As filed with the Securities and Exchange Commission on June 3, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------
CASELLA WASTE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
-------------
<TABLE>
<S> <C> <C>
Delaware 4953 03-0338873
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
-------------
25 Greens Hill Lane
Rutland, Vermont 05701
(802) 775-0325
(Address and telephone number of registrant's principal executive offices)
-------------
JOHN W. CASELLA
President, Chief Executive Officer and Chairman
CASELLA WASTE SYSTEMS, INC.
25 Greens Hill Lane
Rutland, Vermont 05701
(802) 775-0325
(Name, address and telephone number of agent for service)
-------------
Copies to:
JEFFREY A. STEIN, ESQ.
VIRGINIA KINGSLEY KAPNER, ESQ.
HALE AND DORR LLP
60 State Street
Boston, Massachusetts 02109
Telephone: (617) 526-6000
Telecopy: (617) 526-5000
-------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date hereof.
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. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration 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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of each class of Amount to be Offering Price Aggregate Amount of
securities to be registered Registered per Share (1) Offering Price (1) Registration Fee (1)
- ----------------------------- ---------------- ------------------ -------------------- ---------------------
<S> <C> <C> <C> <C>
Class A Common Stock,
$0.01 par value 272,884 shares $26.43 $7,212,324.10 $2,127.63
</TABLE>
================================================================================
(1) Calculated in accordance with Rule 457(c) under the Securities Act of 1933,
as amended based on the average of the high and low sale prices of the Class A
Common Stock as reported on the Nasdaq National Market on May 29, 1998.
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>
SUBJECT TO COMPLETION, DATED JUNE 3, 1998
272,884 Shares
[LOGO] casella
Casella Waste Systems, Inc.
Class A Common Stock
(par value $0.01 per share)
---------------
All of the 272,884 shares of Class A Common Stock offered hereby are being
sold by 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.
Each share of Class A Common Stock entitles its holder to one vote,
whereas each share of Class B Common Stock entitles its holder to ten votes.
All of the shares of Class B Common Stock are held by John W. Casella, the
President, Chief Executive Officer and Chairman of the Board and Douglas R.
Casella, the Vice Chairman of the Board. As of April 30, 1998, such
stockholders beneficially owned in the aggregate shares of Class B Common Stock
and Class A Common Stock having approximately 55.2% of the outstanding voting
power of the Company's Common Stock.
The Class A Common Stock is quoted on the Nasdaq National Market under the
symbol "CWST." On June 2, 1998, the last reported sale price of the Class A
Common Stock on the Nasdaq National Market was $26.37 per share. See "Market
Price of Class A Common Stock".
See "Risk Factors" beginning on page 7 for certain considerations relevant
to an investment in the Class A Common Stock.
---------------
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.
The shares covered by this Prospectus may be sold from time to time by the
Selling Shareholders, or by their pledgees, donees, transferees or other
successors in interest, in the over-the-counter market, through the writing of
options on the shares, in ordinary brokerage transactions, in negotiated
transactions, or otherwise, at market prices prevailing at the time of sale or
at negotiated prices. As of the date of this Prospectus, certain of the shares
have been pledged as security for a loan to certain of the Selling
Stockholders. See "Plan of Distribution".
---------------
The date of this Prospectus is , 1998.
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>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all
amendments, exhibits, schedules and supplements thereto) on Form S-1 under the
Securities Act of 1933, as amended with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, to which Registration Statement
reference is hereby made. 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 the 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. The Registration
Statement and the exhibits thereto may be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, upon payment of certain fees prescribed by the
Commission. The Commission also maintains a World Wide Web site which provides
online access to reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
at the address "http://www.sec.gov."
This Prospectus contains registered service marks, trademarks and trade
names of the Company, including the Casella Waste Systems name and logo.
The Company intends to furnish to its stockholders annual reports
containing audited consolidated financial statements and quarterly reports
containing unaudited interim financial information for the first three fiscal
quarters of each fiscal year of the Company.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON STOCK
OF THE COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH CLASS A COMMON STOCK, AND THE IMPOSITION OF A PENALTY BID,
IN CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"PLAN OF DISTRIBUTION".
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including the Notes
thereto, appearing elsewhere in this Prospectus. For purposes hereof,
references to "Common Stock" mean the Class A Common Stock and the Class B
Common Stock. See "Description of Capital Stock" and Notes to Consolidated
Financial Statements. The Company's fiscal year ends on April 30. References to
a particular fiscal year are to the fiscal year ending on April 30 of that year
(e.g., the 1998 fiscal year ended on April 30, 1998). Unless otherwise
specified herein, all references to the "Company" or "Casella" mean Casella
Waste Systems, Inc. and its subsidiaries, and all references to "solid waste"
mean non-hazardous solid waste.
The Company
Casella Waste Systems, Inc. is a regional, integrated, non-hazardous solid
waste services company that provides collection, transfer, disposal and
recycling services in Vermont, New Hampshire, Maine, upstate New York and
northern Pennsylvania. As of April 16, 1998, the Company owned and/or operated
four Subtitle D landfills, 39 transfer stations, 16 recycling processing
facilities, and 33 collection operations. The Company was founded in 1975 as a
single-truck operation in Rutland, Vermont and subsequently expanded its
operations throughout the state of Vermont. In 1993, the Company initiated an
acquisition strategy to take advantage of anticipated reductions in available
landfill capacity in Vermont and surrounding states due to increasing
environmental regulation and other market forces driving consolidation in the
solid waste industry. From May 1, 1994 through April 30, 1997, the Company
acquired ownership of or long-term operating rights to 44 solid waste
businesses, including four landfills, and, between May 1, 1997 and March 31,
1998, the Company acquired an additional 33 such businesses. The Company
believes that additional acquisition opportunities exist in the markets it
serves and in other prospective markets. In May, 1998, the Company acquired a
Subtitle D landfill in western upstate New York. See "Recent Landfill
Acquisition".
The Company's operating strategy is based on the integration of its
collection and disposal operations and the internalization of waste collected.
The Company believes that control of a substantial portion of the waste stream
and economies of scale provide it with advantages over non-integrated
competitors in its markets.
The Company's objective is to continue to grow by expanding its services
in markets where it can be one of the largest and most profitable
fully-integrated solid waste services companies. The Company intends to
continue to pursue this objective by: (i) expanding through acquisitions of
collection companies and disposal facilities in new markets and through
"tuck-in" acquisitions in existing markets; (ii) generating internal growth in
existing markets through increased sales penetration and the marketing of
additional services to existing customers; and (iii) implementing operating
enhancements and efficiencies.
The principal executive offices of the Company are located at 25 Greens
Hill Lane, Rutland, Vermont 05701. The Company's telephone number at such
address is (802) 775-0325. Casella Waste Systems, Inc. was incorporated as a
Delaware corporation in 1993 as a holding company for various operating
subsidiaries.
Risk Factors
Certain risk factors should be considered in evaluating the Company and
its business before purchasing the Class A Common Stock offered by this
Prospectus. Such factors include, among others, the Company's ability to manage
growth, a history of losses, the ability to identify, acquire and integrate
acquisition targets, dependence on management, the uncertain ability to finance
the Company's growth, limitations on landfill permitting and expansion and
geographic concentration. For a discussion of these and certain other factors,
see "Risk Factors".
3
<PAGE>
The Offering
<TABLE>
<S> <C>
Class A Common Stock offered by Selling Stockholders . 272,884 shares
Common Stock to be outstanding after this Offering (1):
Class A Common Stock ................................ 10,502,780 shares
Class B Common Stock ................................ 988,200 shares
Total .............................................. 11,490,980 shares
Nasdaq National Market symbol ........................ CWST
Voting Rights ........................................ The holders of Class A Common Stock
generally have rights identical to holders of
Class B Common Stock, except that holders of
Class A Common Stock are entitled to one vote
per share and holders of Class B Common
Stock are entitled to ten votes per share.
Holders of all classes of Common Stock
generally will vote together as a single class on
all matters presented to the stockholders for
their vote or approval except that the holders
of Class A Common Stock will at all times be
entitled to elect at least one director. See
"Description of Capital Stock--Common
Stock--Voting Rights".
</TABLE>
- ------------
(1) Consists of the number of shares of Class A Common Stock and Class B Common
Stock outstanding on January 31, 1998. Each share of Class B Common Stock
is convertible into one share of Class A Common Stock at the option of the
holder and may not be transferred to anyone other than a Class B Permitted
Holder (as defined). See "Description of Capital Stock". Excludes: (i)
1,470,635 shares of Class A Common Stock issuable upon exercise of stock
options outstanding on January 31, 1998 with a weighted average exercise
price of $7.30 per share and (ii) an additional 1,060,500 shares reserved
for issuance under the Company's 1997 Stock Incentive Plan, 1997 Employee
Stock Purchase Plan and 1997 Non-Employee Director Stock Option Plan
(collectively, the "Stock Plans"); and (iii) warrants to purchase 190,392
shares of Class A Common Stock at a weighted average exercise price of
$4.26 per share. See "Management--Benefit Plans", "Description of Capital
Stock" and Note 7 of Notes to Consolidated Financial Statements.
4
<PAGE>
Summary Historical and Pro Forma Consolidated Financial and Operating Data
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
--------------------------------------------------------------
Restated(5)
--------------------------------------
1993 1994 1995 1996 1997
---------- ------------ ------------ ------------ ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ........................ $11,375 $13,491 $23,869 $ 42,829 $ 79,532
Cost of operations .............. 7,222 9,640 13,721 25,137 48,057
General and
administrative ................. 2,276 2,702 2,909 7,063 12,534
Depreciation and
amortization ................... 1,352 1,483 4,815 8,152 13,695
Merger Costs (Pooling) .......... -- -- -- -- --
------- ------- ------- -------- --------
Operating income (loss) ......... 525 (334) 2,424 2,477 5,246
Interest expense, net ........... 354 613 1,826 2,617 4,290
Other expense (income),
net ............................ (142) 207 36 (90) 923
------- ------- ------- -------- --------
Income (loss) before
provision (benefit) for
income taxes,
extraordinary items and
cumulative effect of
change in accounting
principle ...................... 313 (1,154) 562 (50) 33
Provision (benefit) for
income taxes ................... 155 (441) 220 144 452
Extraordinary items ............. -- -- -- 326 --
Change in accounting
principle ...................... -- 124 -- -- --
------- ------- ------- -------- --------
Net income (loss) ............... $ 158 $ (837) $ 342 $ (520) $ (419)
======= ======= ======= ======== ========
Accretion of Preferred
Stock and Put Warrants -- -- (2,380) (2,967) (8,530)
------- ------- ------- -------- --------
Net Income (loss)
applicable to common
stockholders ................... $ 158 $ (837) $(2,038) $ (3,487) $ (8,949)
======= ======= ======= ======== ========
Basic Earnings (loss) per
Share of Common
Stock .......................... $ 0.08 $ (0.35) $ (0.70) $ (1.06) $ (2.29)
Basic Weighted Average
Common Stock Shares
Outstanding (3) ................ 1,995 2,355 2,900 3,279 3,913
Diluted Earnings (loss) per
Share .......................... $ .08 $ (.35) $ (.70) $ (1.06) $ (2.29)
Diluted Weighted Average
Common Stock and
Common Stock
Equivalent Shares
Outstanding (3) ................ 1,995 2,355 2,900 3,279 3,913
Other Operating Data:
EBITDA (4) ...................... $1,877 $ 1,149 $ 7,239 $ 10,629 $ 18,941
======= ======= ======= ======== ========
Capital expenditures ............ $ 597 $ 843 $ 3,731 $ 10,750 $ 16,971
======= ======= ======= ======== ========
Cash flows from operating
activities ..................... $1,632 $ 1,559 $ 4,978 $ 8,642 $ 14,940
======= ======= ======= ======== ========
Cash flows from investing
activities ..................... $ (903) $(2,270) $(9,187) $(28,209) $(52,816)
======= ======= ======= ======== ========
Cash flows from financing
activities ..................... $ (672) $ 1,007 $ 4,547 $ 19,272 $ 38,755
======= ======= ======= ======== ========
<CAPTION>
Fiscal Year
Ended April
30, Nine Months Ended January 31,
-------------- -----------------------------------------
(unaudited) (unaudited)
Pro Forma(1)(2) (unaudited) (unaudited) Pro Forma(1)(2)
1997 1997 1998 1998
-------------- ------------- ------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ........................ $109,613 $ 56,211 $ 87,321 $88,604
Cost of operations .............. 69,070 33,293 51,743 52,772
General and
administrative ................. 16,526 8,867 12,729 13,260
Depreciation and
amortization ................... 18,122 9,726 13,412 13,526
Merger Costs (Pooling) .......... -- -- 290 --
-------- -------- -------- -------
Operating income (loss) ......... 5,895 4,325 9,147 9,046
Interest expense, net ........... 3,433 2,903 5,272 3,457
Other expense (income),
net ............................ 1,202 105 2 162
-------- -------- -------- -------
Income (loss) before
provision (benefit) for
income taxes,
extraordinary items and
cumulative effect of
change in accounting
principle ...................... 1,260 1,317 3,873 5,427
Provision (benefit) for
income taxes ................... 855 960 1,950 2,581
Extraordinary items ............. -- -- -- --
Change in accounting
principle ...................... -- -- -- --
-------- -------- -------- -------
Net income (loss) ............... $ 405 $ 357 $ 1,923 $ 2,846
======== ======== ======== =======
Accretion of Preferred
Stock and Put Warrants 0 (6,004) (5,738) 0
-------- -------- -------- -------
Net Income (loss)
applicable to common
stockholders ................... $ 405 $ (5,647) $ (3,815) $ 2,846
======== ======== ======== =======
Basic Earnings (loss) per
Share of Common
Stock .......................... $ 0.04 $ (1.51) $ (0.56) $ 0.25
Basic Weighted Average
Common Stock Shares
Outstanding (3) ................ 10,646 3,737 6,755 11,293
Diluted Earnings (loss) per
Share .......................... $ 0.04 $ (1.51) $ (.56) $ 0.23
Diluted Weighted Average
Common Stock and
Common Stock
Equivalent Shares
Outstanding (3) ................ 11,347 3,737 6,755 12,340
Other Operating Data:
EBITDA (4) ...................... $24,017 $ 14,051 $ 22,559 $22,572
======== ======== ======== =======
Capital expenditures ............ $ 13,400 $ 14,876
======== ========
Cash flows from operating
activities ..................... $ 12,431 $ 11,156
======== ========
Cash flows from investing
activities ..................... $(47,413) $(39,325)
======== ========
Cash flows from financing
activities ..................... $ 36,784 $ 29,125
======== ========
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
(Unaudited)
January 31, 1998
-----------------
<S> <C>
Balance Sheet Data:
Cash and cash equivalents ................................ $ 2,305
Working capital (deficit) ................................ 3,731
Total assets ............................................. 175,326
Long-term obligations, net of current maturities ......... 64,982
Total stockholders' equity (deficit) ..................... 80,869
</TABLE>
(1) Pro forma to give effect to the automatic redemption upon the closing of
the Company's initial public offering in October 1997 of the Series A
Preferred Stock and Series B Preferred Stock with the redemption price
applied to the exercise of warrants to purchase 1,811,199 shares of Class
A Common Stock and the automatic conversion upon such closing of
outstanding shares of Series D Convertible Preferred Stock into 1,922,169
shares of Class A Common Stock.
(2) Pro forma to give effect to: (i) the acquisitions completed during fiscal
1997; (ii) the acquisition of substantially all of the assets of H.C.
Gobin, Inc. in fiscal 1998; and (iii) the application of the net proceeds
from the Company's recent initial public offering after deducting the
underwriting discount and offering expenses paid by the Company, as if
each had occurred on May 1, 1996. No pro forma adjustment has been made to
(i) the historical amounts for the nine months ended January 31, 1998 to
reverse the impact of the loss incurred by H.C. Gobin, Inc. upon the sale
of certain unprofitable operations divested by H.C. Gobin, Inc., prior to
its acquisition by the Company, or (ii) the historical amounts for the
year ended April 30, 1997 and the nine months ended January 31, 1998 to
reduce operating expenses to eliminate specific expenses that the Company
believes would not have been incurred had the Gobin acquisition occurred
as of May 1, 1996.
(3) Computed on the basis described in Note 2 of Notes to Consolidated
Financial Statements.
(4) EBITDA is defined as operating income plus depreciation and amortization.
EBITDA does not represent, and should not be considered as, an alternative
to net income or cash flows from operating activities, each as determined in
accordance with generally accepted accounting principles ("GAAP"). Moreover,
EBITDA does not necessarily indicate whether cash flow will be sufficient
for such items as working capital or capital expenditures, or to react to
changes in the Company's industry or to the economy generally. The Company
believes that EBITDA is a measure commonly used by lenders and certain
investors to evaluate a company's performance in the solid waste industry.
The Company also believes that EBITDA data may help to understand the
Company's performance because such data may reflect the Company's ability to
generate cash flows, which is an indicator of its ability to satisfy its
debt service, capital expenditure and working capital requirements. Because
EBITDA is not calculated by all companies and analysts in the same fashion,
the EBITDA measures presented by the Company may not be comparable to
similarly-titled measures reported by other companies. Therefore, in
evaluating EBITDA data, investors should consider, among other factors: the
non-GAAP nature of EBITDA data; actual cash flows; the actual availability
of funds for debt service, capital expenditures and working capital; and the
comparability of the Company's EBITDA data to similarly-titled measures
reported by other companies. For more information about the Company's cash
flows, see the Consolidated Statement of Cash Flow in the Consolidated
Financial Statements.
(5) The Company has issued restated audited consolidated financial statements
as of and for fiscal years ended April 30, 1995, 1996 and 1997 to reflect
the merger with All Cycle Waste, Inc. and Winters Brothers Inc.
consummated on December 19, 1997, accounted for using the pooling of
interests method of accounting.
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
risk factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Class A Common Stock offered by this
Prospectus. This Prospectus may contain forward-looking statements within the
meaning of Section 27A of the Securities Act, which represent the Company's
expectations and beliefs with respect to, among other things, the Company's
future revenues, operating income, or earnings per share. Without limiting the
foregoing, any statements contained in this Prospectus that are not statements
of historical fact may be deemed to be forward-looking statements, and the
words "believes", "anticipates", "plans", "expects", and similar expressions
are intended to identify forward-looking statements. There are a number of
factors of which the Company is aware that may cause the Company's actual
results to vary materially from those forecast or projected in any such
forward-looking statement, certain of which are beyond the Company's control.
These factors include, without limitation, those described in this "Risk
Factors" section. The Company's failure to successfully address any of these
factors could have a material adverse effect on the Company's results of
operations.
Ability to Manage Growth
The Company's objective is to continue to grow by expanding its services
in markets where it can be one of the largest and most profitable
fully-integrated solid waste services companies. Consequently, the Company may
experience periods of rapid growth. Such growth, if it were to occur, could
place a significant strain on the Company's management and on its operational,
financial and other resources. Any failure to expand its operational and
financial systems and controls or to recruit appropriate personnel in an
efficient manner at a pace consistent with such growth would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Strategy".
History of Losses
The Company incurred net losses in fiscal 1997 and fiscal 1996. The net
loss was $419,123 in fiscal 1997 (including non-recurring expenses of
approximately $650,000 incurred in connection with the settlement of certain
litigation naming the Company), and $519,541 in fiscal 1996 (including the
write-off of unamortized issuance costs of $326,308 (net of $168,098 income tax
benefit) associated with certain subordinated debt). As of January 31, 1998,
the Company's accumulated deficit was approximately $14.9 million. Although the
Company was profitable in the nine months ended January 31, 1998, there can be
no assurance that the Company will be profitable in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Ability to Identify, Acquire and Integrate Acquisition Targets
To date, the Company has grown principally through acquiring and
integrating independent solid waste collection, transfer and disposal
operations. The Company's strategy envisions that a substantial part of the
Company's future growth will come from acquiring and integrating similar
operations. There can be no assurance that the Company will be able to identify
suitable acquisition candidates and, once identified, to negotiate successfully
their acquisition at a price or on terms and conditions favorable to the
Company, or to integrate the operations of such acquired businesses with the
Company. In addition, the Company competes for acquisition candidates with
other entities, some of which have greater financial resources than the
Company. Failure by the Company to implement successfully its acquisition
strategy would limit the Company's growth potential. See "Business--Strategy"
and "--Acquisition Program".
The consolidation and integration activity in the solid waste industry in
recent years, as well as the difficulties, uncertainties and expenses relating
to the development and permitting of solid waste landfills and transfer
stations, has increased competition for the acquisition of existing solid waste
collection, transfer and disposal operations. Increased competition for
acquisition candidates may result in fewer acquisition opportunities being made
available to the Company as well as less advantageous acquisition terms,
including increased purchase prices. The Company also believes that a
significant factor in its ability to consummate acquisitions will be the
relative attractiveness of shares of the Company's Class A Common Stock as
consideration for potential acquisition candidates. This attractiveness may, in
large part, be dependent upon the relative market price and capital
appreciation prospects of the Class A
7
<PAGE>
Common Stock compared to the equity securities of the Company's competitors. If
the market price of the Company's Class A Common Stock were to decline, the
Company's acquisition program could be materially adversely affected.
The successful integration of acquired businesses is important to the
Company's future financial performance. The anticipated benefits from any
acquisition may not be achieved unless the operations of the acquired
businesses are successfully combined with those of the Company in a timely
manner. The integration of any of the Company's acquisitions requires
substantial attention from management. The diversion of the attention of
management, and any difficulties encountered in the transition process, could
have an adverse impact on the Company's business, financial condition and
results of operations. Although the Company has successfully identified and
closed acquisitions and integrated them into its organization and operations in
the past, there can be no assurance that it will be able to do so in the
future.
Dependence on Management
The Company is highly dependent upon the services of the members of its
senior management team, the loss of any of whom may have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company currently maintains "key man" life insurance with
respect to John W. Casella, the President, Chief Executive Officer and
Chairman, and James W. Bohlig, the Senior Vice President and Chief Operating
Officer, in the amount of $1.0 million each. See "Management--Executive
Officers, Directors and Certain Key Employees".
In addition, the Company's future success depends on its continuing
ability to identify, hire, train, motivate and retain highly qualified
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will be able to attract, assimilate or retain highly
qualified personnel in the future. The inability to attract and retain the
necessary personnel could have a material adverse effect upon the Company's
business, financial condition and results of operations.
Uncertain Ability to Finance the Company's Growth
The Company anticipates that any future business acquisitions will be
financed through cash from operations, borrowings under its bank line of
credit, the issuance of shares of the Company's Class A Common Stock and/or
seller financing. If acquisition candidates are unwilling to accept, or the
Company is unwilling to issue, shares of the Company's Class A Common Stock as
part of the consideration for such acquisition, the Company would be required
to utilize more of its available cash resources or borrowings under its credit
facility in order to effect such acquisitions. To the extent that cash from
operations or borrowings under the Company's bank line of credit is
insufficient to fund such requirements, the Company will require additional
equity and/or debt financing in order to provide the cash to effect such
acquisitions. Additionally, growth through the development or acquisition of
new landfills, transfer stations or other facilities, as well as the ongoing
maintenance of such landfills, transfer stations or other facilities, may
require substantial capital expenditures. There can be no assurance that the
Company will have sufficient existing capital resources or will be able to
raise sufficient additional capital resources on terms satisfactory to the
Company, if at all, in order to meet any or all of the foregoing capital
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources".
The terms of the Company's revolving line of credit require the Company to
obtain the consent of the lending banks prior to consummating acquisitions of
other businesses for cash consideration (including all liabilities assumed) in
excess of $10.0 million. Furthermore, the revolving line of credit contains
various financial covenants predicated on the Company's present and projected
financial condition. In the event future operations differ materially from that
which is anticipated, the Company may no longer be able to meet the tests
provided in the covenants contained in the revolving line of credit. A failure
to meet such covenants or the occurrence of other events may result in a
default under such line of credit. A default could result in acceleration of
the repayment of the debt incurred thereunder which could have a material
adverse effect upon the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources".
8
<PAGE>
The Company is considering undertaking an underwritten public offering of
its Class A Common Stock in the first half of fiscal 1999. Any such offering is
subject to a number of conditions, including the approval of the Company's
Board of Directors and prevailing market conditions. There can be no assurance
that any such offering will be undertaken, or that, if undertaken, it will be
successfully completed. In addition, there can be no assurance that the
announcement of the filing of such registration statement or the offer or sale
of such shares will not adversely affect prevailing market prices of the
Company's Class A Common Stock.
Limitations on Landfill Permitting and Expansion
The Company's operating program depends on its ability to expand the
landfills it owns and leases and to develop new landfill sites. As of March 31,
1998, the estimated total remaining permitted disposal capacity of the four
landfills operated by the Company was approximately 1,600,000 tons, with
approximately 6,464,000 additional tons of disposal capacity in various stages
of permitting. In addition, in May 1998, the Company acquired a fifth Subtitle
D landfill, which had permitted capacity as of the date of acquisition of
approximately 1,800,000 tons. In some areas, suitable land for new sites or
expansion of the Company's existing landfill sites may be unavailable. There
can be no assurance that the Company will be successful in obtaining new
landfill sites or expanding the permitted capacity of any of its current
landfills once its remaining disposal capacity has been consumed. The Company's
landfill in Vermont is subject to state regulations and practices that
generally do not allow permits for more than five years of expected annual
capacity. The process of obtaining required permits and approvals to operate
and 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 zoning, environmental
and other requirements, and often being subject to resistance from citizen,
public interest or other groups. There can be no assurance that the Company
will succeed in obtaining or maintaining the permits it requires to expand or
that such permits will not contain onerous terms and conditions. Even when
granted, final permits to expand are often not approved until the remaining
permitted disposal capacity of a landfill is very low. Furthermore, local laws
and ordinances also may affect the Company's ability to obtain permits to
expand its landfills. The town of Bethlehem, New Hampshire, where one of the
landfills operated by the Company is located, has an ordinance which prohibits
the expansion of any landfills not operated by the town of Bethlehem. A
proposal to amend this ordinance was defeated by Bethlehem voters in March 1997
and March 1998, and it is not anticipated that another vote will take place
until at least March 1999. The estimated total remaining permitted disposal
capacity of the landfill may be exhausted before the next vote takes place. In
addition, the town of Angelica, New York has adopted certain laws which would
prohibit the expansion of the Hyland landfill and which would limit the types
of waste that can be disposed of at that facility, and certain phases of
expansion at the Company's SERF landfill in Hampden, Maine will require the
town of Hampden to amend a local ordinance. In the event the Company exhausts
its permitted capacity at a landfill, in addition to limiting its ability to
expand internally, the Company would be required to cap and close that landfill
and the Company could be forced to dispose of collected waste at more distant
landfills or at landfills operated by its competitors. The resulting increased
cost could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Operations--Landfills".
Geographic Concentration Risks
The Company's operations and customers are located in Vermont, New
Hampshire, Maine, upstate New York and northern Pennsylvania. Therefore, the
Company's business, financial condition and results of operations are
susceptible to downturns in the general economy in this geographic region and
other factors affecting the region such as state regulations and severe weather
conditions. In addition, as the Company expands in its existing markets,
opportunities for growth within these regions will become more limited. The
costs and time involved in permitting and the scarcity of available landfills
will make it difficult for the Company to expand vertically in these markets.
There can be no assurance that the Company will complete a sufficient number of
acquisitions in other markets to lessen its geographic concentration. See
"Business--Service Area".
9
<PAGE>
Seasonality of Business Impacts Quarterly Operating Results
The Company's revenues have historically been lower during the months of
November through March. This seasonality reflects the lower volume of solid
waste during the late fall, winter and early spring months primarily because:
(i) the volume of solid waste relating to construction and demolition
activities decreases substantially during the winter months in the northeastern
United States, and (ii) decreased tourism in Vermont, Maine and eastern New
York during the winter months tends to lower the volume of solid waste
generated by commercial and restaurant customers, which is partially offset by
the winter ski industry. Since certain of the Company's operating and fixed
costs remain constant throughout the fiscal year, operating income is therefore
impacted by a similar seasonality. In addition, particularly harsh weather
conditions could result in increased operating costs to certain of the
Company's operations. There can be no assurance that future seasonal and
quarterly fluctuations will not have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Fluctuations in Quarterly Results; Potential Stock Price Volatility
The Company believes that period-to-period comparisons of its operating
results should not be relied upon as an indication of future performance. Due
to a variety of factors, including general economic conditions, governmental
regulatory action, acquisitions, capital expenditures and other costs related
to the expansion of operations and services and pricing changes (including the
market price of commodities such as recycled materials), it is possible that in
some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the
Company's Class A Common Stock price could be materially adversely affected.
The market price of the Class A Common Stock may be highly volatile and is
likely to be affected by factors such as actual or anticipated fluctuations in
the Company's operating results, announcements of new acquisitions or contracts
by the Company, its competitors or their customers, government regulatory
action, general market conditions and other factors. Also, the market price of
the Class A Common Stock may be affected by factors affecting the waste
management industry in which the Company competes. In addition, the stock
market has from time-to-time experienced significant price and volume
fluctuations that have often been unrelated to the operating performance of
companies whose securities are publicly traded; yet, these broad market
fluctuations may also adversely affect the market price of the publicly traded
securities of such companies, including the Company's Class A Common Stock. In
the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been commenced against
such companies. There can be no assurance that such litigation will not occur
in the future with respect to the Company. Such litigation could result in
substantial costs and a diversion of management's attention and resources,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. Any adverse determination in such
litigation could also subject the Company to significant liabilities.
Highly Competitive Industry
The solid waste services industry is highly competitive and fragmented,
and requires substantial labor and capital resources. Certain of the markets in
which the Company competes or will likely compete are served by one or more of
the large national solid waste companies, as well as numerous regional and
local solid waste companies of varying sizes and resources. The Company also
competes with operators of alternative disposal facilities, including
incinerators, and with counties, municipalities, and solid waste districts that
maintain their own waste collection and disposal operations. These counties,
municipalities, and solid waste districts may have financial advantages due to
the availability to them of user fees, similar charges or tax revenues and the
greater availability to them of tax-exempt financing. Intense competition
exists not only to provide services to customers but also to acquire other
businesses within each market. Certain of the Company's competitors have
significantly greater financial and other resources than the Company. From time
to time, these or other competitors may reduce the price of their services in
an effort to expand market share or to win a competitively bid municipal
contract. These practices may either require the Company to reduce the pricing
of its services or result in the Company's loss of business. As is generally
the case in the industry, municipal contracts are subject to periodic
competitive bidding. There can be no assurance that the Company will be the
successful bidder to obtain or retain these contracts.
10
<PAGE>
The Company's inability to compete with larger and better capitalized
companies, or to replace municipal contracts lost through the competitive
bidding process with comparable contracts or other revenue sources within a
reasonable time period, could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Competition".
Comprehensive Government Regulation
The Company is subject to extensive and evolving environmental, zoning and
other laws and regulations which have become increasingly stringent in recent
years. These laws and regulations impose substantial costs on the Company and
affect the Company's business in many ways, including as set forth below and
under "Business--Regulation".
In connection with its ownership and operation of landfills and transfer
stations, the Company is required to obtain, comply with and maintain in effect
one or more licenses or permits as well as zoning, environmental and/or other
land use approvals. These licenses or permits and approvals are difficult and
time consuming to obtain and renew and are frequently opposed by public
officials, groups of private citizens, or both. There can be no assurance that
the Company will succeed in obtaining, complying with and maintaining in effect
the permits and approvals required for the continued operation and growth of
its landfills and transfer stations, and the failure of the Company to obtain,
comply with or maintain in effect a permit or approval significant to its
landfills or transfer stations could have a material adverse effect on the
Company's business, financial condition and results of operations.
The design, construction, operation and closure of landfills is extensively
regulated. These include, among others, the regulations establishing minimum
Federal requirements promulgated by the U.S. Environmental Protection Agency
("EPA") in October 1991 under Subtitle D (the "Subtitle D Regulations") of the
Resource Conservation and Recovery Act of 1976 (the "RCRA"). Government
assertions that the Company failed to comply with regulations has resulted in
the payment by the Company of three civil penalties (in the aggregate less than
$100,000 in its 23-year operating history). Failure to comply with these
regulations could require the Company to undertake costly and time consuming
investigatory or remedial activities, to curtail operations, to close a landfill
temporarily or permanently, and to defend itself against enforcement actions
brought by and pay civil penalties imposed by EPA or state regulatory agencies.
Changes in these regulations could require the Company to modify, supplement or
replace equipment or facilities at costs which may be substantial. The failure
of regulatory agencies to enforce these regulations vigorously or consistently
may give an advantage to competitors of the Company whose facilities do not
comply with the Subtitle D Regulations or their state counterparts. The
Company's financial obligations arising from any failure to comply with these
regulations could have a material adverse effect on the Company's business,
financial condition and results of operations.
Certain licenses, permits and approvals may limit the types of waste the
Company may accept at a landfill or the quantity of waste it may accept at a
landfill during a given time period. In addition, certain licenses, permits and
approvals, as well as certain state and local regulations, may seek to limit a
landfill to accepting waste that originates only from specified geographic
areas or seek to prohibit the landfill from importing out-of-state waste or
otherwise discriminate against waste originating outside of a defined
geographic area. The Company's Clinton County landfill is not permitted to
receive waste from certain geographic regions in New York. Generally,
restrictions on importing 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 no such Federal legislation has been
enacted, if such Federal legislation should be enacted in the future, states in
which the Company operates landfills could act to limit or prohibit the Company
from importing out-of-state waste. Such actions could adversely affect any of
the Company's landfills that receive a significant portion of waste originating
from other states and thereby have a material adverse effect on the Company's
business, financial condition and results of operations.
In addition, certain states and localities may for economic or other
reasons restrict the export 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
11
<PAGE>
ordinance that sought to limit the amount of waste that could be taken 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. In addition, the aforementioned Federal
legislation that has from time to time been proposed could, if enacted, allow
states and localities to impose flow control restrictions. These restrictions
could reduce the volume of waste going to landfills in certain areas, which may
adversely affect the Company's ability to operate its landfills at their full
capacity and/or affect the prices that the Company can charge 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.
Businesses that provide waste services, including the Company, are
frequently subject in the normal course of operations to judicial and
administrative proceedings involving Federal, state or local agencies or
citizens' groups. These proceedings, based on violations or alleged violations
of environmental laws or regulations, may seek to impose fines or penalties on
the Company or to revoke, suspend, modify or deny renewal of the Company's
operating permits, approvals or licenses, or require that the Company make
expenditures to remediate potential environmental problems relating to waste
transported, disposed of or stored by the Company or its predecessors, or
resulting from its or its predecessors' operations. Any adverse outcome in
these proceedings could have a material adverse effect on the Company's
business, financial condition and results of operations and may subject the
Company to adverse publicity. The Company also may be subject to actions
brought by individuals or community groups in connection with the permitting,
approving or licensing of its operations, alleged violation of such permits,
approvals or licenses or other matters. See "--Potential Environmental
Liability".
Potential Environmental Liability
The Company may be subject to liability for environmental damage,
including personal injury and property damage, that its solid waste facilities
may cause to neighboring property owners, particularly as a result of the
contamination of drinking water sources or soil, possibly including damage
resulting from conditions existing or commencing before the Company acquired
the facilities. The Company may also be subject to liability for similar claims
arising from off-site environmental contamination caused by pollutants or
hazardous substances if the Company or its predecessors arranged to transport,
treat or dispose of those materials. Any substantial liability incurred by the
Company arising from environmental damage could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Regulation".
The Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"), imposes strict, joint and several liability on
the present owners and operators of facilities from which a release of
hazardous substances into the environment has occurred, as well as any party
that owned or operated the facility at the time of disposal of the hazardous
substances, regardless of when the hazardous substance was first detected.
Similar liability is imposed upon the generators of waste which contains
hazardous substances and upon hazardous substance transporters that select the
treatment, storage or disposal site. All such persons, who are referred to as
potentially responsible parties ("PRPs"), generally are jointly and severally
liable for the expense of waste site investigation, waste site cleanup costs
and natural resource damages, regardless of whether they exercised due care and
complied with all relevant laws and regulations. These costs can be very
substantial. Furthermore, such liability can be based upon the existence of
only very small amounts of "hazardous substances", as defined in CERCLA, which
is a much broader category of substances than "hazardous wastes", as defined in
RCRA. The states in which the Company operates have laws similar to CERCLA
which also impose environmental liability on broad classes of parties. Although
the Company is not in the business of transporting or disposing of hazardous
waste, it is possible that hazardous substances have in the past, or may in the
future, come to be located in landfills with which the Company has been
associated as a generator or transporter of waste or as an owner or operator of
the landfill. If EPA ever determines that remedial measures under CERCLA or
RCRA are appropriate at any of these sites or operations, if a state agency
makes such a finding under similar state law, or if a third party brings a
private cost-recovery or contribution action with respect to remedial costs
incurred, the Company could be subject to substantial liability which could
have
12
<PAGE>
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Regulation".
With respect to each business that the Company acquires or has acquired,
there may be liabilities that the Company fails to or is unable to discover,
including liabilities arising from waste transportation or disposal activities
or noncompliance with environmental laws by prior owners, and for which the
Company, as a successor owner, may be legally responsible. Representations,
warranties and indemnities from the sellers of such businesses, if obtained and
if legally enforceable, may not cover fully the resulting environmental or
other liabilities due to their limited scope, amount or duration, the financial
limitations of the warrantor or indemnitor or other reasons. Certain
environmental liabilities, even though expressly not assumed by the Company,
may nonetheless be imposed on the Company under certain legal theories of
successor liability, particularly under CERCLA. The Company's insurance program
does not cover liabilities associated with any environmental cleanup or
remediation of the Company's own sites. An uninsured claim against the Company,
if successful and of sufficient magnitude, could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Acquisition Program".
Potential Inadequacy of Accruals for Closure and Post-Closure Costs
The Company will have material financial obligations relating to closure
and post-closure costs of its existing landfills and any disposal facilities
which it may own or operate in the future. In addition to the landfills
currently operated by the Company, the Company owns and/or operated five
unlined landfills which are not currently in operation. Three of these
landfills have been closed and capped by the Company, and a fourth is in the
final stages of obtaining governmental closure design approval. The fifth
unlined landfill, a municipal landfill which is adjacent to the Subtitle D
Clinton County landfill being operated by the Company, was operated by the
Company from July 1996 through July 1997. The Company completed the closure and
capping activities at this landfill in September 1997. Clinton County has
indemnified the Company for environmental liabilities arising from materials
disposed of at that unlined landfill prior to its operation by the Company. The
Company has provided and will in the future provide accruals for financial
obligations relating to closure and post-closure costs of its owned or operated
landfills (generally for a term of 30 years after final closure of a landfill)
based on engineering estimates of consumption of permitted landfill airspace
over the useful life of any such landfill. There can be no assurance that the
Company's financial obligations for closing or post-closing costs will not
exceed the amount accrued and reserved or amounts otherwise receivable pursuant
to trust funds established for such purpose. Such a circumstance could have a
material adverse effect on the Company's business, financial condition and
results of operation. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Operations--Landfills".
Inability to Obtain Performance or Surety Bonds, Letters of Credit or Insurance
Municipal solid waste collection contracts and landfill closure
obligations may require performance or surety bonds, letters of credit, or
other means of financial assurance to secure contractual performance. If the
Company were unable to obtain performance or surety bonds or letters of credit
in sufficient amounts or at acceptable rates, it could be precluded from
entering into additional municipal solid waste collection contracts or
obtaining or retaining landfill operating permits. Any future difficulty in
obtaining insurance could also impair the Company's ability to secure future
contracts conditioned upon the contractor having adequate insurance coverage.
Accordingly, the failure of the Company to obtain performance or surety bonds,
letters of credit, or other means of financial assurance or to maintain
adequate insurance coverage could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Risk Management, Insurance and Performance or Surety Bonds".
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 landfills. 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
13
<PAGE>
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 project that is 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 have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Control by Casellas and Anti-takeover Effect of Class B Common Stock
The holders of Class B Common Stock of the Company are entitled to ten
votes per share, whereas the holders of Class A Common Stock are entitled to
one vote per share. As of April 30, 1998, an aggregate of 988,200 shares of
Class B Common Stock, representing 9,882,000 votes (48.5% of the aggregate
votes to be cast), were outstanding, all of which were beneficially owned by
John W. Casella, the President, Chief Executive Officer and Chairman of the
Board of Directors of the Company, and by Douglas R. Casella, the Vice Chairman
of the Board of Directors of the Company (together, the "Casellas"), and
together with the shares of Class A Common Stock beneficially owned by them,
the Casellas beneficially owned shares as of such date representing
approximately 55.2% of the aggregate votes to be cast. As a result, the
Casellas, if acting together, will be able to control the election of all but
one member of the Board of Directors and the outcome of other matters submitted
for stockholder consideration, including, without limitation, matters involving
the control of the Company, irrespective of how other stockholders may vote.
This concentration of ownership and voting control may have the effect of
delaying or preventing a change of control of the Company which may be favored
by the Company's other stockholders. There can be no assurance that the
Casellas' ability to prevent or cause a change in control of the Company will
not have a material adverse effect on the market price of the Class A Common
Stock. Shares of Class B Common Stock will automatically convert into shares of
Class A Common Stock in the event they cease to be held by Class B Permitted
Holders (as defined) and under certain other circumstances. The Casellas have
certain contractual relationships with the Company. See "Certain Transactions"
for a discussion of contractual relations between the Casellas and the Company.
See also "Principal and Selling Stockholders" and "Description of Capital
Stock".
Anti-Takeover Effect of Certain Charter and By-Law Provisions and Delaware Law
The Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate of Incorporation") and Amended and Restated By-Laws (the
"Restated By-Laws") provide for the Company's Board to be divided into three
classes of directors serving staggered three-year terms. As a result, beginning
in 1998, approximately one-third of the Company's Board will be elected each
year. The classified board is designed to ensure continuity and stability in
the board's composition and policies in the event of a hostile takeover attempt
or proxy contest. The classified board would extend the time required to effect
any changes in control of the Company's Board and may tend to discourage any
hostile takeover bid for the Company. Because only a minority of the directors
will be elected at each annual meeting, it would normally take at least two
annual meetings for holders of even a significant majority of the Company's
voting stock to effect a change in the composition of a majority of the
Company's Board, absent approval of the Company's Board. Because of the
additional time required to change the composition of the Company's Board, a
classified board may also make the removal of incumbent management more
difficult, even if such removal would be beneficial to stockholders generally,
and may tend to discourage certain tender offers.
The authorized capital of the Company includes 1,000,000 shares of "blank
check" Preferred Stock. The Board of Directors has the authority to issue
shares of Preferred Stock and to determine the price, designation, rights,
preferences, privileges, restrictions and conditions, including voting and
dividend rights, of these shares of Preferred Stock without any further vote or
action by the stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could make it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue any Preferred Stock. See
"Description of Capital Stock".
14
<PAGE>
The Company's Restated Certificate of Incorporation and Restated By-Laws
provide that any action required or permitted to be taken by stockholders of
the Company must be effected at a duly called annual or special meeting of
stockholders and may not be effected by written consent, and require reasonable
advance notice and other procedures to be followed by a stockholder in
connection with a proposal or director nomination which such stockholder
desires to present at any annual or special meeting of stockholders. Special
meetings of stockholders may be called only by the President of the Company or
by the Board of Directors. The Restated Certificate of Incorporation and
Restated By-Laws provide that members of the Board of Directors may be removed
only upon the affirmative vote of holders of shares representing at least 75%
of the votes entitled to be cast. The Company is subject to the anti-takeover
provision of Section 203 of the Delaware General Corporation Law, which will
prohibit 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. These provisions, and the provisions of the Restated
Certificate of Incorporation and Restated By-Laws, may have the effect of
deterring hostile takeovers or delaying or preventing changes in control or
management of the Company, including transactions in which stockholders might
otherwise receive a premium for their shares over then current market prices.
In addition, these provisions may limit the ability of stockholders to approve
transactions that they may deem to be in their best interests. See "Description
of Capital Stock--Preferred Stock" and "--Delaware Law and Certain Charter and
By-Law Provisions".
No Dividends
The Company does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future. The Company's revolving line of credit
restricts the payment of dividends. See "Dividend Policy".
15
<PAGE>
RECENT LANDFILL ACQUISITION
On May 4, 1998, the Company announced that it had closed on the purchase
of the Hyland landfill, a Subtitle D landfill located in western upstate New
York. The landfill, located in Angelica, Allegheny County, has approximately
1,800,000 tons of permitted capacity and is permitted to accept 156,000 tons of
municipal solid waste annually.
The Hyland landfill is subject to a number of limitations imposed by local
laws. In 1988, the Town of Angelica passed an ordinance which prohibits waste
disposal facilities from operating in that town. Pursuant to the terms of a
settlement between the town and the operators of the Hyland landfill in 1996,
the Hyland landfill was grandfathered under that ordinance; however, no
clarification has been sought or received as to whether the landfill's
grandfathered status is limited to currently permitted capacity or would extend
to capacity which may be permitted in the future. In addition, in 1998 the Town
of Angelica passed a law which would prohibit the expansion of the Hyland
facility, require the Hyland landfill and the operator thereof to receive a
permit to continue to operate, prevent the disposal of yard waste and certain
types of industrial waste and impose certain other restrictions on the Hyland
facility. On May 12, 1998, the Company filed suit in New York Supreme Court,
Allegheny County against the Town of Angelica seeking a temporary restraining
order and preliminary injunctive relief against the Town's enforcement of this
local law. A temporary restraining order was granted by the court on May 14,
1998.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares of Class
A Common Stock by the Selling Stockholders hereunder. See "Principal and
Selling Stockholders".
DIVIDEND POLICY
No dividends have ever been declared or paid on the Company's capital
stock and the Company does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future. The Company's revolving line of credit
restricts the payment of dividends. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
MARKET PRICE OF CLASS A COMMON STOCK
The Company's Common Stock began trading on the Nasdaq National Market
under the symbol "CWST" on October 29, 1997. Prior to such date, there was no
established public trading market for the Company's Class A Common Stock. The
following table sets forth the high and low sale prices of the Company's Class
A Common Stock for the periods indicated as quoted on the Nasdaq National
Market.
<TABLE>
<CAPTION>
Period High Low
- ------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Fiscal 1998
Second quarter (commencing October 29, 1997) ......... $ 22.75 $ 20.25
Third quarter ........................................ $ 26.37 $ 19.00
Fourth quarter ....................................... $ 34.00 $ 23.75
Fiscal 1999
First quarter (through June 1, 1998) ................. $ 30.75 $ 26.25
</TABLE>
On June 1, 1998, the high and low sale prices per share of the Company's
Class A Common Stock as quoted on the Nasdaq National Market were $26.75 and
$26.50, respectively. As of May 29, 1998 there were approximately one hundred
and eighty-eight holders of record of the Company's Class A Common Stock.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated financial and operating data set forth
below with respect to the Company's consolidated statements of operations for
the fiscal years ended April 30, 1995, 1996 and 1997, and for the unaudited
nine months ended January 31, 1997 and 1998, and the consolidated balance
sheets as of April 30, 1996 and 1997 and as of January 31, 1998 are derived
from the financial statements of the Company included elsewhere in this
Prospectus, and the consolidated statement of operations data for the fiscal
year ended April 30, 1994 and the consolidated balance sheet data as of April
30, 1994 and 1995 are derived from the Company's consolidated financial
statements, which statements have been audited by Arthur Andersen LLP. The data
presented as of and for the fiscal year ended April 30, 1993 and for the
unaudited nine months ended January 31, 1997 are derived from the Company's
unaudited consolidated financial statements not included herein, which have
been prepared on the same basis as the audited financial statements of the
Company and, in the opinion of the Company, reflect all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of such
data. The results for the unaudited nine months ended January 31, 1998 are not
necessarily indicative of results to be expected for the full year. In December
1997, the Company acquired a waste collection and transfer operation in a
transaction recorded as a pooling of interests. Under the rules governing
poolings of interest, the prior period and year to date financial statements of
the Company have been restated to reflect the financial position, results of
operations and cash flows of the merged entities as if they had been one
company for all periods presented in the accompanying financial statements. The
data set forth below should be read in conjunction with the Unaudited Pro Forma
Consolidated Statement of Operations and Notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
------------------------------------------------------------
Restated(6)
--------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ....................... $11,375 $ 13,491 $ 23,869 $ 42,829 $ 79,532
Cost of operations ............. 7,222 9,640 13,721 25,137 48,057
General and
administrative ................ 2,276 2,702 2,909 7,063 12,534
Depreciation and
amortization .................. 1,352 1,483 4,815 8,152 13,695
Merger Costs (Pooling) ......... -- -- -- -- --
------- -------- -------- -------- --------
Operating income (loss) ........ 525 (334) 2,424 2,477 5,246
Interest expense, net .......... 354 613 1,826 2,617 4,290
Other expense (income),
net ........................... (142) 207 36 (90) 923
------- -------- -------- -------- --------
Income (loss) before
provision (benefit) for
income taxes,
extraordinary items and
cumulative effect of
change in accounting
principle ..................... 313 (1,154) 562 (50) 33
Provision (benefit) for
income taxes .................. 155 (441) 220 144 452
Extraordinary items ............ -- -- -- 326 --
Change in accounting
principle ..................... -- 124 -- -- --
------- -------- -------- -------- --------
Net income (loss) .............. $ 158 $ (837) $ 342 $ (520) $ (419)
======= ======== ======== ======== ========
Accretion of Preferred
Stock and Put Warrants -- -- (2,380) (2,967) (8,530)
------- -------- -------- -------- --------
Net Income (loss)
applicable to common
stockholders .................. $ 158 $ (837) $ (2,038) $ (3,487) $ (8,949)
======= ======== ======== ======== ========
<CAPTION>
Fiscal Year Ended
April 30, Nine Months Ended January 31,
----------------- -----------------------------------------
(unaudited) (unaudited)
Pro Forma(1)(2) (unaudited) (unaudited) Pro Forma(1)(2)
1997 1997 1998 1998
----------------- ------------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ....................... $109,613 $ 56,211 $ 87,321 $88,604
Cost of operations ............. 69,070 33,923 51,743 52,772
General and
administrative ................ 16,526 8,867 12,729 13,260
Depreciation and
amortization .................. 18,122 9,726 13,412 13,526
Merger Costs (Pooling) ......... -- -- 290 --
-------- -------- -------- -------
Operating income (loss) ........ 5,895 4,325 9,147 9,046
Interest expense, net .......... 3,433 2,903 5,272 3,457
Other expense (income),
net ........................... 1,202 105 2 162
-------- -------- -------- -------
Income (loss) before
provision (benefit) for
income taxes,
extraordinary items and
cumulative effect of
change in accounting
principle ..................... 1,260 1,317 3,873 5,427
Provision (benefit) for
income taxes .................. 855 960 1,950 2,581
Extraordinary items ............ -- -- -- --
Change in accounting
principle ..................... -- -- -- --
-------- -------- -------- -------
Net income (loss) .............. 405 $ 357 $ 1,923 2,846
======== ======== ======== =======
Accretion of Preferred
Stock and Put Warrants -- (6,004) (5,738) --
-------- -------- -------- -------
Net Income (loss)
applicable to common
stockholders .................. $ 405 $ (5,647) $ (3,815) $ 2,846
======== ======== ======== =======
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
--------------------------------------------------------------
Restated(6)
---------------------------------------
1993 1994 1995 1996 1997
---------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Basic Earnings (loss) per
Share of Common
Stock ....................... $ 0.08 $ (0.35) $ (0.70) $ (1.06) $ (2.29)
Basic Weighted Average
Common Stock Shares
Outstanding (3) ............. 1,995 2,355 2,900 3,279 3,913
Diluted Earnings (loss) per
Share ....................... $ 0.08 $ (0.35) $ (0.70) $ (1.06) $ (2.29)
Diluted Weighted Average
Common Stock and
Common Stock
Equivalent Shares
Outstanding (3) ............. 1,995 2,355 2,900 3,279 3,913
Other Operating Data:
EBITDA(4) .................... $1,877 $ 1,149 $ 7,239 $ 10,629 $ 18,941
====== ======== ======== ========= =========
Capital expenditures ......... $ 597 $ 843 $ 3,731 $ 10,750 $ 16,971
====== ======== ======== ========= =========
Cash flows from operating
activities .................. $1,632 $ 1,559 $ 4,978 $ 8,642 $ 14,940
====== ======== ======== ========= =========
Cash flows from investing
activities .................. $ (903) $ (2,270) $ (9,187) $ (28,209) $ (52,816)
====== ======== ======== ========= =========
Cash flows from financing
activities .................. $ (672) $ 1,007 $ 4,547 $ 19,272 $ 38,755
====== ======== ======== ========= =========
<CAPTION>
Fiscal Year Ended
April 30, Nine Months Ended January 31,
----------------- -----------------------------------------
(unaudited) (unaudited)
Pro Forma(1)(2) (unaudited) (unaudited) Pro Forma(2)
1997 1997 1998 1998
----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic Earnings (loss) per
Share of Common
Stock ....................... $ 0.04 $ (1.51) $ (0.56) $ 0.25
Basic Weighted Average
Common Stock Shares
Outstanding (3) ............. 10,646 3,737 6,755 11,293
Diluted Earnings (loss) per
Share ....................... $ 0.04 $ (1.51) $ (0.56) $ 0.23
Diluted Weighted Average
Common Stock and
Common Stock
Equivalent Shares
Outstanding (3) ............. 11,347 3,737 6,755 12,340
Other Operating Data:
EBITDA(4) .................... $24,017 $ 14,051 $ 22,559 $22,572
======= ========= ========= =======
Capital expenditures ......... $ 13,400 $ 14,876
========= =========
Cash flows from operating
activities .................. $ 12,431 $ 11,156
========= =========
Cash flows from investing
activities .................. $ (47,413) $ (39,325)
========= =========
Cash flows from financing
activities .................. $ 36,784 $ 29,125
========= =========
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
-------------------------------------------------------------- (unaudited)
Restated(6) January 31,
-------------------------------------- ------------
1993 1994 1995 1996 1997 1998
--------- --------- ----------- ----------- ----------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents .................. $ 132 $ 427 $ 765 $ 470 $ 1,349 $ 2,305
Working capital (deficit) ..... (961) (729) (1,393) (2,205) (5,577) 3,371
Property and equipment,
net .......................... 5,148 6,394 23,203 37,955 67,983 75,486
Total assets .................. 10,257 13,055 38,534 64,893 140,882 175,326
Long-term obligations,
less current maturities ...... 4,051 7,331 22,998 24,103 76,901 66,446
Redeemable preferred
stock ........................ -- -- -- 22,896 31,426 --
Redeemable put
warrants (5) ................. -- 62 3,142 400 400 --
Total stockholders' equity
(deficit) .................... 1,626 738 2,338 (874) 76 80,869
</TABLE>
- ------------
(1) Pro forma to give effect to the automatic redemption upon the closing of
the Company's recent initial public offering of the Series A Preferred
Stock and Series B Preferred Stock with the redemption price applied to
the exercise of warrants to purchase 1,811,199 shares of Class A Common
Stock and the automatic conversion upon such closing of outstanding shares
of Series D Convertible Preferred Stock into 1,922,169 shares of Class A
Common Stock.
(2) Pro forma to give effect to: (i) the acquisitions completed during fiscal
1997; (ii) the acquisition of substantially all of the assets of H.C.
Gobin, Inc. in fiscal 1998; and (iii) the application of the net proceeds
from the Company's initial public offering after deducting the
underwriting discount and offering expenses paid by the Company, as if
each had occurred on May 1, 1996. No pro forma adjustment has been made to
(i) the historical amounts for the nine months ended January 31, 1998 to
reverse the impact of the loss incurred by H.C. Gobin, Inc. upon the sale
of certain unprofitable operations divested by H.C. Gobin, Inc. prior to
its acquisition by the Company, or (ii) the historical
18
<PAGE>
amounts for the year ended April 30, 1997 and the nine months ended January
31, 1998 to reduce operating expenses to eliminate specific expenses that
the Company believes would not have been incurred had the Gobin acquisition
occurred as of May 1, 1996.
(3) Computed on the basis described in Note 2 of Notes to Consolidated
Financial Statements.
(4) EBITDA is defined as operating income plus depreciation and amortization.
EBITDA does not represent, and should not be considered as, an alternative
to net income or cash flows from operating activities, each as determined
in accordance with GAAP. Moreover, EBITDA does not necessarily indicate
whether cash flow will be sufficient for such items as working capital or
capital expenditures, or to react to changes in the Company's industry or
to the economy generally. The Company believes that EBITDA is a measure
commonly used by lenders and certain investors to evaluate a company's
performance in the solid waste industry. The Company also believes that
EBITDA data may help to understand the Company's performance because such
data may reflect the Company's ability to generate cash flows, which is an
indicator of its ability to satisfy its debt service, capital expenditure
and working capital requirements. Because EBITDA is not calculated by all
companies and analysts in the same fashion, the EBITDA measures presented
by the Company may not be comparable to similarly-titled measures reported
by other companies. Therefore, in evaluating EBITDA data, investors should
consider, among other factors: the non-GAAP nature of EBITDA data; actual
cash flows; the actual availability of funds for debt service, capital
expenditures and working capital; and the comparability of the Company's
EBITDA data to similarly-titled measures reported by other companies. For
more information about the Company's cash flows, see page F-9.
(5) Represents warrants to purchase 100,000 shares of Class A Common Stock
exercisable at $6.00 per share. Pursuant to the terms of these warrants,
in September 1997, warrants to purchase 25,000 shares were exercised by
the holder at $6.00 per share, and warrants to purchase 75,000 shares were
called by the Company at $7.00 per share.
(6) The Company has issued restated audited consolidated financial statements as
of and for fiscal years ended April 30, 1995, 1996 and 1997 to reflect the
merger with All Cycle Waste, Inc. and Winters Brothers Inc. consummated on
December 19, 1997, accounted for using the pooling of interests method of
accounting.
19
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The following Unaudited Pro Forma Consolidated Statements of Operations of
the Company have been prepared based upon the historical Consolidated Financial
Statements of the Company, and the Notes thereto included elsewhere in this
Prospectus and gives effect to (i) the acquisitions completed during fiscal
1997 and (ii) the acquisition of substantially all of the assets of H.C.Gobin,
Inc. in fiscal 1998 and (iii) the application of the net proceeds from the
Company's recent initial public offering after deducting the underwriting
discount and offering expenses paid by the Company, as if each had occurred as
of May 1, 1996. An unaudited pro forma consolidated balance sheet has not been
presented as each of the pro forma transactions occurred prior to the actual
balance sheet dated January 31, 1998 included in the Consolidated Financial
Statements.
The Unaudited Pro Forma Consolidated Statements of Operations should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the Consolidated Financial
Statements and the Notes thereto included elsewhere in this Prospectus. The
Unaudited Pro Forma Consolidated Statements of Operations are not necessarily
indicative of the actual results of operations that would have been reported if
the events described above had occurred as of May 1, 1996, nor do they purport
to indicate the results of future operations of the Company. Furthermore, the
pro forma results do not give effect to all cost savings or incremental costs
that may occur as a result of the integration and consolidation of the
completed acquisitions. In the opinion of management, all adjustments necessary
to present fairly such pro forma financial results have been made.
<TABLE>
<CAPTION>
(Unaudited)
Fiscal Year Ended April 30, 1997
--------------------------------------------------------------------------------
Casella Acquisitions Adjustments
--------------- -------------------------------- Related to
Historical(1) Historical(2) Adjustments(3) the Offering Pro Forma
--------------- --------------- ---------------- ----------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues .............................. $ 79,532 $30,081 $ -- $ -- $ 109,613
-------- ------- --------- --------- ---------
Cost of operations .................... 48,057 21,013 -- -- 69,070
General and administrative ............ 12,534 3,992 -- -- 16,526
Depreciation and amortization ......... 13,695 3,537 890(3A) -- 18,122
-------- ------- ----------- --------- ---------
Operating income ...................... 5,246 1,539 (890) -- 5,895
Interest expense, net ................. 4,290 1,544 1,443(3B) (3,844)(4) 3,433
Other (income) expense, net ........... 923 279 -- -- 1,202
-------- ------- ----------- --------- ---------
Income (loss) before provision
(benefit) for income taxes ........... 33 (284) (2,333) 3,844 1,260
Provision (benefit) for income
taxes ................................ 452 (22) (1,093)(5) 1,518 (5) 855
-------- ------- ----------- --------- ---------
Net income (loss) .................. $ (419) $ (262) $ (1,240) $ 2,326 $ 405
======== ======= =========== ========= =========
Accretion of Preferred Stock and
put warrants ......................... (8,530) -- -- 8,530 (6)
-------- ------- ----------- ---------
Net income (loss) applicable to
common stockholders .................. $ (8,949) (262) (1,240) $ 10,856 405
======== ======= =========== ========= =========
Basic Earnings per Share
of Common Stock ...................... $ (2.29) $ 0.04
Basic Weighted Average
Common Stock Shares
Outstanding(7) ....................... 3,913 10,646
Diluted Earnings per Share ............ $ 0.04
Diluted Weighted Average
Common Stock and Common
Stock Equivalent Shares
Outstanding .......................... 11,347
EBITDA(8) ............................. $ 18,941 $ 24,017
======== =========
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended January 31, 1998
-------------------------------------------------------------------------------
(in thousands, except per share data)
Casella H.C. Gobin Adjustments
--------------- -------------------------------- Related to
Historical(1) Historical(9) Adjustments(3) the Offering Pro Forma
--------------- --------------- ---------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues ................................... $ 87,321 $1,283 $ -- $ -- $ 88,604
-------- ------ ------- --------- --------
Cost of operations ........................ 51,743 1,029 -- -- 52,772
Selling, general & administrative ......... 13,019 241 -- -- 13,260
Depreciation and amortization ............. 13,412 96 18(3A) -- 13,526
-------- ------ --------- --------- --------
Operating income ........................... 9,147 (83) (18) -- 9,046
Interest expense, net ...................... 5,272 56 98(3B) (1,969)(4) 3,457
Other expenses (income), net ............... 2 160 -- -- 162
-------- ------ --------- --------- --------
Income (loss) before provision (benefit)
for income taxes .......................... 3,873 (299) (116) 1,969 5,427
Provision (benefit) for income taxes ....... 1,950 56 (201)(5) 776 (5) 2,581
-------- ------ --------- --------- --------
Net income (loss) ...................... $ 1,923 $ (355) $ 85 $ 1,193 $ 2,846
======== ====== ========= ========= ========
Accretion of Preferred Stock and
put warrants .............................. (5,738) -- -- 5,738 (6) --
-------- ------ --------- --------- --------
Net income (loss) applicable to
common stockholders ....................... (3,815) (355) 85 $ 6,931 2,846
======== ====== ========= ========= ========
Basic Earnings per Share
of Common Stock ........................... $ (0.56) $ 0.25
Basic Weighted Average Common
Stock Shares Outstanding (7) .............. 6,755 11,293
Diluted Earnings per
Share ..................................... $ 0.23
Diluted Weighted Average Common
Stock and Common Stock Equivalent
Shares Outstanding ........................ 12,340
EBITDA(8) .................................. $ 22,559 $ 22,572
======== ========
</TABLE>
(1) No pro forma adjustment has been made (i) to the historical amounts for the
year ended April 30, 1997 to reverse the impact of a certain non-recurring
charge totalling $650,000 incurred with the settlement of certain
litigation naming the Company and brought derivatively in the name of the
Meridian Group, Inc. (see "Certain Transactions"); (ii) to the historical
amounts for the year ended April 30, 1997 to reduce operating expenses to
eliminate specific expenses that the Company believes would not have been
incurred had the acquisitions occurred as of May 1, 1996; and (iii) to the
historical amounts for the year ended April 30, 1997 to give effect to the
savings expected to be realized from the Company redirecting 8,000 tons of
waste per month from third party landfills to the Subtitle D Clinton
County landfill.
(2) Consists of the combined historical statement of revenues and direct
operating expenses for the acquisitions completed after April 30, 1996 for
the period of May 1, 1996 through their respective dates of acquisition as
follows:
21
<PAGE>
SCHEDULE OF COMPLETED ACQUISITIONS
<TABLE>
<CAPTION>
Fiscal Year Ended April 30, 1997
------------------------------------------------------------------------
Completed Acquisitions
------------------------------------------------------------------------
(in thousands)
Clinton Vermont Superior H.C. Total
County(A) Waste(B) Disposal(C) Gobin(D) Other(E) Acquisitions
----------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues ...................................... $642 $1,251 $12,593 $4,872 $ 10,723 $30,081
---- ------ ------- ------ -------- -------
Cost of operations ............................ 449 524 9,136 3,808 7,096 21,013
General and administrative .................... 31 561 488 945 1,967 3,992
Depreciation and amortization ................. 90 12 2,358 309 768 3,537
---- ------ ------- ------ -------- -------
Operating income (loss) ....................... 72 154 611 (190) 892 1,539
Interest expense, net ......................... 88 50 634 244 528 1,544
Other expense (income), net ................... (5) (10) 69 136 89 279
------- ------ ------- ------ -------- -------
Income (loss) before provision for income taxes (11) 114 (92) (570) 275 (284)
Provision for income taxes .................... -- -- 20 (42) -- (22)
------ ------ ------- ------ -------- -------
Net income (loss) ............................. $(11) $ 114 $ (112) $ (528) $ 275 $ (262)
====== ====== ======= ====== ======== =======
</TABLE>
- ------------
(A) Acquisition completed on July 8, 1996.
(B) Acquisition completed on November 26, 1996.
(C) Acquisition completed on January 23, 1997.
(D) Acquisition completed on September 5, 1997.
(E) Includes other acquisitions completed by the Company as of April 30, 1997
for which sufficiently detailed historical financial information was
available.
(3) Pro forma adjustments have been made to the historical amounts for the
acquisitions noted in footnote (2). All of the acquisitions were accounted
for using the purchase method of accounting for business combinations.
(A) A pro forma adjustment has been made to reflect additional amortization
expense on the fair market value of the assets acquired as if the
acquisitions described in footnote (2) had occurred on May 1, 1996.
Landfill costs are amortized as permitted airspace of the landfill is
consumed. Goodwill is amortized over lives not exceeding 40 years, and
covenants not-to-compete and customer lists are amortized over lives not
exceeding 10 years.
<TABLE>
<CAPTION>
(Unaudited)
Fiscal Year Ended Nine Months Ended
April 30, 1997 January 31, 1998
------------------- ------------------
<S> <C> <C>
Incremental amortization of landfill costs
recorded in purchase accounting ............. $140 $--
Incremental intangibles amortization ......... 750 18
---- ---
Pro forma adjustment ......................... $890 $18
==== ===
</TABLE>
(B) A pro forma adjustment has been made for the year ended April 30, 1997
and the nine months ended January 31, 1998 to reflect the additional
interest expense on the incremental debt outstanding used to complete
the acquisitions described in footnote (2) as if all of those
acquisitions had occurred on May 1, 1996, assuming a weighted average
interest rate of 8.3% and 8.5%, respectively.
(4) A pro forma adjustment has been made for the year ended April 30, 1997 and
nine months ended January 31, 1998 to reflect reduced interest expense
resulting from the application of net proceeds from the Company's initial
public offering to reduce borrowings under the Company's credit facility
as if such reduction had occurred on May 1, 1996.
(5) A pro forma adjustment has been made to adjust the pro forma provision for
income taxes to a 39.5% rate on pro forma income before nondeductible
intangible amortization and other nondeductible expenses.
(6) A pro forma adjustment has been made for the year ended April 30, 1997 and
the nine months ended January 31, 1998 to reflect the elimination of
accretion charges related to the Series Preferred Stock
22
<PAGE>
and warrants, which were converted into or exercised for Class A Common
Stock upon the closing of the Company's initial public offering in November
1997.
(7) Computed on the basis described in Note 8 of Notes to Consolidated
Financial Statements.
(8) EBITDA is defined as operating income plus depreciation and amortization.
EBITDA does not represent, and should not be considered as, an alternative
to net income or cash flows from operating activities, each as determined
in accordance with GAAP. Moreover, EBITDA does not necessarily indicate
whether cash flow will be sufficient for such items as working capital or
capital expenditures, or to react to changes in the Company's industry or
to the economy generally. The Company believes that EBITDA is a measure
commonly used by lenders and certain investors to evaluate a company's
performance in the solid waste industry. The Company also believes that
EBITDA data may help to understand the Company's performance because such
data may reflect the Company's ability to generate cash flows, which is an
indicator of its ability to satisfy its debt service, capital expenditure
and working capital requirements. Because EBITDA is not calculated by all
companies and analysts in the same fashion, the EBITDA measures presented
by the Company may not be comparable to similarly-titled measures reported
by other companies. Therefore, in evaluating EBITDA data, investors should
consider, among other factors: the non-GAAP nature of EBITDA data; actual
cash flows; the actual availability of funds for debt service, capital
expenditures and working capital; and the comparability of the Company's
EBITDA data to similarly-titled measures reported by other companies. For
more information about the Company's cash flows, see page F-9.
(9) Consists of the combined historical statement of revenues and direct
operating expenses for H.C. Gobin, Inc. for the period of May 1, 1997
through July 31, 1997.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto, the Company's Unaudited Pro Forma
Consolidated Statements of Operations and Notes thereto, and other financial
Information included elsewhere in the Prospectus.
Overview
The Company is a regional, integrated solid waste services company that
provides collection, transfer, disposal and recycling services in Vermont, New
Hampshire, Maine, upstate New York and northern Pennsylvania. The Company's
objective is to continue to grow by expanding its services in markets where it
can be one of the largest and most profitable fully-integrated solid waste
services companies.
The Company's revenues have increased from $13.5 million for the fiscal
year ended April 30, 1994, to $79.5 million for the fiscal year ended April 30,
1997. From May 1, 1994 through April 30, 1997, the Company acquired 44 solid
waste collection, transfer and disposal operations. Between May 1, 1997 and
January 31, 1998, the Company acquired an additional 24 of such businesses.
These acquisitions were accounted for under the purchase method of accounting
for business combinations. Under the rules of purchase accounting the acquired
companies' revenues and results of operations have been included together with
those of Casella Waste Systems, Inc. from the dates of the acquisitions. The
resulting growth in revenues and results of operations of the Company will
materially affect the period-to-period comparisons of this financial
information. In addition to these transactions, in December, 1997 the Company
acquired a waste collection and transfer operation in a transaction recorded as
a pooling of interests. Under the rules governing poolings of interest, the
prior period and year to date financial statements of the Company have been
restated to reflect the financial position, results of operations and cash
flows of the merged entities as if they had been one company for all periods
presented in the accompanying financial statements.
This Prospectus and other reports, proxy statements, and other
communications to stockholders, as well as oral statements by the Company's
officers or its agents, may contain forward-looking statements within the
meaning of Section 27A of the Securities Act, with respect to, among other
things, the Company's future revenues, operating income, or earnings per share.
Without limiting the foregoing, any statements contained in this Prospectus that
are not statements of historical fact may be deemed to be forward-looking
statements, and the words "believes", "anticipates", "plans", "expects", and
similar expressions are intended to identify forward-looking statements. There
are a number of factors of which the Company is aware that may cause the
Company's actual results to vary materially from those forecast or projected in
any such forward-looking statement, certain of which are beyond the Company's
control. These factors include, without limitation, those set forth above under
the caption "Risk Factors". The Company's failure to successfully address any of
these factors could have a material adverse effect on the Company's results of
operations.
General
The Company's revenues are attributable primarily to fees charged to
customers for solid waste collection, landfill, transfer and recycling
services. The Company derives a substantial portion of its collection revenues
from commercial, industrial and municipal services that are generally performed
under service agreements or pursuant to contracts with municipalities. The
majority of the Company's residential collection services are performed on a
subscription basis with individual households. Landfill and transfer customers
are charged a tipping fee on a per ton basis for disposing of their solid waste
at the Company's disposal facilities and transfer stations. The majority of the
Company's landfill and transfer customers are under one-year to ten-year
disposal contracts, with most having clauses for annual cost of living
increases. Recycling revenues consist of revenues from the sale of recyclable
commodities. Other revenues consist primarily of revenue from waste tire
processing operations and septic pumping and portable toilet operations. The
Company's revenues are shown net of intercompany eliminations. The Company
typically establishes its intercompany transfer pricing based upon prevailing
market rates.
24
<PAGE>
The table below shows, for the periods indicated, the percentage of the
Company's revenues attributable to services provided. The increase in the
Company's collection revenues as a percentage of revenues in fiscal 1997 and
the first nine months of fiscal 1998 is primarily attributable to the impact of
the Company's acquisition of collection businesses during fiscal 1996 and
fiscal 1997, as well as to internal growth through price and business volume
increases. The increase in landfill revenues in fiscal 1996 over fiscal 1995
was due principally to the acquisition of the Waste USA landfill in fiscal
1996. The decrease in the Company's transfer revenues as a percentage of
revenues in fiscal 1997 and the first nine months of fiscal 1998 is mainly due
to a proportionately greater increase in collection and other revenues
occurring as the result of acquisitions in those areas; also, as the Company
acquires collection businesses from which it previously had derived transfer
revenues, the acquired revenues are recorded by the Company as collection
revenues. The decline in recycling revenues as a percentage of revenues in
fiscal 1997 and the first nine months of fiscal 1998 principally reflects an
absence of acquisitions in this area coupled with a decline in recyclable
commodity prices. The increase in other revenues as a percentage of revenues in
fiscal 1996 and fiscal 1997 and the first nine months of fiscal 1998 is
primarily due to the Company's acquisition and integration of tire processing
and septic businesses during these periods.
<TABLE>
<CAPTION>
% of Revenues
--------------------------------------------------------------
(Unaudited)
Nine Months Ended
Year Ended April 30, Jan. 31,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Collection ............. 69.6% 68.7% 69.7% 67.3% 72.1%
Landfill ............... 14.3 15.8 15.5 17.0 13.3
Transfer ............... 6.5 7.1 6.5 6.8 6.2
Recycling .............. 9.4 7.4 7.1 7.7 6.4
Other .................. 0.2 1.0 1.2 1.2 2.0
----- ----- ----- ----- -----
Total Revenues ......... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
Cost of operations includes labor, tipping fees paid to third party
disposal facilities, fuel, maintenance and repair of vehicles and equipment,
worker's compensation and vehicle insurance, the cost of purchasing materials
to be recycled, third party transportation expense, district and state taxes,
host community fees and royalties. Landfill operating expenses also include a
provision for closure and post-closure expenditures anticipated to be incurred
in the future, and leachate treatment and disposal costs.
General and administrative expenses include management, clerical and
administrative compensation and overhead, professional services and costs
associated with the Company's marketing and sales force and community relations
expense.
Depreciation and amortization expense includes depreciation of fixed
assets over the estimated useful life of the assets using the straight line
method, amortization of landfill airspace assets under the units-of-production
method, and the amortization of goodwill and other intangible assets using the
straight line method. The amount of landfill amortization expense related to
airspace consumption can vary materially from landfill to landfill depending
upon the purchase price and landfill site and cell development costs.
Certain direct landfill development costs, such as engineering,
permitting, legal, construction and other costs directly associated with
expansion of existing landfills, are capitalized by the Company. Additionally,
the Company also capitalizes certain third party expenditures related to
pending acquisitions, such as legal and engineering. The Company will have
material financial obligations relating to closure and post-closure costs of
its existing landfills and any disposal facilities which it may own or operate
in the future. The Company has provided and will in the future provide accruals
for future financial obligations relating to closure and post-closure costs of
its landfills (generally for a term of 30 years after final closure of a
landfill) based on engineering estimates of consumption of permitted landfill
airspace over the useful life of any such landfill. There can be no assurance
that the Company's financial obligations for closure or post-closure costs will
not exceed the amount accrued and reserved or amounts otherwise receivable
pursuant to trust funds. The Company routinely evaluates all such capitalized
costs, and expenses those costs related to projects not likely to be
successful. Internal and indirect landfill development and
25
<PAGE>
acquisition costs, such as executive and corporate overhead, public relations
and other corporate services, are expensed as incurred. See "Risk
Factors--Incurrence of Charges Related to Capitalized Expenditures".
