<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1997
REGISTRATION NO. 333-36389
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
AMERICAN DISPOSAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4953 13-3858494
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
--------------------------
745 MCCLINTOCK DRIVE
SUITE 230
BURR RIDGE, ILLINOIS 60521
(630) 655-1105
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------------------
ANN L. STRAW, ESQ.
AMERICAN DISPOSAL SERVICES, INC.
745 MCCLINTOCK DRIVE
SUITE 230
BURR RIDGE, ILLINOIS 60521
(630) 655-1105
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
Copies to:
<TABLE>
<S> <C>
STEPHEN W. RUBIN, ESQ. HOWARD L. SHECTER, ESQ.
PROSKAUER ROSE LLP MORGAN, LEWIS & BOCKIUS LLP
1585 BROADWAY 101 PARK AVENUE
NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10178
(212) 969-3000 (212) 309-6000
</TABLE>
--------------------------
Approximate date of commencement of proposed sale of securities to the
public: As soon as possible after the Registration Statement becomes effective.
--------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 22, 1997
5,500,000 SHARES
[LOGO]
COMMON STOCK
------------------
Of the 5,500,000 shares of Common Stock offered hereby, 3,500,000 shares are
being issued and sold by American Disposal Services, Inc. (the "Company") and
2,000,000 shares are being sold by certain selling stockholders (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholders.
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "ADSI." On October 21, 1997, the last sale price of the Common Stock as
reported by the Nasdaq National Market was $30.13 per share. See "Price Range of
Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF
COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
Total(3)....................... $ $ $ $
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the offering payable by the Company estimated
at $500,000.
(3) The Underwriters have been granted an option by the Company, exercisable
within 30 days from the date hereof, to purchase up to 825,000 additional
shares of Common Stock, at the Price to Public per share, less the
Underwriting Discount, for the purpose of covering over-allotments, if any.
If the Underwriters exercise such option in full from the Company, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters when, as and if
delivered to and accepted by them, subject to their right to withdraw, cancel or
reject orders in whole or in part and subject to certain other conditions. It is
expected that delivery of the certificates representing the shares will be made
against payment on or about October , 1997, at the offices of Oppenheimer &
Co., Inc., Oppenheimer Tower, World Financial Center, New York, New York 10281.
------------------------
JOINT BOOK-RUNNING MANAGERS
OPPENHEIMER & CO., INC. DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON
The date of this Prospectus is , 1997.
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CURRENT OPERATIONS
[MAP]
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS, PENALTY BIDS AND PASSIVE MARKET MAKING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING THE
NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, ALL FINANCIAL INFORMATION, SHARE AND PER SHARE DATA IN THIS
PROSPECTUS: (I) GIVE EFFECT TO AN EXCHANGE OF THE COMPANY'S COMMON STOCK, PAR
VALUE $.01 PER SHARE ("COMMON STOCK"), IN CONNECTION WITH THE FORMATION OF A
HOLDING COMPANY, EFFECTIVE AS OF JANUARY 1, 1996; (II) GIVE EFFECT TO A 13.5 FOR
1 STOCK SPLIT CONSUMMATED ON MAY 31, 1996; (III) EXCLUDE 1,554,214 SHARES OF
COMMON STOCK OF THE COMPANY ISSUABLE UPON EXERCISE OF OUTSTANDING WARRANTS AND
STOCK OPTIONS; AND (IV) ASSUME NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION. AS USED IN THIS PROSPECTUS, THE TERMS "COMPANY" AND "AMERICAN DISPOSAL
SERVICES" REFER COLLECTIVELY TO AMERICAN DISPOSAL SERVICES, INC. AND ITS
SUBSIDIARIES, UNLESS THE CONTEXT OTHERWISE REQUIRES.
------------------------
THE COMPANY
American Disposal Services is a regional, integrated, non-hazardous solid
waste services company that provides solid waste collection, transfer and
disposal services primarily in the Midwest and in the Northeast. The Company
owns eight solid waste landfills and owns, operates or has exclusive contracts
to receive waste from 17 transfer stations. The Company's operations cover six
primary operating regions and its landfills and transfer stations are supported
by 12 collection divisions, which currently serve over 305,000 residential,
commercial and industrial customers. The Company has adopted an
acquisition-based growth strategy and intends to continue its expansion,
generally in its existing and proximate markets. Since January 1993, the Company
has acquired 55 solid waste businesses, including seven solid waste landfills
and 49 solid waste collection companies.
The Company began its operations in the Midwest and currently has operations
in Arkansas, Connecticut, Illinois, Indiana, Kansas, Kentucky, Massachusetts,
Missouri, Ohio, Oklahoma, Pennsylvania and Rhode Island. The Company's objective
is to build a large profitable fully-integrated solid waste services company
with an established market presence in secondary markets. The Company expects
the current consolidation trends in the solid waste industry to continue as many
independent landfill and collection operators lack the capital resources,
management skills and technical expertise necessary to operate in compliance
with stringent environmental and other governmental regulations.
The Company's operating program generally involves a four-step process: (i)
acquiring solid waste landfills in markets that are within approximately 125
miles of significant metropolitan centers; (ii) securing captive waste streams
for its landfills through the acquisition or development of transfer stations
serving those markets, through acquisitions of collection companies and by
entering into long-term contracts directly with customers or collection
companies; (iii) making "tuck-in" acquisitions of collection companies to
further penetrate its target markets; and (iv) integrating these businesses into
the Company's operations to achieve operating efficiencies and economies of
scale. As part of its acquisition program, the Company has, and in the future
may, as specific opportunities arise, evaluate and pursue acquisitions in the
solid waste collection and disposal industry that do not strictly conform to the
Company's four-step operating program.
The Company's operating strategy emphasizes the integration of its solid
waste collection and disposal operations and the internalization of waste
collected. One of the Company's goals is to maximize the captive waste streams
(which includes waste from the Company's collection operations and third-party
haulers operating under long-term collection contracts) disposed of at each of
its landfills. During the six months ended June 30, 1997, the Company's captive
waste constituted an average of approximately 71% of the solid waste disposed of
at Company-owned landfills. In addition, 87% of the total tonnage collected by
the Company during such period was disposed of at Company-owned landfills. The
Company plans to continue to pursue its acquisition-based growth strategy to
increase the internalization of waste collected and expand its presence in its
existing and proximate markets.
3
<PAGE>
RECENT DEVELOPMENTS
Since the consummation of its offering of Common Stock in May 1997 (the "May
Offering"), the Company has expanded and strengthened its market presence in its
six operating regions through 16 acquisitions, which included the acquisition of
two landfills, 16 collection companies and four transfer stations.
As part of its acquisition strategy, on September 10, 1997, the Company
acquired all of the outstanding shares of capital stock of Illinois Bulk
Handlers, Inc. ("Bulk Handlers"), Shred-All Recycling Systems, Inc.
("Shred-All"), Fred B. Barbara Trucking Co., Inc. ("Trucking") and Environtech,
Inc. ("Environtech," collectively the "Barbara Companies") (the "Acquisition").
The Barbara Companies provide hauling, transfer, recycling and disposal services
in the greater Chicago metropolitan area and include a collection company (with
a fleet of approximately 150 vehicles), a transfer station and recycling
facility (capable of processing traditional recyclables, as well as tires,
cement, wood pallets, aluminum scrap and other bulk materials), and a landfill
consisting of approximately 326 acres (of which approximately 78 acres are
permitted), having approximately 23 years of remaining site life at current
average disposal volumes. The Company believes that the Acquisition provides it
with a significant opportunity to improve its internalization rates, expand the
Company's acquisition platform and provide fully integrated waste services in
its Illinois Region.
In addition, since the May Offering, the Company has continued to expand its
presence in its New England Region which the Company entered in September 1996.
Since May, the Company has acquired four additional collection operations and
one transfer station in Rhode Island and an integrated collection and transfer
station operation in Connecticut. The Company believes that as a result of its
acquisitions in the region, it currently owns and operates the largest
collection operation in Rhode Island and has strategically positioned itself to
expand its market share in the New England Region.
Since the May Offering, the Company increased its credit facility with ING
(U.S.) Capital Corporation, as administrative agent, from $125 million to $200
million (the "Credit Facility"). The Credit Facility provides the Company with a
term loan of $60 million and an expansion facility of $140 million to be used
for acquisitions (of which $20 million may be used for working capital and
letter of credit purposes). At September 15, 1997, the outstanding debt under
the Credit Facility was $118.9 million, up from $61.4 million at June 30, 1997,
primarily as a result of recent acquisitions.
The Company's principal executive offices are located at 745 McClintock
Drive, Suite 230, Burr Ridge, Illinois 60521, and its telephone number is (630)
655-1105.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by:
The Company................................ 3,500,000 shares
The Selling Stockholders................... 2,000,000 shares
Total.................................. 5,500,000 shares
Common Stock outstanding after the 18,304,542 shares(1)
Offering...................................
Use of proceeds.............................. To repay outstanding indebtedness under the
Credit Facility and other obligations. The
Company will not receive any of the proceeds
from the sale of shares by the Selling
Stockholders. See "Use of Proceeds."
Nasdaq National Market symbol................ ADSI
</TABLE>
- ------------------------
(1) Does not include 1,554,214 shares of Common Stock issuable upon the exercise
of warrants and stock options outstanding as of September 15, 1997, at a
weighted average exercise price of $12.50 per share.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA SIX MONTHS ENDED SIX MONTHS
YEARS ENDED DECEMBER 31, YEAR ENDED JUNE 30, ENDED
---------------------------------- DECEMBER 31, ---------------------- JUNE 30,
1994 1995 1996 1996(1) 1996 1997 1997(1)
---------- ---------- ---------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $ 18,517 $ 30,004 $ 56,804 $ 100,508 $ 25,177 $ 46,274 $ 62,316
Cost of operations.............. 12,647 17,286 30,376 55,491 13,170 25,080 33,730
Selling, general and
administrative expenses....... 4,910 5,882 8,328 12,931 4,048 6,357 8,007
Depreciation and amortization
expense....................... 3,226 6,308 12,334 18,207 5,663 9,056 11,138
---------- ---------- ---------- ------------ ---------- ---------- -----------
Operating income (loss)......... (2,266) 528 5,766 13,879 2,296 5,781 9,441
Interest expense................ (1,497) (3,030) (5,745) -- (3,057) (3,458) --
Interest income................. 2 189 260 -- -- -- --
Other income.................... -- -- 179 179 37 109 109
---------- ---------- ---------- ------------ ---------- ---------- -----------
Income (loss) before income
taxes and extraordinary item.. (3,761) (2,313) 460 14,058 (724) 2,432 9,550
Income tax benefit (expense).... 1,372 (332) (245) (5,290) 155 (750) (3,452)
---------- ---------- ---------- ------------ ---------- ---------- -----------
Income (loss) before
extraordinary item............ (2,389) (2,645) 215 $ 8,768 (569) 1,682 $ 6,098
------------ -----------
------------ -----------
Extraordinary item -- loss on
early retirement of debt...... -- (908) (476) (476) --
---------- ---------- ---------- ---------- ----------
Net income (loss)............... (2,389) (3,553) (261) (1,045) 1,682
Preferred stock dividend........ -- (190) (109) (109) --
---------- ---------- ---------- ---------- ----------
Net income (loss) to common
stockholders.................. $ (2,389) $ (3,743) $ (370) $ (1,154) $ 1,682
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net income (loss) per share of
common stock.................. $ (0.99) $ (1.06) $ (0.05) $ (0.20) $ 0.15
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average common stock
and common stock equivalent
shares........................ 2,411,381 3,527,688 7,063,928 5,864,078 10,884,592
Pro forma net income per share
of common stock............... $ 0.54 $ 0.34
------------ -----------
------------ -----------
Pro forma weighted average
common stock and common stock
equivalent shares............. 16,258,771 18,187,492
OTHER DATA:
Net cash provided by (used in)
operating activities.......... $ (1,124) $ 5,601 $ 11,705 $ 2,610 $ 11,337
Net cash used in investing
activities.................... (6,180) (68,374) (39,032) (9,706) (77,639)
Net cash provided by financing
activities.................... 5,718 68,608 23,245 2,211 66,167
EBITDA(2)....................... 960 6,836 18,100 32,086 7,959 14,837 20,579
EBITDA margin(3)................ 5.2% 22.8% 31.9% 31.9% 31.6% 32.1% 33.0%
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------
ACTUAL AS ADJUSTED(4)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................... $ 2,166 $ 2,166
Working capital......................................................................... 5,344 5,344
Property and equipment, net............................................................. 128,035 140,635
Total assets............................................................................ 224,573 285,588
Long-term obligations, net of current portion........................................... 63,817 1,879
Total stockholders' equity.............................................................. 129,872 251,060
</TABLE>
5
<PAGE>
- ------------------------
(1) The pro forma information for the year ended December 31, 1996 and the six
months ended June 30, 1997 gives effect to the acquisition of Liberty
Disposal, Inc. and the Evansville, Indiana Operations of Waste Management of
Indiana, LLC, the May Offering, the Acquisition, this Offering and the
application of the estimated proceeds therefrom, as described in "Use of
Proceeds," as if each of the foregoing had occurred or been in effect on
January 1, 1996 and January 1, 1997, respectively.
(2) EBITDA represents operating income plus depreciation and amortization. While
EBITDA data should not be construed as a substitute for operating income,
net income (loss) or cash flows from operations in analyzing the Company's
operating performance, financial position and cash flows, the Company has
included EBITDA data (which are not a measure of financial performance under
generally accepted accounting principles) because it understands that such
data are commonly used by certain investors to evaluate a company's
performance in the solid waste industry. EBITDA, as measured by the Company,
might not be comparable to similarly titled measures reported by other
companies. Funds depicted by the EBITDA measure are not available for
management's discretionary use due to required debt service and other
commitments or uncertainties.
(3) EBITDA margin represents EBITDA expressed as a percentage of revenues.
(4) Adjusted to give effect to the Acquisition, this Offering and the
application of the estimated proceeds therefrom, as described in "Use of
Proceeds," as if each of the foregoing had occurred on June 30, 1997. See
"Use of Proceeds." Long-term obligations, net of current portion, of $63,817
was adjusted to give effect to borrowings of $44,625 to fund the Acquisition
and the application of the estimated net proceeds of $106,563 from this
Offering to arrive at the as adjusted balance of $1,879. Long-term
obligations, net of current portion, as adjusted of $1,879 does not include
additional borrowings of $12,850 used to fund additional acquisitions
occurring from July 1, 1997 to September 15, 1997.
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK BEING OFFERED BY THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. IN ADDITION, THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. DISCUSSIONS
CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL SET
FORTH UNDER "PROSPECTUS SUMMARY," "RISK FACTORS," AND "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AS WELL AS IN THE
PROSPECTUS GENERALLY. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE
IN THIS PROSPECTUS. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY
THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION CONCERNING THE
COMPANY AND ITS BUSINESS CONTAINED IN THIS PROSPECTUS, BEFORE PURCHASING THE
SHARES OF COMMON STOCK OFFERED HEREBY.
ABILITY TO MANAGE GROWTH
The Company's goal is to increase the scale of its operations significantly
through the acquisition of other solid waste businesses and through internal
growth. Consequently, the Company may experience periods of rapid growth with
significantly increased staffing level requirements. Such growth could place a
significant strain on the Company's management and on its operational, financial
and other resources. The Company's ability to maintain and manage its growth
effectively will require it to expand its management information systems
capabilities and improve its operational and financial systems and controls.
Moreover, the Company will need to attract, train, motivate, retain and manage
its senior managers, technical professionals and other employees. Any failure to
expand its management information system capabilities, to implement and improve
its operational and financial systems and controls or to recruit appropriate
additional personnel in an efficient manner at a pace consistent with the
Company's business growth would have a material adverse effect on the Company's
business, financial condition and results of operations.
AVAILABILITY OF ADDITIONAL ACQUISITION TARGETS
The Company's ongoing acquisition program is a key element of its
acquisition-based growth strategy for expanding its solid waste management
services. Consequently, the future growth of the Company depends in large part
upon the successful continuation of this acquisition program. The Company may
encounter substantial competition in its efforts to acquire landfills, transfer
stations and collection companies. There can be no assurance that the Company
will succeed in locating or acquiring appropriate acquisition candidates at
price levels and on terms and conditions that the Company considers appropriate.
INTEGRATION OF ACQUISITIONS
The financial position and results of operations of the Company will depend
to a large extent on the Company's ability to integrate effectively the
operations of the companies it has acquired to date, and expects to acquire in
the future, and to realize expected efficiencies and economies of scale from
such acquisitions. There can be no assurance that the Company's efforts to
integrate these operations will be effective, that expected efficiencies and
economies of scale will be realized or that the Company will be able to
successfully consolidate its operations. The failure to achieve any of these
results could have a material adverse effect on the Company's business,
financial condition and results of operations.
HIGHLY COMPETITIVE INDUSTRY
The solid waste collection and disposal business is highly competitive and
requires substantial amounts of capital. The Company competes with numerous
solid waste management companies, many of which are significantly larger and
have greater financial resources than the Company. The Company also competes
with those counties, municipalities and solid waste districts that maintain
their own waste collection and disposal operations. These counties,
municipalities and solid waste districts may have
7
<PAGE>
financial advantages due to the availability to them of user fees, charges or
tax revenues and the greater availability to them of tax-exempt financing. In
addition, competitors may reduce the price of their services in an effort to
expand market share or to win competitively bid municipal contracts. There can
be no assurance that the Company will be able to compete successfully.
FUNDING OF FUTURE CAPITAL REQUIREMENTS; HISTORY OF LOSSES AND WORKING CAPITAL
DEFICITS
The Company's acquisition-based growth strategy has resulted in a steady
increase in its capital requirements, and such increase may continue in the
future as the Company pursues its strategy. The Company has recorded net losses
to common stockholders of approximately $2.4 million, $3.7 million and $370,000
during the fiscal years ended December 31, 1994, 1995 and 1996, respectively. In
addition, the Company has incurred working capital deficits in the past, and
there can be no assurance that its available working capital will be sufficient
in the future as it pursues its growth strategy. Furthermore, in connection with
the Acquisition, the Company may be obligated to make contingent payments of up
to approximately $50 million over the next nine years if certain business
development projects are achieved by the Barbara Companies. To the extent that
internally generated cash and cash available under the Credit Facility, as
defined below, are not sufficient to provide the cash required for future
operations, capital expenditures, acquisitions, earn-out and contingent
payments, debt repayment obligations and financial assurance obligations, the
Company will require additional equity or debt financing in order to provide
such cash. There can be no assurance, however, that such financing will be
available or, if available, will be on terms satisfactory to the Company. Where
appropriate, the Company may seek to minimize the use of cash to finance its
acquisitions by using capital stock, assumption of indebtedness or notes.
However, there can be no assurance the owners of the businesses the Company may
wish to acquire will be willing to accept non-cash consideration in whole or in
part.
USE OF LEVERAGE
Historically, the Company has incurred significant debt obligations in
connection with financing its acquisitions and business growth. The Company has
a $200 million Credit Facility with ING (U.S.) Capital Corporation, as
administrative agent, Morgan Guaranty Trust Company of New York, as syndication
agent, Union Bank of California, N.A., as documentation agent, BHF-Bank
Aktiengesellschaft, as co-agent, and Bank of America Illinois, as co-agent. As
of June 30, 1997, the Company's consolidated indebtedness was $65.1 million, its
consolidated total assets were $224.6 million and its stockholders' equity was
$129.9 million. At September 15, 1997, the Company's consolidated indebtedness
had increased to approximately $122.2 million primarily as a result of recent
acquisitions. See "Business--Recent Developments." Following the completion of
the Offering and the application of the net proceeds to the Company for the
repayment of the Credit Facility, it is anticipated that the Company's
consolidated indebtedness would be approximately $15.6 million. The Company
anticipates incurring significant indebtedness in the future in order to fund
all or a portion of the purchase price of future acquisitions. The Company's
ability to meet its debt service obligations will depend upon its future
performance, which, in turn, will be subject to general economic conditions and
to financial, business and other factors affecting the operations of the
Company, many of which are beyond the Company's control. If the Company fails to
generate sufficient cash flow to repay its debt, the Company may be required to
refinance all or a portion of its existing debt or to obtain additional
financing. There can be no assurance that such refinancing or any additional
financing could be obtained on terms favorable to the Company or at all.
LIMITATIONS ON INTERNAL EXPANSION
The Company's operating program depends on its ability to expand and develop
its landfills, transfer stations and collection operations. The process of
obtaining required permits and approvals to operate or expand solid waste
management facilities, including landfills and transfer stations, has become
increasingly difficult and expensive, often taking several years, requiring
numerous hearings and compliance with
8
<PAGE>
zoning, environmental and other regulatory requirements, and often being subject
to resistance from citizen or other groups. There can be no assurance that the
Company will be successful in obtaining the permits it requires or that such
permits will not contain onerous terms and conditions. An inability to receive
such permits and approvals could have a material adverse effect on the Company's
business, financial condition and results of operations. See "--Extensive
Environmental and Land Use Laws and Regulations." In some areas, suitable land
may be unavailable for 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 current landfills once its landfill capacity has been
consumed. In such event, the Company could be forced to dispose of collected
waste at landfills operated by its competitors, which could have a material
adverse effect on the Company's landfill revenues and collection expenses.
DEPENDENCE ON THIRD PARTY COLLECTION OPERATIONS
A portion of the solid waste delivered to the Company's landfills is
delivered by third party collection companies under informal arrangements or
without long-term contracts. If these third parties discontinued their
arrangements with the Company and if the Company were unable to replace these
third party arrangements, the Company's business, financial condition and
results of operations might be materially adversely affected.
EXTENSIVE ENVIRONMENTAL AND LAND USE LAWS AND REGULATIONS
The Company is subject to extensive and evolving environmental and land use
laws and regulations, which have become increasingly stringent in recent years
as a result of greater public interest in protecting and cleaning up the
environment. These laws and regulations affect the Company's business in many
ways, including as set forth below.
EXTENSIVE PERMITTING REQUIREMENTS. In order to develop and operate a
landfill or other solid waste management facility, it is necessary to obtain and
maintain in effect one or more facility permits and other governmental
approvals, including those related to zoning, environmental and land use. In
addition, the Company may be required to obtain similar permits and approvals in
order to expand its existing landfill and solid waste management operations.
These permits and approvals are difficult and time consuming to obtain and are
frequently subject to community opposition, opposition by various local elected
officials or citizens and other uncertainties. In addition, after an operating
permit for a landfill or other facility is obtained, the permit may be subject
to modification or revocation by the issuing agency, and it may be necessary to
obtain periodically a renewal of the permit, which may reopen opportunities for
opposition to the permit. Moreover, from time to time, regulatory agencies may
delay the review or grant of these required permits or approvals or may modify
the procedures or increase the stringency of the standards applicable to its
review or grant of such permits or approvals. In addition, the Company may not
be able to ensure that its landfill operations are included and remain in the
solid waste management plan of the state or county in which such operations are
conducted. The Company may also have difficulty obtaining host agreements with
counties or local communities, or existing host communities may demand
modifications of existing host agreements in connection with planned expansions,
either of which could adversely affect the Company's operations and increase the
Company's costs and reduce its margins. There can be no assurance that the
Company will be successful in obtaining and maintaining in effect the permits
and approvals required for the successful operation and growth of its business,
including permits or approvals required for planned landfill expansions, and the
failure by the Company to obtain or maintain in effect a permit significant to
its business could materially adversely affect the Company's business, financial
condition and results of operations.
DESIGN, OPERATION AND CLOSURE REQUIREMENTS. The design, operation and
closure of landfills are subject to extensive regulations. These regulations
include, among others, the regulations (the "Subtitle D Regulations")
establishing minimum federal requirements adopted by the United States
Environmental Protection Agency (the "EPA") in October 1991 under Subtitle D of
the Resource Conservation and
9
<PAGE>
Recovery Act of 1976 ("RCRA"). The Subtitle D Regulations generally became
effective on October 9, 1993 (except for more stringent financial assurance
requirements, which became effective April 9, 1997). The Subtitle D Regulations
require all states to adopt regulations regarding landfill design, operation and
closure requirements that are as stringent as, or more stringent than, the
Subtitle D Regulations. All states in which the Company's landfills are located
have in place extensive landfill regulations consistent with the Subtitle D
requirements. These federal and state regulations require the Company to design
the landfill in accordance with stringent technical requirements, monitor
groundwater, post financial assurances, and fulfill landfill closure and
post-closure obligations. These regulations could also require the Company to
undertake investigatory, remedial and monitoring activities, to curtail
operations or to close a landfill temporarily or permanently. Furthermore,
future changes in these regulations may require the Company to modify,
supplement, or replace equipment or facilities at costs which may be
substantial.
LEGAL AND ADMINISTRATIVE PROCEEDINGS. In the ordinary course of its
business, the Company may become involved in a variety of legal and
administrative proceedings relating to land use and environmental laws and
regulations. These may include proceedings by federal, state or local agencies
seeking to impose flow control requirements, civil or criminal penalties on the
Company for violations of such laws and regulations, or to impose liability on
the Company under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA") or comparable state statutes, or to revoke or
deny renewal of a permit; actions brought by citizens' groups, adjacent
landowners or governmental entities opposing the issuance of a permit or
approval to the Company or alleging violations of the permits pursuant to which
the Company operates or laws or regulations to which the Company is subject; and
actions seeking to impose liability on the Company for any environmental damage
at its landfill sites or that its landfills or other properties may have caused
to adjacent landowners or others, or at sites to which it transported waste,
including groundwater or soil contamination. The Company could incur substantial
legal expenses during the course of the aforementioned proceedings, and the
adverse outcome of one or more of these proceedings could materially adversely
affect the Company's business, financial condition and results of operations.
During the ordinary course of its operations, the Company has from time to
time received, and expects that it may in the future receive, citations or
notices from governmental authorities that its operations are not in compliance
with its permits or certain applicable environmental or land use laws and
regulations. The Company generally seeks to work with the authorities to resolve
the issues raised by such citations or notices. There can be no assurance,
however, that the Company will always be successful in this regard, and the
failure to resolve a significant issue could result in one or more of the
adverse consequences to the Company described below under "Potential
Liabilities."
POTENTIAL LIABILITIES. There may be various adverse consequences to the
Company in the event that a facility owned or operated by the Company (or a
predecessor owner or operator whose liabilities the Company may have acquired
expressly or under successor liability theories) causes environmental damage, in
the event that waste transported by the Company (or a predecessor) causes
environmental damage at another site, in the event that the Company fails (or a
predecessor failed) to comply with applicable environmental and land use laws
and regulations or the terms of a permit or outstanding consent order or in the
event the Company's owned or operated facility or the soil or groundwater
thereunder is or becomes contaminated. These may include the imposition of
substantial monetary penalties on the Company; the issuance of an order
requiring the curtailment or termination of the operations involved or affected;
the revocation or denial of permits or other approvals necessary for continued
operation or landfill expansion; the imposition of liability on the Company in
respect of any environmental damage (including groundwater or soil
contamination) at its landfill sites or that its landfills or other facilities
or other Company-owned or operated facilities caused to adjacent landowners or
others or environmental damage at another site associated with waste transported
by the Company; the imposition of liability on the Company under CERCLA or under
comparable state laws; and criminal liability for the Company or its officers.
Any of the
10
<PAGE>
foregoing could materially adversely affect the Company's business, financial
condition and results of operations.
CERCLA and analogous state laws impose retroactive strict joint and several
liability on various parties that are, or have been, associated with a site from
which there has been, or is threatened, a release of any hazardous substance (as
defined by CERCLA) into the environment. Liability under RCRA, CERCLA and
analogous state laws may include responsibility for costs of site
investigations, site cleanup, site monitoring, natural resources damages and
property damages. Liabilities under RCRA, CERCLA and analogous state laws can be
very substantial and, if imposed upon the Company, could materially adversely
affect the Company's business, financial condition and results of operations.
In the ordinary course of its landfill and waste management operations and
in connection with its review of landfill and other operations to be acquired,
the Company has discovered at one landfill, and may in the future discover at
other landfills or waste management facilities, indications of groundwater
contamination. In such events, the Company would seek or be required to
determine the magnitude and source of the problem and, if appropriate or
required by applicable regulations, to design and implement measures to remedy,
or halt the spread of, the contamination. There can be no assurance, however,
that contamination discovered at a landfill or at other Company sites will not
result in one or more of the adverse consequences to the Company described
above.
TYPE, QUANTITY AND SOURCE LIMITATIONS. 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, from time to time federal legislation is proposed
which 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. Although such legislation has not yet
been adopted by Congress, 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 materially 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, if adopted, could
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 materially 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. These restrictions may also
result in higher disposal costs for the Company's collection operations. If the
Company were unable to pass such higher costs through to its customers, the
Company's business, financial condition and results of operations could be
materially adversely affected.
POTENTIAL LIABILITIES ASSOCIATED WITH ACQUISITIONS
The businesses acquired by the Company may have liabilities that the Company
did not discover or may have been unable to discover during its pre-acquisition
investigations, including liabilities arising from environmental contamination
or non-compliance by prior owners with environmental laws or regulatory
11
<PAGE>
requirements, and for which the Company, as a successor owner or operator, may
be responsible. Any indemnities or warranties, due to their limited scope,
amount, or duration, the financial limitations of the indemnitor or warrantor or
other reasons, may not fully cover such liabilities.
DEPENDENCE ON SENIOR MANAGEMENT
The Company is highly dependent on its senior management team. The loss of
the services of any member of senior management may have a material adverse
effect on the Company's business, financial condition and results of operations.
In an effort to minimize this risk, the Company has entered into employment
contracts with certain members of senior management. The Company does not
maintain "key man" life insurance with respect to members of senior management
except for a $2.0 million policy maintained on the Company's President and Chief
Executive Officer.
LIMITS ON INSURANCE COVERAGE
There can be no assurance that the Company's pollution liability insurance
will provide sufficient coverage in the event an environmental claim were made
against the Company or that the Company will be able to maintain in place such
insurance at reasonable costs. An uninsured or underinsured claim of sufficient
magnitude could have a material adverse effect on the Company's business,
financial condition and results of operations.
INCURRENCE OF CHARGES RELATED TO CAPITALIZED EXPENDITURES
In accordance with generally accepted accounting principles, the Company
capitalizes certain expenditures and advances relating to acquisitions, pending
acquisitions and landfill development and expansion projects. Indirect
acquisition costs, such as executive salaries, general corporate overhead,
public affairs and other corporate services, are expensed as incurred. The
Company's policy is to charge against earnings any unamortized capitalized
expenditures and advances (net of any portion thereof that the Company estimates
will be recoverable, through sale or otherwise) relating to any operation that
is permanently shut down, any pending acquisition that is not consummated, and
any landfill development or expansion project that is not or not expected to be
successfully completed. Therefore, the Company may be required to incur a charge
against earnings in future periods, which charge, depending upon the magnitude
thereof, could materially adversely affect the Company's business, financial
condition and results of operations.
USE OF ALTERNATIVES TO LANDFILL DISPOSAL
Alternatives to landfill disposal, such as recycling and composting, are
increasingly being used. In addition, incineration is an alternative to landfill
disposal in certain of the Company's markets. There also has been an increasing
trend at the state and local levels to mandate recycling and waste reduction at
the source and to prohibit the disposal of certain type of wastes, such as yard
wastes, at landfills. These developments may result in the volume of waste going
to landfills being reduced in certain areas, which may affect the Company's
ability to operate its landfills at their full capacity or affect the prices
that can be charged for landfill disposal services. For example, Illinois, Ohio
and Pennsylvania, states in which the Company operates landfills, have adopted
bans on the disposal of yard waste or leaves in landfills located in those
states, and all of the states in which the Company operates landfills have
adopted rules restricting or limiting disposal of tires at landfills. In
addition, each of the states in which the Company operates landfills has adopted
plans or requirements which set goals for specified percentages of certain solid
waste items to be recycled. These recycling goals are being phased in over the
next few years. These alternatives, if and when adopted and implemented, may
have a material adverse effect on the business, financial condition and results
of operations of the Company.
12
<PAGE>
ABILITY TO MEET FINANCIAL ASSURANCE OBLIGATIONS
The Company is required to post a performance bond or a bank letter of
credit or to provide other forms of financial assurance in connection with
closure and post-closure obligations with respect to landfills or its other
solid waste management operations and may be required to provide such financial
assurance in connection with municipal residential collection contracts. If the
Company were unable to obtain surety bonds in sufficient amounts, or to provide
other required forms of financial assurance, it would be unable to remain in
compliance with the Subtitle D Regulations or comparable state requirements and,
among other things, might be precluded from entering into certain municipal
collection contracts and obtaining or holding landfill operating permits.
SEASONALITY
The Company's revenues tend to be somewhat lower in the winter months. This
is primarily attributable to the fact that: (i) the volume of waste relating to
construction and demolition activities tends to increase in the spring and
summer months; and (ii) the volume of industrial and residential waste in the
regions where the Company operates tends to decrease during the winter months.
In addition, particularly harsh weather conditions may delay the development of
landfill capacity and otherwise result in the temporary suspension of certain of
the Company's operations and could materially adversely affect the Company's
overall business, financial condition and results of operations.
ANTI-TAKEOVER PROVISIONS
The Board of Directors may issue up to 5,000,000 shares of Preferred Stock
in the future without stockholder approval upon such terms as the Board of
Directors may determine. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of delaying or preventing a
change in control of the Company without further action by the stockholders. The
Company has no present plans to issue any shares of Preferred Stock. See
"Description of Capital Stock-- Undesignated Preferred Stock." In addition, the
Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which prohibits the Company from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
The application of Section 203 also could have the effect of delaying or
preventing a change of control of the Company.
SHARES ELIGIBLE FOR FUTURE SALES; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET PRICE
Sale of substantial amounts of shares in the public market or the prospect
of such sales could adversely affect the market price of the Company's Common
Stock. Upon completion of the Offering, the Company will have outstanding
18,304,542 shares of Common Stock, of which approximately 14,678,432 shares will
be freely tradeable. The Company's officers and directors and Charterhouse
Environmental Holdings L.L.C., Charterhouse Equity Partners II, L.P. and CDI
Equity, LLC who, following the Offering, will beneficially own an aggregate of
3,456,799 shares of Common Stock or options or warrants to purchase shares of
Common Stock, have agreed not to sell, offer to sell, distribute, pledge, grant
any option for the sale of, or otherwise dispose of, directly or indirectly, or
encumber or exercise registration rights with respect to such securities for 180
days after the date of this Prospectus without the prior written consent of
Oppenheimer & Co., Inc. and Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"). Certain additional stockholders of the Company who beneficially own an
aggregate of 274,573 shares of Common Stock have agreed to similar restrictions
for a period of 90 days. In addition, the Company has registered 2,500,000
shares of Common Stock under the Securities Act pursuant to a shelf registration
statement for use in connection with future acquisitions, of which 1,184,068
shares of Common Stock have not yet been
13
<PAGE>
issued as of September 15, 1997. The Company may from time to time increase the
number of shares of Common Stock issuable pursuant to its shelf registration
statement, as described herein. See "Shares Eligible for Future Sale" and
"Underwriting." Once issued, these shares generally will be freely tradeable by
persons not affiliated with the Company; however, the Company has agreed to use
its commercially reasonable efforts to restrict such persons from selling such
shares during the 90-day period following the effective date of the Registration
Statement of which this Prospectus is a part. In their sole discretion and at
any time without notice, Oppenheimer & Co., Inc. and DLJ may release all or any
portion of the shares subject to lock-up agreements. In addition, following 180
days after the Offering, the holders of 3,023,371 shares of Common Stock and
warrants to purchase 168,905 shares of Common Stock have demand and "piggy-back"
rights with respect to the registration of such shares of Common Stock for sale
to the public. If such holders, by exercising their registration rights, cause a
large number of shares to be sold in the public market, such sales could have an
adverse effect on the market price for the Company's Common Stock. Furthermore,
if the Company is required to include such shares in Company-initiated
registration statements, this could have an adverse effect on the Company's
ability to raise needed capital. See "Shares Eligible for Future Sales" and
"Underwriting." As of September 15, 1997, there were outstanding options to
purchase a total of 1,385,309 shares of Common Stock and warrants to purchase a
total of 168,905 shares of Common Stock.
