or use of others, or any purchase or acquisition of capital stock,
bonds, notes, debentures or other similar instruments issued by, such Person and
shall include the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary. For purposes of the definition of "UNRESTRICTED SUBSIDIARY" and the
"LIMITATION ON RESTRICTED PAYMENTS" covenant described above,
(1) "Investment" shall include the fair market value of the assets, net
of liabilities, of any Restricted Subsidiary of Waste Systems at the time
that such Restricted Subsidiary of Waste Systems is designated an
Unrestricted Subsidiary and shall exclude the fair market value of the
assets, net of liabilities, of any Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is designated a Restricted Subsidiary of Waste
Systems; and
(2) any property transferred to or from an Unrestricted Subsidiary shall
be valued at its fair market value at the time of such transfer, in each
case as determined by the board of directors in good faith.
"LIEN" means any mortgage, lien, statutory or otherwise, pledge, charge,
security interest or encumbrance of any kind upon or concerning any property of
any kind, real or personal, movable or immovable, now owned or hereafter
acquired, whether or not filed, recorded or otherwise perfected under applicable
law, including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in any asset and any filing of, or agreement to give, any
financing statement under the Uniform Commercial Code, or equivalent statutes,
of any jurisdiction. A Person will be deemed to own subject to a Lien any
property that such person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
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"NET CASH PROCEEDS" means, with respect to any Asset Sale by any Person, the
aggregate cash or cash equivalent proceeds thereof, including payments in
respect of deferred payment obligations when received in the form of, or stock
or other assets when disposed for, cash or cash equivalents, except to the
extent that such obligations are financed or sold with recourse to Waste Systems
or any Restricted Subsidiary, pursuant to, or monetization of, a note or
installment receivable or otherwise, net of the sum of:
(1) the amount of any Indebtedness, including Disqualified Stock or
Preferred Stock of a subsidiary, which is required to be repaid by such
Person or its Affiliates in connection with such Asset Sale; PLUS
(2) all fees, commissions and other expenses incurred, including without
limitation, the fees and expenses of legal counsel and investment banking,
accounting, underwriting and brokerage fees and expenses, by such Person in
connection with such Asset Sale; PLUS
(3) provision for taxes, including income taxes, attributable to the
Asset Sale or attributable to required prepayments or repayments of
Indebtedness with the proceeds of such Asset Sale; PLUS
(4) any amounts reasonably to be provided by Waste Systems or any
Restricted Subsidiary, as the case may be, as a reserve in accordance with
GAAP against any liabilities associated with such Asset Sale and retained by
the seller after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale; PLUS
(5) amounts required to be paid to Persons, other than Waste Systems or
a Restricted Subsidiary, holding a beneficial interest in the assets sold in
such Asset Sale or to holders of minority interests in a Restricted
Subsidiary or other entity as a result of such Asset Sale.
"NET PROCEEDS," with respect to any issuance or sale of capital stock, means
the proceeds, in cash, securities or property, with any securities or property
valued at fair market value, of the issuance or the net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees and expenses incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"PERMITTED INVESTMENT" means:
(1) an Investment in Waste Systems or a Restricted Subsidiary or a
Person which will, upon the making of such Investment, become a Restricted
Subsidiary or be merged or consolidated with or into or transfer or convey
all or substantially all its assets to, Waste Systems or a Restricted
Subsidiary; PROVIDED that such Person's primary business is related,
ancillary or complementary to the businesses of Waste Systems and its
Restricted Subsidiaries on the date of such Investment;
(2) Cash Equivalents;
(3) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP;
(4) stock, obligations or securities received in satisfaction of
judgments;
(5) an Investment in any Person consisting solely of the transfer to
such Person of an Investment in another Person that is not a Restricted
Subsidiary;
(6) Investment Grade Securities;
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(7) Interest Rate Agreements and Currency Agreements designed solely to
protect Waste Systems or its Restricted Subsidiaries against fluctuations in
interest rates or foreign currency exchange rates;
(8) Investments, not to exceed $10.0 million at any one time
outstanding, and for purposes of this clause (8) an Investment shall be
deemed to be outstanding in the amount of the excess, but not, in any event,
less than zero, of the amount of such Investment on the date or dates made,
less the return of capital to Waste Systems and its Restricted Subsidiaries
concerning such Investment,; and
(9) Investments, to the extent the consideration therefor consists of
capital stock, other than Disqualified Stock, of Waste Systems or net cash
proceeds from the sale of such capital stock, if such capital stock was
issued or sold within 90 days of the making of such Investment.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"PREFERRED STOCK" as applied to the capital stock of any Person means
capital stock of any class or classes, however designated, whether now
outstanding or issued after the Closing Date, which is preferred as to the
payment of dividends or distributions, or as to the distribution of assets upon
any voluntary or involuntary liquidation or dissolution of such Person, over
capital stock of any other class of such Person.
"PURCHASE MONEY OBLIGATION" means any Indebtedness secured by a Lien on
assets related to the business of Waste Systems or the Restricted Subsidiaries,
and any additions and accessions thereto, which are purchased or constructed by
Waste Systems or any Restricted Subsidiary at any time after the Closing Date;
PROVIDED that:
(1) any security agreement or conditional sales or other title retention
contract pursuant to which the Lien on such assets is created, collectively
a "Security Agreement," shall be entered into within 180 days after the
purchase or substantial completion of the construction of such assets and
shall at all times be confined solely to the assets so purchased or
acquired, any additions and accessions thereto and any proceeds therefrom;
(2) at no time shall the aggregate principal amount of the outstanding
Indebtedness secured thereby be increased, except in connection with the
purchase of additions and accessions thereto and except in respect of fees
and other obligations in respect of such Indebtedness; and
(3) either
(a) the aggregate outstanding principal amount of Indebtedness
secured thereby, determined on a per asset basis in the case of any
additions and accessions, shall not at the time such Security Agreement
is entered into exceed 100% of the purchase price to Waste Systems or any
Restricted Subsidiary of the assets subject thereto, or
(b) the Indebtedness secured thereby shall be with recourse solely to
the assets so purchased or acquired, any additions and accessions thereto
and any proceeds therefrom.
"QUALIFIED STOCK" of any Person means any and all capital stock of such
Person, other than Disqualified Stock.
"RESTRICTED INVESTMENT" means an Investment by Waste Systems or a Restricted
Subsidiary in any Person other than a Restricted Subsidiary.
"RESTRICTED PAYMENT" has the meaning set forth under the covenant entitled
"Limitation on Restricted Payments."
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"RESTRICTED SUBSIDIARY" means each direct or indirect subsidiary of Waste
Systems other than an Unrestricted Subsidiary.
"STATED MATURITY" means, when used with respect to any Senior Note or any
installment of interest thereon, the date specified in such Senior Note as the
fixed date on which the principal of such Senior Note or such installment of
interest is due and payable and, when used with regard to any other
Indebtedness, means the date specified in the instrument governing such
Indebtedness as the fixed date on which the principal of such Indebtedness or
any installment of interest thereon is due and payable.
"SUBORDINATED INDEBTEDNESS" means Indebtedness, including, without
limitation, secured Indebtedness, of Waste Systems or a subsidiary guarantor
which by its express terms is subordinated or junior in right of payment to the
Senior Notes or the subsidiary guarantee issued by such subsidiary guarantor, as
the case may be.
"SUBSIDIARY" of a Person means any Person a majority of the voting power of
the Voting Stock of which is owned or controlled, directly or indirectly, by
such Person or by one or more other subsidiaries of such Person, or by such
Person and one or more other subsidiaries thereof.
"SUBSIDIARY GUARANTEE" means a guarantee of the Senior Notes by a Restricted
Subsidiary in accordance with the provisions of the Indenture.
"UNRESTRICTED SUBSIDIARY" means any subsidiary of Waste Systems designated
as such by the board of directors of Waste Systems pursuant to and in compliance
with the covenant described under "--LIMITATION ON DESIGNATION OF UNRESTRICTED
SUBSIDIARIES" and any subsidiary of an Unrestricted Subsidiary. Any such
Designation may be revoked by a resolution of the board of directors of Waste
Systems delivered to the trustee, subject to the provisions of such covenant.
"VOTING STOCK" of a Person means any class or classes of capital stock of
such Person then outstanding as to which the holders thereof are entitled under
ordinary circumstances, without regard to the occurrence of any contingency, to
vote in the election of directors, managers or trustees of such Person.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" means any Restricted Subsidiary with
respect to which all of the outstanding Voting Stock, other than directors'
qualifying shares, of which are owned, directly or indirectly, by Waste Systems.
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BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the New Senior Notes will initially be issued in
the form of one registered note in global form without coupons. The new global
note shall be deposited with the trustee, as custodian for, and registered in
the name of DTC or a nominee thereof. The Old Senior Notes to the extent validly
tendered and accepted and directed by their holders in their letters of
transmittal, will be exchanged through book-entry electronic transfer for the
new global note. The Old Senior Notes were initially issued in the form of one
registered note in global form without coupons. The treatment of the new global
note described in this section generally also applies to the old global note.
THE GLOBAL NOTE AND DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of DTC and are subject to changes from time to time.
Waste Systems takes no responsibility for these operations and procedures and
urges investors to contact the system or their participants directly to discuss
these matters.
DTC has advised us that it is a:
- limited purpose trust company organized under the laws of the State of New
York,
- member of the Federal Reserve System,
- "clearing corporation" within the meaning of the Uniform Commercial Code
and
- "clearing agency" registered pursuant to the provisions of Section 17A of
the Exchange Act.
DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Waste Systems expects that according to procedures established by DTC:
(1) upon the issuance of the new global note, Waste Systems or its
custodian will credit, on its internal system, the principal amount of the
individual beneficial interests represented by such new global note to the
respective accounts of persons who have accounts with such depository; and
(2) ownership of beneficial interests in the new global note will be
shown on, and the transfer of such ownership will be effected only through:
- records maintained by DTC or its nominee concerning interests of
persons who have accounts with DTC ("participants") and
- the records of participants concerning interests of persons other
than participants.
The accounts initially will be designated by or on behalf of the initial
purchasers of the New Senior Notes and ownership of beneficial interests in the
new global note will be limited to participants or persons who hold interests
through participants.
So long as DTC, or its nominee, is the registered owner or holder of the
notes, DTC or its nominee, as the case may be, will be considered the sole owner
or holder of the notes represented by a global note for all purposes under the
indenture. No beneficial owner of an interest in a global note
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will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the indenture.
Payments of the principal of, premium, if any, and interest on, a global
note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of Waste Systems, the trustee or any paying agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a global note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
We expect that DTC or its nominee, upon receipt of any payment of principal,
premium, if any, or interest on a global note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the global note as shown on the records of
DTC or its nominee. Waste Systems also expects that payments by participants to
owners of beneficial interests in the global note held through such participants
will be governed by standing instructions and customary practice, as is now the
case with securities held for the accounts of customers registered in the names
of nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
certificated note for any reason, including to sell Senior Notes to persons in
jurisdictions which require physical delivery of the Senior Notes, or to pledge
such securities, the holder must transfer its interest in the global note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the indenture. Consequently, the ability to transfer Senior Notes or to
pledge Senior Notes as collateral will be limited to that extent. Transfers
between participants in Euroclear and Cedel will be effected in the ordinary way
in accordance with their respective rules and operating procedures.
Senior Notes that are issued as described below under "certificated notes,"
will be issued in registered definitive form without coupons. Upon transfer of
certificated notes, such certificated notes may, unless the global note has
previously been exchanged for certificated notes, be exchanged for an interest
in the global note representing the principal amount of notes being transferred.
DTC has advised us that it will take any action permitted to be taken by a
holder of Senior Notes, including the presentation of Senior Notes for exchange
as described below, only at the direction of one or more participants to whose
account the DTC interest in the global note is credited and only in respect of
such portion of the aggregate principal amount of Senior Notes as to which the
participant or participants has or have given such direction. However, if there
is an event of default under the indenture, DTC will exchange the global notes
for certificated notes, which it will distribute to its participants.
Although DTC has agreed to the preceding procedures to facilitate transfers
of interests in the global notes among participants of DTC, it is under no
obligation to perform such procedures, and such procedures may be discontinued
at any time. Neither Waste Systems nor the trustee will have any responsibility
for the performances by DTC or its participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
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CERTIFICATED NOTES
The old global note is exchangeable for definitive Old Senior Notes in
registered certificated form, and the new global note is exchangeable for
definitive New Senior Notes in registered certificated form, in each case, if:
(1) DTC:
(a) notifies Waste Systems and the trustee that it is unwilling or
unable to continue as depositary for the global note; or
(b) has ceased to be a clearing agency registered under the Exchange
Act;
and, in either case, Waste Systems fails to appoint a successor
depository within 90 days;
(2) Waste Systems, at our option, notifies the trustee in writing that
it elects to cause the issuance of the certificated notes; or
(3) there shall have occurred and be continuing a default or event of
default with respect to the Senior Notes as defined in the indenture.
In all cases, certificated notes delivered in exchange for a global note or
beneficial interests in the global note will be registered in the names, and
issued in any approved denominations, requested by or on behalf of the
depositary, in accordance with its customary procedures, and will bear the a
restrictive legend, unless Waste Systems determines otherwise in compliance with
applicable law.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
consequences of the acquisition, ownership and disposition of New Senior Notes
by investors that acquire New Senior Notes in the exchange offer. We do not
discuss all of the aspects of United States federal income taxation which may be
relevant to certain investors in light of their particular investment or other
circumstances. In addition, we do not discuss any United States state or local
income or foreign income or other tax consequences.
This summary is based upon the provisions of the Internal Revenue Code,
Treasury Regulations and administrative and judicial interpretations thereof,
all as in effect on the date of this Prospectus and all of which are subject to
change or differing interpretation, possibly with retroactive effect. The
discussion below deals only with New Senior Notes held as capital assets
(generally, property held for investment), and does not address holders of New
Senior Notes that may be subject to special rules, including, without
limitation, certain United States expatriates, financial institutions, insurance
companies, tax-exempt entities, dealers in securities or currencies, traders in
securities that elect mark-to-market accounting treatment, foreign corporations
or entities or persons who are not citizens or residents of the United States,
and persons who hold New Senior Notes as part of a straddle, hedge, conversion
or other integrated transaction. You should consult your own tax advisor
regarding the particular United States federal, state and local and foreign
income and other tax consequences of acquiring, owning and disposing of the New
Senior Notes that may be applicable to you.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of Old Senior Notes for New Senior Notes in the exchange offer
will not be a taxable exchange for federal income tax purposes and, accordingly,
a holder will not recognize any taxable gain or loss as a result of an exchange.
Instead, the "tax attributes" of each Old Senior Note exchanged will carry over
and apply to the New Senior Note, including holding period, cost basis, and any
original issue discount.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO UNITED STATES PERSONS
Set forth below is a summary of certain United States federal income tax
consequences to a "United States person" relating to the acquisition, ownership,
and disposition of New Senior Notes. A United States person is a person who is,
for United States federal income tax purposes,
(1) a citizen or individual resident of the United States,
(2) a corporation, partnership, or other business entity created or
organized in or under the laws of the United States or of any political
subdivision thereof,
(3) an estate the income of which is included in gross income for United
States federal income tax purposes regardless of its source, or
(4) a trust if, in general, the trust is subject to the supervision of a
court within the United States and the control of one or more United States
persons as described in section 7701(a)(30) of the Internal Revenue Code.
ALLOCATION OF ISSUE PRICE AMONG SENIOR NOTES AND WARRANTS. The Old Senior
Notes were issued in units ("Units") each consisting of $10,000 principal amount
of Old Senior Notes and warrants (the "Warrants") to purchase 150 shares of
common stock of Waste Systems. The issue price of each Unit, which was its sale
price in the offering, must be allocated between the Old Senior Notes and
Warrants based upon their relative fair market values. That allocation is used
to determine the issue price of the Old Senior Notes, as well as the initial
purchaser's income tax basis in the Old Senior Notes and Warrants.
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<PAGE>
We allocated the issue price of each Unit between the Old Senior Notes and
the Warrants comprising the Unit in accordance with our determination of their
relative fair market values at the closing of the offering. For this purpose, we
allocated approximately 99.7% of the issue price in a Unit to the Old Senior
Notes and approximately 0.3% to the Warrants. However, our allocation is not
binding on the Internal Revenue Service, which may challenge the allocation.
Nonetheless, each holder is bound by our allocation unless such holder discloses
in its timely filed United States federal income tax return for the taxable year
in which it acquires the Units that such holder intends to use an allocation
that is inconsistent with our allocation.
TAX TREATMENT OF THE NEW SENIOR NOTES. Because the Old Senior Notes are
restricted securities under the Securities Act, they are not freely tradeable.
As explained in "Description of Senior Notes-- Exchange Offer; Registration
Rights," to give holders tradeable securities we are required to offer to
exchange the Old Senior Notes for newly issued New Senior Notes under a
registration statement. If we do not meet certain deadlines with respect to the
filing of either of the registration statements or commencement of the exchange
offer with respect to the Old Senior Notes, a registration default will exist.
If a registration default occurs, we will be required to pay liquidated damages
to Old Senior Note holders in the form of additional interest. In addition, as
explained in "Description of Senior Notes-- Change of Control," in the event of
a Change of Control, each holder of Senior Notes will have the right to require
us to repurchase the holder's Senior Notes at 101% of the aggregate principal
amount thereof, plus any accrued and unpaid interest.
Moreover, as explained in "Description of Senior Notes--Summary of General
Terms of the Senior Notes," the interest rate on the Senior Notes will be
increased if Adjusted Stockholders' Equity is not at least $40,000,000 on each
of December 31, 1999, June 30, 2000, and December 31, 2000.
Under the Treasury Regulations, certain contingent payments on debt
instruments (such as the additional interest payable as liquidated damages upon
a default under the Senior Notes indenture for (1) failure to timely register
the Old Senior Notes, or (2) failure to attain the requisite Adjusted
Stockholders' Equity) must be accrued into gross income by a holder (regardless
of the holder's method of accounting). However, the accrual is not required if
the likelihood the contingency will occur is remote or is an incidental
contingency. The determination of whether a contingency is remote or is an
incidental contingency is made as of the issue date. We have taken the position
that the additional interest and liquidated damages payments, resulting from a
Change of Control or a default under the Senior Notes indenture for failure to
timely register the Old Senior Notes, are subject to a remote or incidental
contingency.
However, we have concluded that the additional interest potentially due in
connection with a failure to attain the requisite Adjusted Stockholders' Equity
does NOT qualify as a remote or incidental contingency. Accordingly, we have
treated the Senior Notes under the "noncontingent bond method" of the Treasury
Regulations applicable to contingent payment debt instruments (the "Contingent
Payment Regulations"). Under the Contingent Payment Regulations, we must
determine a comparable yield for the Senior Notes. The comparable yield is
generally the yield at which we would issue a fixed rate debt instrument with
terms similar to the Senior Notes, other than the potential contingent interest;
PROVIDED, HOWEVER, that the comparable yield may be a lesser number if the
Senior Notes are sold or marketed in substantial part to tax exempt
organizations or certain foreign persons or entities. Thereafter, we must
determine a projected payment schedule for the Senior Notes, taking into account
the anticipated amounts of these additional interest payments such that the
yield of the Senior Notes is equal to the previously-determined comparable
yield. Our determination of the projected payment schedule generally is binding
on a Senior Note holder unless it is unreasonable and unless such holder
discloses a different payment schedule and the reason for such different
schedule in its timely filed United States federal income tax return for the
taxable year in which it acquires the Senior Notes.
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ACCRUAL OF INTEREST INCOME UNDER THE CONTINGENT PAYMENT REGULATIONS. During
the term of the Senior Notes, a holder will be required to include in income the
sum of the daily portions of interest on the Senior Note that are deemed to
accrue at this comparable yield for each day during the taxable year, or portion
of the taxable year, on which the United States holder holds such Senior Note.
The amount of interest that will be deemed to accrue in any accrual period,
i.e., generally each six-month period during which the Senior Notes are
outstanding, will equal the product of this comparable yield, properly adjusted
for the length of the accrual period, and the Senior Note's adjusted issue price
at the beginning of the accrual period. The daily portions of interest will be
determined by allocating to each day in the accrual period the ratable portion
of the interest that is deemed to accrue during the accrual period. In general,
for these purposes a Senior Note's adjusted issue price will equal the Senior
Note's issue price, increased by the interest previously accrued on the Senior
Note and reduced by interest payments received on the Senior Notes. Such
interest will be treated as original issue discount under the Contingent Payment
Regulations. As a result of the foregoing rules, a United States holder will not
be required to additionally include in income the stated interest payments
received on its Senior Notes.
In addition, with respect to any interest payments subject to a contingency,
a holder will be required to offset its original issue discount accruals for a
taxable year with respect to the Senior Notes to the extent actual interest
payments received are less than the projected interest payments (i.e., a
negative adjustment). Similarly, a holder will be required to include in income
interest equal to the amount by which the actual interest payments received
exceed the project interest payments (i.e., a positive adjustment).
IMPACT OF APPLICABLE HIGH YIELD DISCOUNT OBLIGATION RULES. Because the
"yield to maturity" on the Senior Notes exceeds the sum of 5% and the
"applicable federal rate" in effect for the month in which the Senior Notes were
issued (March 1999), the Senior Notes will be considered "applicable high yield
discount obligations" if they have "significant" original issue discount. A debt
instrument has "significant" original issue discount if the aggregate amount of
unpaid interest (including original issue discount) as of the close of any
accrual period ending after the date five years after the date of issue exceeds
the product of the issue price of such instrument and its yield to maturity.
Provided the allocation of the issue price of the Units among the Senior Notes
and Warrants as described above in "--Allocation of Issue Price Among Senior
Notes and Warrants" and the projected payment schedule for the Senior Notes as
determined by us and described above in "--Tax Treatment of the New Senior
Notes" are not found by the Internal Revenue Service to have been unreasonable,
the Senior Notes should not have "significant" original issue discount and
accordingly should not be considered applicable high yield discount obligations.
If the Senior Notes are applicable high yield discount obligations, we will
not be permitted to deduct for United States federal income tax purposes
original issue discount accrued on the Senior Notes until such time as we
actually pay such original issue discount in cash or in property other than our
stock or debt (or stock or debt of persons related to us). Moreover, to the
extent that the yield to maturity of the Senior Notes exceeds the sum of 6% and
the applicable federal rate, such excess (the "Dividend-Equivalent Interest")
will not be deductible at any time by us for United States federal income tax
purposes (regardless of whether we actually pay such Dividend-Equivalent
Interest in cash or in other property). Such Dividend-Equivalent Interest would
be treated as a dividend to the extent it is deemed to have been paid out of our
current or accumulated earnings and profits. Accordingly, if a holder is a
domestic corporation, it may be entitled to take a dividends-received deduction
with respect to any Dividend-Equivalent Interest received.