Results of Operations
The following table sets forth for the periods indicated the percentage
relationship that certain items from the Company's Consolidated Financial
Statements bear in relation to revenues.
<TABLE>
<CAPTION>
% of Revenues
-------------------------------------------------------------------
(Unaudited)
Nine Months Ended
Year ended April 30, Jan. 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues .............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of operations .................... 57.5 58.7 60.4 59.2 59.3
General and administrative ............ 12.2 16.5 15.8 15.8 14.9
Depreciation and amortization ......... 20.1 19.0 17.2 17.3 15.4
Operating income ...................... 10.2 5.8 6.6 7.7 10.4
Interest expense, net ................. 7.7 6.1 5.4 5.2 6.0
Other (income) expenses, net .......... 0.2 ( 0.2) 1.1 0.2 0.0
Provision for income taxes ............ 0.9 0.3 0.6 1.7 2.2
Net income (loss) before
extraordinary items .................. 1.4 ( 0.4) ( 0.5) 0.6 2.2
----- ----- ----- ----- -----
EBITDA* ............................... 30.3% 24.8% 23.8% 25.0% 25.8%
===== ===== ===== ===== =====
</TABLE>
* See discussion and computation of EBITDA below.
Nine Months Ended January 31, 1998 versus January 31, 1997
Revenues. Collection revenues increased as a percentage of total revenues
because most of the Company's acquisitions since May 1, 1996 were primarily
collection companies. Other revenue increased due to the acquisition of the
Maine waste tire processing operation in July 1996, and due to two portable
toilet/septic-pumping acquisitions in the first quarter of fiscal 1998. The
remaining revenue categories have decreased as a percentage of total revenues
due to fewer acquisitions being consummated in these lines of business. Any
increases in landfill or transfer revenues achieved by internalizing the waste
volumes of newly acquired collection businesses are eliminated in the
consolidated statements.
Revenues increased $31.1 million, or 55.3% for the nine months ended
January 31, 1998 over the comparable period in 1997. Of this increase, $27.5
million was due to the impact of businesses acquired during the year ended
April 30, 1997 and during the first nine months of fiscal 1998. The balance of
the increase was due to internal growth, comprised of net new business, volume
increases of existing customers, price increases, and changes in recycled
commodities pricing.
Operating Expenses
Cost of Operations. Operating expenses as a percentage of revenue did not
vary materially in the nine months ended January 31, 1998 compared to the same
period in the prior year.
General and Administrative. As a percentage of revenue, general and
administrative expenses have dropped 0.9% for the nine-month period ending
January 31, 1998 compared to the same period during 1997. This improvement is
due to improved economies of scale achieved subsequent to the acquisitions
since May 1, 1996, and to the leveraging of existing corporate overhead.
Depreciation and Amortization. Depreciation and amortization expenses for
the nine months ended January 31, 1998 were 15.4% of revenue compared to 17.3%
during the nine months ended January 31, 1997. This change reflects the
Company's increasing share of revenue generated from collection operations,
which have lower depreciation and amortization costs as a percentage of
revenues than the Company's other operations.
26
<PAGE>
Interest Expense, Net. During the nine months ended January 31, 1998, net
interest expense rose to 6.0% as a percent of revenue compared to 5.2% for the
nine months ended January 31, 1997. These fluctuations are the result of the
increased debt incurred by the Company as it continued to implement its
acquisition program.
Other Income and Expense. This category was not material to total revenues
or the results of operations during the nine month periods ending January 31,
1997 and 1998.
Provision for Income Taxes. Income tax expense during the nine months
ended January 31, 1998 increased to .5% as a percentage of revenue compared to
the same period ending January 31, 1997. This is mainly due to the increase in
pre-tax net income as a percentage of revenue.
Fiscal Year Ended April 30, 1997 versus April 30, 1996
Revenues. Revenues increased $36.7 million, or 85.6%, to $79.5 million in
fiscal 1997 from $42.8 million in fiscal 1996. Approximately $33.6 million of
the increase was attributable to the impact of businesses acquired throughout
fiscal 1996 and fiscal 1997. In addition, approximately $4.1 million of the
increase, or 9.5%, was attributable to internal growth, primarily through
volume increases. The effect of these revenue increases was partially offset by
a decrease of approximately $1.0 million due to lower recyclable commodity
prices in fiscal 1997 versus fiscal 1996.
Cost of operations. Cost of operations increased $22.9 million, or 91.1%,
to $48.1 million in fiscal 1997 from $25.1 million in fiscal 1996, an increase
corresponding primarily to the Company's revenue growth described above. Cost
of operations as a percentage of revenues increased to 60.4% in fiscal 1997
from 58.7% in fiscal 1996. The increase was primarily the result of: (i) an
increase in collection operations, which have higher operating costs than other
operations, as a percentage of the Company's total operations as a result of
acquisitions completed in fiscal 1996 and fiscal 1997; (ii) lower margins in
recycling services due to lower commodity prices in fiscal 1997; and (iii)
start-up and transitional expenses related to the acquisitions completed in
fiscal 1997. The Company has historically expensed all costs related to post
acquisition start-up and transitional expenditures.
General and administrative. General and administrative expenses increased
approximately $5.5 million, or 77.4%, to $12.5 million in fiscal 1997 from $7.1
million in fiscal 1996. General and administrative expenses as a percentage of
revenues decreased to 15.8% in fiscal 1997 from 16.5% in fiscal 1996 due to
improved economies of scale related to the significant increase in revenues,
and operating enhancements made to certain acquired operations.
Depreciation and amortization. Depreciation and amortization expense
increased approximately $5.5 million, or 67.9%, to $13.7 million in fiscal 1997
compared to $8.2 million in fiscal 1996. As a percentage of revenues,
depreciation and amortization expense decreased to 17.2% during fiscal 1997
from 19.0% in fiscal 1996. The decrease in depreciation and amortization
expense as a percentage of revenues was primarily the result of an increase in
the Company's collection operations as a percentage of total revenues in fiscal
1997, which generally have lower depreciation and amortization expenses than
other operations. Depreciation and amortization expense is expected to decline
as a percentage of revenues in future periods as additional anticipated
landfill airspace capacity is permitted which would result in spreading this
expense over a longer anticipated life, and due to the expected increase in
collection revenues as a percentage of total acquired revenues.
Interest expense, net. Net interest expense increased approximately $1.7
million, or 63.8%, to $4.3 million in fiscal 1997 from $2.6 million in fiscal
1996. This increase primarily reflects increased indebtedness incurred in
connection with acquisitions and capital expenditures and was offset to a small
degree by slightly lower average interest rates.
Other (income) expense. Other (income) expense has not historically been
material to the Company's results of operations. However, during fiscal 1997,
the Company established a reserve of $650,000 related to a lawsuit that was
settled for $450,000 in the first quarter of fiscal 1998. The Company also paid
$200,000 in attorneys fees in connection with such settlement. Additionally,
the Company wrote off $283,000 for recycling facility assets that were deemed
to have no value in the year ended April 30, 1997.
27
<PAGE>
Provision for income taxes. Provision for income taxes increased
approximately $308,000, or 214.7%, to $452,000 in fiscal 1997 from $144,000 in
fiscal 1996, due principally to an increase in the amount of amortization of
non-deductible goodwill and other non-deductible items in fiscal 1997 as
compared to fiscal 1996.
Fiscal Year Ended April 30, 1996 versus April 30, 1995
Revenues. Revenues increased $19.0 million, or 79.4%, to $42.8 million in
fiscal 1996 from $23.9 million in fiscal 1995. Approximately $16.4 million of
the increase was attributable to the impact of businesses acquired throughout
fiscal 1995 and fiscal 1996. In addition, approximately $3.2 million of the
increase, or 13.3%, was attributable to internal growth, primarily through
volume increases. The effect of these revenue increases was partially offset by
a decrease of approximately $0.6 million due to lower recyclable commodity
prices in fiscal 1996 versus fiscal 1995.
Cost of operations. Cost of operations increased $11.4 million, or 83.1%,
to $25.1 million in fiscal 1996 from $13.7 million in fiscal 1995. This
increase in costs was attributable primarily to increases in the Company's
revenues described above. Cost of operations as a percentage of revenues
increased to 58.7% in fiscal 1996 from 57.5% in fiscal 1995. This increase was
primarily due to lower margins in recycling services due to lower commodity
prices in fiscal 1996 versus fiscal 1995.
General and administrative. General and administrative expense increased
approximately $4.2 million, or 142.7%, to $7.1 million in fiscal 1996 from $2.9
million in fiscal 1995. As a percentage of revenues, general and administrative
expenses increased to 16.5% in fiscal 1996 from 12.2% in fiscal 1995. The
increase was primarily the result of: (i) the Company's increase in personnel
and other expenses related to the anticipated growth of the Company; and (ii)
the acquisition of the Sawyer Companies in January 1996, which from the date of
acquisition through the end of fiscal 1996 had a higher proportion of general
and administrative expenses to revenues (22.0%) than the balance of the
Company.
Depreciation and amortization. Depreciation and amortization expense
increased $3.3 million, or 69.3%, to $8.2 million from $4.8 million in fiscal
1995. As a percentage of revenues, depreciation and amortization expense
decreased to 19.0% in 1996 from 20.1% in fiscal 1995, primarily as a result of
increased collection revenues without a commensurate increase in depreciable
assets.
Interest expense, net. Net interest expense increased approximately
$791,600, or 43.3%, to $2.6 million in fiscal 1996 from $1.8 million in fiscal
1995. This increase primarily reflects increased indebtedness incurred in
connection with acquisitions.
Provision for income taxes. Provision for income taxes decreased
approximately $76,400, or 34.7%, to $143,600 in fiscal 1996 from $220,000 in
fiscal 1995, due principally to lower pre-tax income reported by the Company in
fiscal 1996 as compared to fiscal 1995.
Liquidity and Capital Resources
The Company's business is capital intensive. The Company's capital
requirements include acquisitions, fixed asset purchases and capital
expenditures for landfill development, cell construction, and site and cell
closure. Because of these needs the Company has in the past had working capital
deficits. The Company had positive net working capital of $3.7 million at
January 31, 1998 compared to a $5.6 million working capital deficit at April
30, 1997.
The Company has a $150 million revolving line of credit with a group of
banks for which BankBoston, N.A. is acting as agent. This line of credit is
secured by all assets of the Company, including the Company's interest in the
equity securities of its subsidiaries. This revolving line of credit matures in
January, 2003.
On November 3, 1997 the Company completed an initial public offering of
its Class A Common Stock. The proceeds from this offering were $48.5 million,
net of underwriters discounts and issuance costs. A portion of the proceeds of
this offering, $45 million, was used to repay long term debt, and to pay down
the line of credit. Funds available to the Company under the line of credit
were $94.6 million at January 31, 1998.
The Company's cash provided internally from operations together with the
Company's available credit facilities should enable it to meet its needs for
working capital for the next fiscal year. The Company is
28
<PAGE>
considering undertaking an underwritten public offering of its Class A Common
Stock in the first half of fiscal 1999. Any such offering is subject to a
number of conditions, including the approval of the Company's Board of
Directors and prevailing market conditions. There can be no assurance that any
such offering will be undertaken, or that, if undertaken, it will be
successfully completed.
Net cash provided by operations for the nine months ended January 31, 1998
and January 31, 1997 was $11.2 million and $12.4 million, respectively. Net
cash provided by operations remained relatively constant in the nine months
ended January 31, 1998, notwithstanding higher revenue levels, due principally
to the increased costs associated with absorbing and integrating the operations
of acquired businesses.
Net cash provided by operations in fiscal 1997 increased to $14.9 million
from $8.6 million in fiscal 1996 primarily due to an increase in depreciation
and amortization of approximately $5.5 million in fiscal 1997 from fiscal 1996,
and improvement of the Company's working capital.
Net cash provided by operations in fiscal 1996 increased to $8.6 million
from $5.0 million in fiscal 1995 primarily due to an increase in depreciation
and amortization of approximately $3.3 million in fiscal 1996 from fiscal 1995.
For the nine months ended January 31, 1998 and January 31, 1997, cash used
in investing activities was $39.3 million and $47.4 million, respectively.
Investing activities used net cash of $52.8 million in fiscal 1997. These
increases in investing activities reflect the Company's capital expenditure and
capital needs for acquisitions which have increased significantly, reflecting
the Company's rapid growth by acquisition and development of revenue producing
assets and which are expected to increase further as the Company continues to
complete acquisitions.
For the nine months ended January 31, 1998 and January 31, 1997, the
Company's financing activities provided cash of $29.1 million and $36.8
million, respectively. Net cash provided by financing activities was $38.8
million, $19.3 million and $4.5 million in the fiscal years ended April 30,
1997, 1996 and 1995, respectively. The net cash provided by financing
activities of $29.1 million in the nine months ended January 31, 1998 reflects
the net proceeds of the Company's public stock offering in November, 1997,and
borrowings on the Company's credit facility, offset by repayments. Net cash
provided by financing activities in fiscal 1997 reflects primarily bank
borrowings and seller subordinated notes, less principal payments on debt. In
fiscal 1996, net cash provided by financing activities reflects the net
proceeds of approximately $12.5 million from the private placement of preferred
stock in December 1995.
Seasonality
The Company's revenues have historically been lower during the months of
November through March. This seasonality reflects the lower volume of waste
during the late fall, winter and early spring months primarily because: (i) the
volume of waste relating to construction and demolition activities decreases
substantially during the winter months in the northeastern United States; and
(ii) decreased tourism in Vermont, Maine and eastern New York during the winter
months tends to lower the volume of waste generated by commercial and
restaurant customers, which is partially offset by the winter ski industry.
Since certain of the Company's operating and fixed costs remain constant
throughout the fiscal year, operating income results are therefore impacted by
a similar seasonality. In addition, particularly harsh weather conditions could
result in increased operating costs to certain of the Company's operations.
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. The Company establishes its expenditure levels based on
its expectations as to future revenues, and, if revenue levels are below
expectations, expenses can be disproportionately high. Due to a variety of
factors including general economic conditions, governmental regulatory action,
acquisitions, capital expenditures and other costs related to the expansion of
operations and services and pricing changes, it is possible that in some future
quarter, the Company's operating results will be below the expectations of
public market analysts and investors. In such event, the Company's Class A
Common Stock price would likely be materially and adversely affected.
29
<PAGE>
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's business is located in the northeastern United States.
Therefore, the Company's business, financial condition and results of
operations are susceptible to downturns in the general economy in this
geographic region and other factors affecting the region such as state
regulations and severe weather conditions. The Company is unable to forecast or
determine the timing and/or the future impact of a sustained economic slowdown.
EBITDA
EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization)
represents operating income (earnings before interest and taxes, or "EBIT")
plus depreciation and amortization expense. EBITDA is not a measure of
financial performance under generally accepted accounting principles, but is
provided because the Company understands that certain investors use this
information when analyzing the financial position and performance of the
Company.
Amounts in $1,000's
<TABLE>
<CAPTION>
(unaudited)
Year ended April 30, Nine months ended
----------------------------------------- January 31,
1995 1996 1997 1998
----------- ------------ ------------ ------------------
<S> <C> <C> <C> <C>
Operating income .......................... $ 2,424 $ 2,477 $ 5,246 $ 9,147
Depreciation and amortization ............. 4,815 8,152 13,695 13,412
------- -------- -------- --------
EBITDA .................................... $ 7,238 $ 10,630 $ 18,940 $ 22,559
======= ======== ======== ========
EBITDA as a percentage of revenue ......... 30.3% 24.8% 23.8% 25.8%
</TABLE>
Analysis of the factors contributing to the change in EBITDA is included
in the discussions above.
30
<PAGE>
BUSINESS
The Company
Casella Waste Systems, Inc. is a regional, integrated, non-hazardous solid
waste services company that provides collection, transfer, disposal and
recycling services in Vermont, New Hampshire, Maine, upstate New York and
northern Pennsylvania. As of April 16, 1998, the Company owned and/or operated
four Subtitle D landfills, 39 transfer stations, 16 recycling processing
facilities, and 33 collection operations. The Company was founded in 1975 as a
single-truck operation in Rutland, Vermont and subsequently expanded its
operations throughout the state of Vermont. In 1993, the Company initiated an
acquisition strategy to take advantage of anticipated reductions in available
landfill capacity in Vermont and surrounding states due to increasing
environmental regulation and other market forces driving consolidation in the
solid waste industry. From May 1, 1994 through April 30, 1997, the Company
acquired ownership or long-term operating rights to 44 solid waste businesses,
including four landfills, and, between May 1, 1997 and March 31, 1998, the
Company acquired an additional 33 such businesses. The Company believes that
additional acquisition opportunities exist in the markets it serves and in
other prospective markets. In May 1998, the Company acquired a Subtitle D
landfill in western upstate New York. See "Recent Landfill Acquisition".
The Company's operating strategy is based on the integration of its
collection and disposal operations and the internalization of waste collected.
The Company believes that control of a substantial portion of the waste stream
and economies of scale provide it with advantages over non-integrated
competitors in its markets.
Strategy
The Company's objective is to continue to grow by expanding its services
in markets where it can be one of the largest and most profitable
fully-integrated solid waste services companies. The Company is currently
operating in Vermont, New Hampshire, Maine, upstate New York and northern
Pennsylvania, and believes that these markets and other markets with similar
characteristics present significant opportunities for achieving its objectives.
The Company focuses its efforts on markets which are characterized by: (i) a
geographically dispersed population; (ii) disposal capacity which the Company
anticipates may be available for acquisition by the Company; (iii) significant
environmental regulation which has resulted in a decrease in the total number
of operating landfills; and (iv) a lack of significant competition from other
well-capitalized and established waste management companies. The Company
believes that these characteristics result in significant market opportunities
for the first fully-integrated, well-capitalized market entrant, and create
economic and regulatory barriers to entry by additional competitors in these
markets.
The Company's strategy for achieving its objective is: (i) to acquire
solid waste collection businesses and disposal capacity in new markets, and to
make "tuck-in" acquisitions in existing markets; (ii) to generate internal
growth through increased sales penetration and the marketing of additional
services to existing customers; and (iii) to implement operating enhancements
and efficiencies. The Company intends to implement this strategy as follows:
Expansion Through Acquisitions. The Company intends to continue to expand
by acquiring solid waste collection companies and disposal capacity in new
markets, and increasing its revenues and operational efficiencies in its
existing markets through "tuck-in" and other acquisitions of solid waste
collection operations. In considering new markets, the Company evaluates the
opportunities to acquire or otherwise control sufficient collection operations
and disposal facilities which would enable it to generate a captive waste
stream and achieve the disposal economies of scale necessary to meet its market
share and financial objectives. The Company has established criteria which
enable it to evaluate the prospective acquisition opportunity and the target
market. Historically, the Company has entered new markets which are adjacent to
its existing markets; however, the Company may consider new markets in
non-contiguous geographic areas which meet its criteria. The Company targets
additional "tuck-in" acquisitions within its current markets to allow the
Company to further improve its market penetration and density and to further
increase the internalization rate of its waste streams.
Internal Growth. In order to generate continued internal growth, the
Company has focused on increasing sales penetration in its current and adjacent
markets, soliciting new commercial, industrial, and
31
<PAGE>
residential customers, marketing upgraded services to existing customers and,
where appropriate, raising prices. As customers are added in existing markets,
the Company's revenue per routed truck is improved, which generally increases
the Company's collection efficiencies and profitability. The Company uses
transfer stations, which serve to link disparate collection operations with
Company-operated landfills, as an important part of its internal growth
strategy.
Operating Enhancements for Acquired and Existing Businesses. The Company
has implemented a system that establishes standards for each of its markets and
tracks operating criteria for its collection, transfer, disposal and other
operations to facilitate improved profitability in existing and acquired
operations. These measurement criteria include collection and disposal routing
efficiency, equipment utilization, cost controls, commercial weight tracking
and employee training and safety procedures. The Company believes that by
establishing standards and closely monitoring compliance, it is able to improve
existing and acquired operations. Moreover, where the Company is able to
internalize the waste stream of acquired operations, it is further able to
increase operating efficiencies and improve capacity utilization.
Acquisition Program
The Company's acquisition program is founded on strong management
capabilities, strict acquisition criteria, and defined integration procedures.
From May 1, 1994 through April 30, 1997, the Company acquired ownership or
long-term operating rights to 44 solid waste businesses, including four
landfills, and acquired an additional 33 such businesses between May 1, 1997
and March 31, 1998. The Company believes that additional acquisition candidates
meeting the Company's acquisition criteria, including "tuck-in" opportunities,
exist within its current and adjacent market areas. In May 1998, the Company
acquired a Subtitle D landfill in western upstate New York. See "Recent
Landfill Acquisition".
The Company's three regional vice presidents, as well as the Chief
Executive Officer and Chief Operating Officer, are each responsible for
identifying acquisition candidates and consummating acquisitions. In addition
to five dedicated business development personnel, who focus exclusively on
acquisitions, each of the Company's 23 division managers is responsible for
identifying acquisition opportunities within his or her region.
The Company has developed a set of financial, geographic and management
criteria designed to assist management in the evaluation of acquisition
candidates engaged in solid waste collection and disposal. These criteria
consist of a variety of factors, including, but not limited to: (i) historical
and projected financial performance; (ii) internal rate of return, return on
assets and earnings accretion; (iii) experience and reputation of the
acquisition candidate's management and customer service reputation and
relationships with the local communities; (iv) composition and size of the
acquisition candidate's customer base; (v) opportunity to enhance and/or expand
the Company's market area and/or ability to attract other acquisition
candidates; (vi) whether the acquisition will augment or increase the Company's
market share and/or help protect the Company's existing customer base; and
(vii) internalization opportunities to be gained by combining the acquisition
candidate with the Company's existing operations.
The Company utilizes an established integration procedure for newly
acquired businesses designed to effect a prompt and efficient integration of
the acquired business and minimize disruption to the on-going business of both
the Company and the acquired business. Once a solid waste collection operation
is acquired, the Company implements programs designed to reduce disposal costs
and improve collection and disposal routing, equipment utilization, employee
productivity, operating efficiencies and overall profitability. The Company
typically seeks to retain the acquired company's qualified managers, key
employees and selected local operations, while consolidating purchasing and
other administrative functions through the Company's corporate offices.
There can be no assurance the Company will continue to be successful in
executing its acquisition strategy. See "Risk Factors--Ability to Identify,
Acquire and Integrate Acquisition Targets".
Service Area
The Company is managed on a decentralized basis, with its operations
divided into three geographic regions: the Central, Eastern and Western
Regions. These three regions are further divided into divisions organized
around smaller market areas, known as "waste sheds", each of which contains the
complete
32
<PAGE>
cycle of activities in the solid waste service process, from "curb control"
(collection) to transfer stations to landfill (disposal facility). The Company
believes that it achieves a competitive advantage in its markets over
non-integrated competitors by acquiring components of the waste shed and
internalizing operations and activities with other owned or controlled
components of the waste shed.
The following are the Company's three geographic regions that comprise the
Company's service area:
Central Region
The Central Region consists of Vermont, northern and central New Hampshire
and eastern upstate New York. The Company was founded in 1975 in Rutland,
Vermont, and, through Casella Waste Management, has continued to grow its
market presence in the Central Region. The Company owns and operates Subtitle D
landfills in Bethlehem, New Hampshire; Coventry, Vermont and, through a 25-year
capital lease, operates the Clinton County landfill located in Schuyler Falls,
New York.
The Company owns the Waste USA landfill in Coventry, Vermont, one of two
Subtitle D landfills in Vermont, and leases (with a right to purchase) the
airspace above this landfill. The Company provides services in substantially
all of the markets in Vermont.
The Company's New Hampshire market area consists of the northern and
central (including Lebanon, Hanover, Concord and Plymouth) and certain southern
portions of the state. The NCES landfill in Bethlehem, New Hampshire is owned
by the Company. See "Risk Factors--Limitations on Landfill Permitting and
Expansion".
The portion of upstate New York within the Company's Central Region
extends from Interstate 90 north to the Canadian border and from the Vermont
border west to Interstate 81 and the eastern shore of Lake Ontario. The Clinton
County landfill operated by the Company is located in this area. The Company
believes that certain segments of the Central Region will present opportunities
for acquisitions and consolidations due to a trend toward privatization of
landfills in this region.
Eastern Region
The Company's Eastern Region consists of the central and southern portions
of Maine (including Bangor and Augusta) and southeastern New Hampshire. The
Company established a market presence in Maine through the acquisition of the
Sawyer Companies in December 1995. Through its Sawyer operations, the Company
owns the SERF landfill located in Hampden, Maine, which processes ash, special
waste and front end processing residue from a regional incinerator. In
addition, the Company operates seven transfer stations, and collects solid
waste from commercial, industrial and residential customers. The Company's
waste tire processing facility, located in Eliot, Maine, has the capacity to
process approximately 3.5 million tires per year and generates tire derived
fuel, which the Company sells to paper mills for consumption as a supplemental
energy source for boiler fuel.
Unlike the other states in the Company's existing market area, Maine has
an aggressive incineration program and the Company believes that approximately
80% of the waste shed in the Company's market area is disposed of through
incineration. However, approximately 45% of the tonnage delivered to
incinerators is returned to landfills as ash and front end processing residue,
and the Company believes it is the largest disposer of incinerated waste
material in Maine.
Western Region
The Western Region is comprised of the south central, western and southern
tier of upstate New York (including Ithaca, Elmira, Horsehead, Corning and
Watkins Glen) and the northern tier of Pennsylvania. Through the acquisition of
the Superior Disposal Services companies in January 1997, the Company
established its market presence in the Western Region. The Company operates six
transfer stations and twelve collection operations, and collects solid waste
from commercial, industrial and residential customers in the Western Region.
In May 1998, the Company acquired a Subtitle D landfill in Angelica, New
York, located in the Western Region. The Company believes that municipal
landfills in this region typically lack a sufficiently large captive waste
stream to adequately offset the high operating costs of such landfills and,
accordingly, that
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incentives exist for such landfills to be privatized. Privatization of landfills
favors well-capitalized integrated operators, and creates opportunities for
these operators to establish and consolidate waste sheds.
Operations
The Company's operations include the ownership and/or operation of
landfills, solid waste collection services, transfer stations, recycling
services and tire processing and other services.
Landfills
The Company currently owns four Subtitle D landfill operations and
operates a fifth Subtitle D landfill under a long-term lease arrangement with a
county. All of the Company's operating landfills include leachate collection
systems, groundwater monitoring systems and, where required, active methane gas
extraction and recovery systems.
The following table provides certain information regarding the landfills
that the Company operates. All of such information is provided as of April 15,
1998, other than information regarding the Hyland landfill, which is presented
as of May 4, 1998.
<TABLE>
<CAPTION>
Approximate Estimated
Estimated Additional
Total Remaining Permittable
Permitted Capacity Capacity
Landfill Location (Tons) (1) (Tons) (2)
- ---------------------------- -------------------- -------------------- ------------
<S> <C> <C> <C>
Clinton County (3) ......... Schuyler Falls, NY 1,209,493 1,160,000
Waste USA (4) .............. Coventry, VT 169,429 1,900,000
SERF ....................... Hampden, ME 173,553 3,200,000
NCES ....................... Bethlehem, NH 56,627 1,500,000
Hyland ..................... Angelica, NY 1,800,000 5,000,000
</TABLE>
- ------------
(1) The Company converts estimated remaining permitted and permittable capacity
calculated in cublic yards to tons by assuming a compaction factor of
1,550 pounds per cubic yard.
(2) Permittable capacity is available capacity which cannot be utilized until a
necessary permit is obtained.
(3) Operated pursuant to a capital lease expiring in 2021.
(4) The Company leases the airspace above this landfill under a lease which
expires in 2001 and contains an option to renew.
The Company regularly monitors the available permitted in-place disposal
capacity at each of its landfills and evaluates whether to seek to expand this
capacity. In making this evaluation, the Company considers various factors,
including the volume of solid waste projected to be disposed of at the
landfill, the size of the unpermitted capacity included in the landfill, the
likelihood that the Company will be successful in obtaining the 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.
The permitting process is lengthy, difficult and expensive, and is subject
to substantial uncertainty and there can be no assurance that any such permits
or expansion requests will be granted. Often, even when permits are granted,
they are not granted until the landfill's remaining capacity is very low. There
can be no assurance that the Company will be able to add additional disposal
capacity when needed or, if added, that such capacity can be added on
satisfactory terms or at its landfills where expansion is most immediately
needed. If the Company is not able to add additional disposal capacity when and
where needed, it may need to dispose of its collected waste at its other
landfills or at landfills owned by others. Such a circumstance could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Limitations on Landfill Permitting
and Expansion" and "--Comprehensive Government Regulation" and "--Potential
Environmental Liability".
Set forth below is certain information concerning the Company's landfills.
Clinton County. The Clinton County landfill, located in Schuyler Falls,
New York, is leased by the Company from Clinton County, New York pursuant to a
25-year capital lease which expires in 2021. See "--Property and Equipment".
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Waste USA. The Waste USA landfill is located in Coventry, Vermont and
serves the northern two-thirds of Vermont. The Company owns the landfill and
leases the permitted air space capacity above the landfill through January 2001
with an option to renew the lease. The Company also has an option to purchase
the company from which it leases the air space. The Waste USA landfill is
subject to state regulations and practices that generally do not allow permits
for more than five years of expected annual capacity. See "--Property and
Equipment".
SERF. The SERF landfill is located in Hampden, Maine. The SERF landfill
processes ash, special waste and front end processing residue (i.e., glass and
other material segregated and disposed of separately from solid waste prior to
incineration), for the Penobscot Energy Recovery Corporation's incinerator
under a contract expiring in 2003. The Company has filed an application for a
permit to expand the capacity of the landfill in three phases. The Company
believes that most elements of the first two of the three phases of its planned
expansion are permittable under the grandfather provisions of local ordinances.
Approval for the third phase of the Company's planned expansion will require
the town of Hampden, Maine to amend a local ordinance. The Company may not
succeed in its effort to amend that ordinance.
NCES. The NCES landfill, located in Bethlehem, New Hampshire, serves the
northern and central New Hampshire waste sheds and portions of the Maine and
Vermont waste sheds. In 1992, the town of Bethlehem adopted a zoning ordinance
which precludes the "expansion of any existing landfills" which are not
operated by the town. A proposed zoning ordinance change was defeated by town
residents in March 1997 and March 1998, and it is not anticipated that another
vote would take place until at least March 1999. The estimated total remaining
permitted disposal capacity of the NCES landfill may be exhausted before the
next vote takes place. There can be no assurance that the zoning ordinance
changes will be approved by Bethlehem town voters. The Company has obtained the
necessary state permit to expand its air space capacity, contingent on local
approval. The Company believes that the proximity of the Waste USA landfill to
the NCES landfill would enable the Company to redirect solid waste to the Waste
USA landfill in the event that permitting takes longer than expected or if no
expansion is allowed at NCES. If such redirection of solid waste is required,
it may result in additional costs to the Company's operations.
Hyland. The Hyland landfill, located in Angelica, New York in Allegheny
County, serves the Company's Western Region. The landfill has approximately
1,800,000 tons of permitted capacity, and is permitted to accept 156,000 tons
of municipal solid waste annually. Prior to its acquisition by the Company in
May 1998, the facility was fully constructed and permitted and had not accepted
any waste for disposal. A law recently adopted by the Town of Angelica would
prohibit the expansion of this landfill, require the landfill and the operator
thereof to receive a permit to continue to operate, prevent the disposal of
yard waste and certain types of industrial waste and impose certain other
restrictions on the landfill. The Company has filed a lawsuit to obtain
injunctive relief against the town's enforcement of this local law. See
"--Legal Proceedings."
The Company also owns and/or operated five unlined landfills, which are
not currently in operation. Three of these landfills have been closed and
environmentally capped by the Company, and a fourth is in the final stages of
obtaining governmental closure design approval. The fifth unlined landfill, a
municipal landfill which is adjacent to the Subtitle D Clinton County landfill
being operated by the Company, was operated by the Company from July 1996
through July 1997. The Company completed the closure and capping activities at
this landfill in September 1997, and is indemnified by Clinton County for
environmental liabilities arising from such landfill prior to the Company's
operation. See "Risk Factors--Comprehensive Government Regulation"
and "--Potential Environmental Liability".
Once the permitted capacity of a particular landfill is reached, the
landfill must be closed and capped if additional capacity is not authorized.
See "Risk Factors--Potential Inadequacy of Accruals for Closure and
Post-Closure Costs" and "Recent Landfill Acquisition." The Company establishes
reserves for the estimated costs associated with such closure and post-closure
costs over the anticipated useful life of such landfill.
Solid Waste Collection
The Company's collection operations are generally conducted within a
125-mile radius of its landfills. A majority of the Company's commercial and
industrial collection services are performed under one-to-
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<PAGE>
three-year service agreements, and fees are determined by such factors as
collection frequency, type of equipment and containers furnished, the type,
volume and weight of the solid waste collected, the distance to the disposal or
processing facility and the cost of disposal or processing. The Company's
residential collection and disposal services are performed either on a
subscription basis (i.e., with no underlying contract) with individuals, or
under contracts with municipalities, homeowners associations, apartment owners
or mobile home park operators.
Transfer Station Services
The Company operated 39 transfer stations as of April 16, 1998, of which
13 were owned by the Company and 26 were operated under contracts with
municipalities. The transfer stations receive, compact and transfer solid waste
collected primarily from the Company's various collection operations to larger
Company-owned vehicles for transport to landfills. The Company believes that
transfer stations benefit the Company by: (i) increasing the size of the waste
shed which has access to the Company's landfills; (ii) reducing costs by
improving utilization of collection personnel and equipment; and (iii) building
relationships with municipalities that may lead to future business
opportunities, including privatization of the municipality's waste management
services.
Recycling Services
The Company has positioned itself to provide recycling services to
customers who are willing to pay for the cost of the recycling service. The
proceeds generated from reselling the recycled materials are increasingly
shared between the Company and its customers. In addition, the Company has
adopted a pricing strategy of charging collection and processing fees for
recycling volume collected from third parties. By structuring its recycling
service program in this way, the Company has sought to reduce its exposure to
commodity price risk with respect to the recycled materials.
The Company currently operates 16 recycling processing facilities. The
Company processes more than 20 classes of recyclable materials originating from
the municipal solid waste stream, including cardboard, office paper, containers
and bottles. The Company's recycling operations are concentrated principally in
Vermont, as the public sector in other states in the Company's service area has
taken primary responsibility for recycling efforts.
Waste Tire Processing and Other Services
The Company's waste tire processing facility, located in Eliot, Maine, has
the capacity to process approximately 3.5 million tires per year and generates
tire derived fuel, which the Company sells to paper mills for consumption as a
supplemental energy source for boiler fuel. In June 1997, the Company was
selected by the State of Maine to process an estimated 2.5 million tires over
an 18-month period. The Company believes that its waste tire processing
operation has benefited from a favorable regulatory environment in Maine, where
the state has mandated, and created financial incentives for, the cleanup of
tire disposal centers, and from a strong market for tire derived fuel.
Competition
The solid waste services industry is highly competitive, fragmented, and
requires substantial labor and capital resources. The Company competes with
numerous solid waste management companies, many of which are significantly
larger and have greater access to capital and greater financial, marketing or
technical resources than the Company. Certain of the Company's competitors are
large national companies that may be able to achieve greater economies of scale
than the Company. The Company also competes with a number of regional and local
companies. In addition, the Company competes with operators of alternative
disposal facilities, including incinerators, and with certain municipalities,
counties and districts that operate their own solid waste collection and
disposal facilities. Public sector facilities may have certain advantages over
the Company due to the availability of user fees, charges or tax revenues and
the greater availability to them of tax-exempt financing. In addition,
recycling and other waste reduction programs may reduce the volume of waste
deposited in landfills.
The Company competes for collection and disposal volume primarily on the
basis of the price and quality of its services. From time to time, competitors
may reduce the price of their services in an effort
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<PAGE>
to expand market share or to win a competitively bid municipal contract. These
practices may also lead to reduced pricing for the Company's services or the
loss of business.
Competition exists within the industry not only for collection,
transportation and disposal volume, but also for acquisition candidates. The
Company generally competes for acquisition candidates with publicly owned
regional and national waste management companies. See "Risk Factors--Highly
Competitive Industry".
Marketing and Sales
The Company has a coordinated marketing and sales strategy which is
formulated at the corporate level and implemented at the divisional level. The
Company markets its services locally through division managers and direct sales
representatives who focus on commercial, industrial, municipal and residential
customers. As of March 31, 1998, the Company had 23 division managers and 25
direct sales representatives. The Company also obtains new customers from
referral sources, its general reputation and local market print advertising.
Leads are also developed from new building permits, business licenses and other
public records. Additionally, each division generally advertises in the yellow
pages and other local business print media that cover its service area.
Maintenance of a local presence and identity is an important aspect of the
Company's marketing plan, and many of the Company's managers are involved in
local governmental, civic and business organizations. The Company's name and
logo, or, where appropriate, that of the Company's divisional operations, are
displayed on all Company containers and trucks. Additionally, the Company
attends and makes presentations at municipal and state conferences and
advertises in governmental associations' membership publications.
The Company markets its commercial, industrial and municipal services
through its sales representatives who visit customers on a regular basis and
make sales calls to potential new customers. These sales representatives
receive a significant portion of their compensation based upon meeting certain
incentive targets. The Company emphasizes providing quality services and
customer satisfaction and retention, and believes that its focus on quality
service will help retain existing and attract additional customers.
Property and Equipment
The principal fixed assets used by the Company in connection with its
landfill operations are its landfills which are described under
"--Operations--Landfills". The four operating landfills owned by the Company
are situated on sites owned by the Company.
The Clinton County landfill is operated under a capital lease scheduled to
expire in 2021. The Company is generally obligated under the lease to expand
the landfill at its own cost, subject to market forces and demand. The Clinton
County landfill is not permitted to receive waste from certain geographic
regions in New York and has a permitted capacity of 125,000 tons per year. The
tipping fee paid for waste generated in Clinton County is fixed for 25 years
subject to limited inflation increases during the term of the lease. During
fiscal 1997, approximately 29% (by tonnage) of the solid waste disposed of at
the Clinton County landfill was generated in Clinton County.
Under the lease, the Company is responsible for operating the landfill in
compliance with all applicable environmental laws, including without
limitation, possessing and complying with all necessary permits and licenses.
The Company must indemnify the County for all liabilities resulting from any
violations of those laws (exclusive of violations based on pre-existing
conditions, which remain the responsibility of the County and with respect to
which the County indemnifies the Company). In addition, the Company is
responsible for the composition of waste deposited at the landfill during the
lease term, regardless of the Company's knowledge or monitoring efforts. The
lease gives the Company full physical and managerial control over an unlined
landfill on the site, which was operated by the Company from July 1996 through
July 1997, while the lined landfill was under construction. Clinton County has
agreed to indemnify the Company for environmental liabilities arising from the
unlined landfill prior to its operation by the Company. The Company is
responsible for the closure of the unlined landfill, and post-closure care is
the responsibility of the County. The Company is also responsible for
performing certain cleanup work with respect to the unlined landfill and has
agreed to absorb the resulting costs subject to satisfactory construction of
the lined portion. The Company is responsible for
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<PAGE>
both closure and post-closure care with respect to the lined landfill upon
exhaustion of the corresponding airspace. See "--Operations; Landfills; Clinton
County".
The Company owns the Waste USA landfill and leases the permitted airspace
capacity above the landfill under a lease which is scheduled to expire in 2001
and which is extendable for an additional six years. The lease payments are
made quarterly in an amount equal to the greater of (a) the rate of $3.75 per
ton of all solid waste accepted at the landfill, as adjusted, or (b) $33,000.
In addition, the Company has been granted options: (i) to purchase all of the
stock of the lessor for $300,000; (ii) to purchase the leased airspace for
$300,000; or (iii) to extend the term of the lease for the remaining permitted
life of the landfill operation for $300,000. The Company may exercise the
option at any time before January 25, 2001.
The Company's facility in Rutland, Vermont, consisting of approximately
10,000 square feet utilized for the Company's headquarters, and its recycling
processing facility and office located in Montpelier, Vermont, consisting of an
aggregate of approximately 24,000 square feet, are leased from Casella
Associates, a company owned by John and Douglas Casella. See "Certain
Transactions".
Employees
At January 31, 1998, the Company employed 1,053 full-time employees,
including approximately 52 professionals or managers, approximately 930
employees involved in collection, transfer and disposal operations, and 71
sales, clerical, data processing or other administrative employees. None of the
Company's employees are represented by unions. The employees of SDS of PA,
Inc., located in Wellsboro, Pennsylvania, which the Company acquired in January
1997, rejected a measure in the first half of fiscal 1998 to select a union to
represent the employees in labor negotiations with management. In addition, in
the second half of fiscal 1998, the production workers of the Company's tire
recycling facility in Maine rejected a measure to select a union to represent
them in labor negotiations with management. An unfair labor charge was filed
against the Company with the Region 1 office of the National Labor Relations
Board in Boston, Massachusetts alleging that on the day the petition was
received at the tire recycling facility, workers were improperly interrogated
and/ or threatened by local management. The Company reached an agreement
resolving these charges, with no liability to the Company. The Company is aware
of no other organizational efforts among its employees. Through a labor
utilization agreement, the Company utilizes the services of Clinton County
employees at the Clinton County landfill. The Clinton County employees are
represented by a labor union. The Company believes that its relations with its
employees are good.
Risk Management, Insurance and Performance or Surety Bonds
The Company does not maintain insurance policies with respect to its
exposure for environmental liability. The Company actively maintains
environmental and other risk management programs which it believes are
appropriate for its business. The Company's environmental risk management
program includes evaluating existing facilities, as well as potential
acquisitions, for environmental law compliance and operating procedures. The
Company also maintains a worker safety program which encourages safe practices
in the workplace. Operating practices at all Company operations are intended to
reduce the possibility of environmental contamination and litigation.
The Company carries a range of insurance intended to protect its assets
and operations, including a commercial general liability policy and a property
damage policy. A partially or completely uninsured claim against the Company
(including liabilities associated with cleanup or remediation at its own
facilities) if successful and of sufficient magnitude, could have a material
adverse effect on the Company's business, financial condition and results of
operations. Any future difficulty in obtaining insurance could also impair the
Company's ability to secure future contracts, which may be conditioned upon the
availability of adequate insurance coverage.
Municipal solid waste collection contracts and landfill closure
obligations may require performance or surety bonds, letters of credit or other
means of financial assurance to secure contractual performance. The Company has
not experienced difficulty in obtaining performance or surety bonds or letters
of credit. If the Company were unable to obtain performance or surety bonds or
letters of credit in sufficient amounts or at acceptable rates, it may be
precluded from entering into additional municipal solid waste collection
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<PAGE>
contracts or obtaining or retaining landfill operating permits. See "Risk
Factors--Inability to Obtain Performance or Surety Bonds, Letters of Credit or
Insurance".
Regulation
Introduction
The Company is subject to extensive and evolving Federal, state and local
environmental laws and regulations which have become increasingly stringent in
recent years. The environmental regulations affecting the Company are
administered by the EPA and other Federal, state and local environmental,
zoning, health and safety agencies. The Company believes that it is currently
in substantial compliance with applicable Federal, state and local
environmental laws, permits, orders and regulations, and it does not currently
anticipate any material environmental costs to bring its operations into
compliance (although there can be no assurance in this regard). The Company
anticipates there will continue to be increased regulation, legislation and
regulatory enforcement actions related to the solid waste services industry. As
a result, the Company attempts to anticipate future regulatory requirements and
to plan accordingly to remain in compliance with the regulatory framework.
In order to transport solid waste, it is necessary for the Company to
possess and comply with one or more permits from state or local agencies. These
permits also must be periodically renewed and may be modified or revoked by the
issuing agency.
The principal Federal, state and local statutes and regulations applicable
to the Company's various operations are as follows:
The Resource Conservation and Recovery Act of 1976 ("RCRA")
RCRA regulates the generation, treatment, storage, handling,
transportation and disposal of solid waste and requires states to develop
programs to ensure the safe disposal of solid waste. RCRA divides solid waste
into two groups, hazardous and nonhazardous. Wastes are generally classified as
hazardous if they (i) either (a) are specifically included on a list of
hazardous wastes, or (b) exhibit certain characteristics defined as hazardous;
and (ii) are not specifically designated as nonhazardous. Wastes classified as
hazardous under RCRA are subject to much stricter regulation than wastes
classified as nonhazardous, and businesses that deal with hazardous waste are
subject to regulatory obligations in addition to those imposed on handlers of
nonhazardous waste.
Among the wastes that are specifically designated as nonhazardous are
household waste and "special" waste, including items such as petroleum
contaminated soils, asbestos, foundry sand, shredder fluff and most
nonhazardous industrial waste products.
The EPA regulations issued under Subtitle C of RCRA impose a comprehensive
"cradle to grave" system for tracking the generation, transportation,
treatment, storage and disposal of hazardous wastes. The Subtitle C Regulations
impose obligations on generators, transporters and disposers of hazardous
wastes, and require permits that are costly to obtain and maintain for sites
where such material is treated, stored or disposed. Subtitle C requirements
include detailed operating, inspection, training and emergency preparedness and
response standards, as well as requirements for manifesting, record keeping and
reporting, corrective action, facility closure, post-closure and financial
responsibility. Most states have promulgated regulations modelled on some or
all of the Subtitle C provisions issued by the EPA. Some state regulations
impose different, additional obligations.
The Company is currently not involved with transportation or disposal of
hazardous substances (as defined in CERCLA) in concentrations or volumes that
would classify those materials as hazardous wastes. However, the Company has
transported hazardous substances in the past and very likely will remain
involved with hazardous substance transportation and disposal in the future to
the extent that materials defined as hazardous substances under CERCLA are
present in consumer goods and in the waste streams of its customers.
In October 1991, the EPA adopted the Subtitle D Regulations governing
solid waste landfills. The Subtitle D Regulations, which generally became
effective in October 1993, include location restrictions, facility design
standards, operating criteria, closure and post-closure requirements, financial
assurance
39
<PAGE>
requirements, groundwater monitoring requirements, groundwater remediation
standards and corrective action requirements. In addition, the Subtitle D
Regulations require that new landfill sites meet more stringent liner design
criteria (typically, composite soil and synthetic liners or two or more
synthetic liners) intended to keep leachate out of groundwater and have
extensive collection systems to carry away leachate for treatment prior to
disposal. Groundwater monitoring wells must also be installed at virtually all
landfills to monitor groundwater quality and, indirectly, the effectiveness of
the leachate collection system. The Subtitle D Regulations also require, where
certain regulatory thresholds are exceeded, that facility owners or operators
control emissions of methane gas generated at landfills in a manner intended to
protect human health and the environment. Each state is required to revise its
landfill regulations to meet these requirements or such requirements will be
automatically imposed by the EPA upon landfill owners and operators in that
state. Each state is also required to adopt and implement a permit program or
other appropriate system to ensure that landfills within the state comply with
the Subtitle D Regulations criteria. Various states in which the Company
operates or in which it may operate in the future have adopted regulations or
programs as stringent as, or more stringent than, the Subtitle D Regulations.
The Federal Water Pollution Control Act of 1972
The Federal Water Pollution Control Act of 1972, as amended ("Clean Water
Act"), regulates the discharge of pollutants from a variety of sources,
including solid waste disposal sites and transfer stations, into waters of the
United States. If run-off from the Company's transfer stations or if run-off or
collected leachate from the Company's owned or operated landfills is discharged
into streams, rivers or other surface waters, the Clean Water Act would require
the Company to apply for and obtain a discharge permit, conduct sampling and
monitoring and, under certain circumstances, reduce the quantity of pollutants
in such discharge. Also, virtually all landfills are required to comply with
the EPA's storm water regulations issued in November 1990, which are designed
to prevent contaminated landfill storm water runoff from flowing into surface
waters. The Company believes that its facilities are in compliance in all
material respects with Clean Water Act requirements.
The Comprehensive Environmental Response, Compensation, and Liability Act
of 1980 ("CERCLA")
CERCLA established a regulatory and remedial program intended to provide
for the investigation and cleanup of facilities where or from which a release of
any hazardous substance into the environment has occurred or is threatened.
CERCLA's primary mechanism for remedying such problems is to impose strict joint
and several liability for cleanup of facilities on current owners and operators
of the site, former owners and operators of the site at the time of the disposal
of the hazardous substances, as well as the generators of the hazardous
substances and the transporters who arranged for disposal or transportation of
the hazardous substances. In addition, CERCLA also imposes liability for the
cost of evaluating and remedying any damage done to natural resources. The costs
of CERCLA investigation and cleanup can be very substantial. Liability under
CERCLA does not depend upon the existence or disposal of "hazardous waste" as
defined by RCRA, but can also be founded upon the existence of even very small
amounts of the more than 700 "hazardous substances" listed by the EPA, many of
which can be found in household waste. In addition, the definition of "hazardous
substances" in CERCLA incorporates substances designated as hazardous or toxic
under the federal Clean Water Act, Clear Air Act and Toxic Substances Control
Act. If the Company were found to be a responsible party for a CERCLA cleanup,
the enforcing agency could hold the Company, or any other generator, transporter
or the owner or operator of the contaminated facility, responsible for all
investigative and remedial costs even if others may also be liable. CERCLA also
authorizes the imposition of a lien in favor of the United States upon all real
property subject to, or affected by, a remedial action for all costs for which a
party is liable. CERCLA provides a responsible party with the right to bring a
contribution action against other responsible parties for their allocable shares
of investigative and remedial costs. The Company's ability to get others to
reimburse it for their allocable shares of such costs would be limited by the
Company's ability to find other responsible parties and prove the extent of
their responsibility and by the financial resources of such other parties.
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The Clean Air Act
The Clean Air Act generally, through state implementation of Federal
requirements, regulates emissions of air pollutants from certain landfills
based upon the date of the landfill construction and volume per year of
emissions of regulated pollutants. The EPA has promulgated new source
performance standards regulating air emissions of certain regulated pollutants
(methane and non-methane organic compounds) from municipal solid waste
landfills. Landfills located in areas that do not comply with certain
requirements of the Clean Air Act may be subject to even more extensive air
pollution controls and emission limitations. In addition, the EPA has issued
standards regulating the disposal of asbestos-containing materials.
All of the Federal statutes described above contain provisions
authorizing, under certain circumstances, the institution of lawsuits by
private citizens to enforce the provisions of the statutes. In addition to a
penalty award to the United States, some of those statutes authorize an award
of attorney's fees to parties successfully advancing such an action.
The Occupational Safety and Health Act of 1970 ("OSHA")
OSHA establishes employer responsibilities and authorizes the promulgation
by the Occupational Safety and Health Administration of occupational health and
safety standards, including the obligation to maintain a workplace free of
recognized hazards likely to cause death or serious injury, to comply with
adopted worker protection standards, to maintain certain records, to provide
workers with required disclosures and to implement certain health and safety
training programs. Various of those promulgated standards may apply to the
Company's operations, including those standards concerning notices of hazards,
safety in excavation and demolition work, the handling of asbestos and
asbestos-containing materials, and worker training and emergency response
programs.
State and Local Regulations
Each state in which the Company now operates or may operate in the future
has laws and regulations governing the generation, storage, treatment,
handling, transportation and disposal of solid waste, water and air pollution
and, in most cases, the siting, design, operation, maintenance, closure and
post-closure maintenance of landfills and transfer stations. In addition, many
states have adopted statutes comparable to, and in some cases more stringent
than, CERCLA. These statutes impose requirements for investigation and cleanup
of contaminated sites and liability for costs and damages associated with such
sites, and some provide for the imposition of liens on property owned by
responsible parties. Some of those liens may take priority over previously
filed instruments. Furthermore, many municipalities also have local ordinances,
laws and regulations affecting Company operations. These include zoning and
health measures that limit solid waste management activities to specified sites
or conduct, flow control provisions that direct the delivery of solid wastes to
specific facilities or to facilities in specific areas, laws that grant the
right to establish franchises for collection services and then put out for bid
the right to provide collection services, and bans or other restrictions on the
movement of solid wastes into a municipality.
Certain permits and approvals may limit the types of waste that may be
accepted at a landfill or the quantity of waste that may be accepted at a
landfill during a given time period. In addition, certain permits and
approvals, as well as certain state and local regulations, may limit a landfill
to accepting waste that originates from specified geographic areas or seek to
restrict the importation of out-of-state waste or otherwise discriminate
against out-of-state waste. Generally, restrictions on importing 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 been passed by Congress, if this or similar
legislation is enacted, states in which the Company operates landfills could
limit or prohibit the importation of out-of-state waste. Such state actions
could materially adversely affect the business, financial condition and results
of operations of landfills within those states that receive a significant
portion of waste originating from out-of-state.
41
<PAGE>
In addition, certain states and localities may for economic or other
reasons restrict the export of waste from their jurisdiction or require that a
specified amount of waste be disposed of at facilities within their
jurisdiction. In 1994, the U.S. 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. In addition,
the aforementioned proposed Federal legislation would allow states and
localities to impose certain flow control restrictions. These restrictions
could reduce the volume of waste going to landfills in certain areas, which may
materially adversely affect the Company's ability to operate its landfills
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.
There has been an increasing trend at the Federal, state and local levels
to mandate or encourage both waste reduction at the source and waste recycling,
and to prohibit or restrict the disposal in landfills of certain types of solid
wastes, such as yard wastes, leaves and tires. The enactment of regulations
reducing the volume and types of wastes available for transport to and disposal
in landfills could affect the Company's ability to operate its landfill
facilities.
Legal Proceedings
On or about October 30, 1997, Mr. Matthew M. Freeman commenced a civil
lawsuit against the Company and two of the Company's officers and directors in
the Rutland Superior Court, Rutland County, State of Vermont. In the complaint,
Mr. Freeman seeks compensation for services allegedly performed by him prior to
1995. Mr. Freeman is seeking a three percent equity interest in the Company or
the monetary equivalent thereof, as well as punitive damages. The Company and
the officers and directors have answered the complaint, denied Mr. Freeman's
allegations of wrongdoing, and asserted various defenses. In order to
facilitate the completion of the Company's recent initial public offering,
certain stockholders of the Company agreed to indemnify the Company for any
settlement by the Company or any award against the Company in excess of
$350,000 (but not including legal fees paid by or on behalf of the Company or
any other party).
On May 12, 1998, the Company filed suit in New York Supreme Court,
Allegheny County against the Town of Angelica, New York seeking a temporary
restraining order and preliminary injunctive relief against the Town's
enforcement of a recently enacted local law which would prohibit the expansion
of the Hyland landfill, require the landfill and the operator thereof to
receive a permit to continue to operate, prevent the disposal of yard waste and
certain types of industrial waste and impose certain other restrictions on the
landfill. A temporary restraining order was granted by the court on May 14,
1998. See "Recent Landfill Acquisition."
In the normal course of its business and as a result of the extensive
governmental regulation of the waste industry, the Company may periodically
become subject to various judicial and administrative proceedings involving
Federal, state or local agencies. In these proceedings, an agency may seek to
impose fines on the Company or to revoke, or to deny renewal of, an operating
permit held by the Company. In addition, the Company may become party to
various claims and suits pending for alleged damages to persons and property,
alleged violation of certain laws and for alleged liabilities arising out of
matters occurring during the normal operation of the waste management business.
However, there is no current proceeding or litigation involving the Company
that it believes will have a material adverse effect upon the Company's
business, financial condition and results of operations.
42
<PAGE>
MANAGEMENT
Executive Officers, Directors and Certain Key Employees
The executive officers, directors and certain key employees of the Company
and their ages as of March 31, 1998 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------------- ----- ------------------------------------------------
<S> <C> <C>
Executive Officers and Directors
John W. Casella (1) 47 President, Chief Executive Officer, Chairman of
the Board of Directors and Secretary
Douglas R. Casella 41 Vice Chairman of the Board of Directors
James W. Bohlig 51 Senior Vice President and Chief Operating
Officer, Director
Jerry S. Cifor 36 Vice President and Chief Financial Officer,
Treasurer
John F. Chapple III (2) 56 Director
Michael F. Cronin (1)(2) 44 Director
Kenneth H. Mead 39 Director
Gregory B. Peters (1)(2) 52 Director
Other Key Employees
Robert G. Banfield, Jr. 35 Vice President, Hauling Operations
Michael P. Barrett 43 Vice President, Transportation and Recycling
Christopher M. DesRoches 40 Vice President, Sales and Marketing
Joseph S. Fusco 34 Vice President, Communications
James M. Hiltner 34 Regional Vice President
Michael Holmes 42 Regional Vice President
Larry B. Lackey 37 Vice President, Permits, Compliance and
Engineering
Alan N. Sabino 38 Regional Vice President
Gary Simmons 48 Vice President, Fleet Management
Michael J. Viani 42 Vice President, Business Development
</TABLE>
- ----------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
43
<PAGE>
John W. Casella has served as President, Chief Executive Officer and
Chairman of the Board of Directors of the Company since 1993, and has been
Chairman of the Board of Directors of Casella Waste Management, Inc. since
1977. Mr. Casella has actively supervised all aspects of Company operations
since 1976, sets overall corporate policies, and serves as chief strategic
planner of corporate development. Mr. Casella is also an executive officer and
director of Casella Construction, a company owned by Mr. Casella and Douglas R.
Casella which specializes in general contracting, soil excavation and related
heavy equipment work. See "Certain Transactions." Mr. Casella has been a member
of numerous industry-related and community service-related state and local
boards and commissions including the Board of Directors of the Associated
Industries of Vermont, The Association of Vermont Recyclers, Vermont State
Chamber of Commerce and the Rutland Industrial Development Corporation. Mr.
Casella has also served on various state task forces, serving in an advisory
capacity to the Governor of Vermont on solid waste issues. Mr. Casella was an
executive officer and director of Meridian Group, Inc. See "Certain
Transactions" for a discussion of the Meridian bankruptcy. Mr. Casella holds an
Associate of Science in Business Management from Bryant & Stratton University
and a Bachelor of Science in Business Education from Castleton State College.
Mr. Casella is the brother of Douglas R. Casella.
Douglas R. Casella founded the Company in 1975, and has been a director of
the Company since that time. He has served as Vice Chairman of the Board of
Directors of the Company since 1993 and has been President of Casella Waste
Management, Inc. since 1975. Since 1989, Mr. Casella has been President of
Casella Construction, a company owned by Mr. Casella and John W. Casella which
specializes in general contracting, soil excavation and related heavy equipment
work. See "Certain Transactions". Mr. Casella attended the University of
Wisconsin's College of Engineering continuing education programs in sanitary
landfill design, ground water remediation, landfill gas and leachate management
and geosynthetics. Mr. Casella is the brother of John W. Casella.
James W. Bohlig joined the Company as Senior Vice President and Chief
Operating Officer in 1993 with primary responsibility for business development,
acquisitions and operations. Mr. Bohlig has served as a director of the Company
since 1993. From 1989 until he joined the Company, Mr. Bohlig was Executive
Vice President and Chief Operating Officer of Russell Corporation, a general
contractor and developer based in Rutland, Vermont. In addition, Mr. Bohlig was
the President and a director of Meridian Group, Inc. See "Certain Transactions"
for a discussion of the Meridian bankruptcy. Mr. Bohlig is a licensed
professional engineer. Mr. Bohlig holds a Bachelor of Science in Engineering
and Chemistry from the U.S. Naval Academy, and is a graduate of the Columbia
University Management Program in Business Administration.
Jerry S. Cifor joined the Company as Chief Financial Officer in January
1994. From 1992 to 1993, Mr. Cifor was Vice President and Chief Financial
Officer of Earthwatch Waste Systems, a waste management company based in
Buffalo, New York. From 1986 to 1991, Mr. Cifor was employed by Waste
Management of North America, Inc., a waste management company, in a number of
financial and operational management positions. Mr. Cifor is a certified public
accountant and was with KPMG Peat Marwick from 1983 until 1986. Mr. Cifor is a
graduate of Hillsdale College with a Bachelor of Arts in Accounting.
John F. Chapple III has served as a director of the Company since 1994.
From August 1989 to July 1994, Mr. Chapple was President and owner of Catamount
Waste Services, Inc., a central Vermont hauling and landfill operation, which
was purchased by the Company in May 1994. Mr. Chapple is a graduate of Denison
University and holds a Bachelor of Arts in Economics.
Michael F. Cronin has served as a director of the Company since December
1995. Mr. Cronin has been a general partner of Weston Presidio Management
Company, a venture capital management firm, since 1991. Mr. Cronin is a
graduate of Harvard College and holds an M.B.A. from the Harvard Graduate
School of Business Administration.
Kenneth H. Mead has served as a director of the Company since January
1997. Mr. Mead has served since January 1997 as President of Materials Exchange
Corporation, a consulting firm. From 1986 to January 1997, Mr. Mead was the
President and principal stockholder of Superior Disposal Services, Inc. and
certain related companies, the assets of which were acquired by the Company in
January 1997.
44
<PAGE>
Gregory B. Peters has served as a director of the Company since 1993. Mr.
Peters has been a general partner of Vermont Venture Capital Partners, L.P.,
the General Partner of The Vermont Venture Capital Fund, L.P.; a general
partner of North Atlantic Capital Partners, L.P., the General Partner of North
Atlantic Venture Fund, L.P.; and a general partner of North Atlantic Investors,
the General Partner of North Atlantic Venture Fund II L.P. Mr. Peters is a
graduate of Harvard College and holds an M.B.A. from the Harvard Graduate
School of Business Administration.
Other Key Employees of the Company:
Robert G. Banfield, Jr. has served as Vice President, Hauling Operations
of the Company since 1988. Mr. Banfield is a graduate of Merrimack College.
Michael P. Barrett has served as Vice President, Transportation and
Recycling of the Company since January 1997. From June 1991 to January 1997,
Mr. Barrett served as the Company's Division Manager for Transfer Stations,
Recycling and Rutland Hauling.
Christopher M. DesRoches has served as Vice President, Sales and Marketing
of the Company since November 1996. From January 1989 to November 1996, he was
a regional vice president of sales of Waste Management, Inc., a solid waste
company. Mr. DesRoches is a graduate of Arizona State University.
Joseph S. Fusco has served as Vice President, Communications of the
Company since January 1995. From January 1991 through January 1995, Mr. Fusco
was self-employed as a corporate and political communications consultant. Mr.
Fusco is a graduate of the State University of New York at Albany.
James M. Hiltner has served as Regional Vice President of the Company
since March 1998. From 1990 to March 1998, Mr. Hiltner was employed by Waste
Management, Inc. including as region president (July 1996 through March 1998),
where his responsibilities included overseeing that company's waste management
operations in upstate New York and northwestern Pennsylvania, as a division
president (from April 1992 through July 1996) and as general manager (from
November 1990 through April 1992).
Michael Holmes has served as Regional Vice President of the Company since
January 1997. From November 1995 to January 1997, Mr. Holmes was Vice President
of Superior Disposal Services, Inc., which was acquired by the Company on
January 1997. From November 1993 to November 1995, he was Superintendent of
Recycling and Solid Waste for the town of Weston, Massachusetts Solid Waste
Department where he managed all aspects of the town's recycling and solid waste
services. From June 1983 to October 1992, he served as the Division Manager of
all divisions in the Binghamton, N.Y. area and the Boston, Massachusetts area
for Laidlaw Waste Services, Inc. Mr. Holmes is a graduate of Broome Community
College.
Larry B. Lackey joined the Company in 1993 and has served as Vice
President, Permits, Compliance and Engineering since 1995. From 1984 to 1993,
Mr. Lackey was an Associate Engineer for Dufresne-Henry, Inc., an engineering
consulting firm. Mr. Lackey is a graduate of Vermont Technical College.
Alan N. Sabino has served as Regional Vice President of the Company since
July 1996. From 1995 to July 1996, Mr. Sabino served as a Division President of
Waste Management, Inc. From 1989 to 1994, he served as Regional Operations
Manager for Chambers Development Company, Inc., a waste management company. Mr.
Sabino is a graduate of Pennsylvania State University.
Gary Simmons joined the Company in May 1997 as Vice President, Fleet
Management. From 1995 to May 1997, Mr. Simmons served as National and Regional
Fleet Service Manager for USA Waste Services, Inc., a waste management company.
From 1977 to 1995, Mr. Simmons served in various fleet maintenance and
management positions for Chambers Development Company, Inc.
Michael J. Viani joined the Company in 1994, and has served as Vice
President, Business Development since 1995. From 1990 to 1994, Mr. Viani served
as Manager of Business Development with Consumat Sanco, Inc., the owner of the
Company's NCES landfill, which the Company purchased in 1994. Mr. Viani is a
graduate of Middlebury College and of the University of Massachusetts.
45
<PAGE>
See "Certain Transactions" and "Principal and Selling Stockholders" for
certain information concerning the Company's directors and executive officers.
Election of Directors
The holders of Class A Common Stock, voting separately as a class, will at
all times be entitled to elect at least one director. Mr. Michael F. Cronin is
the designee of the holders of Class A Common Stock.
Messrs. John W. Casella, Douglas R. Casella, James W. Bohlig, Gregory B.
Peters and John F. Chapple, III were elected to the Board of Directors pursuant
to the 1995 Stockholders Agreement between the Company and certain of its
stockholders. The 1995 Stockholders Agreement terminated upon completion of the
Company's initial public offering. See "Risk Factors--Control by Casellas and
Anti-Takeover Effect of Class B Common Stock" and "Description of Capital
Stock".
The Board of Directors is divided into three classes, each of whose
members serve for a staggered three-year term. Messrs. Douglas R. Casella,
Michael F. Cronin and Kenneth H. Mead serve in the class whose term expires in
1998; Messrs. James W. Bohlig and Gregory B. Peters serve in the class whose
term expires in 1999; and Messrs. John W. Casella and John F. Chapple III serve
in the class whose term expires in 2000. Upon the expiration of the term of a
class of directors, directors in such class will be elected for three-year
terms at the annual meeting of stockholders in the year in which such term
expires.
Compensation of Directors
The Company reimburses non-employee directors for expenses incurred in
attending Board meetings. Non-employee directors of the Company receive stock
options under the Company's 1997 Non-Employee Director Stock Option Plan (the
"Directors' Plan"). The Directors' Plan provides that each non-employee
director will receive an automatic grant of a nonqualified stock option to
purchase 5,000 shares of Class A Common Stock upon initial election to the
Board of Directors (vesting in three equal installments on each of the three
anniversaries following the date of grant). An option to purchase 2,000 shares
of Class A Common Stock will be granted to each incumbent non-employee director
on the date of each annual meeting of stockholders beginning with the 1998
annual meeting (vesting in three equal annual installments beginning on the
first anniversary of the date of grant). Options granted under the Directors'
Plan expire ten years from the date of grant. The option price for options
granted under the Directors' Plan is equal to the fair market value of a share
of Class A Common Stock as of the date of grant. The Company has reserved a
total of 50,000 shares of Class A Common Stock for issuance under the
Directors' Plan, all of which are currently available for future grant.
Board Committees
The Board of Directors has established a Compensation Committee and an
Audit Committee. The Compensation Committee, which consists of Messrs. John W.
Casella, Michael F. Cronin and Gregory B. Peters, reviews executive salaries,
administers any bonus, incentive compensation and stock option plans of the
Company, and approves the salaries and other benefits of the executive officers
of the Company. In addition, the Compensation Committee consults with the
Company's management regarding pension and other benefit plans and compensation
policies and practices of the Company. The Stock Plan Subcommittee of the
Compensation Committee, consisting of Messrs. Cronin and Peters, administers
the issuance of stock options and other awards under the Company's stock option
plans to the Company's executive officers. The Audit Committee, which consists
of Messrs. Chapple, Cronin and Peters, reviews the professional services
provided by the Company's independent auditors, the independence of such
auditors from management of the Company, the annual financial statements of the
Company and the Company's system of internal accounting controls. The Audit
Committee also reviews such other matters with respect to the accounting,
auditing and financial reporting practices and procedures of the Company as it
may find appropriate or as may be brought to its attention.
46
<PAGE>
Executive Compensation
The following table sets forth, for the fiscal year ended April 30, 1997,
the cash compensation paid and shares underlying options granted to (i) the
Company's Chief Executive Officer, and (ii) each of the other executive
officers who received annual compensation in excess of $100,000 (collectively,
the "Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------------------------------------------------------------
Annual Compensation Awards
---------------------------------------------------- ------------------
Securities
Other Annual Underlying All Other
Year Salary Bonus Compensation Options/SARs (#) Compensation
------ ----------- ---------------- ---------------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
John W. Casella ........... 1998 $156,965 -- (1) $14,279(2) -- $ 500(3)
President, Chief Executive 1997 $136,141 $45,000 $22,755(1) 20,000 $ 985(3)
Officer and Chairman
James W. Bohlig ........... 1998 $146,591 $ -- (1) -- -- --
Senior Vice President and 1997 $126,538 $45,000 -- 30,000 --
Chief Operating Officer
Jerry S. Cifor ............ 1998 $126,235 -- (1) -- -- $ 500(3)
Vice President and 1997 $107,692 $38,000 -- 16,000 $ 838(3)
Chief Financial Officer
</TABLE>
- ------------
(1) The Company expects to pay a bonus to such person for fiscal 1998. The
aggregate amount of such bonus was not calculable as of May 15, 1998 (the
latest practicable date).
(2) Consists of life insurance premiums paid by the Company on behalf of the
Named Executive Officer. (3) Consists of amount paid by the Company to the
Named Executive Officer's account in the Company's 401(k) Plan.
(3) Consists of amount paid by the Company to the Named Executive Officer's
account in the Company's 401(k) Plan.
Stock Options
No options to purchase shares of the Company's Class A Common Stock were
granted to any of the Named Executive Officers of the Company during the fiscal
year ended April 30, 1998.
Fiscal Year-End Option Values
The following table sets forth information for each of the Named Executive
Officers concerning options to purchase Class A Common Stock exercised by the
Named Executive Officers during fiscal 1998 and the number and value of options
outstanding as of April 30, 1998.
Aggregated Option Exercises in Fiscal Year 1998
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options at In-The-Money Options
Shares April 30, 1998 (#) at April 30, 1998 ($)(1)
Acquired Value ----------------------------- -----------------------------
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
------------- ---------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
John W. Casella,
President, Chief Executive
Officer and Chairman ............. -- -- 148,334 6,666 $4,324,402 $124,173
James W. Bohlig,
Senior Vice President and
Chief Operating Officer ......... -- -- 300,000 10,000 $8,918,850 $186,250
Jerry S. Cifor,
Vice President and
Chief Financial Officer ......... 20,000 $308,000 106,667 5,333 $3,077,792 $ 99,327
</TABLE>
- ------------
(1) These values have been calculated on the basis of the last sale price of
the Company's Class A Common Stock on the Nasdaq National Market as of
April 30, 1998 of $31.125 per share, less the aggregate exercise price.
47
<PAGE>
Compensation Committee Interlocks and Insider Participation
The current members of the Compensation Committee of the Company's Board
of Directors are Messrs. John W. Casella, Michael F. Cronin and Gregory B.
Peters. Mr. Casella will abstain from Compensation Committee decisions
regarding his own compensation. Mr. Casella has served as President and Chief
Executive Officer of the Company since 1993.
In connection with the sale by the Company of its Series D Convertible
Preferred Stock in December 1995, the Company entered into a Management
Services Agreement with BCI Growth III, L.P., North Atlantic Venture Fund, L.P.
and Vermont Venture Capital Fund, L.P., all of whom are stockholders of the
Company. Under the Management Services Agreement, the Company agreed to pay a
management fee of approximately $22,300 per month in consideration of certain
advisory services provided by such stockholders to the Company. Gregory B.
Peters, a director of the Company, is affiliated with North Atlantic Venture
Fund, L.P. and The Vermont Venture Capital Fund, L.P.
The Company has from time to time engaged Casella Construction, Inc., a
company owned by John and Douglas Casella, both executive officers, directors
and significant stockholders of the Company, to provide construction services
for the Company. In each of the fiscal years ended April 30, 1996, 1997 and
1998, the Company paid Casella Construction, Inc. $1,236,435, $2,155,618 and
$4,212,656, respectively. The Company engaged Casella Construction, Inc. to
close and cap the municipal unlined landfill located adjacent to the Clinton
County landfill. The Company completed the closure and capping activities at
this landfill in September 1997. The amount to be paid to Casella Construction,
Inc. for this project is $2,465,000, of which $497,000 and $1,890,090 were paid
in the fiscal years ended April 30, 1997 and 1998, respectively. In addition,
the Company has retained Casella Construction, Inc. to close and cap a portion
of the NCES landfill for a contract price of $1,600,000 of which approximately
$1,478,400 was paid through April 30, 1998.
In August 1993, the Company entered into three real estate leases with
Casella Associates, a Vermont partnership owned by John and Douglas Casella,
relating to facilities occupied by the Company. One of these leases was
terminated in fiscal 1997, for which the Company paid Casella Associates
$191,869. The remaining leases, relating to the Company's corporate
headquarters in Rutland, Vermont and its Montpelier, Vermont facility, call for
aggregate monthly payments of approximately $18,000 and expire in April 2003.
These leases have been classified by the Company as capital leases for
financial reporting purposes. The lease agreements relating to the Rutland and
Montpelier properties provide that if such agreements are terminated prior to
their respective lease terms, either Casella Associates or the Company must pay
to Albank an amount which represents 41.9% and 42.9%, respectively, of the then
outstanding principal balance (which on April 30, 1998 was $867,594), on a term
loan made by Albank to Casella Associates. In fiscal 1997, the Company
purchased the land that is the site of the Company's current Middlebury,
Vermont facility from Casella Associates for $122,000. In addition, the Company
leases furniture and fixtures from Casella Associates pursuant to an operating
lease which bears rent at $950 per month and expires in 1999. In each of the
years ended April 30, 1996, 1997 and 1998, the Company paid Casella Associates
an aggregate of $263,400, $558,380 and $253,318, respectively.
The Company operated an unlined landfill located in Whitehall, New York
owned by Bola, Inc., a corporation owned by John and Douglas Casella which
operated as a single-purpose real estate holding company. The Company paid the
cost of closing this landfill in 1992, and has agreed to pay all post-closure
obligations. In each of the fiscal years ended April 30, 1996, 1997 and 1998,
the Company paid $14,502, $9,605, and $3,019 respectively, pursuant to this
arrangement. The Company has accrued $104,772 for costs associated with its
post-closure obligations. There can be no assurance that such accruals will be
adequate to meet such obligations.
In connection with the settlement of certain litigation naming the
Company, four of its subsidiaries, Messrs. James W. Bohlig and John W. and
Douglas R. Casella and one unrelated person as defendants, the Company paid an
aggregate of $450,000 plus approximately $200,000 in legal expenses incurred by
the defendants. The lawsuit was brought derivatively in the name of Meridian
Group, Inc. ("Meridian"), a Vermont corporation engaged in alternative energy
project development which has been inactive since 1993, of which Messrs. Bohlig
and John Casella were officers, directors and stockholders, as well as
individually in the names of the plaintiffs, who were also stockholders of
Meridian. In response to the
48
<PAGE>
lawsuit, in an effort to expedite adjudication, a majority of Meridian's
directors, including Messrs. Bohlig and John Casella, voted to place Meridian
into bankruptcy, and Meridian filed a petition under Chapter 7 of the Federal
Bankruptcy Code ("Chapter 7"). The lawsuit was subsequently removed to the
United States Bankruptcy Court for the District of Vermont. On July 14, 1997,
the bankruptcy court approved the settlement. Messrs. John Casella and Bohlig
were officers and directors of Meridian at the time Meridian filed the petition
under Chapter 7.
On or about October 30, 1997, Mr. Matthew M. Freeman commenced a civil
lawsuit against the Company and Messrs. John Casella and James Bohlig in the
Rutland Superior Court, Rutland County, State of Vermont. In the complaint, Mr.
