SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
SCHEDULE 13E-4
Issuer Tender Offer Statement
(Pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934)
WASTE SYSTEMS INTERNATIONAL, INC.
(Name of Issuer)
WASTE SYSTEMS INTERNATIONAL, INC.
(Name of Person(s) Filing Statement)
11 1/2% SENIOR NOTES DUE 2006
11 1/2% SERIES B SENIOR NOTES DUE 2006
7% CONVERTIBLE SUBORDINATED NOTES DUE 2005
(Title of Class of Securities)
290839109
(CUSIP Number of Class of Securities)
James L. Elitzak
Vice President and Chief Financial Officer
Waste Systems International, Inc.
420 Bedford Street, #300
Lexington, MA 02420
(781) 862-3000
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of the Person(s) Filing Statement)
COPIES TO:
Robert P. Whalen, Jr., P.C.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
(617) 570-1000
----------
January 18, 2000
(Date Tender Offer First Published, Sent or Given to Security Holders)
---------
CALCULATION OF FILING FEE
- ------------------------------------- --------------------------------
TRANSACTION VALUATION: 1 AMOUNT OF FILING FEE:
- ------------------------------------- --------------------------------
$158,427,628 $31,685.53
- ------------------------------------- --------------------------------
Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: Not applicable Filing Party: Not applicable
Form or Registration No.: Not applicable Date Filed: Not applicable
<PAGE>
This Schedule 13E-4 relates to the offers by Waste Systems
International, Inc., a Delaware corporation (the "Company"), to exchange up to
$22,500,000 principal amount of, and accrued but unpaid interest on, its 11 1/2%
Senior Notes due 2006 ("Senior Notes"), up to $77,500,000 principal amount of,
and accrued but unpaid interest on, its 11 1/2% Series B Senior Notes due 2006
("Series B Senior Notes") and up to $49,551,420 principal amount of, and accrued
but unpaid interest on, its 7% Convertible Subordinated Notes due 2005
("Subordinated Notes") for an aggregate of 158,427 shares of its Series E
Convertible Preferred Stock, in each case upon the terms and subject to the
conditions set forth in the Exchange Offering Memorandum, dated January 18, 2000
(the "Offers") and the related Letter of Transmittal, copies of which are
annexed hereto as Exhibits (a)(1) and (a)(2), respectively.
Item 1. Security and Issuer.
(a) The name of the issuer is Waste Systems International, Inc., a
Delaware corporation, and the address of its principal executive office is 420
Bedford Street, Suite 300, Lexington, MA 02173.
(b) The class of securities to which this statement relates is the
Senior Notes, Series B Senior Notes and Subordinated Notes of the Company. The
information set forth in the Introduction and in the Introduction to the
Exchange Offering Memorandum are incorporated herein by reference.
(c) The information set forth in the Introduction to and the "Summary of
the Terms of the Exchange Offers," "Description of Senior Notes and Series B
Senior Notes," "Description of Subordinated Notes" and "Summary of the Terms of
the Series E Convertible Preferred Stock" of the Exchange Offering Memorandum is
incorporated herein by reference.
(d) Not applicable.
Item 2. Source and Amount of Funds or Other Consideration.
(a) The information set forth in the Introduction to and the "General
Information about the Exchange Offers," "Summary of the Terms of the Exchange
Offers", "Description of Senior Notes and Series B Senior Notes," and
"Description of Subordinated Notes" Sections of the Exchange Offering Memorandum
are incorporated herein by reference.
(b) Not applicable.
Item 3. Purpose of the Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
The information set forth in the "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operation," and
"The Exchange Offers" Sections are incorporated herein by reference.
(a) The information set forth in the Introduction to and the "General
Information about the Exchange Offers," "Summary of the Terms of the Exchange
Offers," "Plan of Distribution," "The Exchange Offers," Sections are
incorporated herein by reference.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) The information set forth in the sections of the Exchange Offering
Memorandum entitled "Capitalization" and "Certain Proforma Financial Statements"
is incorporated herein by reference.
(f) Not applicable.
(g) Not applicable.
(h) Not applicable.
(i) Not applicable.
(j) Not applicable.
Item 4. Interest in Securities of the Issuer.
Not applicable.
Item 5. Contracts, Arrangements, Understandings or Relationships with Respect to
the Issuer's Securities.
Not applicable.
Item 6. Persons Retained, Employed, or to Be Compensated.
Not applicable
Item 7. Financial Information.
The information set forth in the sections of the Exchange Offering
Memorandum entitled "Summary Historical Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations for
Year Ended December 31, 1998", "Management's Discussion and Analysis of
Financial Condition and Results of Operations for the Nine Months Ended
September 30, 1999", Certain Proforma Financial Statements" and "Financial
Statements" are incorporated herein by reference.
Item 8. Additional Information.
(a)-(e)Not applicable.
Item 9. Material to Be Filed as Exhibits.
(a) The following tender offer materials have been published, sent or
given to security holders by or on behalf of Waste Systems International, Inc.,
in connection with the Offers:
(1) Form of Exchange Offering Memorandum dated January 18, 2000.
(2) Annual Report of the Company on Form 10-K for the year ended
December 31, 1998.
(3) Amended Annual Report of the Company on Form 10-K/A for
the year ended December 31, 1998.
(4) Quarterly Report of the Company for the quarter ended
September 30, 1999.
(5) Form of Letter of Transmittal.
(6) Form of Notice of Guaranteed Delivery.
(7) Instruction Letter to Clients
(8) Instruction Letter to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees
(9) Press Release dated January 18, 2000.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
WASTE SYSTEMS INTERNATIONAL, INC.
January 18, 2000
/s/ James L. Elitzak
(Signature)
James L. Elitzak
Vice President and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
(a) (1) Form of Exchange Offering Memorandum dated January 18, 2000.
(2) Annual Report of the Company on Form 10-K for the year ended December
31, 1998.
(3) Amended Annual Report of the Company on Form 10-K/A for the year ended
December 31, 1998.
(4) Quarterly Report of the Company for the quarter ended September 30,
1999.
(5) Form of Letter of Transmittal.
(6) Form of Notice of Guaranteed Delivery.
(7) Instruction Letter to Clients
(8) Instruction Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees
(9) Press Release dated January 18, 2000.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
<PAGE>
Exhibit (a) 1
EXCHANGE OFFERING MEMORANDUM
Waste Systems International, Inc.
Offer to exchange up to 82,699 shares
of its Series E Convertible Preferred
Stock for $77,500,000 principal amount
of its 11 1/2% Series B Senior Notes due
2006 plus accrued but unpaid interest
Offer to exchange up to 24,009 shares
of its Series E Convertible Preferred
Stock for $22,500,000 principal amount
of its 11 1/2% Senior Notes due 2006 plus
accrued but unpaid interest
Offer to exchange up to 51,719 shares of
its Series E Convertible Preferred Stock
for $49,551,420 principal amount of its
7% Convertible Subordinated Notes due
2005 plus accrued but unpaid interest
Material Terms of the Exchange Offers
o We will exchange your validly tendered outstanding 11 1/2% Senior Notes due
2006, 11 1/2% Series B Senior Notes due 2006 and 7% Convertible Subordinated
Notes due 2005 for shares of Series E Convertible Preferred Stock on the basis
one share for each $1,000 of principal amount of, and accrued but unpaid
interest on, your validly tendered Notes for an aggregate of up to 158,427
shares of Series E Convertible Preferred Stock.
o The exchange offers are not subject to any condition other than their
compliance with applicable laws and with applicable interpretations of the staff
of the Securities and Exchange Commission, receipt of a waiver of certain
covenants in the Senior Notes Indentures necessitated by the exchange offers,
and other customary conditions.
o The shares of Series E Convertible Preferred Stock we will issue in the
exchange offers have certain voting rights, are convertible into shares of
common stock, are entitled to a minimum 8% dividend and are entitled to a
liquidation preference in priority to our common stock.
o We will issue Series E Convertible Preferred Stock in exchange for your
validly tendered outstanding Senior Notes, Series B Senior Notes and
Subordinated Notes, and accrued but unpaid interest on all Notes. The tender of
Notes will be accepted only in multiples of $1,000. Fractional shares will not
be issued, but will be paid in cash.
o You may withdraw your tender of outstanding Subordinated Notes at any time
before the expiration of the exchange offer.
o The conversion and voting rights of the Series E Convertible Preferred Stock
may not be exercised until (i) the Nasdaq Stock Market advises us that our
stockholders do not need to approve the exercise of these rights, or (ii) our
stockholders approve the exercise of these rights.
o We will not receive any cash proceeds from this exchange offer.
o There is currently no established trading market for the Series E Convertible
Preferred Stock, and we do not intend to apply to list the Series E Convertible
Preferred Stock on any securities exchange.
o The exchange of Senior Notes, Series B Senior Notes and Subordinated Notes
should not be a taxable exchange for United States federal income tax purposes.
o The exchange offer expires at 5:00 p.m., New York City time, on February 14,
2000.
Consider carefully the "Risk Factors" beginning
on page 12 of this exchange offering memorandum.
--------------------
The date of this exchange offering memorandum is January 18, 2000
<PAGE>
The shares of Series E Convertible Preferred Stock are being offered in these
exchange offers pursuant to an exemption from registration under the Securities
Act of 1933, as amended.
An investment in shares of Series E Convertible Preferred Stock is speculative
and involves a high degree of risk. See the Section of this exchange offering
memorandum entitled "Risk Factors." Investors must be prepared to bear the risk
of their investment for an indefinite period and be able to withstand a total
loss of their investment.
These securities have not been registered under the Securities Act of 1933 or
any applicable state securities laws, nor has the Securities and Exchange
Commission or any state regulatory authority approved the securities offered
hereby or the terms of these exchange offers, passed upon the accuracy or
adequacy of this exchange offering memorandum or endorsed the merits of these
exchange offerings. Any representation to the contrary is a criminal offense.
This exchange offering memorandum shall not constitute an offer to exchange or a
solicitation of an offer to exchange the securities in any jurisdiction in which
such offer or solicitation would be unlawful. The Securities offered hereby may
not be offered for sale or sold unless registered under the Securities Act or an
exemption from such registration requirements is available.
<PAGE>
TABLE OF CONTENTS
<PAGE>
Page
EXCHANGE OFFERS SUMMARY 1
GENERAL INFORMATION ABOUT THE EXCHANGE OFFERS 1
THE COMPANY 1
SUMMARY OF THE TERMS OF THE EXCHANGE OFFERS 5
SUMMARY OF THE TERMS OF THE SERIES E CONVERTIBLE PREFERRED STOCK 8
SUMMARY HISTORICAL FINANCIAL INFORMATION 10
RISK FACTORS 12
The Series E Convertible Preferred Stock is
subordinate to the claims of the Company's
creditors in a dissolution or liquidation 12
Your failure to follow the exchange offer
procedures may prevent you from receiving
Series E Convertible Preferred Stock in the
exchange 12
There is no public market for the Series E
Convertible Preferred Stock 12
The conversion price of the underlying
shares was determined arbitrarily 12
The right to convert the Series E Convertible
Preferred Stock into common stock and to
vote the Series E Convertible Preferred Stock
with the common stock may be subject to
stockholder approval which cannot be guaranteed 12
Dividends on the Series E Convertible
Preferred Stock may be paid at the Company's
option in kind or in cash and are subject to
certain limitations 13
Our history of losses makes the Series E
Convertible Preferred Stock and the underlying
shares of common stock a highly speculative
investment 13
Restrictions on resale 13
Issuance of additional equity may be
dilutive to stockholders 13
Future sales of common stock may adversely
affect the market for our common stock 14
Market conditions may reduce the trading
price of our common stock 15
We do not plan to pay dividends to our
common stockholders 15
Our high level of indebtedness could
adversely affect our financial health. 15
We may not generate enough cash to
service our indebtedness or our other
liquidity needs 16
Our future success depends upon our
ability to identify, acquire and
integrate acquisition targets 16
We have no control over many factors
in our ability to finance planned growth. 17
Our future success depends upon our
ability to manage rapid growth in
operations and personnel. 17
Loss of key executives could affect Waste
Systems'ability to achieve its business
objectives 17
Failed acquisitions or projects may
adversely affect our results of operations
and financial condition 18
Our business may not succeed due to the
highly competitive nature of the solid waste
management industry. 18
Seasonal revenue fluctuations may
negatively impact our operations 18
The geographic concentration of our
operations magnifies the risks to our
success. 19
Potential difficulties in acquiring
landfill capacity could increase out costs. 19
Failure to obtain landfill closure performance
bonds and letters of credit may adversely
affect our business 19
Estimated accruals for landfill closure and
post-closure costs may not meet our actual
financial obligations 19
Environmental and other government
regulations impose costs and uncertainty
on our operations 20
We are exposed to potential liability
for environmental damage and regulatory
noncompliance 20
Our environmental liability insurance
may not cover all risks of loss 20
Addressing local community concerns about
our operations may adversely affect our
business 20
Risks of substantial voting control by
Waste Systems's management and major stockholders 20
Year 2000 problems could have an adverse
impact on our business 21
RECENT DEVELOPMENTS 21
BUSINESS 22
CAPITALIZATION 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR YEAR
ENDED DECEMBER 31, 1998 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 41
SELECTED CONSOLIDATED FINANCIAL DATA 42
CERTAIN PROFORMA FINANCIAL STATEMENTS 45
DESCRIPTION OF SECURITIES 48
MANAGEMENT 52
PRINCIPAL STOCKHOLDERS 56
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 60
THE EXCHANGE OFFERS 61
DESCRIPTION OF SENIOR NOTES AND SERIES B SENIOR NOTES 70
DESCRIPTION OF SUBORDINATED NOTES 106
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES 114
PLAN OF DISTRIBUTION 119
FINANCIAL STATEMENTS 120
Exhibit A - ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1998 (the "1998 Form 10-K"). Certain portions of the Company's
1998 Form 10-K are incorporated by reference in certain
section of this exchange offering memorandum.
Exhibit B - AMENDMENT TO ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1998 (the "1998 FORM 10-K/A"). Certain portions
of the Company's 1998 Form 10-K/A are incorporated by
reference into this exchange offering memorandum.
Exhibit C - QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 1999 (the "September 30, 1999 Form 10-Q").
Certain portions of the Company's September 30, 1999, Form
10-Q are incorporated by reference in certain sections of this
exchange offering memorandum.
WHERE YOU MAY OBTAIN ADDITIONAL INFORMATION
We are currently subject to the periodic reporting and other
informational requirements of the Securities Exchange and, in accordance with
these rules, we file annual, quarterly and other information with the Securities
and Exchange Commission. In addition, the indenture governing the Senior Notes
and the Series B Senior Notes requires that we file reports under the Securities
Exchange Act of 1934 with the Securities and Exchange Commission and provide
those reports to the trustee and holders of the Senior Notes and Series B Senior
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.sec.gov that contains reports, proxy and information statements and
other information. You can also obtain copies of these materials from us upon
request.
<PAGE>
23
EXCHANGE OFFERS SUMMARY
This summary highlights selected information from this exchange offering
memorandum, but does not contain all the information that may be important to
you. This exchange offering memorandum, including the exhibits hereto, includes
specific terms of the exchange offers, as well as information regarding our
business and detailed financial data. We encourage you to review the detailed
information and data appearing elsewhere in this exchange offering memorandum.
Except in discussing our business and results of operations and where the
context requires otherwise, references in this exchange offering memorandum to
"we," "us," "our," "WSI," "Waste Systems" or "Company" refer to Waste Systems
International, Inc., and not to any of our subsidiaries. The term "Senior Notes"
refers to the 11 1/2% Senior Notes due 2006 originally issued on March 2, 1999
and currently outstanding. The term "Series B Senior Notes" refers to the 11
1/2% Series B Senior Notes due 2006 originally issued August 11, 1999. The term
"Subordinated Notes" refers to the 7% Convertible Subordinated Notes due 2005
originally issued on May 13, 1998. The term "Notes" refers to the Subordinated
Notes, Senior Notes, the Series B and Senior Notes collectively.
GENERAL INFORMATION ABOUT THE EXCHANGE OFFERS
The Company is making the following offers to holders of the Notes,
subject to the terms and conditions set forth in this exchange offering
memorandum:
Senior Notes: We are offering to each holder of Senior
Notes the right to exchange $1,000 principal amount
of, and accrued but unpaid interest on, the Senior
Notes for one (1) share of Series E Convertible
Preferred Stock.
Series B Senior Notes: We are offering to each holder of
Series B Senior Notes the right to exchange $1,000
principal amount of, and accrued but unpaid
interest on, the Series B Senior Notes for one (1)
share of Series E Convertible Preferred Stock.
Subordinated Notes: We are offering to each holder of Subordinated Notes
the right to exchange $1,000 principal amount of,
and accrued but unpaid interest on, the Subordinated
Notes for one (1) share of Series E Convertible
Preferred Stock.
You should read the discussion under the heading "Summary of Terms of
the Series E Convertible Preferred Stock" for further information regarding the
Series E Convertible Preferred Stock.
The shares of Series E Convertible Preferred Stock issued in the
exchange offers, and the shares of common stock issuable upon the conversion
thereof, may not be resold by you except in compliance with the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended, or
pursuant to an exemption therefrom. You should read the discussion under the
headings "Summary of the Terms of Exchange Offers" and "The Exchange Offers" for
further information regarding the exchange offers and the resale of shares of
Series E Convertible Preferred Stock and the shares of common stock issuable
upon the conversion thereof.
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 02173, and our telephone number is
(781) 862-3000.
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.
o 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
September 30, 1999, our waste collection operations serve a total of
approximately 73,000 commercial, industrial, residential and municipal customers
in the Eastern New England, Central Pennsylvania, Baltimore,
Maryland/Washington, D.C., Vermont and Upstate New York markets.
o Landfill Operations
We currently own four landfills, one in Vermont and three in Central
Pennsylvania. Two of these were operating in 1998. Of the remaining two, one
began operating in March 1999 with the acquisition of Community Refuse Service,
Inc. and the other, the Mostoller Landfill, began operating in December, 1999.
The aggregate remaining estimated permitted capacity of our four owned landfills
is approximately 23.6 million cubic yards at September 30, 1999. In addition, we
have a contract with the Town of South Hadley, Massachusetts, to operate that
town's landfill until 2015, subject to receipt of required permits, which we
expect to begin operating by mid-2000. The South Hadley landfill has an
estimated capacity of 2.0 million cubic yards, available for future disposal.
o Transfer Station Operations
We provide transfer station services supporting our landfills. 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:
o stringent environmental regulations which require increased capital to
maintain regulatory compliance;
o the inability of many smaller operators to achieve the competitive
economies of scale enjoyed by larger operators;
o the competitive and economic benefits of providing integrated
collection, recycling, transfer and landfill disposal services;
and
o 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 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 these 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:
o 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.
o 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.
o 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, we currently are 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 section of the "Risk Factors" section of this exchange
offering memorandum on page 17 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:
o Development of Fully Integrated Operations
We continue to develop more fully integrated operations in our
targeted market areas. During 1999, nearly 100% of the solid waste from
our Vermont operations was delivered for disposal at our Moretown,
Vermont landfill, and approximately 41% of the solid waste delivered for
disposal at the Moretown landfill during this period was collected by
us. During 1999, approximately 65% of the solid waste from our Central
Pennsylvania (Altoona) operations was delivered for disposal at the
Sandy Run landfill and approximately 70% of the waste delivered for
disposal at the Sandy Run landfill during this period was collected by
us. Since the acquisition of Community Refuse, Inc. in March of 1999,
approximately 93% of the waste from our Central Pennsylvania
(Harrisburg) division operations was delivered for disposal at the
Community Refuse, Inc. landfill and approximately 19% of the waste
delivered at that landfill was collected by the Company. Since October
1, 1999, 100% of the waste collected by our Baltimore,
Maryland/Washington, D.C. operations has been delivered for disposal at
our Community Refuse, Inc. landfill. During the third quarter of 1999,
we acquired Eastern Trans-Waste of Maryland, Inc. and C&J Trucking
Company, Inc. and certain Affiliates. During that quarter, Eastern
Trans-Waste and C&J Trucking Company, Inc. and certain Affiliates
disposed of approximately 26% and 3%, respectively, of their waste at a
Company owned landfill. We intend to fully internalize the waste streams
from these operations with our own landfills over the next several
quarters. During December 1999, the Company opened its Mostoller
Landfill in Somerset, Pennsylvania - a 2,000 ton-per-day, six
day-per-week, 624,000 ton-per-year disposal facility, with over fourteen
million cubic yards of permitted capacity. This landfill will
significantly improve the Company's ability to internalize its collected
waste which we believe will substantially increase the Company's EBITDA,
which is defined in footnote (4) on page 44 of this exchange offering
memorandum. For the three-month period ended September 30, 1999, 32.3%
of the waste collected by the Company was delivered to a Company-owned
landfill resulting in a consolidated EBITDA margin, excluding
non-recurring charges, of 12.2%. If the Mostoller Landfill had been
operational during the entire third quarter of 1999, 79.2% of the waste
collected by the Company would have been delivered to a Company-owned
landfill - resulting in a pro-forma EBITDA margin, excluding
non-recurring charges, of 25.1%. We recently acquired our Upstate New
York waste collection and transfer station operations in anticipation of
landfill acquisition and/or privatization opportunities in that market
area.
o Operating Efficiencies
We are achieving significant operating efficiencies and reducing costs
through consolidation and elimination of redundant corporate and service
functions in acquired businesses.
o Significant Disposal Capacity
We have approximately 23.6 million cubic yards of landfill capacity in
landfills we own. This significant disposal capacity gives us the opportunity to
achieve a high degree of integration by allowing room for disposal of the waste
streams generated by our growing collection and transfer operations.
o 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 four
landfills, eight transfer stations, and 43 solid waste collection operations
through September 1999. We have been effective in executing our acquisition
program to expand our solid waste assets in our targeted regional markets at
prices we have 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 EBITDA, which we believe is a measure commonly
used by lenders and some investors to evaluate a company's performance in our
industry. 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 nine months ended September 30, 1999, compared to
the same period of 1998, EBITDA has grown from $1.3 million to $3.4 million and
Adjusted EBITDA has grown from $2.9 million to nearly $5.8 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 exchange offering memorandum entitled "Selected Consolidated
Financial Data."
o 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.
<PAGE>
SUMMARY OF THE TERMS OF THE EXCHANGE OFFERS
The Exchange We are making the following offers:
Offers
o an offer to exchange up to 82,699 shares of its
Series E Convertible Preferred Stock for
$77,500,000 principal amount of, and accrued but
unpaid interest on, the Senior Notes;
o an offer to exchange up to 24,009 shares of its
Series E Convertible Preferred Stock for
$22,500,000 principal amount of, and accrued but
unpaid interest on, the Series B Senior Notes; and
o an offer to exchange up to 51,719 shares of its
Series E Convertible Preferred Stock for
$49,551,240 principal amount of, and accrued but
unpaid interest on, the Subordinated Notes.
All Notes must be properly tendered and accepted to be
exchanged. All Notes that are validly tendered and, in
the case of the Subordinated Notes, not validly
withdrawn, will be exchanged for one (1) share of
Series E Convertible Preferred Stock per each $1,000
principal amount of, and accrued but unpaid interest
on, the Notes. We will not issue fractional shares, but
will pay cash in lieu thereof, for any portion of the
principal of, and accrued but unpaid interest on, the
Notes tendered by a holder that are not a multiple of
$1,000. To date, there is $22,500,000 principal amount
of Senior Notes, $77,500,000 principal amount of Series
B Senior Notes and $49,551,420 amount of Subordinated
Notes outstanding. We will issue the Series E
Convertible Preferred Stock promptly after the
expiration of the exchange offers.
Expiration Date The exchange offers will expire at 5:00 p.m., New York
City time, on February 14, 2000, unless extended, in
which case the term "expiration date" shall mean the
latest date and time to which we extend the exchange
offers.
Conditions to The exchange offers are subject to certain conditions including:
that the exchange offers the Exchange do not violate any applicable law or
applicable interpretation of law of the staff of the Offers Securities and
Exchange Commission; that we receive a waiver of certain covenants in the Senior
Notes Indenture
necessitated by the exchange offers; that no litigation
materially impairs our ability to proceed with the
exchange offers; and that we obtain all the
governmental approvals we deem necessary to conduct and
complete the exchange offers.
We may terminate the exchange offer if, after using our
best efforts, we fail to meet any 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.
Resale of The shares of Series E Convertible Preferred Stock issued in the
exchange offer New Series E may not be offered for resale, resold or otherwise
transferred by you except in Convertible compliance with the registration and
prospectus delivery provisions of the Preferred Stock Securities Act, or
pursuant to an exemption therefrom.
The shares of common stock issuable upon conversion of
the Series E Convertible Preferred Stock may not be
offered for resale, resold or otherwise transferred by
you except in compliance with the registration and
prospectus delivery provisions of the Securities Act,
or pursuant to an exception therefrom. However, you
will receive certain rights to cause us to register the
shares of common stock issuable upon conversion of the
Series E Convertible Preferred Stock. See "Summary of
the Terms of the Series E Convertible Preferred Stock."
Procedures for If you wish to tender your Notes for exchange in one or
Tendering Notes more of the exchange offers, you must transmit to the
exchange agent, The Bank of New York, on or before the
expiration date, either:
o a properly completed and duly executed letter of
transmittal, which accompanies this exchange
offering memorandum, or a facsimile of the letter
of transmittal, together with your Notes and any
other required documentation, to the exchange agent
at the address set forth in this exchange offering
memorandum under the heading "The Exchange
Offers--Exchange Agent," and on the front cover of
the letter of transmittal; or
o 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
Notes will make those representations to us described
under "The Exchange Offers--Procedures for Tendering."
If these procedures cannot be satisfied on a timely
basis, then you should comply with the guaranteed
delivery procedures described below.
The exchange offers are not being made to, nor will we
accept surrenders for exchange from, holders of 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 such
jurisdiction.
Please do not send your letter of transmittal or the
certificates representing your Notes to Waste Systems.
Those documents should only be sent to the exchange
agent.
Special Procedures If you are a beneficial owner whose Notes are registered in
the name of for Beneficial a broker, dealer, commercial bank, trust company or
other nominee and you wish Owners of Notes to tender your Notes in any of the
exchange offers, you should contact the registered holder promptly and
instruct the registered holder to tender your 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
Notes, either make appropriate arrangements to register
ownership of the 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.
Guaranteed Delivery If you wish to tender your Notes and time will not
Procedures 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 Notes
according to the guaranteed delivery procedures
described in this exchange offering memorandum under
the heading "The Exchange Offers--Guaranteed Delivery
Procedures."
Acceptance Subject to the conditions described in "The Exchange
and Offers--Conditions to the
Delivery Exchange Offers," we will accept for exchange
any and all Notes which are validly tendered in any of
the exchange offers and, in the case of the
Subordinated Notes, not withdrawn, before 5:00 p.m.,
New York City time, on the expiration date.
Withdrawal Rights You may withdraw the tender of your Subordinated
Notes at any time before 5:00 p.m., New York City time,
on the expiration date, subject to compliance with the
procedures for withdrawal described in this exchange
offering memorandum under the heading "The Exchange
Offers--Withdrawal of Tenders."
Certain Federal We believe that the exchange of the Notes for shares of Series E
Convertible Income Tax Preferred Stock will not be a taxable exchange for United
States federal income tax Consequences purposes, but you should consult your tax
adviser about tax consequences of the exchange and see the section in this
exchange offering memorandum entitled "Certain United States Federal Income Tax
Consequences."
Exchange Agent The Bank of New York, the trustee under the
indenture governing the Senior Notes and the Series B
Senior Notes, is serving as the exchange agent. The
address, telephone number and facsimile number of the
exchange agent are set forth in this exchange offering
memorandum on page 67 under the heading "The Exchange
Offers--Exchange Agent."
Use of Proceeds We will not receive any proceeds from the
issuance of the shares of Series E Convertible
Preferred Stock. We are making this exchange offer
solely to reduce the outstanding debt obligations of
the Company.
<PAGE>
SUMMARY OF THE TERMS OF THE SERIES E CONVERTIBLE PREFERRED STOCK
Issuer: Waste Systems International, Inc.
Type of Security: Series E Convertible Preferred Stock (the "Series E
Convertible Preferred Stock")
Total Number of 158,427 shares of Series E Convertible Preferred Stock
Shares Offered:
Conversion Rate: The conversion rate will be the liquidation
preference divided by the greater of (i) $8.00, or (ii)
an amount equal to a 33% premium over the closing sale
price of the Company's common stock on the trading day
immediately preceding issuance of the Series E
Convertible Preferred Stock.
Price Per Share: $1,000 per share of principal amount of, and accrued
but unpaid interest on, Notes.
Dividends: The holders of the Series E Convertible Preferred Stock
will be entitled to receive an 8% accruing dividend,
compounded annually, payable in arrears, at the
Company's option either (i) in cash, subject to the
limitations and restrictions contained in the documents
governing the Notes and the Company's credit facility
or, (ii) in additional shares of Series E Convertible
Preferred Stock.
Liquidation In the event of the liquidation or winding up of the
Preference: Company, the holders of the
Series E Convertible Preferred Stock will be entitled
to receive in preference to all other outstanding
capital stock (except for the Series D Convertible
Preferred Stock), an amount per share of Series E
Convertible Preferred Stock equal to $1,000 plus the
dividends accrued on the Series E Convertible Preferred
Stock but not paid. A consolidation or a merger of the
Company or a sale of all or substantially all of its
assets will be deemed to be a liquidation for purposes
of the liquidation preference.
Optional The shares of Series E Convertible Preferred Stock will be redeemable
at any time in Redemption: whole but not in part for cash at the option of the
Company at 100% of the liquidation preference at any time.
Optional Subject to receipt of approval of the Company's
stockholders in the event Nasdaq
Conversion: requires such approval, the holders of shares of Series
E Convertible Preferred Stock will have the right to
convert their Series E Convertible Preferred Stock, at
their option, at any time, into shares of common stock.
Mandatory The Company will have the right to request the holders
Conversion: of Series E Convertible Preferred Stock to convert
their shares of Series E Convertible Preferred Stock
into shares of common stock, at the conversion rate
then in effect, in the event the closing sale price of
the common stock equals or exceeds the conversion price
for twenty consecutive trading days.
Voting Rights: Subject to receipt of approval of the Company's
stockholders in the event Nasdaq requires such
approval, the holders of Series E Convertible Preferred
Stock will vote with holders of shares of common stock
and Series D Preferred Stock on an as-converted basis
on all matters brought before the shareholders.
Registration Rights: Holders of at least 33% of the outstanding
Series E Convertible Preferred Stock may require, on
one occasion, that the Company use its reasonable best
efforts to file a registration statement covering the
public sale of common stock (an "S-3 Demand"); provided
that the Company will have the right to delay or
suspend such an S-3 Demand under certain circumstances
for a period or periods not in excess of 120 days each
in the aggregate in any 12-month period.
In addition, the holders of the Series E Convertible
Preferred Stock will be entitled to unlimited
"piggyback" registration rights, at the Company's
expense, on registrations of common stock initiated by
the Company or any other class of investors holding
demand registration rights.
In the event of any "cut-back" in the number of shares
of common stock to be offered in any registration, the
holders of the Series E Convertible Preferred Stock
shall be treated on a basis comparable to all other
holders of common stock to be sold in such public
offering; provided that (i) holders of Series E
Convertible Preferred Stock shall not in any event take
priority over the Company and (ii) any holder
exercising "piggyback" registration rights shall be
cut-back prior to any holder exercising demand
registration rights with respect to such offering.
Absence of a Public The Series E Convertible Preferred Stock is a new security
and there is currently Market for the no established market for it. We do not
believe that a market for the Series E Series E Convertible Convertible
Preferred Stock will develop or be liquid. We do not intend to Preferred Stock:
register the Series E Convertible Preferred Stock on any securities exchange.
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
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 and 1997 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 two
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>
Nine Months Ended September 30, Year Ended December 31,
(unaudited)
<S> <C> <C> <C> <C>
1999 1998 1998 1997
----------- ----------- ----------- -----------
(dollars in thousands)
Statement of Operation Data:
Revenues ................................ $ 37,475 $ 12,670 $ 21,045 $ 3,458
Operating expenses........................ 25,145 6,832 12,400 1,718
Depreciation and amortization............. 8,094 2,724 4,501 692
Acquisition integration costs............. 2,378 1,386 1,865 --
Write-off of project development
costs................................ -- 235 235 1,496
---------- ----------- ----------- --------
Total cost of operations......... 35,617 11,177 19,001 3,906
---------- ----------- ----------- --------
Gross profit (loss)....................... 1,858 1,493 2,044 (448)
Selling, general and administrative
expenses............................. 6,668 2,940 4,483 2,139
Other ................................. -- -- -- 596
---------- ----------- ----------- --------
Loss from operations...................... (4,810) (1,447) (2,439) (3,183)
---------- ---------- ----------- --------
Loss from continuing operations........... (20,359) (3,787) (6,206) (5,449)
--------- ---------- ----------- --------
Net loss ................................. (20,583) (4,024) (6,496) (5,589)
------- ---------- ----------- --------
Preferred stock dividends................. -- 888 888 --
---------- ----------- ----------- --------
Net loss available for common
shareholders......................... $ (20,583) $ (4,912) $ (7,384) $(5,589)
========= ========== ========== =======
Basic net loss per share.................. $ (1.39) $ (0.68) $ (1.00) $ (1.55)
========= ========== ========== =======
Weighted average number of shares
used in computation of basic net
loss per share....................... 14,818,688 5,930,765 7,389,547 3,612,623
========== =========== =========== =========
Other Financial Data:
EBITDA ................................ $ 3,406 $ 1,323 $ 2,130 $ (2,469)
Adjusted EBITDA........................... 5,784 2,944 4,230 (378)
Capital expenditures (excluding
acquisitions)........................ 15,905 5,256 9,032 998
Cash flow from operations................. 834 1,055 592 (4,586)
Cash flow from investing activities....... (103,642) (62,181) (71,939) 706
Cash flow from financing activities....... 105,075 61,113 68,576 6,579
Balance Sheet Data (end of period):
Cash and cash equivalents................. 2,461 2,950 194 2,964
Working capital........................... 6,972 735 (6,520) 1,532
Total assets.............................. 235,445 90,682 96,117 18,560
Long term debt, less current
portion............................. 171,958 74,840 74,861 7,201
Total stockholders' equity (deficit)...... 39,803 4,219 1,739 5,972
</TABLE>
(a) See notes 4 and 5 to "Selected Consolidated Financial Data" on page 44
for definitions of EBITDA and Adjusted EBITDA.
<PAGE>
RISK FACTORS
You should carefully consider the following risks in addition to the
other information and data set forth in this exchange offering memorandum before
tendering your Notes in any of the exchange offers and making an investment in
the Series E Convertible Preferred Stock.
The Series E Convertible Preferred Stock is subordinate to the claims of the
Company's creditors in a dissolution or liquidation .
As a holder of Notes, you are currently a creditor of the Company.
Holders of Notes must be satisfied in full in the event of a liquidation or
dissolution before any amounts are paid to holders of the Company's capital
stock. In the event you tender your Notes in the exchange offers, you will no
longer be a creditor of the Company. In the event of a dissolution or
liquidation of the Company, the proceeds realized from the liquidation of
assets, if any, will be distributed to the holders of the Company's Preferred
Stock, including the Series E Convertible Preferred Stock, but only after
satisfaction of claims of creditors, including any lenders (including holders of
Notes that do not tender their Notes in the Exchange Offers) which the Company
currently has or may have in the future, and holders of other series of the
Company's preferred stock that may be issued in the future. Accordingly, the
ability of an investor to recover all or any portion of his or her investment
under such circumstances will depend on the amount of funds so realized and the
claims to be satisfied therefrom.
Your failure to follow the exchange offer procedures may prevent you from
receiving Series E Convertible Preferred Stock in the exchange .
We will issue Series E Convertible Preferred Stock to you in conformity
with the exchange offer only after the timely receipt of your 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 Notes for exchange. Any
defect or irregularity in a holder's tender may prevent that holder from
receiving Series E Convertible Preferred Stock. Please refer to the section in
this exchange offering memorandum entitled "The Exchange Offers--Procedures for
Tendering."
There is no public market for the Series E Convertible Preferred Stock .
There is no public market for the Series E Convertible Preferred Stock,
and it is not anticipated that a public market will develop for the Series E
Convertible Preferred Stock. Investors may not, therefore, be able to liquidate
their investments in the event of an emergency other than through conversion of
the Series E Convertible Preferred Stock into underlying common stock.
Consequently, the purchase of Series E Convertible Preferred Stock should be
considered as a long-term investment. The transfer of Series E Convertible
Preferred Stock is subject to federal and state securities law transfer
limitations.
The conversion price of the underlying shares was determined arbitrarily .
The conversion price of the underlying shares of common stock into which
the Series E Convertible Preferred Stock is convertible was arbitrarily
determined and bears no relationship to the Company's current assets, earnings,
book value or any other generally accepted criteria used for determining value.
In determining the conversion price, the Company considered the amount of
capital which the Company estimated it would need to expand operations, the
potential profit it believes it can generate, the number of shares which the
Company believed it could exchange in this exchange offer, the control desired
to be retained by existing stockholders and the dilution in book value of
investors' underlying shares of common stock, if any.
The right to convert the Series E Convertible Preferred Stock into common stock
and to vote the Series E Convertible Preferred Stock with the common stock may
be subject to stockholder approval which cannot be guaranteed .
The Company is presently pursuing confirmation from Nasdaq that the
exercise of the conversion and voting provisions of the shares of Series E
Convertible Preferred Stock issuable in the exchange offers does not require
approval of the Company's stockholders under the applicable rules of Nasdaq. The
exchange offers may be analyzed in light of other capital transactions that the
Company has recently consummated or is currently considering. Nasdaq might not
concur with the Company's position that approval of the Company's stockholders
is not required to exercise the conversion and voting features of the Series E
Convertible Preferred Stock, as a result of Nasdaq's review of either the
exchange offers alone or together with the other transactions. In the event
Nasdaq does not concur with the Company's position that stockholder approval is
not required, the Company may be required to pursue the approval of the
Company's stockholders. Our pursuit of stockholder approval will involve
significant time and expense. In addition, we cannot assure you that the
Company's stockholders will approve the exercise of the conversion and voting
features of the Series E Convertible Preferred Stock.
Dividends on the Series E Convertible Preferred Stock may be paid at the
Company's option in kind or in cash and are subject to certain limitations .
Dividends on the Series E Convertible Preferred Stock are cumulative and
may be paid, at our option, in kind, through the issuance of additional Series E
Convertible Preferred Stock, or in cash. Our ability to pay the dividends in
cash is subject to limitations imposed by the documents governing the Notes and
our credit facility. We would need to satisfy certain criteria and, in most
circumstances, would need to solicit and obtain the consent of the holders of
the Notes and the Company's senior lender prior to paying any dividends in cash.
Our history of losses makes the Series E Convertible Preferred Stock and the
underlying shares of common stock a highly speculative investment .
From our inception through September 30, 1999, we have had aggregate net
losses of approximately $56 million on aggregate revenues of approximately $64
million and an accumulated loss from operations of $30 million. Following our
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:
o execute our acquisition strategy and expand our revenue generating
operations while maintaining or reducing our proportionate
administrative expenses;
o locate sufficient financing to fund acquisitions; and
o 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.
Restrictions on resale .
The Series E Convertible Preferred Stock and the underlying shares of
common stock are being offered pursuant to an exemption from the registration
requirements of the Securities Act, and they have not been registered under the
Securities Act and may not be offered or sold except pursuant to registration
under the Securities Act or in certain transactions exempt from the registration
requirements of the Securities Act.
We will issue Series E Convertible Preferred Stock to you in conformity
with the exchange offers only after the timely receipt of your 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 Notes for exchange. Please
refer to the section in this Prospectus entitled "The Exchange
Offers--Procedures for Tendering" for a detailed explanation of exchange offer
procedures.
Issuance of additional equity may be dilutive to stockholders .
Future issuance of additional equity by us may dilute the interest of
stockholders who convert their Series E Convertible Preferred Stock into
underlying shares of common stock. We currently have:
o up to 4,955,143 shares of common stock issuable upon conversion
of our Subordinated Notes outstanding as of September 30, 1999,
which are convertible at $10 per share at any time by the holders
of the notes, and by us if the closing price of the common stock
after May 13, 2000, remains above $10 per share for twenty
consecutive trading days;
o up to 1,500,000 shares of common stock issuable upon exercise of
outstanding warrants, which are exercisable at $6.25 per share of
common stock from September 2, 1999, to March 2, 2004;
o up to 3,078,018 shares of common stock issuable upon exercise of
options outstanding as of December 31, 1999 under our stock
option plans, subject to vesting requirements, at prices ranging
from $1.41 to $9.25;
o an additional 824,232 shares of common stock reserved for issuance
as of December 31, 1999, under our stock option plans;
o up to 2,500,000 shares of common stock issuable upon conversion
of our 15,000 shares of Series D Convertible Preferred Stock
outstanding as of the date hereof, which are convertible at a
price of $6 per share of common stock at any time by the holders
of the shares of Series D Convertible Preferred Stock, and by us
if the closing bid price of the common stock exceeds $9 per share
for twenty consecutive trading days.
Finally, our ability to achieve our business objectives depends on our use of a
blend of debt financing and equity financing appropriate for executing our
business strategy. To the extent that additional equity securities are issued to
finance future acquisitions instead of issuing additional debt, the interests of
our existing stockholders will be diluted.
Future sales of common stock may adversely affect the market for our common
stock .
Stockholders, including stockholders who convert their Series E
Convertible Preferred Stock to underlying shares of common stock, may be
adversely affected by future sales of common stock by other stockholders. If any
of our larger stockholders sells substantial amounts of our common stock that is
eligible for resale in the public market after this offering, the market price
of our common stock could fall. Such sales may also make it more difficult for
us in the future to sell equity or equity-related securities in the public
market, whether for the purpose of general corporate financing or for use as
consideration in an acquisition, at a time and at a price that we deem
appropriate.
As of December 31, 1999, we had 20,330,963 shares of our common stock
outstanding.
We have already registered for resale:
o up to 4,955,143 shares of common stock issuable upon conversion
of our 7% Convertible Subordinated Notes at any time by
the holders of the notes;
o 4,000,000 shares of common stock reserved for issuance under our
stock option plans (as of December 31, 1999, options to purchase
3,078,018 shares of common stock, subject to vesting
requirements, were outstanding);
o up to 1,500,000 shares of common stock issuable upon exercise of
outstanding warrants, which are exercisable at $6.25 per share of
common stock from September 2, 1999, to March 2, 2004;
o up to an aggregate of 4,441,620 shares of our common stock
(including up to 1,763,000 shares of our common stock which were
issued upon conversion of the 1,000 shares of our Series C
Preferred Stock) issued to former stockholders of Eastern
Trans-Waste of Maryland, Inc. as a portion of the consideration
we paid in our recently completed acquisition of that company,
under a registration rights agreement with its sellers; and
o 2,239,745 shares of our common stock issued in August 1999 to a
number of investors in a transaction exempt from registration
under the Securities Act of 1933, as amended, at a price per
share of $7.00.
In addition, we currently intend to register up to an aggregate of
2,500,000 shares of our common stock issuable upon the conversion of shares of
Series D Preferred Stock of the Company issued in August 1999 to a number of
investors in a transaction exempt from registration under the Securities Act of
1933, as amended, at a conversion price per share of $6.00.
Market conditions may reduce the trading price of our common stock .