MARKET DISCOUNT AND BOND PREMIUM. If a holder purchases a New Senior Note,
or purchased the Old Senior Note for which the New Senior Note was exchanged, as
the case may be, at a price that is less than its principal amount, the excess
of the principal amount over the holder's purchase price will be treated as
"market discount." However, the market discount will be considered to be zero if
it is less than 1/4 of 1% of the principal amount multiplied by the number of
complete years to maturity
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<PAGE>
from the date the holder purchased such New Senior Note or Old Senior Note.
Under the market discount rules of the Internal Revenue Code, a holder generally
will be required to treat any principal payment on, or any gain realized on the
sale, exchange, retirement or other disposition of, a New Senior Note as
ordinary income, which is generally treated as interest income, to the extent of
the market discount which accrued but was not previously included in income. In
addition, the holder may be required to defer, until the maturity of the New
Senior Note or its earlier disposition in a taxable transaction, the deduction
of all or a portion of the interest expense on any indebtedness incurred or
continued to purchase or carry such New Senior Note or the Old Senior Note for
which the New Senior Note was exchanged, as the case may be.
In general, market discount will be considered to accrue ratably during the
period from the date of acquisition of the New Senior Note or Old Senior Note
for which the New Senior Note was exchanged, as the case may be, to the maturity
date of the New Senior Note, unless the holder makes an irrevocable election, on
an instrument-by-instrument basis, to accrue market discount under a constant
yield method. A holder may elect to include market discount in income currently
as it accrues, under either a ratable or constant yield method, in which case
the rules described above regarding the treatment as ordinary income of gain
upon the disposition of the New Senior Note and upon the receipt of certain
payments and the deferral of interest deductions will not apply. The election to
include market discount in income currently, once made, applies to all market
discount obligations acquired on or after the first day of the first taxable
year to which the election applies, and may not be revoked without the consent
of the Internal Revenue Service.
If a holder purchases a New Senior Note or purchased the Old Senior Note for
which the New Senior Note was exchanged, as the case may be, for an amount in
excess of the amount payable at maturity of the New Senior Note, such holder
will be considered to have purchased the New Senior Note or Old Senior Note with
"bond premium" equal to the excess of the holder's purchase price over the
amount payable at maturity or on an earlier call date if it results in a smaller
amortizable bond premium. A holder may elect to amortize the premium using a
constant yield method over the remaining term of the New Senior Note or until an
earlier call date if it resulted in a smaller amortizable bond premium. The
amortized amount of such premium for a taxable year generally will be treated
first as a reduction of interest on such New Senior Note included in such
taxable year to the extent thereof, then as a deduction allowed in that taxable
year to the extent of the holder's prior interest inclusions on such New Senior
Note, and finally as a carryforward allowable against the holder's future
interest inclusions on such New Senior Note. Such election, once made, is
irrevocable without the consent of the Internal Revenue Service and applies to
all taxable bonds held during the taxable year for which the election is made or
subsequently acquired.
SALE, EXCHANGE OR REDEMPTION OF NEW SENIOR NOTES. The tax consequences of a
sale, exchange or redemption of New Senior Notes are as follows:
- In general, a holder will recognize gain or loss upon the sale,
redemption, retirement or other disposition of a New Senior Note equal to
the difference between (1) the amount of cash plus the fair market value
of any property received in the sale (except to the extent attributable to
the payment of accrued qualified stated interest) and (2) such holder's
tax basis in the New Senior Note.
- A holder's tax basis in a New Senior Note generally will equal the price
such holder paid for the Senior Note, determined as described in
"--Allocation of Issue Price Among Senior Notes and Warrants," increased
by the amount of original issue discount previously taken into income by
such holder with respect to the Senior Note and reduced by interest
payments received on the Senior Note.
- As a result of the application of the Contingent Payment Regulations, any
gain recognized on a disposition of a New Senior Note will be ordinary.
Any loss will also be ordinary to the extent of
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<PAGE>
previously included interest on the Senior Notes, and any loss in excess
of previously included interest will be capital loss.
BACKUP WITHHOLDING. In general, "backup withholding" at a rate of 31% may
apply to payments of principal and interest made on a New Senior Note, and to
the proceeds of a sale or exchange of a New Senior Note before maturity, that
are made to a non-corporate holder if such holder fails to provide a correct
taxpayer identification number or otherwise comply with applicable requirements
of the backup withholding rules. The backup withholding tax is not an additional
tax and may be credited against a holder's United States federal income tax
liability, provided that correct information is provided to the Internal Revenue
Service.
Holders of the New Senior Notes should consult their tax advisers regarding
the application of backup withholding in their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available. Any amounts withheld from payment under the backup
withholding rules will be allowed as a credit against the holder's United States
federal income tax liability and may entitle the holder to a refund if the
required information is furnished to the Internal Revenue Service.
CERTAIN FEDERAL TAX CONSEQUENCES TO FOREIGN PERSONS
Prospective foreign investors should note that notwithstanding the exclusion
from federal income taxation and withholding generally applicable to debt
instruments such as the New Senior Notes, such exclusion likely is not
applicable to the additional interest payable on the New Senior Notes if the
requisite Adjusted Stockholders' Equity is not attained (including any related
accrual of such additional interest under the Contingent Payment Regulations).
In addition, additional interest could cause a portion of the New Senior Notes
held by foreign individuals to be subject to United States federal estate tax,
notwithstanding the exclusion from the United States federal estate tax
generally applicable to debt instruments held by individuals who at the time of
death are not Persons or residents of the United States. ACCORDINGLY, THE NEW
SENIOR NOTES MAY NOT BE AN APPROPRIATE PURCHASE FOR INVESTORS WHO ARE NOT UNITED
STATES CITIZENS.
THE PRECEDING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX
ADVICE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISER AS TO THE PARTICULAR
TAX CONSEQUENCES TO YOU OF THE EXCHANGE OFFER AND OF PURCHASING, HOLDING AND
DISPOSING OF THE OLD SENIOR NOTES OR THE NEW SENIOR NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR NON-UNITED STATES TAX LAWS AND
ANY RECENT OR PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Senior Notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of New Senior Notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Senior Notes received in exchange for Old Senior Notes where
the Old Senior Notes were acquired as a result of market-making activities or
other trading activities. We have agreed that, for a period of 180 days after
the completion of the exchange offer, we will make this prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
resale by applicable broker-dealers.
We will not receive any proceeds from any sale of New Senior Notes by
broker-dealers. New Senior Notes received by broker-dealers for their own
account in the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Senior Notes or a combination of the foregoing
methods of resale, at market prices prevailing at the time of resale, at prices
related to the prevailing market prices or negotiated prices. Any resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any broker-dealer or
purchasers, or both, of any New Senior Notes. Any broker-dealer who (1) held Old
Senior Notes acquired for its own account as a result of market-making
activities or other trading activities, and (2) receives New Senior Notes as a
result of participating in the exchange offer is considered a participating
broker-dealer. Each participating broker-dealer (a) may be deemed to be an
"underwriter" within the meaning of the Securities Act, (b) must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of New Senior Notes, and (c) may be deemed to receive underwriting
compensation under the Securities Act to the extent of any profit and any
commissions or concessions received by such person on any resale of New Senior
Notes. The letter of transmittal, to be executed and delivered by each holder of
Old Senior Notes desiring to participate in the exchange offer, states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
We will promptly furnish a reasonable number of additional copies of this
prospectus and any amendment or supplement to this prospectus to any
broker-dealer that requests this document in the letter of transmittal. We have
agreed to pay all expenses incident to the exchange offer other than commissions
or concessions of any brokers or dealers and will indemnify the holders of the
New Senior Notes, including any broker-dealers, against certain liabilities,
including liabilities under the Securities Act. We note, however, that in the
opinion of the Securities and Exchange Commission, indemnification against
liabilities arising under federal securities laws is against public policy and
may be unenforceable.
Following consummation of the exchange offer, we may, in our sole
discretion, commence one or more additional exchange offers to holders of Old
Senior Notes who did not exchange their Old Senior Notes for New Senior Notes in
the exchange offer on terms which may differ from those contained in the
registration rights agreement. This prospectus, as it may be amended or
supplemented from time to time, may be used by us in connection with any
additional exchange offers. Additional exchange offers will take place from time
to time until all outstanding Old Senior Notes have been exchanged for New
Senior Notes pursuant to the terms and conditions contained in this prospectus.
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LEGAL MATTERS
Goodwin, Procter & Hoar LLP, Boston, Massachusetts, will pass upon specific
legal matters, including certain tax matters on our behalf, concerning the New
Senior Notes.
EXPERTS
The consolidated financial statements of Waste Systems as of December 31,
1998 and 1997 and for each of the years in the three-year period ended December
31, 1998, appearing in this prospectus, have been audited by KPMG LLP,
independent certified public accountants, and in reliance upon the authority of
said firm as experts in accounting and auditing.
WHERE YOU MAY FIND MORE INFORMATION
We have filed a registration statement on Form S-4 with the Securities and
Exchange Commission covering the issuance of the New Senior Notes in the
exchange offer. This prospectus, which is part of the registration statement,
omits certain information included in the registration statement. Statements
made in this prospectus as to the contents of any contract, agreement or other
document are not necessarily complete. Since this prospectus may not contain all
the information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement.
We are currently subject to the periodic reporting and other informational
requirements of the Securities Exchange Act and, in accordance with these rules,
we file annual, quarterly and other information with the Securities and Exchange
Commission. In addition, the Senior Notes indenture requires that we file
reports under the Securities Exchange Act, with the Securities and Exchange
Commission and provide those reports to the trustee and holders of the notes.
You can inspect and copy at prescribed rates the reports and other information
that we file with the Securities and Exchange Commission at the public reference
facilities maintained by the Securities and Exchange Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and also at the
regional offices of the Securities and Exchange Commission located at 7 World
Trade Center, Suite 1300, New York, New York 10048 and the Citicorp Center at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may
obtain information on the operation of the public reference facilities by
calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities
and Exchange Commission also maintains an internet web site at
http://www.Securities and Exchange Commission.gov that contains reports, proxy
and information statements and other information. You can also obtain copies of
these materials from us upon request.
We have agreed that we will file with the trustee copies of the annual and
quarterly reports, as well as the other periodic reports, that we may be
required to file with the Securities and Exchange Commission pursuant to Section
13 or Section 15(d) of the Securities Act of 1934 for so long as any of the
Senior Notes remain outstanding. If we are not required to make filings with the
Securities and Exchange Commission, a Senior Note holder may request that we
make publicly available the information necessary for a holder to sell the
Senior Notes in conformity with the registration exemptions outlined in Rule 144
and Rule 144A under the Securities Act of 1933. We have agreed to make this
information publicly available upon request by a holder of the Senior Notes.
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DOCUMENTS INCORPORATED BY REFERENCE
All documents that we file with the Securities and Exchange Commission
pursuant to sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
after the date of this prospectus will be deemed to be incorporated by reference
into this prospectus and to be part of this prospectus from the date of the
filing of such documents with the Securities and Exchange Commission. Any
statement contained in this prospectus or in a document incorporated or deemed
to be incorporated by reference in this prospectus will be deemed to be modified
or superseded for purposes of this prospectus if a statement contained in this
prospectus or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded will not be deemed,
except as so modified or superseded, to constitute a part of this prospectus.
Statements contained in this prospectus or in any document incorporated by
reference in this prospectus as to the contents of any contract or other
document referred to herein or therein are not necessarily complete. In each
instance, where applicable, we refer you to the copy of such contract or other
document filed as an exhibit to the documents incorporated by reference, each
such statement being qualified in all respects by such reference.
This prospectus incorporates documents by reference that are not presented
in this prospectus or delivered with this prospectus. Copies of these documents,
other than exhibits to these documents that are not specifically incorporated by
reference in this prospectus, are available without charge to each person to
whom a copy of this prospectus is delivered, upon the written or oral request of
that person. Requests for information should be directed to Waste Systems
International, Inc., 420 Bedford Street, Suite 300, Lexington, Massachusetts
02420 (telephone number (781) 862-3000), attention: Chief Financial Officer.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
December 31, 1998, 1997 and 1996:
Report of Independent Auditors..................................................... F-2
Consolidated Balance Sheets at December 31, 1998 and 1997.......................... F-3
Consolidated Statement of Operations for the Years Ended December 31, 1998, 1997
and 1996......................................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997
and 1996......................................................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended
December 31, 1998, 1997 and 1996................................................. F-7
Notes to Consolidated Financial Statements......................................... F-11
March 31, 1999 and 1998:
Consolidated Balance Sheet at March 31, 1999 (unaudited)........................... F-31
Consolidated Statements of Operations for the Three Months Ended March 31, 1999 and
1998 (unaudited)................................................................. F-32
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999 and
1998 (unaudited)................................................................. F-33
Notes to Consolidated Financial Statements......................................... F-34
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Waste Systems International, Inc.:
We have audited the accompanying consolidated balance sheets of Waste Systems
International, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 Waste Systems
International, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
KPMG LLP
Boston, Massachusetts
March 12, 1999
F-2
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents....................................................... $ 193,613 $ 2,964,274
Accounts receivable, less allowance for doubtful accounts of $222,028 and
$45,833 in 1998 and 1997, respectively........................................ 5,235,534 944,793
Prepaid expenses and other current assets (Note 4).............................. 4,769,285 1,366,092
------------- -------------
Total current assets........................................................ 10,198,432 5,275,159
Restricted cash and securities.................................................... 39,842 254,000
Property and equipment, net (Notes 2, 3 and 5).................................... 44,685,735 12,487,183
Intangible assets, net (Notes 2, 3 and 6)......................................... 38,059,374 96,832
Other assets...................................................................... 3,133,316 447,080
------------- -------------
Total assets $ 96,116,699 $ 18,560,254
------------- -------------
------------- -------------
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt and notes payable (Note 7).................... $ 8,259,922 $ 843,831
Accounts payable................................................................ 3,849,632 353,937
Accrued expenses (Note 8)....................................................... 2,742,539 2,544,995
Deferred revenue................................................................ 1,866,128 --
------------- -------------
Total current liabilities................................................... 16,718,221 3,742,763
Long-term debt and notes payable (Note 7)......................................... 74,861,187 7,201,262
Landfill closure and post-closure costs (Notes 2 and 10).......................... 2,798,597 1,644,000
------------- -------------
Total liabilities........................................................... 94,378,005 12,588,025
------------- -------------
Commitments and Contingencies (Note 11)
Stockholders' equity (Notes 12, 13, 14 and 20):
Common stock, $.01 par value. Authorized 30,000,000 shares; 11,718,323 and
3,893,415 shares issued and outstanding at December 31, 1998 and 1997,
respectively.................................................................... 117,184 38,934
Preferred stock, $.001 par value. Authorized 1,000,000 shares:
Series A Convertible Preferred Stock; 200,000 shares designated, 0 and 92,580
shares issued and outstanding at December 31, 1998 and 1997, respectively..... -- 9,257,807
Series B Convertible Preferred Stock; 100,000 shares designated, 0 and 40,488
shares issued and outstanding at December 31, 1998 and 1997, respectively..... -- 4,048,750
Additional paid-in capital........................................................ 37,810,712 21,432,437
Accumulated deficit............................................................... (36,189,202) (28,805,699)
------------- -------------
Total stockholders' equity.................................................. 1,738,694 5,972,229
------------- -------------
Total liabilities and stockholders' equity.................................. $ 96,116,699 $ 18,560,254
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Revenues................................................................... $21,044,584 $3,457,692 $ 1,495,606
---------- ---------- -----------
Cost of operations:
Operating expenses....................................................... 12,399,529 1,718,214 920,553
Depreciation and amortization............................................ 4,501,424 692,224 369,785
Acquisition integration costs (Note 3)................................... 1,864,535 -- --
Write-off of project development costs (Note 17)......................... 235,464 1,495,388 6,652,075
---------- ---------- -----------
Total cost of operations............................................... 19,000,952 3,905,826 7,942,413
---------- ---------- -----------
Gross profit (loss).................................................... 2,043,632 (448,134) (6,446,807)
Selling, general and administrative expenses............................... 4,482,478 2,138,180 2,442,816
Amortization of prepaid consulting fees.................................... -- -- 834,375
Restructuring (Note 16).................................................... -- 596,426 1,741,729
---------- ---------- -----------
Loss from operations................................................... (2,438,846) (3,182,740) (11,465,727)
---------- ---------- -----------
Other income (expense):
Royalty and other income (expense), net.................................. (134,455) (515,875) 935,358
Interest income.......................................................... 441,069 172,363 178,224
Interest expense and financing costs..................................... (4,073,693) (1,354,614) (1,182,118)
Write-off of accounts receivable (Note 15)............................... -- (568,217) --
Equity in loss of affiliate.............................................. -- -- (96,144)
Write-off of assets...................................................... -- -- (21,858)
---------- ---------- -----------
Total other income (expense)........................................... (3,767,079) (2,266,343) (186,538)
---------- ---------- -----------
Loss before income tax expense (benefit), discontinued operations and
extraordinary item................................................... (6,205,925) (5,449,083) (11,652,265)
Income tax expense (benefit) (Note 9).................................... 43,174 5,622 (23,456)
---------- ---------- -----------
Loss from continuing operations........................................ (6,249,099) (5,454,705) (11,628,809)
Discontinued operations (Note 16)........................................ -- -- (2,260,963)
---------- ---------- -----------
Loss before extraordinary item......................................... (6,249,099) (5,454,705) (13,889,772)
Extraordinary item--
loss on extinguishment of debt (Note 7)............................ (246,535) (133,907) --
---------- ---------- -----------
Net loss............................................................... (6,495,634) (5,588,612) (13,889,772)
Preferred stock dividends (Note 13)...................................... 887,869 -- --
---------- ---------- -----------
Net loss available for common shareholders........................... $(7,383,503) $(5,588,612) $(13,889,772)
---------- ---------- -----------
---------- ---------- -----------
Basic net loss per share:
Loss from continuing operations.......................................... $ (0.97) $ (1.51) $ (4.10)
Discontinued operations.................................................. -- -- (0.80)
Extraordinary item....................................................... (0.03) (0.04) --
---------- ---------- -----------
Basic net loss per share................................................. $ (1.00) $ (1.55) $ (4.90)
---------- ---------- -----------
---------- ---------- -----------
Weighted average number of shares used in computation of basic net loss per
share.................................................................... 7,389,547 3,612,623 2,834,841
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................................. $(6,495,634) $(5,588,612) $(13,889,772)
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
Depreciation and amortization.......................................... 5,248,354 900,549 1,556,380
Extraordinary loss on extinguishment of debt........................... 246,535 133,907 --
Accrued landfill closure and post-closure costs........................ 1,154,597 124,000 20,000
Write-off of project development costs................................. 235,284 1,495,388 6,652,075
Write-off of accounts receivable and other assets...................... -- 568,217 21,858
Discontinued operations................................................ -- -- 2,260,963
Minority interest...................................................... -- -- (12,655)
Equity in loss of affiliate............................................ -- -- 96,144
Issuance of common stock for services.................................. 12,500 44,854 17,157
Allowance for doubtful accounts........................................ 176,195 23,333 10,000
Changes in assets and liabilities:
Accounts and notes receivable........................................ (2,004,616) 73,503 375,519
Prepaid expenses and other current assets............................ (861,529) (242,092) 16,558
Accounts payable..................................................... 1,372,730 (1,175,139) (1,253,507)
Accrued expenses..................................................... 640,869 62,463 777,516
Deferred revenue..................................................... 1,645,124 -- --
---------- ---------- -----------
Net cash used by continuing operations................................. 1,370,409 (3,579,629) (3,351,764)
Net cash used by discontinued operations and restructuring............. (778,609) (1,006,488) (560,377)
---------- ---------- -----------
Net cash provided (used) by operating activities....................... 591,800 (4,586,117) (3,912,141)
---------- ---------- -----------
Cash flows from investing activities:
Proceeds from sale of assets............................................. -- 800,000 127,500
Net assets acquired through acquisitions................................. (58,340,223) --
Restricted cash and securities........................................... 214,158 956,017 (1,022,517)
Investment in affiliate.................................................. -- -- (86,115)
Landfills................................................................ (5,372,481) (307,552) (5,199,493)
Landfill and other development projects.................................. (99,655) (263,868) (467,855)
Land, buildings, facilities and improvements............................. (664,264) --
Machinery and equipment.................................................. (189,215) (114,330) (914,600)
Rolling stock............................................................ (1,403,747) (122,905) --
Containers............................................................... (617,813) (189,109) (16,716)
Office furniture and equipment........................................... (684,515) --
Deposits for future acquisitions......................................... (2,210,667) -- --
Intangible assets........................................................ (709,881) -- (35,261)
Other assets............................................................. (1,860,527) (52,127) (26,162)
---------- ---------- -----------
Net cash provided (used) by investing activities....................... (71,938,830) 706,126 (7,641,219)
---------- ---------- -----------
Cash flows from financing activities:
Deferred financing and registration costs................................ (1,808,962) (56,098) (86,074)
Net borrowings and advances from stockholders and related parties........ -- -- (114,575)
Repayments of notes payable and long-term debt........................... (15,217,063) (2,445,476) (426,734)
Borrowings from notes payable and long-term debt......................... 86,449,857 1,143,861 1,117,982
Proceeds from issuance of common stock................................... 40,406 686,724 6,090,473
Proceeds from issuance of Series A preferred stock....................... -- 7,250,478 --
Dividends paid........................................................... (887,869) --
---------- ---------- -----------
Net cash provided by financing activities.............................. 68,576,369 6,579,489 6,581,072
---------- ---------- -----------
Increase (decrease) in cash and cash equivalents........................... (2,770,661) 2,699,498 (4,972,288)
Cash and cash equivalents, beginning of year............................... 2,964,274 264,776 5,237,064
---------- ---------- -----------
Cash and cash equivalents, end of year..................................... $ 193,613 $2,964,274 $ 264,776
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Supplemental disclosures of cash flow information:
During the years ended December 31, 1998, 1997 and 1996, cash paid for interest
was $3,715,304, $1,493,221, and $1,201,864, respectively.
Supplemental disclosures of non-cash activities:
During 1998, 1997 and 1996 the Company acquired assets of $2,113.591, $2,190,050
and $683,777 respectively, under capital lease obligations.
In connection with the Company's acquisitions, during 1998, the Company acquired
property and equipment of $24,297,759, intangible assets of $35,170,590 and
other assets of $336,619. The Company paid $58,340,233 in cash and assumed
liabilities from the acquired companies of $1,464,735.
