<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1997
REGISTRATION NO. 333-
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
WASTE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 4953 56-0954929
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
3949 BROWNING PLACE
RALEIGH, NORTH CAROLINA 27609
(919) 782-0095
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
LONNIE C. POOLE, JR.
CHAIRMAN, CHIEF EXECUTIVE OFFICER
ROBERT H. HALL
CHIEF FINANCIAL OFFICER, SECRETARY AND TREASURER
WASTE INDUSTRIES, INC.
3949 BROWNING PLACE
RALEIGH, NORTH CAROLINA 27609
(919) 782-0095
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
LARRY E. ROBBINS, ESQ. STEPHEN A. RIDDICK, ESQ.
DONALD R. REYNOLDS, ESQ. PIPER & MARBURY L.L.P.
WYRICK ROBBINS YATES & PONTON L.L.P. CHARLES CENTER SOUTH
4101 LAKE BOONE TRAIL, SUITE 300 36 SOUTH CHARLES STREET
RALEIGH, NORTH CAROLINA 27607 BALTIMORE, MARYLAND 21201
(919) 781-4000 (410) 539-2530
FAX (919) 781-4865 FAX (410)576-5051
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. ( )
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. ( )
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ( )
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. ( )
CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
<S> <C> <C> <C>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFER-
BE REGISTERED REGISTERED (1) PER SHARE (2) ING PRICE (2)
<S> <C> <C> <C>
Common Stock,
no par value per share 2,472,500 shares $12.50 $30,906,250
<CAPTION>
TITLE OF EACH CLASS AMOUNT OF
OF SECURITIES TO REGISTRATION
BE REGISTERED FEE
<S> <C>
Common Stock,
no par value per share $9,366
</TABLE>
(1) Includes 322,500 shares issuable upon exercise of an option granted to the
Underwriters solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION
, 1997
2,150,000 SHARES
[LOGO]
WASTE INDUSTRIES, INC.
COMMON STOCK
Of the 2,150,000 shares of Common Stock offered hereby, 1,605,200 are being
sold by Waste Industries, Inc. ("Waste Industries" or the "Company") and 544,800
by certain shareholders of the Company ("Selling Shareholders"). The Company
will not receive any proceeds from the sale of shares by the Selling
Shareholders. See "Principal and Selling Shareholders". Prior to this offering,
there has been no public market for the Common Stock of the Company. It is
currently estimated that the initial public offering price will be between
$10.50 and $12.50 per share. See "Underwriting" for the factors to be considered
in determining the initial public offering price. Application has been made for
quotation of the Common Stock on the Nasdaq National Market under the symbol
"WWIN".
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6 HEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
[CAPTION]
<TABLE>
<S> <C> <C> <C>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
<S> <C> <C> <C>
Per Share............................................. $ $ $
Total(2).............................................. $ $ $
<CAPTION>
PROCEEDS TO
SELLING
SHAREHOLDERS
<S> <C>
Per Share............................................. $
Total(2).............................................. $
</TABLE>
(1) Before deducting expenses of the offering, payable by the Company, estimated
at $450,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
322,500 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent the option is exercised, the Underwriters will offer
the additional shares at the Price to Public shown above. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting".
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about ,
1997.
<TABLE>
<S> <C>
ALEX. BROWN & SONS DEUTSCHE MORGAN GRENFELL
INCORPORATED
</TABLE>
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
WASTE INDUSTRIES, INC.
(Map of North Carolina, South Carolina and Virginia highlighting each of the
Company's branch locations appears here)
The Company intends to furnish its shareholders with annual reports
containing consolidated financial statements audited by its independent auditors
and with quarterly reports containing unaudited interim consolidated financial
information for each of the first three quarters of each year.
CERTAIN PERSONS PARTICIPATING IN THE COMMON STOCK OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH
THE COMMON STOCK OFFERING AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON
STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION CONTAINED IN THIS PROSPECTUS: (I) GIVES EFFECT TO THE 1-FOR-2.5
REVERSE STOCK SPLIT AND THE AMENDMENT OF THE COMPANY'S ARTICLES OF INCORPORATION
TO PROVIDE THAT ALL SHARES OF COMMON STOCK HAVE VOTING RIGHTS, EACH TO BE
EFFECTIVE PRIOR TO CONSUMMATION OF THIS OFFERING; AND (II) ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED. SEE "DESCRIPTION OF
CAPITAL STOCK" AND "UNDERWRITING". EXCEPT WHERE THE CONTEXT OTHERWISE REQUIRES,
REFERENCES TO THE TERMS "WASTE INDUSTRIES" AND THE "COMPANY" REFER TO WASTE
INDUSTRIES, INC. AND ITS SUBSIDIARIES.
THE COMPANY
Waste Industries is a regional solid waste services company providing solid
waste collection, transfer, recycling, processing and disposal services to
customers in North Carolina and South Carolina and, to a limited extent, in
Virginia. The Company controls an average of approximately 29% of the waste
stream in the markets it serves and an average of approximately 13% of the total
waste stream in North Carolina and South Carolina, based on its estimates of
landfill disposal tonnage.
The Company's principal operations consist of 18 branch collection
operations, 11 transfer stations and four recycling processing facilities that
serve over 144,000 municipal, residential, commercial and industrial locations.
Collection operations include front-end and roll-off collection for commercial
and industrial accounts and curbside collection for residential customers.
Transfer stations are located strategically throughout the served market area to
allow the Company to consolidate its waste stream to gain more favorable
disposal rates. Recycling processing facilities receive almost all forms of
recyclable materials from the Company's approximately 100 drop-off centers in 15
counties. Approximately 3% of the Company's waste stream is recycled, which
accounted for approximately 2% of total revenues in 1996. In addition to these
services, the Company provides certain ancillary services to customers to
complement its primary operations, including the operation of approximately 100
convenience sites, originally developed by the Company to consolidate waste in
rural areas. The Company has acquired 17 solid waste collection operations since
1990. The Company does not currently own or operate any landfills; however,
future expansion may include the acquisition or development of one or more
landfills either independently or in partnership with an experienced landfill
operator.
The Company's objective is to build the premier solid waste services
company in the Southeastern U.S. by expanding its operations and capitalizing on
its strong market presence. The Company's strategy for achieving this objective
is: (i) to generate internal growth by adding customers and services to its
existing operations; (ii) to acquire solid waste collection companies, customers
and, under appropriate circumstances, landfills in existing and new areas of its
target market; and (iii) to increase operating efficiencies and enhance
profitability in its existing and acquired operations. From December 31, 1992
through December 31, 1996, Company revenues, operating income and income before
income taxes have increased at compounded annual rates of 21.6%, 34.3% and
38.1%, respectively.
The Company operates on a decentralized management basis, with each branch
office having service and decision-making authority. This allows the Company the
flexibility and speed to respond to customer needs, to capitalize on market
opportunities and to identify potential acquisition targets. In addition,
decentralization and a well-developed network of branch offices allow the
Company to operate as a local service provider when negotiating contracts or
developing new business. Branch offices utilize support services for critical
operating functions and the branches are connected to a centralized management
information system utilizing satellite technology.
Members of the senior management team founded Waste Industries in 1970 and
are recognized for their leadership roles throughout the solid waste management
industry and its trade organizations. The Company's management team collectively
has over 240 years of experience in the solid waste industry and over 140 years
with the Company. The Company is a North Carolina corporation with its principal
executive offices located at 3949 Browning Place, Raleigh, North Carolina 27609,
and its telephone number at that location is (919) 782-0095.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............................... 1,605,200 shares
Common Stock offered by the Selling Shareholders.................. 544,800 shares
Common Stock to be outstanding after this offering................ 11,205,357 shares(1)
Use of proceeds................................................... Repay revolving bank debt and for general corporate
purposes, including possible acquisitions
Nasdaq National Market Symbol..................................... WWIN
</TABLE>
(1) Excludes 526,000 shares issuable upon the exercise of stock options
outstanding as of March 31, 1997 at a weighted average exercise price of
$5.10 per share. See "Management -- Executive Compensation; Stock Options".
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,(1)
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................................. $42,319 $49,467 $66,382 $82,305 $92,379
Cost of operations................................................... 23,770 27,869 37,853 50,395 59,337
Selling, general and administrative.................................. 10,563 12,102 15,143 15,467 16,329
Depreciation and amortization........................................ 5,450 6,150 7,615 8,217 8,471
Operating income..................................................... 2,536 3,346 5,771 8,226 8,242
Interest expense..................................................... (1,536) (1,625) (1,920) (2,122) (2,395)
Other income......................................................... 941 1,302 742 856 1,202
Income before income taxes........................................... 1,941 3,023 4,593 6,960 7,049
Pro forma income taxes(2)............................................ 770 1,230 1,865 2,790 2,845
Pro forma net income(2).............................................. $ 1,171 $ 1,793 $ 2,728 $ 4,170 $ 4,204
Pro forma earnings per share(2)...................................... $ 0.12 $ 0.19 $ 0.28 $ 0.43 $ 0.43
Weighted average shares outstanding.................................. 9,483 9,497 9,590 9,594 9,684
OTHER OPERATING DATA:
EBITDA(3)............................................................ $ 8,927 $10,798 $14,128 $17,299 $17,915
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
PRO FORMA
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................................................... $ 1,803 $ 1,803 $ 1,803
Working capital................................................................... 1,601 1,601 1,601
Total assets...................................................................... 59,068 59,868 59,868
Long-term debt, net of current maturities......................................... 33,070 33,070 16,352
Shareholders' equity.............................................................. 14,171 9,871 26,589
</TABLE>
(FOOTNOTES APPEAR ON THE NEXT PAGE.)
4
<PAGE>
(1) Effective April 1, 1996, Waste Industries completed a corporate
reorganization in which Waste Enterprises, Inc., Waste Industries East,
Inc., Waste Industries South, Inc., Waste Industries West, Inc., KABCO,
Inc., Conway 378, Inc. and AmLease, Inc. were merged with and into Waste
Industries. Simultaneously, certain real estate properties previously leased
to Waste Industries by Property Management Group, a partnership of certain
shareholders of Waste Industries, were transferred to Waste Industries.
These transactions were accounted for at historical cost in a manner similar
to that in pooling of interests accounting. Accordingly, Waste Industries'
financial statements have been restated to include these accounts and
transactions for all periods presented.
(2) For each of the fiscal years presented, the Company was an S Corporation
and, accordingly, was not subject to federal and certain state corporate
income taxes. The pro forma information has been computed as if the Company
were subject to federal and all applicable state corporate income taxes for
each of the periods presented assuming the tax rate that would have applied
had the Company been taxed as a C Corporation. See "Dividend Policy and
Prior S Corporation Status" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
(3) EBITDA is defined as income before income taxes plus interest expense and
depreciation and amortization and is relevant to an understanding of the
Company's performance because it reflects the Company's ability to generate
cash flows sufficient to satisfy its debt service, capital expenditure and
working capital requirements. EBITDA should not be considered an alternative
to: (i) operating income (as determined in accordance with generally
accepted accounting principles) as an indicator of the Company's operating
performance; or (ii) cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) as a measure of
liquidity.
(4) Gives effect to the recognition of deferred tax assets of $800,000 and the
assumption by the Company of a net deferred tax liability of $4.3 million as
a result of the Company terminating its S Corporation election concurrent
with the completion of this offering.
(5) Adjusted to reflect the sale of the 1,605,200 shares offered by the Company
hereby at the assumed initial public offering price of $11.50 per share and
the application of the net proceeds therefrom as described in "Use of
Proceeds".
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES
OF COMMON STOCK OFFERED BY THIS PROSPECTUS.
ABILITY TO MANAGE GROWTH. The Company's goal is to increase the scale of
its operations through internal growth and through the acquisition of other
solid waste businesses. Consequently, the Company may experience periods of
rapid growth with significantly increased staffing requirements. Such growth, if
it were to occur, could place a significant strain on the Company's management
and on its operational, financial and other resources. The Company's ability to
maintain and manage its growth effectively will require it to expand its
management information systems capabilities and improve its operational and
financial systems and controls. Moreover, the Company will need to attract,
train, motivate, retain and manage its senior managers, technical professionals
and other employees. Any failure to expand its management information systems
capabilities and its operational and financial systems and controls or to
recruit appropriate additional personnel in an efficient manner at a pace
consistent with any business growth the Company may experience would have a
material adverse effect on the Company's business, financial condition and
results of operations.
AVAILABILITY AND INTEGRATION OF ACQUISITION TARGETS. Waste Industries'
strategy envisions that a substantial part of its future growth will come from
acquiring and integrating independent solid waste collection, transfer and
disposal operations. There can be no assurance that the Company will be able to
identify suitable acquisition candidates or, if identified, negotiate
successfully their acquisition. The Company is not currently a party to any
letters of intent with respect to any material pending acquisitions. Failure by
the Company to implement successfully its acquisition strategy will limit the
Company's growth potential. See "Business -- Strategy".
The recent consolidation and integration activity in the solid waste
industry, as well as the difficulties, uncertainties and expenses relating to
the development and permitting of solid waste landfills and transfer stations,
has increased competition for the acquisition of existing solid waste
collection, transfer and disposal operations. Increased competition for
acquisition candidates may result in fewer acquisition opportunities being made
available to the Company as well as less advantageous acquisition terms,
including increased purchase prices. These circumstances may increase
acquisition costs to levels beyond the Company's financial capability or pricing
parameters or which, as to acquisitions made by the Company, may have an adverse
effect on the Company's results of operations. Many of the Company's competitors
for acquisitions are larger, better known companies with significantly greater
resources than the Company. The Company also believes that a significant factor
in its ability to consummate acquisitions after completion of this offering will
be the relative attractiveness of shares of the Company's Common Stock as an
investment instrument to potential acquisition candidates. This attractiveness
may, in large part, be dependent upon the relative market price and capital
appreciation prospects of the Common Stock compared to the equity securities of
the Company's competitors.
COMMODITY RISK UPON RESALE OF RECYCLABLES. One of the components of the
Company's internal growth strategy is to provide recycling services to
customers. The resale prices of, and demand for, recyclable commodities,
particularly wastepaper, can be volatile and subject to changing market
conditions. Accordingly, the Company's results of operations will be affected,
and may be affected materially, by changing resale prices or demand for certain
recyclable commodities, particularly wastepaper. These changes may also
contribute to significant variability in the Company's period-to-period results
of operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Results of Operations; General".
POTENTIAL INABILITY TO FINANCE THE COMPANY'S POTENTIAL GROWTH. Waste
Industries anticipates that any future business acquisitions will be financed
principally through the issuance of shares of the Company's Common Stock and/or
the payment of cash, and possibly through the assumption of debt of the acquired
businesses. If acquisition candidates are unwilling to accept shares of the
Company's Common Stock as part of the consideration for the sale of their
businesses, the Company would be required to utilize more of its available cash
resources or borrowings under its credit facilities in order to effect such
acquisitions. To the extent that then available sources are insufficient to fund
such requirements, the Company will require additional equity and/or debt
financing in order to provide the cash to effect such acquisitions.
Additionally, growth through newly developed or acquired landfills or transfer
stations, as well as the ongoing maintenance of such landfills or transfer
stations, will require substantial capital expenditures. There can be no
assurance that the Company will have sufficient existing capital resources or
will be able to raise sufficient additional capital resources on terms
satisfactory to the Company, if at all, in order to meet any or all of the
foregoing capital requirements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources".
6
<PAGE>
HIGHLY COMPETITIVE INDUSTRY. The solid waste services industry is highly
competitive, very fragmented and requires substantial labor and capital
resources. Each of the markets in which the Company competes or will likely
compete is served by one or more of the large national solid waste companies, as
well as numerous regional and local solid waste companies of varying sizes and
resources. The Company also competes with those counties, municipalities, and
solid waste districts that maintain their own waste collection and disposal
operations. These counties, municipalities, and solid waste districts may have
financial advantages due to the availability to them of user fees, similar
charges or tax revenues and the greater availability to them of tax-exempt
financing. Intense competition exists not only to provide services to customers
but also to acquire other businesses within each market. The national solid
waste companies and some of the large regional companies have significantly
greater financial and other resources than the Company. From time to time, these
or other competitors may reduce the price of their services in an effort to
expand market share or to win a competitively bid municipal contract. These
practices may either require the Company to reduce the pricing of its services
or result in the Company's loss of business. The Company provides approximately
23% of its collection services under municipal contracts. As is generally the
case in the industry, these contracts are subject to periodic competitive
bidding. There can be no assurance that the Company will be the successful
bidder to obtain or retain these contracts. The Company's inability to compete
with larger and better capitalized companies, or to replace a significant number
of municipal contracts lost through the competitive bidding process with
comparable contracts or other revenue sources within a reasonable time period,
could have a material adverse effect on the Company's results of operations. See
"Business -- Competition".
GEOGRAPHIC CONCENTRATION. The Company's operations and customers are
currently located in North Carolina, South Carolina and Virginia. Therefore, the
Company's results of operations are susceptible to downturns in the general
economy in this geographic region. There can be no assurance that the Company
will be able to complete a sufficient number of acquisitions in other markets to
achieve geographic diversification. See "Business -- Acquisition Program".
SEASONALITY OF BUSINESS. The Company's results of operations tend to vary
seasonally, with the first quarter of the year typically generating the least
amount of revenues, and with revenues higher in the second and third quarter,
followed by a decline in the fourth quarter. This seasonality reflects the lower
volume of waste generated and decreased revenues from project-based and other
integrated waste services during the fall and winter months, as well as the
operating difficulties experienced from inclement weather experienced during the
winter. Certain operating and other fixed costs remain relatively constant
throughout the calendar year, resulting in a similar seasonality of operating
income. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations; Seasonality" and " -- Results of
Operations; Quarterly Results".
INCURRENCE OF CHARGES RELATED TO CAPITALIZED EXPENDITURES. In accordance
with generally accepted accounting principles, the Company capitalizes certain
expenditures and advances relating to acquisitions, pending acquisitions and
landfill development projects. As of March 31, 1997, the Company had capitalized
$107,037 of such expenses. Indirect acquisition costs, such as executive
salaries, general corporate overhead, public affairs and other corporate
services, are expensed as incurred. The Company's policy is to charge against
earnings any unamortized capitalized expenditures and advances (net of any
portion thereof that the Company estimates will be recoverable, through sale or
otherwise) relating to any operation that is permanently shut down, any pending
acquisition that is not consummated and any landfill development project that is
not expected to be successfully completed. Therefore, the Company may be
required to incur a charge against earnings in future periods, which charge,
depending upon the magnitude thereof, could materially adversely affect the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" for a discussion of capitalized
expenditures in connection with certain operations and projects.
USE OF ALTERNATIVES TO LANDFILL DISPOSAL. Alternatives to landfill
disposal, such as recycling and composting, are increasingly being used. In
addition, incineration is an alternative to landfill disposal in certain of the
Company's markets. There also has been an increasing trend at the state and
local levels to mandate recycling and waste reduction at the source and to
prohibit the disposal of certain type of wastes, such as yard wastes, at
landfills. These developments may result in the volume of waste being reduced in
certain areas. North Carolina, South Carolina and Virginia have each adopted
plans or requirements which set goals for specified percentages of certain solid
waste items to be recycled. These recycling goals are being phased in over the
next few years. These alternatives, if and when adopted and implemented, may
have a material adverse effect on the business, financial condition and results
of operations of the Company. See "Business -- Landfill and Other Disposal
Alternatives".
GOVERNMENT REGULATION. The Company is subject to extensive and evolving
environmental laws and regulations which have become increasingly stringent in
recent years as a result of greater public interest in protecting the
environment. These
7
<PAGE>
laws and regulations impose substantial costs on the Company and affect the
Company's business in many ways, including as set forth below and under
"Business -- Regulation".
If the Company implements its strategy relating to landfill ownership and
operation, it will be necessary to obtain and maintain in effect one or more
licenses or permits as well as zoning, environmental and/or other land use
approvals. These licenses or permits and approvals are difficult and time
consuming to obtain and renew and are frequently subject to opposition by
various elected officials or citizens' groups. See "Business -- Legal
Proceedings." There can be no assurance that the Company will be successful in
obtaining and maintaining in effect the permits and approvals required for the
successful operation and growth of future landfill business, and the failure by
the Company to obtain or maintain in effect a permit or approval significant to
its landfill business could have a material adverse effect on the Company's
operations and financial condition.
The design, operation and closure of landfills is extensively regulated.
These regulations include, among others, the regulations ("Subtitle D
Regulations") establishing minimum federal requirements adopted by the U.S.
Environmental Protection Agency ("EPA") in October 1991 under Subtitle D of the
Resource Conservation and Recovery Act of 1976 ("RCRA"). Failure to comply with
these regulations could require the Company to undertake investigatory or
remedial activities, to curtail operations or to close a landfill temporarily or
permanently. Future changes in these regulations may in the future require the
Company to modify, supplement or replace equipment or facilities at costs which
may be substantial. The failure of regulatory agencies to enforce these
regulations vigorously or consistently may give an advantage to competitors of
the Company whose facilities do not comply with the Subtitle D Regulations or
its state counterparts. The Company's ultimate financial obligations related to
any failure to comply with these regulations could have a material adverse
effect on the Company's operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
Companies in the solid waste services business, including the Company, are
frequently subject in the normal course of business to judicial and
administrative proceedings involving federal, state or local agencies or
citizens' groups. These governmental agencies may seek to impose fines or
penalties on the Company or to revoke or deny renewal of the Company's operating
permits or licenses for violations or alleged violations of environmental laws
or regulations or require that the Company make expenditures to remediate
potential environmental problems relating to waste disposed of or stored by the
Company or its predecessors, or resulting from its or its predecessors'
transportation and collection operations. Any adverse outcome in these
proceedings could have a material adverse effect on the Company's financial
condition or results of operations and may subject the Company to adverse
publicity. The Company may be subject to actions brought by individuals or
community groups in connection with the permitting or licensing of its
operations, any alleged violation of such permits or licenses or other matters.
See "Potential Environmental Liability" below and "Business -- Legal
Proceedings".
POTENTIAL ENVIRONMENTAL LIABILITY. The Company is with respect to its
existing business and will be with respect to any future landfill business
subject to liability for any environmental damage that its solid waste
facilities may cause to neighboring landowners, particularly as a result of the
contamination of drinking water sources or soil, including damage resulting from
conditions existing prior to the acquisition of such facilities by the Company.
The Company may also be subject to liability for any off-site environmental
contamination caused by pollutants or hazardous substances whose transportation,
treatment or disposal was arranged by the Company or its predecessors. Any
substantial liability for environmental damage incurred by the Company could
have a material adverse effect on the Company's financial condition and results
of operations. See "Business -- Regulation".
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("Superfund" or "CERCLA"), imposes strict, joint and several
liability on the present owners and operators of facilities from which a release
of hazardous substances into the environment has occurred, as well as any party
that owned or operated the facility at the time of disposal of the hazardous
substances regardless of when the hazardous substance was first detected.
Similar liability is imposed upon the generators of waste which contains
hazardous substances and upon hazardous substance transporters that select the
treatment, storage or disposal site. All such persons, who are referred to as
potentially responsible parties ("PRPs"), generally are jointly and severally
liable for the expense of waste site investigation, waste site cleanup costs and
natural resource damages, regardless of whether they exercised due care and
complied with all relevant laws and regulations. These costs can be very
substantial. Furthermore, such liability can be based upon the existence of even
very small amounts of the more than 700 "hazardous substances" listed by the EPA
and is not limited to the disposal of "hazardous wastes," as statutorily
defined. It is likely that hazardous substances have in the past come to be
located in landfills with which the Company has been associated. The Company
transported hazardous substances in the past and may do so in the future,
however, for the 12-month period ended December 31, 1996 and the three-month
period ended March 31, 1997, the Company transported no hazardous substances and
there were no revenues associated with any such transportation. If any of these
sites or operations ever experiences environmental problems, the Company could
be subject to substantial liability which could have a material adverse effect
on its financial condition and results of operations. See
"Business -- Regulation".
8
<PAGE>
With respect to each business that Waste Industries acquires, there may be
liabilities that the Company fails to or is unable to discover, including
liabilities arising from noncompliance with environmental laws by prior owners,
and for which the Company, as a successor owner, may be legally responsible.
Representations, warranties and indemnities from the sellers of such businesses,
if obtained and if legally enforceable, may not cover fully the resulting
environmental liabilities due to their limited scope, amount or duration, the
financial limitations of the warrantor or indemnitor or other reasons. Certain
environmental liabilities, even though expressly not assumed by the Company, may
nonetheless be imposed on the Company under certain legal theories of successor
liability, particularly under CERCLA. See "Business -- Acquisition Program".
POTENTIAL CLOSURE AND POST-CLOSURE COSTS. In the event that the Company
develops or acquires landfills, the Company will have material financial
obligations relating to closure and post-closure costs of disposal facilities
which it may operate in the future. The Company will provide accruals for future
obligations (generally for a term of 30 to 40 years after final closure of any
such landfill) based on engineering estimates of consumption of permitted
landfill airspace over the useful life of any such landfill. There can be no
assurance that the Company's ultimate financial obligations for actual closing
or post-closing costs will not exceed the amount accrued and reserved or amounts
otherwise receivable pursuant to insurance policies or trust funds. Such a
circumstance could have a material adverse effect on the Company's financial
condition and results of operation.
POTENTIAL UNINSURED RISKS. The Company's insurance program does not cover
liabilities associated with any environmental cleanup or remediation on the
Company's own sites. As a result, an uninsured claim against the Company, if
successful and of sufficient magnitude, could have a material adverse effect on
the Company's results of operations and financial condition. Any future
difficulty in obtaining insurance could also impair the Company's ability to
secure future contracts conditioned upon the contractor having adequate
insurance coverage. See "Business -- Risk Management, Insurance and Performance
Bonds".
Municipal solid waste collection contracts may require performance bonds or
other means of financial assurance to secure contractual performance. If the
Company were unable to obtain surety bonds or letters of credit in sufficient
amounts or at acceptable rates, it could be precluded from entering into
additional municipal solid waste collection contracts or obtaining or retaining
landfill operating permits. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Liquidity and Capital
Resources".
DEPENDENCE ON MANAGEMENT. The Company is highly dependent upon the services
of the members of its senior management team, the loss of any of whom may have
an adverse effect on the Company. The Company does not maintain key-man life
insurance with respect to any members of management. See
"Management -- Executive Officers and Directors".
CONTROL BY MANAGEMENT. Upon the completion of this offering, executive
officers and directors of the Company as a group will beneficially own
approximately 81.0% of the outstanding Common Stock. See "Principal and Selling
Shareholders". As a result, these existing shareholders, if acting together,
will be able to control the election of individuals to the Board of Directors
and the outcome of other matters submitted for shareholder consideration.
POTENTIAL ANTI-TAKEOVER PROVISIONS. The Company's Articles of Incorporation
authorize the Board of Directors to issue up to 10,000,000 shares of Preferred
Stock and to fix the rights and preferences thereof without shareholder
approval. Issuance of shares of Preferred Stock could have the effect of
delaying or preventing a change of control of the Company otherwise desired by
the shareholders.
The North Carolina Business Corporation Act contains a "Shareholder
Protection Act" which, with certain exceptions discussed below, requires
approval of certain business combinations between a North Carolina corporation
and any beneficial holder of more than 20% of the voting shares of the
corporation by the holders of at least 95% of the voting shares of the
corporation. Business combinations subject to this approval requirement include
any merger or consolidation of the corporation with or into any other
corporation, the sale or lease of all or any substantial part of the
corporation's assets, or any payment, sale or lease to the corporation or any
subsidiary thereof in exchange for securities of the corporation of any assets
(except assets having an aggregate fair market value of less than $5 million) of
any other entity. The principal exception to the special voting requirement
applies to business combinations that satisfy various complex statutory
provisions, including provisions relating to the fairness of the price and the
constituency of the Board of Directors. In addition, the special voting
requirement shall not be applicable to any corporation if (i) the corporation
was not a public corporation at the time such other entity acquired in excess of
10% of the voting shares; (ii) the corporation adopted an amendment to its
bylaws or provided in its original articles of incorporation providing that the
provisions shall not apply to it in accordance with the statute; or (iii) the
business combination in question was the subject of an existing agreement of the
corporation on April 23, 1987. In addition, corporations with fewer than 2,000
shareholders of record and those whose stock is not listed on a national
securities exchange are exempt from the special voting requirement. The Company
has not "opted out" of the Shareholder Protection Act.
9
<PAGE>
Certain North Carolina public corporations are also subject to "The North
Carolina Control Share Acquisition Act". This law provides that shares acquired
in a transaction that would cause the acquiring person's voting strength to meet
or exceed any of three thresholds (20%, 33.3% or a majority) of voting power
have no voting rights unless granted by a majority vote of all the outstanding
shares of the corporation (not including interested shares) entitled to vote for
the election of directors. "Interested shares" means the shares of a corporation
beneficially owned by (i) any person who has acquired or proposes to acquire
control shares in a control share acquisition; (ii) any officer of the
corporation; or (iii) any employee of the covered corporation who is also a
director of the corporation. This provision empowers an acquiring person to
require the North Carolina corporation to hold a special meeting of shareholders
to consider the matter within 50 days of its request. The Company has not "opted
out" of The North Carolina Control Share Acquisition Act.
The provisions of the Shareholder Protection Act and The North Carolina
Control Share Acquisition Act were designed to deter certain takeovers of North
Carolina corporations.
NO PRIOR PUBLIC MARKET; FLUCTUATIONS IN QUARTERLY RESULTS; POTENTIAL STOCK
PRICE VOLATILITY. Prior to this offering, there has been no public market for
the Company's Common Stock, and there can be no assurance that an active trading
market will develop or be sustained after completion of this offering. The
initial public offering price will be determined through negotiations between
the Company and the representatives of the Underwriters based on several factors
and may not be indicative of the market price of the Common Stock after
completion of this offering. See "Underwriting". The Company believes that
period-to-period comparisons of its operating results should not be relied upon
for an indication of future performance. Due to a variety of factors including
general economic conditions, governmental regulatory action, acquisitions,
capital expenditures and other costs related to the expansion of operations and
services and pricing changes, it is possible that in some future quarter, the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the Company's Common Stock price would
likely be materially affected. The market price of the shares of Common Stock
may be highly volatile and is likely to be affected by factors such as actual or
anticipated fluctuations in the Company's operating results, announcements of
new contracts by the Company, its competitors or their customers, government
regulatory action, general market conditions and other factors. In addition, the
stock market has from time-to-time experienced significant price and volume
fluctuations that have often been unrelated to the operating performance of
companies whose securities are publicly traded; yet, these broad market
fluctuations may also adversely affect the market price of the publicly traded
securities of such companies, including the Company's Common Stock. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been commenced against such
companies. There can be no assurance that such litigation will not occur in the
future with respect to the Company. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which could have
a material adverse effect on the Company's business, financial condition and
results of operations. Any adverse determination in such litigation could also
subject the Company to significant liabilities.
SHARES ELIGIBLE FOR FUTURE SALE. Sale of substantial amounts of the
Company's Common Stock in the public market following this offering, or the
perception that such sales could occur, could adversely affect prevailing market
prices of the Company's Common Stock. All of the shares offered hereby will be
freely saleable in the public market after completion of this offering, unless
acquired by affiliates of the Company. All of the shares outstanding prior to
completion of this offering are subject to contractual restrictions which
prohibit the shareholder from selling or otherwise disposing of such shares for
a period of 180 days after the date of this Prospectus without the consent of
Alex. Brown & Sons Incorporated. After this 180-day period expires, 519,252 of
the currently outstanding shares will be freely saleable in the public market
and 8,536,105 shares will be eligible for resale in the public market under Rule
144 promulgated under the Securities Act of 1933, as amended ("Securities Act").
See "Shares Eligible for Future Sale". Approximately 180 days after the
completion of this offering, the Company intends to file a registration
statement under the Securities Act to register up to 1,800,000 shares issuable
upon exercise of stock options or other awards granted or to be granted under
its stock plans. After the filing of such registration statement and subject to
certain restrictions under Rule 144, these shares will be freely saleable in the
public market immediately following exercise of such options. See "Description
of Capital Stock," "Management -- Executive Compensation; Stock Options" and
"Shares Eligible for Future Sale".
IMMEDIATE AND SUBSTANTIAL DILUTION. At an assumed initial public offering
price of $11.50 per share, purchasers of shares of Common Stock in this offering
will incur immediate and substantial dilution of $9.46 per share in the net
tangible book value of their purchased shares of Common Stock. See "Dilution".
Investors may also experience additional dilution as a result of shares of
Common Stock being issued for potential future business acquisitions and as a
result of the exercise of employee stock options. See "Shares Eligible for
Future Sale".
NO DIVIDENDS. The Company intends to retain all earnings for the
foreseeable future for use in the operation and expansion of its business.
Consequently, the Company does not anticipate paying any cash dividends on its
Common Stock for the foreseeable future. See "Dividend Policy and Prior S
Corporation Status".
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of its 1,605,200 shares of
Common Stock offered hereby, after deducting the underwriting discounts and
commissions and estimated offering expenses payable by the Company, are
estimated to be $16.8 million ($20.2 million if the Underwriters' overallotment
option is exercised in full). Approximately $13.4 million of the net proceeds to
the Company will be used to repay all of the Company's then outstanding
indebtedness under its $20.0 million revolving credit facility with Branch
Banking & Trust Co. ("BB&T"). The remainder of the net proceeds may be used for
potential future acquisitions, capital expenditures and working capital,
including $2.5 million designated for use in the siting, development and
construction of a land clearing and inert debris ("LCID") landfill. Pending
specific application of the net proceeds, the Company intends to invest unused
net proceeds in short-term interest-bearing securities.
After repayment of the BB&T revolving credit facility, the Company will be
able to redraw on the credit facility as needed for future potential
acquisitions and capital expenditures. The proceeds of the Company's revolving
credit facility were used primarily to refinance other debt and acquire related
businesses and will, in the future, be used to finance certain of the Company's
capital expenditures and acquisitions. The BB&T revolving credit facility had a
weighted average interest rate of approximately 7.308% at March 1, 1997, and
will mature on April 1, 2006. Although the Company regularly engages in
discussions relating to potential acquisitions, it is not currently a party to
any letters of intent with respect to any material pending acquisitions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
DIVIDEND POLICY AND PRIOR S CORPORATION STATUS
From 1986 until the Company's status as an S Corporation is terminated
prior to effectiveness of this offering, the Company was and will be subject to
taxation under Subchapter S of the Internal Revenue Code of 1986, as amended
(the "Code"). As a result, during that time the net income of the Company, for
federal and certain state income tax purposes, was and will be reported by and
taxable directly to the Company's shareholders, rather than to the Company.
Primarily to provide funds for tax obligations payable by its shareholders on
account of the Company's income in 1995, the Company made $3,119,702 of cash
distributions during 1996 to its shareholders. In connection with its conversion
from S Corporation to C Corporation status, the Company will effect an S
Corporation distribution (consisting of approximately $1.48 million in cash
payments) to the Company's S Corporation shareholders as soon as practicable
following completion of this offering (the "S Corporation Distribution").
Upon consummation of this offering, the Company does not intend to pay cash
dividends on the Common Stock for the foreseeable future as it intends to retain
all earnings for use in the operation and expansion of the Company's business.
The Company's credit facilities contain covenants which restrict the payment of
cash dividends.
11
<PAGE>
DILUTION
The Company's pro forma net tangible book value as of December 31, 1996 was
$6.2 million (excluding intangible assets totalling $3.7 million), or $0.64 per
share of Common Stock. Pro forma net tangible book value per share represents
the amount of the Company's total tangible assets less its total liabilities,
divided by the total number of shares of Common Stock outstanding after giving
effect to the assumption by the Company of a $4.3 million net deferred tax
liability as a result of terminating its S Corporation election concurrent with
the completion of this offering.
