DRS 1 filename1.htm DRS
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As confidentially submitted to the Securities and Exchange Commission on February 5, 2018

            No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Confidential Draft Submission No. 1

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Charah Solutions, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   4953   82-4228671

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

12601 Plantside Dr.

Louisville, KY 40299

(502) 245-1353

(Address, including zip code and telephone number, including area code, of registrant’s principal executive offices)

 

 

Charles Price

President and Chief Executive Officer

12601 Plantside Dr.

Louisville, KY 40299

(502) 245-1353

(Name, address, including zip code and telephone number, including area code, of agent for service)

 

 

Copies to:

Julian J. Seiguer

Michael W. Rigdon

Kirkland & Ellis LLP

609 Main Street

Houston, Texas 77002

(713) 836-3600

 

Richard D. Truesdell, Jr.

Shane Tintle

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, New York 10017

(212) 450-4000

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☒  (Do not check if a smaller reporting company)    Smaller reporting company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

  Proposed
Maximum
Aggregate
Offering Price(1)(2)
 

Amount of

Registration Fee(3)

Class A common stock, par value $0.01 per share

  $                   $                

 

 

(1) Includes shares issuable upon exercise of the underwriters’ option to purchase additional shares of Class A common stock.
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(3) To be paid in connection with the initial filing of the registration statement.

 

 

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, as amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

 

PROSPECTUS

Subject to Completion, dated                     , 2018

                 Shares

 

LOGO

Charah Solutions, Inc.

CLASS A COMMON STOCK

 

 

Charah Solutions, Inc. is offering                      shares of our Class A common stock and the selling stockholders are offering                      shares of our Class A common stock. This is our initial public offering and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $         and $         per share.

 

 

We will list the Class A common stock on either the New York Stock Exchange or the Nasdaq Global Select Market under the symbol “            .”

 

 

We are an “emerging growth company” as defined under the federal securities laws and, as such, have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.

 

 

Investing in our Class A common stock involves risks. See “Risk Factors” beginning on page 16.

 

 

PRICE $         A SHARE

 

 

 

      

Price to

Public

      

Underwriting

Discounts

and

Commissions

      

Proceeds to

Company(1)

      

Proceeds to

Selling

Stockholders

 

Per share

       $                              $                              $                              $                      

Total

       $                              $                              $                              $                      

 

(1) We have agreed to reimburse the underwriters for certain FINRA-related expenses. See “Underwriting.”

The Company and the selling stockholders have granted the underwriters the right to purchase up to an additional                      shares of Class A common stock to cover over-allotments at the initial public offering price less the underwriting discount.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of Class A common stock on or about                     , 2018.

 

 

Joint Book-Running Managers

 

MORGAN STANLEY     CREDIT SUISSE

                , 2018.


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Neither we, the selling stockholders, nor the underwriters have authorized anyone to provide you with information different from that contained in this prospectus and any free writing prospectus we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We, the selling stockholders and the underwriters are offering to sell shares of Class A common stock and seeking offers to buy shares of Class A common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of any sale of the Class A common stock. Our business, liquidity position, financial condition, prospects or results of operations may have changed since the date of this prospectus.

This prospectus contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. See “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”

Dealer Prospectus Delivery Obligation

Until                 , 2018 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

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COMMONLY USED DEFINED TERMS

 

    “Allied Power Holdings” refers to Allied Power Holdings, LLC, a Delaware limited liability company, an entity indirectly owned by BCP and the Management Members.

 

    “BCP” refers, collectively, to (i) affiliates (including Charah Holdings, LP, a Delaware limited partnership) of and (ii) investment funds affiliated with or managed by, in each case, Bernhard Capital Partners Management, LP.

 

    “CCR” means coal combustion residuals, a byproduct of coal-fired power production, also commonly referred to as coal ash.

 

    “CEP Holdings” means CEP Holdings, Inc., a Delaware corporation owned by Charles Price and certain affiliates.

 

    “Charah Holdings” refers to Charah Holdings, LP, a Delaware limited partnership owned by BCP and certain related affiliates.

 

    “Charah Management” refers to Charah Management, LLC, a Delaware limited liability company, an entity indirectly owned by BCP and the Management Members.

 

    “CHRH Holdings” refers to CHRH Holdings, LLC, a Delaware limited liability company and wholly-owned subsidiary of Charah Solutions (as defined below), which, following the corporate reorganization described in this prospectus, will own our operating subsidiaries through its direct ownership of Charah Sole Member, LLC (“Charah Sole Member”) and Allied Power Sole Member, LLC (“Allied Sole Member”).

 

    “Company,” “we,” “us” or “our” relate, prior to the corporate reorganization described in this prospectus (unless otherwise disclosed), to Charah, LLC and Allied Power Management, LLC, on a combined basis and together with their consolidated subsidiaries (as combined, our “Predecessor,” and each, a “Predecessor Company”), and following the corporate reorganization described in this prospectus, to Charah Solutions, Inc. (“Charah Solutions”) and its consolidated subsidiaries.

 

    “Credit Facility” means the ABL Credit Facility, dated October 25, 2017, by and among Charah, LLC, Allied Power Management, LLC and Allied Power Services, LLC, as borrowers, Charah Sole Member, LLC and Allied Power Sole Member, LLC, as guarantors, the lenders party thereto from time to time, and Regions Bank, as administrative agent, collateral agent, swingline lender and letter of credit issuer.

 

    “Existing Owners” refers, collectively, to Charah Holdings, LP, CEP Holdings, Inc. and the Management Members.

 

    “Management Holdco” refers to CHRH Management Holdings, LLC, a Delaware limited liability company, which will be formed to hold units in CHRH Holdings and shares of Class B common stock that will be distributed in respect of certain management incentive units in Charah Management and Allied Power Holdings held by our officers and other employees, as further described under “Corporate Reorganization.”

 

    “Management Members” refers, collectively, to our current officers and employees who own equity interests in Charah Management and Allied Power Holdings, including through Charah Management Holdings, LLC, a Delaware limited liability company, and Allied Management Holdings, LLC, a Delaware limited liability company.

 

    “Term Loan” means the Term Loan Credit Facility, dated October 25, 2017, by and among Charah, LLC and Allied Power Management, LLC, as borrowers, Charah Sole Member, LLC and Allied Power Sole Member, LLC, as guarantors, the lenders party thereto from time to time, and Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent.

 

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Presentation of Financial and Operating Data

Unless otherwise indicated, the historical financial and operating information presented in this prospectus for the year ended and as of December 31, 2016 is that of Charah, LLC. We present certain operational data in this prospectus that includes the operations of Allied Power Management, LLC, an entity that has been under common control with Charah, LLC since April 2017, the date of formation of Allied Power Management, LLC. In connection with the transactions described under “Corporate Reorganization,” each of Charah Sole Member, LLC and Allied Sole Member, LLC, the sole members of Charah, LLC and Allied Power Management, LLC, respectively, will be contributed to CHRH Holdings, LLC, the subsidiary of which we are the managing member and through which we conduct all of our operations. See “Corporate Reorganization.”

Certain amounts and percentages included in this prospectus have been rounded. Accordingly, in certain instances, the sum of the numbers in a column of a table may not exactly equal the total figure for that column.

Industry and Market Data

The market data and certain other statistical information used throughout this prospectus are based on independent industry publications, government publications and other published sources, including data from the U.S. Energy Information Administration and the U.S. Environmental Protection Agency. Some data are also based on our good faith estimates. Although we believe these third-party sources are reliable as of their respective dates, neither we, the selling stockholders nor the underwriters have independently verified the accuracy or completeness of this information. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section entitled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in these publications.

Trademarks and Trade Names

We own or have rights to various trademarks, service marks and trade names that we use in connection with the operation of our business. This prospectus may also contain trademarks, service marks and trade names of third parties, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this prospectus is not intended to, and does not imply a relationship with, or endorsement or sponsorship by us. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus may appear without the ®, TM or SM symbols, but the omission of such references is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable owner of these trademarks, service marks and trade names.

 

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PROSPECTUS SUMMARY

This summary contains basic information about us and the offering. Because it is a summary, it does not contain all the information that you should consider before investing in our Class A common stock. You should read and carefully consider this entire prospectus before making an investment decision, especially the information presented under the headings “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus.

Except as otherwise indicated, (i) references to “selling stockholders” refer to those persons identified as selling stockholders in “Principal and Selling Stockholders” and (ii) all information contained in this prospectus assumes or reflects no exercise of the underwriters’ option to purchase additional shares of Class A common stock and excludes shares of Class A common stock reserved for issuance under our long-term incentive plan.

Company Overview

We are a leading provider of mission-critical environmental and maintenance services to the power generation industry. We provide on-site, essential services that enable our clients to continue operations and provide necessary electric power to communities nationwide. In 2017, we performed work at 50 coal-fired and nuclear power generation sites nationwide. We are the only service provider offering a suite of coal ash management and recycling, environmental remediation and outage maintenance services. We also design and implement solutions for complex environmental projects (such as ash pond closures) and facilitate coal ash recycling through byproduct sales and other beneficial use services. We believe we are a partner-of-choice for the power generation industry due to our industry-leading quality, safety and compliance record, all of which are key criteria for our customers.

Since our founding, we have continuously anticipated our customers’ evolving environmental needs, increasing the number of services we provide and our embedded presence at their power generation facilities. Compared to service providers with more limited scope, our multi-service platform allows customers to gain efficiencies from sourcing multiple required offerings from a single, trusted partner.

We provide our services through two segments:

Environmental Solutions. Our Environmental Solutions segment includes Remediation and Compliance Services, as well as Byproduct Sales. Remediation and Compliance Services is associated with our customers’ need for multiyear environmental improvement and sustainability initiatives, whether driven by proactive engagement by power generation customers, by regulatory requirements or by consumer expectations and standards. Byproduct Sales supports both our power generation customers’ desire to profitably recycle recurring volumes of coal combustion residuals (“CCRs”) and our ultimate end customers’ need for high-quality, cost-effective raw material substitutes.

Maintenance and Technical Services. Our Maintenance and Technical Services segment includes Fossil Services and Nuclear Services. Fossil Services is the recurring and mission-critical management of coal ash for coal-fired power generation facilities. Nuclear Services, which we market under the Allied Power brand name, includes routine maintenance, outage services, facility maintenance and staffing solutions for nuclear power generation facilities.

As a result of these unique offerings, the embedded nature of our on-site presence and our track record of successful execution, we have built long-term relationships with leading U.S. utilities and independent power producers, including Duke Energy, Exelon Corporation, Dominion Energy, Inc., Dynegy Inc. and PPL



 

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Corporation, among others. In some cases, these relationships have spanned over 20 years. The national scale of our operational footprint is also a key differentiator, as many competitors are localized, focusing on a single geographic area (sometimes isolated to a single plant). We operate in 22 states, resulting in an overall footprint and density in key markets that we believe is difficult to replicate. Our national reach enables us to successfully pursue new business within our existing customer base and attract new customers while providing consistent quality, safety and compliance standards.

Our services platform is led by a senior executive team averaging over 30 years of industry experience and supported by a highly skilled labor force. The nature of our work requires employees, particularly our nuclear end market-related labor force, to have specialized skills, training and certifications in order for them to be allowed on-site at our customers’ facilities. Collectively, our focus on human capital management allows us to maintain and develop a labor force of highly qualified, well-trained personnel capable of handling our customers’ needs.

For the fiscal year ended December 31, 2016, we generated revenue, net income and Adjusted EBITDA of $265.1 million, $20.9 million and $59.0 million, respectively. For more information on Adjusted EBITDA, including a reconciliation to the most directly comparable accounting principles generally accepted in the United States of America (“GAAP”) financial measure, see “—Summary Historical Consolidated Financial and Operating Data.”

Market Opportunity

According to the U.S. Energy Information Administration, as of 2016, there were over 500 large-scale facilities in the U.S. with generation capabilities of at least 250 megawatts, including over 200 coal-fired plants and over 60 nuclear plants (representing 99 nuclear reactors). To maintain continuous operations, these complex facilities have specialized and recurring environmental and maintenance service needs throughout their lifecycles. These service needs are particularly significant for coal-fired and nuclear power plants, given increasing environmental demands, the aging nature of the installed base, and the characteristics of the feedstock required to power such facilities. Due to the breadth and nature of these needs, power plant operators typically do not possess these capabilities internally and instead outsource these mission-critical and often regulatory-driven requirements to a fragmented set of service providers. The continuous need for these specialized services is supported by a number of significant dynamics:

Coal and Nuclear Power Generation Will Remain Indispensable Energy Sources. According to the U.S. Energy Information Administration, as of September 2017, coal and nuclear power generation combined are expected to remain indispensable energy sources for decades, providing at least 1.6 trillion kilowatt hours of energy production annually through 2040. As of November 2017, coal and nuclear power generation combined accounted for approximately 50% of domestic U.S. energy generation and is expected to contribute a similar percentage annually for at least the next five years.

Coal-Fired Power Plants Have Significant and Recurring Environmental Management Needs Associated with Their Waste Byproducts. Coal-fired power plants consistently generate various waste byproducts throughout the power generation process. The primary type of these waste byproducts are CCRs, commonly known as coal ash. According to the American Coal Ash Association, more than 107 million tons of coal ash were generated in 2016, making it one of the largest types of waste in the U.S. Coal ash management is mission-critical to the daily operations of power plants, as they generally only have on-site storage capacity for three to four days of CCR waste accumulation.

Large Installed Base of Legacy Coal Ash Disposal Ponds That Require Remediation. According to the American Coal Ash Association, as of 2016, approximately 44% of coal ash generated was disposed of.



 

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According to the U.S. Environmental Protection Agency (“EPA”), approximately 80% of coal ash that was disposed of in 2012 was disposed of on-site in ash ponds or landfills. As of 2016, the American Coal Ash Association estimated that more than 1.5 billion tons of coal ash existed in ash ponds and landfills around the country. The EPA also estimates, as of 2012, there were over 1,100 active and inactive on-site ash ponds and landfills requiring remediation or closure. These sites are typically large and will require significant capital from their owners as well as specialized environmental expertise to monitor on an ongoing basis, remediate, relocate the waste or completely close in an environmentally sustainable way.

Recycling Waste Byproducts Is a Critical Component of the Coal Ash Value Chain. In 2016, approximately 56% of coal ash was recycled to produce positive environmental, economic and performance benefits such as reduced use of other natural resources, lower greenhouse gas emissions, and improved strength and durability of materials. The leading recycled use of coal ash is as a direct and more economic substitute for cement during the production of concrete (approximately 15 million tons of CCRs annually, as of 2016, according to the American Coal Ash Association).

Routine Nuclear Reactor Maintenance Is Non-Discretionary, Specialized, and Predictable. Given the scale, complexity, and near-constant operational demands on power plants, routine maintenance is critical to the ongoing functionality of each facility. Since it is costly to take nuclear plants offline, plant outages are planned, contracted, and announced far in advance and involve the completion of numerous maintenance services while offline (including inspections, repairs, maintenance, equipment replacement, facility modification, new construction and certifications). We estimate, based on our management’s experience and discussions with customers, our total addressable market for these services (including outsourced maintenance and capital needs) to be in excess of $5 billion annually. We believe this spend will increase over time as the nuclear reactor fleet continues to age and additional maintenance is required.

Power Plant Operators Are Increasingly Focused on Environmental Stewardship and Regulatory Compliance. Power plant operators face increasing pressure from advocacy groups and their communities to manage the environmental risks associated with their operations and, therefore, the industry is increasingly focused on environmental stewardship. Due to the considerable potential consequences associated with environmental liabilities, spending on environmental liability management has increased over time and is expected to increase in the future.

The Power Generation Industry Is Increasingly Requiring Larger Scale Environmental and Maintenance Service Providers. The mounting burden of environmental compliance, consistent need to maintain aging facilities and the focus on continuous and safe plant operations has the power generation industry (coal-fired and nuclear utilities in particular) increasingly seeking larger scale outsourced service providers as partners that can provide a range of services on their behalf. To date, most prospective service providers either have narrow service offerings or a highly localized geographic focus (sometimes limited to a single plant). Therefore, the market opportunity is substantial for specialized environmental and maintenance platforms that can offer a track record of quality service, exceptional safety, exacting environmental standards and a reliable labor force.

Our Strengths

We believe our platform has become a leader in environmental and maintenance services to the power generation industry. Our strengths that support our leading position include:

Industry Leading Quality, Safety and Compliance

We believe we are a partner-of-choice for customers due to our reputation as a leader in quality, safety and compliance. Utilities and independent power producers are generally risk-averse and focus on strong environmental and safety considerations as key factors for awarding on-site service provider contracts. We



 

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believe our reputation for and dedication to quality, industry-leading safety record and adherence to environmental compliance standards provides a distinctive competitive advantage and differentiates us from many of our competitors. These attributes are key contributors to our leading market share positions.

Broad Platform of Mission-Critical Environmental and Maintenance Services

Our broad platform of essential environmental and maintenance services has enabled us to become a leading service provider to our power generation customers. We are the only service provider offering a suite of CCR management and recycling, environmental remediation, and outage maintenance services. Compared to service providers with more limited scope, our platform allows our customers to gain efficiencies and reduce the number of vendors on their sites by sourcing multiple required offerings from a single, trusted partner. This service offering is supported by the national scale of our operational footprint. This is a key differentiator, as many of our competitors are localized, focusing on a single geographic area (sometimes isolated to a single plant). We operate in 22 states across the country, resulting in an overall footprint and density in key markets that we believe is difficult to replicate. Our national reach enables us to successfully pursue new business within our existing customer base and attract new customers while providing consistent quality, safety and compliance standards.

Long-Term Partnerships with Leading Power Generators

Our customers are some of the largest power generation companies in the U.S., including Exelon Corporation, Duke Energy Corporation, and Dominion Energy, Inc. Given the essential nature of our services, our on-site personnel become integrated into the daily procedures of each facility, seamlessly working with utility employees to provide uninterrupted operations. This co-location and integration into the daily operations results in direct relationships with key decision makers at every level within our customers’ organizations. This embedded partnership deepens customer connectivity and drives long-term relationships which are critical for the renewal of existing contracts, winning incremental business from existing customers at new sites, and adding new customers. For example, over the last five years we have achieved an approximately 90% renewal rate for contracts in our Fossil Services offerings up for renewal.

Innovative Solutions to Our Customers’ Environmental Challenges

Our customers regularly face complex, large-scale environmental challenges that require bespoke, technical solutions. We believe we have a proactive and differentiated approach to solving these challenges. Our internal technical and engineering experts have developed deep domain knowledge and capabilities in environmental remediation and beneficial use as a result of our long-term and significant experience in the sector. We believe this credibility, combined with an entrepreneurial mindset, enables us to source market opportunities not readily available to our competitors.

Favorable Contract Dynamics Drive Predictable Financial Model

The contracted nature of our business and depth of our customer relationships provides significant visibility into both revenues and earnings, reflecting the predictable operations of our customers. Our platform of services is contracted for terms generally ranging from 18 months to five years, thereby reducing financial volatility. In excess of 90% of our services work is structured as time and materials, cost reimbursable or unit price contracts, which significantly reduces the risk of loss on contracts and provides gross margin visibility. At the beginning of 2017, 67% of our budgeted revenue for the year was already contracted, not including our Nuclear Services offerings that commenced operations in June 2017, which had 100% of its budgeted revenues contracted. The vast majority of our customers have investment-grade credit ratings and we have never experienced a payment issue with a client. In addition, because our capital expenditures are tied to specific, known contracts and are typically financed, we also have attractive and predictable free cash flow generation.



 

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Entrepreneurial Management Team Supported by Highly Skilled Labor Force

We are led by an experienced management team with an entrepreneurial mindset and keen focus on safety and customer service. Our senior executive team consists of industry veterans averaging over 30 years of industry experience, helping us provide high-quality operational execution and solidify long-term customer relationships. Our ability to hire, develop and retain a highly skilled labor force with specialized skills, training and certifications is a key differentiator in the sector. For example, within our Nuclear Services offering, we have the proven ability to quickly ramp up to in excess of 5,000 employees to align with our customers’ outage schedules and service their planned maintenance needs. Our entrepreneurial mindset drives us to constantly search for new ways to maximize relevance to customers and develop innovative solutions. Our customers have unique certification and training requirements for the service providers they allow on-site.

Our Growth Strategy

Our growth strategy includes the following key initiatives:

Expand Market Share by Capitalizing on the Significant Environmental and Maintenance Needs of Power Generation Customers.

We believe we have a strong growth opportunity in the near-term, as U.S. coal-fired power generation facilities continue to remediate and close ash ponds and landfills. These projects are triggered as coal power plant operators preemptively manage environmental liabilities, comply with regulatory requirements (at the local, state, and federal levels) and work to meet consumer standards for environmental sustainability. We estimate a $3 billion pipeline of near-term remediation and closure projects in the next three years.

Continue to Grow On-Site Services Revenue by Expanding Environmental and Maintenance Offerings.

We believe our broad platform of environmental and maintenance services is a competitive differentiator and therefore continuing to enhance the breadth of services offered to our existing customers is a key growth opportunity. We believe opportunities exist across our platform in waste byproduct management, recycling, environmental remediation and maintenance services. We believe our customers will continue to find value in a full-service platform and welcome the opportunity to source incremental services from an existing, on-site, trusted partner.

Leverage New and Existing Customer Relationships to Maximize Fleet-Wide Opportunities.

Given the breadth of our service offering, the trend among our customers to consolidate service providers, and our access to our customers’ senior decision makers, we believe we are well-positioned to grow our market share with current customers by providing our existing services to other coal-fired and nuclear power plants within their fleets.

Invest in Innovative Technologies, Processes, and Solutions.

We believe investments in new technology and processes present opportunities to provide higher-margin offerings, improve the environment, and enhance relevance to our customers.

Enhance Our Platform via Disciplined Acquisitions.

We believe we can utilize a focused acquisition strategy to add adjacent capabilities and services and enhance stockholder value. We intend to focus on environmental and industrial services, processes and technologies that support our existing capabilities and customer needs. We believe our national scale and market leadership make us a natural consolidator, particularly in our highly fragmented industry.



 

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Our Equity Sponsor

BCP is a private equity firm investing in middle market services businesses across North American energy, industrial and infrastructure complexes with approximately $1.5 billion of assets under management. BCP seeks opportunities to apply its operations-based knowledge and relationships to positively influence the trajectory of its investments. Specifically, BCP leverages its network of world-class managers, expands services businesses across additional verticals to diversify and accelerate growth, and provides flexible buildup and growth capital.

In January 2017, BCP acquired a majority equity position in Charah, LLC.

Following the completion of this offering, BCP and its affiliates, through their interests in Charah Holdings, will hold approximately     % of the voting power of our capital stock. Please see “—Controlled Company Status” for more information.

Corporate Reorganization

We were formed as a Delaware corporation in January 2018. Following this offering and the corporate reorganization described below, we will be a holding company and our sole material asset will consist of membership interests in CHRH Holdings. Through our ownership of CHRH Holdings and its ownership of Charah Sole Member and Allied Sole Member, we will own the outstanding equity interests in Charah, LLC and Allied Power Management, LLC, the subsidiaries through which we will operate our businesses. We refer to the units representing limited liability company interests in CHRH Holdings as “CHRH Holdings LLC Units,” the shares of Class A common stock of Charah Solutions as “Class A common stock” and the shares of Class B common stock of Charah Solutions as “Class B common stock.” After the consummation of the corporate reorganization described below, we will be the sole managing member of CHRH Holdings, and we will be responsible for all operational, management and administrative decisions relating to CHRH Holdings and its subsidiaries’ businesses and will consolidate the financial results of CHRH Holdings and its subsidiaries.

Pursuant to the terms of certain reorganization transactions that will be completed immediately prior to the closing of this offering, (a) Charah Management will contribute all of its interests in Charah Sole Member to CHRH Holdings in exchange for                 CHRH Holdings LLC Units and                 shares of Class B common stock and Allied Power Holdings will contribute all of its interests in Allied Sole Member to CHRH Holdings in exchange for                 CHRH Holdings LLC Units and                 shares of Class B common stock; (b) each of Charah Management and Allied Power Holdings will distribute the equity interests received by them pursuant to clause (a) to the Existing Owners, with such equity interests to be allocated amongst the Existing Owners pursuant to the respective terms of the existing Charah Management and Allied Power Holdings limited liability company agreements and calculated using an implied valuation based on the initial public offering price of the Class A common stock; (c) Management Members that hold management incentive units in Charah Management and Allied Power Holdings will contribute to Management Holdco certain of the equity interests distributed to them in the recapitalization described in clause (b) above in exchange for membership interests in Management Holdco; (d) BCP will exchange                CHRH Holdings LLC Units and an equal number of shares of Class B common stock for                 shares of Class A common stock; (e) Charah Solutions will issue and sell                 shares of Class A common stock and BCP will sell                 shares of Class A common stock to purchasers in this offering; and (f) Charah Solutions will contribute the net proceeds of this offering received by it to CHRH Holdings in exchange for                 CHRH Holdings LLC Units. The membership interests in Management Holdco that will be issued to the Management Members in clause (c) above will be subject to time-based vesting conditions and be subject to continued employment and other conditions, and the Management Members will receive CHRH Holdings LLC Units and shares of Class B common stock upon vesting of such membership interests of Management Holdco. See “Corporate Reorganization.”

To the extent the underwriters’ option to purchase additional shares is exercised in full or in part, (a) BCP will exchange                 CHRH Holdings LLC Units and an equal number of shares of Class B common stock for                shares of Class A common stock and sell such shares of Class A common stock pursuant to such



 

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option exercise and (b) Charah Solutions will contribute the net proceeds from such option exercise to CHRH Holdings in exchange for an additional number of CHRH Holdings LLC Units equal to the number of shares of Class A common stock Charah Solutions issued pursuant to the underwriters’ option.

After giving effect to these transactions and the offering contemplated by this prospectus and assuming the underwriters’ option to purchase additional shares is not exercised:

 

    the Existing Owners will own all of the Class B common stock, representing     % of our capital stock (of which, (i) BCP will own approximately     % of the total issued and outstanding Class B common stock, representing approximately     % of our capital stock, (ii) CEP Holdings, Inc. will own approximately     % of the total issued and outstanding Class B common stock, representing approximately     % of our capital stock and (iii) the Management Members, collectively, will own approximately     % of the total issued and outstanding Class B common stock, including through their interests in Management Holdco, representing approximately     % of our capital stock);

 

    Charah Solutions will own an approximate     % interest in CHRH Holdings; and

 

    the Existing Owners will own an approximate     % interest in CHRH Holdings (of which, (i) BCP will own an approximate     % interest in CHRH Holdings, (ii) CEP Holdings, Inc. will own an approximate     % interest in CHRH Holdings and (iii) the Management Members, collectively, will own an approximate     % interest in CHRH Holdings, including through their interests in Management Holdco).

If the underwriters’ option to purchase additional shares is exercised in full:

 

    the Existing Owners will own all of the Class B common stock, representing     % of our capital stock (of which, (i) BCP will own approximately         % of the total issued and outstanding Class B common stock, representing approximately     % of our capital stock, (ii) CEP Holdings, Inc. will own approximately     % of the total issued and outstanding Class B common stock, representing approximately     % of our capital stock and (iii) the Management Members, collectively, will own approximately     % of the total issued and outstanding Class B common stock, including through their interests in Management Holdco, representing approximately     % of our capital stock);

 

    Charah Solutions will own an approximate     % interest in CHRH Holdings; and

 

    the Existing Owners will own an approximate     % interest in CHRH Holdings (of which, (i) BCP will own an approximate     % interest in CHRH Holdings, (ii) CEP Holdings, Inc. will own an approximate     % interest in CHRH Holdings and (iii) the Management Members, collectively, will own an approximate     % interest in CHRH Holdings, including through their interests in Management Holdco).

The ownership percentages above assume an initial public offering price of $         per share of Class A common stock, the midpoint of the price range set forth on the cover page of this prospectus. Any increase or decrease (as applicable) of the assumed initial public offering price will result in an increase or decrease, respectively, in the number of shares of Class B common stock and CHRH Holdings LLC Units to be allocated amongst the Existing Owners; however, any such change in our initial public offering price will not affect the aggregate number of such equity interests held by our Existing Owners. See “Corporate Reorganization—Existing Owners’ Ownership.”



 

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Risk Factors

Investing in our Class A common stock involves risks. You should read carefully the section of this prospectus entitled “Risk Factors” for an explanation of these risks before investing in our Class A common stock.

Emerging Growth Company Status

We are an “emerging growth company” within the meaning of the Jumpstart Our Business Startups Act (the “JOBS Act”). For as long as we are an emerging growth company, we will not be required to comply with certain requirements that are applicable to other public companies that are not “emerging growth companies” within the meaning of the JOBS Act, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the reduced disclosure obligations regarding executive compensation in our periodic reports. In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. We intend to take advantage of all of the reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under Section 107 of the JOBS Act until we are no longer an emerging growth company. Our election to use the phase-in periods permitted by this election may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the longer phase-in periods under Section 107 of the JOBS Act and who will comply with new or revised financial accounting standards. If we were to subsequently elect instead to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act. Please see “Risk Factors—Taking advantage of the reduced disclosure requirements applicable to ‘emerging growth companies’ may make our common stock less attractive to investors.”

Controlled Company Status

Because BCP, through its interests in Charah Holdings, will initially hold approximately         % of the voting power of our capital stock following the completion of this offering, we expect to be a controlled company as of the completion of the offering under Sarbanes-Oxley and the NYSE and the Nasdaq rules. A controlled company does not need its board of directors to have a majority of independent directors or to form an independent compensation or nominating and corporate governance committee. As a controlled company, we will remain subject to rules of Sarbanes-Oxley and the NYSE or the Nasdaq, as applicable, that require us to have an audit committee composed entirely of independent directors. Under these rules, we must have at least one independent director on our audit committee by the date our Class A common stock is listed on the NYSE or the Nasdaq, as applicable, at least two independent directors on our audit committee within 90 days of the listing date and at least three independent directors on our audit committee within one year of the listing date. We expect to have                independent directors upon the closing of this offering.

If at any time we cease to be a controlled company, we will take all action necessary to comply with Sarbanes-Oxley and the NYSE or the Nasdaq rules, as applicable, including by appointing a majority of independent directors to our board of directors and ensuring we have a compensation committee and a nominating and corporate governance committee, each composed entirely of independent directors, subject to a permitted “phase-in” period.

Our Offices

Our principal executive offices are located at 12601 Plantside Dr., Louisville, Kentucky 40299, and our telephone number at that address is (502) 245-1353. Our website address is www.charah.com. Information contained on our website, or that can be accessed from it, does not constitute part of this prospectus.



 

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The Offering

 

Class A common stock offered by us

                 shares (                  shares if the underwriters’ option to purchase additional shares is exercised in full).

 

Class A common stock offered by the selling stockholders

                 shares (                  shares if the underwriters’ option to purchase additional shares is exercised in full).

 

Total Class A common stock offered

                 shares (                  shares if the underwriters’ option to purchase additional shares is exercised in full).

 

Class A common stock to be outstanding immediately after completion of this offering

                 shares (                  shares if the underwriters’ option to purchase additional shares is exercised in full).

 

Class A common stock owned by the selling stockholders immediately after completion of this offering

                 shares (                  shares if the underwriters’ option to purchase additional shares is exercised in full).

 

Class B common stock to be outstanding immediately after completion of this offering

                 shares (                  shares if the underwriters’ option to purchase additional shares is exercised in full), or one share for each CHRH Holdings LLC Unit held by the Existing Owners immediately following this offering. Class B shares are non-economic. When a CHRH Holdings LLC Unit is exchanged for a share of Class A common stock, a corresponding share of Class B common stock will be cancelled.

 

Voting power of Class A common stock after giving effect to this offering

                % (or                 % if the underwriters’ option to purchase additional shares is exercised in full). The voting power of our Class A common stock would be 100% if all outstanding CHRH Holdings LLC Units held by the CHRH Holdings LLC Unit Holders were exchanged (along with a corresponding number of shares of our Class B common stock) for newly issued shares of Class A common stock on a one-for-one basis.

 

Voting power of Class B common stock after giving effect to this offering

                % (or                 % if the underwriters’ option to purchase additional shares is exercised in full). The



 

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voting power of our Class B common stock would be 0% if all outstanding CHRH Holdings LLC Units held by the CHRH Holdings LLC Unit Holders were exchanged (along with a corresponding number of shares of our Class B common stock) for newly issued shares of Class A common stock on a one-for-one basis.

 

Voting rights

Each share of our Class A common stock entitles its holder to one vote on all matters to be voted on by stockholders generally. Each share of our Class B common stock entitles its holder to one vote on all matters to be voted on by stockholders generally. Holders of our Class A common stock and Class B common stock will vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law or by our amended and restated certificate of incorporation. See “Description of Capital Stock.”

 

Use of proceeds

We expect to receive approximately $         million of net proceeds from the sale of Class A common stock, after deducting underwriting discounts and estimated offering expenses payable by us (assuming the midpoint of the price range set forth on the cover page of this prospectus).

 

  We intend to contribute all of the net proceeds received by us in this offering to CHRH Holdings in exchange for CHRH Holdings LLC Units. CHRH Holdings will use approximately $         million of the net proceeds to repay $         outstanding under the Credit Facility and $         outstanding under the Term Loan and the remaining net proceeds for general corporate purposes. See “Use of Proceeds.”

 

  We will not receive any proceeds from the sale of shares by the selling stockholders.

 

Dividend policy

The declaration and payment of any future dividends to our stockholders will be at the sole discretion of our board of directors. We do not intend to pay cash dividends in the foreseeable future. See “Dividend Policy.” Furthermore, following this offering, we intend to cause CHRH Holdings to make pro rata distributions to its members, including us, in an amount at least sufficient to allow us to pay all applicable taxes, to make payments under the Tax Receivable Agreement we will enter into with the existing members of CHRH Holdings and to pay our corporate and other overhead expenses.


 

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Exchange rights of Existing Owners

Following this offering, under the CHRH Holdings LLC Agreement, each Existing Owner will, subject to certain limitations, have the right to cause CHRH Holdings to acquire all or a portion of its CHRH Holdings LLC Units (along with a corresponding number of shares of our Class B common stock) for, at CHRH Holdings’ election, (i) shares of our Class A common stock at an exchange ratio of one share of Class A common stock for each CHRH Holdings LLC Unit exchanged, subject to conversion rate adjustments for stock splits, stock dividends, reclassification and other similar transactions or (ii) cash in an amount equal to the Cash Election Value of such Class A common stock (the “Exchange Right”). Alternatively, upon the exercise of the Exchange Right, Charah Solutions (instead of CHRH Holdings) will have the right to acquire each tendered CHRH Holdings LLC Unit directly from the exchanging Existing Owner for, at its election, (x) one share of Class A common stock or (y) cash in an amount equal to the value of a share of Class A common stock (the “Call Right”). In connection with any exchange of CHRH Holdings LLC Units pursuant to the Exchange Right or our Call Right, the corresponding number of shares of Class B common stock will be cancelled. See “Certain Relationships and Related Party Transactions—CHRH Holdings LLC Agreement.”

 

Registration Rights Agreements

In connection with the closing of this offering we will enter into a Registration Rights Agreement with certain of the Existing Owners. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

 

Directed Share Program

The underwriters have reserved up to        % of the shares of Class A common stock being offered by this prospectus (excluding the shares of Class A common stock that may be issued upon the underwriters’ exercise of their option to purchase additional Class A common stock) for sale to our directors, officers, employees, business associates and related persons of Charah Solutions. The number of shares of Class A common stock available for sale to the general public will be reduced to the extent these individuals purchase such reserved shares. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. See “Underwriting—Directed Share Program.”


 

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Tax Receivable Agreement

In connection with the closing of this offering, we will enter into a Tax Receivable Agreement with certain of our Existing Owners. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

 

Listing symbol

We intend to apply to list our Class A common stock on the NYSE or the Nasdaq under the symbol “        .”

 

Risk factors

You should carefully read and consider the information set forth under the heading “Risk Factors” and all other information set forth in this prospectus before deciding to invest in our Class A common stock.


 

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Summary Historical Consolidated Financial and Operating Data

Charah Solutions was formed in January 2018 and does not have historical financial results. The following table shows summary historical consolidated financial information of our Predecessor for the periods and as of the dates indicated. The summary historical consolidated financial information at December 31, 2016, and for the year then ended, was derived from the historical audited consolidated financial statements of our Predecessor included elsewhere in this prospectus. The following table should be read together with “Use of Proceeds,” “Selected Historical Consolidated Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Corporate Reorganization” and the financial statements and related notes included elsewhere in this prospectus.

 

     Predecessor  
     Year Ended
December 31, 2016
 
     (in thousands, except
per share data)
 

Statement of Income:

  

Revenue:

  

Environmental Solutions

   $ 218,051  

Maintenance and Technical Services

     47,017  
  

 

 

 

Total revenue

     265,068  

Cost of sales

     203,228  
  

 

 

 

Gross profit:

  

Environmental Solutions

     51,282  

Maintenance and Technical Services

     10,558  
  

 

 

 

Total gross profit

     61,840  

General and administrative expenses

     35,170  
  

 

 

 

Operating income (loss)

     26,670  

Interest expense

     (6,244

Income from equity method investment

     2,703  
  

 

 

 

Net income

     23,129  

Less income attributable to non-controlling interest(1)

     (2,198
  

 

 

 

Net income attributable to Charah, LLC

   $ 20,931  
  

 

 

 

Pro Forma Per Share Data(2):

  

Pro forma net income

   $  

Pro forma non-controlling interest

   $  

Pro forma net income attributable to non-controlling interest

   $  

Pro forma net income per share attributable to common stockholders

   $  

Pro forma provision for income taxes

   $  

Basic

   $  

Diluted

   $  

Pro forma weighted average shares outstanding

  

Basic

  

Diluted

  

Statements of Cash Flows Data:

  

Cash flows from operating activities

   $ 8,351  

Cash flows from investing activities

   $ (15,885

Cash flows from financing activities

   $ 7,298  


 

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     Predecessor  
     Year Ended
December 31, 2016
 
     (in thousands)  

Other Financial Data:

  

Adjusted EBITDA(3)

   $ 58,965  

Adjusted EBITDA margin(3)

     22.7

Balance Sheet Data (at end of year):

  

Total assets

   $ 188,834  

Long-term debt

   $ 113,182  

Total liabilities

   $ 167,488  

Total members’ equity (including non-controlling interest)

   $ 21,346  

 

(1) Relates to one of our joint ventures. For more information, please see Note 3 to our financial statements included herein.
(2) Pro forma net income (loss), net income (loss) per share and weighted average shares outstanding reflect the estimated number of shares of common stock we expect to have outstanding upon the completion of our corporate reorganization described under “ —Corporate Reorganization.” The pro forma data also reflects additional pro forma income tax benefit of $         million for the year ended December 31, 2016 associated with the income tax effects of the corporate reorganization described under “ —Corporate Reorganization.” Our Predecessor was not subject to U.S. federal income tax at an entity level. As a result, the consolidated net income in our historical financial statements does not reflect the tax expense we would have incurred if we were subject to U.S. federal income tax at an entity level during such periods.
(3) Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. For a definition of Adjusted EBITDA and Adjusted EBITDA margin, as well as a reconciliation to our most directly comparable financial measures calculated and presented in accordance with GAAP, please read “—Non-GAAP Financial Measures” immediately below.

Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted EBITDA margin are not financial measures determined in accordance with GAAP. We define Adjusted EBITDA as net income before interest expense, depreciation and amortization, equity-based compensation and income taxes, elimination of certain legacy expenses, amounts from a non-acquired business line, and transaction related expenses and other one-time items. Adjusted EBITDA margin represents the ratio of Adjusted EBITDA to total revenues minus revenues ($5,045) of a non-acquired business line.



 

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We believe Adjusted EBITDA and Adjusted EBITDA margin are useful performance measures because they allow for an effective evaluation of our operating performance when compared to our peers, without regard to our financing methods or capital structure. We exclude the items listed above from net income in arriving at Adjusted EBITDA because these amounts are either non-recurring or can vary substantially within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income determined in accordance with GAAP. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are reflected in Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an indication that our results will be unaffected by the items excluded from Adjusted EBITDA. Our computations of Adjusted EBITDA may not be identical to other similarly titled measures of other companies. We use Adjusted EBITDA margin to measure the success for our business in managing our cost base and improving profitability. The following tables present reconciliations of Adjusted EBITDA to net income, our most directly comparable financial measure calculated and presented in accordance with GAAP, along with our Adjusted EBITDA margin.

 

     Year Ended
December 31, 2016
 
     (in thousands)  

Net income

   $ 20,931  

Interest expense

     6,244  

Depreciation and amortization

     15,601  

Equity-based compensation

     7,352  

Elimination of legacy expenses(1)

     3,910  

Non-acquired business line(2)

     3,768  

Transaction related expenses and other one-time items(3)

     1,159  
  

 

 

 

Adjusted EBITDA

   $ 58,965  

Adjusted EBITDA margin(4)

     22.7

 

(1) Primary components include a change in charitable giving and other business expense policies associated with the BCP investment.
(2) Non-acquired business line item adjusts for a legacy operation of Charah, LLC that was transferred to a stockholder of CEP Holdings in January 2017 prior to the BCP investment.
(3) Transaction related expenses and other one-time items includes certain transaction expenses incurred in connection with the BCP investment as well as certain financing transaction expenses.
(4) Adjusted EBITDA margin is a non-GAAP measure that represents the ratio of Adjusted EBITDA to total revenues minus revenues ($5,045) of a non-acquired business line. We use Adjusted EBITDA margin to measure the success of our businesses in managing our cost base and improving profitability.


 

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RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with the risks and uncertainties described elsewhere in this prospectus, including our historical consolidated financial statements and the related notes contained elsewhere in this prospectus, before you decide to purchase shares of our Class A common stock. If any of the following risks or uncertainties actually occurs, our business, financial condition, results of operations, cash flow and prospects could be materially and adversely affected. As a result, the price of our Class A common stock could decline and you could lose all or part of your investment in our Class A common stock.

Risks Related to Our Business

A decline in the production of CCRs by our coal-fired utility industry customers due to environmental regulations or otherwise could negatively impact our profitability and hinder our growth.

Many of our services are dependent upon the production of CCRs by our coal-fired utility customers. The coal-fired utility industry is facing a number of new and pending initiatives by regulatory authorities seeking to address air and water pollution, greenhouse gas emissions and management and disposal of CCRs. In recent years, federal and state environmental regulation has imposed more stringent requirements regarding emission of air pollutants and other toxic chemicals, reduction of greenhouse gas emissions and water quality impacts from coal operations. Adoption of more stringent regulations governing coal combustion, water discharges or air emissions may decrease the amount of CCRs produced by our customers and, as a result, the demand for our services. Faced with the prospect of more stringent regulations, litigation by environmental groups and the relatively low cost of natural gas, an increasing number of utilities are reducing their portfolio of coal-fired power plants. This reduction could increase if the Clean Power Plan, which urges states to substitute electricity generation from higher-emitting coal plants to low-emitting coal and natural gas plants and zero-emitting renewable sources, is upheld in court and retained by the EPA. See “Business—Regulation.”

Increasing requirements generally will increase the cost of doing business and may make coal burning less attractive for utilities. In recent years, multiple companies have announced plans to close coal-fired power plant units or plants, or dropped plans to open new plants, citing the cost of compliance with pending or new environmental regulations and the relatively low cost of natural gas. A reduction in the use of coal as fuel would cause a decline in the production and availability of CCRs, which would adversely affect our Fossil Services and Byproduct Sales offerings and result in reduced revenues. The outcome of these developments cannot be predicted but could have a material adverse effect on our business, results of operation, financial condition and cash flows.

Unsatisfactory service and safety performance may negatively affect our customer relationships and, to the extent we fail to retain existing customers or attract new customers, adversely impact our revenues.

Our ability to retain existing customers and attract new business is dependent on many factors, including our ability to demonstrate that we can reliably and safely operate our business in a manner that is consistent with our customers’ standards of service as well as applicable laws, rules and permits, which legal requirements are subject to change. Existing and potential customers consider the safety and service record of their third-party service providers to be of high importance in their decision to engage such providers. The power generation industry generally emphasizes safety and service over the lowest cost service provider due to economic and reputational risk associated with operations at their facilities. If one or more accidents were to occur while we are providing services to our customers, or if we were unable to maintain the level of safety and service our customers require, the affected customer may seek to terminate or cancel our services and may be less likely to continue to use our services, which could cause us to lose substantial revenues. Furthermore, our ability to attract new customers may be impaired if they view our safety record or service as unacceptable. In addition, it is possible that we will experience multiple or particularly severe accidents in the future, causing our safety record to deteriorate. This may be more likely as we continue to grow, if we experience high employee turnover or a labor shortage or hire inexperienced personnel to support our staffing needs.

 

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A substantial portion of our Maintenance and Technical Services segment consists of the provision of Nuclear Services offerings to nuclear power plants. To the extent there is a decrease in these plants, either due to reduced investment, increased regulation or otherwise, demand for our Nuclear Services offerings could decrease.

U.S. nuclear capacity and electricity generation are expected to decline due to continuing low natural gas prices and the rapid expansion of low-cost renewable energy and new technologies in the U.S., displacing more traditional sources of power, including nuclear power. Public support for nuclear power has also softened because of concerns about safety and environmental issues and new construction costs.

Very few new nuclear reactors are under construction in the U.S., and several nuclear reactors are undergoing decommissioning. In addition, changes in state and federal government subsidies and increased regulation could also negatively impact the nuclear power industry. For instance, the U.S. Nuclear Regulatory Commission has broad authority under federal law to impose safety-related and other licensing requirements for the operation of nuclear generation facilities, and events at nuclear facilities or other events impacting the industry generally could lead to additional requirements and regulations on all nuclear generation facilities and could negatively impact new construction of or continued generation from nuclear power facilities. A lower number of nuclear power facilities in operation and decrease in related maintenance and construction budgets would have a material adverse effect on our business, results of operation, financial condition and cash flows.

Loss of a large customer may adversely affect our revenue and operating results.

During 2017 and 2016, Duke Energy Corporation (“Duke Energy”) accounted for     % and 68% of our revenues, respectively, through our provision of services at over 10 of their power plants. In 2017, Exelon Corporation (“Exelon”) accounted for     % of our revenues, through our provision of services at 14 of their sites, representing 23 nuclear reactors. It is likely that we will continue to derive a significant portion of our revenue from a relatively small number of customers in the future. If a major customer fails to pay us, revenue would be impacted and our operating results and financial condition could be materially harmed. Additionally, if we were to lose any material customer, such loss would have a material adverse effect on our business.

We and our customers operate in industries subject to significant environmental regulation, and compliance with changes in, or liabilities under, such regulations could add significantly to the costs of conducting business.

Our operations and the operations of our customers are subject to federal, state and local environmental laws and regulations that, among other matters, impose limitations on the discharge of pollutants into the air and water and establish standards for the treatment, storage and disposal of solid, hazardous and radioactive waste materials, remediation of releases of hazardous substances and reclamation of land. In order to conduct our operations, we and our customers have obtained various federal, state and local environmental permits and must comply with these permits and processes and procedures that have been approved by regulatory authorities. These environmental requirements and any failure to comply could give rise to sanctions, including the cessation of all or part of our operations, or substantial fines and penalties, environmental or reclamation liabilities and damages, including natural resource damages and third-party claims. Moreover, changes in environmental laws and regulations occur frequently and any changes that result in more stringent or costly environmental requirements could require us or our customers to make significant expenditures to attain and maintain compliance. New regulations, any failure to comply with existing regulations or environmental liabilities arising thereunder could have a material adverse effect on our business, results of operation, financial condition and cash flows.

Success by environmental groups in convincing the EPA to restrict beneficial uses of CCRs, or to regulate CCRs as hazardous waste, may have an adverse effect on our business.

In April 2015, the EPA published a final rule, Disposal of Coal Combustion Residuals from Utilities, to regulate the disposal of CCRs, including fly ash and bottom ash generated at coal-fired power plants, as

 

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non-hazardous waste under Subtitle D of the Resource Conservation and Recovery Act (“RCRA”), as amended, and to distinguish beneficial use of CCRs from disposal, which became effective in October 2015 (the “CCR Rule”). The CCR Rule establishes national minimum criteria for CCR landfills and impoundments consisting of location restrictions, design and operating criteria, groundwater monitoring and corrective action, closure requirements, post-closure care, recordkeeping and reporting and other requirements, and requires closure of facilities unable to comply with these criteria within five to seven years. The CCR Rule has increased the complexity and cost of managing and disposing of CCRs and the remediation of existing ash ponds and landfills. In addition, Congress passed the Water Infrastructure Improvements for the Nation Act (the “WIIN Act”) in December 2016, which, among other things, authorizes state permit programs to manage CCRs in lieu of the CCR Rule. The WIIN Act also gives the EPA the authority to regulate coal ash in states that choose not to implement state permitting programs and in states whose permitting programs are determined to be inadequate by the EPA.

Some environmental groups continue to urge the EPA to restrict certain beneficial uses of CCRs, such as in concrete, road base and soil stabilization, alleging contaminants may leach into the environment. The CCR Rule created a definition of “beneficial use” that includes uses in concrete and road base, but changes in the definition could reduce the demand for fly ash and other CCRs which would have an adverse effect on our revenues. Moreover, if the EPA were to regulate CCRs as hazardous waste, we, together with CCR generators, could be subject to environmental cleanup, personal injury and other possible claims and liabilities, which could result in significant additional costs. Any such changes in or new regulations or indemnity obligations could have a material adverse effect on our business, results of operation, financial condition and cash flows.

We may be subject in the normal course of business to judicial, administrative or other third-party proceedings that could interrupt or limit our operations, result in adverse judgments, settlements or fines and create negative publicity.

Individuals, citizens groups, trade associations, community groups or environmental activists may bring actions against us in connection with our operations that could interrupt or limit the scope of our business. Many of these matters could raise difficult and complicated factual and legal issues and are subject to uncertainties and complexities. The timing of the final resolutions to lawsuits, regulatory inquiries and governmental and other legal proceedings is uncertain. Additionally, the possible outcomes of or resolutions to these matters could include adverse judgments or settlements, either of which could require substantial payments or other financial obligations. Any adverse outcome in such proceedings could harm our operations and financial results and create negative publicity, which could damage our reputation and competitive position.

In particular, we are a party to a lawsuit filed by a certain environmental advocacy group challenging North Carolina’s authority to issue certain permits related to our Brickhaven mine site. If the courts determine North Carolina exceeded its permitting authority, we could lose 8-10% of our CCR disposal capacity at the Brickhaven mine site, which could have an adverse effect on our operations and financial results. This decision has been appealed by the state, and we expect a ruling by the end of 2018.

One of our subsidiaries, Allied Power Management, LLC, is the subject of litigation. An adverse outcome in this litigation could have a negative impact on our business, financial condition, results of operations and cash flows.

We may, at any given time, be a defendant in various legal proceedings and litigation arising in the ordinary course of business. In July 2017, APTIM Corp. sued Allied Power Management, LLC and certain of its employees and affiliated entities in the U.S. District Court for the Northern District of Illinois, alleging, among other things, misappropriation of alleged trade secrets and civil conspiracy. APTIM also alleged tortious interference with their contractual and business relations because Exelon, our customer whose business makes up 100% of our Nuclear Services revenues, ended their business relationship with APTIM and started a new business relationship with Allied Power Management, LLC. No schedule for the current phase of the case, and no

 

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trial date, has been set. APTIM has not identified its alleged damages. We believe that APTIM’s claims are meritless, and we intend to defend ourselves vigorously. For further information regarding this lawsuit, see “Business—Legal Proceedings.” We cannot predict the outcome of the lawsuit or the amount of time and expense that will be required to resolve the lawsuit. If such litigation were to be determined adversely to our interests, or if we were forced to settle such matter for a significant amount, such resolution or settlement could have a negative effect on our business, results of operations and financial condition.

Increases in labor costs or our ability to find and employ technically skilled labor could impact our financial results.

Our continued success will depend on our ability to attract and retain qualified personnel. Additionally, a significant percentage of our Nuclear Services employees are hired on a seasonal basis as a result of the seasonal (typically every 12 to 24 months) outage maintenance services we provide. We compete with other businesses in our markets for qualified employees. From time to time, the labor supply is tight in some of our markets. A shortage of qualified employees would require us to enhance our wage and benefits packages to compete more effectively for employees, to hire more expensive temporary employees or to contract for services with more expensive third-party vendors. Labor is one of our highest costs and relatively small increases in labor costs per employee could materially affect our cost structure. If we fail to attract and retain qualified employees, control our labor costs or recover any increased labor costs through increased prices we charge for our services or otherwise offset such increases with cost savings in other areas, our operating margins could suffer.

Our employees perform services that involve certain risks, including risks of accident and a failure to maintain a safe work site could result in significant losses.

Safety is a primary focus of our business and is critical to our reputation. Our services can place our employees and others near large equipment, dangerous processes or highly regulated materials, and in challenging environments. Operations in our Environmental Solutions and Maintenance and Technical Services segments involve risks, such as truck accidents, equipment defects, malfunctions and failures and natural disasters, which could potentially result in releases of CCR materials, injury or death of employees and others or a need to shut down or reduce operation of our customers’ facilities while remedial actions are undertaken. We are responsible for safety on the sites where we work and these risks expose us to potential liability for pollution and other environmental damages, personal injury, loss of life, business interruption and property damage or destruction. Unsafe work conditions also have the potential of increasing employee turnover, increasing costs and raising our operating costs. If we fail to implement appropriate safety procedures and/or if our procedures fail, our employees or others may suffer injuries.

Although we maintain functional groups whose primary purpose is to implement effective health, safety and environmental procedures throughout our company, the failure to comply with such procedures, client contracts or applicable regulations could subject us to losses and liability and the potential loss of customers. If we were to incur substantial liabilities in excess of any applicable insurance, our business, results of operations and financial condition could be adversely affected.

Work stoppages, union negotiations and other labor problems could adversely affect us.

At December 31, 2017, approximately     % of our employees were represented by labor unions. The majority of these employees are in the Nuclear Services portion of our Maintenance and Technical Services segment. A lengthy strike or other work stoppage at any of the facilities where we provide Nuclear Services could have a material adverse effect on us. Additional groups of employees may seek union representation in the future. From time to time, we are subject to unfair labor practice charges, complaints and other legal administrative and arbitration proceedings initiated against us by unions, the National Labor Relations Board or our employees, which could negatively impact our operating results. Negotiating collective bargaining

 

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agreements could divert management attention, which could also adversely affect operating results. If we are unable to negotiate acceptable collective bargaining agreements, we may be subject to labor disruptions, such as union-initiated work stoppages, including strikes. Depending on the type and duration of any labor disruptions, our operating expenses could increase significantly, which could adversely affect our financial condition, results of operations and cash flows.

We may be adversely affected by uncertainty in the global financial markets and the deterioration of the financial condition of our customers. If any of our customers suffers financial difficulties affecting their credit risk, our operating results could be negatively impacted.

Our future results may be impacted by the uncertainty caused by an economic downturn, volatility or deterioration in the debt and equity capital markets, inflation, deflation or other adverse economic conditions that may negatively affect us or parties with whom we do business, resulting in a reduction in our customers’ spending and their nonpayment or inability to perform obligations owed to us, such as the failure of customers to honor their commitments. Additionally, downturns in U.S. construction could lower the demand for our Byproduct Sales offerings.

Furthermore, we provide service to a number of power generators. To the extent these entities suffer significant financial difficulties, they could be unable to pay amounts owed to us or renew contracts with us at previous or increased rates. The inability of our customers to pay us in a timely manner or pay increased rates, particularly larger accounts, could negatively affect our operating results. In addition, in the course of our business we hold accounts receivable from our customers. In the event of the financial distress or bankruptcy of a customer, we could lose all or a portion of such outstanding accounts receivable associated with that customer. Further, if a customer was to enter into bankruptcy, it could also result in the cancellation of all or a portion of our service contracts with such customer at significant expense or loss or expected revenue to us.

Our historical financial statements may not be indicative of future performance, and our business may be difficult to evaluate because we have a limited operating history.

Due to our limited operating history, comparisons of our current and future operating results with prior periods are difficult. As a result, our limited historical financial performance as the owner of the acquired assets may make it difficult for stockholders to evaluate our business and results of operations to date and to assess our future prospects and viability.

We are, and upon completion of transactions described under “Corporate Reorganization” will be, a recently combined company with a short combined operating history, which makes it difficult for potential investors to evaluate our prospective business or operations or the merits of an investment in our securities. In addition, Charah, LLC and Allied Power Management, LLC, which will become our operating subsidiaries in connection with the transactions described under “Corporate Reorganization,” have not historically operated on a consolidated or combined basis or under the same management team. These factors may make it more difficult for investors to evaluate our business and prospects and to forecast our future operating results. For example, the historical combined consolidated financial data may not give you an accurate indication of what our actual results would have been if our corporate reorganization or the formation of our management team had been completed at the beginning of the periods presented or of what our future results of operations are likely to be. Our future results will depend on our ability to efficiently manage our combined operations and execute our business strategy.

Our financial results may fluctuate from quarter to quarter, which may make it difficult to predict our future performance.

Our financial results may fluctuate as a result of the seasonal outage maintenance services we provide as part of our Nuclear Services offerings, along with a number of factors, many of which are outside of our control.

 

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Additionally, our other service offerings are subject to quarterly fluctuations from time to time. For these reasons, comparing our financial results on a period-to-period basis may not be meaningful, and our past results should not be relied on as an indication of our future performance. Our future quarterly and annual expenses as a percentage of our revenues may be significantly different from those we have recorded in the past or which we expect for the future. Our financial results in some quarters may fall below expectations. Changes in cost estimates relating to our services, which under percentage-of-completion accounting principles could lead to significant fluctuations in revenue or to changes in the timing of our recognition of revenue from such services, could cause our stock price to fall.

Seasonal and adverse weather conditions adversely affect demand for services and operations.

Weather can have a significant impact on demand as consumption of energy is seasonal, and any variation from normal weather patterns, including due to cooler or warmer summers and winters, can have a significant impact on demand. Adverse weather conditions, such as hurricanes, tropical storms and severe cold weather, may interrupt or curtail our operations or our customers’ operations, and result in a loss of revenue and damage to our equipment and facilities, which may or may not be insured.

We operate in a highly competitive industry and may not be able to compete effectively with larger and better capitalized companies.

While no specific company provides the range of services that we offer, the industries in which we operate are highly competitive and require substantial labor and capital resources. Some of the markets in which we compete or plan to compete are served by one or more large, national companies, as well as by regional and local companies of varying sizes and resources, some of which may have accumulated substantial goodwill in their markets. Some of our competitors may also be better capitalized than we are, have greater name recognition than we do or be able to provide or be willing to bid their services at a lower price than we may be willing to offer. Our inability to compete effectively could hinder our growth or adversely impact our operating results.

We may be unable to make attractive acquisitions or successfully integrate acquired businesses, and any inability to do so may disrupt our business and hinder our ability to grow.

We may from time to time consider opportunities to acquire or make investments in other services and businesses that could enhance our technical capabilities, complement our current services or expand the breadth of our markets. The success of any completed acquisition will depend on our ability to effectively integrate the acquired business into our existing operations. The process of integrating acquired businesses may involve unforeseen difficulties or liabilities and may require a disproportionate amount of our managerial and financial resources. In addition, possible future acquisitions may be larger and for purchase prices significantly higher than those paid for earlier acquisitions. No assurance can be given that we will be able to identify suitable acquisition opportunities, negotiate acceptable terms, obtain financing for acquisitions on acceptable terms or successfully acquire identified targets. Our failure to achieve consolidation savings, to integrate the acquired businesses and assets into our existing operations successfully or to minimize any unforeseen operational difficulties or liabilities could have a material adverse effect on our financial condition and results of operations.

We are vulnerable to significant fluctuations in our liquidity or capital requirements that may vary substantially over time.

Our operations could require us to utilize large sums of working capital, sometimes on short notice and sometimes without assurance of recovery of the expenditures. Environmental liabilities including those arising from various customer contracts and acquisition agreements that require us to indemnify for certain environmental liabilities, litigation risks, unexpected costs or losses resulting from acquisitions, contract initiation or completion delays, political conditions, client payment problems and professional liability or indemnity claims are circumstances or events that could result in significant cash outflows.

 

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We may have difficulty managing growth of our business following the addition of our Nuclear Services offerings, which we provide through Allied Power Management, LLC, to our operations, which could adversely affect our financial condition and results of operations.

The growth of our business could place a significant strain on our financial, technical, operational and management resources. In particular, Allied Power Management, LLC did not operate on a combined basis under our Predecessor until 2017. As we expand the scope of our activities and our geographic coverage through organic growth, there will be additional demands on our financial, technical, operational and management resources. The failure to continue to upgrade our technical, administrative, operating and financial control systems or the occurrences of unexpected expansion difficulties, including the failure to recruit and retain experienced managers and other professionals, could have a material adverse effect on our business, financial condition, results of operations and our ability to successfully or timely execute our business plan.

Restrictive covenants in our debt agreements may restrict our ability to pursue our business strategies. If we fail to comply with the restrictions and covenants in our debt agreements, there could be an event of default under the terms of such agreements, which could result in an acceleration of payment.

Our debt agreements limit our ability to, among other things:

 

    incur indebtedness or contingent obligations;

 

    issue preferred stock;

 

    pay dividends or make distributions to our stockholders;

 

    repurchase or redeem our capital stock or subordinated indebtedness;

 

    make investments;

 

    create liens;

 

    enter into sale/leaseback transactions;

 

    incur restrictions on the ability of our subsidiaries to pay dividends or to make payments to us;

 

    enter into transactions with our stockholders and affiliates;

 

    sell and pledge assets; and

 

    acquire the assets of, or merge or consolidate with, other companies or transfer all or substantially all of our assets.

These covenants may also impair our ability to engage in favorable business activities and our ability to finance future operations or capital needs in furtherance of our business strategies. Moreover, the form or level of our indebtedness may prevent us from raising additional capital on attractive terms or obtaining additional financing if needed. A breach of any of these covenants would result in a default under the applicable agreement after any applicable grace periods. A default could result in acceleration of the indebtedness which would have a material adverse effect on us. If an acceleration occurs, it would likely accelerate all of our indebtedness through cross-default provisions and we would likely be unable to make all of the required payments to refinance such indebtedness. Even if new financing were available at that time, it may not be on terms that are acceptable to us.

Our borrowing levels and debt service obligations could adversely affect our financial condition and impair our ability to fulfill our obligations under our Credit Facility and Term Loan.

At December 31, 2017, we had total outstanding indebtedness of approximately $             million, $             million of which relates to our Term Loan. At December 31, 2017, we had $             million outstanding under our Credit Facility. In addition, at December 31, 2017, letters of credit issued for our account in an

 

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aggregate amount of $             million were outstanding under our Credit Facility. Our indebtedness could have important consequences, including the following:

 

    requiring us to dedicate a substantial portion of our cash flows from operations to the repayment of debt, which reduces the cash available for other business purposes;

 

    limiting our ability to obtain additional financing and creating additional liens on our assets;

 

    limiting our flexibility in planning for, and reacting to, changes in our business;

 

    placing us at a competitive disadvantage if we are more leveraged than our competitors;

 

    making us more vulnerable to adverse economic and industry conditions; and

 

    restricting us from making additional investments or acquisitions by limiting our aggregate debt obligations.

To the extent that new debt is incurred in addition to our current debt levels, the leverage risks described above would increase.

The limitation or the modification of the Price-Anderson Act’s indemnification authority and similar federal programs for nuclear and other potentially hazardous activities could adversely affect our business.

The Price-Anderson Act (“PAA”) provides indemnification to the nuclear industry against liability arising from nuclear incidents at non-military facilities in the U.S. while still ensuring compensation for the general public. The Energy Policy Act of 2005 extended the period of coverage to include all nuclear power reactors issued construction permits through December 31, 2025. Because we provide services to the nuclear energy industry in the ongoing maintenance and modification of its nuclear energy plants, we are entitled to the indemnification protections under the PAA. Although the PAA’s indemnification provisions are broad, it does not apply to all liabilities that we might incur while performing services as a contractor.

If the contractor protection currently provided by the PAA is significantly modified, is not approved for, or does not extend to all of our services, our business could be adversely affected by either our clients’ refusal to retain us for potentially covered services or our inability to obtain commercially adequate insurance and indemnification, or we may be subject to potentially material liabilities in connection with the performance of our services.

Increases in interest rates could adversely impact the price of our shares, our ability to issue equity or incur debt for acquisitions or other purposes.

Interest rates on future borrowings, credit facilities and debt offerings could be higher than current levels, causing our financing costs to increase accordingly. A rising interest rate environment could have an adverse impact on the price of our shares, our ability to issue equity or incur debt for acquisitions or other purposes.

We may lose contracts through competitive bidding or early termination.

Many of our contracts are for a specified term and are or will be subject to competitive bidding in the future. Although we intend to bid on additional contracts, we may not always be the successful bidder. In addition, some or all of our customers may terminate their contracts with us prior to their scheduled expiration dates. If we are not able to replace lost revenues resulting from unsuccessful competitive bidding, early termination or the renegotiation of existing contracts with other revenues within a reasonable time period, our results of operations and financial condition could be adversely affected.

 

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We could be precluded from entering into or maintaining permits or certain contracts if we are unable to obtain sufficient third-party financial assurance or adequate insurance coverage.

Our operations in our Environmental Solutions and Maintenance and Technical Services segments sometimes require us to obtain performance or surety bonds, letters of credit or other means of financial assurance to secure our contractual performance. We currently obtain performance and surety bonds from multiple financial institutions; however, if we are unable to obtain financial assurance in the future in sufficient amounts from appropriately rated sureties or at acceptable rates, we could be precluded from entering into additional municipal contracts or from obtaining or retaining landfill management or other contracts or operating permits. Any future difficulty in obtaining insurance could also impair our ability to secure future contracts conditioned upon having adequate insurance coverage.

If we are unable to fully protect the confidentiality of our trade secrets, or if competitors are able to replicate our technology or services, we may suffer a loss in our competitive advantage or market share.

We do not have patents or patent applications relating to many of our key processes and technology. If we are not able to maintain the confidentiality of our trade secrets, or if our competitors are able to replicate our technology or services, our competitive advantage would be diminished. We cannot assure you we will be able to prevent our competitors from employing comparable technologies or processes.

In addition, third parties from time to time may initiate litigation against us by asserting that the conduct of our business infringes, misappropriates or otherwise violates intellectual property rights. If we are sued for infringement and lose, we could be required to pay substantial damages and/or be enjoined from using or selling the infringing products or technology. Any legal proceeding concerning intellectual property could be protracted and costly regardless of the merits of any claim, is inherently unpredictable and could have a material adverse effect on our financial condition, regardless of its outcome.

Additionally, we currently license certain third-party intellectual property in connection with our business, and the loss of any such license could adversely impact our financial condition and results of operations.

We are subject to cyber security risks and interruptions or failures in our information technology systems. A cyber incident could occur and result in information theft, data corruption, operational disruption and/or financial loss.

We depend on digital technologies to process and record financial and operating data and rely on sophisticated information technology systems and infrastructure to support our business, including process control technology. At the same time, cyber incidents, including deliberate attacks, have increased. The U.S. government has issued public warnings that indicate that energy assets might be specific targets of cyber security threats. Our technologies, systems and networks and those of our vendors, suppliers and other business partners may become the target of cyberattacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of proprietary and other information, or other disruption of business operations. In addition, certain cyber incidents, such as surveillance, may remain undetected for an extended period. Our systems for protecting against cyber security risks may not be sufficient. As the sophistication of cyber incidents continues to evolve, we will likely be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate any vulnerability to cyber incidents. Additionally, any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures, usage errors by employees, computer viruses, cyber-attacks or other security breaches or similar events. The failure of any of our information technology systems may cause disruptions in our operations, which could adversely affect our revenues and profitability.

Risks Related to This Offering and Our Class A Common Stock

We are a holding company. Our sole material asset after completion of this offering will be our equity interest in CHRH Holdings, and we are accordingly dependent upon distributions from CHRH Holdings

 

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to pay taxes, make payments under the Tax Receivable Agreement and cover our corporate and other overhead expenses.

We are a holding company and will have no material assets other than our equity interest in CHRH Holdings. See “Corporate Reorganization.” We have no independent means of generating revenue. To the extent CHRH Holdings has available cash, we intend to cause CHRH Holdings to make distributions to its unitholders, including us, in an amount sufficient to cover all applicable taxes at assumed tax rates and payments under the Tax Receivable Agreement we will enter into with CHRH Holdings and the CHRH Holdings LLC Unit Holders and to reimburse us for our corporate and other overhead expenses. We are limited, however, in our ability to cause CHRH Holdings and its subsidiaries to make these and other distributions to us due to the restrictions under our credit facilities. To the extent that we need funds and CHRH Holdings or its subsidiaries are restricted from making such distributions under applicable law or regulations or under the terms of our financing arrangements, or are otherwise unable to provide such funds, it could materially adversely affect our liquidity and financial condition.

The requirements of being a public company, including compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the requirements of Sarbanes-Oxley, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.

As a public company, we will need to comply with laws, regulations and requirements that are new to us, including certain corporate governance provisions of Sarbanes-Oxley, related regulations of the SEC and the requirements of the NYSE or the Nasdaq, as applicable, with which we are not required to comply as a private company. Complying with these statutes, regulations and requirements will occupy a significant amount of time of our board of directors and management and will significantly increase our costs and expenses. We will need to:

 

    institute a more comprehensive compliance function;

 

    comply with rules promulgated by the NYSE or the Nasdaq, as applicable;

 

    continue to prepare and distribute periodic public reports in compliance with our obligations under the federal securities laws;

 

    establish new internal policies, such as those relating to insider trading; and

 

    involve and retain to a greater degree outside counsel and accountants in the above activities.

Furthermore, while we generally must comply with Section 404 of Sarbanes-Oxley for our fiscal year ending December 31, 2019, we are not required to have our independent registered public accounting firm attest to the effectiveness of our internal controls until our first annual report subsequent to our ceasing to be an “emerging growth company” within the meaning of Section 2(a)(19) of the Securities Act. Accordingly, we may not be required to have our independent registered public accounting firm attest to the effectiveness of our internal controls until as late as our annual report for the fiscal year ending December 31, 2023. Once it is required to do so, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed, operated or reviewed. Compliance with these requirements may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.

In addition, we expect that being a public company subject to these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

 

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The initial public offering price of our Class A common stock may not be indicative of the market price of our Class A common stock after this offering. In addition, an active, liquid and orderly trading market for our Class A common stock may not develop or be maintained, and our stock price may be volatile.

Prior to this offering, our Class A common stock was not traded on any market. An active, liquid and orderly trading market for our Class A common stock may not develop or be maintained after this offering. Active, liquid and orderly trading markets usually result in less price volatility and more efficiency in carrying out investors’ purchase and sale orders. The market price of our Class A common stock could vary significantly as a result of a number of factors, some of which are beyond our control. In the event of a drop in the market price of our Class A common stock, you could lose a substantial part or all of your investment in our Class A common stock. The initial public offering price will be negotiated between us, the selling stockholders and representatives of the underwriters, based on numerous factors that we discuss in “Underwriting,” and may not be indicative of the market price of our Class A common stock after this offering. Consequently, you may not be able to sell shares of our Class A common stock at prices equal to or greater than the price paid by you in this offering.

The following factors could affect our stock price:

 

    quarterly variations in our financial and operating results;

 

    the public reaction to our press releases, our other public announcements and our filings with the SEC;

 

    strategic actions by our competitors;

 

    changes in revenues or earnings estimates, or changes in recommendations or withdrawal of research coverage, by equity research analysts;

 

    speculation in the press or investment community;

 

    the failure of research analysts to cover our Class A common stock;

 

    sales of our Class A common stock by us or other stockholders, or the perception that such sales may occur;

 

    equity capital markets transactions by competitors, including by way of initial public offerings;

 

    changes in accounting principles, policies, guidance, interpretations or standards;

 

    additions or departures of key management personnel;

 

    actions by our stockholders;

 

    general market conditions, including fluctuations in commodity prices;

 

    changes in, or investors’ perception of, the industries in which we operate;

 

    litigation involving us, our industry, or both;

 

    domestic and international economic, legal and regulatory factors unrelated to our performance; and

 

    the realization of any risks described under this “Risk Factors” section.

BCP and its respective affiliates will collectively hold a substantial majority of our common stock.

Holders of Class A common stock and Class B common stock will vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law or our certificate of incorporation. Upon completion of this offering (assuming no exercise of the underwriters’ option to purchase additional shares), BCP and its affiliates will own approximately     % of our Class B common stock (representing     % of our capital stock).

 

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BCP and its affiliates will together have the ability to elect all of the members of our board of directors, and thereby to control our management and affairs. In addition, they will be able to determine the outcome of all matters requiring stockholder approval, including mergers and other material transactions, and will be able to cause or prevent a change in the composition of our board of directors or a change in control of our company that could deprive our stockholders of an opportunity to receive a premium for their Class A common stock as part of a sale of our company. The existence of significant stockholders may also have the effect of deterring hostile takeovers, delaying or preventing changes in control or changes in management, or limiting the ability of our other stockholders to approve transactions that they may deem to be in the best interests of our company.

So long as BCP and its affiliates continues to control a significant amount of our common stock, each will continue to be able to strongly influence all matters requiring stockholder approval, regardless of whether or not other stockholders believe that a potential transaction is in their own best interests. In any of these matters, the interests of BCP and its affiliates may differ or conflict with the interests of our other stockholders. For example, BCP and its affiliates may, from time to time, acquire interests in businesses that directly or indirectly compete with our business, as well as businesses that are significant existing or potential customers. BCP and its affiliates may acquire or seek to acquire assets that we seek to acquire and, as a result, those acquisition opportunities may not be available to us or may be more expensive for us to pursue. Moreover, this concentration of stock ownership may also adversely affect the trading price of our Class A common stock to the extent investors perceive a disadvantage in owning stock of a company with a controlling stockholder.

We have identified material weaknesses and a significant deficiency in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations.

As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in those internal controls, subject to any exemptions that we avail ourselves to under the JOBS Act. For example, we will be required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of Sarbanes-Oxley. We are in the process of designing, implementing, and testing internal control over financial reporting required to comply with this obligation.

We and our independent registered public accounting firm have identified material weaknesses in internal control over financial reporting as of December 31, 2016. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses related to the misapplication of GAAP in accounting for our deferred stock plan then in place and ineffective controls over the financial statement close and reporting processes.

We also identified a significant deficiency related to our debt reconciliation process. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.

We are taking steps to remedy these material weaknesses and significant deficiency by establishing more robust processes supporting internal controls over financial reporting, including accounting policies and procedures and our engagement of consultants to assist management in determining and evaluating new accounting positions. We can give no assurance that these actions will remediate this deficiency in internal control or that additional material weaknesses or significant deficiencies in our internal control over financial reporting will not be identified in the future. Our failure to implement and maintain effective internal control over financial reporting could result in errors in our financial statements that could result in a restatement of our financial statements and cause us to fail to meet our reporting obligations. Ineffective internal controls could also

 

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cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our Class A common stock.

BCP and its respective affiliates are not limited in their ability to compete with us, and the corporate opportunity provisions in our amended and restated certificate of incorporation could enable BCP to benefit from corporate opportunities that might otherwise be available to us.

Our governing documents will provide that BCP and its respective affiliates (including portfolio investments of BCP its affiliates) are not restricted from owning assets or engaging in businesses that compete directly or indirectly with us. In particular, subject to the limitations of applicable law, our amended and restated certificate of incorporation will, among other things:

 

    permit BCP and its respective affiliates to conduct business that competes with us and to make investments in any kind of property in which we may make investments; and

 

    provide that if BCP or its respective affiliates, or any employee, partner, member, manager, officer or director of BCP or its respective affiliates who is also one of our directors or officers, becomes aware of a potential business opportunity, transaction or other matter, they will have no duty to communicate or offer that opportunity to us.

BCP or its respective affiliates may become aware, from time to time, of certain business opportunities (such as acquisition opportunities) and may direct such opportunities to other businesses in which they have invested, in which case we may not become aware of or otherwise have the ability to pursue such opportunity. Furthermore, such businesses may choose to compete with us for these opportunities, possibly causing these opportunities to not be available to us or causing them to be more expensive for us to pursue. In addition, BCP and its respective affiliates may dispose of properties or other assets in the future, without any obligation to offer us the opportunity to purchase any of those assets. As a result, our renouncing our interest and expectancy in any business opportunity that may be from time to time presented to BCP and its respective affiliates could adversely impact our business or prospects if attractive business opportunities are procured by such parties for their own benefit rather than for ours.

We have engaged in transactions with our affiliates and expect to do so in the future. The terms of such transactions and the resolution of any conflicts that may arise may not always be in our or our stockholders’ best interests.

We have engaged in transactions and expect to continue to engage in transactions with affiliated companies, as described under the caption “Certain Relationships and Related Party Transactions.” The terms of such transactions and the resolution of any conflicts that may arise may not always be in our or our stockholders’ best interests.