During 1998, the Company converted 92,580 shares or $9,257,807 of its Series A
Preferred Stock into 6,590,577 shares of its Common Stock.
On September 22, 1998, the Company issued 455,922 shares of its Common Stock in
connection with the acquisition of Mattei-Flynn Trucking, Inc.
On May 22, 1998, the Company issued 111,110 shares of its Common Stock in
connection with the acquisition of Eagle Recycling, Inc. and Horvath Sanitation,
Inc.
On May 14, 1998, the Company converted 40,488 shares or $4,048,750 of its Series
B Preferred Stock into 623,808 shares of its Common Stock.
In December 1997, the Company converted $3,950,000, plus accrued interest, of
its 10% Convertible, Redeemable, Subordinated Notes due October 6, 2000 for
40,488 shares of its Series B Convertible Preferred Stock.
In October 1997, the Company converted 4,800 shares valued at $480,000, of its
Series A Preferred Stock into 341,334 shares of its Common Stock.
In June 1997, the Company issued Series A Preferred Stock valued at $850,000 in
exchange for the remaining 20% minority interest in the Moretown, Vermont
landfill.
In June 1997, the Company issued Series A Preferred Stock valued at $44,854 in
exchange for consulting services.
In June 1997, the Company wrote down assets to their net realizable value of
$863,428 related to the Fairhaven landfill project. This was charged against the
restructuring and current liabilities accrual.
In June 1997, the Company issued Series A Preferred Stock at a value of $700,000
and retired the FDIC loan of $511,093 and accrued interest of $55,000. The pay
off resulted in a realized loss on the early retirement of debt of $133,907.
In 1996, the Company exchanged $2,850,000 of convertible subordinated debt and
$27,425 of accrued interest for 313,992 shares of common stock.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK PREFERRED STOCK
SERIES A SERIES B COMMON STOCK ADDITIONAL STOCKHOLDERS'
--------------------- --------------------- -------------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
--------- ---------- --------- ---------- --------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1995......... -- $ -- -- $ -- 2,341,268 $ 23,413 $12,595,504 $(9,327,315) $ 3,766,601
Exercise of
Warrants to
purchase 1,728
shares of common
stock at $11.45
per share........ -- -- -- -- 1,728 17 19,769 -- 19,786
Exercise of merger-
related Placement
Agent Warrants to
purchase 1,755
shares of common
stock at $11.50
per share........ -- -- -- -- 1,755 18 20,165 -- 20,183
Exercise of merger-
related Placement
Agent Warrants to
purchase 6,444
shares of common
stock at $11.50
per share........ -- -- -- -- 6,444 64 74,042 -- 74,106
Exercise of Options
to purchase 656
shares of common
stock at $10.00
per share........ -- -- -- -- 656 7 6,555 -- 6,562
Issuance of common
stock at $9.70
per share,
through private
placement in
June, 1996....... -- -- -- -- 660,949 6,609 6,404,591 -- 6,411,200
Expenses incurred
in connection
with the private
placement in
June, 1996....... -- -- -- -- -- -- (651,926) -- (651,926)
Exercise of Options
to purchase 656
shares of common
stock at $10.00
per share........ -- -- -- -- 656 7 6,555 -- 6,562
Issuance of common
stock at $11.25
per share, net of
50% discount due
to restrictions
on sale, for
director's fee... -- -- -- -- 2,000 20 11,230 -- 11,250
Conversion of
convertible
debentures, plus
accrued interest
at a conversion
price of $9.16... 313,992 3,140 2,874,285 -- 2,877,425
</TABLE>
F-7
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
<TABLE>
<CAPTION>
PREFERRED STOCK PREFERRED STOCK
SERIES A SERIES B COMMON STOCK ADDITIONAL STOCKHOLDERS'
--------------------- --------------------- -------------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
--------- ---------- --------- ---------- --------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reclassification of
deferred
financing costs
related to
convertible
debentures
converted to
common stock..... -- -- -- -- -- -- $ (235,888) -- $ (235,888)
Exercise of Series
C Warrants to
purchase 400
shares of common
stock at $10.00
per share........ -- -- -- -- 400 4 3,996 -- 4,000
Issuance of common
stock at $7.50
per share, net of
50% discount due
to restrictions
on sale, for
directors fee.... 1,575 16 5,890 -- 5,906
Issuance of common
stock at $6.85
per share, in
exchange for debt
in November
1996............. -- -- -- -- 29,091 291 199,709 -- 200,000
Net loss for the
year ended
December 31,
1996............. -- -- -- -- -- -- -- (13,889,772) (13,889,772)
--------- ---------- --------- ---------- --------- --------- ---------- ------------ -------------
Balance, December
31, 1996......... -- -- -- -- 3,360,514 $ 33,606 $21,334,477 ($23,217,087) $(1,374,005)
</TABLE>
F-8
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
<TABLE>
<CAPTION>
PREFERRED STOCK PREFERRED STOCK
SERIES A SERIES B COMMON STOCK ADDITIONAL STOCKHOLDERS'
--------------------- --------------------- -------------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
--------- ---------- --------- ---------- --------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock at $2.50
per share, in
connection with a
private
placement,
January 1997..... -- $ -- -- $ -- 172,000 $ 1,720 $ 428,280 $ -- $ 430,000
Issuance of Series
A Convertible
Preferred Stock,
8% cumulative
annual dividend,
convertible into
common stock at a
price of $1.406
per share, June
1997............. 97,380 9,737,807 -- -- -- -- (892,475) -- 8,845,332
Issuance of common
stock at $3.75
per share, in
connection with
the purchase of
minority interest
in the Company's
collection
operations in
Vermont,
September 1997... -- -- -- -- 18,667 187 69,813 -- 70,000
Exercise of Series
E Warrants to
purchase 901
shares of common
stock at $17.50
per share,
November 1997.... -- -- -- -- 901 9 15,755 -- 15,764
Conversion of
Series A
Convertible
Preferred Stock
for common stock
at $1.406 per
share, September
and October
1997............. (4,800) (480,000) -- -- 341,334 3,413 476,587 -- --
Issuance of Series
B Convertible
Preferred Stock,
6% cumulative
annual dividend,
convertible into
common stock at a
price of $6.26
per share,
December 30,
1997............. -- -- 40,488 4,048,750 -- -- -- -- 4,048,750
Net loss for the
year ended
December 31,
1997............. -- -- -- -- -- -- -- (5,588,612) (5,588,612)
--------- ---------- --------- ---------- --------- --------- ---------- ------------ -------------
Balance, December
31, 1997......... 92,580 $9,257,807 40,488 $4,048,750 3,893,415 $ 38,935 $21,432,437 ($28,805,699) $ 5,972,230
</TABLE>
F-9
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
<TABLE>
<CAPTION>
PREFERRED STOCK PREFERRED STOCK
SERIES A SERIES B COMMON STOCK ADDITIONAL STOCKHOLDERS'
--------------------- --------------------- -------------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
--------- ---------- --------- ---------- --------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Conversion of
Series B
Preferred Stock
to equity........ -- $ -- (40,488) $(4,048,750) 623,808 $ 6,238 $4,042,512 $ -- $ --
Conversion of
Series A
Preferred Stock
to equity........ (92,580) (9,257,807) -- -- 6,590,577 65,906 9,191,901 -- --
Expenses associated
with equity
transactions..... -- -- -- -- -- -- (256,101) -- (256,101)
Common Stock issued
for services..... -- -- -- -- 14,766 148 12,352 -- 12,500
Common Stock issued
in business
combinations..... -- -- -- -- 567,032 5,670 3,347,494 -- 3,353,164
Exercise of options
to purchase
common stock..... -- -- -- -- 28,725 287 40,117 -- 40,404
Dividends paid on
preferred
stock............ -- -- -- -- -- -- -- (887,869) (887,869)
Net loss for the
year ended
December 31,
1998............. -- -- -- -- -- -- -- (6,495,634) (6,495,634)
--------- ---------- --------- ---------- --------- --------- ---------- ------------ -------------
Balance, December
31, 1998......... -- $ -- -- $ -- 11,718,323 $ 117,184 $37,810,712 ($36,189,202) $ 1,738,694
--------- ---------- --------- ---------- --------- --------- ---------- ------------ -------------
--------- ---------- --------- ---------- --------- --------- ---------- ------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements
F-10
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND NATURE OF OPERATIONS
The Company is an integrated solid waste management company providing
non-hazardous waste collection, recycling, transfer and disposal services to
approximately 52,000 commercial, industrial, residential and municipal customers
located in four states in the Northeast and Mid-Atlantic regions of the country
as of December 31, 1998.
On March 2, 1999, the Company completed an offering of $100.0 million in
11.5% Senior Notes (the "Senior Notes") and warrants to purchase an aggregate of
1,500,000 shares of common stock at an exercise price of $6.25 per share (the
"Warrants"). The Company used a portion of the proceeds from the Senior Notes to
repay certain debt obligations and to repurchase 497,778 shares of the Company's
common stock from the Federal Deposit Insurance Corporation (FDIC). The Company
intends to use the balance of the proceeds for general corporate purposes,
including possible future acquisitions and working capital. In addition, since
December 31, 1998 the Company has completed six acquisitions, consisting of 5
collection operations and one landfill. See Note 20 "Subsequent Events".
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS. All short-term investments which have an
original maturity of 90 days or less, and are valued at cost plus accrued
interest which approximates market, are considered to be cash equivalents.
RESTRICTED CASH AND SECURITIES. Restricted cash and securities consist
principally of funds or securities deposited in connection with the future
financial obligation of landfill or transfer station closure and post-closure.
Amounts are principally invested in fixed income securities of United States
governmental and financial institutions. The Company considers its investments
to be held to maturity. Substantially all of these investments mature within one
year. The investments are valued at cost plus accrued interest, which
approximates market.
FAIR VALUE OF FINANCIAL INSTRUMENTS. Statement of Financial Accounting
Standards No. 102, "Disclosures About the Fair Value of Financial Instruments",
requires disclosure of information about the fair value of certain financial
instruments for which it is practicable to estimate that value. For purposes of
the following disclosure the fair value of a financial instrument is the amount
at which the instrument could be exchanged in a current transaction between
willing parties other than in a forced sale or liquidation. Management has
determined that the carrying value of its financial assets and liabilities
approximates fair value at December 31, 1998.
F-11
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost. The cost
of all maintenance and repairs are charged to operations as incurred.
Depreciation for financial reporting purposes is provided using the
straight-line method over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
10-30
Buildings, facilities and improvements.......................... years
Machinery and equipment......................................... 3-10 years
Rolling stock................................................... 3-10 years
Containers...................................................... 5-10 years
Office equipment................................................ 3-5 years
</TABLE>
Capitalization of landfill development costs begins upon determination by
the Company of the economic feasibility or extended useful life of each landfill
acquired as a result of comprehensive engineering and profitability studies and
with the signing of landfill management contracts for facilities operated by the
Company that are not owned. Capital costs include acquisition, engineering,
legal, and other direct costs associated with the permitting and development of
new landfills, expansions at existing landfills, and cell development. These
costs are capitalized and not amortized until all permits are obtained and
operations have commenced.
Interest is capitalized on landfill development costs related to permitting,
site preparation, and facility construction during the period that these assets
are undergoing activities necessary for their intended use. Interest costs of
approximately $360,000, $24,000 and $42,000 were capitalized during 1998, 1997
and 1996, respectively.
Landfill development costs are amortized using the unit-of-production
method, which is calculated using the total units of airspace filled during the
year in relation to total estimated permitted airspace capacity. The
determination of airspace usage and remaining airspace capacity is an essential
component in the amortization calculation. The determination is performed by
conducting annual topography surveys of the Company's landfill facilities to
determine remaining airspace capacity in each landfill. The surveys are reviewed
by the Company's consulting engineers, the Company's internal operating and
engineering staff, and its financial and accounting staff. Current year-end
remaining airspace capacity is compared with prior year-end remaining airspace
capacity to determine the amount of airspace used during the current year. The
result is compared against the airspace consumption figures used during the
current year for accounting purposes to ensure proper recording of the
amortization provision. The reevaluation process did not materially impact
results of operations for any years presented.
The Company performs assessments for each landfill of the recoverability of
capitalized costs which requires considerable judgment by management with
respect to certain external factors, including, but not limited to, anticipated
future revenues, estimated economic life and changes in environmental
regulation. It is the Company's policy to periodically review and evaluate
whether benefits associated with these costs are expected to be realized and
therefore capitalization and amortization is justified. Capitalized costs
related to landfill development for which no future economic benefit is
determined by the Company are expensed in the period in which such determination
is made.
INTANGIBLE ASSETS. The Company records the excess of the purchase price
over the fair market value of the net identifiable assets of an acquired company
as goodwill. Goodwill is amortized on a straight-line basis over forty years.
Other intangible assets include customer lists and covenants not to
F-12
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
compete which are amortized on a straight-line basis over a period not to exceed
ten years and over the term of the agreement, respectively. The Company
evaluates the periods of amortization continually to determine whether
subsequent events and circumstances warrant revised estimates of useful lives.
If estimates are changed, the unamortized cost shall be allocated to the
remaining period in the revised useful life.
LANDFILL CLOSURE AND POST-CLOSURE COSTS. The Company has a material
financial obligation relating to closure and post-closure activities for
landfills it owns or operates. Accordingly, the Company estimates and accrues
closure and post-closure costs on a unit-of-production basis over each
landfill's estimated remaining permitted airspace capacity. The accrual is based
on final capping of the site, site inspection, leachate management, methane gas
control and recovery, groundwater monitoring, and operation and maintenance
costs to be incurred during the period after the facility closes. The estimated
costs are expressed in current dollars and are not discounted to reflect timing
of future expenditures. The Company has accrued approximately $2.8 million and
$1.6 million for closure and post-closure costs at December 31, 1998 and 1997,
respectively. The engineering and accounting staffs of the Company periodically
review its future obligation for closure and post-closure costs. If estimates of
the permitted air space capacity or the estimated costs of closure and
post-closure have changed, the Company revises the rates at which it accrues the
future costs.
The Company records reserves for landfill closure and post-closure costs, as
necessary, as a component of the purchase price of facilities acquired, in
acquisitions accounted for under the purchase method, when the acquisition is
consummated.
DEFERRED FINANCING COSTS. Deferred financing costs are amortized on a
straight-line basis over the life of the related notes payable or debt. There is
not a material difference between using the straight-line method and the
effective interest method.
INCOME TAXES. The Company uses the asset and liability method of accounting
for deferred income taxes.
REVENUE RECOGNITION. The Company's revenues are derived primarily from its
collection, recycling, transfer and disposal services. The Company records
revenues when the services are performed. The Company occasionally bills
customers in advance of providing the services. Advanced billings are recorded
as deferred revenue.
COST OF OPERATIONS. Cost of operations includes direct labor, fuel,
equipment maintenance, insurance, depreciation and amortization of equipment and
landfill development costs, accruals for ongoing closure and post-closure
regulatory compliance (for landfills owned), and other routine maintenance and
operating costs directly related to landfill operations. Also included in cost
of operations are payments made to the towns in which each landfill is located
in the form of "Host Town Fees", which are negotiated on a rate per ton basis as
part of the contract with the Town. In Towns where landfills are operated under
management contracts, the Town is responsible for the closure and post-closure
costs related to the landfill.
EARNINGS PER SHARE. In 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, Earnings Per Share
(SFAS 128). SFAS 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options,
F-13
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
warrants and convertible securities. Diluted earnings per share is similar to
the previously reported fully diluted earnings per share. Earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the SFAS 128 requirements. Weighted average number of common and
common equivalent shares outstanding and earnings per common and common
equivalent shares have been restated to give effect to a one-for-five reverse
stock split effective February 18, 1998.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
OF. The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed of", on January 1, 1997, for the
year ended December 31, 1996. This statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amounts of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less cost to
sell. Adoption of this Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity in 1998 or 1997.
RECLASSIFICATIONS. Certain amounts in prior year financial statements have
been reclassified to conform to their 1998 presentation.
NOTE 3. ACQUISITIONS
During 1998, the Company acquired a total of 34 companies, including eleven
collection companies (one of which included a transfer station) in Vermont, five
collection companies and two landfills in central Pennsylvania, three collection
companies and a transfer station in central Massachusetts and twelve collection
companies (one of which included a transfer station) in upstate New York. The
aggregate cost of these acquisitions was approximately $63.2 million consisting
of approximately $58.3 million in cash, $3.4 million in stock and approximately
$1.5 million in assumed liabilities. The acquisitions have all been recorded
using the purchase method of accounting and accordingly, the results of
operations of the acquired companies are included in the consolidated statements
of operations since the respective dates of acquisition. The purchases prices
were allocated to the assets and liabilities of the acquired companies based on
their respective fair values at the dates of acquisition as follows: the Company
acquired property and equipment of $24,298,000, intangible assets of $35,171,000
and other assets of $337,000.
Acquisition integration costs consist of one-time, non-recurring costs,
which in the opinion of management have no future value and, therefore, are
expensed. Such costs include termination and retention of employees, lease
termination costs, costs related to the integration of information systems and
costs related to the change of name of the acquired company or business. These
charges are estimated and accrued at the time the acquisition is closed. The
estimates are reviewed frequently by Company management and the related
operation teams integrating the new acquisitions and adjusted as required.
Acquisition integration costs totaled $1,865,000 for 1998.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and the aggregate of the acquired
entities for the years ended December 31, 1998 and 1997 as if the acquisitions
had occurred as of January 1, 1998 and 1997,
F-14
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. ACQUISITIONS (CONTINUED)
respectively, after giving effect to certain adjustments, including amortization
of intangibles and additional depreciation of property and equipment. The pro
forma financial information does not necessarily reflect the results of
operations that would have occurred had the Company and the aggregate of the
acquired entities constituted a single entity during such period.
<TABLE>
<CAPTION>
DECEMBER 31,1998 DECEMBER 31, 1997
(UNAUDITED) (UNAUDITED)
----------------- -----------------
<S> <C> <C>
Net revenue................................................................ $ 31,546,000 $ 31,018,000
----------------- -----------------
----------------- -----------------
Net loss................................................................... $ (4,631,000) $ (5,128,000)
----------------- -----------------
----------------- -----------------
Basic loss per share....................................................... $ (0.63) $ (1.42)
----------------- -----------------
----------------- -----------------
</TABLE>
NOTE 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1998 1997
------------ ------------
Deposits for future acquisitions...................................................... $ 2,210,667 $ 132,893
Prepaid disposal costs................................................................ 1,922,792 --
Prepaid permit costs.................................................................. -- 502,974
Due from former employee.............................................................. -- 300,000
Other prepaid expenses................................................................ 635,826 430,225
------------ ------------
Total prepaid expenses and other current assets..................................... $ 4,769,285 $ 1,366,092
------------ ------------
------------ ------------
</TABLE>
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1998 1997
------------- -------------
Landfills.......................................................................... $ 18,631,409 $ 8,412,010
Landfill and other development projects............................................ 8,778,901 691,225
Buildings, facilities and improvements............................................. 4,701,245 1,490,964
Machinery and equipment............................................................ 3,038,700 1,513,720
Rolling stock...................................................................... 8,980,626 662,595
Containers......................................................................... 4,104,397 401,941
Office furniture and equipment..................................................... 713,235 333,017
------------- -------------
48,948,513 13,505,472
Less accumulated depreciation and amortization................................... (4,262,778) (1,018,289)
------------- -------------
Property and equipment, net.................................................... $ 44,685,735 $ 12,487,183
------------- -------------
------------- -------------
</TABLE>
F-15
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1998 1997
------------- ---------
Goodwill................................................................................ $ 30,441,948 $ 94,873
Non-compete agreements.................................................................. 4,333,685 --
Customer lists.......................................................................... 3,841,599 --
Other................................................................................... 713,235 3,354
------------- ---------
39,330,467 98,227
Less accumulated amortization......................................................... (1,271,093) (1,395)
------------- ---------
Total intangible assets............................................................. $ 38,059,374 $ 96,832
------------- ---------
------------- ---------
</TABLE>
NOTE 7. LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt and notes payable consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------- ------------
<S> <C> <C>
7% convertible subordinated notes.................................................... $ 60,000,000 $ --
The BankNorth Group, N.A. credit facility............................................ 10,000,000 748,000
13% short-term notes................................................................. 7,500,000 --
10% convertible subordinated debentures.............................................. 1,850,000 4,425,000
Capital leases....................................................................... 1,201,516 2,626,700
Equipment and other notes payable.................................................... 2,569,593 245,393
------------- ------------
83,121,109 8,045,093
Less current portion............................................................. 8,259,922 843,831
------------- ------------
Long-term portion.............................................................. $ 74,861,187 $ 7,201,262
------------- ------------
------------- ------------
</TABLE>
Scheduled maturities of long-term debt and notes payable, excluding capital
leases are as follows:
Payments due in the year ending December 31,
<TABLE>
<S> <C>
1999........................................................... $8,176,268
2000........................................................... 12,536,690
2001........................................................... 530,953
2002........................................................... 427,261
2003........................................................... 248,421
Thereafter..................................................... 60,000,000
----------
$81,919,593
----------
----------
</TABLE>
F-16
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. LONG-TERM DEBT AND NOTES PAYABLE (CONTINUED)
7% CONVERTIBLE SUBORDINATED NOTES. On May 13, 1998, the Company closed an
offering of $60.0 million in 7% Convertible Subordinated Notes (the "Notes" or
"7% Subordinated Notes"), which resulted in net proceeds to the Company of
approximately $58.3 million. The Notes mature in May 2005, and bear interest at
7.0% per annum, payable semi-annually in arrears on each June 30 and December
31. The Notes and any accrued but unpaid interest are convertible into Common
Stock at a conversion price of $10.00 per share. The shares are convertible at
the option of the holder at any time and can be mandatorily converted by the
Company after two years if the Company's Common Stock closing price equals or
exceeds the conversion price of $10.00 per share for a period of 20 consecutive
trading days. The Company used the majority of the proceeds from the Notes to
repay existing debt of approximately $11.7 million and complete several
acquisitions. As a result of the debt payoffs, the Company recorded an
extraordinary loss on extinguishment of debt of approximately $247,000 during
1998. In March 1999, the Company exchanged 2,244,109 shares of the Company's
Common Stock for $10,449,000 of the Notes. See Note 20 "Subsequent Events"
THE BANKNORTH GROUP, N.A. CREDIT FACILITY. On March 31, 1997, the Company
closed a $1.0 million term loan with The BankNorth Group, N.A. of Burlington,
Vermont. During 1998, the loan was renegotiated as part of a line of credit for
$10 million. The line of credit was repaid in full in March 1999, with the
proceeds of the Senior Notes. See Footnote 20 "Subsequent Events." The Company
is currently negotiating a new facility with The BankNorth Group, N.A.
