Item 1.01. Entry into a Material Definitive Agreement
Meridian Waste Solutions, Inc. (“Meridian” or the
“Company”) currently generally operates three lines of business: solid waste (the “Solid Waste Business”)
through the subsidiaries of its wholly-owned subsidiary, Meridian Waste Operations, Inc. (“Seller” and together with
Meridian, the “Seller Parties”); technologies (the “Technologies Business”) through its wholly-owned subsidiary,
Mobile Science Technologies, Inc.; and innovations (the “Innovations Business”) through its wholly-owned subsidiary,
Attis Innovations, LLC.
Historically Meridian’s core
business has been focused on being an integrated provider of non-hazardous solid waste collection, transfer and disposal
services (the Solid Waste Business). More recently Meridian has begun to shift its focus to formation and growth of the
Technologies Business and Innovations Business. While the Solid Waste Business served as the platform for much of
Meridian’s growth and revenue to date, the significant debt burden on Meridian (including indebtedness under the
Amended and Restated Credit and Guaranty Agreement (as amended by the First Amendment to Amended and Restated Credit and
Guaranty Agreement dated April 28, 2017) dated February 15, 2017 among certain of the Acquired Entities (as defined below), Meridian, and Goldman Sachs Specialty Lending Group, L.P. (the “Credit Agreement”)), the amount of
liquidity required to service that indebtedness and the liquidity, cash flow and capital needs of the Solid Waste Business
and the potential opportunities in the Technologies and Innovations Businesses have caused Meridian’s management to
believe that it needed to pursue a path to reduce Meridian’s current debt burden. Meridian’s management believes
that by pursuing a strategy of debt reduction, Meridian would be positioned to improve its liquidity constraints and
provide for opportunity for potential future growth that will increase shareholder value.
As a result of pursuing that strategy and at the request of
Meridian management, in August 2017 Meridian formed a special committee of its Board of Directors (the “Special Committee”)
composed of Thomas J. Cowee (chair), Jackson Davis and Joseph Ardagna, each a non-employee and disinterested member of Meridian’s
board of directors (the “Meridian Board”), to evaluate the proposed transaction.
The Special Committee reviewed the Company’s efforts to
find strategic alternatives based on the overarching strategy of reducing leverage and debt reduction, which included:
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evaluating management’s long-term business plan and stand-alone opportunities for value creation, including accessing
the capital markets, other alternative finance sources and fund raising environment against a broad range of strategic alternatives;
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evaluating other possible alternatives management could undertake to improve operations, reduce debt or improve liquidity;
and
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evaluating whether potential existed for other strategic alternatives.
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The Special Committee received a fairness opinion from The Benchmark
Company, LLC indicating that the Consideration to be received by the Company in the transaction is fair to the Company’s
shareholders from a financial point of view, which was subsequently confirmed in writing, addressed to the Special Committee and
dated as of February 19, 2018.
Following its review, the Special
Committee unanimously approved the transactions contemplated by the Purchase Agreement (as defined below) and
unanimously recommended that the Meridian Board approve the Purchase Agreement the other transactions contemplated thereby.
At a meeting of the Meridian Board convened to act on the Special Committee’s recommendation, the Meridian Board
members present unanimously (1) determined that it is in the best interests of, and fair to, the Company, and its
shareholders to enter into the Purchase Agreement; and (2) resolved to recommend that the Meridian shareholders approve the
Purchase Agreement and the transactions contemplated thereby.
Following the approvals of the
Special Committee and the Meridian Board, on February 20, 2018, Seller Parties, Meridian Waste Acquisitions, LLC
(“Buyer”) , a Delaware limited liability company formed by Warren Equity Partners Fund II and Jeffrey S. Cosman,
an officer, director and majority shareholder of Meridian (“Cosman”), entered into an Equity Securities Purchase
Agreement (the “Purchase Agreement”). Upon the terms and subject to the conditions set forth in the Purchase
Agreement, Buyer will purchase from Seller all of the membership interests in each of the direct wholly-owned subsidiaries of
Seller (the “Acquired Parent Entities” and together with each direct and indirect subsidiary of the Acquired
Parent Entities, the “Acquired Entities”), which constitute the Solid Waste Business, and each such Acquired
Parent Entity will continue as wholly-owned subsidiary of Buyer (the “Transaction”).