Our amended and restated certificate of incorporation and amended and restated bylaws, as well as Delaware law, will contain provisions that could discourage acquisition bids or merger proposals, which may adversely affect the market price of our Class A common stock.

Our amended and restated certificate of incorporation will authorize our board of directors to issue preferred stock without stockholder approval. If our board of directors elects to issue preferred stock, it could be more difficult for a third party to acquire us. In addition, some provisions of our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for a third party to acquire control of us, even if the change of control would be beneficial to our stockholders, including:

 

    after BCP and its affiliates no longer collectively hold more than 50% of the voting power of our common stock, dividing our board of directors into three classes of directors, with each class serving staggered three-year terms;

 

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    after BCP and its affiliates no longer collectively hold more than 50% of the voting power of our common stock, providing that all vacancies, including newly created directorships, may, except as otherwise required by law or, if applicable, the rights of holders of a series of preferred stock, only be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum (prior to such time, vacancies may also be filled by stockholders holding a majority of the outstanding shares entitled to vote);

 

    after BCP and its affiliates no longer collectively hold more than 50% of the voting power of our common stock, permitting any action by stockholders to be taken only at an annual meeting or special meeting rather than by a written consent of the stockholders, subject to the rights of any series of preferred stock with respect to such rights;

 

    after BCP and its affiliates no longer collectively hold more than 50% of the voting power of our common stock, permitting special meetings of our stockholders to be called only by our board of directors pursuant to a resolution adopted by the affirmative vote of a majority of the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships (prior to such time, a special meeting may also be called at the request of stockholders holding a majority of the outstanding shares entitled to vote);

 

    after BCP and its affiliates no longer collectively hold more than 50% of the voting power of our common stock, requiring the affirmative vote of the holders of at least 662/3% in voting power of all then outstanding common stock entitled to vote generally in the election of directors, voting together as a single class, to remove any or all of the directors from office at any time, and directors will be removable only for “cause”;

 

    prohibiting cumulative voting in the election of directors;

 

    establishing advance notice provisions for stockholder proposals and nominations for elections to the board of directors to be acted upon at meetings of stockholders; and

 

    providing that the board of directors is expressly authorized to adopt, or to alter or repeal our bylaws.

In addition, certain change of control events have the effect of accelerating the payment due under our Tax Receivable Agreement, which could be substantial and accordingly serve as a disincentive to a potential acquirer of our company. See“—In certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual benefits, if any, we realize in respect of the tax attributes subject to the Tax Receivable Agreement.”

Our amended and restated certificate of incorporation will designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.

Our amended and restated certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, (iii) any action asserting a claim against us or any director or officer or other employee of ours arising pursuant to any provision of the Delaware General Corporation Law (the “DGCL”), our amended and restated certificate of incorporation or our bylaws, or (iv) any action asserting a claim against us or any director or officer or other employee of ours that is governed by the internal affairs doctrine, in each such case subject to such Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented to, the provisions of our amended and restated certificate of incorporation described in the preceding sentence. This choice of forum

 

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provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and such persons. Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.

Investors in this offering will experience immediate and substantial dilution of $            per share.

Based on an assumed initial public offering price of $             per share (the midpoint of the range set forth on the cover of this prospectus), purchasers of our Class A common stock in this offering will experience an immediate and substantial dilution of $             per share in the as adjusted net tangible book value per share of Class A common stock from the initial public offering price, and our as adjusted net tangible book value as of December 31, 2017 after giving effect to this offering would be $             per share. This dilution is due in large part to earlier investors having paid substantially less than the initial public offering price when they purchased their shares. See “Dilution.”

We do not intend to pay cash dividends on our Class A common stock, and our Credit Facility and Term Loan place certain restrictions on our ability to do so. Consequently, your only opportunity to achieve a return on your investment is if the price of our Class A common stock appreciates.

We do not plan to declare cash dividends on shares of our Class A common stock in the foreseeable future. Additionally, our Credit Facility places certain restrictions on our ability to pay cash dividends. Consequently, your only opportunity to achieve a return on your investment in us will be if you sell your Class A common stock at a price greater than you paid for it. There is no guarantee that the price of our Class A common stock that will prevail in the market will ever exceed the price that you pay in this offering.

Future sales of our Class A common stock in the public market could reduce our stock price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us.

Subject to certain limitations and exceptions, the CHRH Holdings LLC Unit Holders may exchange their CHRH Holdings LLC Units (together with a corresponding number of shares of Class B common stock) for shares of Class A common stock (on a one-for-one basis, subject to conversion rate adjustments for stock splits, stock dividends and reclassification and other similar transactions) and then sell those shares of Class A common stock. Additionally, we may issue additional shares of Class A common stock or convertible securities in subsequent public offerings. After the completion of this offering, we will have                 outstanding shares of Class A common stock and                 outstanding shares of Class B common stock. This number includes                 shares of Class A common stock that we and the selling stockholders are selling in this offering and the                 shares of Class A common stock that we may sell in this offering if the underwriters’ option to purchase additional shares is fully exercised, which may be resold immediately in the public market. Following the completion of this offering, BCP and its respective affiliates will own                 shares of Class B common stock, representing approximately     % (or     % if the underwriters’ option to purchase additional shares is exercised in full) of our total outstanding common stock. All such shares are restricted from immediate resale under the federal securities laws and are subject to the lock-up agreements between such parties and the underwriters described in “Underwriting,” but may be sold into the market in the future. We expect that certain of the Existing Owners will be party to a registration rights agreement with us that will require us to effect the registration of their shares in certain circumstances no earlier than the expiration of the lock-up period contained in the underwriting agreement entered into in connection with this offering. See “Shares Eligible for Future Sale” and “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

In connection with this offering, we intend to file a registration statement with the SEC on Form S-8 providing for the registration of                  shares of our Class A common stock issued or reserved for issuance

 

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under our equity incentive plan. Subject to the satisfaction of vesting conditions and the expiration of lock-up agreements, shares registered under the registration statement on Form S-8 will be available for resale immediately in the public market without restriction.

We cannot predict the size of future issuances of our Class A common stock or securities convertible into Class A common stock or the effect, if any, that future issuances and sales of shares of our Class A common stock will have on the market price of our Class A common stock. Sales of substantial amounts of our Class A common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices of our Class A common stock.

The underwriters of this offering may waive or release parties to the lock-up agreements entered into in connection with this offering, which could adversely affect the price of our Class A common stock.

We, all of our directors and executive officers, and the selling stockholders have entered or will enter into lock-up agreements with respect to their Class A common stock, pursuant to which they will be subject to certain resale restrictions with respect to the sale or other disposition of our Class A common stock for a period of 180 days following the effectiveness date of the registration statement of which this prospectus forms a part. Morgan Stanley & Co. LLC and Credit Suisse Securities (USA) LLC, at any time and without notice, may release all or any portion of the Class A common stock subject to the foregoing lock-up agreements. If the restrictions under the lock-up agreements are waived, then Class A common stock will be available for sale into the public markets, which could cause the market price of our Class A common stock to decline and impair our ability to raise capital.

We will be required to make payments under the Tax Receivable Agreement for certain tax benefits that we may claim, and the amounts of such payments could be significant.

In connection with the closing of this offering, we will enter into a Tax Receivable Agreement with the TRA Holders, as defined in “Corporate Reorganization.” This agreement will generally provide for the payment by us to each TRA Holder of 85% of the net cash savings, if any, in U.S. federal, state and local income and franchise tax that we actually realize (computed using the estimated impact of state and local taxes) or are deemed to realize in certain circumstances in periods after this offering as a result of certain increases in tax basis and certain benefits attributable to imputed interest. We will retain the benefit of the remaining 15% of these cash savings.

The term of the Tax Receivable Agreement will commence upon the completion of this offering and will continue until all tax benefits that are subject to the Tax Receivable Agreement have been utilized or expired, unless we exercise our right to terminate the Tax Receivable Agreement (or the Tax Receivable Agreement is terminated due to other circumstances, including our breach of a material obligation thereunder or certain mergers, asset sales, other forms of business combination or other changes of control), and we make the termination payments specified in the Tax Receivable Agreement. In addition, payments we make under the Tax Receivable Agreement will be increased by any interest accrued from the due date (without extensions) of the corresponding tax return.

The payment obligations under the Tax Receivable Agreement are our obligations and not obligations of CHRH Holdings, and we expect that the payments we will be required to make under the Tax Receivable Agreement will be substantial. Estimating the amount and timing of payments that may become due under the Tax Receivable Agreement is by its nature imprecise. For purposes of the Tax Receivable Agreement, cash savings in tax generally are calculated by comparing our actual tax liability (computed using the estimated impact of state and local taxes) to the amount we would have been required to pay had we not been able to utilize any of the tax benefits subject to the Tax Receivable Agreement. The actual increase in tax basis, as well as the amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including the timing of the redemptions of CHRH Holdings LLC Units, the price of our Class A common

 

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stock at the time of each redemption, the extent to which such redemptions are taxable transactions, the amount of the redeeming CHRH Holdings LLC Unit Holder’s tax basis in its CHRH Holdings LLC Units at the time of the relevant redemption, the depreciation and amortization periods that apply to the increase in tax basis, the amount, character and timing of the taxable income we generate in the future, the U.S. federal income tax rates then applicable, and the portion of our payments under the Tax Receivable Agreement that constitute imputed interest or give rise to depreciable or amortizable tax basis.

Our ability to realize the tax benefits that we currently expect to be available as a result of the increases in tax basis created by redemptions and our ability to utilize the interest deductions imputed under the Tax Receivable Agreement depend on a number of assumptions, including that we earn sufficient taxable income each year during the period over which such deductions are available and that there are no adverse changes in applicable law or regulations. If our actual taxable income was insufficient or there were adverse changes in applicable law or regulations, we may be unable to realize all or a portion of these expected benefits and our cash flows could be negatively affected.

The payments under the Tax Receivable Agreement will not be conditioned upon a holder of rights under the Tax Receivable Agreement having a continued ownership interest in either CHRH Holdings or us. For additional information regarding the Tax Receivable Agreement, see “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

In certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual benefits, if any, we realize in respect of the tax attributes subject to the Tax Receivable Agreement.

If we elect to terminate the Tax Receivable Agreement early or it is terminated early due to our breach of a material obligation thereunder or due to certain mergers, asset sales, other forms of business combinations or other changes of control, our obligations under the Tax Receivable Agreement would accelerate and we would be required to make an immediate payment equal to the present value of the anticipated future payments to be made by us under the Tax Receivable Agreement (determined by applying a discount rate equal to one-year London Interbank Offered Rate (“LIBOR”) plus      basis points). The calculation of anticipated future payments will be based on certain assumptions and deemed events set forth in the Tax Receivable Agreement, including (i) the assumption that we have sufficient taxable income to fully utilize the tax benefits covered by the Tax Receivable Agreement (including having sufficient taxable income to currently utilize any accumulated net operating loss carryforwards) and (ii) the assumption that any CHRH Holdings LLC Units (other than those held by us) outstanding on the termination date are deemed to be redeemed on the termination date. Any early termination payment may be made significantly in advance of the actual realization, if any, of the future tax benefits to which the termination payment relates.

As a result of either an early termination or a change of control, we could be required to make payments under the Tax Receivable Agreement that exceed our actual cash tax savings under the Tax Receivable Agreement. In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales or other forms of business combinations or changes of control that could be in the best interests of holders of our Class A common stock. For example, if the Tax Receivable Agreement were terminated immediately after this offering, the present value of the estimated termination payments would, in the aggregate, be approximately $             million (calculated using a discount rate equal to one-year LIBOR plus      basis points, applied against an undiscounted liability of approximately $             million). The foregoing amount is merely an estimate and the actual payment could differ materially. There can be no assurance that we will be able to finance our obligations under the Tax Receivable Agreement.

See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

 

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In the event that our payment obligations under the Tax Receivable Agreement are accelerated upon certain mergers, other forms of business combinations or other changes of control, the consideration payable to holders of our Class A common stock could be substantially reduced.

If we experience a change of control (as defined under the Tax Receivable Agreement, which includes certain mergers, asset sales and other forms of business combinations), we would be obligated to make a substantial, immediate lump-sum payment, and such payment may be significantly in advance of, and may materially exceed, the actual realization, if any, of the future tax benefits to which the payment relates. As a result of this payment obligation, holders of our Class A common stock could receive substantially less consideration in connection with a change of control transaction than they would receive in the absence of such obligation. Further, our payment obligations under the Tax Receivable Agreement will not be conditioned upon the TRA Holders’ having a continued interest in us or CHRH Holdings. Accordingly, the TRA Holders’ interests may conflict with those of the holders of our Class A common stock. See “—In certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual benefits, if any, we realize in respect of the tax attributes subject to the Tax Receivable Agreement” and “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

We will not be reimbursed for any payments made under the Tax Receivable Agreement in the event that any tax benefits are subsequently disallowed.

Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we will determine. The TRA Holders will not reimburse us for any payments previously made under the Tax Receivable Agreement if any tax benefits that have given rise to payments under the Tax Receivable Agreement are subsequently disallowed, except that excess payments made to any TRA Holder will be netted against payments that would otherwise be made to such TRA Holder, if any, after our determination of such excess. As a result, in such circumstances, we could make payments that are greater than our actual cash tax savings, if any, and may not be able to recoup those payments, which could adversely affect our liquidity.

In certain circumstances, CHRH Holdings will be required to make tax distributions to the CHRH Holdings LLC Unit Holders, including us, and the tax distributions that CHRH Holdings will be required to make may be substantial. To the extent we receive tax distributions in excess of our tax liabilities and obligations to make payments under the Tax Receivable Agreement and do not distribute such cash balances as dividends on our Class A common stock, the CHRH Holdings LLC Unit Holders (other than us) would benefit from such accumulated cash balances if they exercise their Redemption Right.

CHRH Holdings is treated as a partnership for U.S. federal income tax purposes and, as such, is not subject to U.S. federal income tax. Instead, taxable income will be allocated to the CHRH Holdings LLC Unit Holders, including us. Pursuant to the CHRH Holdings LLC Agreement, CHRH Holdings will make generally pro rata cash distributions, or tax distributions, to the CHRH Holdings LLC Unit Holders, including us, calculated using an assumed tax rate, to allow each of the CHRH Holdings LLC Unit Holders to pay its respective taxes on such holder’s allocable share of CHRH Holdings’ taxable income; such tax distributions will be calculated after taking into account certain other distributions or payments received by the CHRH Holdings LLC Unit Holders from CHRH Holdings or Charah Solutions Under applicable tax rules, CHRH Holdings is required to allocate taxable income disproportionately to its members in certain circumstances. Because tax distributions will be determined based on the CHRH Holdings LLC Unit Holder that is allocated the largest amount of taxable income on a per unit basis and on an assumed tax rate that is the highest possible rate applicable to any CHRH Holdings LLC Unit Holder, but will be made pro rata based on ownership, CHRH Holdings will be required to make tax distributions that, in the aggregate, will likely exceed the amount of taxes that CHRH Holdings would have paid if it were taxed on its net income at the assumed rate. The pro rata distribution amounts will also be increased to the extent necessary, if any, to ensure that the amount distributed to Charah Solutions is sufficient to enable Charah Solutions to pay its actual tax liabilities and amounts payable under the Tax Receivable Agreement (other than accelerated amounts payable under the Tax Receivable Agreement as a result of a change of control or termination event, which we expect to be subject to restrictions contained in our Credit Facility).

 

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Funds used by CHRH Holdings to satisfy its tax distribution obligations will not be available for reinvestment in our business. Moreover, the tax distributions CHRH Holdings will be required to make may be substantial, and may exceed (as a percentage of CHRH Holdings’ income) the overall effective tax rate applicable to a similarly situated corporate taxpayer. In addition, because these payments will be calculated with reference to an assumed tax rate, and because of the disproportionate allocation of taxable income, these payments will likely significantly exceed the actual tax liability for many of the CHRH Holdings LLC Unit Holders.

As a result of potential differences in the amount of taxable income allocable to us and to the other CHRH Holdings LLC Unit Holders, as well as the use of an assumed tax rate in calculating CHRH Holdings’ tax distribution obligations, we may receive distributions significantly in excess of our tax liabilities and obligations to make payments under the Tax Receivable Agreement. If we do not distribute such cash balances as dividends on our Class A common stock and instead, for example, hold such cash balances or lend them to CHRH Holdings, the CHRH Holdings LLC Unit Holders (other than us) would benefit from any value attributable to such accumulated cash balances as a result of their ownership of Class A common stock following a redemption of their CHRH Holdings LLC Units pursuant to the Redemption Right or their receipt of an equivalent amount of cash.

If CHRH Holdings were to become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, we and CHRH Holdings might be subject to potentially significant tax inefficiencies, and we would not be able to recover payments previously made by us under the Tax Receivable Agreement even if the corresponding tax benefits were subsequently determined to have been unavailable due to such status.

We intend to operate such that CHRH Holdings does not become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes. A “publicly traded partnership” is a partnership, the interests of which are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof. Under certain circumstances, redemptions of CHRH Holdings LLC Units pursuant to a Redemption Right (or our Call Right) or other transfers of CHRH Holdings LLC Units could cause CHRH Holdings to be treated as a publicly traded partnership. Applicable U.S. Treasury regulations provide for certain safe harbors from treatment as a publicly traded partnership, and we intend to operate such that redemptions or other transfers of CHRH Holdings LLC Units qualify for one or more such safe harbors. For example, we intend to limit the number of CHRH Holdings LLC Unit Holders, and the CHRH Holdings LLC Agreement, which will be entered into in connection with the closing of this offering, will provide for limitations on the ability of CHRH Holdings LLC Unit Holders to transfer their CHRH Holdings LLC Units and will provide us, as managing member of CHRH Holdings, with the right to impose restrictions (in addition to those already in place) on the ability of CHRH Holdings LLC Unit Holders to redeem their CHRH Holdings LLC Units pursuant to the Redemption Right to the extent we believe it is necessary to ensure that CHRH Holdings will continue to be treated as a partnership for U.S. federal income tax purposes.

If CHRH Holdings were to become a publicly traded partnership, significant tax inefficiencies might result for us and for CHRH Holdings, including as a result of our inability to file a consolidated U.S. federal income tax return with CHRH Holdings. In addition, we may not be able to realize tax benefits covered under the Tax Receivable Agreement, and we would not be able to recover any payments previously made by us under the Tax Receivable Agreement, even if the corresponding tax benefits (including any claimed increase in the tax basis of CHRH Holdings’ assets) were subsequently determined to have been unavailable.

We may issue preferred stock, the terms of which could adversely affect the voting power or value of our Class A common stock.

Our amended and restated certificate of incorporation will authorize us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations

 

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and relative rights, including preferences over our Class A common stock respecting dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our Class A common stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the Class A common stock.

We expect to be a “controlled company” within the meaning of NYSE and Nasdaq rules and, as a result, will qualify for and intend to rely on exemptions from certain corporate governance requirements.

Upon completion of this offering, BCP and its respective affiliates will hold a majority of the voting power of our capital stock. As a result, we expect to be a controlled company within the meaning of NYSE and Nasdaq corporate governance standards, as applicable. Under NYSE and Nasdaq rules, a company of which more than 50% of the voting power for the election of directors is held by an individual, a group or another company is a controlled company and may elect not to comply with certain NYSE or Nasdaq corporate governance requirements, as applicable, including the requirements that:

 

    a majority of the board of directors consist of independent directors as defined under the rules of the NYSE and the Nasdaq;

 

    the nominating and governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

    the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

These requirements will not apply to us as long as we remain a controlled company. Following this offering, we intend to utilize some or all of these exemptions. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE or the Nasdaq, as applicable. See “Management.”

Taking advantage of the reduced disclosure requirements applicable to “emerging growth companies” may make our common stock less attractive to investors.

We qualify as an “emerging growth company” as defined in the JOBS Act. An emerging growth company may take advantage of certain reduced reporting and other requirements that are otherwise applicable generally to public companies. Pursuant to these reduced disclosure requirements, emerging growth companies are not required to, among other things, comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, provide certain disclosures regarding executive compensation, hold stockholder advisory votes on executive compensation or obtain stockholder approval of any golden parachute payments not previously approved. In addition, emerging growth companies have longer phase-in periods for the adoption of new or revised financial accounting. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenue, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period.

We intend to take advantage of all of the reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under Section 107 of the JOBS Act, until we are no longer an emerging growth company. If we were to subsequently elect instead to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.

Our election to use the phase-in periods permitted by this election may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have

 

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opted out of the longer phase-in periods under Section 107 of the JOBS Act and who will comply with new or revised financial accounting standards. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our common stock price may be more volatile. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies.

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our Class A common stock or if our operating results do not meet their expectations, our stock price could decline.

The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover our company adversely changes his or her recommendation with respect to our Class A common stock or if our operating results do not meet their expectations, our stock price could decline.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The information in this prospectus includes “forward-looking statements.” All statements, other than statements of historical fact included in this prospectus, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this prospectus, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Risk Factors” included in this prospectus. These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.

Forward-looking statements may include statements about:

 

    our business strategy;

 

    our operating cash flows, the availability of capital and our liquidity;

 

    our future revenue, income and operating performance;

 

    our ability to sustain and improve our utilization, revenues and margins;

 

    our ability to maintain acceptable pricing for our services;

 

    our future capital expenditures;

 

    our ability to finance equipment, working capital and capital expenditures;

 

    competition and government regulations;

 

    our ability to obtain permits and governmental approvals;

 

    pending legal or environmental matters or liabilities;

 

    pending litigation involving Allied Power Management, LLC;

 

    environmental hazards;

 

    industrial accidents;

 

    business or asset acquisitions;

 

    general economic conditions;

 

    credit markets;

 

    our ability to successfully develop our research and technology capabilities and implement technological developments and enhancements;

 

    uncertainty regarding our future operating results; and

 

    plans, objectives, expectations and intentions contained in this prospectus that are not historical.

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, the risks described under “Risk Factors” in this prospectus. Should one or more of the risks or uncertainties described in this prospectus occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

 

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All forward-looking statements, expressed or implied, included in this prospectus are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this prospectus.

 

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USE OF PROCEEDS

We expect to receive approximately $            million of net proceeds from the sale of Class A common stock, after deducting underwriting discounts and estimated offering expenses payable by us (assuming the midpoint of the price range set forth on the cover page of this prospectus). We intend to contribute all of the net proceeds received by us in this offering to CHRH Holdings in exchange for CHRH Holdings LLC Units. CHRH Holdings will use approximately $            million of the net proceeds to repay $            outstanding under the Credit Facility and $            outstanding under the Term Loan and the remaining net proceeds for general corporate purposes. We will not receive any proceeds from the sale of shares by the selling stockholders.

Our Term Loan matures on October 25, 2024, and our Credit Facility matures on October 25, 2022. As of December 31, 2017, $         million was outstanding under the Term Loan, which bears interest at 3-month LIBOR plus 6.25% (7.7% as of December 31, 2017). As of December 31, 2017, we had $            million outstanding under the Credit Facility, which bears interest at 3-month LIBOR plus 2.00% (        % as of December 31, 2017) and $         in letters of credit under the Credit Facility. The Credit Facility also carries a 0.50% fee for unused capacity and a 2.00% fee for outstanding letters of credit. The outstanding borrowings under the Term Loan were incurred to recapitalize the business, including a dividend return to stockholders, and for general corporate purposes.

A $1.00 increase or decrease in the assumed initial public offering price of $            per share would cause the net proceeds from this offering received by us, after deducting the underwriting discounts and commissions and estimated offering expenses, to increase or decrease, respectively, by approximately $            million, assuming the number of shares offered by us (as set forth on the cover page of this prospectus) remains the same. If the proceeds increase due to a higher initial public offering price, we would use the additional net proceeds for general corporate purposes. If the proceeds decrease due to a lower initial public offering price, we would first reduce by a corresponding amount the net proceeds to be used for general corporate purposes, and then, if necessary, the net proceeds directed to repayment of amounts outstanding under the Credit Facility and Term Loan.

 

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DIVIDEND POLICY

We currently anticipate that we will retain all future earnings, if any, to finance the growth and development of our business. We do not intend to pay cash dividends in the foreseeable future. Our future dividend policy is within the discretion of our board of directors and will depend upon then-existing conditions, including our results of operations, financial condition, capital requirements, investment opportunities, statutory restrictions on our ability to pay dividends and other factors our board of directors may deem relevant. Our Credit Facility and our Term Loan restrict our ability to pay cash dividends to holders of our Class A common stock. Furthermore, following this offering, we intend to cause CHRH Holdings to make pro rata distributions to its members, including us, in an amount at least sufficient to allow us to pay all applicable taxes, to make payments under the Tax Receivable Agreement we will enter into with the existing members of CHRH Holdings and to pay our corporate and other overhead expenses.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2017:

 

    on an actual basis; and

 

    as adjusted to give effect to (i) the transactions described under “Corporate Reorganization,” (ii) the sale of shares of our Class A common stock in this offering at the initial public offering price of $                per share (the midpoint of the price range set forth on the cover of this prospectus) and (iii) the application of net proceeds from this offering as set forth under “Use of Proceeds.”

You should read the following table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this prospectus. The information presented below assumes no exercise of the underwriters’ option to purchase additional shares. The table does not reflect shares of Class A common stock reserved for issuance under our long-term incentive plan, which we plan to adopt in connection with this offering.

 

     As of December 31, 2017  
     Actual      As
Adjusted(1)
 
    

(in thousands, except number

of shares and par value)

 

Cash and cash equivalents

   $                       $                   

Long-term debt, including current portion:

     

Credit Facility(2)

   $      $  

Term Loan

   $      $  

Equipment Financing Facilities

   $      $  

Total debt

   $      $  

Members’/Stockholders’ equity:

     

Members’ equity

   $      $  

Preferred stock, $0.01 par value; no shares authorized, issued or outstanding (actual),                  shares authorized, no                 shares issued and outstanding (as adjusted)

         

Class A common stock, $0.01 par value; no shares authorized, issued or outstanding (actual);                  shares authorized,                  shares issued and outstanding (as adjusted)

         

Class B common stock, $0.01 par value, no shares authorized, issued or outstanding (actual);                  shares authorized,                 shares issued and outstanding (as adjusted)

         

Additional paid-in capital

     

Non-controlling interest

     
  

 

 

    

 

 

 

Total members’/stockholders’ equity

   $      $  
  

 

 

    

 

 

 

Total capitalization

   $      $  
  

 

 

    

 

 

 

 

(1)

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share (which is the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) each of additional paid-in capital, total members’/stockholders’ equity and total capitalization by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase (decrease) of one million shares offered by us at an assumed offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this

 

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  prospectus, would increase (decrease) cash and cash equivalents by approximately $             (            )    million and increase (decrease) additional paid-in capital, total members’/stockholders’ equity and total capitalization each by approximately $                 (            )    million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(2) As of December 31, 2017, the borrowing base under our Credit Facility was $             million. As of December 31, 2017, we had $             million of outstanding borrowings under our Credit Facility and $             million of letters of credit outstanding.

 

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DILUTION

Purchasers of the Class A common stock in this offering will experience immediate and substantial dilution in the net tangible book value per share of the Class A common stock for accounting purposes. Our net tangible book value as of December 31, 2017, after giving pro forma effect to the transactions described under “Corporate Reorganization,” was approximately $        million, or $        per share of Class A common stock. Pro forma net tangible book value per share is determined by dividing our pro forma tangible net worth (tangible assets less total liabilities) by the total number of outstanding shares of Class A common stock (assuming that 100% of our CHRH Holdings LLC Units have been exchanged for Class A common stock) that will be outstanding immediately prior to the closing of this offering including giving effect to our corporate reorganization.

After giving effect to the sale of the shares in this offering and further assuming the receipt of the estimated net proceeds (after deducting estimated underwriting discounts and commissions and estimated offering expenses), our adjusted pro forma net tangible book value as of December 31, 2017 would have been approximately $        million, or $        per share. This represents an immediate increase in the net tangible book value of $        per share to the Existing Owners and an immediate dilution (i.e., the difference between the offering price and the adjusted pro forma net tangible book value after this offering) to new investors purchasing shares in this offering of $        per share. The following table illustrates the per share dilution to new investors purchasing shares in this offering (assuming that 100% of our CHRH Holdings LLC Units have been exchanged for Class A common stock):

 

Initial public offering price per share of Class A common stock

      $                   

Pro forma net tangible book value per share of Class A common stock as of December 31, 2017 (after giving effect to our corporate reorganization)

   $                      

Increase per share of Class A common stock attributable to new investors in this offering

     
  

 

 

    

As adjusted pro forma net tangible book value per share of Class A common stock after giving further effect to this offering

     
     

 

 

 

Dilution in pro forma net tangible book value per share of Class A common stock to new investors in this offering(1)

      $               
     

 

 

 

 

(1) If the initial public offering price were to increase or decrease by $1.00 per share, then dilution in pro forma net tangible book value per share to new investors in this offering would equal $        or $        , respectively.

The following table summarizes, on an adjusted pro forma basis as of December 31, 2017, the total number of shares of Class A common stock owned by the Existing Owners (assuming that 100% of our CHRH Holdings LLC Units have been exchanged for Class A common stock) and to be owned by new investors, the total consideration paid and the average price per share paid by the Existing Owners and to be paid by new investors in this offering at $        , calculated before deduction of estimated underwriting discounts and commissions.

 

     Shares Acquired     Total Consideration     Average
Price Per
Share
 
     Number      Percent     Amount      Percent    
     (in thousands)  

Existing Owners(1)

               $                            $               

New investors in this offering(2)

               $                            $               
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

               $                            $               
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(1) The number of shares disclosed for the Existing Owners includes                 shares as selling stockholders in this offering.
(2) The number of shares disclosed for the new investors does not include the                shares being purchased by the new investors from the Existing Owners in this offering.

 

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The data in the table excludes                shares of Class A common stock initially reserved for issuance under our long-term incentive plan.

If the underwriters’ option to purchase additional shares is exercised in full, the number of shares held by new investors will be increased to                , or approximately     % of the total number of shares of Class A common stock.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA

Charah Solutions was formed in January 2018 and does not have historical financial results. The following table shows summary historical consolidated financial information of our Predecessor for the periods and as of the dates indicated. The summary historical consolidated financial information at December 31, 2016, and for the year then ended, was derived from the historical audited consolidated financial statements of our Predecessor included elsewhere in this prospectus. The following table should be read together with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Corporate Reorganization” and the financial statements and related notes thereto included elsewhere in this prospectus.

 

     Predecessor  
     Year Ended
December 31, 2016
 
    

(in thousands, except

per share data)

 

Statement of Income:

  

Revenue:

  

Environmental Solutions

   $ 218,051  

Maintenance and Technical Services

     47,017  
  

 

 

 

Total revenue

     265,068  

Cost of sales

     203,228  
  

 

 

 

Gross profit:

  

Environmental Solutions

     51,282  

Maintenance and Technical Services

     10,558  
  

 

 

 

Total gross profit

     61,840  

General and administrative expenses

     35,170  
  

 

 

 

Operating income (loss)

     26,670  

Interest expense

     (6,244

Income from equity method investment

     2,703  
  

 

 

 

Net income

     23,129  
  

 

 

 

Less income attributable to non-controlling interest(1)

     (2,198
  

 

 

 

Net income attributable to Charah, LLC

   $ 20,931  
  

 

 

 

Pro Forma Per Share Data:(2)

  

Pro forma net income

   $  

Pro forma non-controlling interest

   $  

Pro forma net income attributable to non-controlling interest

   $               

Pro forma net income per share attributable to common stockholders

   $               

Pro forma provision for income taxes

   $  

Basic

   $               

Diluted

   $               

Pro forma weighted average shares outstanding

  

Basic

  

Diluted

  

Statements of Cash Flows Data:

  

Cash flows from operating activities

   $ 8,351  

Cash flows from investing activities

   $ (15,885

Cash flows from financing activities

   $ 7,298  

Other Financial Data:

  

Adjusted EBITDA(3)

   $ 58,965  

Adjusted EBITDA margin(3)

     22.7

 

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     Predecessor  
     Year Ended
December 31, 2016
 
     (in thousands)  

Balance Sheet Data (at end of year):

  

Total assets

   $ 188,834  

Long-term debt

   $ 113,182  

Total liabilities

   $ 167,488  

Total members’ equity (including non-controlling interest)

   $ 21,346  

 

(1) Relates to one of our joint ventures. For more information, please see Note 3 to our financial statements included herein.
(2) Pro forma net income (loss), net income (loss) per share and weighted average shares outstanding reflect the estimated number of shares of common stock we expect to have outstanding upon the completion of our corporate reorganization described under “Corporate Reorganization.” The pro forma data also reflects additional pro forma income tax benefit of $             million for the year ended December 31, 2016 associated with the income tax effects of the corporate reorganization described under “Corporate Reorganization.” Our Predecessor was not subject to U.S. federal income tax at an entity level. As a result, the consolidated net income in our historical financial statements does not reflect the tax expense we would have incurred if we were subject to U.S. federal income tax at an entity level during such periods.
(3) Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. For a definition of Adjusted EBITDA and Adjusted EBITDA margin, as well as a reconciliation to our most directly comparable financial measures calculated and presented in accordance with GAAP, please read “Summary—Non-GAAP Financial Measures.”

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the “Prospectus Summary—Summary Historical Consolidated Financial and Operating Data,” “Selected Historical Consolidated Financial and Operating Data” and the financial statements and related notes appearing elsewhere in this prospectus. This discussion contains “forward-looking statements” reflecting our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors. Factors that could cause or contribute to such differences include, but are not limited to, capital expenditures, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors discussed below and elsewhere in this prospectus, particularly in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements,” all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We assume no obligation to update any of these forward-looking statements.

Overview

We are a leading provider of mission-critical environmental and maintenance services to the power generation industry. We provide on-site, essential services that enable our clients to continue operations and provide necessary power to communities nationwide. In 2017, we performed work at 50 coal-fired and nuclear power generation sites nationwide. We are the only service provider offering a suite of coal ash management and recycling, environmental remediation and outage maintenance services. We also design and implement solutions for complex environmental projects (such as ash pond closures) and facilitate coal ash recycling through byproduct sales and other beneficial use services. We believe we are a partner-of-choice for the power generation industry due to our industry-leading quality, safety and compliance record, all of which are key criteria for our customers.

Since our founding, we have continuously anticipated our customers’ evolving environmental needs, increasing the number of services we provide and our embedded presence at their power generation facilities. Compared to service providers with more limited scope, our multi-service platform allows customers to gain efficiencies from sourcing multiple required offerings from a single, trusted partner. As a result of these unique offerings, the embedded nature of our on-site presence and our track record of successful execution, we have built long-term relationships with leading U.S. utilities and independent power producers. We operate in 22 states, resulting in an overall footprint and density in key markets that we believe is difficult to replicate.

We conduct our operations through two segments: Environmental Solutions and Maintenance and Technical Services.

Environmental Solutions. Our Environmental Solutions segment includes Remediation and Compliance Services, as well as Byproduct Sales offerings. Remediation and Compliance Services is associated with our customers’ need for multiyear environmental improvement and sustainability initiatives, whether driven by proactive engagement by power generation customers, by regulatory requirements or by consumer expectations and standards. Byproduct Sales supports both our power generation customers’ desire to profitably recycle recurring volumes of CCRs and our ultimate end customers’ need for high-quality, cost-effective raw material substitutes.

Maintenance and Technical Services. Our Maintenance and Technical Services segment includes Fossil Services and, from and after April 2017 when Allied Power Management, LLC was created, Nuclear Services. Fossil Services is the recurring management of coal ash for coal-fired power generation facilities. Nuclear Services includes routine maintenance, outage services, facility maintenance and staffing solutions for nuclear power generation facilities. The Maintenance and Technical Services segment offerings are most closely

 

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associated with the ongoing operations of power plants, whether in the form of daily environmental management or required maintenance services (typically during planned outages).

We believe there is an expanding market opportunity for our platform, and we have a focused growth strategy to capture new business. As the environmental and maintenance needs of our power generation customers increase, we believe we can capture incremental market share across our business by capitalizing on the significant pipeline of near-term environmental remediation and closure projects, growing our on-site service revenue through expanded offerings and maximizing fleet-wide opportunities among new and existing customers. We also intend to augment these strategies by investing in innovative technologies, processes and solutions, as well as pursuing disciplined acquisitions.

How We Evaluate Our Operations

We use a variety of financial and operational metrics to assess the performance of our operations, including:

 

    Revenues;

 

    Gross Margin;

 

    Operating Income;

 

    Adjusted EBITDA; and

 

    Adjusted EBITDA Margin.

Revenues

We analyze our revenues by comparing actual revenues to our internal projections for a given period and to prior periods to assess our performance. We believe that revenues are a meaningful indicator of the demand and pricing for our services.

Gross Margin

We analyze our gross margin, which we define as revenues less cost of sales, to measure our financial performance. We believe gross margin is a meaningful metric because it provides insight on financial performance of our revenue streams without consideration of company overhead. When analyzing gross margin we compare actual gross margin to our internal projections for a given period and to prior periods to assess our performance.

Operating Income

We analyze our operating income, which we define as revenues less cost of sales and general and administrative expenses, to measure our financial performance. We believe operating income is a meaningful metric because it provides insight on profitability and true operating performance based on the historical cost basis of our assets. We also compare operating income to our internal projections for a given period and to prior periods.

Adjusted EBITDA and Adjusted EBITDA Margin

We view Adjusted EBITDA and Adjusted EBITDA Margin, which are non-GAAP financial measures, as an important indicator of performance. We define Adjusted EBITDA as net income before interest expense, depreciation and amortization, equity-based compensation and income taxes, elimination of certain legacy expenses, amounts from a non-acquired business line and transaction related expenses and other one-time items. Adjusted EBITDA margin represents the ratio of Adjusted EBITDA to total revenues minus revenues ($5,045) of

 

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a non-acquired business line. See “Prospectus Summary—Summary Historical Consolidated Financial and Operating Data” and “—Non-GAAP Measures” for more information and reconciliations of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.

Key Factors Affecting Our Business and Financial Statements

Ability to Capture New Contracts and Opportunities

Our ability to grow revenue and earnings is contingent on maintaining and increasing our market share, renewing existing contracts and obtaining additional contracts from proactive bidding on contracts with new and existing customers. We proactively work with existing customers ahead of contract end dates to secure contract renewals. We also leverage the embedded long-term nature of our customer relationships to obtain insight into and capture new business opportunities across our platform.