13% SHORT-TERM NOTES. At December 31, 1998 the Company had outstanding debt
in the principal amount of approximately $7.5 million to BIII Capital Partners,
L.P., a significant shareholder of the Company. The debt consisted of 13% Short
Term Notes due June 30, 1999. The Short Term Notes were repaid in full in March
1999, with the proceeds of the Senior Notes. See Note 20 "Subsequent Events."
10% CONVERTIBLE SUBORDINATED NOTES. During 1995, the Company closed a
"Regulation S" offering of $11,225,000 in Convertible Subordinated Notes and
Warrants to overseas investors, which resulted in net proceeds to the Company of
$10,085,587. The Notes mature on September 30, 2000, and bear interest at 10%,
payable quarterly. The Notes are convertible into Common Stock at $9.20 per
share and are callable at the Company's option at any time if the closing sale
price of the Common Stock exceeds $50.00 per share for a period of 20
consecutive trading days prior to redemption notice. The Notes have not been
registered under the Securities Act and may not be sold in the United States
without such registration or an applicable exemption from the requirement of
registration.
On December 31, 1997, the Company converted $3,950,000 of Convertible
Subordinated Debentures and $110,625 of accrued interest into 40,488 shares of
Series B Convertible Preferred Stock. See Note 13 "Preferred Stock".
CAPITAL LEASES. The Company leases certain facilities, equipment, and
vehicles under agreements which are classified as capital leases.
F-17
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. LONG-TERM DEBT AND NOTES PAYABLE (CONTINUED)
Leased capital assets included in property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1998 1997
------------ ------------
Land and buildings............................................................ $ 1,327,161 $ 1,634,078
Machinery and equipment....................................................... -- 1,881,630
------------ ------------
1,327,161 3,515,708
Accumulated depreciation...................................................... (38,667) (207,053)
------------ ------------
$ 1,288,494 $ 3,308,655
------------ ------------
------------ ------------
</TABLE>
Future minimum lease payments, by year and in the aggregate, under
non-cancelable capital leases and operating leases with initial or remaining
terms of one year or more at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------ ------------
<S> <C> <C>
Payments due in the year ending December 31,
1999.............................................................................. $ 200,040 $ 313,883
2000.............................................................................. 200,040 327,719
2001.............................................................................. 200,040 351,215
2002.............................................................................. 200,040 358,484
2003.............................................................................. 200,040 94,366
Thereafter........................................................................ 766,820 --
------------ ------------
Minimum lease payments............................................................ 1,767,020 $ 1,445,667
------------
------------
Less: amount representing interest................................................ 565,504
------------
Present value of net minimum lease payments......................................... 1,201,516
Less current portion.............................................................. 83,654
------------
Long-term portion............................................................... $ 1,117,862
------------
------------
</TABLE>
The Company's rental expense for operating leases was $388,630, $81,757 and
$293,766 for the years ended December 31, 1998, 1997 and 1996, respectively.
EQUIPMENT AND OTHER NOTES PAYABLE. Equipment and other notes payable are
secured by the respective equipment, and are payable monthly in varying amounts
ranging from $1,686 to $18,524 with interest rates ranging from 8.0% to 8.5%.
Most of the notes were repaid in March 1999 with the proceeds of the Senior
Notes. See Note 20 "Subsequent Events".
F-18
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1998 1997
------------ ------------
Acquisition integration costs......................................................... $ 676,703 $ --
Interest.............................................................................. 123,872 103,578
Professional and consulting fees...................................................... 125,410 265,024
Compensation and benefits............................................................. 432,089 64,451
Other taxes and fees.................................................................. 449,509 271,718
Due to sellers........................................................................ 260,000 --
Accrued disposal costs................................................................ 210,021 --
Medical waste litigation (See Note 15)................................................ 88,189 300,000
Other................................................................................. 376,746 5,615
Fairhaven landfill (See Note 17)...................................................... -- 756,000
Restructuring (See Note 16)........................................................... -- 778,609
------------ ------------
$ 2,742,409 $ 2,544,995
------------ ------------
------------ ------------
</TABLE>
NOTE 9. INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
Year ended December 31, 1998:
Federal....................................................................... $ -- $ -- $ --
State......................................................................... 43,174 -- 43,174
---------- ----- ----------
$ 43,174 $ -- $ 43,174
---------- ----- ----------
---------- ----- ----------
Year ended December 31, 1997:
Federal....................................................................... $ -- $ -- $ --
State......................................................................... 5,622 -- 5,622
---------- ----- ----------
$ 5,622 $ -- $ 5,622
---------- ----- ----------
---------- ----- ----------
Year ended December 31, 1996:
Federal....................................................................... $ -- $ -- $ --
State......................................................................... (23,456) -- (23,456)
---------- ----- ----------
$ (23,456) $ -- $ (23,456)
---------- ----- ----------
---------- ----- ----------
</TABLE>
F-19
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
A reconciliation between federal income tax expense (benefit) at the
statutory rate and the Company's federal tax expense (benefit) is as follows for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Statutory federal income tax (benefit)............................... $ (2,193,836) $ (1,898,217) $ (4,717,894)
State taxes, net of federal income tax (benefit)..................... (3,460,328) (530,947) (1,210,466)
Valuation allowance.................................................. 5,533,239 2,432,087 5,898,245
Other................................................................ 164,100 2,699 6,659
------------- ------------- -------------
$ 43,174 $ 5,622 $ (23,456)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The tax effects of temporary differences between financial statement and tax
accounting that gave rise to significant portions of the Company's net deferred
tax assets and deferred tax liabilities at December 31, 1998 and 1997 are
presented below:
<TABLE>
<CAPTION>
1998 1997
------------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable allowance........................................................ $ 303,207 $ 11,528
Property and equipment depreciation.................................................. -- 194,942
Other accrued liabilities............................................................ 334,102 4,371,736
Operating loss and credit carryforwards.............................................. 14,864,820 4,543,738
------------- -----------
Gross deferred tax assets............................................................ 15,502,129 9,121,944
Less: valuation allowance............................................................ (14,655,182) (9,121,944)
------------- -----------
Net deferred tax assets.............................................................. 846,947 --
Deferred tax liabilities:
Property and equipment depreciation.................................................. (846,947) --
------------- -----------
Net deferred tax assets.............................................................. $ -- $ --
------------- -----------
------------- -----------
</TABLE>
At December 31, 1998 the Company had net operating loss carryforwards for
federal income tax purposes of approximately $34 million which generally are
available to offset future federal taxable income, if any, and which expire
during the years ending December 31, 2010 through 2018. The Company underwent an
ownership change as defined in Internal Revenue Code Section 382 on June 30,
1997 and as a result will be restricted in its ability to use net operating loss
carryforwards generated prior to the ownership change to offset future taxable
income. The Company's future use of net operating loss carryforwards generated
prior to the ownership change will be subject to an annual limitation generally
equal to the product of the long-term tax exempt rate for June 1997 of 5.64% and
the value of the Company as of June 30, 1997. As a result of this limitation a
portion of the Company's federal and state net operating loss carryforwards may
expire unused.
F-20
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. LANDFILL CLOSURE AND POST-CLOSURE COSTS
Landfills are typically developed in a series of cells, each of which is
constructed, filled, and capped in sequence over the operating life of the
landfill. When the cell is filled and the operating life of the landfill is
over, the final cell must be capped, the entire site must be closed and
post-closure care and monitoring activities begin. The Company will have
material financial obligations relating to the final closure and post-closure
costs of each landfill the Company owns.
The Company has estimated at December 31, 1998, that the total costs for
final closure and post-closure of Cells I and II at the Moretown, Vermont
landfill, including capping costs, cap maintenance, groundwater monitoring,
methane gas monitoring, and leachate treatment and disposal for up to 30 years,
is approximately $4.2 million. Based upon the capacity of Cells I and II,
approximately $1.8 million and $1.6 million were accrued at December 31, 1998
and 1997, respectively for final closure and post closure costs. In July 1998,
the Company acquired the Sandy Run landfill located in Hopewell, Pennsylvania.
The Company has estimated at December 31, 1998, that the total costs for final
closure and post-closure of Cells I through IV at Sandy Run, including capping
costs, cap maintenance, groundwater monitoring, methane gas monitoring, and
leachate treatment and disposal for up to 30 years, is approximately $4.1
million. Based upon the capacity of Cells I and II, approximately $1.0 million
was accrued at December 31, 1998 for final closure and post closure costs.
The Company bases its estimates for these accruals on respective state
regulatory requirements, including input from its internal and external
consulting engineers and interpretations of current requirements and proposed
regulatory changes. The closure and post-closure requirements are established
under the standards of the U.S. Environmental Protection Agency's Subtitle D
regulations as implemented and applied on a state-by-state basis.
The determination of airspace usage and remaining airspace capacity is an
essential component in the calculation of closure and post-closure accruals. See
Note 2 "Summary of Significant Accounting Policies--LANDFILL CLOSURE AND
POST-CLOSURE COSTS."
NOTE 11. COMMITMENTS AND CONTINGENCIES
LANDFILL RELATED ACTIVITIES. In the normal course of its business, and as a
result of the extensive governmental regulation of the solid waste industry, the
Company periodically may become subject to various judicial and administrative
proceedings involving federal, state, or local agencies. In these proceedings,
the agency may seek to impose fines on the Company or to revoke or deny renewal
of an operating permit held by the Company. From time to time, the Company also
may be subjected to actions brought by citizens' groups in connection with the
permitting of its landfills or transfer stations, or alleging violations of the
permits pursuant to which the Company operates. Certain federal and state
environmental laws impose strict liability on the Company for such matters as
contamination of water supplies or the improper disposal of waste. The Company's
operation of landfills subjects it to certain operational, monitoring, site
maintenance, closure and post-closure obligations which could give rise to
increased costs for monitoring and corrective measures. See Note 10 "Landfill
Closure and Post Closure Costs."
The Company has a $5 million environmental impairment liability insurance
covering claims for sudden or gradual onset of environmental damage at each of
its landfills. If the Company were to incur liability for environmental damage
in excess of its insurance limits, its financial condition could be adversely
affected. The Company carries a comprehensive general liability insurance policy
which management considers adequate at this time to protect its assets and
operations from other risks.
F-21
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
None of the Company's landfills are currently connected with the Superfund
National Priorities List or potentially responsible party issues.
EMPLOYMENT CONTRACTS. The Company has entered into employment agreements
with its two senior executives, which expire on July 1, 2000 and subsequently
provide for employment until terminated by either party at annual salaries of
$200,000 through July 1, 1999 and $225,000 through July 1, 2000.
LEGAL MATTERS. Richard Rosen ("Rosen"), former Chairman, Chief Executive
Officer and President of the Company, commenced an action against the Company in
Middlesex County (Massachusetts) Superior Court, seeking an award of damages
resulting from the Company's alleged breach of a Memorandum of Understanding
entered into between the Company and Rosen in connection with the termination of
Rosen's employment with the Company, in which Rosen had been granted an option
to purchase certain assets of the Company not related to its core business. The
Company believes this claim to be frivolous and is vigorously defending this
action. The Company has previously received an arbitration award against Rosen
directing Rosen to pay $780,160 for breach by Rosen of his employment agreement
with the Company. On February 25, 1997 the Middlesex Superior Court in
Cambridge, Massachusetts confirmed the arbitration award and entered judgment
against Rosen.
In addition to the matter set forth above, from time to time, in the
ordinary course of its business, the Company is subject to legal proceedings and
claims arising from the conduct of its business operations. In the opinion of
the Company, the ultimate disposition of such matters on an aggregate basis will
not have a material adverse effect on the Company's financial position or
results of operations.
NOTE 12. COMMON STOCK
During 1998, the Company converted 92,580 shares or $9,257,807 of its Series
A Preferred Stock into 6,590,577 shares of its Common Stock.
On September 22, 1998, the Company issued 455,922 shares of its Common Stock
in connection with the acquisition of Mattei-Flynn Trucking, Inc.
On May 22, 1998, the Company issued 111,110 shares of its Common Stock in
connection with the acquisition of Eagle Recycling, Inc. and Horvath Sanitation,
Inc.
On May 14, 1998, the Company converted 40,488 shares or $4,048,750 of its
Series B Preferred Stock into 623,808 shares of its Common Stock.
In December 1997, the Company's Board of Directors approved a one for five
reverse stock split of the Company's Common Stock. On February 13, 1998, the
stockholders of the Company approved the reverse stock split at a special
stockholders' meeting. No fractional shares were issued in connection with the
reverse stock split, and stockholders received cash in payment for any
fractional shares otherwise issuable. The Company's financial statements have
been restated to reflect the one-for-five reverse split.
In September 1997, the Company issued 18,667 shares of common stock in
connection with the purchase of the minority interest in the Company's Vermont
hauling business for $70,000.
F-22
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. COMMON STOCK (CONTINUED)
On January 21, 1997, the Company closed a Regulation "D" private placement
of 172,000 shares of common stock at $2.50 per share with gross proceeds of
$430,000.
NOTE 13. PREFERRED STOCK
At December 31, 1997, the Company had outstanding $9,257,807 of principal
amount Series A Convertible Preferred Stock, par value $0.001 per share ("Series
A Preferred Stock"), which was issued in a private placement on June 26, 1997,
bearing an 8.0% annual cumulative dividend. The Series A Preferred Stock was
convertible into common stock at a conversion price of $1.40625 per share of
common stock. On July 27, 1998, the Company met the mandatory conversion trading
requirements and elected to convert all of the remaining shares of Series A
Preferred Stock into 6,590,577 shares of the Company's Common Stock and the
Board of Directors declared and paid cash dividends of approximately $787,000.
At December 31, 1997, the Company also had outstanding $4,048,750 of
principal amount Series B Convertible Preferred Stock, par value $0.001 per
share ("Series B Preferred Stock"). The Series B Preferred Stock was issued on
December 31, 1997 in a private placement in exchange for outstanding 10%
Convertible Debentures of the Company, bearing a 6.0% annual cumulative
dividend, and was convertible into common stock at a conversion price of $6.25
per share of common stock. On May 14, 1998, the Company met the mandatory
conversion trading requirements and elected to convert all of the shares of the
Series B Preferred Stock into 623,808 shares of Common Stock and the Board of
Directors declared and paid cash dividends of approximately $101,000.
NOTE 14. STOCK OPTIONS
EMPLOYEE STOCK OPTION PLAN. Pursuant to the Company's 1995 Stock Option and
Incentive Plan as amended (the "Plan"), options to purchase up to 3,000,000
shares of Common Stock were reserved for issuance to employees and consultants
of the Company. Options granted under the Plan may be either Incentive Stock
Options or Non-Qualified Stock Options for purposes of federal income tax law.
Options are generally subject to vesting over a period of four years from the
date of grant and are exercisable only to the extent vested from time to time,
although certain options have provided for earlier vesting. The selection of
individuals to receive awards of options under the Plan and the amount and terms
of such awards may be determined by the Board of Directors of the Company or an
Administering Committee appointed by the Board of Directors. At the Annual
Meeting of the Stockholders of the Company, held August 19, 1998, the number of
shares reserved for issuance under the Plan was increased from 1,700,000 to
3,000,000.
As of December 31, 1998, options to purchase 2,341,793 shares of Common
Stock had been granted and options to purchase up to an additional 658,207
shares remained available for grant. The per share weighted average fair value
of stock options granted during 1998, 1997 and 1996 was approximately $3.28,
$3.73, and $4.08, respectively, using the Black Scholes option-price model with
the following weighted average assumptions: volatility, 50% in 1998 and 30% in
both 1997 and 1996; expected dividend yield, 0% for all years; risk free
interest rate, 4.75% in 1998 and 5.5% in both 1997 and 1996; and expected life,
5 years for all years.
The Company applies APB Opinion No. 25 in accounting for stock options and,
accordingly, no compensation cost has been recorded in the financial statements.
If the Company had determined
F-23
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. STOCK OPTIONS (CONTINUED)
compensation costs based on the fair value of its stock options at their grant
date under SFAS No. 123, the Company's net losses in 1998, 1997 and 1996 would
have increased to the amounts shown below.
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- --------------
<S> <C> <C> <C>
Net loss available for
common shareholders
- -as reported........................................................ $ (7,383,503) $ (5,588,612) $ (13,889,772)
- -pro forma.......................................................... (8,662,888) (6,006,315) (14,334,772)
Basic net loss per share
- -as reported........................................................ $ (1.00) $ (1.55) $ (4.90)
- -pro forma.......................................................... $ (1.17) $ (1.66) $ (5.06)
</TABLE>
Pro forma net loss reflects only the effects of options granted in 1998,
1997 and 1996. Therefore, it does not reflect the full effect of calculating the
cost of stock options under SFAS No. 123 because the cost of options issued
prior to January 1, 1996 are not considered. As a result, it may not be
representative of the pro forma effects on operating results that will be
disclosed in future years.
Changes in options and option shares under the plan during the respective
years were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVG. AVG. AVG.
EXERCISE EXERCISE EXERCISE
PRICE NUMBER PRICE NUMBER PRICE NUMBER
PER SHARE OF SHARES PER SHARE OF SHARES PER SHARE OF SHARES
------------ ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year...................... $ 1.42 1,327,417 $ 1.41 161,200 $ 1.41 123,825
Options granted.......................... 6.68 1,121,351 1.43 1,179,217 1.41 148,250
Options exercised........................ 1.41 (28,725) -- 1.41 (1,312)
Options canceled......................... 6.82 (78,250) 1.64 (13,000) 1.41 (109,563)
---------- ---------- ----------
Options outstanding,
end of year............................ 3.75 2,341,793 1.42 1,327,417 1.41 161,200
Shares reserved for future grants........ 658,207 372,583 1.41 138,800
---------- ---------- ----------
Total options in the plan................ 3,000,000 1,700,000 300,000
---------- ---------- ----------
---------- ---------- ----------
Options exercisable, end of year......... $ 1.42 340,573 $ 1.42 114,900 $ 1.41 102,225
------------ ---------- ------------ ---------- ------------ ----------
------------ ---------- ------------ ---------- ------------ ----------
</TABLE>
On June 30, 1997, the Board of Directors repriced to $1.406 per share any
currently outstanding stock options with exercise prices in excess of $1.406 per
share for all employee participants in the Stock Option Plan at that time. Each
repriced option retained the vesting schedule associated with the original
grant.
F-24
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. STOCK OPTIONS (CONTINUED)
Options outstanding at December 31, 1998 and related proceeds to the Company
were as follows:
<TABLE>
<CAPTION>
REMAINING
NUMBER OF WEIGHTED AVG.
SHARES PRICE EXERCISE CONTRACTUAL EXERCISE OPTIONS
UNDER OPTION PER SHARE PROCEEDS LIFE PRICE EXERCISABLE
- ------------- ------------ ------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
1,264,043... $ 1.41 $ 1,830,768 8.38 $ 1.41 334,823
23,000...... 1.88-2.19 43,438 8.73 1.89 5,750
30,000...... 3.44 103,140 9.17 3.44 -
43,750...... 3.75-5.88 237,450 9.72 5.28 -
762,500..... 6.25 4,765,625 9.33 6.25 -
47,000...... 6.50-8.88 368,668 9.49 7.84 -
86,500...... 9.00 778,500 9.42 9.00 -
85,000...... 9.23-9.25 786,172 9.57 9.25 -
- ------------- ------------ --------------- --------------- ---------------
2,341,793 $ 8,913,761 8.84 $ 3.78 340,573
- ------------- ------------ ---------------
- ------------- ------------ ---------------
</TABLE>
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN. Pursuant to the Company's 1995
Stock Option Plan for Non-Employee Directors, as amended, each Director is
entitled to receive a grant of Non Qualified Stock Options to purchase 10,000
shares of the Company's Common Stock for each calendar year of service as a
Director of the Company commencing January 1, 1996. Each such option is subject
to vesting at a rate of 2,500 shares for each year that the holder remains a
Director of the Company. In addition, the plan provides for the issuance of
20,000 fully vested options upon the election of each new member of the Board of
Directors initially elected after December 24, 1997, excluding employees of the
Company. At the Annual Meeting of the Stockholders of the Company, held August
19, 1998, the number of shares granted to each Director under the Non-Qualified
Stock Option Plan for Non-Employee Directors as amended was increased to 10,000
from 2,000 for each year that the holder remains a Director of the Company. In
addition, the number of fully vested options upon the election of each new
member of the Board of Directors initially elected after December 24, 1997,
excluding employees of the Company was increased to 20,000 from 4,000.
Changes in options and option shares under the plan during the respective
years were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
WEIGHTED AVG. WEIGHTED AVG. WEIGHTED AVG.
EXERCISE PRICE NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE NUMBER
PER SHARE OF SHARES PER SHARE OF SHARES PER SHARE OF SHARES
--------------- ----------- --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year....... $ 1.79 27,480 $ 1.41 19,416 $ 1.41 8,750
Options granted........... 3.75 50,000 2.28 35,480 1.41 10,666
Options exercised......... -- -- -- -- -- --
Options canceled.......... -- -- 2.15 (27,416) -- --
----------- ----------- -----------
Options outstanding,
end of year............... 3.05 77,480 1.79 27,480 1.41 19,416
----------- ----------- -----------
----------- ----------- -----------
Options exercisable, end
of year................. $ 1.84 22,370 $ 1.84 21,500 1.41 7,041
----- ----------- ----- ----------- ----- -----------
----- ----------- ----- ----------- ----- -----------
</TABLE>
F-25
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. STOCK OPTIONS (CONTINUED)
Options outstanding at December 31, 1998 and related proceeds to the Company
were as follows:
<TABLE>
<CAPTION>
REMAINING
NUMBER OF WEIGHTED AVG.
SHARES PRICE EXERCISE CONTRACTUAL EXERCISE OPTIONS
UNDER OPTION PER SHARE PROCEEDS LIFE PRICE EXERCISABLE
- ------------- ----------- ---------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
14,000 $ 1.41 $ 19,684 8.67 $ 1.41 10,000
13,480 2.19 29,454 8.33 2.19 12,370
10,000 3.75 37,500 9.00 3.75 -
40,000 6.25 250,000 9.67 6.25 -
- ------------- ----- ---------- --- -------------- --------------
77,480 $ 4.34 $ 336,638 9.09 $ 4.34 22,370
- ------------- ---------- --------------
- ------------- ---------- --------------
</TABLE>
NOTE 15. ACCOUNTS RECEIVABLE WRITE-OFF
During 1996, the Company entered into a licensing and royalty agreement with
ScotSafe Limited (ScotSafe), a Glasgow, Scotland based company, for the
exclusive rights to use the Company's CFA medical waste processing technology
throughout Europe. In accordance with the agreement, the Company would provide
technical assistance including facility design, installation, testing and
training. In addition to royalty payments for each plant, ScotSafe agreed to pay
the Company for consulting and other services including out-of-pocket expenses.