After giving effect to the sale by the Company of 1,605,200 shares of
Common Stock in this offering at the assumed initial public offering price of
$11.50 per share (and after deduction of the underwriting discounts and
commissions and estimated offering expenses), the pro forma net tangible book
value of the Common Stock as of December 31, 1996 would have been approximately
$22.9 million or $2.04 per share. This represents an immediate increase in pro
forma net tangible book value of $1.40 per share to existing shareholders and an
immediate dilution in net tangible book value of $9.46 per share to purchasers
of Common Stock in the offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................................................. $11.50
Pro forma net tangible book value per share at December 31, 1996.......................................... $0.64
Increase per share attributable to new investors.......................................................... 1.40
Pro forma net tangible book value per share after this offering............................................. 2.04
Net tangible book value dilution per share to new investors................................................. $ 9.46
</TABLE>
The following table sets forth, as of December 31, 1996, the difference
between existing shareholders and purchasers of shares in this offering with
respect to the number of shares purchased from the Company, before deduction of
the underwriting discounts and commissions and estimated offering expenses, the
total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders.......................................... 9,600,157 85.7% $ 3,192,171 14.7% $ 0.33
New investors.................................................. 1,605,200 14.3 18,459,800 85.3 $ 11.50
Total........................................................ 11,205,357 100.0% $21,651,971 100.0%
</TABLE>
As of March 31, 1997, the Company had outstanding stock options exercisable
for 526,000 shares of Common Stock at a weighted average exercise price of $5.10
per share. If these options are exercised, further dilution to new investors
will occur. The Company may also issue additional shares to effect future
potential business acquisitions or upon exercise of future stock option grants
or equity awards, which could also result in additional dilution to then
existing shareholders. See "Management -- Executive Compensation; Stock
Options".
12
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1996 the Company's (i)
actual current maturities of long-term debt and capitalization, (ii) pro forma
current maturities of long-term debt and capitalization after giving effect to
the assumption of a net deferred tax liability of $4.3 million as a result of
the Company terminating its S Corporation election concurrent with the
completion of this offering, and (iii) pro forma current maturities of long-term
debt and capitalization, as adjusted to give effect to the application of the
estimated net proceeds from the sale by the Company of 1,605,200 shares of
Common Stock offered by it hereby at the assumed initial public offering price
of $11.50 per share, after deducting the underwriting discounts and commissions
and estimated offering expenses. See "Description of Capital Stock" and "Use of
Proceeds".
<TABLE>
<CAPTION>
DECEMBER 31, 1996
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED(1)
<S> <C> <C> <C>
(IN THOUSANDS)
Current maturities of long-term debt................................................... $ 155 $ 155 $ 155
Long-term debt, net of current maturities.............................................. $33,070 $33,070 $ 16,352
Shareholders' equity:
Preferred Stock, $0.01 par value, 10,000,000 shares authorized, none outstanding,
actual, pro forma and pro forma as adjusted....................................... -- -- --
Common Stock, no par value, 80,000,000 shares authorized; 9,600,157 shares issued and
outstanding, actual and pro forma; 11,205,357 shares issued and outstanding, pro
forma as adjusted(2).............................................................. 92 92 16,810
Retained earnings.................................................................... 14,320 10,020 10,020
Shareholders' loans.................................................................. (241) (241) (241)
Total shareholders' equity...................................................... 14,171 9,871 26,589
Total capitalization......................................................... $47,241 $42,941 $ 42,941
</TABLE>
(1) Pro forma as adjusted information does not reflect the fact that the
Company's long-term debt, net of current maturities, balance at March 31,
1997 was $33.1 million, with $7.8 million outstanding under the Company's
revolving credit facility with BB&T. The application of the estimated net
proceeds from the sale by the Company of the 1,605,200 shares of Common
Stock offered by it hereby will be used to repay all of the Company's then
outstanding indebtedness under the BB&T facility.
(2) Excludes 526,000 shares issuable upon exercise of stock options outstanding
as of March 31, 1997 at a weighted average exercise price of $5.10 per
share. See "Management -- Executive Compensation; Stock Options".
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents selected consolidated statements of
operations, balance sheet and other operating data of the Company for the
periods and the dates indicated. The selected statements of operations and
balance sheet data, at or for each of the full fiscal years presented below,
were derived from the Company's consolidated financial statements, which have
been audited by Deloitte & Touche LLP, independent auditors. The selected
consolidated financial data below should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto at
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996 included elsewhere in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations". The
Company's audited consolidated financial statements at and for prior dates and
periods are not included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,(1)
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenues............................................................. $42,319 $49,467 $66,382 $82,305 $92,379
Cost of operations................................................... 23,770 27,869 37,853 50,395 59,337
Selling, general and administrative.................................. 10,563 12,102 15,143 15,467 16,329
Depreciation and amortization........................................ 5,450 6,150 7,615 8,217 8,471
Operating income..................................................... 2,536 3,346 5,771 8,226 8,242
Interest expense..................................................... (1,536) (1,625) (1,920) (2,122) (2,395)
Other income......................................................... 941 1,302 742 856 1,202
Income before income taxes........................................... 1,941 3,023 4,593 6,960 7,049
Pro forma income taxes(2)............................................ 770 1,230 1,865 2,790 2,845
Pro forma net income(2).............................................. $ 1,171 $ 1,793 $ 2,728 $ 4,170 $ 4,204
Pro forma earnings per share(2)...................................... $ 0.12 $ 0.19 $ 0.28 $ 0.43 $ 0.43
Weighted average shares outstanding.................................. 9,483 9,497 9,590 9,594 9,684
OTHER OPERATING DATA:
EBITDA(3)............................................................ $ 8,927 $10,798 $14,128 $17,299 $17,915
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents............................................ $ 1,026 $ 1,987 $ 2,039 $ 2,071 $ 1,803
Working capital (deficiency)......................................... (1,525) (2,779) (3,313) 1,801 1,601
Property and equipment, net.......................................... 25,694 31,184 33,295 33,742 39,842
Total assets......................................................... 34,920 45,404 48,836 50,673 59,068
Long-term debt, net of current maturities............................ 19,215 23,770 22,466 27,193 33,070
Shareholders' equity................................................. 6,569 8,996 12,579 13,559 14,171
</TABLE>
(1) Effective April 1, 1996, Waste Industries completed a corporate
reorganization in which Waste Enterprises, Inc., Waste Industries East,
Inc., Waste Industries South, Inc., Waste Industries West, Inc., KABCO,
Inc., Conway 378, Inc. and AmLease, Inc. were merged with and into Waste
Industries. Simultaneously, certain real estate properties previously leased
to Waste Industries by Property Management Group, a partnership of certain
shareholders of Waste Industries, were transferred to Waste Industries.
These transactions were accounted for at historical cost in a manner similar
to that in pooling of interests accounting. Accordingly, Waste Industries'
financial statements have been restated to include these accounts and
transactions for all periods presented.
(2) For each of the fiscal years presented, the Company was an S Corporation
and, accordingly, was not subject to federal and certain state corporate
income taxes. The pro forma information has been computed as if the Company
were subject to federal and all applicable state corporate income taxes for
each of the periods presented assuming the tax rate that would have applied
had the Company been taxed as a C Corporation. See "Dividend Policy and
Prior S Corporation Status" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
(3) EBITDA is defined as income before income taxes plus interest expense and
depreciation and amortization and is relevant to an understanding of the
Company's performance because it reflects the Company's ability to generate
cash flows sufficient to satisfy its debt service, capital expenditure and
working capital requirements. EBITDA should not be considered an alternative
to: (i) operating income (as determined in accordance with generally
accepted accounting principles) as an indicator of the Company's operating
performance; or (ii) cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) as a measure of
liquidity.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS
FACTORS, INCLUDING WITHOUT LIMITATION THOSE SET FORTH IN "RISK FACTORS" AND THE
MATTERS SET FORTH IN THIS PROSPECTUS GENERALLY.
OVERVIEW
Waste Industries was founded by members of the current senior management
team in 1970. The Company provides solid waste collection, transfer, recycling,
processing and disposal services to customers in North Carolina and South
Carolina and, to a limited extent, in Virginia. The Company's objective is to
build the premier regional solid waste services company in the Southeastern U.S.
by expanding its operations and capitalizing on its strong market presence.
From December 31, 1992 through December 31, 1996, Company revenues,
operating income and income before income taxes have increased at compounded
annual rates of 21.6%, 34.3% and 38.1%, respectively. The Company has acquired
17 solid waste collection operations since 1990. All of these acquisitions were
accounted for as purchases. Accordingly, the results of operations of these
acquired businesses have been included in the Company's financial statements
only from the respective dates of acquisition and have affected period-to-period
comparisons of the Company's operating results. The Company anticipates that a
substantial part of its future growth will come from acquiring additional solid
waste collection, transfer and disposal businesses and, therefore, it is
expected that additional acquisitions could continue to affect period-to-period
comparisons of the Company's operating results. In connection with the Company's
growth strategy, the Company has invested in collection vehicles and equipment,
in maintenance of existing equipment and in management information systems which
should enable the Company to expand internally and through acquisitions based
upon its existing infrastructure.
From 1986 until the Company's status as an S Corporation is terminated
prior to completion of this offering, the Company was and will be subject to
taxation under Subchapter S of the Internal Revenue Code of 1986, as amended
(the "Code"). As a result, during that time the net income of the Company, for
federal and certain state income tax purposes, was and will be reported by and
taxable directly to the Company's shareholders, rather than to the Company.
Primarily to provide funds for tax obligations payable by its shareholders on
account of the Company's income in 1995, the Company made $3,119,702 of cash
distributions during 1996 to its shareholders. In connection with its conversion
from S Corporation to C Corporation status, the Company will effect an S
Corporation Distribution (consisting of approximately $1.48 million in cash
payments) to the Company's S Corporation shareholders as soon as practicable
following completion of this offering.
The Company's S Corporation status will be terminated prior to completion
of this offering and, accordingly, the Company will become fully subject to
Federal and state income taxes on that date. In connection with the termination
of the Company's S Corporation status, the Company will distribute to its S
Corporation shareholders the Company's previously earned and undistributed
taxable S Corporation income through that date which approximates 54% of the
Company's income before income taxes. Purchasers of shares of Common Stock in
this offering will not be entitled to the S Corporation Distribution.
RESULTS OF OPERATIONS
GENERAL
The Company's 18 branch waste collection operations generate revenues from
fees collected from commercial, industrial and residential collection and
transfer station customers. The Company derives a substantial portion of its
collection revenues from commercial and industrial services which are performed
under one-year to five-year service agreements. The Company's residential
collection services are performed either on a subscription basis with individual
households, or under contracts with municipalities, apartment owners, homeowners
associations or mobile home park operators. Residential customers on a
subscription basis are billed quarterly in advance and provide the Company with
a stable source of revenues. A liability for future service is recorded upon
billing and revenues are recognized at the end of each month in which services
are actually provided. Municipal contracts in the Company's existing markets are
typically awarded, at least initially, on a competitive bid basis and thereafter
on a bid or negotiated basis and usually range in duration from one to five
years. Municipal contracts provide consistent cash flow during the term of the
contracts.
15
<PAGE>
The Company's prices for its solid waste services are typically determined
by the collection frequency and level of service, route density, volume, weight
and type of waste collected, type of equipment and containers furnished, the
distance to the disposal or processing facility, the cost of disposal or
processing, and prices charged in its markets for similar services. The
Company's ability to pass on price increases is sometimes limited by the terms
of its contracts. Long-term solid waste collection contracts typically contain a
formula, generally based on a predetermined published price index, for automatic
adjustment of fees to cover increases in some, but not all, operating costs.
The Company currently operates approximately 100 convenience sites under
contract with 15 counties in order to consolidate waste in rural areas. These
contracts, which are usually competitively bid, generally have terms of one to
five years and provide consistent cash flow during the term of the contract
since the Company is paid regularly by the local government. The Company also
operates four recycling processing facilities as part of its collection and
transfer operations where it collects, processes, sorts and recycles paper
products, aluminum and steel cans, pallets, certain plastics, glass, and certain
other items. The Company's recycling facilities generate revenues from the
collection, processing and resale of recycled commodities, particularly recycled
wastepaper. Through a centralized effort, the Company resells recycled
commodities using commercially reasonable practices and seeks to manage
commodity pricing risk by spreading the risk among its customers. The Company
also operates curbside residential recycling programs in connection with its
residential collection operations in most of the communities it serves.
Operating expenses for the Company's collection operations include labor,
fuel, equipment maintenance and tipping fees paid to landfills. The Company owns
or operates 11 transfer stations which reduce the Company's costs by improving
its utilization of collection personnel and equipment and by consolidating the
waste stream to gain more favorable disposal rates. The Company does not
currently own or operate any solid waste landfills. In the event that the
Company develops or acquires landfills, operating expenses for such landfill
operations may include labor, equipment, legal and administrative, ongoing
environmental compliance, royalties to former owners, host community fees, site
maintenance and accruals for closure and post-closure maintenance.
The Company capitalizes certain expenditures related to pending
acquisitions or development projects. Indirect acquisition and project
development costs, such as executive and corporate overhead, public relations
and other corporate services, are expensed as incurred. The Company's policy is
to charge against net income any unamortized capitalized expenditures and
advances (net of any portion thereof that the Company estimates to be
recoverable, through sale or otherwise) relating to any operation that is
permanently shut down, any pending acquisition that is not consummated and any
landfill development project that is not expected to be successfully completed.
Engineering, legal, permitting, construction and other costs directly associated
with the acquisition or development of a landfill, together with associated
interest, are capitalized. At December 31, 1996, the Company had recorded no
such capitalized costs. At March 31, 1997, the Company had recorded $62,253 of
capitalized land acquisition costs in connection with the development of a new
LCID landfill and $44,784 relating to pending acquisitions. Because it currently
does not own any landfills, the Company does not accrue for estimated landfill
closure and post-closure maintenance costs.
Selling, general and administrative ("SG&A") expenses include management
salaries, clerical and administrative overhead, professional services, costs
associated with the Company's marketing and sales force and community relations
expense.
Property and equipment is depreciated over the estimated useful life of the
assets using the straight line method. Upon receipt of all necessary operating
permits for landfills developed by the Company, capitalized costs would be
amortized based upon the available airspace under the units-of-production
method.
Other income and expense, which is comprised primarily of interest income
and gains and losses on sales of equipment, has not historically been material
to the Company's results of operations. Also included in other income and
expense are new equipment sales and related installation revenues from third
parties.
To date, inflation has not had a significant impact on the Company's
operations.
16
<PAGE>
The following table sets forth for the periods indicated the percentage of
revenues represented by the individual line items reflected in the Company's
statements of income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1994 1995 1996
Revenues............................................................... 100.0% 100.0% 100.0%
Cost of operations..................................................... 57.0 61.2 64.2
Selling, general and administrative.................................... 22.8 18.8 17.7
Depreciation and amortization.......................................... 11.5 10.0 9.2
Operating income....................................................... 8.7 10.0 8.9
Interest expense....................................................... (2.9) (2.6) (2.6)
Other income........................................................... 1.1 1.0 1.3
Income before income taxes............................................. 6.9% 8.4% 7.6%
</TABLE>
1996 VS. 1995
REVENUES. Revenues increased $10.1 million, or 12.2%, to $92.4 million in
1996 from $82.3 million in 1995. This increase was attributable to the following
two factors: (i) increased collection volumes resulting from new municipal and
commercial contracts and residential subscriptions; and (ii) to a lesser extent,
the effect of a full year of revenues from the three businesses acquired in
1995, as well as a partial year of results from four businesses acquired in
1996. The effect of these revenue increases was partially offset by a decrease
in revenue from sales of recyclable commodities. This decrease was due to a
significant decrease in the weighted average price received by the Company for
recyclable commodities, primarily corrugated and newsprint materials, causing an
approximate 2% decrease in 1996 revenue growth from commodity sales. Price
increases in 1996 for the Company's solid waste collection and disposal services
did not contribute materially to increased 1996 revenues.
COST OF OPERATIONS. Cost of operations increased $8.9 million to $59.3
million in 1996 from $50.4 million in 1995. The principal reason for the
increase was the addition of new customers and contracts during the year,
including those from the acquisition of new businesses acquired during 1995 and
1996. Cost of operations as a percentage of revenues increased to 64.2% in 1996
from 61.2% in 1995. This increase was the result of: (i) proportionately more
growth in lower margin services; (ii) lower margins in recycling services as a
result of the decline in the weighted average prices of commodities; and (iii)
an increase in waste stream processing and disposal costs.
SG&A. SG&A expenses increased approximately $800,000 to $16.3 million in
1996 from $15.5 million in 1995. As a percentage of revenues, SG&A decreased to
17.7% in 1996 from 18.8% in 1995 due to improved economies of scale in the
Company's collection operations as a result of additional collection volumes
from new customer contracts and acquisitions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
approximately $300,000 to $8.5 million in 1996 from $8.2 million for the prior
year. The principal reason for the increase was depreciation of the additional
property and equipment acquired and put into service due to higher collection
volumes and depreciation of the additional assets of businesses acquired during
1995 and 1996. Depreciation and amortization, as a percentage of revenues,
decreased to 9.2% in 1996 from 10.0% in 1995, primarily as a result of increased
revenues.
INTEREST EXPENSE. Interest expense increased approximately $300,000 to $2.4
million in 1996 from $2.1 million in 1995. This increase was due to the higher
level of average annual outstanding indebtedness and an increase in the
Company's interest rates on outstanding borrowings. Interest expense as a
percentage of revenues remained relatively constant at 2.6% for both 1996 and
1995.
1995 VS. 1994
REVENUES. Revenues increased $15.9 million, or 24.0%, to $82.3 million in
1995 from $66.4 million in 1994. This increase was attributable primarily to the
following factors: (i) the impact of increased collection volumes resulting from
new municipal and commercial contracts and residential subscriptions; (ii) the
effect of a full year of revenues from the three businesses acquired in 1994, as
well as a partial year of results from three businesses acquired in 1995; and
(iii) an increase in the volumes and a significant increase in prices received
for recyclable commodities, primarily corrugated and newsprint materials. Price
increases in 1995 for the Company's services and products did not contribute
materially to increased 1995 revenues.
17
<PAGE>
COST OF OPERATIONS. Cost of operations increased $12.5 million to $50.4
million in 1995 from $37.9 million in 1994. The principal reason for the
increase was the addition of new customers and contracts during the year,
including those from the acquisition of businesses acquired during 1994 and
1995. Cost of operations as a percentage of revenues increased to 61.2% in 1995
from 57.0% in 1994. This increase was the result of proportionately more growth
in lower margin services and an increase in the waste stream processing and
disposal costs.
SG&A. SG&A expenses increased approximately $400,000 to $15.5 million in
1995 from $15.1 million in 1994. As a percentage of revenues, SG&A improved to
18.8% in 1995 from 22.8% in 1994. The improvement was due to improved economies
of scale in the Company's collection operations as a result of additional
collection volumes from new customer contracts and acquisitions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
approximately $600,000 to $8.2 million in 1995 from $7.6 million in 1994. The
principal reason for the increase was depreciation of additional property and
equipment acquired and put into service due to higher collection volumes and
depreciation of the additional assets of businesses acquired during 1994 and
1995. Depreciation and amortization decreased as a percentage of revenues to
10.0% in 1995 from 11.5% in 1994 primarily as a result of increase revenues.
INTEREST EXPENSE. Interest expense increased approximately $200,000 to $2.1
million in 1995 from $1.9 million in 1994. The principal reason for the increase
in 1995 was an increase in the Company's interest rates on outstanding
borrowings. Interest expense as a percentage of revenues decreased to 2.6% in
1995 from 2.9% in 1994, primarily as a result of increased revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at December 31, 1996 was $1.6 million
compared to $1.8 million at December 31, 1995. The Company's strategy in
managing its working capital has been to apply the cash generated from its
operations which remains available after satisfying its working capital and
capital expenditure requirements to reduce its indebtedness under its bank
revolving credit facility and to minimize its cash balances. The Company
finances its working capital requirements from internally generated funds and
bank borrowings. In addition to internally generated funds, the Company has in
place financing arrangements to satisfy its currently anticipated working
capital needs in 1997. The Company has an established revolving credit facility
with BB&T allowing the Company to borrow up to $20 million for acquisitions and
capital expenditures and $5 million for working capital. In addition, the
Company has established a term loan facility with Prudential Insurance Company
of America ("Prudential") under which the Company has an uncommitted shelf
facility of $25 million as of March 31, 1997. Both of the BB&T and the
Prudential credit facilities require the Company to maintain certain financial
ratios and satisfy other predetermined requirements. Interest on the BB&T
facility is payable monthly based on an adjusting spread to LIBOR. Interest on
the Prudential facility is paid quarterly, based on a fixed rate of 7.28% The
weighted average interest rate on outstanding borrowings under the BB&T facility
was 7.308% at March 1, 1997. Of the Company's $50 million in committed
facilities, $45 million mature on April 1, 2006, with the remainder maturing on
April 1, 1998, subject to renewal.
Net cash provided by operations in 1996 decreased to $14.9 million from
$15.8 million during 1995. This decrease in 1996 compared to 1995 includes the
approximately $100,000 increase in income before income taxes. Depreciation and
amortization increased approximately $300,000 in 1996 from 1995. Net cash
provided by operations in 1995 increased to $15.8 million from $12.9 million in
1994. This increase in 1995 from the prior year includes the $2.4 million
increase in income before income taxes. Depreciation and amortization increased
approximately $600,000 in 1995 from 1994.
Net cash used in investing activities totaled $14.8 million for 1996
compared to $8.6 million in the prior year. This increase in 1996 compared to
1995 was caused principally by the $6.3 million increase in the amount of
capital expenditures for property and equipment acquired and put into service
due to higher collection volumes and, to a lesser extent, due to the facts that
(i) proceeds from sale of property and equipment decreased approximately
$500,000, (ii) cash used for acquisitions of related businesses decreased $1.4
million, (iii) the Company incurred debt issuance costs of approximately
$600,000 related to its new credit facilities, and (iv) in 1996 the Company
discontinued acquiring equipment through an operating lease. Net cash used in
investing activity totaled $8.6 million in 1995 compared to $11.4 million in
1994. The reduction in 1995 was caused principally by the Company entering into
an operating lease for the acquisition of approximately $3.8 million for
equipment due to favorable lease terms.
Capital expenditures for 1997 are currently expected to be approximately
$17.1 million, compared to $14.4 million in 1996 and $8.1 million in 1995. In
1997, approximately $13.0 million is expected to be utilized for vehicle and
equipment
18
<PAGE>
additions and replacements, approximately $2.5 million for construction of a new
LCID landfill site and approximately $1.6 million for expansion of transfer
station services. The Company intends to fund its planned 1997 capital
expenditures principally through internally generated funds, proceeds of this
offering and borrowings under existing credit facilities. In addition, the
Company anticipates that it may require substantial additional capital
expenditures to facilitate its growth strategy of acquiring solid waste
collection and disposal businesses. If the Company is successful in acquiring
landfill disposal facilities, the Company may also be required to make
significant expenditures to bring any such newly acquired disposal facilities
into compliance with applicable regulatory requirements, obtain permits for any
such newly acquired disposal facilities or expand the available disposal
capacity at any such newly acquired disposal facilities. The amount of these
expenditures cannot be currently determined, since they will depend on the
nature and extent of any acquired landfill disposal facilities, the condition of
any facilities acquired and the permitting status of any acquired sites.
Net cash used in financing activities for 1996 was approximately $400,000,
compared to net cash used in financing activities of $7.2 million for 1995. The
difference between the 1996 and 1995 amounts was attributable to: (i) the
Company's increased level of borrowings on bank notes payable to $32.8 million
in 1996 from $28.2 million in 1995; (ii) distributions to shareholders and
affiliates of $4.9 million in 1996 compared to distributions of $6.8 million in
1995; and (iii) the discontinuance of acquiring equipment through operating
leases which accounted for approximately $3.8 million in 1995. Net cash used in
financing activities in 1995 was $7.2 million compared to $1.4 million in 1994.
The difference between the 1995 and 1994 amounts was attributable to: (i)
distributions to shareholders and affiliates of $6.8 million in 1995 compared to
net distributions of $1.2 million in 1994; and (ii) the Company entering into an
operating lease for the acquisition of approximately $3.8 million of equipment
in 1995, an increase of $3.8 million over 1994.
At December 31, 1996, the Company had approximately $33.2 million of
long-term and short-term borrowings outstanding and approximately $1.0 million
in letters of credit. At December 31, 1996, the ratio of the Company's long-term
debt to total capitalization was 70.0% compared to 66.7% at December 31, 1995.
Since the Company intends to use the net proceeds from its sale of shares in
this offering to repay all outstanding amounts under the BB&T revolving credit
facility, it will then have available substantially all of the $25 million
borrowing capacity under such facility. In the past, the Company has been able
to obtain other types of financing arrangements to fund its various capital
requirements. The Company believes it can readily access such additional sources
of financing as necessary to facilitate the Company's growth.
19
<PAGE>
QUARTERLY RESULTS
The following table presents the Company's unaudited consolidated quarterly
results and the percentages of revenues represented by the individual line items
reflected in the Company's consolidated statements of operations for each of the
four quarters in the year ended December 31, 1996. This information has been
presented on the same basis as the Company's audited consolidated financial
statements appearing elsewhere in this Prospectus and, in the Company's opinion,
contains all necessary adjustments (consisting only of normal recurring
adjustments) to present fairly the Company's unaudited quarterly results when
read in conjunction with the Company's audited financial statements and notes
thereto. Interim operating results, however, are not necessarily indicative of
the Company's results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
MARCH 31, 1996 JUNE 30, 1996 1996 DECEMBER 31, 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues............................... $20,466 100.0% $22,609 100.0% $24,777 100.0% $24,527 100.0%
Cost of operations..................... 13,105 64.0 14,298 63.2 16,142 65.1 15,792 64.4
Selling, general and administrative.... 3,606 17.6 3,935 17.4 4,442 17.9 4,346 17.7
Depreciation and amortization.......... 1,982 9.7 2,113 9.3 2,174 8.8 2,202 9.0
Operating income....................... 1,773 8.7 2,263 10.1 2,019 8.2 2,187 8.9
Interest expense....................... (497) (2.4) (650) (2.9) (626) (2.5) (622) (2.5)
Other income........................... 272 1.3 242 1.1 383 1.5 305 1.2
Income before income taxes............. 1,548 7.6 1,855 8.3 1,776 7.2 1,870 7.6
Pro forma income taxes(1).............. 625 3.1 749 3.4 717 2.9 754 3.1
Pro forma net income(1)................ $ 923 4.5% $ 1,106 4.9% $ 1,059 4.3% $ 1,116 4.5%
Pro forma earnings per share(1)........ $ 0.10 $ 0.11 $ 0.11 $ 0.11
</TABLE>
(1) For each of the fiscal years presented, the Company was an S Corporation
and, accordingly, was not subject to federal and certain state corporate
income taxes. The pro forma information has been computed as if the Company
were subject to federal and all applicable state corporate income taxes for
each of the periods presented assuming the tax rate that would have applied
had the Company been taxed as a C Corporation. See "Dividend Policy and
Prior S Corporation Status" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
SEASONALITY
The Company's results of operations tend to vary seasonally, with the first
quarter typically generating the least amount of revenues, higher revenues in
the second and third quarters, and a decline in the fourth quarter. This
seasonality reflects the lower volume of waste during the fall and winter
months. Also, certain operating and fixed costs remain relatively constant
throughout the calendar year, which when offset by these revenues results in a
similar seasonality of operating income.
20
<PAGE>
BUSINESS
INTRODUCTION
Waste Industries is a regional solid waste services company providing solid
waste collection, transfer, recycling, processing and disposal services to
customers in North Carolina and South Carolina and, to a limited extent, in
Virginia. Based on its estimates of landfill disposal tonnage, the Company
believes that it controls an average of approximately 29% of the waste stream in
the markets it serves and an average of approximately 13% of the total waste
stream in North Carolina and South Carolina. The Company's principal operations
consist of 18 branch collection operations, 11 transfer stations, and four
recycling processing centers that serve over 144,000 municipal, residential,
commercial and industrial locations.
Members of the senior management team founded Waste Industries in 1970 and
are recognized for their leadership roles throughout the solid waste management
industry and trade organizations. The Company's management team collectively has
over 240 years of experience in the solid waste industry and over 140 years with
the Company.
INDUSTRY OVERVIEW
According to the Environmental Business Journal, an industry trade
publication (the "EBJ"), the U.S. nonhazardous solid waste collection and
disposal industry generated estimated revenues of approximately $32.5 billion in
1995. The EBJ also reports that 21% of the solid waste industry revenue is
accounted for by approximately 5,900 private, predominately small, collection
and disposal businesses; 31% by municipal governments that provide collection
and disposal services; and 48% by publicly-traded solid waste companies.
In recent years, the solid waste collection and disposal industry has
undergone a period of significant consolidation and integration. The Company
believes that this consolidation and integration has been caused primarily by:
(i) increasingly stringent environmental regulation and enforcement resulting in
increased capital requirements for collection companies and landfill operators;
(ii) the ability of larger integrated operators to achieve certain economies of
scale; (iii) the evolution of an industry competitive model which emphasizes
providing both collection and disposal/recycling capabilities; and (iv) the
continued privatization of solid waste collection and disposal services by
municipalities and other governmental bodies and authorities. Despite the
considerable consolidation and integration that has occurred in the solid waste
industry in recent years, the Company believes the industry remains primarily
regional in nature and highly fragmented.
The increasingly stringent industry regulations, such as the Subtitle D
Regulations, have resulted in rising operating and capital costs and have caused
consolidation and acquisition activities to accelerate in the solid waste
collection and disposal industry. Many of the smaller industry participants have
found these costs difficult to bear and have decided to either close their
operations or sell them to larger operators. In addition, Subtitle D requires
more stringent engineering of solid waste landfills including liners, leachate
collection and monitoring and gas collection and monitoring. These on-going
costs are coupled with increased financial reserves from solid waste landfill
operators for closure and post-closure monitoring. As a result, the number of
solid waste landfills is declining while the size of solid waste landfills is
increasing. For example, in 1991 North Carolina had 124 municipal solid waste
landfill sites with a total capacity of less than five years, and in 1995 North
Carolina had 69 municipal solid waste landfill sites with a total capacity of
more than 10 years.
Larger integrated operators achieve economies of scale in the solid waste
collection and disposal industry through vertical integration of their
operations. These integrated companies have increased their acquisition activity
levels to expand the breadth of services and density in their market area.
Control of the waste stream in these market areas coupled with access to
significant financial resources to make acquisitions has given larger solid
waste collection and disposal companies the ability to be more cost effective
and competitive.
The evolution of the industry competitive model is forcing remaining
operators to become more efficient by establishing an integrated network of
solid waste collection operations and transfer stations through which they
secure solid waste streams for disposal. These remaining operators have dealt
with disposal issues by a variety of methods which include owning landfills,
establishing strategic relationships to secure access to landfills, or by
otherwise capturing significant waste stream volumes to gain leverage in
negotiating lower landfill fees and securing long-term contracts with high
capacity landfills on most favored pricing status terms.
In the Southeastern U.S. solid waste market, city and county governments
have historically provided a variety of solid waste services using their own
personnel. Over time, many municipalities have opted to privatize or contract
out their collection and disposal services to the private sector. Landfills,
transfer stations and incinerators located in the Company's market area are
predominantly municipally owned. The Southeastern market is currently undergoing
significant economic and population growth. Certain of the states in the
Southeastern U.S. exceed the national average in terms of economic growth as
21
<PAGE>
measured by gains in jobs, personal income and population. For example,
according to Moody's Investors Service, between 1990 and 1995, nonfarm jobs rose
an average of 2.1% per year in North Carolina compared to 1.4% for the U.S.; in
1995, North Carolina's personal income per capita grew 5.8%, the tenth largest
gain among states, and grew 6.9% in 1996; and North Carolina's population grew
10.4% between 1990 and 1996 compared to 6.7% for the U.S.
There is an increasing trend at the state and local levels to encourage
waste reduction at the source and to prohibit the disposal of certain types of
wastes, such as yard wastes and recyclable materials, at landfills. For example,
North Carolina, South Carolina and Virginia have each established the goal of
reducing by 25% the solid waste disposed of in their respective landfills. The
Company believes that these trends and laws have created significant
opportunities for solid waste services companies to provide additional recycling
services to generators of solid waste who are not otherwise able to dispose of
such waste.
STRATEGY
The Company's objective is to build the premier solid waste services
company in the Southeastern U.S. by expanding its operations and capitalizing on
its strong market presence. The Company's strategy for achieving this objective
is: (i) to generate internal growth by adding customers and services to its
existing operations; (ii) to acquire solid waste collection companies, customers
and, under appropriate circumstances, landfills in existing and new areas of its
target market; and (iii) to increase operating efficiencies and enhance
profitability in its existing and acquired operations. The Company's ability to
implement this strategy is enhanced by the experience of its senior management
team and their knowledge of and reputation in the solid waste industry. The
Company intends to implement this strategy as follows:
INTERNAL GROWTH
In order to continue to achieve strong internal growth, the Company will
focus on increasing sales penetration in current and adjacent market areas,
marketing additional services to existing customers and implementing selective
price increases. Current levels of population growth and economic development in
the Southeastern U.S. and the strong market presence should provide an
opportunity for the Company to increase revenues and market share in its region.
As customers are added in existing markets, the Company's density is improved,
which should increase the Company's collection efficiencies and profitability.
The Company has a 24-person sales force dedicated to maintaining and increasing
the Company's sales to new and existing commercial, industrial, municipal and
residential customers.
An important part of the Company's internal growth strategy is to establish
transfer stations strategically located throughout its geographic area to
improve the Company's consolidation of collected solid waste and permit the
Company to deliver the collected solid waste to landfills where the Company has
negotiated favorable volume rates with landfill operators. The Company currently
operates 11 transfer stations, two of which it owns. By operating transfer
stations, the Company engages in direct communication with municipalities
regarding waste disposal services, better positioning the Company to gain
additional business in its markets in the event any of these municipalities
privatize their solid waste operations.
EXPANSION THROUGH ACQUISITIONS
The Company's strategy for growth includes: (i) "tuck-in" and other
acquisitions of solid waste collection companies and customers in existing and
adjacent markets; (ii) the acquisition of solid waste collection companies and
customers in new markets; and (iii) the acquisition of landfills in certain
circumstances. The Company seeks to acquire companies with a significant market
presence, high service standards and an experienced management team willing to
remain with the Company.
The Company believes that numerous "tuck-in" acquisition opportunities
exist within its current market area. A "tuck-in" acquisition refers to an
acquisition in which the Company acquires a solid waste collection company, a
division of a company, or certain customers of a company located in the
Company's existing market area and integrates the acquired operations or
customers into the operations of one of the Company's existing branch
facilities. These acquisitions have become an integral part of the industry
competitive model due to the efficiencies involved. Company surveys indicate
that more than 150 entities provide collection services in North Carolina and
South Carolina, and many of these entities are suitable for acquisition by the
Company. Such acquisitions, if consummated, provide the Company opportunities to
improve market share and route density.
As the Company enters new markets through acquisitions, it intends to
continue to implement a regional expansion strategy. The regional expansion
strategy provides the Company with a base of operations to grow internally
through price
22
<PAGE>
increases, providing additional services to existing customers, adding new
private and public customers and tuck-in acquisitions. The Company can then
expand its presence in the targeted region by adding solid waste collection and
transfer operations in regional markets adjacent to or contiguous with the new
location.
The Company is currently examining opportunities to expand its presence in
areas of the Southeastern U.S. other than North Carolina and South Carolina. The
Company is analyzing potential acquisitions of solid waste services operations
in Mississippi, North Carolina, South Carolina, Tennessee and Virginia.
While the Company does not currently operate any solid waste landfills, the
Company is actively engaged in identifying solid waste landfill acquisition
candidates in the Southeast. The Company believes that the successful
acquisition of landfills would provide the Company with opportunities to
integrate vertically its collection, transfer and disposal operations while
improving operating margins. Although the Company is actively engaged in
identifying these candidates, the number of candidates is limited in the
Company's current market area. Generally, the Company will evaluate a landfill
target by determining, among other things, whether access to the landfill is
economically feasible from its existing market areas either directly or through
strategically located transfer stations, expected landfill life, the potential
for landfill expansion, and current disposal costs compared with the cost to
acquire the landfill. In addition, where the acquisition of a landfill site is
either not available or not economically feasible, the Company seeks to enter
into long-term disposal contracts with facilities which are located in proximity
to its market areas.