The market price of our common stock has historically experienced and
may continue to experience high volatility. Our quarterly operating results,
changes in general conditions in the economy or the financial markets and other
developments affecting us or our competitors could cause the market price of our
common stock to fluctuate substantially. In addition, in recent years, the stock
market has experienced significant price and volume fluctuations. This
volatility has affected the market prices of securities issued by many companies
for reasons unrelated to their operating performance and may adversely affect
the price of our common stock.
We do not plan to pay dividends to our common stockholders .
We have never declared or paid a cash dividend on our common stock. We
intend to retain earnings to repay debt and to finance the growth and
development of our business and do not anticipate paying cash dividends on our
common stock in the foreseeable future. Any declaration of dividends on our
common stock in the future will depend, among other things, upon our results of
operations, financial condition and capital requirements, as well as general
business conditions. Our outstanding debt securities also contain restrictions
which prohibit us from making dividend payments in cash on our capital stock,
including the Series E Convertible Preferred Stock.
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>
Proforma
As of September 30, 1999 As of September 30, 1999(1)
(Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C>
Long-term indebtedness........................... $ 171,958 $171,958
Stockholders' equity ........................... $ 39,803 $ 54,803
Debt to equity ratio ........................... 4.32:1 3.14:1
</TABLE>
(1) Assuming the private placement of 15,000 shares of Series D Preferred
Stock closed on September 30, 1999 rather than the actual closing date
of December 28, 1999.
Our high level of indebtedness could:
o limit our flexibility in planning for, or reacting to, changes in business,
industry and economic conditions; o 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; o place us at a competitive
disadvantage compared to our competitors with lower levels of indebtedness; and
o limit our ability to borrow additional funds, either because of restrictive
covenants under the Notes, the Bank Credit
Facility 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" for further
discussion of this important issue.
<TABLE>
<CAPTION>
For the nine months For the years ended
ended September 30, 1999 1998 1997
<S> <C> <C> <C>
Ratio of Earnings to Fixed Changes N/A N/A N/A
</TABLE>
For the nine months ended September 30, 1999, we incurred net losses
that did not cover fixed charges by approximately $20.5 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 pre-tax 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.
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 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, or to fund
our other liquidity needs.
The following table outlines the schedule of our required debt
amortization payments:
<TABLE>
<CAPTION>
Principal Payments Due During
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance
at
September 1999 2000 2001 2002 2003 2004 2005 2006 Remainder Total
---------- ---- ---- ---- ---- ---- ---- ---- ---- --------- -----
30, 1999
Long-Term Debt
Bank Credit Facility $17,500 -- -- 17,500 -- -- -- -- -- -- 17,500
Capital Leases, Equipment 5,191 748 822 342 374 326 185 201 201 1,972 5,191
and Other Notes Payable
Senior Notes 100,000 -- -- -- -- -- -- -- 100,000 -- 100,000
10% Convertible
Subordinated Notes 400 -- 400 -- -- -- -- -- -- -- 400
7% Convertible
Subordinated Notes 49,551 -- -- -- -- -- -- 49,551 -- -- 49,551
------ ------ ------
Total 172,642 748 1,222 17,842 374 326 185 49,752 100,221 1,972 172,642
======= === ===== ====== === === === ====== ======= ===== =======
</TABLE>
We may need to refinance all or a portion of our indebtedness, on or
before maturity. We cannot assure you that we will be able to refinance any of
our indebtedness, 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" for further discussion of this
important issue.
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 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 such 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. 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.
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,
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.
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, Executive Vice
President--Acquisitions, Secretary, Treasurer and Director, 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.
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:
o harsh winter weather conditions which can interfere with collection and
transportation;
o the volume of winter month waste in our operating regions is generally
lower than that which occurs in warmer months; and
o 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
Eastern New England, Central Pennsylvania, Baltimore Maryland/Washington, D.C.,
Vermont and Upstate New York. 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 Massachusetts,
Pennsylvania, Maryland, Vermont and New York and 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 out 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 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 .
Waste Systems and our customers operate in a highly regulated
environment, and our landfill projects in particular will usually 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.
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.
Risks of substantial voting control by Waste Systems's management and major
stockholders .
As of December 31, 1999, our directors, executive officers and their
affiliates and other major stockholders owned beneficially approximately 69% of
the outstanding shares of common stock without giving effect to this exchange
offering, but assuming full conversion of the outstanding shares of Series D
Convertible Preferred Stock. Accordingly, they will be considered to have a
controlling influence over the election of directors and other corporate and
stockholder actions.
Anti-Takeover provisions.
Certain sections of the Delaware General Corporation Law, and the
ability of the Board of Directors to issue shares of preferred stock and to
establish the voting rights, preferences and other terms thereof, may be deemed
to have an anti-takeover effect and may discourage takeover attempts not first
approved by the Board of Directors (including takeovers which stockholders may
deem to be in their best interests). Such provisions include the removal of
directors only for cause and by the affirmative vote of at least two-thirds of
the total votes which would be eligible to be cast by stockholders in the
election of such director, the vesting of exclusive authority in the Board of
Directors to determine the size of the Board of Directors and (subject to
certain limited exceptions) to fill vacancies thereon, the vesting of exclusive
authority in the Board of Directors (except as otherwise required by law) to
call special meetings of stockholders and certain advance notice requirements
for stockholder proposals and nominations for election to the Board of
Directors. These provisions, and the ability of the Board of Directors to issue
preferred stock without further action by stockholders, could delay or frustrate
the removal of incumbent directors or the assumption of control by stockholders,
even if such removal or assumption of control would be beneficial to
stockholders, and also could discourage or make more difficult a merger, tender
offer or proxy contest, even if such events would be beneficial to the interest
of stockholders. The Company is subject to Section 203 of the Delaware General
Corporation Law which, in general, imposes restrictions upon certain acquirors
(including their affiliates and associates) of 15% or more of the Company's
common stock.
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 to 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 to the year 2000. We have initiated a review and assessment of all
hardware, software and related technologies to determine whether it is
functioning 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. 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, are 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. Due to
the proximity of the date of this exchange offering memorandum to January 1,
2000, we continue to monitor year 2000 issues as they relate to our internal
computer systems and third party systems with whom we interact.
RECENT DEVELOPMENTS
Acquisitions
In July, 1999, the Company completed the acquisition of the assets of
C&J Trucking, Inc. and affiliates, with collection operations throughout Eastern
Massachusetts and Southern New Hampshire. The acquired assets also included 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.
In July, 1999, the Company 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 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 was approximately $70
million, in cash and stock. The consideration paid to former stockholders of
Eastern Trans-Waste of Maryland, Inc. included 2,678,620 shares of common stock
and 1,000 shares of Series C Preferred Stock that has been converted into
1,763,000 shares of common stock.
The acquisitions are expected to add annualized revenues of
approximately $30 million and was recorded using the purchase method of
accounting. As a result, the Company believes that it is poised to continue its
growth in these areas and to enhance its profitability though the implementation
of operating efficiencies.
Mostoller Landfill
In December 1999, the Company opened its third Central Pennsylvania
landfill, located in Somerset, Pennsylvania. The Mostoller Landfill, which has
over 14,200,000 cubic yards of permitted disposal capacity, is permitted to
accept 2,000 tons per day, six days a week, or 624,000 tons per year, of
municipal solid waste, construction and demolition waste, and residual waste.
New Revolving Credit Facility
On July 22, 1999, the Company closed a $25 million revolving credit
facility with BankNorth Group, N.A. to fund acquisitions and for general working
capital purposes. On August 3, 1999, $17.5 million was drawn down by the Company
in connection with the acquisition of C&J Trucking, Inc. Debt incurred under
this credit facility is secured debt that is guaranteed by our subsidiaries. The
revolving credit facility has a term of three years, provides for an interest
rate based on LIBOR, and includes other terms and conditions customary for
secured revolving credit facilities.
New Executive Officer
In August 1999, the Company appointed James L. Elitzak to the position
of Vice President and Chief Financial Officer.
Private Placements
In August 1999, the Company issued an aggregate of 2,239,745 shares of
common stock to a number of investors in a placement transaction exempt from
registration under the Securities Act of 1933, as amended, at a price per share
of $7, for aggregate offering gross proceeds of approximately $16 million, the
net proceeds of which have been and are being used for general working capital
purposes.
In December 1999, the Company issued an aggregate of 15,000 shares of
Series D Preferred Stock to a number of investors in a placement transaction
exempt from registration under the Securities Act of 1933, as amended, at a
price per share of $1,000, for aggregate offering gross proceeds of
approximately $15 million, the net proceeds of which have been and are being
used for general working capital purposes. The rights, preferences and
limitations of the Series D Preferred Stock are set out in the section entitled
"Description of Securities."
<PAGE>
116
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.
Our landfills are the Moretown Landfill in Moretown, Vermont, the Sandy
Run Landfill in Hopewell, Pennsylvania, the Cumberland Landfill in Shippensburg,
Pennsylvania, and the Mostoller Landfill in Somerset, Pennsylvania. The annual
permitted capacity of these landfills is 120,000 tons, 86,000 tons, 306,000
tons, and 624,000 tons per year respectively for the Moretown Landfill, Sandy
Run Landfill, Cumberland Landfill, and the Mostoller Landfill respectively. As
of September 30, 1999, the aggregate remaining estimated permitted capacity of
our four owned landfills was approximately 23.6 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 our landfills. Our waste
collection operations 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. Our waste collection operations
serve a total of approximately 73,000 commercial, industrial, residential and
municipal customers in the Eastern New England, Central Pennsylvania, Baltimore
Maryland/Washington, D.C., Vermont and Upstate New York markets.
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 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 acquiring landfills, transfer stations, and solid waste collection
operations. During 1998, we completed 34 acquisitions within four states in the
Northeast and Mid-Atlantic regions.
We have completed 13 acquisitions since January 1, 1999, which have
significantly increased our presence within the geographic regions in which we
operate. Included in these acquisitions are the Cumberland Landfill, which is a
landfill located in the city of Shippensburg in Central Pennsylvania, and
Cumberland Waste Service, Inc., a collection operation serving over 2,300
customers in the geographical area surrounding the landfill. The Shippensburg
landfill added 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.
On July 1, 1999, we acquired 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, we acquired the assets of C&J Trucking, Inc. and certain
affiliated facilities, 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. 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 1998.
Of this $38 billion aggregate revenue, approximately 47% was generated by public
companies, approximately 32% was generated by municipal governments, and the
remaining 21% 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 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 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:
C executing our acquisition program,
C generating internal growth from existing operations by increasing
sales to new and existing customers, and
C 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 to 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
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 November 12, 1999:
<TABLE>
<S> <C> <C> <C>
Acquisition Month Acquired Principal Business Location
Eastern New England Region
C&J Trucking, Inc. and July 1999 Collection/ Lynn, MA/
Transfer Station Londonderry, NH
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
Central Pennsylvania Region
B&J Garbage Service July 1999 Collection Berlin, PA
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
Baltimore, Maryland/Washington, D.C. Region
Eastern Trans-Waste of July 1999 Collection/ Capitol Heights, MD/
Maryland, Inc. Transfer Station Washington, D.C.
Vermont Region
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/ St. Johnsbury, VT
Transfer Station
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
Upstate New York Region
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/ Camden, NY
Transfer Station
Besig & Sons September 1998 Collection Westmoreland, NY
Larry Baker Disposal, Inc. September 1998 Collection Oneida, NY
</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 the 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,
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 the Cumberland landfill in Cumberland,
Pennsylvania and the Mostoller Landfill in Somerset, Pennsylvania, are Waste
Systems's currently operating landfills and each includes leachate collection
systems, groundwater monitoring systems and, where required, active methane gas
extraction and recovery systems.
We continue to develop more fully integrated operations in our targeted
market areas. During 1999, nearly 100% of the solid waste from our Vermont
operations was delivered for disposal at our Moretown, Vermont landfill, and
approximately 41% of the solid waste delivered for disposal at the Moretown
landfill during this period was collected by us. During 1999, approximately 65%
of the solid waste from our Central Pennsylvania (Altoona) operations was
delivered for disposal at the Sandy Run and approximately 70% of the waste
delivered for disposal at the Sandy Run landfill during this period was
collected by us. Since the acquisition of Community Refuse, Inc. in March of
1999, approximately 93% of the waste from our Central Pennsylvania (Harrisburg)
division operations was delivered for disposal at the Community Refuse, Inc.
landfill and approximately 19% of the waste delivered at that landfill was
collected by the Company. Since October 1, 1999, 100% of the waste collected by
our Baltimore, Maryland/Washington, D.C. operations has been delivered for
disposal at our Community Refuse, Inc. landfill. During the third quarter of
1999, we acquired Eastern Trans-Waste of Maryland, Inc. and C&J Trucking
Company, Inc. and certain Affiliates. During that quarter, Eastern Trans-Waste
and C&J Trucking Company, Inc. and certain Affiliates disposed of approximately
26% and 3%, respectively, of their waste was disposed of at a Company owned
landfill. We intend to internalize these operations with our own landfills over
the next several quarters. During December 1999, the Company opened its
Mostoller Landfill in Somerset, Pennsylvania - a 2,000 ton-per-day, six
day-per-week, 624,000 ton-per-year disposal facility, with over fourteen million
cubic yards of permitted capacity. This landfill will significantly improve the
Company's ability to internalize its collected waste which will substantially
increase the Company's consolidated earnings before, interest, taxes,
depreciation, and amortization ("EBITDA"). For the three-month period ended
September 30, 1999, 32.3% of the waste collected by the Company was delivered to
a Company-owned landfill - resulting in a consolidated EBITDA margin, excluding
non-recurring charges, of 12.2%. If the Mostoller Landfill had been operational
during the entire third quarter of 1999, 79.2% of the waste collected by the
Company would have been delivered to a Company-owned landfill - resulting in a
pro-forma EBITDA margin, excluding non-recurring charges of 25.1%. We recently
acquired our Upstate New York waste collection and transfer station operations
in anticipation of landfill acquisition and/or privatization opportunities in
that market area. Revenues from landfill operations accounted for approximately
20.1% of our revenues for the year ended December 31, 1998 and approximately
15.0% of our revenues for the nine months ended September 30, 1999.
The following table provides certain information regarding the landfills
that we operate. All information is provided as of September 30, 1999:
Remaining Estimated Permitted Capacity
<TABLE>
<CAPTION>
Estimated Capacity in
Total Remaining Permitting
Permitted Capacity Process
Landfill Location (Cubic Yards) (Cubic Yards)
<S> <C> <C> <C>
Mostoller Somerset, PA 14,200,000 --
Sandy Run Hopewell, PA 2,785,000 --
Cumberland Cumberland, PA 5,289,000 --
Moretown Moretown, VT 1,319,000 --
South Hadley South Hadley, MA -- 2,000,000
----------- --------------
Total 23,600,000 2,000,000
=========== ==============
</TABLE>
The South Hadley landfill will be operated according to an operating
agreement expiring in 2015.
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 (i.e., 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 and approximately 74.6% of our
revenues for the nine months ended September 30, 1999.
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 and
approximately 10.4% of our revenues for the nine months ended September 30,
1999.
Our regional operations are in Eastern New England, Central Pennsylvania,
Baltimore, Maryland/Washington, D.C., Vermont and Upstate New York.
Our current or planned solid waste management operations are as follows:
Eastern New England 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
mid-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 mid-2000. In
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. In July 1999, we acquired the assets of C&J Trucking, Inc. and certain
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.
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 September 30, 1999, of approximately
2.8 million cubic yards. In August 1998, we acquired the Mostoller landfill in
Somerset County, Pennsylvania, that is permitted to receive approximately
624,000 tons of waste per year. On March 11, 1999, we acquired the Cumberland
landfill, located in Shippensburg, and Cumberland Waste Service, Inc., a
collection operation serving over 2,300 customers in the Harrisburg area. The
landfill has approximately 5.3 million cubic yards of capacity as of September
30, 1999, region and is permitted to accept 306,000 tons of municipal solid
waste per year.
Baltimore, Maryland/Washington, D.C. Operations. In July, 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.
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.
Currently, the Moretown Landfill is permitted to receive approximately
120,000 tons per year and had remaining estimated permitted capacity at
September 30, 1999, of approximately 1.3 million 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.
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 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 believes that its
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 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.
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. Our ability to obtain reimbursement from others for
their allocable share of such costs would be limited by our ability to find
other 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 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. Certain 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 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 aforementioned 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 exchange offering
memorandum 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."
"Limited environmental liability insurance may not cover all risks of
loss."
"Addressing local community concerns about our operations may adversely
affect our business."
Our employees are a key factor in our success.
As of December 31, 1999, we had 517 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 exchange offering
memorandum 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
its 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.
From time to time, in the ordinary course of its business, we are
subject to legal proceedings and claims arising from the conduct of its business
operations. In addition, we are also party to certain litigation which is
described in more detail in the Form 10-K attached as Exhibit A hereto under the
heading "Business--Legal Proceeding" which is incorporated by reference herein.
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.
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Waste Systems as of
September 30, 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>
<S> <C> <C>
Proforma(2)
September 30, 1999 September 30, 1999
-------------------- ------------------
(Dollars in thousands)
Long-term debt:
10% Convertible Subordinated Debentures................................ $ 400 $ 400
Capital leases, equipment and other notes payable...................... 5,191 5,191
Bank Credit Facility................................................... 17,500 17,500
7% Convertible Subordinated Notes...................................... 49,551 49,551
11% Senior Notes and Series B Senior Notes............................. 100,000 100,000
----------------- -----------------
Subtotal.................................................................. 172,642 172,642
Less current portion................................................... 684 684
----------------- -----------------
Long-term debt, less current portion................................... 171,958 171,958
----------------- -----------------
Stockholders' equity:
Common stock, par value $.01 per share; authorized
75,000,000 shares; 18,580,621(1) shares issued and
outstanding;....................................................... 186 186
Preferred stock, par value $.001 per share; authorized
1,000,000 shares;
Series C Preferred Stock, 1,000 shares designated, issued
and outstanding;............................................. 11,165 11,165
Series D Preferred Stock, 20,500 designated,
15,000, issued and outstanding............................... -- 15,000
Additional paid-in capital............................................. 84,774 84,774
Accumulated deficit.................................................... (56,773) (36,773)
----------------- -----------------
Total stockholders' equity............................................. 39,803 54,803
----------------- -----------------
Total capitalization................................................... $ 211,761 $ 226,761
================= =================
</TABLE>
<PAGE>
- ----------------------------
(1) Excludes (i) 43,649 shares of common stock issuable upon conversion of
outstanding 10% Convertible Subordinated Debentures, (ii) 4,955,143
shares of common stock issuable upon conversion of outstanding 7%
Convertible Subordinated Notes, (iii) 1,500,000 shares of common stock
issuable upon exercise of outstanding warrants and (iv) 3,085,518 and
177,480 shares of common stock issuable upon exercise of stock options
outstanding at September 30, 1999 under our 1995 Stock Option and
Incentive Plan and 1995 Stock Option Plan for Non-Employee Directors,
respectively, of which 905,108 and 49,370 shares, respectively, were
vested at such date.
(2) Assuming the private placement of 15,000 shares of Series D Preferred
Stock closed on September 30, 1999 rather than the actual closing date
of December 28, 1999.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS
OF OPERATIONS FOR YEARENDED DECEMBER 31, 1998
Item 7 of the Company's 1998 Form 10-K/A entitled "Management's
Discussion and Analysis" is hereby incorporated by reference into this exchange
offering memorandum. Holders of Notes are encouraged to review such discussion
and analysis beginning on page 2 of Exhibit B.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF
OPERATIONS FOR THE NINE MONTHSENDED SEPTEMBER 30, 1999
Item 2 of the Company's September 30 Form 10-Q entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" is
hereby incorporated by reference into this exchange offering memorandum. Holders
of Notes are encouraged to review such discussion and analysis beginning on page
10 of Exhibit C.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except share and per share data)
The following selected consolidated financial data for the two years
ended December 31, 1998 and 1997 have been derived from our Consolidated
Financial Statements, which have been audited by KPMG Peat Marwick LLP. The
unaudited selected consolidated financial data for the nine months ended
September 30, 1999 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 incorporated by reference in this
exchange offering memorandum, and in the sections entitled "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
<TABLE>
<CAPTION>
Nine Months Ended Fiscal Year Ended
<S> <C> <C> <C>
September 30, Dec. 31, Dec. 31,
1999 1998 1997
------------ -------- -------
Statement of Operations Data: (unaudited)
Revenues .............................. $ 37,475 $ 21,045 $ 3,458
Cost of operations:
Operating expenses................... 25,145 12,400 1,718
Depreciation and amortization........ 8,094 4,501 692
Acquisition integration costs(1)..... 2,378 1,865 --
Write-off of landfill development
costs............................ -- 235 1,496
--------- -------- --------
Total cost of operations.......... 35,617 19,001 3,906
-------- -------- --------
Gross profit (loss) .............. 1,858 2,044 (448)
Selling, general and administrative
expenses............................. 6,668 4,483 2,139
Restructuring(2)..................... -- -- 596
------- ------- ------
Loss from operations................... (4,810) 2,439 (3,183)
Other income (expense):
Royalty and related income
(expense), net.................... (542) (177) (521)
Interest expense and
financing costs................... (9,423) (3,633) (1,183)
Write-off of accounts and notes
receivable........................ -- -- (568)
Non-cash charge for debt
conversion........................ (5,584) -- --
------ ------ ------
Total other income (expense)......... (15,549) 3,810 (2,272)
------- ------ -------
Income (loss) before income taxes,
minority interest, discontinued
operations and extraordinary item.... (20,359) (6,249) (5,454)
Extraordinary item - loss on
extinguishment of debt............... (224) (247) (134)
----------- ------------ --------
Net (loss)............................. (20,583) $ (6,496) $(5,589)
Preferred stock dividend............... -- 888 --
----------- ------------ --------
Net (loss) available for
common stockholders(3)............... $ (20,583) $ (7,384) $(5,589)
=========== ============ ========
Basic net (loss) per
share - continuing operations ....... $ (1.39) $ (0.97) $ (1.51)
Weighted average number of shares
used in computation of basic net
income(loss) per share............... 14,818,688 7,389,547 3,612,623
EBITDA (4)............................. $ 3,406 $ 2,130 $ (2,469)
Adjusted EBITDA(5)..................... $ 5,784 $ 4,230 $ (378)
Capital expenditures................... $ 15,925 $ 9,032 $ 998
Cash flow from operating activities.... $ 834 $ 592 $ (4,586)
Cash flow from investing activities.... $ (103,642) $ (71,939) $ 706
Cash flow from financing activities.... $ 105,075 $ 68,576 $ 6,575
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sept. 30 Dec. 31, Dec. 31,
1999 1998 1997
..................................... (unaudited)
Balance Sheet Data:
Cash and cash equivalents........................ $ 2,461 $ 194 $ 2,964
Working capital.................................. (6,972) (6,520) 1,532
Total assets..................................... 235,445 96,117 18,560
Long-term debt, less current portion............. 171,958 74,861 7,201
Total stockholders' equity (deficit)............. 39,803 1,739 5,972
</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 the
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 nine months ended September 30, 1999, and for the two years
ended December 31, 1998 and 1997, we incurred net losses that did not
cover fixed charges by approximately $20.5 million, $6.6 million, and
$5.5, respectively. For the purposes of computing the ratio of earnings
to fixed charges, earnings consist of pre-tax 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.
<PAGE>
CERTAIN PROFORMA FINANCIAL STATEMENTS
The following proforma financial statements reflect the private
placement of Series D Convertible Preferred Stock and assumes the tender of $30
million of Senior Notes and Series B Senior Notes and $30 million of
Subordinated Notes occurred on January 1, 1998.
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Proforma Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
Assets 1999 1998
------ ------------------ -------------------
Current assets:
Cash and cash equivalents (Notes 2 and 4) $ 18,310,415 $ 13,356,113
Accounts receivable, net 9,563,533 5,235,534
Prepaid expenses and other current assets 2,688,672 4,769,285
------------------ -----------------
Total current assets 30,562,620 23,360,932
Restricted cash and securities 49,766 39,842
Property and equipment, net 164,536,765 44,685,735
Intangible assets, net 48,848,823 38,059,374
Other assets 5,845,565 2,417,627
------------------- -------------------
Total assets $ 249,843,539 $ 108,563,510
================ =================
Liabilities and Stockholders' Equity Current liabilities:
Current portion of long-term debt and notes payable $ 684,370 $ 8,259,922
Accounts payable 7,348,274 3,849,632
Accrued expenses 12,869,217 2,742,539
Current portion of landfill closure and post-closure costs 2,500,000 -
Deferred revenue 1,857,666 1,866,128
-------------------- -------------------
Total current liabilities 25,259,527 16,718,221
Long-term debt and notes payable (Notes 3 and 4) 111,958,095 44,861,187
Landfill closure and post-closure costs 2,000,005 2,798,597
----------------- -------------------
Total liabilities 139,217,627 64,378,005
--------------- ------------------
Commitments and Contingencies
Stockholders' equity
Common stock, $.01 par value. Authorized 30,000,000 shares;
20,330,946 and 11,718,323 shares issued and outstanding at
September 30, 1999 and December 31, 1998, respectively 203,309 117,184
Preferred stock
Series C Convertible Preferred Stock (Note 1) - -
Series D Convertible Preferred Stock (Note 2) 15,000,000 15,000,000
Series E Convertible Preferred Stock (Notes 3, 4 and 5) 60,000,000 30,000,000
Additional paid-in capital (Note 6) 96,071,961 37,660,712
Accumulated deficit (60,649,358) (38,592,391)
------------------ --------------------
Total stockholders' equity 110,625,912 44,185,500
---------------- ------------------
Total liabilities and stockholders' equity $ 249,843,559 $ 108,563,510
=============== ================
</TABLE>
See footnotes on page 47.
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Proforma Consolidated Statements of Operations
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Nine months ended Year ended
September 30, 1999 December 31,1998
Revenues $ 37,475,265 $ 21,044,584
Cost of operations:
Operating expenses 25,145,478 12,399,529
Depreciation and amortization 8,094,069 4,501,424
Acquisition integration costs 2,377,648 1,864,535
Write-off of project development costs - 235,464
----------------- -----------------
Total cost of operations 35,617,195 19,000,952
--------------- ----------------
Gross profit (loss) 1,858,070 2,043,632
Selling, general and administrative expenses 6,668,136 4,482,478
---------------- ---------------
Loss from operations (4,810,066) (2,438,846)
---------------- ---------------
Other income (expense):
Royalty and other income (expense), net (542,100) (177,629)
Interest income 483,250 441,069
Interest expense and financing costs (Notes 3 and 4) (7,054,976) (3,476,882)
Non-cash charge for debt conversion (5,583,717) -
----------------- ------------------
Total other income (expense) (12,697,543) (3,213,442)
---------------- -----------------
Loss
before income tax expense (benefit),
discontinued operations and extraordinary item (17,507,609) (5,652,288)
Extraordinary item - loss on extinguishment of debt (224,358) (246,535)
----------------- -----------------
Net loss (17,731,967) (5,898,823)
Preferred stock dividends (Notes 2 and 5) 4,325,000 3,887,869
---------------- -----------------
Net loss available for common shareholders $ (22,056,967) $ (9,786,692)
================ =================
Basic net loss per share:
Loss from continuing operations $ (1.06) $ (0.76)
Extraordinary item (0.01) (0.03)
--------------------- -------------------
Basic net loss per share $ (1.07) $ (0.80)
==================== ===================
Weighted average number of shares used in
computation of basic net loss per share 16,581,688 7,389,547
================ =================
</TABLE>
See footnotes on page 47.
<PAGE>
Notes to Consolidated Proforma Financial Statements
(1) In October 1999, the Company converted $11,615,000 of Series C
Convertible Preferred Stock which was issued on July 1, 1999 into
1,763,000 shares of common stock. This transaction is presented in the
financial statements as though it occurred January 1, 1999.
(2) In December 1999, the Company issued $15 million of Series D
Convertible Preferred Stock, convertible into common stock at $6 per
share with a dividend rate of 10% which is payable semi-annually in
kind or in cash at the option of the Company. The dividend is assumed
to be paid in cash. This transaction is presented in the financial
statements as though it occurred on January 1, 1998.
(3) The proforma financials are shown as if the Company exchanged $30
million of principal of its 7% Convertible Subordinated Notes due 2003
for shares of Series E Convertible Preferred Stock on May 15, 1998,
which is when the original transaction closed. Interest expense in 1999
is reduced the full nine months while in 1998 is reduced by 7 1/2
months. In conjunction with this transaction, the Company wrote off
$716,000 of deferred financing costs related to the Subordinated Notes.
The Company may be required to incur a non-cash charge as a result of
this transaction. No charge is included in the proforma financial
statements.
(4) The proforma financials are shown as if the Company exchanged $30
million of principal of its 11 1/2% Senior Notes due 2006 for shares of
Series E Convertible Preferred Stock on March 2, 1999, which is when
the original transaction closed. Interest expense in 1999 is reduced by
7 months which represent the seven months from March 1, 1999 through
September 30, 1999. In conjunction with this transaction, the Company
wrote off $837,000 of deferred financing costs related to the Senior
Notes.
(5) It is assumed that the Series E Convertible Preferred stock referred to
in Notes (3) and (4) will be convertible into shares of common stock at
a conversion price of $8 per share of common stock and carry a dividend
rate of 8% payable annually in kind or cash at the option of the
Company. The dividend is assumed to be paid in cash on December 31 of
each year.
(6) Each of the above mentioned transactions is presented net of $75,000 of
transaction costs.
<PAGE>
DESCRIPTION OF SECURITIES
Authorized and Issued Common Stock and Preferred Stock
Waste Systems's authorized capital stock consists of 75,000,000 shares
of common stock, $.01 par value per share, and 1,000,000 shares of Preferred
Stock, $.001 par value per share.
Common stock. Holders of Waste Systems' common stock are entitled to
one vote per share for each share held of record on all matters submitted to a
vote of stockholders. Accordingly, holders of a majority of the shares of the
common stock entitled to vote in any election of directors may elect all of the
directors standing for election. Subject to preferential dividend rights with
respect to any outstanding preferred stock, holders of the common stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors of Waste Systems out of funds legally available therefor.
Upon liquidation, dissolution or winding up of the Company, holders of the
common stock are entitled to share ratably in the assets of the Company legally
available, subject to any prior rights of any outstanding preferred stock.
Holders of the common stock have no cumulative voting rights nor any preemptive,
subscription, redemption or conversion rights. All outstanding shares of the
Company's common stock are validly issued, fully paid and non-assessable. The
rights, preferences and privileges of holders of the common stock are subject
to, and may be adversely affected by, the rights of the holders of shares of any
series of preferred stock which the Board of Directors may designate and issue
in the future. See "Risk Factors--Anti-Takeover provisions."
Preferred Stock. Waste Systems has 1,000,000 authorized shares of
preferred stock, $.001 par value per share. Other than the shares of Series D
Preferred Stock, no shares of preferred stock are currently outstanding. The
Board of Directors is authorized, without stockholder approval, to issue the
preferred stock in one or more series, with such rights, preferences and
qualifications as the Board of Directors may in its discretion determine. Other
than the Series E Convertible Preferred Stock, the Company currently has no
plans to issue any additional shares of preferred stock. If the Company decides
to do so, however, the terms of the preferred stock may include, among other
things, extraordinary voting, dividend, redemption or conversion rights which
could adversely affect the holders of common stock. See "Risk Factors--Issuance
of additional equity may be dilutive to stockholders" and "--Anti-Takeover
provisions."
Series D Preferred Stock. Holders of shares of Series D Preferred Stock
are entitled to a cumulative dividend on the Shares at a rate of 10% per annum,
payable annually in arrears, at the Company's option, either (i) in cash,
subject to the limitations and restrictions contained in the indenture governing
the Company's bonds and the Company's credit facility or (ii) in additional
shares of Series D Preferred Stock. The cumulative dividend rate will increase
by 25 basis points on the first day of each three month period commencing with
the day following the first anniversary of issuance for any shares of Series D
Preferred Stock not previously redeemed or converted. Holders of common stock
are entitled to one vote for each share of common stock with respect to matters
for which the Certificate of Incorporation of the Company or the Delaware
General Corporation Law provides them with voting rights. Holders of shares of
Series D Preferred Stock will be entitled to vote with the common stock on an
as-converted basis, as set forth in the Certificate of Incorporation of the
Company. Each share of Series D Preferred Stock is convertible into shares of
common stock at a conversion price (the "Series D Conversion Price") per share
of common stock equal to $6.00 (a) at any time on or after the date of issuance
at the option of the holder, and (b) mandatorily in the event the closing bid
price of the common stock on the NASDAQ exceeds 150% of the Series D Conversion
Price for twenty (20) consecutive trading days. The number of shares of common
stock issuable upon conversion of a share of Series D Preferred Stock will equal
(i) $1,000 plus accrued but unpaid dividends on such share of Series D Preferred
Stock, divided by (ii) the Series D Conversion Price. Shares of Series D
Preferred Stock are redeemable in whole but not in part for cash at the option
of the Company at 105% of the then liquidation preference at any time through
the first anniversary of the date of issuance and at 100% at any time
thereafter. Upon the occurrence of any of the following events (each a
"Liquidation Event"), subject to the full payment of outstanding indebtedness of
the Company, the holders of Series D Preferred Stock will be entitled to receive
out of the assets of the Company $1,000, plus accrued but unpaid dividends, per
share of Series D Preferred Stock, and no more, before any payment may be made
or any assets distributed to the holders of shares of common stock or any other
shares of capital stock of the Company junior to the Shares: (i) a liquidation,
dissolution or winding up of the corporation, whether voluntary or involuntary;
or (ii) any transaction or series of transactions involving: (A) the sale,
transfer, conveyance, exchange or other disposition, other than in the usual and
regular course of business, of all or substantially all of the consolidated
assets or properties of the Company to one more persons or entities who are not
affiliates of the Company, or (B) the sale, transfer, conveyance, exchange or
other disposition (including, without limitation, by merger or consolidation) of
all or substantially all of the common stock of the Company to one or more
persons or entities who are not affiliates of the Company. The Series E
Convertible Preferred Stock is pari passu with the Series D Convertible
Preferred Stock. The Series D Convertible Preferred Stock and the Series E
Convertible Preferred Stock are senior to all other classes of capital stock of
the Company that are currently outstanding.
Series E Convertible Preferred Stock.
Dividend. Holders of shares of Series E Convertible Preferred Stock
will be entitled to a cumulative dividend on the Shares at a rate of 8% per
annum, payable annually in arrears, at the Company's option, either (i) in cash,
subject to the limitations and restrictions contained in the indenture governing
the Company's bonds and the Company's credit facility or (ii) in additional
shares of Series E Convertible Preferred Stock.
Voting. Subject to the following sentence, Holders of shares of Series
E Preferred Stock will be entitled to vote with the common stock and the Series
D Convertible Preferred Stock on an as-converted basis, as set forth in the
Certificate of Incorporation of the Company. Except as required by law, the
Series E Convertible Preferred Stock shall have no voting rights unless and
until either (a) the Company obtains the approval of at least a majority of the
holders of the then outstanding shares of common stock present in person or by
proxy at a meeting of the Company's stockholders in accordance with applicable
Nasdaq rules and regulations or (b) the Company obtains from Nasdaq advice that
such stockholder approval is not required. Upon receipt of such advice or such
stockholder approval, the holders of shares of Series E Convertible Preferred
Stock shall have such voting rights and such shares shall no longer be deemed
non-voting. The Company will give written notice to each holder of Series E
Convertible Preferred Stock promptly following receipt of such advice or such
approval.
Conversion. Subject to the following sentence, each share of Series E
Convertible Preferred Stock will be convertible into shares of common stock at a
conversion price (the "Series E Conversion Price") per share of common stock
equal to the greater of (i) $8.00 or (ii) an amount equal to a 33% premium over
the closing sale price of the Company's common stock on the Nasdaq on the
trading day immediately preceding the issuance of the Series E Convertible
Preferred Stock (a) at any time on or after the date of issuance at the option
of the holder, and (b) mandatorily in the event the closing sale price of the
common stock on the NASDAQ equals or 100% of the Series E Conversion Price for
twenty (20) consecutive trading days. Except as required by law, the Series E
Convertible Preferred Stock shall not be convertible into shares of common stock
unless and until either (a) the Company obtains the approval of at least a
majority of the holders of the then outstanding shares of common stock present
in person or by proxy at a meeting of the Company's stockholders in accordance
with applicable Nasdaq rules and regulations or (b) the Company obtains from
Nasdaq advice that such stockholder approval is not required. Upon receipt of
such advice or such stockholder approval, the shares of Series E Convertible
Preferred Stock shall be convertible into shares of common stock and such shares
shall no longer be deemed non-convertible. The Company will give written notice
to each holder of Series E Convertible Preferred Stock promptly following
receipt of such advice or such approval. The number of shares of common stock
issuable upon conversion of a share of Series E Convertible Preferred Stock will
equal (i) $1,000 plus accrued but unpaid dividends on such share of Series E
Convertible Preferred Stock, divided by (ii) the Series E Conversion Price.
Redemption. Shares of Series E Convertible Preferred Stock will be
redeemable at any time in whole but not in part for cash at the option of the
Company at 100% of the liquidation preference.
Liquidation. Upon the occurrence of any of the following events (each a
"Liquidation Event"), subject to the full payment of outstanding indebtedness of
the Company, the holders of Series E Convertible Preferred Stock will be
entitled to receive out of the assets of the Company $1,000, plus accrued but
unpaid dividends, per share of Series E Convertible Preferred Stock, and no
more, before any payment may be made or any assets distributed to the holders of
shares of common stock or any other shares of capital stock of the Company
junior to the Shares: (i) a liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary; or (ii) any transaction or series
of transactions involving: (A) the sale, transfer, conveyance, exchange or other
disposition, other than in the usual and regular course of business, of all or
substantially all of the consolidated assets or properties of the Company to one
more persons or entities who are not affiliates of the Company, or (B) the sale,
transfer, conveyance, exchange or other disposition (including, without
limitation, by merger or consolidation) of all or substantially all of the
common stock of the Company to one or more persons or entities who are not
affiliates of the Company. The Series E Convertible Preferred Stock is pari
passu with the Series D Convertible Preferred Stock. The Series D Convertible
Preferred Stock and the Series E Convertible Preferred Stock are senior to all
other classes of capital stock of the Company that are currently outstanding.
Registration Rights. The Company will enter into a registration rights
agreement with the Holders of the Series E Convertible Preferred Stock providing
such Holders with the following registration rights over the shares of common
stock issuable upon conversion of the Series E Convertible Preferred Stock.
Holders of at least 33% of the outstanding Series E Convertible Preferred Stock
may require, on one occasion, that the Company use its reasonable best efforts
to file a registration statement covering the public sale of common stock (an
"S-3 Demand"); provided that the Company will have the right to delay or suspend
such an S-3 Demand under certain circumstances for a period or periods not in
excess of 120 days each in the aggregate in any 12-month period. In addition,
the holders of the Series E Convertible Preferred Stock will be entitled to
unlimited "piggyback" registration rights, at the Company's expense, on
registrations of common stock initiated by the Company or any other class of
investors holding demand registration rights. In the event of any "cut-back" in
the number of shares of common stock to be offered in any registration, the
holders of the Series E Convertible Preferred Stock shall be treated on a basis
comparable to all other holders of common stock to be sold in such public
offering; provided that (i) holders of Series E Convertible Preferred Stock
shall not in any event take priority over the Company and (ii) any holder
exercising "piggyback" registration rights shall be cut-back prior to any holder
exercising demand registration rights with respect to such offering.
Other Securities
Warrants. On March 2, 1999, Waste Systems issued warrants to purchase
1,500,000 shares of common stock at an exercise price of $6.25 per share in an
exempt private offering pursuant to a warrant agreement with IBJ Whitehall Bank
& Trust Company as warrant agent. Each warrant, when exercised, will entitle the
holder to receive one fully paid and non-assessable share of common stock at an
exercise price of $6.25 per share. The exercise price and the number of shares
of common stock issuable upon the holder's exercise of a warrant are both
subject to adjustment in certain circumstances.
10% Convertible Subordinated Debentures. The Company has outstanding
$400,000 aggregate principal amount of 10% Convertible Subordinated Debentures
due October 6, 2000, which were issued in 1995 in an exempt private offering in
accordance with Regulation S under the Securities Act. Such debentures bear
interest at the rate of 10% per annum, payable quarterly, and are convertible
into common stock at $9.20 per share. The debentures are redeemable at the
option of the Company 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.
7% Convertible Subordinated Notes. At September 30, 1999, the Company
had outstanding $49,551,000 aggregate principal amount of 7% Convertible
Subordinated Notes due May 13, 2005 (collectively, the "Subordinated Notes"),
which were issued on or about May 13, 1998, in an exempt private offering in
accordance with Regulation D under the Securities Act. The Subordinated Notes do
not limit the amount of other indebtedness or securities which may be issued by
the Company or any of its subsidiaries. The Company's rights and the rights of
its creditors, including holders of the Subordinated Notes, to participate in
the assets of any subsidiary upon liquidation or recapitalization will be
subject to the prior claims of the subsidiary's creditors, except to the extent
that the Company may itself be a creditor with recognized claims against the
subsidiary. In addition, the payment of principal and interest on the
Subordinated Notes is dependent upon the Company receiving dividends and other
payments from its subsidiaries, to which no assurance can be given.
The Subordinated Notes bear interest at the rate of 7% per annum.
Interest is payable semi-annually on each June 30 and December 31 and prorated
for any partial periods to holders of record at the close of business on the
date 15 days preceding each such interest payment date.
The Subordinated Notes were not issued under an indenture and there is
no trustee with respect to the Subordinated Notes. The Subordinated Notes do not
contain any financial covenants or any restrictions on the payment of dividends,
the repurchase of securities of the Company or the incurrence of indebtedness
that is senior in ranking or other indebtedness. The Subordinated Notes contain
no covenants or other provisions to afford protections to holders of the
Subordinated Notes in the event of a highly leveraged transaction or a change in
control of the Company.
11 1/2% Senior Notes Due 2006. The Company has outstanding an aggregate
of $100 million of Senior Notes consisting of $22.5 million of 11 1/2% Senior
Notes due 2006 and $77.5 million of 11 1/2% Series B Senior Notes due 2006
(collectively, the "Senior Notes"). For additional information regarding the
senior notes, please refer to the discussion beginning on page 70.
<PAGE>
MANAGEMENT
The following table sets forth information regarding the directors and
executive officers of Waste Systems:
Name Age Position with Waste Systems
Philip W. Strauss 51 Chairman, Chief Executive Officer and
President
Robert Rivkin 40 Executive Vice President-Acquisitions,
Secretary, Treasurer and Director
Joseph E. Motzkin 57 Vice President-Acquisitions
Mark Popham 44 Vice President-Capital Project
Development
Arthur Streeter 39 Vice President and General Counsel
Douglas Martin 52 Vice President-Engineering and
Compliance
James L. Elitzak 39 Vice President and Chief Financial
Officer
David J. Breazzano 42 Director
Charles Johnston 64 Director
Jay J. Matulich 44 Director
Judy K. Mencher 42 Director
William B. Philipbar 73 Director
<PAGE>
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 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. Mr. Rivkin served as the Company's Chief Financial
Officer from March 1995 until July 1999. 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 practiced public accounting in New York, where he specialized in mergers
and acquisitions, initial public offerings and SEC reporting.
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.
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 joining 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.
Doug Martin has been Vice President -- Engineering and Compliance since
June 1999. From 1996 to 1999, he was a Vice President of Regulatory Affairs and
Compliance with Envirosource. From 1992 to 1996, Mr. Martin was Vice President
of Environmental Health and Safety at Chemical Waste Management. Mr. Martin has
over thirteen years of experience in the solid waste management business.