Freeman seeks compensation for services allegedly performed by him prior to
1995. Mr. Freeman is seeking a three percent equity interest in the Company or
the monetary equivalent thereof, as well as punitive damages. The Company and
Messrs. Casella and Bohlig have answered the complaint, denied Mr. Freeman's
allegations of wrongdoing, and asserted various defenses. In order to
facilitate the completion of the Company's recent initial public offering,
certain stockholders of the Company agreed to indemnify the Company for any
settlement by the Company or any award against the Company in excess of
$350,000 (but not including legal fees paid by or on behalf of the Company or
any other party). The Company has agreed to indemnify Messrs. Casella and
Bohlig for legal fees incurred by them in connection with the lawsuit, plus
settlements or awards up to $350,000 in the aggregate.
Benefit Plans
1997 Stock Incentive Plan
The 1997 Stock Incentive Plan (the "1997 Incentive Plan") permits the
Company to grant incentive stock options, non-statutory stock options,
restricted stock awards and other stock-based awards, including the grant of
shares based on certain conditions, the grant of securities convertible into
Class A Common Stock and the grant of stock appreciation rights (collectively,
"Awards"). Awards consisting of stock options may not be granted at an exercise
price which is less than 100% of the fair market value of the Class A Common
Stock on the date of grant and may not be granted for a term in excess of ten
years. Subject to adjustment in the event of stock splits and other similar
events, awards may be made under the 1997 Incentive Plan for up to the sum of
(i) 1,308,500 shares of Class A Common Stock, plus (ii) such additional number
of shares of Class A Common Stock as is equal to the aggregate number of shares
which remain available subject to awards granted under the Terminated Plans (as
defined below) which are not actually issued because such awards expire or
otherwise result in shares not being issued.
Officers, employees, directors, consultants and advisors of the Company
and its subsidiaries will be eligible to receive Awards under the 1997
Incentive Plan. The maximum number of shares with respect to which an Award may
be granted to any participant under the 1997 Incentive Plan may not exceed
200,000 shares per calendar year.
The 1997 Incentive Plan is administered by the Compensation Committee of
the Board of Directors, provided that the Stock Plan Subcommittee will
administer the issuance of awards to the Company's executive officers. The
Committee has the authority to adopt, amend and repeal the administrative
rules, guidelines and practices relating to the 1997 Incentive Plan and to
interpret the provisions of the 1997 Incentive Plan. The Compensation Committee
selects the recipients of Awards and determines (i) the number of shares of
Class A Common Stock covered by options and the dates upon which such options
become exercisable; (ii) the exercise price of options (which may not be less
than 100% of fair market value on the date of grant); (iii) the duration of
options (which may not exceed ten years); and (iv) the number of shares of
Class A Common Stock subject to any restricted stock or other stock-based
Awards and the terms and conditions of such Awards, including conditions for
repurchase, issue price and repurchase price. The Board of Directors is
required to make appropriate adjustments in connection with the 1997 Incentive
Plan and any outstanding Awards to reflect stock dividends, stock splits and
certain other events. In the event of a merger, liquidation or other
Acquisition Event (as defined in the 1997 Incentive Plan), outstanding Awards
will be assumed unless the acquiring or succeeding corporation does not agree
to assume such options, in which case the Board of Directors shall accelerate
the Awards to make them fully exercisable prior to consummation of the
Acquisition Event or provide for a cash-out of the value of any outstanding
options. If any Award expires or is terminated, surrendered, canceled or
49
<PAGE>
forfeited, the unused shares of Class A Common Stock covered by such Award will
again be available for grant under the 1997 Incentive Plan.
Other Stock Option Plans
The Company has previously granted options to purchase shares of Class A
Common Stock pursuant to the 1993 Incentive Stock Option Plan, the 1994
Nonstatutory Stock Option Plan and the 1996 Stock Option Plan (collectively,
the "Terminated Plans"). In connection with the adoption of the Company's 1997
Incentive Stock Option Plan, the Company has ceased granting options under
these plans; however, all stock options granted prior to the effectiveness of
the 1997 Incentive Stock Option Plan will remain outstanding in accordance with
their terms and the terms of the respective plans under which they were
granted.
Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan")
is intended to allow eligible participating employees an opportunity to
purchase shares of Class A Common Stock at a discount. A maximum of 300,000
shares of Class A Common Stock were authorized for issuance under the 1997
Purchase Plan. The 1997 Purchase Plan is administered by the Compensation
Committee of the Board of Directors. All employees of the Company, except
employees who own five percent or more of the Company's stock, whose customary
employment is more than 20 hours per week and who have been employed by the
Company for at least six months, are eligible to participate in the 1997
Purchase Plan. To participate in the 1997 Purchase Plan, an employee must
authorize the Company to deduct an amount (up to ten percent of a participant's
regular pay) from his or her pay during six-month periods commencing on May 1
and November 1, or the first business day thereafter, of each year (each a
"Payment Period"). The maximum number of shares of Class A Common Stock that an
employee may purchase in any Payment Period is determined by applying the
formula stated in the 1997 Purchase Plan. The exercise price for the option for
each Payment Period is 85% of the lesser of the average market price of the
Company's Class A Common Stock on the first or last business day of the Payment
Period. If an employee is not a participant on the last day of the Payment
Period, such employee is not entitled to exercise his or her option, and the
amount of his or her accumulated payroll deductions will be refunded. An
employee's rights under the 1997 Purchase Plan terminate upon his or her
voluntary withdrawal from the plan at any time or upon termination of
employment.
Non-Employee Director Stock Option Plan
The Directors' Plan provides for the grant of options to purchase a
maximum of 50,000 shares of Class A Common Stock of the Company to non-employee
directors of the Company. The Directors' Plan is administered by the Board of
Directors. The Directors' Plan provides that each non-employee director will
receive an automatic grant of a nonqualified stock option to purchase 5,000
shares of Class A Common Stock upon initial election to the Board of Directors
(vesting in three equal installments on each of the three anniversaries
following the date of grant). An option to purchase 2,000 shares of Class A
Common Stock will be granted to each incumbent non-employee director on the
date of each annual meeting of stockholders beginning with the 1998 annual
meeting (vesting in three equal annual installments beginning on the first
anniversary of the date of grant). Options granted under the Directors' Plan
expire ten years from the date of grant. The option price for options granted
under the Directors' Plan is equal to the fair market value of a share of Class
A Common Stock as of the date of grant.
401(k) Plan
Effective July 1996, the Company implemented a 401(k) Plan Savings and
Retirement Plan (the "401(k) Plan"), a tax-qualified plan covering all of its
employees who are at least 21 years of age and have completed six months of
service with the Company. Each employee may elect to reduce his or her current
compensation by up to 15%, subject to the statutory limit (a maximum of $10,000
in calendar 1998) and have the amount of the reduction contributed to the
401(k) Plan. Subject to Board approval, the Company may contribute an
additional amount to the 401(k) Plan, up to $500 per individual per calendar
year. Employees vest in Company contributions ratably over a three-year period.
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<PAGE>
CERTAIN TRANSACTIONS
In connection with the sale by the Company of its Series D Convertible
Preferred Stock in December 1995, the Company entered into a Management
Services Agreement with BCI Growth III, L.P., North Atlantic Venture Fund, L.P.
and Vermont Venture Capital Fund, L.P., all of whom are stockholders of the
Company. Under the Management Services Agreement, the Company agreed to pay a
management fee of approximately $22,300 per month in consideration of certain
advisory services provided by such stockholders to the Company. Gregory B.
Peters, a director of the Company, is affiliated with North Atlantic Venture
Fund, L.P. and The Vermont Venture Capital Fund, L.P.
The Company has from time to time engaged Casella Construction, Inc., a
company owned by John and Douglas Casella, both executive officers, directors
and significant stockholders of the Company, to provide construction services
for the Company. In each of the three years ended April 30, 1996, 1997 and
1998, the Company paid Casella Construction, Inc. $1,236,435, $2,155,618 and
$4,212,656, respectively. The Company engaged Casella Construction, Inc. to
close and cap the municipal unlined landfill located adjacent to the Clinton
County landfill. The Company completed the closure and capping activities at
this landfill in September 1997. The amount to be paid to Casella Construction,
Inc. for this project is $2,465,000, of which $497,000 and $1,890,000 were paid
in the fiscal years ended April 30, 1997 and 1998, respectively. In addition,
the Company has retained Casella Construction, Inc. to close and cap a portion
of the NCES landfill for a contract price of $1,600,000, of which approximately
$1,478,400 was paid through April 30, 1998.
In August 1993, the Company entered into three real estate leases with
Casella Associates, a Vermont partnership owned by John and Douglas Casella,
relating to facilities occupied by the Company. One of these leases was
terminated in fiscal 1997, for which the Company paid Casella Associates
$191,869. The remaining leases, relating to the Company's corporate
headquarters in Rutland, Vermont and its Montpelier, Vermont facility, call for
aggregate monthly payments of approximately $18,000 and expire in April 2003.
These leases have been classified by the Company as capital leases for
financial reporting purposes. The lease agreements relating to the Rutland and
Montpelier properties provide that if such agreements are terminated prior to
their respective lease terms, either Casella Associates or the Company must pay
to Albank an amount which represents 41.9% and 42.9%, respectively, of the then
outstanding principal balance (which on April 30, 1998 was $867,594), on a term
loan made by Albank to Casella Associates. In fiscal 1997, the Company
purchased the land that is the site of the Company's current Middlebury,
Vermont facility from Casella Associates for $122,000. In addition, the Company
leases furniture and fixtures from Casella Associates pursuant to an operating
lease which bears rent at $950 per month and expires in 1999. In each of the
three years ended April 30, 1996, 1997 and 1998, the Company paid Casella
Associates an aggregate of $263,400, $558,380 and $253,318, respectively.
The Company operated an unlined landfill located in Whitehall, New York
owned by Bola, Inc., a corporation owned by John and Douglas Casella which
operated as a single-purpose real estate holding company. The Company paid the
cost of closing this landfill in 1992, and has agreed to pay all post-closure
obligations. In each of the three years ended April 30, 1996, 1997 and 1998,
the Company paid $14,502, $9,605 and $3,019, respectively, pursuant to this
arrangement. As of April 30, 1998 the Company has accrued $104,772 for costs
associated with its post-closure obligations. There can be no assurance that
such accruals will be adequate to meet such obligations.
In connection with the settlement of certain litigation naming the
Company, four of its subsidiaries, Messrs. James W. Bohlig and John W. and
Douglas R. Casella and one unrelated person as defendants, the Company paid an
aggregate of $450,000 plus approximately $200,000 in legal expenses incurred by
the defendants. The lawsuit was brought derivatively in the name of Meridian, a
Vermont corporation which has been inactive since 1993, of which Messrs. Bohlig
and John Casella were officers, directors and stockholders, as well as
individually in the names of the plaintiffs, who were also stockholders of
Meridian. In response to the lawsuit, in an effort to expedite adjudication, a
majority of Meridian's directors, including Messrs. Bohlig and John Casella,
voted to place Meridian into bankruptcy, and Meridian filed a petition under
Chapter 7. The lawsuit was subsequently removed to the United States Bankruptcy
Court for the District of Vermont. On July 14, 1997, the bankruptcy court
approved the settlement. Messrs. John Casella and Bohlig were officers and
directors of Meridian at the time Meridian filed the petition under Chapter 7.
51
<PAGE>
On or about October 30, 1997, Mr. Matthew M. Freeman commenced a civil
lawsuit against the Company and Messrs. John Casella and James Bohlig in the
Rutland Superior Court, Rutland County, State of Vermont. In the complaint, Mr.
Freeman seeks compensation for services allegedly performed by him prior to
1995. Mr. Freeman is seeking a three percent equity interest in the Company or
the monetary equivalent thereof, as well as punitive damages. The Company and
Messrs. Casella and Bohlig have answered the complaint, denied Mr. Freeman's
allegations of wrongdoing, and asserted various defenses. In order to
facilitate the completion of the Company's recent initial public offering,
certain stockholders of the Company agreed to indemnify the Company for any
settlement by the Company or any award against the Company in excess of
$350,000 (but not including legal fees paid by or on behalf of the Company or
any other party). The Company has agreed to indemnify Messrs. Casella and
Bohlig for legal fees incurred by them in connection with the lawsuit, plus
settlements or awards up to $350,000 in the aggregate.
In connection with and at the time of the Company's acquisition of the
business of Catamount Waste Services, Inc., the Company entered into a lease in
June 1994 with CV Landfill, Inc., a Vermont corporation affiliated with
Catamount Waste Services, Inc., pursuant to which the Company agreed to lease a
transfer station for a term of 10 years. CV Landfill, Inc. is owned by John F.
Chapple III, who became a director of the Company at the time of the
acquisition of the business of Catamount Waste Services, Inc. Pursuant to the
lease agreement, the Company pays monthly rent for the first five years at a
rate of $5.00 per ton of waste disposed of at the transfer station, with a
minimum rent of $6,650 per month. Following the fifth anniversary of the lease
agreement, the Company pays monthly rent at a rate of $2.00 per ton, with a
minimum rent of $2,500 per month. In each of the three years ended April 30,
1996, 1997 and 1998, the Company paid CV Landfill, Inc. $139,687, $136,729 and
$96,894, respectively.
As part of the acquisition by the Company of the assets of Superior
Disposal Service, Inc., Kerkim, Inc. and related companies in January 1997, the
Company engaged Kenneth H. Mead, the sole stockholder of such companies, as a
consultant for a five-year period ending in 2002. Upon such acquisition, Mr.
Mead became a director of the Company. The consulting agreement, which also
contains a non-competition covenant, provides that the Company will pay Mr.
Mead (i) a fee for acquisitions of collection businesses made by the Company
with Mr. Mead's active assistance within a defined geographic area, in an
amount equal to one month's net revenue of any such acquired business; (ii) a
fee of $500,000 for the acquisition by the Company with Mr. Mead's active
assistance of any enumerated landfill within a defined geographic area; and
(iii) a fee, in consideration of Mr. Mead's non-competition covenant, of
$600,000 paid in installments of $200,000 on each of the first and second
anniversaries of the date of the agreement and $100,000 on each of the third
and fourth anniversaries. For the fiscal years ended April 30, 1997 and 1998,
the Company paid Mr. Mead an aggregate of $231,000 and $201,871, respectively,
pursuant to this agreement.
Each of the transactions described above has been approved or ratified by
a disinterested majority of the Board of Directors. However, transactions
between the Company and affiliates of John W. Casella and Douglas R. Casella
were not negotiated, and accordingly the Company has no independent basis for
concluding whether or not the terms of such transactions were as favorable as
could have been negotiated with unaffiliated third parties.
The Company adopted a policy in June 1994 which required the Company to
obtain competitive bids for contracts with Casella Construction, Inc. in excess
of $100,000. During the period that such policy was in place, the Company
awarded two construction contracts greater than $100,000 in size to Casella
Construction, Inc. without soliciting third party bids. In July 1997, the
Company's Board of Directors adopted a policy for all related party
transactions. The policy establishes guidelines, including (i) requiring all
future transactions, including without limitation the purchase, sale or
exchange of property or the rendering of any service, between the Company and
its officers, directors, employees or other affiliates to (a) be approved by a
majority of the members of the Board of Directors and by a majority of the
disinterested members of the Board of Directors, and (b) be on reasonable terms
no less favorable to the Company than could be obtained from unaffiliated third
parties; and (ii) requiring a third party bid on all construction contracts in
excess of $100,000.
52
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock of the Company as of April 30, 1998,
and as adjusted for the sale of the shares of Class A Common Stock offered
hereby, by (i) each person or entity known to the Company to beneficially own
more than five percent of the Company's Common Stock, (ii) each director and
Named Executive Officer of the Company, (iii) all current directors and
executive officers of the Company as a group, and (iv) each Selling
Stockholder.
<TABLE>
<CAPTION>
Class A Common Stock
----------------------------------------------------------
To be To be
Owned Sold Owned
Prior to the in the After the
Offering Offering Offering
----------------------- ---------- -----------------------
Name of Beneficial
Owner(1) Number % Number Number %
- ------------------------------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
John W. Casella(2) ............ 728,983 6.84% -- 728,983 6.84%
Douglas R. Casella(3) ......... 728,983 6.84% -- 728,983 6.84%
James W. Bohlig(4) ............ 425,000 3.93% -- 425,000 3.93%
Jerry S. Cifor(5) ............. 126,667 1.19% -- 126,667 1.19%
Gregory B. Peters(6) .......... 299,161 2.85% -- 299,161 2.85%
John F. Chapple III ........... 294,191 2.80% -- 294,191 2.80%
Kenneth H. Mead(7) ............ 562,127 5.35% -- 562,127 5.35%
Michael F. Cronin(8) .......... 775,370 7.38% -- 775,370 7.38%
BCI Growth III, L.P.(9) ....... 985,912 9.39% -- 985,912 9.39%
Weston Presidio Capital II,
L.P.(10) ..................... 775,370 7.38% -- 775,370 7.38%
Provident Investment
Counsel, Inc.(11) ............ 534,700 5.01% -- 534,700 5.01%
Directors and executive
officers as a group
(8 people)(12) ............... 4,026,835 35.85% -- 4,026,835 35.85%
Selling Stockholders (13)
Joseph M. Winters ............. 42,739 * 38,985 3,754 *
Andrew B. Winters ............. 42,739 * 38,985 3,754 *
Brigid Winters ................ 128,216 1.12% 116,955 11,261 *
Sean Winters .................. 42,739 * 38,985 3,754 *
Maureen Winters ............... 81,525 * 38,974 42,551 *
Winters Family
Partnership (14) ............. 232,717 2.22% 0 232,717 2.22%
--------- ---------
- ------------
<CAPTION>
Total
Common
Class B Common Stock Stock
------------------------------------- ----------
To be Voting
Owned Owned Power
Prior to the After the After the
Offering Offering Offering
------------------ ------------------ ----------
Name of Beneficial
Owner(1) Number % Number % %
- ------------------------------- --------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
John W. Casella(2) ............ 494,100 50% 494,100 50% 27.6%
Douglas R. Casella(3) ......... 494,100 50% 494,100 50% 27.6%
James W. Bohlig(4) ............ -- -- -- 2.1%
Jerry S. Cifor(5) ............. -- -- -- -- *
Gregory B. Peters(6) .......... -- -- -- -- 1.5%
John F. Chapple III ........... 1.4%
Kenneth H. Mead(7) ............ -- -- -- -- 2.8%
Michael F. Cronin(8) .......... -- -- -- -- 3.8%
BCI Growth III, L.P.(9) ....... -- -- -- -- 4.8%
Weston Presidio Capital II,
L.P.(10) ..................... -- -- -- -- 3.8%
Provident Investment
Counsel, Inc.(11) ............ -- -- -- -- 2.6%
Directors and executive
officers as a group
(8 people)(12) ............... 988,200 100% 988,200 100% 65.5%
Selling Stockholders (13)
Joseph M. Winters ............. -- -- -- -- *
Andrew B. Winters ............. -- -- -- -- *
Brigid Winters ................ -- -- -- -- *
Sean Winters .................. -- -- -- -- *
Maureen Winters ............... -- -- -- -- *
Winters Family
Partnership (14) ............. -- -- -- -- 1.1%
</TABLE>
- ---------------
* Less than 1% of the outstanding Common Stock.
(1) Beneficial ownership is determined in accordance with rules of the
Commission, and includes generally voting power and/or investment power
with respect to securities. Shares of Common Stock subject to options
and/or warrants currently exercisable or exercisable within 60 days of the
date hereof ("Currently Exercisable Options") are deemed outstanding for
computing the percentage beneficially owned by the person holding such
options but are not deemed outstanding for purposes of computing the
percentage beneficially owned by any other person. Except as indicated by
footnote, the Company believes that the persons named in this table, based
on information provided by such persons, have sole voting and investment
power with respect to the shares of Common Stock indicated.
(2) Includes 161,833 shares issuable pursuant to Currently Exercisable
Options. Also includes 4,800 shares of Class A Common Stock held in trust
for the benefit of Mr. Casella's minor children. Mr. Casella disclaims
beneficial ownership of such shares. Mr. Casella's address is c/o Casella
Waste Systems, Inc., 25 Greens Hill Lane, Rutland, VT 05701.
(3) Includes 161,833 shares issuable pursuant to Currently Exercisable
Options. Also includes 1,600 shares of Class A Common Stock held in trust
for the benefit of Mr. Casella's minor children. Mr. Casella disclaims
beneficial ownership of such shares. Mr. Casella's address is c/o Casella
Waste Systems, Inc., 25 Greens Hill Lane, Rutland, VT 05701.
53
<PAGE>
(4) Includes 300,000 shares issuable pursuant to Currently Exercisable
Options. Also includes 8,000 shares held in trust for the benefit of Mr.
Bohlig's minor children. Mr. Bohlig disclaims beneficial ownership of such
shares. Mr. Bohlig's address is c/o Casella Waste Systems, Inc., 25 Greens
Hill Lane, Rutland, VT 05701.
(5) Includes 106,667 shares issuable pursuant to Currently Exercisable Options.
(6) Consists of 299,161 shares held by North Atlantic Venture Fund, L.P., of
which Mr. Peters is a General Partner and The Vermont Venture Capital
Fund, L.P., of which Mr. Peters is the Managing General Partner. Mr.
Peters disclaims beneficial ownership of such shares except to the extent
of his pecuniary interest in such firms. The address of North Atlantic
Venture Fund L.P. is 70 Center Street, Portland, ME 04140, and the address
of The Vermont Venture Capital Fund, L.P. is Corporate Plaza, Suite 600,
76 St. Paul Street, Burlington, VT 05401.
(7) Mr. Mead's address is 1669 N.W. Loop, Ocala, FL 34475.
(8) Consists of 775,370 shares held by Weston Presidio Capital II, L.P., of
which Mr. Cronin is a General Partner. Mr. Cronin disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest in
such firm. Mr. Cronin's address is c/o Weston Presidio Capital II, L.P.,
One Federal Street, Boston, MA 02110.
(9) The address of BCI Growth III, LP is Glenpointe Centre West, Teaneck, NJ
07666
(10) The address of Weston Presidio Capital II, L.P. is One Federal Street,
Boston, MA 02110.
(11) Based on information filed by such stockholder with the Securities and
Exchange Commission on Schedule 13G for the year ended December 31, 1997.
The address of Provident Investment Counsel, Inc. is 300 North Lake
Avenue, Pasadena, CA 91101.
(12) Includes 730,333 shares issuable pursuant to Currently Exercisable Options.
(13) All of the Selling Stockholders were stockholders, or affiliates of
stockholders, of All Cycle Waste, Inc. and Winters Brothers Inc., which
were acquired by the Company in December 1997 in a transaction accounted
for as a pooling of interests. Shares owned by each of the Selling
Stockholders includes shares held in escrow to secure certain obligations
of the Selling Stockholders to the Company pursuant to the acquistion
agreement.
(14) Based on information provided to the Company, the beneficial owners of the
Winters Family Partnership are Joseph M. Winters, Andrew B. Winters,
Brigid Winters and Sean Winters.
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of the Company's Common Stock,
Preferred Stock, Restated Certificate of Incorporation and Restated By-Laws is
not intended to be complete and is qualified by reference to the provisions of
applicable law and to the Company's Restated Certificate of Incorporation and
Restated By-Laws included as exhibits to the Registration Statement. See
"Additional Information".
Authorized Capital Stock
The authorized capital stock of the Company consists of 30,000,000 shares
of Class A Common Stock, $0.01 par value per share, 1,000,000 shares of Class B
Common Stock, $0.01 par value per share, and 1,000,000 shares of Preferred
Stock, $0.01 par value per share.
Common Stock
The shares of Class A Common Stock and Class B Common Stock are identical
in all respects, except for voting rights and certain conversion rights and
transfer restrictions in respect of the shares of the Class B Common Stock, as
described below. The number of authorized shares of any class or classes of
capital stock of the Company may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the voting power of the stock of the Company entitled
to vote generally in the election of directors irrespective of the provisions
of Section 242(b)(2) of the General Corporation Law of the State of Delaware
(the "Delaware Law") or any corresponding provision hereinafter enacted.
Voting Rights. The holders of Class A Common Stock are entitled to one
vote per share. Holders of Class B Common Stock are entitled to ten votes per
share. Holders of all classes of Common Stock entitled to vote will generally
vote together as a single class on all matters presented to the stockholders
for their vote or approval except that the holders of Class A Common Stock,
voting separately as a class, will at all times be entitled to elect at least
one director, and such director may be removed, with or without cause, only by
the holders of the Class A Common Stock. Mr. Michael F. Cronin is the designee
of the holders of Class A Common Stock.
Dividends. Holders of Class A Common Stock and Class B Common Stock are
entitled to receive dividends at the same rate if, as and when such dividends
are declared by the Board out of assets legally available therefor after
payment of any dividends required to be paid on shares of Preferred Stock, if
any. The Company may not make any dividend or distribution to any holder of any
class of Common Stock unless simultaneously with such dividend or distribution
the Company makes the same dividend or distribution with respect to each
outstanding share of Common Stock regardless of class. In the case of a
dividend or other distribution payable in shares of a class of Common Stock,
including distributions pursuant to stock splits or divisions of Common Stock,
only shares of Class A Common Stock may be distributed with respect to Class A
Common Stock, and only shares of Class B Common Stock may be distributed with
respect to Class B Common Stock. Whenever a dividend or distribution, including
distributions pursuant to stock splits or divisions of the Common Stock, is
payable in shares of a class of Common Stock, the number of shares of each
class of Common Stock payable per share of such class of Common Stock shall be
equal in number. In the case of dividends or other distributions consisting of
other voting securities of the Company or of voting securities of any
corporation which is a wholly-owned subsidiary of the Company, the Company
shall declare and pay such dividends in two separate classes of such voting
securities, identical in all respects except that (i) the voting rights of each
such security issued to the holders of Class A Common Stock shall be one-tenth
of the voting rights of each such security issued to holders of Class B Common
Stock; (ii) such security issued to holders of Class B Common Stock shall
convert into the security issued to the holders of Class A Common Stock upon
the same terms and conditions applicable to the conversion of Class B Common
Stock into Class A Common Stock and shall have the same restrictions on
transfer and ownership applicable to the transfer and ownership of the Class B
Common Stock; and (iii) with respect only to dividends or other distributions
of voting securities of any corporation which is a wholly owned subsidiary of
the Company, the respective voting rights of each such security issued to
holders of Class A Common Stock and Class B Common Stock with respect to
elections of directors shall otherwise be as comparable as is practicable to
those of the Class A Common Stock and Class B Common Stock, respectively. In
the case of dividends or other distributions consisting of
55
<PAGE>
securities convertible into, or exchangeable for, voting securities of the
Company or of voting securities of any corporation which is a wholly owned
subsidiary of the Company, the Company shall provide that such convertible or
exchangeable securities and the underlying securities be identical in all
respects (including, without limitation, the conversion or exchange rate)
except that the underlying securities may have the same differences as they
would have if the Company issued voting securities of the Company or of a
wholly owned subsidiary rather than issuing securities convertible into, or
exchangeable for, such securities.
Restrictions on Additional Issuances And Transfer. The Company may not
issue or sell any shares of Class B Common Stock or any securities (including,
without limitation, any rights, options, warrants or other securities)
convertible into, or exchangeable or exercisable for, shares of Class B Common
Stock to any person who is not a Class B Permitted Holder. Additionally, shares
of Class B Common Stock may not be transferred, whether by sale, assignment,
gift, bequest, appointment or otherwise, to a person other than a Class B
Permitted Holder. Notwithstanding the foregoing, (i) any Class B Permitted
Holder may pledge his, her or its shares of Class B Common Stock to a financial
institution pursuant to a bona fide pledge of such shares as collateral
security for indebtedness due to the pledgee provided that such shares remain
subject to the transfer restrictions and that, in the event of foreclosure or
other similar action by the pledgee, such pledged shares of Class B Common
Stock may only be transferred to a Class B Permitted Holder or converted into
shares of Class A Common Stock, as the pledgee may elect; and (ii) the
foregoing transfer restrictions shall not apply in the case of a merger,
consolidation or business combination of the Company with or into another
corporation in which all of the outstanding shares of Common Stock and
Preferred Stock of the Company regardless of class are purchased by the
acquiror.
Conversion. Class A Common Stock has no conversion rights. Shares of Class
B Common Stock are convertible into Class A Common Stock, in whole or in part,
at any time and from time to time at the option of the holder, on the basis of
one share of Class A Common Stock for each share of Class B Common Stock
converted. Each share of Class B Common Stock will also automatically convert
into one share of Class A Common Stock if, on the record date for any meeting
of the stockholders of the Company, the number of shares of Common Stock held
by the Class B Permitted Holders is less than 1,077,874 shares (subject to
appropriate adjustment for stock splits, reverse stock splits, stock dividends
and similar transactions). Additionally, at such time as a person ceases to be
a Class B Permitted Holder, any share of Class B Common Stock held by such
person at such time shall automatically convert into a share of Class A Common
Stock. The Company covenants that (i) it will at all times reserve and keep
available out of its authorized but unissued shares of Class A Common Stock,
such number of shares of Class A Common Stock issuable upon the conversion of
all outstanding shares of Class B Common Stock; (ii) it will cause any shares
of Class A Common Stock issuable upon conversion of a share of Class B Common
Stock that require registration with or approval of any governmental authority
under federal or state law before such shares may be issued upon conversion to
be so registered or approved; and (iii) it will use its best efforts to list
the shares of Class A Common Stock required to be delivered upon conversion
prior to such delivery upon such national securities exchange upon which the
outstanding Class A Common Stock is listed at the time of such delivery.
Reclassification and Merger. In the event of a reclassification or other
similar transaction as a result of which the shares of Class A Common Stock are
converted into another security, then a holder of Class B Common Stock will be
entitled to receive upon conversion the amount of such other security that the
holder would have received if the conversion occurred immediately prior to the
record date of such reclassification or other similar transaction. No
adjustments in respect of dividends will be made upon the conversion of any
share of Class B Common Stock; except if a share is converted subsequent to the
record date for the payment of a dividend or other distribution on shares of
Class B Common Stock but prior to such payment, then the registered holder of
such share at the close of business on such record date will be entitled to
receive the dividend or other distribution payable on such date regardless of
the conversion thereof or the Company's default in payment of the dividend due
on such date.
In the event the Company enters into any consolidation, merger,
combination or other transaction in which shares of Common Stock are exchanged
for or changed into other stock or securities, cash and/or any other property,
then, and in such event, the shares of each class of Common Stock will be
exchanged
56
<PAGE>
for or changed into either (i) the same amount of stock, securities, cash
and/or any other property, as the case may be, into which or for which each
share of any other class of Common Stock is exchanged or changed; provided,
however, that if shares of Common Stock are exchanged for or changed into
shares of capital stock, such shares so exchanged for or changed into may
differ to the extent and only to the extent that the Class A Common Stock and
the Class B Common Stock differ as provided in the Company's Restated
Certificate of Incorporation, or (ii) if holders of each class of Common Stock
are to receive different distributions of stock, securities, cash and/or any
other property, an amount of stock, securities, cash and/or property per share
having a value, as determined by an independent investment banking firm of
national reputation selected by the Board of Directors, equal to the value per
share into which or for which each share of any other class of Common Stock is
exchanged or changed.
Liquidation. In the event of liquidation of the Company, after payment of
the debts and other liabilities of the Company and after making provision for
the holders of Preferred Stock, if any, the remaining assets of the Company
will be distributable ratably among the holders of the Class A Common Stock and
Class B Common Stock treated as a single class.
Other Provisions. The holders of the Class A Common Stock and Class B
Common Stock are not entitled to preemptive rights. None of the Class A Common
Stock or Class B Common Stock may be subdivided or combined in any manner
unless the other classes are subdivided or combined in the same proportion. The
Company may not make any offering of options, rights or warrants to subscribe
for shares of Class B Common Stock. If the Company makes an offering of
options, rights or warrants to subscribe for shares of any other class or
classes of capital stock (other than Class B Common Stock) to all holders of a
class of Common Stock, then the Company is required to simultaneously make an
identical offering to all holders of the other classes of Common Stock other
than to any class the holders of which, voting as a separate class, agrees that
such offering need not be made to such class. All such options, rights or
warrants offerings shall offer the respective holders of Class A Common Stock
and Class B Common Stock the right to subscribe at the same rate per share.
As used in this Prospectus, the term "Class B Permitted Holder" includes
only the following persons: (i) John W. Casella or Douglas R. Casella and their
respective estates, guardians, conservators or committees; (ii) the spouses of
John Casella or Douglas Casella and their respective estates, guardians,
conservators or committees; (iii) each descendant of John Casella or Douglas
Casella (a "Casella Descendant") and their respective estates, guardians,
conservators or committees; (iv) each Family Controlled Entity (as defined
below); and (v) the trustees, in their respective capacities as such, of each
Casella Family Trust (as defined below). The term "Family Controlled Entity"
means (i) any not-for-profit corporation if at least a majority of its board of
directors is composed of John Casella or Douglas Casella, their spouses and/or
Casella Descendants; (ii) any other corporation if at least a majority of the
value of its outstanding equity is owned by Class B Permitted Holders; (iii)
any partnership if at least a majority of the economic interest of its
partnership interests are owned by Class B Permitted Holders; and (iv) any
limited liability or similar company if at least a majority of the economic
interest of the Company is owned by Class B Permitted Holders. The term
"Casella Family Trust" includes trusts the primary beneficiaries of which are
John Casella or Douglas Casella, their spouses, Casella Descendants, siblings,
spouses of Casella Descendants and their respective estates, guardians,
conservator or committees and/or charitable organizations, provided that if the
trust is a wholly charitable trust, at least a majority of the trustees of such
trust consist of John Casella or Douglas Casella, their spouses and/or Class B
Permitted Holders.
Preferred Stock
The Board of Directors is authorized, subject to any limitations
prescribed by law, without stockholder approval, to issue up to 1,000,000
shares of Preferred Stock in one or more series. Each such series of Preferred
Stock shall have such rights, preferences, privileges and restrictions,
including voting rights, dividend rights, exchange rights, conversion rights,
redemption privileges and liquidation preferences, as shall be determined by
the Board of Directors. The rights of the holders of shares of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any shares of Preferred Stock that may be issued in the future. Preferred
Stock may, at the discretion of the Board of Directors, be entitled to
preference over the Common Stock with respect to the payment of dividends and
the distribution of assets in the event of liquidation, dissolution or winding
up. Additionally, the issuance of shares of Preferred
57
<PAGE>
Stock could also decrease the amount of earnings and assets available for
distribution to the holders of the Common Stock. If any cumulative dividends or
amounts payable on a return of capital are not paid in full, shares of
Preferred Stock of all issued series would participate ratably in accordance
with the amounts that would be payable on such shares if all such dividends
were declared and paid in full or the sums which would be payable on such
shares on the return of capital if all amounts so payable were paid in full, as
the case may be.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of Preferred Stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
a majority of the outstanding voting capital stock of the Company. The Company
has no present plans to issue any shares of Preferred Stock.
Delaware Law and Certain Charter and By-Law Provisions
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. In general, this statute prohibits a publicly-held
Delaware corporation 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 becomes an interested stockholder, unless the
business combination is approved in a prescribed manner. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within the prior three years did own) 15% or more of the corporation's voting
stock.
The Company's Restated Certificate of Incorporation provides that
vacancies on the Board of Directors may only be filled by a majority of the
Board of Directors then in office. Furthermore, any director elected by the
stockholders, or by the Board of Directors to fill a vacancy, may be removed
only by a vote of 75% of the combined voting power of the shares of Common
Stock entitled to vote for the election of directors (provided that the
director elected by the holders of Class A Common Stock, voting separately as a
class, may be removed only by the holders of at least 75% of the outstanding
shares of Class A Common Stock).
The Company's Restated Certificate of Incorporation and Restated By-Laws
provide that, after the closing of this Offering, any action required or
permitted to be taken by the stockholders of the Company may be taken only at a
duly called annual or special meeting of stockholders. These provisions could
have the effect of delaying until the next stockholders meeting stockholder
actions which are favored by the holders of a majority of the outstanding
voting securities of the Company, especially since special meetings of
stockholders may be called only by the Board of Directors or President of the
Company. These provisions may also discourage another person or entity from
making a tender offer for the Company's Common Stock, because such person or
entity, even if it acquired a majority of the outstanding voting securities of
the Company, would be able to take action as a stockholder (such as electing
new directors or approving a merger) only at a duly called stockholders
meeting, and not by written consent. The Restated By-laws also establish
procedures, including advance notice procedures, with regard to the nomination,
other than by or at the direction of the Board of Directors, of candidates for
election as directors and other matters to be brought before stockholders
meetings.
The foregoing provisions, which may be amended only by a 75% vote of the
stockholders, could have the effect of making it more difficult for a third
party to effect a change in the control of the Board of Directors. In addition,
these provisions could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire,
a majority of the outstanding voting stock of the Company and may make more
difficult or discourage a takeover of the Company.
The Company has also included in its Restated Certificate of Incorporation
provisions to eliminate the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by Delaware General Corporation Law and to indemnify its directors and officers
to the fullest extent permitted by Section 145 of the Delaware General
Corporation Law.
Transfer Agent and Registrar
The transfer agent and registrar for the Class A Common Stock is Boston
EquiServe, L.P., Boston, Massachusetts.
58
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with this Offering will be passed upon
for the Company by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The audited financial statements of the Company included in this
Prospectus and elsewhere in this Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The audited financial statements of H.C. Gobin, Inc. included in this
Prospectus and elsewhere in this Registration Statement have been audited by
Barrett & Dattilio, P.C., independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
59
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF APRIL 30, 1996 AND APRIL 30, 1997 AND JANUARY 31, 1998 (UNAUDITED)
TOGETHER WITH AUDITORS' REPORT
Index to Financial Statements
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Consolidated financial statements of Casella Waste Systems, Inc. and Subsidiaries
Report of Independent Public Accountants ................................................ F-3
Consolidated balance sheets as of April 30, 1996 and 1997 and (unaudited) January 31, F-4
1998
Consolidated statements of operations for each of the three years ended April 30, 1997
and the nine months ended January 31, 1997 (unaudited) and 1998 (unaudited) ........... F-6
Consolidated statements of redeemable preferred stock, redeemable put warrants and
stockholders' equity (deficit) for each of the three years ended April 30, 1997 and the
nine months ended January 31, 1998 (unaudited) ........................................ F-7
Consolidated statements of cash flows for each of the three years ended April 30, 1997
and the nine months ended January 31, 1997 (unaudited) and 1998 (unaudited) ........... F-9
Notes to consolidated financial statements .............................................. F-10
Financial statements of completed acquisitions (included pursuant to Regulation S-X,
Rule 3.05):
Sawyer Companies:
Report of Independent Public Accountants .............................................. F-29
Combined balance sheet as of December 31, 1995 ........................................ F-30
Combined statement of income and retained earnings for the year ended
December 31, 1995 .................................................................... F-31
Combined statement of cash flows for the year ended December 31, 1995 ................. F-32
Notes to combined financial statements ................................................ F-33
Vermont Waste and Recycling Management, Inc.:
Report of Independent Public Accountants .............................................. F-38
Balance sheet as of November 15, 1996 ................................................. F-39
Statement of operations for the ten and one-half months ended November 15, 1996 ....... F-40
Statement of stockholders' equity for the ten and one-half months ended November 15,
1996 ................................................................................. F-41
Statement of cash flows for the ten and one-half months ended November 15, 1996 ....... F-42
Notes to financial statements ......................................................... F-43
The Superior Disposal Companies:
Report of Independent Public Accountants .............................................. F-46
Combined balance sheets as of December 31, 1995 and 1996 .............................. F-47
Combined statements of operations for the years ended December 31, 1995 and 1996 ...... F-48
Combined statements of stockholder's equity for the years ended December 31, 1995
and 1996 ............................................................................. F-49
Combined statements of cash flows for the years ended December 31, 1995 and 1996 ...... F-50
Notes to combined financial statements ................................................ F-51
Clinton County, New York -- Solid Waste Department Enterprise Fund:
Report of Independent Public Accountants .............................................. F-57
Balance sheets as of December 31, 1995 and June 30, 1996 (unaudited) .................. F-58
Statements of operations for the year ended December 31, 1995 and the six months
ended June 30, 1996 (unaudited) ...................................................... F-59
Statements of funds deficit for the year ended December 31, 1995 and the six months
ended June 30, 1996 (unaudited) ...................................................... F-60
Statements of cash flows for the year ended December 31, 1995 and the six months
ended June 30, 1996 (unaudited) ...................................................... F-61
Notes to financial statements ......................................................... F-62
F-1
<PAGE>
H.C. Gobin, Inc.:
Report of Independent Public Accountants .............................................. F-66
Balance sheets as of December 31, 1995 and 1996 and June 30, 1997 (unaudited) ......... F-67
Statements of income (loss) and retained earnings for the years ended December 31, 1995
and 1996 and the six months ended June 30, 1997 (unaudited) .......................... F-69
Statements of cash flows for the years ended December 31, 1995 and 1996 and the six
months ended June 30, 1997 (unaudited) ............................................... F-70
Notes to financial statements ......................................................... F-71
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Casella Waste Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Casella
Waste Systems, Inc. (a Delaware corporation) and subsidiaries as of April 30,
1996 and 1997, and the related consolidated statements of operations,
redeemable preferred stock, redeemable put warrants and stockholders' equity
(deficit) and cash flows for each of the three years ended April 30, 1997.
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 financial position of Casella Waste Systems, Inc.
and subsidiaries as of April 30, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years ended April 30,
1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 1, 1998
F-3
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, January 31,
----------------------------- --------------
1996 1997 1998
------------- --------------- --------------
(Restated, See Note 3) (Unaudited)
----------------------------- --------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 469,974 $ 1,348,664 $ 2,305,000
Restricted funds--closure fund escrow ............. 186,864 1,532,295 867,119
Accounts receivable--trade, less allowance for
doubtful accounts of approximately $353,372,
$721,859 and $1,331,397 .......................... 7,024,928 14,107,269 18,142,867
Refundable income taxes ........................... 258,114 447,184 216,320
Prepaid income taxes .............................. 275,812 542,647 --
Prepaid expenses .................................. 672,526 906,002 1,388,979
Other current assets .............................. 314,710 744,876 419,120
----------- ------------ ------------
Total current assets .......................... 9,202,928 19,628,937 23,339,405
----------- ------------ ------------
Property and equipment, at cost:
Land and land held for investment ................. 2,122,225 3,292,501 4,339,432
Landfills ......................................... 20,245,181 30,793,067 31,282,154
Landfill development .............................. 346,485 1,331,888 2,707,442
Buildings and improvements ........................ 4,965,605 12,353,425 14,000,667
Machinery and equipment ........................... 6,646,086 10,420,034 12,826,294
Rolling stock ..................................... 13,986,313 21,665,867 29,700,218
Containers ........................................ 6,356,702 11,305,328 14,645,127
----------- ------------ ------------
54,668,597 91,162,110 109,561,334
Less--accumulated depreciation and amortization ... 16,713,848 23,179,166 34,075,436
----------- ------------ ------------
Property and equipment, net ................... 37,954,749 67,982,944 75,485,898
----------- ------------ ------------
Other assets:
Intangible assets, net ............................ 13,480,284 49,038,616 72,378,063
Restricted funds--closure fund escrow ............. 3,604,644 3,334,686 3,342,004
Other assets ...................................... 650,723 897,261 780,620
----------- ------------ ------------
17,735,651 53,270,563 76,500,687
----------- ------------ ------------
$64,893,328 $140,882,444 $175,325,990
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
April 30, January 31,
---------------------------------- ----------------
1996 1997 1998
--------------- ---------------- ----------------
(Restated, See Note 3) (Unaudited)
---------------------------------- ----------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt .............................. $ 4,855,928 $ 6,272,631 $ 2,538,609
Current maturities of capital lease obligations ................... 409,488 391,709 540,604
Accounts payable .................................................. 3,702,426 9,034,286 9,641,137
Accrued payroll and related expenses .............................. 616,203 1,221,861 865,368
Accrued closure and postclosure costs, current portion ............ 45,998 3,417,269 425,788
Deferred revenue .................................................. 746,252 2,074,793 2,912,548
Other accrued expenses ............................................ 1,031,331 2,793,683 2,684,567
------------ ------------- -------------
Total current liabilities ..................................... 11,407,626 25,206,232 19,608,621
------------ ------------- -------------
Long-term debt, less current maturities ............................. 22,189,427 75,528,075 64,981,395
------------ ------------- -------------
Capital lease obligations, less current maturities .................. 1,913,384 1,373,177 1,465,246
------------ ------------- -------------
Deferred income taxes ............................................... 1,216,129 1,598,598 2,237,937
------------ ------------- -------------
Accrued closure and postclosure costs, less current portion ......... 5,225,191 4,909,983 5,843,740
------------ ------------- -------------
Other long-term liabilities ......................................... 519,427 364,456 319,739
------------ ------------- -------------
Commitments and contingencies (Note 6)
Redeemable preferred stock:
Series A Redeemable with warrants exercisable for Class
A Common Stock, $.01 par value (stated at
redemption value)-- authorized--616,620 shares
issued and outstanding--516,620, 516,620 and 0
shares ........................................................... 2,376,452 3,638,481 --
Series B Redeemable with warrants exercisable for
Class A Common Stock, $.01 par value (stated at
redemption value)--authorized--1,402,461 shares
issued and outstanding--1,294,579, 1,294,579 and 0
shares ........................................................... 5,955,063 9,117,535 --
Series C Mandatorily Redeemable, $.01 par value
($7.00 redemption value)--
authorized--1,000,000 shares
issued and outstanding--424,307, 424,307 and 0
shares ........................................................... 2,016,872 2,221,146 --
Series D Convertible Redeemable, $.01 par value
(stated at redemption value)--
authorized--1,922,169 shares
issued and outstanding--1,922,169, 1,922,169 and 0
shares ........................................................... 12,547,260 16,448,854 --
Redeemable put warrants to purchase 100,000 Shares of
Class A Common Stock ............................................... 400,000 400,000 --
------------ ------------- -------------
Total redeemable preferred stock and redeemable
put warrants ................................................. 23,295,647 31,826,016 --
------------ ------------- -------------
Stockholders' equity (deficit):
Class A Common Stock--
authorized--30,000,000 shares, $.01 par value
issued and outstanding--2,398,248, 3,457,792 and
10,502,780 shares ................................................ 23,982 34,577 105,028
Class B Common Stock--
authorized--1,000,000 shares, $.01 par value; 10
votes per share issued and outstanding--1,000,000,
1,000,000 and 988,200 shares ..................................... 10,000 10,000 9,882
Additional paid-in capital ........................................ 1,087,577 10,975,884 95,645,281
Accumulated deficit ............................................... (1,995,062) (10,944,554) (14,890,879)
------------ ------------- -------------
Total stockholders' equity (deficit) .......................... (873,503) 75,907 80,869,312
------------ ------------- -------------
$ 64,893,328 $ 140,882,444 $ 175,325,990
============ ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
------------------------------------------------------------------
(Restated, See Note 3)
--------------------------------------------------
Pro Forma
1995 1996 1997 1997
---------------- ---------------- ---------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues ................................................ $ 23,868,819 $ 42,829,606 $ 79,531,980 $109,613,000
------------ ------------ ------------ ------------
Operating expenses:
Cost of operations ...................................... 13,720,820 25,136,434 48,057,143 69,070,000
General and administrative .............................. 2,909,041 7,063,375 12,534,396 16,526,000
Depreciation and amortization ........................... 4,815,430 8,152,358 13,694,564 18,122,000
------------ ------------ ------------ ------------
21,445,291 40,352,167 74,286,103 103,718,000
------------ ------------ ------------ ------------
Operating income ........................................ 2,423,528 2,477,439 5,245,877 5,895,000
------------ ------------ ------------ ------------
Other (income) expenses:
Interest income ......................................... (267,141) (196,282) (256,921) (257,000)
Interest expense ........................................ 2,093,014 2,813,731 4,546,800 3,690,000
Other expense (income), net ............................. 35,919 (90,354) 923,169 1,202,000
------------ ------------ ------------ ------------
1,861,792 2,527,095 5,213,048 4,635,000
------------ ------------ ------------ ------------
Income before provision for income taxes and
extraordinary items .................................... 561,736 (49,656) 32,829 1,260,000
Provision for income taxes .............................. 220,017 143,577 451,952 855,000
------------ ------------ ------------ ------------
Income (loss) before extraordinary loss ................. 341,719 (193,233) (419,123) 405,000
Extraordinary items from extinguishment of debt
(net of $168,098 income tax benefit) (Note 7) .......... -- (326,308) -- --
------------ ------------ ------------ ------------
Net income (loss) ....................................... 341,719 $ (519,541) $ (419,123) $ 405,000
============ ============ ============ ============
Accretion of Preferred Stock and Put Warrants .......... (2,380,296) (2,966,705) (8,530,369) 0
------------ ------------ ------------ ------------
Net income (loss) applicable to common stockholders $ (2,038,577) $ (3,486,246) $ (8,949,492) $ 405,000
============ ============ ============ ============
Basic Earnings (loss) per Share of Common Stock ......... $ (0.70) $ (1.06) $ (2.29) $ 0.04
Basic Weighted Average Common Stock Shares
Outstanding ............................................ 2,900 3,279 3,913 10,646
Diluted Earnings (loss) per Share ....................... $ (.70) $ (1.06) $ (2.29) $ 0.04
Diluted Weighted Average Common Stock and Common
Stock Equivalent Shares Outstanding .................... 2,900 3,279 3,913 11,347
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended January 31,
----------------------------------------------
Pro Forma
1997 1998 1998
--------------- --------------- --------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenues ................................................ $ 56,210,547 $ 87,321,036 $88,604,000
------------ ------------ -----------
Operating expenses:
Cost of operations ...................................... 33,292,983 51,742,542 52,772,000
General and administrative .............................. 8,867,447 13,019,047 13,260,000
Depreciation and amortization ........................... 9,725,771 13,412,144 13,526,000
------------ ------------ -----------
51,886,201 78,173,733 79,558,000
------------ ------------ -----------
Operating income ........................................ 4,324,346 9,147,303 9,046,000
------------ ------------ -----------
Other (income) expenses:
Interest income ......................................... (171,481) (177,949) (178,000)
Interest expense ........................................ 3,073,795 5,449,645 3,635,000
Other expense (income), net ............................. 105,192 2,604 162,000
------------ ------------ -----------
3,007,506 5,274,300 3,619,000
------------ ------------ -----------
Income before provision for income taxes and
extraordinary items .................................... 1,316,840 3,873,003 5,427,000
Provision for income taxes .............................. 959,957 1,950,403 2,581,000
------------ ------------ -----------
Income (loss) before extraordinary loss ................. 356,883 1,922,600 2,846,000
Extraordinary items from extinguishment of debt
(net of $168,098 income tax benefit) (Note 7) .......... -- -- --
------------ ------------ -----------
Net income (loss) ....................................... $ 356,883 $ 1,922,600 $ 2,846,000
============ ============ ===========
Accretion of Preferred Stock and Put Warrants .......... (6,003,690) (5,738,181) 0
------------ ------------ -----------
Net income (loss) applicable to common stockholders $ (5,646,807) $ (3,815,581) $ 2,846,000
============ ============ ===========
Basic Earnings (loss) per Share of Common Stock ......... $ (1.51) $ (0.56) $ 0.25
Basic Weighted Average Common Stock Shares
Outstanding ............................................ 3,737 6,755 11,293
Diluted Earnings (loss) per Share ....................... $ (1.51) $ (.56) $ 0.23
Diluted Weighted Average Common Stock and Common
Stock Equivalent Shares Outstanding .................... 3,737 6,755 12,340
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK, REDEEMABLE PUT WARRANTS
AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Redeemable Preferred Stock (Restated, See Note 3)
--------------------------------------------------------------
Series A Redeemable with Series B Redeemable with
Warrants Exercisable for Warrants Exercisable for
Class A Common Stock Class A Common Stock
----------------------------- --------------------------------
Number of Liquidation Number of Liquidation
Shares Value Shares Value
------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Balance, April 30, 1994 ............ -- $ -- -- $ --
Adjustment in connection with
pooling of interest ............... -- -- -- --
Issuance of Class A Common
Stock and warrants ................ -- -- -- --
Accretion of put warrants .......... -- -- -- --
Net income ......................... -- -- -- --
-- ------------- -- --------------
Balance April 30, 1995 ............. -- -- -- --
Capital contribution by pooled
entity ............................ -- -- -- --
Issuance of preferred stock and
other capital transactions ........ 516,620 2,376,452 1,294,579 5,955,063
Issuance costs ..................... -- -- -- --
Accretion of preferred stock ....... -- -- -- --
Net loss ........................... -- -- -- --
------- ------------- --------- --------------
Balance, April 30, 1996 ............ 516,620 2,376,452 1,294,579 5,955,063
Issuance of Class A Common
Stock in various acquisitions ..... -- -- -- --
Capital contribution by pooled
entity ............................ -- -- -- --
Accretion of preferred stock and
warrants .......................... -- 1,262,029 -- 3,162,472
Net loss ........................... -- -- -- --
------- ------------- --------- --------------
Balance April 30, 1997 ............. 516,620 3,638,481 1,294,579 9,117,535
Issuance of Common A
Stock-Private
Placement (unaudited) ............. -- -- -- --
Retirement of Common A Stock-
Private Placement (unaudited) -- -- -- --
Exercise of Employee Stock
Options (unaudited) ............... -- -- -- --
Exercise of Redeemable Put
Warrants (unaudited) .............. -- -- -- --
Redeemable Put Warrants Called
(unaudited) ....................... -- -- -- --
Accretion of Preferred Stock and
Issuance Costs (unaudited) ........ -- 706,617 -- 1,770,686
Conversion of Convertible
Preferred Stock (unaudited) ....... (516,620) (4,345,098) (1,294,579) (10,888,221)
Redemption of Mandatorily
Redeemable Preferred Stock
(unaudited) ....................... -- -- -- --
Issuance of Common A Stock-
Publicly Traded- Net of
Issuance Costs (unaudited) ........ -- -- -- --
Exercise of Common Stock
Warrants (unaudited) .............. -- -- -- --
Conversion of class B common
into class A (unaudited) .......... -- -- -- --
Distributions to Shareholders ...... -- -- -- --
Net income (unaudited) ............. -- -- -- --
-------- ------------- ---------- --------------
Balance, January 31, 1998
(unaudited) ....................... -- -- -- --
======== ============= ========== ==============
</TABLE>
<TABLE>
<CAPTION>
Redeemable Preferred Stock (Restated, See Note 3)
--------------------------------------------------------------
Series C Series D
Mandatorily Convertible
Redeemable Redeemable
----------------------------- --------------------------------
Number of Liquidation Number of Liquidation
Shares Value Shares Value
------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Balance, April 30, 1994 ............ -- $ -- -- $ --
Adjustment in connection with
pooling of interest ............... -- -- -- --
Issuance of Class A Common
Stock and warrants ................ -- -- -- --
Accretion of put warrants .......... -- -- -- --
Net income ......................... -- -- -- --
-- ------------- -- --------------
Balance April 30, 1995 ............. -- -- -- --
Capital contribution by pooled
entity ............................ -- -- -- --
Issuance of preferred stock and
other capital transactions ........ 424,307 1,951,812 1,922,169 13,455,180
Issuance costs ..................... -- -- -- (972,771)
Accretion of preferred stock ....... -- 65,060 -- 64,851
Net loss ........................... -- -- -- --
------- ------------- --------- --------------
Balance, April 30, 1996 ............ 424,307 2,016,872 1,922,169 12,547,260
Issuance of Class A Common
Stock in various acquisitions ..... -- -- -- --
Capital contribution by pooled
entity ............................ -- -- -- --
Accretion of preferred stock and
warrants .......................... -- 204,274 -- 3,901,594
Net loss ........................... -- -- -- --
------- ------------- --------- --------------
Balance April 30, 1997 ............. 424,307 2,221,146 1,922,169 16,448,854
Issuance of Common A
Stock-Private
Placement (unaudited) ............. -- -- -- --
Retirement of Common A Stock-
Private Placement (unaudited) -- -- -- --
Exercise of Employee Stock
Options (unaudited) ............... -- -- -- --
Exercise of Redeemable Put
Warrants (unaudited) .............. -- -- -- --
Redeemable Put Warrants Called
(unaudited) ....................... -- -- -- --
Accretion of Preferred Stock and
Issuance Costs (unaudited) ........ -- 749,002 -- 2,286,876
Conversion of Convertible
Preferred Stock (unaudited) ....... -- -- (1,922,169) (18,735,730)
Redemption of Mandatorily
Redeemable Preferred Stock
(unaudited) ....................... (424,307) (2,970,148) -- --
Issuance of Common A Stock-
Publicly Traded- Net of
Issuance Costs (unaudited) ........ -- -- -- --
Exercise of Common Stock
Warrants (unaudited) .............. -- -- -- --
Conversion of class B common
into class A (unaudited) .......... -- -- -- --
Distributions to Shareholders ...... -- -- -- --
Net income (unaudited) ............. -- -- -- --
-------- ------------- ---------- --------------
Balance, January 31, 1998
(unaudited) ....................... -- -- -- --
======== ============= ========== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK, REDEEMABLE PUT
WARRANTS AND STOCKHOLDERS' EQUITY (DEFICIT)
(Continued)
<TABLE>
<CAPTION>
Stockholders' Equity (Deficit) (Restated Note 3)
---------------------------------------------------
Class A Class B
Common Stock Common Stock
------------------------- -------------------------
Redeemable Number $0.01 Par Number $0.01 Par
Put Warrants of Shares Value of Shares Value
--------------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, April 30, 1994 $ 61,662 1,355,000 $ 13,550 1,000,000 $10,000
Adjustment in connection
with pooling of interest ........ -- 156,019 1,560 -- --
Issuance of Class A Common
Stock and warrants .............. 700,000 744,191 7,442 -- --
Accretion of put warrants ........ 2,380,296 -- -- -- --
Net income ....................... -- -- -- -- --
------------- --------- -------- --------- -------
Balance, April 30, 1995 3,141,958 2,255,210 22,552 1,000,000 10,000
Capital contribution by
pooled entity ................... 143,038 1,430 -- --
Issuance of preferred stock
and other capital
transactions .................... (2,741,958) -- -- -- --
Issuance costs ................... -- -- -- -- --
Accretion of preferred stock ..... -- -- -- -- --
Net loss ......................... -- -- -- -- --
------------- --------- -------- --------- -------
Balance, April 30, 1996 400,000 2,398,248 23,982 1,000,000 10,000
Issuance of Class A
Common Stock in various
acquisitions .................... -- 755,254 7,552 -- --
Capital contribution by
pooled entity ................... -- 304,290 3,043 -- --
Accretion of preferred stock
and warrants .................... -- -- -- -- --
Net loss ......................... -- -- -- -- --
------------- --------- -------- --------- -------
Balance, April 30, 1997 .......... 400,000 3,457,792 34,577 1,000,000 10,000
Issuance of Common A
Stock-Private Placement
(unaudited) ..................... -- 109,131 1,091 -- --
Retirement of Common A
Stock-Private Placement
(unaudited) ..................... -- (22,273) (222) -- --
Exercise of Employee Stock
Options (unaudited) ............. -- 40,000 400 -- --
Exercise of Redeemable Put
Warrants (unaudited) ............ (100,000) 25,000 250 -- --
Redeemable Put Warrants
Called (unaudited) .............. (300,000) -- -- -- --
Accretion of Preferred Stock
and Issuance Costs
(unaudited) ..................... -- -- -- -- --
Conversion of Convertible
Preferred Stock
(unaudited) ..................... -- 3,733,368 37,334 -- --
Redemption of Mandatorily
Redeemable Preferred
Stock (unaudited) ............... -- -- -- -- --
Issuance of Common A
Stock-Publicly Traded-Net
of Issurance Costs
(unaudited) ..................... -- 3,000,000 30,000 -- --
Exercise of Common Stock
Warrants (unaudited) ............ -- 147,962 1,480 -- --
Conversion of Class B
Common into Class A
(unaudited) ..................... -- 11,800 118 (11,800) (118)
Distributions to Shareholders
(unaudited) ..................... -- -- -- -- --
Net Income (unaudited) ........... -- -- -- -- --
--------- -------- --------- -------
Balance, January 31, 1998
(unaudited) ..................... -- 10,502,780 $105,028 988,200 $ 9,882
============= ========== ======== ========= =======
</TABLE>
<TABLE>
<CAPTION>
Stockholders' Equity (Deficit) (Restated Note 3)
------------------------------------------------
Retained Total
Additional Earnings Stockholders'
Paid-in (Accumulated Equity
Capital Deficit) (Deficit)
--------------- ---------------- --------------
<S> <C> <C> <C>
Balance, April 30, 1994 $ 21,400 $ 692,967 $ 737,917
Adjustment in connection
with pooling of interest ........ 198,440 -- 200,000
Issuance of Class A Common
Stock and warrants .............. 3,430,961 -- 3,438,403
Accretion of put warrants ........ -- (2,380,296) (2,380,296)
Net income ....................... -- 341,719 341,719
------------ ------------- ------------
Balance, April 30, 1995 3,650,801 (1,345,610) 2,337,743
Capital contribution by
pooled entity ................... 273,570 -- 275,000
Issuance of preferred stock
and other capital
transactions .................... (2,836,794) -- (2,836,794)
Issuance costs ................... -- -- --
Accretion of preferred stock ..... -- (129,911) (129,911)
Net loss ......................... -- (519,541) (519,541)
------------ ------------- ------------
Balance, April 30, 1996 1,087,577 (1,995,062) (873,503)
Issuance of Class A
Common Stock in various
acquisitions .................... 9,366,350 -- 9,373,902
Capital contribution by
pooled entity ................... 521,957 -- 525,000
Accretion of preferred stock
and warrants .................... -- (8,530,369) (8,530,369)
Net loss ......................... -- (419,123) (419,123)
------------ ------------- ------------
Balance, April 30, 1997 .......... 10,975,884 (10,944,554) 75,907
Issuance of Common A
Stock-Private Placement
(unaudited) ..................... 1,796,192 -- 1,797,283
Retirement of Common A
Stock-Private Placement
(unaudited) ..................... (445,237) -- (445,459)
Exercise of Employee Stock
Options (unaudited) ............. 23,600 -- 24,000
Exercise of Redeemable Put
Warrants (unaudited) ............ 249,750 -- 250,000
Redeemable Put Warrants
Called (unaudited) .............. -- (225,000) (225,000)
Accretion of Preferred Stock
and Issuance Costs
(unaudited) ..................... -- (5,513,181) (5,513,181)
Conversion of Convertible
Preferred Stock
(unaudited) ..................... 33,931,715 -- 33,969,049
Redemption of Mandatorily
Redeemable Preferred
Stock (unaudited) ............... -- -- --
Issuance of Common A
Stock-Publicly Traded-Net
of Issurance Costs
(unaudited) ..................... 48,462,267 -- 48,492,267
Exercise of Common Stock
Warrants (unaudited) ............ 651,110 -- 652,590
Conversion of Class B
Common into Class A
(unaudited) ..................... -- -- --
Distributions to Shareholders
(unaudited) ..................... -- (130,744) (130,744)
Net Income (unaudited) ........... -- 1,922,600 1,922,600
------------ ------------- ------------
Balance, January 31, 1998
(unaudited) ..................... $ 95,645,281 $ (14,890,879) $ 80,869,312
============ ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
April 30,
--------------------------------------------------
1995 1996 1997
---------------- ---------------- ----------------
(Restated, See Note 3)
--------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .......................................... $ 341,719 $ (519,541) $ (419,123)
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities--
Depreciation and amortization .............................. 4,815,430 8,152,358 13,694,564
(Gain) loss on sale of equipment ........................... (61,429) (41,003) 313,039
Provision (benefit) for deferred income taxes .............. 186,017 568,585 138,913
Write-down of land under development ....................... 240,079 -- --
Extraordinary item--loss on extinguishment of debt ......... -- 326,308 --
Changes in assets and liabilities, net of effects
of acquisitions--
Accounts receivable ...................................... (73,440) (1,756,107) (3,741,006)
Other current assets ..................................... 158,356 697,560 (732,705)
Accounts payable ......................................... (900,955) 481,308 5,458,283
Accrued closure and postclosure costs .................... 272,194 732,242 227,963
4,636,252 9,161,251 15,359,051
----------- ----------- -----------
Net cash provided by operating activities ............. 4,977,971 8,641,710 14,939,928
----------- ----------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired ......................... (8,235,527) (17,327,845) (35,224,629)
Additions to property and equipment ........................ (3,731,324) (10,750,249) (16,970,822)
Proceeds from sale of equipment ............................ 193,228 65,939 165,643
Funds held by trustees for acquisitions and other
costs of acquisitions .................................... 1,473,874 -- --
Restricted funds--closure fund escrow ...................... 1,203,784 (213,630) (625,473)
Other assets ............................................... (91,217) 17,352 (160,774)
----------- ----------- -----------
Net cash used in investing activities ................. (9,187,182) (28,208,433) (52,816,055)
----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of preferred stock, net of
issuance costs ............................................ -- 12,482,412 --
Payments to subordinated debtholders ....................... -- (2,072,174) --
Deferred debt acquisition costs ............................ (513,083) (125,260) (400,326)
Capital contribution by pooled entity ...................... -- 275,000 525,000
Proceeds from issuance of common stock ..................... -- -- --
Proceeds from issuance of stock warrants ................... 14,025 -- --
Proceeds from exercise of stock warrants/options ........... -- -- --
Call of redeemable put warrants ............................ -- -- --
Redemption of Series C Preferred Stock ..................... -- -- --
Proceeds from long-term borrowings ......................... 22,385,173 23,590,667 47,228,190
Principal payments on long-term debt ....................... (17,339,274) (14,878,888) (8,598,047)
----------- ----------- -----------
Net cash provided by financing activities ............. 4,546,841 19,271,757 38,754,817
----------- ----------- -----------
Net increase in cash and cash equivalents ................... 337,630 (294,966) 878,690
Cash and cash equivalents, beginning of period .............. 427,310 764,940 469,974
Cash and cash equivalents, end of period .................... $ 764,940 $ 469,974 $ 1,348,664
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for--
Interest ................................................... $ 1,901,370 $ 2,481,075 $ 4,252,118
=========== =========== ===========
Income taxes ............................................. $ 217,159 $ 117,300 $ 598,190
=========== =========== ===========
Supplemental disclosures of noncash investing and
financing activities:
During fiscal 1996, the Company converted certain
subordinated debt into redeemable preferred stock
(see Note 7).
Summary of entities acquired--
Fair value of assets acquired ............................ $28,868,134 $22,432,222 $67,106,000
Fair value of the issuance of the Company's stock
and warrants ............................................ (4,021,000) -- (9,373,904)
Cash paid ................................................ (8,235,527) (17,327,845) (35,224,629)
----------- ----------- -----------
Liabilities assumed and notes payable
to sellers ........................................... $16,611,607 5,104,377 $22,507,467
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended January 31,
----------------------------------
1997 1998
---------------- -----------------
(Unaudited) (Unaudited)
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .......................................... 356,883 $ 1,922,600
------- ------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities--
Depreciation and amortization .............................. 9,725,771 13,412,144
(Gain) loss on sale of equipment ........................... 145,183 (261,563)
Provision (benefit) for deferred income taxes .............. -- --
Write-down of land under development ....................... -- --
Extraordinary item--loss on extinguishment of debt ......... -- --
Changes in assets and liabilities, net of effects
of acquisitions--
Accounts receivable ...................................... (3,253,381) (1,953,379)
Other current assets ..................................... (114,850) 479,133
Accounts payable ......................................... 4,231,636 (384,737)
Accrued closure and postclosure costs .................... 1,339,353 (2,057,723)
12,073,712 9,233,875
---------- ------------
Net cash provided by operating activities ............. 12,430,595 11,156,475
---------- ------------
Cash flows from investing activities:
Acquisitions, net of cash acquired ......................... (33,604,756) (26,044,593)
Additions to property and equipment ........................ (13,400,326) (14,875,674)
Proceeds from sale of equipment ............................ 104,253 1,092,500
Funds held by trustees for acquisitions and other
costs of acquisitions .................................... -- --
Restricted funds--closure fund escrow ...................... (432,564) 657,858
Other assets ............................................... (79,657) (154,701)
----------- ------------
Net cash used in investing activities ................. (47,413,050) (39,324,610)
----------- ------------
Cash Flows from Financing Activities:
Proceeds from issuance of preferred stock, net of
issuance costs ............................................ -- --
Payments to subordinated debtholders ....................... -- --
Deferred debt acquisition costs ............................ -- --
Capital contribution by pooled entity ...................... -- --
Proceeds from issuance of common stock ..................... 525,000 48,492,267
Proceeds from issuance of stock warrants ................... -- --
Proceeds from exercise of stock warrants/options ........... -- 826,590
Call of redeemable put warrants ............................ -- (525,000)
Redemption of Series C Preferred Stock ..................... -- (2,970,148)
Proceeds from long-term borrowings ......................... 45,876,446 113,665,178
Principal payments on long-term debt ....................... (9,617,330) (130,364,416)
----------- ------------
Net cash provided by financing activities ............. 36,784,116 29,124,471
----------- ------------
Net increase in cash and cash equivalents ................... 1,801,661 956,336
Cash and cash equivalents, beginning of period .............. 469,974 1,348,664
Cash and cash equivalents, end of period .................... $ 2,271,635 $ 2,305,000
=========== ============
Supplemental disclosures of cash flow information:
Cash paid during the year for--
Interest ................................................... $ 3,055,893 $ 5,729,445
=========== ============
Income taxes ............................................. $ 598,515 $ 618,767
=========== ============
Supplemental disclosures of noncash investing and
financing activities:
During fiscal 1996, the Company converted certain
subordinated debt into redeemable preferred stock
(see Note 7).
Summary of entities acquired--
Fair value of assets acquired ............................ $63,912,927 $ 31,964,366
Fair value of the issuance of the Company's stock
and warrants ............................................ (9,373,903) (1,351,823)
Cash paid ................................................ (33,604,756) (26,044,593)
----------- ------------
Liabilities assumed and notes payable
to sellers ........................................... $20,934,268 $ 4,567,950
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS
Casella Waste Systems, Inc. is a regional, integrated, non-hazardous solid
waste services company that provides collection, transfer, disposal and
recycling services in Vermont, New Hampshire, Maine, upstate New York and
northern Pennsylvania.
The consolidated financial statements of the Company include the accounts
of Casella Waste Systems, Inc. and its wholly owned subsidiaries: Casella Waste
Management, Inc., New England Waste Services, Inc., New England Waste Services
of Vermont, Inc., Bristol Waste Management, Inc., Sunderland Waste Management,
Inc., Newbury Waste Management, Inc., North Country Environmental Services,
Inc., Sawyer Environmental Recovery Facilities, Inc., Sawyer Environmental
Services, Casella T.I.R.E.S., Inc., New England Waste Services of N.Y., Inc.,
Casella Waste Management of N.Y., Inc. and Casella Waste Management of
Pennsylvania, Inc.
The consolidated balance sheets of Casella Waste Systems, Inc. and
subsidiaries (the "Company") as of January 31, 1998, the consolidated
statements of operations and consolidated statements of cash flows for the nine
months ended January 31, 1997 and 1998, and the consolidated statement of
redeemable preferred stock, redeemable put warrants and stockholders' equity
for the nine months ended January 31, 1998 are unaudited. In the opinion of the
Company's management, the interim financial statements include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of results for this interim period. The results of the Company's operations for
the nine-month periods ended January 31, 1997 and 1998 are not necessarily
indicative of the results to be expected for a full year or any future period.
The Company has restated the previously issued audited consolidated
balance sheets dated April 30, 1996 and 1997, the previously issued audited
consolidated statements of operations and statements of cash flows for the
fiscal years ended April 30, 1995, 1996 and 1997, and the previously issued
audited consolidated statement of redeemable preferred stock, redeemable put
warrants and stockholders' equity for the three years ended April 30, 1997 to
reflect the merger with All Cycle Waste, Inc. and Winters Brothers Inc. ("All
Cycle") consummated on December 19, 1997, accounted for using the pooling of
interests method of accounting. See Note 3.
On November 3, 1997, the Company completed the initial public offering
(the "Offering") of 4,000,000 shares of its Class A Common Stock at a price of
$18.00 per share. Of the shares sold, 3,000,000 shares were issued by the
Company and 1,000,000 shares were offered for the benefit of selling
stockholders. The net proceeds of the Offering to the Company was approximately
$49.2 million, after deduction of underwriting discounts and estimated offering
expenses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies follows:
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.
(b) 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 and the disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
F-10
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Revenue Recognition
The Company recognizes revenues as the services are provided. Certain
customers are billed in advance and, accordingly, recognition of the related
revenues is deferred until the services are provided.
(d) Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, investments in closure trust funds, trade
payables and debt instruments. The book values of cash and cash equivalents,
trade receivables, investments in closure trust funds and trade payables
approximate their respective fair values. The Company's debt instruments that
are outstanding as of January 31, 1998 have carrying values that approximate
their respective fair values. See Note 4 for the terms and carrying values of
the Company's various debt instruments.
(e) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
maturities of three months or less to be cash equivalents.
(f) Closure Fund Escrow
Restricted funds held in trust consist of amounts on deposit with various
banks that support the Company's financial assurance obligations for its
facilities' closure and postclosure costs.
(g) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. The Company provides for depreciation using the straight-line
method by charges to operations in amounts that allocate the cost of the assets
over their estimated useful lives as follows:
<TABLE>
<CAPTION>
Estimated
Asset Classification Useful Life
-------------------- ------------
<S> <C>
Buildings and improvements ......... 20-30 years
Machinery and equipment ............ 2-10 years
Rolling stock ...................... 1-10 years
Containers ......................... 2-12 years
</TABLE>
The cost of maintenance and repairs is charged to operations as incurred.
Depreciation expense for the years ended April 30, 1995, 1996 and 1997 was
$1,827,341, $3,269,639, and $6,929,283 respectively.
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 and construction. Interest is capitalized on
landfill permitting and construction projects and other projects under
development while the assets are undergoing activities to ready them for their
intended use. The interest capitalization rate is based on the Company's
weighted average cost of indebtedness. No interest was capitalized for the
years ended April 30, 1995 and 1996. Interest capitalized for the year ended
April 30, 1997 was $182,418. Management routinely reviews its investment in
operating landfills, transfer stations and other significant facilities to
determine whether the costs of these investments are realizable.
Landfill permitting and acquisition costs, excluding the estimated
residual value of land, are typically amortized as permitted airspace of the
landfill is consumed. For many of the Company's landfills, preparation costs,
which include the costs of construction associated with excavation, liners,
site berms and the installation of leak detection and leachate collection
systems, are also typically amortized as total permitted airspace of the
landfill is consumed. In determining the amortization rate for these landfills,
F-11
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
preparation costs include the total estimated costs to complete construction of
the landfills' permitted capacity. For other landfills, the landfill
preparation costs are generally less significant and are amortized as the
airspace for the particular benefited phase is consumed. Units-of-production
amortization rates are determined annually for each of the Company's operating
landfills. The rates are based on estimates provided by the Company's engineers
and accounting personnel and consider the information provided by aerial
surveys which are generally performed annually.
(h) Accrued Closure and Postclosure Costs
Accrued closure and postclosure costs include the current and noncurrent
portion of accruals associated with obligations for closure and postclosure of
the Company's operating and closed landfills. The Company, based on input from
its engineers and accounting personnel, estimates its future cost requirements
for closure and postclosure monitoring and maintenance for solid waste
landfills based on its interpretation of the technical standards of the U.S.
Environmental Protection Agency's Subtitle D regulations and the air emissions
standards under the Clean Air Act as they are being applied on a state-by-state
basis. Closure and postclosure 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.
Accruals for closure and postclosure monitoring and maintenance
requirements in the U.S. consider final capping of the site, site inspection,
groundwater monitoring, leachate management, methane gas control and recovery,
and operation and maintenance costs to be incurred during the period after the
facility closes. Certain of these environmental costs, principally capping and
methane gas control costs, are also incurred during the operating life of the
site in accordance with the landfill operation requirements of Subtitle D and
the air emissions standards. Reviews of the future cost requirements for
closure and postclosure monitoring and maintenance for the Company's operating
landfills by the Company's engineers and accounting personnel are performed at
least annually and are the basis upon which the Company's estimates of these
future costs and the related accrual rates are revised. The Company provides
accruals for these estimated costs as the remaining permitted airspace of such
facilities is consumed.