During the fourth quarter of 1997 the Company terminated its licensing
agreements with ScotSafe and wrote off the receivable due from ScotSafe of
approximately $570,000 because ScotSafe was in default for failure to pay the
Company royalties due under the terms of the agreement.
Subsequent to the termination, ScotSafe was placed into receivership and
Eurocare Environmental Services, Ltd. (Eurocare) purchased its assets in
December 1997. Eurocare continues to operate the three facilities the Company
constructed for ScotSafe without a licensing agreement. The Company is
continuing to pursue an action against Eurocare through the Court of Session in
Scotland to restrict Eurocare's use of the Company's confidential information
embodied within the plant equipment. The Company also has a patent pending with
the European Patent Office and expects grant on April 21, 1999, at which time,
the Company will act vigorously to protect its rights to the CFA technology
against Eurocare and seek substantial damages.
NOTE 16. RESTRUCTURING AND DISCONTINUED OPERATIONS
RESTRUCTURING OF OPERATIONS. In March 1996, the Company announced its
intention to restructure the Company's operations to focus its resources and
activities on developing a fully integrated solid waste management company.
During the years ended December 31, 1997 and 1996, the Company recorded
restructuring charges of $596,426 and $1,741,729, respectively, for costs
associated with the plan to focus on the development of an integrated solid
waste management company. The costs included accruals for employee severance,
non-cancelable lease commitments, professional fees and litigation costs. The
restructuring was completed in 1997; no restructuring charges were recorded in
1998.
DISCONTINUED OPERATIONS. In March 1996, as part of the restructuring, the
Company ceased operations at its technology center and discharged all employees
and consultants engaged in various research and development projects. The
Company also ceased operations at Major Sports
F-26
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. RESTRUCTURING AND DISCONTINUED OPERATIONS (CONTINUED)
Fantasies, Inc. ("MSF"), a business unrelated to the environmental industry. No
substantial revenues were received from the technology center operations or MSF
activities. The expenses associated with operations at the technology center and
MSF for all periods presented are reported in the accompanying consolidated
statements of operations and cash flows under discontinued operations. The
charge for discontinued operations relates primarily to losses from operations
and the costs associated with the termination of these operations.
At December 31, 1998 and 1997, the Company had reserves and liabilities
associated with restructuring activities and discontinued operations of $0 and
$778,609, respectively.
NOTE 17. FAIRHAVEN, MASSACHUSETTS OPERATION
In 1994, WSI entered into a contract with the Town of Fairhaven,
Massachusetts to operate and remodel the Town's existing 26-acre landfill. The
Company began operations at the landfill in 1995. On November 8, 1995, an action
was brought against various parties including the Company relating to the
remodeling permits issued at the Fairhaven landfill, seeking among other things,
to appeal the permits that had been issued. On June 2, 1997, the judge ruled in
the Company's favor. However, based on the extensive delays associated with the
litigation and the engineering impacts of the delays associated with the
litigation, which resulted in the uncertainty of the long-term economic
viability of the project, the Company terminated the project. On February 24,
1998, the Company entered into a termination agreement with the Town of
Fairhaven that required the Company to perform a certain amount of construction
and closure work at the landfill. Write-off of project development costs in 1998
and 1997 primarily represent the Company's cost to liquidate the equipment that
was used at the Fairhaven landfill and the costs to close the landfill under the
Company's Termination Agreement with the Town of Fairhaven. The Company wrote
off its capital investment in the project at December 31, 1996. The termination
of this project was completed in 1998. No other amounts are accrued at December
31, 1998.
NOTE 18. SEGMENT INFORMATION
The Company adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," on January 1, 1999, for the
year ended December 31, 1998. SFAS No. 131 establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Operating segments
are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to allocate resources
and in assessing their performance. The Company's chief operating decision-maker
is the Chief Executive Officer (CEO).
The Company manages its business segments primarily on a regional basis. The
Company's reportable segments are comprised of central Massachusetts, upstate
New York, central Pennsylvania and Vermont. Each operating segment provides
services as further described in Note 1. The accounting policies of the various
segments are the same as those described in the "Summary of Significant
Accounting Policies" in Note 2. The Company evaluates the performance of its
segments based on operating income (loss), EBITDA and Adjusted EBITDA. Operating
income (loss) for each segment
F-27
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18. SEGMENT INFORMATION (CONTINUED)
includes all expenses directly attributable to the segment, including
acquisition related costs, and excludes certain expenses that are managed
outside the reportable segments. Costs excluded from segment profit primarily
consist of corporate expenses. Corporate expenses are comprised primarily of
information systems and other general and administrative expenses separately
managed. EBITDA is defined as operating income or loss from continuing
operations excluding depreciation and amortization, which includes depreciation
and amortization included in selling, general and administrative expenses.
EBITDA does not represent, and should not be considered as an alternative to,
net income or cash flows from operating activities, each as determined in
accordance with GAAP. Adjusted EBITDA represents EBITDA plus one-time charges
associated with the write-off of landfill development costs, acquisition
integration costs and restructuring costs. Acquisition integration costs consist
of one-time, non-recurring costs, which in the opinion of management have no
future value and, therefore, are expensed. Such costs include termination and
retention of employees, lease termination costs, costs related to the
integration of information systems and costs related to the change of name of
the acquired company or business. The Company does not include intercompany
transfers between segments for management reporting purposes. Segment assets
exclude corporate assets. Corporate assets include cash and cash equivalents,
office equipment and other assets. Capital expenditures for long-lived assets
are not reported to management by segment and are excluded, as presenting such
information is not practical.
Summary information by segment as of and for the years ended December 31,
1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CENTRAL PENNSYLVANIA
Revenue........................................................... $ 6,644,099 $ -- $ --
Income (loss) from continuing operations.......................... (418,827) -- --
Depreciation and amortization..................................... 1,786,435 -- --
Acquisition integration costs..................................... 617,403 -- --
EBITDA............................................................ 1,367,609 -- --
Adjusted EBITDA................................................... 1,985,012 -- --
Net interest expense.............................................. 46,586 -- --
Segment assets.................................................... 44,613,001 132,893 --
VERMONT
Revenue........................................................... $ 10,430,732 $ 3,457,692 $ 338,225
Income (loss) from continuing operations.......................... 1,603,205 761,433 (95,363)
Depreciation and amortization..................................... 2,307,776 692,224 104,961
Acquisition integration costs..................................... 477,328 -- --
EBITDA............................................................ 3,910,981 1,453,657 9,598
Adjusted EBITDA................................................... 4,388,309 1,453,657 9,598
Net interest expense.............................................. 298,369 177,917 --
Segment assets.................................................... 26,105,235 14,986,994 11,124,803
</TABLE>
F-28
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
UPSTATE NEW YORK
Revenue........................................................... $ 2,138,726 $ -- $ --
Income (loss) from continuing operations.......................... (573,510) -- --
Depreciation and amortization..................................... 239,551 -- --
Acquisition integration costs..................................... 685,528 -- --
EBITDA............................................................ (333,959) -- --
Adjusted EBITDA................................................... 351,569 -- --
Net interest expense.............................................. -- -- --
Segment assets.................................................... 9,118,715 -- --
CENTRAL MASSACHUSETTS
Revenue........................................................... $ 1,831,027 $ -- $ 1,157,381
Income (loss) from continuing operations.......................... (188,864) (1,930,008) (8,886,925)
Depreciation and amortization..................................... 167,663 -- 264,824
Acquisition integration costs..................................... 84,276 -- --
EBITDA............................................................ (21,202) (1,930,008) (8,622,101)
Adjusted EBITDA................................................... 298,538 (434,620) (1,970,026)
Net interest expense.............................................. -- -- 183,499
Segment assets.................................................... 11,699,773 1,090,170 3.288.827
CORPORATE
Revenue........................................................... $ -- $ -- $ --
Income (loss) from continuing operations.......................... (2,860,851) (2,014,165) (2,483,439)
Depreciation and amortization..................................... 67,396 21,516 1,186,595
Acquisition integration costs..................................... -- -- --
EBITDA............................................................ (2,793,455) (1,992,649) (1,296,844)
Adjusted EBITDA................................................... (2,793,455) (1,396,223) (444,885)
Net interest expense.............................................. 2,949,574 1,004,334 820,395
Segment assets.................................................... 4,579,975 2,483,090 2,444,460
</TABLE>
NOTE 19. YEAR 2000
The Company is assessing the readiness of its systems for handling the Year
2000. Although the assessment is still underway, management currently believes
that all material systems will be compliant by Year 2000 and that the costs
associated with this are not material. The Company has incurred only minimal
costs to date associated with the Year 2000 issue.
The Company is in the process of identifying key third-party vendors to
understand their ability to continue providing services through Year 2000. The
Company uses well-regarded nationally known software vendors for both its
general accounting applications and industry-specific customer information and
billing systems. The Company is implementing a new general accounting package
which will be fully Year 2000 compatible, and the provider of the solid waste
industry customer information and billing system is Year 2000 compatible. The
Company's banking arrangements are with national banking institutions, which are
taking all necessary steps to insure its customers' uninterrupted service
throughout applicable Year 2000 timeframes. The Company's payroll is performed
out-of-house by the largest provider of third party payroll services in the
country, which has made a commitment of uninterrupted service to their customers
throughout applicable Year 2000 timeframes.
F-29
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19. YEAR 2000 (CONTINUED)
While the Company currently expects that the Year 2000 issue will not cause
significant operational problems, delays in the implementation of new
information systems, or failure to fully identify all Year 2000 dependencies in
the Company's systems and in the systems of suppliers and financial institutions
could have material adverse consequences. Therefore, the Company is developing
contingency plans for continuous operations in the event such problems arise.
NOTE 20. SUBSEQUENT EVENTS
SENIOR NOTES OFFERING AND DEBT REPAYMENT. On March 2, 1999, the Company
completed a private placement of $100.0 million of 11.5% Senior Notes (the
"Senior Notes") and warrants to purchase an aggregate of 1,500,000 shares of
common stock at an exercise price of $6.25 per share (the "Warrants"). The
Senior Notes mature on January 15, 2006 and bear interest at 11.5% per annum,
payable semi-annually in arrears on each January 15 and July 15, commencing July
15, 1999, subject to prepayment in certain circumstances. The interest rate on
the Senior Notes is subject to adjustment upon the occurrence of certain events
as provided in the Senior Notes Indenture. The Senior Notes may be redeemed at
the option of the Company after March 2, 2003 at redemption prices set forth in
the Senior Notes Indenture, together with accrued and unpaid interest. The
Warrants are exercisable from September 2, 1999, through March 2, 2004. The
number of shares for which, and the price per share at which, a Warrant is
exercisable, are subject to adjustment upon the occurrence of certain events as
provided in the Warrant Agreement. The net proceeds to the Company, after
deducting the discount to the initial purchaser and related issuance costs, was
approximately $97.3 million. The Company used a portion of the proceeds from the
Senior Notes to repay $20.0 million of the Company's 13% short term notes due
June 30, 1999 (the outstanding balance of the 13% short-term notes was $7.5
million at December 31, 1998), $10.0 million of the BankNorth Group, N.A. credit
facility and approximately $1.7 million of capital leases and other notes
payable. In addition, the Company redeemed approximately $1.45 million principal
amount of the Company's 10% Convertible Subordinated Debentures due October 6,
2000 and completed several acquisitions as described below. The Company intends
to use the balance of the proceeds for general corporate purposes, including
possible future acquisitions and working capital.
CONVERSION OF DEBT INTO EQUITY. On March 3, 1999, the Company offered to
exchange up to 2,244,109 shares of the Company's common stock for a portion of
the Company's 7% Subordinated Notes due May 13, 2005. The exchange price per
share of $4.656 was equal to the closing price of the common stock on the Nasdaq
SmallCap Market on the first interim closing as reported by NASDAQ. Any accrued
but unpaid interest on the Notes will be paid in cash. As a result of the
exchange offer, the Company retired $10,449,000 of its 7% Convertible
Subordinated Notes. The remaining 7% Convertible Subordinated Notes are
convertible by holders into common stock at $10.00 per share.
STOCK REPURCHASE WITH THE PROCEEDS OF THE SENIOR NOTES. The Company
repurchased 497,778 shares of the Company's common stock from the Federal
Deposit Insurance Corporation (FDIC) for an aggregate purchase price of
approximately $2.8 million.
ACQUISITIONS. Since December 31, 1998 through March 24, 1999. The Company
has completed six acquisitions, consisting of five collection operations and one
landfill. The aggregate purchase price for these acquisitions was approximately
$38 million which was paid in cash and the assumption of approximately $3
million of debt. These acquisitions have combined annual revenue of
approximately $12 million. The acquisitions have all been recorded using the
purchase method of accounting.
F-30
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1999
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $36,816,693
Accounts receivable, less allowance for doubtful accounts of $125,816..... 6,131,059
Prepaid expenses and other current assets................................. 3,302,502
-----------
Total current assets.................................................... 46,250,254
Restricted cash and securities.............................................. 40,337
Property and equipment, net (Notes 2 and 3)................................. 76,822,303
Intangible assets, net (Notes 2 and 4)...................................... 45,166,342
Other assets................................................................ 5,604,886
-----------
Total assets............................................................ $173,884,122
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and notes payable (Note 5).............. $ 256,865
Accounts payable.......................................................... 4,782,915
Accrued expenses.......................................................... 4,421,146
Deferred revenue.......................................................... 2,649,614
-----------
Total current liabilities............................................... 12,110,540
Long-term debt and notes payable (Note 5)................................... 151,800,557
Landfill closure and post-closure costs..................................... 4,081,000
-----------
Total liabilities....................................................... 167,992,097
-----------
Commitments and Contingencies (Note 7)
Stockholders' equity (Note 5 and 6):
Common stock, $.01 par value. Authorized 30,000,000 shares; 13,465,094
shares issued and outstanding............................................. 134,651
Additional paid-in capital.................................................. 50,643,082
Accumulated deficit......................................................... (44,885,708)
-----------
Total stockholders' equity.............................................. 5,892,025
-----------
Total liabilities and stockholders' equity.............................. $173,884,122
-----------
-----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
----------------------------
<S> <C> <C>
1999 1998
------------- -------------
Revenues........................................................................... $ 8,862,258 $ 1,527,970
Cost of operations:
Operating expenses............................................................... 5,571,116 863,580
Depreciation and amortization.................................................... 1,752,514 374,242
Acquisition integration costs (Note 2)........................................... 544,400 320,000
------------- -------------
Total costs of operations...................................................... 7,868,030 1,557,822
------------- -------------
Gross profit (loss)............................................................ 994,228 (29,852)
Selling, general and administrative expenses....................................... 1,913,609 657,213
------------- -------------
Loss from operations........................................................... (919,381) (687,065)
------------- -------------
Other income (expense):
Royalty and other income (expense), net.......................................... (132,402) (14,126)
Interest income.................................................................. 168,342 27,985
Interest expense and financing costs............................................. (2,006,467) (434,045)
Non-cash charge for debt conversion (Note 5)..................................... (5,583,717) --
------------- -------------
Total other income (expense)................................................... (7,554,244) (420,186)
------------- -------------
Loss before extraordinary item................................................. (8,473,625) (1,107,251)
Extraordinary item--
loss on extinguishment of debt............................................. (223,008) --
------------- -------------
Net loss....................................................................... (8,696,633) (1,107,251)
Preferred stock dividends........................................................ -- 242,524
------------- -------------
Net loss available for common shareholders..................................... $(8,696,633) $(1,349,775)
------------- -------------
------------- -------------
Basic net loss per share:
Loss from continuing operations.................................................. $ (0.72) $ (0.35)
Extraordinary item............................................................... (0.02) --
------------- -------------
------------- -------------
Basic net loss per share......................................................... $ (0.74) $ (0.35)
------------- -------------
------------- -------------
Weighted average number of shares used in
computation of basic net loss per share.......................................... 11,737,727 3,904,969
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
-------------------------
1999 1998
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................ $ (8,696,633) $(1,107,251)
Adjustments to reconcile net loss to net cash provided (used) by operating
activities:
Depreciation and amortization..................................................... 1,775,970 406,116
Non-cash charge for conversion of debt to equity.................................. 5,583,717 --
Accrued landfill closure and post-closure costs................................... 74,244 47,000
Extraordinary loss on extinguishment of debt...................................... 223,008 --
Changes in assets and liabilities:
Accounts receivable............................................................... (885,610) 158,165
Prepaid expenses and other current assets......................................... 1,543,673 (68,734)
Accounts payable.................................................................. 403,520 581,440
Accrued expenses.................................................................. 1,449,618 (453,861)
Deferred revenue.................................................................. 263,453 --
------------ -----------
Net cash provided (used) by continuing operations................................... 1,734,960 (437,125)
Net cash used by discontinued operations and restructuring.......................... -- (583,290)
------------ -----------
Net cash provided (used) by operating activities.................................. 1,734,960 (1,020,415)
------------ -----------
Cash flows from investing activities:
Net assets acquired through acquisitions............................................ (35,997,173) (4,531,781)
Restricted cash and securities...................................................... (495) 25,000
Landfills........................................................................... -- (14,392)
Landfill and other development projects............................................. (786,495) (67,840)
Machinery and equipment............................................................. (210,997) (112,321)
Rolling stock....................................................................... (303,747) (5,412)
Containers.......................................................................... (719,931) (1,543)
Office furniture and equipment...................................................... (157,799) (141,983)
Deposits for future acquisitions.................................................... -- (2,301,957)
Intangible assets................................................................... (443,086) (3,964)
Other assets........................................................................ (451,629) (124,272)
------------ -----------
Net cash used by investing activities............................................. (39,071,352) (7,280,465)
------------ -----------
Cash flows from financing activities:
Deferred financing and registration costs........................................... (2,590,393) (253,879)
Repurchase of common stock.......................................................... (2,835,022) --
Repayments of notes payable and long-term debt...................................... (20,615,113) (1,541,420)
Borrowings from notes payable and long-term debt.................................... 100,000,000 8,009,369
Proceeds from issuance of common stock.............................................. -- 16,583
------------ -----------
Net cash provided by financing activities......................................... 73,959,472 6,230,653
------------ -----------
Increase (decrease) in cash and cash equivalents...................................... 36,623,080 (2,070,227)
Cash and cash equivalents, beginning of period........................................ 193,613 2,964,274
------------ -----------
Cash and cash equivalents, end of period.............................................. $ 36,816,693 $ 894,047
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of Waste Systems and its
subsidiaries include the accounts of the Company after elimination of all
significant intercompany accounts and transactions. These consolidated financial
statements have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
considered necessary to present fairly the financial position, results of
operations and cash flows at March 31, 1999 and for all periods presented have
been made. The results of operations for the period ended March 31, 1999 are not
necessarily indicative of the operating results for the full year. Certain
information and footnote disclosure normally included in consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted.
There have been no significant additions to or changes in accounting
policies of the Company since December 31, 1998. For a complete description of
the Company's accounting policies, see Note 2 to Consolidated Financial
Statements for December 31, 1998, 1997 and 1996 on F-11.
NOTE 2. ACQUISITIONS
During the three months ended March 31, 1999, Waste Systems acquired three
collection companies and a landfill in central Pennsylvania, one collection
company in central Massachusetts, and one collection company in upstate New
York. The aggregate cost of the acquisitions was approximately $37.9 million
consisting of $36.0 million in cash and $1.9 million in assumed liabilities. The
acquisitions have combined annual revenues of approximately $12.0 million. The
acquisitions have been accounted for using the purchase method of accounting.
The purchase prices were allocated to the assets and liabilities of the acquired
companies based on their respective fair values at the dates of acquisition as
follows: the Company acquired property and equipment of approximately $30.3
million, intangible assets of $7.5 million and other assets of $0.1 million. The
excess of the purchase price over the fair value of the net identifiable assets
acquired of approximately $6.4 million has been recorded as goodwill and is
being amortized on a straight-line basis over forty years.
Acquisition integration costs consist of one-time, non-recurring costs,
which in the opinion of management have no future value and, therefore, are
expensed. Such costs include termination and retention of employees, lease
termination costs, costs related to the integration of information systems and
costs related to the change of name of the acquired company or business. These
charges are estimated and accrued at the time the acquisition is closed. The
estimates are reviewed frequently by Company management and the related
operation teams integrating the new acquisitions and adjusted as required.
Acquisition integration costs totaled approximately $544,400 and $320,000 for
the three months ended March 31, 1999 and 1998, respectively.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and the aggregate of the acquired
entities for the three months ended March 31, 1999 and 1998 as if the
acquisitions had occurred as of January 1, 1998 after giving effect to certain
adjustments, including amortization of intangibles and additional depreciation
of property and equipment. The pro forma financial information does not
necessarily reflect the results of operations
F-34
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. ACQUISITIONS (CONTINUED)
that would have occurred had the Company and the aggregate of the acquired
entities constituted a single entity during such period.
<TABLE>
<CAPTION>
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Net revenues................................................. $ 9,973,000 $ 9,491,000
-------------- --------------
-------------- --------------
Loss from operations......................................... $ (2,346,000) $ (1,244,000)
-------------- --------------
-------------- --------------
Net loss..................................................... $ (8,049,000) $ (1,244,000)
-------------- --------------
-------------- --------------
Basic loss per share......................................... $ (0.68) $ (0.32)
-------------- --------------
-------------- --------------
</TABLE>
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and consist of the following:
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
<S> <C>
Landfills..................................................................... $ 46,549,564
Landfill and other development projects....................................... 9,452,706
Buildings, facilities and improvements........................................ 4,519,513
Machinery and equipment....................................................... 4,520,197
Rolling stock................................................................. 10,562,773
Containers.................................................................... 5,738,833
Office furniture and equipment................................................ 889,334
--------------
82,232,920
Less accumulated depreciation and amortization.............................. (5,410,617
--------------
Property and equipment, net................................................... $ 76,822,303
--------------
--------------
</TABLE>
NOTE 4. INTANGIBLE ASSETS
Intangible assets consist of the following;
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
<S> <C>
Goodwill...................................................................... $ 36,746,649
Non-compete agreements 4,967,435
Customer lists................................................................ 4,573,599
Other......................................................................... 734,133
--------------
47,021,816
Less accumulated amortization............................................. (1,855,474)
--------------
Total intangible assets....................................................... $ 45,166,342
--------------
--------------
</TABLE>
F-35
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. LONG-TERM DEBT AND NOTES PAYABLE
CONVERTIBLE SUBORDINATED NOTES AND CONVERSION INTO EQUITY. On May 13, 1998,
the Company closed an offering of $60.0 million in 7% Convertible Subordinated
Notes (the "Notes" or "7% Subordinated Notes"), which resulted in net proceeds
to the Company of approximately $58.3 million. The Notes mature in May 2005, and
bear interest at 7.0% per annum, payable semi-annually in arrears on each June
30 and December 31. The Notes and any accrued but unpaid interest are
convertible into common stock at a conversion price of $10.00 per share. The
shares are convertible at the option of the holder at any time and can be
mandatorily converted by the Company after two years if the Company's common
stock closing price equals or exceeds the conversion price of $10.00 per share
for a period of 20 consecutive trading days. The Company used the majority of
the proceeds from the Notes to repay existing debt of approximately $11.7
million and complete several acquisitions.