James Elitzak has been Vice President and Chief Financial Officer since
August 1999. From 1993 to 1999, Mr. Elitzak held various positions at Waste
Management, Inc., most recently as Director of Finance. Prior to joining Waste
Management in 1993, Mr. Elitzak spent four years at Wheelabrator Technologies
serving as the Director of Corporate Accounting and seven years with the
accounting, tax, and consulting firm of Deloitte & Touche. Mr. Elitzak is a
Certified Public Accountant and has over ten years of solid waste industry
experience.
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 which was 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 Managing Director of International Capital Growth
Limited ("ICG"), 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.
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 our accounting personnel to review
accounting policies and reports.
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 1995 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 1995 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
1995 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 1995
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 1995 Stock Option Plan
vest at a rate of 25% of the total number of shares of common stock purchasable
under such stock option for each year that the holder 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 1995 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 such 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
of 1998 and each succeeding year so long as Mr. Philipbar continues to be
retained by Waste Systems. The grants are made under Waste Systems's Amended and
Restated 1995 Stock Option and Incentive Plan, permitting the grant of options
and other benefits to non-employee directors, consultants and other key persons.
Please refer to the section of this exchange offering memorandum entitled
"Certain Relationships and Related Transactions."
Summary of Executive Compensation
Item 10 of the Company's 1998 Form 10-K entitled "Directors and
Executive Officers" is hereby incorporated by reference into this exchange
offering memorandum. Holders of Notes are encouraged to review the section
beginning at page 50 of Exhibit A.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial
ownership of the Waste Systems common stock as of December 31, 1999, unless
otherwise indicated, by each person known by Waste Systems to be a beneficial
owner of more than 5.0% of the outstanding Waste Systems 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
<S> <C> <C>
# of Shares % of Class
Beneficially Beneficially
Directors, Executive Officers and 5% Stockholders (1) Owned Owned (2)
BIII Capital Partners, L.P. (3) 10,286,622 40.5%
c/o DDJ Capital Management, LLC
141 Linden Street
Wellesley, MA 02181
Mitchell Hutchins Asset Management Inc. (4) 2,178,559 9.2%
1285 Avenue of the Americas
New York, NY 10019
John Hancock Advisers (5) 1,877,997 7.9%
101 Huntington Avenue
Boston, MA 02199
Chilton Investment Company, Inc.(6) 1,759,700 7.6%
65 Locust Avenue, 2nd Floor
New Canaan, CT 06840
1,026,684 4.4%
The Prudential Insurance Company of America (7)
100 Mulberry Street
Newark, NJ 07102
Baldwin, L.P. 1,552,656 6.8%
1206 Oyster Cove Drive
Grasonville, MD 21638
David J. Breazzano (8) 12,250 *
Charles Johnston (9) 12,250 *
Jay Matulich (10) 13,000 *
Judy K. Mencher (11) 12,055 *
Joseph Motzkin (12) 69,128 *
William B. Philipbar (13) 66,055 *
Mark Popham (14) 43,200 *
Robert Rivkin (15) 647,597 2.8%
Philip W. Strauss (16) 647,422 2.8%
Arthur Streeter (17) 26,250 *
All directors and officers as a 1,549,207 6.8%
group (11 persons)
</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.
(2) Based on 20,330,946 shares of Common Stock issued and outstanding as of
December 31, 1999. As of December 31, 1999, the Company had outstanding
7% Convertible Subordinated Notes (the "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 as set
forth in the Notes. In addition, in connection with the Company's
private placement of its 11 1/2% Senior Notes, the Company issued
1,500,000 warrants (the "Warrants"). Each Warrant allows the holder to
purchase one share of Common Stock at an exercise price of $6.25 per
share. The foregoing shares issuable upon conversion of the Notes or
preferred stock or exercise of warrants are included in this table only
for those holders with the right to acquire such shares within 60 days
from the date of this exchange offering memorandum, to the extent such
holder could acquire additional shares.
(3) Includes 5,450,533 shares of Common Stock currently owned, 2,231,922
shares of Common Stock issuable upon conversion of Notes at a
conversion price of $10.00 as set forth in the Notes, 337,500 shares of
Common Stock issuable upon the exercise of Warrants to purchase shares
of Common Stock at an exercise price of $6.25 per share and 2,266,667
shares of Common Stock issuable upon conversion of 13,600 shares of
Series D Preferred Stock at a conversion price of $6.00 per share. DDJ
Capital Management, LLC ("DDJ") serves as the investment manager to
BIII; an affiliate of DDJ acts as the general partner of BIII.
(4) Includes 1,231,444 shares of Common Stock currently owned, 797,115
shares of Common Stock issuable upon conversion of Notes at a
conversion price of $10.00 as set forth in the Notes and 150,000 shares
of Common Stock issuable upon the exercise of Warrants to purchase
shares of Common Stock at an exercise price of $6.25 per share.
(5) Includes 931,315 shares of Common Stock currently owned, 916,682 shares
of Common Stock issuable upon conversion of Notes at a conversion price
of $10.00 as set forth in the Notes and 30,000 shares of Common Stock
issuable upon the exercise of Warrants to purchase shares of Common
Stock at an exercise price of $6.25 per share.
(6) Includes 1,504,700 shares of Common Stock currently owned and 255,000
shares of Common Stock issuable upon the exercise of Warrants to
purchase shares of Common Stock at an exercise price of $6.25 per
share.
(7) Includes 642,261 shares of Common Stock currently owned, 159,423 shares
of Common Stock issuable upon conversion of Notes at a conversion price
of $10.00 as set forth in the Notes and 225,000 shares of Common Stock
issuable upon the exercise of Warrants to purchase shares of Common
Stock at an exercise price of $6.25 per share. The Common Stock and
Notes are held for the benefit of certain registered investment
companies over which Prudential or The Prudential Investment
Corporation ("PIC") may have direct or indirect voting and/or
investment discretion, with respect to which Prudential has advised the
Company that Prudential and PIC disclaim beneficial ownership.
(8) Includes 12,250 shares of Common Stock subject to stock options which
are fully vested and currently exercisable and excludes those shares
owned by BIII, which Mr. Breazzano may be deemed to beneficially own as
a result of Mr. Breazzano's interest in DDJ, however, such beneficial
ownership is disclaimed. Mr. Breazzano is a managing member of DDJ.
(9) Includes 12,250 shares of Common Stock subject to stock options which
are fully vested and currently exercisable.
(10) Includes 2,000 shares of Common Stock currently owned and 11,000 shares
of Common Stock subject to stock options which are fully vested and
currently exercisable.
(11) Includes 12,055 shares of Common Stock subject to stock options which
are fully vested and currently exercisable and excludes those shares
owned by BIII, which Ms. Mencher may be deemed to beneficially own as a
result of Ms. Mencher's interest in DDJ, however, such beneficial
ownership is disclaimed. Ms. Mencher is a managing member of DDJ.
(12) Includes 18,403 shares of Common Stock currently owned and 50,725
shares of Common Stock subject to stock options which are fully vested
and currently exercisable.
(13) Includes 66,055 shares of Common Stock subject to stock options which
are fully vested and currently exercisable.
(14) Includes 43,200 shares of Common Stock subject to stock options which
are fully vested and currently exercisable.
(15) Includes 17,953 shares of Common Stock currently owned and 629,644
shares of Common Stock subject to stock options which are fully vested
and currently exercisable.
(16) Includes 17,778 shares of Common Stock currently owned and 629,644
shares of Common Stock subject to stock options which are fully vested
and currently exercisable.
(17) Includes 26,250 shares of Common Stock subject to stock options which
are fully vested and currently exercisable.
<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 such
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 January 1, 1998) so long as Mr. Philipbar
continues to be so retained by us. 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. Such grants
are made under an amendment to Waste Systems's 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 such
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 such consultant during such one year period; and (d) shall be a
non-qualified stock option for federal income tax purposes.
On December 28, 1999, the Company issued, pursuant to a private
placement under Section 4(2) of the Securities Act of 1933, as amended, 15,000
shares of a newly designated series of preferred stock, par value $0.01 per
share (the "Series D Preferred Stock") for $1,000 per share, resulting in
aggregate gross proceeds to the Company of up to $15 million (the "Private
Placement"). BIII Capital Partners, L.P. (managed by DDJ) and two other
investors purchased $13.6 million, $1 million and $400,000 of the Series D
Preferred Stock, respectively, in the Private Placement. For information
regarding the Series D Convertible Preferred Stock please refer to the
discussion beginning on page 48.
<PAGE>
THE EXCHANGE OFFERS
Purpose and Effect of the Exchange Offers
The Company is implementing the exchange offers principally in order in
refinance existing indebtedness with capital stock and thereby improve its
financial flexibility. The Company believes that the consummation of the
exchange offers will provide the Company with an improved ability to access the
capital markets in the future to fund growth and to obtain capital at a more
favorable cost.
Expiration Date; Extensions; Amendments; Termination
The term "expiration date" shall mean 5:00 p.m., New York City time, on
February 14, 2000, unless Waste Systems, in its sole discretion, extends the
exchange offers, in which case the term "expiration date" shall mean the latest
date and time to which the exchange offers are extended. We may extend the
exchange offers 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 Notes, to extend the exchange offers
or to terminate the exchange offers and to refuse to accept
any Notes not previously accepted, if any of the conditions
preventing completion of the exchange offers, as described in
the subsection of this portion of this exchange offering
memorandum entitled, "--Conditions to the Exchange Offers"
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 any of the exchange offers in any manner
consistent with applicable law.
We will promptly notify the registered holders of the Notes of any such
delay in acceptance, extension, termination or amendment to the exchange offers.
If we determine that any amendment to the exchange offers constitutes a material
change, we will promptly inform the holders of such amendment and will extend
the exchange offers to the extent required by law.
Procedures for Tendering
To tender your Notes in any of the exchange offers, 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 exchange offering
memorandum. You must then mail or otherwise deliver such letter of transmittal,
or such facsimile, together with the Notes to be exchanged and any other
required documentation to The Bank of New York, as exchange agent, at the
address indicated in the letter of transmittal. You may also effect a tender of
Notes pursuant to the procedures for book-entry transfer as provided for in the
letter of transmittal and as described below under the subsection 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 any of the Notes by
causing DTC to transfer such Notes into the exchange agent's account in
accordance with DTC's procedure for such transfer. Although delivery of 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 exchange offering memorandum under "--Exchange Agent" before midnight, New
York City 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 Notes in any of the exchange offers. To
tender in an 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
such letter of transmittal or such facsimile, together with
the 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 exchange offering memorandum and in the letter
of transmittal. If less than all of the Notes are tendered, a tendering holder
should fill in the amount of Senior Notes, Series B Senior Notes and
Subordinated Notes being tendered in the appropriate box on the letter of
transmittal. The entire amount of all 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, among other things:
(1) the shares of Series E Convertible Preferred Stock acquired in
the exchange offers are being acquired in the ordinary course
of business of the person receiving the shares of Series E
Convertible Preferred Stock, whether or not the person is the
holder;
(2) neither the holder nor any other person receiving the shares
of Series E Convertible Preferred Stock is engaged in, intends
to engage in or has any arrangement or understanding with any
person to participate in the distribution of such shares of
Series E Convertible Preferred Stock; and
(3) if the tendering holder is a broker or dealer as defined in
the Exchange Act, then
(a) it acquired the 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 shares of Series E Convertible
Preferred Stock to be received in the exchange offer.
In the case of a broker-dealer that receives shares of Series E
Convertible Preferred Stock for its own account in exchange for 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 exchange offering memorandum in connection with the
resale by it of shares of Series E Convertible Preferred Stock received pursuant
to the exchange offer; however, by so acknowledging and by delivering an
exchange offering memorandum, 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 exchange offering memorandum entitled "Plan of Distribution"
for further information.
The method of delivery of the 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
shares of Series E Convertible Preferred Stock should be sent to Waste Systems.
You may also request your respective brokers, dealers, commercial banks, trust
companies or nominees to tender your shares of Series E Convertible Preferred
Stock Notes on your behalf.
If you are the beneficial owner of Notes that are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
you wish to tender your 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 Notes, either make appropriate
arrangements to register ownership of the 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 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 shares of Series E Convertible Preferred
Stock are being issued directly to such registered holder, or
(2) for the account of an Eligible Institution.
If the letter of transmittal is signed by the registered holder(s) of
the Notes tendered, the signature must correspond with the name(s) written on
the face of the 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 Notes.
If the letter of transmittal is signed by a person other than the
registered holder of any Notes listed, such letter of transmittal must be
endorsed or accompanied by bond powers and a proxy that authorize that person to
tender the 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 Notes.
If the letter of transmittal or any 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 Notes
tendered, or a timely confirmation received of a book-entry transfer of 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 shares of Series E Convertible Preferred Stock in exchange
for 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 Notes, or a timely confirmation
received of a book-entry transfer of 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 Notes and those determinations will be final and
binding. We reserve the absolute right to reject any and all Notes not properly
tendered or any Notes which, if accepted, would, in our opinion or our counsel's
opinion, be unlawful. We also reserve the absolute right to waive any conditions
of the exchange offers or irregularities or defects in tender as to particular
Notes. Our interpretation of the terms and conditions of the exchange offers,
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 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 Notes, nor will
any of us incur any liability for failure to give such notification. Tenders of
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any 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 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 Notes indentures, to:
(1) purchase or make offers for any Notes that remain outstanding
after the expiration date, or, as described in the subsection
of this exchange offering memorandum entitled "--Expiration
Date; Extensions; Amendments; Termination", to terminate the
exchange offers, and
(2) to the extent permitted by applicable law, purchase 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 offers.
Acceptance of Notes for Exchange; Delivery of shares of Series E Convertible
Preferred Stock; Fractional Shares of Series E Convertible Preferred Stock
Upon satisfaction or waiver of all of the conditions to the exchange
offers and promptly after the expiration date, we will accept all Notes properly
tendered, then we will issue the shares of Series E Convertible Preferred Stock.
Please refer to the section of this exchange offering memorandum entitled
"--Conditions to the Exchange Offers" below. For purposes of the exchange
offers, 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 shares of Series E Convertible Preferred
Stock for Notes that are accepted for exchange in the exchange offers will be
made only after timely receipt by the exchange agent of a timely book-entry
confirmation of such 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 Notes are not
rejected for any reason set forth in the terms and conditions of the exchange
offers or if Notes submitted are for a greater principal amount than the holder
desires to exchange, such unaccepted or non-exchanged Notes will be returned
without expense to the tendering holder thereof or, in the case of Notes
tendered by book-entry transfer procedures described below, such non-exchanged
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 offers.
No fractional shares of Series E Convertible Preferred Stock will be
issued in the exchange offers. Instead of any fractional shares of Series E
Convertible Preferred Stock which would otherwise be issuable in an exchange
offer, the Company will pay to the holder a cash amount in respect of such
fraction in an amount equal to the same fraction of the liquidation preference
of a share of Series E Convertible Preferred Stock.
Book-Entry Transfer
We understand that the exchange agent will make a request promptly
after the date of this exchange offering memorandum to establish accounts
regarding the Notes at DTC, the book-entry transfer 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 Notes by causing such
book-entry transfer facility to transfer such Notes into the exchange agent's
account with respect to the Notes in accordance with the book-entry transfer
facility's automated tender offer program procedures for such transfer. However,
the exchange for the Notes so tendered will only be made after a timely
confirmation of a book-entry transfer of such 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 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 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 Notes and desire to tender your
Notes, and the Notes are not immediately available, or time will not permit your
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 Notes and the amount of 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 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 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.
Withdrawal of Tenders
Except as otherwise provided in this exchange offering memorandum, you
may withdraw tenders of Subordinated 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 5:00 p.m., 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 Subordinated
Notes to be withdrawn;
(2) identify the Subordinated Notes to be withdrawn, including, if
applicable, the registration number or numbers and total
principal amount of such Subordinated Notes;
(3) be signed by the person having tendered the Subordinated Notes
to be withdrawn in the same manner as the original signature
on the letter of transmittal by which such Subordinated Notes
were tendered, including any required signature guarantees, or
be accompanied by documents of transfer sufficient to permit
the trustee of the Subordinated Notes to register the transfer
of such Subordinated Notes into the name of the person having
made the original tender and withdrawing the tender; and
(4) if applicable because the Subordinated 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 Subordinated 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 Subordinated Notes so withdrawn
will be deemed not to have been validly tendered for exchange for purposes of
the exchange offer. Any Subordinated 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 Subordinated 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 Subordinated Notes will be credited to
an account maintained with DTC for the Subordinated Notes as promptly as
practicable after withdrawal, rejection of tender, expiration date or earlier
termination of the exchange offers. Properly withdrawn Subordinated 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 Offers
Notwithstanding any other term of the exchange offers, we will not be
required to accept Notes for exchange, or issue shares of Series E Convertible
Preferred Stock in exchange for any Notes, and we may terminate or amend the
exchange offers as provided in this exchange offering memorandum before the
acceptance of such 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 any of the
exchange offers;
(2) 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 any of the exchange offers;
(3) a governmental approval has not been obtained, which approval
we deem in our sole discretion, necessary for the consummation
of any of the exchange offers; or
(4) 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 any of the exchange offers.
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 offers, as provided
above, we may:
(a) refuse to accept any Notes and return any Notes that have been
tendered to the holders thereof;
(b) extend the exchange offers and retain all Notes tendered
before the expiration date, subject to the rights of such
holders of tendered Notes to withdraw their tendered Notes
before the new, extended expiration date; or
(c) waive such termination event regarding the exchange offers and
accept all properly tendered Notes that have not been
withdrawn or otherwise amend the terms of the exchange offers
in any respect as provided under this section of this exchange
offering memorandum under the subheading entitled
"--Expiration Date; Extensions; Amendments; Termination."
Notes tendered in the exchange offers must be in $1,000 in principal
amount and/or accrued but unpaid interest or any integral multiple thereof.
Exchange Agent
We have appointed The Bank of New York as exchange agent for each of
the exchange offers. You should direct all questions and requests for assistance
or additional copies of this exchange offering memorandum or the letter of
transmittal to the exchange agent as follows:
By Overnight Courier or The Bank of New York
Registered/Certified Mail: 101 Barclay Street
New York, NY 10286
ATTN.: Reorganization Unit - 7E
By Hand: The Bank of New York
101 Barclay Street
New York, NY 10286
Ground Level
Corporate trust Services Window
ATTN.: Reorganization Unit - 7E
Facsimile Transmission: (212) 815-6339
Confirm by Telephone: (212) 815-3682
Fees and Expenses
We will bear the expenses of soliciting tenders in the exchange offers.
The principal solicitation for tenders pursuant to the exchange offers 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 offers. 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 offers. 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 exchange offering memorandum, letters of transmittal
and related documents to the beneficial owners of the Notes, and in handling or
forwarding tenders for exchange.
We will pay the expenses incurred in connection with the exchange
offers, 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
Notes according to the exchange offers. 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 shares of Series E Convertible
Preferred Stock or 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 Notes tendered; or
(b) tendered 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
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 such
transfer taxes will be billed directly to such tendering holder.
Miscellaneous
The Exchange Offers are not being made to, nor will tenders be accepted
from or on behalf of, holders of Notes in any jurisdiction in which the making
or acceptance thereof would not be in compliance with the laws of such
jurisdiction. The Company may, however, at its discretion, take such action as
it may deem necessary to make the Exchange Offers in any such jurisdiction and
extend the Exchange Offers to holders of Notes in such jurisdiction. The Company
is not aware of any jurisdiction in which the making of the Exchange Offers or
the acceptance thereof would not be in compliance with the laws of any such
jurisdiction. In any jurisdiction where securities or blue sky laws require the
Exchange Offers to be made by a licensed broker or dealer, the Exchange Offers
shall be deemed to be made on behalf of the Company by one or more registered
brokers or dealers licensed under the laws of such jurisdiction.
The Company has not engaged any information dealer manager or their
solicitor to finalize the exchange offers. The exchange agent will not be
performing any solicitation function, but rather will perform solely
administrative functions in connection with the exchange offers.
<PAGE>
DESCRIPTION OF SENIOR NOTES AND SERIES B SENIOR NOTES
You can find the definitions of certain capitalized terms used in this
section of the exchange offering memorandum under the subheading "--Certain
Definitions."
The Senior Notes and the Series B Senior Notes are issued under an
indenture, dated as of March 2, 1999, by and among Waste Systems, the subsidiary
guarantors and The Bank of New York, as successor 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.
Summary of General Terms of the Senior Notes
Securities Issued $22,500,000 of 11 1/2% Senior Notes due 2006
$77,500,000 of 11 1/2 Series B Senior Notes due 2006
Maturity Date January 15, 2006
Interest Rate The Senior Notes and the Series B Senior Notes accrue
interest at the rate of 11 1/2% per annum.
Changes in
Interest Rate We must increase the interest rate payable on the
Senior Notes and the Series B Senior Notes to 13%,14%
and 15% per year if we do not achieve an Adjusted
Stockholders' Equity, as defined below, of at least
$40,000,000 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 Subordinated
Notes, to the extent, if any, that such issuance
exceeds 2,343,646 shares of common stock in the
aggregate.
Each Senior Note and Series B 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 and Series B 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 and Series B 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 Senior Notes and Series B
Senior Notes semi-annually in arrears on July 15 of
each year, to holders of record as of July 1, and
January 15, to holders of record as of January 1 of
each year. Interest is 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 and the Series B Senior Notes will
be payable, and the Senior Notes and the Series B
Senior Notes may be exchanged or transferred, at the
office or agency of Waste Systems maintained for such
purpose in the Borough of Manhattan, The City of New
York. Presently the office or agency is the corporate
trust office of The Bank of New York, the trustee of
the Senior Notes and the Series B Senior Notes,
located at 101 Barclay Street, New York, New York
10286. 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 and the Series B Senior Notes,
but we may require payment of a sum sufficient to
cover any transfer tax or other similar governmental
charge payable in connection therewith.
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.
Ranking The Senior Notes and the Series B Senior Notes and the subsidiary
guarantees:
o are senior unsecured obligations;
o rank equally in right of payment
with all other existing and future
senior obligations of Waste Systems
and the subsidiary guarantors; and
o are effectively subordinated to all
of our and our subsidiary
guarantor's secured debt, including
amounts outstanding under our credit
facility and capital lease
obligations, to the extent of the
value of the assets securing such
loan.
Subsidiary
Guarantees Payment of the principal of, and premium, if any, and
interest on the Senior Notes and the Series B Senior
Notes are guaranteed on a senior unsecured basis by
substantially 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.
The indenture requires that each of Waste Systems's
current and future Restricted Subsidiaries be a
subsidiary guarantor. The indenture permits Waste
Systems, in certain circumstances, to establish
"Unrestricted Subsidiaries" which do not guarantee
the Senior Notes or the Series B 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 such
transaction, and giving effect thereto, no Default or
Event of Default has occurred and is continuing; (2)
such 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 such
transaction complies with the above provisions and
that all conditions precedent relating to such
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 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 such subsidiary guarantor as an
Unrestricted Subsidiary, in any such case in
compliance with the terms of the indenture, then such
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 or Series B Senior
Notes.
Optional
Redemption Except as described below, we may not redeem the
Senior Notes and the Series B Senior Notes before
March 2, 2003. After March 2, 2003, we may redeem the
Senior Notes and the Series B 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
and the Series B Senior Notes pursuant to optional
redemption, we may at any time purchase Senior Notes
and the Series B Senior Notes in the open market or
otherwise at any price. Any Senior Notes and the
Series B 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 have the
right to sell back to us all of your Senior Notes and
the Series B Senior Notes at a price equal to 101% of
the aggregate principal amount of such Senior Notes
and the Series B Senior Notes, together with accrued
and unpaid interest, if any, to the date of such
sale.
Certain Covenants The indenture under which the Senior Notes
and the Series B Senior Notes are issued limits our
ability and the ability of our subsidiaries
guaranteeing the Senior Notes and the Series B Senior
Notes to, among other things:
o incur additional indebtedness,
o pay dividends on or redeem our capital stock,
o issue capital stock of our subsidiaries,
o make investments,
o create liens,
o issue guarantees,
o engage in transactions with affiliates,
o sell assets, and
o 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 section in this
exchange offering memorandum entitled "Risk
Factors--Risks Relating to the Senior Notes".
Form and
Denomination The Senior Notes and the Series B Senior Notes are in
registered form without coupons, in denominations of
$10,000. The Senior Notes and the Series B Senior
Notes are each represented by one permanent global
security in bearer form deposited on behalf of The
Depository Trust Company with The Bank of New York,
as custodian. You will not receive Senior Notes or
Series B Senior Notes in registered form unless one
of the events described in the section of this
exchange offering memorandum entitled "Description of
the Notes --Book Entry; Delivery and Form" occurs.
Instead, beneficial interests in the Senior Notes and
the Series B 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
Series B Senior Notes There is currently no established
market for the Series B Senior Notes. We cannot
assure you that a market for the Series B Senior
Notes will develop or be liquid. The Senior Notes are
currently eligible for trading in the Private
Offering, Resales and Trading through Automated
Linkages market.
Redemption
Mandatory Redemption. The Senior Notes and Series B Senior Notes are
not subject to any mandatory sinking fund redemption before maturity.
Optional Redemption. The Senior Notes and Series B Senior Notes are
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 holder of Senior Note and Series B Senior Notes last address
as it appears in the security register. The Senior Notes and the Series B Senior
Notes are redeemable at the prices, expressed as percentages of the principal
amount of the 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):
Applicable Period Percentage
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%
In the case of any partial redemption, selection of the Senior Notes and
Series B 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 and Series B Senior Notes
are listed or, if the Senior Notes and Series B Senior Notes are not listed on a
national securities exchange or automated quotation system, by lot or by such
other method as the trustee in its sole discretion shall deem to be fair and
appropriate; provided that no Senior Note and Series B Senior Note of $10,000 in
principal amount or less shall be redeemed in part. If any Senior Note and
Series B Senior Note is to be redeemed in part only, the notice of redemption
relating to the Senior Note and Series B Senior Note shall state the portion of
the principal amount thereof to be redeemed. A new Senior Note and Series B
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 and Series B Senior Note. Such new Senior Note and Series B Senior
Note can be obtained at the offices of the paying agents and transfer agents.
Ranking
The Senior Notes, the Series B Senior Notes and the subsidiary
guarantees are senior unsecured obligations of the respective obligors and rank
equally in right of payment with all other existing and future senior
obligations of Waste Systems and the subsidiary guarantors, respectively. The
Senior Notes, the Series B Senior Notes and the subsidiary guarantees are
effectively subordinated to all of our and our subsidiaries' secured debt,
including amounts outstanding under the Credit Facility and Capital Lease
Obligations, to the extent of the value of the assets securing such loans. The
Senior Notes and the Series B Senior Notes are also structurally subordinated to
all liabilities, including trade payables, of any subsidiaries that are not
subsidiary guarantors. As of September 30, 1999, Waste Systems and the
subsidiary guarantors would have had approximately $5.2 million of consolidated
debt and Capital Lease Obligations outstanding other than the Senior Notes,
excluding accounts payable, of which $4.1 million would have been senior secured
debt of a subsidiary guarantor and $1.1 million would have been Capital Lease
Obligations. Subject to particular limitations, Waste Systems and our Restricted
Subsidiaries may incur additional Indebtedness in the future.
Change of Control
In the event of a Change of Control, each holder of Senior Notes and
Series B Senior Notes will have the right to require that Waste Systems purchase
the holder's Senior Notes and Series B 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
such holder has the right to require Waste Systems to purchase the holder's
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 such notice is mailed or such
later date as is necessary to comply with requirements under the Exchange Act;
(3) that any 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 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 and Series B
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
Note, or Series B Senior Notes that might be tendered by holders 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 and the Series B 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 and the Series B 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 or
the Series B Senior Notes the right to require Waste Systems to repurchase such
Senior Notes or the Series B 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 or the Series B Senior Notes, if such 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 such 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 such Indebtedness) that
would materially impair the ability of Waste Systems to make a Change of Control
Offer to purchase the Senior Notes or the Series B Senior Notes or, if such
Change of Control Offer is made, to pay for the Senior Notes or the Series B
Senior Notes tendered for purchase.
Certain Covenants
The indenture contains certain covenants for the benefit of the holders
of the Senior Notes and the Series B 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 the Series B 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 such
Indebtedness is Incurred or such 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 such
Indebtedness or the issuance of such Disqualified Stock and (if applicable) the
application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness or Disqualified Stock was Incurred or
issued, as the case may be, and the application of such proceeds occurred at the
beginning of such 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 such quarter as if
such Indebtedness or Disqualified Stock, as the case may be, was Incurred,
issued, repaid or retired at the beginning of such 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 such quarter, as if such 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 such Indebtedness during such quarter.
Waste System's Consolidated Fixed Charge Coverage Ratio for the quarter
ended December 31, 1999 was (0.67) 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 other
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 such credit facilities after giving effect to such
Incurrence does not exceed an amount equal to the greater of (A) $25
million and (B) such 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 such 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 (as defined in this exchange offering memorandum) 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 such
Indebtedness is held by Waste Systems or such Restricted Subsidiary and
constitutes Subordinated Indebtedness); provided, 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 (a "refinancing") of any of the Senior Notes,
the Series B 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 such
Refinancing Indebtedness shall have an Average Life at the time such
Refinancing Indebtedness is incurred that is equal to or greater than
the remaining Average Life of the Indebtedness being Refinanced; (C)
concerning Subordinated Indebtedness of Waste Systems being refinanced,
such Refinancing Indebtedness shall rank no more senior than, and shall
be at least as subordinated in right of payment to the Senior Notes or
the Series B 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 such 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 exchange
offering memorandum 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 such
Indebtedness ceases to be Non-Recourse Indebtedness of an Unrestricted
Subsidiary, such 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 such case, that
the amount thereof 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 such Indebtedness, so long as the aggregate principal
amount of all such 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 such Person becomes a
Restricted Subsidiary, whether by merger, consolidation, acquisition or
otherwise, an "Acquired Person," shall be deemed to be Incurred by such
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, such 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 (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 such 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 and the Series B 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 such 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 such 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);
(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 and the Series B 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 such Net Proceeds that are utilized for any such 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 such 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 such 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 its subsidiaries according to the terms of an employee benefit
plan or employment agreement or similar arrangement; provided that an aggregate
amount of all such repurchases, net of repayments or cancellations of
indebtedness as a result of such 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
original sale of the Senior Notes;
(H) the payment by Waste Systems out of the net proceeds of the
original 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
original 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 original sale
of the Senior Notes of certain 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 the
Restricted Subsidiary, as the case may be, 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 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 such Asset Sale to: (1) permanently reduce
or redeem amounts outstanding under the Credit Facility or any other 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 such Net Cash
Proceeds exceeding $10.0 million and not applied or invested as provided in
clauses (1) and (2) within 365 days of such Asset Sale will be deemed to
constitute "Excess Proceeds" and will be applied to make an offer to purchase
the Senior Notes and Series B Senior Notes, which is referred to as an Asset
Sale Offer, to the holder of the Senior Note, and Series B Senior Notes. Pending
the final application of any such Net Cash Proceeds, Waste Systems may
temporarily invest such 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 such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Sale, in which case Waste Systems
shall, without further action, be deemed to have applied such 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 such 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 and Series B Senior Notes tendered
pursuant to an offer by Waste Systems for the Senior Notes and Series B 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 and Series B
Senior Notes tendered according to the offer is less than the Net Cash Proceeds
allotted to the purchase of the Senior Notes and Series B 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 and Series B Senior Notes validly tendered and not withdrawn by holders
thereof exceeds the Excess Proceeds, the Senior Notes and Series B 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 and Series B Senior Notes pursuant to the indenture and will not be deemed
to have breached its obligations under the indenture by virtue thereof.
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 Series B 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 such
Lien is subordinated in right of payment to the Senior Notes and Series B Senior
Notes, the obligation or liability secured by such 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 such 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 such
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) such transaction or series of transactions is on terms that
are no less favorable to Waste Systems or such 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 such
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 fairness
of such transaction to Waste Systems or such Restricted Subsidiary, as
the case may be, 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 such 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 such issuance or sale,
such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary and any Investment in such Person remaining after giving
effect to such issuance or sale would have been permitted to be made
under the "Limitation on Restricted Payments" covenant if made on the
date of such 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.
The preceding provisions shall not restrict any encumbrances or
restrictions ("Permitted Liens") 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 such agreement;
provided that the encumbrances and restrictions in any such 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, the Series B Senior Notes and
the subsidiary guarantees;
(d) with respect to any Person or the property or assets of such
Person acquired by Waste Systems or any Restricted Subsidiary, existing
at the time of such acquisition and not incurred in contemplation
thereof, which encumbrances or restrictions are not applicable to any
Person or the property or assets of any Person other than such Person or
the property or assets of such 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, such Restricted Subsidiary;
(g) Permitted Refinancing Indebtedness; provided that the
restrictions contained in the agreements governing such 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 such
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 (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in the "Limitation on Liens" covenant or (2)
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.
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, whereby Waste Systems or a Restricted Subsidiary sells or
transfers such assets or properties and then or thereafter leases such assets or
properties or any part thereof or any other assets or properties which Waste
Systems or such Restricted Subsidiary, as the case may be, 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 such Restricted Subsidiary, as applicable,
could have (a) Incurred Indebtedness in an amount equal to the
attributable Indebtedness relating to such 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 (b)
Incurred a Lien to secure such 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 such 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 such
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 (a "Designation") after the
Closing Date unless:
(1) no Default shall have occurred and be continuing at the time
of or after giving effect to such Designation; and
(2) Waste Systems would not be prohibited under the indenture
from making an Investment at the time of Designation in an amount (the
"Designation Amount") equal to the fair market value of such Restricted
Subsidiary on such 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 such 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
Designation 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 such 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 such that the pledgee has no claim whatsoever against Waste
Systems other than to obtain such 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.
Waste Systems will not revoke any Designation of a subsidiary as an
Unrestricted Subsidiary (a "Revocation"), 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 such Unrestricted Subsidiary
outstanding immediately following such Revocation shall be deemed to
have been incurred at such time and shall have been permitted to be
incurred for all purposes of the indenture.
All requisite designations and 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 such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture providing for the guarantee of the payment of the Senior Notes and the
Series B Senior Notes by such Restricted Subsidiary on a senior unsecured basis.
Notwithstanding the preceding paragraph, each subsidiary guarantee of
the Senior Notes and the Series B 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 or Series B Senior Notes are
outstanding, Waste Systems will furnish to the holders of such Senior Notes and
the Series B 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's 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 also contains covenants concerning
the following matters:
- payment of principal, premium and interest;
- maintenance of an office or agency in the City of New York;
- 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 Person (the
"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 such transaction, no
Default or Event of Default exists; and
(3) immediately after giving pro forma effect to such 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 such transfer, Waste Systems shall be
released from its obligations under the indenture and the Senior Notes and the
Series B 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 or Series B 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 or Series B 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 or
any Restricted Subsidiaries, whether such 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 such Indebtedness before the
expiration of the grace period provided in such Indebtedness on
the date of such default (a "Payment Default"); or
(2)results in the acceleration of such Indebtedness
before its express maturity;
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such 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 such 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 (the "judgment default
provision");
(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 (the "bankruptcy
provisions"). 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 and Series B 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 such a declaration, such 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 and Series B 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 and Series B Senior
Notes may (1) rescind any such acceleration concerning the Senior Notes and
Series B Senior Notes and their consequences and (2) waive, on behalf of the
holders of all of the Senior Notes and Series B 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 and Series B 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 such holders have
offered to the trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium, if any, or interest when due, no holder may pursue any
remedy concerning the indenture or the Senior Notes or the Series B 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 and Series B Senior Notes have requested the
trustee to pursue the remedy;
(3) such holders have offered the trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the trustee has not complied with such 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 and Series B Senior Notes have not given the
trustee a direction that, in the opinion of the trustee, is inconsistent
with such request within such 60-day period.
Subject to specific restrictions, the holders of a majority in principal amount
of the outstanding Senior Notes and Series B 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 or Series B
Senior Notes, 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 and Series B 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 and Series B
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
and Series B 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 or the Series B 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 or the Series B Senior Notes.
Defeasance
Waste Systems, at its option and at any time may terminate all its
obligations discharged with respect to the outstanding Senior Notes and Series B
Senior Notes and the indenture and all obligations of the subsidiary guarantors
may be discharged with respect to the subsidiary guarantees ("legal defeasance")
except for:
(1) the rights of holders of outstanding Senior Notes and Series
B Senior Notes to receive payments in respect of the principal of,
premium, if any, and interest on such Senior Notes and Series B Senior
Notes when such payments are due;
(2) Waste Systems's obligations to issue temporary Senior Notes
and Series B Senior Notes, register the transfer or exchange of any
Senior Notes and Series B Senior Notes, replace mutilated, destroyed,
lost or stolen Senior Notes or Series B Senior Notes and maintain an
office or agency for payments in respect of the Senior Notes and Series
B Senior Notes outstanding and hold such payments in trust;
(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 and Series B 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 and Series B 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 and Series B Senior Notes, cash in
United States dollars, noncallable United States Government Obligations,
as defined in the Indenture, or a combination thereof, in such 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 and Series B Senior
Notes on the stated maturity or on the applicable redemption date, as
the case may be, of such principal, premium, if any, or installment of
interest and Waste Systems must specify whether the Senior Notes and
Series B 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) such 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 and Series B Senior Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such 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 such 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
and Series B Senior Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such covenant defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
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 and Series B Senior
Notes over the 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 (1) all outstanding Senior
Notes and Series B Senior Notes have been delivered, other than lost, stolen or
destroyed Senior Notes and Series B Senior Notes which have been replaced, to
the trustee for cancellation or (2) all outstanding Senior Notes and Series B
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 and Series B Senior
Notes, including interest thereon, other than lost, stolen, mutilated or
destroyed Senior Notes and Series B 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 or a Series B Senior Note, the
registrar may require a holder, among other things, 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 Note or Series B Senior Note selected for redemption nor is
the registrar required to transfer or exchange any notes for a period of 15 days
before a selection of notes to be redeemed. The registered holder of a Senior
Note or a Series B Senior Note may be treated as the owner of it for all
purposes.
Amendments and Waivers
Except as set forth in this exchange offering memorandum, 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 and Series B 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 and Series B Senior Notes then outstanding. However, without
the consent of each holder of an outstanding Senior Note or Series B Senior
Notes affected, no such amendment or waiver may, among other things,
(1) reduce the principal amount of Senior Notes or Series B
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 or Series B Senior Notes;
(3) reduce the principal of or extend the Stated Maturity of any
Senior Note or Series B Senior Notes;
(4) reduce the premium payable upon the redemption or repurchase
of any Senior Note or Series B Senior Notes or change the time at which
any Senior Note or Series B Senior Notes may be redeemed as described
under "Redemption" above;
(5) make any Senior Note or Series B Senior Notes payable in
money other than that stated in the note;
(6) impair the right of any holder to receive payment of
principal of and interest on such holder's Senior Notes or Series B
Senior Notes on or after the due dates therefor or to institute suit for
the enforcement of any payment on or concerning such holder's Senior
Notes or Series B Senior Notes;
(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 or Series B Senior Notes to receive payments of
principal of or premium, if any, or interest on the Senior Notes or
Series B Senior Notes;
(8) waive a redemption payment concerning any Senior Note or
Series B Senior Notes; 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 or Series B
Senior Notes will require the consent of the holders of at least 75% in
aggregate principal amount of Senior Notes and Series B Senior Notes then
outstanding.
Notwithstanding the preceding, without the consent of any holder of
Senior Notes, Series B Senior Notes, Waste Systems, the subsidiary guarantors
and the trustee may amend or supplement the indenture or the Senior Notes and
Series B Senior Notes:
(1) to cure any ambiguity, defect or inconsistency; provided that
such actions do not adversely affect the interests of holders of the
Senior Notes and Series B Senior Notes in any material respect;
(2) to provide for uncertificated Senior Notes and Series B
Senior Notes in addition to, or in place of, certificated Senior Notes
and Series B Senior Notes;
(3) to provide for the assumption by a successor corporation of
Waste Systems's obligations to holders of Senior Notes and Series B
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 and Series B Senior Notes or
that does not adversely affect the legal rights under the indenture of
any such 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 Series B Senior Notes; and
(9) to add new subsidiary guarantors or release subsidiary
guarantors in accordance with the terms of the indenture.
Concerning the Trustee
The Bank of New York, as successor to IBJ Whitehall Bank & Trust
Company, is the trustee under the indenture and has been appointed by Waste
Systems as registrar and paying agent with regard to the Senior Notes and Series
B Senior Notes. The trustee's current address is 101 Barclay Street, New York,
NY 10286.
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 such conflict or resign.
The holders of a majority in aggregate principal amount of the then
outstanding Senior Notes and Series B 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 such
provisions, 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 and Series B 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 and Series B 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's
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;
(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 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 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;
(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.
"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, the Series B Senior Notes or
the indenture.
"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 Bank North 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 and the Series B 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 and the Series
B 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 and the Series B 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 and the Series B
Senior Notes, deducted in computing Consolidated Net Income,
minus
(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 and Series B Senior Notes.
"Equity Offering" means an offer and sale by Waste Systems of its common
stock, which is Qualified Stock, for cash to a Person or Persons other than a
subsidiary.
"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 exchange offering memorandum.
"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
(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.
"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;
(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."
"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
Series B Senior Note or any installment of interest thereon, the date specified
in such Senior Note or Series B Senior Notes as the fixed date on which the
principal of such Senior Note or Series B 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 and Series B 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 and Series
B 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.
<PAGE>
DESCRIPTION OF SUBORDINATED NOTES
General.
The Subordinated Notes are subordinated unsecured obligations of the
Company and mature on or about May 13, 2005. The Subordinated Notes do not limit
the amount of other indebtedness or securities which may be issued by the
Company or any of its subsidiaries. Substantially all of the assets of the
Company are owned by its subsidiaries. Therefore, the Company's rights and the
rights of its creditors, including holders of the Subordinated Notes, to
participate in the assets of any subsidiary upon liquidation or recapitalization
will be subject to the prior claims of the subsidiary's creditors, except to the
extent that the Company may itself be a creditor with recognized claims against
the subsidiary. In addition, the payment of principal and interest on the
Subordinated Notes is dependent upon the Company receiving dividends and other
payments from its subsidiaries, to which no assurance can be given.
The Subordinated Notes bear interest at the rate of 7% per annum.
Interest is payable semi-annually on each June 30 and December 31 and prorated
for any partial periods, to holders of record at the close of business on the
date 15 days preceding each such interest payment date. Principal of (and
premium, if any) and interest on the Subordinated Notes is payable at the office
of the Paying Agent. UMB Bank, N.A., currently serves as Paying Agent with
respect to the Subordinated Notes.
The Subordinated Notes are not issued under an indenture and there is no
trustee with respect to the Subordinated Notes. The Subordinated Notes do not
contain any financial covenants or any restrictions on the payment of dividends,
the repurchase of securities of the Company or the incurrence of Senior
Indebtedness or other indebtedness. The Subordinated Notes contain no covenants
or other provisions to afford protections to holders of Subordinated Notes in
the event of a highly leveraged transaction or a change in control of the
Company.
The Subordinated Notes may not be sold or otherwise transferred except
in compliance with the provisions set forth below under "Notice to Investors."
Conversion of Subordinated Notes.