ABSENCE OF DIVIDENDS
The Company has never declared or paid dividends on its Common Stock and
does not anticipate paying dividends in the foreseeable future.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,500,000 shares of
Common Stock offered by the Company hereby are estimated to be $106.6 million
($132.0 million if the Underwriters' over-allotment option is exercised in
full). The Company intends to apply all of the net proceeds of the Offering to
repay a portion of the amounts outstanding under the Credit Facility and other
obligations. The Credit Facility provides for a term loan of $60 million and an
expansion facility of $140 million to be used for acquisitions (of which $20
million may be used for working capital and letter of credit purposes). The
various loans under the Credit Facility bear interest at rates per annum equal
to, at the Company's discretion, either (i) the higher of (a) the federal funds
rate plus 0.5% and (b) the prime rate, plus an applicable margin or (ii) the
London Interbank Offered Rate ("LIBOR") plus an applicable margin, and have
maturities ranging from 2002 to 2004. As of September 15, 1997, the Company had
borrowed $118.9 million under the Credit Facility. As of such date, the interest
rates on the various loans and lines of credit under the Credit Facility ranged
from 6.69% to 8.50%. The Company intends to draw down on the Credit Facility
from time to time in order to fund future acquisitions in whole or in part. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The net proceeds from the sale of
the 2,000,000 shares of Common Stock offered hereby by the Selling Stockholders,
will be paid directly to the Selling Stockholders. The Company will not receive
any proceeds from such sale. See "Principal and Selling Stockholders." In
connection with the Offering, the Company has granted the Underwriters an
over-allotment option.
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company has been quoted on the Nasdaq National
Market under the symbol ("ADSI") since July 26, 1996, the date of the
commencement of the Company's initial public offering. The following table sets
forth, for the periods indicated, the high and low closing prices of the Common
Stock as reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1996
3rd Quarter.............................................................................. $ 18.25 $ 9.00
4th Quarter.............................................................................. $ 18.50 $ 15.50
1997
1st Quarter.............................................................................. $ 18.00 $ 16.50
2nd Quarter.............................................................................. $ 25.06 $ 16.38
3rd Quarter.............................................................................. $ 33.75 $ 21.00
4th Quarter (through October 21, 1997)................................................... $ 34.75 $ 29.00
</TABLE>
On October 21, 1997, the last reported sales price of the Common Stock was
$30.13 per share.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock.
The Company and its Board of Directors currently intend to retain any earnings
for use in the operation and expansion of the Company's business and do not
anticipate paying any dividends on the Common Stock for the foreseeable future.
The Credit Facility prohibits the payment of cash dividends without prior bank
approval. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
15
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the current portion of long-term
obligations and the actual capitalization of the Company at June 30, 1997; and
(ii) "As Adjusted" amounts to reflect (a) additional borrowings under the Credit
Facility of $44.625 million and issuance of 539,917 shares of Common Stock in
conjunction with the Acquisition and (b) the sale of 3,500,000 shares of Common
Stock offered hereby and the application of the estimated net proceeds of the
Offering to repay amounts outstanding under the Credit Facility and to fund
costs of the Offering. See "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------
AS
ACTUAL ADJUSTED
---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Current portion of long-term debt and capital lease obligations...................... $ 1,286 $ 1,286
---------- ----------
---------- ----------
Long-term debt and capital lease obligations, net of current portion (1)............. $ 63,817 $ 1,879
Stockholders' equity (2):
Preferred stock; 5,000,000 shares authorized; no shares issued or outstanding...... -- --
Common stock; 20,000,000 shares authorized; 13,472,501 shares issued and
outstanding; 17,512,418 shares issued and outstanding as adjusted (3).............. 135 175
Warrants outstanding............................................................... 107 107
Additional paid-in capital......................................................... 136,217 257,365
Accumulated deficit................................................................ (6,587) (6,587)
---------- ----------
Total stockholders' equity....................................................... 129,872 251,060
---------- ----------
Total capitalization........................................................... $ 193,689 $ 252,939
---------- ----------
---------- ----------
</TABLE>
(1) Long-term obligations, net of current portion, of $63,817 was adjusted to
give effect to borrowings of $44,625 to fund the Acquisition and the
application of the estimated proceeds of $106,563 from this Offering to
arrive at the as adjusted balance of $1,879. Long-term obligations, net of
current portion, as adjusted of $1,879 does not include additional
borrowings of $12,850 used to fund additional acquisitions occurring from
July 1, 1997 to September 15, 1997.
(2) Excludes (i) 825,000 additional shares of Common Stock that may be sold
pursuant to the Underwriters' over-allotment option, and (ii) 1,369,212
shares of Common Stock reserved for issuance pursuant to stock options and
outstanding warrants.
(3) Effective October 17, 1997, the number of authorized shares of Common Stock
was increased to 60,000,000 shares.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated statement of operations,
balance sheet, other data and pro forma financial data of the Company for the
periods presented. See the Notes to Consolidated Financial Statements and pro
forma financial data included elsewhere herein for information concerning the
basis of presentation. The following selected consolidated financial data as of
December 31, 1995 and 1996 and for each of the three years ended December 31,
1996 have been derived from the audited consolidated financial statements of the
Company included elsewhere in this Prospectus and should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected consolidated financial data as of December 31, 1994 is
derived from audited consolidated financial statements that are not included
herein. The interim consolidated financial information furnished herein is
unaudited and reflects all adjustments (consisting only of normal recurring
adjustments), which are, in the opinion of management, necessary for a fair
presentation of the consolidated financial information for these periods. The
pro forma financial data for the year ended December 31, 1996 and as of and for
the six months ended June 30, 1997 has been derived from the pro forma
consolidated financial statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS PRO FORMA
PRO FORMA ENDED SIX MONTHS
YEARS ENDED DECEMBER 31, YEAR ENDED JUNE 30, ENDED
------------------------------- DECEMBER 31, ---------------------- JUNE 30,
1994 1995 1996 1996 (1) 1996 1997 1997 (1)
--------- --------- --------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ 18,517 $ 30,004 $ 56,804 $ 100,508 $ 25,177 $ 46,274 $ 62,316
Cost of operations.................. 12,647 17,286 30,376 55,491 13,170 25,080 33,730
Selling, general and administrative
expenses.......................... 4,910 5,882 8,328 12,931 4,048 6,357 8,007
Depreciation and amortization
expense........................... 3,226 6,308 12,334 18,207 5,663 9,056 11,138
--------- --------- --------- ------------ ---------- ---------- -----------
Operating income (loss)............. (2,266) 528 5,766 13,879 2,296 5,781 9,441
Interest expense.................... (1,497) (3,030) (5,745) (3,057) (3,458) --
Interest income..................... 2 189 260 -- -- -- --
Other income........................ -- -- 179 179 37 109 109
--------- --------- --------- ------------ ---------- ---------- -----------
Income (loss) before income taxes
and extraordinary item............ (3,761) (2,313) 460 14,058 (724) 2,432 9,550
Income tax benefit (expense)........ 1,372 (332) (245) (5,290) 155 (750) (3,452)
--------- --------- --------- ------------ ---------- ---------- -----------
Income (loss) before extraordinary
item.............................. (2,389) (2,645) 215 $ 8,768 (569) 1,682 $ 6,098
------------ -----------
------------ -----------
Extraordinary item--loss on early
retirement of debt................ -- (908) (476) (476) --
--------- --------- --------- ---------- ----------
Net income (loss)................... (2,389) (3,553) (261) (1,045) 1,682
Preferred stock dividend............ -- (190) (109) (109) --
--------- --------- --------- ---------- ----------
Net income (loss) to common
stockholders...................... $ (2,389) $ (3,743) $ (370) $ (1,154) $ 1,682
--------- --------- --------- ---------- ----------
--------- --------- --------- ---------- ----------
Per share of common stock:
Income (loss) before extraordinary
item.............................. $ (0.99) $ (0.80) $ 0.02 $ (0.12) $ 0.15
Extraordinary item.................. -- (0.26) (0.07) (0.08) --
--------- --------- --------- ---------- ----------
Net income (loss)................... $ (0.99) $ (1.06) $ (0.05) $ (0.20) $ 0.15
--------- --------- --------- ---------- ----------
--------- --------- --------- ---------- ----------
Pro forma net income per share of
common stock...................... $ 0.54 $ 0.34
------------ -----------
------------ -----------
Weighted average common stock and
common stock equivalent shares.... 2,411,381 3,527,688 7,063,928 5,864,078 10,884,592
Pro forma weighted average common
stock and common stock equivalent
shares............................ 16,258,771 18,187,492
OTHER DATA:
Net cash provided by (used in)
operating activities.............. $ (1,124) $ 5,601 $ 11,705 $ 2,610 $ 11,337
Net cash used in investing
activities........................ (6,180) (68,374) (39,032) (9,706) (77,639)
Net cash provided by financing
activities........................ 5,718 68,608 23,245 2,211 66,167
EBITDA(2)........................... 960 6,836 18,100 32,086 7,959 14,837 20,579
EBITDA margin(3).................... 5.2% 22.8% 31.9% 31.9% 31.6% 32.1% 33.0%
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1997
------------------------------- --------------------------
1994 1995 1996 ACTUAL AS ADJUSTED(4)
--------- --------- --------- --------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(5):
Cash and cash equivalents........................... $ 548 $ 6,383 $ 2,301 $ 2,166 $ 2,166
Working capital (deficit)........................... (2,237) (8,819) 1,219 5,344 5,344
Property and equipment, net......................... 17,062 81,250 93,692 128,035 140,635
Total assets........................................ 37,557 114,693 144,986 224,573 285,588
Long-term debt and capital
lease obligations, net of current portion......... 18,487 48,789 65,445 63,817 1,879
Redeemable preferred stock.......................... -- 1,908 -- -- --
Stockholders' equity................................ 12,132 33,855 58,097 129,872 251,060
</TABLE>
- ------------------------
(1) The pro forma information for the year ended December 31, 1996 and the six
months ended June 30, 1997 gives effect to the acquisitions of Liberty
Disposal, Inc. and the Evansville, Indiana Operations of Waste Management of
Indiana, LLC, the May Offering, this Offering and the application of the
estimated proceeds therefrom, as described in "Use of Proceeds," as if each
of the foregoing had occurred or been in effect on January 1, 1996 and
January 1, 1997, respectively.
(2) EBITDA represents operating income plus depreciation and amortization. While
EBITDA data should not be construed as a substitute for operating income,
net income (loss) or cash flows from operations in analyzing the Company's
operating performance, financial position and cash flows, the Company has
included EBITDA data (which are not a measure of financial performance under
generally accepted accounting principles) because it understands that such
data are commonly used by certain investors to evaluate a company's
performance in the solid waste industry. EBITDA, as measured by the Company,
might not be comparable to similarly titled measures reported by other
companies. Funds depicted by the EBITDA measure are not available for
management's discretionary use due to required debt service and other
commitments or uncertainties.
(3) EBITDA margin represents EBITDA expressed as a percentage of revenues.
(4) Adjusted to give effect to the Acquisition, this Offering and the
application of the estimated proceeds therefrom, as described in "Use of
Proceeds," as if each of the foregoing had occurred on June 30, 1997. See
"Use of Proceeds." Long-term obligations, net of current portion, of $63,817
was adjusted to give effect to borrowings of $44,625 to fund the Acquisition
and the application of the estimated net proceeds of $106,563 from this
Offering to arrive at the as adjusted balance of $1,879. Long-term
obligations, net of current portion, as adjusted of $1,879 does not include
additional borrowings of $12,850 used to fund additional acquisitions
occurring from July 1, 1997 to September 15, 1997.
(5) The Company has not declared or paid dividends on Common Stock in any of the
periods presented. The Credit Facility prohibits the payment of cash
dividends without prior bank approval.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Consolidated Financial Data," the Company's Consolidated Financial Statements
and the notes thereto, the Company's Unaudited Pro Forma Consolidated Financial
Statements and the notes thereto, and the Barbara Companies' Financial
Statements and the notes thereto included elsewhere herein.
INTRODUCTION
The Company has adopted an acquisition-based growth strategy that focuses
principally on: (i) the identification and acquisition of solid waste landfills
located in secondary markets that are within approximately 125 miles of
significant metropolitan centers; and (ii) securing dedicated waste streams for
such landfills by the acquisition or development of transfer stations and the
acquisition of collection companies. The Company has completed 55 acquisitions
since January 1993. All of these acquisitions were accounted for under the
purchase method of accounting for business combinations. Accordingly, the
amortization of goodwill and landfill airspace reflects the fair market value of
the Company's assets at the time of their acquisition rather than their
historical cost basis, and the results of operations for such acquired
businesses are included in the Company's financial statements only from the
applicable date of acquisition. As a result, the Company believes its historical
results of operations for the periods presented are not directly comparable.
There are several other aspects of the Company's growth strategy that cause
management to believe that the Company's historical results of operations may
not be consistent with future performance, including the following:
- CONCENTRATION OF LANDFILL ASSETS. Historically, the mix of the Company's
assets has been concentrated in landfills, as opposed to collection and
transfer station operations. As a result of goodwill associated with the
Company's acquisitions and the amortization expense associated with its
landfill assets and closure obligations, the amount of depreciation and
amortization as a percentage of the Company's revenues for the year ended
December 31, 1996 was relatively high (21.7%) as compared to other solid
waste companies. As of the six months ended June 30, 1997, depreciation
and amortization as a percentage of the Company's revenue was 19.6%.
Management believes that this percentage will continue to decline as the
Company further penetrates the market in its Illinois, southwestern
Indiana, Missouri, Ohio, western Pennsylvania and New England regions by
acquiring or developing transfer stations, acquiring collection operations
and making "tuck-in" acquisitions of collection companies.
- ESTABLISHED MANAGEMENT TEAM. Since 1993, the Company has assembled a
management team with substantial experience in the solid waste industry.
The Company believes that its senior management team has the ability to
manage the Company's operations as they expand. Therefore, the Company
believes that the amount of selling, general and administrative expenses
is likely to decline as a percentage of revenues as the Company grows.
- CELL DEVELOPMENT COSTS. Cells developed to date at certain acquired
landfills have been constructed with double liner composite systems.
However, in September 1996, the Livingston, Illinois landfill received a
permit to construct cells utilizing a single liner composite system. The
Company continues to explore the possibility of using alternative design
systems at its Ohio landfill, which should result in lower cell
development costs.
Consistent with its operating program, the Company believes acquisitions of
solid waste companies will have a positive impact on its future results of
operations and, accordingly, believes that the Company's historical results
should be considered in conjunction with the Unaudited Pro Forma Consolidated
Financial Statements and the notes thereto included elsewhere herein.
Additionally, neither the historical
19
<PAGE>
nor the pro forma results of operations fully reflect the operating efficiencies
and improvements that are expected to be achieved by integrating acquired
businesses, internalizing waste flows to the Company's landfills and realizing
other synergies. See "Business--Strategy."
GENERAL
REVENUES. The Company's revenues are attributable primarily to fees charged
to customers for waste collection, transfer and disposal services. The Company's
collection services are generally provided under direct agreements with its
customers or pursuant to contracts with municipalities. Commercial and municipal
contract terms, where used, generally range from one to five years and commonly
have automatic renewal options. A relatively small portion of such agreements
also provide for the prepayment of certain fees, which fees are reflected as
deferred revenues.
The table below shows, for the periods indicated, the percentage of the
Company's total revenues attributable to services provided. The Company's
revenue derived from landfill operations increased substantially with the
acquisition of the Clarion, Wyandot and Livingston landfills in separate
closings in June, August, and November 1995 (collectively, the "CDI
Acquisition"). Since the CDI Acquisition, the Company has acquired
proportionately more collection operations than landfill operations, resulting
in a decreasing overall percentage of revenues attributable to landfill
operations.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
Collection(1)................................................. 68.0% 55.3% 47.5% 40.0% 51.0%
Transfer...................................................... 9.1 5.0 2.1 2.2 3.7
Landfill(1)................................................... 22.8 39.0 49.9 57.8 44.4
Other......................................................... 0.1 0.7 0.5 -- 0.9
--------- --------- --------- --------- ---------
Total Revenues............................................ 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) The portion of collection revenues attributable to disposal charges for
waste collected by the Company and disposed of at the Company's landfills
has been excluded from collection revenues and included in landfill
revenues.
A component of the Company's business strategy is to maximize
internalization of waste it collects and thereby realize higher margins from its
operations. By disposing of waste at Company-owned landfills, the Company
retains the margin generated through disposal operations that would otherwise be
earned by third-party landfills. During the six months ended June 30, 1997, the
Company's captive waste (which includes waste from the Company's collection
operations and third-party haulers operating under long-term collection
contracts) constituted an average of approximately 71% of the solid waste
disposed of at its landfills. In addition, 87% of the total tonnage collected by
the Company was disposed of at Company-owned landfills.
EXPENSES. Cost of operations include labor, maintenance and repairs,
equipment and facility rent, utilities and taxes, the costs of ongoing
environmental compliance, safety and insurance, disposal costs and costs of
independent haulers transporting Company waste to disposal sites. Disposal costs
include certain landfill taxes, host community fees, landfill site maintenance,
fuel and other equipment operating expenses and provision for post-closure
expenses, consisting of cap maintenance, groundwater monitoring, methane gas
control and recovery and leachate treatment/disposal, anticipated to be incurred
in the future.
20
<PAGE>
Selling, general and administrative ("SG&A") expenses include management,
clerical and administrative compensation, overhead, sales costs, community
relations expenses, provisions for estimated uncollectible accounts receivable
and unrealizable acquisition costs and management fees paid to an affiliate of
Charterhouse (which terminated upon closing of the Company's initial public
offering in July 1996).
Depreciation and amortization expense includes depreciation of fixed assets,
closure costs and amortization of landfill airspace, goodwill, other intangibles
and loan origination fees. The amount of landfill amortization expense related
to airspace consumption can vary materially from landfill to landfill depending
upon the purchase price, landfill configuration and cell development costs.
Certain direct landfill development costs, such as engineering, upgrading,
construction and permitting costs, are capitalized and amortized based on
airspace consumed. All of the Company's capitalized expenditures relating to
cell development and landfill expansion work are in connection with cells for
which the Company holds a permit for development. The Company believes that the
costs associated with engineering, owning and operating landfills will increase
in the future as a result of federal, state and local regulations and a growing
community awareness of the landfill permitting process. Although there can be no
assurance, the Company believes that it will be able to implement price
increases sufficient to offset these increased expenses. All indirect landfill
development costs, such as executive salaries, general corporate overhead,
public affairs and other corporate services, are expensed as incurred.
The Company capitalizes engineering, legal, accounting and other direct
costs incurred in connection with potential acquisitions, accounted for using
the purchase method for business combinations. The Company, however, routinely
evaluates such capitalized costs and expenses those costs related to
acquisitions not likely to occur. Indirect acquisition costs, such as executive
salaries, general corporate overhead and other corporate services, are expensed
as incurred.
Accrued closure and post-closure costs represent an estimate of the current
value of the future obligations associated with closure and post-closure
monitoring of non-hazardous solid waste landfills currently owned by the
Company. Site specific closure and post-closure engineering cost estimates are
prepared annually for landfills owned by the Company. Estimated costs are
accrued based on accepted tonnage as landfill airspace is consumed. The Company
periodically updates its estimates of future closure and post-closure costs.
These changes are accounted for on a prospective basis. The Company expects its
closure and post-closure costs per ton to decrease as it expands landfill
capacity and as such costs are amortized over greater airspace.
The Company has estimated that, as of December 31, 1996, closure costs
expected to occur during the operating lives of these facilities and expensed
over these facilities' useful lives will approximate $35.2 million. In addition,
the Company has estimated that, as of December 31, 1996, total costs for
post-closure activities, including cap maintenance, groundwater monitoring,
methane gas control and recovery and leachate treatment/disposal for up to 30
years after closure in certain cases, will be approximately $10.9 million. The
accruals reflect relatively young landfills with estimated remaining lives,
based on current waste flows, that range from approximately three to 50 years,
and an estimated average remaining life of greater than 20 years.
THE ACQUISITION
On September 10, 1997, the Company acquired all of the outstanding shares of
capital stock of the Barbara Companies. See "Prospectus Summary--Recent
Developments." The revenues of the Barbara Companies are attributable primarily
to fees charged to customers for solid waste collection, contract waste hauling
services, transfer and disposal services.
The collection services of the Barbara Companies are generally provided
either directly to waste generators or pursuant to contracts with
municipalities, including the City of Chicago. Commercial and municipal
contracts, where applicable, generally range from one to three years and
commonly have
21
<PAGE>
automatic renewal options. For the six months ended June 30, 1997 and the years
ended December 31, 1996, 1995 and 1994, City of Chicago contract revenues
accounted for 30%, 33%, 62% and 65% of the revenues of the Barbara Companies,
respectively. Prior to the Acquisition, the Barbara Companies used similar
accounting policies to the Company, except that the Barbara Companies used
accelerated depreciation methods and did not capitalize costs related to
inventory, parts and supplies. Subsequent to the Acquisition, the accounting
policies of the Barbara Companies will be conformed to those of the Company.
However, the description below is based on historical results.
Revenues for the year ended December 31, 1996 were $23.7 million, which
represents a decrease from $37.2 million for the year ended December 31, 1995.
The decrease in revenue in 1996 was primarily due to a significant loss of
volume under a residential waste contract with the City of Chicago. The volume
under the contract was diverted by the City to four newly constructed materials
recycling facilities operated by a competitor which were built to implement the
City's recently promulgated recycling regulations. Revenues of $10.5 million for
the six months ended June 30, 1997 are consistent with the prior year results of
the Company's core business operations.
Cost of operations for the year ended December 31, 1996 was $14.4 million as
compared to $20.2 million for the year ended December 31, 1995. As a percentage
of revenues, the Barbara Companies' cost of operations increased to 60.7% from
54.4% in 1995 due to lower revenues from the City of Chicago and a change in the
mix of business resulting in a lower proportion of transfer station revenues,
which generally have lower operating costs. For the six months ended June 30,
1997, cost of operations for the Barbara Companies was $6.0 million,
representing 57.7% as a percentage of revenues.
SG&A expenses for the year ended December 31, 1996 were $5.4 million
compared to $5.4 million for the year ended December 31, 1995. SG&A expenses for
the six months ended June 30, 1997 were $1.2 million. Included in SG&A expenses
for the years ended 1996, 1995 and 1994 are owner-related, year-end compensation
payments amounting to $2.5 million, $3.2 million and $3.2 million, respectively.
RESULTS OF OPERATIONS
The following table sets forth items in the Company's consolidated statement
of operations as a percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
Revenues................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of operations...................................... 68.3 57.6 53.5 52.3 54.2
Selling, general and administrative expenses............ 26.5 19.6 14.6 16.1 13.7
Depreciation and amortization expenses.................. 17.4 21.0 21.7 22.5 19.6
--------- --------- --------- --------- ---------
Operating income (loss)................................. (12.2) 1.8 10.2 9.1 12.5
Interest expense, net................................... (8.1) (9.5) (9.7) (12.1) (7.5)
Other income............................................ -- -- 0.3 0.1 0.2
Income tax benefit (expense)............................ 7.4 (1.1) (0.5) 0.6 (1.6)
Extraordinary loss, net of income tax................... -- (3.0) (0.8) (1.9) --
--------- --------- --------- --------- ---------
Net income (loss)................................... (12.9% (11.8% (0.5% (4.2% 3.6%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
EBITDA margin(1)........................................ 5.2% 22.8% 31.9% 31.6% 32.1%
</TABLE>
- ------------------------
(1) EBITDA margin represents EBITDA expressed as a percentage of revenues.
22
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues for the six months ended June 30, 1997 were $46.3
million compared to $25.2 million for the six months ended June 30, 1996. Of the
increase in revenues, $16.7 million is due primarily to the effects of companies
acquired during 1996, the operations of which were included in the Company's
financial results for the full six months ended June 30, 1997 and the additional
impact of acquisitions completed during the six months ended June 30, 1997.
Approximately $4.4 million is attributable to increases in revenues in
operations acquired prior to 1996.
COST OF OPERATIONS. Cost of operations for the six months ended June 30,
1997 was $25.1 million compared to $13.2 million for the six months ended June
30, 1996. This increase was attributable primarily to the increase in revenues
described above. As a percentage of revenues, cost of operations was 54.2% in
the 1997 period compared to 52.3% in the 1996 period. The increased costs as a
percentage of the Company's overall revenues are due to the impact of more
substantial collection versus landfill operations in the 1997 period compared to
the same period in 1996, in accordance with the Company's acquisition-based
growth strategy.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased to
$6.4 million for the six months ended June 30, 1997 compared to $4.0 million for
the six months ended June 30, 1996. As a percentage of revenues, SG&A expenses
decreased to 13.7% in the 1997 period from 16.1% in the 1996 period. The
decrease in SG&A expenses as a percentage of revenues is due primarily to a
significant increase in revenue producing assets, while corporate and other
related administrative expenses increased moderately.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense for the six months ended June 30, 1997 was $9.1 million compared to $5.7
million for the six months ended June 30, 1996. The increase in depreciation and
amortization expense is due primarily to increases in the Company's revenues
described above. As a percentage of revenues, depreciation and amortization
expense was 19.6% and 22.5% for the six months ended June 30, 1997 and 1996,
respectively. The decline as a percentage of revenues in the June 1997 period
compared to the June 1996 period is due primarily to the diminished
concentration of landfill assets, which typically have higher depreciation and
amortization expense than collection operations.
NET INTEREST EXPENSE. Net interest expense was $3.5 million for the six
months ended June 30, 1997 compared to $3.1 million for the six months ended
June 30, 1996. This increase is attributable to additional debt incurred to
complete certain 1997 acquisitions.
INCOME TAXES. The Company recorded an income tax provision of $750,000 for
the six months ended June 30, 1997 compared to an income tax benefit of $155,000
for the same period in the prior year.
YEARS ENDED DECEMBER 31, 1996 AND 1995
REVENUES. Revenues in 1996 were $56.8 million compared to $30.0 million in
1995. Approximately $17.1 million of the increase was attributable to the impact
of the full year contribution from the CDI Acquisition. In addition, the Company
completed 16 acquisitions in 1996, which accounted for approximately $6.3
million of the increase in revenues.
COST OF OPERATIONS. Cost of operations in 1996 was $30.4 million compared
to $17.3 million in 1995, an increase corresponding primarily to the Company's
revenue growth described above. As a percentage of revenues, cost of operations
declined to 53.5% in 1996 from 57.6% in 1995, due primarily to the following
factors. The Company's proportion of landfill operations, which generally have
lower operating costs than collection operations, has increased as a result of
the full year contribution of the CDI Acquisition. In addition, operating cost
savings occurred as a result of the consolidation of the acquired Missouri
collection operations and the full year impact of the new transfer stations
opened in the Missouri region.
23
<PAGE>
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. SG&A expenses were $8.3
million in 1996 compared to $5.9 million in 1995. The increase in the SG&A
expenses resulted from the full year impact of the CDI Acquisition as well as
increased expenses from the 16 acquisitions completed in 1996. As a percentage
of revenues, SG&A expenses declined to 14.6% in 1996 from 19.6% in 1995. The
decrease in SG&A expense as a percentage of revenues was due primarily to a
significant increase in revenue, while corporate and other related
administrative expenses increased moderately. In 1996, the Company terminated a
management agreement with an affiliate of its principal shareholder, pursuant to
which a management fee of $466,000 was paid in 1996.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense for 1996 was $12.3 million compared to $6.3 million in 1995. The
increase is due primarily to the CDI Acquisition which significantly increased
landfill airspace amortization and provision for closure costs, and to a lesser
extent, the capital expenditures and goodwill associated with acquisitions
consummated in 1996. As a percentage of revenues, depreciation and amortization
expense was 21.7% during 1996 versus 21.0% in 1995. The relatively high
percentages are primarily due to the configuration of the Wheatland landfill in
1995 and the high concentration of the Company's assets in landfills following
the CDI Acquisition in 1996. Depreciation and amortization expense is expected
to decline as a percentage of revenues in future periods as the concentration of
the Company's assets in landfills diminishes due to the full year impact of the
1996 collection company acquisitions and as the Company reduces future cell
development cost. Net fixed assets increased to $93.7 million in 1996 from $81.3
million in 1995 and goodwill, net of accumulated amortization expense, increased
to $31.2 million in 1996 from $15.7 million in 1995.
NET INTEREST EXPENSE. Net interest expense was $5.5 million in 1996
compared to $2.8 million in 1995. This increase is attributable to the full year
impact of additional debt incurred to complete the CDI Acquisition and the 16
acquisitions completed in 1996.
INCOME TAXES. The Company recorded an income tax provision of $245,000 and
$332,000 for 1996 and 1995, respectively. The 1996 provision reflects the
Company having consolidated taxable income of $460,000. Although the Company
recorded a net loss in 1995, the Company recorded an income tax provision
because the Company's subsidiaries were not then consolidated and CDI reported a
profit.
EXTRAORDINARY LOSS. In 1996, the Company recognized an extraordinary loss
of $476,000, representing the write-off of unamortized debt issuance costs in
connection with the refinancing of its prior credit facility.
YEARS ENDED DECEMBER 31, 1995 AND 1994
REVENUES. Revenues in 1995 were $30.0 million compared to $18.5 million in
1994. The increase in revenues was due primarily to the effects of the CDI
Acquisition and, to a lesser extent, price and volume increases attributable to
existing operations. Revenues of $10.1 million in 1995 were generated from
companies acquired during 1995, while increases in revenue attributable to
operations acquired prior to 1996 amounted to $1.3 million.
COST OF OPERATIONS. Cost of operations in 1995 was $17.3 million compared
to $12.6 million in 1994. This increase in costs was attributable primarily to
increases in the Company's revenues described above. As a percentage of
revenues, cost of operations was 57.6% in 1995 compared to 68.3% in 1994. This
decrease was due primarily to operating efficiencies and improvements from the
Company's development of its Missouri region and the impact of the CDI
Acquisition, which shifted the relative proportion of the Company's assets
toward landfills that typically operate at higher margins than collection
operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $5.9
million in 1995 compared to $4.9 million in 1994. The increase was a result of
expenses associated with the CDI Acquisition, expenses incurred in connection
with the Company's increase in personnel and other expenses related to the
24
<PAGE>
anticipated expansion of the Company's operations. SG&A expenses as a percentage
of revenues were 19.6% in 1995 compared to 26.5% in 1994.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense in 1995 was $6.3 million compared to $3.2 million in 1994. The increase
in depreciation and amortization expense is due to the acquisition of the CDI
landfills, with their relatively higher depreciation and amortization expense
compared to depreciation and amortization expense of collection operations,
depreciation of increased capital expenditures and a one time write-off of
$505,000 following the Company's election in 1995 not to pursue the enforcement
of several covenants not to compete. Net fixed assets increased to $81.3 million
in 1995 from $17.1 million in 1994 and goodwill, net of accumulated amortization
expense, increased to $15.7 million in 1995 from $13.6 million in 1994.
NET INTEREST EXPENSE. Net interest expense increased to $2.8 million in
1995 from $1.5 million in 1994. This increase primarily reflects increased
indebtedness incurred in connection with acquisitions and capital expenditures.
INCOME TAXES. Although the Company recorded a net loss in 1995, the Company
recorded an income tax expense of $332,000 in 1995 because the Company's
subsidiaries were not then consolidated and CDI reported a profit in 1995. The
Company recorded an income tax benefit of $1.4 million in 1994. See Note 6 of
the Notes to Consolidated Financial Statements included elsewhere herein.
EXTRAORDINARY LOSS. In 1995, the Company recognized an extraordinary loss
of $908,000, representing unamortized deferred debt issuance cost in connection
with the extinguishment of debt outstanding under a prior credit facility.
LIQUIDITY AND CAPITAL RESOURCES
Due to the capital intensive nature of the solid waste industry and the
Company's focus on an acquisition-based growth strategy, the Company has used,
and expects to continue using, substantially all cash generated from operations
to fund acquisitions, capital expenditures and landfill development.
Historically, the Company has satisfied its acquisition, capital expenditure and
working capital needs primarily through equity and bank financings. There can be
no assurance that such financing will continue to be available.
Net cash provided by operating activities for the six months ended June 30,
1997 increased to $11.3 million compared to $2.6 million for the same period in
1996. The increase was primarily due to acquisition related activities which
resulted in an increase in accounts payable and accrued expenses of $6.8 million
between the six months ended June 30, 1997 and the six months ended June 30,
1996, an increase in depreciation and amortization of $3.4 million over the
prior period, an improvement in net income to $1.7 million for the six months
ended June 30, 1997 compared to a loss of $1.2 million in the prior year, offset
by an increase in accounts receivable and prepaid expenses of $4.5 million
between the six months ended June 30, 1997 and the six months ended June 30,
1996.
Net cash used in investing activities increased to $77.6 million in the six
months ended June 30, 1997 from $9.7 million in the prior year period. The
increase was due primarily to payments for acquisitions of $68.2 million
completed in the six months ended June 30, 1997 and an increase of $2.8 million
in capital expenditures for the six months ended June 30, 1997 compared to June
30, 1996. The Company's capital expenditure requirements have increased
significantly, reflecting the Company's rapid growth by acquisition and
development of additional revenue producing assets, and will increase further as
the Company continues to pursue its acquisition-based growth strategy. During
the six months ended June 30, 1997, the Company spent $9.4 million in capital
expenditures, of which $4.5 million was for cell development. In fiscal year
1997, the Company expects to spend approximately $20.0 million for capital
expenditures, of which $9.0 million is anticipated to be used for cell
development.
25
<PAGE>
Under the Company's Credit Facility, net cash provided by financing
activities totalled $66.2 million for the six months ended June 30, 1997,
compared to $2.2 million for the six months ended June 30, 1996 reflecting
borrowings of $70.9 million in 1997 under the Company's Credit Facility to fund
acquisitions. Repayments under the Company's Credit Facility totalled $73.9
million, funded primarily by the net proceeds of $70.1 million from the May
Offering.
In May 1997, the Company increased the amount of its Credit Facility with
ING (U.S.) Capital Corporation, as Administrative Agent, and certain other
financial institutions as Lenders, from $125 million to $200 million. The Credit
Facility provides the Company with a term loan of $60 million and an expansion
facility of $140 million to be used for acquisitions (of which $20 million may
be used for working capital and letter of credit purposes). The various loans
and lines of credit under the Credit Facility bear interest at rates per annum
equal to, at the Company's discretion, either: (i) the higher of the prime rate,
plus an applicable margin or (ii) the London Interbank Offered Rate ("LIBOR"),
plus an applicable margin, and have maturities ranging from 2001 to 2004. As of
September 15, 1997, the Company had borrowed $118.9 million under the Credit
Facility. As of such date, the interest rates on the various loans and lines of
credit under the Credit Facility ranged from 6.69% to 8.50% and the total unused
availability under the Credit Facility was approximately $81 million. The
Company will use substantially all of the net proceeds from the Offering to
repay indebtedness outstanding under the Credit Facility which may be reborrowed
in the future. The Company intends to satisfy its interest obligations as well
as future capital expenditures and working capital requirements, with cash flows
from operations and borrowings under the Credit Facility.
INFLATION AND PREVAILING ECONOMIC CONDITIONS
To date, inflation has not had a significant impact on the Company's
operations. Consistent with industry practice, most of the Company's contracts
provide for a pass through of certain costs, including increases in landfill
tipping fees and, in some cases, fuel costs. The Company therefore believes it
should be able to implement price increases sufficient to offset most cost
increases resulting from inflation. However, competitive factors may require the
Company to absorb at least a portion of these cost increases, particularly
during periods of high inflation. The Company is unable to determine the future
impact of a sustained economic slowdown.
SEASONALITY
The Company's revenues tend to be somewhat lower in the winter months. This
is primarily attributable to the fact that: (i) the volume of waste relating to
construction and demolition activities tends to increase in the spring and
summer months; and (ii) the volume of industrial and residential waste in the
regions where the Company operates tends to decrease during the winter months.
In addition, particularly harsh weather conditions may delay the development of
landfill capacity and otherwise result in the temporary suspension of certain of
the Company's operations and could materially adversely affect the Company's
overall business, financial condition and results of operations.
26
<PAGE>
BUSINESS
INTRODUCTION
American Disposal Services is a regional, integrated, non-hazardous solid
waste services company that provides solid waste collection, transfer and
disposal services primarily in the Midwest and in the Northeast. The Company
owns eight solid waste landfills and owns, operates or has exclusive contracts
to receive waste from 17 transfer stations. The Company's operations cover six
primary operating regions and its landfills and transfer stations are supported
by 12 collection divisions, which currently serve over 305,000 residential,
commercial and industrial customers. The Company has adopted an
acquisition-based growth strategy and intends to continue its expansion,
generally in its existing and proximate markets. Since January 1993, the Company
has acquired 55 solid waste businesses, including seven solid waste landfills
and 49 solid waste collection companies.