The states in which the Company operates require a certain portion of
these accrued closure and postclosure obligations to be funded at any point in
time. Accordingly, the Company has placed $3,790,458 and $4,396,715, at April
30, 1996 and 1997 respectively, in restricted investment accounts to fund these
future obligations.
In addition, the Company has been required to post a surety bond or bank
letter of credit to secure its obligations to close its landfills in accordance
with environmental regulations. At April 30, 1997, the Company had provided
letters of credit totaling $2,698,606 to secure the Company's landfill closure
obligations, expiring between May 1997 and June 1998.
(i) Intangible Assets
Goodwill is the cost in excess of fair value of identifiable assets of
acquired businesses and is amortized on the straight-line method over periods
not exceeding 40 years. Other intangible assets include covenants not to
compete and customer lists and are amortized on the straight-line method over
their estimated useful lives, typically no more than 10 years. The Company
continually evaluates whether events and circumstances have occurred subsequent
to an acquisition that indicate the remaining estimated useful life or carrying
value of these intangible assets may warrant revision. When factors indicate
that these assets should be evaluated for possible impairment, the Company uses
an estimate of the related business segment's undiscounted cash flows over the
remaining life of the asset in measuring recoverability.
F-12
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Deferred debt acquisition costs are capitalized and amortized over the
life of the related debt using the effective interest method.
Intangible assets at April 30, 1996 and 1997 and January 31, 1998 consist
of the following:
<TABLE>
<CAPTION>
April 30,
-------------------------------
(Unaudited)
1996 1997 January 31, 1998
-------------- -------------- -----------------
<S> <C> <C> <C>
Goodwill .......................................... $10,413,655 $45,074,613 $66,191,198
Covenants not to compete .......................... 4,843,826 6,015,777 8,586,762
Customer lists .................................... 459,570 431,201 419,762
Deferred debt acquisition costs and other ......... 412,702 710,497 2,176,643
----------- ----------- -----------
16,129,753 52,232,088 77,374,365
Less--accumulated amortization .................... 2,649,469 3,193,472 4,996,302
----------- ----------- -----------
$13,480,284 $49,038,616 $72,378,063
=========== =========== ===========
</TABLE>
Effective May 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of. In accordance
with SFAS No. 121, the Company evaluates the recoverability of its carrying
value of the Company's long-lived assets and certain intangible assets based on
estimated undiscounted cash flows to be generated from each of such assets as
compared to the original estimates used in measuring the assets. To the extent
impairment is identified, the Company reduces the carrying value of such
impaired assets. The change did not have a material impact on the Company's
financial statements.
(j) Income Taxes
The Company records income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under SFAS No. 109, deferred income taxes are
recognized based on the expected future tax consequences of differences between
the financial statement basis and the tax basis of assets and liabilities,
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.
(k) Unaudited Pro Forma Presentation
The unaudited pro forma statement of operations gives effect to (i) the
acquisitions completed during fiscal 1997; (ii) the acquisition of
substantially all of the assets of H.C. Gobin, Inc. in fiscal 1998; and (iii)
the application of the estimated net proceeds from the Company's initial public
offering, after deducting the underwriting discount and offering expenses paid
by the Company, as if each had occurred on May 1, 1996. Also, all outstanding
shares of Redeemable Preferred Stock, including the Redeemable Preferred Stock
with warrants, which automatically converted into Class A Common Stock upon the
closing of the Company's initial public offering, are assumed to be converted
to Class A Common Stock at the time of issuance.
Pro forma net income per share of common stock includes the effect of
dilutive stock options and warrants, which are considered common stock
equivalents, using the treasury stock method. Pro forma net income per share of
common stock also assumes the elimination of preferred stock accretion and
interest expense relating to the assumed preferred stock redemption and debt
reduction with the proceeds from the Company's initial public offering. Pro
forma weighted average shares outstanding includes the shares issued by the
Company in the initial public offering, the proceeds of which were used to
redeem the Series C Mandatorily Redeemable Preferred Stock and reduce certain
outstanding debt.
F-13
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. BUSINESS COMBINATIONS
Transaction Recorded as a Pooling of Interests
On December 19, 1997, the Company completed its merger with All Cycle
Waste, Inc. and Winters Brothers, Inc. (together--"All Cycle") in a business
combination recorded as a pooling of interests and accordingly the accompanying
financial statements have been restated to include the accounts and operations
of All Cycle for all periods presented. The two businesses acquired were under
common control, and the transaction was considered to be and accounted for as a
single acquisition. All Cycle Waste, Inc. is a solid waste collection and
transfer operation in Chittenden County, Vermont. Winters Brothers, Inc. owns
the real estate that All Cycle Waste Inc. operates out of in Williston,
Vermont. The Company issued 416,103 shares of its class A common stock for all
of the outstanding stock of All Cycle Waste, Inc. and 187,244 shares of its
class A common stock for all of the outstanding stock of Winters Brothers, Inc.
Prior to December 19, 1997, Casella Waste Systems, Inc., and All Cycle
Waste, Inc. incurred disposal expense and All Cycle Waste, Inc. earned disposal
revenue through the normal operations of the acquired company's waste transfer
station. In addition, Winters Brothers, Inc. earned rental income and All Cycle
Waste, Inc. incurred rental expense on the acquired companies' facility in
Williston, Vermont. These transactions have been eliminated in the accompanying
financial statements.
Following is a reconciliation of the amounts (in thousands) of net sales
and net income previously reported for the years ended April 30, 1995, 1996 and
1997:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
4/30/95 4/30/96 4/30/97
------------ ------------ -----------
<S> <C> <C> <C>
Revenues:
As previously reported ...................... $20,873 $38,109 $ 73,176
Acquired company ............................ 2,996 4,721 7,358
Elimination of intercompany revenue ......... -- -- (1,002)
------- ------- --------
As restated ................................. $23,869 $42,830 $ 79,532
======= ======= ========
Net income (loss):
As previously reported ...................... $ 302 $ (274) $ (12)
Acquired companies .......................... 40 (246) (407)
As restated ................................. $ 342 $ (520) $ (419)
</TABLE>
Transactions Recorded as Purchases
During fiscal 1995 and 1996, the Company completed 7 and 17 acquisitions,
respectively, including two landfills in 1995 and one landfill in 1996. During
the year ended April 30, 1997, the Company completed 25 acquisitions, including
the 25-year capital lease of a landfill. During the nine months ended January
31, 1998, the Company acquired 22 solid waste hauling operations, exclusive of
the All Cycle Waste Inc. transaction discussed above. These transactions were
accounted for as purchases. The operating results of these businesses are
included in the Consolidated Statement of Operations from the dates of
acquisition. The purchase prices have been allocated to the net assets acquired
based on fair values at the dates of acquisition with the residual amounts
allocated to goodwill.
F-14
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. BUSINESS COMBINATIONS (Continued)
The purchase prices allocated to the net assets acquired were as follows
(rounded to thousands):
<TABLE>
<CAPTION>
(Unaudited)
Fiscal Year Ended April 30, Nine Months
---------------------------------------- Ended
1995 1996 1997 January 31, 1998
------------ ----------- ----------- -----------------
<S> <C> <C> <C> <C>
Accounts receivable and prepaid
expenses ......................... $ 1,620 $ 2,947 $ 4,127 $ 2,164
Investments--restricted ........... 3,335 1,240 450 0
Landfills ......................... 13,477 3,495 8,013 0
Property and equipment ............ 4,335 7,451 17,378 7,207
Covenants not to compete and
customer lists ................... 1,034 2,060 2,445 2,689
Goodwill .......................... 5,137 5,240 34,694 20,162
Deferred taxes .................... (329) (806) (73) (326)
Debt and notes payable ............ (12,169) (3,738) (6,709) (2,660)
Other liabilities assumed ......... (4,184) (561) (15,726) (1,839)
--------- -------- --------- --------
Total consideration ............... $ 12,256 $ 17,328 $ 44,599 $ 27,397
========= ======== ========= ========
</TABLE>
The following unaudited pro forma combined information (rounded to
thousands) shows the results of the Company's operations for the years ended
April 30, 1996 and 1997, as though each of the completed acquisitions had
occurred as of May 1, 1995, and for the nine months ended January 31, 1998, as
though each of the completed acquisitions had occurred as of May 1, 1996.
<TABLE>
<CAPTION>
Fiscal Year Ended (Unaudited)
April 30, Nine Months
---------------------- Ended
1996 1997 January 31, 1998
---------- ----------- -----------------
<S> <C> <C> <C>
Revenues ...................................... $ 84,129 $126,970 $ 97,566
Operating Income .............................. 6,882 9,414 9,875
Net Income (Loss) ............................. (1,122) (197) 1,827
Preferred Stock & Put Warrant Accretion ....... (2,967) (8,530) (5,738)
Net Income (Loss) Available to Common
Shareholders ................................. (4,089) (8,727) (3,911)
Pro forma income (loss) per share of
common stock ................................. $ (1.25) $ (2.23) $ (.58)
Weighted average basic shares outstanding ..... 3,279 3,913 6,755
</TABLE>
The pro forma results have been prepared for comparative purposes only and
are not necessarily indicative of the actual results of operations had the
acquisitions taken place as of May 1, 1996 or May 1, 1997, or the results of
future operations of the Company. Furthermore, the pro forma results do not
give effect to all cost savings or incremental costs that may occur as a result
of the integration and consolidation of the completed acquisitions.
F-15
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. LONG-TERM DEBT
Long-term debt as of April 30, 1996 and 1997 and January 31, 1998 consists
of the following (in thousands):
<TABLE>
<CAPTION>
April 30, (Unaudited)
---------------------- January 31,
1996 1997 1998
--------- ---------- ------------
<S> <C> <C> <C>
Advances on a bank acquisition line, which
provides for advances of up to $150,000,000 due
January 12, 2003. Interest on outstanding
advances accrues at the bank's base rate
(8.75% at January 31, 1998), payable monthly in
arrears. The debt is collateralized by all assets of
the Company, whether now owned or hereafter
acquired ............................................. $ 9,201 $52,359 $55,435
Term note payable to a bank, secured by all assets
of the Company (whether now owned or
hereafter acquired), bearing interest at the bank's
base rate plus .25% per annum, due in quarterly
installments of $302,083 (plus accrued interest)
through July 31, 2002, repaid in fiscal 1998 ......... 9,166 6,667 --
Term note payable to a bank, secured by all assets
of the Company (whether now owned or
hereafter acquired), bearing interest at the bank's
base rate plus .25% per annum, due in annual
installments of $250,000 (plus accrued interest)
from July 31, 1999 to July 31, 2002 and quarterly
installments of $196,429 (plus accrued interest)
through July 31, 2004, repaid in fiscal 1998 ......... 3,536 2,764 --
Notes payable in connection with businesses
acquired, bearing interest at rates of 7% to 10%,
due in monthly installments ranging from $939 to
$11,152, expiring September 1998 through
January 2007, repaid in fiscal 1998 .................. 2,629 6,508 5,147
Payments due to Clinton County, discounted at
4.75%, due in quarterly installments of $375,046
through March 2003 ................................... -- 7,796 6,938
Notes payable of pooled entity, secured by assets
purchased, bearing interest at rates of 6% to
30%, due in monthly installments ranging from
$278 to $22,284 expiring August 1998 through
October 2004 ......................................... 2,513 5,707 --
------- ------- -------
27,045 81,801 67,520
Less--current portion ................................. 4,856 6,273 2,539
------- ------- -------
$22,189 $75,528 $64,981
======= ======= =======
</TABLE>
F-16
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. LONG-TERM DEBT (Continued)
On March 12, 1997, the Company entered into a three-year interest rate
swap agreement (the Swap Agreement) with a bank. The purpose was to effectively
convert a portion of the Company's interest rate exposure on advances under its
acquisition line from a floating rate to a fixed rate until the expiration of
the Swap Agreement. The Swap Agreement effectively fixes the Company's interest
rate on the notional amount of $35,000,000 to 6.2% per annum. Net monthly
payments or monthly receipts under the Swap Agreement are recorded as
adjustments to interest expense. In the event of nonperformance by the
counterparty, the Company would be exposed to interest rate risk if the
variable interest rate received were to exceed the fixed rate paid by the
Company under the terms of the Swap Agreement.
The acquisition line and term loans contain certain covenants that, among
other things, restrict dividends or stock repurchases, limit capital
expenditures and annual operating lease payments, and set minimum fixed charge,
interest coverage and leverage ratios and minimum consolidated adjusted net
worth requirements. As of April 30, 1997 and January 31, 1998 the Company was
in compliance with all covenants.
As of January 31, 1998, debt matures as follows:
<TABLE>
<CAPTION>
(Unaudited)
Amount
------------
<S> <C>
Year Ending January 31,
1999 ................. 2,539
2000 ................. 2,391
2001 ................. 2,391
2002 ................. 1,922
2003 ................. 57,323
Thereafter ........... 954
------
$67,520
=======
</TABLE>
5. INCOME TAXES
The provision (benefit) for income taxes as of April 30, 1995, 1996 and
1997 consists of the following:
<TABLE>
<CAPTION>
April 30,
------------------------------------------
1995 1996 1997
----------- -------------- -----------
<S> <C> <C> <C>
Federal--
Current .......... $ 9,000 $ (329,072) $305,937
Deferred ......... 149,017 457,560 135,761
-------- ---------- --------
158,017 128,488 441,698
-------- ---------- --------
State--
Current .......... 25,000 (96,086) 7,102
Deferred ......... 37,000 111,025 3,152
-------- ---------- --------
62,000 14,939 10,254
-------- ---------- --------
Total .......... $220,017 $ 143,427 $451,952
======== ========== ========
</TABLE>
F-17
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. INCOME TAXES (Continued)
The differences in the provisions for income taxes and the amounts
determined by applying the Federal statutory rate of 34% to income before
provision for income taxes and extraordinary loss for the years ended April 30,
1995, 1996 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
----------------------------------
1995 1996 1997
---------- ----------- -------
<S> <C> <C> <C>
Tax at statutory rate .............................. $191 $(17) $ 11
State income taxes, net of federal benefit ......... 31 (3) 2
Meals and entertainment disallowance ............... 5 11 18
Nondeductible goodwill ............................. 13 20 134
Pooled entity with subchapter S status ............. (16) 98 161
Other, net (mainly imputed interest income for
tax purposes) ..................................... (4) 35 126
----- ---- ----
$220 $144 $452
===== ==== ====
</TABLE>
Deferred income taxes reflect the impact of temporary differences between
the amounts of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for income tax purposes.
Deferred tax assets and liabilities consist of the following at April 30,
1996 and 1997:
<TABLE>
<CAPTION>
April 30,
---------------------------------
1996 1997
--------------- ---------------
<S> <C> <C>
Deferred tax assets--
Allowance for doubtful accounts ............................ $ 129,800 $ 176,961
Treatment of lease obligations ............................. 65,403 64,558
Accrued expenses ........................................... 158,603 343,952
Net operating loss carryforwards ........................... 569,338 574,279
Alternative minimum tax credit carryforwards ............... -- 305,937
Other tax carryforwards .................................... 117,560 184,969
Amortization of intangibles ................................ 24,009 34,634
Other ...................................................... 123,048 91,518
Deferred tax liabilities--
Accelerated depreciation of property and equipment ......... (1,704,894) (2,244,797)
Other ...................................................... (423,184) (587,962)
------------ ------------
Net deferred tax liability ............................... $ (940,317) $ (1,055,951)
============ ============
</TABLE>
At April 30, 1997, the Company has net operating loss carryforwards and
other tax carryforwards for income tax purposes of approximately $1,436,000 and
$462,000, respectively, that expire principally through 2009. At April 30,
1997, the Company also has $305,937 of alternative minimum tax credit
carryforwards available indefinitely to reduce federal income taxes.
F-18
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. COMMITMENTS AND CONTINGENCIES
(a) Leases
The following is a schedule of future minimum lease payments, together
with the present value of the net minimum lease payments under capital leases,
as of April 30, 1997.
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
------------- -------------
<S> <C> <C>
Year Ended April 30,
1998 ........................................................... $ 510,501 $ 532,124
1999 ........................................................... 424,176 506,067
2000 ........................................................... 287,651 363,600
2001 ........................................................... 137,240 329,100
2002 ........................................................... 68,151 213,600
Thereafter ..................................................... 68,151 213,600
---------- ----------
Total minimum lease payments ................................. $1,495,870 2,158,091
==========
Less--amount representing interest .............................. 393,205
----------
1,764,886
Current maturities of capital lease obligations ................. 391,709
----------
Present value of long-term capital lease obligations ......... $1,373,177
==========
</TABLE>
The Company leases real estate, containers and hauling vehicles under
leases that qualify for treatment as capital leases. The assets related to
these leases have been capitalized and are included in property and equipment
at April 30, 1996 and 1997.
The Company leases operating facilities and equipment under operating
leases with monthly payments ranging from $119 to $3,903.
Total rent expense under operating leases charged to operations was
$202,931, $502,122 and $933,294 for each of the three years ended April 30,
1995, 1996 and 1997, respectively.
(b) Legal Proceedings
In 1997, the Company was a defendant in a lawsuit regarding certain assets
of the Company. The suit was settled for $450,000, and the Company paid an
aggregate of $200,000 representing the legal fees of all defendants. The
settlement was accrued for and included in other accrued expenses in the
accompanying consolidated balance sheet at April 30, 1997.
On or about October 30, 1997, Matthew M. Freeman commenced a civil lawsuit
against the Company and two of the Company's officers and directors in the
Rutland Superior Court, Rutland County, State of Vermont. In the Complaint, Mr.
Freeman seeks compensation for services allegedly performed by him prior to
1995. Mr. Freeman is seeking a three percent equity interest in the Company or
the monetary equivalent thereof, as well as punitive damages. The Company and
the officers and directors have answered the Complaint, denied Mr. Freeman's
allegations of wrongdoing, and asserted various defenses. In order to
facilitate the completion of the recent initial public offering of the
Company's class A common stock, certain stockholders of the Company agreed to
indemnify the Company for any settlement by the Company or any award against
the Company in excess of $350,000 (but not legal fees paid by or on behalf of
the Company or any other third party). The Company accrued a $215,000 reserve
for this claim during the quarter ended July 31, 1997.
F-19
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. COMMITMENTS AND CONTINGENCIES (Continued)
(c) Environmental Liability
The Company is subject to liability for any environmental damage,
including personal injury and property damage, that its solid waste facilities
may cause to neighboring property owners, particularly as a result of the
contamination of drinking water sources or soil, possibly including damage
resulting from conditions existing before the Company acquired the facilities.
The Company may also be subject to liability for similar claims arising from
off-site environmental contamination caused by pollutants or hazardous
substances if the Company or its predecessors arrange to transport, treat or
dispose of those materials. Any substantial liability incurred by the Company
arising from environmental damage could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
is not presently aware of any situations that may have a material adverse
impact.
(d) Other
In connection with an acquisition, the Company entered into an agreement
to pay 10% of gross revenues, as defined in the agreement, from the operation
of a landfill to the former owners until January 1999, subject to a cumulative
minimum of $1,592,000 and a cumulative maximum of $6,028,000. The Company has
recorded the present value of the guaranteed minimum as a cost of the
acquisition in the accompanying consolidated balance sheets. On January 25,
1999, any cumulative amounts not paid up to the maximum of $6,028,000 are due
and payable, subject to the successful permitting of an additional 1,000,000
tons of landfill capacity. The amount due is reduced pro rata for any capacity
below 1,000,000 tons. This additional obligation will be recognized as a cost
of the additional capacity, when and if the Company receives a permit for the
additional capacity.
7. REDEEMABLE PREFERRED STOCK, REDEEMABLE PUT WARRANTS AND
STOCKHOLDERS' EQUITY (DEFICIT)
On November 3, 1997, the Company completed an initial public offering of
3,000,000 shares of its class A common stock. Under the terms of the Company's
agreements with the holders of the series A and B redeemable preferred stock
with warrants exercisable for class A common stock, the preferred stock was
automatically redeemed and the redemption price was applied to the exercise of
the warrants upon the closing of the Company's initial public offering on
November 3, 1997. Under the terms of the Company's agreements with the holders
of the series D convertible preferred stock, the preferred stock was converted
automatically into shares of class A common stock upon the closing of the
Company's initial public offering.
In accordance with the terms of the Company's agreements with the holders
of the series C mandatorily redeemable preferred stock, the preferred stock was
redeemed at its stated redemption price of $7.00 per share upon the closing of
the Company's initial public offering.
F-20
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. REDEEMABLE PREFERRED STOCK, REDEEMABLE PUT WARRANTS AND
STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
(a) Preferred Stock
On December 22, 1995, the Company sold 1,922,169 shares of Series D
Convertible Redeemable Preferred Stock, raising proceeds of $12,482,412, net of
$972,771 in issuance costs. In addition, the Company extinguished certain
subordinated debt through proceeds raised in this Series D Preferred Stock
transaction, and by issuing certain subordinated debt holders 516,620 shares of
the Company's Series A Redeemable Preferred Stock, 1,294,579 shares of the
Company's Series B Redeemable Preferred Stock and 424,307 shares of the
Company's Series C Mandatorily Redeemable Preferred Stock. The Company has
recorded a charge of $2,963,317 based on the difference between the fair market
value of consideration (preferred stock and cash) issued to the subordinated
debt holders and the carrying value of the subordinated debt extinguished. The
charge, net of tax, was allocated to earnings as an extraordinary charge
($126,523) and equity ($2,836,794) based on the relative fair value of the debt
and warrants, respectively. The Company also wrote off the unamortized issuance
costs associated with certain subordinated debt. This write-off resulted in an
extraordinary charge, net of tax, of $199,785. The total extraordinary loss
from the extinguishment of debt amounted to $326,308 (net of $168,098 income
tax benefit).
Series A and B Redeemable Preferred Stock with Warrants Exercisable for Class A
Common Stock
The holders of the Series A and Series B Redeemable Preferred Stock with
warrants exercisable for Class A Common Stock shall have the right to require
the Company to purchase their shares together with the warrants after December
31, 2000 if a liquidity event, as defined, has not occurred prior to that date.
The redemption price payable by the Company shall be the higher of $1.50 per
share of Series A Redeemable Preferred Stock and $2.00 per share of Series B
Redeemable Preferred Stock, or the underlying fair market value of the
Company's Class A Common Stock ($16.00 at July 31, 1997). The difference
between the carrying value and the redemption value of the Series A and Series
B Redeemable Preferred Stock with warrants exercisable for Class A Common Stock
was accreted using the effective interest method through October 31, 1997.
Series C Mandatorily Redeemable Preferred Stock
If a liquidity event, as defined, has not occurred on or prior to December
31, 2000, the Series C Mandatorily Redeemable Preferred Stock becomes
mandatorily redeemable by the Company. The redemption price shall be $7.00 per
share. The difference between the carrying value and the redemption value of
the Series C Mandatorily Redeemable Preferred Stock was accreted prior to the
mandatory conversion on November 3, 1997.
Series D Convertible Redeemable Preferred Stock
On or after January 1, 2001, each of the holders of Series D Convertible
Redeemable Preferred Stock shall have the option to tender all or any portion
of such shares held to the Company. The redemption price for each share shall
be the greater of $7.00 or the underlying fair market value of the Company's
Class A Common Stock ($16.00 at April 30, 1997). The difference between the
carrying value and the redemption value of the Series D Convertible Redeemable
Preferred Stock was accreted using the effective interest method through
October 31, 1997.
F-21
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. REDEEMABLE PREFERRED STOCK, REDEEMABLE PUT WARRANTS AND
STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
Liquidation Preference
Preferred stockholders had a preference in liquidation over other
stockholders equal to $1.50 per share of Series A Preferred Stock, $2.00 per
share of Series B Preferred Stock, $7.00 per share of Series C and D Preferred
Stock, plus any accrued and unpaid dividends, declared and unpaid. The
aggregate preference in liquidation was $0 at January 31, 1998.
Conversion
Each share of Series A Preferred Stock and Series B Preferred Stock
through the exercise of warrants and redemption of preferred stock in tandem
and Series D Preferred Stock and Class B Common Stock was convertible into one
share of the Company's Class A Common Stock. Conversion is at the option of the
holder, but was automatic for Series A, Series B and Series D Preferred Stock
immediately prior to the closing of a qualified public offering, as defined.
Voting
The holders of the Class A Common Stock, Series A Preferred Stock, Series
B Preferred Stock and Series D Preferred Stock are entitled to one vote for
each share held. The holders of the Class B Common Stock are entitled to 10
votes for each share of Class B Common Stock held. The Series C Preferred Stock
is nonvoting.
(b) Stock Warrants
At January 31, 1998, the Company had outstanding warrants to purchase
190,392 shares of the Company's Class A Common Stock at exercise prices between
$0.01 and $7.25 per share, the then fair market value of the underlying common
stock. The warrants become exercisable upon vesting and notification and expire
between July 1998 and October 2003.
(c) Put Warrants
In connection with an acquisition in April 1995, the Company issued
100,000 warrants to purchase one share each of Class A Common Stock exercisable
at $6.00 per share. These warrants were putable to the Company at $4.00 per
share or callable by the Company at $7.00 per share beginning in April 1997.
These warrants were stated at their put price per share in the accompanying
consolidated balance sheets. During the nine months ended January 31, 1998 (but
prior to the public offering), one warrant holder exercised warrants to acquire
25,000 shares of class A common stock for proceeds of $150,000. During the same
period the Company called the remaining 75,000 warrants in exchange for total
consideration of $525,000. The difference between the put price and the call
price was accreted at the time of the call.
d) Stock Option Plans
During 1993, the Company adopted an incentive stock option plan for
officers and other key employees. The 1993 Incentive Stock Option Plan (the
1993 Option Plan) provides for the issuance of a maximum of 300,000 shares of
Class A Common Stock. A committee of not fewer than three directors of the
Company (the Option Committee), none of whom is an officer or other salaried
employee of the Company who shall participate in the Option Plans, has the
authority to select the optionees and determine the terms of the options
granted. As of April 30, 1997, options to purchase 300,000 shares of Class A
Common Stock at an average exercise price of $1.72 were outstanding under the
1993 Option Plan. As of January 31, 1998, options to purchase 260,000 shares of
Class A Common Stock at an average
F-22
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. REDEEMABLE PREFERRED STOCK, REDEEMABLE PUT WARRANTS AND
STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
exercise price of $1.90 were outstanding under the 1993 Option Plan. 40,000
options have been exercised under the 1993 Option Plan as of January 31, 1998.
During 1994, the Company adopted a nonstatutory stock option for officers
and other key employees. The 1994 Stock Option Plan (the 1994 Option Plan)
provides for the issuance of a maximum of 150,000 shares of Class A Common
Stock. The Board of Directors and/or the Option Committee has the authority to
select the optionees and determine the terms of the options granted. Options to
purchase 150,000 shares of Class A Common Stock at an average exercise price of
$0.60 were outstanding under the 1994 Option Plan as of April 30, 1997 and as
of January 31, 1998. No options have been exercised under the 1994 Option Plan
as of January 31, 1998.
In connection with the May 1994 Senior Note and Warrant Purchase Agreement
(the "Purchase Agreement"), the Company established a nonqualified stock option
pool for certain key employees. The purchase agreement established 338,000
stock options to purchase Class A Common Stock at $2.00 per share, the then
fair market value. The options vest on December 31, 2000, and are subject to
accelerated vesting upon an initial public offering or a liquidation event, as
defined, on or before July 1, 1998. Options to purchase [338,000] shares of
Class A Common Stock at an average exercise price of $2.00 per share were
outstanding under the Purchase Agreement as of April 30, 1997 and January 31,
1998. No options have been exercised under this agreement as of January 31,
1998.
During 1996, the Company adopted a stock option plan for employees,
officers and directors of, and consultants and advisors to, the Company. The
1996 Stock Option Plan (the "1996 Option Plan") provides for the issuance of a
maximum of 418,135 shares of Class A Common Stock pursuant to the grant of
either incentive stock options or nonstatutory options. As of April 30, 1997,
options to purchase 418,135 shares of Class A Common Stock at an average
exercise price of $10.04 per share were outstanding under the 1996 Option Plan.
On May 6, 1997, the Company amended the 1996 Option Plan to provide for the
issuance of an additional 500,000 shares of Class A Common Stock. On May 6,
1997, options to purchase 191,500 shares of Class A Common Stock at an average
exercise price of $16.00 were granted under the 1996 Option Plan. As of January
31, 1998, no options have been exercised under the 1996 Option Plan. As of
January 31, 1998, a total of 609,635 options to purchase Class A Common Stock
were outstanding at an average exercise price of $16.91.
On July 31, 1997, the Company adopted a stock option plan for employees,
officers and directors of, and consultants and advisors to the Company. The
Board of Directors has the authority to select the optionees and determine the
terms of the options granted. The 1997 Stock Option Plan (the "1997 Option
Plan") provides for the issuance of 1,000,000 shares of Class A Common Stock
pursuant to the grant of either incentive stock options or nonstatutory
options. In addition, under the terms of the 1997 Option Plan, all authorized
but unissued options under previous plans are added to the shares available
under this plan. A total of 308,500 authorized but unissued shares under the
1996 Option Plan were transferred to the 1997 Option Plan under this provision.
As of January 31, 1998, options to purchase 113,000 shares of Class A Common
Stock at an average exercise price of $19.63 were outstanding under the 1997
Option Plan. However, as of January 31, 1998, no options have been exercised
under the 1997 Option Plan.
F-23
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. REDEEMABLE PREFERRED STOCK, REDEEMABLE PUT WARRANTS AND
STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
Stock option activity for each of the three years ended April 30, 1995,
1996, 1997 and nine months ended January 31, 1998 is as follows:
<TABLE>
<CAPTION>
Number Weighted Average
of Shares Exercise Price
----------- -----------------
<S> <C> <C>
Outstanding, April 30, 1994 145,000 $ 0.60
Granted .......................................... 528,000 1.50
Terminated ....................................... -- --
Exercised ........................................ -- --
------- ------
Outstanding, April 30, 1995 673,000 1.30
Granted .......................................... 115,000 3.53
Terminated ....................................... -- --
Exercised ........................................ -- --
------- ------
Outstanding, April 30, 1996 788,000 1.63
Granted .......................................... 418,135 10.04
Terminated ....................................... -- --
Exercised ........................................ -- --
------- ------
Outstanding, April 30, 1997 ....................... 1,206,135 4.54
Exercisable, April 30, 1997 ....................... 537,092 2.81
Granted .......................................... 304,500 17.35
Terminated ....................................... -- --
Exercised ........................................ 40,000 0.60
--------- ------
Outstanding, January 31, 1998 (unaudited) ......... 1,470,635 $ 7.30
========= ======
Exercisable, January 31, 1998 (unaudited) ......... 999,546 $ 4.06
========= ======
</TABLE>
Set forth is a summary of options outstanding and exercisable as of April
30, 1997 :
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Shares Life (Years) Price Options Price
- -------------------------- --------------- -------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.60-$ 2.00........... 713,000 5.44 $ 1.31 375,000 $ 0.70
4.81 - 7.00 .......... 199,000 8.35 4.78 102,714 4.83
12.00- 12.50 .......... 294,135 9.54 12.29 58,378 12.48
$ 0.80-$12.50........... 1,206,135 6.95 $ 4.56 537,092 $ 2.81
========================== ========= ==== ====== ======= ======
</TABLE>
F-24
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. REDEEMABLE PREFERRED STOCK, REDEEMABLE PUT WARRANTS AND
STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
Set forth is a summary of options outstanding and exercisable as of
January 31, 1998:
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Options Outstanding Options Exercisable
----------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Shares Life (Years) Price Options Price
- -------------------------- --------------- -------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.60-$ 2.00........... 673,000 4.59 $ 1.36 673,000 $ 1.36
4.61 - 7.00 .......... 199,000 7.59 4.66 151,667 4.67
12.00- 16.00 .......... 505,635 8.83 13.80 169,879 13.79
Over $16.00............ 93,000 9.72 20.63 5,000 18.00
- -------------------------- ------- ---- ------ ------- ------
$ 0.60-$16.00........... 1,470,635 6.78 $ 7.30 999,546 $ 4.06
========================== ========= ==== ====== ======= ======
</TABLE>
During fiscal 1996, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation, which defines a fair value based method of accounting
for stock-based employee compensation and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation costs for
those plans using the intrinsic method of accounting prescribed by APB Opinion
No. 25. Entities electing to remain with the accounting in APB Opinion No. 25
must make pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting defined in SFAS No. 123 had been applied.
The Company has elected to account for its stock-based compensation plans
under APB Opinion No. 25. However, the Company has computed, for pro forma
disclosure purposes, the value of all options granted during the years ended
April 30, 1996 and 1997 using the Black-Scholes option pricing model as
prescribed by SFAS No. 123, using the following weighted average assumptions
for grants in the years ended April 30, 1996 and 1997.
<TABLE>
<CAPTION>
April 30,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Risk-free interest rate ......... 5.69% 6.45%
Expected dividend yield ......... N/A N/A
Expected life ................... 10 years 10 years
Expected volatility ............. N/A N/A
</TABLE>
The total value of options granted during the years ended April 30, 1996
and 1997 would be amortized on a pro forma basis over the vesting period of the
options. Options generally vest equally over three years. Because the method of
accounting prescribed by SFAS No. 123 has not been applied to options granted
prior to May 1, 1995, the resulting pro forma compensation costs may not be
representative of that to be expected in future years. If the Company had
accounted for these plans in accordance with SFAS No. 123, the Company's net
loss and net loss per share would have increased as reflected in the following
pro forma amounts:
F-25
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. REDEEMABLE PREFERRED STOCK, REDEEMABLE PUT WARRANTS AND
STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
<TABLE>
<CAPTION>
April 30,
-------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Net income (loss)
As reported ................................ $ (519,541) $ (419,123)
Pro forma .................................. (555,064) (717,260)
Net income (loss) per share of common stock--
As reported ................................ (1.06) (2.29)
Pro forma .................................. (1.07) (2.36)
</TABLE>
The weighted-average grant-date fair value of options granted during the
years ended April 30, 1996 and 1997 is $0.51, and $1.04 respectively.
(e) Reserved Shares
At April 30, 1996 and 1997 shares of Class A Common Stock were reserved for
the following reasons:
<TABLE>
<CAPTION>
April 30,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
Exercise of stock warrants related to Series A and Series B
Preferred Stock .......................................... 1,811,199 1,811,199
Exercise of Series D Convertible Preferred Stock .......... 1,922,169 1,922,169
Exercise of stock warrants/put warrants ................... 456,108 456,108
Exercise of management stock options ...................... 788,000 1,206,135
--------- ---------
4,977,476 5,395,611
========= =========
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The Company has a profit sharing plan that covers substantially all
employees with one-half or more years of service. Contributions to the plan are
made at the discretion of the Board of Directors. The Company made no
contributions for the years ended April 30, 1996 and 1997. The profit sharing
plan was terminated on June 30, 1997.
On May 1, 1996, the Company adopted the Casella Waste Systems, Inc. 401(k)
Plan and appointed the First National Bank of Boston as trustee to the plan.
The plan went into effect on July 1, 1996 and has a December 31 year end.
Pending board approval, the Company may contribute up to $500 per individual
per calendar year. Participants vest in employer contributions ratably over a
three-year period. Employer contributions for the year ended April 30, 1997
amounted to $149,469.
In January, 1998 the Company implemented its Employee Stock Purchase Plan.
Under this plan, qualified employees may purchase shares of class A common
stock by payroll deduction at a 15% discount from the market price. 300,000
shares of class A common stock have been reserved for this purpose. At January
31, 1998, no shares of class A common stock have been issued under this plan.
9. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share". This
statement supersedes Accounting Principal Board Opinion No. 15, and is
effective for interim and annual periods ending after December 15, 1997.
Primary EPS is replaced by Basic EPS, which is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding for the period. Basic
F-26
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. EARNINGS PER SHARE (Continued)
common shares no longer include common stock equivalents such as convertible
preferred shares. In addition, Fully Diluted EPS is replaced with Diluted EPS,
which gives effect to all common shares that would have been outstanding if all
potentially dilutive common shares (relating to such things as the exercise of
stock warrants and convertible preferred stock) had been issued. The treasury
stock method used to compute the number of potentially-dilutive shares that
would be repurchased with the proceeds of potential stock issuances has been
changed. The treasury stock method now requires use of the average share price
for the period instead of the greater of the ending share price or the average
share price.
The following is a reconciliation of the ending number of shares
outstanding with the number of shares used in the calculation of basic and
diluted earnings per share (in thousands):
<TABLE>
<CAPTION>
(Unaudited)
Nine months ended
Year ended April 30, -------------------------
----------------------------- January 31, January 31,
1995 1996 1997 1998 1997
--------- --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Number of shares outstanding, end of period:
Class A common stock ............................ 2,255 2,398 3,457 10,503 3,458
Class B common stock ............................ 1,000 1,000 1,000 988 1,000
Effect of weighting the average shares outstanding
during the period ............................... (355) (119) (544) (4,736) (721)
Basic shares outstanding ......................... 2,900 3,279 3,913 6,755 3,737
Potentially dilutive shares ...................... -- -- -- -- --
Fully diluted shares outstanding ................. 2,900 3,279 3,913 6,755 3,737
</TABLE>
The pro forma number of basic and diluted shares outstanding for the year
ended April 30, 1997 and for the nine months ending January 31, 1998 gives
weighting effect to the pro forma issuance of the publicly offered shares of
class A common stock and conversion of Series A, B, and D preferred stock, as
if these events had occurred on May 1, 1996.
Diluted earnings per share equals basic earnings per share for the years
ended December 31, 1995, 1996 and 1997 and for the nine months ended January 31,
1997 and 1998 because the inclusion of potentially dilutive shares would be
anti-dilutive due to the Company's net losses applicable to common stockholders
for those periods. The number of potentially dilutive shares excluded from the
earnings per share calculation were 203,077, 1,604,130 and 4,434,163 for the
years ended April 30, 1995, 1996 and 1997 and 4,315,086 and 3,562,601 for the
nine months ended January 31, 1997 and 1998. The anti-dilutive effect was due to
net losses, or the reversal of accretion of convertible preferred stock shares
included in the diluted number of shares outstanding, or both, during the
periods indicated.
10. RELATED PARTY TRANSACTIONS
(a) Management Services Agreement
As part of the Series D Preferred Stock transaction described in Note
7(a), the Company entered into a Management Services Agreement with certain
holders of the Series A, Series B and Series C Preferred Stock. In
consideration for certain advisory services to the Company, as defined, a
management fee of approximately $22,300 per month was due upon the occurrence
of a liquidity event, as defined. At the time of the initial public offering of
the Company's class A common stock, the total accrued management fees were paid
to the shareholders. The amount paid was $495,221.
F-27
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. RELATED PARTY TRANSACTIONS (Continued)
(b) Services
During 1996 and 1997, the Company retained the services of a related
party, a company wholly owned by two of the Company's stockholders, as a
contractor in closing the landfills owned by the Company. Total purchased
services charged to operations for each of the three years ended April 30,
1995, 1996 and 1997 and the nine months ended January 31, 1998 were $339,138,
$1,291,435, $2,125,606 and $3,804,291 respectively, of which $0, $55,000,
$24,988 and $252,332 were outstanding and included in accounts payable at April
30, 1995, 1996 and 1997 and January 31, 1998, respectively. In 1997, the
Company entered into agreements with this company, totaling $4,065,000, to
close the unlined municipal landfill which is adjacent to the Subtitle D
Clinton County landfill (see Note 6) and to close a portion of another of the
Company's lined landfills.
(c) Leases and Land Purchase
The Company leases furniture and fixtures from a partnership in which two
of the Company's stockholders are the general partners. This operating lease
requires a monthly payment of $950 and expires in 1999.
On August 1, 1993, the Company entered into three leases for operating
facilities with the same partnership. The leases call for monthly payments
ranging from $3,200 to $9,000 and expire in April 2003. During 1997, one of the
leases was terminated early for $191,869. The remaining leases are classified
as capital leases in the accompanying consolidated balance sheets. Total
interest and amortization expense charged to operations for the years ended
April 30, 1995, 1996 and 1997 and the nine months ended January 31, 1998 under
these agreements was $263,400, $252,000, $249,379 and $173,409, respectively.
On November 8, 1996, the Company purchased a certain plot of land from the
same related party for $122,000.
(d) Postclosure Landfill
The Company has agreed to pay the cost of postclosure on a landfill owned
by certain principal stockholders. The Company paid the cost of closing this
landfill in 1992, and the postclosure maintenance obligations are expected to
last until 2012. In each of the three years ended April 30, 1995, 1996 and 1997
and the nine months ended January 31, 1998, the Company paid $11,758, $14,502,
$9,605 and $960, respectively, pursuant to this agreement. As of January 31,
1998, the Company has accrued $106,830 for costs associated with its
postclosure obligations.
11. SUBSEQUENT EVENTS
During the period between February 1, 1998 and April 30, 1998 the Company
acquired 10 companies, all accounted for as purchases. The total value of
assets acquired was $10,396,238. The Company paid $9,424,005 in cash for the
companies and assumed $972,233 in liabilities.
F-28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Sawyer Companies:
We have audited the accompanying combined balance sheet of Sawyer
Companies as of December 31, 1995 and the related combined statement of income
and retained earnings and cash flows for the year ended December 31, 1995.
These financial statements are the responsibility of the Companies' management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit 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 our audit provides 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 Sawyer Companies
at December 31, 1995, and the combined results of their operations and their
cash flows for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 19, 1996
F-29
<PAGE>
SAWYER COMPANIES
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
-------------
1995
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................................. $ 395,649
Accounts receivable, net of allowance for doubtful accounts of $216,254 941,903
Inventories ............................................................ 85,399
Other current assets ................................................... 162,854
Note receivable ........................................................ 90,240
Deferred income taxes .................................................. 178,900
----------
Total current assets ................................................ 1,854,945
----------
Property, plant and equipment, at cost:
Land ................................................................... 132,978
Land improvements ...................................................... 151,538
Buildings .............................................................. 830,019
Machinery and equipment ................................................ 7,190,939
Office furniture and equipment ......................................... 410,607
Other .................................................................. 45,961
----------
8,762,042
Less--accumulated depreciation ......................................... 5,031,642
----------
Net property, plant and equipment ................................... 3,730,400
----------
Landfill, at cost:
Landfill and landfill development ...................................... 6,770,768
Less--accumulated amortization ......................................... 4,621,857
----------
2,148,911
----------
Other assets:
Investment in land ..................................................... 170,000
Landfill closure trust, excluding current portion ...................... 1,240,332
Other miscellaneous assets ............................................. 187,290
----------
Total other assets ................................................. 1,597,622
----------
Total assets ....................................................... $9,331,878
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Equipment revolving line of credit ..................................... $1,337,186
Other notes payable .................................................... 65,726
Note payable to stockholder ............................................ 973,092
Current portion of long-term debt ...................................... 251,443
Accounts payable ....................................................... 594,481
Accrued expenses ....................................................... 215,601
----------
Total current liabilities ........................................... 3,437,529
----------
Long-term debt, excluding current portion ................................. 1,815,037
Deferred income taxes ..................................................... 440,700
Accrued closure and postclosure costs ..................................... 1,802,005
Commitments and contingencies .............................................
Stockholders' equity:
Common stock ........................................................... 38,800
Additional paid-in capital ............................................. 300,000
Retained earnings ...................................................... 1,497,807
----------
Total stockholders' equity .......................................... 1,836,607
----------
Total liabilities and stockholders' equity .......................... $9,331,878
==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-30
<PAGE>
SAWYER COMPANIES
COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31,
------------------
1995
------------------
<S> <C>
Revenue ........................................ $11,527,162
-----------
Costs and expenses:
Cost of operations .......................... 7,640,502
General and administrative expenses ......... 2,909,696
Depreciation and amortization ............... 1,146,967
-----------
Total costs and expenses ................. 11,697,165
-----------
Operating loss ........................... (170,003)
-----------
Other income (expense):
Interest income ............................. 63,895
Interest expense ............................ (476,937)
Loss on sale of assets ...................... (29,880)
Other ....................................... 5,722
-----------
Total other expense ...................... (437,200)
-----------
Loss before income taxes ................. (607,203)
Provision for income taxes ..................... 261,800
-----------
Net loss .................................. (869,003)
Retained earnings, beginning of year ........... 2,550,332
Stockholder distributions ...................... (183,522)
-----------
Retained earnings, end of year ................. $ 1,497,807
===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-31
<PAGE>
SAWYER COMPANIES
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31,
------------------
1995
------------------
<S> <C>
Cash flows from operating activities:
Net loss ....................................................................... $ (869,003)
Adjustments to reconcile net loss to net cash provided by operating activities--
Depreciation and amortization ................................................. 1,146,967
Loss on sale of assets ........................................................ 29,880
Deferred income taxes ......................................................... 261,800
Decrease (increase) in--
Accounts receivable .......................................................... 248,737
Inventories .................................................................. 17,544
Other current assets ......................................................... 51,654
Increase (decrease) in--
Accounts payable ............................................................. (667,748)
Accrued expenses ............................................................. 16,335
Deferred closure costs ....................................................... 433,634
------------
Net cash provided by operating activities .................................. 669,800
------------
Cash flows from investing activities:
Additions to property and equipment ............................................ (609,181)
Proceeds from sale of assets ................................................... 46,108
Net contributions to landfill closure trust .................................... (223,089)
Advances to stockholders ....................................................... --
Other, net ..................................................................... (312,140)
------------
Net cash used by investing activities ...................................... (1,098,302)
------------
Cash flows from financing activities:
Net proceeds from short-term borrowings ........................................ 2,627
Principal payments on long-term borrowings ..................................... (250,454)
Stockholder distributions ...................................................... (183,522)
------------
Net cash used by financing activities ...................................... (431,349)
------------
Decrease in cash and cash equivalents ............................................. (859,851)
Cash and cash equivalents, beginning of year ...................................... 1,255,500
------------
Cash and cash equivalents, end of year ............................................ $ 395,649
============
Supplemental disclosure of cash flow information:
Cash paid during the year for--
Interest ...................................................................... $ 477,000
============
Income tax .................................................................... $ --
============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-32
<PAGE>
SAWYER COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
SES collects, transports, and recycles waste from industrial, commercial,
and residential customers in northern New England (primarily Maine).
Sawyer Environmental Recovery Facilities, Inc. (SERF) operates and
maintains commercial landfill facilities in Hampden, Maine. The secure landfill
facilities are currently licensed by the Maine Department of Environmental
Protection (MDEP) for the disposal of special wastes. Services provided include
disposal of incinerator and boiler ash, other non-hazardous special wastes, and
non-burnable waste from municipal waste-to-energy plants. In addition, SERF
provides the recycling markets and facilities for scrap tires, paper, and
construction/demolition debris.
TSI leased specialized waste industry machinery, equipment and vehicles to
its affiliated companies.
Principles of Combination
The combined financial statements include the following companies (herein
after referred to as the Companies), all of which are incorporated under the
laws of the State of Maine and owned solely by W. Tom Sawyer, Jr.:
Sawyer Environmental Services
Sawyer Environmental Recovery Facilities, Inc.
All significant intercompany accounts and transactions have been
eliminated in the combined financial statements.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with a
maturity of three months or less.
Receivables
Current receivables of $941,903 at December 31, 1995 are net of reserves
of $216,254. The estimated fair value of current receivables approximates their
recorded value.
Notes receivable of $90,240 at December 31, 1995, approximate fair value.
Fair Value of Financial Instruments
The Companies' financial instruments consist of cash, accounts receivable,
notes receivable, accounts payable, notes payable and long-term debt. The
carrying amount of the Companies' cash, accounts receivable, notes receivable,
accounts payable and notes payable approximates their fair value due to the
short-term nature of these instruments. The carrying value of long-term debt
also approximates the fair value.
Inventory
Inventory is stated at the lower of cost or market and consists primarily
of equipment parts, materials and supplies.
Property, Plant and Equipment
Property, plant and equipment are recorded at historical cost, less
accumulated depreciation. Depreciation is provided for using the straight-line
method over the estimated useful lives of buildings (25 to 40 years), machinery
and equipment (5 to 15 years) and vehicles and equipment (5 to 15 years).
F-33
<PAGE>
SAWYER COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Expenditures for major renewals and betterments are capitalized, and
expenditures for maintenance and repairs are charged to expense as incurred.
Landfills
Landfills include expenditures for land and related airspace, permitting
costs and preparation costs. Landfill permitting and development costs include
legal, engineering, construction and cell development costs.
Landfill costs are amortized on a per-cubic-yard basis as permitted
airspace of the landfill is filled.
Accrued Closure and Postclosure Costs
Accrued closure and postclosure costs include estimated costs associated
with obligations for closure and postclosure of the Companies' landfills, based
on interpretations of the U.S. Environmental Protection Agency (EPA) Subtitle D
regulations and on applicable MDEP regulations. Estimated closure and
postclosure costs are accrued on a per-cubic-yard basis as permitted air space
of the landfill is filled.
SERF is required by the MDEP to fund a certain portion of these accrued
closure and postclosure costs as landfill airspace is utilized. Accordingly,
SERF has entered into trust agreements with a bank and makes monthly
contributions to restricted investment accounts to maintain minimum funding
requirements. Such amounts are included in the landfill closure trust account
on the accompanying combined financial statements.
Income Taxes
The Companies recorded income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Under SFAS No. 109, deferred income taxes are recognized based on the expected
future tax consequences of differences between the financial statement bases
and the tax bases of assets and liabilities, calculated using enacted income
tax rates in effect for the year in which the differences are expected to be
reflected in the income tax return.
Prior to July 1995, the Companies had elected to be recognized as an S
Corporation under the appropriate Federal and state tax codes. In lieu of
corporate income taxes, the stockholders of an S Corporation are taxed on their
proportionate share of the Companies' taxable income. Accordingly, no corporate
income taxes were recorded in 1993 and 1994.
Revenue Recognition
Revenues are recorded in the combined financial statements when the
services are performed. SES and SERF provide most services on a contract basis.
Contract terms are between one and fifteen years and are billed on a monthly
basis.
Credit Risk
Credit is extended to customers without collateral.
The Companies maintain their cash in bank deposit accounts, which at times
may exceed federally insured limits. The Companies have not experienced any
losses in such accounts. The Companies believe they are not exposed to any
significant risk on cash and cash equivalents.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-34
<PAGE>
SAWYER COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. INDEBTEDNESS
<TABLE>
<S> <C>
Long-term debt consists of the following:
Notes payable to Fleet Bank of Maine, variable monthly payments including
interest at prime plus 1.5%, (10% at December 31, 1995) through 1999 ..... $2,053,153
Other notes payable ....................................................... 13,327
----------
2,066,480
Less--expected current portion ............................................ 251,443
----------
Long-term notes, excluding expected current portion ....................... $1,815,037
==========
Notes payable to stockholder and stockholder trust consist of the following:
Prime plus 2% note payable ................................................ $ 873,092
14% note payable, interest paid monthly ................................... 100,000
----------
$ 973,092
==========
</TABLE>
The equipment revolving line of credit with Fleet Bank of Maine is payable
in monthly installments of $35,000 ($50,000 if balance exceeds $1,200,000),
including interest at prime plus 0.75% (9.25% at December 31, 1995). The line
of credit is subject to renewal at July 1, 1996 and is recorded as a current
liability.
The notes to Fleet Bank of Maine are collateralized by substantially all
assets, waste disposal contracts and a negative stock pledge.
Aggregate future maturities of long-term debt outstanding as of December
31, 1995 for the next five years are expected to be as follows:
<TABLE>
<CAPTION>
December 31,
- -----------------------
<S> <C>
1996 ............... $ 251,000
1997 ............... 291,000
1998 ............... 335,000
1999 ............... 1,189,000
Thereafter ......... --
</TABLE>
3. COMMON STOCK
Capital stock of the Companies is as follows:
<TABLE>
<CAPTION>
Shares
--------------------------------------
Common Par
Stock Value Authorized Issued Outstanding
Company ---------- ------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
Sawyer Environmental Services ......... $38,000 $ -- 10,000 331 331
Sawyer Environmental Recovery
Facilities, Inc. ..................... 800 100 1,000 8 8
-------
$38,800
=======
</TABLE>
F-35
<PAGE>
SAWYER COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
4. PROFIT SHARING PLAN
The Companies maintain a qualified profit sharing plan covering
substantially all of their employees. The plan is a defined contribution plan
with contributions determined annually at the discretion of Sawyer Companies'
management committee. Contributions of $200,000 were made in 1995.
5. SIGNIFICANT CUSTOMER
A significant portion of both disposal and transportation revenue is from
one significant customer, a municipality. The services are provided under
long-term contracts. Revenue from this customer was approximately 35% of net
sales in 1995.
6. INCOME TAXES
The provision for income taxes as of December 31, 1995 consists of the
following:
<TABLE>
<S> <C>
Federal--
Current .......... $ --
Deferred ......... 211,900
--------
211,900
--------
State--
Current .......... --
Deferred ......... 49,900
--------
49,900
--------
$261,800
========
</TABLE>
At December 31, 1995, the Companies' total deferred tax asset of $327,700
related to nondeductible reserves and net operating loss carryforwards while
the total deferred tax liability of $589,500 primarily related to differing
depreciation methods for tax and book purposes for property, plant and
equipment.
At December 31, 1995, the Companies had approximately $134,000 of net
operating loss carryforwards available to reduce taxable income through 2010.
The provision for income taxes differs from the amounts calculated by
applying the statutory federal income tax rate of 34% to income before taxes
due primarily to state income taxes and the effect of recognizing the
Companies' change in tax status in accordance with SFAS No. 109. The Companies'
net deferred tax liabilities that had to be reinstated on the balance sheet
when the S corporation status was terminated were charged to the deferred tax
provision in 1995.
7. COMMITMENTS AND CONTINGENCIES
The Companies lease certain office and maintenance space as well as
various operating motor vehicles. Future minimum lease payments under
noncancelable operating leases with terms in excess of one year are as follows:
F-36
<PAGE>
SAWYER COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
7. COMMITMENTS AND CONTINGENCIES (Continued)
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
- -----------------------------
<S> <C>
1995 ..................... $ --
1996 ..................... 372,000
1997 ..................... 353,000
1998 ..................... 353,000
1999 ..................... 257,000
2000 ..................... 78,000
Thereafter ............... 22,000
----------
$1,435,000
==========
</TABLE>
Rental expense under operating leases was $487,676 in 1995.
The Companies lease certain office space from the stockholder. Rental
expense under this lease was $27,456 for 1995.
The Companies carry a broad range of insurance coverage for protection of
their assets and operations from certain risks; however, consistent with other
entities in the industry, the Companies have elected not to obtain
environmental impairment liability insurance to cover possible environmental
damage. Instead, the Companies have funded multiple, irrevocable trusts in
concert with state and local officials, which would provide substantial funds
to respond to either sudden and accidental, or non-sudden occurrences
potentially impacting the environment.
Operation of the Companies' landfill requires certain regulatory permits
that need to be renewed from time to time. Management is confident that such
renewals will be obtained.
Effective November 27, 1993, the Companies joined the Construction
Services Group Trust, which includes a group of unrelated companies formed to
self-insure most of their workers' compensation costs. The group purchases
stop-loss insurance coverage for claims in excess of $400,000. The premiums
paid are based on prior years' rates and experiences.
8. SUBSEQUENT EVENT
On January 1, 1996, all of the issued and outstanding shares of capital
stock of the companies were acquired by Casella Waste Systems, Inc. (CWS) for
consideration of $2,202,000 in cash and warrants exercisable for 40,000 shares
of Casella Class A Common Stock at $7.00 per share. Additionally the agreement
also provides for additional consideration based on royalties from existing
customer disposal agreements and landfill expansion payments contingent on
additional permitted landfill capacity.
F-37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Vermont Waste and Recycling Management, Inc.:
We have audited the accompanying balance sheet of Vermont Waste and
Recycling Management, Inc. (an S corporation incorporated in the State of
Vermont) as of November 15, 1996, and the related statements of operations,
stockholders' equity and cash flows for the ten and one-half months then ended.
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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vermont Waste and Recycling
Management, Inc. as of November 15, 1996, and the results of their operations
and their cash flows for the ten and one-half months then ended, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
June 20, 1997
F-38
<PAGE>
VERMONT WASTE AND RECYCLING MANAGEMENT, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
November 15,
1996
-------------
<S> <C>
ASSETS
Current assets:
Cash .......................................................................... $ 29,771
Accounts receivable--trade, less allowance for doubtful accounts of $19,033 ... 383,597
Prepaid expenses and other current assets ..................................... 57,500
----------
Total current assets ....................................................... 470,868
----------
Property, plant and equipment, at cost:
Land .......................................................................... 9,830
Buildings and improvements .................................................... 131,434
Machinery and equipment ....................................................... 534,933
Vehicles ...................................................................... 416,011
----------
1,092,208
Less--accumulated depreciation ................................................ (617,831)
----------
474,377
----------
Other assets:
Due from stockholders ......................................................... 307,007
Goodwill, net of accumulated amortization of $3,243 ........................... 7,757
Customer lists, net of accumulated amortization of $133,936 ................... 287,367
Covenants not-to-compete, net of accumulated amortization of $318,943 ......... 51,056
----------
653,187
----------
$1,598,432
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ............................................. $ 704,161
Current portion of capital lease obligations .................................. 14,034
Accounts payable and accrued liabilities ...................................... 253,942
Revolving line of credit ...................................................... 488,000
----------
Total current liabilities .................................................. 1,460,137
----------
Capital lease obligations, less current maturities ............................... 17,038
----------
Commitments and contingencies (Note 4)
Stockholders' equity:
Common stock--
Authorized--5,000 shares, $1 par value
Issued and outstanding--200 shares ........................................... 200
Additional paid-in capital .................................................... 180,010
Accumulated deficit ........................................................... (58,953)
----------
Total stockholders' equity ................................................. 121,257
----------
$1,598,432
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
VERMONT WASTE AND RECYCLING MANAGEMENT, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Ten and One-Half
Months Ended
November 15, 1996
------------------
<S> <C>
Revenues ................................... $2,254,271
Cost of sales .............................. 1,818,244
----------
Gross profit .......................... 436,027
General and administrative expense ......... 431,824
----------
Operating income ...................... 4,203
Other (income) expense:
Interest expense ........................ 101,324
Interest income ......................... (16,904)
----------
Net loss .............................. $ (80,217)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
VERMONT WASTE AND RECYCLING MANAGEMENT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Common Additional Earnings Total
Stock, Paid-in (Accumulated Stockholders'
$1 Par Capital Deficit) Equity
-------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 ......... $200 $180,010 $ 21,264 $ 201,474
Net loss ........................ -- -- (80,217) (80,217)
---- -------- --------- ---------
Balance, November 15, 1996 ......... $200 $180,010 $ (58,953) $ 121,257
==== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
VERMONT WASTE AND RECYCLING MANAGEMENT, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Ten and One-Half
Months Ended
November 15, 1996
------------------
<S> <C>
Cash flows from operating activities:
Net loss ....................................................................... $ (80,217)
Adjustments to reconcile net loss to net cash provided by operating activities--
Depreciation and amortization ................................................. 178,037
Changes in current assets and liabilities--
Accounts receivable .......................................................... (28,485)
Notes receivable--stockholders ............................................... (45,135)
Other assets ................................................................. (31,775)
Accounts payable ............................................................. 127,753
Accrued and other liabilities ................................................ (12,456)
---------
Net cash provided by operating activities .................................. 107,722
---------
Cash flows from investing activities:
Additions to property and equipment ............................................ (57,963)
---------
Net cash used in investing activities ...................................... (57,963)
---------
Cash flows from financing activities:
Borrowings under line of credit ................................................ 48,000
Principal payments on long-term debt ........................................... (22,771)
Principal payments on capital lease obligations ................................ (46,614)
---------
Net cash used in financing activities ...................................... (21,385)
---------
Net increase in cash ............................................................ 28,374
Cash, beginning of year ......................................................... 1,397
---------
Cash, end of year ............................................................... $ 29,771
=========
Supplemental disclosure of cash flow information:
Cash paid during the year for--
Interest ...................................................................... $ 95,717
=========
Income taxes .................................................................. $ 150
=========
Supplemental schedule of noncash operating and investing activities:
Vehicles acquired in exchange for forgiveness of debt .......................... $ 11,711
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
VERMONT WASTE AND RECYCLING MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
1. OPERATIONS
Vermont Waste and Recycling Management, Inc. (the Company), an S
Corporation incorporated in the State of Vermont, is a waste hauling business
located in Williston, Vermont. On November 20, 1996, Casella Waste Systems,
Inc. and subsidiaries (CWS) acquired all of the assets and assumed all of the
liabilities of the Company. The purchase price of approximately $3,082,803
consisted of $1,450,248 in Casella stock (120,854 shares of Class A common
stock at a price of $12 per share) issued to the seller and $1,632,555 in
liabilities and closing costs paid/assumed at closing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) 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 and the disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
(b) Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation. The Company provides for depreciation using the straight-line
method by charges to operations in amounts that allocate the cost of the assets
over their estimated useful lives as follows:
<TABLE>
<CAPTION>
Estimated
Useful Life
Asset Classification ------------
<S> <C>
Vehicles ........................... 5 years
Machinery and equipment ............ 3-12 years
Buildings and improvements ......... 40 years
</TABLE>
The cost of maintenance and repairs is charged to operations as incurred.
(c) Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, trade payables and debt instruments. The book
values of cash and cash equivalents, trade receivables and trade payables
approximate their respective fair values. The Company's debt instruments
outstanding as of November 15, 1996 have carrying values that approximate their
respective fair values. See Note 3 for the terms and carrying values of the
Company's various debt instruments.
(d) Intangible Assets
The Company amortizes intangible assets on a straight-line basis over
their estimated useful lives, which generally do not exceed the following:
<TABLE>
<S> <C>
Goodwill ......................... 15 years
Covenants not to compete ......... 5-15 years
Customer lists ................... 10-15 years
</TABLE>
(e) Revenue Recognition
The Company recognizes collection and recycling services revenues as the
services are provided.
F-43
<PAGE>
VERMONT WASTE AND RECYCLING MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Income Taxes
The stockholders of the Company have elected to be treated as an S
Corporation for Federal income tax purposes, and as such, the stockholders of
the Company are responsible for reporting their proportionate share of the
Company's Federal taxable income to the Internal Revenue Service. Therefore,
the Company does not provide for Federal or state income taxes.
3. LONG-TERM DEBT
Long-term debt as of November 15, 1996 consists of the following:
<TABLE>
<S> <C>
Howard Bank--
Note payable in monthly installments of $6,496 including interest at 10.875%,
due 2009. Secured by accounts receivable, real estate and other property. The
U.S. Small Business Administration has guaranteed 75% of the note. The note
is also personally guaranteed by the stockholders .............................. $528,069
Note payable in monthly installments of $2,045 including interest at Wall Street
Journal prime plus 1.5%, adjusted quarterly, due 2009. This interest rate was
9.75% as of November 15, 1996. Secured by accounts receivable, real estate
and other property. The U.S. Small Business Administration has guaranteed
75% of the note. The note is also personally guaranteed by the stockholders .... 176,092
--------
704,161
Principal payments due within one year .......................................... (28,216)
--------
$675,945
========
</TABLE>
As of November 15, 1996, the Company has a $488,000 line-of-credit
agreement with The Howard Bank, expiring on November 15, 1996. The terms
provide for interest at 1% above the bank's prime rate (8.25% at November 15,
1996), adjusted daily. The line of credit is secured by accounts receivable,
real estate and other property. The line of credit is also guaranteed by an
affiliate company and personally guaranteed by the stockholders. As of November
15, 1996, the balance outstanding under this line was $488,000.
As of November 15 1996, debt matures as follows:
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
Fiscal Year Ended November 15,
1997 ........................ $ 28,216
1998 ........................ 31,397
1999 ........................ 34,933
2000 ........................ 38,865
2001 ........................ 43,255
Thereafter .................. 527,495
--------
$704,161
========
</TABLE>
In connection with the acquisition of the Company on November 20, 1996,
all current and long-term debt was paid off. Therefore, all debt has been
classified as current in the accompanying financial statements.
F-44
<PAGE>
VERMONT WASTE AND RECYCLING MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. COMMITMENTS AND CONTINGENCIES
(a) Leases
The following is a schedule of future minimum lease payments, together
with the present value of the net minimum lease payments under a capital lease,
as of November 15, 1996:
<TABLE>
<CAPTION>
Operating Capital
Leases Lease
----------- ----------
<S> <C> <C>
Fiscal Year Ended November 15,
1997 .......................................................... $ 7,586 $16,277
1998 .......................................................... 4,069 17,726
1999 .......................................................... 2,034 --
------- -------
Total minimum lease payments ................................ $13,689 34,003
=======
Less--Amount representing interest ............................. 2,931
-------
31,072
Current maturities of capital lease obligation ................. 14,034
-------
Present value of long-term capital lease obligation ......... $17,038
=======
</TABLE>
The Company leases containers under a lease that qualifies for treatment
as a capital lease. The lease is personally guaranteed by a stockholder. The
assets related to these leases (carrying value of $32,650 at November 15, 1996)
have been capitalized and are included in property and equipment at November
15, 1996.
The Company leases operating facilities and equipment under operating
leases with monthly payments ranging from $175 to $376.
Total rent expense under operating leases charged to operations was
$13,900, which includes related party leases (see Note 5), during the ten and
one-half months ended November 15, 1996.
5. RELATED PARTY TRANSACTIONS
The stockholders of the Company are also the majority stockholders of
Chittenden Recycling Services, Inc. (CRS), a Vermont corporation. The following
significant transactions occurred during the ten and one-half months ended
November 15, 1996:
o The management fee income of $106,903 represents expenses incurred by the
Company for management and other expenses allocable to CRS. The amount
represents labor and related costs as well as some administrative expenses.
The Company's remaining balance due from CRS at November 15, 1996 was
$106,903. This amount is included in accounts receivable.
o During the ten and one-half months ended November 15, 1996, the division
purchased $62,462 of recyclable material from CRS. At November 15, 1996,
the Company owed $30,684 to CRS. This amount is included in accounts
payable.
The Company's stockholders received advances from the Company. No notes
have been issued for these advances and there are no fixed repayment terms.
Interest income accrued on the stockholders' loans totaled $16,904 for 1996.
The advances totaled $307,007 at November 15, 1996. This amount is included in
notes receivable--stockholders' in the accompanying financial statements.
The Company leases an automobile from one of its stockholders. The lease
expires in June 1999 and the monthly payment is $339. The lease is treated as
an operating lease.
F-45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Superior Disposal Companies:
We have audited the accompanying combined balance sheets of the companies
identified in Note 1 (the Companies) as of December 31, 1995 and 1996, and the
related combined statements of operations, stockholder's equity and cash flows
for the years then ended. These financial statements are the responsibility of
the 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 financial position of the Companies as of
December 31, 1995 and 1996, and the results of their operations and their cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 23, 1997
F-46
<PAGE>
THE SUPERIOR DISPOSAL COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................................... $ 766,280 $ 9,254
Accounts receivable--trade, less allowance for doubtful accounts of
approximately $408,000 and $213,000 in 1995 and 1996, respectively 1,878,228 1,696,172
Prepaid expenses and other current assets .......................... 127,433 207,011
Deferred tax asset ................................................. 13,095 --
----------- -----------
Total current assets ............................................ 2,785,036 1,912,437
----------- -----------
Property and equipment, at cost:
Land and improvements .............................................. 275,871 275,871
Buildings and improvements ......................................... 1,219,684 1,413,609
Furniture, fixtures and office equipment ........................... 109,164 212,838
Machinery and containers ........................................... 2,776,144 3,038,770
Vehicles ........................................................... 2,911,890 3,511,088
Equipment under capital leases ..................................... 391,486 391,486
----------- -----------
7,684,239 8,843,662
Less--accumulated depreciation and amortization .................... 2,821,839 3,619,523
----------- -----------
4,862,400 5,224,139
----------- -----------
Other assets:
Intangible assets, net ............................................. 4,350,531 4,412,523
Miscellaneous deposits ............................................. -- 53,700
----------- -----------
4,350,531 4,466,223
----------- -----------
$11,997,967 $11,602,799
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term loans ................................................... $ -- $ 1,200,000
Accounts payable ................................................... 1,357,675 1,072,378
Accrued liabilities ................................................ 169,520 321,950
Current maturities of long-term debt ............................... 1,359,861 1,748,264
Current maturities of capital lease obligations .................... 61,916 68,352
Income taxes payable ............................................... 30,341 30,341
Deferred revenue ................................................... 411,268 368,809
----------- -----------
Total current liabilities ....................................... 3,390,581 4,810,094
----------- -----------
Long-term debt, less current maturities ............................. 7,221,518 6,377,697
----------- -----------
Capital lease obligations, less current maturities .................. 261,422 193,070
----------- -----------
Due to stockholder .................................................. -- 52,000
----------- -----------
Commitments and contingencies (Note 6)
Stockholder's equity:
Common stock--
Authorized--300 shares, no par value
Issued and outstanding--12 shares ................................. 2,500 2,500
Additional paid-in capital ......................................... 116,635 116,635
Retained earnings .................................................. 1,284,726 330,218
Less--treasury stock, at cost ...................................... (279,415) (279,415)
----------- -----------
Total stockholder's equity ...................................... 1,124,446 169,938
----------- -----------
$11,997,967 $11,602,799
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-47
<PAGE>
THE SUPERIOR DISPOSAL COMPANIES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1995 1996
------------- --------------
<S> <C> <C>
Revenues ......................................... $9,240,996 $15,130,702
---------- -----------
Costs and expenses:
Cost of services ................................ 5,945,827 10,361,812
General and administrative ...................... 1,124,517 2,429,623
Depreciation and amortization ................... 855,548 1,192,065
---------- -----------
7,925,892 13,983,500
---------- -----------
Operating income ................................. 1,315,104 1,147,202
---------- -----------
Other expenses:
Interest expense ................................ 437,633 818,950
Loss on sale of equipment ....................... -- 17,347
---------- -----------
437,633 836,297
---------- -----------
Income before provision for income taxes ......... 877,471 310,905
Provision for income taxes ....................... 29,346 32,724
---------- -----------
Net income ...................................... $ 848,125 $ 278,181
========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-48
<PAGE>
THE SUPERIOR DISPOSAL COMPANIES
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Retained Treasury Stockholder's
Stock Capital Earnings Stock Equity
-------- ------------ --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 ............ $2,000 $116,635 $ 1,142,041 $ (279,415) $ 981,261
Net income ........................... -- -- 848,125 -- 848,125
Issuance of common stock ............. 500 -- -- -- 500
Distributions to stockholder ......... - -- (705,440) -- (705,440)
------ -------- ------------ ---------- ----------
Balance, December 31, 1995 ............ 2,500 116,635 1,284,726 (279,415) 1,124,446
Net income ........................... -- -- 278,181 -- 278,181
Distributions to stockholder ......... - -- (1,232,689) -- (1,232,689)
------ -------- ------------ ---------- ----------
Balance, December 31, 1996 ............ $2,500 $116,635 $ 330,218 $ (279,415) $ 169,938
====== ======== ============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-49
<PAGE>
THE SUPERIOR DISPOSAL COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1995 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................................... $ 848,125 $ 278,181
------------ ------------
Adjustments to reconcile net income to net cash provided by
operating activities--
Provision for bad debts, net of writeoffs ......................... 333,288 (195,280)
Depreciation and amortization ..................................... 855,548 1,192,065
Loss on sale of equipment ......................................... -- 17,347
Deferred income tax ............................................... (13,095) 13,095
Changes in assets and liabilities, net of effects of acquisitions--
Accounts receivable .............................................. (1,570,719) 377,336
Other current assets ............................................. (92,201) (79,578)
Accounts payable ................................................. 978,772 (285,297)
Accrued and other liabilities .................................... (95,524) 152,430
Income taxes payable ............................................. 30,341 --
Deferred revenue ................................................. 223,536 (42,459)
------------ ------------
649,946 1,149,659
------------ ------------
Net cash provided by operating activities ...................... 1,498,071 1,427,840
------------ ------------
Cash flows from investing activities:
Acquisitions, net of cash acquired ................................. (3,007,296) (460,000)
Additions to property and equipment ................................ (636,912) (1,110,656)
Proceeds from sale of property and equipment ....................... -- 52,074
Decrease (increase) in other assets ................................ 60,884 (33,261)
------------ ------------
Net cash used in investing activities .......................... (3,583,324) (1,551,843)
------------ ------------
Cash flows from financing activities:
Due to stockholder ................................................. -- 52,000
Proceeds from short-term borrowings ................................ -- 1,200,000
Proceeds from long-term borrowings ................................. 5,934,083 930,000
Principal payments on long-term debt ............................... (2,542,323) (1,520,418)
Principal payments on capital lease obligations .................... (51,001) (61,916)
Proceeds from issuance of common stock ............................. 500 --
Distributions to stockholder ....................................... (705,440) (1,232,689)
------------ ------------
Net cash provided by (used in) financing activities ............ 2,635,819 (633,023)
------------ ------------
Net increase (decrease) in cash ..................................... 550,566 (757,026)
Cash, beginning of year ............................................. 215,714 766,280
------------ ------------
Cash, end of year .................................................. $ 766,280 $ 9,254
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for--
Interest .......................................................... $ 411,525 $ 827,059
============ ============
Income taxes ...................................................... $ 8,820 $ 32,724
============ ============
Supplemental disclosure of noncash investing and financing activities--
Acquisition of property and equipment under capital leases ......... $ 141,441 $ --
============ ============
Summary of acquisitions--
Fair value of assets acquired ..................................... $ 6,629,006 $ 595,000
Cash paid ......................................................... (3,007,296) (460,000)
------------ ------------
Liabilities assumed and notes payable to sellers ............... $ 3,621,710 $ 135,000
============ ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-50
<PAGE>
THE SUPERIOR DISPOSAL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
The Superior Disposal Companies (the Companies), represents the combined
accounts of Superior Disposal Service, Inc. (Superior) (a New York
corporation), Kerkim, Inc. (Kerkim) (a New York corporation) and Kensue, Inc.
(Kensue) (a Pennsylvania corporation). These companies are owned by the same
stockholder. Kensue's financial statements are the consolidation of Kensue and
its two subsidiaries: Claws Refuse, Inc. (Claws) (a Pennsylvania corporation)
and S.D.S. at PA, Inc. (SDS at PA) (a Pennsylvania corporation), which have a
March 31 fiscal year end.
These companies are engaged in non-hazardous waste collection, recycling,
transportation and transfer station businesses. The Companies service
residential, commercial and municipal customers in the states of New York and
Pennsylvania.
For the purpose of the combined financial statements, all material
intercompany balances and transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of certain
accounting policies as described in this note and elsewhere in the financial
statements and notes.
(a) Use of Estimates in the Preparation of Financial Statements
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 and the disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
(b) Revenue Recognition
The Company recognizes revenue as the related services are provided.
Certain customers are billed in advance and, accordingly, recognition of the
related revenues is deferred until the services are provided.
(c) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. The Company provides for depreciation and amortization using
the straight-line method by charges to operations in amounts that allocate the
cost of the assets over their estimated useful lives as follows:
<TABLE>
<CAPTION>
Estimated
Asset Classification Useful Life
-------------------- -----------
<S> <C>
Buildings and improvements ....................... 28-40 years
Furniture, fixtures and office equipment ......... 4-8 years
Vehicles ......................................... 2-10 years
Machinery and containers ......................... 7-10 years
</TABLE>
The cost of maintenance and repairs is charged to operations as incurred.
(d) Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, trade
receivables, trade payables and debt instruments. The book values of cash,
trade receivables and trade payables approximate their respective fair values.
The Company's debt instruments that are outstanding as of December 31, 1995
F-51
<PAGE>
THE SUPERIOR DISPOSAL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
and 1996 have carrying values that approximate their respective fair values.