The Subordinated Notes are convertible (at any time prior to the payment
or prepayment thereof) at the option of the holders thereof into common stock of
the Company in the manner described below. The holders of Subordinated Notes
may, at any time until the payment or prepayment of the Subordinated Notes,
convert the principal amount of the Subordinated Notes and (subject to the
Company's option to pay such amounts in cash) any accrued but unpaid interest
(or any portion thereof equal to $10,000 or an integral multiple of $10,000)
into shares of common stock of the Company at a conversion price of $10.00 per
share (the "Subordinated Note Conversion Price"), which is equal to a conversion
rate of 100 shares per $1,000 principal amount of Subordinated Notes. In
addition, the Subordinated Notes are subject to mandatory conversion at the
Company's option into common stock of the Company at the Subordinated Note
Conversion Price at any time after May 13, 2000, if the closing price of the
common stock on the Nasdaq National Market (or the principal market on which the
common stock is then trading) equals or exceeds such Subordinated Note
Conversion Price for a period of 20 consecutive trading days, subject to prior
registration of the underlying shares under the Registration Rights Agreement
referred to below. See "--Registration Rights."
No payment or adjustment will be made for accrued interest on a
converted Subordinated Note or for dividends or distributions on shares of
common stock issued upon conversion of a Subordinated Note, but if any holder
surrenders a Subordinated Note for conversion between the record date for the
payment of an installment of interest ("Record Date") and the next interest
payment date, then, notwithstanding such conversion, the interest payable on
such interest payment date will be paid to the holder on such Record Date.
However, in the event that a holder surrenders a Subordinated Note for
conversion between the Record Date and the next interest payment date, such
Subordinated Note, when surrendered for conversion, must be accompanied by
delivery of a check or draft payable in an amount equal to the interest payable
on such interest payment date on the portion so converted unless there exists a
default in the payment of interest on the Subordinated Notes at the time of
conversion.
The Subordinated Note Conversion Price is subject to appropriate
adjustment upon the occurrence of certain events, including (i) the issuance of
shares of common stock or other shares of the Company's capital stock as a
dividend or distribution on any class of capital stock of the Company, (ii) the
subdivision, combination or reclassification of shares of common stock, (iii)
the issuance to all or substantially all holders of common stock of rights or
warrants entitling them to subscribe for or purchase shares of common stock (or
securities convertible into or exchangeable for common stock) at a price per
share less than the then current market price per share, as defined in the
Subordinated Notes, (iv) the distribution to all or substantially all holders of
common stock of evidence of indebtedness or other non-cash assets (including
securities, but excluding those dividends or distributions referred to in
clauses (i) and (ii) above), (v) the distribution to all or substantially all
holders of common stock of rights or warrants to subscribe for securities (other
than those referred to in clause (iii) above) and (vi) the distribution to all
or substantially all holders of common stock of cash in an aggregate amount that
(together with all other cash distributions to all or substantially all holders
of common stock made within the preceding 12 months not triggering a
Subordinated Note Conversion Price adjustment) exceeds the greater of (a) the
net income of the Company for the last fiscal year, or (b) the average net
income of the Company for the last three fiscal years. In the event of a
distribution pro rata to holders of common stock of rights entitling them to
subscribe for or purchase additional shares of the Company's capital stock (or
securities convertible into or exchangeable for capital stock) (other than those
referred to in clause (iii) above), the Company may, instead of making any
adjustment in the Subordinated Note Conversion Price, make proper provision so
that each holder who converts a Subordinated Note (or any portion thereof) after
the Record Date for such distribution and prior to the expiration or redemption
of such rights shall be entitled to receive upon such conversion, in addition to
the shares of common stock issuable upon conversion, an appropriate number of
such rights. No adjustment of the Subordinated Note Conversion Price will be
required to be made until the cumulative adjustments require an increase or
decrease of at least 1% in the Subordinated Note Conversion Price as last
adjusted. In addition to the foregoing adjustments, the Company will be
permitted to make such reductions in the Subordinated Note Conversion Price as
it considers, in its sole discretion, to be advisable in order that any event
treated for federal income tax purposes as a dividend of stock or stock rights
will not be taxable to the holders of the shares of common stock.
In the event of a taxable distribution to holders of common stock (or
other transaction) which results in any adjustment of the Subordinated Note
Conversion Price, the holders of Subordinated Notes may, in certain
circumstances, be deemed to have received a distribution subject to United
States income tax as a dividend; in certain other circumstances, the absence of
such an adjustment may result in a taxable dividend to the holders of common
stock. The Company may, at its option, make such reductions in the Subordinated
Note Conversion Price, as the Board of Directors deems advisable to avoid or
diminish any income tax to holders of common stock resulting from any dividend
or distribution of stock (or rights to acquire stock) or from any event treated
as such for income tax purposes.
If as a result of any adjustment, the holder of any Subordinated Note
thereafter surrendered for conversion becomes entitled to receive shares of two
or more classes of capital stock or common stock and other capital stock of the
Company, the Board of Directors (whose determination shall be conclusive) shall
determine in an equitable manner the allocation of the adjusted Subordinated
Note Conversion Price between and among the shares of such classes of capital
stock or common stock and other Capital Stock.
In the case of (i) any reclassification or change of the common stock
(other than changes resulting from a subdivision or combination) or (ii) a
consolidation, merger, or combination involving the Company or a sale or
conveyance to another corporation of the property and assets of the Company as
an entirety or substantially as an entirety, in each case as a result of which
holders of common stock shall be entitled to receive stock, other securities,
other property or assets (including cash) with respect to or in exchange for
such common stock, the holders of the Subordinated Notes then outstanding will
be entitled thereafter to convert such Subordinated Notes into the kind and
amount of shares of stock, other securities or other property or assets which
they would have owned or been entitled to receive upon such reclassification,
change, consolidation, merger, combination, sale or conveyance had such
Subordinated Notes been converted into common stock immediately prior to such
reclassification, change, consolidation, merger, combination, sale or conveyance
(assuming, in a case in which the Company's stockholders may exercise rights of
election, that a holder of Subordinated Notes would not have exercised any
rights of election as to the stock, other securities or other property or assets
receivable in connection therewith and would have received per share the kind
and amount received per share by a plurality of non-electing shares).
Form, Denomination and Registration.
The Subordinated Notes were issued in fully registered form, without
coupons, in denominations of $10,000 principal amount and multiples thereof.
Global Subordinated Note; Book-Entry Form. Except as provided below,
Subordinated Notes sold to "qualified institutional buyers," as defined in Rule
144A under the Securities Act ("QIBs"), were evidenced by one or more global
Subordinated Notes (collectively, the "Restricted Global Subordinated Note" or
the "Global Subordinated Note") which was deposited with The Depository Trust
Company, New York, New York ("DTC") and registered in the name of Cede & Co.
("Cede") as DTC's nominee. The Global Subordinated Notes (and any Subordinated
Notes issued in exchange therefor) are subject to certain restrictions on
transfer set forth therein and bear the legend regarding such restrictions set
forth under "Notice to Investors." Except as set forth below, record ownership
of the Global Subordinated Note may be transferred, in whole or in part, only to
another nominee of DTC or to a successor of DTC or its nominee.
A QIB may hold its interests in the Restricted Global Subordinated Note
directly through DTC if such QIB is a participant in DTC, or indirectly through
organizations which are participants in DTC (the "Participants"). All interests
in a Global Subordinated Note may be subject to the procedures and requirements
of DTC. Transfers between Participants will be effected in the ordinary way in
accordance with DTC rules and will be settled in same-day funds. The laws of
some states require that certain persons take physical delivery of securities in
definitive form. Consequently, the ability to transfer beneficial interest in
the Restricted Global Subordinated Note to such persons may be limited.
QIBs who are not Participants may beneficially own interests in the
Global Subordinated Note held by DTC only through Participants, or certain
banks, brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). So long as Cede, as the nominee of DTC, is
the registered owner of the Global Subordinated Note, Cede for all purposes will
be considered the sole holder of the Global Subordinated Note. Except as
provided below, owners of beneficial interests in the Global Subordinated Note
will not be entitled to have certificates registered in their names, will not
receive or be entitled to receive physical delivery of certificates in
definitive form, and will not be considered holders thereof.
Payment of principal of and interest on the Global Subordinated Note
will be made to Cede, the nominee for DTC, as the registered owner of the Global
Subordinated Note by wire transfer of immediately available funds. Neither the
Company nor 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 the Global Subordinated Notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company has been informed by DTC that, with respect to any payment
of principal of and interest on the Global Subordinated Note, DTC's practice is
to credit Participants' accounts on the payment date therefor with payments in
amounts proportionate to their respective beneficial interests in the
Subordinated Notes represented by the Global Subordinated Notes, as shown on the
records of DTC, unless DTC has reason to believe that it will not receive
payment on such payment date. Payments by Participants to owners of beneficial
interests in Subordinated Notes represented by the Global Subordinated Notes
held through such Participants will be the responsibility of such Participants,
as is now the case with securities held for the accounts of customers registered
in "street name."
Holders who desire to convert their Subordinated Notes into common stock
pursuant to the terms of the Subordinated Notes should contact their brokers or
other Participants or Indirect Participants to obtain information on procedures,
including proper forms and cut-off times, for submitting such requests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in Subordinated Notes represented by the Global
Subordinated Notes to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate evidencing such
interest.
Neither the Company nor any registrar, paying agent or conversion agent
under the Subordinated Notes will have any responsibility for the performance by
DTC or its Participants or Indirect Participants of their respective obligations
under the rules and procedures governing their operations. DTC has advised the
Company that it will take any action permitted to be taken by a holder of
Subordinated Notes (including, without limitation, the presentation of
Subordinated Notes for exchange as described below) only at the direction of one
or more Participants to whose account with DTC interests in the Global
Subordinated Notes are credited and only in respect of the principal amount of
the Subordinated Notes represented by the Global Subordinated Notes as to which
such Participant or Participants has or have given such direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange. DTC was created to hold securities
for its Participants and to facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes to the 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 may include
certain other organizations such as the Initial Purchaser. Certain of such
Participants (or their representatives), together with other entities, own DTC.
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.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Subordinated Notes among
Participants of DTC, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. If DTC is
at any time unwilling or unable to continue as depositary and a successor
depositary is not appointed by the Company within 90 days, the Company will
cause Subordinated Notes to be issued in definitive form in exchange for the
Global Subordinated Notes. None of the Company nor any of its agents will have
any responsibility for the performance by DTC, its Participants or Indirect
Participants of its obligations under the rules and procedures governing its
operations, including maintaining, supervising or reviewing the records relating
to, or payments made on account of, beneficial ownership interests in Global
Subordinated Notes.
Certificated Subordinated Notes. QIBs may request at any time that their
interest in a Global Subordinated Note be exchanged for a Subordinated Note in
certificated form. Certificated Subordinated Notes also may be issued in
exchange for Subordinated Notes represented by the Global Subordinated Note if
no successor depositary is appointed by the Company as set forth above under
"--Global Subordinated Note; Book-Entry Form" or in certain other circumstances
set forth in the Subordinated Notes.
Restrictions on Transfer; Legends. The Subordinated Notes are subject to
certain transfer restrictions as described below under "Notice to Investors" and
certificates evidencing the Subordinated Notes will bear a legend to such
effect.
Optional Redemption.
The Subordinated Notes may be redeemed at the option of the Company in
whole or from time to time in part at any time on and after May 13, 2000, on not
less than 30 but not more than 60 days' notice prior to the date of redemption,
at the redemption prices set forth below, together with accrued and unpaid
interest thereon to the date fixed for redemption. The redemption prices for the
Subordinated Notes are as follows (expressed in percentages of principal
amount):
If redeemed during the 12 month period beginning on May 13, Percentage
----------------------------------------------------------- ----------
2000.............................................................. 106%
2001.............................................................. 104%
2002.............................................................. 102%
2003 and thereafter............................................... 100%
If less than all of the Subordinated Notes are to be redeemed, the
Company will select such Subordinated Notes for redemption pro rata, by lot or
by another method that the Company, in its sole discretion, considers fair and
appropriate; provided that such method is not prohibited by any rule or
regulation of a stock exchange or market on which the such Subordinated Notes
are then listed or quoted. If any Subordinated Note is to be redeemed in part
only, a new Subordinated Note or Subordinated Notes in principal amount equal to
the unredeemed principal portion thereof will be issued.
No sinking fund is provided for the Subordinated Notes.
Subordination of Subordinated Notes.
To the extent set forth therein, the Subordinated Notes are general
unsecured obligations of the Company subordinated and subject in right of
payment to the prior payment in full of all Senior Indebtedness (defined below)
of the Company, whether outstanding on the date of issuance of the Subordinated
Notes or thereafter created, incurred, assumed or guaranteed. Upon the maturity
of any Senior Indebtedness by lapse of time, acceleration or otherwise, such
Senior Indebtedness must be paid in full (including the principal thereof and
interest thereon) in cash before any payment is made on or in respect of
principal of or interest on the Subordinated Notes or to acquire any of the
Subordinated Notes.
"Senior Indebtedness" means the principal of, interest on and other
amounts due on (i) Indebtedness (as defined below) of the Company, whether
outstanding on the date of issuance of the Subordinated Notes or thereafter
created, incurred, assumed or guaranteed by the Company for money borrowed from
banks or other financial institutions; (ii) commitment or standby fees due and
payable to lending institutions with respect to credit facilities available to
the Company, which credit facilities fall within the scope of clause (i) above
to the extent of money borrowed thereunder; (iii) obligations under interest
rate and currency swaps, floors, caps or other similar arrangements intended to
fix interest rate obligations with respect to Indebtedness falling within the
scope of clause (i) above; (iv) Indebtedness secured by any lien existing on
property which is owned or held by the Company subject to lien to the extent of
the creditor's interest in such property; (v) obligations of the Company
constituting a guarantee of Indebtedness of or joint obligation with another or
others which would be included in the preceding clauses (i), (ii), (iii) or
(iv), if an obligation of the Company, or (vi) renewals, extensions or
refundings of any of the Indebtedness, fees or obligations referred to in the
preceding clauses (i), (ii), (iii), (iv) and (v); provided that Senior
Indebtedness shall not include (A) any particular Indebtedness, if, under the
express provisions of the instrument creating or evidencing the same, or
pursuant to which the same is outstanding, such Indebtedness is stated to be not
superior in right payment to the Subordinated Notes, (B) Indebtedness of the
Company to any affiliate, (C) the Subordinated Notes, (D) Indebtedness of or
amounts owed by the Company for compensation to employees, or for goods or
materials purchased in the ordinary course of business, or for services, or (E)
Indebtedness of the Company to a subsidiary of the Company.
"Indebtedness" means (i) any liability of the Company, contingent or
otherwise, (A) for borrowed money (whether or not the recourse of the lender is
to the whole of the assets of the Company or only to a portion thereof), or
evidenced by a Subordinated Note, debenture or similar instrument, (B) owed for
all or any part of the purchase price of property or other assets or for the
cost of property or other assets constructed or of improvements thereto
(including any obligation under or in connection with any letter of credit
related thereto), other than accounts payable included in current liabilities
incurred in respect of property and services purchased in the ordinary course of
business, (C) for any letter of credit or performance bond in favor of the
Company, or (D) for the payment of money relating to a capitalized lease
obligation; (ii) any liability of others of the kind described in the preceding
clause (i), which the Company has guaranteed, directly or indirectly, or which
is otherwise its legal liability; (iii) any obligation secured by a lien to
which the property or assets of the Company are subject, whether or not the
obligations secured thereby shall have been assumed by or shall otherwise be the
Company's legal liability; (iv) any and all deferrals, renewals, extensions and
refundings of, or amendments, modifications or supplements to, any liability of
the kind described in any of the preceding clauses (i), (ii) or (iii); and (v)
any unfunded pension or retiree health benefits liabilities reflected or
required to be reflected on the Company's balance sheet.
The Company expects from time to time to incur, create, assume or
guarantee additional Senior Indebtedness.
The Subordinated Notes are obligations exclusively of the Company. Since
the operations of the Company are conducted principally through subsidiaries,
the cash flow of the Company and the consequent ability to service its debt,
including the Subordinated Notes, are dependent upon the earnings of such
subsidiaries and the distribution of those earnings to the Company, or upon
loans or other payments of funds by such subsidiaries to the Company. The
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to pay any amounts due pursuant to the Subordinated
Notes or to make any funds available therefor, whether by dividends, loans or
other payments. In addition, the payment of dividends and certain loans and
advances to the Company by such subsidiaries may be subject to certain statutory
or contractual restrictions, and are contingent upon the earnings of such
subsidiaries. The Company will not enter into any agreements following the
Closing of this Offering that contractually limit the payment of dividends and
other loans and advances to the Company by any subsidiaries without the consent
of the requisite holders of the Subordinated Notes.
The Subordinated Notes will be effectively subordinated to all
Indebtedness and other liabilities and commitments (including trade payables and
lease obligations) of the Company's subsidiaries. Substantially all of the
Company's operations are conducted through operating subsidiaries. Any right of
the Company to receive assets of any such subsidiary upon the liquidation or
reorganization of any such subsidiary (and the consequent right of the holders
of the Subordinated Notes to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's creditors, except to the extent
that the Company is itself recognized as a creditor of such subsidiary, in which
case the claims of the Company would still be subordinate to any security in the
assets of such subsidiary and any Indebtedness of such subsidiary senior to that
held by the Company. The Subordinated Notes require that, if the Company
transfers any portion of the proceeds of the sale of the Subordinated Notes to
any subsidiary, it shall cause such subsidiary to execute and deliver to the
Company a subordinated promissory Subordinated Note in a principal amount equal
to the amount of proceeds so transferred, having terms, including maturity,
interest rate and subordination provisions, identical to the Subordinated Notes.
By reason of the subordination, in the event of the Company's
bankruptcy, dissolution or reorganization, holders of Senior Indebtedness may
receive more, ratably, and holders of the Subordinated Notes may receive less,
ratably, than the other creditors of the Company. Such subordination will not
prevent the occurrence of an Event of Default under the Subordinated Notes.
Events of Default; Notice and Waiver.
If an Event of Default (as defined in the Subordinated Notes), other
than an Event of Default resulting from bankruptcy, insolvency or reorganization
occurs and is continuing, the holders of at least 75% in principal amount of the
Subordinated Notes then outstanding may, by notice to the Company, declare all
unpaid principal and accrued interest to the date of acceleration on the
Subordinated Notes then outstanding to be due and payable immediately. If an
Event of Default resulting from certain events of bankruptcy, insolvency or
reorganization shall occur, all unpaid principal of and accrued interest on the
Subordinated Notes then outstanding shall become and be due and immediately
payable without any declaration or other act on the part of the Company or any
holders.
The Subordinated Notes provide that the holders of a majority in
aggregate principal amount of the Subordinated Notes may on behalf of all
holders waive any existing default or Event of Default and its consequences
except a default in the payment of principal (other than principal due by
acceleration) of or interest on the Subordinated Notes which default materially
and adversely affects the rights of any holder under the Subordinated Notes.
The following are Events of Default under the Subordinated Notes: (i)
failure to pay principal when due, at maturity, upon redemption, acceleration or
otherwise; (ii) failure of the Company to pay interest for 30 days after the
same is due; (iii) failure of the Company to comply with any of its other
agreements contained in the Subordinated Notes for 45 days after receipt of
notice of such failure from the Company or the holders of at least 75% in
principal amount of the Subordinated Notes then outstanding; (iv) certain events
of bankruptcy, insolvency or reorganization of the Company or any subsidiary;
and (v) a default on the payment of principal or interest in respect of any
other Indebtedness of the Company in excess of $10 million individually or in
the aggregate.
The Company shall, following the occurrence of any default (the term
"default" to include the events specified above without grace or notice) known
to it, immediately give to the holders notice of such default; provided that,
except in the case of a default in the payment of principal of or interest on
any of the Subordinated Notes, the Company shall be protected in withholding of
such notice if it in good faith determines that the withholding of such notice
is in the interest of the holders.
Consolidation or Merger.
The Company may, without the consent of holders of the Subordinated
Notes, consolidate with, merge into, or convey or transfer all or substantially
all of its assets to any other corporation organized under the laws of the
United States or any political subdivision thereof or therein, provided that (i)
the successor corporation assumes all obligations of the Company under the
Subordinated Notes, (ii) after giving effect to the transaction, no Event of
Default, and no event which, after notice or lapse of time, would become an
Event of Default, shall have occurred and be continuing and (iii) certain other
conditions are met.
Registration Rights.
On September 29, 1998, the Company filed with the Commission, a shelf
registration statement (the "Shelf Registration Statement") appropriate for
covering resales by holders of all common stock issuable upon conversion of the
Subordinated Notes. The Company will use all reasonable efforts to keep the
registration statement effective until May 13, 2000, or such earlier date when
the holders of the Securities are able to sell all such Securities immediately
without restriction pursuant to Rule 144(k) under the Securities Act or any
successor rule thereto or otherwise.
Each holder must notify the Company not later than three business days
prior to any proposed sale by such holder of Securities pursuant to the Shelf
Registration Statement, which notice shall be effective for five business days.
The Company may, upon written notice to such holder, suspend such holder's use
of the exchange offering memorandum (which is part of the Shelf Registration
Statement) for a reasonable period not to exceed 60 days if the Company in its
reasonable judgment believes it may possess material non-public information the
disclosure of which would have a material adverse effect on the Company and its
subsidiaries taken as a whole. Each holder, by its acceptance of a Subordinated
Note, agrees to hold any communication by the Company in response to a notice of
a proposed sale under the Shelf Registration Statement in confidence.
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income
tax consequences to you if you choose to participate the exchange. The following
also summarizes certain United States federal income tax consequences of holding
Series E Convertible Preferred Stock after the exchange. This summary does not
purport to deal with all aspects of United States federal income taxation that
may be relevant to you in light of your particular circumstances. Also, this
summary does not purport to deal with aspects of United States federal income
taxation that may be relevant to persons who are subject to special treatment
under United States federal income tax laws, such as dealers in securities,
financial institutions, life insurance companies, tax-exempt entities,
individuals who are not a citizens or residents of the United States,
corporations, partnerships and other entities that are not organized under the
laws of the United States or one of its political subdivisions, persons who
acquired Notes as compensation, and persons that hold Notes or Series E
Convertible Preferred Stock as part of a hedge, conversion transaction, straddle
or other risk reduction transaction. In addition, this summary does not purport
to deal with the United States federal income tax consequences of the exchange
to Note holders who do not hold their Notes as capital assets. Furthermore, this
summary does not consider the effect of any state, local or foreign tax laws. We
have not sought, nor do we intend to seek, a ruling from the Internal Revenue
Service as to any of the matters contained in this summary and there can be no
assurance that the Internal Revenue Service will not successfully challenge the
conclusions reached in this summary. We strongly urge you to consult your tax
advisors concerning the United States federal income tax considerations that may
be specific to you, as well as any tax consequences arising under the laws of
any other taxing jurisdiction, before you decide whether to participate in the
exchange.
The following summary is based upon provisions of the Internal Revenue
Code, existing and proposed Treasury Regulations promulgated under the Internal
Revenue Code, rulings of the Internal Revenue Service, and judicial decisions in
effect as of the date of this offering memorandum. Those authorities may be
repealed, revoked or modified, possibly with retroactive effect, so as to result
in United States federal income tax consequences different from those described
below.
The Exchange.
The exchange will be a reorganization under Section 368(a)(1)(E) of the
Internal Revenue Code. Certain federal income tax consequences of the exchange
will depend on whether the Notes constitute "securities" for federal income tax
purposes. The term "security" is not defined in the Internal Revenue Code or in
the Treasury Regulations. Other authorities indicate that whether a debt
instrument qualifies as a "security" for purposes of the Internal Revenue Code
depends on an overall evaluation of the nature of the instrument, with the
primary focus being on whether the instrument represents a substitute for cash.
One of the most important factors considered is the original term of instrument,
or the length of time between the issuance of the instrument and its maturity.
In general, instruments with an original term of more than 10 years are likely
to be treated as "securities," and instruments with an original term of less
than five years are unlikely to be treated as securities. Because the original
term of the Notes is between 5 and 10 years, it is impossible to be certain
regarding the treatment of the Notes as "securities." Nevertheless, based on an
overall evaluation of the nature of Notes, the Company believes that the Notes
constitute "securities" for federal income tax purposes.
The Company intends to take the position that the Notes constitute
"securities" for purposes of the Internal Revenue Code. If that position is
correct, then:
o Except for cash received instead of a fractional share of Series
E Convertible Preferred Stock, you will not recognize gain or
loss as a result of participating in the exchange.
o Series E Convertible Preferred Stock that you receive in the
exchange that is attributable to interest that has accrued on the
Notes since the beginning of your holding period will be taxable
as ordinary income, except to the extent that you have previously
been taxed on that interest.
o Your basis in Series E Convertible Preferred Stock that you
receive in the exchange (except for stock that is attributable to
accrued interest on which you have not previously been taxed)
will be equal to your basis in the exchanged Notes.
o Your basis in Series E Convertible Preferred Stock that you
receive in the exchange that is attributable to accrued interest
on which you have not previously been taxed will equal the fair
market value of that stock.
o Your holding period for Series E Convertible Preferred Stock that
you receive in the exchange (except for stock that is
attributable to accrued interest on which you have not previously
been taxed) will include your holding period for the exchanged
Notes.
o Your holding period for Series E Convertible Preferred Stock that
you receive in the exchange that is attributable to accrued
interest on which you have not previously been taxed will begin
on the day after the exchange.
o Cash that you receive instead of a fractional share of Series E
Convertible Preferred Stock will be treated as if you received
the fractional share and exchanged it for cash. You will
recognize gain or loss to the extent of the difference between
your tax basis in the fractional share and the amount of cash
that your receive.
o If you purchased the Notes that you transfer in the exchange for
less than their face amount, then we believe that any accrued
market discount (within the meaning of Section 1276 of the
Internal Revenue Code) with respect to those Notes will be
taxable ordinary income when you dispose of the Series E
Convertible Preferred Stock that you receive in the exchange
(except for Series E Convertible Preferred Stock that is
attributable to accrued interest). However, it is possible that
the Internal Revenue Service could take the position that the
accrued market discount is taxable ordinary income on the date of
the exchange (resulting in an increased basis in the Series E
Convertible Preferred Stock that you receive in the exchange).
It is possible that the Internal Revenue Service will challenge the
position taken by the Company, and assert instead that the Notes are not
"securities" for purposes of the Internal Revenue Code. If such a challenge were
successful, then:
o Series E Convertible Preferred Stock that you receive in the
exchange that is attributable to interest that has accrued on the
Notes since the beginning of your holding period will be taxable
as ordinary interest income, except to the extent that you have
previously been taxed on that interest.
o If you purchased the Notes that you transfer in the exchange for
less than their face amount, then any Series E Convertible
Preferred Stock that you receive in the exchange that is
attributable to accrued market discount (within the meaning of
Section 1276 of the Internal Revenue Code) with respect to those
Notes will be taxable as ordinary income.
o You will recognize capital gain or loss to the extent that the
fair market value of the Series E Convertible Preferred Stock
(except for stock that is attributable to accrued interest or
accrued market discount) and cash that you receive in the
exchange exceeds your basis in the exchanged Notes.
o Your basis in Series E Convertible Preferred Stock that you
receive in the exchange will equal the fair market value of that
stock.
o Your holding period for Series E Convertible Preferred Stock that
you receive in the exchange will begin on the day after the
exchange.
Dividends on Series E Convertible Preferred Stock.
Cash and stock dividends. All distributions of cash or stock on the
Series E Convertible Preferred Stock will be taxable as ordinary dividend income
to the extent of the Company's current and accumulated earnings and profits. The
amount of any distribution in excess of current and accumulated earnings will be
treated:
o First, as a tax-free return of capital which will reduce your
adjusted basis in your Series E Convertible Preferred Stock (but
not below zero).
o If the distribution exceeds your adjusted basis in your Series E
Convertible Preferred Stock, any excess will be taxed as capital
gain.
Accrued and unpaid dividends. Although not free from doubt, we believe
that accrued dividends will not be taxable until they are paid in either cash or
stock. In addition, any shares of common stock that you receive when you convert
your Series E Convertible Preferred Stock into common stock that are
attributable to accrued and unpaid dividends will probably be treated as a
deemed distribution at the time of conversion, taxable as ordinary dividend
income under Section 305 of the Internal Revenue Code. Notwithstanding the two
preceding sentences, the Internal Revenue Service could take the position that
you should be taxed annually on unpaid dividends as they accrue.
Dividends to corporate shareholders. If you are a corporate shareholder,
a distribution on your Series E Convertible Preferred Stock that is treated as a
dividend will generally qualify for a dividends-received deduction under Section
243 of the Internal Revenue Code. You should note, however, that we cannot
assure you that the dividends-received deduction will apply to distributions on
Series E Convertible Preferred Stock or that we will have current or accumulated
earnings and profits in the future. In addition, there are many restrictions
relating to the availability of the dividends-received deduction.
Redemption premium. "Redemption premium" is the excess of the redemption
price of preferred stock over its issue price. The redemption premium (if any)
of the Series E Convertible Preferred Stock could be taxed as ordinary dividend
income on an accrual basis, but only if it is more likely than not that we will
exercise our right to redeem the Series E Convertible Preferred Stock. Based on
all the facts and circumstances, we do not believe that it is more likely than
not that we will exercise that right. Therefore, we do not believe that the
redemption premium (if any) of the Series E Convertible Preferred Stock will
taxed as ordinary dividend income. However, it is possible that the Internal
Revenue Service could challenge this position.
Sale, redemption, conversion or other taxable disposition of Series E
Convertible Preferred Stock.
Sale or other taxable disposition. In a sale or other taxable
disposition of your Series E Convertible Preferred Stock, you will generally
recognize capital gain or loss equal to the difference between:
o the amount of cash and the fair market value of property you receive
in the sale or other disposition, and
o your adjusted basis in your Series E Convertible Preferred Stock.
However, gain in a sale or other taxable disposition attributable to
accrued market discount through the application of Section 1276(c) of the
Internal Revenue Code, or attributable to accrued and unpaid dividends on which
you have not previously been taxed, will probably be taxable as ordinary income.
Redemption. Generally, in a redemption of your Series E Convertible
Preferred Stock, you will recognize capital gain or loss if, taking into account
all stock that you own actually or constructively under Section 318 of the
Internal Revenue Code:
o your equity interest in the Company is completely terminated as a
result of the redemption; or
o the redemption is "not essentially equivalent to a dividend" within
the meaning of Section 302(b)(1) of the Internal Revenue Code.
If the redemption does not meet either of these tests, the proceeds of
the redemption will generally be treated as a distribution taxable as described
above in the section entitled "Dividends on Series E Convertible Preferred
Stock--cash and stock dividends." In addition, regardless of whether either of
the above tests is met, gain in a redemption attributable to accrued market
discount through the application of Section 1276(c) of the Internal Revenue
Code, or attributable to accrued and unpaid dividends on which you have not
previously been taxed, will probably be taxable as ordinary income.
Conversion. Generally, you will not recognize gain or loss when you
convert any of your Series E Convertible Preferred Stock into common stock,
except to the extent that you receive cash in lieu of a fractional share.
However, you will probably be taxed at the time of conversion with respect to
accrued and unpaid dividends as discussed above in the section entitled
"Dividends on Series E Convertible Preferred Stock--accrued and unpaid
dividends." Except for any shares attributable to accrued but unpaid dividends
on which you have not yet been taxed as of the time of conversion, when you
convert any of your Series E Convertible Preferred Stock into common stock:
o Your tax basis in each share of common stock that you receive
upon conversion will equal your tax basis in the share of Series
E Convertible Preferred Stock that you converted therefor.
o Your holding period for each share of common stock that you
receive upon conversion will include your holding period for the
share of Series E Convertible Preferred Stock that you converted
therefor.
We believe that any accrued market discount (within the meaning of
Section 1276 of the Internal Revenue Code) with respect to Series E Convertible
Preferred Stock that you convert into common stock will be taxable ordinary
income when you dispose of that common stock. However, it is possible that the
Internal Revenue Service could take the position that the accrued market
discount is taxable ordinary income on the date of conversion (resulting in an
increased basis in the common stock that you receive in the conversion).
Backup withholding
You may be subject to backup withholding tax at a rate of 31% for
dividends paid on, or proceeds from a sale, exchange or redemption of your
Series E Convertible Preferred Stock. Backup withholding is not an additional
tax, but is a method of tax collection. Generally, backup withholding applies
only if:
o you fail to furnish us with a correct taxpayer identification number
or fail to demonstrate that you otherwise qualify for an exemption;
o the Internal Revenue Service notifies us that your taxpayer
identification number is not correct;
o you failed to report properly the receipt of a "reportable payment"
on one or more occasions and the Internal Revenue Service has
notified us that withholding is required; or
o you fail to comply with certain certification procedures under the
applicable provisions of the Internal Revenue Code.
You will be allowed to credit the amount of a payment withheld from you
under the backup withholding rules against your federal income tax liability and
you may be entitled to a refund, provided you furnish certain information to the
Internal Revenue Service. However, some holders of Series E Convertible
Preferred Stock (such as corporations and financial institutions) are not
subject to backup withholding. You should consult your tax advisor as to your
qualification for an exemption from backup withholding and the procedure for
obtaining this exemption.
<PAGE>
PLAN OF DISTRIBUTION
The Company is offering to exchange Notes for shares of Series E
Convertible Preferred Stock pursuant to an exemption from the registration and
prospectus requirements of the Securities Act of 1933, as amended. Accompanying
this exchange offering memorandum is a letter of transmittal to be used by
holders of Notes to tender their principal amount of Notes to the Company
pursuant to the exchange offers. To tender your Notes in any of the exchange
offers, 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 exchange offering memorandum. You must then mail or otherwise
deliver such letter of transmittal, or such facsimile, together with the Notes
to be exchanged and any other required documentation to The Bank of New York, as
exchange agent, at the address indicated in the letter of transmittal. See "The
Exchange Offers--Procedures for Tendering."
Any financial institution that is a participant in DTC's book-entry
transfer facility system may make book-entry delivery of any of the Notes by
causing DTC to transfer such Notes into the exchange agent's account in
accordance with DTC's procedure for such transfer. Although delivery of 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 exchange offering memorandum under "The Exchange Offers--Exchange Agent"
before midnight, New York City time, on the expiration date. Delivery of
documents to DTC in accordance with its procedures does not constitute delivery
to the exchange agent.
Following consummation of the exchange offers, we may, in our sole
discretion, commence one or more additional exchange offers to holders of Notes
who did not exchange their Notes for shares of Series E Convertible Preferred
Stock in the exchange offers on terms which may differ from those contained in
this exchange offering memorandum. This exchange offering memorandum, as it may
be amended or supplemented from time to time, may be used by us in connection
with any such additional exchange offers.
<PAGE>
FINANCIAL STATEMENTS
Item 8 of the Company's 1998 Form 10-K entitled "Financial Statements
and Supplementary Data" is hereby incorporated by reference into this exchange
offering memorandum. Holders of Notes are encouraged to review these financial
statements starting at page 27 of Exhibit A.
Item 1 of the Company's September 30, 1999 Form 10-Q entitled "Financial
Statements" is hereby incorporated by reference into this exchange offering
memorandum. Holders of Notes are encouraged to review these financial statements
starting at page 1 of Exhibit C.
<PAGE>
Exhibit 2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission file number 0-25998
WASTE SYSTEMS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4203626
(State or other (I.R.S. Employer
jurisdiction of Identification
incorporation or organization) No.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
(Address of principal executive offices) (zip code)
(781) 862-3000 Phone
(781) 862-2929 Fax
(Registrant's telephone number, including area code)
------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section
12(g) of the Act:
Common Stock, $.01 par value per share
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K X
As of March 24, 1999, the market value of the voting stock of the
Registrant held by non-affiliates of the Registrant was $50,492,453
The number of shares of the Registrant's common stock, par value $.01 per
share, outstanding as of March 24, 1999 was 11,220,545.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1999 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K.
Portions of the Registration Statement on Form S-1 of Waste Systems
International, Inc. (No. 33-93966) are incorporated by reference into Part IV
of this Form 10-K.
<PAGE>
TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a
Vote of Security Holders 11
PART II
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 49
PART III
Item 10. Directors and Executive Officers 49
Item 11. Executive Compensation 52
Item 12. Security Ownership of Certain Beneficial
Owners and Management 55
Item 13. Certain Relationships and Related Transactions 57
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 58
Signatures 59
<PAGE>
Note Regarding Forward Looking Statements:
This Annual Report on Form 10-K contains forward-looking statements concerning
among other things, the Company's expected future revenues, operations and
expenditures and estimates of the potential markets for the Company's services.
Such statements made by the Company fall within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All such forward-looking statements are
necessarily only estimates of future results and the actual results achieved by
the Company may differ materially from these projections due to a number of
factors as discussed in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Certain Factors
Affecting Future Operating Results" of this Form 10-K.
PART I
Item 1. Business
The Company
Waste Systems International, Inc. (the "Company" or "WSI") is 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 certain regional markets
in the Northeast and Mid-Atlantic States where it operates. The Company is
achieving significant growth by implementing an active acquisition strategy.
During 1998, the Company completed 34 acquisitions of landfills, collection
companies and transfer stations. At December 31, 1998, the Company owned three
landfills in Vermont and Central Pennsylvania. Subsequent to December 31, 1998,
the Company acquired a fourth landfill located in Central Pennsylvania which
significantly increased the Company's disposal capacity in that region. The
Company's Moretown Landfill in Vermont and Sandy Run Landfill in Central
Pennsylvania are currently operating and permitted to accept 120,000 and 86,000
tons per year, respectively. The Company's Mostoller Landfill in Central
Pennsylvania is permitted to accept 624,000 tons per year and is scheduled to
commence operations in the second half of 1999, subject to receipt of certain
incidental permits and final construction. As of December 31, 1998, the
aggregate remaining estimated permitted capacity of the Company's three owned
landfills was approximately 18.5 million cubic yards. In addition, the Company
has contracted with the Town of South Hadley, Massachusetts to operate that
Town's landfill which has estimated capacity of approximately 1.87 million cubic
yards available for future disposal, subject to receipt of required permits. The
Company also owns four operating transfer stations and has acquired another that
is permitted and is ready to begin construction. As of December 31, 1998, the
Company's collection operations serve a total of approximately 52,000
commercial, industrial, residential and municipal customers in the Vermont,
Central Pennsylvania, Central Massachusetts and Central Upstate New York
markets.
The Company has completed 6 acquisitions since January 1, 1999 (See
Management's Discussion And Analysis Of Financial Condition And Results Of
Operations - Recent Business Developments- Acquisitions) which have
significantly increased the Company's presence within the geographic regions in
which it operates. Included in the 6 acquisitions are Community Refuse Services,
Inc., which is a landfill located in Central Pennsylvania, and Cumberland Waste
Service, Inc., a collection operation serving over 2,300 customers in the
geographical area surrounding the landfill. The landfill acquisition will add
approximately 6.0 million cubic yards of capacity for the region and is
permitted to accept 306,000 tons of municipal solid waste per year. As a result,
management believes that the Company is poised to continue its growth in these
areas and to enhance its profitability through the implementation of operating
efficiencies.
The Company focuses on the operation of an integrated non-hazardous
solid waste management business, including the ownership and operation of
landfills, solid waste collection services and transfer stations. The Company's
objective is to expand the current geographic scope of its operations primarily
within 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 it serves. The key elements of the Company's
strategy for achieving its objective are: (i) to acquire and integrate solid
waste disposal capacity, transfer stations and collection operations in its
targeted new markets, (ii) to generate internal growth through increased sales
penetration and the marketing of additional services to existing customers and
(iii) to enhance profitability by increasing operating efficiency.
1
<PAGE>
Industry 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.
The solid waste management industry is generally experiencing
significant consolidation and integration. The Company believes that the
consolidation and integration is a result of the following factors, among
others: (i) increasingly stringent environmental regulations which have resulted
in an increased need for substantial capital to maintain regulatory compliance;
(ii) the inability of many smaller operators to achieve the economies of scale
necessary to compete with larger providers; (iii) the competitive and economic
benefits of providing integrated collection, recycling, transfer and disposal
services; and (iv) the privatization of solid waste assets and services by
municipalities. Although significant consolidation has occurred within the solid
waste management industry, the Company believes the industry remains highly
fragmented and that a substantial number of potential acquisition opportunities
remain, including within the Northeast and Mid-Atlantic regions where it
operates.
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 closure and
post-closure monitoring. Certain of the smaller industry participants have found
these costs and regulations burdensome and have decided either to close their
operations 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, 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 non-integrated operators.
The trend toward consolidation in the solid waste 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 due, among other reasons, to 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. The Company believes that the
financial condition of municipal 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 laws, forced the counties that owned them to increase their per ton tipping
fees to meet municipal bond payments. The Company believes that these market
dynamics are factors causing municipalities throughout the northeastern states
to consider the privatization of public facilities.
Strategy
The Company's objective is to expand the current geographic scope of its
operations primarily within 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 it serves. The key elements of the
Company's strategy for achieving its objective are: (i) to acquire and integrate
solid waste disposal capacity, transfer stations and collection operations in
its targeted new markets, (ii) to generate internal growth through increased
sales penetration and the marketing of additional services to existing customers
and (iii) to enhance profitability by increasing operating efficiency. The
Company intends to implement this strategy as follows:
2
<PAGE>
Expansion Through Acquisitions. During 1998, the Company completed 34
acquisitions within 4 states in the Northeast and Mid-Atlantic regions. The
Company intends to continue to expand by acquiring solid waste disposal capacity
and collection companies in new and existing markets. In considering new
markets, the Company evaluates opportunities to acquire or otherwise control
sufficient landfills, transfer stations and collection operations which would
enable it to generate an integrated waste stream and achieve the disposal
economies of scale necessary to meet its market share and financial objectives.
The Company has established criteria, which enable it to evaluate the
prospective acquisition opportunity and the target market. Historically, the
Company has entered new markets, which are adjacent to its existing markets;
however, the Company is considering new markets in non-contiguous geographic
areas, which meet its criteria.
Internal Growth. In order to generate continued internal growth, the
Company has focused on increasing sales penetration in its 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, the Company's
revenue per routed truck is improved, which generally increases the Company's
collection efficiencies and profitability. The Company uses transfer stations,
which serve to link disparate collection operations with Company landfills, as
an important part of its internal growth strategy.
Operating Enhancements for Acquired and Existing Businesses. The Company
has implemented a system that establishes standards for each of its markets and
tracks operating criteria for its 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. The Company believes that by
establishing standards and closely monitoring compliance, it is able to improve
existing and acquired operations. Moreover, where the Company is able to
internalize the waste stream of acquired operations, it is further able to
increase operating efficiencies and improve capacity utilization.
Acquisition Program
The Company is pursuing an active acquisition strategy to achieve its
objective of expanding the current geographical scope of its operations and
becoming a leading provider of integrated solid waste management services in
each of the markets it serves. The Company seeks acquisitions that are
consistent with its three-step acquisition program designed to (i) acquire
long-term disposal capacity in targeted regional markets, (ii) acquire
collection companies and transfer stations which will serve as platforms in the
targeted regions to secure a stable long-term waste flow, and (iii) 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 the Company
through March 24, 1999:
<TABLE>
<S> <C> <C> <C>
Acquisition Month Acquired Principal Business Location
- ----------- --------------- ------------------ ---------
Vermont Region
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
3
<PAGE>
Acquisition Month Acquired Principal Business Location
- ----------- -------------- ------------------ ----------
Central Pennsylvania Region
Cumberland Waste Service, Inc March 1999 Collection Cumberland, PA
Community Refuse Service, Inc March 1999 Landfill Cumberland, 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
Horvath Sanitation, Inc./
Eagle Recycling, Inc. May 1998 Collection Altoona, PA
McCardle Refuse Company May 1998 Collection Burham, PA
Central Massachusetts Region
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
Central Upstate New York Region
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>
* Acquisition pursuant to lease/purchase arrangement.