OPERATING ENHANCEMENTS
The Company has implemented advanced management information systems,
financial controls, shared support services and benchmarking systems designed to
improve productivity, efficiency and profitability of its existing and acquired
operations. Each branch facility has on-line real time access to the Company's
financial, operating, cost and customer information. This access enables the
Company's managers to evaluate continuously the Company's performance record and
to establish benchmarks in all phases of the Company's operations. Management
utilizes these systems to: improve collection and transportation efficiencies;
enhance equipment and personnel utilization; reduce equipment acquisition and
maintenance costs; reduce disposal costs by maximizing waste streams directed to
lower cost landfills; timely monitor and collect customer accounts; and provide
current information to the Company's sales force to ensure properly structured
pricing for new customers.
Through the utilization of its systems and controls, the Company will
continue to manage its landfill disposal costs and to negotiate long-term
disposal contracts with Subtitle D landfill operators. In addition, the Company
has developed an extensive network of transfer stations which it uses to
consolidate waste streams to gain greater leverage in negotiating landfill
disposal fees. Management believes the anticipated closing of landfills in North
Carolina will provide opportunities to open more transfer stations and to gain
greater volumes of the waste stream, further enhancing the Company's negotiating
position. Currently, approximately 26% of the Company's waste volume is directed
through Company owned or operated transfer stations.
ACQUISITION PROGRAM
The Company has acquired 17 solid waste companies since 1990. The Company
believes that its reputation, decentralized management strategy and culture make
it an attractive buyer to certain solid waste collection and disposal
acquisition candidates. The Company has developed a set of financial, geographic
and management criteria designed to assist management in the evaluation of
acquisition candidates engaged in solid waste collection and disposal. These
criteria evaluate a variety of factors, including, but not limited to: (i)
historical and projected financial performance; (ii) internal rate of return,
return on assets and return on revenue; (iii) experience and reputation of the
candidate's management and customer service reputation and relationships with
the local communities; (iv) composition and size of the candidate's customer
base; (v) whether the geographic location of the candidate will enhance or
expand the Company's market area or ability to attract other acquisition
candidates; (vi) whether the acquisition will augment or increase the Company's
market share or help protect the Company's existing customer base; (vii) any
synergies gained by combining the acquisition candidate with the Company's
existing operations; and (viii) liabilities of the candidate.
Management of the Company has a proven track record in the integration of
collection company acquisitions. The Company has an established integration
procedure for newly acquired companies designed to effect a prompt and efficient
integration of the acquired business while minimizing disruption to the ongoing
business of the Company and the acquired business. Once a solid waste collection
operation is acquired, programs designed to improve collection and disposal
routing,
23
<PAGE>
equipment maintenance and utilization, employee productivity, operating
efficiencies and overall profitability are implemented. To improve an acquired
business' operational productivity, administrative efficiency and profitability,
the Company applies the same benchmarking programs and systems to the acquired
business as are employed at the Company's existing operations. The Company also
solicits new commercial, industrial and residential customers in areas within
and surrounding the markets served by the acquired collection operations as a
means of further improving operating efficiencies and increasing the volumes of
solid waste collected by the acquired operation. The Company typically attempts
to retain the acquired company's management and key employees and to
decentralize operations, while consolidating administrative and management
information systems through the Company's corporate offices.
Prior to completing an acquisition, Waste Industries performs extensive
environmental, operational, engineering, legal, human resource and financial due
diligence. All acquisitions are subject to initial evaluation and approval by
the Company's management before being recommended to the Board of Directors.
The following table sets forth the Company's acquisitions completed since
1990:
<TABLE>
<CAPTION>
YEAR
COMPANY ACQUIRED PRINCIPAL BUSINESS LOCATION MARKET AREA
<S> <C> <C> <C> <C>
BFI Raleigh-Durham 1997 Residential Collection Raleigh, NC Wake and Durham
Counties, NC
Wayco Sanitation, Inc. 1996 Residential Collection Goldsboro, NC Wayne County, NC
QA Refuse Systems, Inc. 1996 Residential Collection Wilson, NC Wilson County, NC
Asi Sanitation 1996 Residential Collection Henderson, NC Vance County, NC
Bruce Kessler 1996 Residential Collection Wake Forest, NC Wake and Franklin
Counties, NC
A Windfish Disposal Co. 1995 Commercial, Industrial Hampstead, NC Coastal Southeastern, NC
and Residential
Collection
F & M Sanitation Services, Inc. 1995 Commercial and Louisburg, NC Franklin County, NC
Residential Collection
Shaw Sanitation Services 1995 Residential Collection Raleigh, NC Wake County, NC
A-OK Home Services, Inc. 1994 Residential Collection Chapel Hill, NC Orange and Durham
Counties, NC
Kerr Lake Area Sanitation, Inc. 1994 Residential Collection Wake Forest, NC Vance and Wake Counties,
NC
Sunshine Sanitation Service -- 1994 Residential Collection Raleigh, NC Wake County, NC
East Wake Division
Chambers Development 1993 Commercial, Industrial Conway, SC Horry County, SC
Company -- Myrtle Beach-Conway and Residential
Collection
Commercial Trash Container Service 1991 Container Rental Haw River, NC Alamance County, NC
Thomas Sanitation, Inc. 1991 Commercial and Clinton, NC Sampson County, NC
Industrial Collection
Dependable Sanitation Services, Inc. 1990 Commercial and Goldsboro, NC Wayne County, NC
Industrial Collection
Clean Sweep, Inc. 1990 Commercial and Elizabeth City, NC Pasquotank County, NC
Industrial Collection
Joyner Services, Inc. 1990 Commercial and Fayetteville, NC Cumberland County, NC
Industrial Collection
</TABLE>
24
<PAGE>
CONTRACTS PROGRAM
The Company devotes significant resources to securing large contracts from
municipal and other governmental agencies and has been awarded approximately 68
contracts since 1992. The Company believes that opportunities for gaining larger
contracts are increasing due to trends among municipalities to privatize or
outsource solid waste services. In most cases, only larger disposal services
companies such as the Company are financially acceptable to the municipality.
Historically, in the Southeastern U.S., city and county governments have
provided a variety of solid waste services using their own personnel. Over time,
many municipalities have opted to privatize or contract out their collection and
disposal services to the private sector. Typically, these contracts are
competitively bid and have initial terms of one to five years. In bidding for
large contracts, the Company's management team draws on its experience in the
waste industry and its knowledge of local service areas in existing and target
markets. The Company engages in extensive due diligence using its advanced
management information systems and productivity and cost modeling analyses to
respond to requests for proposals to provide services. The Company's reputation
for service in the municipal market is one of its strongest marketing tools for
contract maintenance. The Company's regional managers are responsible for
managing the relationships with local governmental officials within their
respective service area and sales representatives may be assigned specific
municipalities for coverage. The Company may be required to bid for renewal of a
contract previously awarded to the Company, or in certain cases to renegotiate
the contract as a result of changed market conditions. Since 1992, the Company
has been successful in retaining more than 98% of its major contracts at the
time of renewal.
SERVICES
The Company believes that, based on its estimates of landfill tonnage, it
has an average market share of 29% in the specific markets which it serves and
13% market share in all markets located in North Carolina and South Carolina.
The Company serves over 144,000 commercial, industrial and residential service
locations.
COMMERCIAL, INDUSTRIAL AND RESIDENTIAL WASTE SERVICES
The Company's commercial and industrial collection and disposal services
are performed under one-year to five-year service agreements, and fees are
determined by such factors as collection frequency, level of service, route
density, the type, volume and weight of the waste collected, type of equipment
and containers furnished, the distance to the disposal or processing facility,
the cost of disposal or processing and prices charged in its markets for similar
service. Collection of larger volumes associated with commercial and industrial
waste streams generally helps improve the Company's operating efficiencies and,
through consolidation of these volumes, enables the Company to negotiate more
favorable disposal prices. The Company's commercial and industrial customers
utilize portable containers for storage thereby enabling the Company to service
many customers with fewer collection vehicles. Commercial and industrial
collection vehicles normally require one operator. The Company provides two to
eight cubic yard containers to commercial customers and 10 to 42 cubic yard
containers to industrial customers. Stationary compactors that compact waste
prior to collection are installed on the premises of a substantial number of
large volume customers. No single commercial or industrial contract is
individually material to the Company's results of operations.
The Company's residential solid waste collection and disposal services are
performed either on a subscription basis with individual households, or under
contracts with municipalities, homeowners associations, apartment owners or
mobile home park operators. Municipal contracts grant the Company the right to
service all or a portion of the residences in a specified community or to
provide a central repository for residential waste drop-off. The Company had 103
municipal contracts in place as of March 31, 1997. No single municipal or other
residential contract is individually material to the Company's results of
operations. Municipal contracts in the Company's market areas are typically
awarded on a competitive bid basis and thereafter on a bid or negotiated basis
and usually range in duration from one to five years. Residential contract fees
are based primarily on route density, the frequency and level of service, the
distance to the disposal or processing facility, the cost of disposal or
processing and prices charged in its markets for similar service. Municipal
collection fees are paid either by the municipalities from tax revenues or
through direct service charges to the residents receiving the service.
TRANSFER STATION SERVICES
The 11 transfer stations operated by the Company receive, compact and
transfer solid waste to larger Company-owned vehicles for transport to
landfills. The Company believes that transfer stations benefit the Company by:
(i) providing access to multiple landfills; (ii) improving utilization of
collection personnel and equipment; (iii) concentrating the waste stream to gain
leverage in negotiating for more favorable disposal rates; and (iv) building
relationships with municipalities that can lead to opportunities for additional
business in the future. The Company intends to develop, own and operate three
new
25
<PAGE>
transfer stations during 1997. Depending on the location, size and local
regulatory environment, transfer stations can be constructed for as little as
$150,000 for a small rural facility or as much as $1.0 million for larger sites.
The Company believes that it has obtained all permits and authorizations
necessary to operate its existing transfer stations and that each of its
existing transfer stations has been operated in compliance in all material
respects with applicable environmental regulations.
The Company operates 11 of the 29 transfer stations existing in North
Carolina and South Carolina. The Company owns two of the transfer stations it
operates. Approximately 60% of waste directed to the transfer stations operated
by the Company is delivered by third parties. Control of these third party waste
streams coupled with the Company's waste stream adds to the bargaining power
exerted by the Company in its negotiations for favorable solid waste disposal
rates with landfill operators.
RECYCLING SERVICES
Recycling involves the removal of reusable materials from the waste stream
for processing and sale in various applications. The Company believes that
recycling will continue to be an important component of local and state solid
waste management plans as a result of the public's increasing environmental
awareness and expanding regulations mandating or encouraging waste recycling.
The Company offers commercial, industrial and residential customers recycling
for office paper, cardboard, newspaper, aluminum and steel cans, plastic, glass,
pallets and yard waste. The Company operates approximately 100 convenience sites
located in 15 counties in its market area where residents can dispose of
recyclables. These commodities are delivered either to third party processing
facilities or to one of four Company-operated processing facilities.
During the last four years, the Company has invested approximately $5
million in infrastructure to develop regionally located recycling facilities and
equipment. Through these facilities, the Company recycles office paper,
cardboard, aluminum and steel cans, plastic, glass, pallets and yard waste. In
1996, approximately 3% of the Company's waste stream was recycled. Through a
centralized effort, the Company resells recycled waste products using
commercially reasonable practices and seeks to manage commodity pricing risk by
spreading the risk among its customers.
CONVENIENCE SITES AND OTHER SPECIALIZED SERVICES
The Company is a leader in the design and marketing of innovative waste
disposal services in its markets. In 1982, the Company developed the concept of
a convenience site in response to increasing volumes of waste dumped randomly in
rural areas. Each site typically consists of a ramp for easy disposal access, a
trash compactor and trash and recycling containers. Most sites have posted
operating hours during which Company personnel assist residents with the deposit
of waste and recyclables while monitoring the types of waste deposited at the
sites. Because these convenience sites reduce the amount of trash dumped along
roads and adjacent to recreational areas, the Company believes that county and
local governments will contract for these sites to be strategically located. The
Company operates approximately 100 of these convenience sites.
In addition, the Company has increased its efforts to secure contracts to
manage comprehensive disposal services for large corporations and
municipalities. For example, after thorough review and evaluation, the Company
may provide a lump sum quote for handling all the waste in a Company's facility.
This would include source separating various wastes into commodities for resale
and non-recyclables for disposal. The process of sorting at the source,
processing through a compaction system and scheduling waste and recyclable
removals only when the containers are full reduces the Company's cost and
increases the operating efficiency. Furthermore, confidential documents can be
controlled throughout the process and destroyed to the customer's satisfaction.
OPERATIONS
BRANCH FACILITY STRUCTURE
The Company believes that a branch facilities structure retains
decision-making authority close to the customer, which enables it to identify
customers' needs quickly and implement cost-effective solutions. Furthermore,
the Company believes that it provides a low-overhead, highly efficient
operational structure which allows the Company to branch into geographically
contiguous markets and operate in small communities which larger competitors may
not find attractive. The Company believes that branch facilities and
decentralized management of operations provide the Company with a strategic
competitive advantage given the relatively rural nature of the Southeastern U.S.
26
<PAGE>
The Company delivers its waste services from 18 branch locations, in
contiguous service areas, which permit the Company's branch facilities to
provide back-up services and support to one another. Each manager of a branch
facility has autonomous service and decision-making authority for the local
market area. The current branch network has been divided into the five regions
set forth below, and each designated region is overseen by a regional manager,
who is typically also a manager of one of the Company's branch facilities:
<TABLE>
<CAPTION>
CENTRAL SOUTH EAST WEST COASTAL
<S> <C> <C> <C> <C>
Garner, NC Wilmington, NC Wilson, NC Graham, NC Newport, NC
Durham, NC Bolivia, NC Elizabeth City, NC Greensboro, NC Jacksonville, NC
Hope Mills, NC Conway, SC Goldsboro, NC Henderson, NC
Raleigh, NC Sumter, SC Greenville, NC Oxford, NC
</TABLE>
The managerial philosophy of the Company centers on the principle that
customers' needs can best be served at the local level by a staff of
well-trained personnel led by a branch manager. Each branch manager is
responsible for implementing sales programs, maintaining service quality,
promoting safety in the branch's operations and overseeing the day-to-day
operations for the branch, including contract administration. Branch managers
also assist regional managers in identifying potential acquisition candidates.
Frequently, the branch manager is also the branch facility's sales manager; but
in larger market areas, branch facilities will have one or more sales persons.
Branch managers are compensated based on the performance of their branch. Each
branch manager reports to a regional manager, who reports directly to the
Company's Executive Vice President.
In addition to delivering the Company's services, branch staff
responsibilities include setting up customer accounts, answering customer
questions, processing accounts payable and maintaining accurate payroll and
personnel information. Maintenance support for collection equipment is also
provided at the branch facility. The facility size, number of maintenance
personnel and capabilities are determined by the number of vehicles operated and
the type of services provided within the branch facility's market area.
On a monthly basis, the corporate and/or regional officers meet with each
branch manager to discuss and evaluate the branch operations. This evaluation is
conducted through the use of flash reports on a weekly basis at the branch and
regional levels and monthly at the corporate level. Flash reports highlight key
operating data such as man hours, overtime hours, truck hours, revenues and
extraordinary costs. These meetings are oriented to identifying trends,
opportunities and strategies in the branch facility's proximate geographic area.
Using a decentralized approach, but with strong corporate monitoring and strict
budgetary and operating guidelines and quality control standards, each branch
manager has the authority to exercise discretion in business decisions. The
Company's management information systems provide corporate management timely
oversight of branch performance.
INFORMATION TECHNOLOGIES
A cornerstone of the Company's desire to deliver responsive and
cost-effective waste services is its management information system network. Many
of the Company's information systems, controls and services are designed to
assist branch facilities' personnel in making decisions based upon centralized
information. Financial control is maintained through personnel, fiscal and
accounting policies which are established at the corporate level for
implementation at the branch locations. The Company's systems allow for
centralized billing and collection through a lock-box system, thus enhancing
cash management. An internal audit program monitors compliance with Company
policies and the benchmarks are monitored continuously using an advanced
management information system. This information system links the Company's IBM
AS400 computer to each branch using satellite technology which allows each
branch on-line, real-time financial, productivity, maintenance and customer
information.
SUPPORT SERVICES
In order to ensure focus at the branch facility level and to support branch
operations, the Company established its Support Services Team during 1995.
Support services include: (i) safety and training services; (ii) risk
management; (iii) capital expenditure evaluation; (iv) human resources services;
(v) equipment maintenance; (vi) location of most economical disposal facilities;
(vii) purchasing; (viii) sales and marketing support; (ix) productivity
analysis; (x) research and development services; and (xi) acquisition due
diligence. The Support Services Team provides significant assistance to the
branch facilities in the integration of newly acquired operations and in
securing new and retaining existing customers. Successful integration of an
acquired business is critical to achieving operational and administrative
efficiencies and improved profitability of the incremental business.
27
<PAGE>
Support services include a comprehensive safety and risk management program
that has strong management support and includes strict safety rules and
policies, accident investigations, tracking and statistical analysis, employee
safety awards, branch safety committees and random facility inspections by both
corporate staff and an outside loss control specialist. Management believes that
its safety program has resulted in accident rates and insurance loss ratios that
are consistently lower than industry averages.
LANDFILL AND OTHER DISPOSAL ALTERNATIVES
Waste Industries currently utilizes approximately 60 disposal sites in the
markets it serves. The Company has historically opted to contract for landfill
services due to the availability of disposal space at favorable tipping fees in
close proximity to its current markets. In certain markets, the Company has been
able to control disposal costs by negotiating long-term disposal contracts with
Subtitle D landfill operators. In addition, the Company operates an extensive
network of transfer stations to consolidate waste streams and receive volume
discounts on disposal costs.
The Company believes that many landfills not in compliance with Subtitle D
Regulations will close in its market area in the next few years. Despite this,
the absolute volume of disposal capacity is increasing due both to the expansion
of capacity at existing landfills and the opening of new landfills. Landfill
operators are aggressively soliciting solid waste volumes to ensure cash flows
sufficient to support the expansion costs and other capital expenditures made to
achieve compliance with the provisions of Subtitle D. Management believes there
will continue to be a significant supply of low-cost disposal capacity in its
current markets and that by controlling a large volume of the waste stream it
will be able to continue to negotiate favorable disposal costs. The Company
plans to continue to secure long-term disposal contracts with Subtitle D
landfill operators and to continue expansion of transfer stations. Transfer
stations allow the Company access to additional disposal sites and are
substantially less expensive to develop than landfills. The Company believes
that landfills that have been targeted for closure may provide prime sites to
develop transfer stations.
Although the Company does not currently own or operate a landfill site, as
the Company penetrates new markets, it may decide to acquire a landfill, develop
a landfill, or partner with an experienced landfill operator for the
acquisition, development or assumption of the operation of a landfill. In its
current markets, such action would be pursued if the Company believed that
ownership or operation of a landfill in a particular market would provide
significant cost benefits compared to its traditional system of consolidating
waste and negotiating favorable disposal rates. In a new market, the Company may
become a landfill owner or operator if that market lacks the amount of disposal
capacity that the Company has experienced in its current markets.
The Company does, however, intend to develop land clearing and inert debris
("LCID") landfills in the near future. Such development would provide the
Company an opportunity to internalize the disposal of a portion of the Company's
waste stream. Generally, LCID landfills can be constructed in a relatively short
time and involve fewer regulatory hurdles compared to municipal solid waste
landfills. A portion of the net proceeds of this offering may be used in the
siting, development and construction of an LCID landfill designed to accommodate
daily disposal of approximately 175 tons of LCID materials with an estimated
disposal capacity of more than 10 years.
MARKETING AND SALES
Waste Industries markets its services locally through its regional and
branch managers and 24 direct sales representatives who focus on commercial,
industrial and residential customers. The Company also obtains new customers
from referral sources, its general reputation and local market print
advertising. Leads are also developed from a construction reporting service, new
building permits, business licenses and other public records. Additionally, each
branch facility advertises in the yellow pages and other local business print
media that cover its service area. A variety of methods are used to market
services directly to individual households. Some branch locations have dedicated
sales representatives that market residential services. The Company engages in
direct mail campaigns and door-to-door marketing and works with real estate
agents and developers to sell services to new developments. The Company recently
installed telemarketing programs to sell residential services. All Company
containers display the Company logo, name and telephone number. Additionally,
the Company attends and makes presentations at municipal and state conferences
and advertises in governmental associations' membership publications.
The Company's sales representatives visit customers on a regular basis and
make sales calls to potential new customers. These sales representatives receive
a significant portion of their compensation based upon certain incentive
formulas. The Company emphasizes providing quality services and customer
satisfaction and retention, and believes that its focus on quality service will
help retain existing and attract additional customers. Maintenance of a local
presence and identity is an
28
<PAGE>
important aspect of the Company's marketing plan, and many of the Company's
managers are involved in local governmental, civic and business organizations.
The Company has a diverse customer base, with no single customer accounting
for more than 4% of the Company's revenues in 1996. The Company does not believe
that the loss of any single customer would have a material adverse effect on the
Company's results of operations.
COMPETITION
The solid waste management industry is highly competitive, very fragmented
and requires substantial labor and capital resources. Intense competition exists
within the industry not only for collection, transportation and disposal volume,
but also for acquisition candidates. The industry includes four large national
waste companies: WMX Technologies, Inc., Browning-Ferris Industries, Inc., USA
Waste Services, Inc. and Allied Waste Industries, Inc. There are several other
public companies with annual revenue in excess of $100 million, including
Republic Industries, Inc., United Waste Systems, Inc. and Superior Services,
Inc. The Company competes with a number of these and other regional and local
companies, including publicly or privately owned providers of incineration
services.
The Company also competes with certain municipalities that operate their
own solid waste collection and disposal facilities. These municipalities may
have certain advantages over the Company due to the availability of tax revenues
and tax-exempt financing.
The Company competes for collection and recycling accounts primarily on the
basis of price and quality of its services. From time to time, competitors may
reduce the price of their services in an effort to expand market share or to win
a competitively bid municipal contract. These practices may also lead to reduced
pricing for the Company's services or the loss of business. The Company provides
a substantial portion of its residential collection services under municipal
contracts. As is generally the case in the industry, municipal contracts are
subject to periodic competitive bidding. The balance of the Company's
residential services are provided on a subscription basis.
PROPERTY AND EQUIPMENT
The Company owns 11 of its branch facilities which cover in the aggregate
approximately 93 acres and approximately 76,000 square feet of space. The
Company leases the remaining seven facilities which cover in the aggregate
approximately 31 acres and approximately 52,000 square feet. The Company's
corporate headquarters is leased under a traditional real property lease and
contains approximately 10,000 square feet of space.
The major types of equipment used by the Company to service its customers
are (i) containers in which customers deposit their waste and (ii) vehicles for
collecting and transporting waste.
CONTAINERS
Some type of container is used in almost every service provided by the
Company, and the Company therefore has an extensive inventory on-hand or on-site
at customers' locations. The Company owns all of its containers and centrally
manages its inventory located at the branch facility level. The Company also
owns a significant number of on-site compaction containers, which provide
efficiency for high-volume solid waste generators. Container life is dependent
on the location of the container, the type of waste that is deposited into the
container and how the container is maintained. Proper maintenance of commercial
and industrial front loader and roll-off containers consists of regular
repainting, scheduled repairs and switch-outs, quality cleaning, sanding and
priming and monitoring of the container by Company employees to check for needed
repairs. Residential collection containers require minor maintenance.
COLLECTION VEHICLES
The Company utilizes a fleet of specialized collection vehicles to collect
and transport waste and to provide recycling and convenience site services. The
Company owns 89% of its transportation fleet and leases the remainder. The
Company has implemented an aggressive and reliable maintenance program to extend
the useful lives of its equipment. Preventative and long-term maintenance is
performed on regularly scheduled cycles that are more frequent than most
manufacturers' suggested schedules. Preventative maintenance is performed on
collection vehicles after every 150 to 250 hours of operation depending on its
class, and long-term maintenance (reconstruction of engines, transmissions,
etc.) is performed every four to six years. Additionally, cosmetic repairs
(painting, interior upholstery repairs) are performed as needed. The majority of
the maintenance program is done by Company personnel located in branch
facilities.
29
<PAGE>
EMPLOYEES
At March 31, 1997, the Company employed 830 full-time employees. None of
the Company's employees are represented by unions, and the Company has no
knowledge of any organizational efforts among its employees. The Company has
experienced low turnover among its employees and believes that its relations
with its employees are good.
RISK MANAGEMENT, INSURANCE AND PERFORMANCE BONDS
Waste Industries actively maintains an environmental and other risk
management programs appropriate for its business. The Company's environmental
risk management program includes evaluating both existing facilities, as well as
potential acquisitions, for environmental law compliance and operating
procedures. The Company also maintains a worker safety program which encourages
safe practices in the workplace. Operating practices at all existing Company
operations stress minimizing the possibility of environmental contamination and
litigation. The Company believes that all of its facilities are in compliance in
all material respects with applicable state and federal regulations.
The Company carries a range of insurance intended to protect its assets and
operations, including a commercial general liability policy and a property
damage policy. A partially or completely uninsured claim against the Company
(including liabilities associated with cleanup or remediation at its own
facilities) if successful and of sufficient magnitude, could have a material
adverse effect on the Company's results of operations or financial condition.
Any future difficulty in obtaining insurance could also impair the Company's
ability to secure future contracts, which may be conditioned upon the
availability of adequate insurance coverage.
Municipal solid waste collection contracts may require performance bonds or
other means of financial assurance to secure contractual performance. The
Company has not experienced difficulty in obtaining performance bonds or letters
of credit for its current operations. At March 31, 1997, the Company had
provided customers and various regulatory authorities with bonds and letters of
credit of approximately $1.3 million to secure its obligations. If the Company
were unable to obtain surety bonds or letters of credit in sufficient amounts or
at acceptable rates, it may be precluded from entering into additional municipal
solid waste collection contracts or obtaining or retaining landfill operating
permits. If the Company develops or owns landfills in the future, the Company
will attempt to obtain insurance coverage for its long-term care and final
closure obligations with respect to any such landfills.
REGULATION
INTRODUCTION
The Company is currently subject to extensive and evolving federal, state
and local environmental laws and regulations that have been enacted in response
to technological advances and increased concern over environmental issues. These
regulations not only strictly regulate the conduct of the Company's operations
but also are related directly to the demand for many of the services offered by
the Company.
The regulations affecting the Company are administered by the EPA and
various other federal, state and local environmental, zoning, health and safety
agencies. The Company believes that it is currently in substantial compliance
with applicable federal, state and local laws, permits, orders and regulations.
The Company anticipates there will continue to be increased regulation,
legislation and regulatory enforcement actions related to the solid waste
services industry. As a result, the Company attempts to anticipate future
regulatory requirements and to plan accordingly to remain in compliance with the
regulatory framework.
In order to transport waste, it is necessary for the Company to possess one
or more permits from state or local agencies. These permits also must be
periodically renewed and are subject to modification and revocation by the
issuing agency. No Company permit has ever been revoked.
In the future, the Company may expand its activities to include ownership
and operation of landfill sites. In order to develop, own or operate a landfill,
a transfer station or most other solid waste facilities, the Company is required
to go through several governmental review processes and obtain one or more
permits and often zoning or other land use approvals. Obtaining these permits
and zoning or land use approvals is difficult, time consuming and expensive and
is often opposed by various local elected officials and citizens' groups. Once
obtained, operating permits generally must be periodically renewed and are
subject to modification and revocation by the issuing agency.
If the Company is successful in acquiring or developing landfill sites, the
Company's facilities will be subject to a variety of operational, monitoring,
site maintenance, closure, post-closure and financial assurance obligations
which change
30
<PAGE>
from time to time and which could give rise to increased capital expenditures
and operating costs. In connection with any such landfills, it is often
necessary to expend considerable time, effort and money in complying with the
governmental review and permitting process necessary to maintain or increase the
capacity of these landfills. Governmental authorities have broad power to
enforce compliance with these laws and regulations and to obtain injunctions or
impose civil or criminal penalties in the case of violations.
The principal federal, state and local statutes and regulations applicable
to the Company's various operations are as follows:
THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976
RCRA regulates the generation, treatment, storage, handling, transportation
and disposal of solid waste and requires states to develop programs to ensure
the safe disposal of solid waste. RCRA divides solid waste into two groups,
hazardous and nonhazardous. Wastes are generally classified as hazardous if they
(i) either (a) are specifically included on a list of hazardous wastes or (b)
exhibit certain hazardous characteristics and (ii) are not specifically
designated as nonhazardous. Wastes classified as hazardous under RCRA are
subject to much stricter regulation than wastes classified as nonhazardous.
Among the wastes that are specifically designated as nonhazardous waste are
household waste and "special" waste, including items such as petroleum
contaminated soils, asbestos, foundry sand, shredder fluff and most nonhazardous
industrial waste products.
Although the company is currently not involved with transportation or
disposal of hazardous substances, the Company transported hazardous substances
in the past and may become involved with hazardous substance transportation and
disposal in the future. The EPA regulations issued under Subtitle C of RCRA
impose a comprehensive "cradle to grave" system for tracking the generation,
transportation, treatment, storage and disposal of hazardous wastes. The
Subtitle C regulations provide standards for generators, transporters and
disposers of hazardous wastes, and for the issuance of permits for sites where
such material is treated, stored or disposed. Subtitle C imposes detailed
operating, inspection, training and emergency preparedness and response
standards, as well as requirements for manifesting, record keeping and
reporting, facility closure, post-closure and financial responsibilities.
In October 1991, the EPA adopted the Subtitle D Regulations governing solid
waste landfills. The Subtitle D Regulations, which generally became effective in
October 1993, include location restrictions, facility design standards,
operating criteria, closure and post-closure requirements, financial assurance
requirements, groundwater monitoring requirements, groundwater remediation
standards and corrective action requirements. In addition, the Subtitle D
Regulations require that new landfill sites meet more stringent liner design
criteria (typically, composite soil and synthetic liners or two or more
synthetic liners) designed to keep leachate out of groundwater and have
extensive collection systems to carry away leachate for treatment prior to
disposal. Groundwater monitoring wells must also be installed at virtually all
landfills to monitor groundwater quality and, indirectly, the leachate
collection system operation. The Subtitle D Regulations also require, where
threshold test levels are present, that methane gas generated at landfills be
controlled in a manner that protects human health and the environment. Each
state is required to revise its landfill regulations to meet these requirements
or such requirements will be automatically imposed upon it by the EPA. Each
state is also required to adopt and implement a permit program or other
appropriate system to ensure that landfills within the state comply with the
Subtitle D Regulations criteria. Various states into which the Company operates
or may enter have adopted regulations or programs as stringent as, or more
stringent than, the Subtitle D Regulations.
THE FEDERAL WATER POLLUTION CONTROL ACT OF 1972
The Federal Water Pollution Control Act of 1972, as amended ("Clean Water
Act"), establishes rules regulating the discharge of pollutants from a variety
of sources, including solid waste disposal sites and transfer stations, into
waters of the U.S. If run-off from the Company's transfer stations or if run-off
or collected leachate from the Company's potentially owned or operated landfills
is discharged into streams, rivers or other surface waters, the Clean Water Act
would require the Company to apply for and obtain a discharge permit, conduct
sampling and monitoring and, under certain circumstances, reduce the quantity of
pollutants in such discharge. Also, virtually all landfills are required to
comply with the EPA's storm water regulations issued in November 1990, which are
designed to prevent possibly contaminated landfill storm water runoff from
flowing into surface waters. The Company believes that its facilities are in
compliance in all material respects with Clean Water Act requirements,
particularly as they apply to treatment and discharge of leachate and storm
water.
31
<PAGE>
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF
1980 ("CERCLA")
CERCLA established a regulatory and remedial program intended to provide
for the investigation and cleanup of facilities from which there has been, or is
threatened, a release of any hazardous substance into the environment. CERCLA's
primary mechanism for remedying such problems is to impose strict joint and
several liability for cleanup of facilities on current owners and operators of
the site, former owners and operators of the site at the time of the disposal of
the hazardous substances, as well as the generators of the hazardous substances
and the transporters who arranged for disposal or transportation of the
hazardous substances. The costs of CERCLA investigation and cleanup can be very
substantial. Liability under CERCLA does not depend upon the existence or
disposal of "hazardous waste" as defined by RCRA, but can also be founded upon
the existence of even very small amounts of the more than 700 "hazardous
substances" listed by the EPA, many of which can be found in household waste. If
the Company were to be found to be a responsible party for a CERCLA cleanup, the
enforcing agency could hold the Company, or any other generator, transporter or
the owner or operator of the facility, completely responsible for all
investigative and remedial costs even if others may also be liable. CERCLA also
authorizes the imposition of a lien in favor of the U.S. upon all real property
subject to, or affected by, a remedial action for all costs for which a party is
liable. CERCLA provides a responsible party with the right to bring legal action
against other responsible parties for their allocable share of investigative and
remedial costs. The Company's ability to get others to reimburse it for their
allocable share of such costs would be limited by the Company's ability to find
other responsible parties and prove the extent of their responsibility and by
the financial resources of such other parties.
THE CLEAN AIR ACT
The Clean Air Act provides for regulation, through state implementation of
federal requirements, of the emission of air pollutants from certain landfills
based upon the date of the landfill construction and volume per year of
emissions of regulated pollutants. The EPA has proposed new source performance
standards regulating air emissions of certain regulated pollutants (methane and
non-methane organic compounds) from municipal solid waste landfills. Landfills
located in areas with air pollution problems may be subject to even more
extensive air pollution controls and emission limitations. In addition, the EPA
has issued standards regulating the disposal of asbestos-containing materials.
Some of the federal statutes described above contain provisions authorizing
under certain circumstances, the institution of lawsuits by private citizens to
enforce the provisions of the statutes.
THE OCCUPATIONAL SAFETY AND HEALTH ACT OF 1970
OSHA establishes employer responsibilities and authorizes the promulgation
by the Occupational Safety and Health Administration of occupational health and
safety standards, including the obligation to maintain a workplace free of
recognized hazards likely to cause death or serious injury, to comply with
adopted worker protection standards, to maintain certain records, to provide
workers with required disclosures and to implement certain health and safety
training programs. Various of those promulgated standards may apply to the
Company's operations, including those standards concerning notices of hazards,
safety in excavation and demolition work, the handling of asbestos and
asbestos-containing materials, and worker training and emergency response
programs. The Company's employees are trained to respond appropriately in the
event there is an accidental spill or release of packaged asbestos-containing
materials or other regulated substances during transportation or landfill
disposal.
STATE AND LOCAL REGULATIONS
Each state in which the Company now operates or may operate in the future
has laws and regulations governing the generation, storage, treatment, handling,
transportation and disposal of solid waste, water and air pollution and, in most
cases, the siting, design, operation, maintenance, closure and post-closure
maintenance of landfills and transfer stations. In addition, many states have
adopted Superfund statutes comparable to, and in some cases more stringent than,
CERCLA. These statutes impose requirements for investigation and cleanup of
contaminated sites and liability for costs and damages associated with such
sites, and some provide for the imposition of liens on property owned by
responsible parties. Furthermore, many municipalities also have ordinances,
local laws and regulations affecting Company operations. These include zoning
and health measures that limit solid waste management activities to specified
sites or activities, flow control provisions that direct the delivery of solid
wastes to specific facilities, laws that grant the right to establish franchises
for collection services and then put out for bid the right to provide collection
services, and bans or other restrictions on the movement of solid wastes into a
municipality.
Certain permits and approvals may limit the types of waste that may be
accepted at a landfill or the quantity of waste that may be accepted at a
landfill during a given time period. In addition, certain permits and approvals,
as well as certain
32
<PAGE>
state and local regulations, may limit a landfill to accepting waste that
originates from specified geographic areas or seek to restrict the importation
of out-of-state waste or otherwise discriminate against out-of-state waste.