See Note 5 for the terms and carrying values of the Company's various debt
instruments.
(e) Intangible Assets
Goodwill is the cost in excess of fair value of identifiable assets of
acquired businesses and is amortized on the straight-line method over periods
not exceeding 40 years. Other intangible assets include covenants not to
compete and organization costs and are amortized on the straight-line method
over their estimated useful lives, typically no more than 15 and 5 years,
respectively. The Companies continually evaluate whether events and
circumstances have occurred subsequent to an acquisition that indicate the
remaining estimated useful life or carrying value of these intangible assets
may warrant revision. When factors indicate that these assets should be
evaluated for possible impairment, the Companies use an estimate of the related
business segment's undiscounted cash flows over the remaining life of the asset
in measuring recoverability.
Intangible assets at December 31, 1995 and 1996 consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Goodwill ............................... $4,171,080 $4,393,480
Covenants not-to-compete ............... 519,167 539,167
Organization costs ..................... 27,225 27,225
---------- ----------
4,717,472 4,959,872
Less--accumulated amortization ......... 366,941 547,349
---------- ----------
$4,350,531 $4,412,523
========== ==========
</TABLE>
(f) Income Taxes
Superior and Kerkim elected S corporation status under the Internal
Revenue Code. Therefore, the tax effect of each company's operations will be
reflected in the individual tax returns of the stockholder.
Kensue has elected C corporation status under the Internal Revenue Code
and files consolidated federal and state income tax returns. Kensue records
income taxes in accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred
income taxes are recognized based on the expected future tax consequences of
differences between the financial statement basis and the tax basis of assets
and liabilities, calculated using enacted tax rates in effect for the year in
which the differences are expected to be reflected in the tax return.
(g) Accounting Principles
Effective May 1, 1996, the Companies adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of. In accordance with SFAS No. 121, the Companies evaluate the recoverability
of its carrying value of the Companies' long-lived assets and certain
intangible assets based on estimated undiscounted cash flows to be generated
from each of such assets as compared to the original estimates used in
measuring the assets. To the extent impairment is identified, the Companies
reduce the carrying value of such impaired assets. The change did not have a
material impact on the Companies' financial statements.
F-52
<PAGE>
THE SUPERIOR DISPOSAL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
3. ACQUISITIONS OF NEW BUSINESSES
During March 1995, Superior acquired the assets of two companies, Valley
Disposal, Inc. and Doane's Disposal, Inc., for a total purchase price of
approximately $1,008,000. The assets purchased included fixed assets totaling
$659,000 and covenants not-to-compete totaling $19,000. The excess of the
purchase price over the assets acquired was assigned to goodwill.
Kerkim acquired the assets of W.M. Speigel Sons, Inc. in September 1995
for a total purchase price of $2,400,000. The fair value assigned to fixed
assets acquired and covenants not-to-compete were approximately $300,000 and
$200,000, respectively. The excess purchase price over the assets acquired was
assigned to goodwill.
In June 1995, Kensue acquired all of the outstanding common stock of Claws
for a total purchase price of approximately $594,000. Net assets acquired
totaled approximately $243,000. The excess of the purchase price over the net
assets acquired was allocated to goodwill in the amount of $351,000.
The subsidiaries of Kensue also completed several acquisitions during
1995. In November 1995, SDS at PA acquired the assets of WW Disposal Service,
Inc. and G-Disposal Service, Inc. for a total purchase price of $2,229,000. The
fair value of fixed assets acquired and covenants not-to-compete totaled
$805,000 and $60,000, respectively. The excess purchase price over the assets
acquired was allocated to goodwill.
In January 1996, Claws acquired the assets of A.C. Hamm for a total
purchase price of $195,000. The fair value of fixed assets acquired and
covenants not-to-compete totaled $143,000 and $10,000, respectively.
In July 1996, Superior also acquired the assets of Gar-Kim, Inc. for a
total purchase price of $400,000. The fair value of fixed assets acquired and
covenants not-to-compete totaled $184,000 and $10,000, respectively.
The acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the purchase prices have been allocated to the
assets acquired based on the estimated fair values at the date of acquisition.
The excess of purchase price over the estimated fair values of the net assets
acquired has been recorded as goodwill, which is being amortized over 40 years.
4. SHORT-TERM LOANS
The short-term loans bear interest at rates ranging from 8% to 9.125% per
annum and are secured by all assets of Superior and a certain loan by a
personal guarantee of the sole stockholder.
5. LONG-TERM DEBT
Long-term debt as of December 31, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Term loans and line of credit with banks ..................... $4,950,562 $4,981,219
Notes payable in connection with businesses acquired ......... 3,384,181 2,976,109
Other notes payable .......................................... 246,636 168,633
---------- ----------
8,581,379 8,125,961
Less--current portion ........................................ 1,359,861 1,748,264
---------- ----------
$7,221,518 $6,377,697
========== ==========
</TABLE>
F-53
<PAGE>
THE SUPERIOR DISPOSAL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
5. LONG-TERM DEBT (Continued)
The term loans and line of credit with banks bear interest at rates
ranging from 9% to 9.625% per annum and are secured by all assets of the
Companies, and certain loans by a personal guarantee of the sole stockholder.
The loans are due on dates ranging from January 1997 to September 2002 and are
payable in monthly installments ranging from $520 to $25,000.
Notes payable in connection with businesses acquired bear interest at
rates ranging from 7% to 10% and are secured by all the assets of the
Companies. The notes are due on dates ranging from January 1997 to December
2005, and are payable in monthly installments ranging from $1,000 to $12,215.
As of December 31, 1996, debt matures as follows (rounded to thousands):
<TABLE>
<CAPTION>
Amount
-------------
<S> <C>
Fiscal Year Ended December 31,
1997 ........................ $1,748,000
1998 ........................ 1,238,000
1999 ........................ 1,206,000
2000 ........................ 1,512,000
2001 ........................ 944,000
Thereafter .................. 1,478,000
----------
$8,126,000
==========
</TABLE>
In January 1997, a substantial portion of the Companies' debt was paid off
by Casella Waste Systems in connection with the acquisition described in Note
9.
6. COMMITMENTS AND CONTINGENCIES
(a) Leases
The following is a schedule of future minimum lease payments, together
with the present value of the net minimum lease payments under capital leases,
as of December 31, 1996.
<TABLE>
<CAPTION>
Operating Leases Capital Leases
------------------ ---------------
<S> <C> <C>
Fiscal Year Ended December 31,
1997 ....................................................... $ 39,627 $ 91,296
1998 ....................................................... 40,206 91,296
1999 ....................................................... 39,416 104,404
2000 ....................................................... 37,816 20,655
-------- --------
Total minimum lease payments ............................. $157,065 307,651
========
Amount representing interest ................................ 46,229
--------
261,422
Current maturities of capital lease obligations ............. 68,352
--------
Present value of long-term capital lease obligations ..... $193,070
========
</TABLE>
The Companies lease hauling vehicles under leases that qualify for
treatment as capital leases. The assets related to these leases have been
capitalized and are included in property and equipment.
The Companies lease operating facilities and equipment under operating
leases with monthly payments ranging from $170 to $2,900.
F-54
<PAGE>
THE SUPERIOR DISPOSAL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
6. COMMITMENTS AND CONTINGENCIES (Continued)
Total rent expense under operating leases charged to operations was
$16,000 and $33,600 during the years ended 1995 and 1996, respectively.
(b) Litigation
In the normal course of conducting its operations, the Companies may
become involved in certain legal and administrative proceedings. Some of these
actions may result in fines, penalties or judgments against the Companies,
which may have an impact on earnings for a particular period. Management
expects that such matters in process at December 31, 1996 will not have a
material adverse effect on the Companies' financial position, including its
liquidity or its results of operations.
7. INCOME TAXES
The provision for income taxes as of December 31, 1995 and 1996 consists
of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1996
------------ ---------
<S> <C> <C>
Federal--
Current .......... $ 30,341 $ --
Deferred ......... (13,095) 13,095
--------- -------
17,246 13,095
State ............. 12,100 19,629
--------- -------
Total .......... $ 29,346 $32,724
========= =======
</TABLE>
The provision for income taxes differs from the amounts determined by
applying the federal statutory rate of 40% to income before provision for
income taxes due mainly to the S corporation status of Superior and Kerkim and
state income taxes.
The components of the deferred tax asset at December 31, 1995 and 1996 are
as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1996
---------- ------------
<S> <C> <C>
Net operating loss carryforwards ........................... $ -- $ 41,187
Allowance for doubtful accounts ............................ -- 39,783
Accelerated depreciation of property and equipment ......... 4,000 8,000
Deferred revenue ........................................... 9,095 (11,482)
------- ---------
13,095 77,488
Less--valuation allowance .................................. -- 77,488
------- ---------
$13,095 $ --
======= =========
</TABLE>
In 1996, the Companies recorded a 100% valuation allowance against the
deferred tax asset, as realization of the asset is uncertain.
8. RELATED PARTY TRANSACTIONS
Superior leases its office and garage facility in Newfield, New York, from
its sole stockholder. Rental payments for the years ended December 31, 1995 and
1996 totaled $30,000 and $64,000, respectively. The lease is on a
month-to-month basis.
F-55
<PAGE>
THE SUPERIOR DISPOSAL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
8. RELATED PARTY TRANSACTIONS (Continued)
The sole stockholder is guarantor on several outstanding loans of the
Companies. In addition, one loan is collateralized by the personal residence of
the sole stockholder.
9. SUBSEQUENT EVENTS
On January 2, 1997, Casella Waste Systems, Inc. (CWS) acquired
substantially all of the assets of Superior Disposal Services, Inc., Claws
Refuse Inc. and S.D.S. at PA, Inc., accounted for as an asset purchase. On
January 23, 1997, CWS acquired substantially all of the assets of Kerkim, Inc.,
which it also accounted for as an asset purchase.
F-56
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Chairman and Members of the Board of Legislators of
Clinton County, New York:
We have audited the accompanying balance sheet of Clinton County, New
York--Solid Waste Department Enterprise Fund as of December 31, 1995, and the
related statements of operations, fund deficit and cash flows for the year then
ended. These financial statements are the responsibility of the County's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Clinton County, New
York--Solid Waste Department Enterprise Fund as of December 31, 1995, and the
results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
July 25, 1997
F-57
<PAGE>
CLINTON COUNTY, NEW YORK--
SOLID WASTE DEPARTMENT ENTERPRISE FUND
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1996
------------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 7,271,096 $ 5,296,980
Accounts receivable--trade ......................................... 415,547 591,185
State and federal aid receivable ................................... 946,418 840,603
Prepaid expenses ................................................... -- 67,011
------------ ------------
Total current assets ............................................ 8,633,061 6,795,779
------------ ------------
Property, plant and equipment, at cost:
Land ............................................................... 223,861 235,561
Landfills .......................................................... 5,252,146 5,741,167
Land improvements .................................................. 698,830 698,830
Buildings .......................................................... 2,642,443 2,694,693
Machinery and equipment ............................................ 3,994,023 3,998,733
------------ ------------
12,811,303 13,368,984
Less--accumulated depreciation and amortization .................... 1,928,116 2,142,468
------------ ------------
10,883,187 11,226,516
------------ ------------
$ 19,516,248 $ 18,022,295
============ ============
LIABILITIES AND FUND DEFICIT
Current liabilities:
Bond anticipation notes payable .................................... $ 11,758,648 $ 11,361,098
Current maturities of long-term debt ............................... 322,800 326,000
Accounts payable ................................................... 717,755 75,193
Accrued liabilities ................................................ 371,621 499,871
Accrued closure and postclosure costs, current portion ............. 366,531 122,640
------------ ------------
Total current liabilities ....................................... 13,537,355 12,384,802
------------ ------------
Long-term debt, less current maturities ............................. 4,831,600 4,505,600
------------ ------------
Accrued closure and postclosure costs, less current portion ......... 7,773,402 7,794,081
------------ ------------
Other long-term liabilities ......................................... 127,926 118,961
------------ ------------
Fund deficit:
Contributed capital ................................................ 909,790 909,790
Accumulated deficit ................................................ (7,663,825) (7,690,939)
------------ ------------
Total fund deficit .............................................. (6,754,035) (6,781,149)
------------ ------------
$ 19,516,248 $ 18,022,295
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
CLINTON COUNTY, NEW YORK--
SOLID WASTE DEPARTMENT ENTERPRISE FUND
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, 1995 June 30, 1996
------------------- --------------
(Unaudited)
<S> <C> <C>
Service revenues ....................... $4,184,317 $1,539,321
State and federal aid .................. 871,004 --
---------- ----------
Net revenues ....................... 5,055,321 1,539,321
---------- ----------
Operating expenses:
Cost from operations .................. 3,373,310 1,076,742
General and administrative ............ 213,134 74,047
Depreciation and amortization ......... 447,401 214,352
---------- ----------
4,033,845 1,365,141
---------- ----------
Income from operations ................. 1,021,476 174,180
---------- ----------
Other (income) expenses:
Interest income ....................... (334,258) (140,924)
Interest expense ...................... 577,526 353,072
Loss on sale of equipment ............. 16,855 --
Other income .......................... (110,169) (10,854)
---------- ----------
149,954 201,294
---------- ----------
Net income (loss) .................. $ 871,522 $ (27,114)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE>
CLINTON COUNTY, NEW YORK--
SOLID WASTE DEPARTMENT ENTERPRISE FUND
STATEMENT OF FUNDS DEFICIT
<TABLE>
<CAPTION>
Contributed Accumulated Total Fund
Capital Deficit Deficit
------------- ---------------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1994 ................. $909,790 $ (8,535,347) $ (7,625,557)
Net income .............................. -- 871,522 871,522
-------- ------------ ------------
Balance, December 31, 1995 ................. 909,790 (7,663,825) (6,754,035)
Net loss (unaudited) .................... -- (27,114) (27,114)
-------- ------------ ------------
Balance, June 30, 1996 (unaudited) ......... $909,790 $ (7,690,939) $ (6,781,149)
======== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
CLINTON COUNTY, NEW YORK--
SOLID WASTE DEPARTMENT ENTERPRISE FUND
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, 1995 June 30, 1996
------------------- --------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................................... $ 871,522 $ (27,114)
------------ ------------
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities--
Depreciation and amortization ....................................... 447,401 214,352
Loss on sale of equipment ........................................... 16,855 --
Changes in assets and liabilities--
Accounts receivable ................................................ 157,083 (175,638)
State and federal aid receivable ................................... (790,263) 105,815
Prepaid expenses ................................................... -- (67,011)
Accounts payable ................................................... 428,814 (642,562)
Accrued closure and postclosure costs .............................. (1,050,610) (223,212)
Accrued liabilities ................................................ 124,778 119,285
------------ ------------
(665,942) (668,971)
------------ ------------
Net cash provided by (used in) operating activities .............. 205,580 (696,085)
------------ ------------
Cash flows from investing activities:
Additions to property and equipment .................................. (6,030,603) (557,681)
Proceeds from sale of equipment ...................................... 67,366 --
------------ ------------
Net cash used in investing activities ............................ (5,963,237) (557,681)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of bond anticipation notes .................... 6,690,000 --
Principal payments on bond anticipation notes ........................ (402,320) (397,550)
Principal payments on long-term debt ................................. (292,800) (322,800)
------------ ------------
Net cash provided by (used in) financing activities .............. 5,994,880 (720,350)
------------ ------------
Net increase (decrease) in cash and cash equivalents .................. 237,223 (1,974,116)
Cash and cash equivalents, beginning of period ........................ 7,033,873 7,271,096
------------ ------------
Cash and cash equivalents, end of period .............................. $ 7,271,096 $ 5,296,980
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest ............................... $ 531,983 $ 191,412
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
CLINTON COUNTY, NEW YORK--
SOLID WASTE DEPARTMENT ENTERPRISE FUND
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
1. OPERATIONS
The Clinton County, New York--Solid Waste Department Enterprise Fund (the
Fund) is engaged in nonhazardous waste collection, recycling, transportation
and transfer station and landfill disposal facility businesses. The Fund
services residential, commercial and municipal customers throughout Clinton
County, New York (the County).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue Recognition
The Fund recognizes collection and recycling services revenues as the
services are provided. State aid consists of funds granted by the State of New
York to the Fund to subsidize costs associated with the closure of the County's
landfills.
(b) Cash and Cash Equivalents
The Fund considers all highly liquid investments purchased with maturities
of three months or less to be cash equivalents.
(c) Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation. The Fund provides for depreciation using the straight-line method
by charges to operations in amounts that allocate the cost of the assets over
their estimated useful lives as follows:
<TABLE>
<CAPTION>
Estimated
Asset Classification Useful Life
- ------------------------------------ ------------
<S> <C>
Buildings ....................... 30 years
Machinery and equipment ......... 5-20 years
Land improvements ............... 6-15 years
</TABLE>
Depreciation expense for the year ended December 31, 1995 and the six
months ended June 30, 1996 was $447,401 and $214,352, respectively. The cost of
maintenance and repairs is charged to operations 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 and construction. Management routinely reviews its
investment in operating landfills, transfer stations and other significant
facilities to determine whether the costs of these investments are realizable.
Landfill permitting and acquisition costs, excluding the estimated
residual value of land, are typically amortized as permitted airspace of the
landfill is consumed. For many of the Fund's landfills, preparation costs,
which include the costs of construction associated with excavation, liners and
the installation of leak detection and leachate collection systems, are also
typically amortized as total permitted airspace of the landfill is consumed. In
determining the amortization rate for these landfills, preparation costs
include the total estimated costs to complete construction of the landfills'
permitted capacity.
(d) Accrued Closure and Postclosure Costs
New York state laws and regulations require the Fund to place a final
cover on all sites when it stops accepting waste and to perform certain
maintenance and monitoring functions at the sites for thirty years after
closure. Although closure and postclosure care costs will be paid only near or
after the date the landfills stop accepting waste, the Fund reports a portion
of these closure and postclosure care costs as
F-62
<PAGE>
CLINTON COUNTY, NEW YORK--
SOLID WASTE DEPARTMENT ENTERPRISE FUND
NOTES TO FINANCIAL STATEMENTS--(Continued)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
an operating expense in each period based on landfill capacity used as of each
balance sheet date. The $8,139,933 and $7,916,721 reported as accrued closure
and postclosure care liability at December 31, 1995 and June 30, 1996,
respectively, represents the cumulative amount recorded to date, less amounts
previously paid, based on the estimated capacity used. As of June 30, 1996, 97
percent of the capacity at the Schuyler Falls landfill and 100 percent at the
AuSable and Mooers landfill site had been used. The Fund will recognize the
remaining estimated cost of closure and postclosure care of $138,267 as the
remaining estimated capacity is filled. These amounts are based on what it
would cost to perform all closure and postclosure care in 1996. Actual cost may
be higher due to inflation, changes in technology or changes in regulations.
The County plans to finance the landfill closures through the issuance of
County bonds and debt service expected to be paid primarily through user fees
charged at the landfills and future lease payments from privatization of the
landfills' management and operations (see Note 5).
(e) General and Administrative Expenses
Included in general and administrative expenses are allocations of general
County expenses in the amounts of $180,000 and $67,000 for the year ended
December 31, 1995 and the six months ended June 30, 1996, respectively.
(f) Income Taxes
The Fund is a department of Clinton County, New York, a municipal
corporation, and is therefore exempt from state and federal income taxes.
(g) Fair Value of Financial Instruments
The Fund's financial instruments consist primarily of cash and cash
equivalents, trade receivables, trade payables and debt instruments. The book
values of cash and cash equivalents, trade receivables and trade payables
approximate their respective fair values. The Fund's debt instruments that are
outstanding as of December 31, 1995 and June 30, 1996 have carrying values that
approximate their respective fair values. See Note 3 for the terms and carrying
values of the Fund's various debt instruments.
(h) 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 and the disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
(i) Impairment of Long-Lived Assets
Effective January 1, 1996, the Fund adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of. This statement
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The statement also requires that certain long-lived assets and
identifiable intangibles to be disposed of be reported at the lower of the
carrying amount or fair value less cost to sell. The adoption of this statement
did not impact the Fund's financial statements.
F-63
<PAGE>
CLINTON COUNTY, NEW YORK--
SOLID WASTE DEPARTMENT ENTERPRISE FUND
NOTES TO FINANCIAL STATEMENTS--(Continued)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
3. LONG-TERM DEBT
Long-term debt as of December 31, 1995 and June 30, 1996 consisted of the
following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
-------------- --------------
(unaudited)
<S> <C> <C>
Bond anticipation notes payable ......... $11,758,648 $11,361,098
Serial bond payable ..................... 5,154,400 4,831,600
----------- -----------
16,913,048 16,192,698
Less--current portion ................... 12,081,448 11,687,098
----------- -----------
$ 4,831,600 $ 4,505,600
=========== ===========
</TABLE>
Bond anticipation notes must be renewed annually. As of December 31, 1995,
the Fund had eight notes outstanding with principal amounts ranging from
$23,000 to $6.4 million. These notes bear interest at rates ranging from 3.85
percent to 4.59 percent.
As of June 30, 1996, the Fund had six notes outstanding with principal
amounts ranging from $75,000 to $6.4 million. These notes bear interest at
rates ranging from 3.62 percent to 4.00 percent.
The Serial Bonds were issued in 1994 in the amount of $5.4 million. As of
December 31, 1995 and June 30, 1996, approximately $5.1 million and $4.8
million, respectively, remains outstanding bearing interest at rates ranging
from 5.1 percent to 5.7 percent. These notes are due to mature in 2012.
As of June 30, 1996, debt matures as follows:
<TABLE>
<CAPTION>
Amount
--------------
(unaudited)
<S> <C>
Fiscal Year Ended June 30,
1997 .................... $11,687,098
1998 .................... 326,000
1999 .................... 354,000
2000 .................... 357,200
2001 .................... 384,200
Thereafter .............. 3,084,200
-----------
$16,192,698
===========
</TABLE>
4. RETIREMENT BENEFITS
The Fund participates in the New York State and Local Employees'
Retirement System and the Public Employees' Group Life Insurance Plan. These
are cost sharing multiple-employer retirement plans. These plans provide
retirement benefits as well as death and disability benefits. The Fund is
required to contribute at an actuarially determined rate. The contributions
made for the year ended December 31, 1995 and the six months ended June 30,
1996 were $17,304 and $7,334, respectively, and were equal to 100% of the
required contributions.
In addition to providing pension benefits, the Fund provides health
insurance benefits, in accordance with its Civil Service Employees Association,
Inc. contract, to retired employees and their spouses. These benefits are
funded and accounted for by the Fund as paid, which is not materially different
from the accrual method required by SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. The total cost of providing these
benefits during the year ended December 31, 1995 and the six months ended June
30, 1996 was not material.
F-64
<PAGE>
CLINTON COUNTY, NEW YORK--
SOLID WASTE DEPARTMENT ENTERPRISE FUND
NOTES TO FINANCIAL STATEMENTS--(Continued)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
5. SUBSEQUENT EVENT
On July 10, 1996, the Fund entered into a 25-year operation, management
and lease agreement with Casella Waste Systems, Inc. (Casella). Under this
agreement, Casella will lease all of the Fund's non-hazardous solid waste
system facilities, which includes the fully permitted Subtitle D lined
landfill, one transfer station, one recycling facility, 11 convenience stations
and all of the equipment associated with these facilities. As part of this
agreement, Casella will pay the Fund the total sum of $10,501,284 payable in 28
equal quarterly installments, commencing with the closing date. In addition, in
accordance with the agreement, Casella will be responsible for, and pay for,
the capping and closing of the Fund's Schuyler Falls, New York, unlined
landfill in 1997. The Fund will be responsible for postclosure care of the
unlined landfill. The total cost of this landfill closure project is currently
estimated at $3,200,000.
F-65
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of:
H.C. Gobin, Inc.
Claremont, NH
We have audited the accompanying balance sheets of H.C. Gobin, Inc. (a
Delaware Corporation) as of December 31, 1996 and 1995, and the related
statement of income and retained earnings and cash flows for the years then
ended. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of H.C. Gobin, Inc. as of
December 31, 1996 and 1995 and the results of operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
/s/ Barrett & Dattilio, P.C.
----------------------------
Barrett & Dattilio, P.C.
Registration #440
September 26, 1997
Quechee, VT
F-66
<PAGE>
H.C. GOBIN, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------- June 30,
1995 1996 1997
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 40,773 $ 81,460 $ 156,423
Accounts receivable--trade, less allowance for
doubtful accounts of approximately $5,000,
$45,000 and $10,000 ................................... 442,085 642,585 567,109
Accounts receivable--employee .......................... 360 800 --
Deferred income taxes .................................. -- 33,236 --
Inventory .............................................. 65,005 61,332 56,383
Prepaid expenses ....................................... 62,245 47,500 51,322
Prepaid insurance ...................................... 24,259 25,904 26,535
Note receivable--stockholder ........................... -- 24,535 24,535
Deposits ............................................... 5,000 -- --
---------- ---------- ----------
Total current assets ................................ 639,727 917,352 882,307
---------- ---------- ----------
Property and equipment, at cost:
Rolling stock .......................................... 484,163 2,601,229 2,443,433
Buildings .............................................. -- 148,053 149,053
Leasehold improvements ................................. 40,089 45,877 45,877
Machinery and equipment ................................ 598,219 1,581,021 1,542,968
Assets under capital lease ............................. 2,183,793 18,255 18,255
Construction in progress ............................... 20,559 -- --
---------- ---------- ----------
3,326,823 4,394,435 4,199,586
Less--accumulated depreciation ......................... 1,299,097 1,521,185 1,587,185
---------- ---------- ----------
Property and equipment, net ......................... 2,027,726 2,873,250 2,612,401
---------- ---------- ----------
Other assets:
Customer list, net of accumulated amortization ......... 11,043 358,727 204,815
Goodwill, net of accumulated amortization .............. 40,985 48,762 46,920
Covenant, net of accumulated amortization .............. 11,528 119,025 10,273
Loan fees, net of accumulated amortization ............. 2,700 63,648 61,160
Management systems ..................................... 32,838 37,679 35,585
Deposits, net of current ............................... 600 6,150 15,850
---------- ---------- ----------
99,694 633,991 374,603
---------- ---------- ----------
$2,767,147 $4,424,593 $3,869,311
========== ========== ==========
</TABLE>
See independent auditor's report and accompanying notes to financial
statements.
F-67
<PAGE>
H.C. GOBIN, INC.
BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
December 31,
----------------------------- June 30,
1995 1996 1997
------------- ------------- --------------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit .......................................... $ 65,000 $ 249,952 $ 215,417
Current maturities of long-term debt, capital lease
obligations and due to stockholders .................... 365,249 328,196 328,196
Accounts payable ........................................ 272,850 860,544 1,099,260
Accrued payroll and related expenses .................... 16,059 54,788 25,300
State income tax payable ................................ 1,410 1,903 3,587
Deferred revenue ........................................ 6,174 31,739 36,829
401K pension plan ....................................... 476 678 400
Accrued interest ........................................ 3,861 23,539 20,687
Deferred income taxes ................................... 12,188 -- --
Other accrued expenses .................................. -- 1,392 --
---------- ---------- ----------
Total current liabilities ............................ 743,267 1,552,731 1,729,676
---------- ---------- ----------
Long-term debt, less current maturities .................... 437,864 2,267,469 2,093,227
---------- ---------- ----------
Capital lease obligations, less current maturities ......... 461,820 10,737 6,767
---------- ---------- ----------
Deferred income taxes ...................................... -- -- 31,138
---------- ---------- ----------
Due to stockholders, less current maturities ............... 7,388 5,395 2,766
---------- ---------- ----------
Stockholders' equity:
Common stock, no par value
Authorized--3,000 shares
Issued and outstanding--240 shares ..................... 124,800 124,800 124,800
Additional paid-in capital .............................. 50,422 50,422 50,422
Treasury stock--cost .................................... (377,585) (377,585) (377,585)
Retained earnings ....................................... 1,319,171 790,624 208,100
---------- ---------- ----------
Total stockholders' equity ........................... 1,116,808 588,261 5,737
---------- ---------- ----------
$2,767,147 $4,424,593 $3,869,311
========== ========== ==========
</TABLE>
See independent auditor's report and accompanying notes to financial
statements.
F-68
<PAGE>
H.C. GOBIN, INC.
STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
December 31, June 30,
--------------------------- -----------------
1995 1996 1997
------------- ------------- -----------------
(Unaudited)
<S> <C> <C> <C>
Net revenues ..................................... $3,676,850 $4,871,867 $2,567,416
---------- ---------- ----------
Operating expenses:
Cost from operations .......................... 2,528,881 3,808,637 2,070,017
General and administrative .................... 517,811 860,264 473,338
Depreciation and amortization ................. 245,993 393,652 203,917
---------- ---------- ----------
3,292,685 5,062,553 2,747,272
---------- ---------- ----------
Income from operations ........................... 384,165 (190,686) (179,856)
---------- ---------- ----------
Other (income) expenses:
Interest income ............................... (4,403) (6,873) --
Interest expense .............................. 172,000 250,521 138,797
Sale of assets ................................ (20,397) 17,990 157,935
Loss on investment ............................ -- -- 29,451
Penalty on capital lease conversion ........... -- 118,330 --
---------- ---------- ----------
147,200 379,968 326,183
---------- ---------- ----------
Income before provision for income taxes ......... 236,965 (570,654) (506,039)
Provision for income taxes ....................... 9,523 (42,107) 76,485
---------- ---------- ----------
Net income (loss) .......................... $ 227,442 $ (528,547) $ (582,524)
========== ========== ==========
Retained earnings, beginning of year ............. 1,091,729 1,319,171 790,624
---------- ---------- ----------
Retained earnings, end of period ................. $1,319,171 $ 790,624 $ 208,100
========== ========== ==========
</TABLE>
See independent auditor's report and accompanying notes to financial
statements.
F-69
<PAGE>
H.C. GOBIN, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
December 31, June 30,
---------------------------- -----------------
1995 1996 1997
------------- -------------- -----------------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ..................................... $ 227,442 $ (528,547) $ (582,524)
---------- ------------ ----------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities--
Depreciation and amortization ........................ 245,993 393,652 203,917
(Gain) loss on sale of equipment ..................... (20,397) 17,990 157,935
Provision (benefit) for deferred income taxes ........ 6,413 (45,424) 74,878
Changes in assets and liabilities--
Accounts receivable .................................. (128,923) (200,940) 76,276
Notes receivable ..................................... 13,829 (24,535) --
Prepaid expenses ..................................... (10,180) 18,100 (4,453)
Inventories .......................................... (7,521) 3,673 4,949
Other current assets ................................. (16,939) (611,148) (9,699)
Accounts payable ..................................... 77,038 587,694 197,135
Accrued expenses and other liabilities ............... 13,245 86,059 3,842
---------- ------------ ----------
172,558 225,321 704,780
---------- ------------ ----------
Net cash provided by (used in) operating
activities ........................................ 400,000 (303,426) 122,256
---------- ------------ ----------
Cash flows from investing activities:
Additions to property and equipment ................... (698,197) (1,190,187) (17,832)
Proceeds from sale of equipment ....................... 7,275 14,845 185,918
---------- ------------ ----------
Net cash provided by (used in) investing
activities ........................................ (690,922) (1,175,342) 168,086
---------- ------------ ----------
Cash flows from financing activities:
Proceeds from issuance debt ........................... 962,899 2,429,483 --
Principal payment on line of credit ................... -- 184,952 (34,535)
Principal payments on long-term debt .................. (304,680) (1,094,980) (180,844)
Purchase of treasury stock ............................ (377,585) -- --
---------- ------------ ----------
Net cash provided by (used in) financing
activities ........................................ 280,634 1,519,455 (215,379)
---------- ------------ ----------
Net increase (decrease) in cash and cash equivalents ..... (10,288) 40,687 74,963
Cash and cash equivalents, beginning of period ........... 51,061 40,773 81,460
---------- ------------ ----------
Cash and cash equivalents, end of period ................. $ 40,773 $ 81,460 $ 156,423
========== ============ ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for--
Interest ............................................. $ 168,139 $ 230,843 $ 135,167
========== ============ ==========
Income taxes ......................................... $ 1,935 $ 2,824 $ --
========== ============ ==========
</TABLE>
Cash and Cash Equivalents--For purposes of the Statements of Cash Flows, the
Company considers all investment instruments purchased with a maturity of three
months or less to be cash equivalents.
See independent auditor's report and accompanying notes to financial
statements.
F-70
<PAGE>
H.C. GOBIN, INC.
NOTES TO FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)
1. Summary of Significant Accounting Policies
Operations--H.C. Gobin, Inc. (the Company) was incorporated in 1982 in the
State of Delaware and operates from five locations within New Hampshire. The
Company provides waste services to municipal, industrial and commercial
customers.
Basis of Accounting--The Company uses the accrual basis of accounting for
financial statement purposes and the income tax basis of accounting for tax
purposes.
Depreciation--The Company follows the policy of charging to costs and
expenses annual amounts of depreciation which allocate the cost of the
property, plant and equipment over their estimated useful lives. The Company
employs the straight-line method for determining the annual charge for
depreciation. The ranges of estimated useful lives are:
<TABLE>
<CAPTION>
Years
--------
<S> <C>
Vehicles ........................ 5-10
Trailers ........................ 3-10
Office Equipment ................ 3-10
Leasehold Improvements .......... 10-40
</TABLE>
Income Taxes--No provision for federal income taxes has been made since
under an election previously filed with the Internal Revenue Service, the
Company's income or loss is reported on the tax return of the stockholders.
For state income tax purposes effective December 1, 1994, the Company
changed from the deferred method of accounting for income taxes to an asset and
liability method in accordance with Financial Accounting Standards Board
Statement No. 109, "Accounting for Income Taxes."
Under the asset and liability method, deferred tax assets and liabilities
are determined based on the differences between the financial statement and tax
basis of assets and liabilities and are measured using enacted tax rates.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
Provision for state income taxes as of December 31, 1995 and 1996 and June
30, 1997 are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1996 June 30, 1997
--------- ------------ --------------
(Unaudited)
<S> <C> <C> <C>
Current ...................................... $3,110 $ 3,317 $ 1,607
Deferred ..................................... 6,413 (45,424) 74,878
------ --------- -------
Provision (Benefit) for income taxes ......... $9,523 $ (42,107) $76,485
====== ========= =======
</TABLE>
F-71
<PAGE>
H.C. GOBIN, INC.
NOTES TO FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)--(Continued)
1. Summary of Significant Accounting Policies (Continued)
Net deferred tax liabilities in the accompanying balance sheets include
the following components:
<TABLE>
<CAPTION>
December 31,
-----------------------------
June 30,
1995 1996 1997
------------- ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Deferred tax liabilities arising from:
Temporary differences--principally
Cash to accrual adjustment ............... $ (70,937) $ (33,236) $ 115,564
Capital leases ........................... 83,125 -- --
Deferred tax assets arising from:
Net operating loss carryforward ........... -- -- (84,426)
--------- --------- ---------
Net deferred tax liability (asset) ......... $ 12,188 $ (33,236) $ 31,138
========= ========= =========
</TABLE>
Taxes paid to the State of Vermont were $150, $150 and $0 during the years
ended December 31, 1995 and 1996 and the six months ended June 30, 1997,
respectively. New Hampshire taxes were $1,935, $3,167 and $(77) during the
years ended December 31, 1995 and 1996 and the six months ended June 30, 1997,
respectively. State of New York taxes were $0 during the years ended December
31, 1995 and 1996 and the six months ended June 30, 1997.
Amortization--The Company is currently amortizing the following intangible
costs over various years using the straight line method.
<TABLE>
<CAPTION>
Items Years
- ------------------------------------- ------
<S> <C>
Loan Fees ........................ 15
Customer List .................... 15
Organizational cost .............. 5
Covenant Not to Compete .......... 15
Goodwill ......................... 15
</TABLE>
The amortization expense was $4,874, $76,851 and $834,496 for the years
ended December 31, 1995 and 1996 and the six months ended June 30, 1997,
respectively.
Inventories--Inventories consist of service parts. Inventory is stated at
the lower of cost or market on the first-in, first-out, (FIFO) basis.
Allowance for Doubtful Accounts--Allowance for doubtful accounts of
$5,150, $45,000 and $10,000 for the years ended December 31, 1995 and 1996 and
the six months ended June 30, 1997, respectively, have been offset against
accounts receivable for financial statement purposes.
F-72
<PAGE>
H.C. GOBIN, INC.
NOTES TO FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)--(Continued)
2. Long-Term Debt and Due to Stockholders
Long-term debt and due to stockholders at December 31, 1995 and 1996 and
June 30, 1997, consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
June 30,
1995 1996 1997
---------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Non-interest bearing demand note due individuals,
unsecured. Payable September, 1996. ............... $ 37,500 $ -- $ --
10.5% note to First NH Bank. Secured by assets of
the Company. Monthly payments of $1,927,
principal and interest. Due March, 1999. .......... 61,684 -- --
13% note due shareholder. Secured by vehicle.
Monthly payments of $505, principal and interest.
Due 1998. ......................................... 12,150 7,389 4,766
11.4% note due individual. Secured by assets of the
Company. Monthly payments of $4,000, principal
and interest. Due 2012 ............................ 353,995 346,021 341,821
Variable note at 1.5% over prime to First NH Bank
secured by assets of the Company. Monthly
payments of $1,600, principal and interest. Due
1997. ............................................. 32,394 -- --
Non-interest bearing note due individual. Unsecured.
Monthly payments of $1,000, principal only. Due
1999. ............................................. 36,000 31,000 25,000
9.2% note due to First Essex Bank. Secured by
assets of the Company and shareholder. Monthly
payments of $32,708, principal and interest. Due
February, 2003. ................................... -- 1,838,743 1,737,194
9.25% note due to First Essex Bank. Secured by
assets purchased. Monthly payments of $5,925,
principal and interest. Due April, 2001. .......... -- 252,479 205,434
Note due Ford Motor Credit. Secured by asset
purchased. Monthly payments of $298, principal
and interest. Due January, 1999. .................. -- 12,213 11,372
8.99% note due to First Essex Bank. Secured by
assets purchased. Monthly payments of $2,435,
principal and interest. Due June, 2001. ........... -- 109,213 94,603
-------- ---------- ----------
533,723 2,597,058 2,420,190
Less Current Portion ............................... 88,471 324,194 324,197
-------- ---------- ----------
$445,252 $2,272,864 $2,095,993
======== ========== ==========
</TABLE>
The notes payable were extinguished as part of the acquisition of H.C.
Gobin, Inc. by Casella Waste Systems, Inc. See Note 16. No long-term debt
maturity has been presented.
F-73
<PAGE>
H.C. GOBIN, INC.
NOTES TO FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)--(Continued)
3. Related Party Transactions
The Company has entered into a lease arrangement for office space and
equipment with a related party. The lease is on a month to month basis
cancelable by either party. Present monthly rent has been set at $1,300. During
the years ended December 31, 1995 and 1996 and the six months ended June 30,
1997, the Company paid the lessor $15,600, $15,600 and $7,800, respectively.
4. Line of Credit
At December 31, 1995 the Company had a line of credit from First NH Bank
with a maximum borrowing limit of $100,000. Borrowings on this line of credit
were $65,000 on December 31, 1995. This line was guaranteed by various assets
of the Company and personally by the majority stockholder.
In February, 1996, the First NH Bank line of credit was repaid and closed.
It was replaced with a line of credit at the First Essex Bank with a maximum
borrowing limit of $250,000. Borrowings on this line were $249,952 and $215,417
at December 31, 1996 and June 30, 1997, respectively. This line is guaranteed
by various assets of the Company and personally by the majority stockholder.
The note matures in April, 2001.
The line of credit was extinguished as part of the acquisition of H.C.
Gobin, Inc. by Casella Waste Systems, Inc. See note 16. No future minimum
payments have been presented.
5. Notes Receivable
Notes receivable at December 31, 1995 and 1996 and June 30, 1997,
consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
June 30,
1995 1996 1997
----------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
Unsecured note from shareholders. No stated interest or
repayment terms. ..................................... $ -- $24,535 $24,535
-------- ------- -------
Less Current Portion .................................. -- 24,535 24,535
-------- ------- -------
$ -- $ -- $ --
======== ======= =======
</TABLE>
6. Performance Bonding
The Company has been approved by Frontier Insurance Company for
performance bonding coverage not to exceed $3.5 million including bid bonds at
an annual usage rate of 1.65% of any portion of the coverage used. The Company
had drawn down on the available coverage in the amount of $430,290 as of
December 31, 1995 to secure various projects. During 1996 the Company did not
have a pre-approved limit for performance bonding coverage. As of June 30,
1997, the Company had drawn down on the available coverage in the amount of
$185,000 to secure various projects.
7. Stock Redemption
The Company's majority stockholders of record on December 31, 1994 entered
into a stock redemption plan with the Company. The agreement was executed on
January 1, 1995.
The Company entered into a loan agreement with the stockholders redeeming
their stock under the following terms:
<TABLE>
<S> <C>
Principal loan amount ......... $363,415
Interest rate ................. 11.4%
Term of loan .................. 207 payments
</TABLE>
F-74
<PAGE>
H.C. GOBIN, INC.
NOTES TO FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)--(Continued)
7. Stock Redemption (Continued)
The loan is secured by various equipment of the Company. See the long-term
debt footnote for additional details.
F-75
<PAGE>
H.C. GOBIN, INC.
NOTES TO FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)--(Continued)
8. Business Development
The Company is currently involved in various business development projects
within New Hampshire and Vermont. These projects are in the research and
development stages. Expenses related to these development projects are included
as current year expenses within the income statement line items. Costs incurred
during the years ended December 31, 1995 and 1996 and the six months ended June
30, 1997 were approximately $14,000, $13,000 and $1,000, respectively.
9. Prepaid Expenses
The Company has elected to prepay various expenses in order to more
effectively manage its operating affairs. Prepaid items as of December 31, 1995
and 1996 and June 30, 1997 are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
June 30,
1995 1996 1997
--------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
Licenses ........... $ 8,230 $12,132 $19,995
Insurance .......... 24,259 30,079 26,535
Legal fees ......... 15,753 -- --
Other .............. -- 2,087 7,330
------- ------- -------
$48,242 $44,298 $53,860
======= ======= =======
</TABLE>
10. Contract Costs
The Company incurs various costs related to preparation and implementation
of long-term contracts. Management has elected to amortize these initial costs
over the term of the contract. As of December 31, 1995 and 1996 and June 30,
1997, prepaid contract costs were $38,262, $29,106 and $23,997 respectively.
These costs relate to contracts entered into in 1995, 1996, 1997 and future
years.
11. Business Acquisition
During March of 1996 the Company acquired a commercial hauling business.
The acquisition price was $1,270,665 subject to adjustment based on a formula
outlined in the purchase and sales agreement. The acquisition was financed
through First Essex Bank, with various credit facilities which included
retirement of First NH Bank debt, and capital lease obligations.
12. Obligations Under Capital Leases
The Company is the lessee of vehicles and equipment under capital leases
expiring in various years through 2000. The assets and liabilities under
capital leases are recorded at the lower of the present values of the minimum
lease payments or the fair values of the assets. The assets are included in
property and equipment and are depreciated over their estimated useful lives.
As of June 30, 1997, minimum future lease payments under capital leases
are:
<TABLE>
<CAPTION>
Year Ended June 30, (Unaudited)
- --------------------------------------
<S> <C>
1998 .............................. $ 3,970
1999 .............................. 3,970
2000 .............................. 2,826
-------
Total minimum lease payments ......... $10,766
=======
</TABLE>
The capital lease obligations as of December 31, 1996 were extinguished as
part of the acquisition of H.C. Gobin, Inc. by Casella Waste Systems, Inc. See
Note 16.
F-76
<PAGE>
H.C. GOBIN, INC.
NOTES TO FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)--(Continued)
13. 401(k) Pension Plan
The Company has a 401(k) type pension and profit sharing plan for eligible
employees. Employees are eligible to participate in the plan if they have been
employed by the Company for one year. Generally, employees can defer up to 15%
of their salary into the plan, not to exceed $9,500. The employer can make a
discretionary contribution for the employees based on profit.
14. Contingent Liabilities
The Company was contingently liable on two (2) employment contracts as of
December 31, 1996:
1) Liable to an employee for severance pay of $7,500 upon employee
voluntary termination at any time prior to August 1, 2000. No amount has been
recorded in the financial statements.
2) Liable to an employee for severance pay equal to 15 weeks full
compensation including salary and medical/dental insurance. This liability is
approximately $24,596 and has been recorded as a liability in the financial
statements.
15. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
16. Subsequent Events
16A) During February 1997 the Company became in technical default of its
loan covenants with First Essex Bank. The default provisions were mitigated
upon the asset sale in August 1997 to Casella Waste Systems, Inc.
16B) During March 1997 the Company lost an investment of $29,451 due to
poor market conditions related to various option investments in Hampton-Rhodes,
LTD.
16C) On August 1, 1997, Casella Waste Systems, Inc., and subsidiaries
(CWS) acquired all of the assets of the Company. The purchase price of
approximately $4,880,000 consisted of $1,421,397 in cash, a $300,000
subordinated note to the seller and $3,158,603 in liabilities and closing costs
paid/assumed at closing.
17. Retained Earnings--Restatement
The retained earnings of the Company have been restated as of January 1,
1995. The restatement is a result of a change in the accounting for capital
lease obligation related to deferred taxes.
<TABLE>
<S> <C>
Retained Earnings--12/31/94 (As previously reported) ......... $1,020,939
Correction of deferred tax Calculation--12/31/94 ............. 70,790
----------
Retained Earnings--1/1/95 (Restated) ......................... $1,091,729
==========
</TABLE>
18. Legal Matters
The Company was involved in several pending legal matters during the audit
period and subsequently through the date of the audit report.
18A) NH/VT Solid Waste Project v. H.C. Gobin, Inc.--The Company has
escrowed approximately $185,000 with the Clerk of the Superior Court for
Sullivan County, New Hampshire. According to the Company's legal council,
evaluation of the likelihood of an unfavorable outcome appears to be unlikely
to exceed the funds held on deposit.
F-77
<PAGE>
H.C. GOBIN, INC.
NOTES TO FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)--(Continued)
18. Legal Matters (Continued)
18B) Paul Blann v. H.C. Gobin, Inc.--An employee of the Corporation
terminated in February 1997 has brought a claim for wrongful termination in
both Vermont and New Hampshire courts. The case in New Hampshire was concluded
with a judgment for the Company. The case in Vermont is pending. According to
the Company's legal counsel, in the unlikely event the Company were to lose, a
judgment between $25,000 and $100,000 could be anticipated.
18C) The Company has commenced an arbitration proceeding against Rose
Disposal Services, Inc. and Anco Leasing Corporation based on a claim of
indemnification pursuant to the Company's purchase of assets from those two
corporations in February 1996. Pursuant to that indemnification right, the
Company has set off indemnification payments against two promissory notes given
by it in that asset purchase transaction. The principals of Anco Leasing
Corporation and Rose Disposal Services, Inc. have threatened but have not
brought proceedings to collect amounts due under the promissory note.
F-78
<PAGE>
PLAN OF DISTRIBUTION
The shares covered hereby may be offered and sold from time to time by the
Selling Stockholders, or by their pledgees, donees, transferees or other
successors in interest. The Selling Stockholders will act independently of the
Company in making decisions with respect to the timing, manner and size of each
sale. Such sales may be made in the over-the-counter market or otherwise, at
prices related to the then current market price or in negotiated transactions,
including pursuant to one or more of the following methods: (i) purchases by a
broker-dealer as principal and the resale by such broker or dealer for its
account pursuant to this Prospectus; (ii) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (iii) block trades in
which the broker-dealer so engaged will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction. In effecting sales, broker-dealers engaged by the Selling
Stockholders, or by their pledgees, donees, transferees or other successors in
interest may arrange for other broker-dealers to participate. Broker-dealers
will receive commissions or discounts from the Selling Stockholders, or from
their pledgees, donees, transferees or other successors in interest in amounts
to be negotiated immediately prior to the sale.
The shares covered hereby are being registered by the Company pursuant to
the terms of a Registration Rights Agreement among the Company, the Selling
Stockholders and Goldman, Sachs & Co. (as amended, the "Registration Rights
Agreement"). All of the Shares offered hereby owned by persons other than
Maureen Winters have been pledged as security for loans to such persons.
Pursuant to the Registration Rights Agreement, all of the Selling Stockholders
have agreed not to sell their shares of stock of the Company until August 31,
1998, otherwise than (i) as a bona fide gift or a transfer effected solely for
estate planning purposes, provided the donee or transferee agrees in writing to
be bound by the terms of the Registration Rights Agreement, (ii) pursuant to an
effective registration statement filed by the Buyer covering such shares (other
than the Registration Statement of which this Prospectus is a part), or (iii)
with the prior written consent of the Company. In addition, the pledgee of the
loan has agreed not to sell any of the shares pledged to it except in connection
with the exercise of its rights as pledgee of such shares following a bona fide
margin call on such shares. The Company has agreed to keep the Registration
Statement of which this Prospectus is a part effective until the earlier of the
sale of all shares covered hereby or December 19, 1998 (the "Termination Date");
provided, that the Company may terminate or withdraw the Registration Statement
of which this Prospectus is a part under certain circumstances enumerated in the
Registration Rights Agreement. In the event that the Company undertakes an
underwritten public offering in the first half of fiscal 1999, the Company
expects that the shares covered hereby will be offered for sale in that
offering. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources".
The pledgee may act as broker-dealer or principal with respect to the
shares in the manner described in the foregoing paragraphs. The Company has
agreed to indemnify the pledgee with respect to certain liabilities in
connection with this Prospectus, including liabilities under the Securities Act.
In offering the shares covered hereby, the Selling Stockholders, or their
pledgees, donees, transferees or other successors in interest and any
broker-dealers and any other participating broker-dealers who execute sales for
the Selling Stockholders may be deemed to be "underwriters" within the meaning
of the Securities Act in connection with such sales, and the compensation of
such broker-dealer may be deemed to be underwriting discounts and commissions.
In connection with the offering contemplated hereby, certain persons
participating in the offering may purchase and sell the Common Stock in the
open market. These transactions may include over-allotment and stabilizing
transactions and purchases to cover short positions created by such persons in
connection with the offering. Stabilizing transactions consist of certain bids
or purchases for the purposes of preventing or retarding a decline in the
market price of the Common Stock; and short positions created by such persons
involve the sale by such persons of a greater number of shares of Common Stock
than they may be required to purchase in the offering. Certain persons
participating in the offering also may impose a penalty bid, whereby selling
concessions allowed to broker-dealers in respect of the Common Stock sold in
the offering may be reclaimed by such persons if such shares of Common Stock
are repurchased by such persons in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Common Stock, which may be higher than the price that might otherwise prevail
in the open market; and these activities, if commenced, may be discontinued at
any time. These transactions may be effected on the Nasdaq National Market, in
the over-the-counter market or otherwise.
Because Goldman, Sachs & Co. may receive more than ten percent (10%) of the
proceeds, the offering is being made pursuant to Rule 2710(c)(8) of the National
Association of Securities Dealers, Inc. However, a bona fide independent market
for the Company's Class A Common Stock exists as of the date hereof, and
accordingly there is no restriction on the participation of Goldman, Sachs & Co.
in the offering as contemplated.
U-1
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having
been authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy
such securities in any circumstances in which such offer or solicitation is
unlawful. Neither the delivery of this Prospectus nor any sale made 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
Recent Landfill Acquisition ................. 16
Use of Proceeds ............................. 16
Dividend Policy ............................. 16
Market Price of Common Stock ................ 16
Selected Consolidated Financial and
Operating Data ........................... 17
Unaudited Pro Forma Consolidated
Statements of Operations ................. 20
Management's Discussion and Analysis
of Financial Condition and Results of
Operations ............................... 24
Business .................................... 31
Management .................................. 43
Certain Transactions ........................ 51
Principal and Selling Stockholders .......... 53
Description of Capital Stock ................ 55
Legal Matters ............................... 59
Experts ..................................... 59
Index to Financial Statements ............... F-1
Plan of Distribution ........................ U-1
</TABLE>
272,884 Shares
Casella Waste Systems, Inc.
Class A Common Stock
($0.01 par value)
--------------------------------
[LOGO]
--------------------------------
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses, all of which will be
borne by Goldman, Sachs & Co., as pledgee of the securities being registered,
in connection with the sale and distribution of such securities. All amounts
shown are estimates except for the Securities and Exchange Commission
registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Nature of Fee or Expense Amount
- ---------------------------------------------------------------- ------
<S> <C>
SEC registration fee ..................................... $ 2,128
NASD filing fee .......................................... 1,221
Accounting fees and expenses ............................. 35,000
Legal fees and expenses .................................. 20,000
Printing and engraving, and distribution expenses ........ 25,000
Miscellaneous ............................................ 5,000
-------
Total .................................................... $88,349
=======
</TABLE>
Item 14. 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 indemnify 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 corporation in
advance of the final disposition of such action, suit, or proceeding upon
receipt of an
II-1
<PAGE>
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 Sixth of the Company's Amended and Restated 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 Seventh requires
indemnification of directors and officers of the Company, and for advancement
of litigation expenses to the fullest extent permitted by Section 145.
The Registration Rights Agreement, as amended, filed herewith as Exhibits
10.23 and 10.24 provide for indemnification of the directors, certain officers,
and controlling persons of the Company by Goldman, Sachs & Co. and the Selling
Stockholders against certain civil liabilities, including liabilities under the
Securities Act.
Item 15. Recent Sales of Unregistered Securities
In the three years preceding the filing of this Registration Statement,
the Registrant has issued the following securities that were not registered
under the Securities Act:
In October 1994, the Registrant issued 450,000 shares of its Class A
Common Stock to National Waste Industries, Inc. as compensation for services
rendered in connection with certain landfill transactions. These shares were
offered and issued in reliance upon the exemption from registration set forth
in Section 4(2) under the Securities Act.
In April 1995, the Registrant issued warrants to Len Fosbrook and Bill
Fosbrook to purchase an aggregate of 100,000 shares of the Class A Common Stock
of the Registrant, in connection with the purchase by the Registrant of the
business of Springer Sanitation Services, Inc. The exercise price of the
warrants was $6.00 per share, and the warrants were valued for purposes of the
acquisition at $4.00 per share. These warrants were offered and issued in
reliance upon the exemption from registration set forth in Section 4(2) under
the Securities Act. In September 1997, Len Fosbrook exercised warrants to
purchase 25,000 shares of the Registrant's Class A Common Stock at an exercise
price of $6.00 per share. In September, 1997, the Registrant exercised its
right to call the remaining warrants to purchase 75,000 shares of Class A
Common Stock of the Registrant which remained unexercised as of such time at a
price of $7.00 per share.
In December 1995, the Registrant issued 1,922,169 shares of its Series D
Convertible Preferred Stock to a group of investors consisting of Norwest
Equity Partners V, Weston Presidio Capital II, L.P., BCI Growth III, L.P., FSC
Corp., Thomas S. Shattan and Prudential Securities Group, Inc., at a price of
$7.00 per share. These shares were offered and issued in reliance upon the
exemption from registration set forth in Section 4(2) under the Securities Act.
In connection with this transaction, the Registrant also issued a warrant to
Prudential Securities Incorporated, which served as placement agent in
connection with such transaction, to purchase 96,108 shares of the Registrant's
Class A Common Stock at an exercise price of $7.00 per share. These warrants
were offered and issued in reliance upon the exemption from registration set
forth in Section 4(2) under the Securities Act. In connection with the sale of
the Series D Convertible Preferred Stock, the holders of the Registrant's
$1,500,000 Senior Notes due July 31, 1998 exchanged such notes for 616,620
shares of Series A Redeemable Preferred Stock, having a redemption value of
$1.50 per share (of which, 100,000 shares of Series A Redeemable Preferred
Stock were immediately repurchased by the Registrant) and the holders of the
Registrant's $5,200,000 Senior Notes due July 31, 1998 exchanged such notes for
1,402,461 shares of Series B Redeemable Preferred Stock, having a redemption
value of $2.00 per share (of which, 107,882 shares of Series B Redeemable
Preferred Stock were immediately repurchased by the Registrant). These
transactions were effected in reliance upon the exemption from registration set
forth in Section 4(2) under the Securities Act.
In connection with the acquisition of the Sawyer Companies in January
1996, the Registrant issued to W. Tom Sawyer a warrant to purchase 40,000
shares of Class A Common Stock at an exercise price of $7.00 per share. The
warrants were not attributed any value by the Company. These warrants were
offered and issued in reliance upon the exemption from registration set forth
in Section 4(2) under the Securities Act.
II-2
<PAGE>
In January 1996, the Registrant issued warrants to Robert McNeil and Susan
Olivieri to purchase an aggregate of 100,000 shares of the Class A Common Stock
of the Registrant, in connection with the purchase by the Registrant of the
business of Northeast Waste Services, Ltd. The exercise price of the warrants
is $7.25 per share, and the warrants were not attributed any value for purposes
of the transaction. These warrants were offered and issued in reliance upon the
exemption from registration set forth in Section 4(2) under the Securities Act.
In November 1996, the Company issued 60,427 shares of its Class A Common
Stock to each of Douglas C. Taff and Michael B. Barrett in connection with the
Registrant's acquisition of Vermont Waste and Recycling Management, Inc. For
purposes of the transaction, the Class A Common Stock was valued at $12.00 per
share. The Registrant placed 16,892 of the shares issued to each person into
escrow to secure the sellers' obligations under the acquisition documents.
These securities were offered and issued in reliance upon the exemption from
registration set forth in Section 4(2) under the Securities Act.
In January 1997, in connection with the acquisition by the Registrant of
the assets of Superior Disposal Service, Inc. and Kerkim, Inc., and related
companies, the Registrant issued 570,960 shares of Class A Common Stock to
Kenneth H. Mead, the sole stockholder of the selling entities. Pursuant to the
terms of the acquisition agreement, the Registrant was required to issue an
additional 63,440 shares of Class A Common Stock on the first anniversary of
the closing date, subject to adjustment pursuant to the indemnification
obligations of Mr. Mead under the acquisition agreement. Pursuant to the terms
of the acquisition agreement, Mr. Mead forfeited certain shares back to the
Company based on the trading price of the Company's Class A Common Stock
following the Company's initial public offering. These securities were offered
and issued in reliance upon the exemption from registration set forth in
Section 4(2) under the Securities Act.
Between July 26, 1993 and July 31, 1997, the Registrant issued options to
certain officers, directors and employees of the Registrant to purchase an
aggregate of 1,397,635 shares of Class A Common Stock at a weighted average
exercise price of approximately $6.16 per share. These options were offered and
issued in reliance upon the exemption from registration set forth in Rule 701
under the Securities Act.
In July and September 1997, the Registrant issued 20,000 shares and 20,000
shares, respectively, upon the exercise of options by two officers of the
Company, at an exercise price of $0.60 per share, for an aggregate
consideration of $24,000. These shares were offered and issued in reliance upon
the exemption from registration set forth in Rule 701 under the Securities Act.
In September 1997, the former owner of a business acquired by the Company
exercised warrants to purchase 25,000 shares of the Registrant's Class A common
stock at an exercise price of $6.00 per share. These shares were offered and
issued in reliance upon the exemption from registration set forth in Section
4(2) under the Securities Act.
On November 5, 1997, the Company acquired the Teelon group of solid waste
collection companies in western New York State in a transaction accounted for
as a purchase. The total purchase price was $4.9 million, including $1.5
million in liabilities assumed and/or discharged, $2.8 million cash paid to the
sellers and 28,000 shares of Class A common stock issued to the sellers. The
shares of Class A common stock were offered and issued in reliance upon the
exemption from registration set forth in section 4(2) under the Securities Act
of 1933.
On December 1, 1997 the Company effected a merger with Pine Tree Waste,
Inc. of South Portland, Maine, in a transaction accounted for as a purchase.
The total purchase price was $4.4 million, including $2.9 million in
liabilities assumed and/or discharged, 81,131 shares of Class A common stock
issued to the sellers, and a reserve of 16,274 shares of Class A common stock
to be issued pending the results of a post-acquisition audit. The shares of
Class A common stock were offered and issued in reliance upon the exemption
from registration set forth in section 4(2) under the Securities Act of 1933.
On December 19, 1997 the Company effected a merger with All Cycle Waste,
Inc. and Winters Brothers, Inc. (commonly owned entities) of Williston,
Vermont, in a transaction accounted for as a pooling of interests. The Company
issued 416,103 shares of Class A common stock for all of the outstanding stock
of All Cycle Waste, Inc. and 187,244 shares of Class A common stock for all of
the outstanding stock of
II-3
<PAGE>
Winters Brothers, Inc. The shares of Class A common stock were offered and
issued in reliance upon the exemption from registration set forth in section
4(2) under the Securities Act of 1933.
On December 11, 1997 Prudential Securities Group, Inc. exercised warrants
to purchase 32,902 shares of the Company's Class A common stock. Prudential
Securities exercised these warrants in a cashless transaction, surrendering
50,654 warrants in exchange for 32,902 shares of Class A common stock. The
shares of Class A common stock were offered and issued in reliance upon the
exemption from registration set forth in section 3(a)(9) under the Securities
Act of 1933.
Except as set forth above, no underwriters were involved in the foregoing
issuances of securities.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------- ---------------------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Registrant. (Incorporated
herein by reference to Exhibit 3.3 to Amendment No. 1 to the Company's Registration
Statement on Form S-1 as filed September 24, 1997 (SEC File No. 333-33135)).
3.2 Second Amended and Restated By-Laws of the Registrant. (Incorporated herein by
reference to Exhibit 3.5 to Amendment No. 1 to the Company's Registration
Statement on Form S-1 as filed September 24, 1997 (SEC File No. 333-33135)).
4 Specimen Certificate for Class A Common Stock. (Incorporated herein by reference to
Exhibit 4 to Amendment No. 2 to the Company's Registration Statement on Form S-1
as filed October 9, 1997 (SEC File No. 333-33135)).
5 Opinion of Hale and Dorr LLP.
10.1 1993 Incentive Stock Option Plan. (Incorporated herein by reference to Exhibit 10.1 to
the Company's Registration Statement on Form S-1 as filed August 7, 1997 (SEC File
No. 333-33135)).
10.2 1994 Nonstatutory Stock Option Plan. (Incorporated herein by reference to Exhibit 10.2
to the Company's Registration Statement on Form S-1 as filed August 7, 1997 (SEC
File No. 333-33135)).
10.3 1996 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.3 to the
Company's Registration Statement on Form S-1 as filed August 7, 1997 (SEC File
No. 333-33135)).
10.4 1997 Stock Incentive Plan. (Incorporated herein by reference to Exhibit 10.4 to
Amendment No. 1 to the Company's Registration Statement on Form S-1 as filed
September 24, 1997 (SEC File No. 333-33135)).
10.5 1997 Non-Employee Director Stock Option Plan. (Incorporated herein by reference to
Exhibit 10.5 to Amendment No. 1 to the Company's Registration Statement on Form
S-1 as filed September 24, 1997 (SEC File No. 333-33135)).
10.6 Registration Rights Agreement between the Registrant and Susan Olivieri and Robert
MacNeil, dated January 3, 1996. (Incorporated herein by reference to Exhibit 10.6 to
Amendment No. 1 to the Company's Registration Statement on Form S-1 as filed
September 24, 1997 (SEC File No. 333-33135)).
10.7 1995 Registration Rights Agreement between the Registrant and the stockholders who
are a party thereto, dated as of December 22, 1995. (Incorporated herein by
reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1 as
filed August 7, 1997 (SEC File No. 333-33135)).
10.8 Warrant to Purchase Common Stock of the Registrant granted to John W. Casella,
dated as of July 26, 1993. (Incorporated herein by reference to Exhibit 10.11 to
Amendment No. 1 to the Company's Registration Statement on Form S-1 as filed
September 24, 1997 (SEC File No. 333-33135)).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------- --------------------------------------------------------------------------------------
<S> <C>
10.9 Warrant to Purchase Common Stock of the Registrant granted to Douglas R. Casella,
dated as of July 26, 1993. (Incorporated herein by reference to Exhibit 10.12 to
Amendment No. 1 to the Company's Registration Statement on Form S-1 as filed
September 24, 1997 (SEC File No. 333-33135)).
10.10 Asset Purchase Agreement by and among Kenneth H. Mead, Kerkim, Inc. and Casella
Waste Management of N.Y., dated as of January 17, 1997. (Incorporated herein by
reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1 as
filed August 7, 1997 (SEC File No. 333-33135)).
10.11 Reorganization Agreement by and among Kenneth H. Mead, Superior Disposal
Services, Inc., Kensue, Inc., S.D.S. at PA, Inc. and Claws Refuse, Inc., dated as of
January 17, 1997. (Incorporated herein by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-1 as filed August 7, 1997 (SEC File
No. 333-33135)).
10.12 Termination of Lease Agreement by and between Casella Associates and Casella
Waste Management, Inc. dated September 25, 1996. (Incorporated herein by
reference to Exhibit 10.15 to the Company's Registration Statement on Form S-1 as
filed August 7, 1997 (SEC File No. 333-33135)).
10.13 Amended and Restated Revolving Credit Agreement between the Registrant,
BankBoston and the other parties named therein, dated as of January 12, 1998.
10.14 Lease Agreement, as Amended, between Casella Associates and Casella Waste
Management, Inc., dated December 9, 1994 (Rutland lease). (Incorporated herein by
reference to Exhibit 10.17 to the Company's Registration Statement on Form S-1 as
filed August 7, 1997 (SEC File No. 333-33135)).
10.15 Lease Agreement, as Amended, between Casella Associates and Casella Waste
Management, Inc., dated December 9, 1994 (Montpelier lease). (Incorporated herein
by reference to Exhibit 10.18 to the Company's Registration Statement on Form S-1
as filed August 7, 1997 (SEC File No. 333-33135)).
10.16 Furniture and Fixtures Lease Renewal Agreement between Casella Associates and
Casella Waste Management, Inc., dated May 1, 1994. (Incorporated herein by
reference to Exhibit 10.19 to the Company's Registration Statement on Form S-1 as
filed August 7, 1997 (SEC File No. 333-33135)).
10.17 Lease, Operations and Maintenance Agreement between CV Landfill, Inc. and the
Registrant dated June 30, 1994. (Incorporated herein by reference to Exhibit 10.20 to
the Company's Registration Statement on Form S-1 as filed August 7, 1997 (SEC File
No. 333-33135)).
10.18 Restated Operation and Management Agreement by and between Clinton County (N.Y.)
and the Registrant dated September 9, 1996. (Incorporated herein by reference to
Exhibit 10.21 to the Company's Registration Statement on Form S-1 as filed
August 7, 1997 (SEC File No. 333-33135)).
10.19 Labor Utilization Agreement by and between Clinton County (N.Y.) and the Registrant
dated August 7, 1996. (Incorporated herein by reference to Exhibit 10.22 to the
Company's Registration Statement on Form S-1 as filed August 7, 1997 (SEC File
No. 333-33135)).
10.20 Lease and Option Agreement by and between Waste U.S.A., Inc. and New England
Waste Services of Vermont, Inc., dated December 14, 1995. (Incorporated herein by
reference to Exhibit 10.23 to the Company's Registration Statement on Form S-1 as
filed August 7, 1997 (SEC File No. 333-33135)).
10.21 Consulting and Non-Competition Agreement between the Registrant and
Kenneth H. Mead, dated January 23, 1997. (Incorporated herein by reference to
Exhibit 10.24 to the Company's Registration Statement on Form S-1 as filed
August 7, 1997 (SEC File No. 333-33135)).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
- ---------- -------------------------------------------------------------------------------------
<S> <C>
10.22 Issuance of Shares by the Registrant to National Waste Industries, Inc., dated
October 19, 1994. (Incorporated herein by reference to Exhibit 10.25 to the
Company's Registration Statement on Form S-1 as filed August 7, 1997 (SEC File
No. 333-33135)).
10.23 Registration Rights Agreement among the Registrant, Joseph M. Winters, Andrew B.
Winters, Brigid Winters, Sean Winters and Maureen Winters (the "All Cycle
Stockholders") dated as of December 19, 1997.
10.24 Amendment No. 1 to Registration Rights Agreement among the Registrant, the All Cycle
Stockholders, Winters Family Partnership and Goldman, Sachs & Co. dated as of
June 1, 1998.
21 Subsidiaries of the Registrant.
23.1 Consent of Hale and Dorr LLP (included in Exhibit 5).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Barrett & Dattilio, P.C.
24 Power of Attorney.
</TABLE>
(b) Financial Statement Schedules
All other schedules have been omitted because they are not required or because
the required information is given in the Consolidated Financial Statements or
Notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Restated Certificate of
Incorporation and Amended and Restated By-Laws of the Registrant and the laws
of the State of Delaware, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
II-6
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Rutland, Vermont, on this 31st day of
May, 1998.
CASELLA WASTE SYSTEMS, INC.
By: /s/ John W. Casella
----------------------------------
John W. Casella
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------- ----------------------------------- --------------
<S> <C> <C>
/s/ John W. Casella President, Chief Executive Officer
- ------------------------- and Chairman
John W. Casella May 31, 1998
/s/ James W. Bohlig Senior Vice President and Chief
- ------------------------- Operating Officer, Director
James W. Bohlig May 31, 1998
/s/ Jerry S. Cifor Vice President and Chief Financial
- ------------------------- Officer (Principal Accounting and
Jerry S. Cifor Financial Officer) May 31, 1998
/s/ Douglas R. Casella Director May 31, 1998
- ------------------------- Officer (Principal Accounting and
Douglas R. Casella
/s/ John F. Chapple III Director May 31, 1998
- ------------------------- Officer (Principal Accounting and
John F. Chapple III
/s/ Kenneth H. Mead Director May 31, 1998
- -------------------------
Kenneth H. Mead
/s/ Michael F. Cronin Director May 31, 1998
- -------------------------
Michael F. Cronin
/s/ Gregory B. Peters Director May 31, 1998
- -------------------------
Gregory B. Peters
</TABLE>
II-8
Hale and Dorr LLP
60 State Street
Boston, MA 02109
June 3, 1998
Casella Waste Systems, Inc.
25 Greens Hill Lane
Rutland, VT 05701
Re: Registration Statement on Form S-1
----------------------------------
Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-1(the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), for the registration of an aggregate of 262,884
shares of Class A Common Stock, $0.01 par value per share (the "Shares"), of
Casella Waste Systems, Inc., a Delaware corporation (the "Company") which will
be sold by certain stockholders of the Company (the "Selling Stockholders").
We are acting as counsel for the Company in connection with the sale by
the Selling Stockholders of the Shares. We have examined signed copies of the
Registration Statement as filed with the Commission. We have also examined and
relied upon minutes of meetings of the Board of Directors of the Company as
provided to us by the Company, stock record books of the Company as provided to
us by the Company, the Amended and Restated Certificate of Incorporation and
By-Laws of the Company, each as restated and/or amended to date, and such other
documents as we have deemed necessary for purposes of rendering the opinions
hereinafter set forth.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as copies, the authenticity of the originals of such latter documents and the
legal competence of all signatories to such documents.
Our opinion in clause (ii) below, insofar as it relates to the Selling
Stockholders' shares being fully paid, is based solely on a certificate of the
Chief Financial Officer of the Company.
<PAGE>
Casella Waste Systems, Inc.
June 3, 1998
Page 2
We assume that the appropriate action will be taken, prior to the offer
and sale of the Shares, to register and qualify the Shares for sale under all
applicable state securities or "blue sky" laws.
We express no opinion herein as to the laws of any state or
jurisdiction other than the state laws of the Commonwealth of Massachusetts, the
Delaware General Corporation Law statute and the federal laws of the United
States of America. To the extent that any other laws govern the matters as to
which we are opining herein, we have assumed that such laws are identical to the
state laws of the Commonwealth of Massachusetts, and we are expressing no
opinion herein as to whether such assumption is reasonable or correct.
Based upon and subject to the foregoing, we are of the opinion that the
Shares to be sold by the Selling Stockholders have been duly authorized and are
validly issued, fully paid and nonassessable.
It is understood that this opinion is to be used only in connection
with the offer and sale of the Shares while the Registration Statement is in
effect.
Please note that we are opining only as to the matters expressly set
forth herein, and no opinion should be inferred as to any other matters. This
opinion is based upon currently existing statutes, rules, regulations and
judicial decisions, and we disclaim any obligation to advise you of any change
in any of these sources of law or subsequent legal or factual developments which
might affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters." In
giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ Hale and Dorr LLP
HALE AND DORR LLP
EXHIBIT 10.13
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
dated as of January 12, 1998
by and among
CASELLA WASTE SYSTEMS, INC.,
and its Subsidiaries
and
VARIOUS OTHER FINANCIAL INSTITUTIONS
PARTY THERETO (the "Banks")
and
BANKBOSTON, NA., as Agent
KEYBANK NATIONAL ASSOCIATION, as Co-Agent
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Co-Agent
with
BANCBOSTON SECURITIES, INC.,
acting as Loan Arranger
BOS-BUS:470101
<PAGE>
Exhibits
Exhibit A -- Form of Revolving Credit Note
Exhibit B -- Form of Loan and Letter of Credit Request
Exhibit C -- [Intentionally Omitted]
Exhibit D -- Form of Compliance Certificate
Exhibit E -- Form of Environmental Compliance Certificate
Exhibit F -- Form of Subordination Agreement
Schedules
Schedule 1 - Subsidiaries of the Parent which are Borrowers
Schedule 2 - Banks' Commitment Percentages
Schedule 6.3 - Real Property
Schedule 6.7 - Litigation
Schedule 6.11 - Defaults
Schedule 6.13 - Financing Statements
Schedule 6.16 - Environmental Compliance
Schedule 6.18 - Certain Transactions
Schedule 6.19 - Subsidiaries of the Parent
Schedule 6.20(b)- Options, Etc.
Schedule 6.23 - Depository Accounts
Schedule 7.7 - Insurance
Schedule 8.1(c) - Existing Debt
Schedule 8.1(o) - Non-Compete Indebtedness
Schedule 8.2(g) - Existing Liens
Schedule 8.2(k) - Bristol Waste Management Liens
Schedule 8.3(g) - Existing Investments
BOS-BUSN:552657.1
<PAGE>
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
This AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as of the 12th
day of January, 1998 by and among CASELLA WASTE SYSTEMS, INC., a Delaware
corporation (the "Parent"), its Subsidiaries listed on Schedule 1 hereto (the
"Subsidiaries," the Parent and such Subsidiaries herein collectively referred to
as the "Borrowers"), each of which Borrowers (unless otherwise listed on
Schedule 1 hereto) having its principal place of business at 25 Greens Hill
Lane, Rutland, Vermont and BANKBOSTON, N.A., ("BankBoston"), a national banking
association having its principal place of business at 100 Federal Street,
Boston, Massachusetts 02110, KEYBANK NATIONAL ASSOCIATION individually and as
Co-Agent, USTRUST, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
individually and as Co-Agent, COMERICA BANK and such banks or other financial
institutions which may become a party hereto pursuant to 19 hereof (the "Banks")
and BankBoston as Agent for the Banks (the "Agent").
WHEREAS, the Borrowers, BankBoston, USTrust, KeyBank and the Agent were
parties to that certain Revolving Credit and Term Loan Agreement dated as of
January 25, 1995, as amended to date (as so amended, the "Original Credit
Agreement"), pursuant to which such Banks agreed to make Loans to the Borrowers
as set forth therein;
WHEREAS, the Borrowers, BankBoston, USTrust, KeyBank and the Agent amended
and restated the Original Credit Agreement in its entirety as set forth in that
certain Amended and Restated Revolving Credit and Term Loan Agreement dated as
of June 17, 1997 (the "June, 1997 Credit Agreement"), pursuant to which such
Banks agreed to make Loans to Borrowers as set forth therein;
WHEREAS, the Borrowers, BankBoston, USTrust, KeyBank, Bank of America
National Trust and Savings Association, BHF- Bank Aktiengesellschaft, Comerica
Bank and the Agent amended and restated the June, 1997 in its entirety as set
forth in that certain Amended and Restated Revolving Credit and Term Loan
Agreement dated as of August 7, 1997 (the "August, 1997 Credit Agreement"),
pursuant to which such Banks agreed to make loans to the Borrowers as set forth
therein;
WHEREAS, the Borrowers have acquired two new subsidiaries, All Cycle Waste,
Inc. and Winters Brothers, Inc., and such subsidiaries are added as Borrowers
hereunder;
WHEREAS, the Borrowers have requested, and the Banks and the Agent have
agreed to amend and restate the August, 1997 Credit Agreement in its entirety as
set forth herein;
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
BOS-BUSN:552657.1
<PAGE>
1. DEFINITIONS AND RULES OF INTERPRETATION.
1.1. Definitions. The following terms shall have the meanings set forth in
this 1 or elsewhere in the provisions of this Agreement referred to below:
Accountants. See 6.4(a).