4
<PAGE>
Integrated Solid Waste Management Operations
The Company's operations include the ownership and/or operation of
landfills, solid waste collection services and transfer stations. As the Company
has executed its acquisition strategy and integrated the solid waste management
assets acquired, the Company's rate of internalization of its operations has
increased. Throughout 1998, the Company increased the amount waste collected by
the Company that was subsequently disposed at Company landfills and increased
the amount of the solid waste delivered for disposal at the Company's landfills
that was collected by the Company.
Solid Waste Collection. The Company's solid waste collection operations
served approximately 52,000 commercial, industrial, residential and municipal
customers at December 31, 1998. A majority of the Company's 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. The Company's
residential collection and disposal services are performed either on a
subscription basis (i.e., 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 the Company's revenues for the year ended December 31,
1998.
Landfills. At December 31, 1998, the Company owned three landfills and
has an agreement to operate a fourth landfill under a long-term operating
agreement. The Moretown Landfill and Sandy Run Landfill, which are the Company's
only operating landfills at December 31, 1998, include 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 the Company's Vermont
operations was delivered for disposal at the Moretown Landfill and approximately
63% of the solid waste delivered for disposal at the Moretown Landfill during
this period was collected by the Company. During 1998, approximately 59% of the
solid waste from the Company's Central Pennsylvania operations was delivered for
disposal at the Sandy Run Landfill and approximately 58% of the solid waste
delivered for disposal at the Sandy Run Landfill during this period was
collected by the Company. Revenue from landfill operations accounted for
approximately 20.1% of the Company's revenues for the year ended December 31,
1998.
The following table provides certain information regarding the landfills
that the Company owns or operates. All information is provided as of December
31, 1998, except for Community Refuse Service, Inc. which is as of March 12,
1999.
Remaining Estimated Permitted Capacity
Estimated Capacity in
Total Remaining Permitting
Permitted Capacity Process
Landfill Location (Cubic Yards) (Cubic Yards)(1)
- --------------------------------------------------------------------------------
Mostoller Somerset, PA 14,200,000 -
Sandy Run Hopewell, PA 2,865,000 -
Moretown Moretown, VT 1,478,000 -
South Hadley(2) South Hadley, MA - 2,000,000
Community Refuse
Service, Inc. Cumberland, PA 6,000,000 -
- ------------
(1) Represents capacity for which the Company has begun the permitting
process. Does not include additional available capacity at the site for
which permits have not yet been sought.
(2) The South Hadley Landfill will be operated pursuant to an operating
agreement expiring in 2015.
Once the permitted capacity of a particular landfill is reached, the
landfill must be closed and capped if additional capacity is not authorized. The
Company establishes reserves for the estimated costs associated with such
closure and post-closure costs over the anticipated useful life of such
landfill. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Certain Factors Affecting Future Operating Results
- -Adequacy of Accruals for Closure and Post-Closure Costs."
5
<PAGE>
Transfer Station Services. At December 31, 1998, the Company owned four
operating transfer stations. In addition, the Company has acquired another
transfer station that is permitted and in the process of construction. The
transfer stations receive, compact and transfer solid waste collected from the
Company's various collection operations and from third parties to long-haul
vehicles for transport to landfills. The Company believes that transfer stations
benefit the Company by (i) increasing the size of the waste shed, which has
access to the Company's landfills and (ii) reducing costs by improving
utilization of collection personnel and equipment. Revenues from transfer
station services accounted for approximately 6.4% of the Company's revenues for
the year ended December 31, 1998.
Regional Operations
The Company's current or planned solid waste management operations are
as follows:
Vermont Operations. The Company established its first integrated solid
waste management operations in the geographical area surrounding its Moretown
Landfill. In addition to the Moretown Landfill, the Company currently owns
and/or operates 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. The first cell ("Cell 1") at the Moretown Landfill is
permitted to receive approximately 120,000 tons per year and had remaining
estimated permitted capacity at December 31, 1998 of approximately 78,000 cubic
yards. The Company received all of the permits required for development and
operation of the second cell ("Cell 2") and began construction on Cell 2 in July
1998. Cell 2 will increase the permitted landfill capacity by an estimated
additional 1.4 million cubic yards. The Company expects that Cell 2 will be
available to receive solid waste late in the second quarter of 1999. During
1998, over 95% of the solid waste from the Company's Vermont operations was
delivered for disposal at the Moretown Landfill and approximately 63% of the
solid waste delivered for disposal at the Moretown Landfill during this period
was collected by the Company.
Central Pennsylvania Operations. In May 1998, the Company commenced
operations in Central Pennsylvania, through the acquisition of Horvath
Sanitation, Inc. and Eagle Recycling, Inc. ("Eagle"), which are based in
Altoona, Pennsylvania. Subsequently, the Company completed four tuck-in
acquisitions which have been integrated with Eagle's operations. At December 31,
1998, the Central Pennsylvania operations serve approximately 24,000 residential
customers and 2,500 other customers, including commercial, industrial and
municipal customers. In July 1998, the Company acquired the Sandy Run Landfill,
a 700-acre, 3.0 million cubic yard permitted solid waste landfill in Hopewell,
Pennsylvania and began the process of integrating Eagle's operations with the
Sandy Run Landfill. The Sandy Run Landfill is currently permitted to receive
approximately 86,000 tons per year and had remaining estimated permitted
capacity at December 31, 1998 of approximately 2.9 million cubic yards. During
1998, approximately 59% of the solid waste from the Company's Central
Pennsylvania operations was delivered for disposal at the Sandy Run Landfill and
approximately 58% of the solid waste delivered for disposal at the Sandy Run
Landfill during this period was collected by the Company. In August 1998, the
Company acquired the Mostoller Landfill in Somerset County, Pennsylvania. The
Mostoller Landfill is permitted to receive approximately 624,000 tons of waste
per year (subject to receiving certain pending incidental permits as disclosed
below), including municipal solid waste, construction and demolition waste,
sludge and residual wastes. This landfill consists of 7 cells having
approximately 14.2 million cubic yards of permitted capacity with expected
additional room for expansion on the 513 acre permitted "greenfields" site. The
Company has obtained the principal permits for the construction and operation of
the Mostoller Landfill, subject to commencing operations prior to December 31,
1999. Applications are pending for incidental air quality and state highway
occupancy permits required in connection with the operation of the landfill, and
the Company expects these permits will be received in a timely fashion. The
Company expects to carry out construction of the Mostoller Landfill during the
first half of 1999 with operations expected to commence during the third quarter
of 1999. In January 1999, the Company completed the tuck-in collection company
acquisitions of Jim's Hauling, Inc. and Koontz Disposal in Central,
Pennsylvania. These have been integrated into the Eagle operation. On March 11,
1999, the Company acquired Community Refuse Services, Inc., which is a landfill
located in Central Pennsylvania, and Cumberland Waste Service, Inc., a
collection operation serving over 2,300 customers in the geographical area
surrounding the landfill. The landfill acquisition will add approximately 6.0
million cubic yards of capacity for the region and is permitted to accept
306,000 tons of municipal solid waste per year.
Central Massachusetts Operations. The Company and the Town of South
Hadley, Massachusetts have entered into a contract whereby the Company 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 the Company
operates the facility. The Company is currently in the permitting process for
the South Hadley Landfill and expects to have received all of its operating and
construction permits by the third quarter of 1999. The Company anticipates that
the South Hadley Landfill will be available to begin accepting solid waste at
the first 10-acre lined cell during the second half of 1999. The South Hadley
Landfill is currently expected to have approximately 2.00 million cubic yards of
new capacity for future disposal. In July 1998, the Company acquired Mass Wood
Recycling, Inc. in Oxford, Massachusetts, a permitted transfer station, with
construction expected to commence during the first half of 1999. In August 1998,
the Company acquired Mattei-Flynn Trucking, Inc. in Auburn, Massachusetts. This
waste collection operation currently has an established customer base of
approximately 1,500 residential customers and 2,300 other customers, including
commercial, industrial and municipal customers and serves as a platform for
company growth in this targeted regional market. Subsequently, the Company
completed four tuck-in acquisitions, and has integrated these acquisitions with
Mattei-Flynn's operations. The Company intends to integrate these collection
operations with the Oxford Transfer Station and to eventually internalize the
waste at the South Hadley Landfill. In addition, the Company has a long-term
disposal agreement with a third party landfill in Southbridge, Massachusetts at
very favorable rates through the year 2019. As a part of the agreement, the
Company has a "Right of First Refusal" to purchase the landfill.
6
<PAGE>
Central Upstate New York Operations. During the four months ended
December 31, 1998, the Company entered the Central 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. At December 31, 1998, these
waste collection operations serve approximately 11,300 residential customers and
1,600 other customers, including commercial, industrial and municipal customers.
The Company selected the Central Upstate New York market for acquisition of
collection operations and transfer stations in anticipation of the privatization
of nearby landfills. The Company is currently evaluating opportunities for
expansion and integration of its Central Upstate New York operations. In January
1999, the Company completed the acquisition of Santaro Trucking Co., Inc., a
collection company located in Syracuse, New York which serves over 400
commercial customers.
Competition
Though the solid waste management industry has been substantially
consolidated in certain markets, it generally is highly competitive and very
fragmented and requires substantial labor and capital resources. Competition
exists for collection, recycling, transfer and disposal services. The markets in
which the Company competes or is likely to compete in are usually served by one
or more of the large national, regional or local solid waste companies who may
have greater financial, marketing or technical resources than the Company and
may be able to achieve greater economies of scale than the Company. The Company
also competes 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. Additionally, alternative disposal facilities such as recycling
and incineration may reduce the demand for the disposal of solid waste in
landfills.
The Company competes for waste collection and disposal business on the
basis of price, 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. Competition also
exists within the industry for acquisition targets where the Company may compete
with publicly-owned national or regional solid waste management companies.
Marketing and Sales
The Company has a coordinated marketing and sales strategy to obtain
solid waste streams which is formulated at the corporate level and implemented
through regional management. The Company markets its services locally through
regional managers and direct sales representatives who focus on commercial,
industrial, municipal and residential customers. The Company markets its
commercial, industrial and municipal services through its 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 certain incentive targets. The Company also
obtains new customers from referral sources, its 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 its service area. The Company emphasizes customer
satisfaction and retention, and believes that its focus on quality service will
help retain existing and attract additional customers.
Maintenance of a local presence and identity is an important aspect of
the Company's marketing plan, and many of the Company's managers are involved in
local governmental, civic and business organizations. The Company's name and
logo, or, where appropriate, that of the Company's regional operations, are
displayed on all Company containers and trucks. Additionally, the Company
attends and makes presentations at municipal and state conferences and
advertises in governmental associations' membership publications.
No single customer of the Company individually accounted for more than
10% of Company revenues in the year ended December 31, 1998.
7
<PAGE>
Government Regulation
The Company and its 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. These
regulations are administered by the U.S. Environmental Protection Agency ("EPA")
and various other federal, state and local environmental, transportation and
health and safety agencies. The Company believes that such laws and regulations
have the effect of enhancing the potential market in which the Company operates
by allowing the Company to offer economical solutions for regulatory problems to
its customers and acquisition candidates. On the other hand, such laws and
regulations represent a potential constraint on, and added expense with respect
to, the Company's operation of projects for its customers or for its own
account.
In order to develop and operate a landfill project, the Company must go
through several governmental review processes and obtain one or more permits and
often zoning or other land use approvals. 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 the Company's preliminary development of landfill projects, the Company
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 with respect to 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 with
respect to the permitting of landfills.
The Company's landfill operations and transfer stations subject it to
certain 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 the Company's operation of
landfills and transfer stations, the Company 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 the Company'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 (i) either (a) are specifically included on a list of hazardous wastes
or (b) exhibit certain hazardous characteristics and (ii) are not specifically
designated as non-hazardous. Wastes classified as hazardous under RCRA are
subject to much stricter regulation than wastes classified as non-hazardous, 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.
The Company is not involved with transportation or disposal of hazardous
wastes, except for the occasional collection, at certain 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.
8
<PAGE>
In October 1991, the EPA adopted new regulations pursuant to Subtitle D
of RCRA (the "Subtitle D Regulations"). These new regulations became generally
effective in October 1993 (except for certain municipal solid waste landfills
accepting less than 100 TPD, as to which the effective date was April 9, 1994,
and new financial assurance requirements, which became effective April 9, 1997)
and 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 prior to 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 the Company's landfills
and transfer stations are discharged into streams, rivers or other surface
waters of the United States, the Clean Water Act would require the Company to
apply for and obtain a discharge permit, conduct sampling and monitoring and,
under certain circumstances, reduce the quantity of pollutants in such
discharge. Also, virtually all landfills are required to comply with federal
storm water regulations, which are designed to prevent possibly contaminated
storm water from flowing into surface waters. The Company is working with the
appropriate regulatory agencies to ensure that its facilities are in compliance
with Clean Water Act requirements, particularly as they apply to treatment and
discharge of leachate and storm water. The Company has secured or has applied
for the required discharge permits under the Clean Water Act or comparable
state-delegated programs. To ensure compliance with the Clean Water Act
pretreatment and discharge requirements, the Company has either installed
wastewater treatment systems at its facilities to treat its effluent to
acceptable levels before discharge or has arranged to discharge its 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, the Company were
to be found to be a responsible party for a CERCLA cleanup at one of the
Company's owned or operated facilities, the enforcing agency could hold the
Company completely responsible for all investigative and remedial costs even if
others may also be liable. CERCLA also authorizes the imposition of a lien in
favor of the United States upon all real property subject to or affected by a
remedial action for all costs for which a party is liable. The Company's ability
to obtain reimbursement from others for their allocable share of such costs
would be limited by the Company's ability to find other responsible parties and
prove the extent of their responsibility and 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 the Company's 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 the
Company's 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 certain landfills based upon the date of the landfill construction and
volume per year of emissions of regulated pollutants. The EPA has recently
promulgated new source performance standards regulating air emissions of certain
regulated pollutants (methane and non-methane organic compounds) from 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.
9
<PAGE>
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 pursuant to RCRA and by the federal
Department of Transportation ("DOT") pursuant 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 certain of the Company's 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 the Company's landfills and
transfer stations, the Company has no direct involvement in asbestos removal or
abatement projects.
State and Local Regulation. Each state in which the Company now operates
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. Certain 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 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 Company 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.
Certain permits and approvals may limit the types of waste that may be
accepted at a landfill or the quantity of waste that may be accepted at a
landfill during a given time period. In addition, certain permits and approvals,
as well as certain state and local regulations, may limit a landfill to
accepting waste that originates from specified geographic areas or seek to
restrict the importation of out-of-state waste or otherwise discriminate against
out-of-state waste. Generally, restrictions on the importation of 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 the Company operates 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, certain 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, certain state and local jurisdictions
continue to seek to enforce such restrictions and, in certain cases, the Company
may elect not to challenge such restrictions based upon various considerations.
In addition, the aforementioned proposed federal legislation would allow states
and localities to impose certain flow control restrictions. These restrictions
could result in the volume of waste going to landfills being reduced in certain
areas, which may adversely affect the Company's ability to operate its landfills
at their full capacity and/or affect the prices that can be charged for landfill
disposal services.
10
<PAGE>
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 the
Company's ability to operate its facilities at their full capacity.
The Company believes that it is in material compliance with federal,
state and local regulations based on the Company's internal review process which
has not identified any material non-compliance and the Company has not received
any verbal or written notification from any governmental agency to the contrary.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Certain Factors Affecting Future Operating Results -Potential
Environmental Liability and Adverse Effect of Environmental Regulation."
Employees
As of December 31, 1998, the Company had 303 full time employees. As a
result of the acquisitions subsequent to December 31, 1998, at March 24, 1999,
the Company had 357 full time employees. The Company believes its future success
will depend in part on its continued ability to recruit and retain highly
qualified technical and managerial personnel. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Certain Factors
Affecting Future Operating Results -Dependence on Management" and "-Ability to
Manage Growth." The Company's employees are not subject to any collective
bargaining agreement. The Company considers its relations with its employees to
be good.
Item 2. Properties
The Company owns or leases and operates landfills, transfer stations,
offices and other facilities in connection with its integrated solid waste
management operations as described under "Business-Integrated Solid Waste
Management Operations." In addition, the Company leases its corporate
headquarters, located at 420 Bedford Street, Suite 300, Lexington,
Massachusetts. The Company currently occupies 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.
Item 3. Legal Proceedings
Richard Rosen. 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.
Item 4. Submission of Matters to a Vote of Security Holders
None
11
<PAGE>
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is currently quoted on the NASDAQ Small-Cap Market
under the symbol "WSII". The following table sets forth the high and low closing
price of the common stock for the periods indicated and restated to reflect a
one-for five reverse stock split effective February 13, 1998.
High Low
Fourth quarter ended December 31, 1998 $ 6.25 $ 4.38
Third quarter ended September 30, 1998 9.69 5.00
Second quarter ended June 30, 1998 9.81 5.94
First quarter ended March 31, 1998 7.38 3.00
Fourth quarter ended December 31, 1997 $ 5.00 $ 2.80
Third quarter ended September 30, 1997 3.15 1.40
Second quarter ended June 30, 1997 2.35 1.25
First quarter ended March 31, 1997 2.80 1.55
On March 24, 1999, the reported last sale price of the common stock on the
NASDAQ Small-Cap Market was $4.50 per share, and there were 257 holders of
record of common stock.
The Company has never paid dividends on its Common Stock and has no present
intention to pay dividends. The Company's intention is to retain future
anticipated earnings to finance the expansion of its business.
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 and 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 convertible notes 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 the Company's Common Stock and the Board of Directors declared
and paid cash dividends of approximately $101,000.
12
<PAGE>
Item 6. Selected Consolidated Financial and Operating Data
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 the Company's Consolidated
Financial Statements, which have been audited by KPMG Peat Marwick LLP. The
selected consolidated financial data presented below should be read in
conjunction with the Company's Consolidated Financial Statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which is included elsewhere in this Form 10-K. During
1998, the Company acquired two landfills, 31 solid waste collection companies
and three transfer stations. Due to the significance of the acquired business
operations to the Company's financial performance, the Company does not believe
that its historical financial statements are necessarily indicative of future
performance and as a result will affect the comparability of the financial
information included herein.
<TABLE>
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended December 31
1998 1997 1996 1995 1994
-------- ------- -------- -------- ------
Statement of Operations Data:
Revenues........................ $ 21,045 $ 3,458 $ 1,496 $ 1,344 $ --
Cost of operations:
Operating expenses............ 12,400 1,719 921 766 --
Depreciation and amortization. 4,501 692 370 72 --
Acquisition integration costs(1) 1,864 -- -- -- --
Write-off of project development costs 236 1,495 6,652 -- --
-------- --------- --------- -------- ---------
Total cost of operations... 19,001 3,906 7,943 838 --
--------- --------- --------- --------- ---------
Gross profit (loss) ....... 2,044 (448) (6,447) 506 --
Selling, general and administrative expenses 4,483 2,138 2,433 3,286 1,485
Amortization of prepaid consulting fees -- -- 834 501 --
Restructuring(2)................ -- 596 1,741 -- --
--------- --------- --------- --------- ---------
Loss from operations.......... (2,439) (3,182) (11,465) (3,281) (1,485)
Other income (expense):
Royalty and other income (expense), net (134) (516) 817 761 2,064
Interest expense and financing costs (4,074) (1,355) (1,182) (471) (152)
Interest income............... 441 172 178 289 --
Write-off of accounts and notes receivable -- (568) -- (2,975) --
-------- --------- --------- --------- --------
Total other income (expense).. (3,767) (2,267) (187) (2,396) 1,912
--------- --------- --------- --------- --------
Income (loss) before income taxes,
discontinued operations and
extraordinary item............ (6,206) (5,449) (11,652) (5,677) 427
Federal and state income tax expense
(benefit)..................... 43 6 (23) (110) 185
Discontinued operations......... -- -- (2,261) (2,303) --
Extraordinary item - loss on extinguishment
of debt....................... (247) (134) -- -- --
-------- -------- --------- --------- ---------
Net income (loss)............... $ (6,496) $ (5,589) $(13,890) $ (7,870) $ 242
Preferred stock dividends (3)... 888 -- -- 10 108
--------- --------- -------- --------- ---------
Net income (loss) available for common
stockholders(3)............ $ (7,384) $ (5,589) $(13,890) $ (7,880) $ 134
======== ======== ========= ======== =========
Basic net income (loss) per share from
continuing operations ........ $ (0.97) $ (1.51) $ (4.10) $ (2.88) $ 0.15
Weighted average number of shares used in
computation of basic net income
(loss) per share.............. 7,389,547 3,612,623 2,834,841 1,932,809 899,727
EBITDA (4)......................... $ 2,130 $(2,469) $ (9,909) $ (2,592) $(1,476)
Adjusted EBITDA (5)................ $ 4,230 $ (378) $ (1,516) $ (2,592) $(1,476)
Capital expenditures (excluding acquisitions) $ 9,032 $ 998 $ 6,599 $ 9,749 $ 807
Cash flow from operating activities $ 592 $(4,586) $ (3,912) $ (3,083) $ (209)
Cash flow from investing activities $(71,939) $ 706 $ (7,641) $(10,267) $(1,588)
Cash flow from financing activities $ 68,576 $ 6,579 $ 6,581 $ 18,416 $ 1,965
December 31,
1998 1997 1996 1995 1994
-------- ------- ------- ------- ------
Balance Sheet Data:
Cash and cash equivalents.......... $ 194 $ 2,964 $ 265 $ 5,237 $ 171
Working capital.................... (6,520) 1,532 (4,508) 2,393 659
Total assets....................... 96,117 18,560 16,858 23,508 4,369
Long-term debt, less current portion 74,861 7,201 9,450 12,266 1,263
Total stockholders' equity (deficit) 1,739 5,972 (1,849) 3,292 597
</TABLE>
13
<PAGE>
(1) 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.
(2) Prior to March 27, 1996, the Company had been actively developing
environmental technologies with potential application in a number
of business areas. On March 27, 1996, the Company announced its
intention to take meaningful actions to conserve cash and working
capital, including restructuring the Company's operations to
focus its resources and activities on developing an integrated
solid waste management operation.
(3) In May and July 1998 the Company met the mandatory conversion
trading requirements and elected to convert all of the remaining
shares of the Company's Preferred Stock into shares of the
Company's 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 Company's industry or to the economy in general. The
Company believes that EBITDA is a measure commonly used by
lenders and certain investors to evaluate a company's performance
in the solid waste industry. The Company also believes that
EBITDA data may help investors to understand the Company's
performance because such data may reflect the Company's ability
to generate cash flows, which is an indicator of its ability to
satisfy its 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 the Company 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 the
Company's 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.
14
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto. This Annual Report on
Form 10-K contains forward-looking statements concerning among other things, the
Company's expected future revenues, operations and expenditures and estimates of
the potential markets for the Company's services. Such statements made by the
Company fall within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
such forward-looking statements are necessarily only estimates of future results
and the actual results achieved by the Company may differ materially from these
projections due to a number of factors as discussed in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Factors Affecting Future Operating Results" of this Form
10-K.
Introduction
The Company is 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
certain regional markets in the Northeast and Mid-Atlantic states, where it
operates. The Company focuses on the operation of an integrated non-hazardous
solid waste management business, including the ownership and operation of solid
waste disposal facilities (landfills), transfer stations and solid waste
collection services. The Company derives revenue from collecting solid waste
from its customers, which it delivers for disposal in its own landfills, and
also from unaffiliated waste collection companies who pay to dispose of waste in
the Company's landfills. The Company seeks through its acquisition strategy to
acquire substantial collection operations and transfer stations in association
with its landfills in order to enhance its overall profitability and to increase
its control over its sources of revenue. See "Business - Strategy"
During 1998, the Company acquired a total of 34 companies including two
landfills, 31 collection companies (2 of which included a transfer station) and
one transfer station. Due to the significance of the acquired business
operations to the Company's financial performance, the Company does not believe
that its historical financial statements are necessarily indicative of future
performance and as a result will affect the comparability of the financial
information included herein.
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 the Company. Revenues for the periods presented in
the consolidated statements of operations were derived from the following
sources:
Year ended December 31,
1998 1997 1996
------- ------- -------
Collection 73.5% 12.8% - %
Landfill 20.1 78.1 100.0
Transfer 6.4 9.1 -
---------- ---------- -------
Total Revenue 100.0% 100.0% 100.0%
========= ======== ======
For the purpose of this table, revenue is attributed fully to the
operation where the Company first receives the waste. For example, revenue
received from waste collected by the Company and disposed in a Company landfill
is entirely attributed to collection. The increase in the Company's collection
revenues as a percentage of total revenues during 1998 compared to 1997 is due
primarily to the impact of the 31 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 the Company's transfer
stations and landfills. These acquired revenues are now being recorded as
collection revenue.
15
<PAGE>
Recent Business Developments
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 Howard Bank 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 $4.63 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 $10,390,000 of its 7% Convertible
Subordinated Notes. The remaining 7% Convertible Subordinated Notes are
convertible by holders into Common Shares 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 5 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.
16
<PAGE>
The following table sets forth, for the periods indicated, certain data
derived from the Company's Consolidated Statements of Operations, expressed as a
percentage of revenues:
<TABLE>
<S> <C> <C> <C>
Year ended December 31,
1998 1997 1996
------------- ----------- ------------
Revenues 100.0 % 100.0 % 100.0%
Operating expenses 58.9 49.7 61.6
Depreciation and amortization 21.4 20.0 24.7
Acquisition integration costs 8.9 - -
Write-off of project development costs 1.1 43.3 444.7
---------- --------- --------
Total cost of operations 90.3 113.0 531.0
----------- --------- --------
Gross profit (loss) 9.7 (13.0) (431.0)
Selling, general and administrative expenses 21.3 61.8 163.3
Restructuring - 17.2 116.5
Amortization of prepaid consulting fees - - 55.8
----------- ---------- --------
Loss from operations (11.6) (92.0) (766.6)
Royalty and other income (expense), net (0.6) (14.9) 62.5
Interest income 2.1 5.0 11.9
Interest expense and financing costs (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) -
---------- ---------- --------
Total other income (expense) (17.9) (65.5) (12.5)
Income tax expense 0.2 0.2 (1.6)
Loss from continuing operations (29.7) (157.7) (777.5)
Discontinued operations - - (151.2)
----------- ------- --- --------
Loss before extraordinary item (29.7) (157.7) (928.7)
Extraordinary item (1.2) (3.9) -
------------- ----------- -------
Net loss (30.9)% (161.6)% (928.7)%
============ ======== =========
EBITDA 10.1% (71.4)% (662.0)%
============ =========== ==========
Adjusted EBITDA 21.9% (10.9%) (101.3)%
============ =========== ===========
</TABLE>
17
<PAGE>
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. Thirty-four acquisitions completed by the
Company 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 the Vermont operations during 1998. The growth in the Vermont operations
was due to the full year's operation of the CSWD Transfer Station, which was
acquired in the fourth quarter of 1997, increased volume and prices at the
Moretown Landfill and internal growth at the Company's 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 by the Company 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
experience much higher operating expenses than landfill operations. The Company
internalizes a significant portion of its waste collected in Vermont and
Pennsylvania, which significantly reduces costs of operations as a percentage of
revenue. The Company's New York and Massachusetts operations do not yet have
landfills where waste can be internalized.
Operating costs, disposal costs, and collection fees vary widely
throughout the geographic areas in which the Company operates. The prices that
the Company 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 the Company's 34 acquisitions completed during 1998.
During 1998, the Company purchased property and equipment of approximately
$24,298,000 related to the acquisitions. ($7,522,000 of this amount was for
assets under development 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, the Company 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. The Company had costs of
approximately $5,456,000 for construction of Cell 2 at the Moretown landfill and
other development 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. 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 $1,864,000 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 the
Company's contract for remodeling and operation of a landfill in Fairhaven,
Massachusetts. See footnote 17 "Fairhaven Massachusetts Operation" in the
financial statements included in Item 8. The 1998 expense of $236,000 represents
the final charges related to the termination of the project. There are no
remaining accruals at December 31, 1998.
18
<PAGE>
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 the Company to build infrastructure to
sustain its significant growth through acquisition and to support the several
corporate initiatives designed to implement its strategy. The Company expects
spending growth to continue moderately into 1999 as the Company continues to
implement its growth through acquisition strategy. The decrease as a percentage
of revenue was primarily due to the expanded revenue base and related
efficiencies, as the Company is able to purchase "tuck-in" acquisitions that
increase revenues and improve margins without adding significant administrative
costs. The Company anticipates that in future periods its selling, general and
administrative expenses should continue to decrease as a percentage of revenue
as it leverages its current corporate overhead to revenue growth primarily
through acquisitions.
Restructuring. During 1996, the Company announced its intention to
restructure the Company's operations to focus its resources and activities on
developing an integrated solid waste management operation. See footnote 16
"Restructuring and Discontinued Operations" in the financial statements included
in Item 8. The restructuring was completed in 1997. 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) primarily relates to the Company's medical
waste treatment proprietary technologies.
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 the Company. During 1998 and 1997,
the Company 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 Chittenden Solid Waste District ("CSWD") transfer station located in
Williston, Vermont and the internal growth of the Company's collection
operations. All 1997 revenues were generated from the Company's Vermont
operations as compared to 1996, where approximately $1,157,000 or 77% was
generated from the Company's operations at the Fairhaven Landfill.
Cost of operations. Operating expenses for 1997 was approximately
$1,718,000 compared to $921,000 in 1996. The increase of $797,000 was primarily
due to the growth of the Company's Vermont operations. During 1997, the
Company's Vermont operations expanded as a result of the Company's purchase of a
collection company and its 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 the
Company's other Vermont operations.
Write-off of landfill development costs. Write-off of landfill
development costs were $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 Fairhaven Landfill.
Selling, general and administrative expenses. Selling, general and
administrative expenses for 1997 were approximately $2,138,000, 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 the Company's Vermont operations and general
corporate expenses due to the building of an infrastructure necessary to support
increases in acquisition, operating and administrative activities.
19
<PAGE>
Restructuring. Prior to March 27, 1996, the Company had been actively
developing environmental technologies with potential application in a number of
business areas. On March 27, 1996, the Company announced its intention to take
meaningful actions to conserve cash and working capital, including restructuring
the Company's operations to focus its resources and activities on developing an
integrated solid waste management operation. As part of the restructuring, the
Company ceased operations at its technology center in Woburn, Massachusetts, and
discharged all employees and consultants previously engaged in developing
technologies with potential application in certain 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 (the "Ancillary
Technologies"), and Major Sports Fantasies, Inc. ("MSF"), a business unrelated
to the environmental industry. No substantial revenues were received from the
technology center operations or MSF activities. Restructuring charges for 1997
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 the Company's
licensing agreements with ScotSafe Limited ("ScotSafe").
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 the Company's Vermont operations.
During 1997 and 1996, the Company 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, the
Company wrote-off an uncollectible receivable due from ScotSafe of approximately
$568,000.
Liquidity and Capital Resources
The Company's business is capital intensive. The Company's 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, the Company may incur working capital deficits. The Company plans to
meet its capital needs through various financing sources, including internally
generated funds, equity securities and debt. On May 13, 1998, the Company closed
on an offering of $60.0 million 7% Convertible Subordinated Notes which resulted
in net proceeds to the Company of approximately $58.3 million. As discussed in
"Recent Business Developments", on March 2, 1999, the Company completed a
private offering of 11 1/2% Senior Notes in the aggregate principal amount of
$100 million due January 15, 2006 which resulted in net proceeds to the Company
of approximately $97.3 million. The Company has used the proceeds from these
Debt offerings to complete various acquisitions during 1998 and 1999. In
addition, the Company has repaid other outstanding debt obligations, 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, and fund the Company's growth, including infrastructure. The Company
intends to use the balance of the proceeds for general corporate purposes,
including possible future acquisitions and working capital. In addition,
approximately $10,390,000 of the 7% Convertible Subordinated Notes were
exchanged into common stock during March 1999 through an exchange offering. The
Company intends to continue its 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 the Company. Any failure of the Company to
obtain required financing would have a material adverse effect on the Company's
financial condition and results of operations.
The Company maintains an acquisitions department that is responsible for
the identification, due diligence, negotiation and closure of acquisitions. The
Company believes that a combination of internally generated funds, additional
debt and equity financing and the proceeds from the Notes will provide adequate
funds to support the Company's cost structure, acquisition strategy and working
capital requirements for the foreseeable future.
20
<PAGE>
In connection with its growth strategy, the Company 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 which may, if consummated, be material. No assurance can be given,
however, that the Company will be successful in completing further acquisitions
in accordance with its growth strategy, or that such acquisitions, if completed,
will be successful.
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
Central Upstate New York. The aggregate cost of these acquisitions was
approximately $61.4 million consisting of approximately $58.3 million in cash,
$3.4 million in common stock and approximately $1.5 million in assumed
liabilities. Acquisition integration costs for the year ended December 31, 1998,
related to the acquisitions in Vermont, Central Pennsylvania, Central
Massachusetts and Central Upstate New York, were approximately $1,865,000.
The Company generated net cash from operating activities for 1998
approximately $592,000. In 1997, the Company used approximately ($4,586,000) for
operating activities. The improved cash flow from operations 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 approximately $4,599,000 during 1998 to
approximately $2,130,000 from negative EBITDA of approximately ($2,469,000) in
1997. As a percentage of revenue, EBITDA increased to 10.1% during 1998 from
(71.4%) in 1997. Adjusted EBITDA increased by approximately $4,608,000 during
1998 to approximately $4,230,000 from negative Adjusted EBITDA of approximately
($378,000) in 1997. As a percentage of revenue, Adjusted EBITDA increased to
21.9% in 1998 compared to (10.9%) in 1997.
Net cash used by investing activities during 1998 was approximately
$71,939,000 compared to cash generated of approximately $706,000 in 1997. Of the
net cash used by investing activities in 1998, approximately $58,340,000 million
was used for the acquisition of landfill, collection and transfer operations in
Vermont, Central Pennsylvania, Central Massachusetts and Central Upstate New
York. In addition, the Company placed deposits for future acquisitions totaling
$2,211,000. Additional capital expenditures of approximately $9,032,000 were
made to develop Cell 2 at the Company's Moretown landfill and to increase
operating efficiencies at the Company's Vermont, Central Pennsylvania, Central
Massachusetts and Central Upstate New York 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 $1,000,000 and the proceeds from the sale of the Fairhaven
equipment for approximately $800,000.
These were offset by capital expenditures at the Company's Vermont operation.
The Company's capital expenditures and capital needs for acquisitions
have increased significantly, reflecting the Company's rapid growth by
acquisition and development of revenue producing assets, and will increase
further as the Company 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 1998 was approximately
$68,576,000 compared to $6,579,000 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 the Company's 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.
The Company has a $10 million line of credit facility with The Howard
Bank, N.A. which was fully drawn as of December 31. The entire balance was
repaid on March 2, 1999 with the proceeds from the Senior Notes. The Company is
currently negotiating an expansion of this facility with The Howard Bank.
At December 31, 1998, the Company had approximately $83.1 million of
short-term and long-term debt.
Based upon its current operating plan, the Company believes that its
cash and cash equivalents, available borrowings, future cash flow from
operations and the proceeds of future debt and equity financings will satisfy
the Company's working capital needs for the foreseeable future. However, there
can be no assurances in this regard. See Certain Factors Affecting Future
Operating Results-Substantial Increased Leverage," and "-Uncertain Ability to
Finance the Company's Growth."
21
<PAGE>
Certain Factors Affecting Future Operating Results
History of Losses
During the fiscal years ending December 31, 1998, 1997 and 1996, the
Company suffered net losses (including non-recurring charges) of approximately
($6,496,000), ($5,589,000), and ($13,890,000), respectively, on revenues of
$21,045,000, $3,458,000, and $1,496,000, respectively. Following its
restructuring in 1996 in which the Company directed its focus on becoming an
integrated solid waste management company, the Company implemented a business
strategy based on aggressive growth through acquisitions. The Company's ability
to become profitable, and to maintain such profitability, as it pursues its
business strategy will depend upon several factors, including its ability to (i)
execute its acquisition strategy and expand its revenue generating operations
while not proportionately increasing its administrative overhead, (ii) locate
sufficient additional financing to fund acquisitions, and (iii) continually
adapt to changing conditions in the competitive market in which it operates.
Outside factors, such as the economic and regulatory environments in which it
operates will also have an effect on the Company's business.
Substantial Increased Leverage
In connection with its business strategy, the Company has incurred and
expects to incur substantial indebtedness, resulting in a highly leveraged
capital structure. The Company's substantial indebtedness could have important
consequences, including limiting the Company's ability to fund future working
capital, capital expenditures and other general corporate requirements. This may
increase the Company's vulnerability to adverse economic and industry
conditions; requiring the Company to dedicate a substantial portion of its cash
flow from operations to payments on the Company's indebtedness, thereby reducing
the availability of the Company's cash flow to fund working capital, capital
expenditures and other general corporate purposes; limiting the Company's
flexibility in planning for, or reacting to, changes in the Company's business
and the industry in which the Company operates; placing the Company at a
competitive disadvantage compared to the Company's competitors that have less
indebtedness and limiting the Company's ability to borrow additional funds.
Uncertain Ability to Finance the Company's Growth
The Company will require substantial funds to complete and bring to
commercial viability all of its currently planned projects. The Company also
anticipates that future business acquisitions will be financed through cash from
operations, the proceeds from the Senior Notes, borrowings under its bank credit
facility, offering the Company's stock as consideration for acquisitions or
additional equity or debt financings. Therefore, the Company's ability to
satisfy its future capital and operating requirements is dependent on a number
of pending or future financing activities, none of which is assured successful
completion.
Ability to Identify, Acquire and Integrate Acquisition Targets
The future success of the Company is highly dependent upon the Company's
continued ability to successfully identify, acquire and integrate additional
solid waste collection, recycling, transfer and disposal businesses. As
competition for acquisition candidates increases within the solid waste
management industry, the availability of suitable candidates at terms favorable
to the Company may decrease. The Company competes for acquisition candidates
with larger, more established companies that may have significantly greater
capital resources than the Company, which can further decrease the availability
of suitable acquisition candidates. There can be no assurance that the Company
will be able to identify suitable acquisition candidates, obtain necessary
financings on favorable terms or successfully integrate any acquisitions with
current operations.
The Company believes that a significant factor in its ability to
consummate acquisitions will be the attractiveness of the Company's Common Stock
as consideration for potential acquisition targets. This attractiveness may, in
large part, be dependent upon the relative market price and capital prospects of
the Company's equity securities as compared to the equity securities of its
competitors. If the market price of the Company's Common Stock were to decline,
the Company's ability to implement its acquisition program through the issuance
of its Common Stock could be materially adversely affected.
Ability to Manage Growth
The Company's objective is to continue to grow by expanding its services
in markets where it can be one of the largest and most profitable
fully-integrated solid waste management companies. Accordingly, the Company may
experience periods of significant rapid growth. Such growth, if it were to
occur, could place a significant strain on the Company's management and its
operational, financial and other resources. Any failure to expand its
operational and financial systems and controls or to recruit appropriate
personnel in an efficient manner at a pace consistent with such growth could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company's future success is also highly dependent upon its
continuing ability to identify, hire, train and motivate highly qualified
personnel. The Company faces competition for hiring such personnel from other
companies, government entities and other organizations. There can be no
assurance that the Company will be successful in attracting and retaining
qualified personnel as required for its projected operations. The inability to
attract and retain qualified personnel could have a material adverse effect upon
the Company's business, financial condition and results of operations.
22
<PAGE>
Limitations on Landfill Permitting and Expansion
The Company's operations depend on its ability to expand the landfills it owns
or operates and develop or acquire new landfill sites. There can be no assurance
that the Company will be successful in obtaining new landfill sites or expanding
the permitted capacity of its existing landfills. The process of obtaining
required permits and approvals to operate and expand landfills and transfer
stations has become increasingly difficult and expensive. The process can take
several years and involves hearings and compliance with zoning, environmental
and other requirements. There can be no assurance that the Company will be
successful in obtaining and maintaining required permits. Even when granted,
final permits to expand are often not approved until the remaining capacity of a
landfill is very low. In the event the Company exhausts its permitted capacity
at one of its landfills, the Company's ability to expand internally will be
limited and the Company will be required to cap and close such landfill. In
addition, the Company could be forced to dispose of its waste at landfills
operated by its competitors. The additional costs could have a material adverse
effect on the Company's business.
Dependence on Management
The Company's future success is highly dependent upon the services of
its executive officers, particularly Philip Strauss, Chairman, Chief Executive
Officer and President of the Company, and Robert Rivkin, Executive Vice
President-Acquisitions, Chief Financial Officer, Treasurer and Secretary of the
Company. The Company has obtained key executive insurance policies in the amount
of $1.0 million with respect to each of Messrs. Strauss and Rivkin. The loss of
the services of Mr. Strauss or Mr. Rivkin could have a material adverse effect
on the Company's business, financial condition and results of operations.
Competition
The solid waste management industry is highly competitive, very
fragmented and requires substantial labor and capital resources. Competition
exists for collection, recycling, transfer and disposal services, and
acquisition targets. The markets the Company competes or is likely to compete in
are usually served by one or more of the large national, regional or local solid
waste companies who may have accumulated substantial goodwill and/or have
greater financial, marketing or technical resources than those available to the
Company. The Company also competes 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. Additionally, alternative disposal facilities such as
recycling and incineration may reduce the demand for the disposal of solid waste
in landfills. 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. There can be no
assurance that the Company will be able to successfully bid such contracts or
compete with the larger and better-capitalized companies. Geographic
Concentration of Operations
The Company has established solid waste management operations in
Vermont, Central Pennsylvania, Central Massachusetts and Central Upstate New
York. Since the Company's current primary source of revenues will be
concentrated in these geographic locations, the Company's business, financial
condition and results of operations could be materially affected by, without
limitation, the following: (i) downturns in these local economies, (ii) severely
harsh weather conditions and (iii) state regulations. Additionally, the growing
competition within the local economies for waste streams may make it
increasingly difficult to expand within these regions. There can be no assurance
that the Company will be able to continue to increase the waste stream to its
landfills or be able to expand its geographic markets to mitigate the effects of
adverse events that may occur in these regions.
Seasonally
The Company's 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, without limitation: (i) harsh winter weather conditions
which can interfere with collection and transportation, (ii) the construction
and demolition activities which generate landfill waste are primarily performed
in the warmer seasons and (iii) the volume of waste in the region is generally
lower than that which occurs in warmer months. The Company believes that the
seasonally of the revenue stream will not have a material adverse effect on the
Company's business, financial condition and results of operations on an
annualized basis.
23
<PAGE>
Environmental and Government Regulations
The Company and its customers operate in a highly regulated environment,
and in general the Company's landfill projects will be required to have federal,
state and/or local government permits and approvals. Any of these permits or
approvals may be subject to denial, revocation or modification under various
circumstances. In addition, if new environmental legislation or regulations are
adopted or existing legislation or regulations are amended or are interpreted or
enforced differently, the Company or its customers may be required to obtain
additional operating permits or approvals. There can be no assurance that the
Company will meet all of the applicable regulatory requirements. Any delay in
obtaining required permits or approvals will tend to cause delays in the
Company's ability to obtain project financing, resulting in increases in the
Company's need to invest working capital in projects prior to obtaining more
permanent financing, and will also tend to reduce project returns by deferring
the receipt of project revenues. In the event that the Company is required to
cancel any planned project as a result of the inability to obtain required
permits or other regulatory impediments, the Company may lose any investment it
has made in the project up to that point, and the cancellation of any landfill
projects may have a materially adverse effect on the Company's financial
condition and results of operations.