Seasonality of Business

Based on historic trends, we expect our operating results to vary seasonally. Nuclear power generators perform turnaround and outages in the off peak months where demand is lower and capacity is less constrained. As a result, our Nuclear Services offerings may have higher revenue volume in the spring and fall months. Weather can also have an impact on our business as the consumption of energy is seasonal and variations in normal weather patterns can influence energy demand and associated services. These variations can impact the regularity of our business performance, particularly within our Fossil Services offerings.

Project-Based Nature of Environmental Remediation Mandates

We believe there is a significant pipeline of ash ponds and landfills that will require remediation or closure in the future. Because of their scale and complexity, these environmental remediation projects are typically completed over longer periods of time. As a result, our revenues from these projects can fluctuate over time. Some of our revenues from projects are recognized using percentage of completion accounting for GAAP purposes. This method of revenue recognition is determined by estimating the percentage of completion on a job and the ultimate estimated gross profit margin on the job. Revenues booked may differ from revenue billed, sometimes resulting in costs and billing in excess of actual revenues. Because of the risks in estimating long term jobs, actual results may differ from these estimates.

Byproduct Recycling Market Dynamics

There is a growing demand for recycled coal ash across a variety of applications. Pricing of byproduct sales is driven by supply and demand market dynamics, in addition to the chemical and physical properties of coal ash. As demand increases for the end-products that use recycled coal-fired power generation waste byproducts (i.e. concrete for construction and infrastructure projects), the demand for recycled coal ash also typically increases. These fluctuations affect the relative demand for our Byproduct Sales offerings. In recessionary periods, construction and infrastructure spending and the corresponding need for concrete may decline. However, this unfavorable effect may be partially offset by an increase in the demand for recycled coal ash during a recessionary period given coal ash is more cost-effective than other alternatives.

Power Generation Industry Spend on Environmental Liability Management and Regulatory Requirements

The power generation industry has increased annual spending on environmental liability management. We believe this is the result of not only regulatory and consumer pressure, but also the industry’s increasing focus on environmental stewardship. Continued increases in spending on environmental liability management by our customers should result in increased demand for services across our platform.

 

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Cost Management and Capital Investment Efficiency

Our main operating costs consist of labor and material costs and equipment maintenance. We maintain a focus on cost management and efficiency, including monitoring labor costs, both in terms of wage rates and headcount, along with other costs such as materials and equipment. We maintain a disciplined approach to capital expenditure decisions, which are typically associated with specific contract requirements. Furthermore, we strive to extend the useful life of our equipment through the application of a well-planned routine maintenance program.

How We Generate Revenues

The Environmental Solutions segment generates revenue through our Remediation and Compliance Services, as well as Byproduct Sales offerings. Our Remediation and Compliance Services offerings primarily consist of designing, constructing, managing, remediating, and closing ash ponds and landfills on customer-owned sites. Our Byproduct Sales offerings include the recycling of recurring and contracted volumes of coal-fired power generation waste byproducts, such as bottom ash, fly ash and gypsum byproduct, each of which can be used for various industrial purposes. Our platform of services is contracted for terms generally ranging from 18 months to five years, thereby reducing financial volatility. In excess of 90% of our services work is structured as time and materials, cost reimbursable or unit price contracts, which significantly reduces the risk of loss on contracts and provides gross margin visibility. Revenue from management contracts is recognized when the ash is hauled to the landfill or the management services are provided. Revenue from the sales of ash is recognized when it is delivered to the customer.

The Maintenance and Technical Services segment generates revenue through our Fossil Services and Nuclear Services offerings. Maintenance and Technical Services segment offerings are most closely associated with the ongoing operations of power plants, whether in the form of daily environmental management or required maintenance services (typically during planned outages). Our Fossil Services offerings focus on recurring and mission-critical management of coal ash for coal-fired power generation facilities to fulfill an environmental service need of our customers in handling their waste byproducts. Our Nuclear Services operations, which goes to market under the Allied Power brand name, consists of a broad platform of mission-critical professional, technical and craft services spanning the entire asset life cycle of a nuclear power generator. The services are performed on the customer’s site and the contract terms typically range between three to five years. Revenues are billed and paid on a monthly basis during the term of the contract. Our Nuclear Services revenues may experience spikes related to shutdowns of generators. This embedded partnership deepens customer connectivity and drives long-term relationships which are critical for the renewal of existing contracts, winning incremental business from existing customers at new sites and adding new customers. For example, over the last five years, we have achieved an approximately 90% renewal rate for contracts in our Fossil Services offerings up for renewal.

Costs of Conducting Our Business

The principal expenses involved in conducting our business are labor and material costs, most of which is included in cost of goods sold. Additionally, we have general and administrative expenses primarily comprised of sales and marketing expense. Expenses related to subcontracting and equipment are also key expenses in our business.

Basis of Presentation

Charah Solutions, Inc. was formed in January 2018, and has not and will not conduct any material business operations prior to the transactions described under “Corporate Reorganization,” other than certain activities related to this offering. The historical financial data presented herein for the year ended and as of December 31, 2016 is that of Charah, LLC, our predecessor for financial reporting purposes. The historical consolidated

 

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financial information of our Predecessor is not indicative of the results that may be expected in any future periods. For more information, please see the historical consolidated financial statements and related notes thereto included elsewhere in this prospectus.

Factors Impacting the Comparability of Results of Operations

Public Company Costs

We expect to incur incremental, non-recurring costs related to our transition to a publicly traded and taxable corporation, including the costs of this initial public offering and the costs associated with the initial implementation of our Sarbanes-Oxley Section 404 internal control implementation and testing. We also expect to incur additional significant and recurring expenses as a publicly traded corporation, including costs associated with the employment of additional personnel, compliance under the Exchange Act, annual and quarterly reports to common stockholders, registrar and transfer agent fees, national stock exchange fees, audit fees, incremental director and officer liability insurance costs and director and officer compensation.

Corporate Reorganization

We were incorporated to serve as the issuer in this offering and have no previous operations, assets or liabilities. Charah Sole Member and Allied Sole Member will be contributed to us in connection with this offering in connection with the transactions described under “Corporate Reorganization” and will thereby become our subsidiaries. As we integrate our operations and further implement controls, processes and infrastructure, it is likely that we will incur incremental selling, general and administrative expenses relative to historical periods. In addition, we will enter into a Tax Receivable Agreement with the TRA Holders. This agreement generally will provide for the payment by us to a TRA Holder of 85% of the net cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize (or are deemed to realize in certain circumstances) in periods after this offering as a result of (i) any tax basis increases resulting from the contribution in connection with this offering by such TRA Holder of all or a portion of its CHRH Holdings LLC Units to Charah Solutions, Inc. in exchange for shares of Class A common stock, (ii) the tax basis increases resulting from the exchange by such TRA Holder of CHRH Holdings LLC Units for shares of Class A common stock pursuant to the Exchange Right or our Call Right and (iii) imputed interest deemed to be paid by us as a result of, and additional tax basis arising from, any payments we make under the Tax Receivable Agreement. We will retain the benefit of the remaining 15% of these cash savings. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

Income Taxes

Charah Solutions, Inc. is a Subchapter C corporation under the Internal Revenue Code of 1986, as amended (the “Code”), and, as a result, will be subject to U.S. federal, state and local income taxes. Although the Predecessor Companies are subject to franchise tax at the state level (at less than 1% of modified pre-tax earnings), they have historically passed through their taxable income to their owners for U.S. federal and other state and local income tax purposes and thus were not subject to U.S. federal income taxes or other state or local income taxes. Accordingly, the financial data attributable to our Predecessor contains no provision for U.S. federal income taxes or income taxes in any state or locality other than franchise taxes. We estimate that Charah Solutions, Inc. will be subject to U.S. federal, state and local taxes at a blended statutory rate of     % of pre-tax earnings and would have incurred pro forma income tax expense for the year ended December 31, 2016 of approximately $        million.

Internal Controls and Procedures

We and our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting as of December 31, 2016. A material weakness is a deficiency, or a combination

 

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of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses related to the misapplication of GAAP in accounting for our deferred stock plan then in effect and ineffective controls over the financial statement close and reporting processes.

We also identified a significant deficiency related to our debt reconciliation process. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.

We are taking steps to remedy these material weaknesses and significant deficiency by establishing more robust processes supporting internal controls over financial reporting, including accounting policies and procedures and our engagement of consultants to assist management in determining and evaluating new accounting positions. We can give no assurance that these actions will remediate this deficiency in internal control or that additional material weaknesses or significant deficiencies in our internal control over financial reporting will not be identified in the future. Our failure to implement and maintain effective internal control over financial reporting could result in errors in our financial statements that could result in a restatement of our financial statements and cause us to fail to meet our reporting obligations.

We are not currently required to comply with the SEC’s rules implementing Section 404 of Sarbanes-Oxley, and are therefore not required in connection with this offering to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with the SEC’s rules implementing Section 302 of Sarbanes-Oxley, which will require our management to certify financial and other information in our quarterly and annual reports. We will be required to provide an annual management report on the effectiveness of our internal control over financial reporting beginning with our annual report for the year ended December 31, 2018. We will not be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404 until our first annual report subsequent to our ceasing to be an “emerging growth company” within the meaning of Section 2(a)(19) of the Securities Act.

 

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Predecessor Results of Operations

The following table sets forth our Predecessor’s selected operating data for the year ended December 31, 2016.

 

     Year Ended
December 31, 2016
 
     (in thousands)  

Revenue:

  

Environmental Solutions

   $ 218,051  

Maintenance and Technical Services

     47,017  
  

 

 

 

Total revenue

     265,068  

Cost of sales

     203,228  
  

Gross profit:

  

Environmental Solutions

     51,282  

Maintenance and Technical Services

     10,558  
  

 

 

 

Total gross profit

     61,840  

General and administrative expenses

     35,170  
  

 

 

 

Operating income

     26,670  

Interest expense

     (6,244

Income from equity method investment

     2,703  
  

 

 

 

Net income

     23,129  

Less income attributable to non-controlling interest

     (2,198
  

 

 

 

Net income attributable to Charah, LLC

   $ 20,931  
  

 

 

 

Adjusted EBITDA(1)

   $ 58,965  
  

 

 

 

Adjusted EBITDA margin(1)

     22.7
  

 

 

 

 

  (1) Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. For a definition of Adjusted EBITDA and Adjusted EBITDA margin, as well as a reconciliation to our most directly comparable financial measures calculated and presented in accordance with GAAP, please read “—Non-GAAP Measures” below.

Revenues. Revenues for the year ended December 31, 2016 were $265.1 million. 2016 revenues by segment were as follows:

Environmental Solutions revenues. Our Environmental Solutions segment revenues were $218.1 million for the year ended December 31, 2016. Revenues were driven by progress completed at our environmental reclamation sites, along with sales of CCRs. Revenues were also driven by the addition of new contracts.

Maintenance and Technical Services revenues. Our Maintenance and Technical Services revenues were $47.0 million for the year ended December 31, 2016. Revenues were driven by coal ash produced by utility providers, which is a function of electricity demand. Revenues were also driven by the addition of new contracts.

Gross Profit. Gross profit for the year ended December 31, 2016 was $61.8 million. As a percentage of revenue, gross profit was 23.3%. Gross profit by segment was as follows:

Environmental Solutions gross profit. Gross profit sales for our Environmental Solutions segment was $51.3 million for the year end December 31, 2016. Gross profit for our Environmental Solutions segment was driven by revenues from our environmental reclamation and byproduct sales offerings, offset by costs of goods sold, primarily including labor, material and equipment costs.

 

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Maintenance and Technical Services gross profit. Gross profit for our Maintenance and Technical Services segment was $10.6 million for the year ended December 31, 2016. Gross profit for our Maintenance and Technical Services segment was driven by revenues from our recurring Fossil Services offerings, offset by costs of goods sold, primarily including labor, material and equipment costs.

General & Administrative. General and administrative expense for the year ended December 31, 2016 was $35.2 million. General and administrative expenses consist primarily of salaries, wages, and benefits for employees that are not specific to service locations.

Interest Expense. Interest expense, net for the year ended December 31, 2016 was $6.2 million. Interest expense was primarily attributable to the Company’s various loans, including our line of credit, equipment loans and loans secured by our structural fill sites.

Income from Equity Method Investment. Income from equity method investment for the year ended December 31, 2016 was $2.7 million. Income from equity method investment relates to our 50.0% interest in our equity method investment.

Net Income. Net income for the year ended December 31, 2016 was $23.1 million. Net income was driven by our gross profit less our general and administrative expenses and interest expense, plus our income from our equity method investment.

Adjusted EBITDA and Adjusted EBITDA margin. Adjusted EBITDA for the year ended December 31, 2016 was $59.0 million and our Adjusted EBITDA margin for the same period was 22.7%.

For a definition of Adjusted EBITDA and the calculation of Adjusted EBITDA margin, as well as a reconciliation to the most directly comparable GAAP measure, see “—Non-GAAP Measures.”

Liquidity and Capital Resources

We expect that our primary sources of liquidity and capital resources after the consummation of this offering will be cash flows generated by operating activities and borrowings under our Credit Facility. Depending upon market conditions and other factors, we may also have the ability to issue additional equity and debt if needed.

As described in “Use of Proceeds,” we intend to contribute all of the net proceeds we receive from this offering to CHRH Holdings LLC in exchange for                      CHRH Holdings LLC Units. CHRH Holdings LLC will use approximately $        million of the net proceeds to repay amounts outstanding under the Credit Facility and approximately $        million of the net proceeds to repay amounts outstanding under Term Loan and the remaining net proceeds for general corporate purposes. Please see “Use of Proceeds.” We believe that, following completion of this offering, our cash on hand, operating cash flow and available borrowings under our Credit Facility and Term Loan will be sufficient to fund our operations for at least the next twelve months.

Historically, our primary sources of liquidity have been cash flows from operations, borrowings under our credit facilities and equity provided by investors, including our management team and BCP. To date, our predecessor’s primary use of capital has been the funding of capital expenditures for the replacement and addition of equipment to continue ongoing operations and grow. As of December 31, 2016, we had approximately $1.0 million in cash.

Capital Requirements and Sources of Liquidity

Our 2018 capital budget is approximately $22.5 million, consisting primarily of equipment costs associated with performance and completion of our contracts, including replacement of dated and obsolete equipment. However, the amount and timing of these 2018 capital expenditures is largely discretionary and within our

 

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control. We could choose to defer or increase a portion of these planned 2018 capital expenditures depending on a variety of factors, including, but not limited to, additional contracts awarded above and beyond our projections, and/or the increase or decrease in the useful life of our equipment. As we pursue growth, we monitor which capital resources, including equity and debt financings, are available to us to meet our future financial obligations, planned capital expenditure activities and liquidity requirements. Based upon the current industry outlook, following the closing of this offering and the consummation of the transactions described under “Corporate Reorganization,” we believe that our cash flow from operations, proceeds of this offering and borrowings under our Credit Facility will be sufficient to fund our operations for at least the next twelve months. However, future cash flows are subject to a number of variables, including the ability to maintain existing contracts, obtain new contracts and manage our operating expenses. The failure to achieve anticipated revenue and cash flows from operations could result in a reduction in future capital spending. We cannot assure you that operations and other needed capital will be available on acceptable terms or at all. In the event we make additional acquisitions and the amount of capital required is greater than the amount we have available for acquisitions at that time, we could be required to reduce the expected level of capital expenditures or seek additional capital. We cannot assure you that needed capital will be available on acceptable terms or at all.

Cash Flows

The following table sets forth our cash flows for the years indicated:

 

     Year Ended
December 31, 2016
 
     (in thousands)  

Cash flows provided by (used in) operating activities

   $ 8,351  

Cash flows provided by (used in) investing activities

   $ (15,885

Cash flows provided by (used in) financing activities

   $ 7,298  
  

 

 

 

Net change in cash

   $ (236
  

 

 

 

Operating Activities

Net cash provided by operating activities was $8.4 million for the year ended December 31, 2016. The primary factors associated with net cash provided by operating activities are approximately $23.1 million of net income, plus $15.6 million of depreciation and amortization, less $15.7 million related to payments in connection with our deferred stock plan and less $19.1 million net change in working capital.

Investing Activities

Net cash used in investing activities was $15.9 million for the year ended December 31, 2016. Net cash used in investing activities was primarily driven by the purchase of equipment (net of sales), changes in loans to a related party, investment in an equity method investment and an increase in restricted cash.

Financing Activities

Net cash provided by financing activities was $7.3 million for the year ended December 31, 2016. Net cash provided by financing activities was primarily driven by net borrowings and distributions related to a non-controlling interest.

Working Capital

Our working capital, which we define as total current assets less total current liabilities, totaled $64.7 million at December 31, 2016.

 

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Our Debt Agreements

Credit Facility

On October 25, 2017, we entered into a credit agreement (the “Revolving Credit Agreement”) by and among us, the lenders party thereto from time to time and Regions Bank, as administrative agent (the “Administrative Agent”), providing for the Credit Facility, with a principal amount of up to $45.0 million aggregate principal amount. The Credit Facility permits extensions of credit up to the lesser of $45.0 million and a borrowing base that is calculated by us based upon a percentage of the value of our eligible accounts receivable and eligible inventory, and approved by the Administrative Agent. As of December 31, 2017, the borrowing base certificate delivered by us under the Credit Facility reflected a borrowing base as of such date of $24.5 million. Subject to certain customary conditions, we may elect to increase the aggregate revolving credit commitments to an amount not exceeding $65.0 million; provided no lender has any obligations to increase its own revolving credit commitment. As of December 31, 2017, we had no outstanding borrowings under the Credit Facility and $        million in letters of credit under the Credit Facility with $        million in revolving commitments available. The Credit Facility has a scheduled maturity date of October 25, 2022.

The interest rates per annum applicable to the loans under the Credit Facility are based on a fluctuating rate of interest measured by reference to, at our election, either (1) an adjusted London inter-bank offered rate (“LIBOR”) plus a 2.00% borrowing margin, or (2) an alternative base rate plus a 1.00% borrowing margin. Customary fees are payable in respect of the Credit Facility and include (1) commitment fees in an amount equal to 0.50% of the daily unused portions of the Credit Facility, and (2) a 2.00% fee on outstanding letters of credit. See “—Quantitative and Qualitative Disclosure About Market Risks—Interest Rate Risk” for more information.

The Credit Facility contains various representations and warranties and restrictive covenants that, among other things and subject to specified exceptions, restrict the ability of us and our restricted subsidiaries to incur indebtedness (including guarantees), grant liens, make investments, make restricted payments, make prepayments on other indebtedness, engage in mergers or change the nature of their business. In addition, if excess availability under the Credit Facility falls below the greater of 15% of the loan cap amount or $6.75 million, we will be required to comply with a minimum fixed charge coverage ratio of 1.0 to 1.0. The Credit Facility does not otherwise contain financial maintenance covenants.

The Credit Facility contains certain affirmative covenants, including reporting requirements, such as delivery of financial statements, certificates and notices of certain events, maintaining insurance, and providing additional guarantees and collateral in certain circumstances.

The Credit Facility includes customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross default to certain other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of guarantees or security interests, material judgments and change of control.

Term Loan

On October 25, 2017, we entered into a credit agreement (the “Term Loan Credit Agreement”) by and among us, the lenders party thereto from time to time and Credit Suisse AG, Cayman Islands Branch, as administrative agent (the “Administrative Agent”), providing for our Term Loan with an initial commitment of $250 million. The Term Loan provides that we have the right at any time to request incremental term loans up to the greater of (1) the excess, if any, of $25.0 million over the aggregate amount of all incremental Credit Facility commitments and incremental term loan commitments previously utilized, and (2) such other amount so long as such amount at such time could be incurred without causing the pro forma consolidated secured leverage ratio to exceed 3.25 to 1.00. The lenders under the Term Loan are not under any obligation to provide any such incremental commitments or loans and any such addition of or increase in commitments or loans are subject to certain customary conditions precedent.

 

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The interest rates per annum applicable to the loans under the Term Loan are based on a fluctuating rate of interest measured by reference to, at our election, either (1) LIBOR plus a 6.25% borrowing margin, or (2) an alternative base rate plus a 5.25% borrowing margin.

The principal amount of the Term Loan will amortize at a rate of 7.5% per annum with all remaining outstanding amounts under the Term Loan due on the Term Loan maturity date. The Term Loan has a scheduled maturity date of October 25, 2024.

As of December 31, 2017, we had $             outstanding on borrowings under the Term Loan.

The Term Loan requires us to prepay its outstanding loans, subject to certain exceptions, with: (i) 100% of the net cash proceeds of non-ordinary course asset sales or other dispositions of property by us or any of the restricted subsidiaries and 100% of the net cash proceeds from certain insurance and condemnation events with respect to our assets, subject to customary thresholds and reinvestment rights; (ii) a variable percentage of excess cash flow, ranging from 75% to 0% depending on our consolidated secured leverage ratio from time to time; and (iii) 100% of our and our restricted subsidiaries’ net cash proceeds from the issuance or incurrence of debt obligations for borrowed money not permitted under the Term Loan. We may voluntarily prepay outstanding loans under our Term Loan at any time subject to customary “breakage” costs with respect to LIBOR loans and subject to a prepayment premium of 1.00% in connection with certain customary repricing events that may occur within twenty-four months of October 25, 2017.

The Term Loan contains various representations and warranties and restrictive covenants that, among other things and subject to specified exceptions, restrict the ability of us and our restricted subsidiaries to incur indebtedness (including guarantees), grant liens, make investments, make restricted payments, make prepayments on other indebtedness, engage in mergers or change the nature of their business. In addition, we are required to comply with a maximum senior secured net leverage ratio of 5.00 to 1.00 beginning March 31, 2018, decreasing to 4.50 to 1.00 as of March 31, 2019 and further decreasing to 4.00 to 1.00 as of March 31, 2020 and thereafter.

The Term Loan contains certain affirmative covenants, including reporting requirements, such as delivery of financial statements, certificates and notices of certain events, maintaining insurance, and providing additional guarantees and collateral in certain circumstances.

The Term Loan includes customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross default to certain other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of guarantees or security interests, material judgments and change of control.

Equipment Financing Facilities

We have entered into equipment financing and capital lease arrangements with Caterpillar Financial Services Corporation and Stock Yards Bank to finance the lease or acquisition of certain equipment up to an aggregate principal amount for the two facilities of $30 million (the “Equipment Financing Facilities”). As of December 31, 2017, the aggregate amount of our obligations on the Equipment Financing Facilities was approximately $         million. Each of the Equipment Financing Facilities includes non-financial covenants, and as of December 31, 2017, we were in compliance with these covenants in each of the agreements.

 

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Contractual and Commercial Commitments

The following table summarizes our contractual obligations and commercial commitments as of December 31, 2017:

 

     Total      Less than
1 year
     1-3 years      3-5 years      More than
5 years
 
     (in thousands)  

Credit Facility

              

Term Loan

              

Equipment Facilities

              

Operating lease obligations(1)

              
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $               $               $               $               $           
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) We lease equipment and office facilities under non-cancellable operating leases.

Tax Receivable Agreement

With respect to obligations we expect to incur under our Tax Receivable Agreement (except in cases where we elect to terminate the Tax Receivable Agreement early, the Tax Receivable Agreement is terminated early due to certain mergers, asset sales, other forms of business combination or other changes of control or we have available cash but fail to make payments when due), generally we may elect to defer payments due under the Tax Receivable Agreement if we do not have available cash to satisfy our payment obligations under the Tax Receivable Agreement or if our contractual obligations limit our ability to make these payments. Any such deferred payments under the Tax Receivable Agreement generally will accrue interest. In certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual benefits, if any, we realize in respect of the tax attributes subject to the Tax Receivable Agreement. We intend to account for any amounts payable under the Tax Receivable Agreement in accordance with ASC Topic 450, Contingencies. For further discussion regarding such an acceleration and its potential impact, please see “Risk Factors—Risks Related to This Offering and Our Class A Common Stock—In certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual benefits, if any, we realize in respect of the tax attributes subject to the Tax Receivable Agreement.” For additional information regarding the Tax Receivable Agreement, see “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

Non-GAAP Measures

Adjusted EBITDA

Adjusted EBITDA and Adjusted EBITDA margin are not financial measures determined in accordance with GAAP. We define Adjusted EBITDA as net income before interest expense, income taxes, depreciation and amortization, equity-based compensation, elimination of certain legacy expenses, amounts from a non-acquired business line and transaction related expenses and other one-time items. Adjusted EBITDA margin represents the ratio of Adjusted EBITDA to total revenues minus revenues ($5,045) of a non-acquired business line.

We believe Adjusted EBITDA and Adjusted EBITDA margin are useful performance measures because they allow for an effective evaluation of our operating performance when compared to our peers, without regard to our financing methods or capital structure. We exclude the items listed above from net income in arriving at Adjusted EBITDA because these amounts are either non-recurring or can vary substantially within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income determined in accordance with GAAP. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s

 

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cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are reflected in Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an indication that our results will be unaffected by the items excluded from Adjusted EBITDA. Our computations of Adjusted EBITDA may not be identical to other similarly titled measures of other companies. We use Adjusted EBITDA margin to measure the success for our business in managing our cost base and improving profitability. The following tables present reconciliations of Adjusted EBITDA to net income, our most directly comparable financial measure calculated and presented in accordance with GAAP, along with our Adjusted EBITDA margin.

 

     Year Ended
December 31, 2016
 
     (in thousands)  

Net income

   $ 20,931  

Interest expense

     6,244  

Depreciation and amortization

     15,601  

Equity-based compensation

     7,352  

Elimination of legacy expenses(1)

     3,910  

Non-acquired business line(2)

     3,768  

Transaction related expenses and other one-time items(3)

     1,159  
  

 

 

 

Adjusted EBITDA

   $ 58,965  

Adjusted EBITDA margin(4)

     22.7

 

  (1) Primary components include a change in charitable giving and other business expense policies associated with the BCP investment.
  (2) Non-acquired business line item adjusts for a legacy operation of Charah, LLC that was transferred to a stockholder of CEP Holdings in January 2017 prior to the BCP investment.
  (3) Transaction related expenses and other one-time items includes certain transaction expenses incurred in connection with the BCP investment as well as certain financing transaction expenses.
  (4) Adjusted EBITDA margin is a non-GAAP measure that represents the ratio of Adjusted EBITDA to total revenues minus revenues ($5,045) of a non-acquired business line. We use Adjusted EBITDA margin to measure the success of our businesses in managing our cost base and improving profitability.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with GAAP. In connection with preparing our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expense and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time we prepare our combined consolidated financial statements. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our combined consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ materially from our assumptions and estimates.

Our significant accounting policies are discussed in our audited historical consolidated financial statements included elsewhere in this prospectus. We believe that the Company’s primary critical accounting policy is its policy regarding accounting for long term contracts. This policy is the most critical to fully understand and evaluate our reported financial results, and requires management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

 

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Revenue and Cost Recognition on Construction Contracts

Accounting for these contracts involves management judgment in estimating total contract revenue and cost. Contract revenues are largely determined by negotiated contract prices and quantities, modified by our assumptions regarding contract options, change orders and price adjustment clauses (such as inflation or index-based clauses). Contract costs are incurred over a period of time, which can be several years, and the estimation of these costs requires management judgment. Cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends and other economic projections. Significant factors that influence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, and asset utilization. We have processes during which management reviews the progress and performance of our contracts. As part of this process, management reviews information including any outstanding key contract matters, progress toward completion and the related project timeline, and the related changes in estimates of revenues and costs. Anticipated losses on long-term contracts are recognized when such losses become evident. In 2016, we did not have any losses on long-term contracts.

Revenue from contract claims is recognized when invoiced. Revenue from contract change orders is recognized when it is probable that the change order will be approved, the amount can be reasonably estimated, and the work has been completed.

The asset, “Costs and estimated earnings in excess of billings” represents revenue recognized in excess of amounts billed on uncompleted contracts. The liability, “Billings in excess of costs and estimated earnings” represents billings in excess of revenue recognized.

Recent Accounting Pronouncements

Please see Note 2, “Summary of Significant Accounting Policies—Recent Accounting Pronouncements” to our Predecessor’s historical combined consolidated financial statements as of and for the year ended December 31, 2016, included elsewhere in this prospectus, for a discussion of recent accounting pronouncements.

Under the JOBS Act, we expect that we will meet the definition of an “emerging growth company,” which would allow us to have an extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. We intend to take advantage of all of the reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under Section 107 of the JOBS Act until we are no longer an emerging growth company.

Quantitative and Qualitative Disclosure About Market Risks

Market risk is the risk of loss arising from adverse changes in market rates and prices. Currently, our market risks relate to potential changes in the fair value of our long-term debt due to fluctuations in applicable market interest rates. Going forward our market risk exposure generally will be limited to those risks that arise in the normal course of business, as we do not engage in speculative, non-operating transactions, nor do we utilize financial instruments or derivative instruments for trading purposes.

Interest Rate Risk

As of December 31, 2017, we had approximately $         million of debt outstanding under the Credit Facility and the Term Loan, with a weighted average interest rate of 7.71%. A 1.0% increase or decrease in the weighted average interest rate would increase or decrease interest expense by approximately $2.5 million per year. We currently have an interest rate cap in place with respect to outstanding indebtedness under our Term Loan that provides a ceiling on three month LIBOR at 2.5% for a notional amount of $150 million.

 

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Credit Risk

While we are exposed to credit risk in the event of non-performance by counterparties, the majority of our customers are investment grade companies and we do not anticipate non-performance. We mitigate the associated credit risk by performing credit evaluations and monitoring the payment patterns of our customers.

Off-Balance Sheet Arrangements

We currently have no material off-balance sheet arrangements.

 

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BUSINESS

Our Company

We are a leading provider of mission-critical environmental and maintenance services to the power generation industry. We provide on-site, essential services that enable our clients to continue operations and provide necessary electric power to communities nationwide. In 2017, we performed work at 50 coal-fired and nuclear power generation sites nationwide. We are the only service provider offering a suite of coal ash management and recycling, environmental remediation, and outage maintenance services. We also design and implement solutions for complex environmental projects (such as ash pond closures) and facilitate coal ash recycling through byproduct sales and other beneficial use services. We believe we are a partner-of-choice for the power generation industry due to our industry-leading quality, safety and compliance record, all of which are key criteria for our customers.

Since our founding, we have continuously anticipated our customers’ evolving environmental needs, increasing the number of services we provide and our embedded presence at their power generation facilities. Compared to service providers with more limited scope, our multi-service platform allows customers to gain efficiencies from sourcing multiple required offerings from a single, trusted partner.

We provide our services through two segments: Environmental Solutions and Maintenance and Technical Services. Our Environmental Solutions segment includes Remediation and Compliance Services, as well as Byproduct Sales. Remediation and Compliance Services is associated with our customers’ need for multiyear environmental improvement and sustainability initiatives, whether driven by proactive engagement, by power generation customers, by regulatory requirements or by consumer expectations and standards. Byproduct Sales supports both our power generation customers’ desire to profitably recycle recurring volumes of CCRs and our ultimate end customers’ need for high-quality, cost-effective raw material substitutes. Our Maintenance and Technical Services segment includes Fossil Services and Nuclear Services. Fossil Services is the recurring and mission-critical management of coal ash for coal-fired power generation facilities. Nuclear Services, which we market under the Allied Power brand name, includes routine maintenance, outage services, facility maintenance and staffing solutions for nuclear power generation facilities.

As a result of these unique offerings, the embedded nature of our on-site presence, and our track record of successful execution, we have built long-term relationships with leading U.S. utilities and independent power producers, including Duke Energy, Exelon Corporation, Dominion Energy, Inc., Dynegy Inc., and PPL Corporation, among others. In some cases, these relationships have spanned over 20 years. The national scale of our operational footprint is also a key differentiator, as many competitors are localized, focusing on a single geographic area (sometimes isolated to a single plant). We operate in 22 states, resulting in an overall footprint and density in key markets that we believe is difficult to replicate. Our national reach enables us to successfully pursue new business within our existing customer base and attract new customers while providing consistent quality, safety and compliance standards.

Our services platform is led by a senior executive team averaging over 30 years of industry experience and supported by a highly skilled labor force. The nature of our work requires employees, particularly our nuclear end market-related labor force, to have specialized skills, training and certifications in order for them to be allowed on-site at our customers’ facilities. Collectively, our focus on human capital management allows us to maintain and develop a labor force of highly qualified, well-trained personnel capable of handling our customers’ needs.

Market Opportunity

The U.S. power industry is composed of critical infrastructure providing essential power generation to communities nationwide. According to the U.S. Energy Information Administration, as of 2016, there were over

 

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500 large-scale facilities in the U.S. with generation capabilities of at least 250 megawatts, including over 200 coal-fired plants and over 60 nuclear plants (representing 99 nuclear reactors). With near constant demand by consumers and industry on these baseload power providers, continuous operation of these facilities is critical with cost of downtime being both economic and reputational. To maintain continuous operations, these complex facilities have specialized and recurring environmental and maintenance service needs throughout their lifecycles. While pervasive across the entire power generation industry, these service needs are particularly significant for coal-fired and nuclear power plants given increasing environmental demands, the aging nature of the installed base and the characteristics of the feedstock required to power such facilities. Due to the breadth and nature of these needs, power plant operators typically do not possess these capabilities internally and instead outsource these mission-critical and often regulatory-driven requirements to a fragmented set of service providers. The continuous need for these specialized services is supported by a number of significant dynamics:

Coal and Nuclear Power Generation Will Remain Indispensable Energy Sources

According to the U.S. Energy Information Administration, as of September 2017, coal and nuclear power generation combined are expected to remain indispensable energy sources for decades, providing at least 1.6 trillion kilowatt hours of energy production annually through 2040. As of November 2017, coal and nuclear power generation combined accounted for approximately 50% of domestic U.S. energy generation and is expected to contribute a similar percentage annually for at least the next five years. By 2030, they are projected to still contribute approximately 40% of domestic U.S. energy generation. Although other energy generation sources, such as natural gas and renewables, are projected to make moderate gains on a percentage contribution basis, the aggregate demand for coal and nuclear power generation will remain robust. The combined coal and nuclear installed base is also deeply entrenched throughout the U.S. national power grid.

Coal-Fired Power Plants Have Significant and Recurring Environmental Management Needs Associated with Their Waste Byproducts

Coal-fired power plants consistently generate various waste byproducts throughout the power generation process. The primary type of these waste byproducts are coal combustion residuals, commonly known as coal ash. Coal combustion residuals come in various forms (including fly ash, bottom ash, and boiler slag) and are collected throughout the coal burning process. Although not considered a hazardous waste under RCRA, there are meaningful regulatory and reputational risks associated with the handling and disposal of coal ash. According to the American Coal Ash Association, more than 107 million tons of coal ash were generated in 2016, making it one of the largest types of waste in the U.S. Coal ash management is mission-critical to the daily operations of power plants as they generally only have on-site storage capacity for three to four days of CCR waste accumulation. This requires continuous daily monitoring, handling, transportation, and disposal to enable ongoing power plant operation. As of December 2014, the EPA estimated that coal-fired utilities spend approximately $2.9 billion per year on coal ash management. Power plant operators typically engage specialized service providers to conduct this critical recurring activity on-site alongside their personnel operating the plant.

Large Installed Base of Legacy Coal Ash Disposal Ponds That Require Remediation

Collected coal ash is disposed of or beneficially used (recycled) in a range of applications. According to the American Coal Ash Association, as of 2016, approximately 44% of coal ash generated was disposed of. According to the EPA, approximately 80% of coal ash that was disposed of in 2012 was disposed of on-site in ash ponds or landfills and the balance is transported and disposed of off-site at third-party landfills. For many years, coal-fired power plants relied on ash ponds as the primary disposal locations for waste byproducts. The vast majority of these ash ponds were designed and constructed without the appropriate environmental standards to prevent impact to the environment, and will require remediation or closure in the future. As of 2016, the American Coal Ash Association estimated that more than 1.5 billion tons of coal ash existed in ash ponds and landfills around the country. The EPA also estimates, as of 2012, there were over 1,100 active and inactive on-site ash ponds and landfills requiring remediation or closure. These sites are typically very large (on average

 

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at least 115 acres) and will require significant capital from their owners as well as specialized environmental expertise to monitor on an ongoing basis, remediate, relocate the waste or completely close.

Recycling Waste Byproducts Is a Critical Component of the Coal Ash Value Chain

Coal ash can be recycled to produce positive environmental, economic and performance benefits such as reduced use of other natural resources, lower greenhouse gas emissions, and improved strength and durability of materials. According to the American Coal Ash Association, approximately 60 million tons of coal ash, or 56% of generated coal ash, was recycled in 2016. As of 2016, the leading recycled use of coal ash is as a direct and more economic substitute for cement during the production of concrete (approximately 15 million tons of CCRs, annually as of 2016). Also, according to the American Coal Ash Association, in 2018, more than half of all the concrete produced in the U.S. is made with coal ash and reduces greenhouse gas emissions equivalent to removing 2.5 million cars from the road every year. Coal ash recycling has compelling economic benefits as well. As of 2011, the American Road and Transportation Builders Association estimated that coal ash recycling would save approximately $105 billion over the next 20 years towards the cost to build roads, runways, and bridges. Additionally, there are technologies currently in development that improve the characteristics of certain types of coal ash, making them more viable for recycling purposes and ultimately increasing the addressable market of recyclable coal ash.

Routine Nuclear Reactor Maintenance Is Non-Discretionary, Specialized and Predictable

Given the scale, complexity and near-constant operational demands on power plants of all energy types, routine maintenance is critical to the ongoing functionality of each facility. Regardless of energy type, power generation facilities have similar planned outages and recurring maintenance needs. Without these regular maintenance outages, power plants cannot maintain operations and risk more costly, unplanned service interruptions. This dynamic is particularly true for nuclear power generation where baseload power demands are more acute than other energy sources. According to the U.S. Energy Information Administration, as of 2016, nuclear power represents 19% of total electricity generation in megawatt hours but only 9% of total electricity generation capacity in megawatts, resulting in the highest utilization rate of any energy source.

Recurring maintenance of nuclear reactors represents an attractive long-term market opportunity given the seasonal predictability of outages and expected longevity of nuclear power generation. Nuclear power plants typically run 24 hours a day, seven days a week over 12 to 24 month cycles with outages typically occurring during fall and spring. Since it is costly to take nuclear plants offline, plant outages are planned, contracted and announced far in advance and involve the completion of numerous maintenance services while offline (including inspections, repairs, maintenance, equipment replacement, facility modification, new construction and certifications). We estimate, based on our management’s experience and discussions with customers, our total addressable market for these services (including outsourced maintenance and capital needs) to be in excess of $5 billion annually. We believe this spend will increase over time as the nuclear reactor fleet continues to age and additional maintenance is required. Additionally, given the stringent safety requirements for the nuclear power industry, specialized licenses and training are required for on-site workforces, representing a considerable barrier to entry for prospective market participants.