Generally, restrictions on the importation of out-of-state waste have not
withstood judicial challenge. However, from time to time federal legislation is
proposed which would allow individual states to prohibit the disposal of
out-of-state waste or to limit the amount of out-of-state waste that could be
imported for disposal and would require states, under certain circumstances, to
reduce the amounts of waste exported to other states. Although such legislation
has not yet been passed by Congress, if this or similar legislation is enacted,
states in which the Company operates landfills could act to limit or prohibit
the importation of out-of-state waste. Such state actions could materially
adversely affect landfills within those states that receive a significant
portion of waste originating from out-of-state.
In addition, certain states and localities may for economic or other
reasons restrict the exportation of waste from their jurisdiction or require
that a specified amount of waste be disposed of at facilities within their
jurisdiction. In 1994, the U.S. Supreme Court held unconstitutional, and
therefore invalid, a local ordinance that sought to impose flow controls on
taking waste out of the locality. However, certain state and local jurisdictions
continue to seek to enforce such restrictions and, in certain cases, the Company
may elect not to challenge such restrictions based upon various considerations.
In addition, the aforementioned proposed federal legislation would allow states
and localities to impose certain flow control restrictions. These restrictions
could result in the volume of waste going to landfills being reduced in certain
areas, which may materially adversely affect the Company's ability to operate
its landfills at their full capacity and/or affect the prices that can be
charged for landfill disposal services. These restrictions may also result in
higher disposal costs for the Company's collection operations. If the Company
were unable to pass such higher costs through to its customers, the Company's
business, financial condition and results of operations could be materially
adversely affected.
There has been an increasing trend at the state and local level to mandate
and encourage waste reduction at the source and waste recycling, and to prohibit
or restrict the disposal of certain types of solid wastes, such as yard wastes,
leaves and tires, in landfills. The enactment of regulations reducing the volume
and types of wastes available for transport to and disposal in landfills could
affect the Company's ability to operate its facilities at their full capacity.
LEGAL PROCEEDINGS
In the normal course of its business and as a result of the extensive
governmental regulation of the waste industry, the Company may periodically
become subject to various judicial and administrative proceedings involving
federal, state or local agencies. In these proceedings, an agency may seek to
impose fines on the Company or to revoke, or to deny renewal of, an operating
permit held by the Company. In addition, the Company may become party to various
claims and suits pending for alleged damages to persons and property, alleged
violation of certain laws and for alleged liabilities arising out of matters
occurring during the normal operation of the waste management business. However,
there is no current proceeding or litigation involving the Company that it
believes will have a material adverse effect upon the Company's financial
condition or results of operations.
33
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company as of March 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
<S> <C> <C>
Lonnie C. Poole, Jr....................... 59 Chairman, Chief Executive Officer and Director
Jim W. Perry.............................. 52 President, Chief Operating Officer and Director
Robert H. Hall............................ 50 Vice President, Chief Financial Officer, Secretary, Treasurer and Director
Henry E. Dick............................. 49 Executive Vice President
J. Gregory Poole, Jr.(1).................. 62 Director
Thomas F. Darden(2)....................... 42 Director Nominee
</TABLE>
(1) Member of the Audit and Compensation Committees.
(2) Mr. Darden has agreed to serve as a director of the Company and a member of
the Audit and Compensation Committees effective upon completion of this
offering.
Lonnie C. Poole, Jr. founded the Company in 1970 and has served as Chief
Executive Officer and Chairman of the Board of Directors of the Company since
that time. Mr. Poole holds a B.S. in Civil Engineering from North Carolina State
University and an M.B.A. from the University of North Carolina at Chapel Hill.
Mr. Poole has more than 26 years' experience in the solid waste industry. He has
served in the Environmental Industry Association ("EIA" formerly the National
Solid Waste Management Association or the "NSWMA") and has held the following
positions: Chairman, Vice-Chairman, Board Member. In addition, Mr. Poole has
served in the EIA Research and Education Foundation as Chairman and now as Board
Member.
Jim W. Perry joined the Company in 1971 and has served as the Company's
President and Chief Operating Officer since 1987 and as a director since 1974.
Mr. Perry holds a B.S. in Agricultural and Biological Engineering from North
Carolina State University and an M.S. in Systems Management from the University
of Southern California. Mr. Perry has more than 26 years' experience in the
solid waste industry and has received the Distinguished Service Award from the
NSWMA. In addition, Mr. Perry has served in the Carolinas Chapter of NSWMA as
Chairman and on the Membership Committee.
Robert H. Hall joined the Company in 1978 and has served as the Company's
Chief Financial Officer, Vice President, Secretary and Treasurer since 1983 and
as a director since 1983. Mr. Hall is a Certified Public Accountant and holds a
B.S. in Business Administration from East Carolina University. Mr. Hall has more
than 18 years' experience in the solid waste industry.
Henry E. Dick has served as the Company's Executive Vice President,
responsible for all operating divisions and all sales and marketing activities,
since 1991. Prior thereto, he served in various positions, most recently as the
Company's Vice President of Sales and Marketing from 1987 to 1991. Mr. Dick
holds a B.A. in Political Science from Guilford College. Mr. Dick has more than
14 years' experience in the solid waste industry. Mr. Dick has served the
Carolinas Chapter of NSWMA as Chairman for two years, Vice-Chairman for four
years, Legislative Chairman for four years and member of the Waste Hauler's
Council.
J. Gregory Poole, Jr. an original investor in the Company in 1970, has
served as a member of the Board of Directors since 1994. Mr. Poole has been
Chairman of the Board and Chief Executive Officer of Gregory Poole Equipment
Company for over five years. Mr. Poole is a member of the Board of Directors of
First Union Corporation. Mr. Poole holds a B.S. in Business Administration from
the University of North Carolina at Chapel Hill ("UNC-CH"). Mr. Poole has more
than 22 years' experience in the solid waste industry.
Thomas F. Darden has agreed to serve as a director of the Company effective
upon completion of this offering. Since 1984, Mr. Darden has served as Chairman
of Cherokee Industries, which includes Cherokee Sanford Group (a brick
manufacturing company) and a group of environmental companies, and as a
principal of Franklin Street/Fairview Capital, a private investment company.
Since 1990, Mr. Darden has twice been appointed to and currently serves on the
North Carolina Board of Transportation. He also acts as a Trustee of the
Triangle Transit Authority and of Shaw University, and is a director of
34
<PAGE>
Winston Hotels, Inc. In addition, Mr. Darden has served on the Board of Visitors
and currently serves on the Honors Advisory Board at UNC-CH. Mr. Darden holds a
B.A. with Highest Honors and an M.R.P. in Environmental Planning from UNC-CH,
and a J.D. from Yale University.
None of the executive officers, directors or other key employees of the
Company is related to any other executive officer, director or other such key
employee, except that Lonnie C. Poole, Jr. and Lonnie C. Poole, III are father
and son.
OTHER KEY EMPLOYEES
The following table sets forth certain information concerning the other key
employees of the Company as of March 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
<S> <C> <C>
Lonnie C. Poole, III................................................ 35 Vice President and Director of Support Services
Steven C. Goode..................................................... 47 Vice President of Marketing
Stephen C. Shaw..................................................... 37 Vice President of Finance and Controller
Joe H. Lowry, Jr.................................................... 42 Director of Human Resources
Ralph A. Ford....................................................... 41 Director of Risk Management
Harrell J. Auten.................................................... 49 South Regional Manager
Roger C. Davis...................................................... 53 West Regional Manager
Dallas D. Goodwin................................................... 46 Coastal Regional Manager
Richard D. Lauck.................................................... 51 Central Regional Manager
James M. Roberts.................................................... 47 Vice President, East Regional Manager
William A. Williams................................................. 51 Branch Manager
</TABLE>
Lonnie C. Poole, III has served as the Company's Vice President, Director
of Support Services since 1995. From 1990 to 1995, he served as the Company's
Risk Management Director. Mr. Poole holds a B.S. in Aerospace Engineering from
North Carolina State University. Mr. Poole is the son of Lonnie C. Poole, Jr.
Mr. Poole has more than seven years' experience in the solid waste industry.
Steven C. Goode has served as Vice President of Marketing since 1995. Prior
thereto, he served in various managerial capacities for the Company, including
as Vice President from 1991 to 1995. Mr. Goode studied Business Administration
at Virginia Commonwealth University and holds an A.S. in Business Administration
from John Tyler Community College. Mr. Goode has more than 13 years' experience
in the solid waste industry.
Stephen C. Shaw has served as the Company's Controller since he joined the
Company in 1985 and as Vice President of Finance since 1991. Mr. Shaw holds a
B.S. in Business Administration from UNC-CH. Mr. Shaw has more than 12 years'
experience in the solid waste industry.
Joe H. Lowry, Jr. has served as the Company's Director of Human Resources
since he joined the Company in October 1995. Prior to joining the Company, he
worked for over 13 years for Carolina Power and Light Company, most recently as
the Senior Human Resources Representative for its Southern Division. Mr. Lowery
holds an A.S. degree from Lees-McRae College and a B.A. in Education from
Western Carolina University. Mr. Lowry has more than two years' experience in
the solid waste industry.
Ralph A. Ford has served as the Company's Risk Manager since he joined the
Company in September 1996. Prior to joining the Company, he worked for over five
years for Chambers Development Company, most recently as the Northern Region
Safety Manager following that company's merger with USA Waste in 1995. Mr. Ford
holds a B.S. in Industrial Education and an M.A. in Vocation/Industrial
Education from Tennessee State University. Mr. Ford has more than six years'
experience in the solid waste industry.
Harrell J. Auten has served as the Company's South Regional Manager since
1993. From 1991 to 1993, he owned and operated his own company, Lodal-South,
Inc. Mr. Auten holds a B.S. in Business Administration from UNC-CH. Mr. Auten
has more than 26 years' experience in the solid waste industry.
Roger C. Davis has served as the Company's West Regional Manager since
1995. Since he joined the Company in 1987, he has served in various positions,
including as Division Manager from 1990 to 1995. Mr. Davis holds a B.S. in
Business Administration from the University of New York at Albany and an A.S. in
Applied Science in Industrial Management from El Paso Community College. Mr.
Davis has more than 10 years' experience in the solid waste industry.
35
<PAGE>
Dallas D. Goodwin has served as the Company's Coastal Regional Manager
since 1990. He holds a B.S. in Business Administration from Pembroke State
University and attended the North Carolina School of Banking and the Graduate
School of Retail Banking at the University of Virginia. Mr. Goodwin has more
than seven years' experience in the solid waste industry.
Richard D. Lauck has served as the Company's Central Regional Manager since
November 1995. Prior to joining the Company, Mr. Lauck worked for 14 years with
Waste Management, Inc., where he held various operational positions including
General Manager, Vice President and Region Manager. Mr. Lauck holds a B.S.
degree, specializing in Marketing, from the University of Northern Colorado and
an M.S. from Colorado State University. Mr. Lauck has more than 15 years'
experience in the solid waste industry.
James M. Roberts has served as the Company's East Regional Manager since
1990. Since he joined the Company in 1978 he has served in various positions
including Division Manager from 1985 until 1990. Mr. Roberts studied Forestry
and Business Administration at Wayne Community College. Mr. Roberts has more
than 18 years' experience in the solid waste industry.
William A. Williams has served as a Division Manager of the Company since
1978. Since joining the Company in 1973, he has served in various positions,
including Branch Manager from 1973 to 1978. Mr. Williams has more than 24 years'
experience in the solid waste industry.
BOARD COMMITTEES
The Audit Committee is responsible for recommending to the Board of
Directors the appointment of independent auditors, reviewing and approving the
scope of the annual audit activities of the auditors, approving the audit fee
payable to the auditors, reviewing audit results and approving related party
transactions. J. Gregory Poole, Jr. and Thomas F. Darden have been appointed as
the members of the Audit Committee, effective upon completion of this offering.
The Compensation Committee is responsible for reviewing and recommending to
the Board of Directors the compensation structure for the Company's directors,
officers and other managerial personnel, including salaries, bonuses,
participation in incentive compensation and benefit plans, fringe benefits,
non-cash perquisites and other forms of compensation, and will administer the
Company's stock plans. J. Gregory Poole, Jr. and Thomas F. Darden have been
appointed as the members of the Compensation Committee, effective upon
completion of this offering.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
The following table sets forth certain information for 1996 concerning
compensation earned by the Company's Chief Executive Officer and the Company's
other executive officers who were paid more than $100,000 in salary and bonus.
The persons named in the table are sometimes referred to herein as the "named
executive officers".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
1996 ANNUAL AWARDS
COMPENSATION SHARES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS GRANTED(1) COMPENSATION(2)
<S> <C> <C> <C> <C>
Lonnie C. Poole, Jr., Chairman.................................. $219,154 $212,229 199,320 $42,019(3)
Jim W. Perry, President......................................... 197,060 148,561 96,836 40,831(3)
Robert H. Hall, CFO, Secretary and Treasurer.................... 120,467 63,669 13,456 40,610(3)
Henry E. Dick, Executive Vice President......................... 109,611 52,864 7,740 9,593
</TABLE>
(1) See "Individual Stock Option Grants" below.
(2) Includes profit-sharing contributions and an automobile allowance for each
of the named executive officers of $3,169 and $4,200, respectively. Includes
life insurance premiums paid by the Company on executive group policy
insurance coverage in excess of $50,000 payable to the named executive
officers or their respective families in the amounts: Mr. Poole, $1,715; Mr.
Perry, $953; Mr. Hall, $463; and Mr. Dick, $272. Also includes Company
contributions to the Company's 401(k) Plan in the following amounts: Mr.
Poole, $2,135; Mr. Perry, $1,709; Mr. Hall, $1,978; and Mr. Dick, $1,952.
(3) Includes director's fees of $30,800.
36
<PAGE>
STOCK OPTIONS
OPTION GRANTS. The following table sets forth certain information with
respect to stock options granted during or with respect to 1996 to each of the
named executive officers:
1996 INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES OF
OPTIONS STOCK PRICE APPRECIATION
NUMBER OF SHARES GRANTED TO EXERCISE FOR
UNDERLYING EMPLOYEES PRICE PER EXPIRATION OPTION TERM(1)
NAME OPTIONS GRANTED IN 1996 SHARE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Lonnie C. Poole, Jr..................... 199,320 38.33% $5.13 3/31/01 $1,903,000 $2,669,100
Jim W. Perry............................ 96,836 18.62 5.13 3/31/01 924,500 1,296,700
Robert H. Hall.......................... 13,456 2.59 5.13 3/31/01 128,500 180,200
Henry E. Dick........................... 7,740 1.49 5.13 3/31/01 73,900 103,600
</TABLE>
(1) The potential realizable values set forth under the columns represent the
difference between the stated option exercise price and the market value of
the Common Stock based on certain assumed rates of stock price appreciation
from the assumed initial public offering price of $11.50 per share and
assuming that the options were exercised on their stated expiration date;
the potential realizable values set forth do not take into account
applicable tax and expense payments which may be associated with such option
exercises. Actual realizable value, if any, will be dependent on the future
price of the Common Stock on the actual date of exercise, which may be
earlier than the stated expiration date. The 5% and 10% assumed annualized
rates of stock price appreciation over the exercise period of the options
used in the table above are mandated by the rules of the Securities and
Exchange Commission and do not represent the Company's estimate or
projection of the future price of the Common Stock on any date. There is no
representation either express or implied that the stock price appreciation
rates for the Common Stock assumed for purposes of this table will actually
be achieved.
OPTION VALUES. The following table sets forth information concerning all
option exercises during the year ended December 31, 1996 and the aggregate value
of unexercised options at December 31, 1996 held by each of the named executive
officers.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
DOLLAR
VALUE OF
UNEXERCISED
NUMBER OF SHARES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
SHARES OPTIONS AT DECEMBER
ACQUIRED VALUE DECEMBER 31, 1996 31, 1996(2)
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE
<S> <C> <C> <C> <C> <C>
Lonnie C. Poole, Jr......................... -- $ -- 199,320 -- $ 1,269,700
Jim W. Perry................................ 8,000 38,700 76,800 20,036 489,200
Robert H. Hall.............................. 8,000 38,700 3,200 10,256 20,400
Henry E. Dick............................... 3,996 19,300 -- 11,740 --
<CAPTION>
DOLLAR
VALUE OF
UNEXERCISED
IN-THE-MONEY
OPTIONS AT
DECEMBER
31, 1996 (2)
NAME UNEXERCISABLE
<S> <C>
Lonnie C. Poole, Jr......................... $ --
Jim W. Perry................................ 127,600
Robert H. Hall.............................. 65,300
Henry E. Dick............................... 85,800
</TABLE>
(1) Fair market value of the underlying Common Stock as of the date of exercise,
minus the aggregate exercise price.
(2) Determined by subtracting the option exercise price per share of Common
Stock from the assumed initial public offering price per share of $11.50,
and multiplying by the number of shares subject to purchase upon option
exercise.
STOCK PLANS
The Company's 1997 Stock Plan (the "Stock Plan") was adopted by the
Company's Board of Directors in April 1997 and will be approved by the Company's
shareholders prior to completion of this offering. A total of 1,800,000 shares
of Common Stock have been reserved for issuance under the Stock Plan. At the
same time that the Stock Plan was adopted, the Board terminated the Company's
Employee Non-Qualified Stock Option Plan (the "Option Plan"; together with the
Stock Plan the "Plans") as to future grants. As of March 31, 1997, 1,416,972
shares of Common Stock had been issued upon exercise of options granted under
the Option Plan and options to purchase 526,000 shares of Common Stock at a
weighted average exercise price of $5.10 per share were outstanding under the
Option Plan. The Plan provides for grants of "incentive stock options," within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), to employees (including officers and employee directors), and each of
the Plans provides for grants of nonstatutory options to
37
<PAGE>
employees and consultants. The Stock Plan also allows for the grant of purchase
rights. The Plans are administered by the Compensation Committee of the Board of
Directors. The Stock Plan will terminate in April 2007, unless sooner terminated
by the Board of Directors.
The exercise price of incentive stock options granted under the Stock Plan
must not be less than the fair market value of the Common Stock on the date of
grant, and the exercise price of nonstatutory options under the Stock Plan must
not be less than 85% of the fair market value of the Common Stock on the date of
grant. With respect to any optionee who owns stock representing more than 10% of
the voting power of all classes of the Company's outstanding capital stock, the
exercise price of any incentive stock option must be equal to at least 110% of
the fair market value of the Common Stock on the date of grant, and the term of
the option must not exceed five years. The terms of all other options may not
exceed 10 years. The aggregate fair market value of Common Stock (determined as
of the date of the option grant) for which incentive stock options may for the
first time become exercisable by any individual in any calendar year may not
exceed $100,000.
The Company intends to file a Registration Statement on Form S-8
approximately 180 days following this offering in order to register under the
Securities Act the shares of Common Stock issuable under the Stock Plan. See
"Shares Eligible for Future Sale".
401(K) PLAN
The Company maintains an Employees' Retirement Savings Plan (the "401(k)
Plan") for employees who elect to participate. Subject to certain limitations,
participants may contribute up to 15% of their compensation on a pre-tax basis
to the 401(k) Plan and the Company may contribute matching funds in an amount
equal to 25% of each dollar up to the amount allowed by applicable federal law.
In addition, the 401(k) Plan has an annually discretionary profit sharing plan
rider where the Company makes tax deferred contributions based on eligible
employees' compensation. Amounts attributable to participant contributions under
the 401(k) Plan are fully vested at all times (with Company contributions
vesting in increments of 20% per year after the first two years of employment).
Participants are entitled to receive their vested 401(k) Plan accounts,
including investment earnings, upon death, retirement or other termination of
employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Effective upon completion of this offering, the Compensation Committee of
the Board of Directors will consist of J. Gregory Poole, Jr. and Thomas F.
Darden. Neither Mr. Poole nor Mr. Darden was at any time during the year ended
December 31, 1996 an officer or employee of the Company. No executive officer of
the Company serves as a member of the board of directors or compensation
committee of any entity which has one or more executive officers serving as a
member of the Company's Board of Directors of the Compensation Committee, except
that Jim W. Perry, the Company's President and Chief Operating Officer, has been
since May 1994 a director of Gregory Poole Equipment Company, Mr. Poole's
employer.
DIRECTOR COMPENSATION
In 1996, employee directors of the Company each received $30,800 as
compensation for service as members of the Board of Directors. Effective after
the completion of this offering, non-employee directors (J. Gregory Poole, Jr.,
and Thomas F. Darden) will be entitled to receive an annual retainer fee in cash
or stock of the Company equal in value to $5,000, plus $500 in cash or stock
value at the election of the individual director for attending each meeting of
the Board of Directors and each Board of Directors' committee meeting, in
addition to reimbursement of out-of-pocket expenses. Directors who are also
employees of the Company do not currently receive any compensation for serving
as directors.
LIMITATION ON DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
The Company's Articles of Incorporation, as will be in effect prior to
consummation of this offering, eliminate, to the fullest extent permitted by the
North Carolina Business Corporation Act (the "Business Corporation Act"), the
personal liability of each director to the Company or its shareholders for
monetary damages for breach of duty as a director. This provision in the
Articles of Incorporation will not change a director's duty of care, but will
eliminate monetary liability for certain violation of that duty, including
violations based on grossly negligent business decisions that may include
decisions relating to attempts to change control of the Company. The provision
will not affect the availability of equitable remedies for a breach of the duty
of care, such as an action to enjoin or rescind a transaction involving a breach
of fiduciary duty; in certain circumstances, however, equitable remedies may not
be available as a practical matter. Under the Business Corporation Act, the
limitation of liability provision is ineffective against liabilities for (i)
acts or omissions that the director knew or believed at the time of the breach
to be clearly in conflict with the best interests of the Company, (ii) unlawful
distributions
38
<PAGE>
described in Business Corporation Act Section 55-8-33, (iii) any transaction
from which the director derived an improper personal benefit, or (iv) acts or
omissions occurring prior to the date the provision became effective. The
provision also in no way affects a director's liability under the federal
securities laws.
Also, to the fullest extent permitted by the Business Corporation Act, the
Company's Bylaws provide, in addition to the indemnification of directors and
officers otherwise provided by the Business Corporation Act, for indemnification
of the Company's current or former directors, officers, and employees against
any and all liability and litigation expense, including reasonable attorneys'
fees, arising out of their status or activities as directors, officers and
employees, except for liability or litigation expense incurred on account of
activities that were at the time known or believed by such director, officer or
employee to be clearly in conflict with the best interests of the Company.
The Company intends to obtain director and officer liability insurance with
respect to liabilities arising out of certain matters, including matters arising
under the Securities Act.
At present, there is no pending litigation or proceeding involving any
director or officer, employee or agent of the company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
39
<PAGE>
CERTAIN TRANSACTIONS
The Company performs certain management and accounting services on behalf
of Lonnie Poole's Servicenter, Inc. ("LPSC") and ECO Services, Inc. ("ECO"), for
which the Company is reimbursed for its costs for providing these services, plus
a specified percentage of net income of LPSC and ECO. LPSC is owned by the wife
and two sons of Lonnie C. Poole, Jr., one of whom, Lonnie C. Poole, III, is a
key employee of the Company, and the other of whom is an employee of the
Company. Lonnie C. Poole, Jr. is a significant shareholder of ECO, and Jim W.
Perry, Robert H. Hall, Henry E. Dick and Stephen C. Shaw are also shareholders
of ECO. In 1994, 1995 and 1996, the Company earned $26,994, $84,004 and $88,202,
respectively, under these arrangements.
In November 1986, the Company guaranteed a promissory note payable to J.
Gregory Poole, Jr. by Lonnie C. Poole, Jr., Jim W. Perry and Robert H. Hall.
This note bears interest at 7.5% per annum. Outstanding principal under this
note at December 31, 1996 was $100,000, and the note is payable in full on or
before December 31, 1997.
Lonnie C. Poole, Jr., Jim W. Perry, Robert H. Hall and J. Gregory Poole,
Jr. are each indebted to the Company for certain amounts payable in connection
with the purchase of shares of Company Common Stock and for premiums paid by the
Company on life insurance policies under a Cross Purchase Agreement which
expires upon completion of this offering. These debts bear interest at 7.5% per
annum and are payable in full on demand. Outstanding amounts of such
indebtedness at December 31, 1996 were: Lonnie C. Poole, Jr., $131,316; Mr.
Perry, $33,714; Mr. Hall, $32,094; and J. Gregory Poole, Jr., $43,767.
In each of 1993 and 1995, the Company loaned $100,000 to ECO under demand
notes bearing interest at 5.5% and 7.19%, respectively. As of December 31, 1996,
ECO owed the Company approximately $206,500 in principal and accrued interest on
these notes.
In February 1997, the Company purchased 37 acres of land from the Cherokee
Sanford Group, of which Company director nominee Thomas F. Darden is Chairman
and a significant shareholder, for $62,253, which the Company believes
represented fair market value at that time.
The Company has adopted a policy that all future transactions between the
Company and its executive officers, directors and other affiliates must be
approved by a majority of the members of the Company's Board of Directors and by
a majority of the disinterested members of the Company's Board of Directors, and
must be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
40
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information, as of the date of this
Prospectus, with respect to the beneficial ownership of the Common Stock by: (i)
each person or entity known by the Company to own beneficially 5% or more of the
outstanding Common Stock; (ii) each director, director nominee and named
executive officer of the Company; and (iii) the Company's executive officers and
directors as a group. Unless otherwise noted, each person has sole investment
and voting power with respect to the shares indicated (subject to applicable
marital property laws).
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF SHARES BENEFICIALLY
OWNED BEFORE OFFERING SHARES OFFERED OWNED AFTER OFFERING
NAME NUMBER PERCENT NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
Lonnie C. Poole, Jr.(1)..................................... 7,291,309 72.9% 181,600 7,109,709 61.2%
Jim W. Perry................................................ 1,758,313 17.6 181,600 1,576,713 13.6
Robert H. Hall.............................................. 81,879 * -- 81,879 *
Henry E. Dick............................................... 11,432 * -- 11,432 *
J. Gregory Poole, Jr........................................ 817,480 8.2 181,600 635,880 5.5
Thomas F. Darden............................................ -- * -- -- *
All directors and executive officers as a group (5
persons).................................................. 9,960,413 99.6 544,800 9,415,613 81.0
</TABLE>
* Less than 1%.
(1) Includes (i) an aggregate of 1,978,518 shares held by two grantor trusts of
which Lonnie C. Poole, III and Scott J. Poole, Mr. Poole's children, are the
beneficiaries, and (ii) 383,708 and 375,828 shares held by Lonnie C. Poole,
III and Scott J. Poole, respectively, for which Mr. Poole disclaims
beneficial ownership.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Immediately prior to the issuance of the shares offered hereby, the
authorized capital of the Company will consist of 80,000,000 shares of Common
Stock, no par value per share, and 10,000,000 shares of undesignated Preferred
Stock, par value $0.01 per share.
COMMON STOCK
As of March 31, 1997, assuming no exercise of options, there were 9,600,157
shares of Common Stock outstanding, held of record by 19 shareholders. The
holders of the Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Holders of the Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining after payment of all
liabilities. The outstanding shares of the Common Stock are fully paid and
nonassessable. No preemptive rights, conversion rights, redemption rights or
sinking fund provisions are applicable to the Common Stock.
PREFERRED STOCK
Upon the consummation of this offering, no shares of Preferred Stock will
be outstanding. The Company's Board of Directors is authorized, without further
shareholder action, to issue Preferred Stock in one or more series and to fix
the voting rights, liquidation preferences, dividend rights, repurchase rights,
conversion rights, redemption rights and terms, including sinking fund
provisions, and certain other rights and preferences, of the Preferred Stock.
Although there is no current intention to do so, the Board of Directors of the
Company may, without shareholder approval, issue shares of a class or series of
Preferred Stock with voting and conversion rights which could adversely affect
the voting power or dividend rights of the holders of Common Stock and may have
the effect of delaying, deferring or preventing a change in control of the
Company.
CERTAIN STATUTORY AND OTHER PROVISIONS
STATUTORY PROVISIONS
The North Carolina Business Corporation Act contains a "Shareholder
Protection Act" which, with certain exceptions discussed below, requires
approval of certain business combinations between a North Carolina corporation
and any beneficial
41
<PAGE>
holder of more than 20% of the voting shares of the corporation by the holders
of at least 95% of the voting shares of the corporation. Business combinations
subject to this approval requirement include any merger or consolidation of the
corporation with or into any other corporation, the sale or lease of all or any
substantial part of the corporation's assets to, or any payment, sale or lease
to the corporation or any subsidiary thereof in exchange for securities of the
corporation of any assets (except assets having an aggregate fair market value
of less than $5 million) of any other entity. The principal exception to the
special voting requirement applies to business combinations that satisfy various
complex statutory provisions, including provisions relating to the fairness of
the price and the constituency of the Board of Directors. In addition, the
special voting requirement shall not be applicable to any corporation if (i) the
corporation was not a public corporation at the time such other entity acquired
in excess of 10% of the voting shares; (ii) the corporation adopted an amendment
to its bylaws or provided in its original articles of incorporation providing
that the provisions shall not apply to it in accordance with the statute; or
(iii) the business combination in question was the subject of an existing
agreement of the corporation on April 23, 1987. In addition, corporations with
fewer than 2,000 shareholders of record and those whose stock is not listed on a
national securities exchange are exempt from the special voting requirement. The
Company has not "opted out" of the Shareholder Protection Act.
Certain North Carolina public corporations are also subject to "The North
Carolina Control Share Acquisition Act". This law provides that shares acquired
in a transaction that would cause the acquiring person's voting strength to meet
or exceed any of three thresholds (20%, 33.3% or a majority) of voting power
have no voting rights unless granted by a majority vote of all the outstanding
shares of the corporation (not including interested shares) entitled to vote for
the election of directors. "Interested shares" means the shares of a corporation
beneficially owned by (i) any person who has acquired or proposes to acquire
control shares in a control share acquisition; (ii) any officer of the
corporation; or (iii) any employee of the covered corporation who is also a
director of the corporation. This provision empowers an acquiring person to
require the North Carolina corporation to hold a special meeting of shareholders
to consider the matter within 50 days of its request. The Company has not "opted
out" of The North Carolina Control Share Acquisition Act.
These provisions were designed to deter certain takeovers of North Carolina
corporations.
TRANSFER AGENT AND REGISTRAR
The transfer agent for the Common Stock will be .
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 11,205,357 shares
of Common Stock outstanding. All of the shares offered hereby will be freely
saleable in the public market after completion of this offering, unless acquired
by affiliates of the Company. All of the shares outstanding prior to completion
of this offering are subject to contractual restrictions which prohibit the
shareholder from selling or otherwise disposing of shares for a period of 180
days after the date of this Prospectus without the prior written consent
of Alex. Brown & Sons Incorporated. The Selling Shareholders may not sell
or otherwise dispose of any of their remaining shares for a period of
180 days after the date of this Prospectus without the consent of Alex.
Brown & Sons Incorporated. After this 180-day period expires, 519,252
of the currently outstanding shares will be freely saleable in the
public market, and 8,536,105 shares will be eligible for resale in the
public market under Rule 144 promulgated under the Securities Act. Upon the
expiration of the 180-day period, shares of Common Stock then held by
affiliates of the Company will be subject to certain volume and other
limitations discussed below under Rule 144.
The Company has agreed not to sell, contract to sell or otherwise dispose
of any shares of Common Stock for a period of 180 days after the date of this
Prospectus, except as consideration for business acquisitions or upon exercise
of currently outstanding stock options, without the prior written consent of
Alex. Brown & Sons Incorporated.
In general, under Rule 144 as amended effective April 29, 1997, a person
(or persons whose shares are aggregated), including persons who may be deemed
affiliates of the Company, who has beneficially owned his or her shares for at
least one year is entitled to sell within any three-month period that number of
shares which does not exceed the greater of 1% of the outstanding shares of the
Common Stock (112,054 shares after completion of this offering) or the average
weekly trading volume during the four calendar weeks preceding each such sale.
Sales under Rule 144 also are subject to certain manner of sale provisions,
notice requirements and the availability of current public information about the
Company. Under Rule 144(k), a person (or persons whose shares are aggregated)
who is not or has not been deemed an "affiliate" of the Company for at least
three months and who has beneficially owned his or her shares for at least two
years would be entitled to sell such shares under Rule 144 without regard to the
limitations discussed above.
42
<PAGE>
There has been no public market for the Common Stock prior to this offering
and no assurance can be given that an active public market for the Common Stock
will develop or be sustained after completion of this offering. Sales of
substantial amounts of the Common Stock, or the perception that such sales could
occur, could adversely affect the prevailing market price of the Common Stock
and could impair the Company's ability to raise capital or effect acquisitions
through the issuance of Common Stock.
43
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated and Deutsche Morgan Grenfell Inc., have
severally agreed to purchase from the Company and the Selling Shareholders the
following respective number of shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
<S> <C>
Alex. Brown & Sons Incorporated..................................................................................
Deutsche Morgan Grenfell Inc.....................................................................................
Total.................................................................................................. 2,150,000
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of the Common Stock offered hereby,
if any of such shares are purchased.
The Company and the Selling Shareholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain other dealers. After commencement of the initial public
offering, the offering price and other selling terms may be changed by the
Representatives of the Underwriters.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 322,500
additional shares of Common Stock at the initial public offering price less the
underwriting discounts, and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to the total number of shares offered by the
Company hereunder, and the Company will be obligated, pursuant to the option, to
sell such shares to the Underwriters. The Underwriters may exercise such option
only to cover overallotments made in connection with the sale of the Common
Stock offered hereby. If purchased, the Underwriters will offer such additional
shares on the same terms as those on which the 2,150,000 shares are being
offered.
To facilitate the offering of the Common Stock, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. Specifically, the Underwriters may over-allot shares of the
Common Stock in connection with the offering, thereby creating a short position
in the Underwriters' syndicate account. Additionally, to cover such
over-allotments or to stabilize the market price of the Common Stock, the
Underwriters may bid for, and purchase, shares of the Common Stock in the open
market. Any of these activities may maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The Underwriters are not required to engage in these activities, and, if
commenced, any such activities may be discontinued at any time. The
Representatives, on behalf of the syndicate of Underwriters, also may reclaim
selling concessions allowed to an Underwriter or dealer, if the syndicate
repurchases shares distributed by that Underwriter or dealer.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
44
<PAGE>
The Company has agreed not to sell, contract to sell or otherwise dispose
of any shares of Common Stock for a period of 180 days after the date of this
Prospectus, except as consideration for business acquisitions or upon exercise
of currently outstanding stock options, without the prior written consent of
Alex. Brown & Sons Incorporated. All shareholders, directors and officers of the
Company have agreed not to sell, contract to sell or otherwise dispose of any
shares of Common Stock for a period of 180 days and all Selling Shareholders in
this offering have agreed not to sell, contract to sell or otherwise dispose of
any shares of Common Stock for a period of 180 days, in either case without the
prior written consent of Alex. Brown & Sons Incorporated. See "Shares Eligible
For Future Sale".
The Representatives of the Underwriters have advised the Company that they
do not intend to confirm sales to any account over which they exercise
discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined by negotiations between the Company and the
Representatives of the Underwriters. Among the factors to be considered in such
negotiations are prevailing market conditions, the results of operations of the
Company in recent periods, the market capitalizations and stages of development
of other companies which the Company and the Representatives believe to be
comparable to the Company, estimates of the business potential of the Company,
the present state of the Company's development and other factors deemed
relevant.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company and the Selling Shareholders by Wyrick
Robbins Yates & Ponton L.L.P., Raleigh, North Carolina. Certain legal matters
related to this offering will be passed upon for the Underwriters by Piper &
Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The financial statements as of December 31, 1996 and 1995 and for each of
the three years in the period ended December 31, 1996 included herein and in the
Registration Statement, and the financial statements from which the Selected
Financial Data included in this Prospectus have been derived, have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein and in the Registration Statement, and are included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part) on
Form S-1 under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Statements contained in the
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto. For further information regarding the Company
and the Common Stock offered hereby, reference is hereby made to the
Registration Statement and such exhibits and schedules which may be obtained
from the Commission at the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Commission maintains a World Wide Web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's web-site is
http:\\www.sec.gov.