Agreement. This Amended and Restated Revolving Credit Agreement, including
the Schedules and Exhibits hereto.
Agent. BankBoston acting as agent for the Banks.
Agent's Head Office. The Agent's head office is located at 100 Federal
Street, Boston, Massachusetts 02110, or at such other location as the Agent may
designate from time to time.
All Cycle. All Cycle Waste, Inc., a Vermont corporation.
Applicable Laws. See 7.10.
Applicable Rate. The applicable rate per annum of interest on the Loans set
forth in the following table:
@@
----------------------------------------------------------------
| | | |
| Pricing Ratio |Applicable Rate for |Applicable Rate for|
| | Base Rate Loans | Eurodollar Rate |
| | | Loans |
----------------------------------------------------------------
----------------------------------------------------------------
|less than 2.00:1 | Base Rate |Eurodollar Rate plus
| | | |
| | | 1.00% per annum |
----------------------------------------------------------------
----------------------------------------------------------------
|greater than or | Base Rate |Eurodollar Rate plus
| | | |
|equal to 2.00:1 | | 1.25% per annum |
| and less than | | |
| 2.50:1 | | |
----------------------------------------------------------------
----------------------------------------------------------------
|greater than or | Base Rate |Eurodollar Rate plus
| | | |
|equal to 2.50:1 | | 1.50% per annum |
| and less than | | |
| 3.00:1 | | |
----------------------------------------------------------------
----------------------------------------------------------------
|greater than or | Base Rate |Eurodollar Rate plus
| | | |
|equal to 3.00:1 | | 1.75% per annum |
| and less than | | |
| 3.50:1 | | |
----------------------------------------------------------------
----------------------------------------------------------------
|greater than or | Base Rate |Eurodollar Rate plus
| | | |
|equal to 3.50:1 | | 2.00% per annum |
----------------------------------------------------------------
@@
Each Applicable Rate shall become effective on the first day after receipt
by the Banks of financial statements delivered pursuant to 7.4(a) or (b) hereof
which indicate a change in the Pricing Ratio and in the Applicable Rate in
accordance with the above table. If at any time the financial statements
required to be delivered pursuant to 7.4(a) or (b) hereof are not delivered with
10 days after the time periods specified in such subsections, the Applicable
Rate shall be the rate set forth in the table for a Pricing Ratio greater than
or equal to 3.50:1, subject to adjustment upon actual receipt of such financial
statements.
<PAGE>
Balance Sheet Date. April 30, 1997.
Bank of America. Bank of America National Trust and Savings Association
individually and as Co-Agent.
BankBoston. BankBoston, N.A.
Banks. See Preamble.
Base Rate. The higher of (a) the annual rate of interest announced from
time to time by the Agent at its head office in Boston, Massachusetts, as its
"base rate" (it being understood that such rate is a reference rate and not
necessarily the lowest rate of interest charged by the Bank) or (b) one percent
(1%) above the overnight federal funds effective rate, as published by the Board
of Governors of the Federal Reserve System, as in effect from time to time.
Base Rate Loans. Revolving Credit Loans bearing interest calculated by
reference to the Base Rate.
Borrowers. See Preamble.
Business Day. Any day on which banking institutions in Boston,
Massachusetts are open for the transaction of banking business, and, in the case
of Eurodollar Rate Loans, also a day which is a Eurodollar Business Day.
Capital Assets. Fixed assets, both tangible (such as land, buildings,
fixtures, machinery and equipment) and intangible (such as patents, copyrights,
trademarks, franchises and good will); provided that Capital Assets shall not
include any item customarily charged directly to expense or depreciated over a
useful life of twelve (12) months or less in accordance with GAAP.
Capital Expenditures. Amounts paid or indebtedness incurred by any Person
in connection with the purchase and lease by such Person of Capital Assets that
would be required to be capitalized and shown on the balance sheet of such
Person in accordance with GAAP.
Casella Associates Leases. The leases between the Borrowers and Casella
Associates, a Vermont partnership, for the property in Rutland, Vermont and
Montpelier, Vermont.
Casella TIRES Real Estate. The Real Property in Elliot, Maine owned by
Casella T.I.R.E.S., Inc.
Certified. With respect to the financial statements of any Person, such
statements as audited by a firm of independent auditors, whose report expresses
the opinion, without qualification, that such financial statements present
fairly the financial position of such Person.
CFO. See 7.4(b).
Clinton Lease. The Operation, Management and Lease Agreement dated as of
July 10, 1996 between the Parent and Clinton County, New York for the lease of
the Clinton County Landfill and related assets.
Closing Date. The date on which the conditions precedent set forth in 10
are satisfied.
Code. The Internal Revenue Code of 1986, as amended and in effect from time
to time.
Collateral. All of the property, rights and interests of the Borrowers that
are or are intended to be subject to the security interests and mortgages
created by the Security Documents.
Collateral Assignment of Contracts and Permits. The Amended and Restated
Collateral Assignment of Contracts and Permits dated as of the Closing Date
among the Borrowers and the Agent, in form and substance satisfactory to the
Agent.
Commitment. With respect to each Bank, the amount determined by multiplying
such Bank's Commitment Percentage by the aggregate amount of the Banks' Total
Commitment to make Revolving Credit Loans to the Borrowers, as the same may be
reduced from time to time.
Commitment Fee Percentage. The applicable percentage per annum as set forth
below used in calculating the commitment fee payable pursuant to 5.2(a), which
percentage shall vary from time to time in accordance with the Pricing Ratio:
@@
------------------------------------------------
| | |
| Pricing Ratio | Commitment Fee |
| | Percentage |
------------------------------------------------
------------------------------------------------
| less than 2.00:1 | 1/4% |
------------------------------------------------
------------------------------------------------
|greater than or equal to | 1/4% |
| 2.00:1 and less than | |
| 2.50:1 | |
------------------------------------------------
------------------------------------------------
|greater than or equal to | 3/8% |
| 2.50:1 and less than | |
| 3.00:1 | |
------------------------------------------------
------------------------------------------------
|greater than or equal to | 1/2% |
| 3.00:1 and less than | |
| 3.50:1 | |
------------------------------------------------
------------------------------------------------
|greater than or equal to | 1/2% |
| 3.50:1 | |
------------------------------------------------
@@
The Commitment Fee Percentage shall become effective on the first day after
receipt by the Banks of financial statements delivered pursuant to 7.4(a) or
7.4(b) which indicate a change in the Pricing Ratio and in the Commitment Fee
Percentage in accordance with the above table.
If at any time the financial statements required to be delivered pursuant
to 7.4(a) or (b) hereof are not delivered with 10 days after the time periods
specified in such subsections, the Applicable Rate shall be the rate set forth
in the table for a Pricing Ratio greater than or equal to 3.50:1, subject to
adjustment upon actual receipt of such financial statements.
Commitment Percentage. With respect to each Bank, the percentage set forth
beside its name on Schedule 2 hereto as the amount of such Bank's percentage of
the aggregate Commitments of all of the Banks (subject to adjustment upon any
assignment pursuant to 19).
<PAGE>
Compliance Certificate. See 7.4(c).
Consolidated or consolidated. With reference to any term defined herein,
shall mean that term as applied to the accounts of the Borrowers consolidated in
accordance with GAAP.
Consolidated Earnings Before Interest and Taxes or EBIT. For any period,
the Consolidated Net Income (or Deficit) of the Borrowers determined in
accordance with GAAP, plus (a) interest expense, and (b) income tax expense.
Consolidated Earnings Before Interest Taxes Depreciation and Amortization
or EBITDA. For any period, the Consolidated Net Income (or Deficit) of the
Borrowers determined in accordance with GAAP, plus (a) interest expense, (b)
income taxes (c) amortization expense and (d) depreciation expense for such
period.
Consolidated Funded Indebtedness. See 9.3.
Consolidated Net Income (or Deficit). The consolidated net income (or
deficit) of the Borrowers after deduction of all expenses, taxes and proper
charges and before deduction of (a) the special pre-tax, one-time charges in the
amount of $650,000 incurred in the fiscal quarter ended April 30, 1997 in
connection with the settlement of the Meridian Litigation and (b) the $100,000
charge incurred in the fiscal quarter ended April 30, 1997 in connection with
the establishment of a reserve for the Casella T.I.R.E.S., Inc. stockpile in
Hampden, Maine.
Consolidated Total Interest Expense. For any period, the aggregate amount
of interest expense required to be paid or accrued by the Borrowers during such
period on all Indebtedness of the Borrowers outstanding during all or any part
of such period, including capitalized interest expense for such period, but
excluding therefrom the non-cash amortization of debt issuance costs.
Consolidated Total Assets. All assets of the Borrowers determined on a
consolidated basis in accordance with GAAP.
Consolidated Total Liabilities. All liabilities of the Borrowers determined
on a consolidated basis in accordance with GAAP.
Consulting Engineer. An environmental consulting firm acceptable to the
Banks.
Conversion Request. A notice given by the Borrowers to the Agent of the
Borrowers' election to convert or continue a Loan in accordance with 5.12.
Default. See 13.
Depository Accounts. See 6.23.
Disposal. See "Release".
Distribution. The declaration or payment of any dividend on or in respect
of any shares of any class of capital stock of any Person, other than dividends
payable solely in shares of common stock of such Person; the purchase,
redemption, or other retirement of any shares of any class of capital stock of
such Person, directly or indirectly through a Subsidiary or otherwise; the
return of capital by any Person to its shareholders as such; or any other
distribution on or in respect of any shares of any class of capital stock of
such Person.
Dollars or $. Dollars in lawful currency of the United States of America.
EBIT. See definition of Consolidated Earnings Before Interest and Taxes.
EBITDA. See definition of Consolidated Earnings Before Interest, Taxes,
Depreciation and Amortization.
<PAGE>
Employee Benefit Plan. Any employee benefit plan within the meaning of 3(3)
of ERISA maintained or contributed to by any Borrower or any ERISA Affiliate,
other than a Multiemployer Plan.
Environmental Laws. See 6.16(a).
ERISA. The Employee Retirement Income Security Act of 1974, as amended and
in effect from time to time.
ERISA Affiliate. Any Person which is treated as a single employer with any
Borrower under 414 of the Code.
ERISA Reportable Event. A reportable event with respect to a Guaranteed
Pension Plan within the meaning of 4043 of ERISA and the regulations promulgated
thereunder as to which the requirement of notice has not been waived.
Eurocurrency Reserve Rate. For any day with respect to a Eurodollar Rate
Loan, the maximum rate (expressed as a decimal) at which any Bank subject
thereto would be required to maintain reserves under Regulation D of the Board
of Governors of the Federal Reserve System (or any successor or similar
regulations relating to such reserve requirements) against "Eurocurrency
Liabilities" (as that term is used in Regulation D), if such liabilities were
outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on
and as of the effective date of any change in the Eurocurrency Reserve Rate.
Eurodollar Business Day. Any day on which commercial banks are open for
international business (including dealings in Dollar deposits) in London or such
other Dollar interbank market as may be selected by the Agent in its sole
discretion acting in good faith.
Eurodollar Rate. For any Interest Period with respect to a Eurodollar Rate
Loan, the rate of interest equal to (i) the arithmetic rate per annum (rounded
upwards to the nearest 1/16 of one percent) at which Dollar deposits are offered
to the Agent by prime banks in whatever Eurodollar market may be selected by the
Agent in its sole discretion, acting in good faith at or about 10:00 a.m. local
time in such interbank market two Eurodollar Business Days prior to the
beginning of such Interest Period, for delivery on the first day of such
Interest Period for the number of days comprised therein and in an amount
comparable to the amount of the Eurodollar Rate Loan to which such Interest
Period applies, divided by (ii) a number equal to 1.00 minus the Eurocurrency
Reserve Rate, if applicable.
Eurodollar Rate Loans. Revolving Credit Loans bearing interest calculated
by reference to the Eurodollar Rate.
Event of Default. See 13.
Generally Accepted Accounting Principles or GAAP. When used in general,
Generally Accepted Accounting Principles means (1) principles that are
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, in effect for the fiscal year
ended on the Balance Sheet Date, as shall be concurred in by independent
certified public accountants of recognized standing whose report expresses an
unqualified opinion (other than a qualification regarding changes in Generally
Accepted Accounting Principles) as to financial statements in which such
principles have been applied; and (2) when used with reference to the Borrowers,
such principles shall include (to the extent consistent with such principles)
the accounting practices reflected in the consolidated financial statements for
the year ended on the Balance Sheet Date.
Guaranteed Pension Plan. Any employee pension benefit plan within the
meaning of 3(2) of ERISA maintained or contributed to by any Borrower or any
ERISA Affiliate the benefits of which are guaranteed on termination in full or
in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
<PAGE>
Hazardous Substances. See 6.16(b).
Indebtedness. All obligations, contingent and otherwise, that in accordance
with GAAP should be classified upon the obligor's balance sheet as liabilities,
or to which reference should be made by footnotes thereto, including in any
event and whether or not so classified: (a) all debt and similar monetary
obligations (including capitalized leases and operating leases with a term
longer than 3 years), whether direct or indirect; (b) all obligations under any
lease (a "synthetic lease") treated as an operating lease under generally
accepted accounting principles and as a loan or financing for U.S. income tax
purposes; (c) all liabilities secured by any mortgage, pledge, security
interest, lien, charge, or other encumbrance existing on property owned or
acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; and (d) all guarantees, endorsements and other contingent
obligations in respect of indebtedness of others, whether direct or indirect,
including any obligation to supply funds to or in any manner to invest in,
directly or indirectly, the debtor, to purchase indebtedness, or to assure the
owner of indebtedness against loss, through an agreement to purchase goods,
supplies, or services for the purpose of enabling the debtor to make payment of
the indebtedness held by such owner or otherwise, the obligations to reimburse
the issuer in respect of any letters of credit and obligations in respect of
interest or exchange rate or commodity hedging arrangements, fuel price swaps,
fuel price caps, and fuel price collar or floor agreements, and similar
agreements or arrangements.
Interest Period. With respect to each Eurodollar Loan:
(a) initially, the period commencing on the date of a conversion from
a Base Rate Loan into a Eurodollar Loan or the making of a Eurodollar Loan,
and ending one (1), two (2), three (3) months or six (6) thereafter, as the
case may be, as the Borrowers may select pursuant to the provisions of this
Agreement; and
(b) thereafter, each subsequent Interest Period shall begin on the
last day of the preceding Interest Period, and end one (1), two (2), (3)
months or six (6) thereafter, as the case may be, as the Borrowers may
select pursuant to the provisions of this Agreement;
provided that all of the foregoing provisions relating to Interest Periods
are subject to the following:
(A) if any Interest Period would otherwise end on a day that is
not a Eurodollar Business Day, that Interest Period shall be extended to
the next succeeding Eurodollar Business Day unless the result of such
extension would be to carry such Interest Period into another calendar
month, in which event such Interest Period shall end on the immediately
preceding Eurodollar Business Day;
(B) if the Borrowers shall fail to give notice as provided in
5.12, the Borrowers shall be deemed to have requested a conversion of the
affected Eurodollar Rate Loan to a Base Rate Loan and the continuance of
all Base Rate Loans as Base Rate Loans on the last day of the then current
Interest Period with respect thereto;
(C) any Interest Period relating to any Eurodollar Rate Loan that
begins on the last Eurodollar Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Eurodollar
Business Day of a calendar month; and
(D) no Interest Period shall extend beyond the Revolving Credit
Maturity Date.
Investments. All expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock or Indebtedness of, or
for loans, advances, capital contributions or transfers of property to, or in
respect of any guaranties (or other commitments as described under
Indebtedness), or obligations of, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (a) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (b) there
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(c) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment, liquidating dividend or liquidating distribution); (d) there shall
not be deducted in respect of any Investment any amounts received as earnings on
such Investment, whether as dividends, interest or otherwise, except that
accrued interest included as provided in the foregoing clause (b) may be
deducted when paid; and (e) there shall not be deducted from the aggregate
amount of Investments any decrease in the value thereof.
<PAGE>
KeyBank. KeyBank National Association individually and as Co-Agent.
Letters of Credit. Standby Letters of Credit issued or to be issued by the
Agent under 3 hereof for the account of the Borrowers.
Letter of Credit Applications. Letter of Credit Applications in such form
as may be agreed upon by any Borrower and the Agent from time to time which are
entered into pursuant to 3 hereof as such Letter of Credit Applications are
amended, varied or supplemented from time to time.
Letter of Credit Fee. See 5.2(b).
Letter of Credit Participation. See 3.1(b).
Letter of Credit Percentage. The percentage per annum equal to the margin
above the Eurodollar Rate charged on Eurodollar Loans, as in effect from time to
time, as set forth in the column "Applicable Rate for Eurodollar Rate Loans" in
the Applicable Rate table above.
Loan Documents. This Agreement, the Notes, the Letter of Credit
Applications, the Letters of Credit, the Security Documents, and the
Subordination Agreements.
Loan and Letter of Credit Request. See 2.6.
Loans. The Revolving Credit Loans.
Maximum Drawing Amount. The maximum aggregate amount from time to time that
the beneficiaries may draw under outstanding Letters of Credit.
Meridian Litigation. The civil action brought by John A. Russell, Jr. and
Paul P. Tierney derivatively on behalf of Meridian Group, Inc. against the
Parent and certain other parties in Rutland (Vermont) Superior Court.
Mortgages. The mortgages and deeds of trust, as amended and in effect from
time to time, from the Borrowers to the Agent with respect to the fee and
leasehold interests of the Borrowers in the Sanco Landfill, the Sawyer Real
Estate, the Casella TIRES Real Estate, the Superior Real Estate, and the Waste
USA Landfill, each in form and substance satisfactory to the Agent, and any
other mortgages or deeds of trust requested by the Agent pursuant to 7.19.
Multiemployer Plan. Any multiemployer plan within the meaning of 3(37) of
ERISA maintained or contributed to by any Borrower or any ERISA Affiliate.
<PAGE>
Notes. See 2.3.
Obligations. All indebtedness, obligations and liabilities of the Borrowers
to any of the Banks and the Agent, individually or collectively, existing on the
date of this Agreement or arising thereafter, direct or indirect, joint or
several, absolute or contingent, matured or unmatured, liquidated or
unliquidated, secured or unsecured, arising by contract, operation of law or
otherwise, arising or incurred under this Agreement or any of the other Loan
Documents or in respect of any of the Loans made or Reimbursement Obligations
incurred or the Letters of Credit, the Notes, interest rate protection
arrangements and similar agreements or arrangements provided by any of the Banks
or any other instrument at any time evidencing any thereof.
PBGC. The Pension Benefit Guaranty Corporation created by 4002 of ERISA and
any successor entity or entities having similar responsibilities.
Permit Note. The promissory note of New England Waste Services of Vermont,
Inc. dated January 25, 1995 and payable to the order of Waste USA in the
principal amount of $200,000.
Permitted Liens. See 8.2.
Person. Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.
Pricing Ratio. At the end of any fiscal quarter of the Borrowers, the ratio
of Indebtedness of the Borrowers for borrowed money and capitalized leases to
(b) EBITDA for the period of four (4) consecutive fiscal quarters then ended, as
calculated on the Compliance Certificate delivered by the Borrowers pursuant to
7.4(c).
Real Property. All real property heretofore, now, or hereafter owned or
leased by the Borrowers.
Reimbursement Obligation. The Borrowers' obligation to reimburse the Agent
and the Banks on account of any drawing under any Letter of Credit as provided
in 3.2.
Release. Shall have the meaning specified in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. 9601
et seq. ("CERCLA") and the term "Disposal" (or "Disposed") shall have the
meaning specified in the Resource Conservation and Recovery Act of 1976, 42
U.S.C. 6901 et seq. ("RCRA") and regulations promulgated thereunder; provided,
that in the event either CERCLA or RCRA is amended so as to broaden the meaning
of any term defined thereby, such broader meaning shall apply as of the
effective date of such amendment and provided further, to the extent that the
laws of a state wherein the property lies establishes a meaning for "Release" or
"Disposal" which is broader than specified in either CERCLA or RCRA, such
broader meaning shall apply.
Required Banks. As of any date, the Banks holding sixty-six and two thirds
percent (66-2/3%) of the outstanding principal amount of the Loans on such date;
and if no such principal is outstanding, the Banks whose aggregate Commitments
constitute sixty-six and two thirds percent (66-2/3%) of the Total Commitment.
Revolving Credit Loans. Revolving credit loans made or to be made by the
Banks to the Borrowers pursuant to 2.
Revolving Credit Maturity Date. January 12, 2003.
Sanco Landfill. The Landfill in Bethlehem, New Hampshire, owned and
operated by North Country Environmental Services, Inc.
Sawyer Real Estate. The Real Property in Hampden, Maine owned by Sawyer
Environmental Services and Sawyer Environmental Recovery Facilities, Inc.
Security and Pledge Agreement. The Amended and Restated Security and Pledge
Agreement, dated the Closing Date, among the Borrowers and the Agent in form and
substance satisfactory to the Agent.
Security Documents. The Security and Pledge Agreement, the Collateral
Assignment of Contracts and Permits, and the Mortgages, each as amended and in
effect from time to time, and any additional documents evidencing or perfecting
the Agent's lien on the assets of the Borrowers for the benefit of the Banks,
including Uniform Commercial Code financing statements.
<PAGE>
Settlement. The making of, or receiving of, payments in immediately
available funds, by the Banks to or from the Agent in accordance with 2.7 to the
extent necessary to cause each Bank's actual share of the outstanding amount of
the Loans to be equal to each Bank's Commitment Percentage of the outstanding
amount of such Loans, in any case where, prior to such event or action, the
actual share is not so equal.
Settlement Amount. See 2.7(b).
Settlement Date. (a) The Drawdown Date relating to any Loan and Letter of
Credit Request, (b) the last Business Day of each week, (c) the Business Day
immediately following the Agent becoming aware of the existence of an Event of
Default, (d) any Business Day on which the amount of Revolving Credit Loans
outstanding from BankBoston is equal to or greater than BankBoston's Commitment,
or (e) the Business Day immediately following any Business Day on which the
amount of Revolving Credit Loans outstanding increases or decreases by more than
$1,000,000 as compared to the previous Settlement Date.
Settling Bank. See 2.7(b).
Subordinated Debt. Indebtedness of the Borrowers which has been
subordinated and made junior to the payment and performance in full of the
Obligations, and evidenced as such by the Subordination Agreements or by another
written instrument containing subordination provisions in form and substance
satisfactory to the Banks, including without limitation, the Permit Note and the
obligations to Waste USA under the Waste USA Lease; provided that (a) at the
time such Subordinated Debt is incurred, no Default or Event of Default has
occurred or would occur as a result of such incurrence, (b) the aggregate
Subordinated Debt incurred after the date hereof does not exceed $15,000,000;
and (c) the documentation evidencing such Subordinated Debt shall have been
delivered to the Agent and shall contain all of the following characteristics:
(i) it shall be unsecured, (ii) it shall bear a market rate of interest, (iii)
it shall have a final maturity of at least five (5) years, (iv) it shall not
require unscheduled principal repayments thereof prior to the maturity date, (v)
it shall have financial covenants (including covenants relating to incurrence of
indebtedness) which are meaningfully less restrictive than those set forth
herein, (vi) it shall have no restrictions on the Borrower's ability to grant
liens securing indebtedness ranking senior to such Subordinated Debt, (vii) it
shall permit the incurrence of senior indebtedness under this Credit Agreement,
(viii) it may be cross-accelerated with the Obligations and other senior
indebtedness of the Borrowers (but shall not be cross-defaulted except for
payment defaults which the senior lenders have not waived) and may be
accelerated upon bankruptcy, (ix) it shall provide that (A) upon any payment or
distribution of the assets of the Borrowers (including after the commencement of
a bankruptcy proceeding) of any kind or character, all of the Obligations
(including interest accruing after the commencement of any bankruptcy proceeding
at the rate specified for the applicable Obligation, whether or not such
interest is an allowable claim in any such proceeding) shall be paid in full
prior to any payment being received by the holders of the Subordinated Debt and
(B) until all of the Obligations (including the interest described in subclause
(A) above) are paid in full in cash, any payment or distribution to which the
holders of the Subordinated Debt would be entitled but for the subordination
provisions of the type described in clauses (x) and (xi) hereof shall be made to
the holders of the Obligations, (x) it shall provide that in the event of a
payment default under 13.1(a) or (b) hereof, the Borrowers shall not be required
to pay the principal of, or any interest, fees and all other amounts payable
with respect to the Subordinated Debt until the Obligations have been paid in
full in cash, (xi) it shall provide that in the event of any other Event of
Default, the Banks shall be permitted to block payments of principal, interest,
fees and all other amounts payable with respect to the Subordinated Debt for a
period of 180 days, and (xii) it shall acknowledge that none of the provisions
outlined in part (c) of this definition can be amended, modified or otherwise
altered without the prior written consent of the Banks.
Subordination Agreements. Collectively, (a) the Waste USA Subordination
Agreement, (b) the Subordination Agreement dated as of August 1, 1995 among the
Agent, the Parent and Green Mountain Sanitation, Inc., Hardwick Recycling and
Salvage, Inc., Morrisville Maintenance, Inc. and Northern Transfer, Inc.
subordinating the $500,000 promissory note of the Parent referenced therein, (c)
any Subordination Agreement among the Agent, Casella Waste Management, Inc. and
Northeast Waste Services, Ltd. subordinating certain obligations of Casella
Waste Management, Inc. to Northeast Waste Services, Ltd. referenced therein, (d)
any Subordination Agreement among the Agent, the Parent, and the sellers of the
capital stock of Sawyer Environmental Recovery Facilities, Inc. and Sawyer
Environmental Services (such sellers, collectively, the "Sawyer Sellers"),
subordinating certain obligations of the Parent to the Sawyer Sellers referenced
therein and (e) any other subordination agreements entered into by the Agent,
the Borrowers and any sellers of assets to any Borrower, subordinating the
obligations of such Borrower to such seller to the Obligations in substantially
the form of Exhibit F hereto.
<PAGE>
Subsidiary. Any corporation, association, trust, or other business entity
of which the designated parent shall at any time own directly or indirectly
through a Subsidiary or Subsidiaries at least a majority of the outstanding
capital stock or other interest entitled to vote generally.
Superior Real Estate. The Real Property in Newfield, New York owned by
Casella Waste Management of N.Y., Inc.
Total Commitment. $150,000,000, as such amount may be reduced pursuant to
2.2 hereof.
Type. As to any Revolving Credit Loan, its nature as a Base Rate Loan or a
Eurodollar Rate Loan.
Waste USA. Waste U.S.A., Inc., a Vermont corporation.
Waste USA Landfill. The Landfill in Coventry, Vermont acquired from Waste
USA by New England Waste Services of Vermont, Inc.
Waste USA Lease. The lease of the airspace at the Waste USA Landfill
between the lessor thereunder and New England Waste Services of Vermont, Inc.
Waste USA Purchase Agreement. The Asset Purchase, Stock Purchase and Lease
Agreement dated as of May 6, 1994 among Waste USA, 161531 Canada Ltd. and New
England Waste Services, Inc., which agreement has been assigned by New England
Waste Services, Inc. to New England Waste Services of Vermont, Inc.
Waste USA Subordination Agreement. The Subordination Agreement dated as of
January 25, 1995, among the Agent and Waste USA.
Winters. Winters Brothers, Inc., a Vermont corporation.
Year 2000 Problem. The risk that computer applications used by the
Borrowers may be unable to recognize and properly perform date-sensitive
functions involving certain dates prior to, and any date after, December 31,
1999.
1.2. Rules of Interpretation.
(a) A reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented from time to
time in accordance with its terms and the terms of this Agreement.
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any law includes any amendment or modification to
such law.
(d) A reference to any Person includes its permitted successors and
permitted assigns.
(e) Accounting terms capitalized but not otherwise defined herein have
the meanings assigned to them by Generally Accepted Accounting Principles
applied on a consistent basis by the accounting entity to which they refer.
(f) The words "include", "includes" and "including" are not limiting.
(g) All terms not specifically defined herein or by Generally Accepted
Accounting Principles, which terms are defined in the Uniform Commercial
Code as in effect in the Commonwealth of Massachusetts, have the meanings
assigned to them therein.
(h) Reference to a particular "" refers to that section of this
Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of like import
shall refer to this Agreement as a whole and not to any particular section
or subdivision of this Agreement.
<PAGE>
2. THE REVOLVING CREDIT LOANS.
2.1. Commitment to Lend. Subject to the terms and conditions set forth in
this Agreement, each of the Banks severally agrees to lend to the Borrowers and
the Borrowers may borrow, repay, and reborrow from time to time between the
Closing Date and the Revolving Credit Maturity Date upon notice by the Borrowers
to the Agent given in accordance with 2.6, such Bank's Commitment Percentage of
such sums as are requested by the Borrowers in the minimum aggregate amount of
$500,000 or an integral multiple thereof; provided, that except as otherwise
provided herein, the outstanding amount of Revolving Credit Loans and the
Maximum Drawing Amount of the Letters of Credit shall not exceed the Total
Commitment at any time. Revolving Credit Loans made hereunder shall be made pro
rata in accordance with each Bank's Commitment Percentage. Each request for a
Revolving Credit Loan hereunder shall constitute a representation and warranty
by the Borrowers that the conditions set forth in 10 and 11, as the case may be,
have been satisfied on the date of such request. Any unpaid Reimbursement
Obligation under the Letters of Credit shall for all purposes be a Revolving
Credit Loan hereunder.
2.2. Reduction of Total Commitment.
(a) The Borrowers shall have the right at any time and from time to
time upon two (2) Business Days' prior written notice to the Agent to
reduce by $1,000,000 or an integral multiple thereof or terminate entirely
the Total Commitment, whereupon the Commitments of the Banks shall be
reduced pro rata in accordance with their respective Commitment Percentages
of the amount specified in such notice or, as the case may be, terminated.
The Agent will notify the Banks promptly after receiving any notice of the
Borrowers delivered pursuant to this 2.2.
(b) No reduction or termination of the Total Commitment once made may
be revoked; the portion of the Total Commitment reduced or terminated may
not be reinstated; and amounts in respect of such reduced or terminated
portion may not be reborrowed.
2.3. The Notes. The Revolving Credit Loans shall be evidenced by promissory
notes of the Borrowers in substantially the form of Exhibit A hereto (each a
"Note"), dated as of the Closing Date and completed with appropriate insertions.
One Note shall be payable to the order of each Bank in a principal amount equal
to such Bank's Commitment or, if less, the outstanding amount of all Revolving
Credit Loans made by such Bank, plus interest accrued thereon, as set forth
below. The Borrowers irrevocably authorize each Bank to make or cause to be
made, in connection with a drawdown date of any Revolving Credit Loan or at the
time of receipt of any payment of principal on such Bank's Note, an appropriate
notation on such Bank's records reflecting the making of such Revolving Credit
Loan or the receipt of such payment (as the case may be). The outstanding amount
of the Revolving Credit Loans set forth on such Bank's record shall be prima
facie evidence of the principal amount thereof owing and unpaid to such Bank,
but the failure to record, or any error in so recording, any such amount shall
not limit or otherwise affect the obligations of the Borrowers hereunder or
under any Note to make payments of principal of or interest on any Note when
due.
2.4. Maturity of the Revolving Credit Loans. The Revolving Credit Loans
shall be due and payable on the Revolving Credit Maturity Date. The Borrowers
promise to pay on the Revolving Credit Maturity Date all Revolving Credit Loans
outstanding on such date, together with any and all accrued and unpaid interest
thereon. The Banks shall effect a Settlement on the Revolving Credit Maturity
Date.
2.5. Mandatory Repayments of the Revolving Credit Loans. If at any time the
outstanding amount of the Revolving Credit Loans plus the Maximum Drawing Amount
of all outstanding Letters of Credit exceeds the Total Commitment, whether by
reduction of the Total Commitment or otherwise, then the Borrowers shall
immediately pay the amount of such excess to the Agent for application to the
Revolving Credit Loans, subject to Settlement among the Banks in accordance with
2.7(b) hereof, or if no Revolving Credit Loans shall be outstanding, to be held
by the Agent as collateral security for the Reimbursement Obligations provided,
however, that if the amount of cash collateral held by the Agent pursuant to
this 2.5 exceeds the amount of the Obligations, the Agent shall return such
excess to the Borrowers.
<PAGE>
2.6. Requests for Revolving Credit Loans. (a) The Borrowers shall give to
the Agent written notice in the form of Exhibit B hereto (or telephonic notice
confirmed by telecopy on the same Business Day in the form of Exhibit B hereto)
of each Revolving Credit Loan requested hereunder (a "Loan and Letter of Credit
Request") not later than 11:00 a.m. Boston time (i) no less than one (1)
Business Day prior to the proposed drawdown date (the "Drawdown Date") of any
Base Rate Loan and (ii) no less than three (3) Eurodollar Business Days prior to
the proposed Drawdown Date of any Eurodollar Rate Loan. Each such notice shall
specify (A) the amount of such Revolving Credit Loan, (B) the proposed Drawdown
Date of such Revolving Credit Loan, (C) the Type of such Revolving Credit Loan,
and (D) the Interest Period for such Revolving Credit Loan (if a Eurodollar Rate
Loan).
(b) Notwithstanding the notice and minimum amount requirements set forth in
2.6(a) and 2.1 respectively, but otherwise in accordance with the terms and
conditions of this Credit Agreement, the Agent may, in its sole discretion and
without conferring with the Banks, make Revolving Credit Loans which are Base
Rate Loans to the Borrowers by entry of credits to the Borrowers' operating
account(s) with the Agent or such other account designated by the Parent and
agreed to by the Agent to cover checks which the Borrowers have drawn or made
against such account. The Borrowers hereby request and authorize the Agent to
make from time to time such Revolving Credit Loans by means of appropriate
entries of such credits sufficient to cover checks then presented. The Borrowers
acknowledge and agree that the making of such Revolving Credit Loans shall, in
each case, be subject in all respects to the provisions of this Credit Agreement
as if they were Revolving Credit Loans covered by a Loan and Letter of Credit
Request including, without limitation, the limitations set forth in 2.1 and the
requirements that the applicable provisions of 10 (in the case of Revolving
Credit Loans made on the Closing Date) and 11 be satisfied. All actions taken by
the Agent pursuant to the provisions of this 2.6(b) shall be conclusive and
binding on the Borrowers absent manifest error or the Agent's gross negligence
or willful misconduct. Prior to a Settlement, interest on Revolving Credit Loans
made pursuant to this 2.6(b) shall be for the account of the Agent.
2.7. Funds for Loans; Settlements.
(a) Upon receipt of the documents required by 10 and 11 and the
satisfaction of the other conditions set forth therein, to the extent
applicable, the Agent will deposit into the account of the Parent at the
Agent's Head Office the amount of such Revolving Credit Loans requested by
the Borrowers pursuant to 2.6 hereunder in immediately available funds not
later than 2:00 p.m. (Boston time) on the proposed Drawdown Date.
(b) The Banks shall effect Settlements on each Settlement Date. On or
before 12:00 p.m. (Boston time) on each such Settlement Date, the Agent
shall give telephonic notice to the Banks of (i) (A) the respective
outstanding amount of Revolving Credit Loans made by each Bank from the
immediately preceding Settlement Date through the close of business on the
prior day and (B) the unfunded amount, if any, of each Revolving Credit
Loan requested pursuant to 2.6(a) as of such time on such date, (ii) the
amount that any Bank, as applicable (the "Settling Bank"), shall pay to
effect a Settlement (the "Settlement Amount") and (iii) the portion (if
any) of the aggregate Settlement Amount to be paid to each Bank. A
statement of the Agent submitted to the Banks with respect to any amounts
owing under this 2.7(b) shall be prima facie evidence of the amount due and
owing. Each Settling Bank shall, as promptly as practical during normal
business hours on each Settlement Date, effect a wire transfer of
immediately available funds to the Agent in the amount of its Settlement
Amount. The Agent shall, as promptly as practicable during normal business
hours on each Settlement Date, effect a wire transfer of immediately
available funds to each Bank of the Settlement Amount to be paid to such
Bank. All funds advanced by any Bank as a Settling Bank pursuant to this
2.7(b) shall for all purposes be treated as a Revolving Credit Loan made by
such Settling Bank to the Borrowers and all funds received by any Bank
pursuant to this 2.7(b) shall for all purposes be treated as repayment of
amounts owed by the Borrowers with respect to Revolving Credit Loans made
by such Bank as of the date received by the Agent. In the event that any
bankruptcy, reorganization, liquidation, receivership or similar cases or
proceedings in which any of the Borrowers is a debtor prevents a Settling
Bank from making any Revolving Credit Loan to effect a Settlement as
contemplated hereby, such Settling Bank will make such disposition and
arrangements with the other Banks and the Agent with respect to such
Revolving Credit Loans, either by way of purchase of participations,
distribution, pro tanto assignment of claims, subrogation or otherwise as
shall result in each Bank's share of the outstanding Revolving Credit Loans
being equal, as nearly as may be, to such Bank's Commitment Percentage of
the outstanding amount of the Revolving Credit Loans.
<PAGE>
(c) The Agent may (unless notified to the contrary by a Settling Bank
by 2:00 p.m. (Boston time) on the Settlement Date) assume that each
Settling Bank has made available to the Agent the Settlement Amount with
respect to its Revolving Credit Loans, and the Agent may (but shall not be
required to), in reliance upon such assumption, make available to the
Borrowers the aggregate Settlement Amount. If the Settlement Amount is made
available to the Agent (or, conversely, if the Agent makes the Settlement
Amount available to a Bank entitled thereto) on a date after the Settlement
Date, such Settling Bank shall pay the Agent (or, conversely, the Agent
shall pay such Bank entitled to such Settlement Amount) on demand an amount
equal to the product of (i) the average computed for the period referred to
in clause (iii) below, of the weighted average annual interest rate paid by
the Agent or such Bank, as applicable, for federal funds acquired by the
Agent or such Bank, as applicable during each day included in such period
times (ii) the Settlement Amount, times (iii) a fraction, the numerator of
which is the number of days that elapse from and including such Settlement
Date to but not including the date on which the Settlement Amount shall
become immediately available to the Agent or such Bank, as applicable, and
the denominator of which is 365; upon payment of such amount the Settling
Bank shall be deemed to have delivered the Settlement Amount of such
Settling Bank on the Settlement Date and shall become entitled to interest
payable by the Borrowers with respect to such Bank's Settlement Amount as
if such share were delivered on the Settlement Date. If the Settlement
Amount is not in fact made available to the Agent by the Settling Bank
within three (3) Business Days of such Settlement Date, the Agent shall be
entitled to debit the Borrowers' accounts to recover such amount from the
Borrowers, with interest thereon at the rate per annum applicable to any
Loans made on such Settlement Date.
(d) The failure or refusal of any of the Banks to make available to
the Agent at the aforesaid time on any date the amount of the Loans to be
made by such Bank shall not relieve any other Bank from its obligations
hereunder to make Settlements and Loans, on such Drawdown Date or on any
subsequent Drawdown Date, but in no event shall any Bank or the Agent be
responsible for funding or otherwise be liable for the failure of any other
Bank to make the Loans to be made by such other Bank.
2.8. Optional Prepayments or Repayments of Loans. The Borrowers shall have
the right, at their election, to repay or prepay the outstanding amount of the
Revolving Credit Loans, as a whole or in part, at any time without penalty or
premium; provided (i) each partial prepayment shall be in the principal amount
of $250,000 or an integral multiple thereof, and (ii) that the full or partial
prepayment of the outstanding amount of any Eurodollar Rate Loans pursuant to
this 2.8 may be made only on the last day of the Interest Period relating
thereto. The Borrowers shall give the Agent, no later than 11:00 a.m. (Boston
time) (a) at least one (1) Business Day written notice (or telephonic notice
confirmed in writing) of such proposed prepayment or repayment, written notice
(or telephonic notice confirmed in writing) of any proposed prepayment or
repayment pursuant to this 2.8 of Base Rate Loans and (b) at least three (3)
Eurodollar Business Days written notice (or telephonic notice confirmed in
writing) of any proposed prepayment or repayment pursuant to this 2.8 of
Eurodollar Rate Loans, in each case, specifying the proposed date of prepayment
or repayment of Revolving Credit Loans and the principal amount to be paid. Each
such partial prepayment shall be applied first to the principal of Base Rate
Loans and then to the principal of Eurodollar Rate Loans.
3. LETTERS OF CREDIT.
3.1. Letter of Credit Commitments.
(a) Subject to the terms and conditions hereof and the execution and
receipt of a Loan and Letter of Credit Request reflecting the Maximum
Drawing Amount of all Letters of Credit (including the requested Letter of
Credit) and a Letter of Credit Application, the Agent, on behalf of the
Banks and in reliance upon the agreement of the Banks set forth in 3.1(b)
and upon the representations and warranties of the Borrowers contained
herein, agrees to issue standby letters of credit, in such form as may be
requested from time to time by the Borrowers and agreed to by the Agent;
provided, however, that, after giving effect to such request, (i) the
aggregate Maximum Drawing Amount of all letters of credit issued at any
time under this 3.1(a) (the "Letters of Credit") shall not exceed
$25,000,000 and (ii) the aggregate Maximum Drawing Amount of all Letters of
Credit plus the sum of the outstanding amount of the Revolving Credit Loans
shall not exceed the Total Commitment; and provided further that no Letter
of Credit shall have an expiration date later than the earlier of (i) one
year after the date of issuance of the Letter of Credit, or (ii) thirty
(30) days prior to the Revolving Credit Maturity Date.
<PAGE>
(b) Each Bank severally agrees that it shall be absolutely liable,
without regard to the occurrence of any Default or Event of Default or any
other condition precedent whatsoever, to the extent of such Bank's
Commitment Percentage thereof, to reimburse the Agent on demand for the
amount of each draft paid by the Agent under each Letter of Credit to the
extent that such amount is not reimbursed by the Borrowers pursuant to 3.2
(such agreement for a Bank being called herein the "Letter of Credit
Participation" of such Bank). The Agent shall not issue any Letter of
Credit unless all of the conditions precedent under 11 hereof have been
satisfied.
(c) Each such payment made by a Bank shall be treated as the purchase
by such Bank of a participating interest in the Borrowers' Reimbursement
Obligation under 3.2 in an amount equal to such payment. Each Bank shall
share in accordance with its participating interest in any interest which
accrues pursuant to 3.2.
3.2. Reimbursement Obligation of the Borrowers. In order to induce the
Agent to issue, extend and renew each Letter of Credit and the Banks to
participate therein, the Borrowers hereby agree to reimburse or pay to the Agent
with respect to each Letter of Credit issued, extended or renewed by the Agent
hereunder as follows:
(a) on each date that any draft presented under any Letter of Credit
is honored by the Agent or the Agent otherwise makes payment with respect
thereto, (i) the amount paid by the Agent under or with respect to such
Letter of Credit, and (ii) the amount of any taxes, fees, charges or other
costs and expenses whatsoever incurred by the Agent or any Bank in
connection with any payment made by the Agent or any Bank under, or with
respect to, such Letter of Credit; and
(b) upon the Revolving Credit Maturity Date or the acceleration of the
Reimbursement Obligations with respect to all Letters of Credit in
accordance with 13, an amount equal to the then Maximum Drawing Amount of
all Letters of Credit, which amount shall be held by the Agent for the
benefit of the Banks and the Agent as cash collateral for all Reimbursement
Obligations.
Each such payment shall be made to the Agent at the Agent's Head Office in
immediately available funds. Interest on any and all amounts remaining unpaid by
the Borrowers under this 3.2 at any time from the date such amounts become due
and payable (whether as stated in this 3.2, by acceleration or otherwise) until
payment in full (whether before or after judgment) shall be payable to the Agent
on demand at the rate specified in 5.7 for overdue amounts.
3.3. Letter of Credit Payments. If any draft shall be presented or other
demand for payment shall be made under any Letter of Credit, the Agent shall
notify the Borrowers of the date and amount of the draft presented or demand for
payment and of the date and time when it expects to pay such draft or honor such
demand for payment. On the date that such draft is paid or other payment is made
by the Agent, the Agent shall promptly notify the Banks of the amount of any
unpaid Reimbursement Obligation. All such unpaid Reimbursement Obligations with
respect to Letters of Credit shall, provided that no Event of Default under
13(g) or 13(h) has occurred, become automatically a Revolving Credit Loan. No
later than 3:00 p.m. (Boston time) on the Business Day next following the
receipt of such notice, each Bank shall make available to the Agent, at the
Agent's Head Office, in immediately available funds, such Bank's Commitment
Percentage of such unpaid Reimbursement Obligation, together with an amount
equal to the product of (a) the average, computed for the period referred to in
clause (c) below, of the weighted average interest rate paid by the Agent for
federal funds acquired by the Agent during each day included in such period,
times (b) the amount equal to such Bank's Commitment Percentage of such unpaid
Reimbursement Obligation, times (c) a fraction, the numerator of which is the
number of days that have elapsed from and including the date the Agent paid the
draft presented for honor or otherwise made payment until the date on which such
Bank's Commitment Percentage of such unpaid Reimbursement Obligation shall
become immediately available to the Agent, and the denominator of which is 365.
The responsibility of the Agent to the Borrowers and the Banks shall be only to
determine that the documents (including each draft) delivered under each Letter
of Credit in connection with such presentment shall be in conformity in all
material respects with such Letter of Credit.
<PAGE>
3.4. Obligations Absolute. The Borrowers' obligations under this 3 shall be
absolute and unconditional under any and all circumstances and irrespective of
the occurrence of any Default or Event of Default or any condition precedent
whatsoever or any setoff, counterclaim or defense to payment which the Borrowers
may have or have had against the Agent, any Bank or any beneficiary of a Letter
of Credit. Subject to the obligations of the Banks pursuant to Article V of the
Uniform Commercial Code, the Borrowers further agree with the Agent and the
Banks that the Agent and the Banks shall not be responsible for, and the
Borrowers' Reimbursement Obligations under 3.2 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even if such documents should in fact prove to be in any or all
respects invalid, fraudulent or forged, or any dispute between or among the
Borrowers, the beneficiary of any Letter of Credit or any financing institution
or other party to which any Letter of Credit may be transferred or any claims or
defenses whatsoever of the Borrowers against the beneficiary of any Letter of
Credit or any such transferee. The Agent and the Banks shall not be liable for
any error, omission, interruption or delay in transmission, dispatch or delivery
of any message or advice, however transmitted, in connection with any Letter of
Credit. The Borrowers agree that any action taken or omitted by the Agent or any
Bank under or in connection with each Letter of Credit and the related drafts
and documents, if done in good faith, shall be binding upon the Borrowers and
shall not result in any liability on the part of the Agent or any Bank to the
Borrowers.
3.5. Reliance by Agent. To the extent not inconsistent with 3.4, the Agent
shall be entitled to rely, and shall be fully protected in relying upon, any
Letter of Credit, draft, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document believed by it to be genuine and correct and
to have been signed, sent or made by the proper Person or Persons and upon
advice and statements of legal counsel, independent accountants and other
experts selected by the Agent.
4. INTENTIONALLY OMITTED.
5. INTEREST, FEES, PAYMENTS, AND COMPUTATIONS; JOINT AND SEVERAL LIABILITY.
5.1. Interest. Except as otherwise provided in 5.7, the outstanding
principal amount of the Loans shall bear interest at the rate per annum equal to
the Applicable Rate. Interest shall be payable (a) quarterly in arrears on the
last Business Day of each calendar quarter for the quarter ending on such date,
for Base Rate Loans, (b) on the earlier of (i) the last day of the applicable
Interest Period or (ii) ninety (90) days after the Drawdown Date, on Eurodollar
Rate Loans, and (c) on the Revolving Credit Maturity Date. Any change in the
interest rate resulting from a change in the Base Rate is to be effective at the
beginning of the day of such change in the Base Rate.
<PAGE>
5.2. Fees.
(a) Commitment Fee. The Borrowers agree to pay to the Agent for the
benefit of the Banks a commitment fee in an amount equal to the Commitment
Fee Percentage of the unused portion of the Total Commitment during each
calendar quarter or portion thereof from the Closing Date to the Revolving
Credit Maturity Date (or to the date of termination in full of the Total
Commitment, if earlier). This commitment fee shall be payable quarterly in
arrears on the first day of each calendar quarter for the immediately
preceding calendar quarter, with a final payment on the Revolving Credit
Maturity Date. The Agent agrees to pay to the Banks the commitment fee
received under this 5.2(a) pro-rata in accordance with their respective
Commitment Percentages.
(b) Letter of Credit Fee. The Borrowers shall, upon the issuance,
extension or renewal of any Letter of Credit, pay a fee (the "Letter of
Credit Fee") to the Agent equal to (i) the product of (A) the Letter of
Credit Percentage multiplied by (B) the Maximum Drawing Amount of each
Letter of Credit, plus (ii) the Agent's customary issuance fee, payable in
accordance with the Agent's customary practice. That portion of the Letter
of Credit Fee equal to one eighth of one percent (1/8%) per annum of the
Maximum Drawing Amount of each Letter of Credit shall be paid solely to the
Agent, and the balance (other than the issuance fee) shall be shared
pro-rata by each of the Banks in accordance with their respective
Commitment Percentages. The Letter of Credit Fee shall be payable quarterly
in arrears on the first day of each calendar quarter for the immediately
preceding calendar quarter, with a final payment on the expiration date of
each Letter of Credit.
(c) The Borrowers shall pay to the Agent an agent's fee and an
underwriting fee as set forth in a separate letter agreement between the
Borrowers and the Agent.
5.3. Payments.
(a) All payments of principal, interest, Reimbursement Obligations,
fees and any other amounts due hereunder or under any of the other Loan
Documents shall be made to the Agent, for the respective accounts of the
Banks and the Agent, received at the Agent's Head Office in immediately
available funds by 12:00 p.m. (Boston time) on any due date.
(b) All payments by the Borrowers hereunder and under any of the other
Loan Documents shall be made without setoff or counterclaim and free and
clear of and without deduction for any taxes, levies, imposts, duties,
charges, fees, deductions, withholdings, compulsory loans, restrictions or
conditions of any nature now or hereafter imposed or levied by any
jurisdiction or any political subdivision thereof or taxing or other
authority therein unless the Borrowers are compelled by law to make such
deduction or withholding. If any such obligation is imposed upon the
Borrowers with respect to any amount payable by them hereunder or under any
of the other Loan Documents, the Borrowers will pay to the Agent, for the
account of the Banks or (as the case may be) the Agent, on the date on
which such amount is due and payable hereunder or under such other Loan
Document, such additional amount in Dollars as shall be necessary to enable
the Banks or the Agent to receive the same net amount which the Banks or
the Agent would have received on such due date had no such obligation been
imposed upon the Borrowers. In the event that the Borrowers are required to
make such deduction or withholding as a result of the fact that a Bank is
organized outside of the United States, such Bank shall use its reasonable
best efforts to transfer its Loans to an affiliate organized within the
United States if such transfer would have no adverse effect on such Bank or
the Loans. The Borrowers will deliver promptly to the Bank certificates or
other valid vouchers for all taxes or other charges deducted from or paid
with respect to payments made by the Borrowers hereunder or under such
other Loan Document.
5.4. Computations. All computations of interest on the Loans and of Letter
of Credit Fees or other fees shall, unless otherwise expressly provided herein,
be based on a 360-day year and paid for the actual number of days elapsed.
Except as otherwise provided in the definition of the term "Interest Period"
with respect to Eurodollar Rate Loans, whenever a payment hereunder or under any
of the other Loan Documents becomes due on a day that is not a Business Day, the
due date for such payment shall be extended to the next succeeding Business Day,
and interest shall accrue during such extension.
5.5. Capital Adequacy. If any present or future law, governmental rule,
regulation, policy, guideline or directive (whether or not having the force of
law) or the interpretation thereof by a court or governmental authority with
appropriate jurisdiction affects the amount of capital required or expected to
be maintained by any Bank or the Agent or any corporation controlling such Bank
or the Agent and such Bank or the Agent determines that the amount of capital
required to be maintained by it is increased by or based upon the existence of
such Bank's or the Agent's Loans, Letter of Credit Participations or Letters of
Credit, or commitment with respect thereto, then such Bank or the Agent may
notify the Borrowers of such fact. To the extent that the costs of such
increased capital requirements are not reflected in the Base Rate (if relating
to Base Rate Loans), the Borrowers and such Bank or (as the case may be) the
Agent shall thereafter attempt to negotiate in good faith, within thirty (30)
days of the day on which the Borrowers receive such notice, an adjustment
payable hereunder that will adequately compensate such Bank or the Agent in
light of these circumstances. If the Borrowers and such Bank or the Agent are
unable to agree to such adjustment within thirty (30) days of the date on which
the Borrowers receive such notice, then commencing on the date of such notice
(but not earlier than the effective date of any such increased capital
requirement), the fees payable hereunder shall increase by an amount that will,
in such Bank's or the Agent's reasonable determination, provide adequate
compensation. Each Bank and the Agent shall allocate such cost increases among
its customers in good faith and on an equitable basis.
<PAGE>
5.6. Certificate. A certificate setting forth any additional amounts
payable pursuant to 5.5 and a reasonable explanation of such amounts which are
due, submitted by any Bank or the Agent to the Borrowers, shall be conclusive,
absent manifest error, that such amounts are due and owing.
5.7. Interest on Overdue Amounts. Overdue principal and (to the extent
permitted by applicable law) interest on the Loans and all other overdue amounts
payable hereunder or under any of the other Loan Documents shall bear interest
compounded monthly and payable on demand at a rate per annum equal to the Base
Rate plus two percentage points (2.00%) until such amount shall be paid in full
(after as well as before judgment).
5.8. Interest Limitation. Notwithstanding any other term of this Agreement
or any Note or any other document referred to herein or therein, the maximum
amount of interest which may be charged to or collected from any person liable
hereunder or under any Note by any Bank shall be absolutely limited to, and
shall in no event exceed, the maximum amount of interest which could lawfully be
charged or collected under applicable law (including, to the extent applicable,
the provisions of Section 5197 of the Revised Statutes of the United States of
America, as amended, 12 U.S.C. Section 85, as amended), so that the maximum of
all amounts constituting interest under applicable law, howsoever computed,
shall never exceed as to any person liable therefor such lawful maximum, and any
term of this Agreement, the Notes, the Letter of Credit Applications, or any
other document referred to herein or therein which could be construed as
providing for interest in excess of such lawful maximum shall be and hereby is
made expressly subject to and modified by the provisions of this paragraph.
5.9. Additional Costs, Etc. If any present or future applicable law, which
expression, as used herein, includes statutes, rules and regulations thereunder
and interpretations thereof by any competent court or by any governmental or
other regulatory body or official charged with the administration or the
interpretation thereof and requests, directives, instructions and notices at any
time or from time to time hereafter made upon or otherwise issued to any Bank by
any central bank or other fiscal, monetary or other authority (whether or not
having the force of law), shall impose on any Bank any tax, levy, impost, duty,
charge fees, deduction or withholdings of any nature or requirements with
respect to this Agreement, the other Loan Documents, the Loans, such Bank's
Commitment, the Letters of Credit or any class of loans or commitments or
letters of credit of which any of the Loans, the Commitment or the Letters of
Credit forms a part, and the result of any of the foregoing is:
(i) to increase the cost to such Bank of making, funding, issuing,
renewing, extending or maintaining the Loans, such Bank's Commitment, or
the Letters of Credit; or
(ii) to reduce the amount of principal, interest or other amount
payable to such Bank hereunder on account of such Bank's Commitment, the
Loans, drawings under the Letters of Credit, or
(iii) to require such Bank to make any payment or to forego any
interest or other sum payable hereunder, the amount of which payment or
foregone interest or other sum is calculated by reference to the gross
amount of any sum receivable or deemed received by such Bank from the
Borrowers hereunder,
then, and in each such case, the Borrowers will, upon demand made by such
Bank at any time and from time to time and as often as the occasion therefor may
arise, pay to such Bank such additional amounts as will be sufficient to
compensate such Bank for such additional cost, reduction, payment or foregone
interest or other sum (after such Bank shall have allocated the same fairly and
equitably among all customers of any class generally affected thereby).
<PAGE>
5.10. Concerning Joint and Several Liability of the Borrowers.
(a) Each of the Borrowers is accepting joint and several liability
hereunder and under the other Loan Documents in consideration of the
financial accommodations to be provided by the Banks under this Agreement,
for the mutual benefit, directly and indirectly, of each of the Borrowers
and in consideration of the undertakings of each other Borrower to accept
joint and several liability for the Obligations.
(b) Each of the Borrowers, jointly and severally, hereby irrevocably
and unconditionally accepts, not merely as a surety but also as a
co-debtor, joint and several liability with the other Borrowers, with
respect to the payment and performance of all of the Obligations
(including, without limitation, any Obligations arising under this 5.10),
it being the intention of the parties hereto that all the Obligations shall
be the joint and several Obligations of each of the Borrowers without
preferences or distinction among them.
(c) If and to the extent that any of the Borrowers shall fail to make
any payment with respect to any of the Obligations as and when due or to
perform any of the Obligations in accordance with the terms thereof, then
in each such event the other Borrowers will make such payment with respect
to, or perform, such Obligation.
(d) The Obligations of each of the Borrowers under the provisions of
this 5.10 constitute full recourse Obligations of each of the Borrowers
enforceable against each such corporation to the full extent of its
properties and assets, irrespective of the validity, regularity or
enforceability of this Agreement or any other circumstance whatsoever.
(e) Except as otherwise expressly provided in this Agreement, each of
the Borrowers hereby waives notice of acceptance of its joint and several
liability, notice of any Loans made under this Agreement, notice of any
action at any time taken or omitted by the Banks under or in respect of any
of the Obligations, and, generally, to the extent permitted by applicable
law, all demands, notices and other formalities of every kind in connection
with this Agreement. Each of the Borrowers hereby assents to, and waives
notice of, any extension or postponement of the time for the payment of any
of the Obligations, the acceptance of any payment of any of the
Obligations, the acceptance of any partial payment thereon, any waiver,
consent or other action or acquiescence by the Banks at any time or times
in respect of any default by any of the Borrowers in the performance or
satisfaction of any term, covenant, condition or provision of this
Agreement, any and all other indulgences whatsoever by the Banks in respect
of any of the Obligations, and the taking, addition, substitution or
release, in whole or in part, at any time or times, of any security for any
of the Obligations or the addition, substitution or release, in whole or in
part, of any of the Borrowers. Without limiting the generality of the
foregoing, each of the Borrowers assents to any other action or delay in
acting or failure to act on the part of the Banks with respect to the
failure by any of the Borrowers to comply with any of its respective
Obligations, including, without limitation, any failure strictly or
diligently to assert any right or to pursue any remedy or to comply fully
with applicable laws or regulations thereunder, which might, but for the
provisions of this 5.10, afford grounds for terminating, discharging or
relieving any of the Borrowers, in whole or in part, from any of its
Obligations under this 5.10, it being the intention of each of the
Borrowers that, so long as any of the Obligations hereunder remain
unsatisfied, the Obligations of such Borrowers under this 5.10 shall not be
discharged except by performance and then only to the extent of such
performance. The Obligations of each of the Borrowers under this 5.10 shall
not be diminished or rendered unenforceable by any winding up,
reorganization, arrangement, liquidation, re-construction or similar
proceeding with respect to any of the Borrowers or the Banks. The joint and
several liability of the Borrowers hereunder shall continue in full force
and effect notwithstanding any absorption, merger, amalgamation or any
other change whatsoever in the name, membership, constitution or place of
formation of any of the Borrowers or the Banks.
<PAGE>
(f) The provisions of this 5.10 are made for the benefit of the Banks
and their successors and assigns, and may be enforced in good faith against
them from time to time against any or all of the Borrowers as often as
occasion therefor may arise and without requirement on the part of the
Banks first to marshal any of their claims or to exercise any of their
rights against any other Borrower or to exhaust any remedies available to
them against any other Borrower or to resort to any other source or means
of obtaining payment of any of the Obligations hereunder or to elect any
other remedy. The provisions of this 5.10 shall remain in effect until all
of the Obligations shall have been paid in full or otherwise fully
satisfied. If at any time, any payment, or any part thereof, made in
respect of any of the Obligations, is rescinded or must otherwise be
restored or returned by the Banks upon the insolvency, bankruptcy or
reorganization of any of the Borrowers, or otherwise, the provisions of
this 5.10 will forthwith be reinstated in effect, as though such payment
had not been made.
5.11. New Borrowers. Any newly-created or newly-acquired Subsidiaries shall
become Borrowers hereunder by signing Notes, entering into an amendment to this
Agreement with the other parties hereto providing that such Subsidiary shall
become a Borrower hereunder, and providing such other documentation as the Banks
or the Agent may reasonably request including, without limitation, documentation
with respect to conditions noted in 10 hereof. In such event, the Agent is
hereby authorized by the parties to amend Schedule 1 hereto to include such
Subsidiary as a Borrower hereunder.
5.12. Election of Eurodollar Rate; Notice of Election; Interest Periods;
Minimum Amounts.
(a) At the Borrowers' option, so long as no Default or Event of
Default has occurred and is then continuing, the Borrowers may (i) elect to
convert any Base Rate Loan or a portion thereof to a Eurodollar Rate Loan,
(ii) at the time of any Loan and Letter of Credit Request, specify that
such requested Revolving Credit Loan shall be a Eurodollar Rate Loan, or
(iii) upon expiration of the applicable Interest Period, elect to maintain
an existing Eurodollar Rate Loan as such, provided that the Borrowers gives
notice to the Agent pursuant to 5.12(b) hereof. Upon determining any
Eurodollar Rate, the Agent shall forthwith provide notice thereof to the
Borrowers and each Bank, and each such notice to the Borrowers shall be
considered prima facie correct and binding, absent manifest error.
(b) Three (3) Eurodollar Business Days prior to the making of any
Eurodollar Rate Loan or the conversion of any Base Rate Loan to a
Eurodollar Rate Loan, or, in the case of an outstanding Eurodollar Rate
Loan, the expiration date of the applicable Interest Period, the Borrowers
shall give written, telex or telecopy notice received by the Agent not
later than 11:00 a.m. (Boston time) of its election pursuant to 5.12(a).
Each such notice delivered to the Agent shall specify the aggregate
principal amount of the Loans to be borrowed or maintained as or converted
to Eurodollar Rate Loans and the requested duration of the Interest Period
that will be applicable to such Eurodollar Rate Loan, and shall be
irrevocable and binding upon the Borrower. If the Borrowers shall fail to
give the Agent notice of its election hereunder together with all of the
other information required by this 5.12(b) with respect to any Loan,
whether at the end of an Interest Period or otherwise, such Loan shall be
deemed a Base Rate Loan, and, if such Loan is an existing Eurodollar Rate
Loan, shall be automatically converted to a Base Rate Loan on the last day
of the Interest Period relating thereto. No Eurodollar Rate Loan may be
continued as such when any Default or Event of Default has occurred and is
continuing, but shall be automatically converted to a Base Rate Loan on the
last day of the Interest Period relating thereto. The Agent shall promptly
notify each Bank in writing (or by telephone confirmed in writing or by
telecopy) of such election by the Borrower hereunder.
<PAGE>
(c) Notwithstanding anything herein to the contrary, the Borrowers may
not specify an Interest Period that would extend beyond the maturity date
of any Loan.
(d) All Eurodollar Rate Loans shall be in a minimum amount of not less
than $1,000,000. In no event shall the Borrowers have more than five (5)
different maturities of borrowings of Eurodollar Rate Loans outstanding at
any time.
5.13. Eurodollar Indemnity. The Borrowers agree to indemnify the Banks and
the Agent and to hold them harmless from and against any reasonable loss, cost
or expense that the Banks and the Agent may sustain or incur as a consequence of
(a) default by the Borrowers in payment of the principal amount of or any
interest on any Eurodollar Rate Loans as and when due and payable, including any
such loss or expense arising from interest or fees payable by any Bank or the
Agent to lenders of funds obtained by it in order to maintain its Eurodollar
Rate Loans, (b) default by the Borrowers in making a borrowing or conversion
after the Borrowers have given (or are deemed to have given) notice pursuant to
2.6 or 5.12, and (c) the making of any payment of a Eurodollar Rate Loan or the
making of any conversion of any such Eurodollar Rate Loan to a Base Rate Loan on
a day that is not the last day of the applicable Interest Period with respect
thereto, including interest or fees payable by such Bank to lenders of funds
obtained by it in order to maintain any such Loans.
5.14. Illegality; Inability to Determine Eurodollar Rate. Notwithstanding
any other provision of this Agreement (other than 5.8) if, (a) the introduction
of, any change in, or any change in the interpretation of, any law, regulation,
treaty or directive applicable to any Bank or the Agent shall make it unlawful,
or any central bank or other governmental authority having jurisdiction thereof
shall assert that it is unlawful, for any Bank or the Agent to perform its
obligations in respect of any Eurodollar Rate Loans, or (b) if the Agent shall
reasonably determine or be notified by the Required Banks that (i) by reason of
circumstances affecting any Eurodollar interbank market, adequate and reasonable
methods do not exist for ascertaining the Eurodollar Rate which would otherwise
be applicable during any Interest Period, or (ii) deposits of Dollars in the
relevant amount for the relevant Interest Period are not available in any
Eurodollar interbank market, or (iii) the Eurodollar Rate does not or will not
accurately reflect the cost of obtaining or maintaining the applicable
Eurodollar Rate Loans during any Interest Period, then the Agent shall promptly
give telephonic, telex or cable notice of such determination to the Borrowers
and the Banks (which notice shall be conclusive and binding upon the Borrower
and the Banks). Upon such notification by the Agent, the obligation of the Banks
and the Agent to make Eurodollar Rate Loans or convert Base Rate Loans to
Eurodollar Rate Loans shall be suspended until the Agent or the Required Banks,
as the case may be, determine that such circumstances no longer exist, and to
the extent permitted by law the outstanding Eurodollar Rate Loans shall continue
to bear interest at the applicable rate based on the Eurodollar Rate until the
end of the applicable Interest Period, and shall be automatically converted to
Base Rate Loans in equal principal amounts on the last day of each Interest
Period applicable to such Eurodollar Rate Loans, or within such earlier period
as may be required by applicable law.
6. REPRESENTATIONS AND WARRANTIES. The Borrowers jointly and severally
represent and warrant to the Banks that on and as of the date of this Agreement
(any disclosure on a schedule pursuant to this 6 shall be deemed to apply to all
relevant representations and warranties, regardless of whether such schedule is
referenced in each relevant representation):
6.1. Corporate Authority.
(a) Incorporation; Good Standing. Each of the Borrowers (i) is a
corporation duly organized, validly existing and in good standing or in
current status under the laws of its respective state of incorporation,
(ii) has all requisite corporate power to own its property and conduct its
business as now conducted and as presently contemplated, and (iii) is in
good standing as a foreign corporation and is duly authorized to do
business in each jurisdiction in which its property or business as
presently conducted or contemplated makes such qualification necessary
except where a failure to be so qualified would not have a material adverse
effect on the business, assets or financial condition of such Borrower.
<PAGE>
(b) Authorization. The execution, delivery and performance of its Loan
Documents and the transactions contemplated hereby and thereby (i) are
within the corporate authority of each of the Borrowers, (ii) have been
duly authorized by all necessary corporate proceedings, (iii) do not
conflict with or result in any material breach or contravention of any
provision of law, statute, rule or regulation to which any of the Borrowers
is subject or any judgment, order, writ, injunction, license or permit
applicable to any of the Borrowers so as to materially adversely affect the
assets, business or any activity of the Borrowers, and (iv) do not conflict
with any provision of the corporate charter or bylaws of the Borrowers or
any agreement or other instrument binding upon the Borrowers.
(c) Enforceability. The execution, delivery and performance of the
Loan Documents will result in valid and legally binding obligations of the
Borrowers enforceable against each in accordance with the respective terms
and provisions hereof and thereof, except as enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating
to or affecting generally the enforcement of creditors' rights and except
to the extent that availability of the remedy of specific performance or
injunctive relief or other equitable remedy is subject to the discretion of
the court before which any proceeding therefor may be brought.
6.2. Governmental Approvals. The execution, delivery and performance by the
Borrowers of the Loan Documents and the transactions contemplated hereby and
thereby do not require any approval or consent of, or filing with, any
governmental agency or authority other than those already obtained.
6.3. Title to Properties; Leases. The Borrowers own all of the assets
reflected in the consolidated balance sheets as at the Balance Sheet Date or
acquired since that date (except property and assets sold or otherwise disposed
of in the ordinary course of business since that date), subject to no mortgages,
capitalized leases, conditional sales agreements, title retention agreements,
liens or other encumbrances except Permitted Liens. Schedule 6.3 sets forth a
list of all of the Real Property of the Borrowers.
6.4. Financial Statements; Solvency.
(a) There has been furnished to the Banks (i) consolidated balance
sheets of the Borrowers dated the Balance Sheet Date and consolidated
statements of operations for the fiscal year then ended, certified by
Arthur Andersen & Co. or an independent accounting firm of national
standing acceptable to the Banks (the "Accountants") and (ii) unaudited
consolidated balance sheets of the Borrowers dated October 31, 1997 and
unaudited consolidated statements of operations for the six (6) month
period then ended. Said balance sheets and statements of operations have
been prepared in accordance with GAAP, fairly present in all material
respects the financial condition of the Borrowers, on a consolidated basis,
as at the close of business on the date thereof and the results of
operations for the period then ended. There are no contingent liabilities
of the Borrowers as of such date involving material amounts, known to the
officers of the Borrowers which have not been disclosed in said balance
sheets and the related notes thereto, as the case may be.
(b) The Borrowers (both before and after giving effect to the
transactions contemplated by this Agreement) are solvent (i.e., they have
assets having a fair value in excess of the amount required to pay their
probable liabilities on their existing debts as they become absolute and
matured) and have, and expect to have, the ability to pay their debts from
time to time incurred in connection therewith as such debts mature.
6.5. No Material Changes, Etc. Since the Balance Sheet Date, there have
occurred no material adverse changes in the financial condition or business of
the Borrowers as shown on or reflected in the consolidated balance sheet of the
Borrowers as at the Balance Sheet Date, or the consolidated statement of income
for the fiscal year then ended other than changes in the ordinary course of
business which have not had any material adverse effect either individually or
in the aggregate on the business or financial condition of the Parent, the
Borrowers. Since the Balance Sheet Date, there has not been any Distribution.
<PAGE>
6.6. Permits, Franchises, Patents, Copyrights, Etc. Each of the Borrowers
possesses all franchises, patents, copyrights, trademarks, trade names, licenses
and permits, and rights in respect of the foregoing, adequate for the conduct of
its business substantially as now conducted without known conflict with any
rights of others.
6.7. Litigation. Except as shown on Schedules 6.7 and 6.16 hereto, there
are no actions, suits, proceedings or investigations of any kind pending or, to
the knowledge of the Borrowers, threatened against any Borrower before any
court, tribunal or administrative agency or board which, if adversely
determined, might, either in any case or in the aggregate, materially adversely
affect the properties, assets, financial condition or business of the Borrowers,
considered as a whole, or materially impair the right of the Borrowers,
considered as a whole, to carry on business substantially as now conducted, or
result in any substantial liability not adequately covered by insurance, or for
which adequate reserves are not maintained on the consolidated balance sheet or
which question the validity of any of the Loan Documents, or any action taken or
to be taken pursuant hereto or thereto.
6.8. No Materially Adverse Contracts, Etc. None of the Borrowers is subject
to any charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation which in the judgment of the Borrowers' officers has
or is expected in the future to have a materially adverse effect on the
business, assets or financial condition of the Borrowers as a whole. None of the
Borrowers is a party to any contract or agreement which in the judgment of the
Borrowers' officers has or is expected to have any materially adverse effect on
the business of the Borrowers as a whole, except as otherwise reflected in
adequate reserves.
6.9. Compliance With Other Instruments, Laws, Etc. None of the Borrowers is
violating any provision of its charter documents or by-laws or any agreement or
instrument by which any of them may be subject or by which any of them or any of
their properties may be bound or any decree, order, judgment, or any statute,
license, rule or regulation, in a manner which could result in the imposition of
substantial penalties or materially and adversely affect the financial
condition, properties or business of any of the Borrowers.
6.10. Tax Status. The Borrowers have made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which any of them are subject (unless and only to the extent
that any Borrower has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes); and have paid all taxes and
other governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith; and have set aside on their books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Borrowers know of no basis for any
such claim.
6.11. No Event of Default. Except as set forth on Schedule 6.11 hereto, no
Default or Event of Default has occurred and is continuing as of the date of
this Agreement.
6.12. Holding Company and Investment Company Acts. None of the Borrowers is
a "holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company", as such terms are defined in the Public
Utility Holding Company Act of 1935; nor is any of them a "registered investment
company", or an "affiliated company" or a "principal underwriter" of a
"registered investment company", as such terms are defined in the Investment
Company Act of 1940, as amended.
<PAGE>
6.13. Absence of Financing Statements, Etc. Except as contemplated by 8.2
of this Agreement and as set forth on Schedule 6.13 hereto, there is no
financing statement, security agreement, chattel mortgage, real estate mortgage
or other document filed or recorded with any filing records, registry, or other
public office, which purports to cover, affect or give notice of any present or
possible future lien on, or security interest in, any assets or property of any
of the Borrowers or rights thereunder.
6.14. Employee Benefit Plans.
(a) In General. Each Employee Benefit Plan has been maintained and
operated in compliance in all material respects with the provisions of
ERISA and, to the extent applicable, the Code, including but not limited to
the provisions thereunder respecting prohibited transactions.
(b) Terminability of Welfare Plans. Under each Employee Benefit Plan
which is an employee welfare benefit plan within the meaning of 3(1) or
3(2)(B) of ERISA, no benefits are due unless the event giving rise to the
benefit entitlement occurs prior to plan termination (except as required by
Title I, part 6 of ERISA.) Each Borrower or ERISA Affiliate, as
appropriate, may terminate each such Plan at any time (or at any time
subsequent to the expiration of any applicable bargaining agreement) in the
discretion of such Borrower or ERISA Affiliate without liability to any
Person.
(c) Guaranteed Pension Plans. None of the Borrowers is a sponsor of,
or contributor to, a Guaranteed Pension Plan.
(d) Multiemployer Plans. No Borrower, nor any ERISA Affiliate has
incurred any material liability (including secondary liability) to any
Multiemployer Plan as a result of a complete or partial withdrawal from
such Multiemployer Plan under 4201 of ERISA or as a result of a sale of
assets described in 4204 of ERISA. No Borrower, nor any ERISA Affiliate has
been notified that any Multiemployer Plan is in reorganization or is
insolvent under and within the meaning of 4241 or 4245 of ERISA or that any
Multiemployer Plan intends to terminate or has been terminated under 4041A
of ERISA.
6.15. Use of Proceeds. The proceeds of the Revolving Credit Loans shall be
used solely for working capital and other general corporate purposes, Letters of
Credit, to refinance other indebtedness of the Borrowers, and to fund
acquisitions permitted pursuant to 8.4 hereof. No proceeds of the Loans shall be
used in any way that will violate Regulations G, T, U or X of the Board of
Governors of the Federal Reserve System.