On March 31, 1999, the Company exchanged 2,244,109 shares of the Company's
common stock for $10,449,000 of the Notes. The exchange price per share of
$4.656 was equal to the closing price of the common stock as reported by NASDAQ
on that date. Interest on the Notes totaling approximately $183,000 was paid in
cash.
In connection with the conversion of debt into equity, the Company issued
1,199,252 shares of common stock in excess of the shares that would have been
issued if the debt was converted in accordance with its original terms. The
Company recorded a non-cash charge of $5,583,717 attributable to the issuance of
these additional shares of common stock, which has been offset in consolidated
stockholders' equity by the additional deemed proceeds from the issuance of the
shares.
SENIOR NOTES OFFERING AND DEBT REPAYMENT. On March 2, 1999, the Company
completed a private placement of $100.0 million of 11.5% Senior Notes (the
"Senior Notes") and warrants to purchase an aggregate of 1,500,000 shares of the
Company's common stock at an exercise price of $6.25 per share (the "Warrants").
The Senior Notes mature on January 15, 2006 and bear interest at 11.5% per
annum, payable semi-annually in arrears on each January 15 and July 15,
commencing July 15, 1999, subject to prepayment in certain circumstances. The
interest rate on the Senior Notes is subject to adjustment upon the occurrence
of certain events as provided in the Indenture for the Senior Notes offering.
The Senior Notes may be redeemed at the option of the Company after March 2,
2003 at redemption prices set forth in the Senior Notes Indenture, together with
accrued and unpaid interest. The Warrants are exercisable from September 2,
1999, through March 2, 2004. The number of shares for which, and the price per
share at which, a Warrant is exercisable, are subject to adjustment upon the
occurrence of certain events as provided in the Warrant Agreement. The net
proceeds to the Company, after deducting the discount to the initial purchaser
and related issuance costs, was approximately $97.3 million. The Company used a
portion of the proceeds from the Senior Notes to repay existing debt of
approximately $20.6 and completed several acquisitions as previously described.
The Company intends to use the balance of the proceeds for general corporate
purposes, including possible future acquisitions and working capital.
The Company had a $10 million line of credit facility with The BankNorth
Group, N.A. which was fully drawn as of December 31, 1998. The entire balance
was repaid on March 2, 1999 with the proceeds from the Senior Notes and the
credit facility was closed. The Company is currently negotiating a new expanded
facility with The BankNorth Group, N.A. which it expects to close in the second
quarter of 1999.
F-36
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. COMMON STOCK
With a portion of the proceeds of the Senior Notes discussed above, the
Company repurchased 566,278 shares of its common stock from the period March 3,
1999 through May 13, 1999 for an aggregate cost of approximately $3.2 million.
These shares were retired upon repurchase.
NOTE 7. COMMITMENTS AND CONTINGENCIES
In the normal course of its business, and as a result of the extensive
governmental regulation of the solid waste industry, the Company periodically
may become subject to various judicial and administrative proceedings involving
federal, state, or local agencies. In these proceedings, the agency may seek to
impose fines on the Company or to revoke or deny renewal of an operating permit
held by the Company. From time to time, the Company also may be subjected to
actions brought by citizens' groups in connection with the permitting of its
landfills or transfer stations, or alleging violations of the permits pursuant
to which the Company operates. Certain federal and state environmental laws
impose strict liability on the Company for such matters as contamination of
water supplies or the improper disposal of waste. The Company's operation of
landfills subjects it to certain operational, monitoring, site maintenance,
closure and post-closure obligations which could give rise to increased costs
for monitoring and corrective measures.
The Company has environmental impairment liability insurance policies at
each of its operating landfills which covers claims for sudden or gradual onset
of environmental damage. If the Company were to incur liability for
environmental damage in excess of its insurance limits, its financial condition
could be adversely affected. The Company carries a comprehensive general
liability insurance policy which management considers adequate at this time to
protect its assets and operations from other risks.
None of the Company's landfills is currently connected with the Superfund
National Priorities List or potentially responsible party issues.
The Company is party to pending legal proceedings and claims. Although the
outcome of such proceedings and claims cannot be determined with certainty, the
Company's management, after consultation with outside legal counsel, is of the
opinion that the expected final outcome should not have a material adverse
effect on the Company's financial position, results of operations or liquidity.
NOTE 8. SEGMENT INFORMATION
The Company manages its business segments primarily on a regional basis. The
Company's reportable segments are comprised of central Pennsylvania, Vermont,
upstate New York and central Massachusetts. The accounting policies of the
various segments are the same as those described in the "Summary of Significant
Accounting Policies" in Note 2 in the Company's Notes to Consolidated Financial
Statements for December 31, 1998, 1997 and 1996 on F-11. The Company evaluates
the performance of its segments based on operating income (loss), EBITDA and
Adjusted EBITDA, as further described in Note 18 in the Company's Notes to
Consolidated Financial Statements for December 31, 1998, 1997 and 1996.
F-37
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. SEGMENT INFORMATION (CONTINUED)
Summary information by segment as of and for the three months ended March
31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
Central Pennsylvania
Revenue.......................................................................... $ 3,326,390 --
Income (loss) from continuing operations......................................... (125,558) --
EBITDA........................................................................... 683,392 --
Adjusted EBITDA.................................................................. 863,966 --
Segment assets................................................................... 77,217,152 2,401,956
Vermont
Revenues......................................................................... $ 2,277,959 $ 1,527,970
Income (loss) from continuing operations......................................... 578,204 (86,373)
EBITDA........................................................................... 1,144,884 287,869
Adjusted EBITDA.................................................................. 1,149,965 607,869
Segment assets................................................................... 27,203,469 18,981,555
Upstate New York
Revenue.......................................................................... $ 2,023,405 --
Income (loss) from continuing operations......................................... (249,252) --
EBITDA........................................................................... 9,242 --
Adjusted EBITDA.................................................................. 267,489 --
Segment assets................................................................... 14,980,307 --
Central Massachusetts
Revenue.......................................................................... $ 1,234,504 --
Income (loss) from continuing operations......................................... (99,749) --
EBITDA........................................................................... 18,642 --
Adjusted EBITDA.................................................................. 119,140 --
Segment assets................................................................... 13,130,050 1,111,352
Corporate
Revenue.......................................................................... $ -- --
Income (loss) from continuing operations......................................... (1,023,026) (600,692)
EBITDA........................................................................... (999,571) (568,818)
Adjusted EBITDA.................................................................. (999,571) (568,818)
Segment assets................................................................... 41,353,144 1,383,552
</TABLE>
NOTE 9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
During the three months ended March 31, 1999 and 1998, cash paid for
interest was $620,903 and $299,059, respectively.
On March 31, 1999, the Company exchanged 2,244,109 shares of the Company's
common stock for $10,449,000 of its 7% Subordinated Notes. The Company incurred
a non-cash charge of $5,583,717 in connection with this conversion of debt into
equity.
F-38
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: (CONTINUED)
In connection with the Company's acquisitions, during 1999, the Company
acquired property and equipment of $30.3 million, intangible assets of $7.5
million and other assets of $0.1 million. The Company paid $36.0 million in cash
and assumed liabilities from the acquired companies of $1.9 million.
F-39
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY WASTE SYSTEMS INTERNATIONAL,
INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
[LOGO]
WASTE SYSTEMS
INTERNATIONAL, INC.
11 1/2% SERIES B SENIOR NOTES
DUE 2006
---------------------
PROSPECTUS
---------------------
JULY 13, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify a director, officer, employee or agent against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in respect of or in successful defense of any action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
We have obtained directors' and officers' insurance providing benefits
aggregating $5 million. In addition, Article X of our Second Amended and
Restated Certificate of Incorporation (the "Charter") provides that directors or
officers of Waste Systems, or others serving as a director or officer of another
corporation at our request, shall be indemnified to the fullest extent permitted
by the DGCL. Article X further provides that the indemnification rights provided
by such Article X shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any law, agreement or vote of
stockholders or disinterested directors or otherwise. Article VII of the Charter
further provides that no director shall be personally liable to us or our
stockholders for monetary damages for any breach of fiduciary duty by such
person as a director, except to the extent that the elimination or limitation of
liability is not permitted under the DGCL as in effect when such liability is
determined. Any amendment or repeal of Article VII by the stockholders or an
amendment to the DGCL shall not adversely affect any right or protection under
such Article existing at the time of such amendment or repeal with respect to
any act or omission occurring prior to such amendment or repeal of a person
serving as a director at the time of such amendment or repeal.
Article V of our By-laws provides that present and former directors and
officers of Waste Systems shall be indemnified by us to the fullest extent
authorized by the DGCL, as the same exists or may in the future be amended to
provide for broader indemnification rights, against any and all reasonable
expenses or liability incurred in connection with any threatened, pending or
completed legal proceeding in which any such person is involved as a result of
serving or having served as a director or officer of Waste Systems, as a
director or officer of any subsidiary of Waste Systems, or acting or having
acted in any capacity with any other entity at our written request or direction,
in each case if such person acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of Waste
Systems, and with respect to criminal actions or proceedings, that such person
had no reasonable cause to believe his or her conduct was unlawful. The By-laws
provide that any indemnification extended to an officer pursuant to Article V
shall include the reimbursement of expenses by us prior to the final disposition
of the proceeding upon the receipt of an undertaking by such indemnified person
to repay such payment if it is determined that such indemnified person is not
entitled to such reimbursement. The By-laws further provide that the previously
described provisions of Article V are deemed to be a contract between Waste
Systems and each director and officer. In addition, the By-laws provide that the
provisions with respect to indemnification and payment of expenses incurred in
defending a covered proceeding shall not be exclusive of any right which any
person may have or hereafter acquire under any statute, provision of the Charter
or the By-laws, agreement, vote of the stockholders or disinterested directors
or otherwise.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following is a complete list of exhibits filed or incorporated by
reference as part of this registration statement.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Purchase Agreement, dated February 25, 1999, by and among First Albany Corporation and Waste Systems
International, Inc. and its subsidiaries (incorporated by reference to Exhibit 1.1 of the Company's
Current Report on Form 8-K, dated March 2, 1999).
3.1 Second Amended and Restated Certificate of Incorporation of Waste Systems International, Inc. filed
February 13, 1998 (incorporated by reference to Exhibit 3(i).1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
3.2 Certificate of Designation of Series B Convertible Preferred Stock of Waste Systems International,
Inc. filed March 5, 1998 (incorporated by reference to Exhibit 3(i).2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997).
3.3 Certificate of Corrections to the Second Amended and Restated Certificate of Incorporation of Waste
Systems International, Inc. as filed February 13, 1998, filed March 17, 1998 (incorporated by
reference to Exhibit 3(i).3 to the Company's Annual Report on Form 10-K for the year ended December
31, 1997).
3.4 Certificate of Designation of Series B Convertible Preferred Stock of Waste Systems International,
Inc. filed October 20, 1997 (incorporated by reference to Exhibit 4.5 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997).
3.5 Bylaws of the Company, adopted and effective as of October 27, 1997 (incorporated by reference to
Exhibit 3(ii).1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997).
4.1 Indenture, dated as of March 2, 1999, between Waste Systems International, Inc. and IBJ Whitehall
Bank & Trust Company, including a form of the 11 1/2% Senior Note due 2006 (incorporated by reference
to Exhibit 4.1 of the Company's Current Report on Form 8-K, dated March 2, 1999).
4.2 Warrant Agreement, dated as of March 2, 1999, between Waste Systems International, Inc. and
subsidiaries and IBJ Whitehall Bank & Trust Company, a New York banking corporation as warrant agent
(incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K, dated March 2,
1999).
4.3 Note Registration Rights Agreement, dated as of March 2, 1999, by and among Waste Systems
International, Inc. and its subsidiaries and First Albany Corporation (incorporated by reference to
Exhibit 4.3 of the Company's Current Report on Form 8-K, dated March 2, 1999).
4.4 Warrant Registration Rights Agreement, dated as of March 2, 1999, by and among Waste Systems
International, Inc. and its subsidiaries and First Albany Corporation (incorporated by reference to
Exhibit 4.4 of the Company's Current Report on Form 8-K, dated March 2, 1999).
4.5 Form of Exchange Agreement between Waste Systems International, Inc. and each participating holder in
the March 31, 1999 exchange of 7% Convertible Subordinated Notes for an aggregate of 2,249,109 shares
of common stock.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
4.6 Form of 11 1/2% Series B Senior Note due 2006 (included as exhibit A to Exhibit 4.2 hereto).
4.7 Form of 10% Convertible, Redeemable, Subordinated Note Due 2000 (incorporated by reference to Exhibit
10.15 to the Registration Statement on Form S-1 of BioSafe International, Inc. File No. 33-93966).
5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the securities being registered.
8.1 Opinion of Goodwin, Procter & Hoar LLP regarding certain tax matters.
10.1 1995 Stock Option Plan (incorporated by Reference to Exhibit 10.1 of the Company's Current Report on
Form 8-K, dated March 29, 1995).
10.2 Agreement between BioSafe, Inc. and the Town of South Hadley, Massachusetts, dated August 22, 1995
(incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1 of BioSafe
International, Inc. File No. 33-93966 as filed on June 26 1995).
12.1 Statements re: Computation of Ratios.
21.1 Schedule of Subsidiaries.
23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibits 5.1 and 8.1).
23.2 Consent of KPMG LLP, Independent Accountants.
24.1* Powers of Attorney.
25.1* Statement of eligibility of Trustee.
27.1 Financial Data Schedules.
99.1* Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Brokers.
99.4 Form of Letter to Clients.
</TABLE>
* Previously filed
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Securities and Exchange pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price
II-3
<PAGE>
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the Town of Lexington, Commonwealth of
Massachusetts, on this 13th day of July, 1999.
<TABLE>
<S> <C> <C>
WASTE SYSTEMS INTERNATIONAL, INC.
By: /s/ ROBERT RIVKIN
------------------------------------------
Robert Rivkin
EXECUTIVE VICE PRESIDENT--ACQUISITIONS,
CHIEF FINANCIAL OFFICER, SECRETARY,
TREASURER AND DIRECTOR
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<S> <C> <C>
Date: July 13, 1999 By: *
-------------------------------------------
Philip Strauss
Chairman, Chief Executive Officer and President
(Principal Executive Officer)
Date: July 13, 1999 By: *
-------------------------------------------
Robert Rivkin
Executive Vice President--Acquisitions,
Chief Financial Officer, Secretary, Treasurer and
Director
(Principal Financial and Accounting Officer)
Date: July 13, 1999 By: *
-------------------------------------------
Jay J. Matulich--Director
Date: July 13, 1999 By: *
-------------------------------------------
David J. Breazzano--Director
Date: July 13, 1999 By: *
-------------------------------------------
Charles Johnston--Director
Date: July 13, 1999 By: *
-------------------------------------------
Judy K. Mencher--Director
Date: July 13, 1999 By: *
-------------------------------------------
William B. Philipbar--Director
</TABLE>
*By:/s/ ROBERT RIVKIN
--------------------------------
Robert Rivkin
Attorney-in-fact
II-5
<PAGE>
CO-REGISTRANT
SIGNATURES
Pursuant to the requirements of the Securities Act, each of the
co-registrants listed on Footnote A hereto certifies that it has reasonable
grounds to believe that it meets all of the requirements for filing on Form S-4
and it has duly caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the Town of Lexington,
Commonwealth of Massachusetts, on this 13th day of July, 1999.
<TABLE>
<S> <C> <C>
On behalf of each co-registrant listed on
Footnote A hereto
WASTE SYSTEMS INTERNATIONAL, INC.
By: /s/ ROBERT RIVKIN
------------------------------------------
Robert Rivkin
EXECUTIVE VICE PRESIDENT--ACQUISITIONS,
CHIEF FINANCIAL OFFICER, SECRETARY,
TREASURER AND DIRECTOR
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<S> <C> <C>
Date: July 13, 1999 By: *
-------------------------------------------
Philip Strauss
Chairman, Chief Executive Officer and President
(Principal Executive Officer)
Date: July 13, 1999 By: *
-------------------------------------------
Robert Rivkin
Executive Vice President--Acquisitions,
Chief Financial Officer, Secretary, Treasurer and
Director
(Principal Financial and Accounting Officer)
Date: July 13, 1999 By: *
-------------------------------------------
Jay J. Matulich--Director
Date: July 13, 1999 By: *
-------------------------------------------
David J. Breazzano--Director
Date: July 13, 1999 By: *
-------------------------------------------
Charles Johnston--Director
Date: July 13, 1999 By: *
-------------------------------------------
Judy K. Mencher--Director
Date: July 13, 1999 By: *
-------------------------------------------
William B. Philipbar--Director
</TABLE>
*By:/s/ ROBERT RIVKIN
-------------------------------------
Robert Rivkin
Attorney-in-fact
II-6
<PAGE>
EXHIBIT 4.5
FORM OF
WASTE SYSTEMS INTERNATIONAL, INC.
EXCHANGE AGREEMENT
To: Waste Systems International, Inc.
420 Bedford Street
Suite 300
Lexington, MA 02173
Re: 7% SUBORDINATED NOTES DUE MAY 13, 2005
Reference is made to the 7% Subordinated Notes due May 13, 2005 (the
"Notes") issued by Waste Systems International, Inc., a Delaware corporation
(the "Company"), in the aggregate principal amount of $60,000,000. You have
advised the undersigned that the Company has offered to certain accredited
investors who are holders of Notes (whether in the form of a definitive Note or
through a beneficial interest in a global Note), to exchange such Notes for
shares (the "Common Shares") of Common Stock, $.01 par value per share of the
Company (the "Common Stock"), at an exchange price per Common Share equal to
$[___] (the "Exchange Price"), for consideration payable in principal amount of
Notes, to a holder exchanging Notes for Common Shares (an "Investor") pursuant
to the terms and conditions described herein and in the Confidential Private
Exchange Offering Memorandum dated January [ ], 1999 and accompanying this
Agreement (the "Exchange Offering Memorandum" which, together with this
Agreement, constitute the "Exchange Offer"). The Exchange Offer will remain open
from the date of the Exchange Offering Memorandum until [ ], unless extended by
the Company (such date, as extended, if at all, the "Expiration Date").
Capitalized terms used but not defined herein shall have the respective meanings
ascribed to them in the Exchange Offering Memorandum.
Based on the foregoing and subject to the terms and conditions of this
Exchange Agreement (the "Exchange Subscription"), the undersigned agrees with
you as follows:
1. EXCHANGE SUBSCRIPTION.
Pursuant to the terms of the Exchange Offer, the undersigned hereby
subscribes for up to the number of Common Shares set forth on the signature page
hereof (at the caption "Subscription Request") and tenders in exchange therefor
this Exchange Subscription and Notes in the principal amount set forth on the
signature page hereof (at the caption "Notes Tendered"). The undersigned
acknowledges that the sum of such principal amount of Notes so tendered divided
by the Exchange Price, will determine the maximum number of Common
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Shares for which the undersigned may request subscription pursuant to the terms
of the Exchange Offer. If the undersigned's interest in the Notes is in the form
of a beneficial interest in a global Note held by a depositary, the undersigned
has also executed an acknowledgment in the space provided for "Global Notes" to
indicate the undersigned's written instructions to the depositary. Such written
instructions request that the depositary transfer the indicated beneficial
interest in such global Note to the Company upon receipt of the Company's
written acceptance of such Exchange Subscription. Both the tendering of
definitive Notes and the executed acknowledgment of written depositary
instructions with respect to transferring beneficial interests in a global Note
to the Company, as described above, are referred to and considered in this
Exchange Agreement as the "tendering of Notes." In lieu of any fractional Common
Shares, which will not be issued in the Exchange Offer, the Company will pay the
undersigned at the applicable Closing (as defined below) cash in an amount equal
to the amount of consideration described in clause (a) above remaining after
determining the integral number of Common Shares issuable to such Investor in
the manner described above.
Any unpaid interest on Notes tendered and accepted pursuant to the Exchange
Offer which has accrued to the initial Interim Closing Date (as defined below),
calculated on a pro rata basis for that period regardless of which Closing Date
(as defined below) actually applies to such Notes (the "Pro Rata Interest"),
will be paid in cash or stock (valued at the Exchange Price) at the Company's
option, on the applicable Closing Date (such payment in either form, the "Final
Interest Payment"). Any unpaid interest on Notes tendered and accepted pursuant
to the Exchange Offer which has accrued from the initial Interim Closing Date to
any applicable Closing Date thereafter will not be paid and will be forfeited.
2. ACCEPTANCE OF EXCHANGE SUBSCRIPTION.
It is understood and agreed that this Exchange Subscription is made subject
to the following terms and conditions:
(a) The Company shall have the right to accept or reject this Exchange
Subscription, in whole or in part, for any reason, including the allocation of
Common Shares pursuant to the terms of the Exchange Offer described in the
Exchange Offering Memorandum, the inability of the undersigned to meet the
standards imposed by Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Securities Act"),
the ineligibility of the undersigned to meet the standards imposed by applicable
state or foreign securities laws, or for any other reason, or for no reason. If
this Exchange Subscription is rejected in whole or in part, the Notes tendered
pursuant to Section 1 hereof and rejected by the Company will be returned to the
address set forth on the signature page by the undersigned together with
interest, if any, accrued thereon and payable between the date of such tender
and the date such Notes are returned to the undersigned. Upon such return of
Notes (and payment of interest as described in the preceding sentence, if any),
the undersigned will have no further liability to the Company with respect to
the Notes tendered
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and rejected for this Exchange Subscription other than to return to the Company
the Exchange Offering Memorandum and other documents, if any, furnished to the
undersigned by or on behalf of the Company in connection with the Exchange
Offer, and the Company will have no further liability to the undersigned arising
from the Exchange Offer with respect to the Notes tendered and rejected for
Exchange. Accordingly, if Notes are tendered by the undersigned and returned by
the Company during any period in which there is no interest payment date arising
under the Notes, the Company will have no liability to the undersigned arising
from the Exchange Offer with respect to the Notes tendered and rejected for this
Exchange Subscription other than the return of such Notes (or the return of the
executed acknowledgment of written instructions to a depository relating to the
transfer of a beneficial interest in a global Note, if applicable) to the
undersigned as described in this paragraph, and the undersigned will continue to
be entitled to receive interest payments on such Notes under the terms thereof.