Pursuant to the Purchase Agreement, upon the closing of the
Transaction (the “Closing”), Buyer will pay Seller Parties $3.0 million in cash; satisfy $75.8 million of outstanding
indebtedness under the Credit Agreement; and assume the Acquired Entities’ obligations under certain equipment leases and
other operating indebtedness. Following the Closing, the Seller Parties expect they would retain approximately $6.6 million of
outstanding indebtedness under the Credit Agreement and all other assets and obligations of Meridian, the Technologies Business
and the Innovations Business. At the Closing, Meridian will issue to Buyer a warrant to purchase shares of common stock, par value
$0.025, of Meridian, equal to two percent of the issued and outstanding shares of capital stock of Meridian on a fully-diluted
basis as of Closing (subject to adjustment as set forth therein and as more fully described in the Purchase Agreement) on such
terms to be determined by Meridian and Buyer. The Purchase Agreement also provides for Meridian shareholders who properly exercise
dissenters’ rights under New York law to seek appraisal in accordance with the New York Business Corporation Law, as amended.
The consummation of the Transaction is subject to customary
and other closing conditions, including (i) receiving the approval of holders of at least two-thirds majority of the voting power
of the outstanding Company common stock pursuant to the New York Business Corporation Law (the “Meridian Shareholder Approval”),
(ii) the Buyer receiving the proceeds of its debt financing, and (iii) the absence of legal restraints preventing the consummation
of the Transaction.
The Purchase Agreement contains certain customary covenants,
including covenants providing (i) for each of the parties to use reasonable best efforts to cause the transaction to be consummated
and (ii) for the Seller Parties to cause the Acquired Entities to conduct their business in the ordinary course consistent with
past practice during the interim period between the execution of the Purchase Agreement and completion of the Transaction. The
Purchase Agreement also provides that during the period before the Meridian Shareholder Approval is obtained, the Board of Directors
of Meridian can consider an unsolicited alternative proposal that it concludes in good faith is more favorable from a financial
point of view to the shareholders of Meridian than the Transaction.
The Purchase Agreement contains certain customary termination
rights of Seller Parties and Buyer.
In addition, Buyer may terminate the Purchase Agreement if (A)
the shareholders representing the requisite majority for the Meridian Shareholder Approval and the written consent of Seller’s
sole shareholder shall not have been delivered to the Buyer and the Seller Parties by 12:00 p.m. Eastern Time on the third business
day immediately following the date of the Purchase Agreement and (B) at any time prior to the 21
st
day from the date
of the Purchase Agreement, if the Buyer shall have discovered any matter, condition, or circumstance with respect to the Acquired
Entities or the business of the Acquired Entities during its due diligence investigation that has a material effect, in the Buyer’s
sole discretion, on the Buyer’s willingness to proceed with the transactions contemplated herein and in the other transaction
documents under the terms and conditions set forth therein. The Purchase Agreement contains specified termination rights for the
parties and provides that, in connection with the termination of the Purchase Agreement under specified circumstances, Seller Parties
will be required to pay to Buyer a “termination fee” up to $3.5 million plus certain fees and expenses of Buyer.
The foregoing description of the Purchase Agreement does not
purport to be a complete description and is qualified in its entirety by reference to such agreement. A copy of the Purchase Agreement
is attached hereto as Exhibit 2.1 and is incorporated herein by reference.
The Purchase Agreement has been included to provide investors
and security holders with information regarding its terms. It is not intended to provide any other factual information about the
Seller Parties, Buyer or any of their respective subsidiaries or affiliates. The representations and warranties of the Seller Parties
and the Acquired Entities contained in the Purchase Agreement have been made solely for the benefit of Buyer. In addition, such
representations and warranties (a) have been made only for purposes of the Purchase Agreement, (b) may be subject to limits or
exceptions agreed upon by the contracting parties, (c) are subject to materiality qualifications contained in the Purchase Agreement
which may differ from what may be viewed as material by investors, (d) were made only as of the date of the Purchase Agreement
or other specific dates and (e) have been included in the Purchase Agreement for the purpose of allocating risk between the contracting
parties rather than establishing matters as facts. Investors should not rely on the representations, warranties and covenants or
any descriptions thereof as characterizations of the actual state of facts or condition of Seller Parties or Buyer or any of their
respective subsidiaries or affiliates. Additionally, the representations, warranties, covenants, conditions and other terms of
the Purchase Agreement may be subject to subsequent waiver or modification. Moreover, information concerning the subject matter
of the representations, warranties and covenants may change after the date of the Purchase Agreement, which subsequent information
may or may not be fully reflected in Meridian’s public disclosures.