BOS-BUSN:552657.1
<PAGE>
6.16. Environmental Compliance. The Borrowers have taken all necessary
steps to investigate the past and present condition and usage of the Real
Properties and the operations conducted thereon and, based upon such diligent
investigation, have determined that, except as shown on Schedule 6.16:
(a) None of the Borrowers, nor any operator of their properties, is in
violation, or alleged violation, of any judgment, decree, order, law,
permit, license, rule or regulation pertaining to environmental matters,
including without limitation, those arising under the Resource Conservation
and Recovery Act ("RCRA"), the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 as amended ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Clean
Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or
any state or local statute, regulation, ordinance, order or decree relating
to health, safety or the environment (the "Environmental Laws"), which
violation would have a material adverse effect on the business, assets or
financial condition of the Borrowers on a consolidated basis.
(b) None of the Borrowers has received notice from any third party
including, without limitation: any federal, state or local governmental
authority, (i) that any one of them has been identified by the United
States Environmental Protection Agency ("EPA") as a potentially responsible
party under CERCLA with respect to a site listed on the National Priorities
List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste, as
defined by 42 U.S.C. 6903(5), any hazardous substances as defined by 42
U.S.C. 9601(14), any pollutant or contaminant as defined by 42 U.S.C.
9601(33) and any toxic substance, oil or hazardous materials or other
chemicals or substances regulated by any Environmental Laws ("Hazardous
Substances") which any one of them has generated, transported or disposed
of has been found at any site at which a federal, state or local agency or
other third party has conducted or has ordered that any Borrower conduct a
remedial investigation, removal or other response action pursuant to any
Environmental Law; or (iii) that it is or shall be a named party to any
claim, action, cause of action, complaint, legal or administrative
proceeding arising out of any third party's incurrence of costs, expenses,
losses or damages of any kind whatsoever in connection with the release of
Hazardous Substances.
(c) (i) No portion of the Real Property has been used for the
handling, processing, storage or disposal of Hazardous Substances except in
material compliance with applicable Environmental Laws; and no underground
tank or other underground storage receptacle for Hazardous Substances is
located on such properties; (ii) in the course of any activities conducted
by the Borrowers, or operators of the Real Property, no Hazardous
Substances have been generated or are being used on such properties except
in material compliance with applicable Environmental Laws; (iii) there have
been no unpermitted Releases or threatened Releases of Hazardous Substances
on, upon, into or from the Real Property, which Releases would have a
material adverse effect on the value of such properties; (iv) to the best
of the Borrowers' knowledge, there have been no Releases on, upon, from or
into any real property in the vicinity of the Real Property which, through
soil or groundwater contamination, may have come to be located on, and
which would have a material adverse effect on the value of, such
properties; and (v) in addition, any Hazardous Substances that have been
generated on the Real Property have been transported offsite only by
carriers having an identification number issued by the EPA, treated or
disposed of only by treatment or disposal facilities maintaining valid
permits as required under applicable Environmental Laws, which transporters
and facilities, to the best of the Borrowers' knowledge, have been and are
operating in material compliance with such permits and applicable
Environmental Laws.
<PAGE>
(d) none of the Real Property is or shall be subject to any applicable
environmental clean-up responsibility law or environmental restrictive
transfer law or regulation, by virtue of the transactions set forth herein
and contemplated hereby.
6.17. Perfection of Security Interests. All filings, assignments, pledges
and deposits of documents or instruments have been made and all other actions
have been taken that are necessary under applicable law, or reasonably requested
by the Agent or any of the Banks, to establish and perfect the Agent's security
interests in the Collateral as described in the Security Documents (including
the notation of the Agent's security interests in motor vehicles on the
certificates of title relating to such vehicles). The Collateral and the Agent's
rights with respect to the Collateral are not subject to any setoff, claims,
withholdings or other defenses, except for Permitted Liens. The Borrowers are
the owners of the Collateral free from any lien, security interest, encumbrance
and any other claim or demand, except for Permitted Liens.
6.18. Certain Transactions. Except as set forth on Schedule 6.18 and except
for arm's length transactions pursuant to which the Borrowers make payments in
the ordinary course of business upon terms no less favorable than the Borrowers
could obtain from third parties, none of the officers, directors, or employees
of the Borrowers are presently a party to any transaction with the Borrowers
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Borrowers, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
6.19. Subsidiaries. Schedule 6.19 sets forth a complete and accurate list
of the Subsidiaries, including the name of each Subsidiary and its jurisdiction
of incorporation, together with the number of authorized and outstanding shares
of each Subsidiary. Each Subsidiary is directly or indirectly wholly owned by
the Parent. The Parent has good and marketable title to all of the shares it
purports to own of the stock of each Subsidiary, free and clear in each case of
any lien. All such shares have been duly issued and are fully paid and
non-assessable.
6.20. Capitalization.
(a) Capital Stock. As of the Closing Date, the authorized capital
stock of the Parent consists of (i) 30,000,000 shares of Class A Common
stock (par value $.01 per share) of which 9,778,745 shares are outstanding,
(ii) 1,000,000 shares of Class B Common Stock (par value $.01 per share) of
which 1,000,000 shares are outstanding, and (iii) 1,000,000 shares of
Preferred Stock (par value $.01 per share) of which no shares are
outstanding. All such outstanding shares have been duly issued and are full
paid and non-assessable.
(b) Options, Etc. Except as set forth on Schedule 6.20(b), no Person
has outstanding any rights (either pre-emptive or other) or options (except
for the options for common stock issued to management employees, in
accordance with a bona fide option plan approved by the Board of Directors
of the Parent) to subscribe for or purchase from the Parent, or any
warrants or other agreements providing for or requiring the issuance by the
Parent of, any capital stock or any securities convertible into or
exchangeable for its capital stock.
6.21. True Copies of Charter and Other Documents. The Borrowers have
furnished the Agent copies, in each case true and complete as of the Closing
Date, of (a) all charter and other incorporation documents (together with any
amendments thereto) and (b) by-laws (together with any amendments thereto).
<PAGE>
6.22. Disclosure. No representation or warranty made by the Borrowers in
this Agreement or in any agreement, instrument, document, certificate, statement
or letter furnished to the Banks or the Agent by or on behalf of or at the
request of the Borrowers in connection with any of the transactions contemplated
by the Loan Documents contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
therein not misleading in light of the circumstances in which they are made.
6.23. Deposit Accounts. Other than the accounts maintained at the Agent's
Head Office (the "Depository Accounts"), the Borrowers maintain the deposit
accounts listed on Schedule 6.23 hereto and no other deposit accounts, unless
approved in writing by the Agent. The aggregate amount of collected funds held
in each such deposit account at the close of any Business Day shall not exceed
the amount specified for such account on Schedule 6.23; any amounts in excess of
the amounts specified in Schedule 6.23 shall be immediately transferred to the
Depository Accounts.
6.24. Year 2000 Problem. The Borrowers have reviewed the areas within their
business and operations which could be adversely affected by, and have developed
or are developing a program to address on a timely basis, the Year 2000 Problem.
Based on such review and program, the Year 2000 Problem will not have a material
adverse effect on their business and operations.
7. AFFIRMATIVE COVENANTS OF THE BORROWERS. The Borrowers jointly and
severally covenant and agree that, so long as any Loan or Note is outstanding or
the Banks have any obligation to make Loans or the Agent has any obligation to
issue, extend, or renew any Letters of Credit hereunder:
7.1. Punctual Payment. The Borrowers will duly and punctually pay or cause
to be paid the principal and interest on the Loans, all Reimbursement
Obligations, fees and other amounts provided for in this Agreement and the other
Loan Documents, all in accordance with the terms of this Agreement and such
other Loan Documents.
7.2. Maintenance of Office. The Borrowers will maintain their chief
executive offices at the locations set forth on Schedule 1 attached hereto, or
at such other place in the United States of America as each Borrower shall
designate upon 30 days prior written notice to the Agent.
7.3. Records and Accounts. Each of the Borrowers will keep true and
accurate records and books of account in which full, true and correct entries
will be made in accordance with GAAP and with the requirements of all regulatory
authorities and maintain adequate accounts and reserves for all taxes (including
income taxes), depreciation, depletion, obsolescence and amortization of its
properties, all other contingencies, and all other proper reserves.
7.4. Financial Statements, Certificates and Information. The Borrowers will
deliver to the Banks:
(a) as soon as practicable, but, in any event not later than 90 days
after the end of each fiscal year of the Borrowers, the consolidated and
consolidating balance sheets of Borrowers as at the end of such year,
statements of cash flows, and the related consolidated and consolidating
statements of operations, each setting forth in comparative form the
figures for the previous fiscal year, all such consolidated and
consolidating financial statements to be in reasonable detail, prepared, in
accordance with GAAP and, with respect to the consolidated financial
statements, Certified by the Accountants. In addition, simultaneously
therewith, the Borrowers shall use their best efforts to provide the Banks
with a written statement from such Accountants to the effect that the
Borrowers are in compliance with the covenants set forth in 9 hereof, and
that, in making the examination necessary to said certification, nothing
has come to the attention of such Accountants that would indicate that any
Default or Event of Default exists, or, if such accountants shall have
obtained knowledge of any then existing Default or Event of Default they
shall disclose in such statement any such Default or Event of Default;
provided, that such Accountants shall not be liable to the Banks for
failure to obtain knowledge of any Default or Event of Default;
<PAGE>
(b) as soon as practicable, but in any event not later than 45 days
after the end of each fiscal quarter of the Borrowers, copies of the
consolidated and consolidating balance sheets and statement of operations
of the Borrowers as at the end of such quarter including profit and loss
statements by division, subject to year end adjustments, and the related
statement of cash flows, all in reasonable detail and prepared in
accordance with GAAP with a certification by the principal financial or
accounting officer of the Borrowers (the "CFO") that the consolidated
financial statements were prepared in accordance with GAAP and fairly
present the consolidated financial condition of the Borrowers as at the
close of business on the date thereof and the results of operations for the
period then ended;
(c) simultaneously with the delivery of the financial statements
referred to in (a) and (b) above, a statement in the form of Exhibit D
hereto (the "Compliance Certificate") certified by the CFO that the
Borrowers are in compliance with the covenants contained in 7, 8 and 9
hereof as of the end of the applicable period setting forth in reasonable
detail computations evidencing such compliance, provided that if the
Borrowers shall at the time of issuance of such certificate or at any other
time obtain knowledge of any Default or Event of Default, the Borrowers
shall include in such certificate or otherwise deliver forthwith to the
Banks a certificate specifying the nature and period of existence thereof
and what action the Borrowers propose to take with respect thereto and a
certificate of the Borrowers' Chief Operating Officer in the form attached
hereto as Exhibit E with respect to environmental matters;
(d) [intentionally omitted];
(e) contemporaneously with, or promptly following, the filing or
mailing thereof, copies of all material of a financial nature filed with
the Securities and Exchange Commission or sent to the stockholders of the
Parent or any of the Borrowers;
(f) as soon as practicable, but in any event not later than 15 days
after the end of each fiscal quarter, copies of the Borrower's profit and
loss statements by division, subject to year end adjustments, and the
related statements of cash flows, all in reasonable detail and prepared in
accordance with GAAP;
(g) as soon as practicable, but in any event not later than fifteen
(15) days prior to the commencement of the next fiscal year of the
Borrowers, a copy of the annual budget for such fiscal year; and
(h) from time to time such other financial data and other information
(including accountants' management letters) as the Banks may reasonably
request;
The Borrowers hereby authorize the Banks to disclose any information
obtained pursuant to this Agreement to all appropriate governmental regulatory
authorities where required by law; provided, however, that the Banks shall, to
the extent practicable and allowable under law, notify the Borrowers within a
reasonable period prior to the time any such disclosure is made; and provided
further, this authorization shall not be deemed to be a waiver of any rights to
object to the disclosure by the Banks of any such information which any Borrower
has or may have under the federal Right to Financial Privacy Act of 1978, as in
effect from time to time.
7.5. Corporate Existence and Conduct of Business. Except where the failure
of a Borrower to remain so qualified would not materially adversely impair the
financial condition of the Borrowers on a consolidated basis, each Borrower will
do or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence, corporate rights and franchises; effect and
maintain its foreign qualifications, licensing, domestication or authorization
except as terminated by its Board of Directors in the exercise of its reasonable
judgment; use its best efforts to comply with all applicable laws; and shall not
become obligated under any contract or binding arrangement which, at the time it
was entered into would materially adversely impair the financial condition of
the Borrowers, on a consolidated basis. Each Borrower will continue to engage
primarily in the businesses now conducted by it and in related businesses.
7.6. Maintenance of Properties. The Borrowers will cause all material
properties used or useful in the conduct of their businesses to be maintained
and kept in good condition, repair and working order and supplied with all
necessary equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Borrowers may be necessary so that the businesses carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this section shall prevent any Borrower from
discontinuing the operation and maintenance of any of its properties if such
discontinuance is, in the judgment of such Borrower, desirable in the conduct of
its or their business and which does not in the aggregate materially adversely
affect the business of the Borrowers on a consolidated basis.
<PAGE>
7.7. Insurance. The Borrowers will maintain with financially sound and
reputable insurance companies, funds or underwriters' insurance of the kinds,
covering the risks (other than risks arising out of or in any way connected with
personal liability of any officers and directors thereof, which risks may, but
shall not be required by the Banks to be, covered by insurance maintained by the
Borrowers) and in the relative proportionate amounts usually carried by
reasonable and prudent companies conducting businesses similar to that of the
Borrowers, but in no event less than the amounts and coverages set forth in
Schedule 7.7 hereto. In addition, the Borrowers will furnish from time to time,
upon the Agent's request, a summary of the insurance coverage of each of the
Borrowers, which summary shall be in form and substance satisfactory to the
Agent and, if requested by the Agent, will furnish to the Agent copies of the
applicable policies.
7.8. Taxes. The Borrowers will each duly pay and discharge, or cause to be
paid and discharged, before the same shall become overdue, all taxes,
assessments and other governmental charges (other than taxes, assessments and
other governmental charges imposed by foreign jurisdictions which in the
aggregate are not material to the business or assets of any Borrower on an
individual basis or of the Borrowers on a consolidated basis) imposed upon it
and its real properties, sales and activities, or any part thereof, or upon the
income or profits therefrom, as well as all claims for labor, materials, or
supplies, which if unpaid might by law become a lien or charge upon any of its
property; provided, however, that any such tax, assessment, charge, levy or
claim need not be paid if the validity or amount thereof shall currently be
contested in good faith by appropriate proceedings and if such Borrower shall
have set aside on its books adequate reserves with respect thereto; and
provided, further, that such Borrower will pay all such taxes, assessments,
charges, levies or claims forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefor.
7.9. Inspection of Properties, Books, and Contracts. The Borrowers shall
permit the Banks, the Agent or any of their designated representatives, upon
reasonable notice, to visit and inspect any of the properties of the Borrowers,
to examine the books of account of the Borrowers (including the making of
periodic accounts receivable reviews), or contracts (and to make copies thereof
and extracts therefrom), and to discuss the affairs, finances and accounts of
the Borrowers with, and to be advised as to the same by, their officers, all at
such times and intervals as the Banks may reasonably request.
<PAGE>
7.10. Compliance with Laws, Contracts, Licenses and Permits; Maintenance of
Material Licenses and Permits. Each Borrower will (i) comply with the provisions
of its charter documents and by-laws and all agreements and instruments by which
it or any of its properties may be bound; (ii) comply with all applicable laws
and regulations (including Environmental Laws), decrees, orders, judgments,
licenses and permits, including, without limitation, all environmental permits
hereto ("Applicable Laws"), except where noncompliance with such Applicable Laws
would not have a material adverse effect in the aggregate on the consolidated
financial condition, properties or businesses of the Borrowers; (iii) comply in
all material respects with all agreements and instruments by which it or any of
its properties may be bound; (iv) maintain all material operating permits for
all landfills now owned or hereafter acquired; and (v) dispose of hazardous
waste only at licensed disposal facilities operating, to the best of such
Borrower's knowledge after reasonable inquiry, in compliance with Environmental
Laws. If at any time while the Notes, or any Loan or Letter of Credit is
outstanding or any Bank or the Agent has any obligation to make Loans or issue
Letters of Credit hereunder, any authorization, consent, approval, permit or
license from any officer, agency or instrumentality of any government shall
become necessary or required in order that any Borrower may fulfill any of its
obligations hereunder, such Borrower will immediately take or cause to be taken
all reasonable steps within the power of such Borrower to obtain such
authorization, consent, approval, permit or license and furnish the Banks with
evidence thereof.
7.11. Environmental Indemnification. The Borrowers covenant and agree that
they will jointly and severally indemnify and hold the Agent and the Banks, and
their respective affiliates, agents, directors, officers and shareholders,
harmless from and against any and all claims, expense, damage, loss or liability
incurred by such indemnified parties (including all costs of legal
representation incurred by such indemnified parties) relating to (a) any Release
or threatened Release of Hazardous Substances on the Real Property; (b) any
violation of any Environmental Laws with respect to conditions at the Real
Property or the operations conducted thereon; or (c) the investigation or
remediation of offsite locations at which the Borrowers, or their predecessors
are alleged to have directly or indirectly Disposed of Hazardous Substances. It
is expressly acknowledged by the Borrowers that this covenant of indemnification
shall survive any foreclosure or any modification, release or discharge of any
or all of the Security Documents or the payment of the Loans and shall inure to
the benefit of the Agent and the Banks and their respective successors and
assigns.
7.12. Further Assurances. The Borrowers will cooperate with the Banks and
execute such further instruments and documents as the Banks shall reasonably
request to carry out to the Banks' satisfaction the transactions contemplated by
this Agreement, including granting additional mortgages on Real Property at the
Banks' request as set forth in 7.19 hereof.
7.13. Notice of Potential Claims or Litigation. The Borrowers shall deliver
to the Banks, within 30 days of receipt thereof, written notice of the
initiation of any action, claim, complaint, or any other notice of dispute or
potential litigation (including without limitation any alleged violation of any
Environmental Law), wherein the potential liability is in excess of $500,000,
together with a copy of each such notice received by any Borrower.
<PAGE>
7.14. Notice of Certain Events Concerning Insurance and Environmental
Claims.
(a) The Borrowers will provide the Banks with written notice as to any
cancellation or material change in any insurance of any of the Borrowers
within ten (10) Business Days after such Borrower's receipt of any notice
(whether formal or informal) of such cancellation or change by any of its
insurers.
(b) The Borrowers will promptly notify the Banks in writing of any of
the following events:
(i) upon any Borrower's obtaining knowledge of any violation of
any Environmental Law regarding the Real Property or any Borrower's
operations which violation could have a material adverse effect on the Real
Property or on any Borrower's operations; (ii) upon any Borrower's
obtaining knowledge of any potential or known Release, or threat of
Release, of any Hazardous Substance at, from, or into the Real Property
which it reports in writing or is reportable by it in writing to any
governmental authority and which is material in amount or nature or which
could materially affect the value of the Real Property; (iii) upon any
Borrower's receipt of any notice of violation of any Environmental Laws or
of any Release or threatened Release of Hazardous Substances, including a
notice or claim of liability or potential responsibility from any third
party (including without limitation any federal, state or local
governmental officials) and including notice of any formal inquiry,
proceeding, demand, investigation or other action with regard to (A) any
Borrower's, or any Person's operation of the Real Property, (B)
contamination on, from or into the Real Property, or (C) investigation or
remediation of offsite locations at which any Borrower, or any of their
predecessors are alleged to have directly or indirectly Disposed of
Hazardous Substances; (iv) upon any Borrower's obtaining knowledge that any
expense or loss has been incurred by such governmental authority in
connection with the assessment, containment, removal or remediation of any
Hazardous Substances with respect to which any Borrower may be liable or
for which a lien may be imposed on the Real Property; or (v) any setoff,
claims (including, with respect to the Real Estate, environmental claims),
withholdings or other defenses to which any of the Collateral, or the
Agent's rights with respect to the Collateral, are subject.
7.15. Response Actions. The Borrowers covenant and agree that if any
Release or Disposal of Hazardous Substances shall occur or shall have occurred
on the Real Property, the Borrowers will cause the prompt containment and
removal of such Hazardous Substances and remediation of the Real Property as
necessary to comply with all Environmental Laws or to preserve the value of the
Real Property.
7.16. Environmental Assessments. If (a) with respect to the Real Property
subject to a Mortgage, the Banks in their good faith judgment, after discussion
with the Borrowers, have reason to believe that the environmental condition of
such Real Property has deteriorated, after reasonable notice by the Banks,
whether or not an Event of Default shall have occurred, or (b) with respect to
Real Property not subject to a Mortgage, the Banks so request, the Banks may,
from time to time, for the purpose of assessing the value of the Real Property,
obtain one or more environmental assessments or audits of the Real Property
prepared by a hydrogeologist, an independent engineer or other qualified
consultant or expert approved by the Banks to evaluate or confirm (i) whether
any Hazardous Substances are present in the soil or water at the Real Property
and (ii) whether the use and operation of the Real Property complies with all
Environmental Laws. Environmental assessments may include without limitation
detailed visual inspections of the Real Property including, without limitation,
any and all storage areas, storage tanks, drains, dry wells and leaching areas,
and the taking of soil samples, surface water samples and ground water samples,
as well as such other investigations or analyses as the Banks deem appropriate.
All such environmental assessments shall be at the sole cost and expense of the
Borrowers.
7.17. Notice of Default. The Borrowers will promptly notify the Banks in
writing of the occurrence of any Default or Event of Default. If any Person
shall give any notice or take any other action in respect of a claimed default
(whether or not constituting an Event of Default) under this Agreement or any
other note, evidence of indebtedness, indenture or other obligation evidencing
indebtedness in excess of $250,000 as to which any Borrower is a party or
obligor, whether as principal or surety, the Borrowers shall forthwith give
written notice thereof to the Banks, describing the notice of action and the
nature of the claimed default.
7.18. Closure and Post Closure Liabilities. The Borrowers shall at all
times adequately accrue, in accordance with GAAP, and fund, as required by
applicable Environmental Laws, all closure and post closure liabilities with
respect to the operations of the Borrowers.
7.19. Additional Mortgages. If after the Closing Date the Agent so
requests, the Borrowers shall forthwith execute and deliver to the Agent a fully
executed mortgage or deed of trust over Real Property of the Borrowers in
addition to the Sanco Landfill, the Waste USA Landfill, the Sawyer Real Estate
and the Casella TIRES Real Estate, in form and substance satisfactory to the
Agent, together with title insurance policies, surveys, evidences of insurance,
legal opinions and other documents and certificates with respect to such Real
Property as the Agent may request. The Borrowers agree that following the taking
of such actions with respect to such Real Property, the Agent shall have a valid
and enforceable first priority mortgage or deed of trust over such Real
Property, subject only to Permitted Liens. If after the Closing Date the Agent
so requests, the Borrowers shall forthwith execute and deliver to the Agent
fully executed amendments to the Mortgages, in form and substance satisfactory
to the Agent, together with title insurance policy endorsements, legal opinions
and other documents and certificates with respect to such amendments as the
Agent may request in order to confirm the Agent's first priority security
interest in the Real Property subject to such Mortgages.
<PAGE>
7.20. Subsidiaries. The Parent shall at all times directly or indirectly
through a Subsidiary own all of the shares of the capital stock of each
Subsidiary.
7.21. Pine Tree Waste, Inc. The Borrowers covenant and agree that the newly
acquired subsidiary, Pine Tree Waste, Inc., a Maine corporation, will merge into
Sawyer Environmental Services (with Sawyer Environmental Services as the
surviving entity) within 90 days of the Closing Date.
8. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS. The Borrowers agree that,
so long as any Loan or any Note is outstanding or the Banks have any obligation
to make Loans or the Agent has any obligation to issue, extend or renew any
Letters of Credit hereunder:
8.1. Restrictions on Indebtedness. None of the Borrowers shall become or be
a guarantor or surety of, or otherwise create, incur, assume, or be or remain
liable, contingently or otherwise, with respect to any Indebtedness, or become
or be responsible in any manner (whether by agreement to purchase any
obligations, stock, assets, goods or services, or to supply or advance any
funds, assets, goods or services or otherwise) with respect to any undertaking
or Indebtedness of any other Person, or incur any Indebtedness other than:
(a) Indebtedness to the Banks and the Agent arising under this
Agreement or the Loan Documents;
(b) Subject to 8.9, Subordinated Debt in an aggregate outstanding
principal amount not to exceed $15,000,000;
(c) Existing Indebtedness with respect to loans and capitalized leases
listed on Schedule 8.1(c) hereto in an aggregate amount not to exceed
$7,500,000, on the terms and conditions in effect as of the date hereof,
together with any renewals, extensions or refinancings thereof on terms
which are not materially different than those in effect as of the date
hereof;
(d) Current liabilities incurred in the ordinary course of business
not incurred through (i) the borrowing of money, or (ii) the obtaining of
credit except for credit on an open account basis customarily extended and
in fact extended in connection with normal purchases of goods and services;
(e) Indebtedness in respect of taxes, assessments, governmental
charges or levies and claims for labor, materials and supplies to the
extent that payment therefor shall not at the time be required to be made
in accordance with the provisions of 7.8 and Indebtedness of the Borrowers
secured by liens of carriers, warehousemen, mechanics and materialmen
permitted by 8.2;
(f) Indebtedness in respect of judgments or awards which have been in
force for less than the applicable period for taking an appeal so long as
execution is not levied thereunder or in respect of which any Borrower
shall at the time in good faith be prosecuting an appeal or proceedings for
review and in respect of which a stay of execution shall have been obtained
pending such appeal or review and in respect of which the Borrowers have
maintained adequate reserves;
(g) Indebtedness of any Borrower with respect to guaranty, suretyship
or indemnification obligations in connection with such Borrower's
performance of services for its respective customers in the ordinary course
of its business;
<PAGE>
(h) [Intentionally omitted];
(i) Indebtedness of any Subsidiary owing to the Parent;
(j) Intercompany Indebtedness among the Subsidiaries;
(k) Indebtedness in respect of a letter of credit issued by Allbank
Bank in the face amount of $168,000; provided that if the Agent, in its
sole and absolute discretion, at any time and for any reason so requests,
the Borrowers shall promptly replace such letter of credit with a Letter of
Credit issued by the Agent pursuant to the terms of this Credit Agreement;
(l) Indebtedness incurred in connection with the acquisition after the
date hereof of any personal property by the Borrowers under any lease;
provided that the aggregate outstanding principal amount of such
Indebtedness of the Borrowers shall not exceed $10,000,000 at any time;
(m) Indebtedness incurred in connection with the acquisition by the
Borrowers of real or personal property, including Indebtedness in respect
of non-compete payments; provided that the aggregate outstanding principal
amount of such Indebtedness of the Borrowers shall not exceed $15,000,000
at any time;
(n) Indebtedness in an aggregate amount not to exceed $10,501,284
payable to Clinton County, New York under and in accordance with the terms
of the Clinton Lease;
(o) Indebtedness under fuel price swaps, fuel price caps, and fuel
price collar or floor agreements, and similar agreements or arrangements
designed to protect against or manage fluctuations in fuel prices with
respect to fuel purchased in the ordinary course of business of the
Borrowers, provided that the aggregate amount of such agreements do not
exceed $500,000, the maturity of such agreements do not exceed six (6)
months, the terms are consistent with past practices of the Borrowers, and
such agreements are entered into with the Agent or any Bank and secured by
the Collateral; and
(p) Indebtedness in respect of interest rate protection arrangements
satisfactory to the Agent entered into with the Agent or any Bank and
secured by the Collateral.
8.2. Restrictions on Liens. None of the Borrowers will create or incur or
suffer to be created or incurred or to exist any lien, encumbrance, mortgage,
pledge, negative pledge, charge, restriction or other security interest of any
kind upon any property or assets of any character, whether now owned or
hereafter acquired, or upon the income or profits therefrom; or transfer any of
such property or assets or the income or profits therefrom for the purpose of
subjecting the same to the payment of Indebtedness or performance of any other
obligation in priority to payment of its general creditors; or acquire, or agree
or have an option to acquire, any property or assets upon conditional sale or
other title retention or purchase money security agreement, device or
arrangement; or suffer to exist for a period of more than 30 days after the same
shall have been incurred any Indebtedness or claim or demand against it which if
unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any
priority whatsoever over its general creditors; or sell, assign, pledge or
otherwise transfer any accounts, contract rights, general intangibles or chattel
paper, with or without recourse, except as follows (the "Permitted Liens"):
(a) purchase money security interests in or purchase money liens on
property other than the Mortgaged Property to secure Indebtedness permitted
under 8.1(m) hereof, provided that such Liens (i) shall encumber only the
property or assets so acquired, (ii) shall not exceed the fair market value
thereof and (iii) shall not encumber property with an aggregate value in
excess of $10,000,000;
(b) Liens to secure taxes, assessments and other government charges or
claims for labor, material or supplies in respect of obligations not
overdue;
<PAGE>
(c) Deposits or pledges made in connection with, or to secure payment
of, workmen's compensation, unemployment insurance, old age pensions or
other social security obligations;
(d) Liens in respect of judgments or awards, the Indebtedness with
respect to which is permitted by 8.1(f);
(e) Liens of carriers, warehousemen, mechanics and materialmen, and
other like liens, in existence less than 120 days from the date of creation
thereof in respect of obligations not overdue;
(f) Encumbrances consisting of easements, rights of way, zoning
restrictions, restrictions on the use of real property and defects and
irregularities in the title thereto, landlord's or lessor's liens under
leases to which any Borrower is a party, and other minor liens or
encumbrances none of which in the opinion of the respective Borrower
interferes materially with the use of the property affected in the ordinary
conduct of the business of such Borrower, which defects do not individually
or in the aggregate have a material adverse effect on the business of such
Borrower individually or of the Borrowers on a consolidated basis;
(g) Liens existing as of the date hereof securing Indebtedness
permitted under 8.1(c) hereof and listed on Schedule 8.2(g) hereto;
(h) Liens granted pursuant to the Security Documents;
(i) A second mortgage lien on the Waste USA Landfill in favor of the
sellers of the Waste USA Landfill, subordinated to the Agent's Mortgage on
terms acceptable to the Banks;
(j) Liens on the assets of Bristol Waste Management, Inc. granted to
secure the Indebtedness permitted by 8.1(k) hereof and listed on Schedule
8.2(k) hereto; and
(k) Liens granted to secure the Indebtedness permitted by 8.1(l)
hereof.
8.3. Restrictions on Investments. None of the Borrowers shall make or
permit to exist or to remain outstanding any other Investment other than:
(a) Investments in obligations of the United States of America and
agencies thereof and obligations guaranteed by the United States of America
that are due and payable within one year from the date of acquisition;
(b) certificates of deposit, time deposits or repurchase agreements
which are fully insured or are issued by commercial banks organized under
the laws of the United States of America or any state thereof and having a
combined capital, surplus, and undivided profits of not less than
$100,000,000;
(c) commercial paper, maturing not more than nine months from the date
of issue, provided that, at the time of purchase, such commercial paper is
not rated lower than "P- 1" by Moody's Investors Service, Inc., or "A- 1"
by Standard & Poor's Corporation;
(d) Investments associated with insurance policies required or allowed
by state law to be posted as financial assurance for landfill closure and
post-closure liabilities;
(e) Investments by any Borrower in any wholly owned Subsidiary which
is also a Borrower;
(f) Investments existing on the date hereof and listed on Schedule
8.3(g) hereto;
(g) Any money market account, short- term asset management account or
similar investment account maintained with one of the Banks; and
<PAGE>
(h) other Investments not to exceed $500,000 in the aggregate at any
time outstanding.
provided; that none of the Borrowers shall make or permit to exist or to remain
outstanding any Investment in any Subsidiary unless both before and after giving
effect thereto there does not exist a Default or Event of Default and no Default
or Event of Default would be created by the making of such Investment.
8.4. Mergers, Consolidations, Sales. None of the Borrowers shall be a party
to any merger, consolidation or exchange of stock, or purchase or otherwise
acquire all or substantially all of the assets or stock of, or any partnership
or joint venture interest in, any other Person (except as otherwise provided in
this 8.4), or sell, transfer, convey or lease any stock or assets or group of
assets (except for (i) sales of equipment in the ordinary course of business and
(ii) sales of other assets so long as the aggregate book value of such assets to
be sold, together with the aggregate book value of all other such assets sold by
the Borrowers during the term of this Agreement, does not exceed 5% of
Consolidated Total Assets at the time of such sale) or sell or assign, with or
without recourse, any receivables, provided, however notwithstanding the
foregoing so long as no Default or Event of Default has occurred and is
continuing and the proposed transaction will not otherwise create an Event of
Default as a result thereof, the Borrowers shall be permitted (i) simultaneously
with the consummation of its initial public offering to exchange any of its
preferred stock into shares of common stock and (ii) to authorize and issue
additional shares of its capital stock. Notwithstanding the foregoing, a
Borrower may purchase or otherwise acquire for cash, stock or other
consideration all or substantially all of the assets or stock of any class of
any Person provided that (a) the Banks shall have been provided with a
Compliance Certificate demonstrating that the Borrowers are in current
compliance with and, giving effect to the proposed acquisition (including any
borrowings made or to be made in connection therewith), will continue to be in
compliance with, all of the covenants in 9 hereof; (b) no Event of Default has
occurred and is continuing and the proposed transaction will not otherwise
create an Event of Default hereunder; (c) the business or assets to be acquired
involves solid waste collection, hauling, recycling or transfer or related
businesses; (d) the business or assets to be acquired operates in the United
States; (e) all of the assets to be acquired shall be pledged to the Agent for
the benefit of the Banks and shall be owned by an existing or newly created
Subsidiary of the Parent, 100% of the stock of which has been or will be pledged
to the Agent on behalf of the Banks and which is a Borrower or, in the case of a
stock acquisition, the acquired company shall become or shall be merged with a
wholly-owned Subsidiary of the Parent that is a Borrower; (f) a copy of the
purchase agreement, together with audited (if available, or otherwise unaudited)
financial statements for any business to be acquired for the preceding two (2)
fiscal years and due diligence summaries shall have been furnished to the Banks,
if the purchase price, excluding the payment of all fees and expenses relating
to such purchase, exceeds $1,000,000; (g) if such acquisition is made by a
merger, such Borrower shall be the surviving entity; (h) the cash consideration
in connection with any such acquisition (including the aggregate amount of all
liabilities assumed) shall not exceed $10,000,000; and (i) the Borrower shall
provide to the Banks written consent or approval of the board of directors or
equivalent governing body of the entity whose business or assets are to be
acquired. Notwithstanding the foregoing, no Person may acquire a controlling
interest in any Borrower, nor may a Borrower purchase or otherwise acquire all
or substantially all of the assets or stock of any class of another Borrower, in
each case, without the prior written consent of the Banks. In addition,
notwithstanding the foregoing, no Borrower shall merge with or into any Person
except for mergers of a non-Borrower into a Borrower as permitted by clause (g)
of the second sentence of this 8.4; provided, however, that so long as (x) no
Default or Event of Default has occurred and is continuing, or would occur after
giving effect thereto, and (y) the surviving entity becomes a Borrower hereunder
and all assets of such surviving entity are pledged to the Agent for the benefit
of the Banks, North Country Environmental Services, Inc. may merge with a newly
created corporation which is formed solely for the purpose of acquiring the
assets of North Country Environmental Services, Inc. only and which is directly
or indirectly wholly-owned by the Parent.
<PAGE>
8.5. Sale and Leaseback. None of the Borrowers shall enter into any
arrangement, directly or indirectly, whereby any Borrower shall sell or transfer
any property owned by it in order then or thereafter to lease such property or
lease other property which such Borrower intends to use for substantially the
same purpose as the property being sold or transferred, without the prior
written consent of the Banks.
8.6. Restricted Distributions and Redemptions. None of the Borrowers will
declare or pay any cash Distributions; provided that (a) any Subsidiary may
declare or pay cash Distributions to the Parent and (b) so long as no Default or
Event of Default has occurred and is continuing, or would occur after giving
effect thereto, the Parent may make cash Distributions to its shareholders in an
aggregate amount, together with redemptions permitted by the following sentence,
not to exceed $100,000 during the term of this Agreement. In addition, the
Borrowers shall not redeem, convert, retire or otherwise acquire shares of any
class of capital stock of the Borrowers in aggregate amount, together with cash
Distributions by the Parent permitted by the previous sentence, in excess of
$100,000 during the term of this Agreement. The Borrowers shall not effect or
permit any change in or amendment to the charter documents or by-laws of any
Borrower or any document or instrument pertaining to the terms of the Parent's
capital stock.
8.7. Employee Benefit Plans. None of the Borrowers nor any ERISA Affiliate
will:
(a) engage in any "prohibited transaction" within the meaning of 406
of ERISA or 4975 of the Code which could result in a material liability for
any Borrower; or
(b) permit any Guaranteed Pension Plan to incur an "accumulated
funding deficiency", as such term is defined in 302 of ERISA, whether or
not such deficiency is or may be waived; or
(c) fail to contribute to any Guaranteed Pension Plan to an extent
which, or terminate any Guaranteed Pension Plan in a manner which, could
result in the imposition of a lien or encumbrance on the assets of any
Borrower pursuant to 302(f) or 4068 of ERISA; or
(d) permit or take any action which would result in the aggregate
benefit liabilities (with the meaning of 4001 of ERISA) of all Guaranteed
Pension Plans exceeding the value of the aggregate assets of such Plans,
disregarding for this purpose the benefit liabilities and assets of any
such Plan with assets in excess of benefit liabilities.
The Borrowers will (i) promptly upon filing the same with the Department of
Labor or Internal Revenue Service, furnish to the Banks a copy of the most
recent actuarial statement required to be submitted under 103(d) of ERISA and
Annual Report, Form 5500, with all required attachments, in respect of each
Guaranteed Pension Plan and (ii) promptly upon receipt or dispatch, furnish to
the Banks any notice, report or demand sent or received in respect of a
Guaranteed Pension Plan under 302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068
of ERISA, or in respect of a Multiemployer Plan, under 4041A, 4202, 4219, or
4245 of ERISA.
8.8. Capital Expenditures. As at the end of any fiscal quarter, the
Borrowers will not permit the amount of Capital Expenditures (excluding any
acquisitions permitted by 8.4 hereof) made by the Borrowers in the period of
four (4) consecutive fiscal quarters then ended to exceed an amount equal to 2.0
times the sum of depreciation and landfill amortization expense for such period.
<PAGE>
8.9. Subordinated Debt. None of the Borrowers will amend, supplement, or
otherwise modify the terms of the Subordinated Debt, the Subordination
Agreements, the Stockholder Stand-off Agreement or the Waste USA Lease without
the prior written consent of the Banks. None of the Borrowers will prepay the
Waste USA Lease, terminate the Waste USA Lease or exercise any option of
purchase the leasehold estate subject to the Waste USA Lease during the term of
this Credit Agreement without the prior written consent of the Banks. None of
the Borrowers will amend, supplement or otherwise modify the terms of the
Clinton Lease, prepay the Clinton Lease, terminate the Clinton Lease, or
exercise any option to purchase the landfill and related property subject to the
Clinton Lease during the term of this Agreement without the prior written
consent of the Banks. The Borrowers will not make any payments of the
Subordinated Debt other than scheduled payments of principal and interest
permitted under the Subordination Agreements; provided that so long as no
Default or Event of Default has occurred and is continuing, the Borrowers may
make unscheduled principal payments on Indebtedness permitted under Section
8.1(m) consisting of notes payable to sellers of assets, the principal face
amount of each of which notes does not exceed $250,000, in an aggregate amount
not to exceed $5,000,000 (less amounts prepaid under the August, 1997 Credit
Agreement, provided that such prepaid amounts do not exceed $1,750,000) during
the term of this Agreement.
8.10. Negative Pledge. The Borrowers will not enter into any agreement
containing any provision prohibiting the creation or assumption of any lien or
security interest upon its properties (other than prohibitions on liens for
particular assets set forth in a security instrument in connection with secured
Indebtedness permitted by 8.1(m) relating to such assets and the granting or
effect of such liens does not otherwise constitute a Default or Event of
Default), revenues or assets, whether now owned or hereafter acquired, or
restricting the ability of the Borrowers to amend or modify this Agreement or
any other Loan Document.
9. FINANCIAL COVENANTS OF THE BORROWERS. The Borrowers agree that, so long
as any Loan or any Note is outstanding or the Banks have any obligation to make
Loans or the Agent has any obligation to issue, extend or renew any Letters of
Credit hereunder:
9.1. Interest Coverage Ratios As of the end of any fiscal quarter, for the
period of the four consecutive fiscal quarters then ended, the ratio of EBITDA
to Consolidated Total Interest Expense shall not be less than 3.5:1.
9.2. Profitable Operations. The Borrowers will not permit Consolidated Net
Income to be less than $0 in any quarter.
9.3. Funded Debt to EBITDA Ratio. As at the end of any fiscal quarter, the
ratio of (a) Indebtedness of the Borrowers for borrowed money and capitalized
leases ("Consolidated Funded Indebtedness") to (b) EBITDA for the period of four
consecutive fiscal quarters ending on such date (subject to the provisions
below) shall not exceed the stated ratio for the respective periods set forth
below:
<TABLE>
<CAPTION>
Period Ratio
<S> <C>
Closing Date through 4/30/99 3.75:1
Thereafter 3.50:1
</TABLE>
For purposes of calculating the Consolidated Funded Indebtedness to EBITDA
ratio (a) for (i) the fiscal quarter ending July 31, 1997, EBITDA shall be
deemed equal to four (4) times EBITDA for the three month period then ended,
(ii) the fiscal quarter ending October 31, 1997, EBITDA shall be deemed equal to
two (2) times EBITDA for the six month period then ended and (iii) the fiscal
quarter ending January 31, 1998, EBITDA shall be deemed equal to one and
one-third (1 1/3) times EBITDA for the nine month period then ended and (b) the
financial results of any businesses acquired after May 1, 1997 by the Borrowers
during such fiscal period shall be included in the calculation of EBITDA so long
as (i) the acquired business had annual revenue of at least $5,000,000 for the
most recent fiscal year, (ii) the Agent is satisfied that the financial
information for the acquired business fairly presents the financial condition of
such business and (iii) the Agent receives a letter in form and substance
satisfactory to the Banks from the Borrowers' Accountants as to adjustments for
non-recurring expenses.
9.4. Funded Debt to Capitalization. As of the end of any fiscal quarter,
the Borrowers shall not permit the ratio of (a) Consolidated Funded Indebtedness
to (b) the sum of (i) Consolidated Funded Indebtedness plus (ii) shareholder's
equity in the Parent as determined in accordance with GAAP to exceed 0.60 to 1.
<PAGE>
10. CLOSING CONDITIONS.
The obligations of the Banks to make the Loans and the Agent to issue
Letters of Credit on the Closing Date and otherwise be bound by the terms of
this Agreement shall be subject to the satisfaction of each of the following
conditions precedent:
10.1. Corporate Action. All corporate action necessary for the valid
execution, delivery and performance by each Borrower of the Loan Documents shall
have been duly and effectively taken, and evidence thereof satisfactory to the
Agent shall have been provided to the Agent.
10.2. Loan Documents, Etc. Each of the Loan Documents shall have been duly
and properly authorized, executed and delivered by the respective parties
thereto and shall be in full force and effect in a form satisfactory to the
Banks, provided that the Borrowers shall have thirty (30) days after the Closing
Date to execute and deliver the amendments to the Mortgages.
10.3. Officer's Certificate; Certified Copies of Charter Documents. For
each Borrower that was a party to the August, 1997 Credit Agreement, the Agent
shall have received a certificate of a duly authorized officer of such Person as
to the existence, good standing, and lack of changes to its charter documents
since last delivered to the Agent. For All Cycle and Winters, the Agent shall
have received from the Borrowers a copy, certified by a duly authorized officer
of such Person to be true and complete on the Closing Date, of each of (a) its
charter or other incorporation documents (including certificates of merger and
name changes) as in effect on such date of certification, and (b) its by-laws as
in effect on such date.
10.4. Incumbency Certificate. The Agent shall have received an incumbency
certificate, dated as of the Closing Date, signed by duly authorized officers
giving the name and bearing a specimen signature of each individual who shall be
authorized: (a) to sign the Loan Documents on behalf of the Borrowers; (b) to
make Loan and Letter of Credit Requests; and (c) to give notices and to take
other action on the Borrowers' behalf under the Loan Documents.
10.5. Validity of Liens. The Security Documents shall be effective to
create in favor of the Agent a legal, valid and enforceable first security
interest in and lien upon the Collateral, subject only to Permitted Liens. All
filings, recordings, deliveries of instruments and other actions necessary or
desirable in the opinion of the Agent to protect and preserve such security
interests, and any necessary amendments to the Mortgages, shall have been duly
effected, provided that the Borrowers shall have five (5) business days to
deliver the stock certificates of All Cycle and Winters to the Agent. The Agent
shall have received evidence thereof in form and substance satisfactory to the
Agent.
10.6 UCC Search Results. The Agent shall have received the results of UCC
searches with respect to the Collateral owned by any Borrower acquired after
August 7, 1997, indicating no other liens other than Permitted Liens, and
otherwise in form and substance satisfactory to the Agent.
10.7. [Intentionally Omitted.]
10.8. Certificates of Insurance. The Agent shall have received (i) a
certificate of insurance from an independent insurance broker dated as of the
Closing Date, or within 15 days prior thereto, identifying insurers, types of
insurance, insurance limits, and policy terms, and otherwise describing the
insurance obtained in accordance with the provisions of the Security Documents
and (ii) copies of all policies evidencing such insurance (or certificates
therefor signed by the insurer or an agent authorized to bind the insurer).
<PAGE>
10.9. Opinion of Counsel. The Banks shall have received from Miller,
Eggleston & Cramer, Ltd., an opinion addressed to the Banks, dated the Closing
Date, in form and substance satisfactory to the Banks, as to (i) authorization,
enforceability of Loan Documents and other corporate matters; (ii) Vermont
security and real estate matters.
10.10. Payment of Fees. The Borrowers shall have paid to the Agent for the
accounts of the Bank or its own account, as applicable, all fees and expenses
that are due and payable as of the Closing Date in accordance with this
Agreement.
10.11. Good Standing Certificates. The Agent shall have received
certificates from governmental officials evidencing the legal existence, good
standing and foreign qualifications of All Cycle and Winters.
10.12. Affirmation of Subordination Agreements. The Agent shall have
received an opinion of Miller, Eggleston & Cramer, Ltd. that such a
reaffirmation of the Waste USA Subordination Agreement is not required to allow
the provisions of such agreement to remain in full force and effect.
11. CONDITIONS OF ALL LOANS.
The obligations of the Banks to make any Loan (including without limitation
the obligation of the Agent to issue any Letter of Credit) on and subsequent to
the Closing Date is subject to the following conditions precedent:
11.1. Representations True; No Event of Default. Each of the
representations and warranties of the Borrowers contained in this Agreement or
in any document or instrument delivered pursuant to or in connection with this
Agreement shall be true as of the date as of which they were made and shall also
be true at and as of the time of the making of the Loan with the same effect as
if made at and as of that time (except to the extent of changes resulting from
transactions contemplated or permitted by this Agreement and changes occurring
in the ordinary course of business which singly or in the aggregate are not
materially adverse, and to the extent that such representations and warranties
relate expressly to an earlier date) and no Default or Event of Default shall
have occurred and be continuing.
11.2 Performance; No Event of Default. The Borrowers shall have performed
and complied with all terms and conditions herein required to be performed or
complied with by them prior to or at the time of any Loan, and at the time of
any Loan, there shall exist no Event of Default or condition which would result
in an Event of Default upon consummation of such Loan (including without
limitation any amounts to be drawn under a Letter of Credit). Each request by
the Borrowers for a Loan (including without limitation each request for issuance
of a Letter of Credit) subsequent to the first Loan shall constitute
certification by the Borrowers that the conditions specified in 10.1 and 10.2
will be duly satisfied on the date of such Loan or Letter of Credit issuance.
11.3. No Legal Impediment. No change shall have occurred in any law or
regulations thereunder or interpretations thereof which in the reasonable
opinion of the Banks would make it illegal for the Banks to make Loans
hereunder.
11.4. Governmental Regulation. The Banks shall have received such
statements in substance and form reasonably satisfactory to the Banks as they
shall require for the purpose of compliance with any applicable regulations of
the Comptroller of the Currency or the Board of Governors of the Federal Reserve
System.
11.5. Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall have been delivered to the Banks as of the date hereof in substance and in
form satisfactory to the Banks, including without limitation a Letter of Credit
and Loan Request in the form attached hereto as Exhibit B, and the Banks shall
have received all information and such counterpart originals or certified or
other copies of such documents as the Banks may reasonably request.
<PAGE>
12. COLLATERAL SECURITY. The Obligations shall be secured by a perfected
security interest (having, with respect to each category of Collateral, the
respective rights and priorities set forth in the Security Documents) in all of
the assets of the Borrowers, whether now owned or hereafter acquired, pursuant
to the terms of the Security Documents to which the Borrowers are parties. It is
the intention of the parties that all of the Revolving Credit Loans (including
any increase in the amount of the Revolving Credit Loans pursuant to 2 hereof)
be secured by the Mortgages, whether or not the Mortgages, or any one of them,
is amended in order to reflect the full amount of and/or any increase in the
amount of the Revolving Credit Loans.
13. EVENTS OF DEFAULT; ACCELERATION; TERMINATION OF COMMITMENT.
13.1. Events of Default and Acceleration. If any of the following events
("Events of Default" or, if the giving of notice or the lapse of time or both is
required, then, prior to such notice and/or lapse of time, "Defaults") shall
occur:
(a) if the Borrowers shall fail to pay any principal of the Loans when
the same shall become due and payable, whether at the Revolving Credit
Maturity Date or any accelerated date of maturity or at any other date
fixed for payment;
(b) if the Borrowers shall fail to pay any interest or fees or other
amounts owing hereunder within five (5) Business Days after the same shall
become due and payable whether at the Maturity Date or any accelerated date
of maturity or at any other date fixed for payment;
(c) if the Borrowers shall fail to comply with the covenants contained
in 7 (other than 7.6, 7.14, 7.15 and 7.18), 8 or 9 hereof;
(d) if the Borrowers shall fail to perform any term, covenant or
agreement contained herein or in any of the other Loan Documents (other
than those specified in subsections (a), (b), and (c) above) within 30 days
after written notice of such failure has been given to the Borrowers by the
Banks;
(e) if any representation or warranty contained in this Agreement or
in any document or instrument delivered pursuant to or in connection with
this Agreement shall prove to have been false in any material respect upon
the date when made or repeated;
(f) if any Borrower shall fail to pay at maturity, or within any
applicable period of grace, any and all obligations for borrowed money or
any guaranty with respect thereto in an aggregate amount greater than
$250,000, or fail to observe or perform any material term, covenant or
agreement contained in any agreement by which it is bound, evidencing or
securing borrowed money in an aggregate amount greater than $250,000 for
such period of time as would, or would have permitted (assuming the giving
of appropriate notice if required) the holder or holders thereof or of any
obligations issued thereunder to accelerate the maturity thereof; or
<PAGE>
(g) if any Borrower makes an assignment for the benefit of creditors,
or admits in writing its inability to pay or generally fails to pay its
debts as they mature or become due, or petitions or applies for the
appointment of a trustee or other custodian, liquidator or receiver of any
Borrower or of any substantial part of the assets of any Borrower or
commences any case or other proceeding relating to any Borrower under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation or similar law of any jurisdiction, now or
hereafter in effect, or takes any action to authorize or in furtherance of
any of the foregoing, or if any such petition or application is filed or
any such case or other proceeding is commenced against any Borrower and or
any Borrower indicates its approval thereof, consent thereto or
acquiescence therein;
(h) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating any Borrower bankrupt or
insolvent, or approving a petition in any such case or other proceeding, or
a decree or order for relief is entered in respect of any Borrower in an
involuntary case under federal bankruptcy laws as now or hereafter
constituted, and such decree or order remains in effect for more than sixty
(60) days, whether or not consecutive;
(i) if there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty (30) days, whether or not consecutive, any
final judgment against any Borrower which, with other outstanding final
judgments, against the Borrowers exceeds in the aggregate $250,000 after
taking into account any undisputed insurance coverage;
(j) with respect to any Guaranteed Pension Plan, an ERISA Reportable
Event shall have occurred and the Banks shall have determined in their
reasonable discretion that such event reasonably could be expected to
result in liability of any Borrower to the PBGC or the Plan in an aggregate
amount exceeding $250,000 and such event in the circumstances occurring
reasonably could constitute grounds for the termination of such Plan by the
PBGC or for the appointment by the appropriate United States District Court
of a trustee to administer such Plan; or a trustee shall have been
appointed by the United States District Court to administer such Plan; or
the PBGC shall have instituted proceedings to terminate such Plan;
(k) any of the Subordinated Debt shall be in default or all or any
part of the Subordinated Debt shall be paid, prepaid, redeemed or
repurchased in whole or in part other than as permitted under the terms of
the Subordination Agreements, hereof and thereof; or
(l) if any of the Loan Documents shall be cancelled, terminated,
revoked or rescinded otherwise than in accordance with the terms thereof or
with the express prior written agreement, consent or approval of the Banks,
or any action at law, suit or in equity or other legal proceeding to
cancel, revoke or rescind any of the Loan Documents shall be commenced by
or on behalf of the Borrowers or any of their respective stockholders, or
any court or any other governmental or regulatory authority or agency of
competent jurisdiction shall make a determination that, or issue a
judgment, order, decree or ruling to the effect that, any one or more of
the Loan Documents is illegal, invalid or unenforceable in accordance with
the terms thereof;
<PAGE>
(m) John Casella and James Bohlig shall cease to serve as senior
management of the Parent and shall fail to be replaced by other Persons
reasonably acceptable to the Banks within 30 days;
then, and in any such event, so long as the same may be continuing, the Agent
shall upon the request of the Required Banks, by notice in writing to the
Borrowers, declare all amounts owing with respect to this Agreement, the Notes
and the other Loan Documents and all Reimbursement Obligations to be, and they
shall thereupon forthwith become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrowers; provided that in the event of any
Event of Default specified in 13.1(g) or 13.1(h), all such amounts shall become
immediately due and payable automatically and without any requirement of notice
from the Agent or any Bank. Upon demand by the Banks after the occurrence of any
Event of Default, the Borrowers shall immediately provide to the Agent cash in
an amount equal to the aggregate Maximum Drawing Amount of all Letters of Credit
outstanding, to be held by the Agent as collateral security for the Obligations.
13.2. Termination of Commitments. If any Event of Default shall occur, any
unused portion of the Total Commitment hereunder shall forthwith terminate and
the Banks shall be relieved of all obligations to make Loans to or issue Letters
of Credit for the account of any of the Borrowers; or if on any Drawdown Date
the conditions precedent to the making of the Loans to be made on such Drawdown
Date or the issuance of any Letters of Credit to be issued on such date are not
satisfied (except as a consequence of a default on the part of the Banks), the
Banks may by notice to the Borrowers, terminate the unused portion of the Total
Commitment hereunder, and upon such Notice being given, such unused portion of
the Total Commitment hereunder shall terminate immediately and the Banks shall
be relieved of all further obligations to make Loans to or issue Letters of
Credit for the account of the Borrowers hereunder. No termination of any portion
of the Total Commitment hereunder shall relieve the Borrowers of any of their
existing Obligations to the Banks hereunder or elsewhere.
13.3. Remedies. Subject to 15.8, in case any one or more of the Events of
Default shall have occurred and be continuing, and whether or not the Banks
shall have accelerated the maturity of the Loans pursuant to 13.1, each Bank, if
owed any amount with respect to the Loans or the Reimbursement Obligations, may
proceed to protect and enforce its rights by suit in equity, action at law or
other appropriate proceeding, whether for the specific performance of any
covenant or agreement contained in this Agreement and the other Loan Documents
or any instrument pursuant to which the Obligations or the Guaranteed
Obligations to such Bank are evidenced, including, without limitation, as
permitted by applicable law the obtaining of the ex parte appointment of a
receiver, and, if such amount shall have become due, by declaration or
otherwise, proceed to enforce the payment thereof or any legal or equitable
right of such Bank. No remedy herein conferred upon any Bank or the Agent or the
holder of any Note or purchaser of any Letter of Credit Participation is
intended to be exclusive of any other remedy and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or any other provision
of law.
14. SETOFF. Regardless of the adequacy of any collateral, during the
continuance of an Event of Default, any deposits or other sums credited by or
due from any Bank to the Borrowers and any securities or other property of the
Borrowers in the possession of such Bank may be applied to or set off against
the payment of the Obligations and any and all other liabilities, direct, or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, of the Borrowers to the Banks. Each of the Banks agrees with
each other Bank that (a) if an amount to be set off is to be applied to
Indebtedness of the Borrowers to such Bank, other than Indebtedness evidenced by
the Notes held by such Bank or constituting Reimbursement Obligations owed to
such Bank, such amount shall be applied ratably to such other Indebtedness and
to the Indebtedness evidenced by all such Notes held by such Bank or
constituting Reimbursement Obligations owed to such Bank, and (b) if such Bank
shall receive from the Borrowers, whether by voluntary payment, exercise of the
right of setoff, counterclaim, cross action, enforcement of the claim evidenced
by the Notes held by, or constituting Reimbursement Obligations owed to, such
Bank by proceedings against the Borrowers at law or in equity or by proof
thereof in bankruptcy, reorganization, liquidation, receivership or similar
proceedings, or otherwise, and shall retain and apply to the payment of the Note
or Notes held by, or Reimbursement Obligations owed to, such Bank any amount in
excess of its ratable portion of the payments received by all of the Banks with
respect to the Notes held by, and Reimbursement Obligations owed to, all of the
Banks, such Bank will make such disposition and arrangements with the other
Banks with respect to such excess, either by way of distribution, pro tanto
assignment of claims, subrogation or otherwise as shall result in each Bank
receiving in respect of the Notes held by it or Reimbursement Obligations owed
it, such Bank's proportionate payment as contemplated by this Agreement;
provided that if all or any part of such excess payment is thereafter recovered
from such Bank, such disposition and arrangements shall be rescinded and the
amount restored to the extent of such recovery, but without interest.
<PAGE>
15. THE AGENT.
15.1 Appointment of Agent, Powers and Immunities. Each Bank hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under the other Loan Documents. The Agent hereby acknowledges that it does not
have the authority to negotiate any agreement which would bind the Banks or
agree to any amendment, waiver or modification of any of the Loan Documents or
bind the Banks except as set forth in this Agreement or the Loan Documents.
Except as provided in this 15 and in the other Loan Documents, the Agent shall
take action or refrain from acting only upon instructions of the Banks and no
action taken or failure to act without the consent of the Banks shall be binding
on any Bank which has not consented. Each Bank irrevocably authorizes the Agent
to execute the Security Documents and all other instruments relating thereto and
to take such action on behalf of each of the Banks and to exercise all such
powers as are expressly delegated to the Agent hereunder and in the Security
Documents and all related documents, together with such other powers as are
reasonably incidental thereto. It is agreed that the duties, rights, privileges
and immunities of the Agent, in its capacity as issuer of Letters of Credit
hereunder, shall be identical to its duties, rights, privileges and immunities
as Bank as provided in this 15. The Agent shall not have any duties or
responsibilities or any fiduciary relationship with any Bank except those
expressly set forth in this Agreement. Neither the Agent nor any of its
affiliates shall be responsible to the Banks for any recitals, statements,
representations or warranties made by the Borrowers or any other Person whether
contained herein or otherwise or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement, the other Loan
Documents or any other document referred to or provided for herein or therein or
for any failure by the Borrowers or any other Person to perform its obligations
hereunder or thereunder or in respect of the Notes. The Agent may employ agents
and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. Neither the Agent nor any of its directors, officers, employees
or agents shall be responsible for any action taken or omitted to be taken by it
or them hereunder or in connection herewith, except for its or their own gross
negligence or willful misconduct. The Bank in its separate capacity as a Bank
shall have the same rights and powers hereunder as any other Bank.
15.2. Actions By Agent. The Agent shall be fully justified in failing or
refusing to take any action under this Agreement as it reasonably deems
appropriate unless it shall first have received such advice or concurrence of
the Banks and shall be indemnified to its reasonable satisfaction by the Banks
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any of the Loan Documents in accordance with a request of the Banks, and such
request and any action taken or failure to act pursuant thereto shall be binding
upon the Banks and all future holders of the Notes or any Letter of Credit
Participation.
15.3. Indemnification. Without limiting the obligations of the Borrowers
hereunder or under any other Loan Document, the Banks agree to indemnify the
Agent and its affiliates, agents, directors, officers and shareholders, and
ratably in accordance with their respective Commitment Percentages, for any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements or any kind or nature whatsoever which
may at any time be imposed on, incurred by or asserted against the Agent in any
way relating to or arising out of this Agreement or any other Loan Document or
any documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or the enforcement of any of the
terms hereof or thereof or of any such other documents; provided, that no Bank
shall be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Agent (or any agent thereof).
15.4. Reimbursement. Without limiting the provisions of 15.3, the Banks and
the Agent hereby agree that the Agent shall not be obliged to make available to
any Person any sum which the Agent is expecting to receive for the account of
that Person until the Agent has determined that it has received that sum. The
Agent may, however, disburse funds prior to determining that the sums which the
Agent expects to receive have been finally and unconditionally paid to the
Agent, if the Agent wishes to do so. If and to the extent that the Agent does
disburse funds and it later becomes apparent that the Agent did not then receive
a payment in an amount equal to the sum paid out, then any Person to whom the
Agent made the funds available shall, on demand from the Agent, refund to the
Agent the sum paid to that Person. If, in the opinion of the Agent, the
distribution of any amount received by it in such capacity hereunder or under
the Loan Documents might involve it in liability, it may refrain from making
distribution until its right to make distribution shall have been adjudicated by
a court of competent jurisdiction. If a court of competent jurisdiction shall
adjudge that any amount received and distributed by the Agent is to be repaid,
each Person to whom any such distribution shall have been made shall either
repay to the Agent its proportionate share of the amount so adjudged to be
repaid or shall pay over the same in such manner and to such Persons as shall be
determined by such court.
<PAGE>
15.5. Documents. The Agent will forward to each Bank, promptly after the
Agent's receipt thereof, a copy of each notice or other document furnished to
the Agent for such Bank hereunder; provided, however, that, notwithstanding the
foregoing, the Agent may furnish to the Banks a monthly summary with respect to
Letters of Credit issued hereunder in lieu of copies of the related Letter of
Credit Applications.
15.6. Non-Reliance on Agent and Other Banks. Each Bank represents that it
has, independently and without reliance on the Agent or any other Bank, and
based on such documents and information as it has deemed appropriate, made its
own appraisal of the financial condition and affairs of the Borrowers and
decision to enter into this Agreement and the other Loan Documents and agrees
that it will, independently and without reliance upon the Agent or any other
Bank, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own appraisals and decisions in taking or not
taking action under this Agreement or any other Loan Document. The Agent shall
not be required to keep informed as to the performance or observance by the
Borrowers of this Agreement, the other Loan Documents or any other document
referred to or provided for herein or therein or by any other Person of any
other agreement or to make inquiry of, or to inspect the properties or books of,
any Person. Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent hereunder, the
Agent shall not have any duty or responsibility to provide any Bank with any
credit or other information concerning any person which may come into the
possession of the Agent or any of its affiliates. Each Bank shall have access to
all documents relating to the Agent's performance of its duties hereunder at
such Bank's request. Unless any Bank shall promptly object to any action taken
by the Agent hereunder (other than actions to which the provisions of 15.8 are
applicable and other than actions which constitute gross negligence or willful
misconduct by the Agent), such Bank shall conclusively be presumed to have
approved the same.
15.7. Resignation of Agent. The Agent may resign at any time by giving 60
days prior written notice thereof to the Banks and the Borrowers. Upon any such
resignation, the Banks shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Banks and shall have
accepted such appointment within 30 days after the retiring Agent's giving of
notice of resignation, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a financial institution having a
combined capital and surplus in excess of $150,000,000. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring Agent's
resignation, the provisions of this Agreement shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent. Any new Agent appointed pursuant to this 15.7 shall
immediately issue new Letters of Credit in place of Letters of Credit previously
issued by the Agent.
15.8. Action by the Banks, Consents, Amendments, Waivers, Etc. Except as
otherwise expressly provided in this 15.8, any action to be taken (including the
giving of notice) may be taken or any consent or approval required or permitted
by the Agreement or any other Loan Document to be given by the Banks may be
given, and any term of this Agreement, any other Loan Document or any other
instrument, document or agreement related to this Agreement or the other Loan
Documents or mentioned therein may be amended and the performance or observance
by the Borrowers or any other person of any of the terms thereof and any Default
or Event of Default (as defined in any of the above-referenced documents or
instruments) may be waived (either generally or in a particular instance and
either retroactively or prospectively) only with the written consent of the
Required Banks; provided, however, that no such consent or amendment which
affects the rights, duties or liabilities of the Agent shall be effective
without the written consent of the Agent. Notwithstanding the foregoing, no
amendment, waiver or consent shall, do any of the following unless in writing
and signed by ALL of the Banks (a) increase the principal amount of the Total
Commitment (or subject the Banks to any additional obligations), (b) reduce the
principal of or interest on the Notes (including, without limitation, interest
on overdue amounts) or any fees payable hereunder, (c) postpone any date fixed
for any payment in respect of principal or interest (including, without
limitation, interest on overdue amounts) on the Notes, or any fees payable
hereunder; (d) change the definition of "Required Banks" or number of Banks
which shall be required for the Banks or any of them to take any action under
the Loan Documents; (e) amend this 15.8; (f) change the Commitment Percentage of
any Bank, except as permitted under 19 hereof; or (g) except as otherwise
permitted hereunder, release any Collateral.
<PAGE>
15.9. Co-Agents. None of the Banks identified on the cover page of this
Agreement as a "Co-Agent" shall have any right, power, obligation, liability,
responsibility or duty under this Agreement other than those applicable to all
Banks as such. Without limiting the foregoing, none of the Banks so identified
as a "Co-Agent" shall have or be deemed to have any fiduciary relationship with
any Bank. Each Bank acknowledges that it has not relied, and will not rely, on
any of the Banks so identified in deciding to enter into this Agreement or not
taking action hereunder.
16. EXPENSES. Whether or not the transactions contemplated herein shall be
consummated, the Borrowers hereby promise to (a) reimburse Agent as well as the
Agent's affiliates for all reasonable out-of-pocket fees and disbursements
(including all reasonable attorneys' fees, collateral evaluation costs and
Consulting Engineer's fees), incurred or expended in connection with the
preparation, filing or recording, or interpretation of this Agreement, the other
Loan Documents, or any amendment, modification, approval, consent or waiver
hereof or thereof, or with the enforcement of any Obligations or the
satisfaction of any indebtedness of the Borrowers hereunder or thereunder, or in
connection with any litigation, proceeding or dispute hereunder in any way
related to the credit hereunder and (b) reimburse all reasonable out-of-pocket
fees and disbursements (including all reasonable attorneys' fees) incurred by
any Bank in connection with the enforcement of or preservation of rights under
any of the Loan Documents against the Borrowers or the administration thereof
after the occurrence of a Default or Event of Default and (ii) any litigation,
proceeding or dispute hereunder in any way related to the credit hereunder. The
Borrowers will pay any taxes (including any interest and penalties in respect
thereof) other than the Banks' federal and state income taxes, payable on or
with respect to the transactions contemplated by this Agreement (the Borrowers
hereby agreeing to indemnify the Banks with respect thereto).
17. INDEMNIFICATION. The Borrowers agree to indemnify and hold harmless the
Agent and the Banks, as well as the Agent's and the Banks' shareholders,
directors, agents, officers, subsidiaries and affiliates, from and against all
damages, losses, settlement payments, obligations, liabilities, claims, suits,
penalties, assessments, citations, directives, demands, judgments, actions or
causes of action, whether statutory created or under the common law, and
reasonable costs and expenses incurred, suffered, sustained or required to be
paid by an indemnified party by reason of or resulting from the transactions
contemplated hereby, except any of the foregoing which result from the gross
negligence or willful misconduct of the indemnified party. In any investigation,
proceeding or litigation, or the preparation therefor, each Bank shall be
entitled to select its own counsel and, in addition to the foregoing indemnity,
the Borrowers agree to pay promptly the reasonable fees and expenses of such
counsel. In the event of the commencement of any such proceeding or litigation,
the Borrowers shall be entitled to participate in such proceeding or litigation
with counsel of their choice at their expense, provided that such counsel shall
be reasonably satisfactory to the Banks. The covenants of this 17 shall survive
payment or satisfaction of payment of amounts owing with respect to the Notes or
any other Loan Document.
18. SURVIVAL OF COVENANTS, ETC. Unless otherwise stated herein, all
covenants, agreements, representations and warranties made herein, in the other
Loan Documents or in any documents or other papers delivered by or on behalf of
the Borrowers pursuant hereto shall be deemed to have been relied upon by the
Banks and the Agent, notwithstanding any investigation heretofore or hereafter
made by any of them, and shall survive the making by the Banks of the Loans and
the issuance, extension or renewal of any Letters of Credit, as herein
contemplated, and shall continue in full force and effect so long as any amount
due under this Agreement, any Letter of Credit or the Notes remains outstanding
and unpaid or any Bank has any obligation to make any Loans or issue any Letters
of Credit hereunder. All statements contained in any certificate or other paper
delivered by or on behalf of the Borrowers pursuant hereto or in connection with
the transactions contemplated hereby shall constitute representations and
warranties by the Borrowers hereunder.
19. SYNDICATION AND PARTICIPATION. It is understood and agreed that each
Bank shall have the right to assign at any time its portion of the Total
Commitment and interests in the risk relating to any Loans in an amount equal to
or greater than $5,000,000, to additional banks or other financial institutions
acceptable to Agent and Parent (unless an assignment is to a Bank or to an
affiliate of a Bank (so long as such assignment would not result in increased
costs to the Borrowers hereunder), in which case acceptance by the Agent and the
Parent shall not be necessary), which acceptances shall not be unreasonably
withheld, so long as (1) BankBoston will be the Agent hereunder, and that each
bank or other financial institution which executes and delivers to the Banks and
the Borrowers hereunder a counterpart joinder in form and substance satisfactory
to the Banks and such bank or financial institution shall, on the date specified
in such counterpart joinder, become a party to this Agreement and the other Loan
Documents for all purposes of this Agreement and the other Loan Documents, and
its Commitment shall be as set forth in such counterpart joinder. Upon the
execution and delivery of such counterpart joinder, (a) the Borrowers shall
issue to the bank or other financial institution Notes in the amount of such
bank's or other financial institution's Commitment dated the Closing Date or
such other date as may be specified by the Agent and otherwise completed in
substantially the form of the Notes executed and delivered on the Closing Date;
(b) the Agent shall distribute to the Borrowers, the Banks and such bank or
financial institution a schedule reflecting such changes; (c) this Agreement
shall be appropriately amended to reflect (i) the status of such bank or
financial institution as a party hereto and (ii) the status and rights of the
Banks and Agent hereunder; (d) the Borrowers shall take such action as the Agent
may reasonably request to perfect any security interests or mortgages in favor
of the Banks, including any bank or financial institution which becomes a party
to this Agreement; and (e) the assignee bank or financial institution shall pay
a processing and recordation fee of $2,500 to the Agent. Each Bank shall also
have the right to grant participations to one or more banks or other financial
institutions in or to all or any part of any Loans owing to such Bank and the
Note held by such Bank. The documents evidencing any such participation may
provide that, except with the consent of the bank or financial institution that
is a party thereto, such Bank will not consent to (a) the reduction in or
forgiveness of the stated principal of or rate of interest on or Commitment Fee
with respect to the portion of any Loan subject to such participation or
assignment, (b) the extension or postponement of any stated date fixed for
payment of principal or interest or Commitment Fee with respect to the portion
of any Loan subject to such participation or assignment, or (c) the waiver or
reduction of any right to indemnification of such Bank hereunder, or (d) except
as otherwise permitted hereunder, the release of any Collateral; provided that
such participating Bank shall not have more rights then those set forth in this
sentence. Notwithstanding the foregoing, no syndication, assignment or
participation shall operate to increase the Total Commitment hereunder or reduce
the Commitment of any Bank to be an amount less than $5,000,000 or otherwise
alter the substantive terms of this Agreement. Anything contained in this 19 to
the contrary notwithstanding, any Bank may at any time pledge all or any portion
of its interest and rights under this Agreement (including all or any portion of
its Notes) to any of the twelve Federal Reserve Banks organized under 4 of the
Federal Reserve Act, 12 U.S.C. 341. No such pledge or the enforcement thereof
shall release the pledgor Bank from its obligations hereunder or under any of
the other Loan Documents.
<PAGE>
20. PARTIES IN INTEREST. All the terms of this Agreement and the other Loan
Documents shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto and thereto;
provided, that no Borrower shall assign or transfer its rights hereunder without
the prior written consent of the Banks.
21. NOTICES, ETC. Except as otherwise expressly provided in this Agreement,
all notices and other communications made or required to be given pursuant to
this Agreement or the other Loan Documents shall be in writing and shall be
delivered in hand, mailed by United States first- class mail, postage prepaid,
or sent by telegraph, telex or telecopier and confirmed by letter, addressed as
follows:
(a) if to the Borrowers, at 25 Greens Hill Lane, P.O. Box 866,
Rutland, Vermont 05701, Attention: President, telecopy number 802-775-6198;
(b) if to the Agent or BankBoston, at 100 Federal Street, Boston,
Massachusetts 02110, USA, Attention: Arthur J. Oberheim, Vice President,
telecopy number 617-434-2160;
or such other address for notice as shall have last been furnished in writing to
the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or made
and to have become effective (a) if delivered by hand to a responsible officer
of the party to which it is directed, at the time of the receipt thereof by such
officer, (b) if sent by registered or certified first-class mail, postage
prepaid, five Business Days after the posting thereof, and (c) if sent by telex
or cable, at the time of the dispatch thereof, if in normal business hours in
the country of receipt, or otherwise at the opening of business on the following
Business Day.
22. MISCELLANEOUS. The rights and remedies herein expressed are cumulative
and not exclusive of any other rights which the Banks or Agent would otherwise
have. The captions in this Agreement are for convenience of reference only and
shall not define or limit the provisions hereof. This Agreement and any
amendment hereof may be executed in several counterparts and by each party on a
separate counterpart, each of which when so executed and delivered shall be an
original, but all of which together shall constitute one instrument. In proving
this Agreement it shall not be necessary to produce or account for more than one
such counterpart signed by the party against whom enforcement is sought.
23. ENTIRE AGREEMENT, ETC. The Loan Documents and any other documents
executed in connection herewith or therewith express the entire understanding of
the parties with respect to the transactions contemplated hereby. Neither this
Agreement nor any term hereof may be changed, waived, discharged or terminated,
except as provided in 15.8. No waiver shall extend to or affect any obligation
not expressly waived or impair any right consequent thereon. No course of
dealing or omission on the part of the Agent or any Bank in exercising any right
shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice
to or demand upon the Borrowers shall entitle the Borrowers to other or further
notice or demand in similar or other circumstances.
24. WAIVER OF JURY TRIAL. EACH OF THE BORROWERS HEREBY WAIVES ITS RIGHT TO
A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS,
ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH
RIGHTS AND OBLIGATIONS. EXCEPT AS PROHIBITED BY LAW, EACH BORROWER HEREBY WAIVES
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE
PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR
ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE BORROWERS (a)
CERTIFY THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OR ANY BANK OF THE AGENT HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH BANK OR THE AGENT WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (b)
ACKNOWLEDGE THAT THE AGENT AND THE BANKS HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH IT IS A PARTY BECAUSE OF, AMONG
OTHER THINGS, THE BORROWERS' WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.