(b) The terms and conditions on which the Company will accept or
reject Exchange Subscriptions, in whole or in part, are set forth in the
Exchange Offer Memorandum under the section titled, "The Exchange Offer," the
text of which is incorporated by reference as if fully set forth herein.
(c) Two copies of this Agreement are being executed by the
undersigned. If accepted, one copy of this Agreement will be retained by the
Company and one copy of this Agreement, after execution by the Company, shall be
delivered to the undersigned.
3. CLOSING OF EXCHANGE OFFER; WITHDRAWAL OF EXCHANGE OFFER OR EXCHANGE
SUBSCRIPTION.
(a) The Company shall consummate the Exchange Offer and the Exchange
Agreement at the offices of the Company in a series of one or more closings held
(as determined by the Company) as tenders of Notes in accordance with the terms
of the Exchange Offer are received from time to time during the period beginning
the date hereof and ending on or prior to the Expiration Date (each an "Interim
Closing" held on an "Interim Closing Date"); the Company shall complete the
consummation of the Exchange Offer and the Exchange Agreement at the offices of
the Company in a final closing held on or about [ ], 1998, but in any event not
later than five business days after the Expiration Date (the "Final Closing"
held on the "Final Closing Date"; the Final Closing and each Interim Closing are
each referred to as a "Closing").
(b) At each Interim Closing, the Company may accept Notes tendered by
any Investor in accordance with the terms of the Exchange Offer in exchange for
delivery of the certificates representing not more than such Investor's
Allocable Number of Shares, payment of cash in lieu of fractional Common Shares
otherwise issuable, if any, and the Final Interest Payment (in cash or Common
Shares as determined by the Company) on such Notes tendered and accepted
pursuant to the Exchange Offer. At the Final Closing, any Oversubscribed Amounts
shall be allocated among Oversubscribing Investors based on the
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relative percentage of all Notes outstanding immediately prior to the date
hereof held by all Oversubscribing Investors, until the respective
Oversubscribed Amounts have been satisfied or the aggregate Undersubscribed
Amount has been completely allocated among the Oversubscribing Investors.
Affiliated Investors may allocate among themselves the affiliated group's
aggregate Allocable Number of Shares and any Oversubscribed Amount (and the
related Final Interest Payment) allocated in accordance with subscription
procedures described above. For purposes of the Exchange Offer, Investors will
be considered "Affiliated Investors" if one such Investor, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, the other such Investor.
(c) All Notes tendered to the Company (and all executed
acknowledgments of written instructions received by the Company regarding the
transfer of beneficial interests in a global Note) pursuant to the Exchange
Offer shall be held unexchanged by the Company until the applicable Closing
Date, at which time the Company shall either (i) accept any Note tendered hereby
and issue Common Shares and deliver cash in lieu of fractional Common Shares
(which will not be issued), if any, together with the Final Interest Payment (in
cash or Common Shares as determined by the Company) on Notes tendered and
accepted pursuant to the Exchange Offer, to the tendering Investor; (ii) hold
any Note tendered hereby which represents an Oversubscribed Amount until
allocation of Oversubscribed Amounts can be determined on the Final Closing Date
and such Note is accepted as described in clause (i) or rejected as described in
clause (iii); or (iii) reject any Note tendered hereby and return it to the
tendering Investor, together with interest, if any, accrued thereon and payable
between the date of such tender and the date such Notes are returned (such
interest being paid to the depositary with respect to holders of a beneficial
interest in a global Note), in each case pursuant to the terms and conditions of
the Exchange Offer.
(d) Notwithstanding the foregoing: (i) the Company may extend the
Expiration Date and, prior to the initial Interim Closing Date, may modify or
withdraw the Exchange Offer, in each case pursuant to a Modification Notice (as
defined in Section 3(e) below) and in compliance with federal securities laws;
and (ii) to the extent that any holder of Notes is required to file a notice
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), the applicable Closing only with respect to such Investor shall be
conditioned upon the filing of such notice and the expiration or termination of
the required waiting period with respect to such notice, if applicable, under
the HSR Act; provided that upon satisfaction of such condition, the Notes
exchanged by such Investor shall be deemed to have been retired as of the Final
Closing Date for all purposes related to such Notes.
(e) The Company reserves the right to reject, in whole or in part, any
Exchange Subscription in its sole discretion for any reason whatsoever, and to
modify or withdraw this Exchange Offer at any time on or prior to the initial
Interim Closing Date for any reason or for no reason. In the event the Company
materially modifies any term of the Exchange Offer, each Investor will receive
notice of such modification (a "Modification Notice") and, in compliance with
federal securities laws, the Expiration Date will be extended
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to the extent necessary to keep the Exchange Offer open for ten business days
from the date of delivery of such Modification Notice. If the Exchange Offer is
withdrawn by the Company, the Company shall promptly return to the holders any
and all Notes (and all executed acknowledgments of written instructions received
by the Company regarding the transfer of beneficial interests in a global Note)
previously tendered to the Company hereunder, and the Company will have no
further liability to the undersigned arising from the Exchange Offer upon its
return to the undersigned of such Notes together with interest, if any, accrued
on Notes tendered in definitive form and payable between the date of such tender
and the date such Notes are returned to the undersigned (such interest being
paid to the depositary with respect to holders of a beneficial interest in a
global Note).
4. REPRESENTATIONS AND WARRANTIES OF THE UNDERSIGNED.
The undersigned hereby represents and warrants to the Company as
follows:
(a) all information provided and representations made by the
undersigned in the Prospective Investor Questionnaire (the "Questionnaire") of
the Company, a form of which Questionnaire is attached hereto as EXHIBIT A, are
true and correct in all respects as of the date hereof.
(b) The address set forth at the foot of this Subscription is the
address of the undersigned's principal residence or place of business, and the
undersigned has no present intention of becoming a resident of any other
country, state or jurisdiction.
(c) Unless the undersigned shall have notified the Company to the
contrary in writing prior to or together with the tendering of this Exchange
Subscription, the undersigned acknowledges that the undersigned has not relied
upon the advice of a "Purchaser Representative" (as defined in the
aforementioned Regulation D) in evaluating the risks and merits of this
investment.
(d) The undersigned has received and read or reviewed and is familiar
with the Exchange Offering Memorandum and its Exhibits, and the undersigned
confirms that all documents, records, and books pertaining to the investment in
the Company and requested by the undersigned have been made available or
delivered to the undersigned.
(e) The undersigned has had an opportunity to ask questions of and
receive answers from the Company, or a person or persons acting on the Company's
behalf, concerning the terms and conditions of this investment.
(f) The undersigned understands and acknowledges the following:
(i) the securities for which the undersigned hereby subscribes in
this Exchange Offer (including any securities into which such securities
may be converted)
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have not been registered under the Securities Act or under the securities
laws of any state or other jurisdiction in reliance upon exemptions for
private offerings, and that this Exchange Offer has not been passed upon or
the merits thereof endorsed or approved by any state or federal
authorities;
(ii) while the Company may in the future register such securities
(or any securities into which such securities may be converted), it is
under no obligation to do so, except as provided herein;
(iii) such securities (including any securities into which such
securities may be converted) cannot be resold unless registered under the
Securities Act and any applicable securities law of any state or other
jurisdiction, or an exemption from registration is available;
(iv) there can be no assurance that any public market for such
securities (including any securities into which such securities may be
converted) which may currently exist will continue to exist in the future;
(v) the undersigned is purchasing such securities without being
furnished any offering literature or prospectus other than the Exchange
Offering Memorandum (and the exhibits thereto), and is relying only on the
information contained therein in evaluating the risks and merits of this
investment; and
(vi) no person or entity has been authorized to give any
information or make any representations in connection with this investment
other than that contained in the Exchange Offering Memorandum (and the
exhibits thereto).
(g) The securities for which the undersigned hereby subscribes
pursuant to the Exchange Offer are being acquired solely for the undersigned's
own account, for investment and not with a view to or for the resale,
distribution, subdivision, or fractionalization thereof; the undersigned has no
present plans to enter into any contract, undertaking, agreement, or arrangement
relating thereto.
(h) The undersigned has such knowledge and experience that the
undersigned is capable of evaluating the matters set forth in the Exchange
Offering Memorandum (and the exhibits thereto) and the risks and merits relating
thereto.
(i) The undersigned acknowledges and is aware of the following:
(i) the securities offered hereby are a speculative
investment which involves a high degree of risk of loss by the
undersigned of the undersigned's entire investment in the Company; and
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(ii) no assurances have been given that the undersigned will
realize any gain from the undersigned's exchange of Notes for Common
Shares pursuant to the Exchange Offer and the undersigned may lose the
undersigned's entire investment in the Common Shares.
(j) The undersigned, if it is a corporation or other entity,
acknowledges that it, through the officer(s) and/or director(s) and/or other
employees responsible for making an investment decision with regard to this
Exchange Subscription, has such knowledge and experience in financial and
business matters that it is capable of evaluating the relative risks and merits
of this investment, and further acknowledges that the representations and
warranties contained in this Section 4 are true and accurate with respect to it.
The foregoing representations and warranties are true and accurate as
of the date hereof and shall be true and accurate as of the date of acceptance
of this Exchange Subscription and delivery of the securities purchased hereunder
and shall survive such delivery.
5. TRANSFERABILITY.
This Exchange Subscription, or any of the undersigned's interest
herein, may not be transferred or assigned, and any sale, assignment or transfer
of the securities acquired pursuant to the Exchange hereunder shall be made only
in accordance with applicable securities laws.
6. REVOCATION.
The undersigned agrees that the undersigned shall not cancel,
terminate or revoke this Exchange Subscription or any agreement of the
undersigned made hereunder except as may be required by applicable law, and that
this Exchange Subscription shall survive the death or disability of the
undersigned.
7. REGISTRATION RIGHTS.
The Company hereby grants the following rights with respect to the Common
Shares to be issued to the undersigned in connection with this Exchange
Subscription:
(a) "S-3" REGISTRATIONS. The Company shall use its best efforts
to continue to qualify at all times for registration of its capital stock on a
Registration Statement on Form S-3 under the Securities Act ("Form S-3") or a
comparable successor form, and to file within 90 days from the Closing Date a
registration statement on Form S-3 (or on such other form as the Company is then
eligible to use under the Securities Act) for the registration of all Common
Shares issued pursuant to the Exchange Offer ("Registrable Securities"). The
Company shall take such steps as are required to register such Registrable
Securities for sale on a delayed or continuous basis under Rule 415, and to keep
such registration effective until
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all of such holder's Registrable Securities registered thereunder are sold.
Notwithstanding the foregoing:
(i) the Company shall have no obligation to keep any
registration effective more than 120 days after the
initial date of effectiveness of such registration; and
(ii) the Company may postpone the filing of any registration
statement required hereunder for a reasonable period of
time, not to exceed 90 days, if the Company determines in
good faith that such filing would require the disclosure
of a material transaction or other factor and the Company
determines reasonably and in good faith that such
disclosure would have a material adverse effect on the
Company.
The obligations of the Company under this Section 7 shall expire and
terminate at such time as the holder of Registrable Securities shall be entitled
to sell such securities without restriction and without a need for the filing of
a registration statement under the Securities Act, including without limitation,
for any resales of restricted securities made pursuant to Rule 144 as
promulgated by the Securities and Exchange Commission.
(b) EXPENSES. In the case of a registration under this Section 7, the
Company shall bear all costs and expenses of each such registration, including,
but not limited to, printing, legal and accounting expenses; PROVIDED, HOWEVER,
that the Company shall have no obligation to pay or otherwise bear any portion
of the underwriters' commissions or discounts attributable to the Registrable
Securities being offered and sold by the holders of Registrable Securities or
the fees and expenses of any counsel for the selling holders of Registrable
Securities in connection with the registration of the Registrable Securities.
8. MISCELLANEOUS.
(a) NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part of
any party to this Exchange Subscription, in exercising any right, power or
remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
(b) ADDRESSES FOR NOTICES, ETC. All notices requests, demands and
other communications provided for hereunder shall be in writing and mailed,
telecommunicated or delivered:
If to the Company, to the address set forth above, Telecopier: (781)
862-2929, Attention: Chief Financial Officer, or at such other address as shall
be designated by the
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Company in a written notice to the undersigned complying as to delivery with the
terms of this Section 8. A copy of all notices, demands and other communications
to the Company shall be sent to the offices of Goodwin, Procter & Hoar LLP,
Exchange Place, Boston, Massachusetts 02109, Attention: Thomas P. Storer, P.C.,
Telecopier: (617) 523-1231.
If to the undersigned, at its address as set forth on the signature page
hereof or at such other address as shall be designated by the undersigned in a
written notice to the Company complying as to delivery with the terms of this
Section 8.
All such notices, requests, demands and other communications shall, when
mailed, registered or certified mail, return receipt requested, postage prepaid,
telecommunicated, telegraphed or telexed, respectively, be effective when
deposited in the mails, confirmed received by telecommunication or delivered to
the telegraph or telex company, respectively, addressed as aforesaid.
(c) SEVERABILITY. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision.
(d) GOVERNING LAW. This Exchange Subscription shall be governed by,
and construed in accordance with, the laws of The Commonwealth of Massachusetts,
without regard to the choice of law principles thereunder.
(e) ENTIRE AGREEMENT; AMENDMENTS. This Exchange Agreement together
with all Exhibits and amendments hereto constitutes the entire agreement among
the parties hereto with respect to the subject matter hereof and may only be
amended by a writing executed by all parties.
(f) CERTIFICATION. The undersigned certifies that he has read the
entire Exchange Agreement and every statement on his part and set forth herein
is true and complete.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the undersigned has executed and sworn to this
Exchange Subscription this ______ day of ____________, 1999.
- ------------------------- --------------------------------
Signature of Co-Investor Signature of Co-Investor, if any
- -------------------------------------------------------------------------------
Name of Investor (Please print) and Capacity in Which Exchange Subscription
is Made
Address of Investor:
-----------------------------------------------------------
Number Street City State Zip Code
Tel. No. ( )
------------------- --------------------------------------
Social Security Number for Individual
or other Taxpayer Identification Number
SUBSCRIPTION REQUEST#: _______________ shares of Common Stock at the Exchange
Price.
# Note: Affiliated Investors wishing to allocate among themselves the
affiliated group's aggregate Allocable Number of Shares and any
Oversubscribed Amount allocated in accordance with the Exchange Offer
subscription procedures should so indicate on a separate sheet attached to
this Signature Page.
NOTES TENDERED*: $_______________ Principal Amount of Notes tendered in the
Exchange Offer.
*GLOBAL NOTES: TO BE COMPLETED ONLY BY INVESTORS WHO ARE TENDERING BENEFICIAL
INTERESTS IN A GLOBAL NOTE. THIS DOES NOT APPLY TO INVESTORS TENDERING
DEFINITIVE NOTE DOCUMENTS WITH THIS AGREEMENT.
WRITTEN INSTRUCTIONS TO THE DEPOSITARY OF THE GLOBAL NOTES
The undersigned hereby instructs the depositary of the 7%
Subordinated Notes due May 13, 2005 of Waste Systems International,
Inc. to tender for transfer pursuant to the terms and conditions of
this Exchange Subscription that portion of the undersigned's beneficial
interest in a global Note held by the depositary represented by the
principal amount set forth in the paragraph "NOTES*:" above.
- --------------------------- ---------------------------------
Signature of Investor Signature of Co-Investor, if any
ACCEPTED BY WASTE SYSTEMS INTERNATIONAL, INC., this ____ day of ______________,
1999:
By:
---------------------------
Name:
Title:
COMMON
SHARES: [_____] Common Shares issued, comprised of: (i) [_____] Common
Shares in exchange for the Notes tendered in the principal amount
set forth above at the Exchange Price; and (ii) [___] Common
Shares in lieu of cash for the Final Interest Payment of $[_____]
in Pro Rata Interest on such Notes accepted for exchange.
CASH: [$_____] total cash, comprised of: (i) $[_____] in cash, if any,
in lieu of [___] fractional Common Shares otherwise issuable in
exchange for the Notes tendered and accepted for exchange; and
(ii) [$___] in cash for Pro Rata Interest on such Notes accepted
for exchange.
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EXHIBIT A
NAME OF INVESTOR:
-----------------------------------
PROSPECTIVE INVESTOR QUESTIONNAIRE
Waste Systems International, Inc.
420 Bedford Street
Suite 300
Lexington, MA 02173
The securities of Waste Systems International, Inc. (the "Company")
offered by the Company through the Exchange Offer of which the Exchange Offering
Memorandum is a part, are being offered in reliance on Regulation D under the
Securities Act of 1933, as amended ("Regulation D"), and similar provisions of
state law. To satisfy the requirements of Regulation D and applicable state law,
the Company must determine whether a prospective investor (the "Investor") meets
Regulation D and the state law definitions of "accredited investor" before
selling (or, in some states, offering) securities to such person. This
Questionnaire is designed to assist the Company in making this determination.
Please complete, execute and date this Prospective Investor
Questionnaire and deliver it along with an executed Exchange Agreement to the
Company at the address set forth above. Your answers will, at all times, be kept
confidential except as necessary to establish that the offer and sale of the
securities will not result in a violation of applicable law.
1) To establish the basis of the Investor's status as an accredited
investor, please answer the questions set forth below.
a) Is the Investor an individual with a net worth (or net worth with
his or her spouse) in excess of $1 million:
Yes___ No___
b) If the Investor is an individual, will his or her acquisition of
securities of the Company in the offering exceed 25% of the
Investor's net worth (or net worth with his or her spouse). For
purposes of this Section 1(b), "net worth" excludes the value of
the Investor's principal residence and its furnishings.
Yes___ No___
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c) Is the Investor an individual with net income (without including
any net income of the Investor's spouse) in excess of $200,000,
or joint income with the Investor's spouse in excess of $300,000,
in each of the two most recent years, and does the Investor
reasonably expect to reach the same income level in the current
year?
Yes___ No___
d) Is the Investor an employee benefit plan within the meaning of
the Employee Retirement Income Security Act of 1974 (hereinafter
"ERISA") whose decision to invest in the Company is being made by
a plan fiduciary which is either a bank, savings and loan
association, insurance company or registered investment adviser
or, alternatively, does the employee benefit plan have total
assets in excess of $5,000,000 or is the employee benefit plan
"self-directed" with investment decisions made solely by
person(s) who are accredited investors(s)?
Yes___ No___
e) Is the Investor a plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a
state or its political subdivisions for the benefit of its
employees with total assets in excess of $5,000,000?
Yes___ No___
f) Is the Investor a trust (including an individual retirement
arrangement formed as a trust or a tax-qualified pension and
profit sharing plan (E.G., a Keough Plan) formed as a trust but
not subject to ERISA) with total assets in excess of $5,000,000
that was not formed for the specific purpose of acquiring
securities of the Company and whose purchase is directed by a
person with such knowledge and experience in financial and
business matters that such person is capable of evaluating the
merits and risks of the prospective investment?
Yes___ No___
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g) Is the Investor a corporation, partnership, Massachusetts or
similar business trust or an organization described in Section
501(c)(3) of the Internal Revenue Code that was not formed for
the specific purpose of acquiring securities of the Company and
whose total assets exceed $5,000,000?
Yes___ No___
h) Is the Investor one of the following entities:
(i) A "bank" as defined in Section 3(a)(2) of the Securities
Act or any "savings and loan association" or other
institution as defined in Section 3(a)(5)(A) of the
Securities Act whether acting in an individual or
fiduciary capacity;
(ii) A "broker/dealer" registered pursuant to Section 15 of the
Securities Exchange Act of 1934;
(iii) An "insurance company," as defined in Section 2(13) of the
Securities Act;
(iv) An "investment company" registered under the Investment
Company Act of 1940 or a "business development company" as
defined in Section 2(a)(48) of the Investment Company Act
of 1940;
(v) A "Small Business Investment Company" licensed by the U.S.
Small Business Administration under Section 301(c) or (d)
of the Small Business Investment Act of 1958; or
(vi) A "Private Business Development Company" as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940?
Yes___ No___
If yes, then which entity (I.E., (h)(i) through (vi)
above)?
----------------
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i) Is the Investor an entity (other than a trust but
including a grantor trust and including an investment
retirement account, the investment of which is directed by
the beneficiary) in which all of the equity owners or the
beneficiary, as the case may be, can answer "Yes" to any
one question set forth in Sections 1(a) through 1(h)
immediately above?
Yes___ No___
2) Is the Investor acquiring securities of the Company as a principal for
the purpose of investment and not with a view to resale or
distribution?
Yes___ No___
3) By signing this Questionnaire, the Investor hereby confirms the
following statements:
a) The Investor shall immediately provide the Company with corrected
information in the event any information given herein was untrue.
b) The Investor acknowledges that any delivery to the Investor of a
Confidential Private Exchange Offering Memorandum and other
information relating to the Company, prior to the determination
by the Company of the suitability of the Investor as an investor
in the Company, shall not constitute an offer of securities of
the Company until such determination of suitability shall be
made.
c) The answers of the Investor to the foregoing questions are
true and complete to the best of the information and belief of
the undersigned, and the Company shall be notified promptly of
any changes in the foregoing answers.
[Remainder of Page Intentionally Left Blank]
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- -------------------------- --------------------------
Signature of Investor Signature of Investor
(or duly authorized agent) (or duly authorized agent)
- -------------------------- --------------------------
Title: Title:
- -------------------------- --------------------------
Print Name Signed Above Print Name Signed Above
- -------------------------- --------------------------
Date Signed Date Signed
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EXHIBIT 5.1
July 12, 1999
Waste Systems International, Inc.
420 Bedford Street, Suite 300
Lexington, MA 02420
Re: Legality of $77,500,000 Aggregate Principal Amount of
11 1/2% Series B Senior Notes due 2006 registered pursuant to
REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 333-81341)
Ladies and Gentlemen:
This opinion is delivered in our capacity as counsel to Waste
Systems International, Inc., a Delaware corporation (the "Company"), in
connection with the Company's registration statement on Form S-4, as amended
(the "Registration Statement"), filed with the Securities and Exchange
Commission under the Securities Act of 1933 (the "Securities Act"), relating
to $77,500,000 aggregate principal amount of 11 1/2% Series B Senior Notes
due 2006 (the "New Senior Notes") authorized for issuance under the Company's
Second Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation"), with an aggregate offering price of up to $77,500,000.