Power Plant Operators Are Increasingly Focused on Environmental Stewardship and Regulatory Compliance

Power plant operators face increasing pressure from advocacy groups and their communities to manage the environmental risks associated with their operations and, therefore, the industry is increasingly focused on environmental stewardship. Due to the considerable potential consequences associated with environmental liabilities, spending on environmental liability management has increased over time and is expected to increase in the future.

 

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Additionally, power plants are highly regulated by government environmental authorities, both at the federal and state level, which have recently added compliance requirements. A recent example is the CCR Rule. Passed in April 2015 by the EPA, the CCR Rule regulates the disposal of coal ash as a solid waste in response to two significant coal ash spills in Kingston, Tennessee and Eden, North Carolina which caused widespread environmental damage. The CCR Rule established new requirements for the closure and remediation of existing ash ponds as well as restrictions on the location of new ash ponds. The CCR Rule will result in significant incremental environmental management costs for many industry participants. As an example, Duke Energy, PPL Corporation, The Southern Company and Tennessee Valley Authority have stated they will spend over $11.7 billion combined on projects resulting from the CCR Rule through 2023. In addition, the power generation industry is proactively implementing environmental best practices across their assets, even when not yet required by law.

The Power Generation Industry Is Increasingly Requiring Larger Scale Environmental and Maintenance Service Providers

The mounting burden of environmental compliance, consistent need to maintain aging facilities, and the focus on continuous and safe plant operations has the power generation industry (coal-fired and nuclear utilities in particular) increasingly seeking larger scale outsourced service providers as partners that can provide a range of services on their behalf. To date, most prospective service providers either have narrow service offerings or a highly localized geographic focus (sometimes limited to a single plant). Few service providers offer a broad set of service capabilities with a track record of quality service, exceptional safety, exacting environmental standards and a reliable labor force. The market opportunity for a specialized environmental and maintenance platform that can offer such a range of capabilities to the industry is substantial.

Our Solution

We have established a leading platform of mission-critical environmental and maintenance services to the power generation industry. Led by a senior executive team averaging 30 years of experience, we execute with a singular focus on quality, environmental compliance, service reliability and safety for our customers. Since our founding, we have continuously anticipated our customers’ evolving environmental needs, increasing the number of services we provide and our embedded presence at their power plants. We view ourselves as partners in maintaining the continuous operations of power plants and delivering a range of critical services, including turn-key CCR management and recycling, environmental remediation, and maintenance services. Our differentiated approach has resulted in managing approximately 11% of the CCR management market (based on tons of CCR generated annually) and servicing 23 of the 99 operating nuclear reactors in the U.S.

Charah delivers these best-in-class services via two business segments:

 

    Environmental Solutions. Our Environmental Solutions segment includes Remediation and Compliance Services, as well as Byproduct Sales offerings. Remediation and Compliance Services is associated with our customers’ need for multiyear environmental improvement and sustainability initiatives, whether driven by proactive engagement by power generation customers, by regulatory requirements or to meet consumer expectations and standards. Byproduct Sales supports both our power generation customers’ desire to profitably recycle recurring volumes of CCRs and our ultimate end customers’ need for high-quality, cost-effective raw material substitutes.

 

    Maintenance and Technical Services. Our Maintenance and Technical Services segment includes Fossil Services and Nuclear Services offerings. Fossil Services is the recurring and mission-critical management of coal ash for coal-fired power generation facilities. Nuclear Services, which we market under the Allied Power brand name, includes routine maintenance, outage services, facility maintenance and staffing solutions for nuclear power generation facilities. Our Maintenance and Technical Services segment offerings are most closely associated with the ongoing operations of power plants, whether in the form of daily environmental management or required maintenance services (typically during planned outages).

 

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As a result of this unique offering and commitment to strict safety and environmental standards, we have built long-term relationships with leading U.S. utilities and independent power producers. In some cases, these relationships have spanned over 20 years. We are a trusted partner and our team is embedded with the customer on-site to handle its most critical operational needs. Our employees and corresponding service expertise are necessary to customers’ daily operations, maintenance and environmental compliance requirements. Without these mission-critical services, our customers would not be able to provide essential power generation to communities nationwide.

Our Strengths

We believe our platform has become a leader in environmental and maintenance services to the power generation industry. Our strengths that support our leading position include:

Industry Leading Quality, Safety and Compliance

We believe we are a partner-of-choice for customers due to our reputation as a leader in quality, safety and compliance. Utilities and independent power producers are generally risk-averse and focus on strong environmental and safety considerations as key factors for awarding on-site service provider contracts. We believe our reputation for and dedication to quality, industry-leading safety record and adherence to environmental compliance standards provide a distinctive competitive advantage and differentiates us from many of our competitors. Supported by our team of in-house compliance experts, we have developed trusted relationships and credibility with regulatory agencies. We pride ourselves on being a reliable partner consistently delivering high-quality, efficient and on-time service.

These attributes are key contributors to our leading market share positions. Our leading positions are favorable for potential new business as customers recognize the value of engaging a best-in-class partner.

Broad Platform of Mission-Critical Environmental and Maintenance Services

Our broad platform of essential environmental and maintenance services has enabled us to become a leading service provider to our power generation customers. In our end markets, we are the only service provider offering a suite of CCR management and recycling, environmental remediation and outage maintenance services. Compared to service providers with more limited scope, our platform allows our customers to gain efficiencies and reduce the number of vendors on their sites by sourcing multiple required offerings from a single, trusted partner.

The national scale of our operational footprint is also a key differentiator as many of our competitors are localized, focusing on a single geographic area (sometimes isolated to a single plant). We operate in 22 states across the country, resulting in an overall footprint and density in key markets that we believe is difficult to replicate. Our national reach enables us to successfully pursue new business within our existing customer base and attract new customers while providing consistent quality, safety and compliance standards.

Long-Term Partnerships with Leading Power Generators

Our customers are some of the largest power generation companies in the U.S., including Exelon Corporation, Duke Energy Corporation and Dominion Energy, Inc. Given the essential nature of our services, our on-site personnel become integrated into the daily procedures of each facility, seamlessly working with utility employees to provide uninterrupted operations. This co-location and integration into the daily operations results in direct relationships with key decision makers at every level within our customers’ organizations. This embedded partnership deepens customer connectivity and drives longer customer tenure. In some cases, these relationships have spanned over 20 years. As an example, LG&E and KU, which are currently owned by PPL, have been customers for 21 years, and members of our management team have provided mission-critical services

 

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to Exelon Corporation for over 15 years. These long-term relationships led to Exelon entrusting us with the outage maintenance needs across their nuclear fleet. We have also demonstrated the ability to grow our service offerings with a single customer. We first provided Duke Energy Corporation with Byproduct Sales in 2001 at two plants and now provide all of our coal-related services across nine of their plants. These long-term relationships are critical for the renewal of existing contracts, winning incremental business from existing customers at new sites, and adding new customers. For example, over the last five years, we have achieved an approximately 90% renewal rate for contracts in our Fossil Services offerings up for renewal.

Given the essential nature of our services, our on-site personnel become integrated into the daily procedures of each facility, seamlessly working with utility employees to provide uninterrupted operations. Since we are co-located and integrated into the daily operations at customer sites, our on-site presence results in direct relationships with key decision makers at every level. This embedded partnership deepens customer connectivity and provides greater visibility into future revenue and pipeline. Long-term contracts across our service offerings also enhance the longevity of our customer relationships. Our contracts generally range from 18 months to five years and we are often the sole service provider.

Innovative Solutions to Our Customers’ Environmental Challenges

Our customers regularly face complex, large-scale environmental challenges that require bespoke, technical solutions. We believe we have a proactive and differentiated approach to solving these challenges. Our internal technical and engineering experts have developed deep domain knowledge and capabilities in environmental remediation and beneficial use as a result of our long-term and significant experience in the sector. We believe this credibility, combined with an entrepreneurial mindset, enables us to source market opportunities not readily available to our competitors.

As an example, we demonstrated this innovative approach for a major reclamation project at the Asheville Regional Airport in North Carolina. In the course of remediating an ash pond on-site at a nearby coal power plant, we had the vision to beneficially use that ash as structural fill underneath a newly constructed taxiway at the airport. Our engineers designed a state-of-the-art, highly engineered structural fill system to capture the ash in an environmentally sound way. Asheville Regional Airport saved approximately $12 million by using coal ash instead of traditional materials and approximately 4 million cubic yards of coal ash from an ash pond was beneficially used. We believe this innovative thinking, coupled with new technologies and processes, generates additional value for our customers and stockholders.

Favorable Contract Dynamics Drive Predictable Financial Model

The contracted nature of our business and depth of our customer relationships provides significant visibility into both revenues and earnings, reflecting the predictable operations of our customers. Our platform of services is contracted for terms generally ranging from 18 months to five years, thereby reducing financial volatility. In excess of 90% of our services work is structured as time and materials, cost reimbursable or unit price contracts, which significantly reduces the risk of loss on contracts and provides gross margin visibility. At the beginning of 2017, 67% of our budgeted revenue for the year was already contracted, not including our Nuclear Services offerings that commenced operations in June 2017, which had 100% of its budgeted revenues contracted. The vast majority of our customers have investment-grade credit ratings, and we have never experienced a payment issue with a client. In addition, because our capital expenditures are tied to specific, known contracts and are typically financed, we also have attractive and predictable free cash flow generation.

Entrepreneurial Management Team Supported by Highly Skilled Labor Force

We are led by an experienced management team with an entrepreneurial mindset and keen focus on safety and customer service. Our senior executive team consists of industry veterans averaging over 30 years of industry experience, helping us provide high-quality operational execution and solidify long-term customer

 

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relationships. In addition to a commitment to develop internal talent, we have made key strategic external hires to further deepen our expertise. Our entrepreneurial mindset drives us to constantly search for new ways to maximize relevance to customers and develop innovative solutions.

Our customers have unique certification and training requirements for the service providers they allow on-site. Our ability to hire, develop and retain a highly skilled labor force with specialized skills, training and certifications is a key differentiator in the sector. We also have a dedicated team of in-house professionals that focus exclusively on training, certification, and mentorship. As part of our commitment to safety and compliance, each of our on-site employees must complete a unique, rigorous training program. We train our managers to lead from the frontline and to share, involve and support their teams. Our ability to nimbly staff large-scale projects is also critical. For example, within our Nuclear Services offering, we have the proven ability to quickly ramp up to in excess of 5,000 employees to align with our customers’ outage schedules and service their planned maintenance needs. Collectively, our human capital management allows us to maintain and develop a labor force of highly qualified, well-trained personnel capable of handling our customers’ needs.

Our Growth Strategy

Expand Market Share by Capitalizing on the Significant Environmental and Maintenance Needs of Power Generation Customers

We believe we have a strong growth opportunity in the near-term as U.S. coal-fired power generation facilities continue to remediate and close ash ponds and landfills. These projects are triggered as coal power plant operators preemptively manage environmental liabilities, comply with regulatory requirements (at the local, state and federal level) and work to meet consumer standards for environmental sustainability. We estimate a $3 billion pipeline of near-term remediation and closure projects in the next three years. We estimate there are over 1,100 remaining ash ponds and landfills, substantially all of which remain to be remediated today, and that customer spending for our core services, including ash pond and landfill remediation, will increase significantly over the next three to five years and remain at elevated levels thereafter. We believe spending on coal ash management will increase as well due to our customers’ increased focus on environmental stewardship. Additionally, we believe the market for mission-critical maintenance services in the nuclear power generation market is large and growing. We estimate that the annual pipeline of near-term addressable projects for our nuclear-related business is $2.2 billion, comprised of $1.5 billion in capital projects and $700 million in Nuclear Services. We expect this market opportunity to grow over time as the nuclear reactor fleet continues to age and additional maintenance is required.

Continue to Grow On-Site Services Revenue by Expanding Environmental and Maintenance Offerings

We believe our broad platform of environmental and maintenance services is a competitive differentiator and therefore continuing to enhance the breadth of services offered to our existing customers is a key growth opportunity. We are a trusted partner and our team is embedded with the customer on-site to handle its most critical operational needs. As a result, we are well-positioned to identify relevant, attractive service offerings to add to our portfolio. We believe opportunities exist across our platform in waste byproduct management, recycling, environmental remediation and maintenance services. We believe our customers will continue to find value in a full-service platform and welcome the opportunity to source incremental services from an existing, on-site, trusted partner.

Leverage New and Existing Customer Relationships to Maximize Fleet-Wide Opportunities

Given the breadth of our service offering, the trend among our customers to consolidate service providers, and our access to our customers’ senior decision makers, we believe we are well-positioned to grow our market share with current customers by providing our existing services to other coal-fired and nuclear power plants within their fleets. We currently provide services at 45 of the 280 large-scale facilities in the U.S., which we

 

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define as larger than 250 megawatts, representing an approximately 16% penetration rate. We see an opportunity to increase this percentage meaningfully. We will also seek to generate business with new utility customers, aiming ultimately to compete fleet-wide across their power plant footprints as well. We see similar opportunities in international geographies.

Invest in Innovative Technologies, Processes and Solutions

We believe investments in new technology and processes present opportunities to provide higher-margin offerings while also improving the environment. The embedded nature of our operations gives us a superior understanding of unique customer problems allowing us to deploy innovative solutions. We believe there are opportunities for technological innovation in environmental compliance and stewardship. As an example, investment in coal ash recycling technologies represents a primary focus area, including advancing technology capable of improving otherwise unrecyclable coal ash so it can be reused and optimizing our byproduct market sales effort nationwide.

Enhance Our Platform via Disciplined Acquisitions

We believe we can utilize a focused acquisition strategy to add adjacent capabilities and services and enhance stockholder value. This strategy could enable us to add technical expertise, expand into new geographies and gain new customers. We intend to focus on environmental and industrial services, processes and technologies that support our existing capabilities and customer needs. We believe our national scale and market leadership make us a natural consolidator, particularly in our highly fragmented industry. We have established a disciplined approach to identify acquisition targets with a core focus on growth, cash flow and return on investment.

Our Services

We deliver best-in-class service offerings and solutions to the power generation industry through two business segments: Environmental Solutions and Maintenance and Technical Services.

Environmental Solutions

Our Environmental Solutions segment includes Remediation and Compliance Services and Byproduct Sales offerings. We are a trusted partner with our Environmental Solutions customers and are a leader in providing safe and quality environmental services to the power generation industry. We have over 30 years of experience in constructing, operating and managing structural fill projects for coal-fired utilities and assisting coal-fired utilities in beneficially using waste byproducts.

 

    Remediation and Compliance Services. Our Remediation and Compliance Services offerings primarily include environmental management of landfills for coal-fired power generation facilities and of new and existing ash ponds (particularly remediation mandates). Service offerings cover all aspects of new and existing active pond management including: clean closure, cap-in-place and design and construction of new ponds. Additional service offerings cover all aspects of the landfill development, construction and management process. Our remediation and compliance services teams can also provide site evaluation and characterization; preliminary design and cost estimates with life-cycle analysis; hydrogeological assessments; groundwater and containment modeling; permit application and processing for expansions and greenfield sites; design engineering; construction of landfills and cap and cover systems; conversion of impoundments to landfill sites; quality assurance and quality control and documentation; engineered fills (offsite) and other related services.

 

   

Byproduct Sales. Our Byproduct Sales offerings include the recycling of recurring and contracted volumes of coal-fired power generation waste byproducts, such as bottom ash, fly ash and gypsum byproduct, each of which can be used for various industrial purposes. These waste byproducts can be used in the production of concrete products and other applications. Our dedicated waste byproduct

 

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sales and marketing team has a national presence and works with many of the nation’s largest power generators to identify opportunities to improve each customer’s long-term position in the market for sales of coal-fired waste byproducts while providing concrete producers with the consistent fly ash sourcing they need. With a variety of different coal sources being utilized across the power generation industry, we evaluate, process and market the different bottom ash products in order to achieve the highest value for a given market area.

Maintenance and Technical Services. Our Maintenance and Technical Services segment includes Fossil Services and Nuclear Services offerings. Maintenance and Technical Services segment offerings are most closely associated with the ongoing operations of power plants, whether in the form of daily environmental management or required maintenance services (typically during planned outages). Our on-site personnel become integrated into the daily procedures of each facility, seamlessly working with utility employees to provide uninterrupted operations. Since we are co-located and integrated into the daily operations at customer sites, our on-site presence results in direct relationships with key decision makers at every level.

 

    Fossil Services. Our Fossil Services offerings focus on recurring and mission-critical management of coal ash for coal-fired power generation facilities to fulfill an environmental service need of our customers in handling their waste byproducts. Coal ash management is mission-critical to the daily operations of power plants as they generally only have on-site storage capacity for three to four days of CCR waste accumulation. These services include silo management, on-site ash transportation, landfill management and capture and disposal of ash byproduct from coal power operations. These operations cover management of a wide variety of combustion byproducts including bottom ash, flue gas desulfurization gypsum disposal, Pozatec/fixated scrubber sludge disposal and fluidized bed combustion fly ash disposal. We coordinate all aspects of the ash management operation, from processing and screening for sales to facilitating an economical disposal.

 

    Nuclear Services. Our Nuclear Services operations, which goes to market under the Allied Power brand name, consists of a broad platform of mission-critical professional, technical and craft services spanning the entire asset life cycle of a nuclear power generator. Our Nuclear Services offerings include routine maintenance, outage services, facility maintenance and staffing solutions for nuclear power generation facilities, and we are focused on expanding these offerings to include specialty welding, valve repairs, reactor and turbine support and specialty engineering, among other services. Additionally, our staffing services and solutions include professional, technical and craft staffing; managed and turnkey staffing solutions; and staff recruitment and oversight services. A substantial portion of our Nuclear Services operations are driven by scheduled nuclear maintenance outages, which are typically planned for every 12 to 24 months.

Safety Record

Utilities and independent power producers are generally risk-averse and focused on strong environmental and safety considerations as key factors for awarding on-site service provider contracts. We believe our strong safety record provides a distinct competitive advantage. We have developed trusted relationships and credibility with regulatory agencies and utilities over the past 30 years due to our long-standing safety record supported by an experienced team of in-house safety and regulatory compliance professionals. As a result of this demonstrated performance and adherence to safety standards, we have never experienced a material safety violation related to the service of our customers.

Safety is integral to our culture and our results, and is one of our core values. We believe we operate under the strictest safety standards and are dedicated to maintaining a safe working environment. Our dedicated in-house team of over 20 safety professionals develop and train our employees and subcontractors to not only perform their jobs safely but also to proactively contribute to a safe workplace. This expert team includes highly trained professionals who are accredited Occupational Safety and Health Administration (“OSHA”) trainers, along with full-time transportation specialists in both over-the-road and rail operations.

 

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Furthermore, we endorse the United States Nuclear Regulatory Commission’s Safety Culture Policy Statement with respect to our services provided to nuclear utilities, which includes a list of nine traits further defining a positive safety culture: leadership safety values and actions; problem identification and resolution; personal accountability; work processes; continuous learning; environment for raising concerns; effective safety communications; respectful work environment; and questioning attitude. Given the inherent stringent safety requirements surrounding the nuclear power industry, specialized licenses and training are required for all employees.

We recognize the unique safety issues related to working with our utility industry partners. Our Engineering, Environmental and Quality Group has the expertise and experience to ensure our operations are compliant with local, state and federal regulations and exceed customary safety standards in our industry.

Sales and Marketing

We believe our dedicated sales team has built successful and long-term relationships with the nation’s largest power generators, and we believe we can leverage the deep relationships and strong operational track record we have built to broaden our on-site presence and deepen client partnerships. We will also seek to generate business with new power generation customers, aiming ultimately to compete enterprise-wide across their power plant footprints as well. Through close contact with utility management and personal relationships developed on a daily basis by our network of embedded field team of regional manager and site managers, we believe we are able to understand our customers’ needs to quickly respond to their next project needs and provide creative solutions. Our team of professionals includes professional engineers, experienced site managers and seasoned estimators who strive to be detailed, accurate and upfront, allowing us to minimize contract modifications after the work begins. We employ what we refer to as a “zippered” organization approach to customer service and marketing, with relationships up and down the organization. By structuring the organization around our customers’ needs through this unique network of regional field operations managers, we ensure that projects are completed on time and on budget and, additionally, are able to quickly recognize opportunities to cross-sell and market our services.

Customers

We have leveraged our long-term, strong relationships to become a preferred provider to many of the largest power generation companies in the U.S. In 2017, we performed work at 50 plants for 23 “blue-chip” utilities across 22 states including AEP Energy, Inc., Ameren Corporation, Big Rivers Electric Corporation, Dominion Energy, Inc., Duke Energy, Dynegy Inc., Exelon Corporation, Hoosier Energy Rural Electric Cooperative, Inc., NRG Energy, Inc., PPL Corporation and Southern Company. The majority of our power generation clients are investment grade. For each of the years ended December 31, 2016 and 2017, Duke Energy accounted for more than 10% of our revenue, and for the year ended December 31, 2017, both Duke Energy and Exelon each accounted for more than 10% of our revenue. No other major customer accounted for more than 10% of our revenue during this period. If one of these major customers decided to stop purchasing our services, revenue could decline and our operating results and financial condition could be harmed.

We are party to two master contract agreements for on-site construction services and a master contract agreement for large ash project services with certain subsidiaries of Duke Energy. Each master contract agreement contains general terms and conditions, specifies payment terms, audit rights and insurance requirements and allocates certain operational risks through indemnity and similar provisions for services rendered at over 10 Duke Energy plants. The specific terms of each request for materials or services from Duke Energy are typically set forth in purchase orders that we enter into from time to time. The decision makers for the purchase orders are typically separate individuals at each of the plants we service. These purchase orders, in the aggregate, accounted for approximately $                in revenue in 2017.

Additionally, we are party to a master terms and conditions agreement for the purchase of materials and services from time to time by subsidiaries of Exelon. This master terms and conditions agreement provides

 

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general terms and conditions governing two blanket agreements with Exelon for the routine provision of Nuclear Services and staff augmentation services across 14 sites representing 23 nuclear reactors and accounting for approximately $                in revenue in 2017.

Joint Ventures and Contractual Arrangements

Ash Venture Joint Venture

In December 2013, we organized Ash Venture, LLC, a North Carolina limited liability company (“Ash Venture”) which provides ash management and marketing services to the utility industry. Ash Venture is a joint venture between Charah, LLC and an unrelated third party. Charah, LLC owns 67% and the third party owns 33% of Ash Venture.

Equity Method Investment

In January 2016, we organized a joint venture with an unrelated third party, which markets and sells fly ash to the ready-mix concrete market. We account for the joint venture under the equity method. Charah, LLC and the third party each own 50% of the joint venture.

Competition

The power and environmental services industries are highly fragmented with a limited subset of competitors maintaining a national presence, few of which offer the same spectrum of services we provide through our Environmental Solutions and Maintenance and Technical Services segments. Our competitors consist of a combination of large environmental and waste management businesses, as well as hundreds of local, regional companies with limited service areas, typically servicing only one to three sites each. The highly fragmented and regional nature of our industry has produced a limited number of competitors with national scope.

We are the only service provider offering a suite of CCR management and recycling, environmental remediation and outage maintenance services. While some competitors are significantly engaged in one of the core areas in the power or environmental services value chain, many have limited or no engagement in the majority of our core areas.

Seasonality

Based on historic trends, we expect our operating results to vary seasonally due to demand within our industry as well as weather conditions. For additional information, on the effects of seasonality on our operating results, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Business and Financial Statements—Seasonality of Business.”

Risk Management and Insurance

The nature of our business exposes us to the risk of liabilities arising out of our operations, including possible damages to the environment. Such potential liabilities could involve, for example, claims for remediation costs, personal injury, property damage and damage to the environment, including natural resources, claims of employees, customers or third parties for personal injury or property damage occurring in the course of our operations, or claims alleging negligence or other wrongdoing in the planning or performance of work. We also could be subject to fines and civil and criminal penalties and other sanctions in connection with alleged violations of regulatory requirements which could be significant. We maintain general liability, contractor’s pollution liability policies (as well as additional pollution and remediation policies as needed), vehicle liability, employment practices liability, fiduciary liability, directors’ and officers’ liability, workers’ compensation and employer’s liability coverage, as well as umbrella liability policies to provide excess coverage over the

 

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underlying limits contained in these primary policies. We also carry property insurance. Although we try to operate safely and prudently and we have, subject to limitations and exclusions, substantial liability insurance, we cannot assure you that we will not be exposed to uninsured liabilities that could have a material adverse effect on our consolidated financial condition, results of operations and cash flows.

Regulation

Our utility customers involved in coal-based and nuclear-based power generation are subject to various federal, state and local environmental laws and regulations. Our operations and services for our utility customers are subject to many of the same environmental laws and regulations that govern the host utility site. These environmental laws and regulations, among other things, impose limits on the discharge of pollutants to the air and water and establish requirements for the treatment, storage and disposal of solid and hazardous materials, remediation of releases of hazardous substances and reclamation of land. Compliance with the applicable environmental laws and regulations adds to the cost of doing business. Moreover, in order to establish and operate power plants and collect, transport and manage CCRs, we and our customers have obtained various federal, state and local environmental permits and must comply with these permits or processes and procedures approved by regulatory authorities. Any failure to comply with these laws or regulations, permits or processes and procedures could result in the issuance of substantial fines and penalties or other sanctions and may cause us (or our customers) to incur environmental or reclamation liabilities or subject us (or our customers) to third-party claims.

The operations of our Maintenance and Technical Services segment offerings are usually performed onsite at the host utility power plant and as such, the utility holds permits for our operational activities performed onsite. At facilities that we own, we secure the permits.

In spite of safeguards, our operations entail risks of regulatory noncompliance or releases of hazardous substances that could create an environmental liability.

Regulations Affecting Our Maintenance and Technical Services Segment

The Fossil Services offerings provided in our Maintenance and Technical Services segment are subject to several environmental laws and regulations that have the potential to increase operating costs and give rise to increased risk of regulatory noncompliance and environmental liabilities.

 

    Resource Conservation and Recovery Act. RCRA, as amended, regulates handling, transporting and disposing of hazardous and non-hazardous waste and delegates authority to states to develop solid and hazardous waste programs. In 1991, the EPA issued final regulations under Subtitle D of RCRA, which set forth minimum federal performance and design criteria for solid waste landfills. These regulations are typically implemented by the states, although states can impose requirements that are more stringent than the Subtitle D standards. The CCR Rule regulated the disposal of CCRs under Subtitle D of RCRA as non-hazardous wastes, as discussed below.

 

   

EPA Coal Combustion Residuals Rule. As a CCR, coal ash had previously been largely exempted from regulation under RCRA by the “Bevill amendment” and therefore was subject to state solid waste regulations. However, after a major spill at a Tennessee Valley Authority site in Tennessee in 2008, EPA began a rulemaking process to regulate CCRs. That process ended with the April 17, 2015 publication of the CCR Rule to regulate the disposal of CCRs, including fly ash, bottom ash and flue gas desulfurization products generated at coal-fired power plants. The CCR Rule, among other things, regulates CCRs as non-hazardous waste and imposes new standards for location, groundwater monitoring and dam stability on surface impoundments and requires long-term monitoring of existing and new surface impoundments and landfills facilities. The CCR Rule also preserves an exemption for CCRs when used for beneficial purposes. The EPA, however, published its intent, in December 2017, to reconsider the CCR Rule and its priority list of issues that will be addressed. The CCR rulemaking

 

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reconsideration is ongoing and may impact how the regulations are applied to facilities that manage CCRs.

 

    WIIN Act. In December 2016, Congress passed the WIIN Act, which, among other things, establishes state primacy for enforcement of the CCR Rule. The WIIN Act directed the EPA to provide guidance to states on issuing state regulations to manage the CCR program. EPA published the Coal Combustion Residuals State Permit Program Guidance Document (Interim Final) in August, 2017. States may now submit their regulatory programs for CCRs and receive EPA approval that they are equivalent to or more stringent than federal guidance.

The CCR Rule may require adjustments to our operations, and the complexity and cost of managing and disposing of CCRs could increase. We manage mine reclamation projects that may be subject to the CCR Rule. The CCR Rule establishes national minimum criteria for landfills and impoundments containing CCRs, and includes restrictions on their location, design and operation, as well as groundwater monitoring, recordkeeping, reporting and closure requirements. The rule also requires closure, shutdown or retrofitting of certain non-complying units or impoundments. Citizens and states now have the right to bring lawsuits to enforce the new CCR Rule against owners and operators. Since the CCR Rule was finalized, citizens and environmental organizations have brought several suits against the owners and operators of CCR impoundments.

The CCR Rule affirms that beneficial uses of CCRs remain exempt from federal waste regulation under RCRA’s “Bevill exclusion.” Beneficial use is defined by the regulation to cover uses where CCRs provide a functional benefit, substitute for the use of a virgin material, meet the product specifications, follow established specifications for use, and are environmentally equivalent to the material that they substitute for or are below all thresholds for safety and environmental impact. In February 2014, the EPA released a report determining that the use of fly ash in concrete constitutes a beneficial use, and the CCR Rule specifically notes that the incorporation of fly ash in concrete, as a replacement for Portland cement, is one of “the most widely recognized beneficial applications” of CCRs. The CCR Rule indicates that the use of CCRs in applications such as road base generally would qualify as beneficial use, so long as relevant regulations and guidelines are followed.

Both industry and environmental organizations have challenged the CCR Rule, which is currently under review in the D.C. Circuit Court of Appeals. The EPA voluntarily remanded certain provisions of the CCR Rule, including those relating to an exemption for certain post-closure requirements for inactive surface impoundments, a regulation describing the non-groundwater releases triggering corrective action procedures, and the provisions regarding new alternative closure procedures, for further proceedings. The EPA extended the compliance deadline for inactive surface impoundments in a direct final rule in August 2016. In September 2017, the EPA granted two petitions to reconsider certain aspects of the CCR Rule, including several segments not pending judicial review. The EPA is expected to release a Notice of Proposed Rule Making in early 2017 to address the two petitions and other aspects of the CCR Rule and to issue a final rule in June 2019.

In September 2016, the United States Commission on Civil Rights (the “Civil Rights Commission”) issued a report which determined that CCR disposal facilities can negatively impact environmental justice communities. While the Civil Rights Commission cannot require changes to EPA regulations, environmental organizations may seek to use the Civil Rights Commission’s report to spur the EPA to make regulatory changes.

Regulations Affecting the Coal Industry

The Fossil Services offerings of our Maintenance and Technical Services segment are dependent upon managing CCRs produced by our customers, typically coal-fired power plants. Coal-fired power plants and the coal industry are generally highly regulated under federal and state law. Regulation affecting this industry is ever-evolving, including the following:

 

   

Clean Air Act. The federal Clean Air Act of 1970 and subsequent amendments, particularly the Clean Air Act Amendments of 1990, and corresponding state laws and EPA regulations (discussed below),

 

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regulate the emission of air pollutants such as SOx, NOx, particulate matter (“PM”) and ozone. The EPA finalized more stringent ambient air quality standards for fine PM in January 2013 and for ozone in October 2015 and issued final policy assessment for NOx in April 2017 and draft policy assessment for SOx in August 2017. The EPA concluded that the current primary NOx standard is adequate, but has not taken additional steps with respect to the SOx standards. To meet emissions limits, utilities have been required to make changes such as changing fuel sources, installing expensive pollution control equipment and, in some cases, shutting down plants.

 

    Cross-State Air Pollution Rule. In July 2011, the EPA adopted the Cross-State Air Pollution Rule (“CSAPR”), a cap-and-trade type program requiring utilities to make substantial reductions in SOx and NOx and emissions that contribute to ozone and in fine PM emissions in order to reduce interstate transport of such pollution. CSAPR was challenged and vacated by the D.C. Circuit Court of Appeals in August 2012, but that decision was reversed by the U.S. Supreme Court in April 2014. The D.C. Circuit has since lifted its stay on CSAPR and ruled in favor of the EPA on the remaining significant issues. In January 2016, the EPA filed a brief with the D.C. Circuit addressing the remaining legal challenges left undecided by the U.S. Supreme Court’s 2014 decision. Conforming with a court- ordered schedule, the EPA implemented the first phase of CSAPR in 2015 and 2016 and the second phase in 2017. In November 2014 and January 2015, the EPA issued notices of data availability (“NODA”) outlining emission allowance allocations for existing generating units that began operating before and after 2010. In September 2016, the EPA finalized a rule updating CSAPR in order to maintain 2008 ozone emission limitations in downwind states by addressing summertime (May-September) transport of ozone pollution. The update, which commenced in May 2017, sets stricter NOx season emission budgets in 22 states and could affect up to 886 coal-fired facilities. These emission control requirements can impact the quantity and quality of CCRs produced at a power plant, add to the costs of operating a power plant and make coal a less attractive fuel alternative in the planning and building of utility power plants.

 

    Comprehensive Environmental Response, Compensation and Liability Act. Certain environmental laws, including the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and similar state laws, impose strict, joint and several liability on responsible parties for investigation and remediation of regulated materials at contaminated sites. CCRs may contain materials such as metals that are regulated materials under these laws. Management of CCRs can give rise to liability under CERCLA and similar laws.

 

    Mercury and Air Toxics Standards for Power Plants. Under its Mercury and Air Toxics Standards for Power Plants rule, in February 2012 the EPA promulgated final limits on mercury and other toxic chemicals from new and modified power plants. In June 2015, the U.S. Supreme Court ordered the EPA to undertake cost-benefit analysis when promulgating mercury and air toxics standards. In April 2016, the EPA published a supplemental finding pursuant to the U.S. Supreme Court’s directive, which is currently being challenged at the D.C. Circuit. In April 2017, the D.C. Circuit granted EPA’s motion to stay the litigation while EPA reconsiders its finding that the rule is “appropriate and necessary” as required under the Clean Air Act. If upheld, requirements to control mercury emissions could result in implementation of additional technologies at power plants that could negatively affect fly ash quality.

 

   

GHG Emissions. Some states and regions have adopted legislation and regulatory programs to reduce greenhouse gas (“GHG”) emissions, either directly or through mechanisms such as renewable portfolio standards for electric utilities. These programs require electric utilities to increase their use of renewable energy such as solar and wind power. Federal GHG legislation appears unlikely in the near term. The EPA has initiated review of rules finalized in August 2015 for GHG emissions from new and existing fossil-fuel fired electric power plants and for carbon emissions from existing sources in the power sector (the latter being known as the “Clean Power Plan”). The Clean Power Plan establishes state-specific, rate-based reduction goals for carbon emissions and calls on the power sector to reduce carbon emissions to 32% below 2005 levels by 2030. The Clean Power Plan is currently pending judicial review in the D.C. Circuit based on state and industry challenges, and the EPA issued an

 

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advance notice of proposed rulemaking in December 2017 seeking comment on a framework to replace the Clean Power Plan. If the Clean Power Plan is upheld and retained by the EPA, various states’ utility companies would be encouraged to substitute generation from low-emitting coal and natural gas plants and zero-emitting renewable sources for generation from higher-emitting coal plants. Such changes in the energy market could impact the quantity of CCRs produced by our suppliers, add to the cost of operating power plants and make coal-fired plants a less attractive option in the planning and commissioning of new energy generating facilities.

 

    EPA Water Quality Regulations. The EPA is addressing water quality impacts from coal-fired power plants and coal mining operations. In September 2015, the EPA finalized new effluent limitations under the Clean Water Act for steam electric power generating facilities. The final rule requires operators of coal plants with a generating capacity over 50 megawatts to store fly ash and bottom ash in dry landfills, rather than containment ponds. Approximately 12% of coal plants will be affected, and some marginal operations may shut down rather than face the expense of complying with the new effluent discharge requirements. Multiple challenges to the effluent limitation guidelines were consolidated and are pending before the Court of Appeals for the Fifth Circuit. In September 2017, the EPA issued a rulemaking postponing certain compliance dates under the effluent limitation guidelines. In addition, the EPA finalized new regulations to minimize adverse environmental impacts to aquatic life from cooling water intake structures at existing electric generating plants, which were challenged by environmental and industry groups at the Fifth and Second Circuit Courts of Appeals, which remain pending. More stringent regulation of coal-fired power plants and coal mining operations could increase the cost for utilities and thus indirectly impact the availability and cost of fly ash for our CCR activities.

Increasingly strict requirements such as those described above generally will increase the cost of doing business and may make coal burning less attractive for utilities. Faced with more stringent regulations, litigation by environmental groups, and a decrease in the cost of natural gas, some electric utilities are reducing their portfolio of coal-fired energy facilities. For example, in recent years, multiple companies announced plans to close coal-fired power plant units, or dropped plans to open new plants, citing the cost of compliance with pending or new environmental regulations. The potential negative impact on job prospects in the utility and mining industries has prompted considerable concern in Congress, leading to calls to restrict the EPA’s regulatory authority and prompting the EPA to reconsider the same. The outcome of these developments cannot be predicted. To date, our business has not been significantly impacted by these developments; however, if the rate of coal-fired plant closures increases, we may be adversely affected in the future. Nevertheless, we believe that reliance on coal for a substantial amount of power generation in the United States is likely to continue for the foreseeable future.

Regulations Affecting the Nuclear Power Industry

Our nuclear power generation customers are subject to regulations from a number of entities, including the applicable U.S. regulatory bodies, such as the U.S. Nuclear Regulatory Commission, and non-U.S. regulatory bodies, such as the International Atomic Energy Agency (the “IAEA”). Regulations include, among other things: (1) systems for nuclear material safeguards implemented by the IAEA, (2) global-scale agreements on nuclear safety such as the Convention on Nuclear Safety and the Joint Convention on the Safety of Spent Fuel Management and on the Safety of Radioactive Waste Management and (3) additional general regulations for nuclear facilities under the Atomic Energy Act and Nuclear Waste Policy Act, including strict licensing requirements, inspection procedures and regulations governing the maintenance, shutdown and dismantling of nuclear facilities and the management and disposal of radioactive wastes. In addition, the PAA regulates, among other things, radioactive materials and the nuclear energy industry, including liability and compensation in the event of nuclear-related incidents. The PAA provides certain protections and indemnification to nuclear energy plant operators, which also apply to us as part of our services to the U.S. nuclear energy industry.