The Company began its operations in the Midwest and currently has operations
in Arkansas, Connecticut, Illinois, Indiana, Kansas, Kentucky, Massachusetts,
Missouri, Ohio, Oklahoma, Pennsylvania and Rhode Island. The Company's objective
is to build a large profitable fully-integrated solid waste services company
with an established market presence in secondary markets. The Company expects
the current consolidation trends in the solid waste industry to continue as many
independent landfill and collection operators lack the capital resources,
management skills and technical expertise necessary to operate in compliance
with stringent environmental and other governmental regulations.
The Company's principal growth strategy is to identify and acquire solid
waste landfills located in markets that are within approximately 125 miles of
significant metropolitan centers and to secure dedicated waste streams for such
landfills by acquisition or development of transfer stations and acquisition of
collection companies.
The Company's operating program generally involves a four-step process: (i)
acquiring solid waste landfills in markets that are within approximately 125
miles of significant metropolitan centers; (ii) securing captive waste streams
for its landfills through the acquisition or development of transfer stations
serving those markets, through acquisitions of collection companies and by
entering into long-term contracts directly with customers or collection
companies; (iii) making "tuck-in" acquisitions of collection companies to
further penetrate its target markets; and (iv) integrating these businesses into
the Company's operations to achieve operating efficiencies and economies of
scale. As part of its acquisition program, the Company has, and in the future
may, as specific opportunities arise, evaluate and pursue acquisitions in the
solid waste collection and disposal industry that do not strictly conform to the
Company's four-step operating program.
The Company's operating strategy emphasizes the integration of its solid
waste collection and disposal operations and the internalization of waste
collected. One of the Company's goals is to maximize the captive waste streams
(which includes waste from the Company's collection operations and third-party
haulers operating under long-term collection contracts) disposed of at each of
its landfills. During the six months ended June 30, 1997, the Company's captive
waste constituted an average of approximately 71% of the solid waste disposed of
at Company-owned landfills. In addition, 87% of the total tonnage collected by
the Company during such period was disposed of at Company-owned landfills. The
Company plans to continue to pursue its acquisition-based growth strategy to
increase the internalization of waste collected and expand its presence in its
existing and proximate markets.
RECENT DEVELOPMENTS
Since the May Offering, the Company has expanded and strengthened its market
presence in its six operating regions through 16 acquisitions, which included
the acquisition of two landfills, 16 collection companies and four transfer
stations.
As part of the Acquisition, the Company acquired all of the outstanding
shares of capital stock of Bulk Handlers, Shred-All, Trucking and Environtech
from Fred B. Barbara ("Mr. Barbara") and certain related persons. The Barbara
Companies provide hauling, transfer, recycling and disposal services in the
greater
27
<PAGE>
Chicago metropolitan area and include a collection company (with a fleet of
approximately 150 vehicles), a transfer station and recycling facility (capable
of processing traditional recyclables, as well as tires, cement, wood pallets,
aluminum scrap and other bulk materials), and a landfill consisting of
approximately 326 acres (of which approximately 78 acres are permitted), having
approximately 23 years of remaining site life at current average disposal
volumes.
In 1976, Mr. Barbara started his own solid waste business after leaving his
family's solid waste business, which has had a presence in the Chicago solid
waste market since 1951. In connection with the Acquisition, Mr. Barbara entered
into employment and non-competition agreements with the Company under which he
would focus on business development opportunities within the Illinois Region. In
addition, Mr. Barbara may receive significant additional contingent payments
over the next nine years if certain ongoing business development projects are
achieved by the Barbara Companies. See "Risk Factors-- Funding of Future Capital
Requirements." The Company believes that the Acquisition provides it with a
significant opportunity to improve its internalization rates, expand the
Company's aquisition platform and provide fully integrated waste services in its
Illinois Region.
In addition, since the May Offering, the Company has continued to expand its
presence in its New England Region, which the Company entered in September 1996.
Since May, the Company has acquired four additional collection operations and
one transfer station in Rhode Island, and an integrated collection and transfer
station operation in Connecticut. The Company believes that as a result of its
acquisitions in the region, it currently owns and operates the largest
collection operation in Rhode Island and has strategically positioned itself to
expand its market share in the New England Region.
Since the May Offering, the Company increased its Credit Facility from $125
million to $200 million. The Credit Facility provides the Company with a term
loan of $60 million and an expansion facility of $140 million to be used for
acquisitions (of which $20 million may be used for working capital and letter of
credit purposes). At September 15, 1997, the outstanding debt under the Credit
facility was $118.9 million, up from $61.4 million at June 30, 1997, primarily
as a result of recent acquisitions.
INDUSTRY BACKGROUND
In the United States, landfilling is at present the most common means of
disposing of non-hazardous municipal solid waste ("MSW"), which consists
primarily of refuse and garbage from households and commercial establishments.
The Company believes that in recent years there has been a trend towards
consolidation of landfill ownership and that a similar trend is emerging in the
solid waste collection industry, which historically has been characterized by
numerous small companies. The Company believes that these trends will continue
and are the result of several factors: (i) environmental regulations, including
Subtitle D Regulations and related state regulations and programs have
significantly increased the amount of capital and the technical expertise
required in order to own and operate a landfill; (ii) a number of municipalities
are electing to privatize the operations of their municipal landfills as an
alternative to funding the changes to these landfills that are required in order
to comply with the Subtitle D Regulations and related state regulations and
programs; (iii) as a result of heightened sensitivity to environmental concerns
by many communities, it is becoming increasingly desirable in many markets for
collection companies to provide waste reuse and reduction programs, such as
recycling and composting, in addition to conventional waste collection services.
Due in part to these trends, the Company believes that significant opportunities
exist to expand and further integrate its operations in each of its existing
markets, as well as in new markets that meet the Company's acquisition criteria.
STRATEGY
The Company's objective is to build a large, profitable, fully-integrated
solid waste services company with an established market presence in secondary
markets. The Company's strategy for achieving this objective is to establish a
market presence generally anchored by its landfills; to increase volume in its
markets through "tuck-in" acquisitions of collection companies and marketing to
new customers; to provide a high level of customer service; to implement
selective price increases; and to continue to
28
<PAGE>
implement strict cost controls and reduce corporate overhead as a percentage of
revenues. The Company believes that this strategy of building an integrated
entity should provide it with competitive cost advantages in its targeted
regional markets. The Company's ability to implement its strategy is enhanced by
the experience of its senior managers and their knowledge of the solid waste
industry. There can be no assurance, however, that the Company will be
successful in the execution of its strategy. See "Risk Factors."
The Company targets acquisitions in geographic areas characterized by one or
more of the following criteria: (i) the availability of permitted and
underutilized landfill capacity located outside of, but within 125 miles of, a
significant metropolitan center; (ii) the absence of a dominant competitor in
the area which would preclude the Company from implementing its business
strategy; (iii) anticipated economic and population growth; and (iv) near- or
medium-term scheduled closures of competing landfills.
The Company has adopted the following four-step operating program in
executing its business strategy:
1. LANDFILL ACQUISITIONS. Once the Company identifies an area that
qualifies under its target market criteria, the Company seeks to establish a
market presence, generally by acquiring one or more landfills in that area
that can be accessed economically from the metropolitan center or from the
regional market area, either through direct hauling or through strategically
located transfer stations. In evaluating a landfill acquisition, the Company
considers, among others, the following factors: (i) current disposal costs
together with transportation costs to the targeted landfill relative to
transportation and disposal costs of potential competitors; (ii) expected
landfill life; (iii) opportunities for landfill expansion; and (iv)
projected short-term ability to secure a minimum of 500 tons per day of
disposal volume.
2. SECURE CAPTIVE WASTE VOLUMES. After the Company has acquired a
landfill, it seeks to build a market presence and increase the utilization
of the landfill by securing captive waste streams, which includes developing
and acquiring transfer stations, entering into waste collection contracts
and acquiring waste collection companies. Generally, the Company pursues the
acquisition of collection companies that: (i) have well-established
residential or commercial collection routes and accounts; (ii) own and
operate transfer stations; or (iii) do not own landfills and are vulnerable
to volatile disposal pricing, which the Company believes it can minimize
through landfill ownership.
3. 'TUCK-IN" ACQUISITIONS. The Company acquires service rights,
obligations, machinery and equipment in "tuck-in" acquisitions of collection
companies to: (i) increase the waste stream directed to its landfills; (ii)
maximize its market presence; and (iii) take advantage of economies of scale
which should increase earnings and return on capital.
4. INTEGRATION AND EXPANSION OF OPERATIONS. Immediately upon closing
any acquisition, the Company integrates the acquired company into its
operations by: (i) instituting strict cost control procedures; (ii)
consolidating and rationalizing collection routes and pricing; (iii)
implementing Company operating policies and procedures (including programs
designed to improve employee productivity and equipment utilization); (iv)
establishing a sales and marketing force; and (v) converting the acquired
company to the Company's accounting, data processing and management
reporting systems. During the transition period following acquisitions, the
Company retains the management of certain companies it acquires in order to
benefit from management's local operating knowledge and the goodwill it has
developed. Additionally, on a selective basis, the Company seeks to expand
the capacity of its landfills to accommodate increasing waste volumes and
improve profitability.
In addition, the Company may, as specific opportunities arise, evaluate and
pursue acquisitions in the solid waste collection and disposal industry that do
not strictly conform to the Company's four-step operating program.
29
<PAGE>
ACQUISITION PROGRAM
The Company has assembled an experienced acquisition team comprised of
operations, environmental, engineering, legal, financial and accounting
personnel, each engaged in identifying and evaluating acquisition opportunities
in order to execute its operating program. The Company has established pre-
acquisition review procedures for acquisition candidates, including legal,
financial, engineering, operational and environmental reviews. The environmental
review includes, where appropriate, investigation of geologic, hydrogeologic and
other site conditions, past and current operations (including types of waste
deposited), design and construction records, permits, regulatory compliance
history, regulatory agency records and available soil sampling, groundwater and
air monitoring results. The Company uses regional managers to assist in the
acquisition process by identifying suitable candidates and performing pre-
acquisition review and evaluation tasks.
In considering whether to proceed with an acquisition, in addition to
determining whether the candidate meets the Company's criteria described above,
the Company evaluates a number of factors, including: (i) the acquisition
candidate's historical and projected financial results; (ii) any expected
synergies with one or more of the Company's existing operations; (iii) the
proposed purchase price and the Company's expected resultant internal rate of
return on investment and the expected impact on the Company's earnings per
share; (iv) whether the candidate will enhance the Company's ability to effect
other acquisitions in the vicinity; (v) the candidate's customer service
reputation and relationships with the local communities; (vi) the composition
and size of the candidate's customer base; (vii) the types of services provided
by the candidate; and (viii) whether the candidate has definable and
controllable liabilities, including potential environmental liabilities. The
Company believes that significant opportunities exist to acquire new landfills
and to develop its existing markets, and reviews acquisition opportunities on an
ongoing basis.
COMPLETED ACQUISITIONS
The Company has completed 55 acquisitions of solid waste companies in 12
states since January 1993, which are summarized in the table below.
<TABLE>
<CAPTION>
COMPANY BUSINESS PRINCIPAL LOCATION DATE ACQUIRED
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
MISSOURI REGION:
Wheatland Landfill Scammon, KS January 1993
Pittsburg Sanitation Collection Pittsburg, KS January 1993
Ozark Sanitation Collection Carthage, MO January 1993
Trashmaster Collection Joplin, MO January 1993
A-1 Trash Service Collection Verona/Aurora, MO April 1993
Tate's Transfer Transfer Station Verona/Aurora, MO April 1993
Renfro Sanitation Collection Branson, MO June 1993
B&B Trash Collection Pittsburg, KS July 1993
B&B Refuse Collection Neosho, MO December 1993
Apex Sanitation Collection Grove, OK and December 1993
Green Forest, AR
Epps Sanitation Collection Branson, MO December 1993
Cummings Sanitation Collection Nixa, MO May 1994
Light Hauling Collection Branson, MO August 1994
Poole's Sanitation Collection Bentonville, AR August 1994
Southwest Waste Collection Springfield, MO July 1996
Nesvold Sanitation Collection Seneca, MO December 1996
Sparky's Waste Control Collection Springfield, MO January 1997
Cupp Disposal Collection Joplin, MO June 1997
Sunset Disposal Landfill and Collection Coffeyville, KS August 1997
L. B. Smith Collection Springfield, MO August 1997
Supreme Sanitation Collection Pittsburg, KS August 1997
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
COMPANY BUSINESS PRINCIPAL LOCATION DATE ACQUIRED
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
ILLINOIS REGION:
Livingston Landfill Pontiac, IL November 1995
Barbara Companies Landfill, Collection, Chicago, IL September 1997
Beneficial Reuse
and Transfer Station
SOUTHWESTERN INDIANA
REGION:
WMX-Evansville Landfill, Collection and Evansville, IN April 1997
Transfer Station
Action Trash & Disposal Collection Vincennes, IN July 1997
T&G Container Collection and Transfer Washington, IN July 1997
Station
Mother Earth Collection, Beneficial Louisville, KY August 1997
Reuse
and Transfer Station
OHIO REGION:
Wyandot Landfill Upper Sandusky, OH August 1995
Environmental Collection Findlay, OH May 1996
Transportation and
Management
R&R Waste Disposal Collection Findlay, OH May 1996
Jerry's Rubbish Collection Findlay, OH June 1996
Seneca Disposal Collection Tiffin, OH June 1996
Ross Bros. Waste & Collection and Transfer Mt. Vernon, OH September 1996
Recycling Station
D&L Hauling Collection Findlay, OH October 1996
Rutledge Trucking Collection Delaware, OH November 1996
Morrow Sanitary Company Collection Mt. Gilead, OH November 1996
Bowers-Phase II Collection and Transfer Vickery, OH December 1996
Station
Cargo Services Collection Mt. Gilead, OH December 1996
Rumpke Waste (routes) Collection Fostoria, OH December 1996
Christiansen's Collection Sandusky, OH May 1997
D&R Refuse Collection Kenton, OH July 1997
Geyer Sanitation Collection Galion, OH July 1997
WESTERN PENNSYLVANIA
REGION:
Clarion Landfill and Collection Leeper, PA June 1995
Mauthe Sanitation Collection Strattanville, PA March 1996
Allied Waste Systems Collection Youngstown, OH February 1997
Horodyski Collection Warren, OH April 1997
Township Garbage Collection Warren, OH July 1997
NEW ENGLAND REGION:
T&J Trucking Collection Johnston, RI September 1996
American Disposal Services, Collection Johnston, RI September 1996
Inc./N.E.E.D.
A-1 Container Collection Rehoboth, MA January 1997
BFI--Derby District Collection and Transfer Seymour, CT May 1997
Station
Liberty Disposal Collection Providence, RI May 1997
A. Macera Collection Johnston, RI August 1997
Macera Bros. Collection and Transfer Cranston, RI August 1997
Station
R.D. Compactor Collection Providence, RI September 1997
</TABLE>
MISSOURI REGION. The Company established a market presence in the Missouri
Region in January 1993 with the acquisition of its Wheatland landfill. The
Company is in the later stages of its operating program in the Missouri Region.
Since purchasing the Wheatland landfill, the Company has acquired one transfer
station and independently developed three transfer stations. The Company also
has exclusive contracts to accept waste from two other transfer stations.
Additionally, the Company acquired 19 collection companies, including the three
operations purchased simultaneously with the Wheatland landfill. The collection
operations and transfer stations have been consolidated into three divisions.
The Company has integrated acquired companies by consolidating and rationalizing
routes and pricing, reducing overhead through consolidating an acquired
company's operations, implementing the Company's cost controls and operating
procedures, converting acquired companies to the Company's management
31
<PAGE>
reporting systems and implementing a sales and marketing team. The Company
continues to pursue "tuck-in" acquisitions of collection companies to increase
its per ton margins through internalizing waste streams. The Company also seeks
to expand its operations by taking advantage of the economic efficiencies
provided by its integrated operations and is in the process of developing
another transfer station. Since the acquisition of its Wheatland landfill, the
Company has increased the waste volume at its landfill by approximately 1,000
tons per day. Acquisition activity since the May Offering has included the
acquisition of one landfill and four collection companies. Such activity has
expanded the service area of the Company within the region.
ILLINOIS REGION. The Company established a market presence in north-central
Illinois in November 1995 with the acquisition of its Livingston landfill, which
is located approximately 90 miles from downtown Chicago. The acquisition of the
Livingston landfill was particularly attractive to the Company's management
because of the expected closing of two competing landfills that accepted an
aggregate of approximately 15,000 tons per day and the management team's
experience with the Chicago market. Since the acquisition of the Livingston
landfill, one of the competing landfills in the Chicago metropolitan area has
closed and the other is expected to close in 1998. Since the acquisition of the
Livingston landfill, the Company has increased the waste volume at this landfill
by approximately 4,000 tons per day through intensified sales and marketing
efforts. Approximately 71% of the waste volume at the Livingston landfill is
captive waste.
In September 1997, the Company acquired the Barbara Companies, which provide
solid waste collection, transportation, hauling, transfer and disposal services
in northern Illinois. In addition, as part of the Acquisition, the Company
acquired the Environtech landfill, which services the Chicago metropolitan area.
The Acquisition provides the Company with a significant opportunity to expand
and strengthen its presence in the Illinois Region.
SOUTHWESTERN INDIANA REGION. In April 1997, the Company acquired the
Blackfoot landfill, two collection companies, an exclusive transfer station
contract and a permit to develop a new transfer station, all located in the
southwestern Indiana Region (which includes western Kentucky). These
acquisitions provided the Company with the opportunity to enter the southwestern
Indiana Region and to secure a significant market share position in that region
through the acquisition of a single, fully integrated solid waste management
operation. The Company plans to pursue additional "tuck-in" acquisitions of
collection companies to increase its per ton margins through internalizing waste
streams. Since the May Offering, the Company has acquired three additional
collection companies and two transfer stations and has expanded its regional
presence into the Louisville, Kentucky market.
OHIO REGION. The Company established a market presence in north-central
Ohio in August 1995 with the acquisition of its Wyandot landfill, which is
located within approximately 125 miles of Cleveland, Ohio and within
approximately 75 miles of Toledo and Columbus, Ohio. The Company is in the later
stages of its operating program in the Ohio Region. To date, the Company has
acquired 14 collection companies and has acquired, developed or secured
exclusive contracts with four transfer stations in the Ohio Region. Since the
acquisition of the Wyandot landfill, the Company has increased the waste volume
at this landfill by approximately 300 tons per day, primarily through the
acquisition of collection companies, new operating contracts with two transfer
stations and implementation of a new sales focus. To further expand its
operations, the Company is seeking to increase capacity at the Wyandot landfill.
See "Business-- Operations--Landfills." As part of its ongoing strategy in the
Ohio Region, the Company seeks to continue to increase its volume of
internalized waste through additional "tuck-in" acquisitions in order to
increase per ton margins. Since the May Offering, the Company has acquired three
collection companies in the region.
32
<PAGE>
WESTERN PENNSYLVANIA REGION. The Company entered the western Pennsylvania
Region in June 1995 with the acquisition of its Clarion landfill and an
affiliated collection company. The Clarion landfill is located within 80 miles
of both Pittsburgh and Erie, Pennsylvania. The Company began the second phase of
its operating program in the western Pennsylvania Region (which includes eastern
Ohio) in March 1996 by acquiring a second collection company. Since the
acquisition of the Clarion landfill, the Company has increased deliveries to
this landfill by approximately 300 tons per day to the maximum daily limit,
primarily through the acquisition of collection companies. As a result of this
acquisition, the volume of the Company's internalized waste has increased in the
western Pennsylvania Region. As part of its ongoing strategy in the western
Pennsylvania market, the Company seeks to continue to increase its volume of
internalized waste through additional "tuck-in" acquisitions in order to
increase per ton margins.
NEW ENGLAND REGION. The Company began operating in the New England Region
in September 1996 with the acquisition of two collection companies in Rhode
Island. The Company was attracted to the New England Region because it was
largely an unconsolidated market where no existing operator had a competitive
advantage since the State of Rhode Island owns and operates the sole landfill in
the state. As a result, the Company has focused its acquisition strategy on
collection companies. Since May, the Company has acquired four collection
companies and one transfer station in Rhode Island and an integrated collection
and transfer station operation in Connecticut. The Company believes that as a
result of its acquisitions in the region, it currently owns and operates the
largest collection operation in Rhode Island and has strategically positioned
itself to expand its market share in the New England Region.
OPERATIONS
The Company's waste management operations include the ownership and
operation of solid waste landfills, transfer stations and waste collection
services. The Company believes that all of its landfills and transfer stations
comply with or exceed the requirements mandated by the Subtitle D Regulations
and the applicable state regulations. The Company regularly monitors incoming
waste at its landfills to determine if such wastes are in compliance with its
permits.
LANDFILLS
The Company currently owns eight landfill operations permitted to receive
solid waste. These landfill operations are located in Illinois, Indiana, Ohio,
Pennsylvania, Kansas and Oklahoma.
Each of the Company's landfill operations is located on land owned by the
Company. The permitted waste streams at each of these landfills include both MSW
and certain special waste (the type of special waste varying from landfill to
landfill). During the six months ended June 30, 1997, the Company's captive
waste (including the Company's collection operations and third party haulers
operating under long-term contracts) constituted an average of approximately 71%
of the solid waste disposed of at its landfills.
33
<PAGE>
The table and landfill descriptions below provide certain additional
information, as of September 15, 1997 regarding the eight landfills that the
Company owns and operates.
<TABLE>
<CAPTION>
APPROXIMATE ACREAGE APPROXIMATE
---------------------------- UNUSED PERMITTED
LANDFILLS LOCATION TOTAL PERMITTED (1) AIRSPACE (2)
- ------------------------------- ------------------------------- --------- ----------------- ---------------------------
<S> <C> <C> <C> <C>
(IN MILLIONS OF
CUBIC YARDS)
Wheatland...................... Scammon, KS 68 55 1.0
Resource Recovery.............. Cherryvale, KS 282 37 2.6
Pittsburg County............... McAlester, OK 76 30 1.4
Livingston..................... Pontiac, IL 556 255 29.0
Environtech.................... Morris, IL 326 78 6.3
Blackfoot...................... Evansville, IN 379 166 17.8
Wyandot(3)..................... Upper Sandusky, OH 344 87 5.9
Clarion........................ Leeper, PA 606 60 3.8
--------- --- ---
Total...................... 2,637 768 67.8
--------- --- ---
--------- --- ---
</TABLE>
- ------------------------
(1) Permitted acreage, as used in this table and in this Prospectus, represents
the portion of the total acreage on which disposal cells and supporting
facilities have been constructed (including any that may have been filled or
capped) or may be constructed based upon an approval issued by the state
generally authorizing the development or siting of a landfill on the
acreage. Prior to actually constructing and/or operating each new disposal
cell on the permitted acreage, it may be necessary, depending upon the
regulatory requirements of the particular state, for the Company to obtain
additional authorizations with respect to such cell. The portion of total
acreage that is not currently permitted acreage is not currently available
for waste disposal.
(2) Unused permitted airspace represents in cubic yards the estimated portion of
the permitted acreage that has not yet been used for waste disposal but may
be available for waste disposal after certain approvals are secured and, in
some instances, new disposal cells are constructed. Prior to actually
constructing and/or operating a new disposal area or cell on permitted
acreage, it may be necessary, depending upon the regulatory requirements of
the particular state or locality, for the Company to obtain additional
authorizations.
(3) The Company has applied for a permit to increase the permitted acreage and
permitted cubic airspace at the Wyandot landfill by approximately 98 acres
and approximately 19.1 million cubic yards, respectively.
The Company monitors the available permitted in-place disposal capacity at
each of its landfills on an ongoing basis and evaluates whether to seek to
expand this capacity. In making this evaluation, the Company considers various
factors, including the volume of waste projected to be disposed of at the
landfill, the size of the unpermitted acreage included in the landfill, the
likelihood that the Company will be successful in obtaining the necessary
approvals and permits required for the expansion and the costs that would be
involved in developing the expanded capacity. The Company also considers on an
ongoing basis the extent to which it is advisable, in light of changing market
conditions and/or regulatory requirements, to seek to expand or change the
permitted waste streams at a particular landfill or to seek other permit
modifications. Set forth below is certain information concerning certain of the
new permits, permit modifications and approvals that the Company is currently
seeking to enable it to expand its disposal capacity. There can be no assurance
that the Company will succeed in obtaining any of such permits, permit
modifications or approvals, or that additional permits, permit modifications or
approvals will not be required or that additional requirements will not be
imposed by regulatory agencies. See "Risk Factors--Limitations on Internal
Expansion" and "--Extensive Environmental Land Use Laws and Regulations."
WHEATLAND. The Wheatland landfill consists of approximately 68 acres, and
the Company has an option to purchase up to approximately 800 additional acres
in the vicinity. Approximately 55 of the owned acres are permitted acres and
there are approximately 1.0 million cubic yards of unused permitted airspace.
The Company anticipates that after a planned expansion, the Wheatland landfill
would have approximately six years of total site life at current average
disposal levels (two years if such expansion is not approved by the Cherokee
County Board of Commissioners). In addition, the Company has an option to
purchase an undeveloped parcel in Missouri, which has been granted a permit to
develop a landfill.
34
<PAGE>
RESOURCE RECOVERY. The Resource Recovery landfill consists of approximately
282 acres, of which approximately 37 are permitted. There are approximately 2.6
million cubic yards of unused permitted airspace. The Resource Recovery landfill
has approximately 20 years of total site life at current average disposal
levels.
PITTSBURG COUNTY. The Pittsburg County landfill consists of approximately
76 acres, of which approximately 30 are permitted acres. There are approximately
1.4 million cubic yards of unused permitted airspace. The Pittsburg County
landfill would have approximately 25 years of total site life at current average
disposal levels.
LIVINGSTON. The Livingston landfill consists of approximately 556 acres, of
which approximately 255 are permitted acres. There are approximately 29.0
million cubic yards of unused permitted airspace. Previously, cells developed at
the Livingston landfill have been constructed with double composite liner
systems. In September 1996, the Livingston landfill received a permit to
construct cells using a single liner composite system. In February 1997,
Livingston received a significant modification permit from the Illinois
Environmental Protection Agency for a major lateral and vertical expansion and
re-permitting of the site. This significant modification permit includes
authorization to expand the residual waste monofill into a facility capable of
accepting various special wastes and MSW, and thereby increased the permitted
acreage by approximately 200 acres to approximately 255 acres and increased the
site's available capacity from approximately 6.0 million cubic yards to an
estimated available capacity of approximately 29.0 million cubic yards. The
Livingston landfill has approximately 13 years of total site life at current
average disposal levels, which have increased substantially since its
acquisition by the Company.
ENVIRONTECH. The Environtech landfill consists of approximately 326 acres
of which 78 acres have received local siting approval and/or state permitting.
There are approximately 6.3 million cubic yards of unused airspace, 6.1 million
cubic yards of which have received local siting approval and awaiting approval
by the Illinois Environmental Protection Agency (the "Illinois EPA"). The
application for approval by Illinois EPA was submitted in September, 1996 and
the Company believes it will receive Illinois EPA approval by the end of 1997.
Environtech has approximately 23 years of total site life at current average
disposal levels.
BLACKFOOT. The Blackfoot landfill in Evansville, Indiana consists of
approximately 379 acres, of which approximately 166 are permitted acres. The
site recently received a permit which increases the available capacity to
approximately 17.8 million cubic yards of airspace. The Blackfoot landfill has
approximately 42 years of total site life at current average disposal levels.
WYANDOT. The Wyandot landfill consists of approximately 344 acres in three
proximate locations, and the Company has an option to purchase up to
approximately 94 adjacent additional acres in the vicinity. Approximately 87 of
the owned acres are permitted, and there are approximately 5.9 million cubic
yards of unused permitted airspace. Cells developed to date at the Wyandot
landfill have been constructed with double composite liner systems. The Company
has applied for a permit from applicable regulatory authorities to use a single
composite liner in constructing new cells, which the Company believes should
reduce cell development costs. In addition, the Company has applied for a permit
from the Ohio Environmental Protection Agency to expand its landfill capacity by
using the valley between two of the hills that are currently permitted for waste
disposal, as well as the option acreage. The Company anticipates that if it
exercised its option, obtained the required permits and constructed the
additional landfill areas, the Wyandot landfill would have approximately 50
years of total site life at current disposal levels. Currently, however, the
Wyandot landfill has approximately 10 years of total site life at current
average disposal levels.
CLARION. The Clarion landfill consists of approximately 606 acres, of which
approximately 60 are permitted acres. There are approximately 3.8 million cubic
yards of unused permitted airspace. Cells developed at the Clarion landfill have
been, and due to regulatory requirements will continue to be,
35
<PAGE>
constructed with double liner systems. The Clarion landfill has approximately 10
years of total site life at current average disposal levels.
TRANSFER STATIONS
The Company has an active program to acquire, develop, own, operate and
contract to receive waste volumes from transfer stations in markets which are
proximate to its operations. The use of transfer stations reduces the Company's
costs associated with the transportation of its collected waste and also
increases the market area served by the Company's landfills. Presently, the
Company owns, operates or has exclusive contracts to receive waste from a total
of 17 transfer stations, including six in the Missouri Region, two in the
Illinois Region, three in the southwestern Indiana Region, four in the Ohio
Region and two in the New England Region. Typically, the Company acquires
transfer stations that will service its Company-owned landfills.
COLLECTION OPERATIONS
The Company collects solid waste from over 305,000 residential, commercial
and industrial customers through its own collection operations and through
brokerage arrangements with other haulers. The Company's collection operations
are conducted generally within a 50-mile radius of either its transfer stations
or landfills, which allows the Company to serve a geographic area within a
radius of approximately 125 miles from its landfills. The Company also contracts
with local generators of solid waste and directs the waste to either its own
landfill or to a third-party landfill or for additional handling at one of its
transfer stations. During the six months ended June 30, 1997, the Company's
captive waste constituted an average of approximately 71% of the solid waste
disposed of at Company-owned landfills. In addition, 87% of the total tonnage
collected by the Company was disposed of at Company-owned landfills.
Fees for the Company's commercial and industrial collection services are
determined by such factors as collection frequency, type of equipment and
containers furnished, the type, volume and weight of the waste collected, the
distance to the disposal or processing facility and the cost of disposal or
processing. A majority of the Company's commercial and industrial waste
collection services are performed under contracts. Substantially all of the
Company's municipal solid waste collection services are performed under
contracts with municipalities. These contracts grant the Company exclusive
rights to service all or a portion of the residential homes in a specified
community or provide a central repository for residential waste drop-off. As of
September 15, 1997, the Company had approximately 65 municipal contracts in
place. Municipal contracts in the Company's market areas are typically awarded,
at least initially, on a competitive bid basis and usually range in duration
from one to five years. Fees are based primarily on the frequency and type of
service, the distance to the disposal or processing facility and the cost of
disposal or processing. Municipal collection fees are usually paid either by the
municipalities from tax revenues or through direct service charges to the
residents receiving the service. The Company also provides subscription
residential collection services directly to households.
SALES AND MARKETING
The Company has a coordinated marketing strategy which is formulated at the
corporate level and implemented at the regional level. In addition to
competitive pricing, the Company's marketing strategy emphasizes quality service
particularly with respect to rapid turnaround time at its landfills. Each
manager implements the Company's marketing strategy, which is overseen by senior
management. Depending upon the size of the region and its customer mix, each
manager may focus on commercial, industrial, residential or municipal accounts
to a varying degree. The Company maintains periodic contact with all of its
accounts to increase customer retention. Company salespersons call on
prospective customers in a specified geographic territory.
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<PAGE>
Since the Company acquires its waste collection operations primarily from
entrepreneurs who generally do not have independent sales forces, the Company
often retains these entrepreneurs during the transition period following the
acquisition of such operations to acquaint the Company's sales force with the
acquired companies' customer base.
The Company has a diverse customer base, with no single customer accounting
for more than 10% of the Company's revenues during the six months ended June 30,
1997. The Company does not believe that the loss of any single customer would
have a material adverse effect on the Company's results of operations.
COMPETITION
The solid waste collection and disposal business is highly competitive and
requires substantial amounts of capital. The Company competes with numerous
local and regional companies and, in selected areas, with the large national
waste management companies. The industry is led by several national waste
management companies, such as Waste Management, Inc., Browning-Ferris
Industries, Inc., USA Waste Services, Inc., Republic Industries, Inc. and Allied
Waste Industries, Inc., and includes numerous local and regional companies of
varying sizes and competitive resources such as Superior Services, Inc., Eastern
Environmental Services, Inc. and Waste Industries, Inc. The large national
companies, as well as a number of the regional companies, are significantly
larger and have greater financial resources than the Company. The Company also
competes with those counties and municipalities that maintain their own waste
collection and disposal operations. These counties and municipalities may have
financial advantages due to the availability to them of tax revenues and tax
exempt financing. The Company competes primarily by charging competitive prices
and offering quality service. Competitors may reduce the price of their services
in an effort to expand market share or to win competitively bid municipal
contracts.
The solid waste collection and disposal industry is currently undergoing
significant consolidation, and the Company encounters competition in its efforts
to acquire landfills and collection operations. Accordingly, it may become
uneconomical for the Company to make further acquisitions or the Company may be
unable to locate or acquire suitable acquisition candidates at price levels and
on terms and conditions that the Company considers appropriate, particularly in
markets the Company does not already serve.
Competition in the disposal industry may also be affected by the increasing
national emphasis on recycling and other waste reduction programs, which may
reduce the volume of waste deposited in landfills. See "Risk Factors--Highly
Competitive Industry and "--Use of Alternatives to Landfill Disposal."
LIABILITY INSURANCE AND BONDING
The Company carries a broad range of insurance for the protection of its
assets and operations that it believes is customary to the waste management
industry, including pollution liability coverage. Specifically, each of the
Company's eight landfills has pollution liability coverage of $10 million per
occurrence or $10 million in the aggregate subject to a $10,000 deductible.
Nevertheless, if the Company were to incur liability for environmental damage
which exceeds coverage limits or is not covered by insurance, its business,
financial condition and results of operations could be materially adversely
affected.
The Company is required to post a performance bond or a bank letter of
credit or to provide other forms of financial assurance in connection with
closure and post-closure obligations with respect to landfills and its other
solid waste management operations and may be required to provide such financial
assurance in connection with municipal residential collection contracts. As of
June 30, 1997, the Company had outstanding approximately $33.2 million of
performance bonds. If the Company were unable to obtain surety bonds or letters
of credit in sufficient amounts, or to provide other required forms of financial
assurance, it would be unable to remain in compliance with the Subtitle D
Regulations or comparable state requirements and, among other things, might be
precluded from entering into certain municipal collection contracts and
obtaining or holding landfill operating permits.
37
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
executive officers and directors as of September 15, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
David C. Stoller..................................... 46 Chairman; Director
Richard De Young..................................... 43 President; Chief Executive Officer; Director
Richard Kogler....................................... 38 Vice President; Chief Operating Officer
Stephen P. Lavey..................................... 36 Vice President; Chief Financial Officer
Ann L. Straw......................................... 44 Vice President; General Counsel and Secretary
Lawrence R. Conrath, Sr.............................. 41 Vice President; Controller
John J. McDonnell.................................... 42 Vice President--Engineering
Mary T. Ryan......................................... 44 Vice President--Corporate Affairs
Merril M. Halpern.................................... 62 Director
A. Lawrence Fagan (1)................................ 67 Director
Richard T. Henshaw, III (2).......................... 58 Director
G.T. Blankenship (2)................................. 68 Director
Norman Steisel (1)................................... 54 Director
</TABLE>
- ------------------------
(1) Member of audit committee
(2) Member of compensation committee
DAVID C. STOLLER has been Chairman and a director of the Company since
January 1, 1996. He has served in the same capacities for ADS, Inc. ("ADS")
since January 1993 and County Disposal, Inc. ("CDI") since May 1995; both ADS
and CDI were predecessor entities of the Company. Since January 1997, he has
been a Managing Director of Charterhouse, which is a private investment firm
specializing in leveraged buy-out acquisitions. From August 1992 through
December 1996, Mr. Stoller served as the Chairman of Charterhouse Environmental
Capital Group, Inc. ("Charterhouse Environmental Capital"), which provided
management and consulting services to companies with environmental operations
including the Company. Charterhouse Environmental Capital is an affiliate of
Charterhouse. Mr. Stoller was a partner at the law firm of Milbank, Tweed,
Hadley & McCloy (where he remains as "Of Counsel") from January 1989 through
July 1992.