<PAGE>
25. GOVERNING LAW. THIS AGREEMENT AND, EXCEPT AS OTHERWISE SPECIFICALLY
PROVIDED THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS
OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH (EXCLUDING THE
LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWERS CONSENT TO THE
JURISDICTION OF ANY OF THE FEDERAL OR STATE COURTS LOCATED IN THE COMMONWEALTH
OF MASSACHUSETTS IN CONNECTION WITH ANY SUIT TO ENFORCE THE RIGHTS OF ANY BANK
OR THE AGENT UNDER THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
26. SEVERABILITY. The provisions of this Agreement are severable and if any
one clause or provision hereof shall be held invalid or unenforceable in whole
or in part in any jurisdiction, then such invalidity or unenforceability shall
affect only such clause or provision, or part thereof, in such jurisdiction, and
shall not in any manner affect such clause or provision in any other
jurisdiction, or any other clause or provision of this Agreement in any
jurisdiction.
27. TRANSITIONAL ARRANGEMENTS.
27.1. August, 1997 Credit Agreement Superseded. This Agreement shall
restate and supersede and replace the August, 1997 Credit Agreement in its
entirety, except as provided in this 27. On the Closing Date, the rights and
obligations of the parties under the August, 1997 Credit Agreement and the
"Notes" as defined therein shall be subsumed within and be governed by this
Agreement and the Notes issued hereunder. All "Revolving Credit Loans", "Term
Loans" or "Letters of Credit" (as defined in the August, 1997 Credit Agreement)
outstanding under the August, 1997 Credit Agreement on the Closing Date shall
become Revolving Credit Loans or Letters of Credit hereunder. The Banks'
interest in such Loans and participation in such Letters of Credit will be
reallocated on the Closing Date in accordance with each Banks' applicable
Commitment Percentage.
27.2. Interest and Fees Under Prior Credit Agreement. All interest and all
commitment, facility and other fees and expenses owing or accruing under or in
respect of the August, 1997 Credit Agreement shall be calculated as of the
Closing Date (prorated in the case of any fractional periods), and shall be paid
on the Closing Date in accordance with the terms of the August, 1997 Credit
Agreement.
28. PARI PASSU TREATMENT. Notwithstanding anything to the contrary set
forth herein, each payment or prepayment of principal and interest received
after the occurrence of an Event of Default hereunder shall be distributed pari
passu among the Banks, in accordance with the aggregate outstanding principal
amount of the Obligations owing to each Bank divided by the aggregate
outstanding principal amount of all Obligations.
BOS-BUSN:552657.1
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Amended and
Restated Revolving Credit Agreement under seal as of the date first set forth
above.
BANKBOSTON, N.A., individually
and as Agent
By:
Name:
Title:
KEYBANK NATIONAL ASSOCIATION,
individually and as Co-Agent
By:
Name:
Title:
USTRUST
By:
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION individually and
as Co-Agent
By:
Name:
Title:
COMERICA BANK
By:
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
BOS-BUSN:552657.1
<PAGE>
CASELLA WASTE SYSTEMS, INC.
NEW ENGLAND WASTE SERVICES
OF VERMONT, INC.
NEWBURY WASTE MANAGEMENT, INC.
NEW ENGLAND WASTE SERVICES OF N.Y.,
INC.
CASELLA WASTE MANAGEMENT OF N.Y., INC.
CASELLA WASTE MANAGEMENT OF
PENNSYLVANIA, INC.
By:
Name: John W. Casella
Title: President of each of the
companies listed above
[SIGNATURES CONTINUED ON NEXT PAGE]
BOS-BUSN:552657.1
<PAGE>
CASELLA WASTE MANAGEMENT, INC.
NEW ENGLAND WASTE SERVICES, INC.
BRISTOL WASTE MANAGEMENT, INC.
SUNDERLAND WASTE MANAGEMENT, INC.
NORTH COUNTRY ENVIRONMENTAL SERVICES,
INC.
SAWYER ENVIRONMENTAL RECOVERY
FACILITIES, INC.
SAWYER ENVIRONMENTAL SERVICES
CASELLA T.I.R.E.S., INC.
HIRAM HOLLOW REGENERATION CORP.
By:
Name: John W. Casella
Title: Vice President/Secretary of
each of the companies listed
above
ALL CYCLE WASTE, INC.
WINTERS BROTHERS, INC.
By:
Name: John W. Casella
Title: of each of the companies listed
above
BOS-BUSN:552657.1
<PAGE>
EXHIBIT A
[AMENDED AND RESTATED]
REVOLVING CREDIT NOTE
$_____________
January 12, 1998
FOR VALUE RECEIVED, the undersigned CASELLA WASTE SYSTEMS, INC., a Delaware
corporation, CASELLA WASTE MANAGEMENT, INC., a Vermont corporation, NEW ENGLAND
WASTE SERVICES, INC., a Vermont corporation, NEW ENGLAND WASTE SERVICES OF
VERMONT, INC., a Vermont corporation, BRISTOL WASTE MANAGEMENT, INC., a Vermont
corporation, SUNDERLAND WASTE MANAGEMENT, INC., a Vermont corporation, NEWBURY
WASTE MANAGEMENT, INC., a Vermont corporation, NORTH COUNTRY ENVIRONMENTAL
SERVICES, INC., a Virginia corporation, SAWYER ENVIRONMENTAL RECOVERY
FACILITIES, INC., a Maine corporation, SAWYER ENVIRONMENTAL SERVICES, a Maine
corporation, CASELLA T.I.R.E.S., INC., a Maine corporation, NEW ENGLAND WASTE
SERVICES OF N.Y., INC., a New York corporation, CASELLA WASTE MANAGEMENT OF
N.Y., INC., a New York corporation, CASELLA WASTE MANAGEMENT OF PENNSYLVANIA,
INC., a Pennsylvania corporation, Hiram Hollow Regeneration Corp., a New York
corporation, ALL CYCLE WASTE, INC., a Vermont corporation, and WINTERS BROTHERS,
INC., a Vermont corporation, (collectively, the "Borrowers"), hereby jointly and
severally promise to pay to the order of [INSERT NAME OF PAYEE BANK HERE], a
[Insert entity] (the "Bank") at the Agent's head office at 100 Federal Street,
Boston, Massachusetts 02110:
(a) on the Revolving Credit Maturity Date the principal amount of
__________________________ Dollars ($___________) or, if less, the
aggregate unpaid principal amount of Revolving Credit Loans advanced by the
Bank to the Borrowers pursuant to the Amended and Restated Revolving Credit
Agreement dated as of January 12, 1998 (as amended and in effect from time
to time, the "Credit Agreement"), among the Borrowers, the Bank, the other
Banks which are or may become parties thereto, and BankBoston, N.A., as
agent (in such capacity, the "Agent") for the Banks; and
(b) interest on the principal balance hereof from time to time
outstanding from the Closing Date through and including the date on which
such principal amount is paid in full, at the times and at the rates
provided in the Credit Agreement.
[This Note is one of the Notes that replaces the six (6) Revolving Credit
Notes, the six (6) Series A Term Notes and the three (3) Series B Term Notes,
all dated as of August 7, 1997 (collectively, the "August, 1997 Notes"), from
the Borrowers to certain of the Banks, and is issued in partial substitution
for, and not in payment of, such August, 1997 Notes.] This Note evidences
borrowings under and has been issued by the Borrowers in accordance with the
terms of the Credit Agreement. The Bank and any holder hereof is entitled to the
benefits of the Credit Agreement, the Security Documents and the other Loan
Documents, and may enforce the agreements of the Borrowers contained therein,
and any holder hereof may exercise the respective remedies provided for thereby
or otherwise available in respect thereof, all in accordance with the respective
terms thereof. All capitalized terms used in this Note and not otherwise defined
herein shall have the same meanings herein as in the Credit Agreement.
Each of the Borrowers irrevocably authorizes the Bank to make or cause to
be made, at or about the time of the Drawdown Date of any Revolving Credit Loan
or at the time of receipt of any payment of principal of this Note, an
appropriate notation on the grid attached to this Note, or the continuation of
such grid, or any other similar record, including computer records, reflecting
the making of such Revolving Credit Loan or (as the case may be) the receipt of
such payment. The outstanding amount of the Revolving Credit Loans set forth on
the grid attached to this Note, or the continuation of such grid, or any other
similar record, including computer records, maintained by the Bank with respect
to any Revolving Credit Loans shall be prima facie evidence of the principal
amount thereof owing and unpaid to the Bank, but the failure to record, or any
error in so recording, any such amount on any such grid, continuation or other
record shall not limit or otherwise affect the obligation of the Borrower
hereunder or under the Credit Agreement to make payments of principal of and
interest on this Note when due.
The Borrowers have the right in certain circumstances and the obligation
under certain other circumstances to prepay the whole or part of the principal
of this Note on the terms and conditions specified in the Credit Agreement.
If any one or more of the Events of Default shall occur, the entire unpaid
principal amount of this Note and all of the unpaid interest accrued thereon may
become or be declared due and payable in the manner and with the effect provided
in the Credit Agreement.
No delay or omission on the part of the Bank or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other rights of the Bank or such holder, nor shall any delay, omission or waiver
on any one occasion be deemed a bar or waiver of the same or any other right on
any further occasion.
Each of the Borrowers and every endorser and guarantor of this Note or the
obligation represented hereby waives presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note, and assents to any extension
or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable.
THIS NOTE AND THE OBLIGATIONS OF THE BORROWERS HEREUNDER SHALL FOR ALL
PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR
CHOICE OF LAW). EACH OF THE BORROWERS AGREES THAT ANY SUIT FOR THE ENFORCEMENT
OF THIS NOTE MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS
OR ANY FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE NONEXCLUSIVE
JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING
MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN 21 OF THE CREDIT
AGREEMENT. EACH OF THE BORROWERS HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT
IS BROUGHT IN AN INCONVENIENT COURT.
This Note shall be deemed to take effect as a sealed instrument under the
laws of the Commonwealth of Massachusetts.
[remainder of this page intentionally left blank]
BOS-BUSN:552657.1
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this [Amended and
Restated] Revolving Credit Note to be signed in its corporate name and its
corporate seal to be impressed thereon by its duly authorized officer as of
the day and year first above written.
[Corporate Seal]
CASELLA WASTE SYSTEMS, INC.
NEW ENGLAND WASTE SERVICES OF VERMONT,
INC.
NEWBURY WASTE MANAGEMENT, INC.
NEW ENGLAND WASTE SERVICES OF N.Y.,
INC.
CASELLA WASTE MANAGEMENT OF N.Y., INC.
CASELLA WASTE MANAGEMENT OF
PENNSYLVANIA, INC.
By:
Name: John W. Casella
Title: President of each of the
companies listed above
[SIGNATURES CONTINUED ON NEXT PAGE]
BOS-BUSN:552657.1
<PAGE>
CASELLA WASTE MANAGEMENT, INC.
NEW ENGLAND WASTE SERVICES, INC.
BRISTOL WASTE MANAGEMENT, INC.
SUNDERLAND WASTE MANAGEMENT, INC.
NORTH COUNTRY ENVIRONMENTAL SERVICES,
INC.
SAWYER ENVIRONMENTAL RECOVERY
FACILITIES, INC.
SAWYER ENVIRONMENTAL SERVICES
CASELLA T.I.R.E.S., INC.
HIRAM HOLLOW REGENERATION CORP.
By:
Name: John W. Casella
Title: Vice President/Secretary
of each of the companies
listed above
ALL CYCLE WASTE, INC.
WINTERS BROTHERS, INC.
By:
Name: John W. Casella
Title: of each of the
companies listed above
BOS-BUS:470101
<PAGE>
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BOS-BUS:470101
<PAGE>
EXHIBIT B
FORM OF LOAN AND LETTER OF CREDIT REQUEST
CASELLA WASTE SYSTEMS, INC. (the "Parent")
and
the Subsidiaries of the Parent listed on Schedule 1 to the Amended and
Restated
Revolving Credit Agreement (the "Credit Agreement")
dated as of January 12, 1998
Revolving Credit Loan Request under Section 2.6(a)
Amount of this Loan Request $
Outstanding Revolving Credit Loans $
Outstanding Letters of Credit $
Total of All Outstanding Revolving Credit Loans $
Requested Revolving Credit Loans,
Outstanding Letters of Credit and
Requested Letters of Credit
Funding Date
Interest Period (if a Eurodollar Rate Loan)
Letter of Credit Request
Under Section 3.1
Outstanding Letters of Credit
Amount of this Request (from
attached Letter of Credit
Application)
Total (must be less than $25,000,000)
I certify that the above is true and correct, and that all of the conditions set
forth in 11 of the Credit Agreement have been satisfied as of the date hereof.
By:
Date: _____________
BOS-BUS:470101
<PAGE>
EXHIBIT D
FORM OF COMPLIANCE CERTIFICATE
CASELLA WASTE SYSTEMS, INC.
Compliance Certificate dated ______________________
I, ____________________________, Chief Financial Officer of Casella Waste
Systems, Inc., certify that the Borrowers are in compliance with 7, 8 and 9 of
the Amended and Restated Revolving Credit Agreement dated as of January 12,
1998, as the same may be amended, [as of the end of the quarter dated
___________] [giving effect to the acquisition of _________________________].
Computations to evidence such compliance are detailed below.
Chief Financial Officer
8.3(h) Other Investments
The following is a description of all other Investments by the Borrowers
pursuant to 8.3(h) of the Credit Agreement:
<TABLE>
<CAPTION>
Description Amount
<S> <C>
TOTAL $
Maximum Allowed $500,000
8.8 Capital Expenditures
Total Capital Expenditures for period of $ (a)
four (4) consecutive fiscal quarters
then ended
Sum of depreciation and landfill
amortization expense for such period $ (b)
(a) shall not exceed 2 times (b) at any time
9.1 Interest Coverage Ratio
For the period of four (4) consecutive
fiscal quarters then ended:
Consolidated Net Income or Deficit$
Plus:Interest Expense $
Income Taxes $
Amortization Expense$
Depreciation Expense$
EBITDA $ (a)
Consolidated Total Interest Expense $ (b)
Ratio of (a) to (b)
Minimum Required 3.5:1
9.2 Profitable Operations
Consolidated Net Income for the
quarter ending on the statement date $
Requirement: Consolidated Net Income shall be greater
than or equal to $0 in any quarter.
9.3 Funded Debt-to-EBITDA Ratio
Indebtedness for borrowed money and
capitalized leases ("Consolidated Funded
Indebtedness") $ (a)
Consolidated Net Income* $
Plus: Interest Expense* $
Income Taxes* $
Amortization Expense*$
Depreciation Expense*$
BOS-BUS:470101
<PAGE>
EBITDA (annualized, if necessary*) $ (b)
Ratio of (a) to (b) $
Maximum Allowed 3.75:1 (Closing - 4/30/99)
3.50:1 (thereafter)
</TABLE>
* EBITDA calculations shall be based on the period of four (4) consecutive
fiscal quarters then ended; provided that for purposes of calculating the
Consolidated Funded Indebtedness to EBITDA ratio (a) for (i) the fiscal quarter
ending July 31, 1997, EBITDA shall be deemed equal to four (4) times EBITDA for
the three month period then ended, (ii) the fiscal quarter ending October 31,
1997, EBITDA shall be deemed equal to two (2) times EBITDA for the six month
period then ended and (iii) the fiscal quarter ending January 31, 1998, EBITDA
shall be deemed equal to one and one-third (1-1/3) times EBITDA for the nine
month period then ended and (b) the financial results of any businesses acquired
after May 1, 1997 by the Borrowers during such fiscal period shall be included
in the calculation of EBITDA so long as (i) the acquired business had annual
revenue of at least $5,000,000 for the most recent fiscal year, (ii) the Agent
is satisfied that the financial information for the acquired business fairly
presents the financial condition of such business and (iii) the Agent receives a
letter in form and substance satisfactory to the Banks from the Borrowers'
Accountants as to adjustments for non-recurring expenses.
9.4 Funded Debt to Capitalization
For the fiscal quarter then ended:
Consolidated Funded Indebtedness $ (a)
(See (a) of 9.3 above)
The sum of:
Consolidated Funded Indebtedness$
Plus:shareholder's equity $
in the Parent
Total $ (b)
Ratio of (a) to (b)
Maximum Allowed 0.60:1.00
BOS-BUS:470101
<PAGE>
1.1 "Pricing Ratio"
Indebtedness for borrowed money and $ (a)
capitalized leases
EBITDA for such period (See (a) of 9.1 above) $ (b)
Ratio of (a) to (b)
Capitalized Interest Expense
For quarter ended _______ $
Year to date $
Cash Taxes Paid by the Borrowers
For quarter ended _______ $
Year to date $
BOS-BUS:470101
<PAGE>
EXHIBIT E
FORM OF ENVIRONMENTAL COMPLIANCE CERTIFICATE
I, ________________________, the Chief Operating Officer of Casella Waste
Systems, Inc., Casella Waste Management, Inc., New England Waste Services, Inc.,
New England Waste Services of Vermont, Inc., Bristol Waste Management, Inc.,
Sunderland Waste Management, Inc., Newbury Waste Management, Inc., North Country
Environmental Services, Inc., Sawyer Environmental Recovery Facilities, Inc.,
Sawyer Environmental Services, Casella T.I.R.E.S., Inc., New England Waste
Services of N.Y., Inc., Casella Waste Management of N.Y., Inc., Casella Waste
Management of Pennsylvania, Inc., Hiram Hollow Regeneration Corp., All Cycle
Waste, Inc. and Winters Brothers, Inc. (collectively, the "Borrowers"), hereby
certify that, as of the date hereof:
a. Each of the Borrowers is in material compliance with all Environmental
Laws (as defined in the Amended and Restated Revolving Credit Agreement (as
amended and in effect from time to time, the "Credit Agreement") dated as of
January 12, 1998 among the Borrowers, BankBoston, N.A. ("BankBoston") and the
other Banks which are or may become parties thereto and BankBoston, as Agent for
the Banks);
b. Each of the Borrowers possesses all material permits necessary for the
operation of its business, such permits are in full force and effect, and the
Borrowers have no knowledge of any circumstances which might lead to the
revocation, suspension, or other loss of any such permit; and
c. The representations and warranties contained in 6.16 of the Credit
Agreement are true and correct.
Name:
Title:Chief Operating Officer
_______________________
Date
BOS-BUS:470101
<PAGE>
EXHIBIT F
FORM OF
SUBORDINATION AGREEMENT
SUBORDINATION AGREEMENT (the "Agreement") dated as of _________________, ____,
between BANKBOSTON, N.A., as Agent for BankBoston, N.A., US Trust, KeyBank
National Association, Bank of America National Trust and Savings Association,
Comerica Bank and the other Banks that become party to the Credit Agreement
defined below (collectively, the "Banks"); _______________ (the "Subordinating
Creditor"), and [_______________, a _______________ corporation] with a
principal place of business in Rutland, Vermont (the "Borrower"). WHEREAS, the
Banks have, pursuant to an Amended and Restated Revolving Credit Agreement dated
as of January 12, 1998 (as amended, modified, supplemented, restated, amended
and restated and in effect from time to time, including any replacement
agreement therefor, the "Credit Agreement") agreed, upon the terms and subject
to the conditions contained therein, to make loans and otherwise to extend
credit to the Borrower and Casella Waste Systems, Inc. (the "Parent"), New
England Waste Services, Inc., New England Waste Services of Vermont, Inc., New
England Waste Services of N.Y., Inc., Bristol Waste Management, Inc., Sunderland
Waste Management, Inc., Newbury Waste Management, Inc., North Country
Environmental Services, Inc., Sawyer Environmental Services, Sawyer
Environmental Recovery Facilities, Inc., Hiram Hollow Regeneration Corp.,
Casella T.I.R.E.S., Inc., Casella Waste Management of N.Y., Inc., Casella Waste
Management of Pennsylvania, Inc., All Cycle Waste, Inc., Winters Brothers, Inc.
and other Subsidiaries of the Parent that may become parties to the Credit
Agreement (collectively, the "Bank Borrowers"); and
WHEREAS, the Subordinating Creditor has agreed to extend credit to the Borrower
pursuant to a Promissory Note dated as of __________, ____ in effect from time
to time, (the "Subordinated Agreement"), between the Subordinating Creditor and
the Borrower; and
WHEREAS, it is a condition precedent to the Banks willingness to make loans and
otherwise to extend credit to the Bank Borrowers pursuant to the Credit
Agreement that the Borrower and the Subordinating Creditor enter into this
Agreement with the Agent;
WHEREAS, in order to induce the Banks to make loans and otherwise extend credit
to the Bank Borrowers pursuant to the Credit Agreement, the Borrower and the
Subordinating Creditor have agreed to enter into this Agreement with the Agent;
NOW, THEREFORE, in consideration of the foregoing, the mutual agreements herein
contained and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Definitions. Terms not otherwise defined herein have the same respective
meanings given to them in the Credit Agreement. In addition, the following terms
shall have the following meanings:
Senior Debt. All principal, interest, fees, costs, enforcement expenses
(including legal fees and disbursements), collateral protection expenses and
other reimbursement or indemnity obligations created or evidenced by the Credit
Agreement or any of the other Loan Documents or any prior concurrent, or
subsequent notes, instruments or agreements of indebtedness, liabilities or
obligations of any type or form whatsoever relating thereto in favor of the
Agent of any of the Banks. Senior Debt shall expressly include (a) any and all
interest accruing or out of pocket costs or expenses incurred after the date of
any filing by or against the Bank Borrowers or any petition under the federal
Bankruptcy Code or any other bankruptcy, insolvency or reorganization act
regardless of whether the Agent's or any Bank's claim therefor is allowed or
allowable in the case or proceeding relating thereto, and (b) any credit
facilities extended to the Bank Borrowers to refinance or refund any of the
Senior Debt.
<PAGE>
Subordinated Debt. All principal, interest, fees, costs, enforcement
expenses (including legal fees and disbursements), collateral protection
expenses and other reimbursement and indemnity obligations created or evidenced
by the Subordinated Agreement or any prior, concurrent or subsequent notes,
instruments or agreements of indebtedness, liabilities or obligations of any
type or form whatsoever relating thereto in favor of the Subordinating Creditor.
Subordinated Documents. Collectively, the Subordinated Agreement, any
promissory notes executed in connection therewith and any and all guarantees and
security interests, mortgages and other liens directly or indirectly guarantying
or securing any of the Subordinated Debt, and any and all other documents or
instruments evidencing or further guarantying or securing directly or indirectly
any of the Subordinated Debt, whether now existing or hereafter created.
2. General. The Subordinated Debt and any and all Subordinated Documents
shall be and hereby are subordinated and the payment thereof is deferred until
the full and final payment in cash of the Senior Debt, whether now or hereafter
incurred or owed by the Bank Borrowers. Notwithstanding the immediately
preceding sentence, the Borrower shall be permitted to pay, and the
Subordinating Creditor shall be permitted to receive, any regularly scheduled
payment of interest or principal on the Subordinated Debt so long as at the time
of such payment, or after giving effect thereto, no Default or Event of Default
has occurred and is continuing under the Credit Agreement or would occur after
giving effect thereto.
3. Enforcement. The Subordinating Creditor will not take or omit to take
any action or assert any claim with respect to the Subordinated Debt or
otherwise which is inconsistent with the provisions of this Agreement. Without
limiting the foregoing, the Subordinated Creditor will not assert, collect or
enforce the Subordinated Debt or any part thereof or take any action to
foreclose or realize upon the Subordinated Debt or any part thereof or enforce
any of the Subordinated Documents except (a) in each such case as necessary, so
long as no Default or Event of Default has occurred and is then continuing under
the Credit Agreement or would occur after giving effect thereto, to collect any
sums expressly permitted to be paid by the Borrower pursuant to 2 hereof, or (b)
to the extent (but only to such extent) that the commencement of a legal action
may be required to toll the running of any applicable statute of limitation.
Until the Senior Debt has been finally paid in full in cash, the Subordinating
Creditor shall not have any right of subrogation, reimbursement, restitution,
contribution or indemnity whatsoever from any assets of the Borrower, any other
Bank Borrower or any guarantor of or provider of collateral security for the
Senior Debt. The Subordinating Creditor further waives any and all rights with
respect to marshalling.
4. Payments Held in Trust. The Subordinating Creditor will hold in trust
and immediately pay over to the Agent for the account of the Banks, in the same
form of payment received, with appropriate endorsements, for application to the
Senior Debt any cash amount that the Borrower or any other Bank Borrower pays to
the Subordinating Creditor with respect to the Subordinated Debt, or as
collateral for the Senior Debt any other assets of the Borrower or any other
Bank Borrower that the Subordinating Creditor may receive with respect to the
Subordinated Debt in each case except with respect to payments expressly
permitted pursuant to 2 hereof.
5. Defense to Enforcement. If the Subordinating Creditor, in contravention
of the terms of this Agreement, shall commence, prosecute or participate in any
suit, action or proceeding against the Borrower, then the Borrower may interpose
as a defense or plea the making of this Agreement, and the Agent or any Bank may
intervene and interpose such defense or plea in its name or in the name of the
Borrower. If the Subordinating Creditor, in contravention of the terms of this
Agreement, shall attempt to collect any of the Subordinated Debt or enforce any
of the Subordinated Documents, then the Agent, any Bank or the Borrower may, by
virtue of this Agreement, restrain the enforcement thereof in its name or in the
name of the Borrower. If the Subordinating Creditor, in contravention of the
terms of this Agreement, obtains any cash or other assets of the Borrower or any
other Bank Borrower as a result of any administrative, legal or equitable
actions, or otherwise, the Subordinating Creditor agrees forthwith to pay,
deliver and assign to the Agent, for the account of the Banks, with appropriate
endorsements, any such cash for application to the Senior Debt and any such
other assets as collateral for the Senior Debt.
<PAGE>
6. Bankruptcy, etc.
6.1 Payments Relating to Subordinated Debt. At any meeting of creditors
of the Borrower or in the event of any case or proceeding, voluntary or
involuntary, for the distribution, division or application of all or part of the
assets of the Borrower or the proceeds thereof, whether such case or proceeding
be for the liquidation, dissolution or winding up of the Borrower or its
business, a receivership, insolvency or bankruptcy case or proceeding, an
assignment for the benefit of creditors or a proceeding by or against the
Borrower for relief under the federal Bankruptcy Code or any other bankruptcy,
reorganization or insolvency law or any other law relating to the relief of
debtors, readjustment of indebtedness, reorganization, arrangement, composition
or extension or marshalling of assets or otherwise, the Agent is hereby
irrevocably authorized at any such meeting or in any such proceeding to receive
or collect for the benefit of the Banks any cash or other assets of the Borrower
distributed, divided or applied by way of dividend or payment, or any securities
issued on account of any Subordinated Debt, and apply such cash to or to hold
such other assets or securities as collateral for the Senior Debt, and to apply
to the Senior Debt any cash proceeds of any realization upon such other assets
or securities that the Agent in its discretion elects to effect, until all of
the Senior Debt shall have been paid in full in cash, rendering to the
Subordinating Creditor any surplus to which the Subordinating Creditor is then
entitled.
6.2 Securities by the Plan of Reorganization or Readjustment.
Notwithstanding the foregoing provisions of 6.1, the Subordinating Creditor
shall be entitled to receive and retain any securities of the Borrower or any
other corporation or other entity provided for by a plan of reorganization or
readjustment (i) the payment of which securities is subordinate, at least to the
extent provided in this Agreement with respect to the Subordinated Debt, to the
payment of all Senior Debt under any such plan of reorganization or readjustment
and (ii) all other terms of which are acceptable to the Banks and the Agent.
6.3 Subordinated Debt Voting Rights. At any such meeting of creditors or
in the event of any such case or proceeding, the Subordinating Creditor shall
retain the right to vote and otherwise act with respect to the Subordinated Debt
(including, without limitation, the right to vote to accept or reject any plan
of partial or complete liquidation, reorganization, arrangement, composition or
extension), provided that the Subordinating Creditor shall not vote with respect
to any such plan or take any other action in any way so as to contest (i) the
validity of any Senior Debt or any collateral therefor or guaranties thereof,
(ii) the relative rights and duties of any holders of any Senior Debt
established in any instruments or agreements creating or evidencing any of the
Senior Debt with respect to any of such collateral or guaranties or (iii) the
Subordinating Creditor's obligations and agreements set forth in this Agreement.
7. Lien Subordination. The Senior Debt, the Credit Agreement and the other
Loan Documents and any and all other documents and instruments evidencing or
creating the Senior Debt and all guaranties, mortgages, security agreements,
pledges and other collateral guarantying or securing the Senior Debt or any part
thereof shall be senior to the Subordinated Debt and all of the Subordinated
Documents irrespective of the time of the execution, delivery or issuance of any
thereof or the filing or recording for perfection of any thereof or the filing
of any financing statement or continuation statement relating to any thereof.
7.1 Further Assurances. The Subordinating Creditor hereby agrees, upon
request of the Agent at any time and from time to time, to execute such other
documents or instruments as may be requested by the Agent further to evidence of
public record or otherwise the senior priority of the Senior Debt as
contemplated hereby.
7.2 Books and Records. The Subordinating Creditor further agrees to
maintain on its books and records such notations as the Agent may reasonably
request to reflect the subordination contemplated hereby and to perfect or
preserve the rights of the Agent hereunder. A copy of this Agreement may be
filed as a financing statement in any Uniform Commercial Code recording office.
<PAGE>
7.3 Release of Guaranties and Collateral. Without limiting any of the
rights of the Agent or any Bank under the Credit Agreement, the other Loan
Documents or applicable law, in the event that the Agent releases or discharges
any guaranties of the Senior Debt given by guarantors which have also guaranteed
the Subordinated Debt or any security interests in, or mortgages or liens upon,
any collateral securing the Senior Debt and also securing the Subordinated Debt,
such guarantors or (as the case may be) such collateral shall thereupon be
deemed to have been released from all such guaranties or security interests,
mortgages or liens in favor of the Subordinating Creditor provided that any net
cash proceeds received by the Borrower or such guarantor in connection with any
sale or other disposition of assets in which such release or discharge is
granted are applied, or are held for application, to the Senior Debt. The
Subordinating Creditor agrees that, within ten (10) days following the Agent's
written request therefor, the Subordinating Creditor will execute, deliver and
file any and all such termination statements, mortgage discharges, lien releases
and other agreements and instruments as the Agent reasonably deems necessary or
appropriate in order to give effect to the preceding sentence. The Subordinating
Creditor hereby irrevocably appoints the Agent, and its successors and assigns,
and their respective officers, with full power of substitution, the true and
lawful attorney(s) of the Subordinating Creditor for the purpose of effecting
any such executions, deliveries and filings if and to the extent that the
Subordinating Creditor shall have failed to perform such obligations pursuant to
the foregoing provisions of this 7.3 within such ten (10) day period.
8. Banks' Freedom of Dealing. The Subordinating Creditor agrees, with
respect to the Senior Debt and any and all collateral therefor or guaranties
thereof, that the Bank Borrowers and the Banks may agree to increase the amount
of the Senior Debt or otherwise modify the terms of any of the Senior Debt, and
the Banks may grant extensions of the time of payment or performance to and make
compromises, including releases of collateral or guaranties, and settlements
with the Bank Borrowers and all other persons, in each case without the consent
of the Subordinating Creditor or the Borrower and without affecting the
agreements of the Subordinating Creditor or the Borrower contained in this
Agreement; provided, however, that nothing contained in this 8 shall constitute
a waiver of the right of the Borrower itself to agree or consent to a settlement
or compromise of a claim which the Agent or any Bank may have against the
Borrower.
9. Modification or Sale of the Subordinated Debt. The Subordinating
Creditor will not, at any time while this Agreement is in effect, modify any of
the terms of any of the Subordinated Debt or any of the Subordinated Documents;
nor will the Subordinating Creditor sell, transfer, pledge, assign, hypothecate
or otherwise dispose of any or all of the Subordinated Debt to any person other
than a person who agrees in a writing, satisfactory in form and substance to the
Agent, to become a party hereto and to succeed to the rights and to bound by all
of the obligations of the Subordinating Creditor hereunder. In the case of any
such disposition by the Subordinating Creditor, the Subordinating Creditor will
notify the Agent at least 10 days prior to the date of any of such intended
disposition.
10. Borrower's Obligations Absolute. Nothing contained in this Agreement
shall impair, as between the Borrower and the Subordinating Creditor, the
obligation of the Borrower to pay to the Subordinating Creditor all amounts
payable in respect of the Subordinated Debt as and when the same shall become
due and payable in accordance with the terms thereof, or prevent the
Subordinating Creditor (except as expressly otherwise provided in 3 or 6) from
exercising all rights, powers and remedies otherwise permitted by Subordinated
Documents and by applicable law upon a default in the payment of the
Subordinated Debt or under any Subordinated Document, all, however, subject to
the rights of the Agent and the Banks as set forth in this Agreement.
<PAGE>
11. Termination of Subordination. This Agreement shall continue in full
force and effect, and the obligations and agreements of the Subordinating
Creditor and the Borrower hereunder shall continue to be fully operative, until
all of the Senior Debt shall have been paid and satisfied in full in cash and
such full payment and satisfaction shall be final and not avoidable. To the
extent that the Bank Borrowers or any guarantor of or provider of collateral for
the Senior Debt makes any payment on the Senior Debt that is subsequently
invalidated, declared to be fraudulent or preferential or set aside or is
required to be repaid to a trustee, receiver or any other party under any
bankruptcy, insolvency or reorganization act, state or federal law, common law
or equitable cause (such payment being hereinafter referred to as a "Voided
Payment"), then to the extent of such Voided Payment, that portion of the Senior
Debt that had been previously satisfied by such Voided Payment shall be revived
and continue in full force and effect as if such Voided Payment had never been
made. In the event that a Voided Payment is recovered from any Bank, an Event of
Default shall be deemed to have existed and to be continuing under the Credit
Agreement from the date of such Bank's initial receipt of such Voided Payment
until the full amount of such Voided Payment is restored to such Bank. During
any continuance of any such Event of Default, this Agreement shall be in full
force and effect with respect to the Subordinated Debt. To the extent that the
Subordinating Creditor has received any payments with respect to the
Subordinated Debt subsequent to the date of any Bank's initial receipt of such
Voided Payment and such payments have not been invalidated, declared to be
fraudulent or preferential or set aside or are required to be repaid to a
trustee, receiver, or any other party under any bankruptcy act, state or federal
law, common law or equitable cause, the Subordinating Creditor shall be
obligated and hereby agrees that any such payment so made or received shall be
deemed to have been received in trust for the benefit of such Bank, and the
Subordinating Creditor hereby agrees to pay to such Bank, upon demand, the full
amount so received by the Subordinating Creditor during such period of time to
the extent necessary fully to restore to such Bank the amount of such Voided
Payment. Upon the payment and satisfaction in full in cash of all of the Senior
Debt, which payment shall be final and not avoidable, this Agreement will
automatically terminate without any additional action by any party hereto.
12. Notices. All notices and other communications which are required and
may be given pursuant to the terms of this Agreement shall be in writing and
shall be sufficient and effective in all respects if given in writing or
telecopied, delivered or mailed by registered or certified mail, postage
prepaid, as follows
If to the Agent BankBoston, N.A.
100 Federal Street
Boston, MA 02110
Attn: Arthur J. Oberheim,
Vice President
FAX: (617) 434-2160
If to the Subordinating Creditor:
Attn:
FAX: ( )
If to Borrower:[ ]
25 Greens Hill Lane
Rutland, VT 05701
FAX: (802) 775-6198
or such other address or addresses as any party hereto shall have designated by
written notice to the other parties hereto. Notices shall be deemed given and
effective upon the earlier to occur of (i) the third day following deposit
thereof in the U.S. mail or (ii) receipt by the party to whom such notice is
directed.
<PAGE>
13. Governing Law. This agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts and shall be
sealed instrument under such laws.
14. Waiver of Jury Trial. Each of the Subordinating Creditor and the
Borrower each hereby waives its right to a jury trial with respect to any action
or claim arising out of any dispute in connection with this Agreement, any
rights or obligations hereunder or the performance of such rights and
obligations hereunder or the performance of such rights and obligations. Except
as prohibited by law, each of the Subordinating Creditor and the Borrower hereby
waives any right which it may have to claim or recover in any litigation
referred to in the preceding sentence any special exemplary, punitive or
consequential damages or any damages other than, or in addition to, actual
damages. Each of the Subordinating Creditor and the Borrower (a) certifies that
no representative, agent or attorney of the Agent has represented, expressly or
otherwise, that the Agent would not in the event of litigation, seek to enforce
the foregoing waivers and (b) acknowledges that the Agent has been induced to
enter into this Agreement by, among other things, the waivers and certifications
contained herein.
15. Miscellaneous. This Agreement may be executed in several counterparts
and by each party on a separate counterpart, each of which when so executed and
delivered shall be an original, and all of which together shall constitute one
instrument. In proving this Agreement it shall not be necessary to produce or
account for more than one such counterpart signed by the party against whom
enforcement is sought. The Agent may, in its sole and absolute discretion, waive
any provisions of this Agreement benefiting the Agent and the Banks; provided,
however, that such waiver shall be effective only if in writing and signed by
the Agent and shall be limited to the specific provision or provisions expressly
so waived. This Agreement shall be binding upon the successors and assigns of
the Subordinating Creditor and the Borrower and shall inure to the benefit of
the Banks, the Banks' successors and assigns, any lender or lenders refunding or
refinancing any of the Senior Debt and their respective successors and assigns,
but shall not otherwise create any rights or benefits for any third party. In
the event that any lender or lenders refund or refinance any of the Senior Debt,
the terms "Credit Agreement," "Loan Documents," "Event of Default" and the like
shall refer mutatis mutandis to the agreements and instruments in favor of such
lender or lenders and to the related definitions contained therein.
BOS-BUS:470101
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
IN THE PRESENCE OF:
BANKBOSTON, N.A., as Agent
By:
Title:
[SUBORDINATED CREDITOR]
By:
Title:
[BORROWER]
By:
Title:
BOS-BUS:470101
<PAGE>
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF
At in said County on this ____ day of , ____, personally appeared,
duly authorized agent of BANKBOSTON, N.A., and he acknowledged the above
instrument, by him sealed and subscribed, to be his free act and deed and the
free act and deed of BANKBOSTON, N.A.
Before me,
Notary Public
Commission Expires
STATE OF VERMONT
COUNTY OF
At in said County on this ____ day of , ____, personally appeared,
duly authorized agent of ________________, and he acknowledged the above
instrument, by him sealed and subscribed, to be his free act and deed and the
free act and deed of _____________.
Notary Public
Commission Expires
STATE OF VERMONT
COUNTY OF
At in said County on this ____ day of , ____, personally appeared,
duly authorized agent of ________________, and he acknowledged the above
instrument, by him sealed and subscribed, to be his free act and deed and the
free act and deed of ________________.
Notary Public
Commission Expires
BOS-BUS:470101
<PAGE>
SCHEDULE 1
SUBSIDIARIES OF THE PARENT WHICH ARE BORROWERS
Parent: Casella Waste Systems, Inc.,
a Delaware corporation
25 Greens Hill Lane
Rutland, Vermont 05701
Subsidiaries: Casella Waste Management, Inc.,
a Vermont corporation
25 Greens Hill Lane
Rutland, Vermont 05701
New England Waste Services, Inc.,
a Vermont corporation
25 Greens Hill Lane
Rutland, Vermont 05701
New England Waste Services of Vermont, Inc.,
a Vermont corporation
25 Greens Hill Lane
Rutland, Vermont 05701
North Country Environmental Services, Inc.,
a Virginia corporation
501 South Street, Box E, Suite 302
Bow, New Hampshire 03304
Newbury Waste Management, Inc.,
a Vermont corporation
25 Greens Hill Lane
Rutland, Vermont 05701
Bristol Waste Management, Inc.,
a Vermont corporation
25 Greens Hill Lane
Rutland, Vermont 05701
Sunderland Waste Management, Inc.,
a Vermont corporation
25 Greens Hill Lane
Rutland, Vermont 05701
BOS-BUS:470101
<PAGE>
Sawyer Environmental Recovery Facilities, Inc.,
a Maine Corporation
358 Emerson Mill Road
Hampden, Maine 04444
Sawyer Environmental Services,
a Maine corporation
358 Emerson Mill Road
Hampden, Maine 04444
Casella T.I.R.E.S., Inc.,
a Maine corporation
25 Greens Hill Lane
Rutland, Vermont 05701
New England Waste Services of N.Y., Inc.,
a New York corporation
Route 9, Saratoga Road
Fort Edward, New York 12828
Casella Waste Management of N.Y., Inc.,
a New York corporation
Route 9, Saratoga Road
Fort Edward, New York 12828
Casella Waste Management of Pennsylvania, Inc.,
a Pennsylvania corporation
25 Greens Hill Lane
Rutland, Vermont 05701
Hiram Hollow Regeneration Corp.,
a New York corporation
100 Washburn Road
Gansevoort, New York 12831
All Cycle Waste, Inc.,
a Vermont corporation
28 Avenue B
Williston, VT 05495
Winters Brothers, Inc.,
a Vermont corporation
28 Avenue B
Williston, VT 05495
BOS-BUS:470101
<PAGE>
SCHEDULE 2
Banks' Commitment Percentages
-------------------------------------
|BankBoston |31.6667% |
-------------------------------------
|KeyBank |20.0000% |
-------------------------------------
|USTrust |15.0000% |
-------------------------------------
|Bank of America |20.0000% |
-------------------------------------
|Comerica Bank |13.3333% |
-------------------------------------
| |100.0000% |
-------------------------------------
BOS-BUS:470101
Exhibit 10.23
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Agreement dated as of December 19, 1997 is entered into by and
among Casella Waste Systems, Inc., a Delaware corporation (the "Buyer"), and the
persons listed on Schedule I attached hereto (the "Company Stockholders").
WHEREAS, the Buyer, JC Acquisition, Inc. and WB Acquisition, Inc., each
a Vermont corporation and a wholly-owned subsidiary of the Buyer, All Cycle
Waste, Inc., a Vermont corporation, and Winters Brothers, Inc., a Vermont
corporation, and the Company Stockholders have entered into an Agreement and
Plan of Merger of even date herewith (the "Merger Agreement"), pursuant to which
the Company Stockholders will receive shares of Common Stock (as defined below)
as a result of the Mergers (as defined in the Merger Agreement); and
WHEREAS, the Buyer and the Company Stockholders desire to provide for
certain arrangements with respect to the registration under the Securities Act
of 1933 of certain of the shares of the Common Stock received by the Company
Stockholders in the Mergers;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or
any other Federal agency at the time administering the Securities Act.
"Common Stock" means the Class A Common Stock, $.01 par value
per share, of the Buyer.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Registration Statement" means a registration statement filed
by the Buyer with the Commission for a public offering and sale of Common Stock
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Registration Expenses" means the expenses described in
Section 5.
-1-
<PAGE>
"Registrable Shares" means (i) the Shares (as defined below),
and (ii) any other shares of Common Stock issued in respect of such Shares
(because of stock splits, stock dividends, reclassifications, recapitalizations,
or similar events); provided, however, that shares of Common Stock which are
Registrable Shares shall cease to be Registrable Shares upon any sale of the
Shares by a Company Stockholder to any other person.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Shares" shall mean fifty percent (50%) of the Merger Shares
(as defined in Subsection 1.5(a) of the Merger Agreement) received by each of
the Company Stockholders.
2. Required Registrations.
(a) Upon the written request of Company Stockholders holding
not fewer than 35% of the Registrable Shares given to the Buyer on or before
October 31, 1998, the Buyer shall use its best efforts to promptly effect the
registration of Registrable Shares owned by such Company Stockholders under the
Securities Act. If the holders initiating the registration intend to distribute
the Registrable Shares by means of an underwriting, they shall so advise the
Buyer in their request. In the event such registration is underwritten, the
right of other Company Stockholders to participate shall be conditioned on such
Company Stockholders' participation in such underwriting. Upon receipt of any
such request, the Buyer shall promptly give written notice of such proposed
registration to all Company Stockholders. Such Company Stockholders shall have
the right, by giving written notice to the Buyer within 20 days after the Buyer
provides its notice, to elect to have included in such registration such of
their Registrable Shares as such Company Stockholders may request in such notice
of election; provided that if the underwriter (if any) managing the offering
determines that, because of marketing factors, all of the Registrable Shares
requested to be registered by all Company Stockholders may not be included in
the offering, then all Company Stockholders who have requested registration
shall participate in the registration pro rata based upon the number of
Registrable Shares owned by them.
(b) The Buyer shall not be required to effect more than one
registration pursuant to paragraph (a) above.
(c) Notwithstanding the foregoing, the Company Stockholders
shall have no right to sell Registrable Shares prior to April 27, 1998, and in
no event shall the Buyer be required to request that a Registration Statement
filed hereunder be
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declared effective by the Commission before April 27, 1998. If at the time of
any request to register Registrable Shares pursuant to this Section 2, the Buyer
is engaged or has fixed plans to engage within 30 days of the time of the
request in a registered public offering as to which the Company Stockholders may
include Registrable Shares pursuant to Section 3, then the Company may instead
include the Registrable Shares so requested to be registered in such other
registered public offering, in which case the Buyer shall have no further
obligations under this Section 2 unless and until such Registration Statement
pursuant to Section 3 is withdrawn (provided, however, that if fewer than all of
the Registrable Shares which the Company Stockholders have requested to be
registered pursuant to Section 3 are actually so registered, then the Buyer's
obligations under Section 2 shall be reinstated (provided that no Registration
Statement shall be required to be filed under Section 2 before the expiration of
60 days following the completion of any offering under Section 3)). If at the
time of any request to register Registrable Shares pursuant to this Section 2,
the Buyer is engaged in any other activity which, in the good faith
determination of the Buyer's Board of Directors would be required to be
disclosed by the Buyer in the Registration Statement relating to such requested
registration, and such disclosure would, in the good faith determination of the
Buyer's Board of Directors interfere with the ability of the Buyer to consummate
such transaction, then the Buyer may at its option direct that such request be
delayed until the Board of Directors determines in good faith that delay is no
longer necessary.
3. Incidental Registration.
(a) If at any time prior to October 31, 1998 the Buyer
proposes to file a Registration Statement (other than pursuant to Section 2), it
will, at least 14 days prior to such filing, give written notice to all Company
Stockholders of its intention to do so and, upon the written request of a
Company Stockholder or Company Stockholders given within 10 days after the Buyer
provides such notice (which request shall state the intended method of
disposition of such Registrable Shares), the Buyer shall use its best efforts to
cause all Registrable Shares which the Buyer has been requested by such Company
Stockholder or Company Stockholders to register to be promptly registered under
the Securities Act to the extent necessary to permit their sale or other
disposition in accordance with the intended methods of distribution specified in
the request of such Company Stockholder or Company Stockholders; provided that
the Buyer shall have the right to postpone or withdraw any registration effected
pursuant to this Section 3 without obligation to any Company Stockholder.
(b) In connection with any registration under this Section 3
involving an underwriting, the Buyer shall not be required to include any
Registrable Shares in such registration unless the holders thereof accept the
terms of the underwriting as agreed upon between the Buyer and the underwriters
selected by it. If in the written advice of the managing underwriter (a copy of
which is provided to the Buyer and
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the holders of the Registrable Shares requested to be included in the offering)
it is appropriate because of marketing factors to limit the number of
Registrable Shares to be included in the offering, then the Buyer shall be
required to include in the registration only that number of Registrable Shares,
if any, which the managing underwriter believes should be included therein. If
the number of Registrable Shares to be included in the offering in accordance
with the foregoing is less than the total number of shares which the holders of
Registrable Shares have requested to be included, then the holders of
Registrable Shares who have requested registration and other holders of
securities entitled to include them in such registration shall participate in
the registration pro rata based upon their total ownership of shares of Common
Stock (giving effect to the conversion into Common Stock of all securities
convertible thereinto). If any holder would thus be entitled to include more
securities than such holder requested to be registered, the excess shall be
allocated among other requesting holders pro rata in the manner described in the
preceding sentence.
(c) Notwithstanding anything to the contrary contained in this
Section 3, in connection with any registration under this Section 3 involving an
underwriting, in the event that a Company Stockholder does not elect to sell
his, her or its Registrable Shares to the underwriters in connection with such
offering, such holder shall refrain from selling such Registrable Shares so
registered pursuant to this Section 3 during the period of distribution of the
Buyer's securities by such underwriters and the period in which the underwriting
syndicate participates in the aftermarket; provided however, that such holder
shall, in any event, be entitled to sell its Registrable Shares in connection
with such registration commencing on the 90th day after the effective date of
such registration statement.
4. Registration Procedures. If and whenever the Buyer is required
by the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Buyer shall:
(a) promptly prepare and file with the Commission a
Registration Statement with respect to such Registrable Shares and use its best
efforts to cause that Registration Statement to become and remain effective;
(b) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it and, in the case of any other
offering, until the earlier of the sale of all Registrable Shares covered
thereby or 120 days after the effective date thereof (but in no event after
January 31, 1999) (provided that if at any time during such 120-day period the
Buyer is engaged in any activity which, in the good faith determination of the
Buyer's Board of Directors would be required to be disclosed in such
Registration
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<PAGE>
Statement and such disclosure would, in the good faith determination of the
Buyer's Board of Directors interfere with the ability of the Buyer to consummate
such transaction, then the Buyer shall have the right, by written notice to the
Company Stockholders, to require that the Company Stockholders cease making
offers of Registrable Shares and to return all prospectuses to the Buyer.
Following such time as the Buyer discloses such transaction or such transaction
is abandoned by the Buyer, the Buyer shall promptly use its best efforts to take
such actions as may be necessary to provide the Company Stockholders with
revised prospectuses, and following receipt of the revised prospectuses, the
Company Stockholders shall be free to resume making offers of the Registrable
Shares;
(c) as expeditiously as possible furnish to each selling
Company Stockholder such reasonable numbers of copies of the prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as the selling Company Stockholder may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Shares owned by the selling Company Stockholder;
(d) as expeditiously as possible use its best efforts to
register or qualify the Registrable Shares covered by the Registration Statement
under the securities or Blue Sky laws of such states as the selling Company
Stockholders shall reasonably request, and do any and all other acts and things
that may be necessary or desirable to enable the selling Company Stockholders to
consummate the public sale or other disposition in such states of the
Registrable Shares owned by the selling Company Stockholder; provided, however,
that the Buyer shall not be required in connection with this paragraph (d) to
qualify as a foreign corporation or execute a general consent to service of
process in any jurisdiction;
(e) in connection with an underwritten public offering, to
furnish to each selling Company Stockholder a signed counterpart, addressed to
all such selling Company Stockholders, of an opinion of counsel for the Buyer
experienced in securities law matters covering substantially the same matters
with respect to the registration statement and the prospectus as are customarily
covered in opinions of issuer's counsel delivered to underwriters in
underwritten public offerings of securities; and
(f) use its best efforts to comply with all applicable rules
and regulations of the Commission and make available to its security holders, as
soon as reasonably practicable, an earnings statement of the Buyer (in form
complying with the provisions of Rule 158 under the Securities Act) covering the
period of at least 12 months beginning with the first month following the
effective date of the registration statement.
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<PAGE>
If the Buyer has delivered preliminary or final prospectuses to the
selling Company Stockholders and after having done so the prospectus is required
to be amended to comply with the requirements of the Securities Act, the Buyer
shall promptly notify the selling Company Stockholders and, if requested, the
selling Company Stockholders shall immediately cease making offers of
Registrable Shares and return all prospectuses to the Buyer. Subject to the
provisions of Section 4(b) above, the Buyer shall promptly provide the selling
Company Stockholders with revised prospectuses and, following receipt of the
revised prospectuses, the selling Company Stockholders shall be free to resume
making offers of the Registrable Shares.
5. Allocation of Expenses. The Buyer will pay all Registration
Expenses of all registrations under this Agreement; provided, however, that if a
registration under Section 2 is withdrawn at the request of the Company
Stockholders requesting such registration and if the requesting Stockholders
elect not to have such registration counted as the registration requested under
Section 2, the requesting Company Stockholders shall pay the Registration
Expenses of such registration pro rata in accordance with the number of their
Registrable Shares included in such registration. All Registration Expenses of
all registrations under Section 3 shall be paid by the Buyer. For purposes of
this Section 5, the term "Registration Expenses" shall mean all expenses
incurred by the Buyer in complying with this Agreement, including, without
limitation, all registration and filing fees, exchange listing fees, printing
expenses, fees and expenses of counsel for the Buyer and the fees and expenses
of one counsel selected by the selling Company Stockholders to represent the
selling Company Stockholders, state Blue Sky fees and expenses, and the expense
of any special audits incident to or required by any such registration, but
excluding underwriting discounts, selling commissions and the fees and expenses
of selling Company Stockholders' own counsel (other than the counsel selected to
represent all selling Company Stockholders).
6. Indemnification and Contribution.
(a) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, the Buyer will
indemnify and hold harmless the seller of such Registrable Shares, each
underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in
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<PAGE>
the Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Buyer will reimburse such seller,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Buyer will not be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon any untrue statement or omission made in such
Registration Statement, preliminary prospectus or final prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Buyer, in writing, by or on behalf of such seller, underwriter
or controlling person specifically for use in the preparation thereof.
(b) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, each seller of
Registrable Shares, severally and not jointly, will indemnify and hold harmless
the Buyer, each of its directors and officers and each underwriter (if any) and
each person, if any, who controls the Buyer or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which the Buyer, such directors and
officers, underwriter or controlling person may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information relating to such seller furnished in writing
to the Buyer by or on behalf of such seller specifically for use in connection
with the preparation of such Registration Statement, prospectus, amendment or
supplement; provided, however, that the obligations of such Company Stockholders
hereunder shall be limited to an amount equal to the proceeds to each Company
Stockholder of Registrable Shares sold in connection with such registration.
(c) Each party entitled to indemnification under this Section
6 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who
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<PAGE>
shall conduct the defense of such claim or litigation, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld); and,
provided, further, that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 6. The Indemnified Party may participate in such defense at
such party's expense; provided, however, that the Indemnifying Party shall pay
such expense if representation of such Indemnified Party by the counsel retained
by the Indemnifying Party would be inappropriate due to actual or potential
differing interests between the Indemnified Party and any other party
represented by such counsel in such proceeding. No Indemnifying Party, in the
defense of any such claim or litigation shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect of such claim or litigation, and no Indemnified Party shall consent
to entry of any judgment or settle such claim or litigation without the prior
written consent of the Indemnifying Party.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of Registrable Shares exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 6 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 6 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such holder of
Registrable Shares or any such controlling person in circumstances for which
indemnification is provided under this Section 6; then, in each such case, the
Buyer and such holder of Registrable Shares will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportions as is appropriate to reflect the
relative fault of the holder and the Buyer as well as other equitable
considerations including, without limitation, the parties' relative knowledge
and access to information concerning the matter with respect to which any claim
is asserted and the opportunity to correct and prevent any such statement or
omission resulting in such loss, claim, damage or liability; provided, however,
that, in any such case, (A) no such holder will be required to contribute any
amount in excess of the proceeds to it of all Registrable Shares sold by it
pursuant to such Registration Statement, and (B) no person or entity guilty of
fraudulent misrepresentation, within the meaning of Section 11(f) of the
Securities Act, shall be entitled to contribution from any person or entity who
is not guilty of such fraudulent misrepresentation.
7. Procedures with Respect to Underwritten Offering. In the event that
Registrable Shares are sold pursuant to a Registration Statement in an
underwritten
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<PAGE>
offering pursuant to Section 2, the Buyer agrees to enter into an underwriting
agreement containing customary representations and warranties with respect to
the business and operations of an issuer of the securities being registered and
customary covenants and agreements to be performed by such issuer, including,
without limitation, the indemnification and contribution provisions of Section 6
and any other customary provisions with respect to indemnification by the Buyer
of the underwriters of such offering. Whenever a registration is for an
underwritten offering pursuant to Section 2, the Buyer will have the right to
select the managing underwriter or underwriters for the offering, which
selection shall be subject to the approval of the holders of a majority of the
Registrable Shares requesting the offering.
8. Information by Holder. Each Company Stockholder including
Registrable Shares in any registration shall furnish to the Buyer such
information regarding such Company Stockholder and the distribution proposed by
such Company Stockholder as the Buyer may reasonably request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in this Agreement.
9. "Stand-Off" Agreement. Each Company Stockholder, if requested by the
Buyer and the managing underwriter of an offering by the Buyer of Common Stock
or other securities of the Buyer pursuant to a Registration Statement, shall
agree not to sell publicly or otherwise transfer or dispose of any Registrable
Shares or other securities of the Buyer held by such Company Stockholder and not
sold in such offering for a period of time beginning on the date of pricing of
such offering and ending not more than 180 days thereafter; provided, that all
Company Stockholders holding not less than the number of shares of Common Stock
held by such Company Stockholder (including convertible securities, or upon the
exercise of options, warrants or rights) and all officers and directors of the
Buyer enter into similar agreements.
10. General.
(a) Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Buyer, at 25 Greens Hill Lane, Box 866, Rutland, VT 05702,
Attention: President, or at such other address or addresses as may have been
furnished in writing by the Buyer to the Company Stockholders, with a copy to
Jeffrey A. Stein, Esq., Hale and Dorr LLP, 60 State Street, Boston, MA 02109; or
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<PAGE>
If to a Company Stockholder, at his or her address set forth on Exhibit
A, or at such other address or addresses as may have been furnished to the Buyer
in writing by such Company Stockholder, with a copy to B. Michael Frye, Paul,
Frank & Collins, Inc., One Church Street, P.O. Box 1307, Burlington, VT
05402-1307.
Notices provided in accordance with this Section 10(a) shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
(b) Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
(c) Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Buyer and the holders of at
least 50% of the Registrable Shares; provided, that this Agreement may be
amended with the consent of the holders of less than all Registrable Shares only
in a manner which affects all Registrable Shares in the same fashion. No waivers
of or exceptions to any term, condition or provision of this Agreement, in any
one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision.
(d) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which shall be one and the same document.
(e) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Vermont.
[rest of page purposefully left blank]
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Executed as of the date first written above.
BUYER:
CASELLA WASTE SYSTEMS, INC.
By:_______________________________
Title:_____________________________
COMPANY STOCKHOLDERS:
-----------------------------------
Joseph M. Winters
-----------------------------------
Andrew B. Winters
-----------------------------------
Brigid Winters
-----------------------------------
Sean Winters
-----------------------------------
Maureen Winters
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Schedule I
List of Company Stockholders
Joseph M. Winters
Andrew B. Winters
Brigid Winters
Sean Winters
Maureen Winters
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AMENDMENT NO. 1
TO REGISTRATION RIGHTS AGREEMENT
This Amendment No. 1, dated as of June 1, 1998 (the "Amendment"), to
the Registration Rights Agreement dated as of December 19, 1997 (the
"Agreement"), by and among Casella Waste Systems, Inc., a Delaware corporation
(the "Buyer") and the persons listed on Schedule I hereto (the "Company
Stockholders"), is entered into by said parties.
WHEREAS, the Company Stockholders (other than Maureen Winters) have
received a loan from Goldman, Sachs & Co. ("Goldman, Sachs") and have pledged
the Merger Shares owned by them as collateral therefor (the "Pledge");
WHEREAS, the Company has agreed to extend to Goldman, Sachs certain
benefits of the Agreement in the event Goldman, Sachs exercises its rights as
pledgee, and Goldman, Sachs, by its signature below, has agreed to become party
to the Agreement;
WHEREAS, Maureen Winters has collared 39,000 of the Registrable Shares
owned by her, with a maturity date of January 8, 1999 (the "Collar");
WHEREAS, the Company Stockholders have exercised their rights under
Section 2(a) of the Agreement to require the Buyer to effect the registration of
Registrable Shares owned by such Company Stockholders under the Securities Act,
and the Buyer is in the process of seeking to register those shares (the "Demand
Registration") pursuant to a registration statement on Form S-1 (the "Demand
Registration Statement");
WHEREAS, the Buyer and the Company Stockholders desire to amend certain
other provisions of the Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Amendment, the parties hereto agree that certain subsections
of the Agreement shall be amended to read as indicated below.
Capitalized terms used herein which are not otherwise defined shall
have the meanings ascribed to them in the Agreement.
1. Section 3(a) is hereby amended by deleting the reference to "14
days" in the first sentence thereof and inserting "five days" in lieu thereof,
and by deleting the reference to "10 days" in the first sentence thereof and
inserting "two days" in lieu thereof.
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2. Section 4 of the Agreement is hereby deleted and the following shall
be inserted in lieu thereof:
"4. Registration Procedures. The Buyer shall:
(a) promptly prepare and file the Demand Registration Statement
with the Commission and use its best efforts to cause the Demand Registration
Statement to become and remain effective until the earlier of the sale of all
Registrable Shares covered thereby or December 19, 1998 (the "Termination
Date"), and as expeditiously as possible prepare and file with the Commission
any amendments and supplements to the Demand Registration Statement and the
prospectus included in the Demand Registration Statement as may be necessary to
keep the Demand Registration Statement effective until the Termination Date;
provided, that (i) upon the filing by the Company of a registration statement on
Form S-1 or S-3 for the sale of shares of its Common Stock (the "Follow-on
Offering"), the Company may terminate or withdraw the Demand Registration
Statement, and (ii) if at any other time the Buyer is engaged in any other
activity which, in the good faith determination of the Buyer's Board of
Directors would be required to be disclosed in the Demand Registration Statement
and such disclosure would, in the good faith determination of the Buyer's Board
of Directors interfere with the ability of the Buyer to consummate such
transaction, then the Buyer shall have the right, by written notice to the
Company Stockholders and Goldman, Sachs, to withdraw the Demand Registration
Statement (if it is not yet effective) and/or to require that the Company
Stockholders and any pledgees of Registrable Shares cease making offers of
Registrable Shares and to return all prospectuses to the Buyer. Following such
time as (i) the Company and Goldman, Sachs mutually agree that the Follow-on
Offering has been abandoned, and/or (ii) the Buyer discloses such other
transaction or such other transaction is abandoned by the Buyer, the Buyer shall
promptly use its best efforts to take such actions as may be necessary to
re-register the Registrable Shares (if the Demand Registration Statement has
been terminated) and provide the Company Stockholders and Goldman, Sachs (if
Goldman, Sachs is then still the pledgee of Registrable Shares) with revised
prospectuses, and following receipt of the revised prospectuses, the Company
Stockholders and Goldman, Sachs shall be free to resume making offers of the
Registrable Shares. For purposes hereof, any such registration statement which
is filed pursuant to this paragraph to re-register the Registrable Shares shall
be deemed to be a "Demand Registration Statement".
(b) as expeditiously as possible furnish to each selling Company
Stockholder and to Goldman, Sachs (if Goldman, Sachs is then still the pledgee
of Registrable Shares) such reasonable numbers of copies of the prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as the selling Company Stockholder or
Goldman, Sachs may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Shares owned by the selling Company
Stockholder;
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<PAGE>
(c) as expeditiously as possible use its best efforts to register
or qualify the Registrable Shares covered by the Demand Registration Statement
under the securities or Blue Sky laws of such states as the selling Company
Stockholders or Goldman, Sachs shall reasonably request, and do any and all
other acts and things that may be necessary or desirable to enable the selling
Company Stockholders and Goldman, Sachs to consummate the public sale or other
disposition in such states of the Registrable Shares owned by the selling
Company Stockholder; provided, however, that the Buyer shall not be required in
connection with this paragraph (c) to qualify as a foreign corporation or
execute a general consent to service of process in any jurisdiction;
(d) in connection with an underwritten public offering, to furnish
to each selling Company Stockholder and Goldman, Sachs a signed counterpart,
addressed to all such selling Company Stockholders and Goldman, Sachs, of an
opinion of counsel for the Buyer experienced in securities law matters covering
substantially the same matters with respect to the registration statement and
the prospectus as are customarily covered in opinions of issuer's counsel
delivered to underwriters in underwritten public offerings of securities; and
(e) use its best efforts to comply with all applicable rules and
regulations of the Commission and make available to its security holders, as
soon as reasonably practicable, an earnings statement of the Buyer (in form
complying with the provisions of Rule 158 under the Securities Act) covering the
period of at least 12 months beginning with the first month following the
effective date of the registration statement.
If the Buyer has delivered preliminary or final prospectuses to the
selling Company Stockholders and/or Goldman, Sachs and after having done so the
prospectus is required to be amended to comply with the requirements of the
Securities Act, the Buyer shall promptly notify the selling Company Stockholders
and Goldman, Sachs, as the case may be, and, if requested, the selling Company
Stockholders and Goldman, Sachs shall immediately cease making offers of
Registrable Shares and return all prospectuses to the Buyer. Subject to the
provisions of Section 4(a) above, the Buyer shall promptly provide the selling
Company Stockholders and Goldman, Sachs with revised prospectuses and, following
receipt of the revised prospectuses, the selling Company Stockholders and
Goldman, Sachs shall be free to resume making offers of the Registrable Shares."
3. Section 5 of the Agreement is hereby deleted and the following shall
be inserted in lieu thereof:
"5. Allocation of Expenses. Goldman, Sachs will pay all Registration
Expenses of the Demand Registration and any other registrations under Section 2
or registrations required by Section 4(a) above (including any amendments or
supplements to the Demand Registration Statement) and the Buyer will pay all
-3-
<PAGE>
Registration Expenses of all registrations under Section 3. For purposes of this
Section 5, the term "Registration Expenses" shall mean all expenses incurred by
the Buyer in complying with this Agreement, including, without limitation, all
registration and filing fees, exchange listing fees, printing expenses, fees and
expenses of counsel for the Buyer and of the Buyer's accountants and the fees
and expenses of one counsel selected by the selling Company Stockholders to
represent the selling Company Stockholders, state Blue Sky fees and expenses,
but excluding underwriting discounts, selling commissions and the fees and
expenses of selling Company Stockholders' own counsel (other than the counsel
selected to represent all selling Company Stockholders)."
4. Section 6 of the Agreement is hereby deleted and the following shall
be inserted in lieu thereof:
"6. (a)(i) The Buyer agrees to indemnify and hold harmless Goldman,
Sachs, each of the selling Company Stockholders and each other person, if any,
who controls Goldman, Sachs or such selling Company Stockholder (collectively,
the "Sellers' Indemnified Parties") against any losses, claims, damages or
liabilities, joint or several, to which any of the Sellers' Indemnified Parties
may become subject, under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement under which Registrable
Shares are registered under the Securities Act or any preliminary prospectus
included in such Registration Statement or filed with the Commission pursuant to
Rule 424(a) of the rules and regulations of the Commission under the Securities
Act (each, a "Preliminary Prospectus"), the form of final prospectus relating to
the resale of the Registrable Shares by the Company Stockholders (the
"Prospectus") in the form first filed pursuant to Rule 424(b) under the
Securities Act, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each of the Sellers' Indemnified Parties for any
legal or other expenses reasonably incurred by it in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that (i) the Buyer shall not be liable to the
Company Stockholders or any controlling person thereof in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, Registration Statement or
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Buyer by the Company
Stockholders expressly for use therein, and (ii) the Buyer shall not be liable
to Goldman, Sachs or any controlling person thereof in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, Registration Statement or
Prospectus or any such amendment
-4-
<PAGE>
or supplement in reliance upon and in conformity with written information
furnished to the Buyer by Goldman, Sachs expressly for use therein.
Notwithstanding the foregoing, the Company shall have no obligations to Goldman,
Sachs under this paragraph with respect to any Registration Statement,
Preliminary Prospectus or Prospectus used in connection with an underwritten
offering of the shares of the Company for which there is an underwriting
agreement containing indemnification provisions for the benefit of Goldman,
Sachs.
(ii) Each of the Company Stockholders, severally and not jointly,
will indemnify and hold harmless the Company and Goldman, Sachs and their
respective officers and directors and each other person, if any, who controls
the Company or Goldman, Sachs against any losses, claims, damages or
liabilities, joint or several, to which any of such persons may become subject,
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, Registration Statement or Prospectus, or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, Registration Statement or Prospectus or any such amendment or
supplement in reliance upon and in conformity with written information furnished
to the Buyer by such Company Stockholder expressly for use therein; and will
reimburse each such person for any legal or other expenses reasonably incurred
by such person in connection with investigating or defending any such action or
claim as such expenses are incurred. The obligations of each Company Stockholder
under this subparagraph (a)(ii) shall be limited to an amount equal to the
proceeds to each Company Stockholder of Registrable Shares sold in connection
with such registration;
(b) Goldman, Sachs will indemnify and hold harmless the Buyer and
its officers and directors and each selling Company Stockholder and each other
person, if any, who controls the Company or such selling Company Stockholder
against any losses, claims, damages or liabilities, joint or several, to which
any such person may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus,
Registration Statement or Prospectus, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in any Preliminary Prospectus, Registration Statement
or Prospectus or any such amendment or supplement in reliance upon and in
-5-
<PAGE>
conformity with written information furnished to the Buyer by Goldman, Sachs
expressly for use therein; and will reimburse each such person for any legal or
other expenses reasonably incurred by such person in connection with
investigating or defending any such action or claim as such expenses are
incurred;
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may otherwise have to any indemnified
party otherwise than under such subsection. In case any such action 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 therein 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 (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party; and
(d) If the indemnification provided for herein is unavailable to or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above in respect of any losses, claims, damages or liabilities (or actions in
respect thereof) referred to therein for any reason, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportions as is appropriate to reflect not only (i)
the relative benefits received by the Buyer, the Company Stockholders and
Goldman, Sachs from the sale of the Registrable Shares but also (ii) the
relative fault of the Buyer, the Company Stockholders and Goldman, Sachs in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material
-6-
<PAGE>
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Buyer, the Company Stockholders or Goldman, Sachs
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Buyer, the
Company Stockholders and Goldman, Sachs agree that it would not be just and
equitable if contributions pursuant to this indemnity agreement were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. 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. The Company Stockholders' obligations in this subsection to
contribute are several and not joint and no Company Stockholder shall be
required to contribute any amount in excess of the proceeds to him, her or it of
all Registrable Shares sold by him, her or it pursuant to such Demand
Registration Statement."
5. Section 9 of the Agreement is hereby amended by designating the
paragraph appearing therein as paragraph "(a)" and by inserting the following
paragraph after said paragraph:
"(b) Without limiting the generality of the foregoing, and in
consideration of Buyer's promises set forth herein and for other good and
valuable consideration, each of the Company Stockholders agrees that (other than
the Pledge by the Company Stockholders other than Maureen Winters and the Collar
by Maureen Winters) he, she or it will not offer, sell, contract to sell, grant
any option to sell, transfer or otherwise dispose of, directly or indirectly, or
otherwise seek to reduce or limit his, her or its economic risk of ownership in,
any shares of Common Stock of the Buyer, or securities convertible into or
exchangeable for shares of Common Stock of the Buyer, until August 31, 1998,
otherwise than (i) as a bona fide gift or a transfer effected solely for estate
planning purposes, provided the donee or transferee agrees in writing to be
bound by the terms hereof, (ii) pursuant to an effective registration statement
filed by the Buyer covering such shares (other than the Demand Registration
Statement), or (iii) with the prior written consent of the Buyer. Goldman, Sachs
& Co. agrees to be bound by the terms of the foregoing with respect to the
shares of Common Stock of the Buyer pledged to it by any of the Company
Stockholders except in connection with the exercise of its rights as pledgee of
such shares following a bona fide margin call on such shares. Each of the
Company Stockholders and Goldman, Sachs agrees and consents to the entry of stop
transfer instructions with the Buyer's transfer agent against the transfer of
shares of Common Stock held by such persons, except in accordance with the terms
of this paragraph."
-7-
<PAGE>
6. Section 10(a) of the Agreement is hereby amended by adding the
following paragraph immediately following the provisions for notice to the
Buyer:
"If to Goldman, Sachs, at 85 Broad Street, New York, New York 10004,
Attention: Special Execution;"
7. Section 10(c) of the Agreement is hereby deleted and the following
shall be inserted in lieu thereof:
"(c) Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), with the
written consent of the Buyer and the holders of at least 50% of the Registrable
Shares; provided, however, that any such amendment or waiver shall also require
the written approval of Goldman, Sachs to the extent the same would materially
and adversely affect the rights of Goldman, Sachs herein; and provided further,
however, that this Agreement may be amended with the consent of the holders of
less than all Registrable Shares only in a manner which affects all Registrable
Shares in the same fashion. No waivers of or exceptions to any term, condition
or provision of this Agreement, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, condition
or provision."
8. The Buyer hereby agrees that the Winters Family Partnership, as
transferee of certain of the Registrable Shares, shall have the benefit of the
Agreement, subject to the execution and delivery by the Winters Family
Partnership of a counterpart of this Amendment. By its signature below, the
Winters Family Partnership agrees to be bound by the Agreement, as amended
hereby, and is hereby deemed included within the definition of "Company
Stockholders".
9. In all other respects, the Agreement shall remain in full force and
effect.
-8-
<PAGE>
Executed as of the date first written above.
BUYER:
CASELLA WASTE SYSTEMS, INC.
By:_________________________
Title:______________________
COMPANY STOCKHOLDERS:
____________________________
Joseph M. Winters
____________________________
Andrew B. Winters
____________________________
Brigid Winters
____________________________
Sean Winters
____________________________
Maureen Winters
WINTERS FAMILY PARTNERSHIP
By:_________________________
General Partner
-9-
<PAGE>
GOLDMAN, SACHS & CO.
By:_________________________
-10-
<PAGE>
Schedule I
List of Company Stockholders
Joseph M. Winters
Andrew B. Winters
Brigid Winters
Sean Winters
Maureen Winters
Winters Family Partnership
-11-
List of Subsidiaries
--------------------
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
- ---- -----------------------------
<S> <C>
Casella Waste Management, Inc. Vermont
New England Waste Services, Inc. Vermont
New England Waste Services of Vermont, Inc. Vermont
Sunderland Waste Management, Inc. Vermont
Newbury Waste Management, Inc. Vermont
Bristol Waste Management, Inc. Vermont
North Country Environmental Services, Inc. Virginia
Forest Acquisitions, Inc. New Hampshire
Sawyer Environmental Services, Inc. Maine
Sawyer Environmental Recovery Facilities, Inc. Maine
Hiram Hollow Regeneration Corp. New York
Casella T.I.R.E.S., Inc. Maine
Casella Waste Management of N.Y., Inc. New York
New England Waste Services of N.Y., Inc. New York
Casella Waste Management of Pennsylvania, Inc. Pennsylvania
North Country Composting Services, Inc. New Hampshire
Pine Tree Waste, Inc. Maine
All Cycle Waste, Inc. Vermont
Winters Brothers, Inc. Vermont
</TABLE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
prospectus.
/s/ Arthur Andersen LLP
------------------------------------
Arthur Andersen LLP
Boston, Massachusetts
June 1, 1998
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
prospectus.
/s/ Barrett & Dattilio
--------------------------------------
Barrett & Dattilio, P.C.
Quechee, Vermont
May 31, 1998
POWER OF ATTORNEY AND SIGNATURES
The undersigned directors of Casella Waste Systems, Inc. (the "Company"), hereby
severally constitute and appoint John W. Casella and James W. Bohlig and each of
them singly, our true and lawful attorneys, with full power to them and each of
them singly, to sign for us in our names in the capacities indicated below, all
pre-effective and post-effective amendments to the registration statement on
Form S-1 relating to the resale of 301,673 shares of the Class A Common Stock of
the Company and any related subsequent registration statement pursuant to Rule
462(b) of the Securities Act of 1933, as amended, and generally to do all things
in our names and on our behalf in such capacities to enable the Company to
comply with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission.
EXECUTED as of the date set forth opposite our names below.
<TABLE>
<CAPTION>
Signature Date
<S> <C>
/s/ John W. Casella May 11, 1998
- ----------------------------------
John W. Casella
/s/ James W. Bohlig May 11, 1998
- ---------------------------------
James W. Bohlig
/s/ Douglas R. Casella May 11, 1998
- --------------------------------
Douglas R. Casella
/s/ John F. Chapple III May 11, 1998
- --------------------------------
John F. Chapple III
/s/ Kenneth H. Mead May 11, 1998
- --------------------------------
Kenneth H. Mead
/s/ Michael F. Cronin May 11, 1998
- ---------------------------------
Michael F. Cronin
/s/ Gregory B. Peters May 11, 1998
- ----------------------------------
Gregory B. Peters
</TABLE>