 

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Motor Carrier Operations

Through the services we provide, we operate as a motor carrier and therefore are subject to regulation by the United States Department of Transportation (“DOT”) and various state agencies. These regulatory authorities exercise broad powers, governing activities such as the authorization to engage in motor carrier operations, regulatory safety, hazardous materials labeling, placarding and marking, financial reporting, and certain mergers, consolidations and acquisitions. There are additional regulations specifically relating to the trucking industry, including testing and specification of equipment and product handling requirements. The trucking industry is subject to possible regulatory and legislative changes that may affect the economics of the industry by requiring changes in operating practices or by changing the demand for common or contract carrier services or the cost of providing truckload services. Some of these possible changes include increasingly stringent environmental regulations, changes in the hours of service regulations which govern the amount of time a driver may drive in any specific period and requiring onboard black box recorder devices or limits on vehicle weight and size.

Interstate motor carrier operations are subject to safety requirements prescribed by DOT. Intrastate motor carrier operations are subject to safety regulations that often mirror federal regulations. Such matters as weight and dimension of equipment are also subject to federal and state regulations. DOT regulations also mandate drug testing of drivers. From time to time, various legislative proposals are introduced, including proposals to increase federal, state or local taxes, including taxes on motor fuels, which may increase our costs or adversely impact the recruitment of drivers. We cannot predict whether, or in what form, any increase in such taxes applicable to us will be enacted.

Legal Proceedings

We may, at any given time, be named as defendants in certain lawsuits, investigations and claims arising in the ordinary course of conducting our business, including certain environmental claims and employee-related matters, and we expect that we will be named defendants in similar lawsuits, investigations and claims in the future. While the outcome of these lawsuits, investigations and claims cannot be predicted with certainty, we do not expect these matters to have a material adverse impact on our business, results of operations, cash flows or financial condition.

In July 2017, APTIM Corp. sued Allied Power Management, LLC and certain of its employees and affiliated entities in the U.S. District Court for the Northern District of Illinois, alleging, among other things, misappropriation of alleged trade secrets and civil conspiracy. APTIM also alleged tortious interference with their contractual and business relations because Exelon, our customer whose business makes up 100% of our Nuclear Services revenues, ended their business relationship with APTIM and started a new business relationship with Allied Power Management, LLC. The parties are currently engaged in expedited discovery relevant to APTIM’s motion for preliminary injunction, which was also filed last July. No hearing date has been set for that motion. APTIM also has an unspecified claim for damages that will proceed after the hearing on APTIM’s motion for preliminary injunction. No schedule for that phase of the case, and no trial date, has been set. APTIM has not identified its alleged damages. We believe that APTIM’s claims are meritless, and we intend to defend ourselves vigorously.

APTIM and its alleged predecessors in interest have also initiated judicial and arbitral proceedings in Louisiana against Dorsey Ron McCall, our Senior Vice President. In June 2017, APTIM’s alleged predecessor, The Shaw Group, Inc., sued Mr. McCall in Louisiana state court, alleging breaches of his employment agreement. APTIM later filed a petition in the U.S. District Court for the Eastern District of Louisiana seeking to stay the state-court litigation and compel arbitration of the breach-of-contract claims, which the district court granted, permitting APTIM’s pending arbitration against Mr. McCall to proceed. Mr. McCall appealed that decision to the U.S. Court of Appeals for the Fifth Circuit, which stayed the district court’s order and tentatively set oral argument for the week of February 5, 2018.

We believe that all of APTIM’s claims in the above proceedings are without merit, and we intend to vigorously defend ourselves against them.

 

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We are party to a lawsuit filed against North Carolina by a certain environmental advocacy group alleging that the issuance by the state of certain permits associated with our Brickhaven clay mine reclamation site exceeded the state’s power. Although the state’s authority to issue the bulk of the permit (i.e. the allowance to reclaim the original site with coal ash) was upheld, the portion of the permit that allows us to “cut and prepare” an additional portion of the site was held by the North Carolina Superior Court to exceed the relevant agency’s statutory authority. This decision has been appealed by the state and we expect a ruling by the end of 2018. If the Superior Court’s decision is ultimately upheld, we believe we will lose approximately 8-10% of the overall anticipated coal ash capacity at the Brickhaven mine site, which will impact how quickly the site reaches capacity.

Employees

As of December 31, 2017, we had approximately      employees. Approximately                  of our employees were covered by collective bargaining agreements,     % of which are employed in the Nuclear Services operations of our Maintenance and Technical Services segment by Ash Management Services, LLC, one of our wholly-owned subsidiaries, which we use to bid on and house a small number of contracts serviced by a unionized labor force. We believe we have good relations with our employees.

 

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MANAGEMENT

Directors and Executive Officers

Set forth below are the names, age, position and description of the business experience of our executive officers and directors.

 

Name

  

Age

  

Position with Charah Solutions

Charles Price

   62   

President, Chief Executive Officer and Director

Bruce Kramer

   56   

Chief Financial Officer and Treasurer

Scott Sewell

   38   

Chief Operating Officer

Dorsey “Ron” McCall

   69   

Senior Vice President and Director

Mark Spender

   39   

Director

Charles Price—President, Chief Executive Officer and Director. Charles Price is our founder and has served as our Chief Executive Officer since 1987. Mr. Price currently serves as the Chairman of the board of directors of the American Coal Ash Association and was selected as Entrepreneur of the Year in 2010 in the Midwest Region by Ernst & Young, when he was also a finalist for National Entrepreneur of the Year. Because of his broad knowledge of the industry, we believe Mr. Price is well qualified to serve on our board of directors.

Bruce Kramer—Chief Financial Officer and Treasurer. Bruce Kramer joined the Company in 2007 and has served as our Chief Financial Officer and Treasurer since 2007. Mr. Kramer is a CPA with over 30 years of experience in public and private accounting and management. Mr. Kramer was recognized as the CFO of the Year by Business First of Louisville in 2011. Mr. Kramer is a board member of Dismas Charities and serves on the sponsorship committee for the St. John Center for Homeless Men. Mr. Kramer holds a bachelor’s degree in accounting from Bellarmine University.

Scott Sewell—Chief Operating Officer. Scott Sewell joined the Company in 2008 and has served as our Chief Operating Officer since 2013. Prior to serving as our Chief Operating Officer, Mr. Sewell served as our Senior Vice President of Operations from 2012 to 2013, Vice President of Operations from 2010 to 2012 and Operations Manager from 2008 to 2010. Prior to joining Charah, Mr. Sewell was Project Manager for Bechtel Corporation from 2001 to 2008. Mr. Sewell was named to the Business First of Louisville “Forty Under 40” list in 2017. Mr. Sewell is a Six Sigma Yellow Belt and a member of ASTM International, the Association of Equipment Management Professionals and the International Erosion Control Association. Mr. Sewell holds a bachelor’s degree in international business from the College of Charleston and an Executive Development Certification from Vanderbilt University.

Dorsey “Ron” McCall—Senior Vice President and Director. Ron McCall has served as our Senior Vice President since 2018 and served as Chief Executive Officer of Allied Power Management, LLC, since June 2017. From January 2016 to June 2017, Mr. McCall worked as an independent consultant. From 2002 to January 2016, Mr. McCall was at Chicago Bridge & Iron (formerly the Shaw Group). Mr. McCall has had a career that spans over 48 years in the industrial construction and maintenance sectors which includes 15 years as President of the Shaw Group’s Plant Services division and approximately 25 years as Senior Vice President of Turner Industries-Western division. Mr. McCall has extensive knowledge in all aspects of project management including nuclear outages, refinery turnarounds, as well as major construction and maintenance projects, both domestic and international. Mr. McCall received his bachelor’s degree in education from McNeese State University and has completed graduate work toward his master’s degree in business at Pepperdine University. Because of his broad knowledge of the industry, we believe Mr. McCall is well qualified to serve on our board of directors.

Mark Spender—Director. Mark Spender has served on our board of directors since 2018. Mr. Spender is a Managing Director and member of the Investment Committee at BCP. Since joining BCP in October 2015, Mr. Spender has led BCP’s investments in the environmental services and utility services industries. Prior to joining

 

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BCP, Mr. Spender was a Managing Director in the Global Industrials Group in the Investment Banking Department at Credit Suisse where he began his career in 2000. Mr. Spender also held various roles in the Investment Banking Department at UBS from 2004 to 2011. During his more than 15 years in investment banking, Mr. Spender focused on a variety of industrial subsectors, including engineering and construction, building products and construction materials, and industrial distribution. Mr. Spender holds a B.B.A. in Finance with Highest Distinction from the University of Michigan’s Ross School of Business. Because of his extensive knowledge of the industry and his involvement and directorship with our predecessor companies, we believe Mr. Spender is well qualified to serve on our board of directors.

Status as a Controlled Company

Because BCP and its affiliates, through their interests in Charah Holdings, will initially hold approximately     % of the voting power of our capital stock following the completion of this offering, we expect to be a controlled company as of the completion of the offering under Sarbanes-Oxley and the NYSE or the Nasdaq corporate governance standards, as applicable. A controlled company does not need its board of directors to have a majority of independent directors or to form independent compensation and nominating and governance committees. As a controlled company, we will remain subject to rules of Sarbanes-Oxley and the NYSE or the Nasdaq, as applicable, that require us to have an audit committee composed entirely of independent directors. Under these rules, we must have at least one independent director on our audit committee by the date our Class A common stock is listed on the NYSE or the Nasdaq, as applicable, at least two independent directors on our audit committee within 90 days of the listing date, and at least three independent directors on our audit committee within one year of the listing date.

If at any time we cease to be a controlled company, we will take all action necessary to comply with Sarbanes-Oxley and the NYSE or the Nasdaq corporate governance standards, as applicable, including by appointing a majority of independent directors to our board of directors and ensuring we have a compensation committee and a nominating and corporate governance committee, each composed entirely of independent directors, subject to a permitted “phase-in” period.

Initially, our board of directors will consist of a single class of directors each serving one-year terms. After BCP and its affiliates no longer collectively hold more than 50% of the voting power of our capital stock, our board of directors will be divided into three classes of directors, with each class as equal in number as possible, serving staggered three-year terms, and such directors will be removable only for “cause.”

Composition of Our Board of Directors

Our board of directors currently consists of                members. Prior to the date that our Class A common stock is first traded on the NYSE or the Nasdaq, as applicable, we expect to have a                member board of directors.

In evaluating director candidates, we will assess whether a candidate possesses the integrity, judgment, knowledge, experience, skills and expertise that are likely to enhance the board’s ability to manage and direct our affairs and business, including, when applicable, to enhance the ability of committees of the board to fulfill their duties.

Director Independence

The board of directors is in the process of reviewing the independence of our directors using the independence standards of the NYSE and the Nasdaq. Currently, we anticipate that our board of directors will determine that                is independent within the meaning of the NYSE and the Nasdaq listing standards currently in effect and within the meaning of Section 10A-3 of the Exchange Act.

 

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Committees of the Board of Directors

Audit Committee

We will establish an audit committee prior to the completion of this offering. Rules implemented by the NYSE, the Nasdaq and the SEC require us to have an audit committee comprised of at least three directors who meet the independence and listing standards of the NYSE or the Nasdaq, as applicable, and the Exchange Act, subject to transitional relief during the one-year period following the completion of this offering. Our audit committee initially consists of                , who is independent under the rules of the SEC. As required by the rules of the SEC and listing standards of the NYSE or the Nasdaq, as applicable, the audit committee will consist solely of independent directors.

This committee will oversee, review, act on and report on various auditing and accounting matters to our board of directors, including: the selection of our independent accountants, the scope of our annual audits, fees to be paid to the independent accountants, the performance of our independent accountants and our accounting practices. In addition, the audit committee will oversee our compliance programs relating to legal and regulatory requirements. We expect to adopt an audit committee charter defining the committee’s primary duties in a manner consistent with the rules of the SEC and the NYSE or the Nasdaq, as applicable, or market standards.

Compensation Committee

Because we will be a “controlled company” as of the closing of this offering within the meaning of the NYSE or the Nasdaq corporate governance standards, as applicable, we will not be required to, and do not currently expect to, have a compensation committee as of the closing of this offering.

If and when we are no longer a “controlled company” within the meaning of the NYSE or the Nasdaq corporate governance standards, as applicable, we will be required to establish a compensation committee. We anticipate that such a compensation committee would consist of three directors who will be “independent” under the rules of the SEC and the NYSE or the Nasdaq, as applicable. This committee would establish salaries, incentives and other forms of compensation for officers and other employees. Any compensation committee would also administer our incentive compensation and benefit plans. Upon formation of a compensation committee, we would expect to adopt a compensation committee charter defining the committee’s primary duties in a manner consistent with the rules of the SEC and the NYSE or the Nasdaq, as applicable, or market standards.

Nominating and Corporate Governance Committee

Because we will be a “controlled company” as of the closing of this offering within the meaning of NYSE or the Nasdaq corporate governance standards, as applicable, we will not be required to, and do not currently expect to, have a nominating and corporate governance committee.

If and when we are no longer a “controlled company” within the meaning of the NYSE or the Nasdaq, as applicable, corporate governance standards, we will be required to establish a nominating and corporate governance committee. We anticipate that such a nominating and corporate governance committee would consist of three directors who will be “independent” under the rules of the SEC and the NYSE or the Nasdaq, as applicable. This committee would identify, evaluate and recommend qualified nominees to serve on our board of directors, develop and oversee our internal corporate governance processes and maintain a management succession plan. Upon formation of a nominating and corporate governance committee, we would expect to adopt a nominating and corporate governance committee charter defining the committee’s primary duties in a manner consistent with the rules of the SEC and the NYSE or the Nasdaq, as applicable, or market standards.

 

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Code of Conduct

Prior to the completion of this offering, our board of directors will adopt a code of conduct applicable to our employees, directors and officers, in accordance with applicable U.S. federal securities laws and the corporate governance rules of the NYSE or the Nasdaq, as applicable. Any waiver of this code may be made only by our board of directors and will be promptly disclosed as required by applicable U.S. federal securities laws and the corporate governance rules of the NYSE or the Nasdaq, as applicable.

 

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EXECUTIVE COMPENSATION

We are providing compensation disclosure that satisfies the requirements applicable to emerging growth companies, as defined in the JOBS Act.

2017 Summary Compensation Table

The following table summarizes the compensation awarded to, earned by or paid to our principal executive officer and our next two most highly compensated executive officers (our “Named Executive Officers”) for the fiscal year ended December 31, 2017.

 

Name and Principal Position

  Year     Salary
($)
    Bonus
($)
    Stock
Awards
($)
    Non-Equity
Incentive Plan
Compensation
($)
    Nonqualified
Deferred
Compensation
Earnings
($)
    All Other
Compensation
($)
    Total
($)
 

Charles Price
(Chief Executive Officer)

    2017                

Bruce Kramer
(Chief Financial Officer)

    2017                

Scott Sewell
(Chief Operating Officer)

    2017                

Outstanding Equity Awards at 2017 Fiscal Year-End

The following table reflects information regarding outstanding equity-based awards held by our Named Executive Officers as of December 31, 2017.

 

Name

  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
    Option
Exercise
Price ($)
    Option
Expiration
Date
    Number
of
Shares
or
Units of
Stock
That
Have
Not
Vested
(#)
    Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
    Equity
Incentive
Plan
Awards:
Market
or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)
 

Charles Price

                 

Bruce Kramer

                 

Scott Sewell

                 

Long-Term Incentive Plan

In order to incentivize management members following the completion of this offering, we anticipate that our board of directors will adopt a long-term incentive plan (the “LTIP”) for employees, consultants and directors prior to the completion of this offering. Our Named Executive Officers will be eligible to participate in this plan, which will become effective upon the consummation of this offering. We anticipate that the LTIP will provide for the grant of options, stock appreciation rights, restricted stock, restricted stock units, stock awards, dividend equivalents, other stock-based awards, cash awards, substitute awards and performance awards intended to align the interests of service providers (including the Named Executive Officers) with those of our stockholders.

 

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CORPORATE REORGANIZATION

We were formed as a Delaware corporation in January 2018. Following this offering and the corporate reorganization described below, we will be a holding company and our sole material asset will consist of membership interests in CHRH Holdings. Through our ownership of CHRH Holdings and its ownership of Charah Sole Member and Allied Sole Member, we will own the outstanding equity interests in Charah, LLC and Allied Power Management, LLC, the subsidiaries through which we will operate our assets. After the consummation of the corporate reorganization described below, we will be the sole managing member of CHRH Holdings, and we will be responsible for all operational, management and administrative decisions relating to CHRH Holdings and its subsidiaries’ businesses and will consolidate the financial results of CHRH Holdings and its subsidiaries.

Pursuant to the terms of certain reorganization transactions that will be completed immediately prior to the closing of this offering, (a) Charah Management will contribute all of its interests in Charah Sole Member to CHRH Holdings in exchange for    CHRH Holdings LLC Units and                  shares of Class B common stock and Allied Power Holdings will contribute all of its interests in Allied Sole Member to CHRH Holdings in exchange for                  CHRH Holdings LLC Units and shares of Class B common stock; (b) each of Charah Management and Allied Power Holdings will distribute the equity interests received by them pursuant to clause (a) to the Existing Owners, with such equity interests to be allocated amongst the Existing Owners pursuant to the respective terms of the existing Charah Management and Allied Power Holdings limited liability company agreements and calculated using an implied valuation based on the initial public offering price of the Class A common stock; (c) Management Members that hold management incentive units in Charah Management and Allied Power Holdings will contribute to Management Holdco certain of the equity interests distributed to them in the recapitalization described in clause (b) above in exchange for membership interests in Management Holdco; (d) BCP will exchange                  CHRH Holdings LLC Units and an equal number of shares of Class B common stock for                  shares of Class A common stock; (e) Charah Solutions will issue and sell                  shares of Class A common stock and BCP will sell          shares of Class A common stock to purchasers in this offering; and (f) Charah Solutions will contribute the net proceeds of this offering received by it to CHRH Holdings in exchange for CHRH Holdings LLC Units. The membership interests in Management Holdco that will be issued to the Management Members in clause (c) above will be subject to time-based vesting conditions and be subject to continued employment and other conditions, and the Management Members will receive CHRH Holdings LLC Units and shares of Class B common stock upon vesting of such membership interests of Management Holdco. The unvested membership interests in Management Holdco held by the members of management that were originally held through Charah Management will vest over a          year period from the original grant date in equal annual increments, and         % of the unvested interests in Management Holdco held by the members of management that originally held through Allied Power Holdings will vest on                              with the remaining         % vesting on                             .

To the extent the underwriters’ option to purchase additional shares is exercised in full or in part, (a) BCP will exchange          CHRH Holdings LLC Units and an equal number of shares of Class B common stock for          shares of Class A common stock and sell such shares of Class A common stock pursuant to such option exercise and (b) Charah Solutions will contribute the net proceeds from such option exercise to CHRH Holdings in exchange for an additional number of CHRH Holdings LLC Units equal to the number of shares of Class A common stock Charah Solutions issued pursuant to the underwriters’ option.

After giving effect to these transactions and the offering contemplated by this prospectus and assuming the underwriters’ option to purchase additional shares is not exercised:

 

   

the Existing Owners will own all of the Class B common stock, representing     % of our capital stock (of which, (i) BCP will own approximately     % of the total issued and outstanding Class B common stock, representing approximately     % of our capital stock, (ii) CEP Holdings, Inc. will own approximately     % of the total issued and outstanding Class B common stock, representing

 

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approximately     % of our capital stock and (iii) the Management Members, collectively, will own approximately     % of the total issued and outstanding Class B common stock, including through their interests in Management Holdco, representing approximately     % of our capital stock);

 

    Charah Solutions will own an approximate     % interest in CHRH Holdings; and

 

    the Existing Owners will own an approximate     % interest in CHRH Holdings (of which, (i) BCP will own an approximate     % interest in CHRH Holdings, (ii) CEP Holdings, Inc. will own an approximate     % interest in CHRH Holdings and (iii) the Management Members, collectively, will own an approximate     % interest in CHRH Holdings, including through their interests in Management Holdco).

If the underwriters’ option to purchase additional shares is exercised in full:

 

    the Existing Owners will own all of the Class B common stock, representing     % of our capital stock (of which, (i) BCP will own approximately     % of the total issued and outstanding Class B common stock, representing approximately     % of our capital stock, (ii) CEP Holdings, Inc. will own approximately     % of the total issued and outstanding Class B common stock, representing approximately     % of our capital stock and (iii) the Management Members, collectively, will own approximately     % of the total issued and outstanding Class B common stock, including through their interests in Management Holdco, representing approximately     % of our capital stock);

 

    Charah Solutions will own an approximate    % interest in CHRH Holdings; and

 

    the Existing Owners will own an approximate     % interest in CHRH Holdings (of which, (i) BCP will own an approximate     % interest in CHRH Holdings, (ii) CEP Holdings, Inc. will own an approximate     % interest in CHRH Holdings and (iii) the Management Members, collectively, will own an approximate     % interest in CHRH Holdings, including through their interests in Management Holdco).

The ownership percentages above assume an initial public offering price of $         per share of Class A common stock, the midpoint of the price range set forth on the cover page of this prospectus. Any increase or decrease (as applicable) of the assumed initial public offering price will result in an increase or decrease, respectively, in the number of shares of Class B common stock CHRH Holdings LLC Units to be allocated amongst the Existing Owners; however, any such change in our initial public offering price will not affect the aggregate number of such equity interest held by our Existing Owners. See “Corporate Reorganization—Existing Owners’ Ownership.”

Each share of Class B common stock has no economic rights but entitles its holder to one vote on all matters to be voted on by stockholders generally. Holders of Class A common stock and Class B common stock will vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law or by our amended and restated certificate of incorporation. We do not intend to list our Class B common stock on any exchange.

Following this offering, under the CHRH Holdings LLC Agreement, each Existing Owner will, subject to certain limitations, have the right, pursuant to the Exchange Right, to cause CHRH Holdings to acquire all or a portion of its CHRH Holdings LLC Units (along with a corresponding number of shares of our Class B common stock) for, at CHRH Holdings’ election, (i) shares of our Class A common stock at an exchange ratio of one share of Class A common stock for each CHRH Holdings LLC Unit exchanged, subject to conversion rate adjustments for stock splits, stock dividends, reclassification and other similar transactions or (ii) cash in an amount equal to the Cash Election Value of such Class A common stock. Alternatively, upon the exercise of the Exchange Right, Charah Solutions (instead of CHRH Holdings) will have the right, pursuant to the Call Right, to acquire each tendered CHRH Holdings LLC Unit directly from the exchanging Existing Owner for, at its election, (x) one share of Class A common stock or (y) cash in an amount equal to the value of a share of Class A

 

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common stock. In connection with any exchange of CHRH Holdings LLC Units pursuant to the Exchange Right or our Call Right, the corresponding number of shares of Class B common stock will be cancelled. See “Certain Relationships and Related Party Transactions—CHRH Holdings LLC Agreement.”

In connection with the closing of this offering, we will enter into the Tax Receivable Agreement with certain of our Existing Owners (each such person, a “TRA Holder” and, together, the “TRA Holders”). The Tax Receivable Agreement will generally provide for the payment by Charah Solutions to each TRA Holder of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that Charah Solutions actually realizes (computed using the estimated impact of state and local taxes) or is deemed to realize in certain circumstances in periods after this offering as a result of (i) certain increases in tax basis that occur as a result of Charah Solutions’ acquisition (or deemed acquisition for U.S. federal income tax purposes) of all or a portion of such TRA Holder’s CHRH Holdings LLC Units in connection with this offering or pursuant to the exercise of the Exchange Right or the Call Right and (ii) imputed interest deemed to be paid by Charah Solutions as a result of, and additional tax basis arising from, any payments Charah Solutions makes under the Tax Receivable Agreement. Charah Solutions will retain the benefit of the remaining 15% of these cash savings. For additional information regarding the Tax Receivable Agreement, see “Risk Factors—Risks Related to This Offering and Our Class A Common Stock” and “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

The Existing Owners will have the right, under certain circumstances, to cause us to register the offer and resale of their shares of Class A common stock. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

Existing Owners’ Ownership

The table below sets forth the percentage ownership of our Existing Owners prior to this offering and after the consummation of this offering.

 

            Equity Interests
Following this Offering
 

Existing Owners(1)

   Percentage
Ownership
in CHRH
Holdings
LLC Prior
to this
Offering(2)
     CHRH
Holdings
LLC
Units
     Class B
Common
Stock
     Class A
Common
Stock
     Combined
Voting
Power (%)(8)
 

BCP(3)

              

CEP Holdings, Inc.(4)

              

Management Holdco(5)

              

Management Member Executive Officers(5)(6)

              

Other Management Members(5)(7)

              

 

(1)

The number of shares of Class A common stock, Class B common stock and CHRH Holdings LLC Units to be issued to our Existing Owners is based on the implied equity value of CHRH Holdings immediately prior to this offering, based on an initial public offering price of $         per share of Class A common stock, the midpoint of the price range set forth on the cover page of this prospectus. Any increase or decrease of the assumed initial public offering price will result in an increase or decrease in the number of shares of Class B common stock and CHRH Holdings LLC Units received by the Existing Owners, but will not affect the aggregate numbers of shares of Class B common stock and CHRH Holdings LLC Units held by our Existing Owners. At an assumed public offering price of $         (the midpoint of the range set forth on the cover of this prospectus), the Existing Owners will receive                  shares of Class B common stock and CHRH Holdings LLC Units. A $1.00 increase (decrease) in the assumed public offering price would increase (decrease) the aggregate number of shares of Class B common stock and CHRH Holdings LLC Units to be

 

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  received by the Existing Owners by              (            ) shares of Class B common stock and              (            ) CHRH Holdings LLC Units.
(2) Does not include management incentive units, the terms of which are set forth in greater detail under “Executive Compensation.”
(3) Assuming that the price of our Class A common stock following the closing of this offering is equal to the public offering price of $                per share (the midpoint of the price range set forth on the cover of this prospectus), BCP will receive            shares of our Class B common stock and             CHRH Holdings LLC Units. A $1.00 increase (decrease) in this assumed Class A common stock price would increase (decrease) the aggregate number of shares of Class B common stock and CHRH Holdings LLC Units to be received by BCP by              (            ) shares of Class B common stock and              (            ) CHRH Holdings LLC Units.
(4) Assuming that the price of our Class A common stock following the closing of this offering is equal to the public offering price of $                per share (the midpoint of the price range set forth on the cover of this prospectus), CEP Holdings, Inc. will receive                shares of our Class B common stock and CHRH Holdings LLC Units. A $1.00 increase (decrease) in this assumed Class A common stock price would increase (decrease) the aggregate number of Class B common stock and CHRH Holdings LLC Units to be received by CEP Holdings, Inc. by                 (            ) shares of Class B common stock and                 (            ) CHRH Holdings LLC Units.
(5) The Management Members’ ownership includes                shares of common stock held indirectly by the Management Members through Management Holdco. The shares of common stock held by Management Holdco will be subject to the vesting, forfeiture and other provisions set forth in the Amended and Restated Limited Liability Company Agreement of Management Holdco. The unvested membership interests in Management Holdco held by the members of management that originally held through Charah Management will vest over a          year period from the original grant date in equal annual increments, and         % of the unvested interests in Management Holdco held by the members of management that originally held through Allied Power Holdings will vest on                             , with the remaining         % vesting on                             . Assuming that the price of our Class A common stock following the closing of this offering is equal to the public offering price of $                per share (the midpoint of the price range set forth on the cover of this prospectus), Management Holdco will receive                shares of our Class B common stock and CHRH Holdings LLC Units. A $1.00 increase (decrease) in this assumed Class A common stock price would (decrease) increase the aggregate number of Class B common stock and CHRH Holdings LLC Units to be received by Management Holdco by                 (            ) shares of Class B common stock and                 (            ) CHRH Holdings LLC Units.
(6) Includes Messrs.                  . Assuming that the price of our Class A common stock following the closing of this offering is equal to the public offering price of $                per share (the midpoint of the price range set forth on the cover of this prospectus), the Management Members that serve as our executive officers will receive                shares of our Class B common stock and CHRH Holdings LLC Units. A $1.00 increase (decrease) in this assumed Class A common stock price would increase (decrease) the aggregate number of Class B common stock and CHRH Holdings LLC Units to be received by the Management Members that serve as our executive officers by                 (            ) shares of Class B common stock and                 (            ) CHRH Holdings LLC Units.
(7) Assuming that the price of our Class A common stock following the closing of this offering is equal to the public offering price of $                per share (the midpoint of the price range set forth on the cover of this prospectus), the nonexecutive Management Members will receive                shares of our Class B common stock and CHRH Holdings LLC Units. A $1.00 increase (decrease) in this assumed Class A common stock price would increase (decrease) the aggregate number of Class B common stock and CHRH Holdings LLC Units to be received by the nonexecutive Management Members by                 (            ) shares of Class B common stock and                 (            ) CHRH Holdings LLC Units.
(8) Totals may not sum or recalculate due to rounding.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

CHRH Holdings LLC Agreement

The CHRH Holdings LLC Agreement is filed as an exhibit to the registration statement of which this prospectus forms a part, and the following description of the CHRH Holdings LLC Agreement is qualified in its entirety by reference thereto.

Exchange Rights

Following this offering, under the CHRH Holdings LLC Agreement, the Existing Owners will, subject to certain limitations, have the right, pursuant to the Exchange Right, to cause CHRH Holdings to acquire all or a portion of their CHRH Holdings LLC Units (along with a corresponding number of shares of our Class B common stock) for, at CHRH Holdings’ election, (i) shares of our Class A common stock at an exchange ratio of one share of Class A common stock for each CHRH Holdings LLC Unit exchanged, subject to conversion rate adjustments for stock splits, stock dividends, reclassification and other similar transactions or (ii) cash in an amount equal to the Cash Election Value of such Class A common stock. Alternatively, upon the exercise of the Exchange Right, Charah Solutions (instead of CHRH Holdings) will have the right, pursuant to the Call Right, to acquire each tendered CHRH Holdings LLC Unit directly from such Existing Owner for, at its election, (x) one share of Class A common stock or (y) cash in an amount equal to the value of a share of Class A common stock. In connection with any exchange of CHRH Holdings LLC Units pursuant to the Exchange Right or our Call Right, the corresponding number of shares of Class B common stock will be cancelled. As the CHRH Holdings LLC Unit Holders exchange their CHRH Holdings LLC Units, our membership interest in CHRH Holdings will be correspondingly increased, the number of shares of Class A common stock outstanding will be increased, and the number of shares of Class B common stock outstanding will be reduced.

“Cash Election Value” means, with respect to the shares of Class A common stock to be delivered to the exchanging Existing Owner by us pursuant to our Call Right, the amount that would be received if the number of shares of Class A common stock to which the exchanging CHRH Holdings LLC Unit Holder would otherwise be entitled were sold at a per share price equal to the trailing 10-day volume-weighted average price of a share of Class A common stock on the date such CHRH Holdings LLC Unit Holder provides a notice of the intent to exchange, net of actual or deemed offering expenses.

Distributions and Allocations

Under the CHRH Holdings LLC Agreement, we will have the right to determine when distributions will be made to the CHRH Holdings LLC Unit Holders and the amount of any such distributions. Following this offering, if we authorize a distribution, such distribution will be made to the CHRH Holdings LLC Unit Holders generally on a pro rata basis in accordance with their respective percentage ownership of CHRH Holdings LLC Units.

CHRH Holdings will allocate its net income or net loss for each year to the CHRH Holdings LLC Unit Holders pursuant to the terms of the CHRH Holdings LLC Agreement, and the CHRH Holdings LLC Unit Holders, including Charah Solutions, will generally incur U.S. federal, state and local income taxes on their share of any taxable income of CHRH Holdings. Net income and losses of CHRH Holdings generally will be allocated to the CHRH Holdings LLC Unit Holders on a pro rata basis in accordance with their respective percentage ownership of CHRH Holdings LLC Units, subject to requirements under U.S. federal income tax law that certain items of income, gain, loss or deduction be allocated disproportionately in certain circumstances. To the extent CHRH Holdings has available cash and subject to the terms of any future debt instruments, we intend to cause CHRH Holdings to make (i) generally pro rata distributions to the CHRH Holdings LLC Unit Holders, including Charah Solutions, in an amount at least sufficient to allow us to pay our taxes and make payments under the Tax Receivable Agreement that we will enter into with the Existing Owners in connection with the closing of this

 

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offering and any subsequent tax receivable agreements that we may enter into in connection with future acquisitions and (ii) non-pro rata payments to Charah Solutions at least sufficient to reimburse us for our corporate and other overhead expenses.

Issuance of Equity

The CHRH Holdings LLC Agreement will provide that, except as otherwise determined by us, at any time Charah Solutions issues a share of its Class A common stock or any other equity security, the net proceeds received by Charah Solutions with respect to such issuance, if any, shall be concurrently invested in CHRH Holdings, and CHRH Holdings shall issue to Charah Solutions one CHRH Holdings LLC Unit or other economically equivalent equity interest. Conversely, if at any time, any shares of Charah Solutions’ Class A common stock are redeemed, repurchased or otherwise acquired, CHRH Holdings shall redeem, repurchase or otherwise acquire an equal number of CHRH Holdings LLC Units or other economically equivalent equity interest held by Charah Solutions, upon the same terms and for the same price, as the shares of our Class A common stock are redeemed, repurchased or otherwise acquired.

Competition

Under the CHRH Holdings LLC Agreement, the members have agreed that BCP and its affiliates will be permitted to engage in business activities or invest in or acquire businesses that may compete with our business or do business with our customers.

Dissolution

CHRH Holdings will be dissolved only upon the first to occur of (i) the sale of substantially all of its assets or (ii) an election by us to dissolve the company. Upon dissolution, CHRH Holdings will be liquidated and the proceeds from any liquidation will be applied and distributed in the following manner: (a) first, to creditors (including to the extent permitted by law, creditors who are members) in satisfaction of the liabilities of CHRH Holdings, (b) second, to establish cash reserves for contingent or unforeseen liabilities and (c) third, to the CHRH Holdings LLC Unit Holders in proportion to the number of CHRH Holdings LLC Units owned by each of them.

Tax Receivable Agreement

As described in “Corporate Reorganization,” the Existing Owners will, subject to certain limitations, have the right to exchange their CHRH Holdings LLC Units and shares of Class B common stock for shares of Class A common stock or cash, as applicable, in the future pursuant to the Exchange Right or the Call Right. CHRH Holdings intends to make for itself (and for each of its direct or indirect subsidiaries that is treated as a partnership for U.S. federal income tax purposes and that it controls) an election under Section 754 of the Code that will be effective for the taxable year of this offering and each taxable year in which an exchange of CHRH Holdings LLC Units pursuant to the Exchange Right or the Call Right occurs. Pursuant to the Section 754 election, our acquisition (or deemed acquisition for U.S. federal income tax purposes) of CHRH Holdings LLC Units as a part of the corporate reorganization and exchanges of CHRH Holdings LLC Units pursuant to the Exchange Right or the Call Right are expected to result in adjustments to the tax basis of the tangible and intangible assets of CHRH Holdings. These adjustments will be allocated to Charah Solutions. Such adjustments to the tax basis of the tangible and intangible assets of CHRH Holdings would not have been available to Charah Solutions absent its acquisition or deemed acquisition of CHRH Holdings LLC Units as part of the reorganization transactions or pursuant to the exercise of the Exchange Right or the Call Right. The anticipated tax basis adjustments are expected to increase (for tax purposes) Charah Solutions’ depreciation, depletion and amortization deductions and may also decrease Charah Solutions’ gains (or increase its losses) on future dispositions of certain assets to the extent tax basis is allocated to those assets. Such increased deductions and losses and reduced gains may reduce the amount of tax that Charah Solutions would otherwise be required to pay in the future.

 

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In connection with the transactions described above, Charah Solutions will enter into the Tax Receivable Agreement with the TRA Holders at the closing of this offering. This agreement will generally provide for the payment by Charah Solutions to each TRA Holder of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that Charah Solutions actually realizes (computed using the estimated impact of state and local taxes) or is deemed to realize in certain circumstances in periods after this offering as a result of (i) certain increases in tax basis that occur as a result of Charah Solutions’ acquisition (or deemed acquisition for U.S. federal income tax purposes) of all or a portion of such TRA Holder’s CHRH Holdings LLC Units in connection with this offering or pursuant to an exercise of the Exchange Right or the Call Right and (ii) imputed interest deemed to be paid by Charah Solutions as a result of, and additional tax basis arising from, any payments Charah Solutions makes under the Tax Receivable Agreement. We will retain the benefit of the remaining 15% of the cash savings. Certain of the TRA Holders’ rights under the Tax Receivable Agreement are transferable in connection with a permitted transfer of CHRH Holdings LLC Units or if the TRA Holder no longer holds CHRH Holdings LLC Units.

The payment obligations under the Tax Receivable Agreement are Charah Solutions’ obligations and not obligations of CHRH Holdings, and we expect that the payments we will be required to make under the Tax Receivable Agreement will be substantial. Estimating the amount and timing of payments that may become due under the Tax Receivable Agreement is by its nature imprecise. For purposes of the Tax Receivable Agreement, cash savings in tax generally will be calculated by comparing Charah Solutions’ actual tax liability (computed using the estimated impact of state and local taxes) to the amount it would have been required to pay had it not been able to utilize any of the tax benefits subject to the Tax Receivable Agreement. The actual increase in tax basis, as well as the amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including the timing of the exchanges of CHRH Holdings LLC Units, the price of our Class A common stock at the time of each exchange, the extent to which such exchanges are taxable transactions, the amount of the exchanging TRA Holder’s tax basis in its CHRH Holdings LLC Units at the time of the relevant exchange, the depreciation and amortization periods that apply to the increase in tax basis, the amount, character and timing of the taxable income we generate in the future, the U.S. federal income tax rates then applicable, and the portion of our payments under the Tax Receivable Agreement that constitute imputed interest or give rise to depreciable or amortizable tax basis.

Assuming no material changes in the relevant tax law, we expect that if the Tax Receivable Agreement were terminated immediately after this offering (assuming $         per share as the initial offering price to the public), the estimated termination payments, based on the assumptions discussed below, would be approximately $        million (calculated using a discount rate equal to one-year LIBOR plus      basis points, applied against an undiscounted liability of $        million).

A delay in the timing of exchanges of CHRH Holdings LLC Units, holding other assumptions constant, would be expected to decrease the discounted value of the amounts payable under the Tax Receivable Agreement as the benefit of the depreciation and amortization deductions would be delayed and the estimated increase in tax basis could be reduced as a result of allocations of CHRH Holdings taxable income to the exchanging TRA Holder prior to the exchange. Stock price increases or decreases at the time of each exchange of CHRH Holdings LLC Units would be expected to result in a corresponding increase or decrease in the undiscounted amounts payable under the Tax Receivable Agreement in an amount equal to 85% of the tax-effected change in price. The amounts payable under the Tax Receivable Agreement are dependent upon Charah Solutions having sufficient future taxable income to utilize the tax benefits on which it is required to make payments under the Tax Receivable Agreement. If Charah Solutions’ projected taxable income is significantly reduced, the expected payments would be reduced to the extent such tax benefits do not result in a reduction of Charah Solutions’ future income tax liabilities.