RICHARD DE YOUNG has been Chief Executive Officer since September 4, 1997
and President and a director of the Company since January 1, 1996. He has also
served as President of ADS since April 1994 and as a director since September
1993 and was the Chief Operating Officer and Vice President for ADS from January
1993 through April 1994. Mr. De Young has been a director of CDI since May 1995,
and its President since July 31, 1996. From June 1982 through January 1993 he
was employed by Waste Management of North America, a subsidiary of WMX
Technologies, Inc. ("WMX"), most recently as a Regional Operations Vice
President, with responsibility for landfill and collection operations in the
Midwest region.
RICHARD KOGLER has been a Vice President and the Chief Operating Officer of
the Company since January 1, 1996. He previously served in the same capacities
for ADS since May 1995 and as President of CDI between May 1995 and July 1996.
He has been Vice President of CDI since July 31, 1996. From October 1984 through
May 1995 Mr. Kogler was employed by WMX, most recently as a Regional Operations
Vice President.
STEPHEN P. LAVEY has been a Vice President and the Chief Financial Officer
of the Company since February 1997. He was previously employed by Bank of
America from June 1990 through January 1997,
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<PAGE>
most recently as a Vice President in its Environmental Services Lending Group,
specializing in the solid waste, environmental engineering and water
purification industries. Mr. Lavey is also a Certified Public Accountant.
ANN L. STRAW has been a Vice President and the General Counsel of the
Company since the Exchange. She previously served in the same capacities for ADS
(since June 1995) and for CDI (since June 1995). She has been the Secretary of
the Company since January 1, 1996, and of ADS and CDI since July 31, 1995. From
1986 through May 1995 she was employed by WMX, most recently as a Group Counsel
for WMX's Midwest Group.
LAWRENCE R. CONRATH, SR. has been Controller of the Company since the
Exchange and a Vice President since May 1996. He previously served as Controller
for ADS since May 1994. Prior to joining the Company, Mr. Conrath spent two
years with United Waste Systems, Inc., as Regional Controller of its Michigan
region. From 1978 through 1990, Mr. Conrath was employed by WMX in several
financial positions, most recently as Director of Accounting for the WMX Urban
Services Group. Mr. Conrath is also a Certified Public Accountant.
JOHN J. MCDONNELL has been a Vice President--Engineering of the Company
since the Exchange. He previously served as Environmental Engineer for ADS
(since February 1993) and CDI (since June 1995). From 1985 through February
1993, Mr. McDonnell was employed by WMX, most recently as an Engineering
Manager.
MARY T. RYAN has been a Vice President--Corporate Affairs since March 1997
after joining the Company in November 1996. From May 1996 to November 1996, she
was employed by Ketchum Public Relations as Senior Vice President, Corporate
Issues. From July 1984 to April 1995 she was employed by WMX Technologies, Inc.,
most recently as Vice President, Management Services.
MERRIL M. HALPERN has served as a director of the Company since January 1,
1996. Since October 1984, Mr. Halpern has served as Chairman of the Board of
Charterhouse. From 1973 to October 1984, Mr. Halpern served as President and
Chief Executive Officer of Charterhouse. Mr. Halpern is also a director of
Designer Holdings Ltd., a developer and marketer of designer sportswear lines
("Designer Holdings"); Insignia Financial Group, Inc., a real estate management
firm; and Microwave Power Devices, Inc., a manufacturer of highly linear power
amplifiers primarily for the wireless telecommunications market ("MPD").
A. LAWRENCE FAGAN has served as a director of the Company since January 1,
1996. He has been President of Charterhouse since January 1997 and formerly
served as Executive Vice President of Charterhouse since 1984. Mr. Fagan is also
a director of MPD.
RICHARD T. HENSHAW, III has been a director of the Company since January 1,
1996. He has served as a director of ADS (since January 1993) and CDI (since May
1995). Mr. Henshaw has been a Managing Director of Charterhouse since January
1997 and formerly served as a Senior Vice President of Charterhouse since 1991.
Prior thereto he was a Senior Vice President of The Bank of New York. Mr.
Henshaw is also a director of Cornell Corrections, Inc., a provider of
privatized correctional services.
G.T. BLANKENSHIP has been a director of the Company since January 1, 1996.
He previously served as a director of ADS (since January 1991). Mr. Blankenship
has been a self-employed private investor since 1990.
NORMAN STEISEL has been a director of the Company since July 1996. He has
served as Vice President, Business Development of Computer Sciences Corp. since
May 1997. He was the President of EnEssCo Strategies, a strategic consulting
services firm specializing in government regulated markets, from January 1994 to
May 1997. From January 1990 through December 1993, Mr. Steisel was the First
Deputy Mayor of the City of New York. Prior to 1990, he was a Senior Vice
President at Lazard Freres & Co., specializing in environmental, corporate and
municipal finance.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of September 15, 1997 and after
completion of this Offering, by: (i) each person known by the Company to be the
beneficial owner of more than 5% of the Company's Common Stock; (ii) each of the
Company's directors; (iii) the Company's Chief Executive Officer and each of the
Company's other current executive officers; and (iv) the Company's directors and
executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING SHARES TO AFTER OFFERING (1)
----------------------- BE SOLD IN -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNERS NUMBER PERCENT THE NUMBER PERCENT
- -------------------------------------------------------- ---------- ----------- OFFERING ---------- -----------
-----------
<S> <C> <C> <C> <C> <C>
Charterhouse Environmental Holdings, L.L.C. (2)......... 1,867,289 12.6% 743,441 1,123,848 6.1%
Charterhouse Equity Partners II, L.P. (3)............... 2,511,973 17.0% 1,000,114 1,511,859 8.3%
CDI Equity, LLC (4)..................................... 644,109 4.4% 256,445 387,664 2.1%
David C. Stoller (5)(6)................................. 124,171 * -- 124,171 *
Richard De Young (5)(7)................................. 124,587 * -- 124,587 *
Stephen P. Lavey........................................ -- -- -- --
Merril M. Halpern (6)................................... -- -- -- --
A. Lawrence Fagan (6)................................... -- -- -- --
Richard T. Henshaw, III (6)............................. -- -- -- --
G.T. Blankenship (8).................................... 97,451 * -- 97,451 *
Norman Steisel.......................................... -- -- -- -- --
Richard Kogler (5)...................................... 17,755 * -- 17,755 *
Ann L. Straw (5)(9)..................................... 12,080 * -- 12,080 *
John J. McDonnell (5)(10)............................... 29,958 * -- 29,958 *
Lawrence R. Conrath (5)(11)............................. 20,426 * -- 20,426 *
Mary T. Ryan (12)....................................... 7,000 * -- 7,000 *
All directors and executive officers as a group (13
persons)(5)........................................... 433,428 2.9% 433,428 2.3%
</TABLE>
- ------------------------
* Less than one percent.
(1) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to 825,000 additional shares of Common Stock. See "Use of Proceeds" and
"Underwriting."
(2) The address of Charterhouse Environmental Holdings, L.L.C. ("Charter
Environmental") is c/o Charterhouse Group International, Inc., 535 Madison
Avenue, New York, New York 10022. Charterhouse Equity Partners, L.P. ("CEP")
and StollerCo Partners, L.P. ("StollerCo") are the members of Charter
Environmental, with a majority of the ownership interests being held by CEP.
The general partner of CEP is CHUSA Equity Investors, L.P., whose general
partner is Charterhouse Equity, Inc., a wholly-owned subsidiary of
Charterhouse. As a result of the foregoing, all of the shares of Common
Stock held by Charter Environmental would, for purposes of Section 13(d) of
the Securities Exchange Act of 1934, be considered to be beneficially owned
by Charterhouse. Mr. Stoller is a partner of StollerCo and disclaims
beneficial ownership of shares of Common Stock held of record by Charter
Environmental.
(3) The address of Charterhouse Equity Partners II, L.P. ("CEP II") is c/o
Charterhouse Group International, Inc., 535 Madison Avenue, New York, New
York 10022. The general partner of CEP II is CHUSA Equity Investors II,
L.P., whose general partner is Charterhouse Equity II, Inc., a wholly-owned
subsidiary of Charterhouse. As a result of the foregoing, all of the shares
of Common Stock held by CEP II would, for purposes of Section 13(d) of the
Securities Exchange Act of 1934, be considered to be beneficially owned by
Charterhouse. Includes 4,877 shares of Common Stock
40
<PAGE>
beneficially owned by a related party prior to the Offering, 1,940 shares of
Common Stock to be sold by the related party in the Offering and 2,937
shares of Common Stock to be beneficially owned by the related party after
the Offering.
(4) The address of CDI Equity, LLC ("CDI Equity") is c/o Aetna Life Insurance
Company, Conveyor RC21, 151 Farmington Avenue, Hartford, Connecticut 06156.
The member interests in CDI Equity, LLC are held as follows: 99% by Aetna
Life Insurance Company, which is a wholly-owned subsidiary of Aetna
Services, Inc., which is a wholly-owned subsidiary of Aetna, Inc., and 1% by
CDI Equity, Inc., a wholly-owned subsidiary of Aetna Life Insurance Company.
(5) Includes options exercisable within 60 days of September 15, 1997 to
purchase 124,171, 122,120, 17,755, 28,962, 19,528 and 11,880 shares granted
under the American Disposal Services, Inc. 1996 Stock Option Plan to Messrs.
Stoller, De Young, Kogler, McDonnell and Conrath and Ms. Straw,
respectively. For purposes of computing the percentage of outstanding shares
beneficially held by each person or group of persons named above on a given
date, any security which such person or persons has the right to acquire
within 60 days after such date is deemed to be beneficially owned for the
purpose of computing the percentage ownership of such person or group of
persons, but is not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person.
(6) Merril M. Halpern and A. Lawrence Fagan are executive officers, directors
and stockholders of Charterhouse and Richard T. Henshaw, III and David C.
Stoller are executive officers of Charterhouse. Messrs. Halpern, Fagan,
Henshaw and Stoller each disclaim beneficial ownership of the shares of
Common Stock beneficially owned by Charterhouse.
(7) Includes 2,467 shares held jointly by Mr. De Young and his wife.
(8) Includes 7,995 shares held by Mr. Blankenship's wife, of which Mr.
Blankenship disclaims beneficial ownership.
(9) Includes 200 shares held by Ms. Straw's minor children.
(10) Includes 996 shares held by Mr. McDonnell's minor children.
(11) Includes 498 shares held jointly by Mr. Conrath and his wife and 400 shares
held in an IRA for the benefit of Mr. Conrath.
(12) Includes 6,000 shares held in an IRA for the benefit of Ms. Ryan and 1,000
shares held jointly by Ms. Ryan and her husband.
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 60,000,000 shares of
Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred Stock,
par value $.01 per share (the "Preferred Stock"). The discussions of the Common
Stock and Preferred Stock here and elsewhere in this Prospectus are qualified in
their entirety by reference to: (i) the Certificate of Incorporation of the
Company, as amended, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part; and (ii) the
applicable Delaware law.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Stockholders casting a plurality of votes of the stockholders entitled
to vote in an election of directors may elect all of the directors standing for
election. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefor, subject to any preferential dividend rights of
Preferred Stock that may be issued at such future time or times. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company after the
payment of all debts and other liabilities and subject to the prior rights of
Preferred Stock that may be outstanding at such time. Holders of Common Stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of Common Stock are, and the shares of Common Stock offered
by the Company in the Offering will be, when issued and paid for, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common Stock
are subject to the rights of the holders of shares of any series of Preferred
Stock which the Company may designate and issue in the future.
As of September 15, 1997, there were 14,804,542 shares of Common Stock
outstanding.
UNDESIGNATED PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 5,000,000 shares of
Preferred Stock. The Board of Directors has the authority to issue the Preferred
Stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or the designation of such series,
without further vote or action by the stockholders. The issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company without further action by the stockholders and may
adversely affect the voting and other rights of the holders of Common Stock. The
issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control of others. At present, the Company has no plans to issue any of
the Preferred Stock.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (for the purposes of determining the number of shares
outstanding, under Delaware law, those shares owned (x) by persons who are
directors and also officers and (y) by employee stock plans in which employee
participants do not
42
<PAGE>
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer are excluded from the
calculation); or (iii) on or subsequent to such date, the business combination
is approved by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
Section 203 defines a business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation which has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder, or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
Certain provisions of the Company's Certificate of Incorporation and
Delaware law may have a significant effect in delaying, deferring or preventing
a change in control of the Company and may adversely affect the voting and other
rights of other holders of Common Stock. In particular, the ability of the Board
of Directors to issue Preferred Stock without further stockholder approval may
have the effect of delaying, deferring or preventing a change in control of the
Company and may adversely affect the voting and other rights of other holders of
Common Stock.
REGISTRATION RIGHTS
After the Offering, the holders of 3,023,371 shares of Common Stock and
warrants to purchase 168,905 shares of Common Stock are entitled to certain
rights with respect to the registration of such shares under the Securities Act.
Under the terms of the agreements between the Company and the holders of such
registrable securities, if the Company proposes to register any of its
securities under the Securities Act, either for its own account or for the
account of other security holders exercising registration rights, such holders
are entitled to notice of such registration and are entitled to include shares
of Common Stock therein. The holders of such registrable securities may also
require the Company on two separate occasions to file a registration statement
under the Securities Act at the Company's expense with respect to their shares
of Common Stock, and the Company is required to use its diligent reasonable
efforts to effect such registration. These rights are subject to certain
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares included in such registration.
TRANSFER AGENT
The Transfer Agent for the Common Stock is the Continental Stock Transfer &
Trust Company, 2 Broadway, New York, New York 10004. Its telephone number is
(212) 509-4000.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have approximately
18,304,542 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' overallotment option). Of these shares, approximately 14,678,432
shares will be freely transferable without restriction or registration under the
Securities Act, except for any shares purchased by an existing "affiliate" of
the Company, as that term is defined by the Securities Act (an "Affiliate"),
which shares will be subject to the resale limitations of Rule 144 adopted under
the Securities Act.
After the Offering, the holders of 3,023,371 shares of Common Stock, and
warrants to purchase 168,905 shares of Common Stock, will be entitled to certain
rights with respect to the registration of such shares under the Securities Act.
See "Description of Capital Stock--Registration Rights." Registration of such
shares under the Securities Act would result in such shares becoming freely
tradeable without restriction under the Securities Act (except for shares
purchased by Affiliates) immediately upon the effectiveness of such
registration.
The Company's officers and directors and Charter Environmental, CEP II and
CDI Equity, who, following the Offering, will beneficially own an aggregate of
3,456,799 shares of Common Stock or options or warrants to purchase shares of
Common Stock, have agreed not to sell, offer to sell, distribute, pledge, grant
any option for the sale of, or otherwise dispose of, directly or indirectly, or
encumber, or exercise any registration rights with respect to, any shares of
Common Stock, any options or warrants to purchase any shares of Common Stock, or
any securities convertible into or exchangeable for shares of Common Stock now
owned by them or hereafter acquired or with respect to which they have acquired
or hereafter acquire the power of disposition for a period of 180 days after the
date of this Prospectus, without the prior written consent of Oppenheimer & Co.,
Inc. and DLJ. Certain additional stockholders of the Company who beneficially
own an aggregate of 274,573 shares of Common Stock have agreed to similar
restrictions for a period of 90 days. Additionally, the Company has agreed not
to sell, offer to sell, distribute, pledge, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, or encumber, or exercise
registration rights with respect to, any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock, or any securities convertible
into or exchangeable for shares of Common Stock now owned by them or hereafter
acquired or with respect to which they have acquired or hereafter acquire the
power of disposition for a period 180 days after the date of this Prospectus,
without the prior written consent of Oppenheimer & Co., Inc., and DLJ subject to
certain exceptions, including the ability to issue shares of Common Stock
pursuant to the shelf registration statement, as described in the following
paragraph.
In addition, the Company has registered 2,500,000 shares of Common Stock
under the Securities Act pursuant to a shelf registration statement for use in
connection with future acquisitions, of which 1,184,068 shares of Common Stock
have not yet been issued as of September 15, 1997. Once issued, these shares
generally will be freely tradeable by persons not affiliated with the Company;
however, the Company has agreed to use its commercially reasonable efforts to
restrict such persons from selling such shares during the 90-day period
following the effective date of the Registration Statement of which this
Prospectus is a part. The Company may from time to time increase the number of
shares of Common Stock issuable pursuant to such shelf registration statement.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who owns shares that were purchased from the
Company (or any Affiliate) at least one year previously, including persons who
may be deemed Affiliates of the Company, is entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the then outstanding shares of the Company's Common Stock or the average weekly
trading volume of the Company's Common Stock in the Nasdaq National Market
during the four calendar weeks preceding the date on which notice of the sale is
filed with the Securities and Exchange Commission (the "Commission"). Sales
under Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. Any person (or persons whose shares are aggregated) who is not deemed
to have been an Affiliate of the Company at any time during the 90 days
preceding a sale, and who owns shares within the definition of "restricted
securities" under Rule 144 under the Securities Act that were purchased from the
Company (or any Affiliate) at least two years previously, would be entitled to
sell such shares under Rule 144(k) without regard to the volume limitations,
manner of sale provisions, public information requirements or notice
requirements.
44
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Oppenheimer &
Co., Inc., Donaldson, Lufkin & Jenrette Securities Corporation and Credit Suisse
First Boston Corporation are acting as Representatives, has severally agreed
with the Company and the Selling Stockholders, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company and the
Selling Stockholders, the respective number of shares of Common Stock set forth
opposite the name of such underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- ---------------------------------------------------------------------------------------- --------------
<S> <C>
Oppenheimer & Co., Inc..................................................................
Donaldson, Lufkin & Jenrette Securities Corporation.....................................
Credit Suisse First Boston Corporation..................................................
--------------
Total............................................................................... 5,500,000
--------------
--------------
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus and in part to certain securities dealers at such price less a
concession of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share of certain brokers and
dealers. After the shares of Common Stock are released for sale to the public,
the offering price and other selling terms may from time to time be changed by
the Representatives. The Underwriters are obligated to take and pay for all of
the shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any are taken.
The Company has granted the Underwriters an option, exercisable for up to 30
days after the date of this Prospectus, to purchase up to an aggregate of
825,000 additional shares of Common Stock to cover over-allotments, if any. If
the Underwriters exercise such option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them as shown in
the foregoing table bears to the number shares of
45
<PAGE>
Common Stock offered hereby. The Underwriters may exercise such option only to
cover over-allotments made in connection with the sale of the shares of Common
Stock offered hereby.
The Company and the Selling Stockholders have agreed to indemnify the
representatives of the Underwriters and the several Underwriters against certain
liabilities, including, without limitation liabilities under the Securities Act.
The Company's officers and directors and Charter Environmental, CEP II and
CDI Equity, who, following the Offering, will beneficially own an aggregate of
3,456,799 shares of Common Stock or options or warrants to purchase shares of
Common Stock after the Offering, have agreed not to sell, offer to sell,
distribute, pledge, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, or encumber, or exercise registration rights with
respect to, any shares of Common Stock, any options or warrants to purchase any
shares of Common Stock, or any securities convertible into or exchangeable for
shares of Common Stock now owned by them or hereafter acquired or with respect
to which they have acquired or hereafter acquire the power of disposition for a
period of 180 days after the date of this Prospectus without the prior written
consent of Oppenheimer & Co., Inc. and DLJ. Certain additional stockholders of
the Company who beneficially own an aggregate of 274,573 shares of Common Stock
have agreed to similar restrictions for a period of 90 days. The Company has
also agreed not to sell, offer to sell, distribute, pledge, grant any option for
the sale of, or otherwise dispose of, directly or indirectly, or encumber, or
exercise registration rights with respect to, any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock, or any securities
convertible into or exchangeable for shares of Common Stock now owned by them or
hereafter acquired or with respect to which they have acquired or hereafter
acquire the power of disposition for a period of 180 days after the date of this
Prospectus, without the prior written consent of Oppenheimer & Co., Inc. and
DLJ, subject to certain exceptions, including the ability to issue shares of
Common Stock pursuant to the shelf registration statement, as described in the
following paragraph.
In addition, the Company has registered 2,500,000 shares of Common Stock
under the Securities Act pursuant to a shelf registration statement for use in
connection with future acquisitions, of which 1,184,068 shares of Common Stock
have not yet been issued as of September 15, 1997. Once issued, these shares
generally will be freely tradeable by persons not affiliated with the Company;
however, the Company has agreed to use its commercially reasonable efforts to
restrict such persons from selling such shares during the 90-day period
following the effective date of the Registration Statement of which this
Prospectus is a part. The Company may from time to time increase the number of
shares of Common Stock issuable pursuant to such shelf registration statement.
See "Shares Eligible for Future Sale."
Alliance Capital Management L.P. ("Alliance") holds approximately 4.9% of
the Common Stock of the Company on behalf of its client discretionary investment
advisory accounts, including pooling vehicles such as mutual funds and group
trust portfolios. Alliance is approximately 58% owned by The Equitable Companies
Incorporated, which directly and indirectly owns approximately 77% of DLJ, one
of the Representatives.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions,
penalty bids and "passive" market making in accordance with Regulation M under
the Securities Act of 1934, as amended (the "Exchange Act"). Over-allotment
involves syndicate sales in excess of the offering size, which creates a
syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the Common Stock
in the open market after the distribution has been completed in order to cover
syndicate short positions. In "passive" market making, market makers in the
Common Stock who are Underwriters or prospective underwriters may, subject to
certain limitations, make bids for or purchases of the Common Stock until the
time, if any, at which a stablizing bid is made. Penalty bids permit the
Representatives to reclaim a selling concession from a syndicate member when the
Common Stock originally sold by such syndicate member is purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions, penalty bids and
passive market making may cause the price of the
46
<PAGE>
Common Stock to be higher than it would otherwise be in the absence of such
transactions. These transactions may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for the
Company by Proskauer Rose LLP, 1585 Broadway, New York, New York 10036. Certain
legal matters will be passed upon for the Underwriters by Morgan, Lewis &
Bockius LLP, 101 Park Avenue, New York, New York 10178.
EXPERTS
The Consolidated Financial Statements of the Company at December 31, 1994,
1995 and 1996 and for each of the three years in the period ended December 31,
1996, appearing in this Prospectus and the Registration Statement of which this
Prospectus forms a part, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein or
incorporated by reference and in the Registration Statement, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The Consolidated Financial Statements of the Barbara Companies at December
31, 1995 and 1996 and for each of the three years in the period ended December
31, 1996, and at June 30, 1997 and for the six months ended June 30, 1997
appearing in this Prospectus and the Registration Statement of which this
Prospectus forms a part, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and in
the Registration Statement, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder, and in accordance therewith, files reports
and other information with the Securities and Exchange Commission (the
"Commission"). These reports and other information concerning the Company may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661 and at Suite 1300, 7 World Trade Center, New
York, New York 10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 upon payment of the fees prescribed by the Commission.
Reports, proxy, information statements and other information regarding the
Company filed electronically with the Commission are available on the
Commission's web site (http://www.sec.gov).
The Company has filed with the Commission a Registration Statement on Form
S-3 (which term shall encompass any amendments and exhibits thereto) under the
Securities Act with respect of the Shares offered hereby. This Prospectus, which
forms a part of such Registration Statement, does not contain all the
information set forth in such Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete; with respect to each
such contract, agreement or other document filed as an exhibit to such
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. Any interested parties may inspect
such Registration Statement, without charge, at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and may obtain copies of all or any part of it from the Commission upon payment
of the fees prescribed by the Commission. Neither the delivery of this
Prospectus or any Prospectus Supplement nor any sales made hereunder or
thereunder shall under any circumstances create any implication that the
information contained herein or therein is correct as of any time subsequent to
the date hereof or thereof or that there has been no change in the affairs of
the Company since the date hereof or thereof.
47
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are incorporated by reference and made
a part of this Prospectus: (i) the Company's Annual Report on Form 10-K/A for
the fiscal year ended December 31, 1996; (ii) the Company's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997; (iii) all
other reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act since
December 31, 1996, specifically including the Company's Current Reports on Form
8-K dated April 15, 1997, May 29, 1997 and September 10, 1997; (iv) the
Company's Proxy Statement dated April 21, 1997 relating to the 1997 Annual
Meeting of Stockholders held on May 28, 1997; and (v) the Company's Proxy
Statement dated September 26, 1997 relating to the Special Meeting of
Stockholders held on October 7, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering shall be deemed to be incorporated by reference
in this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document or information incorporated or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document that also is, or is
deemed to be, incorporated herein by reference, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The making of a modifying or superseding statement shall not be deemed an
admission that the modified or superseded statement, when made, constituted a
misrepresentation, an untrue statement or a material fact or an omission to
state a material fact that is required to be stated or that is necessary to make
statement not misleading in light of the circumstances in which it was made.
THE COMPANY UNDERTAKES TO PROVIDE, WITHOUT CHARGE, TO EACH PERSON, INCLUDING
ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROSPECTUS IS DELIVERED, UPON THE
WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY AND ALL OF THE DOCUMENTS
OR INFORMATION REFERRED TO ABOVE THAT HAS BEEN OR MAY BE INCORPORATED BY
REFERENCE IN THE PROSPECTUS (EXCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE). REQUESTS SHOULD BE
DIRECTED TO ANN L. STRAW, SECRETARY, AMERICAN DISPOSAL SERVICES, INC., 745
MCCLINTOCK DRIVE, SUITE 230, BURR RIDGE, ILLINOIS 60521, TELEPHONE: (630)
655-1105.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AMERICAN DISPOSAL SERVICES, INC. AND SUBSIDIARIES:
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors........................................................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1995................................................ F-3
Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994............... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994..... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994............... F-6
Notes to Consolidated Financial Statements............................................................... F-7
Condensed Consolidated Balance Sheet at June 30, 1997 (Unaudited)........................................ F-20
Condensed Consolidated Statements of Operations for the six months ended June 30, 1997 and 1996
(Unaudited)............................................................................................ F-21
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and 1996
(Unaudited)............................................................................................ F-22
Notes to Condensed Consolidated Financial Statements (Unaudited)......................................... F-23
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Consolidated Financial Statements (Unaudited).................................................. F-26
Pro Forma Condensed Consolidated Balance Sheet at June 30, 1997 (Unaudited).............................. F-27
Pro Forma Consolidated Income Statement for the year ended December 31, 1996 (Unaudited)................. F-28
Notes to Pro Forma Consolidated Income Statement for the year ended December 31, 1996 (Unaudited)........ F-29
Pro Forma Consolidated Income Statement for the six months ended June 30, 1997 (Unaudited)............... F-32
Notes to Pro Forma Consolidated Income Statement for the six months ended June 30, 1997 (Unaudited)...... F-33
FRED B. BARBARA COMPANIES:
COMBINED FINANCIAL STATEMENTS
Report of Independent Auditors........................................................................... F-36
Combined Balance Sheets at June 30, 1997 and at December 31, 1996 and 1995............................... F-37
Combined Statements of Income for the six months ended June 30, 1997 and for the years ended December 31,
1996, 1995 and 1994.................................................................................... F-38
Combined Statements of Stockholders' Equity for the six months ended June 30, 1997 and for the years
ended December 31, 1996, 1995 and 1994................................................................. F-39
Combined Statements of Cash Flows for the six months ended June 30, 1997 and for the years ended December
31, 1996, 1995 and 1994................................................................................ F-40
Notes to Combined Financial Statements................................................................... F-41
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
American Disposal Services, Inc.
We have audited the accompanying consolidated balance sheets of American
Disposal Services, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American
Disposal Services, Inc. at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 26, 1997, except as to
Note 5 for which the
date is March 21, 1997 and
except as to Note 10
for which the date is
March 25, 1997
F-2
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Current assets:
Cash and cash equivalents............................................................... $ 2,301 $ 6,383
Cash held in escrow..................................................................... -- 156
Trade receivables--Net of allowance for doubtful accounts of $473 and $476.............. 9,741 6,331
Prepaid expenses........................................................................ 1,248 686
Inventory............................................................................... 354 312
---------- ----------
Total current assets...................................................................... 13,644 13,868
Property and equipment, net............................................................... 93,692 81,250
Other assets:
Cost over fair value of net assets of acquired businesses, net of accumulated
amortization of $1,374 and $823....................................................... 31,237 15,739
Other intangible assets, net of accumulated amortization of $439 and $305............... 1,610 1,081
Debt issuance costs, net of accumulated amortization of $204 and $71.................... 2,392 815
Other................................................................................... 2,411 1,940
---------- ----------
$ 144,986 $ 114,693
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 3,359 $ 3,185
Accrued liabilities..................................................................... 4,249 2,360
Deferred revenues....................................................................... 2,245 1,202
Current portion of long-term debt and capital lease obligations......................... 2,572 3,440
Note payable to stockholder............................................................. -- 12,500
---------- ----------
Total current liabilities................................................................. 12,425 22,687
Long-term debt and capital lease obligations, net of current portion...................... 65,445 48,789
Accrued environmental and landfill costs.................................................. 7,603 6,214
Deferred income taxes..................................................................... 1,416 1,240
Redeemable preferred stock................................................................ -- 1,908
Stockholders' equity:
Common stock, $.01 par value, 20,000,000 shares authorized; shares issued and
outstanding; 1996--8,872,381; 1995--5,662,865......................................... 89 57
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued and
outstanding in 1996 and 1995.......................................................... -- --
Warrants outstanding...................................................................... 107 107
Additional paid-in capital................................................................ 66,170 41,590
Accumulated deficit....................................................................... (8,269) (7,899)
---------- ----------
58,097 33,855
---------- ----------
$ 144,986 $ 114,693
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ----------
Revenues................................................................... $ 56,804 $ 30,004 $ 18,517
Cost of operations......................................................... 30,376 17,286 12,647
Selling, general, and administrative expenses.............................. 8,328 5,882 4,910
Depreciation and amortization.............................................. 12,334 6,308 3,226
---------- ---------- ----------
Operating income (loss).................................................... 5,766 528 (2,266)
Interest expense........................................................... (5,745) (3,030) (1,497)
Interest income............................................................ 260 189 2
Other income............................................................... 179 -- --
---------- ---------- ----------
Income (loss) before income taxes and extraordinary item................... 460 (2,313) (3,761)
Income tax benefit (expense)............................................... (245) (332) 1,372
---------- ---------- ----------
Income (loss) before extraordinary item.................................... 215 (2,645) (2,389)
Extraordinary item -- loss on early retirement of debt..................... (476) (908) --
---------- ---------- ----------
Net loss................................................................... (261) (3,553) (2,389)
Preferred stock dividend................................................... (109) (190) --
---------- ---------- ----------
Net loss applicable to common stockholders................................. $ (370) $ (3,743) $ (2,389)
---------- ---------- ----------
---------- ---------- ----------
Per common share:
Income (loss) before extraordinary item.................................. $ .02 $ (.80) $ (.99)
Extraordinary item....................................................... (.07) (.26) --
---------- ---------- ----------
Net loss................................................................. $ (.05) $ (1.06) $ (.99)
---------- ---------- ----------
---------- ---------- ----------
Weighted average common stock and common stock equivalent shares
outstanding.............................................................. 7,063,928 3,527,688 2,411,381
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------------- WARRANTS PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT OUTSTANDING CAPITAL DEFICIT EQUITY
---------- ----------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1993......... 2,099,952 $ 21 $ 107 $ 14,170 $ (1,767) $ 12,531
Issuance of common stock, net of
issuance costs..................... 282,393 3 -- 1,987 -- 1,990
Net loss............................. -- -- -- -- (2,389) (2,389)
---------- --- ----- ----------- ------------ ------------
Balance -- December 31, 1994......... 2,382,345 24 107 16,157 (4,156) 12,132
Issuance of common stock, net of
issuance costs..................... 3,280,520 33 -- 25,433 -- 25,466
Net loss............................. -- -- -- -- (3,553) (3,553)
Dividends on preferred stock......... -- -- -- -- (190) (190)
---------- --- ----- ----------- ------------ ------------
Balance -- December 31, 1995......... 5,662,865 57 107 41,590 (7,899) 33,855
Issuance of common stock, net of
issuance costs..................... 3,162,500 32 -- 24,573 -- 24,605
Exercise of common stock warrants and
options............................ 47,016 -- -- 7 -- 7
Dividends on preferred stock......... -- -- -- -- (109) (109)
Net loss............................. -- -- -- -- (261) (261)
---------- --- ----- ----------- ------------ ------------
Balance at December 31, 1996......... 8,872,381 $ 89 $ 107 $ 66,170 $ (8,269) $ 58,097
---------- --- ----- ----------- ------------ ------------
---------- --- ----- ----------- ------------ ------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ---------
OPERATING ACTIVITIES
Net loss........................................................................ $ (261) $ (3,553) $ (2,389)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Extraordinary item, net....................................................... 476 908 --
Depreciation and amortization................................................. 12,334 6,308 3,226
Provision for environmental and landfill costs................................ 571 292 48
Deferred income taxes......................................................... 176 47 (1,372)
Gain on sale of fixed assets.................................................. (98) -- --
Changes in operating assets and liabilities, net of effects from acquisitions:
Trade receivables........................................................... (2,600) (340) (625)
Prepaid expenses, cash held in escrow and other assets...................... (1,029) (33) (361)
Inventory................................................................... (42) (128) (96)
Accounts payable, accrued liabilities and accrued environmental and landfill
costs..................................................................... 1,522 1,846 235
Deferred revenue............................................................ 656 254 210
---------- ---------- ---------
Net cash provided by (used in) operating activities............................. 11,705 5,601 (1,124)
INVESTING ACTIVITIES
Capital expenditures............................................................ (14,003) (6,173) (5,600)
Cost of acquisitions............................................................ (25,029) (62,201) (580)
---------- ---------- ---------
Net cash used in investing activities........................................... (39,032) (68,374) (6,180)
FINANCING ACTIVITIES
Net proceeds from issuances of common stock..................................... 24,605 25,466 1,990
Exercise of stock options and warrants.......................................... 7 -- --
Redemption of preferred stock................................................... (1,950) -- --
Net proceeds from issuance of preferred stock................................... -- 1,908 --
Preferred stock dividend........................................................ (109) (190) --
Proceeds from issuance of long-term debt........................................ 66,950 32,568 6,319
Repayments of indebtedness...................................................... (51,162) (2,698) (2,511)
Proceeds from (payment of) note payable to stockholder.......................... (12,500) 12,500 --
Debt issuance costs............................................................. (2,596) (946) (80)
---------- ---------- ---------
Net cash provided by financing activities....................................... 23,245 68,608 5,718
---------- ---------- ---------
Net increase (decrease) in cash and cash equivalents............................ (4,082) 5,835 (1,586)
Cash and cash equivalents, at beginning of year................................. 6,383 548 2,134
---------- ---------- ---------
Cash and cash equivalents, at end of year....................................... $ 2,301 $ 6,383 $ 548
---------- ---------- ---------
---------- ---------- ---------
Supplemental cash flow information:
Cash paid for interest.......................................................... $ 6,222 $ 2,515 $ 1,426
Cash (refunds) paid for income taxes............................................ (159) 478 --
</TABLE>
See accompanying notes.
F-6
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. FORMATION AND BASIS OF PRESENTATION
ADS, Inc. (ADS) was organized January 15, 1991, to acquire, develop, and
operate non-hazardous municipal solid waste disposal, collection, and transfer
operations and provide non-hazardous solid waste disposal management services to
commercial, industrial, and residential customers. During 1993, an affiliate of
Charterhouse Equity Partners, L.P. (CEP) purchased a controlling interest in
ADS.
County Disposal, Inc. (County) was incorporated by Charterhouse Equity
Partners II, L.P. (CEPII) on April 27, 1995, for the purpose of acquiring
certain net assets of Envirite Corporation (Envirite). On April 28, 1995,
Envirite and County entered into an Asset Purchase Agreement whereby County
agreed to purchase from Envirite certain landfill facilities and waste
transportation and collection equipment located in Livingston County, Illinois,
and Wyandot County, Ohio; all of the issued and outstanding capital stock of
County Environmental Services, Inc., a wholly-owned subsidiary of Envirite,
which owned and operated a landfill facility and waste transportation and
collection equipment located in Clarion County, Pennsylvania; and certain
related assets and assumption of certain liabilities.
Effective January 1, 1996, the stockholders of ADS and County exchanged
their shares for shares of a newly created holding company by the name of
American Disposal Services, Inc. (the Company). This share exchange (the
Exchange) qualifies as a transfer of companies under common control as
affiliates of Charterhouse Group International, Inc. are the general partners
and in control of CEP and CEPII and, accordingly, the transaction has been
accounted for at historical cost in a manner similar to pooling of interests
accounting. The financial statements have been prepared as if this Exchange had
occurred as of December 31, 1993.