Potential Environmental Liability and Adverse Effect of Environmental Regulation
The Company's business exposes it to the risk that it will be held
liable if harmful substances escape into the environment and cause damages or
injuries as a result of its operating activities. Moreover, federal, state and
local environmental legislation and regulations require substantial expenditures
and impose significant liabilities for non-compliance. The Company believes that
it is currently in material compliance with all applicable environmental laws.
Potential Adverse Community Relations
The potential exists for unexpected delays, costs and litigation
resulting from community resistance and concerns relating to existing and
acquired operations and proposed future development of solid waste facilities.
Performance or Surety Bonds and Letters of Credit
The Company 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
its landfills and transfer stations. 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 the Company's business, financial condition and
results of operations.
Environmental Impairment Liability Insurance
The Company has obtained environmental impairment liability insurance
covering claims for the sudden or gradual onset of environmental damage to the
extent of $5 million per landfill. 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 also carries a comprehensive general
liability insurance policy, which management considers adequate at this time to
protect its assets and operations from other risks.
Adequacy of Accruals for Closure and Post-Closure Costs
The Company has material financial obligations relating to closure and
post-closure costs of its existing landfills and any landfill it may purchase or
operate in the future. The Company estimates and accrues closure and
post-closure costs based on engineering estimates of landfill usage and
remaining landfill capacity. There can be no assurance that the Company's
financial obligations for closure and post-closure costs will not exceed the
amount accrued, which, if it occurs, may have a material adverse effect on the
Company's business, financial condition and results of operations.
24
<PAGE>
Capital Expenditures
The Company capitalizes, in accordance with GAAP, certain expenditures
and advances relating to acquisitions, pending acquisitions and landfill
projects. The Company's policy is to expense in the current period all
unamortized capital expenditures and advances relating to any operation that is
permanently shut down or any acquisition that will not be consummated and any
landfill project that is terminated. Thus, the Company may be required to incur
a charge against earnings in future periods that could have a material adverse
effect on the Company's business, financial condition and results of operations.
Year 2000 Compliance
The statements in the following section include the "Year 2000
readiness disclosure" within the meaning of the Year 2000 Information and
Readiness Disclosure Act. Please refer to the information located at the
beginning of this Item 7 regarding forward-looking statements contained in this
section.
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.
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.
Inflation
The Company does not believe its operations have been materially
affected by inflation.
25
<PAGE>
Item 8. Financial Statements and Supplementary Data
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
Independent Auditors' Report 27
Consolidated Balance Sheets at December 31, 1998 and 1997 28
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 29
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 30-31
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1998, 1997 and 1996 32
Notes to Consolidated Financial Statements 33-48
26
<PAGE>
Independent Auditors' Report
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 Peat Marwick LLP
Boston, Massachusetts
March 12, 1999
27
<PAGE>
<TABLE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, December 31,
Assets 1998 1997
------
---------------- ----------------
<S> <C> <C>
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) 2,742,409 2,544,995
Deferred revenue 1,866,128 -
---------------- ----------------
Total current liabilities 16,718,091 3,742,763
Long-term debt and notes payable (Note 7) 64,861,187 7,201,262
Landfill closure and post-closure costs (Notes 2 and 10) 2,798,597 1,644,000
---------------- ----------------
Total liabilities 94,377,875 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 (36,189,072) (28,805,699)
---------------- ----------------
Total stockholders' equity 1,738,824 5,972,229
---------------- ----------------
Total liabilities and stockholders' equity $ 96,116,699 $ 18,560,254
================ ================
See accompanying notes to consolidated financial statements.
</TABLE>
28
<PAGE>
<TABLE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
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 $ (0.85) $ (1.51) $ (4.10)
Discontinued operations - - (0.80)
Extraordinary item (0.03) (0.04) -
--------------- --------------- ---------------
Basic net loss per share (0.88) (1.55) (4.90)
Preferred stock dividends (0.12) - -
--------------- --------------- ---------------
Basic net loss available for common shareholders $ (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
=============== =============== ===============
See accompanying notes to consolidated financial statements.
</TABLE>
29
<PAGE>
<TABLE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
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
================== ================ ===============
See accompanying notes to consolidated financial statements.
</TABLE>
30
<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 S
anitation, 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.
31
<PAGE>
<TABLE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Preferred Stock Preferred Stock Additional Stockholders'
Series A Series B Common Stock 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
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)
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
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
-------- ---------- ---------- ---------- ---------- ---------- ------------ ------------- ------------
See accompanying notes to consolidated financial statements
</TABLE>
32
<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 4 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 Footnote 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 U.S. 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.
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:
Buildings, facilities and improvements 10-30 years
Machinery and equipment 3-10 years
Rolling stock 3-10 years
Containers 5-10 years
Office equipment 3-5 years
33
<PAGE>
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 that
the 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 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.
34
<PAGE>
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,
warrants and convertible securities. Diluted earnings per share is very 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.
35
<PAGE>
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 Central 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, 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.
December 31,1998 December 31, 1997
(unaudited) (unaudited)
Net revenue $ 31,546,000 $31,018,000
============ ===========
Net loss $ (4,631,000) $(5,128,000)
============= ============
Basic loss per share $ (0.63) $ (1.42)
============ ============
Note 4. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following;
December 31,
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
============== ============
36
<PAGE>
Note 5. Property and Equipment
Property and equipment are stated at cost and consist of the following;
December 31,
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
=========== ===========
Note 6. Intangible Assets
Intangible assets consist of the following;
December 31,
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
============ ===========
Note 7. Long-term Debt and Notes Payable
Long-term debt and notes payable consists of:
December 31,
1998 1997
---------------------------
7% Convertible Subordinated Notes $ 60,000,000 $ -
Howard Bank 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
============ ===========
Scheduled maturities of long-term debt and notes payable, excluding capital
leases are as follows:
Payments due in the year ending December 31,
1999 $ 8,176,268
2000 12,536,690
2001 530,953
2002 427,261
2003 248,421
Thereafter 60,000,000
-------------
$ 81,919,593
37
<PAGE>
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 2 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 $10,390,000 of the Notes. (See Footnote 20 "Subsequent Events")
Howard Bank Credit Facility: On March 31, 1997, the Company closed a $1.0
million term loan with The Howard Bank of Burlington, Vermont. During 1998, the
loan was renegotiated as part of a line of credit for $10,000,000. 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 an
expansion of this facility with The Howard Bank.
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 Footnote 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 Footnote 13 "Preferred Stock".
Capital Leases. The Company leases certain facilities, equipment, and
vehicles under agreements which are classified as capital leases.
38
<PAGE>
Leased capital assets included in property and equipment are as follows:
December 31,
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
============ ===========
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:
Capital Operating
Leases Leases
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
===========
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
Footnote 20 "Subsequent Events".
Note 8. Accrued Expenses
Accrued expenses consisted of the following:
December 31,
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 376,616 5,615
Fairhaven landfill (See Note 17) - 756,000
Restructuring (See Note 16) - 778,609
----------- -------
$ 2,742,409 $ 2,544,995
=========== ==========
39
<PAGE>
Note 9. Income Taxes
Income tax expense
(benefit) consists of: Current Deferred Total
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)
=========================================
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:
1998 1997 1996
---------------------------------------
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)
=========== ============== ============
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.
1998 1997
------------- ----------
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 t 846,947 -
Deferred tax liabilities:
Total deferred tax liabilities (846,947) -
Net deferred tax liability $ - $ -
=============== ==============
40
<PAGE>
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.
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.
41
<PAGE>
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.
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.
42
<PAGE>
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 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.
43
<PAGE>
1998 1997 1996
---- ---- ----
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)
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>
<S> <C> <C> <C> <C> <C> <C>
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
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.
44
<PAGE>
Options outstanding at December 31, 1998 and related proceeds to the Company
were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Remaining Weighted Avg. Number of
Shares Price Exercise Contractual Exercise Options
Under Option Per Share Proceeds Life Price Exercisable
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>
<S> <C> <C> <C> <C> <C> <C>
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
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>
45
<PAGE>
Options outstanding at December 31, 1998 and related proceeds to the Company
were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Remaining Weighted Avg. Number of
Shares Price Exercise Contractual Exercise Options
Under Option Per Share Proceeds Life Price Exercisable
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 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.
46
<PAGE>
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, Central
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 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>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
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
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 -
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
Central 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 - -
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>
47
<PAGE>
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.
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 Howard Bank 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 $4.63 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 $10,390,000 of its 7% Convertible
Subordinated Notes. The remaining 7% Convertible Subordinated Notes are
convertible by holders into Common Shares 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 5 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.
48
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information Regarding Directors
The following table and biographical descriptions set forth certain
information as of March 15, 1999, unless otherwise specified, with respect to
the seven Directors of the Company, all of whom are nominees for reelection at
the 1999 Annual Meeting of Stockholders, based on information furnished to the
Company by each Director.
Directors
Director
Age Since
-----------------------------------
Philip W. Strauss 50 1996
Robert Rivkin 40 1997
Jay Matulich 44 1995
David J. Breazzano 42 1997
Charles Johnston 64 1997
Judy K. Mencher 42 1997
William B. Philipbar 73 1997
- --------------
Philip W. Strauss. Mr. 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 the Company 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. Mr. Rivkin, a Certified Public Accountant, has been
Executive Vice President Acquisitions of the Company 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 prior to joining the Company, 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 practiced public accounting in New York, where he specialized in mergers
and acquisitions, initial public offerings and SEC reporting.
Jay J. Matulich. Mr. Matulich has been a member of the Board of
Directors since March 1995. Mr. Matulich is a Managing Director of
International Capital Growth Limited ("ICG"), 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.
David J. Breazzano. Mr. 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 Samuel Jewelers, Inc.
Charles Johnston. Mr. 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 prior to being sold to Teleglobe Corporation of Montreal, Canada. Mr.
Johnston also serves as Trustee of Worcester Polytechnic Institute in Worcester,
Massachusetts as well as 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.
49
<PAGE>
Judy K. Mencher. Ms. 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.
Prior to 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. Mr. Philipbar was first elected a Director
of the Company on May 8, 1996. He resigned as a Director of the Company on
June 24, 1997 and was reelected to the Board on August 20, 1997. Since
December 1997, Mr. Philipbar has been a part-time consultant for the Company
in connection with the Company's consideration of proposed acquisitions and
other strategic matters. Prior to becoming a Director of the Company,
Mr. Philipbar served as Chairman of the Delaware Solid Waste Authority fro
1977 to 1987 and was 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
Board of Directors
The Company's Board of Directors consists of seven members, a majority
of whom is independent of the Company's management. Each director holds office
for a term from election until the next Annual Meeting of the Company's
stockholders and until his or her successor is duly elected and qualified.
The Board of Directors held 5 meetings during fiscal year 1998. Each of
the Company's directors attended at least 80% of the total number of meetings of
the Board of Directors and of the committees of the Company of which he or she
was a member.
The Board of Directors has appointed a Compensation Committee and an
Audit Committee.
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 certain compensation matters, including incentive
compensation and benefit plans. The Compensation Committee (excluding Mr.
Strauss) administers, and has authority to grant awards under, the
Directors' Plan to the employee directors and management of the Company
and its subsidiaries and other key employees. The Compensation Committee held
2 meetings during fiscal year 1998.
Audit Committee. The Audit Committee currently consists of Messrs.
Breazzano, Matulich and Philipbar. The Audit Committee is empowered to recommend
to the Board the appointment of the Company's 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 the Company.
The Audit Committee also is empowered to meet with the Company's accounting
personnel to review accounting policies and reports. The Audit Committee held 2
meetings during fiscal year 1998.
50
<PAGE>
Information Regarding Executive Officers
Set forth below is certain information regarding each of the executive
officers of the Company, including their principal occupation and business
experience for at least the last five years.
Name Age Position
Philip W. Strauss............ 50 Chief Executive Officer and President
Robert Rivkin................ 40 Executive Vice President -
Acquisitions,Chief Financial Officer,
Secretary and Treasurer
Michael J. Leannah........... 46 Senior Vice President and Chief
Operating Officer
Joseph E. Motzkin............ 56 Vice President - Acquisitions
Arthur Streeter.............. 38 Vice President and General Counsel
- -----------------
The principal occupation and business experience for at least the last
five years of each executive officer of the Company, other than executive
officers also serving as Directors, is set forth below.
Michael J. Leannah. Mr. Leannah has been a Senior Vice President and
the Chief Operating Officer of the Company since July 1998. Prior to joining
the Company, 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. Mr. Motzkin has been a Vice President of the Company
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 of experience in the solid waste management business.
Arthur Streeter. Mr. Streeter has been Vice President and General
Counsel since February 1998. Prior to joining the Company he was a Partner at
Goldstein and Manello, a 60 lawyer firm based in Boston, Massachusetts
where he gained 12 years of experience representing both private and public
companies.
Each of the executive officers holds his or her respective office until
the regular annual meeting of the Board of Directors following the annual
meeting of stockholders and until his or her successor is elected and qualified
or until his or her earlier resignation or removal.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and the Nasdaq Small-Cap Market. Officers, directors and
greater than 10% stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file. To the Company's
knowledge, based solely on review of the copies of such reports furnished to the
Company and written representations that no other reports were required during
the fiscal year ended December 31, 1998, all Section 16(a) filing requirements
applicable to its executive officers, directors and greater than 10% beneficial
owners were satisfied.
51
<PAGE>
Item 11. Executive Compensation
Director Compensation
The Company does not currently pay cash compensation to its 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 "Director Plan"). The Director Plan provides for the
automatic granting to Independent Directors (as defined in the Director Plan) of
options that do not qualify as incentive stock options (referred to as "Stock
Options") under Section 422 of the Code. Under the terms of the Director Plan,
each Independent Director who first becomes a Director of the Company on or
after June 30, 1997 shall automatically be granted on the date he or she becomes
a Director of the Company a Stock Option to purchase 20,000 shares of Common
Stock. In addition, the Director Plan provides that each Independent Director
shall automatically be granted, at the beginning of each calendar year in which
he or she is serving as an Independent Director, a Stock Option to acquire
10,000 shares of Stock. Each Independent 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 Stock prorated to reflect the remaining portion of such calendar year.
The exercise price per share for the Common Stock covered by any Stock Option
granted under the Director Plan shall be equal to the fair market value of the
Common Stock on the date such option is granted.
Other than Stock Options to acquire 20,000 shares of Stock granted
automatically to each new director joining the Board on or after June 30, 1997,
which Stock Options vest immediately upon grant, options granted under the
Director Plan shall vest at a rate of 25% of the total number of shares of
Common Stock purchasable under such option for each year that the holder remains
a Director of the Company, such vesting to take place at the end of each of the
first four calendar years following issuance of such options. An option issued
under the Director Plan shall not be exercisable after the expiration of ten
years from the date of grant.
Executive Compensation
Summary Compensation Table. The following table sets forth the aggregate
cash compensation paid by the Company with respect to the fiscal years ended
December 31, 1998, 1997 and 1996 to the Company's Chief Executive Officer and
the three other senior executive officers in office on December 31, 1998 who
earned at least $100,000 in cash compensation during 1998 (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C>
Long-Term
Compensation
Awards
Annual Shares
Compensation Underlying
Salary Options (1)
Name and Principal Position Year ($) (#)
- --------------------------- ---- --------------------------------
Philip Strauss 1998 188,172 250,000
Chairman of the Board, 1997 162,504 522,859
President and Chief 1996 150,000 50,000(2)
Executive Officer
Robert Rivkin 1998 187,506 250,000
Executive Vice President - Acquisitions, 1997 162,504 522,859
Chief Financial Officer, Secretary and Treasurer 1996 150,000 41,250
Joseph Motzkin(3) 1998 118,060 40,000
Vice President - Acquisitions 1997 110,000 19,300
Arthur Streeter(4) 1998 118,428 40,000
Vice-President and General Counsel
</TABLE>
(1) All information with respect to 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 effective
February 13, 1998.
(2) Includes the options to acquire 40,000 shares of 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 the Company until the third quarter of 1996.
(4) Includes Mr. Streeter's salary for 1998 only as Mr. Streeter joined the
Company in February 1998.
52
<PAGE>
Option Grants in Fiscal Year 1998. The following table sets forth the
options granted during fiscal year 1998 and the value of the options held on
December 31, 1998 by the Company's Named Executive Officers.
<TABLE>
OPTION GRANTS IN FISCAL YEAR 1998 (1)
<S> <C> <C> <C> <C> <C>
Percent of Total
Number of Options Granted Exercise or
Shares Underlying to Employees in Base Price Expiration Grant Date
Name Options Granted(#) Fiscal Year ($ /share) Date Present Value$(2)
- ---- ------------------ ------------------- ---------- ------------- --------------
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
Michael Leannah 75,000 7% $9.25 7/20/08 $126,525
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 with respect to 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 effective
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 Year-End Holdings. The following table sets forth
the options exercised during fiscal year 1998 and the value of the options held
on December 31, 1998 by the Company's Named Executive Officers.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998
AND FISCAL YEAR-END 1998 OPTION VALUES
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Number of
Securities Underlying Value of Unexercised
Shares Unexercised Options in-the-Money Options
Acquired On Value at Fiscal Year-End (#)
at Fiscal Year-End ($)
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
----------------------------------- -------------- -------------------------------------------------- -----------------
Philip Strauss 0 0 180,715 642,144 $739,847 $2,628,937
Robert Rivkin 0 0 180,715 642,144 739,847 2,628,937
Joseph Motzkin 0 0 9,825 59,475 40,224 79,731
</TABLE>
53
<PAGE>
Employment Agreements. On June 30, 1998, the Company and Mr. Strauss
entered into an employment agreement. The terms of the agreement provide (i)
that Mr. Strauss shall serve as the Company's President and Chief Executive
Officer, (ii)that he receive a salary of $200,000 per year through June 30, 1999
and $225,000 per year through June 30, 2000 and (iii) that he agree not to
compete with the Company following termination of his employment for a period of
one year following the termination. In the event that Mr. Strauss is terminated
for cause, he shall not be bound to the non-competition provisions.
The Company's agreement with Mr. Strauss is effective until June 30, 1999
and, absent ninety-day notice from either party to the contrary, shall
be extended automatically for subsequent one-year terms upon the expiration of
the agreement. The Company's agreement with Mr. Strauss may be terminated at any
time by the mutual consent of the parties.
On June 30, 1998, the Company and Mr. Rivkin entered into an employment
agreement. The terms of the agreement provide (i) that he receive a salary of
$200,000 per year through June 30, 1999 and $225,000 per year through June 30,
2000 per year and (iii) that he agree not to compete with the Company
following termination of his employment for a period of one year
following the termination. In the event that Mr. Rivkin is terminated for
cause, he shall not be bound to the non-competition provisions. The Company's
agreement with Mr.Rivkin is effective until June 30, 1999 and, absent
ninety-day notice from either party to the contrary, shall be extended
automatically for subsequent one-year terms upon the expiration of the
agreement. The Company's agreement with Mr. Rivkin may be terminated at any
time by the mutual consent of the parties.
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 member of the Compensation Committee in 1997 ever served as
an officer of the Company.
54
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table presents information as to all directors and senior
executive officers of the Company as of March 15, 1999 and persons or entities
known to the Company to be beneficial owners of more than 5% of the Company's
Common Stock as of March 15, 1999, unless otherwise indicated, based on
representations of officers and directors of the Company and filings received by
the Company on Schedules 13D and 13G or Form 13F under the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
<TABLE>
Beneficial Ownership
<S> <C> <C> <C>
Common Stock
-------------------------------------------------
# of Shares % of Class
Directors, Executive Officers and 5% Stockholders(1) Beneficially Beneficially
Owned Owned(2)
- ----------------------------------------------------------------------------------------------------------------------
B-III Capital Partners, L.P.(3) 45.4%
c/o DDJ Capital Management, LLC 6,367,406
141 Linden Street
Wellesley, MA 02181
The Prudential Insurance Company of America (4) 6.9%
100 Mulberry Street 791,611
Newark, NJ 07102
PaineWebber High Income Fund (5)
1285 Avenue of the Americas 1,717,194 14.1%
New York, NY 10019
John Hancock Advisers(6) 1,150,000 9.3%
101 Huntington Avenue
Boston, MA 02199
BEA Associates (Credit Suisse) (7) 700,000 5.9%
153 East 53 Street, 57th Floor
New York, NY 10022
735,000 6.5%
Dawson Samberg Capital Management, Inc,(8)
354 Pequot Avenue
Southport, CT 06490
David J. Breazzano(9) 6,750 *
Charles Johnston(10) 6,750 *
Jay Matulich(11) 7,000 *
Judy K. Mencher(9) 6,685 *
Joseph Motzkin(12) 45,553 *
William B. Philipbar(13) 31,685 *
Robert Rivkin(14) 261,168 2.3%
Philip W. Strauss(15) 260,993 2.3%
All directors and officers as a 626,584 5.6%
Group (8 persons)
</TABLE>
55
<PAGE>
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.
(2) Based on 11,220,546 shares of Common Stock issued and outstanding as of
March 15, 1999. As of March 15, 1999 the Company had outstanding 7%
Convertible Subordinated Notes due 2005 which are currently convertible
at the option of the holder into an aggregate 6,000,000 shares of Common
Stock at a conversion price of $10.00 as set forth in the Notes. The
Company is currently conducting a private exchange offering with respect
to the 7% Subordinated Notes, scheduled to expire March 31, 1999,
pursuant to which it is offering to issue up to 2,244,109 shares in
exchange for the tender of 7% Subordinated Notes at the face value of
their principal amount (plus a cash payment for accrued interest). The
exchange price for Common Stock issued in such exchange offer is $4.63
per share, or $5.37 per share less than the $10 per share conversion
price under the terms of the 7% Subordinated Notes. Assuming the Company
issues 2,244,109 shares of Common Stock in the exchange offer at an
exchange price of $4.63 per share, the Company would be obligated to
issue upon conversion of all remaining outstanding 7% Subordinated Notes
an aggregate of 4,960,978 shares of Common Stock, which aggregate figure
includes an additional 1,205,087 shares of Common Stock issuable as a
result of the difference between the $4.63 per share exchange price and
the $10 per share conversion price. In accordance with Exchange Act rules
promulgated by the Commission, the foregoing shares issuable upon
conversion of the 7% Convertible Subordinated Notes are included in this
table only for those holders with the right to acquire such shares within
60 days from the date of this report, to the extent such holder could
acquire additional shares.
(3) Includes 3,567,406 shares of Common Stock currently owned and 2,800,000
shares issuable upon conversion of 7% Convertible Subordinated Notes at a
conversion price of $10.00 as set forth in the Note. 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. Assuming its pro rata participation in the private exchange
offering described in footnote 2 above, B III might receive an additional
562,374 shares as a result of the private exchange offering price being
lower than the conversion price in the Note which would result in B III
owning approximately 47.5% of the Common Stock.
(4) Includes 591,611 shares of Common Stock currently owned and 200,000
shares issuable upon conversion of 7% Convertible Subordinated Notes at a
conversion price of $10.00 as set forth in the Note. Assuming its pro
rata participation in the private exchange offering described in footnote
2 above, Prudential might receive an additional 40,170 shares as a result
of the private exchange offering price being lower than the conversion
price in the Note which would result in Prudential owning approximately
7.3% of the Common Stock. The Common Stock and Notes are held for the
benefit of certain registered investment companies over which Prudential
or The Prudential Investment Corporation ("PIC") may have direct or
indirect voting and/or investment discretion, with respect to which
Prudential has advised the Company that Prudential and PIC disclaim
beneficial ownership.
(5) Includes 717,194 shares of Common Stock currently owned and 1,000,000
shares issuable upon conversion of 7% Convertible Subordinated Notes at a
conversion price of $10.00. Assuming its pro rata participation in the
private exchange offering described in footnote 2 above, Paine Webber
might receive an additional 208,848 shares as a result of the private
exchange offering price being lower than the conversion price in the Note
which would result in Paine Webber owning approximately 15.4% of the
Common Stock.
(6) Includes 1,150,000 shares issuable upon conversion of 7% Convertible
Subordinated Notes at a conversion price of $10.00. Assuming its pro rata
participation in the private exchange offering described in footnote 2
above, John Hancock might receive an additional 230,975 shares as a
result of the private exchange offering price being lower than the
conversion price in the Note which would result in John Hancock owning
approximately 11.0% of the Common Stock.
(7) Includes 700,000 shares issuable upon conversion of 7% Convertible
Subordinated Notes at a conversion price of $10.00. Assuming its pro rata
participation in the private exchange offering described in footnote 2
above, BEA Associates might receive an additional 140,593 shares as a
result of the private exchange offering price being lower than the
conversion prices in the Note which would result in BEA Associates owning
approximately 7.0% of the Common Stock.
(8) Includes 585,000 shares of Common Stock currently owned and 150,000
shares issuable upon conversion of 7% Convertible Subordinated Notes with
a conversion price of $10.00. Assuming its pro rata participation in the
private exchange offering described in footnote 2 above. Dawson Samberg
might receive an additional 56,103 shares as a result of the private
exchange offering price being lower than the conversion prices in the
Note which would result in Dawson Samberg owning approximately 6.9% of
the Common Stock.
(9) Includes 6,750 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.
(10) Includes 6,750 shares subject to stock options which are fully vested
and currently exercisable.
(11) Includes 2,000 shares of Common Stock currently owned and 5,000
shares subject to stock options which are fully vested and currently
exercisable.
(12) Includes 18,403 shares of Common Stock currently owned and 27,150 shares
subject to stock options which are fully vested and currently
exercisable.
(13) Includes 31,685 shares subject to stock options which are fully vested
and currently exercisable.
(14) Includes 17,953 shares of Common Stock currently owned and 243,215
shares subject to stock options which are fully vested and currently
exercisable.
(15) Includes 17,778 shares of Common Stock currently owned and 243,215
shares subject to stock options which are fully vested and currently
exercisable.
56
<PAGE>
Item 13. Certain Relationships and Related Transactions
On December 15, 1997, the Board of Directors voted to retain Mr. William
Philipbar, a Non-Employee Director of the Company, as a part-time consultant in
connection with the Company's consideration of proposed acquisitions and other
strategic matters. Mr. Philipbar's compensation for providing such consulting
services for up to four days per month, as requested by the Company, consists of
grants of options to acquire 25,000 shares of Common Stock to be granted on
January 1 of each year (beginning January1, 1998) so long as Mr. Philipbar
continues to be so retained by the Company. Under such consulting arrangement,
Mr. Philipbar received options on January 1, 1998 and 1999 to acquire 25,000
shares of Common Stock, vesting according to the terms described below. Such
grants are made under an amendment of the Company's Amended and Restated 1995
Stock Option and Incentive Plan (the "Plan") permitting the grant of options and
other benefits under the Plan to Non-Employee Directors, consultants and other
key persons, which was approved by the Company's stockholders at the August 18,
1998 Annual Meeting of Stockholders. Each such option granted to Mr. Philipbar
under such 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 the Company; (b) shall be exercisable at
an exercise price per share equal to the closing price of the 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 the Company and has been ready, willing and able to
perform services as such consultant during such one year period; and (d) shall
be a non-qualified stock option for income tax purposes.
57
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(A) 1. Financial Statements
The financial statements are listed under Part II, Item 8 of this Report.
2. Financial Statement Schedules
The financial statement schedules are listed under Part II, Item 8 of this
Report.
3. Exhibits
The exhibits are listed below under Part IV, Item 14(c) of this report.
(B) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1998.
(C) Exhibits
Exhibit No. Description
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 No. 1.1 of the
Company's Current Report on Form 8-K, dated March 2, 1999.)
2.1 Articles of Merger of BioSafe International, Inc., a Nevada
Corporation, with and into Waste Systems International, Inc., a
Delaware Corporation, filed October 24, 1997 (Incorporated by reference
to Exhibit 2.1 to Form 10-Q For the Quarterly Period Ended September
30, 1997 of Waste Systems International, Inc.)
2.2 Certificate of Merger of BioSafe International, Inc., a Nevada
Corporation, with and into Waste Systems International, Inc., a
Delaware Corporation, filed October 24, 1997 and effective October 27,
1997. (Incorporated by reference to Exhibit 2.2 to Form 10-Q For the
Quarterly Period Ended September 30, 1997 of Waste Systems
International, Inc.)
2.3 Agreement and Plan of Merger dated October 17, 1997 by and between
BioSafe International, Inc. a Nevada Corporation and Waste Systems
International, Inc. a Delaware Corporation. (Incorporated by
reference to Exhibit 2.3 to Form 10-Q For the Quarterly Period
Ended September 30, 1997 of Waste Systems International, Inc.)
3(i).1 Second Amended and Restated Certificate of Incorporation of Waste
Systems International, Inc. filed February 13, 1998.
3(i).2 Certificate of Designations of Series B Convertible Preferred Stock of
Waste Systems International, Inc. filed March 5, 1998.
3(i).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.
3(ii).1 Bylaws of the Company, adopted and effective as of October 27, 1997.
4.4 Certificate of Designation of Series A Convertible Preferred Stock
of Waste Systems International, Inc.
filed October 20, 1997 (Refer to Exhibit 3(i).3 above).
4.5 Certificate of Designation of Series B Convertible Preferred Stock of
Waste Systems International, Inc. filed October 20, 1997 (Refer to
Exhibit 3(i).2 above).
4.6 Amended and Restated Subscription Agreement dated as of
June 30, 1997 (Incorporated by reference to Exhibit 4.2 to Form
10-Q for the Quarterly Period Ended September 30, 1997 of
Waste Systems International, Inc.)
4.7 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 No. 4.1 of the Company's Current Report on Form 8-K, dated
March 2, 1999.)
4.8 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 No. 4.2 of the Company's Current Report on Form
8-K, dated March 2, 1999.)
4.9 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 No. 4.3 of
the Company's Current Report on Form 8-K, dated March 2, 1999.)
4.10 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 No. 4.4 of the Company's Current Report on
Form 8-K, dated March 2, 1999.)
10.4 Agreement and Plan of Merger dated as of March 17, 1995, among the
Company, Zoe Resources, Inc., certain stockholders of the Company and
BioSafe, Inc. (Incorporated by Reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K, dated March 29, 1995.)
10.5 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.)
10.6 Agreement between BioSafe, Inc. and the Town of South Hadley,
Massachusetts, dated August 22, 1995. (Incorporated by reference
to Exhibit No. 10.12 to the Registration Statement on Form S-1 of
BioSafe International, Inc., No. 33-93966 as filed on June 26 1995.)
10.7 Form of 10% Convertible, Redeemable, Subordinated Note Due 2000.
(Incorporated by reference to Exhibit No. 10.15 to the Registration
Statement on Form S-1 of BioSafe International, Inc., No. 33-93966.)
Schedule of Subsidiaries.
27.1 Financial Data Schedules
58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
WASTE SYSTEMS INTERNATIONAL, INC.
Date: March 31, 1999 By: /s/ Philip Strauss
------------------
Philip Strauss
Chairman, Chief Executive
Officer and President
(Principal Executive Officer)
Date: March 31, 1999 By: /S/ Robert Rivkin
------------------
Robert Rivkin
Executive Vice President
-Acquisitions,
Chief Financial Officer,
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: March 31, 1999 By: /s/ Philip Strauss
-------------------------
Philip Strauss
Chairman, Chief Executive
Officer and President
(Principal Executive Officer)
Date: March 31, 1999 By: /S/ Robert Rivkin
----------------------------
Robert Rivkin
Executive Vice President
-Acquisitions,
Chief Financial Officer,
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
Date: March 31, 1999 By: /S/ Jay J. Matulich
-----------------------------
Jay J. Matulich - Director
Date: March 31, 1999 By: /S/ David J. Breazzano
------------------------------
David J. Breazzano - Director
Date: March 31, 1999 By: /S/ Charles Johnston
------------------------------
Charles Johnston - Director
Date: March 31, 1999 By: /S/ Judy K. Mencher
------------------------------
Judy K. Mencher - Director
Date: March 31, 1999 By: /S/ William B. Philipbar
-------------------------------
William B. Philipbar - Director
59
<PAGE>
Exhibit 21.1
Schedule of Subsidiaries
As of December 31, 1998
Name and address: EIN
WSI Medical-Waste Systems, Inc. 04-3377563
(Formerly Biosafe Medical Waste Technology, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Vermont 03-0347845
(Formerly Waste Professionals of Vermont, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Moretown 03-0355691
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Burlington Transfer Station,Inc. 04-3374689
(Formerly Burlington Area Transfer Station, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Waitsfield Transfer Station, Inc. 04-3292469
(Formerly Waitsville Transfer Station, Inc.
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI of Vermont, Inc. 03-0354296
(Formerly WPV Disposal, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI of Massachusetts Holdings, Inc. 04-3301441
(Formerly Biosafe Buckland, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI of Fairhaven, Inc. 04-3301442
(Formerly Biosafe Fairhaven, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI of South Hadley, Inc. 04-3086959
(Formerly Biosafe, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Pennsylvania Holdings, Inc. 04-3301448
(Formerly Biosafe Mid-Atlantic, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Hopewell Landfill, Inc. 04-3301445
(Formerly Biosafe Pennsylvania, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI of Pennsylvania, Inc. 04-3301449
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI of Pennsylvania Transportation, Inc. 04-3301450
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Altoona Transfer Station, Inc. 04-3301447
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
Biosafe Systems, Inc. 36-4027808
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
Eagle Recycling, Inc. 23-2640932
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
Horvath Sanitation, Inc. 25-1685001
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
Mostoller Landfill, Inc. 25-1622775
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI St. Johnsbury Transfer Station, Inc. 03-0356503
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI New York Holdings, Inc. 04-3428760
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI of New York, Inc. 04-3434005
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
Mattei-Flynn Trucking, Inc. 04-2989917
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
Mass Wood Recycling, Inc. 04-3454163
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
WSI Maryland Holdings, Inc. 04-3428758
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
60
<PAGE>
Exhibit 3
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K/A
Amendment No. 2
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission file number 0-25998
WASTE SYSTEMS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
--------------------
Delaware 95-4203626
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
(Address of principal executive offices) (Zip Code)
(781) 862-3000
(Registrant's telephone number, including area code)
--------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ___
As of March 24, 1999, the market value of the voting stock of the
Registrant held by non-affiliates of the Registrant was $50,492,453.
The number of shares of the Registrant's common stock, par value $.01
per share, outstanding as of March 24, 1999 was 11,220,545.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1999 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K.
Portions of the Registration Statement on Form S-1 of Waste Systems
International, Inc. (No. 33-93966) are incorporated by reference into Part IV of
this Form 10-K.
<PAGE>
17
This report on Form 10-K/A, Amendment No. 2, amends the Report on Form
10-K of Waste Systems International, Inc. ("Waste Systems") filed with the
Securities and Exchange Commission on March 31, 1999, as amended by the report
on Form 10-K/A of Waste Systems filed with the Securities and Exchange
Commission on April 9, 1999 (such Report on Form 10-K, as so amended, the
"Amended Form 10-K").
The Amended Form 10-K is hereby amended by deleting Part I, Item 7
thereof in its entirety and replacing it as follows:
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto. This Annual Report on
Form 10-K contains forward-looking statements concerning among other things, the
Company's expected future revenues, operations and expenditures and estimates of
the potential markets for the Company's services. Such statements made by the
Company fall within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
such forward-looking statements are necessarily only estimates of future results
and the actual results achieved by the Company may differ materially from these
projections due to a number of factors as discussed in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Factors Affecting Future Operating Results" of this Form
10-K.
Introduction
The Company is 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
certain regional markets in the Northeast and Mid-Atlantic states, where it
operates. The Company focuses on the operation of an integrated non-hazardous
solid waste management business, including the ownership and operation of solid
waste disposal facilities (landfills), transfer stations and solid waste
collection services. The Company derives revenue from collecting solid waste
from its customers, which it delivers for disposal in its own landfills, and
also from unaffiliated waste collection companies who pay to dispose of waste in
the Company's landfills. The Company seeks through its acquisition strategy to
acquire substantial collection operations and transfer stations in association
with its landfills in order to enhance its overall profitability and to increase
its control over its sources of revenue. See "Business - Strategy"
During 1998, the Company acquired a total of 34 companies including two
landfills, 31 collection companies (2 of which included a transfer station) and
one transfer station. Due to the significance of the acquired business
operations to the Company's financial performance, the Company does not believe
that its historical financial statements are necessarily indicative of future
performance and as a result will affect the comparability of the financial
information included herein.
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 the Company. Revenues for the periods presented in the
consolidated statements of operations were derived from the following sources:
<PAGE>
Year ended December 31,
1998 1997 1996
Collection 73.5% 12.8% - %
Landfill 20.1 78.1 100.0
Transfer 6.4 9.1 -
----- ----- -----
Total Revenue 100.0% 100.0% 100.0%
For the purpose of this table, revenue is attributed fully to the
operation where the Company first receives the waste. For example, revenue
received from waste collected by the Company and disposed in a Company landfill
is entirely attributed to collection. The increase in the Company's collection
revenues as a percentage of total revenues during 1998 compared to 1997 is due
primarily to the impact of the 31 collection companies acquired during 1998. The
decrease in landfill and transfer station revenue as a percentage of revenues in
1998 compared to 1997 s due primarily to the acquisition of collection companies
that had been disposing of their waste at the Company's 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, 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 31, 1999, the Company
closed a private exchange offer in which it exchanged 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 that date as reported
by NASDAQ. Accrued but unpaid interest on the Notes was paid in cash. As a
result of the private 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 Shares 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 5 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.
The following table sets forth, for the periods indicated, certain
data derived from the Company's Consolidated Statements of Operations, expressed
as a percentage of revenues:
Year ended December 31,
1998 1997 1996
Revenues 100.0% 100.0% 100.0%
Operating expenses 58.9 49.7 61.6
Depreciation and amortization 21.4 20.0 24.7
Acquisition integration costs 8.9 - -
Write-off of project development costs 1.1 43.3 444.7
------ ------ -------
Total cost of operations 90.3 113.0 531.0
------ ------ -----
Gross profit (loss) 9.7 (13.0) (431.0)
Selling, general and administrative expenses 21.3 61.8 163.3
Restructuring - 17.2 116.5
Amortization of prepaid consulting fees - - 55.8
---- ---- -------
Loss from operations (11.6) (92.0) (766.6)
Royalty and other income (expense), net (0.6) (14.9) 62.5
Interest income 2.1 5.0 11.9
Interest expense and financing costs (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)
---- ---- -------
Total other income (expense) (17.9) (65.5) (12.5)
Income tax expense 0.2 0.2 (1.6)
Loss from continuing operations (29.7) (157.7) (777.5)
Discontinued operations - - (151.2)
---- ---- -------
Loss before extraordinary item (29.7) (157.7) (928.7)
Extraordinary item (1.2) (3.9) -
------ ------ -----
Net loss (30.9)% (161.6)% (928.7)%
======= ======== ========
EBITDA 10.1% (71.4%) (662.0)%
====== ======= ========
Adjusted EBITDA 21.9% (10.9%) (101.3)%
====== ======= ========
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. Thirty-four acquisitions completed by the
Company in 998 accounted for approximately $15.8 million or 90% of the increase.
The balance of the increase is the result of the internal growth within the
Vermont operations during 1998. The growth in the Vermont operations was due to
the full year's operation of the CSWD Transfer Station, which was acquired in
the fourth quarter of 1997, increased volume and prices at the Moretown Landfill
and internal growth at the Company's 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 by the Company 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
experience much higher operating expenses than landfill operations. The Company
internalizes a significant portion of its waste collected in Vermont and
Pennsylvania, which significantly reduces costs of operations as a percentage of
revenue. The Company's New York and Massachusetts operations do not yet have
landfills where waste can be internalized.
Operating costs, disposal costs, and collection fees vary widely
throughout the geographic areas in which the Company operates. The prices that
the Company 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 the Company's 34 acquisitions completed during 1998.
During 1998, the Company purchased property and equipment of approximately
$24,298,000 related to the acquisitions. ($7,522,000 of this amount was for
assets under development 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, the Company 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. The Company had costs of
approximately $5,456,000 for construction of Cell 2 at the Moretown landfill and
other development 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. 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 $1,864,000 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 the
Company's contract for remodeling and operation of a landfill in Fairhaven,
Massachusetts. See footnote 17 "Fairhaven Massachusetts Operation" in the
financial statements included in Item 8. The 1998 expense of $236,000 represents
the final charges related to the termination of the project. There are 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 the Company to build infrastructure to
sustain its significant growth through acquisition and to support the several
corporate initiatives designed to implement its strategy. The Company expects
spending growth to continue moderately into 1999 as the Company continues to
implement its growth through acquisition strategy. The decrease as a percentage
of revenue was primarily due to the expanded revenue base and related
efficiencies, as the Company is able to purchase "tuck-in" acquisitions that
increase revenues and improve margins without adding significant administrative
costs. The Company anticipates that in future periods its selling, general and
administrative expenses should continue to decrease as a percentage of revenue
as it leverages its current corporate overhead to revenue growth primarily
through acquisitions.
Restructuring. During 1996, the Company announced its intention to
restructure the Company's operations to focus its resources and activities on
developing an integrated solid waste management operation. See footnote 16
"Restructuring and Discontinued Operations" in the financial statements included
in Item 8. The restructuring was completed in 1997. 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) primarily relates to the Company's medical
waste treatment proprietary technologies. 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 the
Company. During 1998 and 1997, the Company 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 Chittenden Solid Waste District ("CSWD") transfer station located in
Williston, Vermont and the internal growth of the Company's collection
operations. All 1997 revenues were generated from the Company's Vermont
operations as compared to 1996, where approximately $1,157,000 or 77% was
generated from the Company's operations at the Fairhaven Landfill.
Cost of operations. Operating expenses for 1997 was approximately
$1,718,000 compared to $921,000 in 1996. The increase of $797,000 was primarily
due to the growth of the Company's Vermont operations. During 1997, the
Company's Vermont operations expanded as a result of the Company's purchase of a
collection company and its 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 the
Company's other Vermont operations.
Write-off of landfill development costs. Write-off of landfill
development costs were $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 Fairhaven Landfill.
Selling, general and administrative expenses. Selling, general and
administrative expenses for 1997 were approximately $2,138,000, 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 the Company's 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, the Company had been actively
developing environmental technologies with potential application in a number of
business areas. On March 27, 1996, the Company announced its intention to take
meaningful actions to conserve cash and working capital, including restructuring
the Company's operations to focus its resources and activities on developing an
integrated solid waste management operation. As part of the restructuring, the
Company ceased operations at its technology center in Woburn, Massachusetts, and
discharged all employees and consultants previously engaged in developing
technologies with potential application in certain 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 (the "Ancillary
Technologies"), and Major Sports Fantasies, Inc. ("MSF"), a business unrelated
to the environmental industry. No substantial revenues were received from the
technology center operations or MSF activities. Restructuring charges for 1997
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 the Company's
licensing agreements with ScotSafe Limited ("ScotSafe").
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 the Company's Vermont operations.
During 1997 and 1996, the Company 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,
the Company wrote-off an uncollectible receivable due from ScotSafe of
approximately $568,000.