The foregoing amounts are merely estimates and the actual payments could differ materially. It is possible that future transactions or events could increase or decrease the actual tax benefits realized and the corresponding Tax Receivable Agreement payments as compared to the foregoing estimates. Moreover, there may be a negative

 

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impact on our liquidity if, as a result of timing discrepancies or otherwise, (i) the payments under the Tax Receivable Agreement exceed the actual benefits we realize in respect of the tax attributes subject to the Tax Receivable Agreement and/or (ii) distributions to Charah Solutions by CHRH Holdings are not sufficient to permit Charah Solutions to make payments under the Tax Receivable Agreement after it has paid its taxes and other obligations. See “Risk Factors—Risks Related to This Offering and Our Class A Common Stock—In certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual benefits, if any, we realize in respect of the tax attributes subject to the Tax Receivable Agreement.” The payments under the Tax Receivable Agreement will not be conditioned upon a holder of rights under the Tax Receivable Agreement having a continued ownership interest in either CHRH Holdings or Charah Solutions.

In addition, although we are not aware of any issue that would cause the Internal Revenue Service (“IRS”) or other relevant tax authorities to challenge potential tax basis increases or other tax benefits covered under the Tax Receivable Agreement, the TRA Holders will not reimburse us for any payments previously made under the Tax Receivable Agreement if such basis increases or other benefits are subsequently disallowed, except that excess payments made to any such holder will be netted against payments otherwise to be made, if any, to such holder after our determination of such excess. As a result, in such circumstances, Charah Solutions could make payments that are greater than its actual cash tax savings, if any, and may not be able to recoup those payments, which could adversely affect its liquidity.

The term of the Tax Receivable Agreement will commence upon the completion of this offering and will continue until all tax benefits that are subject to the Tax Receivable Agreement have been utilized or expired, unless we exercise our right to terminate the Tax Receivable Agreement (or the Tax Receivable Agreement is terminated due to other circumstances, including our breach of a material obligation thereunder or certain mergers, asset sales, other forms of business combination or other changes of control). It is expected that payments will continue to be made under the Tax Receivable Agreement for more than 20 to 25 years. If we elect to terminate the Tax Receivable Agreement early (or it is terminated early due to other circumstances, including our breach of a material obligation thereunder or certain mergers, asset sales, other forms of business combinations or other changes of control), our obligations under the Tax Receivable Agreement would accelerate and we would be required to make an immediate payment equal to the present value of the anticipated future payments to be made by us under the Tax Receivable Agreement (determined by applying a discount rate of one-year LIBOR plus      basis points). The calculation of anticipated future payments will be based upon certain assumptions and deemed events set forth in the Tax Receivable Agreement, including the assumptions that (i) we have sufficient taxable income to fully utilize the tax benefits covered by the Tax Receivable Agreement (including having sufficient taxable income to currently utilize any accumulated net operating loss carryforwards) and (ii) any CHRH Holdings LLC Units (other than those held by Charah Solutions) outstanding on the termination date are deemed to be exchanged on the termination date. Any early termination payment may be made significantly in advance of the actual realization, if any, of the future tax benefits to which the termination payment relates.

The Tax Receivable Agreement provides that in the event that we breach any of our material obligations under the Tax Receivable Agreement, whether as a result of (i) our failure to make any payment when due (including in cases where we elect to terminate the Tax Receivable Agreement early, the Tax Receivable Agreement is terminated early due to certain mergers, asset sales or other forms of business combinations or changes of control or we have available cash but fail to make payments when due under circumstances where we do not have the right to elect to defer the payment, as described below), (ii) our failure to honor any other material obligation under it or (iii) by operation of law as a result of the rejection of the Tax Receivable Agreement in a case commenced under the U.S. Bankruptcy Code or otherwise, then the TRA Holders may elect to treat such breach as an early termination, which would cause all our payment and other obligations under the Tax Receivable Agreement to be accelerated and become due and payable applying the same assumptions described above.

As a result of either an early termination or a change of control, we could be required to make payments under the Tax Receivable Agreement that exceed our actual cash tax savings under the Tax Receivable

 

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Agreement. In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales or other forms of business combinations or changes of control that could be in the best interests of holders of our Class A common stock.

Decisions we make in the course of running our business, such as with respect to mergers, asset sales, other forms of business combinations or other changes in control, may influence the timing and amount of payments that are received by the TRA Holders under the Tax Receivable Agreement. For example, the earlier disposition of assets following an exchange of CHRH Holdings LLC Units may accelerate payments under the Tax Receivable Agreement and increase the present value of such payments, and the disposition of assets before an exchange of CHRH Holdings LLC Units may increase the TRA Holders’ tax liability without giving rise to any rights of the TRA Holders to receive payments under the Tax Receivable Agreement. In addition, our ability to settle audits or other proceedings related to taxes will be subject to the consent of the TRA Holders to the extent such settlement could have a material effect on the TRA Holders’ rights under the Tax Receivable Agreement. Such effects and such consent rights may result in differences or conflicts of interest between the interests of the TRA Holders and other stockholders.

Payments generally are due under the Tax Receivable Agreement within 30 days following the finalization of the schedule with respect to which the payment obligation is calculated. However, interest on such payments will begin to accrue from the due date (without extensions) of our U.S. federal income tax return for the period to which such payments relate until such payment due date at a rate equal to one-year LIBOR plus      basis points. Except in cases where we elect to terminate the Tax Receivable Agreement early or it is otherwise terminated as described above, generally we may elect to defer payments due under the Tax Receivable Agreement if we do not have available cash to satisfy our payment obligations under the Tax Receivable Agreement or if our contractual obligations limit our ability to make these payments. Any such deferred payments under the Tax Receivable Agreement generally will accrue interest from the due date for such payment until the payment date at a rate of one-year LIBOR plus      basis points. However, interest will accrue from the due date for such payment until the payment date at a rate equal to the highest rate under our      plus      basis points if we are unable to make such payment as a result of limitations imposed by existing credit agreements. We have no present intention to defer payments under the Tax Receivable Agreement.

Because we are a holding company with no operations of our own, our ability to make payments under the Tax Receivable Agreement is dependent on receiving distributions from CHRH Holdings in an amount sufficient to cover our obligations under the Tax Receivable Agreement. CHRH Holdings’ ability to make such distributions, in turn, may depend on the ability of CHRH Holdings’ subsidiaries to make distributions to it. The ability of CHRH Holdings, its subsidiaries and other entities in which it directly or indirectly holds an equity interest to make such distributions will be subject to, among other things, (i) the applicable provisions of Delaware law (or other applicable jurisdiction) that may limit the amount of funds available for distribution and (ii) restrictions in relevant debt instruments entered into by CHRH Holdings or its subsidiaries and/other entities in which it directly or indirectly holds an equity interest. To the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, such payments will be deferred and will accrue interest until paid.

The form of the Tax Receivable Agreement is filed as an exhibit to the registration statement of which this prospectus forms a part, and the foregoing description of the Tax Receivable Agreement is qualified by reference thereto.

Registration Rights Agreement

In connection with the closing of this offering, we will enter into a registration rights agreement with the Existing Owners. We expect that the agreement will contain provisions by which we agree to register under the federal securities laws the offer and resale of shares of our Class A common stock by certain of the Existing

 

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Owners or certain of their affiliates or permitted transferees under the registration rights agreement. These registration rights will be subject to certain conditions and limitations. We will generally be obligated to pay all registration expenses in connection with these registration obligations, regardless of whether a registration statement is filed or becomes effective.

Historical Transactions with Affiliates

C4 Lease Agreement

Circle Four, Inc. (“C4”), an entity majority owned by a trust controlled by a stockholder of CEP Holdings, Inc., stored machinery and equipment for the Company. Rental expense of $21,000 was incurred during 2016. C4 owed the Company $215,779 at December 31, 2016. The lease was terminated in December 2016.

Amended and Restated Office Lease Agreement

We rent our corporate office, housing at work sites and a condo from Price Real Estate, LLC (“Price Real Estate”), an entity indirectly owned by Charles Price, our President and Chief Executive Officer. The lease for the corporate office is a triple net lease, requiring monthly payments of $42,883 (increasing by the consumer price index each year commencing June 1, 2013) through May 31, 2020. Rental expenses of $        , $637,951 and $501,108 were incurred during 2017, 2016 and 2015, respectively.

Aircraft Lease Agreement

PriceFlight, LLC (“PriceFlight”), an entity indirectly owned by Charles Price, our President and Chief Executive Officer, provides flight services to us. Expenses to PriceFlight for flight services amounted to $        , $708,303 and $675,473 for the years ended December 31, 2017, 2016 and 2015, respectively. Our receivable from PriceFlight was reduced by expenses of $        , $203,158 and $118,937 during 2017, 2016 and 2015, respectively. PriceFlight owed us $        , $641,496 and $844,654 at December 31, 2017, 2016 and 2015, respectively. The receivable is unsecured and does not bear interest.

Employment Arrangement with Charles W. Price

Charles Price’s son, Charles W. Price, has been an employee of the Company since 2005. Charles W. Price’s total cash and equity compensation for the years ended December 31, 2017, 2016 and 2015 was $         , $159,889 and $145,115, respectively. We seek to fill positions with qualified employees, whether or not they are related to our executive officers or directors. We compensate employees who have such relationships within what we believe to be the current market rate for their position and provide benefits consistent with our policies that apply to similarly situated employees.

Stockholders Line of Credit

An open line of credit was available to the voting stockholder of CEP Holdings, Inc. The note was payable on demand and bore interest at the applicable federal rate (0.55% for the year ended December 31, 2016). The outstanding balance was $7.9 million on December 31, 2016 and was terminated in January 2017.

Corporate Reorganization

In connection with our corporate reorganization, we will engage in certain transactions with certain affiliates of the Existing Owners, including BCP. See “Corporate Reorganization.”

 

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Policies and Procedures for Review of Related Party Transactions

A “Related Party Transaction” is a transaction, arrangement or relationship in which we or any of our subsidiaries was, is or will be a participant, the amount of which involved exceeds $120,000, and in which any related person had, has or will have a direct or indirect material interest. A “Related Person” means:

 

    any person who is, or at any time during the applicable period was, one of our executive officers or one of our directors;

 

    any person who is known by us to be the beneficial owner of more than 5.0% of our Class A common stock;

 

    any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of a director, executive officer or a beneficial owner of more than 5.0% of our Class A common stock, and any person (other than a tenant or employee) sharing the household of such director, executive officer or beneficial owner of more than 5.0% of our Class A common stock; and

 

    any firm, corporation or other entity in which any of the foregoing persons is a partner or principal or in a similar position or in which such person has a 10.0% or greater beneficial ownership interest.

Our board of directors will adopt a written related party transactions policy prior to the completion of this offering. Pursuant to this policy, our audit committee will review all material facts of all Related Party Transactions and either approve or disapprove entry into the Related Party Transaction, subject to certain limited exceptions. In determining whether to approve or disapprove entry into a Related Party Transaction, our audit committee shall take into account, among other factors, the following: (i) whether the Related Party Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and (ii) the extent of the Related Person’s interest in the transaction. Furthermore, the policy requires that all Related Party Transactions required to be disclosed in our filings with the SEC be so disclosed in accordance with applicable laws, rules and regulations.

 

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PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information with respect to the beneficial ownership of our Class A common stock and Class B common stock that, upon the consummation of this offering and transactions related thereto, and assuming the underwriters do not exercise their option to purchase additional common shares, will be owned by:

 

    each person known to us to beneficially own more than 5% of any class of our outstanding voting securities;

 

    each member of our board of directors;

 

    each of the selling stockholders;

 

    each of our named executive officers; and

 

    all of our directors and executive officers as a group.

All information with respect to beneficial ownership has been furnished by the respective 5% or more stockholders, selling stockholders, directors or executive officers, as the case may be. The table below does not reflect any shares of Class A common stock that directors and executive officers may purchase in this offering through the directed share program described under “Underwriting —Directed Share Program.” Unless otherwise noted, the mailing address of each listed beneficial owner is 12601 Plantside Dr., Louisville, Kentucky 40299.

 

                Shares of Class A
Common Stock
Being Offered
    Shares Beneficially Owned After the Offering  
    Shares Beneficially
Owned Prior to the
Offering(1)(2)(3)
      Class A
Common Stock
    Class B
Common Stock
    Combined
Voting Power(4)
 
    Number     %       Number     %     Number     %     Number     %  

Selling Stockholders and Other 5% Stockholders:

                 

BCP(5)

                 

CEP Holdings, Inc.

                 

Directors and Named Executive Officers:

                 

Charles Price

                 

Bruce Kramer

                 

Scott Sewell

                 

Dorsey Ron McCall

                 

Mark Spender

                 
                 
                 
                 

Directors and executive officers as a group (     persons)

                 

 

(1)

The amounts and percentages of common stock beneficially owned are reported on the bases of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares voting power, which includes the power to vote or direct the voting of such security, or investment power, which includes the power to dispose of or to direct the disposition of such security. Securities that can be so acquired are deemed to be outstanding for purposes of computing such person’s ownership percentage, but not for purposes of computing any other person’s percentage. Under these rules, more than one person may be deemed beneficial owner of

 

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  the same securities, and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest. Except as otherwise indicated in these footnotes, each of the beneficial owners has, to our knowledge, sole voting and investment power with respect to the indicated shares of common stock, except to the extent this power may be shared with a spouse.
(2) Subject to the terms of the CHRH Holdings LLC Agreement, the CHRH Holdings LLC Unit Holders will have the right to exchange all or a portion of their CHRH Holdings LLC Units (together with a corresponding number of shares of Class B common stock) for Class A common stock at an exchange ratio of one share of Class A common stock for each CHRH Holdings LLC Unit (and corresponding share of Class B common stock) exchanged. See “Certain Relationships and Related Person Transactions—CHRH Holdings LLC Agreement.” Beneficial ownership of CHRH Holdings LLC Units is not reflected as beneficial ownership of shares of our Class A common stock for which such units may be exchanged.
(3) The number of shares of Class A common stock, Class B common stock and CHRH Holdings LLC Units to be issued to our Existing Owners is based on the implied equity value of CHRH Holdings immediately prior to this offering, based on an initial public offering price of $         per share of Class A common stock, the midpoint of the price range set forth on the cover page of this prospectus. See “Corporate Reorganization—Existing Owners’ Ownership.”
(4) Represents percentage of voting power of our Class A common stock and Class B common stock voting together as a single class. CHRH Holdings LLC Unit Holders will hold one share of Class B common stock for each CHRH Holdings LLC Unit.
(5) The general partner of Charah Holdings, LP is Charah Holdings GP LLC. Charah Holdings GP LLC is owned by BCP Energy Services Fund, LP and BCP Energy Services Fund-A, LP. The general partner of both BCP Energy Services Fund, LP and BCP Energy Services Fund-A, LP is BCP Energy Services Fund GP, LP. The general partner of BCP Energy Services Fund GP, LP is BCP Energy Services Fund UGP, LLC. BCP Energy Services Fund UGP, LLC is managed by J.M. Bernhard, Jr. and Jeff Jenkins. Each of the BCP entities and Messrs. Bernhard and Jenkins may be deemed to beneficially own such shares directly or indirectly controlled, but each disclaims beneficial ownership of such shares in excess of its pecuniary interest therein. In addition, the number of shares of Class A Common Stock and Class B common stock reflected in the table above as beneficially owned by BCP includes                shares held by Management Holdco. Pursuant to the terms of the Management Holdco limited liability company agreement, BCP has the right to direct the voting of the shares of Class A common stock and Class B common stock held by Management Holdco. As a result, each of the BCP entities and Messrs. Bernhard and Jenkins may be deemed to beneficially own the shares of common stock held by Management Holdco, but each disclaims beneficial ownership of such securities in excess of their pecuniary interest therein. The address of each of the BCP entities and Messrs. Bernhard and Jenkins is 400 Convention Street, Suite 1010, Baton Rouge, Louisiana 70802.

 

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DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering, the authorized capital stock of Charah Solutions will consist                  of                shares of Class A common stock, $0.01 par value per share, of which                shares will be issued and outstanding,                 shares of Class B common stock, $0.01 par value per share, of which                 shares will be issued and outstanding and                shares of preferred stock, $0.01 par value per share, of which no shares will be issued and outstanding.

The following summary of the capital stock and amended and restated certificate of incorporation and bylaws of Charah Solutions does not purport to be complete and is qualified in its entirety by reference to the provisions of applicable law and to our amended and restated certificate of incorporation and by-laws, which will be filed as exhibits to the registration statement of which this prospectus is a part.

Class A Common Stock

Voting Rights. Holders of shares of Class A common stock are entitled to one vote per share held of record on all matters to be voted upon by the stockholders. The holders of Class A common stock do not have cumulative voting rights in the election of directors.

Dividend Rights. Holders of shares of our Class A common stock are entitled to ratably receive dividends when and if declared by our board of directors out of funds legally available for that purpose, subject to any statutory or contractual restrictions on the payment of dividends and to any prior rights and preferences that may be applicable to any outstanding preferred stock.

Liquidation Rights. Upon our liquidation, dissolution, distribution of assets or other winding up, the holders of Class A common stock are entitled to receive ratably the assets available for distribution to the stockholders after payment of liabilities and the liquidation preference of any of our outstanding shares of preferred stock.

Other Matters. The shares of Class A common stock have no preemptive or conversion rights and are not subject to further calls or assessment by us. There are no redemption or sinking fund provisions applicable to the Class A common stock. All outstanding shares of our Class A common stock, including the Class A common stock offered in this offering, are fully paid and non-assessable.

Class B Common Stock

Generally. In connection with the reorganization and this offering, each Existing Owner will receive one share of Class B common stock for each CHRH Holdings LLC Unit that it holds. Accordingly, each Existing Owner will have a number of votes in Charah Solutions equal to the aggregate number of CHRH Holdings LLC Units that it holds.

Voting Rights. Holders of shares of our Class B common stock are entitled to one vote per share held of record on all matters to be voted upon by the stockholders. Holders of shares of our Class A common stock and Class B common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except with respect to the amendment of certain provisions of our amended and restated certificate of incorporation that would alter or change the powers, preferences or special rights of the Class B common stock so as to affect them adversely, which amendments must be by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment, voting as a separate class or as otherwise required by applicable law.

Dividend and Liquidation Rights. Holders of our Class B common stock do not have any right to receive dividends, unless the dividend consists of shares of our Class B common stock or of rights, options, warrants or other securities convertible or exercisable into or exchangeable or redeemable for shares of Class B common

 

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stock paid proportionally with respect to each outstanding share of our Class B common stock and a dividend consisting of shares of Class A common stock or of rights, options, warrants or other securities convertible or exercisable into or exchangeable or redeemable for shares of Class A common stock on the same terms is simultaneously paid to the holders of Class A common stock. Holders of our Class B common stock do not have any right to receive a distribution upon a liquidation or winding up of Charah Solutions.

Preferred Stock

Our amended and restated certificate of incorporation authorizes our board of directors, subject to any limitations prescribed by law, without further stockholder approval, to establish and to issue from time to time one or more classes or series of preferred stock, par value $0.01 per share, covering up to an aggregate of                 shares of preferred stock. Each class or series of preferred stock will cover the number of shares and will have the powers, preferences, rights, qualifications, limitations and restrictions determined by the board of directors, which may include, among others, dividend rights, liquidation preferences, voting rights, conversion rights, preemptive rights and redemption rights. Except as provided by law or in a preferred stock designation, the holders of preferred stock will not be entitled to vote at or receive notice of any meeting of stockholders.

Anti-Takeover Effects of Provisions of Our Amended and Restated Certificate of Incorporation, Our Amended and Restated Bylaws and Delaware Law

Some provisions of Delaware law, and our amended and restated certificate of incorporation and our amended and restated bylaws described below, will contain provisions that could make the following transactions more difficult: acquisitions of us by means of a tender offer, a proxy contest or otherwise; or removal of our incumbent officers and directors. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions that might result in a premium over the market price for our shares.

These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with us. We believe that the benefits of increased protection and our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.

Delaware Law

We will not be subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. In general, those provisions prohibit a Delaware corporation, including those whose securities are listed for trading on the NYSE or the Nasdaq, from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless:

 

    the transaction is approved by the board of directors before the date the interested stockholder attained that status;

 

    upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or

 

    on or after such time the business combination is approved by the board of directors and authorized at a meeting of stockholders by at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.

 

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Amended and Restated Certificate of Incorporation and Bylaws

Provisions of our amended and restated certificate of incorporation and our amended and restated bylaws, which will become effective upon the closing of this offering, may delay or discourage transactions involving an actual or potential change in control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our Class A common stock.

Among other things, upon the completion of this offering, our amended and restated certificate of incorporation and amended and restated bylaws will:

 

    establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of our stockholders. These procedures provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of the annual meeting for the preceding year. Our amended and restated bylaws specify the requirements as to form and content of all stockholders’ notices. These requirements may preclude stockholders from bringing matters before the stockholders at an annual or special meeting;

 

    provide our board of directors the ability to authorize undesignated preferred stock. This ability makes it possible for our board of directors to issue, without stockholder approval, preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of our company;

 

    provide that the authorized number of directors may be changed only by resolution of the board of directors;

 

    provide that, after BCP and its affiliates no longer collectively hold more than 50% of the voting power of our common stock, all vacancies, including newly created directorships, may, except as otherwise required by law or, if applicable, the rights of holders of a series of preferred stock, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum (prior to such time, vacancies may also be filled by stockholders holding a majority of the outstanding shares entitled to vote);

 

    provide that, after BCP and its affiliates no longer collectively hold more than 50% of the voting power of our common stock, any action required or permitted to be taken by the stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing in lieu of a meeting of such stockholders, subject to the rights of the holders of any series of preferred stock with respect to such series;

 

    provide that, after BCP and its affiliates no longer collectively hold more than 50% of the voting power of our common stock, our amended and restated certificate of incorporation and amended and restated bylaws may be amended by the affirmative vote of the holders of at least two-thirds of our then outstanding shares of stock entitled to vote thereon;

 

    provide that, after BCP and its affiliates no longer collectively hold more than 50% of the voting power of our common stock, special meetings of our stockholders may only be called by the board of directors;

 

   

provide that, after BCP and its affiliates no longer collectively hold more than 50% of the voting power of our common stock, for our board of directors to be divided into three classes of directors, with each class as nearly equal in number as possible, serving staggered three-year terms, other than directors that

 

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may be elected by holders of preferred stock, if any. This system of electing and removing directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors;

 

    provide that we renounce any interest in existing and future investments in other entities by, or the business opportunities of, BCP and its affiliates and that they have no obligation to offer us those investments or opportunities; and

 

    provide that our amended and restated bylaws can be amended by the board of directors.

Forum Selection

Our amended and restated certificate of incorporation will provide that unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for:

 

    any derivative action or proceeding brought on our behalf;

 

    any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders;

 

    any action asserting a claim against us or any director or officer or other employee of ours arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws; or

 

    any action asserting a claim against us or any director or officer or other employee of ours that is governed by the internal affairs doctrine;

in each such case, subject to such Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein.

Our amended and restated certificate of incorporation will also provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and to have consented to, this forum selection provision.

Although we believe these provisions will benefit us by providing increased consistency in the application of Delaware law for the specified types of actions and proceedings, the provisions may have the effect of discouraging lawsuits against our directors, officers, employees and agents. The enforceability of similar exclusive forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with one or more actions or proceedings described above, a court could rule that this provision in our amended and restated certificate of incorporation is inapplicable or unenforceable.

Limitation of Liability and Indemnification Matters

Our amended and restated certificate of incorporation will limit the liability of our directors for monetary damages for breach of their fiduciary duty as directors, except for liability that cannot be eliminated under the DGCL. Delaware law provides that directors of a company will not be personally liable for monetary damages for breach of their fiduciary duty as directors, except for liabilities:

 

    for any breach of their duty of loyalty to us or our stockholders;

 

    for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;

 

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    for unlawful payment of dividend or unlawful stock repurchase or redemption, as provided under Section 174 of the DGCL; or

 

    for any transaction from which the director derived an improper personal benefit.

Any amendment, repeal or modification of these provisions will be prospective only and would not affect any limitation on liability of a director for acts or omissions that occurred prior to any such amendment, repeal or modification.

Our amended and restated bylaws will also provide that we will indemnify our directors and officers to the fullest extent permitted by Delaware law. Our amended and restated bylaws also will permit us to purchase insurance on behalf of any officer, director, employee or other agent for any liability arising out of that person’s actions as our officer, director, employee or agent, regardless of whether Delaware law would permit indemnification. We intend to enter into indemnification agreements with each of our current and future directors and officers. These agreements will require us to indemnify these individuals to the fullest extent permitted under Delaware law against liability that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. We believe that the limitation of liability provision that will be in our amended and restated certificate of incorporation and the indemnification agreements will facilitate our ability to continue to attract and retain qualified individuals to serve as directors and officers.

Registration Rights

For a description of registration rights with respect to our Class A common stock, see the information under the heading “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

Transfer Agent and Registrar

The transfer agent and registrar for our Class A common stock will be American Stock Transfer & Trust Company, LLC.

Listing

We intend to apply to list our Class A common stock for quotation on the NYSE or the Nasdaq under the symbol “                    .”

 

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our Class A common stock. Future sales of our Class A common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect the market price of our Class A common stock prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of a substantial number of shares of our Class A common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price of our Class A common stock at such time and our ability to raise equity-related capital at a time and price we deem appropriate.

Sales of Restricted Shares

Upon the closing of this offering, we will have outstanding an aggregate of                shares of Class A common stock. Of these shares, all of the                shares of Class A common stock (or                shares of Class A common stock if the underwriters’ option to purchase additional shares is exercised) to be sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless the shares are held by any of our “affiliates” as such term is defined in Rule 144 under the Securities Act. All remaining shares of Class A common stock held by the Existing Owners will be deemed “restricted securities” as such term is defined under Rule 144. The restricted securities were issued and sold by us in private transactions and are eligible for public sale only if registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which rules are summarized below.

Following this offering, under the CHRH Holdings LLC Agreement, each Existing Owner will, subject to certain limitations, have the right, pursuant to the Exchange Right, to cause CHRH Holdings to acquire all or a portion of its CHRH Holdings LLC Units (along with a corresponding number of shares of our Class B common stock) for, at CHRH Holdings’ election, (i) shares of our Class A common stock at an exchange ratio of one share of Class A common stock for each CHRH Holdings LLC Unit exchanged, subject to conversion rate adjustments for stock splits, stock dividends, reclassification and other similar transactions or (ii) cash in an amount equal to the Cash Election Value of such Class A common stock. Alternatively, upon the exercise of the Exchange Right, Charah Solutions (instead of CHRH Holdings) will have the right, pursuant to the Call Right, to acquire each tendered CHRH Holdings LLC Unit directly from the exchanging Existing Owner for, at its election, (x) one share of Class A common stock or (y) cash in an amount equal to the value of a share of Class A common stock. In connection with any exchange of CHRH Holdings LLC Units pursuant to the Exchange Right or our Call Right, the corresponding number of shares of Class B common stock will be cancelled. See “Certain Relationships and Related Party Transactions—CHRH Holdings LLC Agreement.” The shares of Class A common stock we issue upon such exchanges would be “restricted securities” as defined in Rule 144 described below. However, upon the closing of this offering, we intend to enter into a registration rights agreement with the CHRH Holdings LLC Unit Holders that will require us to register under the Securities Act these shares of Class A common stock. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

As a result of the lock-up agreements described below and the provisions of Rule 144 and Rule 701 under the Securities Act, the shares of our Class A common stock (excluding the shares to be sold in this offering) that will be available for sale in the public market are as follows:

 

    no shares will be eligible for sale on the date of this prospectus or prior to 180 days after the date of this prospectus; and

 

                    shares will be eligible for sale upon the expiration of the lock-up agreements, beginning 180 days after the date of this prospectus when permitted under Rule 144 or Rule 701.

 

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Lock-up Agreements

We, all of our directors and officers and the selling stockholders have agreed not to sell any Class A common stock for a period of 180 days from the date of this prospectus, subject to certain exceptions and extensions. See “Underwriting” for a description of these lock-up provisions.

Rule 144

In general, under Rule 144 under the Securities Act as currently in effect, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person (who has been unaffiliated for at least the past three months) who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the provisions of Rule 144.

A person (or persons whose shares are aggregated) who is deemed to be an affiliate of ours and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months would be entitled to sell within any three-month period a number of shares that does not exceed the greater of one percent of the then outstanding shares of our Class A common stock or the average weekly trading volume of our Class A common stock reported through the NYSE or the Nasdaq, as applicable, during the four calendar weeks preceding the filing of notice of the sale. Such sales are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us.

Rule 701

In general, under Rule 701 under the Securities Act, any of our employees, directors, officers, consultants or advisors who purchase shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering is entitled to sell such shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with the holding period requirement of Rule 144 and, in the case of non-affiliates, without having to comply with the public information, volume limitation or notice filing provisions of Rule 144. The SEC has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of such options, including exercises after the date of this prospectus.

Stock Issued Under Employee Plans

We intend to file a registration statement on Form S-8 under the Securities Act to register stock issuable under our long-term incentive plan. This registration statement on Form S-8 is expected to be filed following the effective date of the registration statement of which this prospectus is a part and will be effective upon filing. Accordingly, shares registered under such registration statement will be available for sale in the open market following the effective date, unless such shares are subject to vesting restrictions with us or the lock-up restrictions described above.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

The following discussion is a summary of the material U.S. federal income tax considerations related to the purchase, ownership and disposition of our Class A common stock by a non-U.S. holder (as defined below), that holds our Class A common stock as a “capital asset” (generally property held for investment). This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury regulations promulgated thereunder (“Treasury Regulations”), published rulings and administrative pronouncements of the IRS and judicial decisions, all as in effect on the date hereof, and all of which are subject to change or differing interpretations, possibly with retroactive effect in a manner that could adversely affect a non-U.S. holder of our Class A common stock. We have not sought and will not seek any rulings from the IRS with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS or a court will agree with such statements and conclusions.

This summary does not address all aspects of U.S. federal income taxation that may be relevant to non-U.S. holders in light of their personal circumstances. In addition, this summary does not address the Medicare tax on certain investment income, U.S. federal estate or gift tax laws, any state, local or non-U.S. tax laws or any tax treaties. This summary also does not address tax considerations applicable to investors that may be subject to special treatment under the U.S. federal income tax laws, such as:

 

    banks, insurance companies or other financial institutions;

 

    tax-exempt or governmental organizations;

 

    qualified foreign pension funds (or any entities all of the interests of which are held by a qualified foreign pension fund);

 

    dealers in securities or foreign currencies;

 

    traders in securities that use the mark-to-market method of accounting for U.S. federal income tax purposes;

 

    persons subject to the alternative minimum tax;

 

    partnerships or other pass-through entities for U.S. federal income tax purposes or holders of interests therein;

 

    persons deemed to sell our Class A common stock under the constructive sale provisions of the Code;

 

    persons that acquired our Class A common stock through the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan;

 

    certain former citizens or long-term residents of the United States; and

 

    persons that hold our Class A common stock as part of a straddle, appreciated financial position, synthetic security, hedge, conversion transaction, wash sale or other integrated investment or risk reduction transaction.

If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our Class A common stock, the tax treatment of a partner in the partnership generally will depend upon the status of the partner, upon the activities of the partnership and upon certain determinations made at the partner level. Accordingly, we urge partners in partnerships (including entities or arrangements treated as partnerships for U.S. federal income tax purposes) considering the purchase of our Class A common stock to consult their tax advisors regarding the U.S. federal income tax considerations of the purchase, ownership and disposition of our Class A common stock by such partnership.

THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. PROSPECTIVE INVESTORS ARE ENCOURAGED TO CONSULT THEIR TAX ADVISORS WITH

 

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RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATION, AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR CLASS A COMMON STOCK ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL, NON-U.S. OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.

Non-U.S. Holder Defined

For purposes of this discussion, a “non-U.S. holder” is a beneficial owner of our Class A common stock that is not for U.S. federal income tax purposes a partnership or any of the following:

 

    an individual who is a citizen or resident of the United States;

 

    a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

    an estate the income of which is subject to U.S. federal income tax regardless of its source; or

 

    a trust (i) the administration of which is subject to the primary supervision of a U.S. court and which has one or more “United States persons” (within the meaning of Section 7701(a)(3) of the Code) who have the authority to control all substantial decisions of the trust or (ii) which has made a valid election under applicable Treasury Regulations to be treated as a United States person for U.S. federal income tax purposes.

Distributions

As described in the section entitled “Dividend Policy,” we do not plan to make any distributions on our Class A common stock in the foreseeable future. However, in the event we do make distributions of cash or other property on our Class A common stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed our current and accumulated earnings and profits, the distributions will be treated as a non-taxable return of capital to the extent of the non-U.S. holder’s tax basis in our Class A common stock and thereafter as capital gain from the sale or exchange of such Class A common stock. See “—Gain on Disposition of Class A Common Stock.” Subject to the withholding requirements under FATCA (as defined below) and with respect to effectively connected dividends, each of which is discussed below, any distribution made to a non-U.S. holder on our Class A common stock generally will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the distribution unless an applicable income tax treaty provides for a lower rate. To receive the benefit of a reduced income tax treaty rate, a non-U.S. holder must provide the applicable withholding agent with an IRS Form W-8BEN or IRS Form W-8BEN-E (or other applicable or successor form) certifying qualification for the reduced rate. A non-U.S. holder that does not timely furnish the required documentation, but that qualifies for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non U.S. holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.

Dividends paid to a non-U.S. holder that are effectively connected with a trade or business conducted by the non-U.S. holder in the United States (and, if required by an applicable income tax treaty, are treated as attributable to a permanent establishment maintained by the non-U.S. holder in the United States) generally will be taxed on a net income basis at the rates and in the manner generally applicable to United States persons (as defined under the Code). Such effectively connected dividends will not be subject to U.S. federal withholding tax if the non-U.S. holder satisfies certain certification requirements by providing the applicable withholding agent with a properly executed IRS Form W-8ECI certifying eligibility for exemption. If the non-U.S. holder is a corporation for U.S. federal income tax purposes, it may also be subject to a branch profits tax (at a 30% rate or such lower rate as specified by an applicable income tax treaty) on its effectively connected earnings and profits (as adjusted for certain items), which will include effectively connected dividends.

 

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Gain on Disposition of Class A Common Stock

Subject to the discussion below under “—Backup Withholding and Information Reporting” and “—Additional Withholding Requirements under FATCA,” a non-U.S. holder generally will not be subject to U.S. federal income or withholding tax on any gain realized upon the sale or other disposition of our Class A common stock unless:

 

    the non-U.S. holder is an individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met;

 

    the gain is effectively connected with a trade or business conducted by the non-U.S. holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment maintained by the non-U.S. holder in the United States); or

 

    our Class A common stock constitutes a United States real property interest (“USRPI”) by reason of our status as a United States real property holding corporation (“USRPHC”) for U.S. federal income tax purposes during the shorter of the five-year period ending on the date of the disposition or the non-U.S. holder’s holding period for our common stock.

A non-U.S. holder described in the first bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate as specified by an applicable income tax treaty) on the amount of such gain, which generally may be offset by U.S. source capital losses.

A non-U.S. holder whose gain is described in the second bullet point above or, subject to the exceptions described in the next paragraph, the third bullet point above generally will be taxed on a net income basis at the rates and in the manner generally applicable to United States persons (as defined under the Code) unless an applicable income tax treaty provides otherwise. If the non-U.S. holder is a corporation for U.S. federal income tax purposes whose gain is described in the second bullet point above, then such gain would also be included in its effectively connected earnings and profits (as adjusted for certain items), which may be subject to a branch profits tax (at a 30% rate or such lower rate as specified by an applicable income tax treaty).

Generally, a corporation is a USRPHC if the fair market value of its USRPIs equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business. We believe that we currently are not a USRPHC for U.S. federal income tax purposes, and we do not expect to become a USRPHC for the foreseeable future. However, in the event that we become a USRPHC, as long as our Class A common stock is and continues to be regularly traded on an established securities market, only a non-U.S. holder that actually or constructively owns, or owned at any time during the shorter of the five-year period ending on the date of the disposition or the non-U.S. holder’s holding period for the Class A common stock, more than 5% of our Class A common stock will be taxable on gain realized on the disposition of our Class A common stock as a result of our status as a USRPHC. If we were to become a USRPHC and our Class A common stock were not considered to be regularly traded on an established securities market, such non-U.S. holder (regardless of the percentage of stock owned) would be subject to U.S. federal income tax on a taxable disposition of our Class A common stock (as described in the preceding paragraph), and a 15% withholding tax would apply to the gross proceeds from such disposition.

Non-U.S. holders should consult their tax advisors with respect to the application of the foregoing rules to their ownership and disposition of our Class A common stock.

Backup Withholding and Information Reporting

Any dividends paid to a non-U.S. holder must be reported annually to the IRS and to the non-U.S. holder. Copies of these information returns may be made available to the tax authorities in the country in which the non-U.S. holder resides or is established. Payments of dividends to a non-U.S. holder generally will not be

 

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subject to backup withholding if the non-U.S. holder establishes an exemption by properly certifying its non-U.S. status on an IRS Form W-8BEN, IRS Form W-8BEN-E (or other applicable or successor form).

Payments of the proceeds from a sale or other disposition by a non-U.S. holder of our Class A common stock effected by or through a U.S. office of a broker generally will be subject to information reporting and backup withholding (at the applicable rate) unless the non-U.S. holder establishes an exemption by properly certifying its non-U.S. status on an IRS Form W-8BEN or IRS Form W-8BEN-E (or other applicable or successor form) and certain other conditions are met. Information reporting and backup withholding generally will not apply to any payment of the proceeds from a sale or other disposition of our Class A common stock effected outside the United States by a non-U.S. office of a broker. However, unless such broker has documentary evidence in its records that the non-U.S. holder is not a United States person and certain other conditions are met, or the non-U.S. holder otherwise establishes an exemption, information reporting will apply to a payment of the proceeds of the disposition of our Class A common stock effected outside the United States by such a broker if it has certain relationships within the United States.

Backup withholding is not an additional tax. Rather, the U.S. federal income tax liability (if any) of persons subject to backup withholding will be reduced by the amount of tax withheld. If backup withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is timely furnished to the IRS.