In July 1996, the Company issued 3,162,500 shares of common stock at $9.00
per share in its initial public offering. Proceeds from the offering, net of
underwriting commissions and related expenses, were $24.6 million. Immediately
following the offering, the Company had 8,825,365 common stock shares issued and
outstanding. The offering proceeds were used to finance acquisitions and paydown
a portion of the debt facility.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risks consist primarily of trade receivables. Credit risk on trade
receivables is minimized as a result of the large and diverse nature of the
Company's customer base. No single group or customer represents greater than 10%
of total accounts receivable. The Company maintains an allowance for losses
based on the expected collectibility of accounts receivable. Credit losses have
been within management's expectations.
F-7
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Trade receivables, trade payables, and debt obligations are carried at cost
which approximates fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash in banks and liquid investments
with original maturities of three months or less.
CASH HELD IN ESCROW
Cash held in escrow represents cash held in banks restricted to fund
obligations incurred in acquiring businesses.
INVENTORY
Inventory is stated at the lower of cost (first in, first out method) or
market and consists principally of equipment parts, materials, and supplies.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation of equipment is
computed using the straight-line method over the estimated useful lives of the
respective assets as follows:
<TABLE>
<S> <C>
Vehicles and equipment..................... 3 to 12 years
25 to 30
Buildings.................................. years
</TABLE>
Expenditures for major renewals are capitalized, and expenditures for
routine maintenance and repairs are charged to expense as incurred.
Capitalized landfill costs include expenditures for land and related
airspace, permitting costs and preparation costs. Landfill permitting and
preparation costs represent only direct costs related to these activities,
including legal, engineering, construction of landfill improvements, cell
development costs, and the direct costs of Company personnel dedicated for these
purposes. Preparation costs for individual secure land disposal cells are
recorded in property and equipment and amortized as the airspace is filled.
INTANGIBLE ASSETS
The cost over fair value of tangible net assets of acquired businesses
represents long-lived intangible assets including routes, tradenames and
goodwill and is amortized on a straight-line method over periods
F-8
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
not exceeding 40 years. Other intangible assets, substantially all of which are
covenants not to compete and customer lists, are amortized on the straight-line
method over their estimated lives, typically no more than 12 years. Amortization
expense for fiscal years 1996, 1995, and 1994 related to intangible assets was
approximately $1.0 million, $1.4 million, and $600,000, respectively. In 1995,
the Company determined not to enforce certain covenants not to compete which
arose from 1993 transactions with the net book value of such covenants of
$505,000, was fully written-off and included in 1995 amortization expense.
The Company continually evaluates the value and future benefits of its
intangibles. The Company assesses recoverability from future operations using
income from operations of the related acquired business as a measure. Under this
approach, the carrying value would be reduced if it becomes probable that the
Company's best estimate for expected future cash flows of the related business
would be less than the carrying amount of the intangible over the remaining
amortization period. For the three year period ended December 31, 1996, there
were no adjustments to the carrying amounts of intangibles resulting from these
evaluations.
DEFERRED ACQUISITION COSTS
The Company capitalizes engineering, legal, accounting, and other direct
costs paid to outside parties that are incurred in connection with potential
acquisitions. The Company, however, routinely evaluates such capitalized costs
and charges to expense those relating to abandoned acquisition candidates.
Indirect acquisition costs, such as executive salaries, general corporate
overhead, and other corporate services are expensed as incurred. Net deferred
acquisition costs, included in other intangible assets, were approximately
$545,000 and $370,000 at December 31, 1996 and 1995, respectively.
ACCRUED ENVIRONMENTAL AND LANDFILL COSTS
Accrued environmental and landfill costs represent landfill accruals which
are provided for environmental compliance costs and closure and post-closure
costs. These accruals are based on accounting estimates by management determined
primarily from the results of engineering studies and reviews and on
interpretation of the technical standards of the Environmental Protection
Agency's Subtitle D regulations, or the approved state counterpart, and recently
promulgated air emissions standards under the Clean Air Act, as they apply on a
state-by-state basis. The Company typically provides accruals for these costs as
permitted airspace of such facilities is consumed. Closure and post-closure
monitoring and maintenance costs represent the costs related to cash
expenditures yet to be incurred when a landfill facility ceases to accept waste
and closes. Certain of these accrued environmental and landfill costs,
principally capping, leachate collection and removal, and methane gas control
and recovery, are operating and maintenance costs to be incurred during the
30-year period after the facility closes, but are accrued during the operating
life of the site in accordance with the landfill operation requirements of
Subtitle D and the EPA's recently promulgated air emissions standards. An
environmental and landfill cost accrual is provided as a liability assumed for
purchased landfill operations based on permitted airspace consumed prior to the
acquisition date and is included in the purchase price allocation (see Note 3).
The Company has estimated that, as of December 31, 1996, post-closure expenses,
including cap maintenance, groundwater monitoring, methane gas control and
recovery and leachate treatment/disposal for up to 30 years after closure in
certain cases, will approximate $10.9 million. In addition, the Company has
estimated that, as of December 31, 1996, closure costs expected to occur during
the operating lives of these facilities' useful lives will approximate
F-9
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
$35.2 million. These accruals are reviewed by management periodically and
revised prospectively for any significant changes in future cost estimates.
INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
REVENUE RECOGNITION
Landfill revenues are recorded at the date of actual waste disposal.
Revenues billed prior to the performance of services are deferred and recorded
as income in the period in which the related services are rendered, generally
over a three-month period.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of common stock
and common stock equivalent shares outstanding during each year and incremental
shares from the assumed exercise of options and warrants granted and computed
using the treasury stock method.
STOCK-BASED COMPENSATION
The Company typically grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for such stock option grants in accordance
with Accounting Principles Board Opinion No. 25 "Accounting for Stock Options
Issued to Employees" (APB 25), and, accordingly, typically recognizes no
compensation expense for these stock option grants.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of ("SFAS No. 121"), which requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. SFAS No. 121 also
addressees the accounting for long-lived assets that are expected to be disposed
of. SFAS No. 121 is effective for the Company's fiscal year ended December 31,
1996. The adoption of this Statement did not have a material effect on the
Company's financial position or results of operations.
In October 1996, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 96-1, "Environmental Remediation Liabilities." The SOP is effective for
fiscal years beginning after December 15, 1996, and provides that enviromental
remediation liabilities should be accrued when the criteria of FAS 5,
"Accounting for Contingencies," are met. Included in the SOP are benchmarks to
aid in the determination of when such criteria are met and environmental
liabilities should be recognized. It also provides that the accrual for such
liabilities should include future costs of those employees expected to devote a
significant amount of
F-10
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
time directly to the remediation effort. The Company does not believe that the
adoption of SOP 96-1 will have a material impact on its financial statements.
3. ACQUISITIONS
The acquisitions below have been accounted for using the purchase method of
accounting and, accordingly, the results of their operations have been included
in the Company's results of operations from their respective acquisition dates.
The purchase prices have been allocated to the assets acquired and liabilities
assumed based on their fair values at their respective acquisition dates with
the residual allocated to cost over fair value of net assets acquired.
During 1996 the Company acquired 16 non-hazardous solid waste businesses,
consisting of 16 collection operations and two transfer stations. As described
in Note 1, the Company acquired three non-hazardous solid waste landfills and a
solid waste collection operation (the Envirite Acquisition) during 1995.
The Company has not completed its valuation of certain of its 1996 purchases
and the purchase price allocations are subject to change when additional
information concerning asset and liability valuations is completed.
The purchase prices allocated to the net assets acquired are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Property and equipment.................................................. $ 8,425 $ 62,288
Accounts receivable and inventory....................................... 810 3,363
Other assets............................................................ 785 1,664
Cost over fair value of net assets acquired............................. 15,642 3,060
Total liabilities assumed............................................... (633) (8,174)
--------- ---------
Total cash paid......................................................... $ 25,029 $ 62,201
--------- ---------
--------- ---------
</TABLE>
The pro forma unaudited results of operations for the years ended December
31, 1996 and 1995, assuming each acquisition above had occurred on January 1,
1995, are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Revenues............................................................ $ 64,356 $ 56,371
Operating income (loss)............................................. 5,966 (1,106)
Net loss applicable to common stockholders.......................... (370) (8,500)
Pro forma loss per share of common stock............................ (.05) (2.41)
Weighted average common stock and common stock equivalent shares
outstanding....................................................... 7,063,928 3,527,688
</TABLE>
F-11
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
3. ACQUISITIONS (CONTINUED)
The pro forma results do not purport to be indicative of the results of
operations which actually would have resulted had the acquisitions occurred on
January 1, 1995 nor are they necessarily indicative of future operating results.
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
<S> <C> <C>
1996 1995
---------- ---------
Land................................................................... $ 5,417 $ 5,038
Landfills.............................................................. 78,547 66,529
Buildings.............................................................. 3,285 2,695
Vehicles and equipment................................................. 23,977 14,335
---------- ---------
111,226 88,597
Less: Accumulated depreciation and amortization........................ (17,534) (7,347)
---------- ---------
$ 93,692 $ 81,250
---------- ---------
---------- ---------
</TABLE>
F-12
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
5. OBLIGATIONS
Obligations, which approximate fair value, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Long-term debt:
Acquisition loan, ING Capital Corporation................................................. $ 41,506 $ --
Term loan, ING Capital Corporation........................................................ 24,750 --
Other borrowings, with interest rates ranging from 7.0% to 11.0%.......................... 1,101 1,285
Term loan, Bank of America................................................................ -- 20,000
Revolving loan, Bank of America........................................................... -- 10,847
Term loan A, ING Capital Corporation...................................................... -- 12,525
Term loan B, ING Capital Corporation...................................................... -- 4,000
Revolving loan, ING Capital Corporation................................................... -- 2,423
Capital lease obligations:
Capital lease obligations with interest and principal due monthly through 1999, at various
interest rates ranging from 6.0% to 9.5%, secured by equipment.......................... 660 1,149
--------- ---------
68,017 52,229
Less: Current portion....................................................................... 2,572 3,440
--------- ---------
Long-term obligations, net of current portion............................................... $ 65,445 $ 48,789
--------- ---------
--------- ---------
</TABLE>
In May 1996, the Company entered into a credit agreement with Internationale
Nederlanden (US) Capital Corporation (ING), as administrative agent, and Morgan
Guaranty Trust Company of New York, as document agent, that provided for
borrowings of up to $87 million to finance acquisitions and provide working
capital (Credit Facility), which was used to repay the existing credit
agreements with Bank of America and ING, as well as the note payable to
stockholder and the redeemable preferred stock. In August 1996, this Credit
Facility was amended to provide for borrowings up to $110 million. The Credit
Facility consists of a $25 million term loan, $10 million revolving loan, and
$75 million acquisition facility. The various loans and lines of credit under
the Credit Facility bear interest at rates per annum equal to, at the Company's
discretion either: (i) the higher of (a) the federal funds rate plus 0.5% and
(b) the prime rate, plus an applicable margin ranging from 0% to 1.5%; or (ii)
the London Interbank Offered Rate (LIBOR), plus an applicable margin ranging
from 1.50% to 3.25%, and have maturities ranging from 2001 to 2003. The term
loan had an interest rate of 8.88% at December 31, 1996 and the acquisition
facility had an interest rate of 8.68% at December 31, 1996. The Credit Facility
is secured by substantially all of the assets of the Company. Under terms of the
Credit Facility, the Company is subject to various debt covenants, including
maintenance of certain financial ratios and other restrictions. The Credit
Facility requires the Company to use 50% of the proceeds of any equity offering
to repay a portion of the term loans. Effective March 21, 1997, the Company
amended the Credit Facility (i) to expand the borrowing capacity to $125
million, (ii) to waive the term loan repayment requirement of any offering
proceeds and (iii) to permit the reborrowing of any amounts under the expansion
facility which may be repaid in connection with an equity offering consummated
in 1997. In connection with refinancings during 1996 and 1995, the Company
recognized an extraordinary loss, net of income tax benefit, of $476,000 and
$908,000, respectively, representing unamortized deferred debt issuance costs.
F-13
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
5. OBLIGATIONS (CONTINUED)
At December 31, 1996, maturities of obligations (excluding capital lease
obligations) are as follows (in thousands):
<TABLE>
<S> <C>
1997............................................................... $ 2,207
1998............................................................... 6,507
1999............................................................... 8,890
2000............................................................... 12,920
2001 and thereafter................................................ 36,833
---------
$ 67,357
---------
---------
</TABLE>
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting and income
tax purposes. Significant components of the Company's deferred tax assets and
liabilities were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Deferred tax assets arising from:
Net operating loss carryforwards........................................................... $ 2,938 $ 3,111
Closure and post-closure costs............................................................. 421 421
Amortization of intangibles................................................................ 881 550
Other...................................................................................... 26 41
--------- ---------
Total deferred tax assets.................................................................... 4,266 4,123
Valuation allowance.......................................................................... (2,280) (2,323)
--------- ---------
Net deferred tax assets...................................................................... 1,986 1,800
Deferred tax liabilities arising from:
Property and equipment..................................................................... 2,855 2,898
Amortization of intangibles and landfill................................................... 472 84
Capital leases............................................................................. 32 32
Other...................................................................................... 43 26
--------- ---------
Total deferred tax liabilities............................................................... 3,402 3,040
--------- ---------
Net deferred tax liability................................................................... $ 1,416 $ 1,240
--------- ---------
--------- ---------
</TABLE>
At December 31, 1996, the Company had net operating loss (NOL) carryforwards
of approximately $8.0 million for federal income tax purposes that expire in
years 2006 to 2010. The utilization of the NOL carryforwards is limited by
future taxable earnings generated at the subsidiary level. The Company recorded
a valuation allowance to reflect uncertainty as to the utilization of such NOL
carryforwards for financial reporting purposes. The maximum annual utilization
of such NOL carryforwards are limited under the Internal Revenue Code as a
result of changes in ownership that have occurred.
F-14
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
6. INCOME TAXES (CONTINUED)
Significant components of the income tax expense (benefits) were as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Current:
Federal........................................................................... $ 99 $ 141 $ --
State............................................................................. (30) 144 --
--------- --------- ---------
69 285 --
Deferred:
Federal........................................................................... 146 38 (1,205)
State............................................................................. 30 9 (167)
--------- --------- ---------
176 47 (1,372)
--------- --------- ---------
Total provision..................................................................... $ 245 $ 332 $ (1,372)
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation from the statutory income tax rate to the effective income
tax rate was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Federal statutory income tax rate.................................................... 34.0% (34.0)% (34.0)%
Effect of:
State taxes, net of federal tax effect............................................. -- 3.1 (2.9)
Nondeductible goodwill............................................................. 15.5 -- --
Net operating loss with no benefit................................................. -- 39.6 0.1
Other, net......................................................................... 3.8 1.6 0.3
--- --------- ---------
Effective tax rate................................................................... 53.3% 10.3% (36.5)%
--- --------- ---------
--- --------- ---------
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Company had entered into a management agreement with a stockholder for
certain services to be rendered to the Company in exchange for annual management
fees. The management agreement was terminated in connection with the initial
public offering during July 1996. Management fees of approximately $466,000,
$659,000, and $515,000 were incurred in 1996, 1995, and 1994, respectively.
At December 31, 1995, the Company had a $12,500,000 unsecured note payable
outstanding to a stockholder, which was issued on November 16, 1995 and was due
November 16, 1996, bearing an annual interest rate of prime plus 3%. The Company
repaid the note payable to the stockholder in May 1996. Interest expense
relating to this note payable was approximately $621,000 and $180,000 in 1996
and 1995, respectively.
F-15
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
8. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL AND REGULATORY REQUIREMENTS
The business and activities of the Company are, and may become more,
extensively regulated by, among others, the federal Environmental Protection
Agency, the Department of Transportation, the Interstate Commerce Commission,
and various state and local environmental and transportation regulatory
authorities. The Company is subject to various statutes and regulations which
include, but are not limited to, the Resource Conservation and Recovery Act of
1976, the Federal Water Pollution Control Act, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Clean Air Act, and
numerous state and local laws and regulations. The full impact of these laws and
regulations and the possible adoption of new statutes and regulations with
respect to the Company's facilities and operations is uncertain and could have
material adverse effects on the Company's business, results of operations, and
financial condition in that the Company: (i) could be required to incur
additional expenses in compliance efforts, (ii) might be unable to comply,
forcing the Company to cease operations, and (iii) could incur additional
liability for past operation(s) of acquired assets. These regulations may also
impose restrictions on the Company's operations, such as limiting the expansion
of disposal facilities, limiting or banning the disposal of out-of-state waste
or certain other categories of waste, or mandating the disposal of local refuse.
Although the Company believes it is in substantial compliance with current
regulatory requirements, because of heightened political and public concern over
environmental issues, companies in the waste disposal industry, including the
Company, may become subject to judicial and administrative proceedings involving
federal, state, or local agencies in the normal course of business.
The Company has obtained some levels of pollution liability insurance
covering certain claims for sudden or gradual onset environmental damage at its
landfill sites. The Company carries a comprehensive general liability insurance
policy which management considers adequate to protect its assets and operations
from other risks.
The Company also may be subject to claims for personal injury or property
damage arising out of motor vehicle accidents involving its trucks. The Company
currently carries insurance with policy limits which management believes to be
sufficient to cover these risks. If the Company were to incur liabilities
outside of or in excess of its insurance limits, its financial condition could
be adversely affected.
In connection with the Company's existing landfills, the Company has
provided financial assurance bonds for approximately $15.2 million at December
31, 1996 from a financial institution to provide financial assurance that
closure and postclosure expenses will be met in the event that the Company is
not able to fulfill its closure and postclosure obligations.
F-16
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
At December 31, 1996, future minimum lease payments under noncancelable
lease obligations are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
1997......................................................................................... $ 431 $ 1,151
1998......................................................................................... 192 930
1999......................................................................................... 104 667
2000......................................................................................... -- 298
2001 and thereafter.......................................................................... -- 437
----- -----------
Total minimum lease payments................................................................. 727 $ 3,483
-----------
-----------
Less: Amount representing interest........................................................... 67
-----
Present value of net minimum lease payments.................................................. $ 660
-----
-----
</TABLE>
Rental expense in 1996, 1995, and 1994 was approximately $1.3 million,
$793,000, $132,000, respectively.
REDEEMABLE PREFERRED STOCK
On March 28, 1995, ADS issued 1,950 shares of its Series A Preferred Stock
and 46,550 warrants to purchase shares of common stock of the Company, for
$1,950,000. The holder of the warrants can purchase one common share for each
warrant held at the exercise price of $.10 per share on or before December 31,
2002. The Company redeemed the outstanding preferred stock in May 1996, and paid
any accrued dividends related to the preferred stock. The warrants were redeemed
for shares of common stock in 1996.
9. STOCKHOLDERS' EQUITY
STOCK OPTIONS
The Company's Board of Directors adopted the American Disposal Services,
Inc. 1996 Stock Option Plan effective January 1, 1996. As of December 31, 1996,
the plan permits grants of options up to an aggregate of 1,100,000 shares of
common stock to employees and certain consultants of the Company, on such terms
as the Company's compensation committee (or a stock option subcommittee thereof)
determines. Options granted under the plan as of January 1, 1996 replaced
existing stock options granted by ADS and County in connection with the
Exchange. The stock options vest over three and five year periods and are
exercisable over a ten year period from the original grant dates. All vesting is
subject to acceleration under specified circumstances.
Options to purchase an aggregate of 63,601 shares were granted outside the
plan to a former employee and were fully vested as of January 1, 1996. Such
shares have an exercise price of $7.17 per share, increasing at 25% per annum
from the date of original grant of the ADS stock options they replace.
F-17
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
9. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of stock option information follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year................ 869,617 $ 7.36 186,444 $ 7.17 144,900 $ 7.17
Granted....................................... 68,270 9.00 683,173 7.41 41,544 7.17
Exercised..................................... 467 7.17 0 -- 0 --
Forfeited..................................... (2,506) 7.64 0 -- 0 --
--------- ----- --------- ----- --------- -----
Outstanding at end of year...................... 934,914 $ 7.47 869,617 $ 7.36 186,444 $ 7.17
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
Exercisable at end of year...................... 434,553 105,223 0
Available for future grant...................... 228,220 293,984 977,157
Weighted average value of options granted during
the year....................................... $ 4.33 $ 1.88
</TABLE>
As of December 31, 1996, the Company had outstanding 934,914 options with
exercise prices between $7.17 and $9.00 per share and weighted average remaining
lives of 8.2 years.
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123), requires
use of option valuation models that were not developed for use in valuing stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
Disclosure of pro forma information regarding net loss and net loss per
share is required by FAS 123, and has been determined as if the Company had
accounted for its stock options granted in 1996 and 1995 under the fair value
method. The options granted in 1996 were valued using the Black-Scholes option
pricing model. The options granted in 1995, as a non-public company, were valued
using the minimum value method. The Black-Scholes option valuation model
requires the input of highly subjective assumptions and, because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the model cannot necessarily provide a single measure of
the fair value of its stock options. The following assumptions were utilized in
the valuation:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C> <C> <C>
1996 1995
--------- ---------
Risk-free interest rate................................................. 6.65% 5.85%
Expected dividend yield................................................. 0% 0%
Expected stock price volatility......................................... 44.4% n/a
Expected life of options................................................ 5 years 5 years
</TABLE>
F-18
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
9. STOCKHOLDERS' EQUITY (CONTINUED)
Had compensation cost for the Company's stock options granted in 1996 and
1995 been determined based on the fair value at the dates of grants, the
Company's net loss and net loss per share would have been increased to the pro
forma amounts indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C> <C> <C>
1996 1995
--------- ---------
Pro forma net loss (in thousands of dollars)............................. ($ 687) ($ 3,807)
Pro forma net loss per share applicable to common shareholders........... ($ 0.10) ($ 1.08)
</TABLE>
The pro forma effect for 1996 and 1995 is not representative of the pro
forma effect in future years as the pro forma disclosures reflect only the fair
value of stock options granted in 1996 and 1995 and do not reflect the fair
value of outstanding options granted prior to 1995.
STOCK WARRANTS
In connection with obtaining various credit agreements, the Company issued
warrants to purchase 168,905 shares of common stock with exercise prices ranging
from $4.72 to $7.41 per share. The Company recorded the fair value of the
warrants as a component of equity and recognized debt issuance cost of $106,666.
The warrants expire 10 years from date of issuance.
In connection with the Exchange, 5,000,000 shares of new preferred stock of
the Company were authorized with none issued at December 31, 1996 and 1995.
10. SUBSEQUENT EVENTS
Subsequent to December 31, 1996, the Company acquired substantially all the
assets of Sparky's Waste Control and A-1 Container, and acquired the stock of
Allied Waste Systems, Inc. In addition, the Company entered into definitive
asset purchase agreements on March 24, 1997 and March 25, 1997 to acquire
substantially all the assets of Liberty Disposal, Inc. and the Evansville,
Indiana operations of Waste Management of Indiana, LLC, respectively.
F-19
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................................... $ 2,166
Restricted cash held in escrow..................................................................... 2,900
Trade receivables, net............................................................................. 18,217
Prepaid expenses and other......................................................................... 1,872
Inventory.......................................................................................... 541
-----------
Total current assets................................................................................. 25,696
Property, plant, and equipment, net.................................................................. 128,035
Other assets:
Cost over fair value of net assets of acquired businesses, net of accumulated amortization of
$1,966........................................................................................... 64,484
Other intangible assets, net of accumulated amortization of $555................................... 1,862
Debt issuance costs, net of accumulated amortization of $425....................................... 3,144
Other assets....................................................................................... 1,352
-----------
$ 224,573
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................................... $ 6,161
Accrued liabilities................................................................................ 9,165
Deferred revenues.................................................................................. 3,740
Current portion of long-term debt and capital lease obligations.................................... 1,286
-----------
Total current liabilities............................................................................ 20,352
Long-term debt and capital lease obligations, net of current portion................................. 63,817
Accrued environmental and landfill costs............................................................. 9,116
Deferred income taxes................................................................................ 1,416
Total stockholders' equity (13,472,501 shares of common stock issued and outstanding)................ 129,872
-----------
$ 224,573
-----------
-----------
</TABLE>
See accompanying notes.
F-20
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1997 1996
------------ ----------
<S> <C> <C>
Revenues............................................................................... $ 46,274 $ 25,177
Cost of operations..................................................................... 25,080 13,170
Selling, general and administrative expenses........................................... 6,357 4,048
Depreciation and amortization.......................................................... 9,056 5,663
------------ ----------
Operating income..................................................................... 5,781 2,296
Interest expense, net.................................................................. 3,458 3,057
Other income........................................................................... 109 37
------------ ----------
Income (loss) before income taxes and extraordinary loss............................. 2,432 (724)
Income tax benefit (expense)........................................................... (750) 155
------------ ----------
Income (loss) before extraordinary loss.............................................. 1,682 (569)
Extraordinary loss, net of income tax benefit.......................................... -- (476)
------------ ----------
Net income (loss).................................................................... 1,682 (1,045)
Preferred stock dividend............................................................... -- (109)
------------ ----------
Net income (loss) applicable to common stockholders.................................. $ 1,682 $ (1,154)
------------ ----------
------------ ----------
Net income (loss) per share:
Income (loss) before extraordinary loss.............................................. $ 0.15 $ (0.12)
Extraordinary loss, net of income tax benefit........................................ -- (0.08)
------------ ----------
Net income (loss) applicable to common stockholders.................................. $ 0.15 $ (0.20)
------------ ----------
------------ ----------
Weighted average common stock and common stock equivalent shares outstanding........... 10,884,592 5,864,078
------------ ----------
------------ ----------
</TABLE>
See accompanying notes.
F-21
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................................................... $ 1,682 $ (1,154)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activites:
Depreciation and amortization........................................................... 9,056 5,663
Provision for environmental and landfill costs.......................................... 263 264
Extraordinary loss...................................................................... -- 476
Changes in operating assets and liabilities, net of effects from acquisitions:
Trade receivables..................................................................... (5,112) (1,292)
Prepaid expenses, restricted cash held in escrow and other assets..................... (2,559) (1,842)
Accounts payable, accrued liabilities and accrued environmental and landfil costs..... 7,099 251
Deferred revenue...................................................................... 908 244
---------- ----------
Net cash provided by operating activities................................................. 11,337 2,610
---------- ----------
INVESTING ACTIVITIES
Capital expenditures.................................................................... (9,429) (6,610)
Cost of acquisitions.................................................................... (68,210) (3,096)
---------- ----------
Net cash used in investing activities..................................................... (77,639) (9,706)
---------- ----------
FINANCING ACTIVITIES
Net proceeds from issuance of common stock.............................................. 70,093 --
Redemption of preferred stock........................................................... -- (1,950)
Preferred stock dividend................................................................ -- (85)
Proceeds from issuance of long-term debt................................................ 70,946 71,245
Repayments of indebtedness.............................................................. (73,899) (52,866)
Payment of note payable to stockholder.................................................. -- (12,500)
Debt issuance costs..................................................................... (973) (1,081)
Other................................................................................... -- (552)
---------- ----------
Net cash provided by financing activities................................................. 66,167 2,211
---------- ----------
Net decrease in cash and cash equivalents................................................. (135) (4,885)
Cash and cash equivalents, at beginning of period......................................... 2,301 6,383
---------- ----------
Cash and cash equivalents, at end of period............................................... $ 2,166 $ 1,498
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-22
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(UNAUDITED)
1. FORMATION AND BASIS OF PRESENTATION
ADS, Inc. (ADS) was organized on January 15, 1991, to acquire, develop, and
operate non-hazardous municipal solid waste disposal, collection, and transfer
operations and provide non-hazardous solid waste disposal management services to
commercial, industrial, and residential customers. During 1993, an affiliate of
Charterhouse Equity Partners, L.P. (CEP) purchased a controlling interest in
ADS.
County Disposal, Inc. (County) was incorporated by Charterhouse Equity
Partners II, L.P. (CEPII) on April 27, 1995, for the purpose of acquiring
certain net assets of Envirite Corporation (Envirite). On April 28, 1995,
Envirite and County entered into an Asset Purchase Agreement whereby County
agreed to purchase from Envirite certain landfill facilities and waste
transportation and collection equipment located in Livingston County, Illinois,
and Wyandot County, Ohio; all of the issued and outstanding capital stock of
County Environmental Services, Inc., a wholly-owned subsidiary of Envirite,
which owned and operated a landfill facility and waste transportation and
collection equipment located in Clarion County, Pennsylvania; and certain
related assets and assumption of certain liabilities.
Effective January 1, 1996, the stockholders of ADS and County exchanged
their shares for shares of a newly created holding company by the name of
American Disposal Services, Inc. (the Company). This share exchange (the
Exchange) qualified as a transfer of companies under common control as
affiliates of Charterhouse Group International, Inc. are the general partners
and in control of CEP and CEPII and, accordingly, the transaction was accounted
for at historical cost in a manner similar to pooling of interests accounting.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 1997
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1997. These financial statements should be read
in conjunction with the consolidated financial statements, including the notes
thereto, for the fiscal year ended December 31, 1996 included in the Company's
Annual Report on Form 10-K/A.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. RELATED PARTY INTEREST EXPENSE
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
(DOLLARS IN
THOUSANDS)
Charterhouse Equity Partners II, L.P. $ -- $ 621
--------- ---------
--------- ---------
</TABLE>
F-23
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
(UNAUDITED)
3. ENVIRONMENTAL MATTERS
See the Company's Annual Report on Form 10-K/A for a description of
environmental matters.
4. PUBLIC OFFERING
Effective May 13, 1997 the Company completed a public offering of 4,600,000
shares (including the underwriters' over-allotment option) at $16.50 per share
resulting in net proceeds to the Company of approximately $70.1 million.
Immediately following the offering, the Company had 13,472,501 shares of common
stock outstanding.
5. ACQUISITIONS
The acquisitions below have been accounted for using the purchase method of
accounting and, accordingly, the results of their operations have been included
in the Company's results of operations from their respective acquisition dates.
The purchase prices have been allocated to the assets acquired and liabilities
assumed based on their fair values at their respective acquisition dates with
the residual allocated to cost over fair value of net assets acquired.
During the first six months of 1997, the Company acquired nine non-hazardous
solid waste businesses, consisting of nine collection operations, two transfer
stations, and one landfill. During 1996, the Company acquired sixteen
non-hazardous solid waste businesses, consisting of sixteen collection
operations and two transfer stations.
The Company has not completed its valuation of certain of its 1997 and 1996
purchases and the purchase price allocations are subject to change when
additional information concerning asset and liability valuations is completed.
The pro forma unaudited results of operations for the six months ended June
30, 1997 and 1996 include all acquisitions which have closed as of June 30, 1997
and assuming each acquisition and the public offering completed in May 1997 had
occurred on January 1, 1996, are as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenues $ 55,421 $ 46,038
Operating income 7,377 5,264
Net income applicable to common
stockholders before extraordinary loss 3,169 1,651
Pro forma income per share of
common stock 0.22 0.16
Weighted average common stock and
common stock equivalent shares
outstanding 14,148 10,464
</TABLE>
F-24
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
(UNAUDITED)
5. ACQUISITIONS (CONTINUED)
The pro forma results do not purport to be indicative of the results of
operations which actually would have resulted had the acquisitions occurred on
January 1, 1996 nor are they necessarily indicative of future operating results.
6. RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, EARNINGS PER SHARE, which is required to be adopted in the fourth
quarter of 1997; earlier adoption is not allowed. At that time, the Company will
be required to change the method currently used to compute earnings per share
and to restate all prior periods. Under the new requirements for calculating
basic earnings per share, the dilutive effect of stock options will be excluded.
The impact of Statement 128 on the calculation of primary and fully diluted
earnings per share for the three and six months ended June 30, 1997 and 1996 is
not material.
F-25
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited Pro Forma Consolidated Financial Statements (Pro
Forma Financial Data) are based on the historical Consolidated Financial
Statements of the Company, Fred B. Barbara Companies, Liberty Disposal, Inc. and
Evansville, Indiana Operations of Waste Management, Inc. (collectively the Pro
Forma Acquisitions) included elsewhere herein or incorporated by reference,
adjusted to give effect to the Pro Forma Acquisitions, the May Offering and this
Offering.
The Pro Forma Condensed Consolidated Balance Sheet gives effect to the
acquisition of Fred B. Barbara Companies and this Offering as if they had
occurred as of June 30, 1997. The Pro Forma Consolidated Income Statement for
the year ended December 31, 1996 gives effect to the Pro Forma Acquisitions, the
May Offering and this Offering as if they had occurred on January 1, 1996. The
Pro Forma Consolidated Income Statement for the six months ended June 30, 1997
gives effect to the Pro Forma Acquisitions, the May Offering and this Offering
as if they had occurred on January 1, 1997. The Pro Forma Financial Data does
not purport to represent what the Company's results would actually have been had
the Pro Forma Acquisitions in fact occurred on such date or to project the
Company's results of operations and financial position for any future period or
date. The Pro Forma Financial Data does not give effect to any transactions
other than the Pro Forma Acquisitions, the May Offering and this Offering, as
discussed in the notes to the Pro Forma Financial Data set forth below.
The Pro Forma Acquisitions were accounted for using the purchase method of
accounting. Under purchase accounting, tangible and identifiable intangible
assets acquired and liabilities assumed are recorded at their respective fair
values.
The pro forma adjustments are based on available information and upon
certain assumptions that management of the Company believes are reasonable under
the circumstances. The Pro Forma Financial Data and accompanying notes should be
read in conjunction with the historical Consolidated Financial Statements of the
Company, Fred B. Barbara Companies, Liberty Disposal, Inc. and including the
notes thereto, and other financial information pertaining to the Company
included elsewhere herein or incorporated by reference.
F-26
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FRED B. BARBARA COMPANIES
ADJUSTED
ACQUISITION FRED B. BARBARA
COMPANY -------------------------- COMPANIES THE COMPANY
HISTORICAL HISTORICAL ADJUSTMENTS ACQUISITION(A) OFFERING(C) PRO FORMA
----------- ----------- ------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................. $ 2,166 $ 4,114 ($ 4,114) $ -- $ -- $ 2,166
Cash held in escrow....................... 2,900 511 (511) -- -- 2,900
Trade receivables......................... 18,217 3,137 (3,137) -- -- 18,217
Prepaids and other current assets......... 2,413 249 (249) -- -- 2,413
<CAPTION>
----------- ----------- ------------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total current assets...................... 25,696 8,011 (8,011) -- -- 25,696
Property and equipment, net................. 128,035 12,374 226 12,600 -- 140,635
Cost over fair value of net assets acquired,
net....................................... 64,484 -- 48,340 48,340 -- 112,824
Other intangible and deferred assets, net... 5,006 -- 75 75 -- 5,081
Other assets................................ 1,352 -- -- -- -- 1,352
----------- ----------- ------------- ------- ----------- -----------
Total assets........................ $ 224,573 $ 20,385 $ 40,630 $ 61,015 $ -- $ 285,588
<CAPTION>
----------- ----------- ------------- ------- ----------- -----------
----------- ----------- ------------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans with banks.......................... $ -- $ 610 $ (610) $ -- $ -- $ --
Advances from stockholder................. -- 70 (70) -- -- --
Accounts payable.......................... 6,161 485 (485) -- -- 6,161
Accrued liabilities....................... 9,165 585 (585) -- -- 9,165
Deferred revenues......................... 3,740 90 (90) -- -- 3,740
Current portion of long term debt and
capital lease obligations.............. 1,286 -- -- -- -- 1,286
<CAPTION>
----------- ----------- ------------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total current liabilities................... 20,352 1,840 (1,840) -- -- 20,352
Long-term debt and capital lease
obligations, net of current portion....... 63,817 -- 44,625 44,625 (106,563) 1,879
Accrued environmental and landfill costs.... 9,116 1,765 -- 1,765 -- 10,881
Deferred income taxes....................... 1,416 -- -- -- -- 1,416
Total stockholders' equity.................. 129,872 16,780 (2,155) 14,625(b) 106,563 251,060
<CAPTION>
----------- ----------- ------------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total liabilities and stockholders'
equity................................. $ 224,573 $ 20,385 $ 40,630 $ 61,015 $ -- $ 285,588
<CAPTION>
----------- ----------- ------------- ------- ----------- -----------
----------- ----------- ------------- ------- ----------- -----------
</TABLE>
(a) Reflects the acquisition of Fred B. Barbara Companies accounted for using
the purchase method. Pursuant to the Purchase Agreement, only property and
equipment and accrued environmental and landfill costs were acquired. The
Company has not yet determined the final allocation of the purchase price as
current information regarding the fair value of assets to be acquired is not
available and accordingly, the amounts shown below may differ from the
amounts ultimately determined.