Liquidity and Capital Resources
The Company's business is capital intensive. The Company's 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, the Company may incur working capital deficits. The Company plans to
meet its capital needs through various financing sources, including internally
generated funds, equity securities and debt. On May 13, 1998, the Company closed
on an offering of $60.0 million 7% Convertible Subordinated Notes which resulted
in net proceeds to the Company of approximately $58.3 million. As discussed in
"Recent Business Developments", on March 2, 1999, the Company completed a
private offering of 11 1/2% Senior Notes in the aggregate principal amount of
$100 million due January 15, 2006 which resulted in net proceeds to the Company
of approximately $97.3 million. The Company has used the proceeds from these
Debt offerings to complete various acquisitions during 1998 and 1999. In
addition, the Company has repaid other outstanding debt obligations, 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, and fund the Company's growth, including infrastructure. The Company
intends to use the balance of the proceeds for general corporate purposes,
including possible future acquisitions and working capital. In addition,
approximately $10,449,000 of the 7% Convertible Subordinated Notes were
exchanged into common stock during March 1999 through an exchange offering. The
Company intends to continue its 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 the Company. Any failure of the Company to
obtain required financing would have a material adverse effect on the Company's
financial condition and results of operations.
The Company maintains an acquisitions department that is responsible
for the identification, due diligence, negotiation and closure of acquisitions.
The Company believes that a combination of internally generated funds,
additional debt and equity financing and the proceeds from the Notes will
provide adequate funds to support the Company's cost structure, acquisition
strategy and working capital requirements for the foreseeable future.
In connection with its growth strategy, the Company 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 which may, if consummated, be material. No assurance can be given,
however, that the Company will be successful in completing further acquisitions
in accordance with its growth strategy, or that such acquisitions, if completed,
will be successful.
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 Central Upstate New
York. The aggregate cost of these acquisitions was approximately $61.4 million
consisting of approximately $58.3 million in cash, $3.4 million in common stock
and approximately $1.5 million in assumed liabilities. Acquisition integration
costs for the year ended December 31, 1998, related to the acquisitions in
Vermont, Central Pennsylvania, Central Massachusetts and Central Upstate New
York, were approximately $1,865,000.
The Company generated net cash from operating activities for 1998
approximately $592,000. In 1997, the Company used approximately ($4,586,000) for
operating activities. The improved cash flow from operations 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 approximately $4,599,000 during 1998 to
approximately $2,130,000 from negative EBITDA of approximately ($2,469,000) in
1997. As a percentage of revenue, EBITDA increased to 10.1% during 1998 from
(71.4%) in 1997. Adjusted EBITDA increased by approximately $4,608,000 during
1998 to approximately $4,230,000 from negative Adjusted EBITDA of approximately
($378,000) in 1997. As a percentage of revenue, Adjusted EBITDA increased to
21.9% in 1998 compared to (10.9%) in 1997.
Net cash used by investing activities during 1998 was approximately
$71,939,000 compared to cash generated of approximately $706,000 in 1997. Of the
net cash used by investing activities in 1998, approximately $58,340,000 million
was used for the acquisition of landfill, collection and transfer operations in
Vermont, Central Pennsylvania, Central Massachusetts and Central Upstate New
York. In addition, the Company placed deposits for future acquisitions totaling
$2,211,000. Additional capital expenditures of approximately $9,032,000 were
made to develop Cell 2 at the Company's Moretown landfill and to increase
operating efficiencies at the Company's Vermont, Central Pennsylvania, Central
Massachusetts and Central Upstate New York 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 $1,000,000 and the proceeds from the sale of the Fairhaven
equipment for approximately $800,000. These were offset by capital expenditures
at the Company's Vermont operation.
The Company's capital expenditures and capital needs for acquisitions
have increased significantly, reflecting the Company's rapid growth by
acquisition and development of revenue producing assets, and will increase
further as the Company 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 1998 was approximately
$68,576,000 compared to $6,579,000 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 the Company's 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.
The Company has a $10 million line of credit facility with The
BankNorth Group, N.A. which was fully drawn as of December 31. The entire
balance was repaid on March 2, 1999 with the proceeds from the Senior Notes. The
Company is currently negotiating an expansion or replacement of the facility
with The BankNorth Group, N.A.
At December 31, 1998, the Company had approximately $83.1 million of
short-term and long-term debt.
Based upon its current operating plan, the Company believes that its
cash and cash equivalents, available borrowings, future cash flow from
operations and the proceeds of future debt and equity financings will satisfy
the Company's working capital needs for the foreseeable future. However, there
can be no assurances in this regard. See "Certain Factors Affecting Future
Operating Results - Substantial Increased Leverage" and "-Uncertain Ability to
Finance the Company's Growth."
Certain Factors Affecting Future Operating Results
Our history of losses makes investment in Waste Systems highly
speculative.
During the fiscal years ending December 31, 1998, 1997 and 1996, we
suffered net losses (including non-recurring charges) of approximately
($6,496,000), ($5,589,000) and ($13,890,000), respectively on revenues of
approximately $21,045,000, $3,458,000 and $1,496,000, respectively. 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:
o execute our acquisition strategy and expand our revenue generating
operations while maintaining or reducing our proportionate administrative
expenses;
o locate sufficient financing to fund acquisitions; and
o 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.
Substantial Increased Leverage.
We currently have a high level of indebtedness relative to
stockholders' equity. The following table illustrates our level of indebtedness:
As of December 31, 1998 (*)
(dollars in thousands)
Long-term Indebtedness............................ $172,672
Stockholders' Equity.............................. $12,188
Debt to Equity ratio.............................. 14.2
(*) pro forma to include the issuance of $100 million principal amount of Senior
Notes and the exchange of $10,449,000 principal amount of the 7% Convertible
Notes into 2,244,109 shares of our common stock.
Our high level of indebtedness could:
o limit our flexibility in planning for, or reacting to, changes
in business, industry and economic conditions;
o 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;
o place us at a competitive disadvantage compared to our competitors
with lower levels of indebtedness; and
o 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.
For the Years Ended
December 31,
1998 1997
---- ----
Ratio of earnings to Fixed Charges...... N/A N/A
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 the amount of available borrowing
under our bank credit facility or obtain 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 thereof. 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, 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 or to fund
our other liquidity needs.
The following table outlines the schedule of our required debt
amortization payments proforma to include the Senior Notes and the exchange of
$10,449,000 of the 7% Convertible Notes into 2,244,109 shares of our common
stock.:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1998 1999 2000 2001 2002 2003 2004 2005 2006 Remainder Total
---- ---- ---- ---- ---- ---- ---- ---- ---- --------- -----
Principal Payments Due During
(Dollars in thousands)
Long-Term Debt
Bank Credit Facility $ 10,000 10,000 - - - - - - - - 10,000
13% Short-tern notes 7,500 7,500 - - - - - - - - 7,500
Capital Leases,
Equipment and
Other Notes
Payable........ 3,771 676 687 531 427 440 462 153 169 226 3,771
Senior Notes.... 100,000 - - - - - - - 100,000 - 100,000
10% Convertible
Subordinated
Debentures..... 1,850 - 1,850 - - - - - - - 1,850
7% Convertible
Subordinated
Notes.......... 49,551 - - - - - - 49,551 - - -
------------ ------ ----- ------ ----- ----- ------ ------ ------- ------ -------
Total....... $172,672 18,176 2,537 531 427 440 462 49,704 100,169 226 172,672
============ ====== ===== ====== ===== ===== ====== ====== ======= ====== =======
</TABLE>
We may need to refinance all or a portion of our indebtedness,
including our Senior Notes, on or before maturity. We cannot assure you that we
will be able to refinance any of our indebtedness, including our bank credit
facilities, if any, and the Senior Notes, on commercially reasonable terms or at
all.
Uncertain Ability to Finance the Company's 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 Senior Notes offering, but also by future borrowings under
bank credit facilities not currently established, 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.
Ability to manage growth.
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 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.
Dependence on Management.
We depend to a high degree on the services of Philip Strauss, Chairman,
Chief Executive Officer and President, and Robert Rivkin, 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.
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:
o harsh winter weather conditions may interfere with collection and
transportation activities;
o the volume of winter month waste in our operating regions is generally
lower than that which occurs in warmer months; and
o 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 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.
Adequacy of Accruals for Closure and Post-Closure Costs.
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.
Potential Environmental Liability and Adverse Effect of Environmental
Regulation.
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.
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.
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.
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.
Year 2000 Compliance
The statements in the following section include the "Year 2000 readiness
disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act. Please refer to the information located at the beginning of this
Item 7 regarding forward-looking statements contained in this section. 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 time frames. 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 time frames.
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.
Inflation
The Company does not believe its operations have been materially affected by
inflation.
[END OF AMENDMENT]
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
WASTE SYSTEMS INTERNATIONAL, INC.
Date: August 5, 1999 By: /s/ Robert Rivkin
-------------------------------------------
Robert Rivkin
Executive Vice President- Acquisitions,
Chief Financial Officer, Treasurer and
Secretary
(Principal Financial and Accounting Officer)
<PAGE>
Exhibit 4
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30,
1999.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (For the transition period from to ).
WASTE SYSTEMS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4203626
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
(Address of principal executive offices) (zip code)
(781) 862-3000 Phone
(781) 862-2929 Fax
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
The number of shares of the Registrant's common stock, par value $.01
per share, outstanding as of November 12, 1999 was 20,330,946.
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30,
1999 and December 31, 1998. 1
Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 1999 and 1998. 2
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998. 3
Notes to Consolidated Financial Statements. 4-8
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations. 9-19
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
PART II. Other Information
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults on Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits, Financial Statements Schedules and
Reports on Form 8-K 21
Signatures 23
<PAGE>
1
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
September 30, December 31,
1999 1998
------------------- --------------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 2,460,415 $ 193,613
Accounts receivable, less allowance for doubtful accounts of
$775,841 at September 30, 1999 and $222,028 at
December 31,1998 9,563,533 5,235,534
Prepaid expenses and other current assets 2,688,672 4,769,285
------------------- --------------------
Total current assets 14,712,620 10,198,432
Property and equipment, net (Notes 2 and 3) 164,536,765 44,685,735
Intangible assets, net (Notes 2 and 4) 48,848,823 38,059,374
Other assets 7,347,062 3,173,158
------------------- --------------------
Total assets $ 235,445,270 $ 96,116,699
=================== ====================
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt and notes payable (Note 5) $ 684,370 $ 8,259,922
Accounts payable 7,348,274 3,849,632
Accrued expenses 9,294,217 2,742,539
Current portion of landfill closure and post-closure costs 2,500,000 -
Deferred revenue 1,857,666 1,866,128
------------------- --------------------
Total current liabilities 21,684,527 16,718,221
Long-term debt and notes payable (Note 5) 171,958,095 74,861,187
Landfill closure and post-closure costs, and other liabilities 2,000,005 2,798,597
------------------- --------------------
Total liabilities 195,642,627 94,378,005
------------------- --------------------
Commitments and Contingencies (Note 7)
Stockholders' equity (Notes 5 and 6):
Common stock, $.01 par value. Authorized 75,000,000 shares;
18,580,621 and 11,718,323 shares issued and outstanding
at September 30, 1999 and December 31, 1998, respectively 185,806 117,184
Preferred Stock $.001 par value Authorized 1,000,000 shares
Series C Preferred Stock; 1,000 shares designated, 1,000 and 0 issued
and outstanding at September 30, 1999 and December 31,
1998, respectively. 11,615,000 -
Additional paid-in capital 84,774,464 37,810,712
Accumulated deficit (56,772,627) (36,189,202)
------------------- --------------------
Total stockholders' equity 39,802,643 1,738,694
------------------- --------------------
Total liabilities and stockholders' equity $ 235,445,270 $ 96,116,699
=================== ====================
</TABLE>
See accompanying notes to consolidated financialstatements.
<PAGE>
2
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
---------------- -------------- -------------- ---------------
Revenues $ 17,393,175 $ 7,009,378 $ 37,475,265 $ 12,670,181
Cost of operations:
Operating expenses 12,658,605 3,765,569 25,145,478 6,832,201
Depreciation and amortization 3,525,043 1,343,619 8,094,069 2,723,745
Acquisition integration costs (Note 2) 1,371,062 794,811 2,377,648 1,385,673
Write-off of project development costs - - - 235,284
---------------- -------------- -------------- ---------------
Total cost of operations 17,554,710 5,903,999 35,617,195 11,176,903
---------------- -------------- -------------- ---------------
Gross profit (loss) (161,535) 1,105,379 1,858,070 1,493,278
Selling, general and administrative expenses 2,660,717 1,158,924 6,668,136 2,939,750
---------------- -------------- ------------- ---------------
Loss from operations (2,822,252) (53,545) (4,810,066) (1,446,472)
---------------- -------------- ------------- ---------------
Other income (expense):
Royalty and other income (expense), net (264,410) (37,120) (542,100) (52,570)
Interest income 37,081 225,916 483,250 436,807
Interest expense and financing costs (4,010,028) (1,252,343) (9,906,434) (2,724,581)
Non-cash charge for debt conversion (Note 5) - - (5,583,717) -
---------------- -------------- ------------- ---------------
Total other income (expense) (4,237,357) (1,063,547) (15,549,001) (2,340,344)
---------------- -------------- ------------- ---------------
Loss before extraordinary item (7,059,609) (1,117,092) (20,359,067) (3,786,816)
Extraordinary item - Loss on extinguishment of debt - (3,597) (224,358) (237,627)
---------------- -------------- ------------- ---------------
Net loss (7,059,609) (1,120,689) (20,583,425) (4,024,443)
Preferred stock dividends - 410,837 - 887,869
---------------- -------------- ------------- ---------------
Net loss available for common shareholders $(7,059,609) $(1,531,526) $(20,583,425) $ (4,912,312)
================ ============== ============= ===============
Basic net loss per share:
Loss from continuing operations $ (0.40) $ (0.12) $ (1.37) $ (0.64)
Extraordinary item (0.00) (0.00) (0.02) (0.04)
---------------- -------------- -------------- ---------------
Basic net loss per share (0.40) $ (0.12) $ (1.39) $ (0.68)
================ ============== ============= ===============
Weighted average number of shares used in
Computation of basic net loss per share 17,586,589 9,439,810 14,818,688 5,930,765
================ ============== ============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
3
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<S> <C> <C>
Nine months ended September 30,
1999 1998
------------------ -----------------
Cash flows from operating activities:
Net loss $ (20,583,425) $ (4,024,443)
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
Depreciation and amortization 8,215,971 2,769,147
Amortization of deferred financing costs 492,920 170,675
Non-cash charge for conversion of debt to equity 5,583,717 -
Extraordinary loss on extinguishment of debt 224,358 237,627
Write-off of project development costs - 235,284
Issuance of common stock for services - 12,500
Allowance for doubtful accounts 225,575 219,643
Landfill closure and post-closure costs 493,249 1,081,315
Changes in assets and liabilities:
Accounts receivable (2,282,037) (893,400)
Prepaid expenses and other current assets 3,327,804 (1,160,050)
Accounts payable 513,645 1,085,369
Accrued expenses 5,205,388 997,775
Deferred revenue (583,560) 323,267
------------------ -----------------
Net cash provided (used) by operating activities 833,605 1,054,709
------------------ -----------------
Cash flows from investing activities:
Net assets acquired through acquisitions (84,063,076) (55,789,458)
Restricted cash and securities (9,924) 214,588
Landfills (5,053,902) (2,612,573)
Landfill and other development projects (5,270,428) (85,453)
Buildings, facilities and improvements (764,141) (447,248)
Machinery and equipment (1,492,958) (508,477)
Rolling stock (1,827,179) (980,527)
Containers (989,446) (329,054)
Office furniture and equipment (527,222) (292,950)
Intangible assets (1,998,376) (150,000)
Other assets (1,664,980) (1,200,128)
------------------ -----------------
Net cash used by investing activities (103,641,629) (62,181,280)
------------------ -----------------
Cash flows from financing activities:
Deferred financing and registration costs (3,890,729) (1,971,021)
Repayments of notes payable and long-term debt (21,075,104) (15,018,631)
Borrowings from notes payable and long-term debt 117,500,000 78,949,857
Repurchase of common stock (3,229,057) -
Proceeds from the exercise of common stock options 91,500 40,406
Proceeds from private placement of common stock 15,678,216 -
Dividends paid on preferred stock - (887,869)
------------------ -----------------
Net cash provided by financing activities 105,074,826 61,112,742
------------------ -----------------
Increase in cash and cash equivalents 2,266,802 (13,829)
Cash and cash equivalents, beginning of period 193,613 2,964,274
------------------ -----------------
Cash and cash equivalents, end of period $ 2,460,415 $ 2,950,445
================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23
Note 1. Basis of Presentation
The accompanying consolidated financial statements of Waste Systems
International, Inc. and its subsidiaries ("WSI" or the "Company") 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 September 30, 1999 and for all periods presented have been made.
The results of operations for the period ended September 30, 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. It is suggested that these consolidated
financial statements presented herein be read in conjunction with the Company's
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K, for the year ended December 31, 1998.
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 in the Company's 1998 Annual Report on Form 10-K.
Note 2. Acquisitions
During the nine months ended September 30, 1999, WSI acquired five
collection companies and a landfill in Central Pennsylvania, one collection
company in Vermont, two collection companies, two transfer stations and a paper
recycling plant in Eastern New England, two collection companies and a transfer
station in Upstate New York and a collection company and transfer station in the
Baltimore, Maryland/Washington D.C region. The aggregate cost of the
acquisitions was approximately $113.0 million consisting of approximately $72.7
million in cash, $19.3 million in common stock, $11.6 million in Series C
Preferred Stock and $9.4 million in assumed liabilities. See the chart in Item 2
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Introduction." The acquisitions have combined annual revenues of
approximately $42.0 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: property and equipment of approximately
$99.3 million, intangible assets of $11.0 million and other assets of $2.7
million. The excess of the purchase price over the fair value of the net
identifiable assets acquired of approximately $9.8 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 management and the related operation teams
integrating the new acquisitions, and adjusted as required. Acquisition
integration costs totaled $1,371,062 and $794,811 for the three months ended
September 30, 1999 and 1998, and $2,377,648 and $1,385,673 for the nine months
ended September 30, 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 nine months ended September 30, 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 that would have occurred had the
Company and the aggregate of the acquired entities constituted a single entity
during such period.
September 30, 1999 September 30, 1998
(unaudited) (unaudited)
Net revenues $ 53,231,949 $ 52,181,445
Loss from operations $ (2,087,516) $ (2,444,877)
Net loss $ (17,860,875) $ (5,022,848)
Basic loss per share $ (1.21) $ (0.85)
Note 3. Property and Equipment
Property and equipment are stated at cost and consist of the following;
September 30, December 31,
1999 1998
Landfills $ 49,568,129 $ 18,631,409
Landfill and other development projects 16,904,508 8,778,901
Buildings, facilities and improvements 75,706,194 4,701,245
Machinery and equipment 6,990,458 3,038,700
Rolling stock 14,888,175 8,980,626
Containers 9,268,213 4,104,397
Office furniture and equipment 1,305,957 713,235
175,061,613 48,948,513
Less accumulated depreciation and
amortization (10,094,869) (4,262,778)
------------- -------------
Property and equipment, net $164,536,765 $ 44,685,735
Note 4. Intangible Assets
Intangible assets consist of the following;
September 30, December 31,
1999 1998
Goodwill $ 40,726,976 $ 30,441,948
Non-compete agreements 5,792,435 4,333,685
Customer lists 4,817,599 3,841,599
Other 722,161 713,235
52,059,171 39,330,467
Less accumulated amortization (3,210,348) (1,271,093)
------------- -------------
Total intangible assets $ 48,848,823 $ 38,059,374
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 May 13, 2000 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 had been 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, 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 to complete several
acquisitions.
Credit Facility. On August 3, 1999, the Company entered into a $25
million secured revolving credit facility with The BankNorth Group, N.A. to fund
acquisitions and for general working capital purposes. The revolving credit
agreement has a term of three years, provides for an interest rate based on
LIBOR or Prime, and includes other terms and conditions customary for secured
revolving credit facilities. At September 30, 1999 the Company had borrowed
$17,500,000 against the credit facility.
Note 6. Common Stock
Stock Repurchase. With a portion of the proceeds of the Senior Notes
discussed above, the Company repurchased approximately 575,000 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 purchase.
Private Placement. In August 1999, the Company issued 2,239,745 shares
of its common stock at $7 per share in a private placement for proceeds totaling
$15,678,216 which were used for acquisitions.
Series C Preferred Stock. As a part of an acquisition completed in July
1999, the Company authorized and issued 1,000 shares of Series C Preferred Stock
at $11,615 per share or $11,615,000 total. In accordance with the terms of the
issuance, on October 21, 1999, a special shareholders meeting was held and each
share of the Series C Preferred Stock was converted into 1,763 shares of common
stock or 1,763,000 total.
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,
results of operations and liquidity 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 condition, 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, Eastern New England, Baltimore Maryland/Washington DC and Upstate New
York. 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 1998 Annual Report of Form 10-K. The Company evaluates the performance
of its segments based on revenues, operating income (loss), EBITDA and Adjusted
EBITDA, as further described in Note 18 in the Company's 1998 Annual Report of
Form 10-K.
Summary information by segment as of and for the nine months ended September 30,
1999 and 1998 is as follows:
<TABLE>
<S> <C> <C> <C>
1999 1998
Central Pennsylvania
Revenue $ 12,457,983 $ 4,048,317
Income (loss) from continuing operations (283,955) 54,461
EBITDA 3,884,658 1,007,528
Adjusted EBITDA 4,623,917 1,429,927
Segment assets 82,618,495 44,102,354
Vermont
Revenues $ 7,310,568 $ 7,450,404
Income (loss) from continuing operations 1,569,144 1,152,101
EBITDA 3,471,992 2,816,599
Adjusted EBITDA 3,477,124 3,222,693
Segment assets 28,382,021 25,912,608
Eastern New England
Revenue $ 9,305,242 $ 741,083
Income (loss) from continuing operations (1,178,483) (157,077)
EBITDA (315,357) (93,775)
Adjusted EBITDA 375,961 191,189
Segment assets 59,650,306 11,110,676
Baltimore, MD/Washington D.C.
Revenue $ 1,679,228 $ -
Income (loss) from continuing operations (437,222) -
EBITDA (158,653) -
Adjusted EBITDA 229,428 -
Segment assets 39,144,201 19,685
Upstate New York
Revenue $ 6,722,244 $ 430,377
Income (loss) from continuing operations (1,061,532) (464,421)
EBITDA (139,284) (419,543)
Adjusted EBITDA 414,574 87,957
Segment assets 19,501,890 6,383,982
Corporate
Revenue $ - $ -
Income (loss) from continuing operations (3,418,018) (2,031,536)
EBITDA (3,337,451) (1,988,134)
Adjusted EBITDA (3,337,451) (1,988,134)
Segment assets 6,148,357 3,152,315
</TABLE>
Note 9. Supplemental disclosures of cash flow information:
During the nine months ended September 30, 1999 and 1998, cash paid for
interest was $7,030,574 and $1,539,738, respectively.
On March 31, 1999, the Company issued 2,244,109 shares of the Company's
Common Stock in exchange 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. See Note 5.
In connection with the Company's acquisitions completed from January 1,
1999 through September 30, 1999, the Company acquired property and
equipment of approximately $99.3 million, intangible assets of $11.0
million and other assets of $2.7 million. The aggregate cost of the
acquisitions was approximately $113.0 million consisting of approximately
$72.7 million in cash, $19.3 million in common stock, $11.6 million in
newly issued Series C Preferred Stock and $9.4 million in assumed
liabilities.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This quarterly report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, with respect to, among other things, the
Company's future revenues, operating income, or earnings per share. These
forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes,"
"anticipates," "expects" or words of similar expression. The Company's actual
results could differ materially from those set forth in the forward-looking
statements. Certain factors that might cause such a difference are discussed
herein. See "Certain Factors Affecting Future Operating Results".
Introduction
Waste Systems International Inc. ("WSI" or "the Company") is 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 certain regional markets
in the Northeast and Mid-Atlantic States where it operates. The Company is
achieving significant growth by implementing an active acquisition strategy. At
September 30, 1999, the Company owned one landfill in Vermont and three
landfills in Central Pennsylvania. In addition, the Company has contracted with
the Town of South Hadley, Massachusetts to operate that Town's landfill. See the
table below detailing the "Estimated Total Remaining Permitted Capacity" and the
"Capacity in Permitting Process" for each landfill. The Company also owns seven
operating transfer stations and has acquired two additional transfer stations
that are permitted and are under construction. At September 30, 1999, the
Company's collection operations serve a total of approximately 73,000
commercial, industrial, residential and municipal customers in Central
Pennsylvania, Vermont, Upstate New York, Eastern New England and Baltimore
Maryland/Washington DC.
The following table provides certain information regarding the landfills
that the Company owns or operates. All information is provided as of September
30, 1999.
Remaining Estimated Permitted Capacity
<TABLE>
<S> <C> <C> <C>
Estimated Capacity in
Total Remaining Permitting
Permitted Capacity Process
Landfill Location (Cubic Yards) (Cubic Yards)(1)
Mostoller Somerset, PA 14,200,000 -
Sandy Run Hopewell, PA 2,785,000 -
Moretown Moretown, VT 1,319,000 -
Community Refuse Service, Inc. Cumberland, PA 5,289,000
South Hadley(2) South Hadley, MA - 2,000,000
</TABLE>
- -------------
(1) Represents capacity for which the Company has begun the permitting process.
(2) The South Hadley Landfill will be operated pursuant to an operating
agreement expiring in 2015.
The Company focuses on the operation of an integrated non-hazardous
solid waste management business, including the ownership and operation of
landfills, solid waste collection services and transfer stations. The Company's
objective is to expand the current geographic scope of its operations primarily
within 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 it serves. The key elements of the Company's
strategy for achieving its objective are: (i) to acquire and integrate solid
waste disposal capacity, transfer stations and collection operations in its
targeted new markets, (ii) to generate internal growth through increased sales
penetration and the marketing of additional services to existing customers and
(iii) to enhance profitability by increasing operating efficiency.
Expansion Through Acquisitions. During the nine months ended September
30, 1999, WSI acquired five collection companies and a landfill in Central
Pennsylvania, one collection company in Vermont, two collection companies, two
transfer stations and a paper recycling plant in Eastern New England, two
collection companies and a transfer station in Upstate New York and a collection
company and transfer station in the Baltimore, Maryland/Washington D.C region.
During 1998, the Company completed 34 acquisitions within its five current
operating regions. The Company intends to continue to expand by acquiring solid
waste disposal capacity and collection companies in new and existing markets. In
considering new markets, the Company evaluates opportunities to acquire or
otherwise control sufficient landfills, transfer stations and collection
operations which would enable it to generate an integrated waste stream and
achieve the disposal economies of scale necessary to meet its market share and
financial objectives. The Company has established criteria, which enable it to
evaluate the prospective acquisition opportunity and the target market.
Historically, the Company has entered new markets which are adjacent to its
existing markets; however, the Company is considering new markets in
non-contiguous geographic areas which meet its criteria.
The following table sets forth the acquisitions completed by the
Company through November 12, 1999:
<TABLE>
<S> <C> <C> <C>
Acquisition Month Acquired Principal Business Location
Central Pennsylvania Region
B&J Garbage Service July 1999 Collection Berlin,PA
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
Vermont Region
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
Eastern New England Region
C&J Trucking, Inc. and July 1999 Collection/Transfer Station Lynn, MA/
affiliates Londonderry, NH
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
Baltimore, Maryland/Washington, D.C. Region
Eastern Trans-Waste of
Maryland, Inc. July 1999 Collection/Transfer Station Capitol Heights, MD/
Washington, DC
Upstate New York Region
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>
<PAGE>
Internalization of Waste
Throughout 1998 and during the nine months ended September 30, 1999, the
Company increased the amount of waste collected by the Company that was
subsequently disposed at Company landfills, and increased the amount of the
waste delivered for disposal at the Company's landfills that was collected by
the Company. During the nine months ended September 30, 1999, nearly 100% of the
waste from the Company's Vermont operations was delivered for disposal at the
Moretown Landfill and approximately 41% of the waste delivered for disposal at
the Moretown Landfill during this period was collected by the Company. In
addition, approximately 65% of the waste from the Company's Central Pennsylvania
- - Altoona division operations was delivered for disposal at the Sandy Run
Landfill and approximately 70% of the waste delivered for disposal at the Sandy
Run Landfill during this period was collected by the Company. Since the
acquisition of Community Refuse, Inc., on March 1, 1999, approximately 93% of
the waste from the Company's Central Pennsylvania - Harrisburg division
operations was delivered for disposal at the Community Refuse, Inc. landfill and
approximately 19% of the waste delivered for disposal at the Community Refuse,
Inc. landfill during this period was collected by the Company. During the third
quarter, the Company acquired Eastern Trans-Waste of Maryland, Inc. and C&J
Trucking Company, Inc. and Affiliates. For the quarter ended September 30, 1999,
Eastern Trans-Wastes disposed of approximately 26% of its waste at the Community
Refuse, Inc. landfill. C&J Trucking Company, Inc. disposed of approximately 3%
of its waste at the Community Refuse, Inc. landfill. It is management's
intentions to fully internalize these operations with WSI owned landfills over
the next several quarters, including the Mostoller landfill which is expected to
open up in December 1999.
Recent Business Developments
Acquisitions.
In July 1999, the Company 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 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. Also in July 1999, the Company completed the
acquisition of 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. The total purchase price for
these acquisitions was approximately $70 million, in cash, stock and assumed
liabilities.
The acquisitions are expected to add annualized revenues of
approximately $28 million and were recorded using the purchase method of
accounting. 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 and internalization of waste.
New Revolving Credit Facility
On August 3, 1999, the Company entered into a $25 million secured
revolving credit facility with The BankNorth Group, N.A. to fund acquisitions
and for general working capital purposes. The revolving credit agreement has a
term of three years, provides for an interest rate based on LIBOR or Prime, and
includes other terms and conditions customary for secured revolving credit
facilities. As of September 30, 1999 the company had borrowed $17,500,000 under
the facility.
Private Placement of common stock
In August 1999, the Company issued 2,239,745 shares of its common stock at $7
per share in a private placement for proceeds totaling $15,678,216. The proceeds
were used for acquisitions.
Results of Operations
During the nine months ended September 30, 1999, the Company acquired
one landfill, eleven solid waste collection companies and four transfer
stations. Because of the relative significance of the acquired business'
operations to the Company's financial performance, as well as the acquisitions
consummated in 1998, the Company does not believe that its historical financial
statements are necessarily indicative of future performance and as a result will
affect the comparability of the financial information included herein.
Revenues:
Revenues represent fees charged to customers for solid waste
collection, transfer, recycling and disposal services provided. Revenues for the
periods presented in the consolidated statements of operations were derived from
the following sources:
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
Collection 70.6% 47.6% 74.6% 39.1%
Landfill 13.6 35.5 15.0 39.4
Transfer 15.8 16.9 10.4 21.5
------ ------ ------ ------
Total Revenue 100.0% 100.0% 100.0% 100.0%
</TABLE>
The increase in collection revenues as a percentage of revenues in the
three and nine months ended September 30, 1999 compared to the same period in
1998 is due primarily to the acquisition of the collection companies acquired
during 1998 and the first nine months of 1999. During 1998 and the nine months
ended September 30, 1999, the Company acquired 31 and 11 collection companies,
respectively. The increase in the Company's transfer station revenues as a
percentage of revenues in the three ended September 30, 1999 compared to the
nine months ended September 30, 1999 is due primarily to the acquisitions of the
Eastern Trans-Waste of Maryland, Inc. and C&J Trucking, Inc. and affiliates
transfer stations.
Revenues increased $10,383,797 or 148% and $24,805,084, or 196%, to
$17,393,175 and $37,475,265 for the three and nine months ended September 30,
1999, respectively. Total revenues for the comparable periods in 1998 were
$7,009,378 and $12,670,181. The increase was primarily due to the impact of
operations acquired during 1998 and the nine months ended September 30, 1999.
See Note 2 to the Consolidated Financial Statements.
Operating Expenses:
The following table sets forth, for the periods indicated, certain data
derived from the Company's Consolidated Statement of Operations, expressed as a
percentage of revenues:
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
Revenues 100.0% 100.0% 100.0% 100.0%
Operating expense 72.8 53.7 67.1 53.9
Depreciation and amortization 20.3 19.2 21.6 21.5
Acquisition integration costs 7.9 11.3 6.3 10.9
Write-off of project development costs - - - 1.9
Total cost of operations 101.0 84.2 95.0 88.2
Gross profit (1.0) 15.8 5.0 11.8
Selling, general and
administrative expenses 15.3 16.5 17.8 23.2
Loss from operations (16.3) (0.7) (12.8) (11.4)
Royalty and other income (expense), net (1.5) (0.5) (1.4) (0.4)
Interest income 0.2 3.2 1.3 3.4
Interest expense and financing costs (23.1) (17.9) (26.4) (21.5)
Non-cash charge for debt conversion - - (14.9) -
Extraordinary item - (0.1) (0.6) (1.9)
Net loss (40.7)% (16.0)% (54.8)% (31.8)%
</TABLE>
Operating expenses increased $8,893,036 or 236% and $18,313,277, or
268%, to $12,658,605 and $25,145,478 for the three and nine months ended
September 30, 1999, respectively. Cost of operations for the comparable periods
in 1998 were $3,765,569 and $6,832,201. As a percentage of revenues, operating
expenses increased to 72.8% and 67.1% for the three and nine months ended
September 30, 1999, respectively from 53.7% and 53.9% for the same periods in
1998. Operating expenses increased for both comparable periods in 1999 primarily
due to the acquisitions indicated above. The increase in operating expenses as a
percentage of revenues was primarily due to the change in revenue mix, with
increased revenue coming from collection operations, which typically experience
much higher operating expenses than landfill operations. The Company
internalizes a significant portion of its waste collected in Vermont and Central
Pennsylvania, which significantly reduces costs of operations as a percentage of
revenue. The Company's Upstate New York, Eastern New England and Baltimore,
Maryland/Washington DC operations consist of only collection and transfer
station operations at this time. It is management's intention to fully
internalize the waste from these operations with WSI owned landfills, including
the Mostoller landfill expected to open in December 1999, over the next several
quarters, which will significantly reduce the operating expenses as a percentage
of revenue.
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 $2,181,424 or 162% and $5,370,324 or 197% for the three and nine month
periods ended September 30, 1999, to $3,525,043 and $8,094,069 respectively.
Depreciation and amortization expense for the comparable periods in 1998 were
$1,343,619 and $2,723,745. The increase is the result of increased depreciation
and amortization costs of the additional assets acquired through acquisitions.
Additionally, amortization of landfill development costs increased as a result
of the increase in the amount of waste accepted at the Company's 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 increased to 20.3% and 21.6% for the three and nine months
ended September 30, 1999 compared with 19.2% and 21.5% for the comparable
periods in 1998.
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 $1,371,062 and $794,811 for the three
months ended September 30, 1999 and 1998, respectively and $2,377,648 and
$1,385,673 for the nine months ended September 30, 1999 and 1998, respectively.
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 expenses increased $1,501,793 or 130% and $3,728,386, or 127% to
$2,660,717 and $6,668,136 for the three and nine month periods ended September
30, 1999, respectively. Selling, general and administrative expenses for the
comparable periods in 1998 were $1,158,924 and $2,939,750. As a percentage of
revenues, selling, general and administrative expenses decreased to 15.3% and
17.8% for the three and nine months ended September 30, 1999, respectively from
16.5% and 23.2% for the same periods in 1998. The dollar increase was due to
efforts by the Company to build an infrastructure to sustain its significant
growth through acquisition and to support corporate initiatives designed to
implement its strategy. The Company expects spending growth to continue
moderately through 1999 as the Company continues to implement its growth through
acquisition strategy. The decrease as a percentage of revenue was primarily due
to the expanded revenue base and related efficiencies, as the Company is able to
purchase "tuck-in" acquisitions that increase revenues and improve margins
without adding significant administrative costs. The Company anticipates that in
future periods its selling, general and administrative expenses should continue
to decrease as a percentage of revenue as it leverages its current corporate
overhead to revenue growth primarily through acquisitions.
Interest income decreased ($188,835) or 83.6% to $37,081 for the three
months ended September 30, 1999 from $225,916 during the same period in 1998.
Interest income increased $46,443, or 10.6% to $483,250 for the nine months
ended September 30, 1999 from $436,807 during the same period in 1998. The
increase for the nine months ended September 30, 1999 was the result of higher
average cash and investment balances during the first half of the year. The
remaining proceeds from the $100 million Senior Notes were used to complete the
acquisitions in the third quarter which lead to the reduction of interest income
for the three months ended September 30, 1999.
Interest expense and financing costs, net of capitalized interest costs
increased $2,757,685 or 220% and $7,181,853, or 264% to $4,010,028 and
$9,906,434 for the three and nine month periods ended September 30, 1999,
respectively. Interest expense and financing costs, net of capitalized interest
costs for the comparable periods in 1998 were $1,252,343 and $2,724,581. The
increase resulted primarily from increased indebtedness incurred in connection
with the 11.5% Senior Notes. In addition 1999 results reflect the full impact of
the 7% Convertible Subordinated Notes which closed during the second quarter of
1998 and the increased borrowing from The BankNorth Group. See Note 5 to the
Consolidated Financial Statements. 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 and nine months ended September
30, 1999, the Company capitalized $369,237 and $1,061,437 of interest costs,
respectively. No interest was capitalized for the three and nine months ended
September 30, 1998.
Royalty and other income (expense) was ($264,410) and ($542,100) for
the three and nine month periods ended September 30, 1999, respectively. Royalty
and other income (expense) for the comparable periods in 1998 were ($37,120) and
($52,570), respectively. Royalty and other income (expense) primarily relates to
the Company's 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 the Consolidated Financial
Statements in the Company's Annual Report filed on Form 10-K, for the year ended
December 31, 1998.
The net loss for the nine months ended September 30, 1999 includes a
non-cash charge of $5,583,717 in connection with the conversion of debt into
equity. See Note 5 to the Consolidated Financial Statements.
EBITDA:
EBITDA is defined as operating income from continuing operations plus
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
flow from operating activities, each as determined in accordance with generally
accepted accounting principles ("GAAP"). Moreover, EBITDA does not necessarily
indicate whether cash flow will be sufficient for such items as working capital,
capital expenditures, or to react to changes in the Company's industry or to the
economy in general. The Company believes that EBITDA is a measure commonly used
by lenders and certain investors to evaluate a company's performance in the
solid waste industry. The Company also believes that EBITDA data may help to
understand the Company's performance because such data may reflect the Company's
ability to generate cash flows, which is an indicator of its ability to satisfy
its debt service, capital expenditures and working capital requirements.
However, functional or legal requirements may require the conservation of funds
for uses other than those previously described. Because EBITDA is not calculated
by all companies and analysts in the same fashion, 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 the Company's EBITDA data to similarly-titled
measures reported by other companies. Adjusted EBITDA consists of EBITDA, as
defined above, excluding non-recurring charges.
The following table sets forth, for the periods indicated, certain data
derived from the Company's Consolidated Statement of Operations, to determine
EBITDA and Adjusted EBITDA:
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
Loss from operations ($ 2,822,252) ($ 53,545) ($ 4,810,066) ($ 1,446,472)
Depreciation and amortization 3,574,351 1,362,864 8,215,971 2,769,147
EBITDA 752,099 1,309,319 3,405,905 1,322,675
Write-off of projected development costs - - - 235,284
Acquisition integration costs 1,371,062 794,811 2,377,648 1,385,673
Adjusted EBITDA $ 2,123,161 $ 2,104,130 $ 5,783,553 $ 2,943,632
EBITDA as a % of revenue 4.3% 18.7% 9.1% 10.4%
Adjusted EBITDA as a % of revenue 12.2% 30.0% 15.4% 23.2%
</TABLE>
Financial Position
WSI had approximately $2.5 million in cash as of September 30, 1999.
This represents an increase of approximately $2.3 million from December 31,
1998. The Company had negative working capital of approximately $7.0 million as
of September 30, 1999, a decrease of approximately $0.5 million from December
31, 1998. This increase in cash was primarily due to the remaining proceeds from
the Senior Notes, private placement and BankNorth Group credit facility which
were offset by the cash paid for acquisitions and debt repayments.
During the nine months ended September 30, 1999, WSI acquired five
collection companies and a landfill in Central Pennsylvania, one collection
company in Vermont, two collection companies, two transfer stations and a paper
recycling plant in Eastern New England, two collection companies and a transfer
station in Upstate New York and a collection company and transfer station in the
Baltimore, Maryland/Washington D.C region. The aggregate cost of the
acquisitions was approximately $113.0 million consisting of approximately $72.7
million in cash, $19.3 million in common stock, $11.6 million in Series C
Preferred Stock and $9.4 million in assumed liabilities. The acquisitions have
combined annual revenues of approximately $42.0 million.
At September 30, 1999, the Company had approximately $9.6 million in
trade accounts receivables. The Company has estimated an allowance for doubtful
accounts of approximately $0.8 million, which is considered sufficient to cover
future bad debts.
During the nine months ended September 30, 1999, the Company devoted
substantial resources to various corporate development activities. Additions to
property and equipment during the nine months ended September 30, 1999 were
approximately $126.1 million, which included assets purchased through
acquisition of approximately $110.2 million.
Liquidity and Capital Resources
The Company's business is capital intensive. The Company's 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, the Company will usually have working capital deficits. The Company
plans to meet its capital needs through various financing sources, including
internally generated funds and the issuance of equity securities and debt. On
May 13, 1998, the Company closed an offering of $60.0 million 7% Convertible
Subordinated Notes which resulted in net proceeds to the Company of
approximately $58.3 million. On March 2, 1999, the Company completed a private
offering of 11 1/2% Senior Notes in the aggregate principal amount of $100
million due January 15, 2006 which resulted in net proceeds to the Company of
approximately $97.3 million. On March 31, 1999, the Company completed an
exchange offering whereby approximately $10,449,000 of the 7% Convertible
Subordinated Notes were exchanged into 2,244,109 shares of its common stock. In
August 1999, the Company closed a private placement of its common stock of
approximately $15.7 million at $7 per share. See Footnotes 5 and 6 to the
Consolidated Financial Statements for further discussion of these items. The
Company intends to continue its 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 the Company. Any failure of the Company to
obtain required financing would have a material adverse effect on the Company's
financial condition and results of operations.
The Company maintains an acquisitions department that is responsible for
the identification, due diligence, negotiation and closure of acquisitions. The
Company believes that a combination of internally generated funds, additional
debt and equity financing and the remaining proceeds from the Notes will provide
adequate funds to support the Company's cost structure, acquisition strategy and
working capital requirements for the near future.
In connection with its growth strategy, the Company 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 which may, if consummated, be material. No assurance can be given,
however, that the Company will be successful in completing further acquisitions
in accordance with its growth strategy, or that such acquisitions, if completed,
will be successful.
For the nine months ended September 30, 1999 the Company generated
$1,059,180 from operating activities. For the same period in 1998, the Company
generated $1,054,709. The increased cash flow from operations in 1999 was due
primarily to significantly increased revenues offset by increased cost of
operations, acquisition 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 increased accounts payable and
accrued expenses offset by increased accounts receivable and deferred revenue.