In connection with rendering this opinion, we have examined the
Certificate of Incorporation of the Company, the Bylaws of the Company; such
records of corporate proceedings of the Company as we deem appropriate for
the purposes of this opinion; the Indenture dated as of March 2, 1999,
between the Company, its subsidiaries and IBJ Whitehall Bank & Trust Company,
as trustee, (the "Indenture"); and the Registration Statement and the
prospectus contained therein.
The opinions expressed below are qualified to the extent that (a) the
validity or enforceability of any provision of the New Senior Notes and the
Indenture or any rights granted thereunder may be subject to or affected by any
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
similar law relating to or affecting the rights of creditors generally, (b) the
remedy of specific performance or any other equitable remedy may be unavailable
in any jurisdiction or may be withheld as a matter of judicial discretion, and
(c) general principles of equity, including without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, may applied in the
exercise of judicial discretion in construing or enforcing the provisions of any
instrument or document (regardless of whether enforcement is sought in a
proceeding in equity or at law); in addition, we have assumed (i) the
genuineness of all signatures on documents we have examined, (ii) the
authenticity of all
<PAGE>
Waste Systems International, Inc.
July 12, 1999
Page 2
documents submitted to us as originals, (iii) the conformity to the original
documents of all documents submitted to us as copies, (iv) the conformity of
final documents to all documents submitted to us as drafts, (v) the authority
and capacity of the individual or individuals who executed any such documents on
behalf of any person, (vi) the accuracy and completeness of all records made
available to us, and (vii) the factual accuracy of all representations,
warranties and other statements made by all parties. We also have assumed, and
rely upon such assumption, without investigation, that all documents,
certificates, warranties and covenants on which we have relied in rendering the
opinion set forth below and that were given or dated earlier than the date of
this letter continue to remain accurate, insofar as relevant to the opinions set
forth herein, from such earlier date, through and including the date of this
letter.
We express no opinion concerning the laws of any jurisdictions other
than the laws of the United States of America, The Commonwealth of Massachusetts
and the Delaware General Corporation Law.
Based upon the foregoing, we are of the opinion that the New Senior
Notes have been duly authorized, executed and delivered by the Company and,
assuming the due authentication of the New Senior Notes in accordance with the
terms of the Indenture, when delivered to the holders of the Company's 11 1/2%
Senior Notes due 2006 (the "Old Senior Notes") in exchange for the Old Senior
Notes, will constitute valid and binding obligations of the Company, entitled to
the benefits of the Indenture and enforceable against the Company in accordance
with their terms.
The foregoing assumes that all requisite steps will be taken to comply
with applicable requirements of state laws regulating the offer and sale of
securities.
We consent to being named as counsel to the Company in the Registration
Statement, to the references in the Registration to our firm and to the
inclusion of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ GOODWIN, PROCTER & HOAR LLP
Goodwin, Procter & Hoar LLP
<PAGE>
EXHIBIT 8.1
July 12, 1999
Waste Systems International, Inc.
420 Bedford Street, Suite 300
Lexington, MA 02420
Re: CERTAIN FEDERAL INCOME TAX MATTERS
Ladies and Gentlemen:
This opinion is delivered in our capacity as counsel to Waste
Systems International, Inc., a Delaware corporation (the "Company"), in
connection with the Company's registration statement on Form S-4, as amended
(the "Registration Statement"), filed with the Securities and Exchange
Commission under the Securities Act of 1933, relating to $77,500,000
aggregate principal amount of 11 1/2% Series B Senior Notes due 2006
authorized for issuance under the Company's Second Amended and Restated
Certficate of Incorporation ("Certificate of Incorporation"), with an
aggregate offering price of up to $77,500,000. This opinion relates to the
discussion in the Registration Statement under the heading "Certain United
States Federal Income Tax Consequences."
In connection with rendering this opinion, we have examined the
Certificate of Incorporation; the Bylaws of the Company; such records of
corporate proceedings of the Company as we deem appropriate for the purposes
of this opinion; the Indenture dated as of March 2, 1999, between the
Company, its subsidiaries and IBJ Whitehall Bank & Trust Company, as trustee,
(the "Indenture"); the Purchase Agreement, dated February 25, 1999, by and
among First Albany Corporation, the Company and the Subsidiary Guarantors (as
defined in the Indenture); the Note Registration Rights Agreement, dated as
of March 2, 1999, by and among the Company, its subsidiaries and First
Albany, the Registration Statement and the prospectus contained therein.
In rendering the opinion set forth herein, we have assumed (i) the
genuineness of all signatures on documents we have examined, (ii) the
authenticity of all documents submitted to us as originals, (iii) the
conformity to the original documents of all documents submitted to us as
copies, (iv) the conformity of final documents to all documents submitted to
us as drafts, (v) the authority and capacity of the individual or individuals
who executed any such documents on behalf of any person, (vi) the accuracy
and completeness of all records made available to us, and (vii) the factual
accuracy of all representations, warranties and other statements made by all
parties. We also have assumed, and rely upon such assumption, without
investigation, that all documents, certificates, warranties and covenants on
which we have relied in rendering the opinion set forth below and that were
given or dated earlier than the date of this letter continue to
<PAGE>
Waste Systems International, Inc.
July 12, 1999
Page 2
remain accurate, insofar as relevant to the opinions set forth herein, from
such earlier date, through and including the date of this letter.
The discussion and conclusions set forth below are based upon the
Internal Revenue Code of 1986, as amended, the Income Tax Regulations and
Procedure and Administration Regulations promulgated thereunder and existing
administrative and judicial interpretations thereof, all of which are subject
to change. No assurance can therefore be given that the federal income tax
consequences described below will not be altered in the future.
Based upon and subject to the foregoing, we are of the opinion that
the statements in the Registration Statement set forth under the caption
"Certain United States Federal Income Tax Consequences," to the extent such
statements constitute matters of law or summaries of legal matters or legal
conclusions, have been reviewed by us and are accurate in all material
respects.
We express no opinion with respect to the transactions described in
the Registration Statement other than those expressly set forth herein. You
should recognize that our opinion is not binding on the Internal Revenue
Service and that the Internal Revenue Service may disagree with the opinion
contained herein. Although we believe that our opinion will be sustained if
challenged, there can be no assurance that this will be the case. The opinion
expressed herein is based upon the law as it currently exists. Consequently,
future changes in the law may cause the federal income tax treatment of the
transactions described herein to be materially and adversely different than
as described in the Registration Statement.
We consent to being named as counsel to the Company in the
Registration Statement, to the references in the Registration Statement to
our firm and to the inclusion of a copy of this opinion letter as an exhibit
to the Registration Statement.
Very truly yours,
/s/ GOODWIN, PROCTER & HOAR LLP
Goodwin, Procter & Hoar LLP
<PAGE>
Exhibit 12.1
WASTE SYSTEMS INTERNATIONAL, INC
STATEMENT RE COMPUTATION OF RATIOS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended For the year ended
March 31, December 31,
---------------------- ---------------------------
1999 1998 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Historical ratio of earnings to fixed charges
Loss from continuing operations before taxes
per consolidated statement of operations $(8,473) $(1,107) $(6,206) $(5,449) $(11,652)
Add:
Portion of rents representative of the
interest factor 67 23 90 70 70
Interest on indebtedness including the
amortization of debt expense (1) 2,006 434 4,074 1,355 1,182
Loss before fixed charges, as adjusted $(6,400) $ (650) $(2,042) $(4,024) $(10,400)
------- ------- ------- ------- ---------
Fixed charges
Interest on indebtedness including the
amortization of debt expense (1) $ 2,006 $ 434 $ 4,074 $ 1,355 $ 1,182
Rents 201 69 270 210 210
Portion of rents representative of the
interest factor (2) 67 23 90 70 70
Fixed charges (1) + (2) 2,073 457 4,164 1,425 1,252
Ratio of loss to fixed charges (3.09) (1.42) (0.49) (2.82) (8.31)
------- ------- ------- ------- ---------
------- ------- ------- ------- ---------
</TABLE>
<PAGE>
Exhibit 21.1
Schedule of Subsidiaries
As of July 12, 1999
<TABLE>
<CAPTION>
NAME AND ADDRESS: JURISDICTION
- ----------------- ------------
<S> <C>
WSI Medical-Waste Systems, Inc. Delaware
(Formerly Biosafe Medical Waste Technology, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Vermont Holdings, Inc. Delaware
(Formerly Waste Professionals of Vermont, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Moretown Landfill, Inc. Delaware
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Burlington Transfer Station, Inc. Delaware
(Formerly Burlington Area Transfer Station, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Waitsfield Transfer Station, Inc. Delaware
(Formerly Waitsville Transfer Station, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI of Vermont, Inc. Delaware
(Formerly WPV Disposal, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Massachusetts Holdings, Inc. Delaware
(Formerly Biosafe Buckland, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI of South Hadley, Inc. Delaware
(Formerly Biosafe, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Pennsylvania Holdings, Inc. Delaware
(Formerly Biosafe Mid-Atlantic, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Altoona Hauling, Inc. Delaware
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
<PAGE>
Biosafe Systems, Inc. Delaware
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
Mostoller Landfill, Inc. Pennsylvania
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI St. Johnsbury Transfer Station, Inc. Delaware
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI New York Holdings, Inc. Delaware
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI of New York, Inc. Delaware
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
Eastern Trans-Waste of Maryland, Inc. Maryland
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Maryland Holdings, Inc. Delaware
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Oxford Transfer Station, Inc. Delaware
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Hopewell Landfill, Inc. Delaware
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
Community Refuse Service, Inc. Pennsylvania
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Somerset Hauling, Inc. Delaware
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Harrisburg Hauling, Inc. Delaware
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Camden Transfer Station, Inc. Delaware
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
Palmer Resource Recovery Corp. New York
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI of Massachusetts Hauling, Inc. Delaware
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Massachusetts Recycling, Inc. Delaware
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
</TABLE>
<PAGE>
Exhibit 23.2
INDEPENDENT ACCOUNTANT'S CONSENT
We consent to the use of our report included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
KPMG LLP
Boston, Massachusetts
July 13, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000847468
<NAME> WASTE SYSTEMS INTERNATIONAL, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
<EXCHANGE-RATE> 1 1
<CASH> 36,816,693 193,613
<SECURITIES> 0 0
<RECEIVABLES> 6,256,875 5,457,562
<ALLOWANCES> 125,816 222,028
<INVENTORY> 0 0
<CURRENT-ASSETS> 46,250,254 10,198,432
<PP&E> 82,232,920 48,948,513
<DEPRECIATION> 5,410,617 4,262,778
<TOTAL-ASSETS> 173,884,122 96,116,699
<CURRENT-LIABILITIES> 12,110,540 16,718,221
<BONDS> 0 60,000,000
0 0
0 0
<COMMON> 134,651 117,184
<OTHER-SE> 0 37,810,712
<TOTAL-LIABILITY-AND-EQUITY> 173,884,122 96,116,699
<SALES> 8,862,258 21,044,584
<TOTAL-REVENUES> 8,862,258 21,044,584
<CGS> 7,868,030 12,399,529
<TOTAL-COSTS> 7,868,030 19,000,952
<OTHER-EXPENSES> 1,913,609 4,482,478
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,006,467 (4,073,693)
<INCOME-PRETAX> (8,473,625) (6,205,925)
<INCOME-TAX> 0 43,174
<INCOME-CONTINUING> (8,473,625) (6,249,099)
<DISCONTINUED> 0 0
<EXTRAORDINARY> (223,008) (246,539)
<CHANGES> 0 0
<NET-INCOME> (8,696,633) (6,495,634)
<EPS-BASIC> 0.74 (1.00)
<EPS-DILUTED> 0.74 (1.00)
</TABLE>
<PAGE>
EXHIBIT 99.2
FORM OF
NOTICE OF GUARANTEED DELIVERY
for
Tender of $77,500,000 principal amount of the
11 1/2% Senior Notes Due 2006
in Exchange for
11 1/2% Series B Senior Notes Due 2006
of
WASTE SYSTEMS INTERNATIONAL, INC.
This Notice of Guaranteed Delivery may be used by any registered holder of
outstanding 11 1/2% Senior Notes Due 2006 (the "Notes") meeting all of the
following requirements: (1) for purposes of federal securities laws, such
registered holder is not an "affiliate" of Waste Systems International, Inc. or
are not otherwise ineligible to participate in the exchange offer; and (2) such
registered holder wishes to tender its Notes in exchange for a like principal
amount of new 11 1/2% Series B Senior Notes Due 2006; and (3) such registered
holder's Notes are not immediately available or such registered holder cannot
deliver its Notes and Letter of Transmittal (and any other documents required by
the Letter of Transmittal) to IBJ Whitehall Bank & Trust Company (the "Exchange
Agent") prior to the Expiration Date.
This Notice of Guaranteed Delivery may be delivered by hand or sent by
facsimile transmission (receipt confirmed by telephone and an original delivered
by guaranteed overnight delivery) or mail to the Exchange Agent. See "The
Exchange Offer--Procedures for Tendering" in the prospectus dated July 13, 1999
of Waste Systems International, Inc. (the "Prospectus"). Capitalized terms not
defined herein are defined in the Prospectus.
The Exchange Agent for the Exchange Offer is:
IBJ WHITEHALL BANK & TRUST COMPANY
<TABLE>
<CAPTION>
BY HAND/OVERNIGHT DELIVERY: BY MAIL:
<S> <C>
(insured or registered recommended)
IBJ Whitehall Bank & Trust Company IBJ Whitehall Bank & Trust Company
One State Street P.O. Box 84, Bowling Green Station
New York, NY 10004 New York, NY 10274-0084
Attn: Securities Processing Subcellar One Attn: Reorganizations Operations Department
(SC-1)
</TABLE>
BY FACSIMILE:
(212) 858-2611
TELEPHONE CONFIRMATION:
(212) 858-2103
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above or transmission of instructions via a facsimile transmission to
a number other than as set forth above will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution (as defined in the Prospectus), such
signature guarantee must appear to the application space provided on the Letter
of Transmittal for Guarantee of Signatures.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Notes indicated
below, upon the terms and subject to the conditions contained in the Prospectus,
receipt of which is hereby acknowledged.
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<S> <C> <C>
NAME AND ADDRESS OF
REGISTERED
HOLDER AS IT APPEARS ON THE
11 1/2% SENIOR CERTIFICATE NUMBER(S) PRINCIPAL AMOUNT
NOTES DUE 2006 OF NOTES TENDERED OF NOTES TENDERED
(PLEASE PRINT)
- ---------------------------- ---------------------------- ----------------------------
- ---------------------------- ---------------------------- ----------------------------
- ---------------------------- ---------------------------- ----------------------------
- ---------------------------- ---------------------------- ----------------------------
- ---------------------------- ---------------------------- ----------------------------
</TABLE>
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc. or
a commercial bank or trust company having an office, branch, agency or
correspondent in the Untied States, hereby guarantees to deliver to the Exchange
Agent at one of its addresses set forth above, the certificates representing the
Notes, together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees, and
any other documents required by the Letter of Transmittal within three New York
Stock Exchange, Inc. trading days after the date of execution of this Notice of
Guaranteed Delivery.
<TABLE>
<S> <C>
Name of Firm: (Authorized Signature)
Address: Title:
Name:
(Zip Code) (Please type or print)
Area Code and Telephone Number: Date:
</TABLE>
NOTE: DO NOT SEND NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY;
NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
2
<PAGE>
EXHIBIT 99.3
FORM OF
WASTE SYSTEMS INTERNATIONAL, INC.
OFFER FOR $77,500,000 PRINCIPAL AMOUNT OF THE
11 1/2% SENIOR NOTES DUE 2006
IN EXCHANGE FOR
11 1/2% SERIES B SENIOR NOTES DUE 2006
To: Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees
Waste Systems International, Inc. (the "Company"), upon and subject to the
terms and conditions set forth in the Prospectus, dated [ ], 1999
(the "Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal"), is offering to exchange (the "Exchange Offer") $77,500,000
principal amount of its 11 1/2% Series B Senior Notes Due 2006 (the "New Senior
Notes") for its outstanding 11 1/2% Senior Notes Due 2006 (the "Old Senior
Notes"). The Exchange Offer is being made in order to satisfy certain
obligations of the Company contained in the Note Registration Rights Agreement
dated as of March 2, 1999, among the Company and the other signatories thereto.
We are requesting that you contact your clients for whom you hold Old Senior
Notes regarding the Exchange Offer. For your information and for forwarding to
your clients for whom you hold Old Senior Notes registered in your name or in
the name of your nominee, or who hold Old Senior Notes registered in their own
names, we are enclosing the following documents:
1. Prospectus dated [ ], 1999;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer
if certificates for Old Senior Notes are not immediately available or
time will not permit all required documents to reach the Exchange Agent
prior to the Expiration Date (as defined in below) or if the procedure
for book-entry transfer cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account you
hold Old Senior Notes registered in your name or the name of your
nominee, with space provided for obtaining such clients' instructions
with regard to the Exchange Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
substitute Form W-9; and
6. Return envelopes addressed to IBJ Whitehall Bank & Trust Company, the
Exchange Agent for the Old Senior Notes.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., EASTERN TIME, ON [ ], 1999, UNLESS EXTENDED BY THE COMPANY (THE
"EXPIRATION DATE"). THE OLD SENIOR NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER
MAY BE WITHDRAWN AT ANY TIME BEFORE THE EXCHANGE AGENT MAILS THE NEW SENIOR
NOTES DUE PURSUANT TO THE TENDER. SEE THE PROSPECTUS UNDER "THE EXCHANGE
OFFER--WITHDRAWAL OF TENDERS."
To participate in the Exchange Offer, a duly executed and properly completed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, should be sent to the Exchange
Agent and certificates representing the Old Senior Notes should be delivered to
the Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and the Prospectus.
<PAGE>
If holders of Old Senior Notes wish to tender, but it is impracticable for
them to forward their certificates for Old Senior Notes prior to the expiration
of the Exchange Offer or to comply with the book-entry transfer procedures on a
timely basis, a tender may be effected by following the guaranteed delivery
procedures described in the Prospectus under "The Exchange Offer--Procedures for
Tendering."
The Company will, upon request, reimburse brokers, dealers, commercial banks
and trust companies for reasonable and necessary costs and expenses incurred by
them in forwarding the Prospectus and the related documents to the beneficial
owners of Old Senior Notes held by them as nominee or in a fiduciary capacity.
The Company will pay or cause to be paid all stock transfer taxes applicable to
the exchange of Old Senior Notes pursuant to the Exchange Offer, except as set
forth in Instruction 5 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to IBJ
Whitehall Bank & Trust Company, the Exchange Agent, at its address and telephone
number set forth on the front of the Letter of Transmittal.
Very truly yours,
Robert Rivkin
Executive Vice President,
Chief Financial Officer, Secretary,
Treasurer and Director
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF
THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN
THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
2
<PAGE>
EXHIBIT 99.4
[FORM OF LETTER TO CLIENTS]
OFFERING FOR $77,500,000 PRINCIPAL AMOUNT OF THE
11 1/2% SENIOR NOTES DUE 2006
IN EXCHANGE FOR
11 1/2% SERIES B SENIOR NOTES DUE 2006
OF
WASTE SYSTEMS INTERNATIONAL, INC.
To Our Clients:
Enclosed for your consideration is a Prospectus, dated [ ], 1999
(the "Prospectus"), and the related letter of transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of Waste Systems
International, Inc. (the "Company"), to exchange its 11 1/2% Series B Senior
Notes Due 2006 (the "New Senior Notes") for $77,500,000 principal amount of its
outstanding 11 1/2% Senior Notes Due 2006 (the "Old Senior Notes"). The Exchange
Offer is being made in order to satisfy certain obligations of the Company
contained in the Note Registration Rights Agreement dated as of March 2, 1999,
among the Company and the other signatories thereto.
This material is being forwarded to you as the beneficial owner of the Old
Senior Notes carried by us in your account but not registered in your name. A
TENDER OF SUCH OLD SENIOR NOTES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD
AND PURSUANT TO YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Senior Notes held by us for your account pursuant to the
terms and conditions set forth in the enclosed Prospectus and Letter of
Transmittal.
Your instructions should be forwarded to us as promptly as possible in order
to permit us to tender the Old Senior Notes on your behalf in accordance with
the provisions of the Exchange Offer. The Exchange Offer will expire at 5:00
p.m., Eastern Time, on [ ], 1999, unless extended by the Company. Any
Old Senior Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Senior Notes held by persons
who are not "affiliates" of the Company (for purposes of the Securities
Exchange Act of 1934, as amended, including any and all Old Senior Notes
held by you).
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Conditions to
the Exchange Offer."
3. Any transfer taxes incident to the transfer of Old Senior Notes from the
holder to the Company will be paid by the Company, except as otherwise
provided in the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., Eastern Time, on [ ],
1999, unless extended by the Company.
IF YOU WISH TO HAVE US TENDER YOUR OLD SENIOR NOTES, PLEASE SO INSTRUCT US
BY COMPLETING, EXECUTING AND RETURNING TO US THE INSTRUCTION FORM ON THE BACK OF
THIS LETTER. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION ONLY
AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD SENIOR NOTES.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by Waste
Systems International, Inc. with respect to its Old Senior Notes.
This will instruct you to tender the Old Senior Notes held by you for the
account of the undersigned and to consent to the proposed Indenture amendment,
all upon and subject to the terms and conditions set forth in the Prospectus and
the related Letter of Transmittal.
/ / Please tender the Old Senior Notes held by you for my account as indicated
below:
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL AMOUNT OF OLD SENIOR
NOTES
--------------------------------------------
<S> <C>
11 1/2% Senior Notes Due 2006................. -------------------------------------------
/ / Please do not tender Old Senior Notes held
by you for my account.
Dated: , 1999 -------------------------------------------
-------------------------------------------
Signature(s)
-------------------------------------------
-------------------------------------------
-------------------------------------------
Please print name(s) here
-------------------------------------------
-------------------------------------------
Address(es)
-------------------------------------------
Area Code and Telephone Number
-------------------------------------------
Tax Identification or Social Security No(s).
</TABLE>
None of the Old Senior Notes held by us for your account will be tendered
unless we receive written instructions from you to do so. Unless a specific
contrary instruction is given in the space provided, your signature(s) hereon
shall constitute an instruction to us to tender all the Old Senior Notes held by
us for your account.
2