Allocation of purchase price based upon preliminary estimated values:
<TABLE>
<CAPTION>
Land and landfill permit $ 7,200
<S> <C>
Other property and equipment 5,400
---------
Property and equipment 12,600
Cost over fair value of assets acquired 48,340
Identifiable intangible assets 75
---------
$ 61,015
---------
---------
</TABLE>
(b) Reflects the portion of the purchase price for the acquisition of Fred B.
Barbara Companies in the form of Company common stock.
(c) Reflects proceeds of this offering less underwriting discounts and estimated
expenses, using a price per share of $32.50, and the application of net
proceeds therefrom.
F-27
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
PRO FORMA CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UNAUDITED)
<TABLE>
<CAPTION>
FRED B.
BARBARA
LIBERTY DISPOSAL WMX-EVANSVILLE COMPANIES
ACQUISITION ACQUISITION ACQUISITION
-------------------------------- ------------------------------- ------------
COMPANY HISTORICAL HISTORICAL HISTORICAL
HISTORICAL (A) ADJUSTMENTS (B) (C) ADJUSTMENTS (D) (E)
----------- ------------- ----------------- ------------ ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 56,804 $ 7,003 $ -- $ 12,985 $ -- $ 23,716
Cost of operations...... 30,376 4,607 (4) 6,830 (291) 14,384
Selling, general
and administrative
expenses.............. 8,328 1,534 (695) 1,517 (246) 5,368
Depreciation and
amortization.......... 12,334 559 331 2,467 (430) 2,303
----------- ------------- ------ ------------ ------ ------------
Operating income...... 5,766 303 368 2,171 967 1,661
Interest expense, net... 5,485 84 (84) -- -- (183)
Other income............ 179 -- -- -- -- --
----------- ------------- ------ ------------ ------ ------------
Income before income
taxes................. 460 219 452 2,171 967 1,844
Income tax expense
(i)................... 245 -- 200 -- 947 55
----------- ------------- ------ ------------ ------ ------------
Net income.............. $ 215 $ 219 $ 252 $ 2,171 $ 20 $ 1,789
----------- ------------- ------ ------------ ------ ------------
----------- ------------- ------ ------------ ------ ------------
Pro forma net income
per share of
common stock..........
Pro forma weighted
average common stock
and common stock
equivalent shares
outstanding (j).......
<CAPTION>
THE
MAY THE
OFFERING OFFERING COMPANY
ADJUSTMENTS (F) (G) (H) PRO FORMA
--------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ -- $ 100,508
Cost of operations...... (411) -- -- 55,491
Selling, general
and administrative
expenses.............. (2,875) -- -- 12,931
Depreciation and
amortization.......... 643 -- -- 18,207
------- ----------- ----------- -------------
Operating income...... 2,643 -- -- 13,879
Interest expense, net... 183 (2,129) (3,356) --
Other income............ -- -- -- 179
------- ----------- ----------- -------------
Income before income
taxes................. 2,460 2,129 3,356 14,058
Income tax expense
(i)................... 1,682 830 1,331 5,290
------- ----------- ----------- -------------
Net income.............. $ 778 $ 1,299 $ 2,025 $ 8,768
------- ----------- ----------- -------------
------- ----------- ----------- -------------
Pro forma net income
per share of
common stock.......... $ 0.54
-------------
-------------
Pro forma weighted
average common stock
and common stock
equivalent shares
outstanding (j)....... 16,258,771
-------------
-------------
</TABLE>
F-28
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO PRO FORMA CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(a) Reflects the historical income statement for Liberty Disposal, Inc. for the
year ended December 31, 1996 incorporated by reference.
(b) Adjustments to reflect the historical amounts for the Liberty Disposal, Inc.
acquisition noted in footnote (a) as follows:
<TABLE>
<S> <C>
Reduction in cost of operations due to:
Incremental rental expense as set forth in the purchase
agreement........................................................ $ 88
Reduction in wage expense per employment agreements................ (92)
---------
Net reduction in cost of operations.................................. $ (4)
---------
---------
Reduction in selling, general and administrative expenses due to:
Reduction in officer's salary per employment agreement............. $ (417)
Reduction in office employee wages per employment agreements....... (278)
---------
Net reduction in selling, general and administrative expenses........ $ (695)
---------
Incremental depreciation and amortization due to:
Incremental depreciation of assets acquired assuming a composite
life of 4.6 years................................................ $ 16
Amortization of excess purchase price over forty years............. 295
Amortization of identifiable intangible assets over five years..... 20
---------
Net incremental depreciation and amortization........................ $ 331
---------
---------
Reduction in interest expense to reflect the debt not acquired....... $ (84)
---------
---------
</TABLE>
(c) Reflects the historical statement of revenues and direct operating expenses
for Evansville, Indiana Operations of Waste Management, Inc. for the year
ended December 31, 1996 incorporated by reference.
(d) Adjustments to reflect the historical amounts for the Evansville, Indiana
Operations of Waste Management, Inc. acquisition noted in footnote (c) as
follows:
<TABLE>
<S> <C>
Reduction in cost of operations due to reclassification to conform to
the Company's financial presentation............................... $ (291)
---------
---------
Reduction in selling, general and administrative salaries of
employees terminated prior to the WMX Evansville acquisition....... $ (246)
Reduction in depreciation and amortization due to:
Reduction in depreciation and amortization of assets acquired as a
result of preliminary purchase price allocation assuming a
composite life of 8 years for property and equipment and 45 years
for the landfill................................................. $ (932)
Incremental amortization of excess purchase price over forty
years............................................................ 191
Incremental amortization of identifiable intangible assets over
five years....................................................... 20
Reclassification to conform to the Company's financial
presentation..................................................... 291
---------
Net reduction in depreciation and amortization....................... $ (430)
---------
---------
</TABLE>
F-29
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO PRO FORMA CONSOLIDATED INCOME STATEMENT (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(e) Reflects the historical income statement for Fred B. Barbara Companies for
the year ended December 31, 1996, included herein.
(f) Adjustments to reflect the historical amounts for the Fred B. Barbara
Companies acquisition noted in footnote (e) as follows:
<TABLE>
<S> <C>
Reduction in cost of operations due to:
Reduction in rental expense as set forth in the purchase
agreement...................................................... ($ 396)
Reduction in wage expense per employment agreement............... (15)
---------
Net Reduction in cost of operations................................ ($ 411)
---------
---------
Reduction in selling, general and administrative expenses:
Reduction in officer's salary per employment agreement........... ($ 2,573)
Reduction in office employee wages per employment agreements..... (302)
---------
Net Reduction in selling, general and administrative expenses...... ($ 2,875)
---------
---------
Incremental reduction in depreciation and amortization due to:
Reduction in depreciation and amortization of assets acquired as
a result of preliminary purchase price allocation assuming a
composite life of 6.5 years for property and equipment and 23.5
for landfill................................................... (581)
Amortization of excess purchase price over forty years........... 1,209
Amortization of identifiable intangible assets over five years... 15
---------
Net incremental depreciation and amortization...................... $ 643
---------
---------
Reduction in interest income to reflect working capital not
acquired......................................................... $ 183
---------
---------
</TABLE>
(g) Reduction in interest expense to reflect the use of proceeds resulting from
the Company's May 13, 1997 offering as follows:
<TABLE>
<S> <C>
Net offering proceeds............................................. $ 70,093
Funding of Liberty Disposal acquisition........................... (15,675)
Funding of WMX Evansville acquisition............................. (29,228)
---------
Net proceeds available to pay down acquisition facility........... 25,190
Average 1995 interest rate on acquisition facility................ 8.45%
---------
Reduction in interest expense..................................... $ 2,129
---------
---------
</TABLE>
F-30
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO PRO FORMA CONSOLIDATED INCOME STATEMENT (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(h) Reduction in interest expense to reflect the use of proceeds of this
Offering as follows:
<TABLE>
<S> <C>
Net offering proceeds............................................. $ 106,563
Funding of Fred B. Barbara Companies.............................. (44,625)
---------
Net proceeds available to pay down acquisition facility........... 61,938
Average 1996 interest rate on acquisition facility................ 8.45%
---------
Reduction in interest expense..................................... 5,234
Less adjustment to limit the amount of interest expense recovered
to the actual interest expense realized......................... (1,878)
---------
$ 3,356
---------
---------
</TABLE>
(i) Adjusted to reflect the income tax effect of the pro forma adjustments based
on an estimated marginal tax rate of 39% limited by the utilization of the
net operating loss (NOL) carryforwards. The maximum annual utilization of
such NOL carryforwards are limited under the Internal Revenue Code as a
result of changes in ownership that have occurred.
(j) Weighted average common stock and common stock equivalent shares outstanding
at December 31, 1996 gives effect to the issuance of 4.6 million shares in
the May Offering, the 3.5 million shares in this Offering, and the issuance
of common stock in connection with the Fred B. Barbara Companies acquisition
as if such transactions had occurred as of January 1, 1996.
F-31
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
PRO FORMA CONSOLIDATED INCOME STATEMENT
SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UNAUDITED)
<TABLE>
<CAPTION>
FRED B.
BARBARA
LIBERTY DISPOSAL WMX-EVANSVILLE ACQUISITION
ACQUISITION ACQUISITION -------------
COMPANY -------------------------------- ---------------------------------- HISTORICAL
HISTORICAL HISTORICAL (A) ADJUSTMENTS (B) HISTORICAL (A) ADJUSTMENTS (C) (D)
----------- --------------- --------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.............. $ 46,274 $ 2,569 $ -- $ 3,021 $ -- $ 10,452
Cost of operations.... 25,080 1,484 18 1,470 (70) 6,033
Selling, general and
administrative
expenses............ 6,357 320 (43) 437 (69) 1,161
Depreciation and
amortization........ 9,056 193 143 586 (202) 1,050
----------- ------ ------- ------ ----- -------------
Operating income.... 5,781 572 (118) 528 341 2,208
Interest expense,
net................. 3,458 24 (24) -- -- (28)
Other income.......... 109 -- -- -- -- --
----------- ------ ------- ------ ----- -------------
Income before income
taxes............... 2,432 548 (94) 528 341 2,236
Income tax expense
(h)................. 750 -- 177 -- 339 43
----------- ------ ------- ------ ----- -------------
Net income............ $ 1,682 $ 548 $ (271) $ 528 $ 2 $ 2,193
----------- ------ ------- ------ ----- -------------
----------- ------ ------- ------ ----- -------------
Pro forma net income
per share of common
stock...............
Pro forma weighted
average common stock
and common stock
equivalent shares
outstanding (i).....
<CAPTION>
THE
MAY
OFFERING THE COMPANY
ADJUSTMENTS (E) (F) OFFERING (G) PRO FORMA
----------------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
Revenues.............. $ -- $ -- $ -- $ 62,316
Cost of operations.... (285) -- -- 33,730
Selling, general and
administrative
expenses............ (156) -- -- 8,007
Depreciation and
amortization........ 312 -- -- 11,138
----- ----------- ------------- ----------
Operating income.... 129 -- -- 9,441
Interest expense,
net................. 28 (1,039) (2,419) --
Other income.......... -- -- -- 109
----- ----------- ------------- ----------
Income before income
taxes............... 101 1,039 2,419 9,550
Income tax expense
(h)................. 793 407 943 3,452
----- ----------- ------------- ----------
Net income............ $ (692) $ 632 $ 1,476 $ 6,098
----- ----------- ------------- ----------
----- ----------- ------------- ----------
Pro forma net income
per share of common
stock............... $ 0.34
----------
----------
Pro forma weighted
average common stock
and common stock
equivalent shares
outstanding (i)..... 18,187,492
----------
----------
</TABLE>
F-32
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO PRO FORMA CONSOLIDATED INCOME STATEMENT
SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(a) Reflects the historical income statements for Evansville, Indiana Operations
of Waste Management, Inc. and Liberty Disposal, Inc. from the period of
January 1, 1997 through the dates of acquisitions as follows incorporated by
reference:
<TABLE>
<S> <C>
Evansville, Indiana Operations of Waste Management, Inc..... April 1, 1997
Liberty Disposal, Inc....................................... May 15, 1997
</TABLE>
(b) Adjustments to reflect the historical amounts for the Liberty Disposal, Inc.
acquisition noted in footnote (a) as follows:
<TABLE>
<S> <C>
Incremental cost of operations due to:
Incremental rental expense as set forth in the purchase
agreement..................................................... $ 52
Reduction in wage expense per employment agreements............. (34)
-----
Net incremental cost of operations................................ $ 18
-----
-----
Reduction in selling, general and administrative expenses due to:
Reduction in officer's salary per employment agreement.......... $ (31)
Reduction in office employee wages per employment agreements.... (12)
Reduction in office employee wages per employment agreements.... (12)
-----
Net reduction in selling, general and administrative expenses..... (43)
-----
-----
Incremental depreciation and amortization due to:
Incremental depreciation of assets acquired assuming a composite
life of 4.6 years............................................. $ 29
Amortization of excess purchase price over forty years.......... 107
Amortization of identifiable intangible assets over five
years......................................................... 7
-----
Net incremental depreciation and amortization..................... $ 143
-----
-----
Reduction in interest expense to reflect the debt not acquired.... $ (24)
-----
-----
</TABLE>
(c) Adjustments to reflect the historical amounts for the Evansville, Indiana
Operations of Waste Management, Inc. acquisition noted in footnote (a) as
follows:
<TABLE>
<S> <C>
Reduction in cost of operations due to reclassification to conform
to the Company's financial presentation......................... $ (70)
-----
-----
Reduction in selling, general and administrative salaries of
employees terminated prior to the acquisition................... $ (69)
-----
-----
Reduction in depreciation and amortization due to:
Reduction in depreciation and amortization of assets acquired as
a result of preliminary purchase price allocation assuming a
composite life of 8 years for property and equipment and 45
years for the landfill........................................ $ (321)
Incremental amortization of excess purchase price over forty
years......................................................... 44
Incremental amortization of identifiable intangible assets over
five years.................................................... 5
Reclassification to conform to the Company's financial
presentation.................................................. 70
-----
Net reduction in depreciation and amortization.................... $ (202)
-----
-----
</TABLE>
F-33
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO PRO FORMA CONSOLIDATED INCOME STATEMENT (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(d) Reflects the historical income statement for Fred B. Barbara Companies for
the six months ended June 30, 1997 included herein.
(e) Adjustments to reflect the historical amounts for the Fred B. Barbara
Companies acquisition noted in footnote (d) as follows:
<TABLE>
<S> <C>
Reduction in cost of operations due to:
Reduction in rental expenses as set forth in the purchase $ (280)
agreement.....................................................
Reduction in wage expense per employment agreement.............. (5)
-----
Net Reduction in cost of operations............................... $ (285)
-----
-----
Reduction in selling, general and administrative expenses:
Reduction in officer's salary per employment agreement.......... $ (110)
Reduction in office employee wages per employment agreements.... (46)
-----
Net Reduction in selling, general and expenses.................... $ (156)
-----
-----
Incremental reduction in depreciation and amortization due to:
Reduction in depreciation and amortization of assets acquired as $ (300)
a result of preliminary purchase price allocation assuming a
composite life of 6.5 years for property and equipment and
23.5 for landfill.............................................
Amortization of excess purchase price over forty years.......... 605
Amortization of identifiable intangible assets over five 7
years.........................................................
-----
Net incremental depreciation and amortization..................... $ 312
-----
-----
Reduction in interest income to reflect working capital not $ 28
acquired........................................................
-----
-----
</TABLE>
(f) Reduction in interest expense to reflect the use of proceeds resulting from
the Company's May 13, 1997 offering as follows:
<TABLE>
<S> <C>
Net offering proceeds............................................. $ 70,093
Funding of Liberty Disposal acquisition........................... (15,675)
Funding of WMX Evansville acquisition............................. (29,228)
---------
Net proceeds available to pay down acquisition facility........... 25,190
Average 1997 interest rate on acquisition facility................ 8.25%
---------
Annual reduction in interest expense.............................. $ 2,078
---------
Reduction in interest expense through June 30, 1997............... $ 1,039
---------
---------
</TABLE>
F-34
<PAGE>
AMERICAN DISPOSAL SERVICES, INC.
NOTES TO PRO FORMA CONSOLIDATED INCOME STATEMENT (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(g) Reduction in interest expense to reflect the use of proceeds of this
Offering as follows:
<TABLE>
<S> <C>
Net offering proceeds............................................. $ 106,563
Funding of Fred B. Barbara Companies.............................. (44,625)
---------
Net proceeds available to pay down acquisition facility........... 61,938
Average 1997 interest rate on acquisition facility................ 8.25%
---------
Annual reduction in interest expense.............................. $ 5,110
---------
Reduction in interest expense through June 30, 1997............... $ 2,555
---------
Less adjustment to limit the amount of interest expense recovered
to the actual interest expense realized......................... (136)
---------
$ 2,419
---------
---------
</TABLE>
(h) Adjusted to reflect the income tax effect on the pro forma adjustments based
on an estimated marginal tax rate of 39% limited by the utilization of the
net operating loss (NOL) carryforwards. The maximum annual utilization of
such NOL carryforwards are limited under the Internal Revenue Code as a
result of changes in ownership that have occurred.
(i) Weighted average common stock and common stock equivalent shares outstanding
at June 30, 1997 gives effect to the issuance of 4.6 million shares in the
May 13, 1997 offering, the 3.5 million shares in this Offering, and the
issuance of common stock in connection with the Fred B. Barbara Companies
acquisition as if such transactions had occurred as of January 1, 1997.
F-35
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Fred B. Barbara Companies
We have audited the accompanying combined balance sheets of Fred B. Barbara
Companies (the Combined Companies) as of June 30, 1997, December 31, 1996 and
December 31, 1995, and the related combined statements of income, stockholders'
equity, and cash flows for the six months ended June 30, 1997, and for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Combined Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Fred B. Barbara
Companies as of June 30, 1997, December 31, 1996 and December 31, 1995, and the
combined results of its operations and its cash flows for the six months ended
June 30, 1997, and for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
August 1, 1997
F-36
<PAGE>
FRED B. BARBARA COMPANIES
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 4,114 $ 2,834 $ 3,342
Cash held in escrow............................................................ 511 496 455
Trade receivables less allowance for doubtful accounts of $147, $147, and
$128......................................................................... 3,137 4,383 5,613
Prepaid expenses and other assets.............................................. 249 203 487
--------- --------- ---------
Total current assets............................................................. 8,011 7,916 9,897
Property and equipment, net...................................................... 12,374 13,021 11,966
--------- --------- ---------
$ 20,385 $ 20,937 $ 21,863
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan with banks................................................................ $ 610 $ 850 $ --
Advances from stockholder...................................................... 70 70 1,645
Accounts payable............................................................... 485 1,090 1,483
Accrued liabilities............................................................ 585 741 756
Deferred revenues.............................................................. 90 85 66
--------- --------- ---------
Total current liabilities........................................................ 1,840 2,836 3,950
Accrued environmental and landfill costs......................................... 1,765 1,707 1,063
Stockholders' equity:
Common stock................................................................... 1 1 1
Additional paid-in capital..................................................... 6,559 6,559 6,450
Retained earnings.............................................................. 10,220 9,834 10,399
--------- --------- ---------
16,780 16,394 16,850
--------- --------- ---------
$ 20,385 $ 20,937 $ 21,863
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-37
<PAGE>
FRED B. BARBARA COMPANIES
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------
1997 1996 1995 1994
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues............................................................ $ 10,452 $ 23,716 $ 37,212 $ 36,171
Cost of operations.................................................. 6,033 14,384 20,228 21,151
Selling, general, and administrative expenses....................... 1,161 5,368 5,385 5,160
Depreciation and amortization....................................... 1,050 2,303 2,417 2,298
----------- --------- --------- ---------
Operating income.................................................... 2,208 1,661 9,182 7,562
Interest expense.................................................... 26 32 45 256
Interest income..................................................... 54 215 127 66
----------- --------- --------- ---------
Income before state income taxes.................................... 2,236 1,844 9,264 7,372
State income taxes.................................................. 43 55 133 109
----------- --------- --------- ---------
Net income.......................................................... $ 2,193 $ 1,789 $ 9,131 $ 7,263
----------- --------- --------- ---------
----------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-38
<PAGE>
FRED B. BARBARA COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Balance--December 31, 1993........................................ $ 1 $ 6,450 $ 7,235 $ 13,686
Stockholder distributions....................................... -- -- (5,489) (5,489)
Net income...................................................... -- -- 7,263 7,263
--
----------- --------- ------------
Balance--December 31, 1994........................................ 1 6,450 9,009 15,460
Stockholder distributions....................................... -- -- (7,741) (7,741)
Net income...................................................... -- -- 9,131 9,131
--
----------- --------- ------------
Balance--December 31, 1995........................................ 1 6,450 10,399 16,850
Capital contribution of land.................................... -- 109 -- 109
Stockholder distributions....................................... -- -- (2,354) (2,354)
Net income...................................................... -- -- 1,789 1,789
--
----------- --------- ------------
Balance--December 31, 1996........................................ 1 6,559 9,834 16,394
Stockholder distributions....................................... -- -- (1,807) (1,807)
Net income...................................................... -- -- 2,193 2,193
--
----------- --------- ------------
Balance--June 30, 1997............................................ $ 1 $ 6,559 $ 10,220 $ 16,780
--
--
----------- --------- ------------
----------- --------- ------------
</TABLE>
See accompanying notes.
F-39
<PAGE>
FRED B. BARBARA COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------
1997 1996 1995 1994
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................................................. $ 2,193 $ 1,789 $ 9,131 $ 7,263
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization......................................... 1,050 2,303 2,417 2,298
Provision for environmental and landfill costs........................ 58 644 758 35
Changes in current assets and liabilities:
Trade receivables................................................... 1,246 1,230 555 (1,039)
Prepaid expenses, cash in escrow, and other assets.................. (61) 243 (438) 79
Accounts payable, accrued liabilities, and deferred revenue......... (756) (389) (552) 507
----------- --------- --------- ---------
Net cash provided by operating activities............................... 3,730 5,820 11,871 9,143
INVESTING ACTIVITIES
Capital expenditures.................................................... (403) (3,588) (4,218) (1,550)
----------- --------- --------- ---------
Net cash used in investing activities................................... (403) (3,588) (4,218) (1,550)
FINANCING ACTIVITIES
Distributions to principal stockholder.................................. (1,807) (2,015) (7,741) (5,489)
Advances from (payments to) principal stockholder, net.................. -- (1,575) 307 1,322
Proceeds from issuance of debt.......................................... -- 1,000 -- 2,300
Repayments of indebtedness.............................................. (240) (150) (1,115) (2,200)
----------- --------- --------- ---------
Net cash used in financing activities................................... (2,047) (2,740) (8,549) (4,067)
----------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents.................... 1,280 (508) (896) 3,526
Cash and cash equivalents at beginning of year.......................... 2,834 3,342 4,238 712
----------- --------- --------- ---------
Cash and cash equivalents at end of year................................ $ 4,114 $ 2,834 $ 3,342 $ 4,238
----------- --------- --------- ---------
----------- --------- --------- ---------
Supplemental cash flow information:
Cash paid for interest................................................ $ 26 $ 32 $ 45 $ 256
Cash paid for income taxes............................................ 48 205 62 50
Supplemental disclosure of noncash investing and financing activities:
Contribution of land from principal stockholder....................... $ -- $ 109 $ -- $ --
Distribution of property to principal stockholder..................... -- 339 -- --
</TABLE>
See accompanying notes.
F-40
<PAGE>
FRED B. BARBARA COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. FORMATION AND BASIS OF PRESENTATION
The combined financial statements include the accounts of: (i) Fred B.
Barbara Trucking Co., Inc.; (ii) Shred-All Recycling Services, Inc.; (iii)
Illinois Bulk Handlers, Inc.; and (iv) Environtech, Inc., (the Combined
Companies) all companies under the majority ownership of Fred B. Barbara (the
Principal Shareholder) and members of the Barbara family. The Combined Companies
operate primarily in the Chicago, Illinois, metropolitan area.
Fred B. Barbara Trucking Co., Inc., an Illinois corporation, was
incorporated in 1979 and is involved in transporting non-hazardous solid wastes.
Shred-All Recycling Systems, Inc., an Illinois corporation, was incorporated
in 1988 and is involved in the collection, transfer, sorting, and recycling of
non-hazardous solid wastes.
Illinois Bulk Handlers, Inc., an Illinois corporation, was incorporated in
1985 and is involved in the rental of heavy equipment, primarily for
non-hazardous solid waste management activities and municipal sludge processing
and disposal. Illinois Bulk Handlers, Inc., represented less than 1% of combined
revenues for all periods presented.
Environtech, Inc., a Delaware corporation, was incorporated in 1986 and is a
disposal facility for non-hazardous solid wastes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of each of the
entities comprising the Combined Companies. All significant intercompany
balances and transactions have been eliminated.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Combined Companies to
concentrations of credit risk consist primarily of trade receivables. The
Combined Companies perform ongoing credit evaluations of their customers and
maintain an allowance for losses based on the expected collectibility of
accounts receivable. Credit losses have been within management's expectations.
Generally, the Combined Companies do not require collateral from their
customers.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Trade receivables, accounts payables, and debt obligations are carried at
cost which approximates fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-41
<PAGE>
FRED B. BARBARA COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997 AND
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash in banks and liquid investments
with original maturities of three months or less.
CASH HELD IN ESCROW
Cash held in escrow represents amounts held by banks restricted to fund
obligations for closure and post-closure costs.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation of equipment is
computed using accelerated methods over the estimated useful lives of the
respective assets as follows:
<TABLE>
<S> <C>
Vehicles and equipment....................................... 3 to 10 years
10 to 39
Buildings.................................................... years
</TABLE>
Expenditures for major renewals are capitalized and expenditures for routine
maintenance and repairs are charged to expense as incurred.
Capitalized landfill costs include expenditures for land and related
airspace, permitting costs and preparation costs. Landfill permitting and
preparation costs represent only direct costs related to these activities,
including legal, engineering, construction of landfill improvements, cell
development costs, and the direct costs of the Combined Companies personnel
dedicated for these purposes. Management routinely reviews the realizability of
the Combined Companies investment in its operating landfills. The disposal site
is carried at cost and to the extent this exceeds end-use realizable value, such
excess is amortized over the estimated remaining life of the disposal site.
Preparation costs for individual secure land disposal cells are recorded in
property and equipment and amortized as the airspace is filled.
ACCRUED ENVIRONMENTAL AND LANDFILL COSTS
Accrued environmental and landfill costs represent landfill accruals which
are provided for environmental compliance costs and closure and post-closure
reserves. These accruals are based on accounting estimates by management
determined primarily from the results of engineering studies and reviews and on
interpretation of the technical standards of the Environmental Protection
Agency's Subtitle D regulations, or the approved state counterpart, and the
proposed air emissions standards under the Clean Air Act as they are being
applied on a state-by-state basis. The Combined Companies typically provide
accruals for these costs as permitted airspace of such facilities is consumed.
Closure and post-closure monitoring and maintenance costs represent the costs
related to cash expenditures yet to be incurred when a landfill facility ceases
to accept waste and closes. Certain of these accrued environmental and landfill
costs, principally capping, leachate collection and removal, and methane gas
control and recovery, are operating and maintenance costs to be incurred during
the 30-year period after the facility closes, but are accrued during the
operating life of the site in accordance with the landfill operation
requirements of Subtitle D and the proposed air emissions standards. The
Combined Companies have estimated that, as of
F-42
<PAGE>
FRED B. BARBARA COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997 AND
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
June 30, 1997, closure/post-closure expenses will approximate $4.9 million.
These accruals are reviewed by management periodically and revised prospectively
for any significant changes in future cost estimates.
REVENUE RECOGNITION
Revenues are recorded at the date of actual waste disposal. Revenues billed
prior to the performance of services are deferred and recorded as income in the
period in which the related services are rendered, generally over a two-month
period.
3. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Land......................................................... $ 1,316 $ 1,316 $ 1,191
Landfills.................................................... 9,110 9,110 9,073
Buildings.................................................... 2,617 2,617 950
Vehicles and equipment....................................... 18,309 17,914 16,374
--------- --------- ---------
31,352 30,957 27,588
Less: Accumulated depreciation and amortization.............. 18,978 17,936 15,622
--------- --------- ---------
$ 12,374 $ 13,021 $ 11,966
--------- --------- ---------
--------- --------- ---------
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Landfill............................................................ $ 146 $ 161 $ 232
Real estate taxes................................................... 155 200 209
State income taxes.................................................. 163 169 200
Other............................................................... 121 211 115
----- --------- ---------
$ 585 $ 741 $ 756
----- --------- ---------
----- --------- ---------
</TABLE>
5. LOANS WITH BANKS
The Combined Companies entered into a $1 million term loan agreement with
Amalgamated Bank of Chicago on September 23, 1996 for working capital purposes.
The term loan bore interest at a per annum 6.30% rate and was due on January 2,
1997. On January 2, 1997, the term loan was renewed for $850,000 at a per annum
of 6.35% rate and was due on July 3, 1997.
F-43
<PAGE>
FRED B. BARBARA COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997 AND
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
5. LOANS WITH BANKS (CONTINUED)
The term loan was renewed on July 3, 1997 for $610,000 and bears interest at
a per annum rate of 6.65%. Interest is due monthly and the principal balance is
due in full on January 5, 1998. Additionally, the term loan is secured through a
personal guarantee by the Principal Stockholder.
In 1994 and 1993, the Combined Companies borrowed $2.3 million and $900,000,
respectively, under separate bank term loan agreements. Both of these loans bore
interest at 6.0%, were due in monthly installments, and were fully paid in 1995.
6. INCOME TAXES
No provision for federal income taxes was required for the six months ended
June 30, 1997, or for the fiscal years 1996, 1995, and 1994, as a result of the
Combined Companies' elections to be treated as S corporations under the Internal
Revenue Code. However, the Combined Companies are subject to certain state
income taxes. Generally, the income of the Combined Companies is to be reported
on the individual income tax returns of its stockholders.
7. RELATED PARTIES
Fred B. Barbara Trucking Co., Inc., on occasion, uses subcontractors to haul
non-hazardous solid wastes. As part of this subcontracting, a company owned by
the Principal Stockholder's brother is used. Hauling fees to this related party
subcontractor approximated $49,000, $118,000, $172,000, and $135,000, for the
six months ended June 30, 1997 and for fiscal years 1996, 1995, and 1994,
respectively.
The Combined Companies rent their main office facility and certain equipment
on a month-to-month basis, from the Principal Stockholder. Rent expense to the
Principal Stockholder approximated $240,000 for the six months ended June 30,
1997 and $480,000 for each of the three years in the period ended December 31,
1996.
8. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL AND REGULATORY REQUIREMENTS
The business and activities of the Combined Companies are or may become
heavily regulated by the Environmental Protection Agency, the Department of
Transportation, the Interstate Commerce Commission, and various state
environmental and transportation regulatory authorities. The Combined Companies
are subject to various statutes and regulations which include, but are not
limited to, the Resource Conservation and Recovery Act of 1976, the Federal
Water Pollution Control Act, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Clean Air Act, and various state
regulations. The full impact of these laws and regulations and adoption of new
statutes and regulations with respect to the Combined Companies' facilities and
operations is uncertain and could have material adverse effects on the Combined
Companies' business, results of operations, and financial condition in that the
Combined Companies: (i) could be required to incur additional expenses in
compliance efforts; (ii) might be unable to comply, forcing the Combined
Companies to cease operations; and (iii) could incur additional liability for
past operation of acquired assets. These regulations may also impose
restrictions on the Combined Companies' operations, such as limiting the
expansion of disposal facilities, limiting or banning the disposal of
out-of-state waste or certain other categories of waste, or mandating the
disposal of local refuse.
F-44
<PAGE>
FRED B. BARBARA COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997 AND
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Although the Combined Companies believe they are in substantial compliance
with current regulatory requirements, because of heightened political and public
concern over environmental issues, companies in the waste disposal industry,
including the Combined Companies, may become subject to judicial and
administrative proceedings involving federal, state, or local agencies in the
normal course of business.
The Combined Companies carry a comprehensive general liability insurance
policy which management considers adequate to protect the Combined Companies'
assets and operation from other risks.
The Combined Companies also may be subject to claims for personal injury or
property damage arising out of motor vehicle accidents involving its trucks. The
Combined Companies currently carry insurance with policy limits which management
believes to be sufficient to cover these risks. If the Combined Companies were
to incur liabilities in excess of its insurance limits, its financial condition
could be adversely affected.
In connection with the Combined Companies' landfill, the Combined Companies
have provided $305,000 in letters of credit from a financial institution to
provide financial assurance that closure and post-closure expenses will be met
in the event that the Combined Companies are not able to fulfill its closure and
post-closure obligations.
At June 30, 1997, future minimum lease payments for processing facilities
under noncancelable lease obligations are as follows (IN THOUSANDS):
<TABLE>
<S> <C>
Remainder of fiscal year 1997........................................ $ 25
1998................................................................. 50
1999................................................................. 50
2000................................................................. 50
2001 and thereafter.................................................. 275
---------
Total minimum lease payments......................................... $ 450
---------
---------
</TABLE>
Rental expense was approximately $423,000, $675,000, $624,000 and $700,000
for the six months ended June 30, 1997, and for fiscal years 1996, 1995, and
1994, respectively.
9. SIGNIFICANT CUSTOMERS
One customer accounted for 30%, 33%, 62%, and 65% of the revenues of the
Combined Companies for the six months ended June 30, 1997, and for fiscal years
1996, 1995, and 1994, respectively. Another customer accounted for 28%, 24%,
12%, and 4% of the revenues of the Combined Companies for the six months ended
June 30, 1997 and for fiscal years 1996, 1995, and 1994, respectively.
F-45
<PAGE>
FRED B. BARBARA COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997 AND
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
10. STOCKHOLDERS' EQUITY
Stockholders' equity is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Fred B. Barbara Trucking Co., Inc.
Common stock, no par value, 100,000 shares authorized; 1,000 shares issued and
outstanding..................................................................... $ -- $ -- $ --
Additional paid-in capital........................................................ 1 1 1
Shred-All Recycling Services, Inc.
Common stock, no par value, 100 shares authorized and issued and outstanding...... -- -- --
Additional paid-in capital........................................................ 10 10 10
Illinois Bulk Handlers, Inc.
Common stock, no par value, 100 shares authorized and issued and outstanding...... -- -- --
Additional paid-in capital........................................................ 10 10 10
Environtech, Inc.
Common stock, $1 par value, 1,000 shares authorized; 804 shares
issued and outstanding.......................................................... 1 1 1
Additional paid-in capital........................................................ 6,538 6,538 6,429
Total common stock.................................................................. $ 1 $ 1 $ 1
----------- --------- ---------
Total additional paid-in capital.................................................... $ 6,559 $ 6,559 $ 6,450
----------- --------- ---------
----------- --------- ---------
</TABLE>
11. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses include incentive compensation
charges of $0 in 1997, $2,450,000 in 1996, $3,175,000 in 1995, and $3,185,000 in
1994.
F-46
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED,
OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 15
Price Range of Common Stock............................................... 15
Dividend Policy........................................................... 15
Capitalization............................................................ 16
Selected Consolidated Financial Data...................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 19
Business.................................................................. 27
Management................................................................ 38
Principal and Selling Stockholders........................................ 40
Description of Capital Stock.............................................. 42
Shares Eligible for Future Sale........................................... 44
Underwriting.............................................................. 45
Legal Matters............................................................. 47
Experts................................................................... 47
Available Information..................................................... 47
Incorporation of Certain Documents by Reference........................... 48
Index to Financial Statements............................................. F-1
</TABLE>
5,500,000 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
OPPENHEIMER & CO., INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table shows the expenses, other than underwriting discounts,
which the Company expects to incur in connection with the issuance and
distribution of the securities being registered under this registration
statement. All expenses are estimated except for the Securities and Exchange
Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................ $ 59,896
NASD filing fee................................................................ 20,266
Blue Sky fees and expenses..................................................... 5,000
Legal fees and expenses........................................................ 250,000
Accounting fees and expenses................................................... 150,000
Miscellaneous.................................................................. 14,838
----------
Total.................................................................... $ 500,000
----------
----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
("Section 145") permits a Delaware corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
In the case of an action by or in the right of the corporation, Section 145
permits the corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation. No indemnification may be made in respect of any claim, issue, or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
To the extent that a director, officer, employee, or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit,
or proceeding referred to in the preceding two paragraphs, Section 145 requires
that he be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
Section 145 provides that expenses (including attorneys' fees) incurred by
an officer or director in defending any civil, criminal, administrative, or
investigative action, suit, or proceeding may be paid by the
II-1
<PAGE>
corporation in advance of the final disposition of such action, suit, or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in Section 145.