Additional Withholding Requirements under FATCA

Sections 1471 through 1474 of the Code, and the Treasury Regulations and administrative guidance issued thereunder (“FATCA”), impose a 30% withholding tax on any dividends paid on our Class A common stock and on the gross proceeds from a disposition of our Class A common stock (if such disposition occurs after December 31, 2018), in each case if paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code) (including, in some cases, when such foreign financial institution or non-financial foreign entity is acting as an intermediary), unless (i) in the case of a foreign financial institution, such institution enters into an agreement with the U.S. government to withhold on certain payments, and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are non-U.S. entities with U.S. owners); (ii) in the case of a non-financial foreign entity, such entity certifies that it does not have any “substantial United States owners” (as defined in the Code) or provides the applicable withholding agent with a certification identifying the direct and indirect substantial United States owners of the entity (in either case, generally on an IRS Form W-8BEN-E); or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules and provides appropriate documentation (such as an IRS Form W-8BEN-E). Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing these rules may be subject to different rules. Under certain circumstances, a holder might be eligible for refunds or credits of such taxes. Non-U.S. holders are encouraged to consult their own tax advisors regarding the effects of FATCA on their investment in our Class A common stock.

INVESTORS CONSIDERING THE PURCHASE OF OUR CLASS A COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE APPLICABILITY AND EFFECT OF U.S. FEDERAL ESTATE AND GIFT TAX LAWS AND ANY STATE, LOCAL OR NON-U.S. TAX LAWS AND TAX TREATIES.

 

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CERTAIN CONSIDERATIONS APPLICABLE TO U.S. RETIREMENT PLANS AND ARRANGEMENTS

This summary is based on the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and the Code (and related regulations and administrative and judicial interpretations) as of the date of this registration statement. This summary does not purport to be complete, and no assurance can be given that future legislation, court decisions, regulations, rulings or pronouncements will not significantly modify the requirements summarized below. Any of these changes may be retroactive and may thereby apply to transactions entered into prior to the date of their enactment or release. This discussion is general in nature and is not intended to be all inclusive, nor should it be construed as investment or legal advice.

General Fiduciary Matters

ERISA imposes certain requirements on employee benefit plans subject to Title I of ERISA and on entities and accounts that are deemed to hold the “plan assets” of such plans (collectively, “ERISA Plans”), and on those persons who are fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA’s general fiduciary requirements, including, but not limited to, the requirement of investment prudence and diversification and the requirement that an ERISA Plan’s investments be made in accordance with the documents governing the ERISA Plan.

Non-U.S. plans, U.S. governmental plans and certain U.S. church plans, while not subject to the fiduciary responsibility provisions of ERISA or the prohibited transaction provisions of ERISA and Section 4975 of the Code (as discussed below), may nevertheless be subject to non-U.S., state, local or other federal laws or regulations that are substantially similar to the foregoing provisions of ERISA and the Code (“Similar Law”). Fiduciaries of any such plans should consult with their counsel before purchasing shares of Class A common stock to determine the suitability of the Class A common stock for such plan and the need for, and the availability, if necessary, of any exemptive relief under any such laws or regulations.

Each ERISA Plan and other investor using the plan assets of U.S. employee benefit plans and retirement arrangements subject to Section 4975 of the Code, such as individual retirement arrangements (“IRAs”) (each, a “Plan”) should consider the fact that none of the issuer, the Company, the Predecessor Companies or any of their affiliates (the “Transaction Parties”) will act as a fiduciary to any Plan with respect to the decision to purchase or hold shares of Class A common stock and is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, with respect to such decision. The decision to purchase and hold Class A common stock must be made by each prospective Plan purchaser on an arm’s length basis. In addition, each Plan purchasing the Class A common stock must generally be represented by a fiduciary independent of the Transaction Parties (which may not be an owner of an IRA, in the case of an investor that is an IRA) that (i) is capable of evaluating investment risks independently, both in general and with regard to the prospective investment in Class A common stock, (ii) has exercised independent judgment in evaluating whether to invest the assets of such Plan in Class A common stock and (iii) is a bank, an insurance carrier, a registered investment adviser, a registered broker-dealer or an independent fiduciary with at least $50 million of assets under management or control.

Prohibited Transaction Issues

Section 406 of ERISA and Section 4975 of the Code, prohibit certain transactions involving the assets of a Plan and certain persons (referred to as “parties in interest” or “disqualified persons”) having certain relationships to such Plans, unless a statutory or administrative exemption is applicable to the transaction. A party in interest or disqualified person who engages in a prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code.

Any Plan fiduciary which proposes to cause a Plan to purchase the Class A common stock should consult with its counsel regarding the applicability of the fiduciary responsibility and prohibited transaction provisions of

 

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ERISA and Section 4975 of the Code to such an investment, and to confirm that such purchase and holding is in accordance with the documents and instruments governing the Plan and will not constitute or result in a non-exempt prohibited transaction or any other violation of an applicable requirement of ERISA or Section 4975 of the Code.

The fiduciary of a Plan that proposes to purchase and hold any Class A common stock should consider, among other things, whether such purchase and holding may involve a prohibited transaction, including without limitation (i) the direct or indirect extension of credit between a Plan and a party in interest or a disqualified person, (ii) the sale or exchange of any property between a Plan and a party in interest or a disqualified person or (iii) the transfer to, or use by or for the benefit of, a party in interest or disqualified person, of any Plan assets. Purchase and/or holding of the Class A common stock by a Plan with respect to which any Transaction Party is or becomes a party in interest or disqualified person may constitute or result in a direct or indirect prohibited transaction under Section 406 of ERISA or Section 4975 of the Code, unless the Class A common stock are acquired and held in accordance with an applicable exemption.

Certain exemptions from the prohibited transaction rules could be applicable to the purchase and holding of the Class A common stock by a Plan, depending on the type and circumstances of the fiduciary making the decision to acquire such Class A common stock and the relationship of the party in interest or disqualified person to the Plan. Included among these exemptions are Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code for certain transactions between a Plan and non-fiduciary service providers to the Plan. In addition, the U.S. Department of Labor has issued certain administrative prohibited transaction exemptions that may apply to the purchase and holding of the Class A common stock, including Prohibited Transaction Class Exemption (“PTCE”) 84-14 (relating to transactions effected by a “qualified professional asset manager”), PTCE 90-1 (relating to investments by insurance company pooled separate accounts), PTCE 91-38 (relating to investments by bank collective investment funds), PTCE 95-60 (relating to investments by insurance company general accounts) or PTCE 96-23 (relating to transactions directed by an in-house asset manager) (collectively, the “Class Exemptions”).

Each of these exemptions contains conditions and limitations on its application, and there can be no assurance that any Class Exemption or any other exemption will be available with respect to any particular transaction involving the Class A common stock.

Consultation with Counsel

The foregoing discussion is general in nature and is not intended to be comprehensive; by its offer of the Class A common stock, the Company makes no representation that purchase or holding of such Class A common stock meets the relevant legal requirements with respect to any particular investor. The complexity of these rules, and the severity of potential penalties, make it particularly important that fiduciaries or other persons considering an acquisition of Class A common stock on behalf of or with the plan assets of any Plan, or plan subject to Similar Law, consult with its counsel regarding the suitability of an acquisition of the Class A common stock in light of such prospective purchaser’s particular circumstances.

Deemed Representation

By its acceptance of any Class A common stock or any interest therein, the purchaser thereof or subsequent transferee will be deemed to have represented, warranted and covenanted that either:

 

  (1)   no assets of a Plan or non-U.S., governmental or church plan have been used to acquire such Class A common stock or an interest therein; or

 

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  (2)   (a) the acquisition and holding of such Class A common stock or an interest therein by such person does not and will not constitute or result in a non-exempt prohibited transaction under ERISA or Section 4975 of the Code or any violation of Similar Law; and (b) if it is a Plan, the decision to purchase the Class A common stock has been made by a duly authorized fiduciary (each, a “Plan Fiduciary”) who is independent of the Transaction Parties, which Plan Fiduciary (i) is a fiduciary under ERISA or the Code, or both, with respect to the decision to purchase the Class A common stock, (ii) is not an IRA owner (in the case of an IRA), (iii) is capable of evaluating investment risks independently, both in general and with regard to the prospective investment in the Class A common stock, (iv) has exercised independent judgment in evaluating whether to invest the assets of such Plan in the Class A common stock, and (v) is either a bank, an insurance carrier, a registered investment adviser, a registered broker-dealer or an independent fiduciary with at least $50 million of assets under management or control; provided, however, that Plans will not be deemed to make the representations in clause 2(b), above, to the extent that the regulations under Section 3(21) of ERISA issued by the U.S. Department of Labor on April 8, 2016 are rescinded or otherwise are not implemented in their current form.

 

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UNDERWRITING

Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. LLC and Credit Suisse Securities (USA) LLC are acting as representatives, have severally agreed to purchase, and we and the selling stockholders have agreed to sell to them, severally, the number of shares indicated below:

 

Underwriters

  

Number of
Shares of
Class A
Common
Stock

 

Morgan Stanley & Co. LLC

  
  

 

 

 

Credit Suisse Securities (USA) LLC

  
  

 

 

 

                          Total:

  
  

 

 

 

The underwriters and the representatives are collectively referred to as the “underwriters” and the “representatives,” respectively. The underwriters are offering the shares of Class A common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of Class A common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of Class A common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ over-allotment option described below.

The underwriters initially propose to offer part of the shares of Class A common stock directly to the public at the offering price listed on the cover page of this prospectus and part to certain dealers. After the initial offering of the shares of Class A common stock, the offering price and other selling terms may from time to time be varied by the representatives.

We and the selling stockholders have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to                  additional shares of Class A common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of Class A common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of Class A common stock as the number listed next to the underwriter’s name in the preceding table bears to the total number of shares of Class A common stock listed next to the names of all underwriters in the preceding table.

The following table shows the per share and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us and the selling stockholders. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional                  shares of Class A common stock.

 

            Total  
     Per
Share
     No Exercise      Full
Exercise
 

Public offering price

   $                   $                   $               

Underwriting discounts and commissions to be paid by:

        

Us

   $      $      $  

The selling stockholders

   $      $      $  

Proceeds, before expenses, to us

   $      $      $  

Proceeds, before expenses, to selling stockholders

   $      $      $  

 

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The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $        . We have agreed to reimburse the underwriters for expense relating to clearance of this offering with the Financial Industry Regulatory Authority up to $        .

The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of shares of Class A common stock offered by them.

We intend to apply to list our Class A common stock on either the NYSE or the Nasdaq under the symbol “                .”

We and all directors and officers and the holders of all of our outstanding stock and stock options have agreed that, without the prior written consent of Morgan Stanley & Co. LLC and Credit Suisse Securities (USA) LLC on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus (the “restricted period”):

 

    offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of Class A common stock or any securities convertible into or exercisable or exchangeable for shares of Class A common stock;

 

    file any registration statement with the Securities and Exchange Commission relating to the offering of any shares of Class A common stock or any securities convertible into or exercisable or exchangeable for Class A common stock; or

 

    enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Class A common stock,

whether any such transaction described above is to be settled by delivery of Class A common stock or such other securities, in cash or otherwise. In addition, we and each such person agrees that, without the prior written consent of Morgan Stanley & Co. LLC and Credit Suisse Securities (USA) LLC on behalf of the underwriters, we or such other person will not, during the restricted period, make any demand for, or exercise any right with respect to, the registration of any shares of Class A common stock or any security convertible into or exercisable or exchangeable for Class A common stock.

The restrictions described in the immediately preceding paragraph do not apply to:

 

    the sale of shares to the underwriters; or

 

    the issuance by the Company of shares of Class A common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing;

 

    transactions by any person other than us relating to shares of Class A common stock or other securities acquired in open market transactions after the completion of the offering of the shares; provided that no filing under Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is required or voluntarily made in connection with subsequent sales of the Class A common stock or other securities acquired in such open market transactions; or

 

    the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Class A common stock, provided that (i) such plan does not provide for the transfer of Class A common stock during the restricted period and (ii) to the extent a public announcement or filing under the Exchange Act, if any, is required or voluntarily made regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of Class A common stock may be made under such plan during the restricted period.

 

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Morgan Stanley & Co. LLC and Credit Suisse Securities (USA) LLC, in their sole discretion, may release the Class A common stock and other securities subject to the lock-up agreements described above in whole or in part at any time.

In order to facilitate the offering of the Class A common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Class A common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the Class A common stock in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, shares of Class A common stock in the open market to stabilize the price of the Class A common stock. These activities may raise or maintain the market price of the Class A common stock above independent market levels or prevent or retard a decline in the market price of the Class A common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time.

We, the selling stockholders and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.

A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of shares of Class A common stock to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations.

Relationships

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses. Specifically, Credit Suisse Securities (USA) LLC and/or certain of its affiliates acted as agents, joint lead arrangers and joint bookrunners under our Term Loan. In addition, Credit Suisse Securities (USA) LLC and/or certain of its respective affiliates are lenders under our Term Loan and, accordingly, will receive a portion of the net proceeds received by us in this offering due to the use of proceeds from this offering being used to repay borrowings under the Term Loan. See “Use of Proceeds” for more information.

In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in such securities and instruments.

 

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Pricing of the Offering

Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price was determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price were our future prospects and those of our industry in general, our sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to ours.

Directed Share Program

At our request, the underwriters have reserved          percent of the shares of Class A common stock to be issued by the Company and offered by this prospectus for sale, at the initial public offering price, to directors, officers, employees, business associates and related persons of Charah Solutions. If purchased by these persons, these shares will be subject to a     -day lock-up restriction. The number of shares of Class A common stock available for sale to the general public will be reduced to the extent these individuals purchase such reserved shares. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus.

Selling Restrictions

Australia

No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (“ASIC”) in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act, and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.

Any offer in Australia of the Class A common stock may only be made to persons, or to the Exempt Investors, who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the Class A common stock without disclosure to investors under Chapter 6D of the Corporations Act.

The Class A common stock applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.

This prospectus contains general information only and does not take into account the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate for their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.

Canada

The Class A common stock may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or

 

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subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the Class A common stock must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33- 105 regarding underwriter conflicts of interest in connection with this offering.

European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State it has not made and will not make an offer of Class A common stock which are the subject of the offering contemplated by this prospectus to the public in that Relevant Member State other than:

 

    to any legal entity which is a “qualified investor” as defined in the Prospectus Directive;

 

    to fewer than 150 natural or legal persons (other than “qualified investors” as defined in the Prospectus Directive), per Relevant Member State, subject to obtaining the prior consent of the underwriters; or

 

    in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of Class A common stock shall result in a requirement for us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive or a supplemental prospectus pursuant to Article 16 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer of common stock to the public” in relation to any Class A common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Class A common stock to be offered so as to enable an investor to decide to purchase or subscribe for the common stock, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State. The expression “Prospectus Directive” means Directive 2003/71/EC (as amended, including by Directive 2010/73/EU), and includes any relevant implementing measure in the Relevant Member State.

Hong Kong

The Class A common stock has not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the Class A common stock has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere,

 

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which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Class A common stock which is or is intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance.

Japan

The Class A common stock has not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, “Japanese Person” shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.

People’s Republic of China (PRC)

This prospectus may not be circulated or distributed in the PRC, and the Class A common stock may not be offered or sold to any person for re-offering or resale directly or indirectly to any resident of the PRC, except pursuant to applicable laws, rules and regulations of the PRC. For the purpose of this paragraph only, the PRC does not include Taiwan and the special administrative regions of Hong Kong and Macau.

Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Class A common stock may not be circulated or distributed, nor may the Class A common stock be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the Class A common stock is subscribed or purchased under Section 275 of the SFA by a relevant person which is:

 

  a)   a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

 

  b)   a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:

 

  a)   to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

 

  b)   where no consideration is or will be given for the transfer;

 

  c)   where the transfer is by operation of law;

 

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  d)   as specified in Section 276(7) of the SFA; or

 

  e)   as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.

Switzerland

This document is not intended to constitute an offer or solicitation to purchase or invest in the Class A common stock described herein. The Class A common stock may not be publicly offered, sold or advertised, directly or indirectly, in, into or from Switzerland and will not be listed on the SIX Swiss Exchange or on any other exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the Class A common stock constitutes a prospectus as such term is understood pursuant to article 652a or article 1156 of the Swiss Code of Obligations or a listing prospectus within the meaning of the listing rules of the SIX Swiss Exchange or any other regulated trading facility in Switzerland, and neither this document nor any other offering or marketing material relating to the Class A common stock may be publicly distributed or otherwise made publicly available in Switzerland.

Neither this document nor any other offering or marketing material relating to the offering, nor the Company nor the Class A common stock have been or will be filed with or approved by any Swiss regulatory authority. The Class A common stock is not subject to the supervision by any Swiss regulatory authority, e.g., the Swiss Financial Markets Supervisory Authority FINMAXX, and investors in the Class A common stock will not benefit from protection or supervision by such authority.

United Kingdom

This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling with Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). The Class A common stock is only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

 

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LEGAL MATTERS

The validity of our Class A common stock offered by this prospectus will be passed upon for us by Kirkland & Ellis LLP, Houston, Texas. The underwriters have been represented by Davis Polk & Wardwell LLP, New York, New York.

EXPERTS

The financial statements of Charah, LLC and Charah Solutions, Inc. included in this Prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their reports appearing herein and elsewhere in the registration statement. Such financial statements are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 (including the exhibits, schedules and amendments thereto) under the Securities Act, with respect to the shares of our Class A common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to us and the Class A common stock offered hereby, we refer you to the registration statement and the exhibits and schedules filed therewith. Statements contained in this prospectus as to the contents of any contract, agreement or any other document are summaries of the material terms of this contract, agreement or other document. With respect to each of these contracts, agreements or other documents filed as an exhibit to the registration statement, reference is made to the exhibits for a more complete description of the matter involved. A copy of the registration statement, and the exhibits and schedules thereto, may be inspected without charge at the Public Reference Room of the SEC at 100 F Street N.E., Washington, DC 20549. Copies of these materials may be obtained from such office, upon payment of a duplicating fee. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.

As a result of this offering, we will become subject to full information reporting requirements of the Exchange Act. We will fulfill our obligations with respect to such requirements by filing periodic reports and other information with the SEC. We intend to furnish our stockholders with annual reports containing financial statements certified by an independent public accounting firm.

 

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INDEX TO FINANCIAL STATEMENTS

 

Charah Solutions, Inc.

  

Report of Independent Registered Public Accounting Firm

     F-2  

Balance Sheet as of February 1, 2018

     F-3  

Notes to Balance Sheet

     F-4  

Charah, LLC (Predecessor)

  

Audited Financial Statements

  

Report of Independent Registered Public Accounting Firm

     F-5  

Consolidated Balance Sheet as of December 31, 2016

     F-6  

Consolidated Statement of Income for the Year ended December 31, 2016

     F-8  

Consolidated Statement of Members’ Equity for the Year ended December 31, 2016

     F-9  

Consolidated Statement of Cash Flows for the Year ended December 31, 2016

     F-10  

Notes to Consolidated Financial Statements for the Year ended December 31, 2016

     F-11  

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Charah Solutions, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheet of Charah Solutions, Inc. (the “Company”) as of February 1, 2018 and the related notes (collectively referred to as the “financial statement”). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of February 1, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

This financial statement is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit of the financial statement provides a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Louisville, Kentucky

February 5, 2018

We have served as the Company’s auditor since 2018.

 

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CHARAH SOLUTIONS, INC.

Balance Sheet

(in whole dollars)

 

     February 1,
    2018    
 

ASSETS

  

Receivable from affiliate

   $           10  
  

 

 

 

Total current assets

     10  
  

 

 

 

Total assets

   $ 10  
  

 

 

 

LIABILITIES AND STOCKHOLDER’S EQUITY

  

Total liabilities

   $ —    
  

 

 

 

Commitments and contingencies

  

Stockholder’s equity:

  

Common stock, $0.01 par value; 1,000 shares authorized, issued, and outstanding

     10  
  

 

 

 

Total stockholder’s equity

     10  
  

 

 

 

Total liabilities and stockholder’s equity

   $ 10  
  

 

 

 

See notes to balance sheet.

 

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CHARAH SOLUTIONS, INC.

Notes to Balance Sheet

1. Organization and Background of Business

Charah Solutions, Inc., or the Company, was incorporated on January 30, 2018 as a Delaware corporation.

The Company was formed to serve as the issuer of an initial public offering of equity, or IPO. Concurrent with the completion of the IPO, the Company will serve as the new parent holding company of CHRH Holdings, LLC, a Delaware limited liability company.

The balance sheet has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Separate Statements of Operations, Changes in Stockholder’s Equity and of Cash Flows have not been presented because the Company had no business transactions or activities, except for the initial capitalization of the Company which was funded by an affiliate. In this regard, general and administrative costs associated with the formation and daily management of the Company have been determined by the Company to be insignificant.

2. Stockholder’s Equity

The Company has authorized share capital of 1,000 common shares with $0.01 par value. On February 1, 2018, all 1,000 shares were issued and acquired by an affiliate for consideration of $10 receivable from that affiliate. Each share has one voting right.

3. Subsequent Events

There have been no events subsequent to February 5, 2018 that would require additional adjustments to or disclosure in our financial statements.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Members of

Charah, LLC

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Charah, LLC (formerly Charah, Inc.) and its subsidiaries (the “Company”) as of December 31, 2016, and the related consolidated statements of income, members’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2016, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Louisville, Kentucky

February 5, 2018

We have served as the Company’s auditor since 2017.

 

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CHARAH, LLC AND SUBSIDIARIES

Consolidated Balance Sheet

December 31, 2016

(in thousands)

 

Assets       

Current assets:

  

Cash

   $ 1,001  

Trade accounts receivable

     48,668  

Receivable from affiliates

     1,116  

Loan to related party

     7,865  

Costs and estimated earnings in excess of billings

     57,817  

Inventory

     1,370  

Prepaid expenses and other current assets

     1,180  
  

 

 

 

Total current assets

     119,017  

Property and equipment:

  

Plant, machinery and equipment

     61,690  

Vehicles

     16,069  

Office equipment

     1,424  

Buildings and leasehold improvements

     367  

Structural fill sites

     16,458  
  

 

 

 

Total property and equipment

     96,008  

Less accumulated depreciation and amortization

     (34,794
  

 

 

 

Property and equipment, net

     61,214  

Other assets:

  

Intangible assets, net

     4  

Equity method investment

     5,241  

Restricted cash

     3,358  
  

 

 

 

Total assets

   $ 188,834  
  

 

 

 

See notes to consolidated financial statements.

 

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CHARAH, LLC AND SUBSIDIARIES

Consolidated Balance Sheet, continued

December 31, 2016

(in thousands, except share counts)

 

Liabilities and Members’ Equity       

Current liabilities:

  

Accounts payable

   $ 14,624  

Billings in excess of costs and estimated earnings

     1,352  

Notes payable, current maturities

     9,040  

Deferred compensation

     18,888  

Accrued payroll and bonuses

     2,852  

Asset retirement obligation

     865  

Accrued expenses

     6,685  
  

 

 

 

Total current liabilities

     54,306  

Long-term liabilities:

  

Line of credit

     39,195  

Notes payable, less current maturities

     73,987  
  

 

 

 

Total liabilities

     167,488  

Commitments and Contingencies (see Note 16)

  

Members’ equity

  

Common stock—voting, no par value, 18,750 shares authorized and outstanding as of December 31, 2016

     24  

Common stock—non-voting, no par value, 231,250 shares authorized and 168,750 outstanding as of December 31, 2016

     216  

Additional paid-in capital, less cost of 484 shares repurchased as of
December 31, 2016

     54  

Retained earnings

     20,366  
  

 

 

 

Total Charah, LLC members’ equity

     20,660  

Non-controlling interest

     686  
  

 

 

 

Total members’ equity

     21,346  
  

 

 

 

Total liabilities and members’ equity

   $ 188,834  
  

 

 

 

See notes to consolidated financial statements.

 

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CHARAH, LLC AND SUBSIDIARIES

Consolidated Statement of Income

Year ended December 31, 2016

(in thousands)

 

Revenue

   $ 265,068  

Cost of sales

     203,228  
  

 

 

 

Gross profit

     61,840  

General and administrative expenses

     35,170  
  

 

 

 

Operating income

     26,670  

Interest expense

     (6,244

Income from equity method investment

     2,703  
  

 

 

 

Net income

     23,129  

Less income attributable to non-controlling interest

     (2,198
  

 

 

 

Net income attributable to Charah, LLC

   $ 20,931  
  

 

 

 

 

See notes to consolidated financial statements.

 

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CHARAH, LLC AND SUBSIDIARIES

Consolidated Statement of Members’ Equity

Year ended December 31, 2016

(in thousands, except share counts)

 

    Charah, LLC Members              
    Voting Shares     Non-voting Shares                          
    Number of
Shares
    Common
Stock
    Number of
Shares
    Common
Stock
    Additional
Paid-In
Capital
    Retained
Earnings
    Non-Controlling
Interest
    Total  

Balance, January 1, 2016

    18,750     $ 24       168,750     $ 216     $ 54     $ (540   $ 691     $ 445  

Net income

                                  20,931       2,198       23,129  

Issuance of stock

                49,860                                

Repurchase of stock

                (49,860                              

Distributions

                                  (25     (2,203     (2,228
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2016

    18,750     $ 24       168,750     $ 216     $ 54     $ 20,366     $ 686     $ 21,346  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See notes to consolidated financial statements.

 

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CHARAH, LLC AND SUBSIDIARIES

Consolidated Statement of Cash Flows

Year ended December 31, 2016

(in thousands)

 

Cash flows from operating activities:

  

Net income

   $ 23,129  

Adjustments to reconcile net income to net cash provided by operating activities:

  

Depreciation and amortization

     15,601  

Amortization of debt issuance costs

     664  

Gain on sale of assets

     (1,798

Income from equity method investment

     (2,703

Distributions received from equity method investment

     840  

Non-cash compensation

     7,352  

Payment related to deferred stock plan

     (15,666

Increase (decrease) in cash due to changes in:

  

Trade accounts receivable

     (6,930

Receivable from affiliates

     (30

Costs and estimated earnings in excess of billings

     3,351  

Inventory

     (243

Prepaid expenses and other current assets

     (1,161

Accounts payable

     (15,365

Billings in excess of costs and estimated earnings

     1,352  

Accrued payroll and bonuses

     24  

Asset retirement obligation

     865  

Accrued expenses

     (931
  

 

 

 

Net cash provided by operating activities

     8,351  

Cash flows from investing activities:

  

Proceeds from the sale of equipment

     4,730  

Purchases of property and equipment

     (10,065

Investment in equity method investment

     (3,378

Increase in restricted cash

     (3,358

Change in loan to related party, net

     (3,814
  

 

 

 

Net cash used in investing activities

     (15,885

Cash flows from financing activities:

  

Net payments on line of credit

     (3,301

Proceeds from long-term debt

     32,887  

Principal payments on long-term debt

     (20,060

Distributions to non-controlling interest

     (2,203

Distributions to stockholders

     (25
  

 

 

 

Net cash provided by financing activities

     7,298  
  

 

 

 

Net decrease in cash

     (236

Cash, beginning of year

     1,237  
  

 

 

 

Cash, end of year

   $ 1,001  
  

 

 

 

Supplemental disclosures of cash flow information:

  

Cash paid during the year for interest

   $ 5,550  

See notes to consolidated financial statements.

 

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CHARAH, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(dollars in thousands unless otherwise indicated)

1. Nature of Business

During 2016, Charah, Inc. converted from an S corporation to a limited liability company and changed its name to Charah, LLC (the Company). In December 2016, the Company became a wholly owned subsidiary of CEP Holdings, Inc. (the Parent company).

Under the JOBS Act, the Company expects that it will meet the definition of an “emerging growth company,” which would allow the Company to have an extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. The Company intends to take advantage of all of the reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under Section 107 of the JOBS Act until the Company is no longer an emerging growth company.

The Company provides a complete line of ash management services to the coal-fired utility industry including: landfill construction, management and operations; bottom ash processing and marketing; fly ash sales; engineered fill applications; and ash pond management. The Company has corporate offices in Kentucky, and principally operates in the eastern and mid-central United States.

In February 2009, the Company organized Ash Management Services, LLC (AMS) as a wholly-owned subsidiary. AMS provides ash management services to the utility industry.

In December 2013, the Company organized Ash Venture LLC (Ash Venture). Ash Venture is a joint venture owned 67% by the Company. The profits and losses are allocated 67% to the Company and 33% to the non-controlling interest holder. Ash Venture provides ash management and remarketing services to the utility industry.

In May 2014, the Company organized Green Meadow, LLC (Green Meadow) as a wholly-owned subsidiary. Green Meadow was created to own certain properties operated by the Company.

In July 2015, the Company organized Green Meadow II, LLC (Green Meadow II) and Big Tree, LLC (Big Tree). Both entities were formed for potential land acquisitions and remained inactive during 2015 and 2016.

The accompanying consolidated financial statements include the accounts of the Company and these subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

2. Summary of Significant Accounting Policies

Management’s Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions, in particular estimates of costs to complete contracts in process, that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Balance Sheet Classification

The Company includes in current assets and liabilities retainage amounts payable, asset retirement obligation, costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings, which may extend beyond one year. A one-year time period is used as the basis for classifying all other assets and liabilities.

 

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CHARAH, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements, continued

(dollars in thousands unless otherwise indicated)

 

Cash

The Company and subsidiaries maintain cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company and subsidiaries have not experienced any losses in such accounts. The Company and subsidiaries believe they are not exposed to any significant credit risk on cash.

Restricted Cash

The Company was required to establish an escrow account for the post closure care costs related to the structural fill sites. The post closure care costs are also covered by financial guarantee and performance bonds.

Trade Accounts Receivable

Trade accounts receivable consist of amounts due from customers. An allowance for doubtful accounts is recorded to the extent it is probable that a portion of a particular account will not be collected. Management determines the allowance for doubtful accounts by evaluating individual customer receivables and considering a customer’s financial condition, credit history, and the current economic conditions. Management believes all trade accounts receivable at December 31, 2016 are fully collectible; therefore, the consolidated financial statements do not include an allowance for doubtful accounts.

Trade accounts receivable balances are considered past due based upon contract or invoice terms and are charged off when deemed uncollectible. The Company and subsidiaries do not charge interest on customer accounts and generally do not require collateral on sales and services during the normal course of business. The Company has the right to file liens on the owner’s property with regards to certain construction contracts.

Inventory

Inventories consist of finished goods and are valued using the first-in, first-out (FIFO) method. Inventories are stated at the lower of cost or market.

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization is provided principally by the straight-line method over the estimated useful lives of the assets as follows:

 

Plant, machinery and equipment

   2 - 15 years

Vehicles

   2 - 10 years

Office equipment

   2 - 10 years

Buildings and leasehold improvements

   5 - 40 years

The cost of the structural fill sites is amortized as ash is deposited, on the basis that the value of the structural fill sites to the Company diminishes in direct correlation to the amount of airspace used for ash deposits. Amortization is recorded on a units-of-consumption basis, applying expense as a rate per ton. The rate per ton is calculated by dividing the amortizable basis of the structural fill sites by the number of tons of structural fill for the airspace.

Repair and maintenance costs are expensed as incurred and expenditures for improvements are capitalized.

 

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Notes to Consolidated Financial Statements, continued

(dollars in thousands unless otherwise indicated)

 

Equity Method Investment

In January 2016, the Company organized a joint venture with an unrelated third party. The Company has a 50% interest in the joint venture, which is accounted for by the equity method.

Intangible Assets

Intangible assets consist of patents and software related to the Company’s website. These assets are amortized on a straight-line basis over their estimated useful lives of fifteen years for patents and three years for software. Accumulated amortization for intangible assets was $47 at December 31, 2016.

Fair Value Disclosures

Long-term debt bears interest at variable rates and book value approximates fair value, and is considered to be level 2 in the fair value hierarchy. Restricted cash is considered to be level 2 in the fair value hierarchy, and book value approximates fair value. The Company does not have any recurring level 3 fair value measurements as of December 31, 2016, and there have been no transfers between the three levels of the fair value hierarchy during the year ended December 31, 2016.

Revenue Recognition

Revenue from management contracts is recognized when the ash is hauled to the landfill, or the management services are provided. Revenue from the sales of ash is recognized when it is delivered to the customer. Certain contracts contain minimum quantity and quality standards that if not met will reduce the amount of revenue recognized. When applicable, revenue is recorded net of sales tax.

Revenue and Cost Recognition on Construction Contracts

In 2016, we recognized approximately 66% of our total revenues using the percentage-of-completion method. Accounting for these contracts involves management judgment in estimating total contract revenue and cost. Contract revenues are largely determined by negotiated contract prices and quantities, modified by our assumptions regarding contract options, change orders and price adjustment clauses (such as inflation or index-based clauses). Contract costs are incurred over a period of time, which can be several years, and the estimation of these costs requires management judgment. Cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends and other economic projections. Significant factors that influence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, and asset utilization. We have processes during which management reviews the progress and performance of our contracts. As part of this process, management reviews information including any outstanding key contract matters, progress toward completion and the related project timeline, and the related changes in estimates of revenues and costs. Anticipated losses on long-term contracts are recognized when such losses become evident. In 2016, we did not have any losses on long-term contracts.

Revenue from contract claims is recognized when invoiced. Revenue from contract change orders is recognized when it is probable that the change order will be approved, the amount can be reasonably estimated, and the work has been completed.

The asset, “Costs and estimated earnings in excess of billings” represents revenue recognized in excess of amounts billed on uncompleted contracts. The liability, “Billings in excess of costs and estimated earnings” represents billings in excess of revenue recognized.

 

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CHARAH, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements, continued

(dollars in thousands unless otherwise indicated)

 

Freight Costs

Freight costs charged to customers are included in revenue. Costs incurred by the Company and subsidiaries for freight are included in cost of sales.

Income Taxes

In December 2016, the Company converted to a limited liability company taxed as a partnership for income tax purposes. Prior to December 2016, the Company was an S Corporation that elected to be taxed as a partnership for income tax purposes. The Company is, therefore, not subject to federal and certain state income taxes. The subsidiaries are limited liability companies and are disregarded entities for income tax purposes. Therefore, the items of income and deductions for the subsidiaries are included on the income tax returns of the Company. With regards to federal taxes and states that follow federal tax treatment the stockholders report the distributive share of the Company’s and subsidiaries’ earnings on their income tax returns and are subject to taxation at the stockholder level. The Company is subject to income tax in some jurisdictions in which they operate. When the taxes are based on income, the expense, if any, is included within the provision for income taxes on the accompanying consolidated statement of income. When the taxes are based on amounts other than income, the expense is included within general and administrative expenses.

Business Segments

The Company has identified the following business segments:

Environmental Solutions. The Environmental Solutions segment includes remediation and compliance services, as well as byproduct sales. Remediation and compliance services is associated with customers’ need for multiyear environmental improvement and sustainability initiatives, whether driven by proactive engagement by power generation customers or by regulatory requirements. Byproduct sales supports both power generation customers’ desire to profitably recycle recurring volumes of coal combustion residuals and ultimate end customers’ need for high-quality, cost-effective raw material substitutes.

Maintenance and Technical Services. The Maintenance and Technical Services segment includes fossil services. Fossil services is recurring and mission-critical management of coal ash for coal-fired power generation facilities.

Stock Compensation Plans

The Company established a Deferred Stock Plan (the Plan) for the benefit of certain key employees. The Company accounts for the Plan as a liability-classified plan. The Plan was terminated in December 2016, and all units became 100% vested and were converted into shares of non-voting common stock. See Note 15.

Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-03, Interest- Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. This ASU requires that debt issuance costs related to a recognized debt liability be presented in the consolidated balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company adopted ASU 2015-03 during 2016 (see Note 7). The adoption of this standard resulted in $1,849 of debt issuance costs presented as a deduction from the carrying amount of debt.

 

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CHARAH, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements, continued

(dollars in thousands unless otherwise indicated)

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The core principle of ASU 2014-09 is to recognize revenues when a customer obtains control of a good or service, in an amount that reflects the consideration to which an entity is expected to be entitled for those goods or services. The standard will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 by one year. The updated standard will be effective for the year ending December 31, 2019, with early adoption permitted. The Company has not yet selected a transition method and is currently evaluating the effect that the new standard will have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), requiring all leases to be recognized on the Company’s consolidated balance sheet as a right-of-use asset and a lease liability, unless the lease is a short term lease (generally a lease with a term of twelve months or less). At the commencement date of the lease, the Company will recognize: 1) a lease liability for the Company’s obligation to make payments under the lease agreement, measured on a discounted basis; and 2) a right-of-use asset that represents the Company’s right to use, or control the use of, the specified asset for the lease term. Upon adopting the ASU, the Company will be required to recognize and measure its leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 will be effective for the Company for the year ending December 31, 2020, with early adoption permitted. The Company is currently evaluating the effect that the new standard will have on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments.” This update addresses specific cash flow issues, including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, and proceeds from the settlement of insurance claims. The guidance is effective for fiscal years beginning after December 15, 2018. The Company is currently evaluating the effect that the new standard will have on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230). This ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Upon adopting the ASU, amounts generally described as restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will be effective for the Company for the year ending December 31, 2019, with early adoption permitted. The Company is currently evaluating the effect that the new standard will have on its consolidated financial statements.

3. Receivable from Affiliates and Related Party Transactions

Circle Four, Inc. (C4), an entity majority-owned by a trust controlled by a stockholder of the Parent company, stores machinery and equipment for the Company. Rental expense of $21 was incurred during 2016. C4 owed the Company $216 at December 31, 2016. The receivable is unsecured and does not bear interest.

The Company contributed $2,920 in 2016 to the Price Foundation, which is controlled by a stockholder of the Parent Company.

The Company rents their corporate office, housing at work sites and a condo from Price Real Estate, LLC (PRE), an entity owned by a stockholder of the Parent company. The lease for the corporate office is a triple net

 

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Notes to Consolidated Financial Statements, continued

(dollars in thousands unless otherwise indicated)

 

lease, requiring monthly payments of $43 (increasing by the consumer price index each year commencing June 1, 2013) through May 31, 2020. Other property is rented on a month-to-month basis. Rental expense of $638 was incurred during 2016. The Company had a receivable due from PRE of $25 at December 31, 2016.

PriceFlight, LLC (PF), an entity owned by a stockholder of the Parent company, provides flight services to the Company. Expenses to PF for flight services amounted to $708 for the year ended December 31, 2016. The Company’s receivable from PF was reduced by expenses of $203 during 2016. PF owed the Company $641 at December 31, 2016. The receivable is unsecured and does not bear interest.