45
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report........................................................................................... F-2
Balance Sheets as of December 31, 1995 and 1996........................................................................ F-3
Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996.......................................... F-4
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996.......................................... F-5
Notes to Financial Statements.......................................................................................... F-6
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
WASTE INDUSTRIES, INC.:
We have audited the accompanying balance sheets of Waste Industries, Inc.
(the "Company") as of December 31, 1995 and 1996 and the related statements of
operations and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1995 and 1996
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Raleigh, North Carolina
April 20, 1997
F-2
<PAGE>
WASTE INDUSTRIES, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 10).......................................................... $ 2,071,010 $ 1,803,438
Accounts receivable -- trade, (less allowance for uncollectible accounts of approximately
$487,000 and $616,000 at December 31, 1995 and 1996, respectively)........................ 7,789,421 9,236,071
Inventories.................................................................................. 1,537,527 1,973,810
Prepaid expenses and other current assets.................................................... 323,798 414,533
Total current assets.................................................................... 11,721,756 13,427,852
PROPERTY AND EQUIPMENT, net (Notes 2 and 3).................................................... 33,742,448 39,841,929
RECEIVABLES -- AFFILIATED COMPANIES (Note 7)................................................... 1,113,534 1,175,205
INTANGIBLE ASSETS (Notes 2 and 4).............................................................. 3,815,986 3,698,963
OTHER NONCURRENT ASSETS........................................................................ 279,013 923,926
TOTAL ASSETS................................................................................... $50,672,737 $59,067,875
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt (Notes 2 and 4)......................................... $ 1,274,147 $ 155,492
Accounts payable -- trade.................................................................... 4,668,916 5,637,730
Accrued expenses and other liabilities (Note 8).............................................. 2,950,440 3,300,354
Accrued distributions (Note 6)............................................................... -- 1,820,000
Notes payable to shareholders................................................................ 318,884 --
Deferred revenue............................................................................. 708,405 913,389
Total current liabilities............................................................... 9,920,792 11,826,965
LONG-TERM DEBT, net of current maturities (Notes 2 and 4)...................................... 27,193,392 33,070,228
COMMITMENTS AND CONTINGENCIES (Notes 5, 7 and 9)
SHAREHOLDERS' EQUITY (Notes 6, 7 and 11):
Preferred stock.............................................................................. -- --
Common stock (Adjusted -- Note 6)............................................................ 91,648 91,989
Additional capital........................................................................... 1,367,629 --
Retained earnings............................................................................ 12,614,570 14,319,583
Shareholders' loans (Note 7)................................................................. (515,294) (240,890)
Total shareholders' equity.............................................................. 13,558,553 14,170,682
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................................................... $50,672,737 $59,067,875
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
WASTE INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
REVENUES........................................................................ $66,382,023 $82,304,692 $92,379,340
OPERATING COSTS AND EXPENSES:
Cost of operations (Notes 5, 7 and 9)......................................... 37,853,324 50,395,070 59,337,276
Selling, general and administrative (Note 8).................................. 15,143,383 15,467,274 16,328,694
Depreciation and amortization................................................. 7,615,395 8,216,715 8,471,415
Total operating costs and expenses....................................... 60,612,102 74,079,059 84,137,385
OPERATING INCOME................................................................ 5,769,921 8,225,633 8,241,955
OTHER EXPENSE (INCOME):
Interest expense (Note 4)..................................................... 1,920,008 2,121,679 2,395,281
Interest income............................................................... (180,360) (318,104) (188,563)
Equipment sales and installation (Note 7)..................................... (454,777) (383,497) (507,317)
Other (Note 7)................................................................ (107,549) (154,869) (506,332)
Total other expense (income)............................................. 1,177,322 1,265,209 1,193,069
NET INCOME -- Historical Basis.................................................. $ 4,592,599 $ 6,960,424 $ 7,048,886
PRO FORMA INCOME BEFORE INCOME TAXES (Note 12).................................. $ 4,592,599 $ 6,960,424 $ 7,048,886
PRO FORMA INCOME TAXES (Note 12)................................................ 1,865,000 2,790,000 2,845,000
PRO FORMA NET INCOME (Note 12).................................................. $ 2,727,599 $ 4,170,424 $ 4,203,886
PRO FORMA PRIMARY EARNINGS PER COMMON SHARE (Adjusted -- Notes 6 and 12)........ $ 0.28 $ 0.43 $ 0.43
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (Adjusted -- Note 6)....... 9,590,277 9,594,035 9,684,565
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
WASTE INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income -- historical basis................................................ $ 4,592,599 $ 6,960,424 $ 7,048,886
Adjustments to reconcile net income -- historical basis
to net cash provided by operating activities:
Depreciation and amortization.............................................. 7,615,395 8,216,715 8,521,900
Gain on sale of property and equipment..................................... (61,124) (38,999) (175,171)
Changes in assets and liabilities, net of effects
from acquisitions of related businesses:
Accounts receivable -- trade............................................. 601,996 (1,071,172) (1,446,650)
Inventories.............................................................. (334,147) (581,863) (436,283)
Prepaid and other current assets......................................... (365,012) 440,568 (90,735)
Accounts payable -- trade................................................ 315,615 1,194,074 968,814
Accrued expenses and other liabilities................................... 477,103 589,958 349,914
Deferred revenue......................................................... 91,040 77,756 204,984
Net cash provided by operating activites.............................. 12,933,465 15,787,461 14,945,659
INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.................................. 1,151,612 1,190,004 715,180
Purchases of property and equipment........................................... (10,563,294) (8,141,576) (14,411,360)
Acquisition of related business............................................... (317,500) (1,685,000) (268,927)
Advances to (borrowings from) affiliates...................................... (1,509,752) 179,135 (61,671)
Collections on other long-term receivables.................................... 3,730 2,145 2,317
Other noncurrent assets....................................................... (200,609) (100,818) (769,145)
Net cash used in investing activities................................. (11,435,813) (8,556,110) (14,793,606)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt...................................... 5,530,000 5,380,000 35,618,225
Principal payments on long-term debt.......................................... (5,971,614) (6,885,033) (31,102,209)
Proceeds from issuance of notes payable to shareholders....................... -- 286,620 --
Repayments of notes payable to shareholders................................... (11,908) -- (318,884)
Repayments of notes receivable from shareholders.............................. -- 820,376 274,404
Advances to shareholders...................................................... (101,255) -- --
Proceeds from exercise of stock options....................................... 345,293 -- 44,756
Changes in partners' capital.................................................. 390,714 (900,233) (1,816,215)
Cash distributions to shareholders............................................ (1,626,355) (5,901,461) (3,119,702)
Net cash used in financing activities................................. (1,445,125) (7,199,731) (419,625)
NET INCREASE (DECREASE)......................................................... 52,527 31,620 (267,572)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.................................... 1,986,863 2,039,390 2,071,010
CASH AND CASH EQUIVALENTS, END OF YEAR.......................................... $ 2,039,390 $ 2,071,010 $ 1,803,438
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION --
<TABLE>
<S> <C> <C> <C>
Cash paid for interest.......................................................... $ 1,941,760 $ 2,045,375 $ 1,931,808
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS:
During 1994 the Company refinanced a capital lease obligation of $443,984. The
net book value of the equipment which was disposed of was $469,435. A loss of
$25,451 was recognized on the transaction.
At December 31, 1996, the Company accrued $1,820,000 of distributions to
shareholders as partial reimbursement for 1996 taxes owed.
See Notes to Financial Statements.
F-5
<PAGE>
WASTE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
BUSINESS OPERATIONS -- Waste Industries, Inc. (the "Company") is a regional
solid waste services company providing solid waste collection, transfer,
recycling, processing and disposal services to customers in North Carolina and
South Carolina and waste collection services in Virginia.
In April 1996, the Company exchanged 2,118,457 shares of its common stock
on a share-for-share basis for all of the outstanding common stock of the
following companies affiliated through common ownership: Waste Enterprises,
Inc., Waste Industries South, Inc., Waste Industries West, Inc., Waste
Industries East, Inc., Kabco, Inc., Conway 378, Inc. and AmLease, Inc. As a
result, common stock increased by $18,208, treasury stock decreased by $85,098
and additional capital decreased by $103,306. Simultaneously, certain real
estate properties previously leased to the Company by Property Management Group
("PMG"), a partnership of certain shareholders of the Company, were transferred
to the Company. In connection with this transfer, a distribution of $1,686,021
was made to PMG. As a result, retained earnings decreased by $404,171 and
additional capital decreased by $1,281,850.
The assets and liabilities transferred are accounted for at historical cost
in a manner similar to that in pooling of interests accounting. The Company's
financial statements have been restated to include the accounts and operations
for all periods prior to the merger.
SIGNIFICANT ACCOUNTING POLICIES -- The significant accounting policies are
summarized below:
a. CASH AND CASH EQUIVALENTS -- For the purposes of presentation in the
financial statements, cash equivalents include highly liquid investments with
original maturities of three months or less.
b. INVENTORIES -- Inventories consist of trucks, containers and supplies
held for use or resale and are stated at the lower of cost or market using the
specific-identification method of costing.
c. PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Depreciation expense is calculated on the straight-line method. Estimated useful
lives are as follows:
<TABLE>
<S> <C>
Machinery and equipment............................................................... 3 to 10 years
Furniture, fixtures and vehicles...................................................... 3 to 10 years
Building.............................................................................. 30 years
</TABLE>
Maintenance and repair costs are charged to expense as incurred.
d. INTANGIBLE ASSETS -- Intangible assets are net of accumulated
amortization and consist of the following:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Goodwill.................................................................. $3,023,227 $3,062,358
Noncompete and consulting agreements...................................... 792,759 636,605
Intangible assets......................................................... $3,815,986 $3,698,963
</TABLE>
Noncompete and consulting agreements are amortized using the straight-line
method over the lives of the agreements. Goodwill is amortized using the
straight-line method over 15 to 40 years.
e. OTHER NONCURRENT ASSETS -- Included in other noncurrent assets are debt
issue costs relating to the new borrowings (see Note 4). Debt issue costs are
amortized to interest expense using the effective interest method over the life
of the related debt.
f. LONG-LIVED ASSETS -- As required, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF." Accordingly,
long-lived assets are reviewed for impairment on a market-by-market basis
whenever events or changes in the circumstances indicate that the carrying
amount of an asset may not be recoverable. If an evaluation is required, the
projected future undiscounted future cash flows attributable to each market
would be compared to the carrying value of the long-lived assets (including an
allocation of goodwill, if appropriate) of that market if a write-down to fair
value is required. The Company
F-6
<PAGE>
WASTE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES -- Continued
also evaluates the remaining useful lives to determine whether events and
circumstances warrant revised estimates of such lives.
g. PRO FORMA PRIMARY EARNINGS PER SHARE -- Pro forma primary earnings per
share computations are based on the weighted-average common stock outstanding
and include the dilutive effect of stock options using the treasury stock
method. The treasury stock method is applied using valuation guidelines adopted
by the Company's Board of Directors and is based on factors that include (i)
weighted-average after-tax earnings as though the Company had been taxed as a C
Corporation, (ii) average annual price-to-earnings ratios of selected
publicly-traded companies in the waste industry, and (iii) a discount factor to
compensate for the difference in marketability of a stock of a publicly-traded
entity as opposed to a nonpublic entity, as defined. Common stock outstanding
used to compute the weighted-average shares was retroactively adjusted for the
exchange of shares resulting from the merger of affiliated companies, for the
conversion of nonvoting to voting stock, and for the 1-for-2.5 reverse stock
split as discussed in Note 6. Fully diluted earnings per share are not presented
as potentially dilutive securities, in the aggregate, dilute primary earnings
per share by less than three percent.
h. STOCK OPTION PLAN -- The Company accounts for employee stock
compensation in accordance with Accounting Principles Board Opinion ("APB") No.
25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES." Under APB No. 25, the total
compensation expense is equal to the difference between the award's exercise
price and the intrinsic value at the measurement date, which is the first date
that both the exercise price and number of shares to be issued is known.
SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," is effective
January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not require)
compensation cost to be measured based on the fair value of the equity
instrument awarded. Companies are, however, permitted to continue to apply APB
No. 25. The Company will continue to apply APB No. 25 to its stock-based
compensation awards to employees and will disclose the required pro forma effect
on net income and earnings per share.
i. DEFERRED REVENUE -- Deferred revenue consists of collection fees billed
in advance. Revenue is recognized as services are provided.
j. INCOME TAXES -- The Company has elected S Corporation status, whereby
the corporation is exempt from all federal and state income taxes and its
individual shareholders are taxed on their pro rata share of corporate taxable
income.
k. USE OF ESTIMATES -- In preparing financial statements that conform with
generally accepted accounting principles, management must use estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and amounts of revenue and expenses reflected during the reporting
period. Actual results could differ from those estimates.
l. NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED -- In February
1997, SFAS No. 128, "EARNINGS PER SHARE," was issued. This Statement establishes
standards for computing and presenting earnings per share (EPS) and applies to
entities with publicly held common stock or potential common stock. This
Statement simplifies the standards for computing earnings per share previously
found in APB No. 15, "EARNINGS PER SHARE," and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. This Statement is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods;
earlier application is not permitted. This Statement requires restatement of all
prior-period EPS data presented. The adoption of this Statement will not have a
material impact on the Company's financial statements.
m. RECLASSIFICATIONS -- Certain 1994 and 1995 financial statement amounts
have been reclassified to conform with the 1996 presentation.
F-7
<PAGE>
WASTE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
2. ACQUISITIONS
During 1995 and 1996, the Company acquired the net assets of various waste
collection and disposal services businesses to expand its operations. The assets
acquired were accounted for by the purchase method of accounting and include the
following:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Property and equipment.............................................................................. $1,156,312 $150,620
Noncompete and consulting agreements................................................................ 274,000 105,000
Customer lists and goodwill......................................................................... 468,841 255,472
Total assets acquired........................................................................ 1,899,153 511,092
Less obligations financed under notes payable....................................................... 214,153 242,165
Net acquisition cost................................................................................ $1,685,000 $268,927
</TABLE>
Related to the above acquisitions, the Company entered into noncompete
agreements with the former owners of these businesses. These amounts are being
amortized on a straight-line basis over the lives of the agreements (5 years).
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Land and buildings..................................................... $ 7,159,065 $ 7,842,952
Machinery and equipment................................................ 64,193,419 76,508,723
Furniture, fixtures and vehicles....................................... 1,611,249 1,857,843
Total property and equipment.................................... 72,963,733 86,209,518
Less accumulated depreciation.......................................... 39,221,285 46,367,589
Property and equipment, net............................................ $33,742,448 $39,841,929
</TABLE>
4. NOTES PAYABLE
Notes payable consist of the following at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Bank notes payable..................................................... $28,179,402 $32,800,000
Other:
Other installment notes payable, interest ranging from
1% to 7%.......................................................... 254,804 392,387
Present value of noncompete agreement liabilities with the former
shareholders of related businesses acquired, due in various monthly
installments through 1997............................................ 33,333 33,333
Total notes payable............................................. 28,467,539 33,225,720
Less current portion................................................... 1,274,147 155,492
Long-term portion...................................................... $27,193,392 $33,070,228
</TABLE>
On April 3, 1996, the Company entered into commitments with two lenders
under which the Company may borrow up to $75,000,000. One lender authorized the
Company to borrow under senior unsecured promissory notes and additional senior
unsecured promissory notes ("shelf notes"), each in the aggregate principal
amount of $25,000,000. The notes mature on April 3, 2006 and bear an interest
rate of 7.28%. The other lender authorized the Company to borrow $20,000,000 and
$5,000,000 under two separate unsecured notes which mature on April 1, 2006 and
April 1, 1998, respectively. Both notes bear interest at the monthly London
Interbank Offered Rate (7.3125% at December 31, 1996). The Company used a
portion of these new borrowings in 1996 to repay $26,305,889 of existing bank
debt.
F-8
<PAGE>
WASTE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4. NOTES PAYABLE -- Continued
The note agreements provide for certain covenants and restrictions
regarding, among other things, consolidated debt and senior debt to earnings
before interest, depreciation and amortization ratios, minimum net worth and
consolidated net income requirements, as well as liens, debt and capital
expenditure limitations, as defined. At December 31, 1996, the Company was in
compliance with all covenants.
The repayment term under the note agreements is ten years; interest only is
payable for the first three years, with principal payments beginning in April
1999 and continuing for the following seven years.
Annual aggregate principal maturities for the other notes payable for the
five fiscal years succeeding December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................... $ 155,492
1998........................................................... 94,182
1999........................................................... 837,349
2000........................................................... 4,744,841
2001 and thereafter............................................ 27,393,856
Total.......................................................... $33,225,720
</TABLE>
5. LEASES
OPERATING LEASES -- The future minimum rental payments required under
operating leases that have initial or remaining noncancelable lease terms in
excess of one year at December 31, 1996 follow:
<TABLE>
<S> <C>
1997............................................................ $1,505,658
1998............................................................ 1,199,891
1999............................................................ 1,060,798
2000............................................................ 645,894
2001............................................................ 213,660
Thereafter...................................................... 1,873,980
$6,499,881
</TABLE>
The total rental expense for all operating leases for the years ended
December 31, 1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Buildings and sites................... $315,835 $ 420,091 $ 439,761
Trucks and equipment.................. 211,744 824,461 1,474,321
Total................................. $527,579 $1,244,552 $1,914,082
</TABLE>
Rental expense is included in cost of operations in the statements of
operations.
F-9
<PAGE>
WASTE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
6. SHAREHOLDERS' EQUITY
Shareholders' equity consists of the following for the years ended December
31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
SHARES
$ ADDITIONAL RETAINED TREASURY
AUTHORIZED OUTSTANDING AMOUNT CAPITAL EARNINGS STOCK
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1994........................... 4,020,395 1,585,889 $60,309 $ 1,006,358 $ 8,589,363 $(85,098)
Retroactive effect of conversion of
nonvoting common stock................. -- 14,273,001 -- -- -- --
Retroactive effect of 1-for-2.5 reverse
stock split............................ -- (9,794,162) -- -- -- --
Retroactive effect of merger of
affiliates............................. 75,979,605 2,118,457 18,208 (103,306) -- 85,098
Net income................................ -- -- -- -- 4,592,599 --
Change in partners' capital............... -- -- -- 1,032,648 -- --
Exercise of stock options................. -- 1,381,168 13,131 332,162 -- --
Distributions............................. -- -- -- -- (1,626,355) --
Balance,
December 31, 1994......................... 80,000,000 9,564,353 91,648 2,267,862 11,555,607 --
Net income................................ -- -- -- -- 6,960,424 --
Change in partners' capital............... -- -- -- (900,233) -- --
Distributions............................. -- -- -- -- (5,901,461) --
Balance,
December 31, 1995......................... 80,000,000 9,564,353 91,648 1,367,629 12,614,570 --
Net income................................ -- -- -- -- 7,048,886 --
Change in partners' capital............... -- -- -- (1,412,044) (404,171) --
Exercise of stock options................. -- 35,804 341 44,415 -- --
Distributions............................. -- -- -- -- (4,939,702) --
Balance,
December 31, 1996......................... 80,000,000 9,600,157 $91,989 $ -- $14,319,583 $ --
</TABLE>
In April 1997, the Company's Board of Directors authorized a 1-for-2.5
reverse stock split and the conversion of all nonvoting common shares to voting
common shares. The Board of Directors also approved an increase in the
authorized capital of common stock from 4,020,395 shares to 80,000,000 shares
and canceled the nonvoting common shares outstanding. The common stock
previously had a par value of $.0380286 per share and was converted to no par
common stock. All share and per share information in the financial statements
has been adjusted to give retroactive effect to the reverse stock split and
conversion of nonvoting stock.
In April 1997, the Company's Board of Directors also authorized 10,000,000
shares of $0.01 par value preferred stock. Such shares have not been issued. The
Board of Directors can establish the series, the designation and number of
shares to be issued and the rights, preferences, privileges and restrictions of
the shares of each series, and to determine the voting powers, if any, of such
shares.
Shareholder loans at December 31, 1995 and 1996 include $66,502 and
$33,169, respectively, for advances made to shareholders initiated during the
exercise of stock options (see Note 11). These notes bear interest at annual
rates of 7.5% and are payable in various installments.
At December 31, 1996, the Company accrued $1,820,000 of distributions to
shareholders as partial reimbursement for 1996 taxes owed.
F-10
<PAGE>
WASTE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
7. RELATED PARTY TRANSACTIONS
OPERATING LEASES -- The Company leases equipment from officers of the
Company and from other partnerships and corporations controlled by these
officers. All of these leases are operating leases. Related party rental expense
was $8,300, $6,600 and $13,794 in 1994, 1995 and 1996, respectively, and is
included in cost of operations in the accompanying statements of operations.
MANAGEMENT AND ACCOUNTING SERVICES -- The Company provides management and
accounting services to other companies affiliated by common shareholder
interests (other affiliated companies). Agreements state that management and
accounting services shall be provided to such companies on an approximate cost
reimbursement basis, plus a specified percentage of net income these affiliated
companies generate. Management and accounting revenue earned from providing
services to these other affiliated companies was $26,994, $84,004 and $88,202 in
1994, 1995 and 1996, respectively, and are included in other income (expense) in
the accompanying statements of operations.
EQUIPMENT SALES AND SERVICES -- The Company sells and leases equipment and
vehicles and provides technical advice to affiliated and nonaffiliated
companies. Revenue generated from such activities is not material.
RECEIVABLES -- AFFILIATED COMPANIES -- At December 31, 1995 and 1996,
accounts receivable due from parties related by common shareholder interests
were $468,824 and $524,029, respectively. Notes receivable from other affiliated
companies were $644,710 at December 31, 1995 and 1996. The notes bear interest
at annual rates ranging from 5.5% to 7.19% and are payable on demand. These
amounts, including unpaid interest thereon of $-0- and $6,466 at December 31,
1995 and 1996, respectively, are included in receivables -- affiliated companies
in the accompanying balance sheets.
SHAREHOLDER LOANS -- Shareholder loans, included in shareholders' equity of
the accompanying balance sheets, are notes receivable (including unpaid interest
thereon) from shareholders of $448,792 and $207,721 at December 31, 1995 and
1996, respectively. The notes bear interest at an annual rate of 7% and are
payable on demand. Shareholder loans at December 31, 1995 and 1996 include
$66,502 and $33,169, respectively, for advances made to shareholders initiated
during the exercise of stock options (see Note 11). These notes bear interest at
annual rates of 7.5% and are payable in various installments.
GUARANTEES -- In November 1986, the Company guaranteed a $600,000 note due
to a shareholder by certain officers of the Company. This note was executed in
connection with the redemption of preferred stock. In addition, the Company
guarantees operating lease payments of $541 per month for an affiliate.
8. BENEFIT PLANS
401(K) PROFIT SHARING AND RETIREMENT PLAN (401K) -- The Company has a
401(k) Profit Sharing Retirement Plan and Trust (the "Plan") for the benefit of
its full time employees who have more than one year of service and are over 21
years of age. The plan also benefits employees of certain related parties
through separate funding arrangements. Contributions to this retirement plan are
made by employees under a 401(k) pre-tax contribution plan and by the Company
through 401(k) matching contributions and discretionary profit sharing
contributions. The discretionary profit sharing contribution is made annually as
determined by management based on the Company's financial performance. The
Company's matching contributions to the 401(k) plan were $29,161, $50,812 and
$158,804 for December 31, 1994, 1995 and 1996, respectively. The Company's
profit sharing contributions were $253,485, $461,244 and $333,936 for December
31, 1994, 1995 and 1996, respectively. Contributions by the Company are included
in operating costs and expenses in the accompanying statements of operations.
SELF-INSURED MEDICAL PLAN -- The Company has a self-insured plan for
employee medical benefits. The plan covers all full-time employees of the
Company beginning on the first day of the month on, or following, their 90th day
of employment. The Company pays premiums for its employees to the plan and
withholds from employees additional amounts for elected covered dependents. As
claims are processed by the plan's third-party administrator, the insurance
carrier requests funds from the Company. The Company maintains stop loss
coverage for the plan. The Company's expense relating to the plan for 1994, 1995
and 1996 was $47,932, $56,005 and $49,933, respectively.
F-11
<PAGE>
WASTE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
9. CONTINGENCIES
Certain claims and lawsuits arising in the ordinary course of business have
been filed or are pending against the Company. In the opinion of management, all
such matters have been adequately provided for, are adequately covered by
insurance, or are of such kind that if disposed of unfavorably, would not have a
material adverse effect on the Company's financial position or results of
operations.
10. LETTERS OF CREDIT
The Company has a line of credit totaling $1,000,000 with interest charged
at the bank's 90-day adjusted CD rate plus 1.5%. This line covers irrevocable
letters of credit issued to secure various contracts. All letters of credit used
are required to be 50% collateralized by cash. At December 31, 1995 and 1996,
the company has entered into irrevocable letters of credit totaling
approximately $1,034,002 and $362,170, respectively.
11. STOCK OPTION PLAN
In July 1988, the Company's Board of Directors (the "Board") authorized an
Employee Non-Qualified Stock Option Plan ("the Plan"). The number of authorized
shares is determined periodically by the Company's Board. At December 31, 1996,
1,400,000 shares of common stock were authorized for issuance under the Plan.
Options are granted to key employees at prices as determined by the Board and
may be exercisable in one or more installments. Additionally, terms and
conditions of stock awards granted under the Plan may differ from one grant to
another. Options have been retroactively adjusted for the exchange of shares
resulting from the merger of affiliated companies on April 1, 1996, for the
stock dividend of nine nonvoting shares for each voting share in 1995, and for
the 1-for-2.5 reverse stock split and the conversion of all nonvoting shares to
common shares in 1996. A summary of the status of the Plan as of December 31,
1994, 1995 and 1996 and changes during the years ending on those dates is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
<S> <C> <C>
Balance, January 1, 1994...................................................... 1,416,972 $ 0.28
Exercised..................................................................... (1,381,168) (0.24)
Balance, December 31, 1994.................................................... 35,804 1.25
Granted -- May 5, 1995........................................................ 6,000 2.88
Balance, December 31, 1995.................................................... 41,804 1.48
Exercised..................................................................... (35,804) (1.25)
Granted -- April 1, 1996...................................................... 520,000 5.13
Balance, December 31, 1996.................................................... 526,000 5.10
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED EXERCISABLE
RANGE OF NUMBER AVERAGE REMAINING WEIGHTED WEIGHTED
EXERCISE OF SHARES CONTRACTUAL AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE OF SHARES EXERCISE PRICE
<S> <C> <C> <C> <C> <C>
$1.25-$5.31 6,000 3 $ 2.88 -- --
$5.13 120,000 4.25 $ 5.13 -- --
$5.13 400,000 4.25 $ 5.13 400,000 $ 5.13
</TABLE>
F-12
<PAGE>
WASTE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
11. STOCK OPTION PLAN -- Continued
The Company applies ABP No. 25 and related Interpretations in accounting
for the Plan. Accordingly, no compensation cost has been recognized for the
Plan. Had compensation cost for the Plan been determined based on the fair value
at the grant dates for awards under the Plan consistent with the method of SFAS
No. 123, the Company's net income -- historical basis, pro forma net income and
pro forma primary earnings per share for the years ended December 31, 1995 and
1996 would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Net Income -- Historical Basis:
As reported................................................................. $6,960,424 $7,048,886
Pro forma................................................................... 6,957,424 6,808,886
Pro Forma Net Income:
As reported................................................................. 4,170,424 4,203,886
Pro forma................................................................... 4,167,424 3,963,886
Pro Forma Primary Earnings Per Share:
As reported................................................................. $ 0.43 $ 0.43
Pro forma................................................................... $ 0.43 $ 0.41
</TABLE>
As permitted under SFAS No. 123, the fair value of options granted under
the Company's plan during 1995 and 1996 was computed based on the
weighted-average current prices of the stock less the present value of the
weighted-average exercise prices. The weighted-average expected lives were
assumed to be 3.67 years in 1995 and 2.83 years in 1996.
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that expected in future years.
12. SUBSEQUENT EVENTS
On March 14, 1997, the Company signed a letter of intent to purchase
certain assets employed or arising in connection with solid waste, recycling and
medical waste business in and around Charleston, South Carolina from a waste
collection and disposal service business for $4,800,000 plus defined
post-closing adjustments.
On March 21, 1997, the Company purchased certain assets that primarily
consisted of individual residential subscription business for solid waste
services and, in some cases, recycling services in Wake, Durham, Orange,
Johnston, Franklin and Chatham Counties of North Carolina from a waste
collection and disposal service business for $780,000 plus defined post-closing
adjustments.
For each of the fiscal years presented, the Company was an S Corporation
and, accordingly, was not subject to federal and certain state corporate income
taxes. The pro forma information has been computed as if the Company were
subject to federal and all applicable state corporate income taxes for each of
the fiscal years presented assuming the tax rate that would have been applied
had the Company been taxed as a C Corporation.
F-13
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary................................... 3
Risk Factors......................................... 6
Use of Proceeds...................................... 11
Dividend Policy and Prior S Corporation Status....... 11
Dilution............................................. 12
Capitalization....................................... 13
Selected Consolidated Financial and Operating Data... 14
Management's Discussion and Analysis of Financial
Condition and Results of
Operations......................................... 15
Business............................................. 21
Management........................................... 34
Certain Transactions................................. 40
Principal and Selling Shareholders................... 41
Description of Capital Stock......................... 41
Shares Eligible for Future Sale...................... 42
Underwriting......................................... 44
Legal Matters........................................ 45
Experts.............................................. 45
Available Information................................ 45
Index to Financial Statements........................ F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,150,000 SHARES
[LOGO]
COMMON STOCK
PROSPECTUS
ALEX. BROWN & SONS
INCORPORATED
DEUTSCHE MORGAN GRENFELL
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, incurred in connection with the sale of
Common Stock being registered (all amounts are estimated except the SEC
registration fee, the NASD filing fee and the Nasdaq listing fee). The Company
will bear all expenses incurred in connection with the sale of the Common Stock
being registered hereby, and the Selling Shareholders will not bear any portion
of such expenses other than underwriters' discounts and commissions relating to
the shares to be sold by each Selling Shareholder.
<TABLE>
<S> <C>
SEC registration fee...................................................................... $ 9,366
NASD filing fee........................................................................... 3,591
The Nasdaq Stock Market listing fee....................................................... 45,514
Printing fees and expenses................................................................ 75,000
Legal fees and expenses................................................................... 150,000
Accounting fees and expenses.............................................................. 150,000
Blue sky fees and expenses................................................................ N/A
Stock certificates and transfer agent and custodian fees.................................. 10,000
Miscellaneous............................................................................. 6,529
Total................................................................................... $450,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Articles of Incorporation and Bylaws include provisions to
(i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the fullest extent permitted
by Section 55-8-30(e) of the North Carolina Business Corporation Act (the
"Business Corporation Act"), and (ii) require the Registrant to indemnify its
directors and officers to the fullest extent permitted by Sections 55-8-50
through 55-8-58 of the Business Corporation Act, including circumstances in
which indemnification is otherwise discretionary. Pursuant to Sections 55-8-51
and 55-8-57 of the Business Corporation Act, a corporation generally has the
power to indemnify its present and former directors, officers, employees and
agents against expenses incurred by them in connection with any suit to which
they are, or are threatened to be made, a party by reason of their serving in
such positions so long as they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, they had no reasonable
cause to believe their conduct was unlawful. The Registrant believes that these
provisions are necessary to attract and retain qualified persons as directors
and officers. These provisions do not eliminate the directors' duty of care,
and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under Business
Corporation Act. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant, for
acts or omissions that the director believes to be contrary to the best
interests of the Registrant or its shareholders, for any transaction from which
the director deprived an improper personal benefit, for acts or omissions
involving a reckless disregard for the director's duty to the Registrant or its
shareholders when the director was aware or should have been aware of a risk of
serious injury to the Registrant or its shareholders, for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the Registrant or its shareholders, for improper
transactions between the director and the Registrant and for improper
distributions to shareholders and loans to directors and officers. These
provisions do not affect a director's responsibilities under any other laws,
such as the federal securities laws or state or federal environmental laws.
The Registrant's Bylaws require the Registrant to indemnify its directors
and officers against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred (including expenses of a derivative action) in
connection with any proceeding, whether actual or threatened, to which any such
person may be made a party by reason of the fact that such person is or was a
director or officer of the Registrant or any of its affiliated enterprises,
provided such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interest of the Registrant and,
with respect to any proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The Registrant's Bylaws also set forth certain procedures
that will apply in the event of a claim for indemnification thereunder.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since March 31, 1991, the Registrant has issued and sold the following
unregistered securities (adjusted to give effect to all stock splits, including
the 1-for-2.5 reverse split to be effected prior to the
completion of this offering):
On January 1, 1994, the Company issued an aggregate of 107,180 shares
of its voting Common stock to twelve investors (including three directors
and nine employees).
On May 1, 1995, the Company issued an aggregate of 2,254,910 shares of
its nonvoting Common Stock to a total of 15 existing shareholders (including
four directors and 11 employees).
On January 1, 1996, The Company issued 2,778 shares of its voting Common
Stock and 25,006 of its nonvoting Common Stock to a total of six individuals
(including two existing shareholders, two directors and two employees).
On April 1, 1996, the Company issued 22,263 shares of its voting Common
Stock and 1,933,758 shares of its nonvoting Common Stock to (i) two grantor
trusts established by the Company's Chairman and Chief Executive Officer for
his adult children, and (ii) a total of 17 individuals (including four directors
of the Company and 13 existing shareholders of affiliated companies), in
exchange for all the outstanding shares of such affiliated companies. All
of these companies were merged with and into the Company effective on
such date (the "Merged Affiliates"). Pursuant to and effective upon the
date of these mergers, each outstanding share of the voting and nonvoting
Common Stock of the Merged Affiliates was converted into the right to
receive an equal number of shares of the Company's voting and nonvoting
Common Stock, respectively.
From March 31, 1994 through March 31, 1997, the Company issued
options to purchase an aggregate of approximately 526,000 shares of
Common Stock to employees and directors of the Company. The Company
has issued an aggregate of 35,804 shares upon exercise of these
options during such time period.
The sales of the above securities were deemed to be exempt from
registration under the Act in reliance upon Section 4(2) of the Act or
Regulation D or Rule 701 promulgated thereunder as transactions by an issuer not
involving a public offering. Recipients of the securities in each such
transaction represented their intentions to acquire such securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the instruments
issued in such transactions. All recipients had adequate access to information
about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Form of Articles of Incorporation, as proposed to become effective prior to effectiveness of this
registration statement.
3.2 Bylaws.
5.1* Opinion of Wyrick Robbins Yates & Ponton L.L.P.
10.1 1997 Stock Plan.
10.2 Credit Agreement with Branch Banking and Trust Company dated April 3, 1996.
10.3 Note Purchase and Private Shelf Agreement with The Prudential Insurance Company of America dated April 3,
1996.
11.1 Computation re Earnings per Share.
21.1 List of Subsidiaries.
23.1 Consent of Deloitte & Touche LLP.
23.2* Consent of Wyrick Robbins Yates & Ponton L.L.P. (contained in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
</TABLE>
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES.
No schedules have been included because the information required to be set
forth therein is not applicable.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted for directors, officers, and controlling persons of the
Registrant pursuant to provisions described in Item 14 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be new registration statement relating to the
securities offered therein, and the Offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Raleigh, State of North
Carolina, on this 22nd day of April 1997.
WASTE INDUSTRIES, INC.
By: /s/ Lonnie C. Poole, Jr.
LONNIE C. POOLE, JR.
CHAIRMAN
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Lonnie
C. Poole, Jr. and Robert H. Hall, and each of them, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any related Registration Statements filed
pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
/s/ LONNIE C. POOLE, JR. Director, Chairman and Chief Executive Officer April 22, 1997
LONNIE C. POOLE, JR. (Principal Executive Officer)
/s/ ROBERT H. HALL Director, Vice President, Chief Financial April 22, 1997
ROBERT H. HALL Officer and Treasurer (Principal Financial and
Accounting Officer)
/s/ JIM W. PERRY Director April 22, 1997
JIM W. PERRY
/s/ J. GREGORY POOLE, JR. Director April 22, 1997
J. GREGORY POOLE, JR.
</TABLE>
II-4
<PAGE>
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, each of the undersigned hereby consents to being named in this
Registration Statement and all amendments (including post-effective amendments)
to this Registration Statement and any related Registration Statements filed
pursuant to Rule 462(b) promulgated under the Securities Act of 1933, as a
person to become a director of the Registrant upon consummation of the offering
made hereby.