Article Fifth of the Company's Certificate of Incorporation eliminates the
personal liability of the directors of the Company to the Company or its
stockholders for monetary damages for breach of fiduciary duty as directors,
with certain exceptions, and Article Sixth requires indemnification of directors
and officers of the Company, and for advancement of litigation expenses to the
fullest extent permitted by Section 145. Article Sixth of the Company's By-laws
provides for indemnification of the Company's officers and directors to the
fullest extent permitted by Section 145 and other applicable laws as currently
in effect and as they may be amended in the future.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement
4.1 Specimen Common Stock Certificate (1)
5.1 Opinion of Proskauer Rose LLP
23.1 Consent of Ernst & Young LLP
23.2 Consent of Proskauer Rose LLP (included in exhibit 5.1)
24.1 Powers of Attorney are set forth on the signature pages hereof
</TABLE>
- ------------------------
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (333-4889).
(b) Financial Statement Schedules
NONE
ITEM 17. UNDERTAKINGS.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the provisions described above in Item 15 or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted against the Registrant by such director,
officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Burr Ridge, State of Illinois, on October 21, 1997.
<TABLE>
<S> <C> <C>
AMERICAN DISPOSAL SERVICES, INC.
By: /s/ RICHARD DE YOUNG
-----------------------------------------
Richard De Young
PRESIDENT
</TABLE>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
*
- ------------------------------ Chairman and Director October 21, 1997
David C. Stoller
/s/ RICHARD DE YOUNG
- ------------------------------ President, Chief Executive October 21, 1997
Richard De Young Officer and Director
* Chief Financial Officer
- ------------------------------ (principal financial October 21, 1997
Stephen P. Lavey officer)
* Vice President and
- ------------------------------ Controller (principal October 21, 1997
Lawrence R. Conrath, Sr. accounting officer)
*
- ------------------------------ Director October 21, 1997
Merril M. Halpern
*
- ------------------------------ Director October 21, 1997
A. Lawrence Fagan
*
- ------------------------------ Director October 21, 1997
Richard T. Henshaw, III
*
- ------------------------------ Director October 21, 1997
G. T. Blankenship
*
- ------------------------------ Director October 21, 1997
Norman Steisel
*By: /s/ RICHARD DE YOUNG
-------------------------
Richard De Young
ATTORNEY-IN-FACT
II-3
<PAGE>
Exhibit 1.1
5,500,000 Shares
American Disposal Services, Inc.
Common Stock
UNDERWRITING AGREEMENT
October __, 1997
Oppenheimer & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Credit Suisse First Boston Corporation
c/o Oppenheimer & Co., Inc.
Oppenheimer Tower
World Financial Center
New York, New York 10281
On behalf of the Several
Underwriters named in
Schedule I attached hereto.
Gentlemen:
American Disposal Services, Inc., a Delaware corporation (the
"Company"), and the stockholders named on Schedule II to this Agreement (the
"Selling Stockholders") propose to sell to you and the other underwriters named
in Schedule I to this Agreement (the "Underwriters"), for whom you are acting as
Representatives, an aggregate of 5,500,000 shares (the "Firm Shares") of the
Company's common stock, $0.01 par value (the "Common Stock"), of which 3,500,000
shares are to be issued and sold by the Company and 2,000,000 shares are to be
sold by the Selling Stockholders. In addition, the Company proposes to grant to
the Underwriters an option to purchase up to an additional 825,000 shares (the
"Option Shares") of Common Stock from it for the purpose
<PAGE>
of covering over-allotments in connection with the sale of the Firm Shares.
The Firm Shares and the Option Shares are together called the "Shares."
1. Sale and Purchase of the Shares. On the basis of the
representations, warranties and agreements contained in, and subject to the
terms and conditions of, this Agreement:
(a) The Company and the Selling Stockholders agree, severally and not
jointly, to sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company and the
Selling Stockholders, at $_____ per share (the "Initial Price"), the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I to this Agreement.
(b) The Company grants to the several Underwriters an option to
purchase, severally and not jointly, all or any part of the Option Shares
at the Initial Price. The number of Option Shares to be purchased by each
Underwriter shall be the same percentage (adjusted by the Representatives
to eliminate fractions) of the total number of Option Shares to be
purchased by the Underwriters as such Underwriter is purchasing of the Firm
Shares. Such option may be exercised only to cover over-allotments in the
sales of the Firm Shares by the Underwriters and may be exercised in whole
or in part at any time on or before 12:00 noon, New York City time, on the
business day before the Firm Shares Closing Date (as defined below), and
only once thereafter within 30 days after the date of this Agreement, in
each case upon written or telegraphic notice, or verbal or telephonic
notice confirmed by written or telegraphic notice, by the Representatives
to the Company no later than 12:00 noon, New York City time, on the
business day before the Firm Shares Closing Date or at least two business
days before the Option Shares Closing Date (as defined below), as the case
may be, setting forth the number of Option Shares to be purchased and the
time and date (if other than the Firm Shares Closing Date) of such
purchase.
2. Delivery and Payment. Delivery by the Company and the Selling
Stockholders of the Firm Shares to the Representatives for the respective
accounts of the Underwriters, and payment of the purchase price by certified or
official bank check or checks payable in New York Clearing House (same day)
funds to the Company and the Selling Stockholders, shall take place at the
offices of Oppenheimer & Co., Inc., at Oppenheimer Tower, World Financial
Center, New York, New York 10281, at 10:00 a.m., New York City time, on the
third business day following the date of this Agreement, provided, however, that
if the Shares sold hereunder are priced after 4:30 p.m., New York time, on any
business day, payment and delivery in respect of the Firm Shares shall take
place on the fourth business day following the date of this Agreement; if it is
determined that settlement within the foregoing time frame is not feasible, then
payment and delivery in respect of the Firm Shares shall occur at such time on
such other date, not later than 10 business days after the date of this
Agreement, as shall be agreed upon by the Company and the Representatives (such
time and date of delivery and payment are called the "Firm Shares Closing
Date").
-2-
<PAGE>
In the event the option with respect to the Option Shares is
exercised, delivery by the Company of the Option Shares to the Representatives
for the respective accounts of the Underwriters and payment of the purchase
price by certified or official bank check or checks payable in New York Clearing
House (same day) funds to the Company shall take place at the offices of
Oppenheimer & Co., Inc. specified above at the time and on the date (which may
be the same date as, but in no event shall be earlier than, the Firm Shares
Closing Date) specified in the notice referred to in Section 1(b) (such time and
date of delivery and payment are called the "Option Shares Closing Date"). The
Firm Shares Closing Date and the Option Shares Closing Date are called,
individually, a "Closing Date" and, together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in such names
and shall be in such denominations as the Representatives shall request at least
two full business days before the Firm Shares Closing Date or, in the case of
Option Shares, on the day of notice of exercise of the option as described in
Section l(b) and shall be made available to the Representatives for checking and
packaging, at such place as is designated by the Representatives, at least one
full business day before the Firm Shares Closing Date (or the Option Shares
Closing Date in the case of the Option Shares).
3. Registration Statement and Prospectus; Public Offering. The
Company has prepared in conformity with the requirements of the Securities Act
of 1933, as amended (the "Securities Act"), and the published rules and
regulations thereunder (the "Rules") adopted by the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (No.
333-36389), including a preliminary prospectus relating to the Shares, and has
filed with the Commission the registration statement and such amendments thereto
as may have been required to the date of this Agreement. Copies of such
Registration Statement (including all amendments thereto) and of the related
preliminary prospectus have heretofore been delivered by the Company to you.
The Company may also file a related registration statement with the Commission
pursuant to Rule 462(b) under the Securities Act for the purpose of registering
additional Shares, which registration shall be effective upon filing with the
Commission. The term "Registration Statement" means the Registration Statement
as amended at the time and on the date it becomes effective (the "Effective
Date"), including all exhibits and information, if any, deemed to be part of the
Registration Statement pursuant to Rule 424(a), Rule 430A and Rule 462(b) of the
Rules. The term "preliminary prospectus" means any preliminary prospectus (as
described in Rule 430 of the Rules) included at any time as a part of the
Registration Statement. The term "Prospectus" means the prospectus in the form
first used to confirm sales of the Shares (whether such prospectus was included
in the Registration Statement at the time of effectiveness or was subsequently
filed with the Commission pursuant to Rule 424(b) of the Rules) or the
preliminary prospectus forming part of the Registration Statement at the time it
was declared effective together with the term sheet permitted under Rule 434(b)
and filed with the Commission pursuant to Rule 424(b), as applicable.
The Company and the Selling Stockholders understand that the
Underwriters propose to make a public offering of the Shares, as set
forth in and pursuant to the Prospectus, as soon after the Effective
Date and the date of this Agreement as the Representatives deem
advisable. The
-3-
<PAGE>
Company and the Selling Stockholders hereby confirm that the Underwriters and
dealers have been authorized to distribute or cause to be distributed each
preliminary prospectus and are authorized to distribute the Prospectus (as
from time to time amended or supplemented if the Company furnishes amendments
or supplements thereto to the Underwriters).
4. Representations and Warranties of the Company and the
Selling Stockholders.
(A) The Company hereby represents and warrants to each
Underwriter as follows:
(a) On the Effective Date the Registration Statement
complied, and on the date of the Prospectus, on the date any
post-effective amendment to the Registration Statement or any
related registration statement filed with the Commission pursuant
to Rule 462(b) of the Rules shall become effective, on the date
any supplement or amendment to the Prospectus is filed with the
Commission and on each Closing Date, the Registration Statement
and the Prospectus (and any amendment thereof or supplement
thereto) will comply in all material respects with the applicable
provisions of the Securities Act and the Rules and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations of the Commission thereunder; the
Registration Statement did not, as of the Effective Date, contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order
to make the statements therein not misleading; and on the other
dates referred to above neither the Registration Statement nor
the Prospectus, nor any amendment thereof or supplement thereto,
will contain any untrue statement of a material fact or will omit
to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading.
When any related preliminary prospectus was first filed with the
Commission (whether filed as part of the Registration Statement
or any amendment thereto or pursuant to Rule 424(a) of the Rules)
and when any amendment thereof or supplement thereto was first
filed with the Commission, such preliminary prospectus as amended
or supplemented complied in all material respects with the
applicable provisions of the Securities Act and the Rules and did
not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading.
The Company makes no representation or warranty as to any
information contained in or omitted from (i) the paragraphs with
respect to stabilization or affiliate transactions on the inside
front cover page of the Prospectus and (ii) the statements
contained under the caption "Underwriting" in the Prospectus.
The Company and the Selling Stockholders acknowledge that such
statements constitute the only information furnished in writing
by the Representatives on behalf of the several Underwriters
specifically for inclusion in the Registration Statement, any
preliminary prospectus or the Prospectus.
-4-
<PAGE>
(b) All contracts and other documents required to be filed
as exhibits to the Registration Statement have been filed with
the Commission as exhibits to the Registration Statement.
(c) The financial statements of the Company (including all
notes thereto) included in the Registration Statement and
Prospectus fairly present the financial position, the results of
operations, stockholders' equity and cash flows and the other
information purported to be shown therein of the Company at the
respective dates and for the respective periods to which they
apply; and such financial statements have been prepared in
conformity with generally accepted accounting principles,
consistently applied throughout the periods involved, and all
adjustments necessary for a fair presentation of the results for
such periods have been made. There are no schedules required to
be included in the Registration Statement in order to present
fairly in all material respects the information required to be
stated therein; and the historical financial information and
statistical data set forth in the Prospectus under the captions
"Summary Consolidated Financial Information," "Capitalization"
and "Selected Consolidated Financial Data" are fairly stated in
all material respects in relation to the financial statements
from which they have been derived. The pro forma financial data
included in the Registration Statement and the Prospectus present
fairly the information shown therein, comply in all material
respects with the requirements of the Securities Act and the
Rules and Regulations with respect to pro forma financial
statements, have been properly compiled on the pro forma basis
described therein and the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances
referred to therein.
(d) Ernst & Young LLP, whose reports are filed with the
Commission as a part of the Registration Statement, is and,
during the periods covered by its reports, was an independent
public accountant as required by the Securities Act and the
Rules.
(e) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the
State of Delaware. Each subsidiary of the Company has been duly
incorporated or formed and is an existing corporation in good
standing under the laws of the jurisdiction of its incorporation
or organization. The Company has no subsidiary or subsidiaries
other than as set forth on Schedule III and Schedule IV hereto
(collectively, the "Subsidiaries") and does not control, directly
or indirectly, any other corporation, partnership, joint venture,
association or other business organization. Each of the Company
and its subsidiaries is duly qualified and in good standing as a
foreign corporation in each jurisdiction in which the character
or location of its assets or properties (owned, leased or
licensed) or the nature of its business makes such qualification
necessary, except for such jurisdictions where the failure to so
qualify individually or in the aggregate would not have a
material adverse effect on the assets or properties, business,
results of operations or financial condition of the Company and
its subsidiaries, taken as a whole, and the Company has not
received any claim or notice
-5-
<PAGE>
from any official authority in any
jurisdiction that it is required to be qualified or licensed to
do business in any such jurisdiction in which it is not so
qualified or licensed. Except as disclosed in the Registration
Statement and the Prospectus, the Company and its subsidiaries do
not own, lease or license any asset or property or conduct any
business outside the United States of America. Each of the
Company and its subsidiaries has all requisite corporate power
and authority, and all necessary authorizations, approvals,
consents, orders, licenses, certificates and permits of and from
all governmental or regulatory bodies or any other person or
entity, to own, lease and license its assets and properties and
conduct its businesses as now being conducted and as described in
the Registration Statement and the Prospectus, except for such
authorizations, approvals, consents, orders, licenses,
certificates and permits which, if not obtained, would not have a
material adverse effect on the assets or properties, business,
results of operations or financial condition of the Company and
its subsidiaries, taken as a whole; no such authorization,
approval, consent, order, license, certificate or permit contains
a materially burdensome restriction other than as disclosed in
the Registration Statement and the Prospectus; and the Company
has all such corporate power and authority, and such
authorizations, approvals, consents, orders, licenses,
certificates and permits to enter into, deliver and perform this
Agreement and to issue and sell the Shares (except as may be
required under the Securities Act, the Exchange Act and state and
foreign Blue Sky laws).
(f) Except as disclosed in the Registration Statement and
the Prospectus, the Company owns or possesses adequate and
enforceable rights to use all (to the extent any of them exist)
patents, patent applications, trademarks, trademark applications,
service marks, copyrights, copyright applications, licenses and
other similar rights (collectively, the "Intangibles") necessary
for the conduct of its business as now being conducted and as
described in the Registration Statement and the Prospectus. The
Company has not infringed, is not infringing, and has not
received any notice of infringement of, any Intangible of any
other person and the Company does not know of any basis therefor
except for such infringements which individually or in the
aggregate would not have a material adverse effect on the assets
or properties, business, results of operations or financial
condition of the Company and its subsidiaries, taken as a whole.
The Company has not received any notice of infringement of any of
its Intangibles and the Company does not know of any basis
therefor.
(g) Each of the Company and its subsidiaries has good and
marketable title in fee simple to each of the items of personal
property which are reflected in the financial statements referred
to in Section 4(A)(c) or are referred to in the Registration
Statement and the Prospectus as being owned by it and valid and
enforceable leasehold interests in each of the items of real and
personal property which are referred to in the Registration
Statement and the Prospectus as being leased by it, in each case
free and clear of all liens, encumbrances, claims, security
interests and defects, other than those described in the
Registration Statement and the Prospectus and other than those
that could not materially
-6-
<PAGE>
affect the value thereof or materially
interfere with the use made or presently contemplated to be made
thereof by them.
(h) Except as disclosed in the Registration Statement and
the Prospectus, there is no litigation or governmental or other
proceeding or investigation before any court or before or by any
public body or board pending or, to the best of the Company's
knowledge, threatened (and the Company does not know of any basis
therefor) against, or involving the assets, properties or
businesses of, the Company or any of its subsidiaries which, if
determined adversely to the Company or any of its subsidiaries,
would materially adversely affect the value or the operation of
any such assets or properties or the business, results of
operations or financial condition of the Company and its
subsidiaries, taken as a whole, or would materially and adversely
affect the ability of the Company to perform its obligations
under this Agreement.
(i) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, except as described therein, there has not been any
material adverse change in the assets or properties, business,
results of operations or financial condition of the Company and
its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business; each of the
Company and its subsidiaries has not entered into any
transaction, other than in the ordinary course of business, that
is material to the Company and its subsidiaries, taken as a
whole; each of the Company and its subsidiaries has not sustained
any material loss or interference with its assets, businesses or
properties from fire, explosion, earthquake, flood or other
calamity, whether or not covered by insurance, or from any labor
dispute or any court or legislative or other governmental action,
order or decree. Since the date of the latest balance sheet
included in the Registration Statement and the Prospectus, except
as reflected in the Registration Statement and the Prospectus,
each of the Company and its subsidiaries has not undertaken any
liability or obligation, direct or contingent, except for
liabilities or obligations undertaken in the ordinary course of
business.
(j) Each agreement listed in the Exhibits to the
Registration Statement is in full force and effect and is valid
and enforceable by the Company or one of its subsidiaries in
accordance with its terms, except where the failure of any such
agreement to be in full force and effect and valid and
enforceable by the Company or one of its subsidiaries in
accordance with its terms would not have a material adverse
effect on the assets or properties, business, results of
operations or financial condition of the Company and
-7-
<PAGE>
its subsidiaries, taken as a whole, assuming the due authorization,
execution and delivery thereof by each of the other parties
thereto. Neither the Company, nor to the best of the Company's
knowledge, any other party is in default in the observance or
performance of any term or obligation to be performed by it under
any such agreement, and no event has occurred which with notice
or lapse of time or both would constitute such a default which
default or event would have a material adverse effect on the
assets or properties, business, results of operations or
financial condition of the Company and its subsidiaries, taken as
a whole. No default exists, and no event has occurred which with
notice or lapse of time or both would constitute a default, in
the due performance and observance of any term, covenant or
condition, by the Company of any other indenture, mortgage, deed
of trust, note or any other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which any of
them or their properties or businesses is bound or affected which
default or event would have a material adverse effect on the
assets or properties, business, results of operations or
financial condition of the Company and its subsidiaries, taken as
a whole.
(k) Each of the Company and its subsidiaries is not in
violation of any term or provision of its charter or by-laws or
of any franchise, license, permit, judgment, decree, order,
statute, rule or regulation, where the consequences of such
violation would have a material adverse effect on the assets or
properties, business, results of operations or financial
condition of the Company.
(l) Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation of any of the
transactions contemplated hereby or thereby (including, without
limitation, the issuance and sale by the Company of the Shares)
will (i) give rise to a right to terminate or accelerate the due
date of any payment due under, or conflict with or result in the
breach of any term or provision of, or constitute a default (or
any event which with notice or lapse of time or both would
constitute a default) under, or require any consent or waiver
under, or result in the execution or imposition of any lien,
charge or encumbrance upon any properties or assets of the
Company or any of its subsidiaries pursuant to the terms of, any
indenture, mortgage, deed of trust, note or other agreement or
instrument to which the Company or any of its subsidiaries, is a
party or by which any of them or their properties or businesses
is bound, or any franchise, license, permit, judgment, decree,
order, statute, rule or regulation applicable to the Company or
any of its subsidiaries, except for such terminations,
accelerations, conflicts, breaches, defaults and events which
would not, individually or in the aggregate, result in a material
adverse effect on the assets or properties, business, results of
operations or financial condition of the Company and its
subsidiaries, taken as a whole, or (ii) violate any provision of
the charter or by-laws of the Company or any of its subsidiaries.
(m) The Company has 60,000,000 authorized shares of Common
Stock, 14,804,542 of which are issued and outstanding. As of
June 30, 1997, the Company had an authorized and outstanding
capitalization as set forth under the caption "Capitalization" in
the Prospectus. All of the outstanding shares of Common Stock
have been duly and validly authorized and have been duly and
validly issued and are fully paid and nonassessable and none of
them was issued in violation of any preemptive or other similar
statutory right. The Shares, when issued and sold pursuant to
this Agreement, will be duly and validly issued, fully paid and
nonassessable and none of them will be issued in violation of any
preemptive or other similar statutory right. Except as disclosed
in the
-8-
<PAGE>
Registration Statement and the Prospectus, there is no
outstanding option, warrant or other right calling for the
issuance of, and no commitment, plan or agreement to issue, any
share of stock of the Company or any security convertible into,
or exercisable or exchangeable for, stock of the Company. The
Common Stock and the undesignated preferred stock, $0.01 par
value (the "Preferred Stock") and the Shares conform to all
statements in relation thereto contained in the Registration
Statement and the Prospectus. No shares of Preferred Stock are
issued and outstanding.
(n) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, except as described or referred to therein, the
Company has not (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed
money, (ii) entered into any transaction not in the ordinary
course of business or (iii) declared or paid any dividend or made
any distribution on any shares of its stock or redeemed,
purchased or otherwise acquired or agreed to redeem, purchase or
otherwise acquire any shares of its stock.
(o) No holder of any security of the Company has any
right to have any security owned by such holder included in the
Registration Statement (not heretofore waived). Holders of
168,905 shares of Common Stock may demand separate registration
of such Common Stock during the period ending 180 days from the
date of this Agreement. The Company has obtained from all
officers and directors of the Company and Charterhouse
Environmental Holdings, L.L.C., Charterhouse Equity Partners II,
L.P. and CDI Equity, LLC, who together, following the Offering,
will beneficially hold an aggregate of 3,456,799 shares of Common
Stock or options and warrants to purchase Common Stock, their
enforceable written agreement that for a period of at least 180
days from the date of this Agreement they will not, without the
prior written consent of the Representatives, sell, offer to
sell, distribute, pledge, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, or encumber, or
exercise any registration rights with respect to, any shares of
Common Stock, any options or warrants to purchase any shares of
Common Stock, or any securities convertible into or exchangeable
for shares of Common Stock now owned by them or hereafter
acquired or with respect to which they have or hereafter acquire
the power of disposition. Certain additional holders of the
Company's Common Stock who beneficially own an aggregate of
274,573 shares of Common Stock have agreed to similar
restrictions for a period of 90 days.
(p) All necessary corporate action has been duly and
validly taken by the Company to authorize the execution, delivery
and performance of this Agreement and the issuance and sale of
the Shares. This Agreement has been duly and validly executed
and delivered by the Company and constitutes and will constitute
the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms,
except (A) as the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent transfer, fraudulent
conveyance, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by
general equitable
-9-
<PAGE>
principles (whether considered in proceedings
in equity or at law) and (B) with respect to this Agreement, to
the extent that rights to indemnity or contribution under this
Agreement may be limited by federal, state or foreign securities
laws or the public policy underlying such laws.
(q) Each of the Company and its subsidiaries is
conducting its business in compliance with all applicable laws,
rules and regulations of the jurisdictions in which it is
conducting business, including, without limitation, all
applicable local, state and federal environmental laws and
regulations, except where the failure to be so in compliance
would not have a material adverse effect on the assets or
properties, business, results of operations or financial
condition of the Company and its subsidiaries, taken as a whole.
(r) No transaction has occurred between or among the
Company and any of its officers or directors or any affiliate or
affiliates of any such officer or director that is required to be
described in and is not described in the Registration Statement
and the Prospectus.
(s) The Company has not taken, nor will it take, directly
or indirectly, any action designed to or which might reasonably
be expected to cause or result in, or which has constituted or
which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of any of the Shares.
(t) The Company has filed all federal, state, local and
foreign tax returns which are required to be filed through the
date hereof, or has received extensions thereof, and has paid all
taxes shown on such returns and all assessments received by it,
except where the failure to file, extend the due date of or pay
the same, individually or in the aggregate would not have a
material adverse effect on the assets or properties, business,
results of operations or financial condition of the Company and
its subsidiaries, taken as a whole.
(u) The Shares have been approved for quotation on the
National Association of Securities Dealers Automated Quotation
("Nasdaq") National Market, subject to official notice of
issuance.
(B) Each Selling Stockholder, severally and not jointly,
represents and warrants as to such Selling Stockholder to each
Underwriter that:
(a) This Agreement, and such Selling Stockholder's Custody
Agreement and power of attorney (the "Custody Agreement" and
"Power of Attorney") among such Selling Stockholder,
_________________, as attorneys-in-fact, and _______________, as
custodian, have been duly and validly executed and delivered by
such Selling
-10-
<PAGE>
Stockholder and constitutes and will constitute the
legal, valid and binding obligation of such Selling Stockholder,
enforceable against such Selling Stockholder in accordance with
its terms, except (i) as the enforceability hereof and thereof
may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles and (ii) to the
extent that rights to indemnity or contribution under this
Agreement may be limited by federal and state securities laws or
the public policy underlying such laws.
(b) Such Selling Stockholder has good, valid and marketable
title to the Shares to be sold by such Selling Stockholder
pursuant to this Agreement, free and clear of all liens,
encumbrances, security interests, restrictions or claims
whatsoever, with the legal right and full power to enter into
this Agreement and to sell, transfer and deliver such Shares
hereunder and, upon the delivery of and payment for such Shares
as contemplated hereby, such Selling Stockholder will convey to
the Underwriters good, valid and marketable title to the Shares
being sold by such Selling Stockholder, free and clear of all
liens, encumbrances, security interests, restrictions or claims
whatsoever.
(c) All information with respect to such Selling
Stockholder furnished by or on behalf of such Selling Stockholder
for use in connection with the preparation of the Registration
Statement and Prospectus is true and correct in all material
respects and does not omit to state any material fact necessary
to make such information not misleading.
(d) No transaction has occurred between such Selling
Stockholder and the Company or any of its subsidiaries that is
required to be described in and is not described in the
Registration Statement and the Prospectus.
(e) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to or which
might reasonably be expected to cause or result in, or which has
constituted or which will reasonably be expected to constitute,
stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of any of the Shares.
(f) Such Selling Shareholder hereby repeats and confirms as
if set forth in full herein each of the representations,
warranties and agreements made by such Selling Shareholder in the
Custody Agreement and Power of Attorney and agrees that such
representations, warranties and agreements are made hereby for
the benefit of, and may be relied upon by, (i) the
Representatives, the Underwriters and Morgan, Lewis & Bockius
LLP, counsel to the Underwriters, (ii) the Company and Proskauer
Rose LLP, counsel to the Company, and (iii) each other Selling
Stockholder.
5. Conditions of the Underwriters' Obligations. The
obligations of the Underwriters under this Agreement are several and
not joint. The respective obligations of the Underwriters to purchase
the Shares are subject to each of the following terms and conditions:
11
<PAGE>
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(A)(a).
(b) No order preventing or suspending the use of any
preliminary prospectus or the Prospectus shall have been or shall
be in effect, and no order suspending the effectiveness of the
Registration Statement shall be in effect and no proceedings for
such purpose shall be pending before or threatened by the
Commission, and any requests for additional information on the
part of the Commission (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been
complied with to the satisfaction of the Representatives.
(c) The representations and warranties of the Company and
the Selling Stockholders contained in this Agreement and in the
certificates delivered pursuant to Section 5(d) and 5(e) shall be
true and correct when made and on and as of each Closing Date as
if made on such date and the Company and the Selling Stockholders
shall have performed all covenants and agreements and satisfied
all the conditions contained in this Agreement required to be
performed or satisfied by it or them at or before such Closing
Date.
(d) The Representatives shall have received on each Closing
Date a certificate, addressed to the Representatives and dated
such Closing Date, of the chief executive or chief operating
officer and the chief financial officer or chief accounting
officer of the Company, to the effect that the signers of such
certificate have carefully examined the Registration Statement,
the Prospectus and this Agreement and that the representations
and warranties of the Company in this Agreement are true and
correct on and as of such Closing Date with the same effect as if
made on such Closing Date and the Company has performed all
covenants and agreements and satisfied all conditions contained
in this Agreement required to be performed or satisfied by it at
or prior to such Closing Date.
(e) The Representatives shall have received on each Closing
Date a certificate, addressed to the Representatives and dated
such Closing Date, of each Selling Stockholder (or a responsible
officer thereof) to the effect that the representations and
warranties of such Selling Stockholder in this Agreement are true
and correct on and as of such Closing Date with the same effect
as if made on such Closing Date and such Selling Stockholder has
performed all covenants and agreements and satisfied all
conditions contained in this Agreement required to be performed
or satisfied by such Selling Stockholder at or prior to such
Closing Date.
(f) The Representatives shall have received at the time
this Agreement is executed and on each Closing Date a letter or
letters signed by Ernst & Young LLP, addressed to the
Representatives and dated, respectively, the date of this
Agreement and each such Closing Date, in form and substance
satisfactory to the Representatives, confirming that they are
independent accountants within the meaning of the Securities Act
12
<PAGE>
and the Rules, that the response to Item 10 of the Registration
Statement is correct insofar as it relates to them and stating in
effect that:
(i) in their opinion the audited financial statements
and financial statement schedules, if any, unaudited
financial statements and pro forma financial statements
included in the Registration Statement and the Prospectus
and reported on by them comply as to form in all material
respects with the applicable accounting requirements of the
Securities Act and the Rules;
(ii) on the basis of a reading of the amounts included
in the Registration Statement and the Prospectus under the
headings "Summary Consolidated Financial Information" and
"Selected Consolidated Financial Data"; a reading of the
minutes of the meetings of the stockholders and directors
and finance and audit committees of the Company; and
inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the
Company as to transactions and events subsequent to the date
of the latest audited financial statements, nothing came to
their attention which caused them to believe that:
(A) the amounts in "Summary Consolidated Financial
Information" and "Selected Consolidated Financial Data"
included in the Registration Statement and the
Prospectus do not agree with the corresponding amounts
in the audited financial statements from which such
amounts were derived; or
(B) the audited financial statements as of and
for the three years ended December 31, 1996 and the
unaudited financial statements for the six months ended
June 30, 1997 included in the Registration Statement
(i) do not comply in form in all material respects with
the applicable accounting requirements of the
Securities Act and the Rules and (ii) are not in
conformity with generally accepted accounting
principles applied on a basis substantially consistent
with that of the audited financial statements; or
(C) (i) with respect to the Company there were,
at a specified date not more than five business days
prior to the date of the letter, any increases in the
total current liabilities and long-term debt of the
Company or capital stock of the Company or decreases in
working capital (deficit) or total stockholders'
equity (deficit) of the Company, as compared with the
amounts shown on the Company's unaudited June 30, 1997
balance sheet included in the Registration Statement
and the Prospectus, or (ii) for the period from June
30, 1997 to such specified date not more than five
business days prior to the date of the letter, there
were any increases in net
13
<PAGE>
losses except for increases in net losses set forth in the
Registration Statement and the Prospectus, in which case the
Company shall deliver to the Representatives a letter containing
an explanation by the Company as to the significance thereof
unless said explanation is not deemed necessary by the
Representatives;
(iii) they have performed certain other procedures as a
result of which they determined that certain information of
an accounting, financial or statistical nature (which is
limited to accounting, financial or statistical information
derived from the general accounting records of the Company)
set forth in the Registration Statement and the Prospectus
and specified by the Representatives agrees with the
accounting records of the Company; and
(iv)on the basis of a reading of the unaudited
consolidated pro forma financial statements included in the
Registration Statement and the Prospectus (the "pro forma
financial statements"); carrying out certain specified
procedures; inquiries of certain officials of the Company
who have responsibility for financial and accounting
matters; and proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical
amounts in the pro forma financial statements, nothing came
to their attention which caused them to believe that the pro
forma financial statements do not comply in form in all
material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X or that the pro
forma adjustments have not been properly applied to the
historical amounts in the compilation of such statements.
References to the Registration Statement and the Prospectus in
this paragraph (e) are to such documents as amended and
supplemented at the date of the letter.
(g) [Intentionally omitted]
(h) The Representatives shall have received on each Closing
Date from Proskauer Rose LLP, counsel for the Company, an
opinion, addressed to the Representatives and dated such Closing
Date, and stating in effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of
the State of Delaware. Each Subsidiary of the Company set
forth on Schedule III hereto has been duly incorporated or
formed and is an existing corporation in good standing under
the laws of the jurisdiction of its incorporation or
organization.
(ii) Each of the Company and the Subsidiaries set forth
on Schedule III hereto has all requisite corporate power and
authority to own, lease and license its assets and
properties and conduct its business as now being conducted
and as
14
<PAGE>
described in the Registration Statement and the Prospectus;
and the Company has all requisite corporate power and authority
and all necessary governmental authorizations, approvals, consents,
orders, licenses, certificates and permits required pursuant to
New York State law, federal law and the General Corporation Law of the
State of Delaware or known to such counsel to be required
under the laws of other jurisdictions, and all other
necessary authorizations, approvals, consents, orders,
licenses, certificates and permits either called for by any
contracts or other documents of which such counsel has
knowledge or which are, to such counsel's knowledge,
otherwise required, to enter into, deliver and perform this
Agreement and to issue and sell the Shares, other than those
required under the Securities Act, the Exchange Act and
state and foreign Blue Sky laws.
(iii) The Company has 60,000,000 authorized shares of
Common Stock, 14,804,542 of which are issued and outstanding
of record; no shares of Preferred Stock are issued and
outstanding; as of June 30, 1997, the Company had an
authorized and outstanding capitalization of record as set
forth under the caption "Capitalization" in the Prospectus;
the certificates evidencing the Shares are in due and proper
legal form and have been duly authorized for issuance by the
Company; all of the outstanding shares of Common Stock of
the Company have been duly and validly authorized and have
been duly and validly issued and are fully paid and
nonassessable and none of them was issued in violation of
any preemptive or other similar statutory right. The
Shares, when issued and sold pursuant to this Agreement,
will be duly and validly issued, fully paid and
nonassessable and none of them will have been issued in
violation of any preemptive or other similar statutory
right. To such counsel's knowledge, except as disclosed in
the Registration Statement and the Prospectus, there is no
outstanding option, warrant or other right calling for the
issuance of, and no commitment, plan or agreement to issue,
any share of stock of the Company or any security
convertible into, or exercisable or exchangeable for, stock
of the Company. The Common Stock, the Preferred Stock and
the Shares conform to all statements in relation thereto
contained in the Registration Statement and the Prospectus
in all material respects.
(iv) All necessary corporate action has been duly and
validly taken by the Company to authorize the execution,
delivery and performance of this Agreement. This Agreement
has been duly and validly executed and delivered by the
Company and constitutes and will constitute the legal, valid
and binding obligation of the Company enforceable against
the Company in accordance with its terms except (A) as such
enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent transfer, fraudulent conveyance,
reorganization, moratorium or other similar laws affecting
the enforcement of creditors' rights generally and by
general equitable principles (whether considered in
proceedings in equity or at law) and (B) with respect to
this Agreement, to the
15
<PAGE>
extent that rights to indemnity or contribution under this Agreement
may be limited by federal, state or foreign securities laws or the
public policy underlying such laws.
(v) Neither the execution, delivery and performance of
this Agreement by the Company nor the consummation of any of
the transactions contemplated hereby (including, without
limitation, the issuance and sale by the Company of the
Shares) will (i) give rise to a right to terminate or
accelerate the due date of any payment due under, or
conflict with or result in the breach of any term or
provision of, or constitute a default (or any event which
with notice or lapse of time, or both, would constitute a
default) under, or require any consent or waiver under, or
result in the execution or imposition of any lien, charge or
encumbrance upon any properties or assets of the Company or
any of its subsidiaries pursuant to the terms of, any
indenture, mortgage, deed of trust, note or other agreement
or instrument of which such counsel has knowledge and to
which the Company or any of its subsidiaries is a party or
by which any of them or their properties or businesses is
bound, or any franchise, license, permit, judgment, decree,
order, statute, rule or regulation of which such counsel has
knowledge and applicable to the Company or any of its
subsidiaries, except for such terminations, accelerations,
conflicts, breaches, defaults and events which would not,
individually or in the aggregate, result in a material
adverse effect on the assets or properties, business,
results of operations or financial condition of the Company
and its subsidiaries, taken as a whole, or (ii) violate any
provision of the charter or by-laws of the Company or any of
its subsidiaries.
(vi) To such counsel's knowledge, no default exists,
and no event has occurred which with notice or lapse of time
or both would constitute a default, in the due performance
and observance of any term, covenant or condition, of any
indenture, mortgage, deed of trust, note or any other
agreement or instrument to which the Company or any of its
subsidiaries is a party or by which any of them or their
assets or properties or businesses is bound or affected
which default would have a material adverse effect on the
assets or properties, business, results of operations or
financial condition of the Company and its subsidiaries,
taken as a whole.