EBITDA decreased by $557,220 during the three months ended September 30,
1999 to $752,099. EBITDA increased $2,083,230 during the nine months ended
September 30, 1999 to $3,405,905. EBITDA during the comparable periods in 1998
was $1,309,319 and $1,322,675. As a percentage of revenue, EBITDA decreased to
4.3% and 9.1% during the three and nine months ended September 30, 1999 from
18.7% and 10.4% during the same periods in 1998. Adjusted EBITDA increased by
$19,031 and $2,839,921 during the three and nine months ended September 30, 1999
to $2,123,161 and $5,783,553. Adjusted EBITDA during the comparable periods in
1998 was $2,104,130 and $2,943,632. As a percentage of revenue, adjusted EBITDA
decreased to 12.2% from 30.0% for the three months ended September 30, 1999
compared to the same period in 1998. For the nine months ended September 30,
1999, Adjusted EBITDA decreased to 15.4% compared with 23.2% during the same
period in 1998. The primary reason for the reduced EBITDA and adjusted EBITDA as
a percentage of revenue is due to the acquisitions completed in the third
quarter of 1999. During the third quarter of 1999, the Company acquired new
operations in the Eastern New England and Baltimore, Maryland/Washington DC
regions. These acquisitions consist of only collection and transfer station
operations at this time which typically experience much lower margins than
landfill operations. It is management's intentions to fully internalize the
waste from these operations with WSI owned landfills, including the Mostoller
landfill expected to open in December 1999, over the next several quarters,
which will significantly reduce the cash expense for waste disposal. The Company
would expect that as these operations are internalized, EBITDA and adjusted
EBITDA would both increase in dollars and as a percentage of revenue.
Net cash used by investing activities during the first nine months of
1999 was $103,641,629 compared to $62,181,280 in the same period in 1998. Of the
net cash used by investing activities in 1999, approximately $84.0 million was
used for the acquisition of landfill, collection and transfer operations. See
Footnote 2. Additional capital expenditures of approximately $16.0 million were
made to increase operating efficiencies at the Company's 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.
The Company's capital expenditures and capital needs for acquisitions
have increased significantly, reflecting the Company's rapid growth by
acquisition and development of revenue producing assets, and will increase
further as the Company continues to complete acquisitions. Total capital
expenditures are expected to further increase during the remainder of 1999 and
into 2000 due to acquisitions, ongoing development and construction of the
Mostoller and South Hadley Landfills, and construction of transfer stations in
Upstate New York and Eastern New England.
Net cash provided by financing activities during the first nine months
of 1999 was approximately $105.0 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 $20.6. In addition, the Company repurchased approximately
575,000 shares of its common stock for approximately $3.2 million. The Company
also received $15.7 million through the private placement of 2,239,745 shares of
common stock.
On August 3, 1999, the Company entered into a $25 million secured
revolving credit facility with The BankNorth Group, N.A. to fund acquisitions
and for general working capital purposes. The revolving credit agreement has a
term of three years, provides for an interest rate based on LIBOR or Prime, and
includes other terms and conditions customary for secured revolving credit
facilities. At September 30, 1999 the Company had borrowed $17,500,000 against
the credit facility.
At September 30, 1999, the Company had approximately $172.6 million of
long-term debt.
Seasonality. The Company's 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, without limitation: (i) harsh winter weather
conditions which can interfere with collection and transportation, (ii) the
construction and demolition activities which generate waste are primarily
performed in the warmer seasons and (iii) the volume of waste in the region is
generally lower than that which occurs in warmer months. The Company believes
that the seasonality of the revenue stream will not have a material adverse
effect on the Company's business, financial condition and results of operations
on an annualized basis.
The Company does not believe its operations have been materially
affected by inflation.
Based upon its current operating plan, the Company believes that its
cash and cash equivalents, available borrowings, future cash flow from
operations and the proceeds of future debt and equity financings will satisfy
the Company's working capital needs for the near future. However, there can be
no assurances in this regard.
Certain Factors Affecting Future Operating Results
The following factors, as well as others mentioned in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, (filed March
31, 1999), as amended by Form 10-K/A Amendments Nos. 1 and 2 (filed April 4,
1999 and August 6, 1999, respectively; File No. 000-25998), could cause actual
results to differ materially from those indicated by forward-looking statements
made in this Quarterly Report on Form 10-Q:
- - Our history of losses makes investment in Waste Systems highly speculative; -
Our high level of indebtedness could adversely affect our financial health; -
Incurring more debt could further exacerbate the risks of our high level of
indebtedness; - We may not generate enough cash to service our indebtedness or
our other liquidity needs; - 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
upon our ability to identify, acquire and integrate acquisition targets; - Loss
of key executives could affect Waste Systems' ability to achieve our business
objectives;
- - Failed acquisitions or projects may adversely affect our results of operations
and financial condition; - Our business may not succeed due to the highly
competitive nature of the solid waste management industry; - Seasonal revenue
fluctuations may negatively impact our operations; - The geographic
concentration of our operations magnifies the risks to our success; - Potential
difficulties in acquiring landfill capacity could increase our costs; - Failure
to obtain landfill closure performance bonds and letters of credit may adversely
affect our business; - Estimated accruals for landfill closure and post-closure
costs may not meet our actual financial obligations; - 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; and - Year 2000 problems could have an adverse
impact on our business.
Since December 31, 1998, the Company incurred additional indebtedness
through the $100 million Senior Notes offering, which creates a more highly
leveraged capital structure of the Company. While the Company does not have to
pay any principal on the Senior Notes until 2006, the Company will incur
substantial increased interest expense. In addition, based on the terms of the
Senior Notes, the interest rate on the Senior Notes will be increased if the
Company does not achieve certain levels of consolidated stockholders' equity.
Accordingly, the Company may decide to issue substantial additional shares of
its capital stock, in order to increase its stockholders' equity.
Year 2000 Compliance
The statements in the following section include the "Year 2000
readiness disclosure" within the meaning of the Year 2000 Information and
Readiness Disclosure Act. Please refer to the information located at the
beginning of this Item 2 regarding forward-looking statements contained in this
section.
The Company is assessing the readiness of its systems for handling the
Year 2000. Although the assessment is continuing, management currently believes
that all material systems will be compliant by Year 2000 and that the costs
associated with this will not be 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 has implemented a new general accounting package
which the Company believes is fully Year 2000 compatible, and the Company
believes that 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 have represented to the Company that
they 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.
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 on the Company's business, financial
prospects and results of operations. Therefore, the Company is developing
contingency plans for continuous operations in the event such problems arise.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Waste Systems $25 million credit facility has a variable interest rate
based on LIBOR or the Prime rate. As interest rates increase in the overall
credit market, our interest expense will increase proportionately. In addition,
as interest rates increase in the overall market, we may find it difficult to
borrow under the credit facility or to enter into other loans to finance our
acquisition strategy. We do not believe that our market risk is material to our
financial condition and results of operations.
<PAGE>
PART II
Item 1. Legal Proceedings
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.
Item 2. Changes in Securities
Private Placement. In August 1999, the Company issued 2,239,745 shares
of its common stock at $7 per share in a private placement for proceeds totaling
$15,678,216. The proceeds were used for acquisitions.
Series C Preferred Stock. As a part of an acquisition completed in
August 1999, the Company issued 1,000 shares of Series C Preferred Stock at
$11,615 per share for total proceeds of $11,615,000. In accordance with the
terms of the issuance, on October 21, 1999, a special shareholders meeting was
held and each share of the Series C Preferred Stock was converted into 1,763
shares of common stock.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Series C Preferred Stock. As a part of an acquisition completed in
July 1999, the Company created and issued 1,000 shares of Series C Preferred
Stock. Each share was issued at $11,615 for total proceeds of $11,615,000. On
October 21, 1999, a special shareholders meeting was held and the conversion of
the Series C Preferred Stock was approved. As a result, the 1,000 shares of
Series C Preferred stock were fully converted into 1,763,000 shares of common
stock. The detail of the vote is as follows:
For Against Abstain No Vote Total
9,987,329 46,290 8,000 - 10,041,619
Item 5. Other Information
None.
Item 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(A) 1. Financial Statements
The financial statements are listed under Part I, Item 1 of this
Report.
2. Financial Statement Schedules
None.
3. Exhibits
None.
(B) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
WASTE SYSTEMS INTERNATIONAL, INC.
Date: November 12, 1999 By: /s/ Philip Strauss
Philip Strauss
Chairman, Chief Executive Officer
and President
(Principal Executive Officer)
Date: November 12, 1999 By: /s/ James L. Elitzak
James L. Elitzak
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
<PAGE>
Exhibit 5
LETTER OF TRANSMITTAL
WASTE SYSTEMS INTERNATIONAL, INC.
Offer for $22,500,000 principal amount of,
and accrued but unpaid interest on,
11 1/2% Senior Notes Due 2006
in Exchange for
Shares of Series E Convertible Preferred Stock
Offer for $77,500,000 principal amount of,
and accrued but unpaid interest on,
11 1/2% Series B Senior Notes Due 2006
in Exchange for
Shares of Series E Convertible Preferred Stock
Offer for $49,551,420 principal amount of, and
accrued but unpaid interest on,
7% Convertible Subordinated Notes Due 2005
in Exchange for
Shares of Series E Convertible Preferred Stock
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 PM, NEW YORK CITY TIME, ON FEBRUARY 14,
2000, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO
MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
Delivery to:
Bank of New York, Exchange Agent
By Hand: By Overnight Courier or
Registered/Certified Mail:
The Bank of New York
101 Barclay Street The Bank of New York
New York, NY 10286 101 Barclay Street
Ground Level New York, NY 10286
Corporate Trust Services Window Attn: Reorganization Unit-7E
Attn: Reorganization Unit-7E
By Facsimile:
(212) 815-6339
Telephone Confirmation:
(212) 815-3682
Delivery of these instructions to an address other than as set forth
above, or electronic transmission of instructions other than as set forth above,
will not constitute a valid delivery.
<PAGE>
The undersigned acknowledges that he or she has received and reviewed
the Exchange Offering Memorandum dated January 18, 2000 (the "Exchange Offering
Memorandum") of Waste Systems International, Inc., a Delaware corporation (the
"Company"), and this Letter of Transmittal (the "Letter"), which together
constitute the Company's offers (the "Exchange Offers") to exchange an aggregate
number of up to 158,427 shares of Series E Convertible Preferred Stock of the
Company ("Series E Convertible Preferred Stock") for $22,500,000 principal
amount of, and accrued but unpaid interest on, issued and outstanding 11 1/2%
Senior Notes Due 2006 of the Company (the "Senior Notes"), $77,500,000 principal
amount of, and accrued but unpaid interest on, issued and outstanding 11 1/2%
Series B Senior Notes Due 2006 of the Company (the "Series B Senior Notes") and
$49,551,420 principal amount of, and accrued but unpaid interest on, issued and
outstanding 7% Convertible Subordinated Notes Due 2005 of the Company (the
"Subordinated Notes") with the holders thereof.
Holders of Senior Notes, Series B Senior Notes or Subordinated Notes
whose Senior Notes, Series B Senior Notes or Subordinated Notes are accepted for
exchange will not receive any payment in respect of interest on such Senior
Notes, Series B Senior Notes or Subordinated Notes otherwise payable on any
interest payment date the record date for which occurs on or after the
Expiration Date. The Company shall notify the holders of the Senior Notes,
Series B Senior Notes or Subordinated Notes of any extension by means of a press
release or other public announcement no later than 9:00 A.M., New York City
time, on the next business day after the previously scheduled Expiration Date.
This Letter is to be completed by a holder of Senior Notes, Series B
Senior Notes or Subordinated Notes either if certificates are to be forwarded
herewith or if a tender of certificates for Senior Notes, Series B Senior Notes
or Subordinated Notes, if available, is to be made by book-entry transfer to the
account maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in the
Exchange Offering Memorandum under "The Exchange Offers--Book-Entry Transfer."
Holders of Senior Notes, Series B Senior Notes or Subordinated Notes whose
certificates are not immediately available, or who are unable to deliver their
certificates or confirmation of the book-entry tender of their Senior Notes,
Series B Senior Notes or Subordinated Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other
documents required by this Letter to the Exchange Agent on or prior to the
Expiration Date, must tender their Senior Notes, Series B Senior Notes or
Subordinated Notes according to the guaranteed delivery procedures set forth in
the Exchange Offering Memorandum under "The Exchange Offers--Guaranteed Delivery
Procedure." See Instruction 1 to this Letter, below. Delivery of documents to
the Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
The undersigned has completed the appropriate boxes below and signed
this Letter to indicate the action the undersigned desires to take with respect
to the Exchange Offers.
List below the Senior Notes, Series B Senior Notes or Subordinated
Notes to which this Letter relates. If the space provided below is inadequate,
the certificate numbers and principal amount of Senior Notes, Series B Senior
Notes or Subordinated Notes should be listed on a separate signed schedule
affixed hereto.
- --------------------------------------------------------------------------------
DESCRIPTION OF SENIOR NOTES
- ----------------------------------- ------------- ----------------- ------------
Name(s) and Address(es) (1) (2) (3)
of Registered Holder(s) Aggregate
(Please fill in, if blank) Principal Principal
Certificate Amount of Amount
Number(s)* Senior Note(s) Tendered**
- ----------------------------------- ------------- ----------------- ------------
------------- ----------------- ------------
------------- ----------------- ------------
------------- ----------------- ------------
Total
- ----------------------------------- ------------- ----------------- ------------
<PAGE>
- --------------------------------------------------------------------------------
DESCRIPTION OF SERIES B SENIOR NOTES
- ----------------------------------- ------------- ----------------- ------------
Name(s) and Address(es) (1) (2) (3)
of Registered Holder(s) Aggregate
(Please fill in, if blank) Principal
Amount of Principal
Certificate Series B Amount
Number(s)* Senior Note(s) Tendered**
- ----------------------------------- ------------- ----------------- ------------
------------- ----------------- ------------
------------- ----------------- ------------
------------- ----------------- ------------
Total
- ----------------------------------- ------------- ----------------- ------------
- --------------------------------------------------------------------------------
DESCRIPTION OF SUBORDINATED NOTES
- ----------------------------------- ------------- ----------------- ------------
Name(s) and Address(es) (1) (2) (3)
of Registered Holder(s) Aggregate
(Please fill in, if blank) Principal
Amount of Principal
Certificate Subordinated Amount
Number(s)* Note(s) Tendered**
- ----------------------------------- ------------- ----------------- ------------
------------- ----------------- ------------
------------- ----------------- ------------
------------- ----------------- ------------
Total
- ----------------------------------- ------------- ----------------- ------------
- --------------------------------------------------------------------------------
* Need not be completed if Senior Notes, Series B Senior Notes or Subordinated
Notes are being tendered by book-entry transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Senior Notes, Series B Senior Notes or Subordinated Notes
represented by the Senior Notes, Series B Senior Notes or Subordinated Notes
indicated in column 2. See Instruction 2.
- --------------------------------------------------------------------------------
<PAGE>
CHECK HERE IF TENDERED SENIOR NOTES, SERIES B SENIOR NOTES OR
- -------- SUBORDINATED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO
THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering
Institution Account Number Transaction Code Number
CHECK HERE IF TENDERED SENIOR NOTES, SERIES B SENIOR NOTES OR
- -------- SUBORDINATED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s)
Window Ticket Number (if any)
Date of Execution of Notice of Guaranteed Delivery
Name of Institution which Guaranteed Delivery
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number
Transaction Code Number
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
- -------- COPIES OF THE EXCHANGE OFFERING MEMORANDUM AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO WITHIN 90 DAYS AFTER THE EXPIRATION
DATE.
Name
Address
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offers,
the undersigned hereby tenders to the Company the aggregate principal amount of
Senior Notes, Series B Senior Notes or Subordinated Notes indicated above.
Subject to, and effective upon, the acceptance for exchange of the Senior Notes,
Series B Senior Notes or Subordinated Notes tendered hereby, the undersigned
hereby sells, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to such Senior Notes, Series B Senior Notes or
Subordinated Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Senior Notes,
Series B Senior Notes or Subordinated Notes tendered hereby and that the Company
will acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any advance claim when
the same are accepted by the Company. The undersigned hereby further represents
that any shares of Series E Convertible Preferred Stock acquired in exchange for
Senior Notes, Series B Senior Notes or Subordinated Notes tendered hereby will
have been acquired in the ordinary course of business of the person receiving
such shares of Series E Convertible Preferred Stock, whether or not such person
is the undersigned, that neither the holder of such Senior Notes, Series B
Senior Notes or Subordinated Notes nor any such other person has, or had at the
commencement of the Exchange Offers, an arrangement or understanding with any
person to participate in the distribution of such shares of Series E Convertible
Preferred Stock.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Senior Notes, Series B Senior Notes or
Subordinated Notes tendered hereby. All authority conferred or agreed to be
conferred in this Letter and every obligation of the undersigned hereunder shall
be binding upon the successors, assigns, heirs, executors, administrators,
trustees in bankruptcy and legal representatives of the undersigned and shall
not be affected by, and shall survive, the death or incapacity of the
undersigned. This tender may be withdrawn only in accordance with the procedures
set forth in "The Exchange Offers-Withdrawal of Tenders" section of the Exchange
Offering Memorandum.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please issue the shares of Series E Convertible Preferred
Stock (and, if applicable, substitute certificates representing Senior Notes,
Series B Senior Notes or Subordinated Notes for any Senior Notes, Series B
Senior Notes or Subordinated Notes not exchanged) in the name of the undersigned
or, in the case of a book-entry delivery of Senior Notes, Series B Senior Notes
or Subordinated Notes, please credit the account indicated above maintained at
the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under
the box entitled "Special Delivery Instructions" below, please deliver the
shares of Series E Convertible Preferred Stock (and, if applicable, substitute
certificates representing Senior Notes, Series B Senior Notes or Subordinated
Notes for any Senior Notes, Series B Senior Notes or Subordinated Notes not
exchanged) to the undersigned at the address shown above.
The undersigned agrees that any interest payment on the Senior Notes,
Series B Senior Notes or Subordinated Notes that is payable prior to the
Expiration Date may be delayed and if the tender of the undersigned's Senior
Notes, Series B Senior Notes or Subordinated Notes is accepted, the interest
payment will be paid by delivering one share of Series E Convertible Preferred
Stock for each $1,000 or integer multiple thereof of accrued but unpaid
interest. No fractional shares of Series E Convertible Preferred Stock will be
issed in payment of accrued but unpaid interest but payment in cash will be made
in lieu thereof. In the event the Exchange Offers are terminated, interest due
and payable prior to the Expiration Date will be paid in cash within 5 business
days of the Expiration Date.
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX(ES) ENTITLED "DESCRIPTION OF
SENIOR NOTES" OR "DESCRIPTION OF SERIES B SENIOR NOTES" OR "DESCRIPTION OF
SUBORDINATED NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE
TENDERED SUCH SENIOR NOTES, SERIES B SENIOR NOTES OR SUBORDINATED NOTES AS SET
FORTH IN SUCH BOX(ES) ABOVE.
- --------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for
Senior Notes, Series B Senior Notes or Subordinated
Notes not exchanged and/or shares of Series E
Convertible Preferred Stock are to be issued in the
name of and sent to someone other than the person or
persons whose signature(s) appear(s) on this Letter
above, or if Senior Notes, Series B Senior Notes or
Subordinated Notes delivered by book-entry transfer
which are not accepted for exchange are to be returned
by credit to an account maintained at the Book-Entry
Transfer Facility other than the account indicated
above.
Issue Series E Convertible Preferred Stock
and/or Senior Notes, Series B Senior Notes
or Subordinated Notes to:
Name(s)
(Please Type or Print)
(Please Type or Print)
Address:
(Zip Code)
Complete Substitute Form W-9
Credit unexchanged Senior Notes, Series B
Senior Notes or Subordinated Notes delivered by
book-entry transfer to the Book-Entry Transfer
Facility account set forth below
(Book-Entry Transfer Facility
Account Number, if applicable)
- --------------------------------------------------------
- ------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for
Senior Notes, Series B Senior Notes or Subordinated
Notes not exchanged and/or shares of Series E
Convertible Preferred Stock are to be sent to some
other than the person or persons whose signature(s)
appear(s) on this Letter above or to such person or
persons at an address other than shown in the
box(es) entitled "Description of Senior Notes" or
"Description of Series B Senior Notes" or
"Description of Subordinated Notes" on this Letter
above.
Mail Series E Convertible Preferred Stock
and/or Senior Notes, Series B Senior Notes or
Subordinated Notes to:
Name(s)
(Please Type or Print)
(Please Type or Print)
Address:
(Zip Code)
- ------------------------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE
CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED
DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE
AGENT PRIOR TO 5:00 p.m., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY OF THE ABOVE.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9)
Date: , 2000
X , 2000
X , 2000
Signature(s) of Owner(s) Date
If a holder is tendering any Senior Notes, Series B Senior Notes or
Subordinated Notes, this Letter must be signed by the registered holder(s) as
the name(s) appear(s) on the certificate(s) for the Senior Notes, Series B
Senior Notes or Subordinated Notes or by any person(s) authorized to become
registered holder(s) by endorsements and documents transmitted herewith. If
signature is by a trustee, executor, administrator, guardian, officer or other
person acting in a fiduciary or representative capacity, please set forth full
title. See Instruction 3 to this Letter, below.
Name(s):
(Please Type or Print)
Capacity:
Address:
(Including Zip Code)
SIGNATURE GUARANTEE
(If required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution:
(Authorized Signature)
(Title)
(Name and Print)
Dated: , 2000
- --------------------------------------------------------------------------------
IMPORTANT. This letter or a facsimile thereof must be received by the
Exchange Agent on or prior to the Expiration Date.
- ----------------------------- -------------------------------- -----------------
SUBSTITUTE Part I: PLEASE PROVIDE YOUR Social Security
FORM W-9 TIN IN THE SPACE AT THE RIGHT Number or
Department of the Treasury AND CERTIFY BY SIGNING AND Employer
Internal Revenue Service DATING BELOW Identification
Number
Payer's Request for Taxpayer
Identification Number (TIN)
-------------------------------------------------
Part II: For Payees exempt from backup
withholding, see the enclosed Guidelines for
Certification of Taxpayers Identification Number
on Substitute Form W-9 and complete as
instructed therein.
Part III
Awaiting TIN:
- --------------------------------------------------------------------------------
Certification. Under penalties of perjury, I certify that:
(1) The Number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or the
IRS has notified me that I am no longer subject to backup withholding.
Certification Instructions. You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received
another notification from the IRS that you were no longer subject to backup
withholding, do not cross out item (2).
- --------------------------------------------------------------------------------
PLEASE SIGN HERE Signature Date
- --------------------------------------------------------------------------------
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer for up to
$22,500,000 aggregate principal amount of, and accrued but unpaid interest
on, 11 1/2% Senior Notes Due 2006, up to $77,500,000 aggregate principal
amount of, and accrued but unpaid interest on, 11 1/2% Series B Senior Notes
Due 2006 and up to $49,551,420 aggregate principal amount of, and accrued
but unpaid interest on, 7% Convertible Subordinated Notes Due 2005 of
Waste Systems International, Inc., in Exchange for Shares of Series E
Convertible Preferred Stock of Waste Systems International, Inc.
1. Delivery of this Letter and Notice of Guaranteed Delivery Procedures.
This Letter is to be completed by noteholders either if certificates
are to be forwarded herewith or if tenders are to be made pursuant to the
procedures for delivery by book-entry transfer set forth in the Exchange
Offering Memorandum under "The Exchange Offers-Book-Entry Transfer."
Certificates for all physically tendered Senior Notes, Series B Senior Notes or
Subordinated Notes, or Book-Entry Confirmation, as the case may be, as well as a
properly completed and duly executed Letter (or manually signed facsimile
hereof) and any other documents required by this Letter, must be received by the
Exchange Agent at the address set forth herein on or prior to the Expiration
Date, or the tendering holder must comply with the guaranteed delivery
procedures set forth below.
Holders whose certificates for Senior Notes, Series B Senior Notes or
Subordinated Notes are not immediately available or who cannot deliver their
certificates and all other required documents to the Exchange Agent on or prior
to the Expiration Date, or who cannot complete the procedure for book-entry
transfer on a timely basis, may tender their Senior Notes, Series B Senior Notes
or Subordinated Notes pursuant to the guaranteed delivery procedures set forth
in the Exchange Offering Memorandum under "The Exchange Offers--Guaranteed
Delivery Procedure." Pursuant to such procedure, (i) such tender must be made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent must receive from such Eligible Institution a properly completed and duly
executed letter (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of Senior Notes, Series B Senior Notes or Subordinated Notes and the
amount of Senior Notes, Series B Senior Notes or Subordinated Notes tendered,
stating that the tender is being made thereby and guaranteeing that within five
New York Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered
Senior Notes, Series B Senior Notes or Subordinated Notes, or a Book-Entry
Confirmation, and any other documents required by this Letter will be deposited
by the Eligible Institution with the Exchange Agent and (iii) the certificates
for all physically tendered Senior Notes, Series B Senior Notes or Subordinated
Notes, in proper form for transfer, or Book-Entry Confirmation, as the case may
be, and all other documents required by this Letter, are received by the
Exchange Agent within five NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Senior Notes, Series B
Senior Notes or Subordinated Notes and all other required documents is at the
election and risk of the tendering holders, but the delivery will be deemed made
only when actually received or confirmed by the Exchange Agent. If Senior Notes,
Series B Senior Notes or Subordinated Notes are sent by mail, it is suggested
that the mailing, return receipt requested, be made sufficiently in advance of
the Expiration Date to permit delivery to the Exchange Agent prior to 5:00 p.m.,
New York City time, on the Expiration Date.
See the Exchange Offering Memorandum under "The Exchange Offers."
2. Partial Tenders (not applicable to holders who tender by book-entry
transfer).
If less than all of the Senior Notes, Series B Senior Notes or
Subordinated Notes evidenced by a physically submitted certificate are to be
tendered, the tendering holder(s) should fill in the aggregate principal amount
of Senior Notes, Series B Senior Notes or Subordinated Notes to be tendered in
the box(es) entitled "Description of Senior Notes-Principal Amount Tendered" or
"Description of Series B Senior Notes-Principal Amount Tendered" or "Description
of Subordinated Notes-Principal Amount Tendered." A reissued certificate
representing the balance of nontendered Senior Notes, Series B Senior Notes or
Subordinated Notes will be sent to such tendering holder, unless otherwise
provided in the appropriate box on this Letter, promptly after the Expiration
Date. ALL OF THE SENIOR NOTES, SERIES B SENIOR NOTES OR SUBORDINATED NOTES
DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS
OTHERWISE INDICATED.
3. Signatures on this Letter; Bond Powers and Endorsements; Guarantee of
Signatures.
If this Letter is signed by the registered holder of the Senior Notes,
Series B Senior Notes or Subordinated Notes tendered hereby, the signature must
correspond exactly with the name as written on the face of the certificates
without any change whatsoever.
If any tendered Senior Notes, Series B Senior Notes or Subordinated
Notes are owned of record by two or more joint owners, all such owners must sign
this Letter.
If any tendered Senior Notes, Series B Senior Notes or Subordinated
Notes are registered in different name on several certificates, it will be
necessary to complete, sign and submit as many separate copies of this Letter as
there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the
Senior Notes, Series B Senior Notes or Subordinated Notes specified herein and
tendered hereby, no endorsements of certificates or separate bond powers are
required. If, however, shares of Series E Convertible Preferred Stock are to be
issued, or any untendered Senior Notes, Series B Senior Notes or Subordinated
Notes are to be released, to a person other than the registered holder, then
endorsements of any certificates transmitted hereby or separate bond powers are
required. Signatures on such certificate(s) or bond powers must be guaranteed by
an Eligible Institution.
If this Letter is signed by a person other than the registered holder
or holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) or bond powers must be
guaranteed by an Eligible Institution).
Endorsement on certificates for Senior Notes, Series B Senior Notes or
Subordinated Notes or signatures on bond powers required by this Instruction 3
must be guaranteed by a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or by a commercial bank or trust company having an office or
correspondent in the United States (an "Eligible Institution").
Signatures on this Letter need not be guaranteed by an Eligible
Institution, provided the Senior Notes, Series B Senior Notes or Subordinated
Notes are tendered: (i) by a registered holder of Senior Notes, Series B Senior
Notes or Subordinated Notes (which term, for purposes of the Exchange Offers,
includes any participant in the Book-Entry Transfer Facility system whose name
appears on a security position listing as the holder of such Senior Notes,
Series B Senior Notes or Subordinated Notes) who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
this Letter or (ii) for the account of an Eligible Institution. 4. Special
Issuance and Delivery Instructions.
Tendering holders of Senior Notes, Series B Senior Notes or
Subordinated Notes should indicate in the applicable box the name and address to
which shares of Series E Convertible Preferred Stock issued pursuant to any
Exchange Offer and/or substitute certificates evidencing Senior Notes, Series B
Senior Notes or Subordinated Notes not exchanged are to be issued or sent, if
different from the name or address of the person signing this Letter. In the
case of issuance in a different name, the employer identification or social
security number of the person named must also be indicated. Holders tendering
Senior Notes, Series B Senior Notes or Subordinated Notes by book-entry transfer
may request that Senior Notes, Series B Senior Notes or Subordinated Notes not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such holder may designate herein. If no such instructions are given,
such Senior Notes, Series B Senior Notes or Subordinated Notes not exchanged
will be returned to the name or address of the person signing this Letter.
5. Transfer Taxes.
The Company will pay all transfer taxes, if any, applicable to the
transfer of Senior Notes, Series B Senior Notes or Subordinated Notes to it or
its order pursuant to the Exchange Offers. If however, shares of Series E
Convertible Preferred Stock and/or substitute Senior Notes, Series B Senior
Notes or Subordinated Notes not exchanged 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 Senior Notes, Series B Senior Notes or Subordinated Notes tendered
hereby, or if tendered Senior Notes, Series B Senior Notes or Subordinated Notes
are registered in the name of any person other than the person signing this
Letter, or if a transfer tax is imposed for any reason other than the transfer
of Senior Notes, Series B Senior Notes or Subordinated Notes to the Company or
its order pursuant to the Exchange Offers, the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted herewith, the amount of such transfer taxes
will be billed directly to such tendering holder.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Senior Notes, Series B Senior Notes or
Subordinated Notes specified in this Letter.
6. Waiver of Conditions.
The Company reserves the absolute right to waive satisfaction of any or
all conditions provided in the Exchange Offering Memorandum.
7. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Senior Notes, Series B Senior Notes or
Subordinated Notes, by execution of this Letter, shall waive any right to
receive notice of the acceptance of their Senior Notes, Series B Senior Notes or
Subordinated Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is
obligated to give notice of any defect or irregularity with respect to any
tender of Senior Notes, Series B Senior Notes or Subordinated Notes nor shall
any of them incur any liability for failure to give any such notice.
8. Mutilated, Lost, Stolen or Destroyed Senior Notes, Series B Senior Notes or
Subordinated Notes.
Any holder whose Senior Notes, Series B Senior Notes or Subordinated
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
9. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests
for additional copies of the Exchange Offering Memorandum and this Letter, may
be directed to the Exchange Agent at the address and telephone number indicated
above.
<PAGE>
Exhibit 6
NOTICE OF GUARANTEED DELIVERY
for
Tender of $22,500,000 principal amount of,
and accrued but unpaid interest on,
11 1/2% Senior Notes Due 2006
in Exchange for
Shares of Series E Convertible Preferred Stock
Tender of $77,500,000 principal amount of,
and accrued but unpaid interest on,
11 1/2% Series B Senior Notes Due 2006
in Exchange for
Shares of Series E Convertible Preferred Stock
Tender of $49,551,420 principal amount of, and
accrued but unpaid interest on,
7% Convertible Subordinated Notes Due 2005
in Exchange for
Shares of Series E Convertible Preferred Stock
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 "Senior Notes"), outstanding
11 1/2% Series B Senior Notes Due 2006 (the "Series B Senior Notes") or
outstanding 7% Convertible Subordinated Notes Due 2005 (the "Subordinated
Notes") meeting all of the following requirements: (1) such registered holder
wishes to tender its Senior Notes, Series B Senior Notes or Subordinated Notes
in exchange for shares of Series E Convertible Preferred Stock; and (2) such
registered holder's Senior Notes, Series B Senior Notes or Subordinated Notes
are not immediately available or such registered holder cannot deliver its
Senior Notes, Series B Senior Notes or Subordinated Notes and Letter of
Transmittal (and any other documents required by the Letter of Transmittal) to
Bank of New York (the "Exchange Agent") prior to the Expiration Date.
<PAGE>
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 Offers-Procedures for Tendering" in the Exchange Offering Memorandum
dated January 18, 2000 of Waste Systems International, Inc. (the "Exchange
Offering Memorandum").
Capitalized terms not defined herein are defined in the Exchange Offers
Memorandum.
The Exchange Agent for the Exchange Offers is:
BANK OF NEW YORK
By Hand: By Overnight Courier or
Registered/Certified Mail:
Bank of New York Bank of New York
101 Barclay Street 101 Barclay Street
New York, NY 10286 New York, NY 10286
Ground Level Attn: Reorganization Unit - 7E
Corporate Trust Services Window
Attn: Reorganization Unit - 7E
By Facsimile:
(212) 815-6339
Telephone Confirmation:
(212) 815-3682
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
under the Exchange Offers.
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 Exchange Offering
Memorandum), 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, and accrued but
unpaid interest on, the Senior Notes, Series B Senior Notes or Subordinated
Notes indicated below, upon the terms and subject to the conditions contained in
the Exchange Offers Memorandum, receipt of which is hereby acknowledged.
DESCRIPTION OF SECURITIES TENDERED
Name and address of registered
holder as it appears on the
11 1/2% Senior Certificate Number(s) Principal Amount
Notes Due 2006 of Senior Notes of Senior Notes
(Please Print) Tendered Tendered
Name and address of registered
holder as it appears on the
11 1/2% Series B Senior Certificate Number(s) Principal Amount
Notes Due 2006 of Series B Senior of Series B Senior
(Please Print) Notes Tendered Notes Tendered
Name and address of registered
holder as it appears on the
7%Convertible Subordinated Certificate Number(s) Principal Amount
Notes Due 2005 of Subordinated of Subordinated
(Please Print) Notes Tendered Notes Tendered
<PAGE>
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 Senior Notes, Series B Senior Notes or Subordinated 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.
Name of Firm:
(Authorized Signature)
Address: Title:
Name:
(Zip Code) (Please type or print)
Area Code and Telephone Number:
Date:
NOTE: DO NOT SEND NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY;
NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE>
Exhibit 7
WASTE SYSTEMS INTERNATIONAL, INC.
Tender of $22,500,000 principal amount of,
and accrued but unpaid interest on,
11 1/2% Senior Notes Due 2006
in Exchange for
Shares of Series E Convertible Preferred Stock
Tender of $77,500,000 principal amount of,
and accrued but unpaid interest on,
11 1/2% Series B Senior Notes Due 2006
in Exchange for
Shares of Series E Convertible Preferred Stock
Tender of $49,551,420 principal amount of, and
accrued but unpaid interest on,
7% Convertible Subordinated Notes Due 2005
in Exchange for
Shares of Series E Convertible Preferred Stock
To Our Clients:
Enclosed for your consideration is an Exchange Offering memorandum, dated
January 18, 2000 (the "Exchange Offering Memorandum"), and the related letter of
transmittal (the "Letter of Transmittal"), relating to the offers (the "Exchange
Offers") of Waste Systems International, Inc. (the "Company"), to exchange the
principal amount of, and accrued but unpaid interest on, its 11 1/2% Senior
Notes Due 2006 (the "Senior Notes"), its 11 1/2% Series B Senior Notes Due 2006
(the "Sereis B Senior Notes") and its 7% Convertible Subordinated Notes Due 2003
(the "Subordinated Notes" and together with the Senior Notes and the Series B
Senior Notes, the "Notes") for shares of its Series E Convertible Preferred
Stock (the "Series E Convertible Preferred Stock").
This material is being forwarded to you as the beneficial owner of the
Notes carried by us in your account but not registered in your name. A tender of
such 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 Notes held by us for your account pursuant to the terms and
conditions set forth in the enclosed Exchange Offering Memorandum and Letter of
Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Notes on your behalf in accordance with the
provisions of the Exchange Offers. The Exchange Offers will expire at 5:00 p.m.,
New York Time, on February 14, 2000, unless extended by the Company. Any
Subordinated Notes tendered pursuant to the Subordinated Note Exchange Offer may
be withdrawn at any time before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offers are subject to certain conditions set forth in the
Exchange Offering Memorandum in the section captioned "The Exchange
Offers--Conditions to the Exchange Offers."
2. Any transfer taxes incident to the transfer of 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.
3. The Exchange Offer expires at 5:00 p.m., Eastern Time, on February 14,
2000, unless extended by the Company.
If you wish to have us tender your 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 Notes.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFERS
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offers made by Waste
Systems International, Inc. with respect to its Notes.
This will instruct you to tender the 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 Exchange Offering
Memorandum and the related Letter of Transmittal.
Please tender the Notes held by you for my account as indicated below:
Aggregate Principal
Amount of Notes
11 1/2% Senior Notes Due 2006..................... _____________________________
11 1/2% Series B Senior Notes Due 2006............ _____________________________
7% Convertible Subordinated Notes Due 2003........ _____________________________
Please do not tender 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).
None of the 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 Notes held by us for your
account.
<PAGE>
Exhibit 8
WASTE SYSTEMS INTERNATIONAL, INC.
Tender of $22,500,000 principal amount of,
and accrued but unpaid interest on,
11 1/2% Senior Notes Due 2006
in Exchange for
Shares of Series E Convertible Preferred Stock
Tender of $77,500,000 principal amount of,
and accrued but unpaid interest on,
11 1/2% Series B Senior Notes Due 2006
in Exchange for
Shares of Series E Convertible Preferred Stock
Tender of $49,551,420 principal amount of, and
accrued but unpaid interest on,
7% Convertible Subordinated Notes Due 2005
in Exchange for
Shares of Series E Convertible Preferred Stock
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 Exchange Offering Memorandum, dated
January 18, 2000 (the "Exchange Offering Memorandum"), and the enclosed Letter
of Transmittal (the "Letter of Transmittal"), is offering to exchange shares
of its Series E Convertible Preferred Stock (the "Series E Convertible
Preferred Stock") for $22,500,000 principal amount of, and accrued but unpaid
interest on, its 11 1/2% Senior Notes Due 2006 (the "Senior Notes"),
$77,500,000 principal amount of, and accrued but unpaid interest on, its 11
1/2% Series B Senior Notes Due 2006 (the "Series B Senior Notes") and
$49,551,420 principal amount of, and accrued but unpaid interest on, its 7%
Convertible Subordinated Notes Due 2005 (the "Subordinated Notes")
(collectively, the "Exchange Offers").
We are requesting that you contact your clients for whom you hold Senior
Notes, Series B Senior Notes or Subordinated Notes regarding the Exchange
Offers. For your information and for forwarding to your clients for whom you
hold Senior Notes, Series B Senior Notes or Subordinated Notes registered in
your name or in the name of your nominee, or who hold Senior Notes, Series B
Senior Notes or Subordinated Notes registered in their own names, we are
enclosing the following documents:
1. Exchange Offering Memorandum dated January 18, 2000;
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 any of the
Exchange Offers if certificates for Senior Notes, Series B Senior
Notes or Subordinated 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 Senior Notes, Series B Senior Notes or Subordinated Notes
registered in your name or the name of your nominee, with space
provided for obtaining such clients' instructions with regard to the
Exchange Offers;
5. Guidelines for Certification of Taxpayer Identification Number on
substitute Form W-9; and
6. Return envelopes addressed to Bank of New York, the Exchange Agent for
the Exchange Offers.
<PAGE>
Your prompt action is requested. The Exchange Offers will expire at 5:00 p.m.,
Eastern Time, on February 14, 2000, unless extended by the Company (the
"Expiration Date"). The tender of the Subordinated Notes tendered pursuant to an
Exchange Offer may be withdrawn at any time before the Expiration Date. See the
Exchange Offering Memorandum under "The Exchange Offers--Withdrawal of Tenders."
To participate in an 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 Senior Notes, Series B Senior Notes or
Subordinated Notes should be delivered to the Exchange Agent, all in accordance
with the instructions set forth in the Letter of Transmittal and the Exchange
Offering Memorandum.
If holders of Senior Notes, Series B Senior Notes or Subordinated Notes
wish to tender, but it is impracticable for them to forward their certificates
for Senior Notes, Series B Senior Notes or Subordinated Notes prior to the
expiration of the Exchange Offers 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 Exchange Offering Memorandum
under "The Exchange Offers-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 Exchange Offering Memorandum and the related
documents to the beneficial owners of Senior Notes, Series B Senior Notes or
Subordinated 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 Senior Notes, Series B Senior Notes or Subordinated Notes pursuant
to the Exchange Offers, except as set forth in Instruction 5 of the Letter of
Transmittal.
Any inquiries you may have with respect to the Exchange Offers, or requests
for additional copies of the enclosed materials, should be directed to Bank of
New York, the Exchange Agent, at its address and telephone number set forth on
the front of the Letter of Transmittal.
Very truly yours,
/s/ Robert Rivkin
Robert Rivkin
Executive Vice President-Acquisitions,
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 OFFERS, EXCEPT FOR STATEMENTS EXPRESSLY MADE
IN THE EXCHANGE OFFERING MEMORANDUM OR THE LETTER OF TRANSMITTAL.
<PAGE>
Exhibit 9
Waste Systems International, Inc.
Lexington Office Park, 420 Bedford Street, Suite 300, Lexington, MA 02420
Tel: 781-862-3000; Fax 781-862-2929
FOR IMMEDIATE RELEASE:
Contacts: Waste Systems International, Inc.
Brian Norris, Director of Investor Relations
Telephone: 781-862-3000
- --------------------------------------------------------------------------------
WASTE SYSTEMS INTERNATIONAL, INC. ANNOUNCES
COMMENCEMENT OF EXCHANGE OFFER
Lexington, Massachusetts, January 18, 2000 - Waste Systems International, Inc.
("WSI") (NASDAQ: WSII), a fully integrated non-hazardous solid waste management
company, today announced the commencement of an Exchange Offer for its
$50,000,000 Convertible Subordinated Notes due 2005 and its $100,000,000 Senior
Notes due 2006. The Convertible Subordinated Notes and the Senior Notes can be
exchanged into shares of the Company's newly designated Series E Convertible
Preferred Stock that will carry an 8% dividend which is payable in kind or cash
at the option of the Company. The preferred stock, which is redeemable at any
time by the Company, can be converted into shares of the Company's common stock
at a price of $8.00 per share at any time at the option of the holder and can be
mandatorily converted by the Company if its common stock closing price equals or
exceeds $8.00 for a period of twenty consecutive trading days.
The Exchange Offer will expire at 5:00 p.m., New York City time, on Tuesday,
February 14, 2000.
WSI is a fully integrated non-hazardous solid waste management company. The
Company currently has operations in Eastern New England, Central Pennsylvania,
Vermont, Upstate New York, and Baltimore, Maryland / Washington D.C. which serve
approximately 73,000 commercial, industrial, and residential customers. The
Company is also evaluating other acquisitions and opportunities in the
Mid-Atlantic and Northeastern markets.
Certain matters discussed in the press release, including statements with regard
to acquisition and growth plans, and prospects, are "forward-looking statements"
intended to qualify for the safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are
inherently uncertain and subject to risks. Such statements should be viewed with
caution. Among the important factors that could cause actual results to differ
materially from those indicated by such forward-looking statements are the
Company's history of losses, substantial increased leverage, uncertain ability
to finance the company's growth, ability to identify, acquire and integrate
acquisition targets, ability to manage growth, limitations on landfill
permitting and expansion, dependence on management, competition, geographic
concentration of operations, seasonality, environmental and government
regulations, potential environmental liability and adverse effect of
environmental regulation, potential adverse community relations, performance or
surety bonds and letters of credit, environmental impairment liability
insurance, adequacy of accruals for closure and post-closure costs, capital
expenditures, Year 2000 compliance, and the other risk factors detailed from
time to time in the Company's periodic reports and registration statements filed
with the Securities and Exchange Commission. The Company makes no commitment to
disclose any revisions to forward-looking statements, or any facts, events or
circumstances after the date hereof that may bear upon forward-looking
statements.
# # #