<TABLE>
<S> <C> <C>
/s/ THOMAS F. DARDEN
THOMAS F. DARDEN April 22, 1997
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Form of Articles of Incorporation, as proposed to become effective prior
to effectiveness of this registration statement.
3.2 Bylaws.
5.1* Opinion of Wyrick Robbins Yates & Ponton L.L.P.
10.1 1997 Stock Plan.
10.2 Credit Agreement with Branch Banking and Trust Company dated April 3,
1996.
10.3 Note Purchase and Private Shelf Agreement with The Prudential Insurance
Company of America dated April 3, 1996.
11.1 Computation re Earnings per Share.
21.1 List of Subsidiaries.
23.1 Consent of Deloitte & Touche LLP.
23.2* Consent of Wyrick Robbins Yates & Ponton L.L.P. (contained in Exhibit
5.1).
24.1 Power of Attorney (see page II-4).
</TABLE>
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES.
No schedules have been included because the information required to be set
forth therein is not applicable.
Exhibit 1.1
_______________ Shares
WASTE INDUSTRIES, INC.
Common Stock
UNDERWRITING AGREEMENT
_______________, 1997
Alex. Brown & Sons Incorporated
Deutsche Morgan Grenfell
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
1 South Street
Baltimore, Maryland 21202
Gentlemen:
Waste Industries, Inc., a North Carolina corporation (the "Company"),
and certain shareholders of the Company (the "Selling Shareholders") propose to
sell to the several underwriters (the "Underwriters") named in Schedule I hereto
for whom you are acting as representatives (the "Representatives") an aggregate
of __________ shares of the Company's Common Stock, $_____ par value (the "Firm
Shares"), of which __________ shares will be sold by the Company and __________
shares will be sold by the Selling Shareholders. The respective amounts of the
Firm Shares to be so purchased by the several Underwriters are set forth
opposite their names in Schedule I hereto, and the respective amounts to be sold
by the Selling Shareholders are set forth opposite their names in Schedule II
hereto. The Company and the Selling Shareholders are sometimes referred to
herein collectively as the "Sellers." The Company also proposes to sell at the
Underwriters' option an aggregate of up to __________ additional shares of the
Company's Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company and the Selling
Shareholders (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and (b) that the several Underwriters are willing,
acting severally and not jointly, to purchase the numbers of Firm Shares set
forth opposite their respective names in Schedule I, plus their pro rata portion
of the Option Shares if you elect to exercise the over-allotment option in whole
or in
-1-
<PAGE>
part for the accounts of the several Underwriters. The Firm Shares and the
Option Shares (to the extent the aforementioned option is exercised) are herein
collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SHAREHOLDERS.
(a) The Company represents and warrants to each of the Underwriters as
follows:
(i) A registration statement on Form S-1 (File No. 333-______) with
respect to the Shares has been carefully prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Act"), and
the Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462 (b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means (a) the form of prospectus first
filed with the Commission pursuant to Rule 424(b) or (b) the last preliminary
prospectus included in the Registration Statement filed prior to the time it
becomes effective or filed pursuant to Rule 424(a) under the Act that is
delivered by the Company to the Underwriters for delivery to purchasers of the
Shares, together with the term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus."
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of North Carolina, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement.
(iii) The outstanding shares of Common Stock of the Company, including
all shares to be sold by the Selling Shareholders, have been duly authorized and
validly issued and are fully paid and non-assessable; the portion of the Shares
to be issued and sold by the Company have been duly authorized and when issued
and paid for as contemplated herein will be validly issued, fully paid and
non-assessable; and no preemptive rights of stockholders exist with respect to
any of the Shares or the issue and sale thereof. Neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated by
this Agreement gives rise to any rights, other
-2-
<PAGE>
than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock.
(iv) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct. All of the Shares conform to the description
thereof contained in the Registration Statement. The form of certificates for
the Shares conforms to the corporate law of the jurisdiction of the Company's
incorporation.
(v) The Commission has not issued an order preventing or suspending the
use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will conform, to the
requirements of the Act and the Rules and Regulations. The Registration
Statement and any amendment thereto do not contain, and will not contain, any
untrue statement of a material fact and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue statement
of material fact; and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or warranties as to
information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
any Underwriter through the Representatives, specifically for use in the
preparation thereof.
(vi) The financial statements of the Company, together with related
notes and schedules as set forth in the Registration Statement, present fairly
the financial position and the results of operations and cash flows of the
Company, at the indicated dates and for the indicated periods. Such financial
statements and related schedules have been prepared in accordance with generally
accepted principles of accounting, consistently applied throughout the periods
involved, except as disclosed herein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary financial
and statistical data included in the Registration Statement presents fairly the
information shown therein and such data has been compiled on a basis consistent
with the financial statements presented therein and the books and records of the
Company.
(vii) Deloitte & Touche LLP, who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
-3-
<PAGE>
(viii) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company before any court or
administrative agency or otherwise which if determined adversely to the Company
might result in any material adverse change in the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company or to prevent the consummation of the
transactions contemplated hereby, except as set forth in the Registration
Statement.
(ix) The Company has good and marketable title to all of the properties
and assets reflected in the financial statements (or as described in the
Registration Statement) hereinabove described, subject to no lien, mortgage,
pledge, charge or encumbrance of any kind except those reflected in such
financial statements (or as described in the Registration Statement) or which
are not material in amount. The Company occupies its leased properties under
valid and binding leases conforming in all material respects to the description
thereof set forth in the Registration Statement.
(x) The Company has filed all Federal, State, local and foreign income
tax returns which have been required to be filed and have paid all taxes
indicated by said returns and all assessments received by them or any of them to
the extent that such taxes have become due and are not being contested in good
faith. All tax liabilities have been adequately provided for in the financial
statements of the Company.
(xi) Since the respective dates as of which information is given in the
Registration Statement, as it may be amended or supplemented, there has not been
any material adverse change or any development involving a prospective material
adverse change in or affecting the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise), or prospects of
the Company, whether or not occurring in the ordinary course of business, and
there has not been any material transaction entered into or any material
transaction that is probable of being entered into by the Company, other than
transactions in the ordinary course of business and changes and transactions
described in the Registration Statement, as it may be amended or supplemented.
The Company has no material contingent obligations which are not disclosed in
the Company's financial statements which are included in the Registration
Statement.
(xii) The Company is not or with the giving of notice or lapse of time
or both, will not be, in violation of or in default under its Charter or By-Laws
or under any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or any of its properties, is
bound and which default is of material significance in respect of the condition,
financial or otherwise of the Company or the business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company. The execution and delivery of this Agreement and the consummation
of the transactions herein contemplated and the fulfillment of the terms hereof
will not conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of
-4-
<PAGE>
trust or other agreement or instrument to which the Company is a party, or of
the Charter or By-Laws of the Company or any order, rule or regulation
applicable to the Company of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(xiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.
(xiv) The Company holds all material licenses, certificates and permits
from governmental authorities which are necessary to the conduct of its
business; and the Company has not infringed any patents, patent rights, trade
names, trademarks or copyrights, which infringement is material to the business
of the Company. The Company knows of no material infringement by others of
patents, patent rights, trade names, trademarks or copyrights owned by or
licensed to the Company.
(xv) Neither the Company, nor to the Company's best knowledge, any of
its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares.
(xvi) The Company is not an "investment company" within the meaning of
such term under the Investment Company Act of 1940 and the rules and regulations
of the Commission thereunder.
(xvii) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xviii) The Company carries insurance in such amounts and covering such
risks as is adequate for the conduct of its business and the value of its
properties and as is customary for companies engaged in similar industries.
(xix) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the
-5-
<PAGE>
regulations and published interpretations thereunder ("ERISA"); no "reportable
event" (as defined in ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) for which the Company would have any liability; the Company
has not incurred and does not expect to incur liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the "Code");
and each "pension plan" for which the Company would have any liability that is
intended to be qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by failure to
act, which would cause the loss of such qualification.
(xx) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of doing Business with Cuba, and the Company
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Commission or
with the Florida Department of Banking and Finance (the "Department"), whichever
date is later, or if the information reported or incorporated by reference in
the Prospectus, if any, concerning the Company's business with Cuba or with any
person or affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as appropriate,
in a form acceptable to the Department.
(b) Each of the Selling Shareholders severally represents and warrants
as follows:
(i) Such Selling Shareholder now has and at the Closing Date (as such
date is hereinafter defined) will have good and marketable title to the Firm
Shares to be sold by such Selling Shareholder, free and clear of any liens,
encumbrances, equities and claims, and full right, power and authority to effect
the sale and delivery of such Firm Shares; and upon the delivery of, against
payment for, such Firm Shares pursuant to this Agreement, the Underwriters will
acquire good and marketable title thereto, free and clear of any liens,
encumbrances, equities and claims.
(ii) Such Selling Shareholder has full right, power and authority to
execute and deliver this Agreement, the Power of Attorney, and the Custodian
Agreement referred to below and to perform its obligations under such
Agreements. The execution and delivery of this Agreement and the consummation by
such Selling Shareholder of the transactions herein contemplated and the
fulfillment by such Selling Shareholder of the terms hereof will not require any
consent, approval, authorization, or other order of any court, regulatory body,
administrative agency or other governmental body (except as may be required
under the Act, state securities laws or Blue Sky laws) and will not result in a
breach of any of the terms and provisions of, or constitute a default under,
organizational documents of such Selling Shareholder, if not an individual, or
any indenture, mortgage, deed of trust or other agreement or instrument to which
such Selling Shareholder is a party, or of any order, rule or regulation
applicable to such Selling Shareholder
-6-
<PAGE>
of any court or of any regulatory body or administrative agency or other
governmental body having jurisdiction.
(iii) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to, or which has constituted, or
which might reasonably be expected to cause or result in the stabilization or
manipulation of the price of the Common Stock of the Company and, other than as
permitted by the Act, the Selling Shareholder will not distribute any prospectus
or other offering material in connection with the offering of the Shares.
(iv) Without having undertaken to determine independently the accuracy
or completeness of either the representations and warranties of the Company
contained herein or the information contained in the Registration Statement,
such Selling Shareholder has no reason to believe that the representations and
warranties of the Company contained in this Section 1 are not true and correct,
is familiar with the Registration Statement and has no knowledge of any material
fact, condition or information not disclosed in the Registration Statement which
has adversely affected or may adversely affect the business of the Company; and
the sale of the Firm Shares by such Selling Shareholder pursuant hereto is not
prompted by any information concerning the Company which is not set forth in the
Registration Statement. The information pertaining to such Selling Shareholder
under the caption "Selling Shareholders" in the Prospectus is complete and
accurate in all material respects.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Sellers
agree to sell to the Underwriters and each Underwriter agrees, severally and not
jointly, to purchase, at a price of $_____ per share, the number of Firm Shares
set forth opposite the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof. The number of Firm Shares to be
purchased by each Underwriter from each Seller shall be as nearly as practicable
in the same proportion to the total number of Firm Shares being sold by each
Seller as the number of Firm Shares being purchased by each Underwriter bears to
the total number of Firm Shares to be sold hereunder. The obligations of the
Company and of each of the Selling Shareholders shall be several and not joint.
(b) Certificates in negotiable form for the total number of the Shares
to be sold hereunder by the Selling Shareholders have been placed in custody
with ____________________ as custodian (the "Custodian") pursuant to the
Custodian Agreement executed by each Selling Shareholder for delivery of all
Firm Shares to be sold hereunder by the Selling Shareholders. Each of the
Selling Shareholders specifically agrees that the Firm Shares represented by the
certificates held in custody for the Selling Shareholders under the Custodian
Agreement are subject to the interests of the Underwriters hereunder, that the
arrangements made by the Selling Shareholders for such custody are to that
extent irrevocable, and that the obligations of the
-7-
<PAGE>
Selling Shareholders hereunder shall not be terminable by any act or deed of the
Selling Shareholders (or by any other person, firm or corporation including the
Company, the Custodian or the Underwriters) or by operation of law (including
the death of an individual Selling Shareholder) or by the occurrence of any
other event or events, except as set forth in the Custodian Agreement. If any
such event should occur prior to the delivery to the Underwriters of the Firm
Shares hereunder, certificates for the Firm Shares shall be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such event has not occurred. The Custodian is authorized to receive and
acknowledge receipt of the proceeds of sale of the Shares held by it against
delivery of such Shares.
(c) Payment for the Firm Shares to be sold hereunder is to be made in
same day funds via wire transfer to the order of the Company for the shares to
be sold by it and to the order of ____________, "as Custodian" for the shares to
be sold by the Selling Shareholders, in each case against delivery of
certificates therefor to the Representatives for the several accounts of the
Underwriters. Such payment and delivery are to be made at the offices of Alex.
Brown & Sons Incorporated, 1 South Street, Baltimore, Maryland, at 10:00 a.m.,
Baltimore time, on the third business day after the date of this Agreement or at
such other time and date not later than five business days thereafter as you and
the Company shall agree upon, such time and date being herein referred to as the
"Closing Date." (As used herein, "business day" means a day on which the New
York Stock Exchange is open for trading and on which banks in New York are open
for business and not permitted by law or executive order to be closed.) The
certificates for the Firm Shares will be delivered in such denominations and in
such registrations as the Representatives request in writing not later than the
second full business day prior to the Closing Date, and will be made available
for inspection by the Representatives at least one business day prior to the
Closing Date.
(d) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase the
Option Shares at the price per share as set forth in the first paragraph of this
Section 2. The option granted hereby may be exercised in whole or in part by
giving written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company, setting forth the
number of Option Shares as to which the several Underwriters are exercising the
option, the names and denominations in which the Option Shares are to be
registered and the time and date at which such certificates are to be delivered.
The time and date at which certificates for Option Shares are to be delivered
shall be determined by the Representatives but shall not be earlier than three
nor later than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein referred to
as the "Option Closing Date"). If the date of exercise of the option is three or
more days before the Closing Date, the notice of exercise shall set the Closing
Date as the Option Closing Date. The number of Option Shares to be purchased by
each Underwriter shall be in the same proportion to the total number of Option
Shares being purchased as the number of Firm
-8-
<PAGE>
Shares being purchased by such Underwriter bears to the total number of Firm
Shares, adjusted by you in such manner as to avoid fractional shares. The option
with respect to the Option Shares granted hereunder may be exercised only to
cover over-allotments in the sale of the Firm Shares by the Underwriters. You,
as Representatives of the several Underwriters, may cancel such option at any
time prior to its expiration by giving written notice of such cancellation to
the Company. To the extent, if any, that the option is exercised, payment for
the Option Shares shall be made on the Option Closing Date in same day funds via
wire transfer to the order of the Company against delivery of certificates
therefor at the offices of Alex. Brown & Sons Incorporated, 1 South Street,
Baltimore, Maryland.
(e) If on the Closing Date, any Selling Shareholder fails to sell the
Firm Shares which such Selling Shareholder has agreed to sell on such date as
set forth in Schedule II hereto, the Company agrees that it will sell or arrange
for the sale of that number of shares of Common Stock to the Underwriters which
represents Firm Shares which such Selling Shareholder has failed to so sell, as
set forth in Schedule II hereto, or such lesser number as may be requested by
the Representatives.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDERS.
(a) The Company covenants and agrees with the several Underwriters
that:
(i) The Company will (A) use its best efforts to cause the Registration
Statement to become effective or, if the procedure in Rule 430A of the Rules and
Regulations is followed, to prepare and timely file with the Commission under
Rule 424(b) of the Rules and Regulations a Prospectus in a form approved by the
Representatives containing information previously omitted at the time of
effectiveness of the Registration Statement in reliance on Rule 430A of the
Rules and Regulations and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.
-9-
<PAGE>
(ii) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), including documents incorporated by reference therein,
and of all amendments thereto, as the Representatives may reasonably request.
(v) The Company will comply with the Act and the Rules and Regulations,
and the Securities Exchange Act of 1934 (the "Exchange Act"), and the rules and
regulations of the Commission thereunder, so as to permit the completion of the
distribution of the Shares as contemplated in this Agreement and the Prospectus.
If during the period in which a prospectus is required by law to be delivered by
an Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Underwriters, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading, or, if it is necessary
at any time to amend or supplement the Prospectus to comply with any law, the
Company promptly will prepare and file with the
-10-
<PAGE>
Commission an appropriate amendment to the Registration Statement or supplement
to the Prospectus so that the Prospectus as so amended or supplemented will not,
in the light of the circumstances when it is so delivered, be misleading, or so
that the Prospectus will comply with the law.
(vi) The Company will make generally available to its security holders,
as soon as it is practicable to do so, but in any event not later than 15 months
after the effective date of the Registration Statement, an earning statement
(which need not be audited) in reasonable detail, covering a period of at least
12 consecutive months beginning after the effective date of the Registration
Statement, which earning statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you
in writing when such statement has been so made available.
(vii) The Company will, for a period of five years from the Closing
Date, deliver to the Representatives copies of annual reports and copies of all
other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Securities
Exchange Act of 1934, as amended. The Company will deliver to the
Representatives similar reports with respect to significant subsidiaries, as
that term is defined in the Rules and Regulations, which are not consolidated in
the Company's financial statements.
(viii) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of 180 days after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of Alex. Brown & Sons Incorporated.
(ix) The Company will use its best efforts to list, subject to notice
of issuance, the Shares on the Nasdaq Stock Market (National Market).
(x) The Company has caused each officer and director and specific
shareholders of the Company to furnish to you, on or prior to the date of this
agreement, a letter or letters, in form and substance satisfactory to the
Underwriters, pursuant to which each such person shall agree not to offer, sell,
sell short or otherwise dispose of any shares of Common Stock of the Company or
other capital stock of the Company, or any other securities convertible,
exchangeable or exercisable for Common Shares or derivative of Common Shares
owned by such person or request the registration for the offer or sale of any of
the foregoing (or as to which such person has the right to direct the
disposition of) for a period of 180 days after the date of this Agreement,
directly or indirectly, except with the prior written consent of Alex. Brown &
Sons Incorporated ("Lockup Agreements").
(xi) The Company shall apply the net proceeds of its sale of the Shares
as set forth in the Prospectus and shall file such reports with the Commission
with respect to the sale of the Shares
-11-
<PAGE>
and the application of the proceeds therefrom as may be required in accordance
with Rule 463 under the Act.
(xii) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company to register as an investment company under the Investment
Company Act of 1940, as amended (the "1940 Act").
(xiii) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(xiv) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
(b) Each of the Selling Shareholders covenants and agrees with the
several Underwriters that:
(i) No offering, sale, short sale or other disposition of any shares of
Common Stock of the Company or other capital stock of the Company or other
securities convertible, exchangeable or exercisable for Common Stock or
derivative of Common Stock owned by the Selling Shareholder or request the
registration for the offer or sale of any of the foregoing (or as to which the
Selling Shareholder has the right to direct the disposition of) will be made for
a period of 180 days after the date of this Agreement, directly or indirectly,
by such Selling Shareholder otherwise than hereunder or with the prior written
consent of Alex. Brown & Sons Incorporated.
(ii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with
respect to the transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
(iii) Such Selling Shareholder will not take, directly or indirectly,
any action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any securities of the Company.
-12-
<PAGE>
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Sellers under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company and the
Selling Shareholders; the cost of printing and delivering to, or as requested
by, the Underwriters copies of the Registration Statement, Preliminary
Prospectuses, the Prospectus, this Agreement, the Underwriters' Invitation
Letter; the filing fees of the Commission; the filing fee of the NASD; and the
Listing Fee of the Nasdaq Stock Market. The Selling Shareholders have agreed
with the Company to reimburse the Company for a portion of such expenses. Any
transfer taxes imposed on the sale of the Shares to the several Underwriters
will be paid by the Sellers pro rata. The Sellers shall not, however, be
required to pay for any of the Underwriter's expenses (other than those related
to qualification under NASD regulations) except that, if this Agreement shall
not be consummated because the conditions in Section 6 hereof are not satisfied,
or because this Agreement is terminated by the Representatives pursuant to
Section 11 hereof, or by reason of any failure, refusal or inability on the part
of the Company or the Selling Shareholders to perform any undertaking or satisfy
any condition of this Agreement or to comply with any of the terms hereof on
their part to be performed, unless such failure to satisfy said condition or to
comply with said terms be due to the default or omission of any Underwriter,
then the Company shall reimburse the several Underwriters for reasonable
out-of-pocket expenses, including fees and disbursements of counsel, reasonably
incurred in connection with investigating, marketing and proposing to market the
Shares or in contemplation of performing their obligations hereunder; but the
Company and the Selling Shareholders shall not in any event be liable to any of
the several Underwriters for damages on account of loss of anticipated profits
from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm Shares
on the Closing Date and the Option Shares, if any, on the Option Closing Date
are subject to the accuracy, as of the Closing Date or the Option Closing Date,
as the case may be, of the representations and warranties of the Company and the
Selling Shareholders contained herein, and to the performance by the Company and
the Selling Shareholders of their covenants and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company
-13-
<PAGE>
or the Selling Shareholders, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Wyrick, Robbins, Yates &
Ponton L.L.P., counsel for the Company and the Selling Shareholders, dated the
Closing Date or the Option Closing Date, as the case may be, addressed to the
Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of North Carolina, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement and the Company is duly
qualified to transact business in all jurisdictions in which the conduct of its
business requires such qualification, or in which the failure to qualify would
have a materially adverse effect upon the business of the Company.
(ii) The Company has authorized and outstanding capital stock as set
forth under the caption "Capitalization" in the Prospectus; the authorized
shares of the Company's Common Stock have been duly authorized; the outstanding
shares of the Company's Common Stock, including the Shares to be sold by the
Selling Shareholders, have been duly authorized and validly issued and are fully
paid and non-assessable; all of the Shares conform to the description thereof
contained in the Prospectus; the certificates for the Shares, assuming they are
in the form filed with the Commission, are in due and proper form; the shares of
Common Stock, including the Option Shares, if any, to be sold by the Company
pursuant to this Agreement have been duly authorized and will be validly issued,
fully paid and non-assessable when issued and paid for as contemplated by this
Agreement; and no preemptive rights of stockholders exist with respect to any of
the Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the Prospectus, to the
knowledge of such counsel, there are no outstanding securities of the Company
convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any Common Shares or other securities of the Company
included in the Registration Statement or the right, as a result of the
-14-
<PAGE>
filing of the Registration Statement, to require registration under the Act of
any shares of Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under the Act and,
to the best of the knowledge of such counsel, no stop order proceedings with
respect thereto have been instituted or are pending or threatened under the Act.
(v) The Registration Statement, the Prospectus and each amendment or
supplement thereto comply as to form in all material respects with the
requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial statements
and related schedules therein).
(vi) The statements under the captions "Business-Regulation,"
"Management-________," "Certain Transactions," "Description of Capital Stock"
and "Shares Eligible for Future Sale" in the Prospectus, insofar as such
statements constitute a summary of documents referred to therein or matters of
law, fairly summarize in all material respects the information called for with
respect to such documents and matters.
(vii) Such counsel does not know of any contracts or documents required
to be filed as exhibits to the Registration Statement or described in the
Registration Statement or the Prospectus which are no so filed or described as
required, and such contracts and documents as are summarized in the Registration
Statement or the Prospectus are fairly summarized in all material respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company except as set forth in the
Prospectus.
(ix) The execution and delivery of this Agreement and the consummation
of the transactions herein contemplated do not and will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a default
under, the Charter or By-Laws of the Company, or any agreement or instrument
known to such counsel to which the Company is a party or by which the Company
may be bound.
(x) This Agreement has been duly authorized, executed and delivered
by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the NASD as to which such counsel need express
no opinion) except such as have been obtained or made, specifying the same.
-15-
<PAGE>
(xii) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and application
of the net proceeds therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
(xiii) This Agreement has been duly authorized, executed and delivered
on behalf of the Selling Shareholders.
(xiv) Each Selling Shareholder has full legal right, power and
authority, and any approval required by law, to sell, assign, transfer and
deliver the portion of the Shares to be sold by such Selling Shareholder.
(xv) The Custodian Agreement and the Power of Attorney executed and
delivered by each Selling Shareholder is valid and binding.
(xvi) The Underwriters (assuming that they are bona fide purchasers
within the meaning of the Uniform Commercial Code) have acquired good and
marketable title to the Shares being sold by each Selling Shareholder on the
Closing Date, and the Option Closing Date, as the case may be, free and clear of
all liens, encumbrances, equities and claims.
In rendering such opinion Wyrick, Robbins, Yates & Ponton L.L.P. may
rely as to matters governed by the laws of states other than North Carolina or
Federal laws on local counsel in such jurisdictions, provided that in each case
Wyrick, Robbins, Yates & Ponton L.L.P. shall state that they believe that they
and the Underwriters are justified in relying on such other counsel. In addition
to the matters set forth above, such opinion shall also include a statement to
the effect that nothing has come to the attention of such counsel which leads
them to believe that (i) the Registration Statement, at the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) and as of the Closing
Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to such
statement, Wyrick, Robbins, Yates & Ponton L.L.P. may state that their belief is
based upon the procedures set forth therein, but is without independent check
and verification.
(c) The Representatives shall have received from Piper & Marbury
L.L.P., counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, substantially to the effect specified
in subparagraphs (ii), (iii), (iv), (x) and (xi) of Paragraph (b) of this
Section 6, and that the Company is a duly organized and validly existing
corporation under the laws of the State of North Carolina. In rendering such
opinion, Piper & Marbury
-16-
<PAGE>
L.L.P. may rely as to all matters governed other than by the laws of the State
of ______________ or Federal laws on the opinion of counsel referred to in
Paragraph (b) of this Section 6. In addition to the matters set forth above,
such opinion shall also include a statement to the effect that nothing has
come to the attention of such counsel which leads them to believe that (i) the
Registration Statement, or any amendment thereto, as of the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) as of the Closing
Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact, necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to
such statement, Piper & Marbury L.L.P. may state that their belief is based
upon the procedures set forth therein, but is without independent check and
verification.
(d) You shall have received, on each of the dates hereof, the Closing
Date and the Option Closing Date, as the case may be, a letter dated the date
hereof, the Closing Date or the Option Closing Date, as the case may be, in form
and substance satisfactory to you, of Deloitte & Touche LLP confirming that they
are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that in their
opinion the financial statements and schedules examined by them and included in
the Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(e) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chairman and Chief Executive Officer and the Vice President and Chief Financial
Officer of the Company to the effect that, as of the Closing Date or the Option
Closing Date, as the case may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration Statement
has been issued, and no proceedings for such purpose have been taken or are, to
his knowledge, contemplated by the Commission;
-17-
<PAGE>
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to
Rules 424 or 430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and
the Prospectus and, in his or her opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration Statement
were true and correct, and such Registration Statement and Prospectus did not
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred which should have been
set forth in a supplement to or an amendment of the Prospectus which has not
been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been any
material adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise, of the
Company or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company,
whether or not arising in the ordinary course of business.
(f) The Company and the Selling Shareholders shall have furnished to
the Representatives such further certificates and documents confirming the
representations and warranties, covenants and conditions contained herein and
related matters as the Representatives may reasonably have requested.
(g) The Firm Shares and Option Shares, if any, have been approved for
designation upon notice of issuance on the Nasdaq Stock Market (National
Market).
(h) The Lockup Agreements described in Section 4(x) are in full force
and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Piper & Marbury
L.L.P., counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company and the Selling Shareholders of
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be.
-18-
<PAGE>
In such event, the Selling Shareholders, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS.
The obligations of the Sellers to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company and the Selling Shareholders, jointly and severally,
agree to indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of the Act, against any losses,
claims, damages or liabilities to which such Underwriter or any such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse each Underwriter and each such controlling person
upon demand for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage or liability, action or proceeding or in
responding to a subpoena or governmental inquiry related to the offering of the
Shares, whether or not such Underwriter or controlling person is a party to any
action or proceeding; provided, however, that the Company and the Selling
Shareholders will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission made in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. In no event, however, shall the
liability of any Selling Shareholder for indemnification under this Section 8(a)
exceed the proceeds received by such Selling Shareholder from the Underwriters
in the offering. This indemnity agreement will be in addition to any liability
which the Company or the Selling Shareholders may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, the Selling Shareholders, and each person, if
any, who controls the Company or the Selling Shareholders within the meaning of
the Act, against any losses, claims, damages or liabilities to
-19-
<PAGE>
which the Company or any such director, officer, Selling Shareholder or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or (ii) the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made; and will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, Selling Shareholder or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability, action or proceeding; provided, however, that each
Underwriter will be liable in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance upon and
in conformity with written information furnished to the Company by or through
the Representatives specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which such Underwriter
may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In case any
such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party and
shall pay as incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its own expense. Notwithstanding the foregoing, the
indemnifying party shall pay as incurred (or within 30 days of presentation) the
fees and expenses of the counsel retained by the indemnified party in the event
(i) the indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel, (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them or
(iii) the indemnifying party shall have failed to assume the defense and employ
counsel acceptable to the indemnified party within a reasonable period of time
after notice of
-20-
<PAGE>
commencement of the action. It is understood that the indemnifying party shall
not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be designated in
writing by you in the case of parties indemnified pursuant to Section 8(a) and
by the Company and the Selling Shareholders in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Selling Shareholders on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling Shareholders
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Shareholders on the one hand
-21-
<PAGE>
or the Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company, the Selling Shareholders and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this Section
8(d) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 8(d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) referred to above in this Section 8(d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter, (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation, and (iii) no Selling Shareholder
shall be required to contribute any amount in excess of the lesser of (A) that
proportion of the total of such losses, claims, damages or liabilities
indemnified or contributed against equal to the proportion of the total Shares
sold hereunder which is being sold by such Selling Shareholder, or (B) the
proceeds received by such Selling Shareholder from the Underwriters in the
offering. The Underwriters' obligations in this Section 8(d) to contribute are
several in proportion to their respective underwriting obligations and not
joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the
-22-
<PAGE>
Company, its directors or officers, or any person controlling the Company, shall
be entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company or a Selling
Shareholder), you, as Representatives of the Underwriters, shall use your
reasonable efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company and the Selling
Shareholders such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company and the
Selling Shareholders or you as the Representatives of the Underwriters will have
the right, by written notice given within the next 36-hour period to the parties
to this Agreement, to terminate this Agreement without liability on the part of
the non-defaulting Underwriters or of the Company or of the Selling Shareholders
except to the extent provided in Section 8 hereof. In the event of a default by
any Underwriter or Underwriters, as set forth in this Section 9, the Closing
Date or Option Closing Date, as the case may be, may be postponed for such
period, not exceeding seven days, as you, as Representatives, may determine in
order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected. The term
"Underwriter" includes any person substituted for a defaulting Underwriter. Any
action taken under this Section 9 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to Alex. Brown & Sons
Incorporated, 1 South Street, Baltimore, Maryland 21202,
-23-
<PAGE>
Attention: David M. Gray, Managing Director; with a copy to Alex. Brown & Sons
Incorporated, 1 South Street, Baltimore, Maryland 21202. Attention: General
Counsel; if to the Company or the Selling Shareholders, to Waste Industries,
Inc. 3949 Browning Place, Raleigh, North Carolina 27609, Attention: Lonnie C.
Poole, Jr., Chairman and Chief Executive Officer.
11. TERMINATION.
This Agreement may be terminated by you by notice to the Sellers as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company or the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company, whether or not arising in the ordinary
course of business; (ii) any outbreak or escalation of hostilities or
declaration of war or national emergency or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, escalation, declaration, emergency, calamity, crisis or change
on the financial markets of the United States would, in your reasonable
judgment, make it impracticable to market the Shares or to enforce contracts for
the sale of the Shares; (iii) suspension of trading in securities generally on
the New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such Exchange; (iv) the enactment, publication, decree or
other promulgation of any statute, regulation, rule or order of any court or
other governmental authority which in your opinion materially and adversely
affects or may materially and adversely affect the business or operations of the
Company; (v) declaration of a banking moratorium by United States or New York
State authorities; (vi) the suspension of trading of the Company's common stock
by the Commission on the Nasdaq Stock Market; or (vii) the taking of any action
by any governmental body or agency in respect of its monetary or fiscal affairs
which in your reasonable opinion has a material adverse effect on the securities
markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and the Selling Shareholders and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no
-24-
<PAGE>
other person will have any right or obligation hereunder. No purchaser of any of
the Shares from any Underwriter shall be deemed a successor or assign merely
because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company, the Selling Shareholders and the Underwriters acknowledge
and agree that the only information furnished or to be furnished by any
Underwriter to the Company for inclusion in any Prospectus or the Registration
Statement consists of the information set forth in the last paragraph on the
front cover page (insofar as such information relates to the Underwriters),
legends required by Item 502(d) of Regulation S-K under the Act and the
information under the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Shareholders, the
Company and the several Underwriters in accordance with its terms.
-25-
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Shareholder represents by so doing that he has been duly appointed
as Attorney-in-Fact by such Selling Shareholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-Fact to take
such action.
Very truly yours,
WASTE INDUSTRIES, INC.
By ________________________________
Lonnie C. Poole, Jr., Chairman of the
Board and Chief Executive Officer
SELLING SHAREHOLDERS
By ________________________________
Attorney-in-Fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
ALEX. BROWN & SONS INCORPORATED
DEUTSCHE MORGAN GRENFELL
As Representatives of the several
Underwriters listed on Schedule I
By: Alex. Brown & Sons Incorporated
By: _______________________________
Authorized Officer
-26-
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of Firm Shares
Underwriter to be Purchased
Alex. Brown & Sons Incorporated
Deutsche Morgan Grenfell
__________
Total __________
-27-
<PAGE>
SCHEDULE II
SCHEDULE OF SELLING SHAREHOLDERS
Number of Firm Shares
Selling Shareholder to be Sold
__________
Total __________
-28-
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
WASTE INDUSTRIES, INC.
Pursuant to Section 55-10-07 of the General Statutes of North Carolina,
the undersigned corporation hereby submits the following for the purpose of
amending and restating its Articles of Incorporation.
1. The name of the corporation is Waste Industries, Inc.
(the "Corporation").
2. The text of the Amended and Restated Articles of
Incorporation is attached hereto as Exhibit A.
3. These Amended and Restated Articles of Incorporation contain
amendments requiring shareholder approval, which approval was duly obtained as
required by Chapter 55 of the North Carolina General Statutes.
4. These Amended and Restated Articles of Incorporation
will be effective upon filing.
This the ____ day of May 1997.
WASTE INDUSTRIES, INC.
By:__________________________
Jim W. Perry,
President
<PAGE>
EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
WASTE INDUSTRIES, INC.
I.
Name
The name of the corporation is Waste Industries, Inc. (the
"Corporation").
II.
Registered Agent and Office
The current registered agent and the street address and county of the
current registered office in the State of North Carolina are:
Jim W. Perry
3949 Browning Place
Raleigh, North Carolina 27609
County of Wake
The mailing address of the current registered office of the Corporation
is the same as its street address.
III.
Purpose
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which a corporation may be organized under the North
Carolina General Statutes.
IV.
A. Authorized Shares. The total number of shares of all
classes of stock which the Corporation is authorized to issue is
90,000,000 shares consisting of: (1) 80,000,000 shares of Common
Stock, no par value per share, consisting initially of 8,000,000
shares of Voting Common Stock and 72,000,000 shares of Nonvoting
Common Stock; and (2) 10,000,000 shares of Preferred Stock, par
value $0.01 per share.