(vii)To such counsel's knowledge, each of the Company
and its subsidiaries is not in violation of any term or
provision of its charter or by-laws or of any franchise,
license, permit, judgment, decree, order, statute, rule or
regulation, where the consequences of such violation would
have a material adverse effect on the assets or properties,
businesses, results of operations or financial condition of
the Company and its subsidiaries, taken as a whole.
16
<PAGE>
(viii) No consent, approval, authorization or order of
any federal or New York State court or governmental agency
or body or under the General Corporation Law of the State of
Delaware or otherwise known to such counsel to be required
is required for the performance of this Agreement by the
Company or the consummation of the transactions contemplated
hereby, except such as have been obtained under the
Securities Act, the Exchange Act and such as may be required
under state securities or Blue Sky laws in connection with
the purchase and distribution of the Shares by the several
Underwriters.
(ix) Except as described in the Registration Statement
and the Prospectus, to such counsel's knowledge, there is no
litigation or governmental or other proceeding or
investigation before any court or before or by any public
body or board pending or threatened (and such counsel does
not know of any basis therefor) against, or involving the
assets, properties or businesses of, the Company or any of
its subsidiaries which, if determined adversely to the
Company or any of its subsidiaries, would materially
adversely affect the value or the operation of any such
assets or properties or the business, results of operations
or financial condition of the Company and its subsidiaries,
taken as a whole.
(x) The agreement of each of the Company, Charterhouse
Environmental Holdings, L.L.C., Charterhouse Equity Partners
II, L.P. and CDI Equity, LLC stating that for a period of
180 days from the date of the Prospectus they will not,
without the Representatives' prior written consent, sell,
offer to sell, distribute, pledge, grant any option for the
sale of, or otherwise dispose of, directly or indirectly, or
encumber, or exercise any registration rights with respect
to, any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock, or any securities
convertible into or exchangeable for shares of Common Stock
now owned by them or hereafter acquired or with respect to
which they have or hereafter acquire the power of
disposition has been duly and validly delivered by such
persons and constitutes a legal, valid and binding
obligation of each such person enforceable against each such
person in accordance with its terms, except as the
enforceability thereof may be limited by applicable
bankruptcy, insolvency, fraudulent transfer, fraudulent
conveyance, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and
by general equitable principles (whether considered in
proceedings in equity or at law). 3,731,372 shares of
Common Stock which are outstanding or issuable upon the
exercise of stock options or warrants or the conversion of
debt instruments of which such counsel has knowledge are
subject to a written agreement obtained by the Company
pursuant to Section 4(A)(o) of this Agreement.
(xi) The statements in the Prospectus under the
captions "Risk Factors--Extensive Environmental and Land Use
Laws and Regulations"; "--Anti-
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Takeover Provisions"; "--Shares Eligible for Future Sale; Possible
Adverse Effect on Future Market Price"; "Description of Capital Stock"
and "Shares Eligible for Future Sale" insofar as such statements
constitute a summary of documents referred to therein or
matters of law, are fair summaries of the material
provisions thereof and accurately present in all material
respects the information called for with respect to such
documents and matters. All contracts and other documents
required to be filed as exhibits to, or described in, the
Registration Statement of which such counsel has knowledge
have been so filed with the Commission or are fairly
described in the Registration Statement, as the case may be.
(xii) The Registration Statement, all preliminary
prospectuses and the Prospectus and each amendment or
supplement thereto (except for the financial statements and
notes and other financial and statistical data included
therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the
requirements of the Securities Act and the Rules.
(xiii) The Registration Statement has become effective
under the Securities Act, and no stop order suspending the
effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or
are threatened, pending or contemplated.
To the extent deemed advisable by such counsel, they may
rely as to matters of fact on certificates of responsible officers of
the Company and public officials and on the opinions of other counsel
satisfactory to the Representatives as to matters which are governed
by laws other than the laws of the State of New York, the General
Corporation Law of the State of Delaware and the federal laws of the
United States; provided that such counsel shall state that in their
opinion the Underwriters and they are justified in relying on such
other opinions. Such counsel shall also state that in connection with
rendering the opinions in (i) and (ii) of this Section 5(h), such
counsel has assumed that the corporation laws of the States of
Missouri, Kansas, Ohio, Illinois and Oklahoma are identical to the
General Corporation Law of the State of Delaware. Copies of such
certificates and other opinions shall be furnished to the
Representatives and counsel for the Underwriters.
In addition, such counsel shall state in a separate letter
to the Representatives that such counsel has participated in
conferences with certain officers of, and with the accountants and
counsel for, the Company and representatives of the Representatives
concerning the preparation of the Registration Statement, the
preliminary prospectus and the Prospectus. Such separate letter shall
also state that although such counsel has made certain inquiries and
investigations in connection with the preparation of the Registration
Statement, such counsel did not independently verify the accuracy or
completeness of the statements made therein or in the preliminary
prospectus or in the Prospectus and the limitations inherent in the
role of outside counsel are such that such counsel cannot and does not
assume responsibility for or pass on the accuracy and completeness of
such statements, except insofar as such statements relate to such
counsel. On the basis of the foregoing, such counsel shall state that
its work in connection with this matter did not disclose any
information that caused such
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counsel to believe that the Registration Statement at the time it became
effective (except with respect to the financial statements and notes and
schedules thereto and other financial and statistical data, as to which such
counsel need make no statement) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus as of its date and as of the date of such letter, contained or
contains an untrue statement of a material fact or omitted or omits to state
a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading (other
than financial statements and other information of a statistical, accounting,
or financial nature which are or should be contained therein, as to which
such counsel shall express no view).
(i) [intentionally omitted]
(j) The Representatives shall have received on each Closing
Date from counsel for each of the Selling Stockholders, an
opinion, addressed to the Representatives and dated such Closing
Date, and stating in effect that:
(i) Such Selling Stockholder has been duly organized,
validly existing and in good standing under the laws of the
state of the jurisdiction of its organization. Such Selling
Stockholder has all requisite power and authority
(corporate, partnership or otherwise) and all necessary
authorizations, approvals, consents, orders, licenses,
certificates and permits to enter into, deliver and perform
this Agreement and the Custody Agreement and Power of
Attorney and to sell the Shares to be sold by it hereunder,
other than those required under the Securities Act and state
and foreign Blue Sky laws. This Agreement has been duly and
validly authorized, executed and delivered by such Selling
Stockholder and constitutes the legal and valid obligation
of such Selling Stockholder.
(ii) No consent, approval, authorization or order of
any Federal or state court or governmental agency or body is
required for the performance of this Agreement and the
Custody Agreement and Power of Attorney by such Selling
Stockholder or the sale by such Selling Stockholder of the
Shares to be sold by it hereunder, except such as have been
obtained under the Securities Act and such as may be
required under state securities or Blue Sky laws in
connection with the purchase and distribution of such Shares
by the several Underwriters (as to which such counsel need
express no opinion) and such as may be required under the
rules of the National Association of Securities Dealers,
Inc. with respect to the underwriting arrangements reflected
in this Agreement (as to which such counsel need express no
opinion).
(iii) To the best of such counsel's knowledge, there is
no litigation or governmental or other proceeding or
investigation before any court or before or by any public
body or board pending or threatened against, or involving
the assets,
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properties or business of, such Selling Stockholder, which might
have a material adverse effect upon the ability of such Selling
Stockholder to perform its obligations under this Agreement.
(iv) Each of the Underwriters has received good and
valid title to the Shares being sold by such Selling
Stockholder hereunder, free and clear of any liens,
encumbrances, security interests and claims whatsoever.
To the extent deemed advisable by such counsel, they may
rely as to matters of fact on certificates of responsible officers of
the Company, the Selling Stockholders and public officials. Copies of
such certificates shall be furnished to the Representatives and
counsel for the Underwriters.
(k) All proceedings taken in connection with the sale of
the Firm Shares and the Option Shares as herein contemplated
shall be reasonably satisfactory in form and substance to the
Representatives and their counsel and the Underwriters shall have
received from Morgan, Lewis & Bockius LLP a favorable opinion,
addressed to the Representatives and dated such Closing Date,
with respect to the Shares, the Registration Statement and the
Prospectus, and such other related matters, as the
Representatives may reasonably request, and the Company and the
Selling Stockholders shall have furnished to Morgan, Lewis &
Bockius LLP such documents as they may reasonably request for the
purpose of enabling them to pass upon such matters.
(l) The Representatives shall have received on each Closing
Date a certificate, including exhibits thereto, addressed to the
Representatives and dated such Closing Date, of the Secretary or
an Assistant Secretary of the Company, signed in such officer's
capacity as such officer, as to the (i) certificate of
incorporation and bylaws of the Company, (ii) resolutions
authorizing the execution and delivery of the Registration
Statement, this Agreement and the performance of the transactions
contemplated by this Agreement, the Registration Statement, the
Prospectus and the offering of the Shares, and (iii) incumbency
of the person or persons authorized to execute and deliver the
Registration Statement, this Agreement and any other documents
contemplated by the offering of the Shares.
(m) The Representatives shall have received on each Closing
Date certificates of the Secretaries of State of each State where
the Company or any of its subsidiaries is incorporated and doing
business as to the good standing of the Company or such
subsidiary, listing all charter documents on file, if applicable,
qualification of the Company or such subsidiary to do business as
a foreign corporation, if applicable, payment of taxes and filing
of annual reports. In addition, the Representatives shall have
received copies of all charter documents of the Company, County
Disposal, Inc. and ADS, Inc. certified by the Secretary of State
of the State of such corporation's incorporation.
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6. Covenants of the Company and the Selling Stockholders.
(A) The Company, and where specifically stated to be a covenant of the
Selling Stockholders, each of the Selling Stockholders, covenants and
agrees as follows:
(a) The Company shall prepare the Prospectus in a form
approved by the Representatives and file such Prospectus pursuant
to Rule 424(b) under the Securities Act not later than the
Commission's close of business on the second business day
following the execution and delivery of this Agreement, or, if
such second business day would be more than fifteen business days
after the Effective Date of the Registration Statement or any
post-effective amendment thereto, such earlier date as would
permit such Prospectus to be filed without filing a
post-effective amendment as set forth in Rule 430A(a)(3) under
the Securities Act and shall promptly advise the Representatives
(i) when the Registration Statement shall have become effective,
(ii) when any amendment thereof or any related registration
statement filed with the Commission pursuant to Rule 462(b) of
the Rules shall have become effective, (iii) of any request by
the Commission for any amendment of the Registration Statement or
the Prospectus or for any additional information, (iv) of the
prevention or suspension of the use of any preliminary prospectus
or the Prospectus or of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration
Statement or the institution or threatening of any proceeding for
that purpose and (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification
of the Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose. If contemplated
by this Agreement, the Company shall prepare and file with the
Commission in conformity with the Securities Act and the Rules a
related registration statement pursuant to Rule 462(b) under the
Securities Act for the purpose of registering additional shares.
The Company shall not file any amendment of the Registration
Statement or amendment or supplement to the Prospectus unless the
Company has furnished the Representatives a copy for its review
prior to filing and shall not file any such proposed amendment or
supplement to which the Representatives reasonably object. The
Company shall use its best efforts to prevent the issuance of any
such stop order and, if issued, to obtain as soon as possible the
withdrawal thereof.
(b) If, at any time when a prospectus relating to the
Shares is required to be delivered under the Securities Act and
the Rules, any event occurs as a result of which the Prospectus
as then amended or supplemented would include any untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it
shall be necessary to amend or supplement the Prospectus to
comply with the Securities Act or the Rules, the Company promptly
shall prepare and file with the Commission, subject to the third
sentence of paragraph (a) of this Section 6(A), an amendment or
supplement which shall correct such statement or omission or an
amendment which shall effect such compliance.
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(c) The Company shall make generally available to its
security holders and to the Representatives as soon as
practicable, but not later than 45 days after the end of the
12-month period beginning at the end of the fiscal quarter of the
Company during which the Effective Date occurs (or 90 days if
such 12-month period coincides with the Company's fiscal year),
an earnings statement (which need not be audited) of the Company,
covering such 12-month period, which shall satisfy the provisions
of Section 11(a) of the Securities Act or Rule 158 of the Rules.
(d) The Company shall furnish to the Representatives and
counsel for the Underwriters, without charge, signed copies of
the Registration Statement (including all exhibits thereto and
amendments thereof) and to each other Underwriter a copy of the
Registration Statement (without exhibits thereto) and all
amendments thereof and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Securities Act or
the Rules, as many copies of any preliminary prospectus and the
Prospectus and any amendments thereof and supplements thereto as
the Representatives may reasonably request.
(e) The Company and the Selling Stockholders shall
cooperate with the Representatives and their counsel in
endeavoring to qualify the Shares for offer and sale under the
laws of such jurisdictions as the Representatives may designate
and shall maintain such qualifications in effect so long as
required for the distribution of the Shares; provided, however,
that neither the Company nor the Selling Stockholders shall be
required in connection therewith, as a condition thereof, to
qualify as a foreign corporation or to execute a general consent
to service of process in any jurisdiction or subject itself to
taxation as doing business in any jurisdiction.
(f) For a period of five years after the date of this
Agreement, the Company shall supply to the Representatives, and
to each other Underwriter who may so request in writing, copies
of such financial statements and other periodic and special
reports as the Company may from time to time distribute generally
to the holders of any class of its capital stock and to furnish
to the Representatives a copy of each annual or other report it
shall be required to file with the Commission.
(g) Without the prior written consent of the
Representatives, for a period of 180 days after the date of this
Agreement, the Company shall not issue, sell or register with the
Commission, or otherwise encumber or dispose of, directly or
indirectly, any equity securities of the Company (or any
securities convertible into or exercisable or exchangeable for
equity securities of the Company), except for (i) the issuance of
the Shares pursuant to the Registration Statement, (ii) the
issuance of shares pursuant to the exercise of outstanding
options under the Company's existing stock option plans, (iii) in
connection with an acquisition by the Company of another entity
pursuant to which the Company sells or transfers any of its
shares of Common Stock to a third party as part or all of the
purchase price of such entity; provided, however, that prior to
any sale or
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transfer, the Company shall use commercially reasonable efforts
to obtain the agreement of such third party in writing with the
Representatives that it will not sell, offer to sell, distribute,
pledge, grant any option for the sale of, or otherwise dispose
of, directly or indirectly, or encumber, or exercise any
registration rights with respect to, such shares of Common Stock,
any options or warrants to purchase any shares of Common Stock,
or any securities convertible into or exchangeable for shares of
Common Stock for the remainder of the 180 days after the date of
this Agreement, and (iv) the sale or transfer by the Company of
shares of Common Stock in connection with the hiring of officers
or directors not previously employed by the Company; provided,
however, that prior to any sale or transfer, such officer or
director shall have agreed in writing with the Representatives
that he or she will not sell, offer to sell, distribute, pledge,
grant any option for the sale of, or otherwise dispose of,
directly or indirectly, or encumber, or exercise any registration
rights with respect to, such shares of Common Stock, any options
or warrants to purchase any shares of Common Stock, or any
securities convertible into or exchangeable for shares of Common
Stock for the remainder of the 180 days after the date of this
Agreement.
(h) On or before completion of this offering, the Company
shall make all filings required under applicable securities laws
and by the Nasdaq National Market (including any required
registration under the Exchange Act).
(B) The Company agrees to pay, or reimburse if paid by the
Representatives, whether or not the transactions contemplated hereby
are consummated or this Agreement is terminated, all costs and
expenses of the Company and the Selling Stockholders incident to the
public offering of the Shares and the performance of the obligations
of the Company under this Agreement including those relating to (i)
the preparation, printing, filing and distribution of the Registration
Statement including all exhibits thereto, each preliminary prospectus,
the Prospectus, all amendments and supplements to the Registration
Statement and the Prospectus, and the printing, filing and
distribution of this Agreement; (ii) the preparation and delivery of
certificates for the Shares to the Underwriters; (iii) the
registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of the various jurisdictions referred
to in Section 6(A)(e), including the fees and disbursements of counsel
for the Underwriters in connection with such registration and
qualification and the preparation, printing, distribution and shipment
of preliminary and supplementary Blue Sky memoranda (it being
understood that the Company shall not be responsible for the fees and
disbursements of counsel for the Underwriters other than as described
in this Section 6(B)(iii)); (iv) the furnishing (including costs of
shipping and mailing) to the Representatives and to the Underwriters
of copies of each preliminary prospectus, the Prospectus and all
amendments or supplements to the Prospectus, and of the several
documents required by this Section to be so furnished, as may be
reasonably requested for use in connection with the offering and sale
of the Shares by the Underwriters or by dealers to whom Shares may be
sold; (v) the filing fees of the National Association of Securities
Dealers, Inc. in connection with its review of the terms of the public
offering; (vi) the furnishing (including costs of shipping and
mailing) to the Representatives
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and to the Underwriters of copies of all reports and information
required by Section 6(A)(f); and (vii) inclusion of the Shares for
quotation on the Nasdaq National Market.
7. Indemnification.
(a) The Company and the Selling Stockholders agree to
indemnify and hold harmless each Underwriter and each person, if
any, who controls any Underwriter within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act
against any and all losses, claims, damages and liabilities,
joint or several (including any reasonable investigation, legal
and other expenses incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they, or any of them, may become
subject under the Securities Act, the Exchange Act or other
federal or state law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities arise out
of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any preliminary
prospectus, the Registration Statement or the Prospectus or any
amendment thereof or supplement thereto, or arise out of or are
based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that
such indemnity shall not inure to the benefit of any Underwriter
(or any person controlling such Underwriter) on account of any
losses, claims, damages or liabilities arising from the sale of
the Shares to any person by such Underwriter (i) if such untrue
statement or omission or alleged untrue statement or omission was
made in such preliminary prospectus, the Registration Statement
or the Prospectus, or such amendment or supplement, in reliance
upon and in conformity with information furnished in writing to
the Company by the Representatives on behalf of any Underwriter
specifically for use therein or, (ii) as to any preliminary
prospectus, with respect to any Underwriter, to the extent that
any such loss, claim, damage or liability of such Underwriter
results from an untrue statement of a material fact contained in,
or the omission of a material fact from, such preliminary
prospectus, which untrue statement or omission was corrected in
the Prospectus, if such Underwriter sold Shares to the person
alleging such loss, claim, damage or liability without sending or
giving, at or prior to the written confirmation of such sale, a
copy of the Prospectus, unless such failure resulted from the
failure of the Company to deliver copies of the Prospectus to
such Underwriter on a timely basis to permit such sending or
giving; provided, further, that no Selling Stockholder shall be
responsible for losses, claims, damages or liabilities arising
out of or based upon such untrue statement or alleged untrue
statement or omission thereof based upon information other than
information provided in writing by such Selling Stockholder
expressly for use in the Registration Statement. This indemnity
agreement will be in addition to any liability which the Company
or the Selling Stockholders may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling
Stockholders, each person, if any, who controls the
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Company or the Selling Stockholders within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange
Act, each director of the Company, and each officer of the
Company who signs the Registration Statement, to the same
extent as the foregoing indemnity from the Company and the
Selling Stockholders to each Underwriter, but only insofar as
such losses, claims, damages or liabilities arise out of or
are based upon any untrue statement or omission or alleged
untrue statement or omission which was made in any preliminary
prospectus, the Registration Statement or the Prospectus, or
any amendment thereof or supplement thereto, contained in the
last paragraph of the cover page, in the paragraph relating to
stabilization or the paragraph relating to affiliate
transactions on the inside front cover page of the Prospectus
and the statements with respect to the public offering of the
Shares under the caption "Underwriting" in the Prospectus;
provided, however, that the obligation of each Underwriter to
indemnify the Company or a Selling Stockholder (including any
controlling person, director or officer thereof) shall be
limited to the net proceeds received by the Company or such
Selling Stockholder from such Underwriter.
(c) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of
notice of commencement of any action, suit or proceeding against
such party in respect of which a claim is to be made against an
indemnifying party or parties under this Section, notify each
such indemnifying party of the commencement of such action, suit
or proceeding, enclosing a copy of all papers served. No
indemnification provided for in Section 7(a) or 7(b) shall be
available to any party who shall fail to give notice as provided
in this Section 7(c) if the party to whom notice was not given
was unaware of the proceeding to which such notice would have
related and was prejudiced by the failure to give such notice but
the omission so to notify such indemnifying party of any such
action, suit or proceeding shall not relieve it from any
liability that it may have to any indemnified party for
contribution or otherwise than under this Section. In case any
such action, suit or proceeding shall be brought against any
indemnified party and it shall notify the indemnifying party of
the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it shall
wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so
to assume the defense thereof and the approval by the indemnified
party of such counsel, the indemnifying party shall not be liable
to such indemnified party for any legal or other expenses, except
as provided below and except for the reasonable costs of
investigation subsequently incurred by such indemnified party in
connection with the defense thereof. The indemnified party shall
have the right to employ its counsel in any such action, but the
fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the employment of counsel by such
indemnified party has been authorized in writing by the
indemnifying parties, (ii) the indemnified party shall have
reasonably concluded that there may be a conflict of interest
between the indemnifying parties and the indemnified party in the
conduct of the defense of such action (in which case the
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indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party) or
(iii) the indemnifying parties shall not have employed counsel to
assume the defense of such action within a reasonable time after
notice of the commencement thereof, in each of which cases the
fees and expenses of counsel shall be at the expense of the
indemnifying parties. An indemnifying party shall not be liable
for any settlement of any action, suit, proceeding or claim
effected without its written consent; provided, however, that
such consent shall not be unreasonably withheld.
8. Contribution. In order to provide for just and
equitable contribution in circumstances in which the indemnification
provided for in Sections 7(a) and 7(b) is due in accordance with its
terms but for any reason is held to be unavailable from the Company or
the Selling Stockholders or the Underwriters, as the case may be, the
Company, the Selling Stockholders and the Underwriters shall
contribute to the aggregate losses, claims, damages and liabilities
(including any investigation, legal and other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claims asserted, but after deducting
any contribution received by any person entitled hereunder to
contribution from any person who may be liable for contribution) to
which the Company, the Selling Stockholders and one or more of the
Underwriters may be subject in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other from
the offering of the Shares or, if such allocation is not permitted by
applicable law or indemnification is not available as a result of the
indemnifying party not having received notice as provided in Section 7
hereof, in such proportion as is appropriate to reflect not only the
relative benefits referred to above but also the relative fault of the
Company and the Selling Stockholders on the one hand and the
Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities
or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company, the Selling
Stockholders and the Underwriters shall be deemed to be in the same
proportion as (x) the total proceeds from the offering (net of
underwriting discounts but before deducting expenses) received by the
Company or the Selling Stockholders, as set forth in the table on the
cover page of the Prospectus, bear to (y) the underwriting discounts
received by the Underwriters, as set forth in the table on the cover
page of the Prospectus. The relative fault of the Company, the
Selling Stockholders and the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement or omission or alleged omission of a material fact related
to information supplied by the Company, the Selling Stockholders or
the Underwriters and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The Company, the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant
to this Section 8 were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the
provisions of this Section 8, (i) in no case shall any Underwriter
(except as may be provided in the Agreement Among Underwriters) be
liable or responsible for any
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amount in excess of the underwriting discount applicable to the
Shares purchased by such Underwriter hereunder, and (ii) the
Company and the Selling Stockholders shall be liable and
responsible for any amount in excess of such underwriting discount;
provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 8, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act shall have the same rights to
contribution as such Underwriter, and each person, if any, who
controls the Company or a Selling Stockholder within the meaning of
the Section 15 of the Securities Act or Section 20(a) of the
Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have
the same rights to contribution as the Company or such Selling
Stockholder, as the case may be, subject in each case to clauses
(i) and (ii) in the immediately preceding sentence of this Section
8. Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against
such party in respect of which a claim for contribution may be made
against another party or parties under this Section, notify such
party or parties from whom contribution may be sought, but the
failure so to notify such party or parties from whom contribution
may be sought shall not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may
have hereunder or otherwise than under this Section. No party
shall be liable for contribution with respect to any action, suit,
proceeding or claim settled without its written consent. The
Underwriter's obligations to contribute pursuant to this Section 8
are several in proportion to their respective underwriting
commitments and not joint.
Notwithstanding any other provision of Section 7 or Section
8 hereof, (i) in no event shall any Selling Stockholder be required to
pay an aggregate amount of contribution or other payments in respect
of losses, expenses, liabilities or claims under this Section 8 which
would be greater than the aggregate amount such Selling Stockholder
would have been required to pay under Section 7 in respect of such
losses, expenses, liabilities or claims if such indemnification were
available, and (ii) none of the Selling Stockholders shall be liable
for indemnification or contribution payments or any other payments
under Section 7 or Section 8 hereof in an aggregate amount exceeding
the net proceeds received by such Selling Stockholder from the sale of
Shares hereunder.
9. Termination. This Agreement may be terminated with
respect to the Shares to be purchased on a Closing Date by the
Representatives by notifying the Company at any time
(a) in the absolute discretion of the Representatives at or
before any Closing Date: (i) if on or prior to such date, any
domestic or international event or act or occurrence has
materially disrupted, or in the opinion of the Representatives
will in the future materially disrupt, the securities markets;
(ii) if there has occurred any new outbreak or material
escalation of hostilities or other calamity or crisis the effect
of which on the financial markets of the United States is such as
to make it, in the judgment of the Representatives, inadvisable
to proceed with the offering; (iii) if there shall be such a
material adverse change in general financial, political or
economic conditions or the effect of international conditions on
the financial markets in the United States is such as to make
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it, in the judgment of the Representatives, inadvisable or
impracticable to market the Shares; (iv) if trading in the Shares
has been suspended by the Commission or trading generally on the
New York Stock Exchange, Inc. or on the American Stock Exchange,
Inc. has been suspended or limited, or minimum or maximum ranges
for prices for securities shall have been fixed, or maximum
ranges for prices for securities have been required, by said
exchanges or by order of the Commission, the National Association
of Securities Dealers, Inc., or any other governmental or
regulatory authority; or (v) if a banking moratorium has been
declared by any state or federal authority, or
(b) at or before any Closing Date, that any of the
conditions specified in Section 5 shall not have been fulfilled
when and as required by this Agreement.
If this Agreement is terminated pursuant to any of its
provisions, neither the Company nor the Selling Stockholders shall be
under any liability to any Underwriter, and no Underwriter shall be
under any liability to the Company or the Selling Stockholders, except
that (y) if this Agreement is terminated by the Representatives or the
Underwriters because of any failure, refusal or inability on the part
of the Company or a Selling Stockholder to comply with the terms or to
fulfill any of the conditions of this Agreement, the Company will,
upon the request of the Representatives, reimburse the Underwriters
for all out-of-pocket expenses (including the fees and disbursements
of their counsel) incurred by them in connection with the proposed
purchase and sale of the Shares or in contemplation of performing
their obligations hereunder and (z) no Underwriter who shall have
failed or refused to purchase the Shares agreed to be purchased by it
under this Agreement, without some reason sufficient hereunder to
justify cancellation or termination of its obligations under this
Agreement, shall be relieved of liability to the Company, the Selling
Stockholders or to the other Underwriters for damages occasioned by
its failure or refusal.
10. Substitution of Underwriters. If one or more of the
Underwriters shall fail (other than for a reason sufficient to justify
the cancellation or termination of this Agreement under Section 9) to
purchase on any Closing Date the Shares agreed to be purchased on such
Closing Date by such Underwriter or Underwriters, the Representatives
may find one or more substitute underwriters to purchase such Shares
or make such other arrangements as the Representatives may deem
advisable or one or more of the remaining Underwriters may agree to
purchase such Shares in such proportions as may be approved by the
Representatives, in each case upon the terms set forth in this
Agreement. If no such arrangements have been made by the close of
business on the business day following such Closing Date,
(a) if the number of Shares to be purchased by the
defaulting Underwriters on such Closing Date shall not exceed 10%
of the Shares that all the Underwriters are obligated to purchase
on such Closing Date, then each of the nondefaulting Underwriters
shall be obligated to purchase such Shares on the terms herein
set forth in proportion to their respective obligations
hereunder; provided, that in no event shall the maximum number of
Shares that any Underwriter has agreed to purchase pursuant to
Section 1 be
-28-
<PAGE>
increased pursuant to this Section 10 by more than one-ninth of such
number of Shares without the written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the
defaulting Underwriters on such Closing Date shall exceed 10% of
the Shares that all the Underwriters are obligated to purchase on
such Closing Date, then the Company shall be entitled to an
additional business day within which it may, but is not obligated
to, find one or more substitute underwriters reasonably
satisfactory to the Representatives to purchase such Shares upon
the terms set forth in this Agreement.
In any such case, either the Representatives or the Company
shall have the right to postpone the applicable Closing Date for a
period of not more than five business days in order that necessary
changes and arrangements (including any necessary amendments or
supplements to the Registration Statement or Prospectus) may be
effected by the Representatives and the Company. If the number of
Shares to be purchased on such Closing Date by such defaulting
Underwriter or Underwriters shall exceed 10% of the Shares that all
the Underwriters are obligated to purchase on such Closing Date, and
none of the nondefaulting Underwriters or the Company shall make
arrangements pursuant to this Section within the period stated for the
purchase of the Shares that the defaulting Underwriters agreed to
purchase, this Agreement shall terminate with respect to the Shares to
be purchased on such Closing Date without liability on the part of any
nondefaulting Underwriter to the Company or the Selling Stockholders
and without liability on the part of the Company and the Selling
Stockholders, except in both cases as provided in Sections 6(B), 7, 8
and 9. The provisions of this Section shall not in any way affect the
liability of any defaulting Underwriter to the Company, the Selling
Stockholders or the nondefaulting Underwriters arising out of such
default. A substitute underwriter hereunder shall become an
Underwriter for all purposes of this Agreement.
11. Miscellaneous. The respective agreements,
representations, warranties, indemnities and other statements of the
Company or its officers, of the Selling Stockholders and of the
Underwriters set forth in or made pursuant to this Agreement shall
remain in full force and effect, regardless of any investigation made
by or on behalf of any Underwriter, any Selling Stockholder or the
Company or any of the officers, directors or controlling persons
referred to in Sections 7 and 8 hereof, and shall survive delivery of
and payment for the Shares. The provisions of Sections 6(B), 7, 8 and
9 shall survive the termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the
Underwriters, the Company and the Selling Stockholders and their
respective successors and assigns, and, to the extent expressed
herein, for the benefit of persons controlling any of the
Underwriters, the Company or the Selling Stockholders, and directors
and officers of the Company, the Selling Stockholders, if any, and
their respective successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" shall not include any purchaser of
Shares from any Underwriter merely because of such purchase.
-29-
<PAGE>
All notices and communications hereunder shall be in writing
and mailed or delivered or by telephone or telegraph if subsequently
confirmed in writing, (a) if to the Representatives, c/o Oppenheimer &
Co., Inc., Oppenheimer Tower, World Financial Center, New York, New
York 10281 Attention: Marshall A. Heinberg, (b) if to the Company, to
its agent for service as such agent's address appears on the cover
page of the Registration Statement and (c) if to the Selling
Stockholders, to the address set forth in the Custody Agreement and
Power of Attorney.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
-30-
<PAGE>
This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
Please confirm that the foregoing correctly sets forth the
agreement among us.
Very truly yours,
AMERICAN DISPOSAL SERVICES, INC.
By_______________________________
Name:
Title:
THE SELLING STOCKHOLDERS NAMED
ON SCHEDULE II HERETO
By________________________________
Name:
Title: Attorney-in-Fact
Confirmed:
OPPENHEIMER & CO., INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON CORPORATION
Acting severally on behalf of itself
and as representative of the several
Underwriters named in Schedule I annexed
hereto.
By Oppenheimer & Co., Inc.
By_________________________
Name: Marshall A. Heinberg
Title: Managing Director
-31-
<PAGE>
SCHEDULE I
Number of
Firm Shares to
Name Be Purchased
---- ---------------
Oppenheimer & Co., Inc......................................................
Donaldson, Lufkin & Jenrette Securities Corporation.........................
Credit Suisse First Boston Corporation......................................
TOTAL.........................
-i-
<PAGE>
SCHEDULE II
SELLING STOCKHOLDERS
Number of
Firm Shares to
Name Be Purchased
---- --------------
Charterhouse Environmental Holdings, L.L.C.................................
Charterhouse Equity Partners II, L.P.......................................
CDI Equity, LLC ...........................................................
Chef Nominees Limited......................................................
-ii-
<PAGE>
SCHEDULE III
Subsidiary State of Incorporation
- ---------- ----------------------
County Disposal, Inc. Delaware
American Disposal Services of Kansas, Inc. Kansas
County Disposal (Illinois), Inc. Delaware
County Disposal (Ohio), Inc. Delaware
County Landfill, Inc. Delaware
Southwest Waste, Inc. Missouri
Tate's Transfer Systems, Inc. Missouri
Bowers Phase II, Inc. Ohio
Allied Waste Systems, Inc. Ohio
Ross Bros. Waste and Recycling Co., Inc. Ohio
Illinois Bulk Handlers, Inc. Illinois
Shred-All Recycling Systems, Inc. Illinois
Fred B. Barbara Trucking Co., Inc. Illinois
Environtech, Inc. Delaware
ADS, Inc. Oklahoma
Pittsburgh County Landfill, Inc. Oklahoma
American Disposal Services of Missouri, Inc. Oklahoma
-iii-
<PAGE>
Exhibit 5.1
PROSKAUER ROSE LLP
1585 BROADWAY
NEW YORK, NEW YORK 10036-8299
October 20, 1997
American Disposal Services, Inc.
745 McClintock Drive
Suite 230
Burr Ridge, IL 60521
Re: Registration Statement on Form S-3
File No. 333-36389
----------------------------------
Gentlemen:
You have requested our opinion in connection with the
above-referenced registration statement, as amended (the "Registration
Statement"), filed by American Disposal Services, Inc., a Delaware corporation
(the "Company"), with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, relating to 5,500,000 shares of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), of which
2,000,000 shares of Common Stock are to be sold to the underwriters by certain
Selling Stockholders and 3,500,000 shares of Common Stock are to be issued and
sold to the underwriters by the Company (the "Firm Shares"), and up to 825,000
additional shares of Common Stock to cover over-allotment options granted to
the underwriters (together with the Firm Shares, the "Shares") from the
Company, for sale to the public pursuant to an underwritten public offering.
As counsel to the Company, we have examined such corporate
records, other documents and questions of law as we have considered necessary
or appropriate for the purpose of this opinion, including the Certificate of
Incorporation, as amended, and the By-laws of the Company, the Registration
Statement and the exhibits thereto, including the form of underwriting
agreement relating to the Shares filed as Exhibit 1.1 to the Registration
Statement (the "Underwriting Agreement"), and we have made such investigations
of law as we have deemed necessary in order to render the opinion hereinafter
set forth. In such examinations, we have assumed the genuineness of signatures
and the conformity to original documents of the documents supplied to us as
copies. As to relevant questions of fact material to our opinion, we have
relied upon statements and certificates of officers and representatives of the
Company.
In giving this opinion, we have assumed that the certificates for
the Shares, when issued, will have been duly executed on behalf of the Company
by the Company's
<PAGE>
October 20, 1997
Page 2
transfer agent and registered by the Company's registrar and will conform,
except as to denominations, to specimens we have examined.
Based upon and subject to the foregoing, we are of the opinion
that:
1. The Shares have been authorized;
2. The Shares to be sold by the Company, when issued in
accordance with the Underwriting Agreement, well be validly issued, fully paid
and non-assessable; and
3. The Shares to be sold by the Selling Stockholders have been
validly issued and are fully paid and non-assessable.
We hereby consent to the references to our firm under the caption
"Legal Matters" in the Registration Statement and to the use of this opinion as
an exhibit to the Registration Statement. In giving this consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
PROSKAUER ROSE LLP
By: /s/ Proskauer Rose LLP
------------------------------
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated August 1, 1997 with respect to the financial
statements of Fred B. Barbara Companies and our report dated February 26, 1997
(except as to Note 5 for which the date is March 21, 1997 and except as to Note
10 for which the date is March 25, 1997) with respect to the financial
statements of American Disposal Services, Inc. in Amendment No. 1 to the
Registration Statement (Form S-3 No. 333-36389) and the related Prospectus of
American Disposal Services, Inc. for the registration of up to 6,325,000 shares
of its common stock.
We also consent to the incorporation by reference therein of our report
dated March 17, 1997 with respect to the financial statements of Liberty
Disposal, Inc. for the years ended December 31, 1995 and 1996 included in the
Current Report on Form 8-K dated May 29, 1997 filed with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
Chicago, Illinois
October 20, 1997