B. Stock Split; Classes of Stock.
(1) Upon the date of filing of these Amended and Restated
Articles of Incorporation with the Secretary of State of North Carolina, all
outstanding shares of Voting and Nonvoting Common Stock, respectively, shall be
combined in a 1-for-2.5 reverse stock split of each such class (the "Reverse
Split"). No fractional shares of stock or scrip representing fractional
<PAGE>
shares shall be issued as a result of the Reverse Split. Upon presentation of
all of a record holder's stock certificates of a class or series at one time for
reissuance to reflect the Reverse Split, the number of full shares of stock
issuable upon the conversion thereof shall be computed on the basis of the
aggregate number of shares of each class or series of stock so surrendered by
such holder. Instead of any fractional shares otherwise issuable as a result of
the Reverse Split, the Corporation shall pay a cash adjustment in respect to
such fraction in an amount equal to the same fraction of current per share fair
market value of the relevant stock, as determined in good faith by the Board of
Directors on such basis as it considers appropriate.
C. Authority of Board of Directors. The Board of Directors is
authorized to determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock, and within the limitations and restrictions stated in any resolution or
resolutions of the Board originally fixing the number of shares constituting any
series, to increase or decrease (but not below the number of shares of any such
series then outstanding) the number of shares of any such series subsequent to
the issue of shares of that series, to determine the designation of any series
and to fix the number of shares of any series.
D. Conversion of Common Stock in an IPO.
(1) Conversion. Each share of Voting Common Stock and each
share of Nonvoting Common Stock shall be automatically converted into one share
of "Common Stock", which shall have all the rights, preferences and privileges
of Voting Common Stock (the "Common Stock Conversion"), immediately upon the
closing of an underwritten public offering of Common Stock of the Corporation
(the "Offering").
(2) Stock Certificates. Each certificate representing shares
of Voting Common Stock or Nonvoting Common Stock issued and outstanding shall
from and after the closing of the Offering be deemed to represent the number of
shares of Common Stock into which the shares evidenced by the certificate have
been so converted. Shareholders may surrender such certificates in exchange for
new certificates representing Common Stock at any time after the closing of the
Offering, and as the presently outstanding certificates are presented in the
future for transfer, new certificates representing Common Stock will be issued.
Upon surrender of a certificate, the holder thereof shall be entitled to receive
a new certificate for Common Stock in exchange therefor.
(3) Restated Articles. At any time on or after the closing of
the Offering, the Board of Directors may restate the Corporation's Articles of
Incorporation to eliminate references therein to the Common Stock Conversion,
to Voting Common Stock
<PAGE>
and Nonvoting Common Stock and as otherwise appropriate to reflect the Common
Stock Conversion, without further approval of the shareholders of the
Corporation.
V.
Management
For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its shareholders or any class
thereof, as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors.
B. The Board of Directors may from time to time make, amend, supplement
or repeal the Bylaws; provided, however, that the shareholders may change or
repeal any Bylaw adopted by the Board of Directors by the affirmative vote of
the holders of a majority of the voting power of all of the then outstanding
shares of the capital stock of the Corporation (considered for this purpose as
one class); and, provided further, that no amendment or supplement to the Bylaws
adopted by the Board of Directors shall vary or conflict with any amendment or
supplement thus adopted by the shareholders.
C. The directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
VI.
Preemptive Rights
No preemptive rights shall exist with respect to shares of stock or
securities convertible into shares of stock of the Corporation.
VII.
Cumulative Voting
The right to cumulate votes in the election of directors shall not
exist with respect to shares of stock in the Corporation.
VIII.
Limitation of Director Liability
Except to the extent that the North Carolina General Statutes prohibit
such limitation or elimination of liability of
<PAGE>
directors for breaches of duty, no director of the corporation shall be liable
to the corporation or to any of its shareholders for monetary damages for breach
of duty as a director. No amendment to or repeal of this provision or adoption
of a provision inconsistent herewith shall apply to or have any effect on the
liability or alleged liability of any director of the corporation for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal or adoption of an inconsistent provision. The provisions of
this Article shall not be deemed to limit or preclude indemnification of a
director by the corporation for any liability that has not been eliminated by
the provisions of this Article.
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
WASTE INDUSTRIES, INC.
ARTICLE I
OFFICES
Section 1.01. Principal Office. The principal office of the Corporation
shall be located at such place, within or without the State of North Carolina,
as may be determined from time to time by the Board of Director.
Section 1.02. Registered Office. The Corporation shall maintain a
registered office as required by the North Carolina Business Corporation Act, as
amended from time to time (the "Act"), at a location in the State of North
Carolina designated by the Board of Directors from time to time. The registered
office of the Corporation may, but need not be, identical with the principal
office of the Corporation.
Section 1.03. Other Offices. The Corporation may have such other
offices within and without the State of North Carolina as the business of the
Corporation may require from time to time. The authority to establish or close
such other offices may be delegated by the Board of Directors to one or more of
the Corporation's Officers.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.01. Place of Meetings. All meetings of shareholders shall be
held at the principal office of the Corporation, or at such other place, either
within or without the State of North Carolina, as shall in each case be (i)
fixed by the President, the Secretary, the Chairman of the Board, or the Board
of Directors and designated in the notice of meeting or (ii) agreed upon by a
majority of the shareholders entitled to vote at the meeting.
Section 2.02. Annual Meetings. The annual meeting of the Corporation's
shareholders shall be held on the second Tuesday in June in each year beginning
with the year 1991, at the hour of 9:00, A.M., for the purpose of electing
Directors and for the transaction of such other business as may properly come
before the meeting. If the day fixed for the annual meeting shall be a legal
holiday in the State of North Carolina, then such annual meeting shall be held
on the next succeeding business day. If the annual
<PAGE>
meeting shall not be held on the day designated by these Bylaws for the annual
meeting of shareholders, or at any adjournment thereof, then a substitute annual
meeting may be called in accordance with Section 2.03 of these Bylaws, and the
meeting so called may be designated as the annual meeting.
Section 2.03. Special Meetings. Special meetings of the Corporation's
shareholders may be called for any one or more lawful purposes by the
Corporation's President, Secretary, Chairman of the Board, the Board of
Directors, or otherwise as authorized by the Act. Only business within the
purpose or purposes described in the notice of the meeting may be conducted at a
special meeting of shareholders.
Section 2.04. Notice of Meetings. Written or printed notice of all
meetings of shareholders shall be delivered not less than ten (10) nor more than
sixty (60) days before the meeting date, to all shareholders of record
(determined pursuant to Section 9.06 of these Bylaws) entitled to vote at such
meeting, and to such other persons as the Corporation is required to notify
pursuant to the Act or the Corporation's Articles of Incorporation. The notice
shall state the date, time, and place of the meeting and, in the case of a
special meeting, the purpose or purposes for which such meeting was called.
Section 2.05. Shareholders' List. Not later than two (2) business days
after the date notice of a meeting of shareholders is first given, the Secretary
or other officer or person having charge of the stock transfer books of the
Corporation shall prepare an alphabetical list of the shareholders entitled to
notice of such meeting, with the address of and number of shares held by each,
arranged by voting group and by class or series of shares within each voting
group, which list shall be kept on file at the principal office of the
Corporation, or at a place in the city where the meeting is to be held and
identified in the notice of meeting, for the period commencing two (2) business
days after notice of the meeting is first given and continuing through such
meeting, and which list shall be available for inspection by any shareholder, or
his or her agent or attorney, upon his or her demand, at any time during regular
business hours. This list shall also be produced and kept open at the time and
place of the meeting and shall be subject to inspection by any shareholder, or
his or her attorney, during the whole time of the meeting and any adjournment
thereof.
Section 2.06. Quorum. Except as may otherwise be required by the Act or
the Corporation's Articles of Incorporation, at any meeting of shareholders the
presence, in person or by proxy, of the holders of a majority of the outstanding
shares entitled to vote thereat shall constitute a quorum for the transaction of
any business properly before the meeting. Shares entitled to vote as a separate
voting group on a matter may take action at a meeting only if a quorum of the
shares in the separate voting group are present in person or by proxy at the
meeting. In the absence of a
2
<PAGE>
quorum a meeting may be adjourned from time to time, in accordance with the
provisions concerning adjournments contained elsewhere in these Bylaws, by the
holders of a majority of the shares represented at the meeting in person or in
proxy. At such adjourned meeting a quorum of shareholders may transact any
business as might have been properly transacted at the original meeting.
Section 2.07. Organization. Each meeting of shareholders shall be
presided over by the Chairman of the Board, or, in the absence or at the request
of the Chairman of the Board, by the President, or, in the absence or at the
request of the President, by such other officer as the Board of Directors may
designate, or in their absence and in the absence of such designation, by any
person selected to preside by plurality vote of the shares represented and
entitled to vote at the meeting, with each share having the same number of votes
to which it would be entitled on any other matter on which all shares
represented and entitled to vote at the meeting would be entitled to vote. The
Secretary, or in the absence or at the request of the Secretary, any person
designated by the person presiding at the meeting, shall act as secretary of the
meeting.
Section 2.08. Voting. Except as may otherwise be required by the Act or
the Corporation's Articles of Incorporation, and subject to the provisions
concerning shareholders of record contained elsewhere in these Bylaws, a person
(or his or her proxy) present at a meeting of shareholders shall be entitled to
one vote for each share of voting stock an to which such person in the
shareholder of record.
Except in the election of Directors as governed by Section 3.03 of
these Bylaws, if a quorum of a voting group exists, action on a matter by such
voting group is approved by such voting group if the votes cast within such
voting group favoring the action exceed the votes cast within such voting group
opposing the action, unless a greater number of affirmative votes is required by
the Act or the Corporation's Articles of Incorporation or these Bylaws. As used
in these Bylaws, the term "voting group" has the meaning ascribed to that term
in the Act. So long as the Corporation shall have only one class of shares
outstanding and the voting rights of all shares of such class are identical,
then all such outstanding shares shall constitute a single voting group and the
sole voting group, except to the extent that the Act or the Corporation's
Articles of Incorporation requires that any of such shares be treated as a
separate voting group.
Section 2.09. Adjournments. A majority of the voting shares held by
shareholders of record present in person or by proxy at a meeting of
shareholders may adjourn a meeting from time to time to a date, time, and place
fixed by notice as provided for above or, if such date is less than thirty (30)
days from the date of adjournment, to a date, time, and place fixed by the
majority and announced at the original meeting prior to adjournment.
3
<PAGE>
Section 2.10. Action Without Meeting. Any action required or permitted
to be taken at a meeting of the shareholders may be taken without a meeting if
the action is taken by all the shareholders entitled to vote on the action. The
action must be evidenced by one or more written consents signed by all of the
shareholders entitled to vote with respect to the subject matter thereof before
or after such action, describing the action and delivered to the Corporation for
inclusion in the minutes or filing with the corporate records.
Section 2.11. Proxies. At all meetings of shareholders, a shareholder
may vote in person or by proxy executed in writing by the shareholder or by his
duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary
of the Corporation before or at the time of the meeting. No proxy shall be valid
after eleven months from the date of its execution unless it qualifies as an
irrevocable proxy under the Act.
ARTICLE III
Directors
Section 3.01. Authority. All corporate power of the Corporation shall
be exercised by or under the authority of, and the business and affairs of the
Corporation managed under the direction of, the Board of Directors.
Section 3.02. Number, Tenure and Qualification. The Corporation shall
not have less than three (3) Directors. An election of all Directors by the
shareholders shall be held at each annual meeting of the Corporation's
shareholders. Directors need not be residents of the State of North Carolina nor
shareholders of the Corporation. Each Director shall hold office from the date
of his election and qualification until his successor shall have been duly
elected and qualified, or until his earlier removal, resignation, death, or
incapacity.
Section 3.03. Election. Directors shall be elected by a plurality of
the votes cast by the shares entitled to vote in the election of Directors at a
meeting at which a quorum is present. Every shareholder entitled to vote at an
election of Directors shall have the right to vote the number of shares standing
of record in his name for as many persons as there are Directors to be elected
and for whose election he has a right to vote, or to cumulate his votes by
giving one candidate as many votes as the number of such Directors multiplied by
the number of his shares shall equal, or by distributing such votes on the same
principle among any number of such candidates. This right of cumulative voting
shall not be exercised unless (a) the meeting notice or proxy statement
accompanying the notice states conspicuously that shareholders are entitled to
cumulate their votes, or (b) a shareholder or proxy who has the right to
cumulate his votes announces in open meeting, before the voting for the
Directors
4
<PAGE>
starts, his intention so to vote cumulatively; and if such announcement
is made, the chair shall declare that all shares entitled to vote have the right
to vote cumulatively and shall announce the number of shares present in person
and by proxy and shall thereupon grant a recess of not less than one nor more
than four hours, as he shall determine, or of such other period of time as is
unanimously then agreed upon.
Section 3.04. Removal. Except as otherwise provided in the Articles of
Incorporation or the Act, any Director may be removed from office, with or
without cause, by a vote of the holders of a majority of the shares of the
Corporation's voting stock. Any Director may be removed from office with cause
by a majority vote of the Board of Directors at a meeting at which only the
removal and replacement of the Director or Directors in question shall be
considered.
Section 3.05. Vacancies. A vacancy occurring in the Board of Directors,
including positions not filled by the shareholders or those resulting from an
increase in the number of Directors, may be filled by a majority of the
remaining Directors, though less than a quorum, or by the sole remaining
director. The shareholders may elect a director at any time to fill any vacancy
not filled by the Directors.
Section 3.06. Regular Meetings. A regular meeting of the Board of
Directors shall be held without notice other than this Bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The Board of
Directors may by resolution provide for the holding of additional regular
meetings without notice other than such resolution; provided, however, the
resolution shall fix the date, time, and place (which may be anywhere within or
without the State of North Carolina) for these regular meetings.
Section 3.07. Special Meetings. Special meetings of the Board of
Directors may be called for any lawful purpose or purposes by the Chairman of
the Board, the President or any two Directors. The person calling a special
meeting shall give, or cause to be given, to each Director at his business
address, notice of the date, time and place of the meeting by any normal means
of communication not less than two days prior thereto.
Section 3.08. Participation by Telecommunications. Any Director may
participate in, and be regarded as present at, any meeting of the Board of
Directors by means of conference telephone or any other means of communication
by which all persons participating in the meeting can hear each other at the
same time.
Section 3.09. Quorum. Unless the Corporation's Articles of
Incorporation provide otherwise, a majority of the number of Directors fixed by
or pursuant to these Bylaws shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, or if no number is so fixed
the number of Directors
5
<PAGE>
in office immediately before the meeting begins shall constitute a
quorum.
Section 3.10. Action. The Board of Directors shall take action adopted
by the affirmative vote of a majority of the Directors present at a meeting at
which a quorum is present, or the affirmative vote of a greater number of
Directors where required by the Corporation's Articles of Incorporation or the
Act.
Section 3.11. Action Without Meeting. Any action required or permitted
to be taken by the Board of Directors at an annual, regular, or special meeting
may be taken without a meeting if a consent in writing, setting forth the action
taken, shall be signed by all of the Directors.
Section 3.12. Committees. The Board of Directors may by resolution
designate and delegate authority to an Executive Committee and other committees
with such authority as may be permitted by the Act. Special meetings of any
committee may be called at any time by any Director who is a member of the
committee or by any person entitled to call a special meeting of the full Board
of Directors. Except as otherwise provided in the section, the conduct of all
meetings of any committee, including notice thereof, shall be governed by
Sections 3.06 through 3.11 of this Article.
Section 3.13. Compensation. The Board of Directors, in its discretion,
may compensate Directors for their services as such and may provide for the
payment of all expenses reasonably incurred by Directors in attending meetings
of the Board or of any committee or in the performance of their other duties as
Directors. Nothing herein contained, however, shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV
OFFICERS
Section 4.01. In General. The principal officers of the Corporation
shall consist of a Chairman of the Board, a President, one or more Vice
Presidents, a Secretary and a Treasurer. Each officer shall exercise such
authority and perform such duties as may be set forth in these Bylaws and any
additional authority and duties as the Board of Directors shall determine from
time to time. The same individual may simultaneously hold more than one office,
but no individual may act in more than one capacity where action of two or more
officers is required.
Section 4.02. Election, Term of Office, Qualification. Each of the
principal officers of the Corporation shall be elected annually by the Board of
Directors and shall hold office until his successor shall have been duly elected
and shall have qualified, or
6
<PAGE>
until his death, or until he shall resign, or until he shall have been removed
in the manner hereinafter provided.
Section 4.03. Chairman of the Board. The Chairman of the Board of
Directors shall preside at the meetings of the Board of Directors and may call
meetings of the Board and of any committee thereof, whenever he deems it
necessary, and he shall call to order and preside at all meetings of the
shareholders of the Corporation. In addition he shall have such other powers and
duties as the Board of Directors shall designate from time to time. The Chairman
of the Board of Directors shall have power to sign all certificates of stock,
bonds, deeds and contracts of the Corporation. If the Board of Directors shall
fail to elect a Chairman of the Board, the President shall serve in such
capacity.
Section 4.04. President. The President shall be the chief executive
officer of the Corporation and, subject to the authority of the Board of
Directors, shall manage the business and affairs of the Corporation. The
President shall see that the resolutions of the Board of Directors are put into
effect. The President shall have full authority to execute on the Corporation's
behalf any and all contracts, agreements, notes, bonds, deeds, mortgages,
certificates, instruments, and other documents except as may be specifically
limited by resolution of the Board of Directors.
Section 4.05. Vice Presidents. Each Vice President shall have such
powers and perform such duties as the Board of Directors may from time to time
prescribe. The Board of Directors may elect or designate one or more of the Vice
Presidents as Executive Vice Presidents, Senior Vice Presidents or with such
other title as the Board may deem appropriate.
Section 4.06. Secretary. The Secretary shall attend all meetings of the
shareholders and the Board of Directors and record the proceedings thereof. The
Secretary shall give, or cause to be given, all notices in connection with such
meetings. The Secretary shall be the custodian of the corporate seal and affix
the seal to any document requiring it.
Section 4.07. Treasurer. The Treasurer shall keep safe custody of the
Corporation's funds and maintain complete and accurate books and records of
account. The Treasurer shall upon request report to the Board of Directors on
the financial condition of the Corporation.
Section 4.08. Additional Officers. The Board of Directors may elect or
appoint such additional officers as it may deem necessary or advisable, and may
delegate the power to appoint such additional officers to any committee or
principal officer. Such additional officers shall have such powers and duties
and shall hold office for such terms as may be determined by the Board or such
committee or officer.
7
<PAGE>
Section 4.09. Removal. Except as may otherwise be provided by law or in
the Articles of Incorporation, any officer may be removed by the Board of
Directors with or without cause at any time.
Section 4.10. Salaries. The salaries of the officers shall be fixed
from time to time by the Board of Directors. No officer shall be prevented from
receiving a salary by reason of the fact that he is also a Director of the
Corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 5.01. Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
Section 5.02. Loans. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors, and such authority may be
general or confined to specific instances.
Section 5.03. Checks, Drafts, etc. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by the officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 5.04. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
ARTICLE VI
SHARE CERTIFICATES
Section 6.01. Certificates for Shares. Certificates representing shares
of capital stock of the Corporation shall be in the form approved by the Board
of Directors and shall be signed, either manually or in facsimile, by the
Chairman of the Board, the President or a Vice President and by the Secretary or
an Assistant Secretary. All certificates for shares shall be consecutively
numbered. The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and date of issuance, shall be
entered on the stock transfer books of the Corporation.
8
<PAGE>
Section 6.02. Transfer of Shares. Subject to the provisions of the Act
and to any transfer restrictions binding on the Corporation, transfer of shares
of the Corporation shall be made only on the stock transfer books of the
Corporation by the holder of record thereof or by his agent, attorney-in-fact or
other legal representative, who shall furnish proper evidence of authority to
transfer, upon surrender for cancellation of the certificate for such shares.
The person in whose name shares stand on the stock transfer books of the
Corporation shall be deemed by the Corporation to be the owner thereof for all
purposes. All certificates surrendered to the Corporation for transfer shall be
canceled and no new certificate shall be issued until the former certificate for
a like number of shares shall have been surrendered and canceled, except as
otherwise provided in these Bylaws.
Section 6.03. Lost Certificates. The Board of Directors may authorize
the issuance of a new share certificate in place of a certificate claimed to
have been lost, destroyed or wrongfully taken, upon receipt of an affidavit of
such fact from the person claiming the loss or destruction. When authorizing
such issuance of a new certificate, the Board may require the claimant to give
the Corporation a bond in such sum and with such sureties as it may direct to
indemnify the Corporation against loss from any claim with respect to the
certificate claimed to have been lost, destroyed or wrongfully taken; or the
Board may, by resolution reciting that the circumstances justify such action,
authorize the issuance of the new certificate without requiring such a bond with
respect to a certificate claimed to have been lost or destroyed. Any such
authorization by the Board of Directors may be general or confined to specific
instances. Nothing herein shall require the Board of Directors to authorize the
issuance of any such replacement certificate under any circumstances in which
the Corporation is not required to issue such certificate, this provision being
permissive and not mandatory.
ARTICLE VII
INDEMNIFICATION
Section 7.01. Right to Indemnification. Each person who was or is a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal (hereinafter, a "proceeding" and including without
limitation, a proceeding brought by or on behalf of the Corporation itself), by
reason that he is or was a Director or officer of the Corporation, or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or as a trustee or
administrator under an employee benefit plan, whether the basis of such
proceeding is alleged action in an official capacity as a Director or officer or
in any other capacity while serving as a director, officer, partner,
9
<PAGE>
trustee, employee, agent, trustee or administrator, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Act as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than the Act permitted
the Corporation to provide prior to such amendment) against all expense,
liability and loss (including attorney's fees, judgments, fines, excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith, and such indemnification shall
continue as to a person who has ceased to serve in the capacity that initially
entitled such person to indemnification hereunder and shall inure to the benefit
of his heirs, executors and administrators; provided, however, that the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Article VII
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that, if the Act so requires, the
payment of expenses incurred by a Director or officer in his capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such Director or officer, to repay all
amounts so advanced if it shall ultimately be determined that the Director or
officer is not entitled to be indemnified under this Section or otherwise.
Section 7.02. Right of Claimant to Bring Suit. If A claim under Section
7.01 hereof is not paid in full by the Corporation within ninety (90) days after
a written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Act for the Corporation to indemnify
the claimant for the amount claimed, but the burden of proving such defense
shall be on the Corporation. Neither the failure of the Corporation (including
its Board of Directors, independent legal counsel, or its shareholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he has
met the applicable standard of conduct set forth in the Act, nor an actual
determination by the Corporation (including
10
<PAGE>
its Board of Directors, independent legal counsel, or its shareholders)
that the claimant has not met the applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
Section 7.03. Nonexclusivity of Rights. The right to indemnification
and the advancement and payment of expenses conferred in this Article VII shall
not be exclusive of any other right which any person may have or hereafter
acquire under any law (common or statutory), the Corporation's Articles of
Incorporation, these Bylaws, any agreement, the vote of shareholders or
disinterested Directors or otherwise.
Section 7.04. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any person who is or was serving as a Director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee or
agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise or trustee or administrator under an employee benefit
plan against any liability asserted against and incurred by that person in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify that person against such liability
under the Act.
Section 7.05. Savings Clause. If this Article VII or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify and hold harmless each director and
officer of the Corporation, as to costs, charges and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative to the full extent permitted by any applicable portion of this
Article VII that shall not have been invalidated and to the full extent
permitted by applicable law.
ARTICLE VIII
RECORDS AND REPORTS
Section 8.01. General. The Corporation shall keep all records and
submit and file all reports and filings as are required by applicable law.
Unless the Board of Directors otherwise directs, the Treasurer shall be
responsible for keeping, or causing to be kept, all financial and accounting
records of the Corporation and for submitting or filing, or causing to be
submitted or filed, all reports and filings of a financial or accounting nature,
and the Secretary shall be responsible for keeping, or causing to be kept, all
other records and for submitting or filing, or causing to be submitted or filed,
all other reports and filings.
11
<PAGE>
The Corporation shall keep as permanent records minutes of all meetings
of its incorporators, shareholders and Board of Directors, a record of all
actions taken by the shareholders or Board of Directors without a meeting, and a
record of all actions taken by Committees of the Board of Directors. The
Corporation shall maintain appropriate accounting records. The Corporation shall
maintain its records in written form or in another form capable of conversion
into written form within a reasonable time.
Section 8.02. Records at Principal Office. The Corporation shall keep a
copy of the following records at the Corporation's principal office:
(a) Its Articles of Incorporation or restated Articles of
Incorporation and all amendments to them currently in effect.
(b) Its Bylaws or restated Bylaws and all amendments to them
currently in effect.
(c) Resolutions adopted by the Board of Directors creating one or
more classes or series of shares, and fixing their relative
rights, preferences, and limitations, if shares issued
pursuant to those resolutions are outstanding.
(d) The minutes of all shareholders' meetings, and records of all
action taken by shareholders without a meeting, for the past
three years.
(e) All written communications to shareholders generally within
the past three years and the financial statements required by
law to be made available to the shareholders for the past
three years.
(f) A list of the names and business addresses of its current
Directors and officers.
(g) Its most recent annual report delivered to the North Carolina
Secretary of State pursuant to the Act.
Section 8.03. Financial Statements. The Corporation shall make
available to the shareholders annual financial statements, which may be
consolidated or combined statements of the Corporation and one or more of its
subsidiaries, as appropriate, that include a balance sheet as of the end of the
fiscal year, an income statement for that year, and a statement of cash flows
for the year unless that information appears elsewhere in the financial
statements. If financial statements are prepared for the Corporation on the
basis of generally accepted accounting principles, the annual financial
statements shall also be prepared on that basis.
If the annual financial statements are reported upon by a public
accountant, such accountant's report shall accompany them.
12
<PAGE>
If not, the statements shall be accompanied by a statement of the
President or the Treasurer or other person responsible for the Corporation's
accounting records:
(a) stating his or her reasonable belief whether the statements
were prepared on the basis of generally accepted accounting
principles and, if not, describing the basis of preparation;
and
(b) describing any respects in which the statements were not
prepared on a basis of accounting consistent with the
statements prepared for the preceding year.
The Corporation shall mail the annual financial statements, or a written notice
of their availability, to each shareholder within 120 days after the close of
each fiscal year; provided that the failure of the Corporation to comply with
this requirement shall not constitute the basis for any claim of damages by any
shareholder unless such failure was in bad faith. Thereafter, on written request
from a shareholder who was not mailed the statements, the Corporation shall mail
such shareholder the latest financial statements.
Section 8.04. Other Reports to Shareholders. If the Corporation is not
a public corporation and it indemnifies or advances expenses to a director in
connection with a proceeding by or in the right of the Corporation, the
Corporation shall report the indemnification or advance in writing to the
shareholders with or before notice of the next shareholders' meeting.
If the Corporation is not a public corporation and it issues or
authorizes the issuance of shares for promissory notes or for promises to render
services in the future, other than in a transaction or pursuant to a plan
previously approved by a majority of the shares entitled to vote thereon, the
Corporation shall report in writing to the shareholders the number of shares
authorized or issued, and the consideration received by the Corporation, with or
before the notice of the next shareholders' meeting.
Section 8.05. Annual Report. The Corporation shall prepare and deliver
to the North Carolina Secretary of State for filing each year the annual report
required by the Act.
ARTICLE IX
MISCELLANEOUS
Section 9.01. Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by the Act and the
Corporation's Articles of Incorporation. The Board of Directors may fix in
advance a record
13
<PAGE>
date for determining the shareholders entitled to a dividend. If such record
date is not fixed by the Board of Directors, the date the Board of Directors
authorizes such dividend shall be the record date.
Section 9.02. Seal. The corporate seal of the Corporation shall consist
of two concentric circles between or within which are the name of the
Corporation, the year of incorporation and the word "SEAL." The seal may be used
by causing it or a facsimile thereof to be impressed, affixed, stamped or
reproduced by any means. Any officer of the Corporation authorized to execute or
attest a document on behalf of the Corporation may affix or reproduce on such
document, as and for the corporate seal of the Corporation, a seal in any other
form sufficient to evidence that it is intended by such officer to represent the
corporate seal of the Corporation, in which case such seal shall be as effective
as the corporate seal in the form herein prescribed.
Section 9.03. Fiscal Year. The fiscal year of the Corporation shall be
established, and may be altered, by resolution of the Board of Directors from
time to time as the Board deems advisable.
Section 9.04. Amendments. Except an otherwise provided in the Articles
of Incorporation or the Act, these Bylaws may be amended or repealed and new
bylaws may be adopted by action of the Board of Directors or shareholders.
Notwithstanding the approval and adoption of these Bylaws by the shareholders,
these Bylaws may be amended or repealed and new bylaws may be adopted by action
of the Board of Directors.
Section 9.05. Notice: Waiver of Notice. Whenever any notice is required
to be given under the Act, the Corporation's Articles of Incorporation, or these
Bylaws, it shall be in writing and may be communicated in person; by telephone,
telegraph, teletype or other form of wire or wireless communication, or by
facsimile transmission; or by mail or private carrier. If mailed, notice to a
shareholder is effective when deposited in the United States mail with postage
thereon prepaid and correctly addressed to the shareholder's address shown in
the Corporation's current record of shareholders. All other notice is effective
at the earliest of the following: (i) when received; (ii) five days after its
deposit in the United States mail, as evidenced by the postmark, if mailed with
postage thereon prepaid and correctly addressed; (iii) on the date shown on the
return receipt, if sent by certified mail, return receipt requested, and the
receipt is signed by or on behalf of the addressee. A shareholder or Director,
as the case may be, may waive notice otherwise required by these Bylaws, before
or after the date stated in such notice, by delivery of a written waiver of such
notice signed by such shareholder or Director to the Corporation for filing or
inclusion with the minutes or corporate records, or, to the extent provided by
the Act, by attendance at the meeting to which such notice relates.
14
<PAGE>
Section 9.06. Shareholders of Record. For the purpose of determining
shareholders entitled to vote at any meeting of shareholders, or entitled to
receive dividends or other distributions, or in connection with any other proper
purpose requiring a determination of shareholders, the Board of Directors shall
by resolution fix a record date for such determination. The date shall be not
more than sixty (60) and not less than ten (10) days prior to the date on which
the activity requiring the determination is to occur. The shareholders of record
appearing in the stock transfer books of the Corporation at the close of
business on the record date so fixed shall constitute the shareholders of record
in respect of the activity in question. In the absence of action by the Board of
Directors to fix a record date, the record date (unless otherwise specified in
the Corporation's Articles of Incorporation or these Bylaws) shall be ten (10)
days prior to the date on which the activity requiring a determination of
shareholders is to occur.
Section 9.07. Conflict with Act and Articles of Incorporation;
Severability. In the event of a conflict between the Act or the Corporation's
Articles of Incorporation and these Bylaws, the Act or Articles of
Incorporation, as the case may be, shall prevail to the extent of such conflict.
Any provision of these Bylaws, or any amendment hereto, which is determined to
be in violation of the Act shall not in any way render the remaining provisions
invalid.
15
<PAGE>
WASTE INDUSTRIES, INC.
1997 STOCK PLAN
Adopted: April ___, 1997
<PAGE>
WASTE INDUSTRIES, INC.
1997 STOCK PLAN
1. Purposes of the Plan. The purposes of this 1997 Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries, and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means the Committee appointed by the Board of
Directors in accordance with Section 4(a) of the Plan.
(e) "Common Stock" means the Common Stock of the Company,
consisting of both voting Common Stock and non-voting Common Stock.
(f) "Company" means Waste Industries, Inc., a North Carolina
corporation.
(g) "Consultant" means any person, including an advisor, who
is engaged by the Company or any Parent or Subsidiary of the Company to render
services and is compensated for such services, and any director of the Company
whether compensated for such services or not.
(h) "Continuous Status as an Employee or Consultant" means the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Administrator, provided that
such leave is for a period of not more than ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) transfers between locations of the Company or between the
Company, its Subsidiaries or their respective successors. For purposes of this
Plan, a change in status from an Employee
1
<PAGE>
to a consultant or from a consultant to an Employee will not constitute a
termination of employment or consulting relationship; provided that a change
from an Employee to a consultant may cause an Incentive Stock Option to become a
Nonstatutory Stock Option under the Code.
(i) "Employee" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company,
with the status of employment determined based upon such minimum number of hours
or periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment of a director's fee by the
Company shall not be sufficient to constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(k) "Fair Market Value" means, as of any date, the fair market
value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including, without limitation, the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported), as quoted on such system or exchange, or the exchange with the
greatest volume of trading in Common Stock for the last market trading day prior
to the time of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System
(but not on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock for the last market trading day prior to the time of determination,
as reported in The Wall Street Journal or such other source as the Administrator
deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(l) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, or any successor provision.
(m) "Nonstatutory Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the
Plan.
2
<PAGE>
(o) "Optioned Stock" means the Common Stock subject to an
Option or a Stock Purchase Right.
(p) "Optionee" means an Employee or Consultant who receives an
Option or a Stock Purchase Right.
(q) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code, or any successor
provision.
(r) "Plan" means this 1997 Stock Plan.
(s) "Reporting Person" means an officer, director, or greater
than ten percent shareholder of the Company within the meaning of Rule 16a-2
under the Exchange Act, who is required to file reports pursuant to Rule 16a-3
under the Exchange Act, or any successor provision.
(t) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 10 below.
(u) "Rule 16b-3" means Rule 16b-3 promulgated under the
Exchange Act, as the same may be amended from time to time, or any successor
provision.
(v) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(w) "Stock Exchange" means any stock exchange or consolidated
stock price reporting system on which prices for the Common Stock are quoted at
any given time.
(x) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 10 below.
(y) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code, or any
successor provision.
3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of shares that may be optioned and
sold under the Plan is ___________ shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock. If an Option should expire
or become unexercisable for any reason without having been exercised in full,
the unpurchased Shares that were subject thereto shall, unless the Plan shall
have been terminated, become available for future grant under the Plan. If the
Company shall repurchase unvested shares of Restricted Stock, such repurchased
Shares that were subject thereto shall, unless the Plan shall have been
terminated, become available for future grant under the Plan. In addition, any
shares of Common Stock which are retained by the Company upon exercise of an
Option or Stock Purchase Right in order to satisfy the exercise or purchase
price for such Option or Stock
3
<PAGE>
Purchase Right or any withholding taxes due with respect to such exercise shall
be treated as not issued and shall continue to be available under the Plan.
4. Administration of the Plan.
(a) Procedure. The Plan shall be administered by (A) the Board
or (B) a committee designated by the Board, which committee shall be constituted
in such a manner as to satisfy the legal requirements relating to the
administration of incentive stock option plans, if any, of applicable state and
federal corporate and securities laws, of the Code and of any applicable Stock
Exchange (collectively, the "Applicable Laws"). Once appointed, such Committee
shall continue to serve in its designated capacity until otherwise directed by
the Board. From time to time the Board may increase the size of the Committee
and appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies, however
caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, including the approval, if required, of any Stock Exchange, the
Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom
Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options
and Stock Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number and class of shares of
Common Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder;
(vii) to determine whether and under what circumstances
an Option may be settled in cash under Section 9(f) instead of Common Stock;
(viii) to accelerate the exercisability of any Option or
Stock Purchase Right;
4
<PAGE>
(ix) to determine the terms and restrictions applicable
to Stock Purchase Rights and the Restricted Stock purchased by exercising such
Stock Purchase Rights;
(x) in order to fulfill the purposes of the Plan and
without amending the Plan, to modify grants of Options or Stock Purchase Rights
to participants who are foreign nationals or employed outside of the United
States in order to recognize differences in local law, tax policies or customs;
(xi) to accelerate the vesting of any Option or Stock
Purchase Right or waive forfeiture restrictions with respect thereto; and
(xii) to make all other determinations, not inconsistent
with the terms of the Plan, deemed necessary or advisable for administering the
Plan.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all holders of Options or Stock Purchase Rights.
5. Eligibility.
(a) Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Right may, if he or she is otherwise eligible, be granted
additional Options or Stock Purchase Rights.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of the Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options
shall be taken into account in the order in which they were granted, and the
Fair Market Value of the Shares subject to an Incentive Stock Option shall be
determined as of the date of the grant of such Option.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with such Optionee's right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as
5
<PAGE>
described in Section 19 of the Plan. It shall continue in effect for a term of
ten (10) years from the date of its adoption, unless sooner terminated under
Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than
ten (10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement. However, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following in the case of an Incentive Stock
Option that is:
(i) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(ii) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash,
(2) check, (3) promissory note, (4) other Shares that (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender or such other period as may be required
to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) authorization for the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (6) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price and any applicable
income or employment taxes, (7) delivery of an irrevocable subscription
agreement for the Shares that irrevocably obligates the option holder to take
and pay for the Shares not more than twelve months after the date of delivery of
the subscription agreement, (8) any combination of the foregoing methods of
payment, or (9) such other consideration and method of payment for the issuance
of Shares to the extent
6
<PAGE>
permitted under Applicable Laws. In making its determination as to the type of
consideration to accept, the Administrator shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan. An Option may not be exercised for a fraction of a
Share. An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares that thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship.
Subject to Section 9(c), in the event of termination of an Optionee's consulting
relationship or Continuous Status as an Employee with the Company, such Optionee
may, but only within three (3) months (or such other period of time not less
than thirty (30) days as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option and not exceeding three (3) months) after the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercise his or her Option to the
extent that the Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of such termination, or if Optionee does not exercise such Option to
the extent so entitled within the time specified herein, the Option shall
terminate. No termination shall be deemed to occur and this Section 9(b) shall
not apply if (i) the Optionee is a Consultant who becomes an Employee within the
time specified herein; or (ii) the Optionee is an Employee who becomes a
Consultant within the time specified herein.
7
<PAGE>
(c) Disability of Optionee. Notwithstanding the provisions of
Section 9(b) above, in the event of termination of an Optionee's consulting
relationship or Continuous Status as an Employee as a result of his or her total
and permanent disability (as defined in Section 22(e)(3) of the Code, or any
successor provision), the Optionee may, but only within six (6) months (or such
other period of time not exceeding twelve (12) months as is determined by the
Board, with such determination in the case of an Incentive Stock Option being
made at the time of the grant of the option) from the date of such termination
(but in no event later than the expiration date of the term of such Option as
set forth in the Option Agreement), exercise the Option to the extent otherwise
entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within the
time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an
Optionee (i) during the period of Continuous Status as an Employee or any
consulting relationship or (ii) within thirty (30) days following the
termination of the Optionee's Continuous Status as an Employee or consulting
relationship, the Option may be exercised, at any time within six (6) months (or
such other period of time not exceeding twelve (12) months as is determined by
the Board, with such determination in the case of an Incentive Stock Option
being made at the time of the grant of the option) following the date of death
(but in no event later than the expiration date of the term of such Option as
set forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent the Optionee was entitled to exercise the Option at the date of death
or, if earlier, the date of termination of the consulting relationship or
Continuous Status as an Employee. To the extent that Optionee was not entitled
to exercise the Option at the date of death or termination, as the case may be,
or if Optionee does not exercise such Option to the extent so entitled within
the time specified herein, the Option shall terminate.
(e) Rule 16b-3. Options granted to Reporting Persons shall
comply with Rule 16b-3 and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum exemption
for Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
10. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled
to purchase, the price to be paid, and the time within which such person must
accept such offer, which shall in no event exceed thirty (30) days from the date
upon which the
8
<PAGE>
Administrator made the determination to grant the Stock Purchase Right. The
offer shall beaccepted by execution of a Restricted Stock purchase agreement in
the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment or consulting relationship with the Company for any
reason (including death or disability). The purchase price for Shares
repurchased pursuant to the Restricted Stock purchase agreement shall be the
original purchase price paid by the purchaser and may be paid by cancellation of
any indebtedness of the purchaser to the Company.
(c) Other Provisions. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 12
of the Plan.
11. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by one or some
combination of the following methods: (a) by cash payment, or (b) out of
Optionee's current compensation, (c) if permitted by the Administrator, in its
discretion, by surrendering to the Company Shares that (i) in the case of Shares
previously acquired from the Company, have been owned by the Optionee for more
than six months on the date of surrender, and (ii) have a fair market value on
the date of surrender equal to or greater than Optionee's marginal tax rate
times the ordinary income recognized, or (d) by electing to have the Company
withhold from the Shares to be issued upon exercise of the Option, or the Shares
to be issued in connection with the Stock Purchase Right, if any, that number of
Shares having a fair market value equal to the amount required to be withheld.
For this purpose, the fair market value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date").
Any surrender by a Reporting Person of previously owned Shares
to satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as
9
<PAGE>
may be required thereunder to qualify for the maximum exemption from Section 16
of the Exchange Act with respect to Plan transactions.
All elections by an Optionee to have Shares withheld to
satisfy tax withholding obligations shall be made in writing in a form
acceptable to the Administrator and shall be subject to the following
restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option or Stock Purchase Right as to which the election
is made;
(c) all elections shall be subject to the consent or
disapproval of the Administrator; and
(d) if the Optionee is a Reporting Person, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by
an Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
12. Adjustments Upon Changes in Capitalization, Merger or Certain Other
Transactions.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination, recapitalization or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
10
<PAGE>
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Sale of Assets. In the event of a proposed sale
of all or substantially all of the Company's assets or a merger of the Company
with or into another corporation where the successor corporation issues its
securities to the Company's shareholders (excluding any transaction with a
majority-owned or wholly-owned subsidiary), each outstanding Option or Stock
Purchase Right shall be assumed or an equivalent option or right shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation (and such assumed or substituted Option or Stock Purchase
Right shall provide that such Option or Stock Purchase Right shall vest in its
entirety in the event that the Consultant or Employee holding such Option or
Stock Purchase Right is terminated without cause within the twelve (12) month
period following the consummation of the merger or sale of assets). If the
successor corporation does not agree to so assume an Option or Stock Purchase
Right or to so substitute an equivalent option or right, such Option or Stock
Purchase Right shall vest in its entirety and become exercisable prior to the
consummation of the merger or sale of assets. If an Option becomes fully
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets as provided in the preceding two sentences, the Board shall
notify the Optionee within a reasonable time prior to the consummation of such
transaction, and the Option shall be fully exercisable for a period of ten (10)
days from the date of such notice, and will terminate upon the expiration of
such period.
(d) Certain Distributions. In the event of any distribution to
the Company's shareholders of securities of any other entity or other assets
(other than dividends payable in cash or stock of the Company) without receipt
of consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
13. Non-Transferability of Options, Stock Purchase Rights and
Restricted Stock. To the extent required by any Applicable Law, Options and
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised or purchased during the lifetime of
the Optionee only by the Optionee.
14. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or
11
<PAGE>
such other date as is determined by the Board. Notice of the determination shall
be given to each Employee or Consultant to whom an Option or Stock Purchase
Right is so granted within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made that would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 or
with Section 422 of the Code, or any successor provision (or any other
applicable law or regulation, including the requirements of any Stock Exchange),
the Company shall obtain shareholder approval of any Plan amendment in such a
manner and to such a degree as required.
(b) Effect of Amendment or Termination. No amendment or
termination of the Plan shall adversely affect Options or Stock Purchase Rights
already granted, unless mutually agreed otherwise between the Optionee and the
Board, which agreement must be in writing and signed by the Optionee and the
Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any Stock Exchange. As a condition to the exercise of an Option,
the Company may require the person exercising such Option to represent and
warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required by law.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
18. Agreements. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Administrator shall approve from time to
time.
19. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is approved by the Board. Such shareholder approval
shall be obtained in the degree and manner required under applicable state and
federal law and the rules of any Stock Exchange.
12
<PAGE>
All Options and Stock Purchase Rights issued under the Plan shall become void in
the event such approval is not obtained.
20. Lock-up Agreement. Each recipient of securities hereunder agrees,
in connection with the first registration with the United States Securities and
Exchange Commission under the Securities Act of 1933, as amended, of the public
sale of the Company's Common Stock, upon request of the Company or any
underwriters managing such offering, not to sell, make any short sale of, loan,
grant any option for the purchase of or otherwise dispose of any securities of
the Company (other than those included in the registration, if any) without the
prior written consent of the Company or such underwriters, as the case may be,
for such period of time not to exceed one year from the effective date of such
registration as the Company or the underwriters, as the case may be, shall
specify. Each such recipient agrees that the Company may instruct its transfer
agent to place stop- transfer notations in its records to enforce this Section
20.
13
<PAGE>
[CONFORMED COPY]
$25,000,000
CREDIT AGREEMENT
dated as of
April 3, 1996
between
WASTE INDUSTRIES, INC.
and
BRANCH BANKING AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
[Not a part of the Agreement]
CREDIT AGREEMENT
<TABLE>
<CAPTION>
ARTICLE 1. DEFINITIONS
<S> <C> <C>
1.1. Definitions............................................................................1
1.2. Accounting Terms and Determinations...................................................17
(a) APPLICATION OF GAAP..........................................................17
(b) COMBINED FINANCIAL POSITION OR RESULTS OF OPERATIONS.........................17
1.3. Use of Defined Terms..................................................................17
--- -- ------- -----
1.4. Terminology...........................................................................18
-----------
1.5. Headings..............................................................................18
--------
1.6. References............................................................................18
----------
1.7. Classes and Types of Loans............................................................18
------- --- ----- -- -----
ARTICLE 2. THE CREDITS
2.1. Commitments to Make Loans.............................................................18
----------- -- ---- -----
(a) FACILITY A COMMITMENT........................................................18
(b) FACILITY B COMMITMENT........................................................19
(c) COMMITMENT TERMINATION.......................................................19
2.2. Letter of Credit Subfacility..........................................................19
------ -- ------ -----------
(a) ISSUANCE.....................................................................19
(b) NOTICE.......................................................................19
(c) REIMBURSEMENT................................................................19
(d) AMENDMENTS, RENEWALS, ETC....................................................20
(e) CASH COLLATERAL..............................................................20
(f) ADDITIONAL PROVISIONS........................................................20
2.3. Method of Borrowing Loans.............................................................21
------ -- --------- -----
(a) NOTICE.......................................................................21
(b) FUNDING......................................................................22
(c) CASH MANAGEMENT BORROWINGS...................................................22
(d) RECORDS OF BORROWING REQUESTS AND OF LOANS...................................22
2.4. Notes.................................................................................22
(a) FACILITY A NOTE..............................................................22
(b) FACILITY B NOTE..............................................................22
2.5. Repayment and Maturity of Loans.......................................................23
(a) FACILITY A LOANS.............................................................23
(b) FACILITY B LOANS.............................................................23
2.6. Interest..............................................................................23
--------
(a) ACCRUAL AND PAYMENT OF INTEREST..............................................23
(b) RATE DETERMINATIONS..........................................................23
(c) INTEREST AT DEFAULT RATE.....................................................24
2.7. Fees..................................................................................24
(a) CLOSING FEE..................................................................24
- i -
<PAGE>
(b) FACILITY A FEE...............................................................24
(c) LC FEE.......................................................................24
2.8. Optional Termination or Reduction of Commitments......................................24
2.9. Optional Prepayments..................................................................25
2.10. Mandatory Payments and Prepayments...........................................25
(a) LOANS IN EXCESS OF COMMITMENTS...............................................25
(b) THIRTY DAY PAYOUT............................................................25
2.11. General Provisions as to Payments............................................25
------- ---------- -- -- --------
(a) MANNER OF PAYMENT............................................................25
(b) DUE DATES ON NON-BUSINESS DAYS...............................................26
(c) TAXES........................................................................26
2.12. Computation of Interest and Fees.............................................27
----------- -- -------- --- ----
ARTICLE 3. CONDITIONS TO BORROWINGS
3.1. Conditions to First Borrowing or Letter of Credit Issuance............................27
---------- -- ----- --------- -- ------ -- ------ --------
3.2. Conditions to Facility A Borrowings...................................................29
---------- -- -------- - ----------
3.3. Conditions to All Borrowings..........................................................30
---------- -- --- ----------
3.4. Waiver of Conditions Precedent........................................................31
------ -- ---------- ---------
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
4.1. Corporate Existence and Power.........................................................31
4.2. Corporate and Governmental Authorization; No Contravention............................31
(a) EXECUTION, DELIVERY AND PERFORMANCE..........................................31
(b) THE COMBINATION..............................................................32
4.3. Binding Effect........................................................................32
4.4. Financial Information.................................................................32
(a) CURRENT FINANCIAL STATEMENTS.................................................32
(b) PRO FORMA FINANCIAL STATEMENTS...............................................32
4.5. Litigation............................................................................33
----------
4.6. Requirements of Law...................................................................33
------------ -- ---
4.7. Compliance with ERISA.................................................................33
---------- ---- -----
4.8. Taxes.................................................................................33
-----
(a) PAYMENT OF TAXES; RETURNS....................................................33
(b) PAYROLL WITHHOLDING TAXES....................................................34
4.9. Subsidiaries..........................................................................34
------------
4.10. Not an Investment Company....................................................34
--- -- ---------- -------
4.11. Public Utility Holding Company Act...........................................34
------ ------- ------- ------- ---
4.12. Ownership of Assets; Liens...................................................35
--------- -- ------- -----
4.13. Credit Arrangements..........................................................35
------ ------------
4.14. Capitalization...............................................................35
--------------
4.15. Stock Purchase Obligations...................................................35
----- -------- -----------
4.16. No Default...................................................................36
-- -------
4.17. Full Disclosure..............................................................36
---- ----------
4.18. Environmental Matters........................................................36
------------- -------
4.19. Issuance of Stock and Other Securities.......................................37
-------- -- ----- --- ----- ----------
4.20. Margin Stock.................................................................37
------ -----
- ii -
<PAGE>
4.21. Insolvency...................................................................37
----------
ARTICLE 5. AFFIRMATIVE COVENANTS
5.1. Information...........................................................................37
-----------
5.2. Inspection of Property, Books and Records.............................................40
---------- -- --------- ----- --- -------
5.3. Minimum Balances......................................................................40
------- --------
5.4. Primary Depositary....................................................................40
------- ----------
5.5. Maintenance of Existence..............................................................40
----------- -- ---------
5.6. Compliance with Laws; Payment of Taxes................................................40
---------- ---- ----- ------- -- -----
5.7. Insurance.............................................................................40
---------
5.8. Maintenance of Property...............................................................41
----------- -- --------
5.9. Environmental Notices.................................................................41
------------- -------
5.10. Environmental Matters........................................................41
------------- -------
5.11. Environmental Release........................................................41
------------- -------
5.12. Lines of Business............................................................41
----- -- --------
5.13. Covenant to Ratably Secure...................................................41
-------- -- ------- ------
5.14. Guaranteed Obligations.......................................................42
---------- -----------
ARTICLE 6. NEGATIVE COVENANTS
6.1. Ratio of Consolidated Debt to EBITDA..................................................42
----- -- ------------ ---- -- ------
6.2. Ratio of Consolidated Senior Debt to EBITDA...........................................42
----- -- ------------ ------ ---- -- ------
6.3. Limitation on Priority Debt...........................................................42
---------- -- -------- ----
6.4. Fixed Charges Coverage................................................................42
----- ------- --------
6.5. Minimum Consolidated Net Worth........................................................42
------- ------------ --- -----
6.6. Consolidated Net Income...............................................................42
------------ --- ------
6.7. Capital Expenditures..................................................................42
------- ------------
6.8. Consolidated Operating Cash Flow......................................................43
------------ --------- ---- ----
6.9. Debt Limitation.......................................................................43
---- ----------
6.10. Subordinated Debt............................................................43
------------ ----
6.11. Restricted Payments..........................................................44
---------- --------
6.12. Investments..................................................................45
-----------
6.13. Permitted Acquisitions.......................................................46
--------- ------------
6.14. Negative Pledge..............................................................47
-------- ------
6.15. Operating Leases.............................................................49
--------- ------
6.16. Sale of Property.............................................................49
---- -- --------
6.17. Acquisition and Creation of Subsidiaries.....................................50
----------- --- -------- -- ------------
6.18. Dissolution..................................................................50
-----------
6.19. Consolidations, Mergers and Sales of Assets..................................50
--------------- ------- --- ----- -- ------
6.20. ERISA........................................................................50
-----
6.21. Use of Proceeds..............................................................51
--- -- --------
6.22. Change in Fiscal Year........................................................51
------ -- ------ ----
6.23. Transactions with Related Parties............................................51
------------ ---- ------- -------
6.24. Amendments to Senior Note Agreement..........................................51
---------- -- ------ ---- ---------
ARTICLE 7. DEFAULTS
7.1. Events of Default.....................................................................52
- iii -
<PAGE>
7.2. Remedies..............................................................................54
ARTICLE 8. CHANGE IN CIRCUMSTANCES; COMPENSATION
8.1. Basis for Determining Interest Rate Inadequate or Unfair..............................55
----- --- ----------- -------- ---- ---------- -- ------
8.2. Illegality............................................................................55
----------
8.3. Increased Cost and Reduced Return.....................................................56
--------- ---- --- ------- ------
8.4. Borrower's Option to Convert Interest Rate............................................57
---------- ------ -- ------- -------- ----
ARTICLE 9. MISCELLANEOUS
9.1. Notices...............................................................................57
9.2. No Waivers............................................................................58
9.3. Expenses; Documentary Taxes; Indemnification..........................................58
(a) EXPENSES.....................................................................58
(b) TAXES........................................................................58
(c) INDEMNIFICATION..............................................................58
(d) SURVIVAL.....................................................................59
9.4. Setoffs...............................................................................59
9.5. Amendments and Waivers................................................................59
9.6. Successors and Assigns................................................................59
(a) BINDING EFFECT...............................................................59
(b) PARTICIPATIONS...............................................................59
(c) ASSIGNMENTS..................................................................60
(d) DISCLOSURE...................................................................61
(e) LIMIT ON COMPENSATION........................................................61
(f) SPECIAL ASSIGNMENTS..........................................................61
9.7. Confidentiality.......................................................................61
---------------
9.8. Representation by Lender..............................................................62
-------------- -- ------
9.9. Survival of Certain Obligations.......................................................62
-------- -- ------- -----------
9.10. North Carolina Law...........................................................62
----- -------- ---
9.11. Severability.................................................................62
------------
9.12. Interest.....................................................................62
--------
9.13. Interpretation...............................................................62
--------------
9.14. Waiver of Jury Trial; Consent to Jurisdiction................................62
------ -- ---- ------ ------- -- ------------
9.15. No Setoff....................................................................63
-- ------
9.16. Reproduction of Documents....................................................63
------------ -- ---------
9.17. Inconsistency of Covenants...................................................64
------------- -- ---------
9.18. Counterparts.................................................................64
------------
</TABLE>
- iv -
<PAGE>
SCHEDULE 4.2 Governmental Actions and Filings for the Combination
SCHEDULE 4.5 Pending and Threatened Litigation
SCHEDULE 4.9 Existing Subsidiaries
SCHEDULE 4.13 Existing Credit Arrangements
SCHEDULE 4.14 Stock Ownership
SCHEDULE 4.15 Yates Letter
SCHEDULE 4.18 Environmental Matters
SCHEDULE 6.10 Subordination Requirements
SCHEDULE 6.14 Existing Liens
EXHIBIT A Form of Notice of Borrowing
EXHIBIT B Form of Facility A Note
EXHIBIT C Form of Facility B Note
EXHIBIT D Form of Opinion of Counsel for the Borrower
EXHIBIT E Form of Compliance Certificate
- v -
<PAGE>
CREDIT AGREEMENT
AGREEMENT dated as of April 3, 1996, by and between WASTE INDUSTRIES,
INC., a North Carolina corporation, and BRANCH BANKING AND TRUST COMPANY, a
North Carolina banking corporation.
The parties hereto agree as follows:
ARTICLE 1. DEFINITIONS
1.1. Definitions. The terms as defined in this Section 1.1 shall, for
all purposes of this Agreement and any amendment hereto (except as herein
otherwise expressly provided), have the meanings set forth herein (terms used in
the singular to have the corresponding meanings when used in the plural, and
VICE VERSA):
"Adjusted LIBO Rate" means, for any calendar month, a rate per annum
equal to the quotient obtained (rounded, if necessary, to the nearest 1/100 of
1% or, if there is no nearest 1/100 of 1%, to the next higher 1/100 of 1%) by
dividing (i) the applicable LIBO Rate for such month by (ii) 1.00 minus the
Euro-Dollar Reserve Percentage as it may be in effect from time to time during
such month.
"Adjusted Treasury Rate" means, for any day during any calendar month,
a rate per annum equal to the sum of (a) the Applicable Percentage in effect for
such day PLUS (b) the Treasury Rate for such month.
"Affiliate" means any Person (other than a Subsidiary) (a) that
directly or indirectly controls, is controlled by, or is under direct or
indirect common control with, the Borrower, (b) that beneficially owns or holds
10% or more of any class of Voting Stock of the Borrower, or (c) 10% or more of
the voting Securities (or in the case of a Person that is not a corporation, 10%
or more of the equity interest) of which is beneficially owned or held by the
Borrower or a Subsidiary. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and polices of such corporation, whether through the
ownership of voting Securities, by contract or otherwise.
"Agreement" means this Credit Agreement, as the same shall be modified,
amended, supplemented or restated and in effect from time to time.
"Amortization" means, for any period, the sum of all expense incurred
by the Borrower and its Consolidated Subsidiaries for such period in respect of
amortization of intangible assets and of property held under Capital Leases, as
determined in accordance with GAAP consistently applied.
"Applicable Lending Office" means, for each Type of Loan, the "Lending
Office" of the Lender (or of an Affiliate of the Lender) designated for such
Type of Loan on the
<PAGE>
Lender's signature page hereto or such other office of the Lender (or of an
Affiliate of the Lender) as the Lender may from time to time specify to the
Borrower as the office by which Loans of such Type are to be made and
maintained.
"Applicable Percentage" means (i) for purposes of calculating the
Adjusted Treasury Rate for any day, two percent (2.00%) per annum, (ii) for
purposes of calculating the Euro- Dollar Rate for any day, two percent (2.00%)
per annum, and (iii) for purposes of calculating the applicable per annum rate
for determination of the LC Fee (the "LC Fee Rate") for any period for purposes
of Section 2.7(c), one percent (1.00%) per annum, PROVIDED that, if as of the
last day of any Fiscal Quarter the ratio of Consolidated Debt as of such date to
EBITDA for the period of four consecutive Fiscal Quarters then ended shall fall
within any of the ranges set forth in the table below, then, subject to the
delivery to the Lender of a certificate of a senior financial officer of the
Borrower demonstrating such fact prior to the end of the next succeeding Fiscal
Quarter, the "Applicable Percentage" for purposes of determining the Adjusted
Treasury Rate, the Euro-Dollar Rate and the LC Fee Rate, shall be reduced to the
rate per annum set forth opposite such range in the table below during the
period commencing on the Quarterly Date on or immediately following the date of
receipt of such certificate to but not including the next succeeding Quarterly
Date thereafter (except that notwithstanding the foregoing, if an Event of
Default shall have occurred and be continuing at the time of delivery of such
certificate or at any time following the same until such next succeeding
Quarterly Date, the Applicable Percentage shall not as a consequence of this
proviso be so reduced for the period from the occurrence of such Event of
Default and so long as the same shall be continuing):
<TABLE>
<CAPTION>
If the Ratio of Consolidated The Applicable Percentage, Per Annum,
Debt to EBITDA is Shall Be, For Determining the
Adjusted Euro-Dollar
Treasury Rate Rate LC Fee Rate
<S> <C> <C>
Less than 1.35 to 1.00 1.250% 1.250% 0.500%
1.35 to 1.00 or more but 1.500% 1.500% 0.675%
no greater than 1.80 to 1.00
Greater than 1.80 to 1.00 1.750% 1.750% 0.750%
but less than 2.70 to 1.00
</TABLE>
"Assignee" has the meaning set forth in Section 9.6(c).
"Authority" has the meaning set forth in Section 8.2.
"Borrower" means Waste Industries, Inc, a North Carolina corporation,
and its successors and permitted assigns.
R#0172880.06
- 2 -
<PAGE>
"Borrowing" means a borrowing hereunder consisting of Loan made to the
Borrower by the Lender pursuant to Article 2. A Borrowing is a"Facility A
Borrowing" if such Borrowing is of a Facility A Loan under the Facility A
Commitment, or a "Facility B Borrowing" if such Borrowing is of a Facility B
Loan under the Facility B Commitment.
"Capital Expenditures" means, for any period, the sum of all capital
expenditures incurred during such period by the Borrower and its Consolidated
Subsidiaries, as determined in accordance with GAAP.
"Capital Leases" means, at any time, all leases reflected on a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries or
a lease that should be so reflected under GAAP.
"Capitalized Lease Obligation" means any rental obligation which, under
GAAP, is or will be required to be capitalized on the books of the Borrower or
any Subsidiary, taken at the amount thereof accounted for as indebtedness (net
of interest expenses) in accordance with GAAP.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. ss.9601 et seq.
"CERCLIS" means the Comprehensive Environmental Response Compensation
and Liability Inventory System established pursuant to CERCLA.
"Change of Law" has the meaning set forth in Section 8.2.
"Class" has the meaning set forth in Section 1.7.
"Closing Date" means the date on which there shall have been satisfied
all of the conditions specified in Article 3 to the making of Loans and the
issuance of a Letter of Credit on the occasion of the first Borrowing or Letter
of Credit issuance hereunder, but in no event later than April 12, 1996.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time.
"Combination" means the merger of each of the respective members of the
Combined Group (other than the Borrower) with and into the Borrower as the
surviving corporation and the Borrower's purchase of all properties used or
occupied by any member of the Combined Group and previously owned by the
Partnership.
"Combined Group" means the Borrower, Waste Enterprises, Inc., Waste
Industries West, Inc., Waste Industries East, Inc., KABCO, Inc., AmLease, Inc.,
and Conway 378 Properties, Inc., each of which is a North Carolina corporation,
and Waste Industries South, Inc., a South Carolina corporation.
- 3 -
<PAGE>
"Commitments" means the Facility A Commitment and the Facility B
Commitment.
"Compliance Certificate" has the meaning set forth in Section 5.1(f).
"Consolidated" means, with respect to any item of financial
information, the item of financial information for the Borrower and its
Consolidated Subsidiaries consolidated in accordance with GAAP.
"Consolidated Current Assets" means, at any time, all assets of the
Borrower and its Consolidated Subsidiaries that, in accordance with GAAP, should
be classified as current assets on a consolidated balance sheet of the Borrower
and its Consolidated Subsidiaries.
"Consolidated Current Liabilities" mean, at any time, all liabilities
of the Borrower and its Consolidated Subsidiaries that, in accordance with GAAP,
should be classified as current liabilities on a consolidated balance sheet of
the Borrower and its Consolidated Subsidiaries; EXCLUDING HOWEVER, to the extent
that liabilities in respect thereof would be so classified, the Facility B Loans
and Letter of Credit Obligations.
"Consolidated Debt" means, at any date, the Debt of the Borrower and
its Consolidated Subsidiaries, determined on a consolidated basis as of such
date.
"Consolidated Fixed Charges" means, for the Borrower and its
Consolidated Subsidiaries, the sum (without duplication) of:
(a) all Rentals (excluding all principal components of Rentals
under Capitalized Lease Obligations) paid during the most recently
completed four Fiscal Quarters (the "Prior Period");
(b) all Consolidated Interest Charges for the Prior Period;
and
(c) all Restricted Payments paid during the Prior Period (i)
on or in respect of Redeemable Stock of the Borrower or (ii) pursuant
to the Cross Purchase Agreement or any Stock Purchase Agreement.
"Consolidated Interest Charges" means, for the Borrower and its
Consolidated Subsidiaries on a Consolidated basis for the four Fiscal Quarters
most recently ended, all interest expense (as determined in accordance with
GAAP) on all Consolidated Debt (including imputed interest in respect of
Capitalized Lease Obligations) net of interest income.
"Consolidated Net Income" means, for any period, net income determined
on a consolidated basis for the Borrower and its Consolidated Subsidiaries;
PROVIDED, HOWEVER, that there shall not be included in such Consolidated Net
Income:
(a) any net income of any Person if such Person is not a
Subsidiary, except that equity in the net income of any such Subsidiary
for such period shall be included in such Consolidated Net Income up to
the aggregate amount of cash actually
- 4 -
<PAGE>
distributed by such Subsidiary to the Borrower or a Wholly Owned
Subsidiary as a dividend or other distribution (subject, in the case of
a dividend of other distribution to a Subsidiary, to the limitation
contained in clause (c) below);
(b) any net income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such
acquisition except to the extent that there exists for any such Person
audited financial statements for the most recently ended fiscal year of
such Person;
(c) any net income of a Subsidiary if such Subsidiary is
subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Subsidiary, directly
or indirectly, to the Borrower, except that equity in the net income of
any such Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Subsidiary to the Borrower or a Wholly Owned
Subsidiary during such period as a dividend or other distribution
(subject, in the case of a dividend or other distribution to another
Subsidiary, to the limitation contained in this clause);
(d) any gain realized upon the sale or other disposition of
any property, plant or equipment (including pursuant to any
sale-leaseback arrangement) which is not sold or otherwise disposed or
in the ordinary course of business and any gain realized upon the sale
or other disposition of any capital stock of any Person; or
(e) any other extraordinary items.
"Consolidated Net Working Capital" means, at any time, the amount by
which Consolidated Current Assets (excluding cash and cash equivalents) exceed
Consolidated Current Liabilities (excluding Current Maturities of Long Term
Debt).
"Consolidated Net Worth" means, at any time, for the Borrower and its
Consolidated Subsidiaries on a Consolidated basis, shareholders' equity at such
time determined in accordance with GAAP, BUT EXCLUDING any Redeemable Stock of
the Borrower.
"Consolidated Operating Cash Flow" means, for any period, the sum of
(i) EBITDA for such period MINUS (ii) all dividends paid during such period,
PLUS (iii) any decrease in Consolidated Net Working Capital during such period
MINUS (iv) any increase in Consolidated Net Working Capital during such period.
"Consolidated Senior Debt" means, at any time, all Consolidated Debt
other than Subordinated Debt.
"Consolidated Subsidiary" means, at any date, any Subsidiary or other
entity the accounts of which, in accordance with GAAP, would be consolidated
with those of the Borrower in its consolidated financial statements as of such
date.
- 5 -
<PAGE>
"Consolidated Total Assets" means, at any time, the total assets of the
Borrower and its Consolidated Subsidiaries, determined on a consolidated basis,
as set forth or reflected on the most recent consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries, prepared in accordance with GAAP.
"Consolidated Total Capital" means, at any time, the sum of (i)
Consolidated Net Worth, and (ii) Consolidated Debt.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control that, together with the Borrower, are treated as a single
employer under Section 414 of the Code.
"Cross Purchase Agreement" means the Cross Purchase Agreement, dated
July 10, 1990, as amended by that Amendment of Cross Purchase Agreement dated as
of May 1, 1995, each by and among Lonnie C. Poole, Jr., Jimmy W. Perry, J.
Gregory Poole, Jr., Robert H. Hall, the Borrower, Waste Enterprises, Inc., Waste
Industries South, Inc., Waste Industries West, Inc., Waste Industries East,
Inc., and KABCO, Inc., and as further amended by that Second Amendment of Cross
Purchase Agreement, dated as of April 1, 1996, by and among Lonnie C. Poole,
Jr., Jimmy W. Perry, J. Gregory Poole, Jr., Robert H. Hall, Lonnie C. Poole,
III, Scott J. Poole and the Borrower.
"Current Maturities of Long Term Debt" means, at any date, the
aggregate amount of all principal payments which are scheduled to be made by the
Borrower and its Consolidated Subsidiaries in respect of Long Term Debt during
the twelve month period beginning on such date or (if such date is not the first
day of a month) on the first day of the month immediately following such date.
"Debt" of any Person means, at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, (iv) all Capitalized Lease Obligations of such Person, (v) all
obligations of such Person to reimburse any bank or other Person in respect of
amounts payable under a banker's acceptance, (vi) all Redeemable Stock of such
Person (in the event such Person is a corporation), (vii) all obligations
(absolute or contingent) of such Person to reimburse any bank or other Person in
respect of amounts paid under a letter of credit or similar instrument, (viii)
all Debt of others secured by a Lien on any asset of such Person, whether or not
such Debt is assumed by such Person, and (ix) all Debt of others Guaranteed by
such Person; PROVIDED that trade accounts payable, accrued expenses, withholding
taxes and deferred taxes, in each case arising in the ordinary course of
business, shall not constitute "Debt."
"Default" means any act, event, condition, occurrence or circumstance
that constitutes an Event of Default or that, with the giving of notice or lapse
of time or both, would become an Event of Default unless cured or waived in
writing.
- 6 -
<PAGE>
"Default Rate" means, with respect to any Loan on any day, a rate per
annum equal to the sum of the Treasury Rate as in effect on such day plus four
percent (4.0%) per annum.
"Depreciation" means, for any period, the sum of all depreciation
expenses of the Borrower and its Consolidated Subsidiaries for such period, as
determined in accordance with GAAP consistently applied.
"Dollars" or "$" means dollars in lawful currency of the United States
of America.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in Raleigh, North Carolina are authorized or
required by law to close.
"EDITDA" means, for any period, Consolidated Net Income adjusted by
adding thereto the amount of all amortization of intangibles, interest, taxes
and depreciation that was deducted in arriving at Consolidated Net Income for
such period.
"Environmental Authorizations" means all licenses, permits, orders,
approvals, notices, registrations or other legal prerequisites for conducting
the business of the Borrower or any Subsidiary required by any Environmental
Requirement.
"Environmental Authority" means any Governmental Authority that
exercises any duly authorized form of jurisdiction or authority under any
Environmental Requirement.
"Environmental Judgments and Orders" means all judgments, decrees or
orders arising from or in any way associated with any Environmental
Requirements, whether or not entered upon consent or written agreements with an
Environmental Authority or other duly authorized entity arising from or in any
way associated with any Environmental Requirement, whether or not incorporated
in a judgment, decree or order.
"Environmental Liabilities" means any liabilities, whether accrued,
contingent or otherwise, arising from or relating in any way to any
Environmental Requirements.
"Environmental Notices" means (a) any written communication from any
Environmental Authority stating possible or alleged noncompliance with or
possible or alleged liability under any Environmental Requirement, including
without limitation any complaints, citations, demands or requests from any
Environmental Authority for correction of any purported violation of any
Environmental Requirement or any investigation concerning any purported
violation of any Environmental Requirement, (b) any written communication from
any other Person threatening litigation or administrative proceedings against or
involving the Borrower or any of its Subsidiaries relating to an alleged
violation of any Environmental Requirements, and (c) any complaint, petition or
similar documents filed by any other Person commencing litigation or
administrative proceedings against or involving the Borrower or any Subsidiary
relating to an alleged violation of any Environmental Requirements.
- 7 -
<PAGE>
"Environmental Proceedings" means any judicial or administrative
proceedings arising from or in any way associated with any Environmental
Requirement.
"Environmental Releases" means releases (as defined in CERCLA or under
any applicable state or local environmental law or regulation) of any Hazardous
Materials. "Environmental Releases" does not include releases for which no
remediation or reporting is required by applicable Environmental Requirements
and which do not present a danger to health, safety or the environment.
"Environmental Requirements" means any applicable local, state or
federal law, rule or regulation , permit, order, decision, determination or
requirement relating to health, safety or the environment.
"Equity Rights" means, with respect to any Person, any outstanding
subscriptions, options, warrants, commitments, preemptive rights or agreements
of any kind (including, without limitation, any stockholders' or voting trust
agreements) for the issuance, sale, registration or voting of, or outstanding
Securities convertible into, any additional shares of Stock of or partnership or
other ownership interests of any type in, such Person.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and in effect from time to time.
"Euro-Dollar Business Day" means any Domestic Business Day on which
dealings in Dollar deposits are carried out in the London interbank market.
"Euro-Dollar Rate" means, for any day during any calendar month, a rate
per annum equal to the sum of (a) the Applicable Percentage in effect for such
day PLUS (b) the Adjusted LIBO Rate for such month. For purposes of determining
the Euro-Dollar Rate for any day, changes in the Euro-Dollar Reserve Percentage
or the Applicable Percentage shall be effective on the date of each such change.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) that is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in respect of "Eurocurrency liabilities" (or in respect of any
other category of liabilities that includes deposits by reference to which the
interest rate on Loans bearing interest at the Euro-Dollar Rate is determined or
any category of extensions of credit or other assets that includes loans by a
non-United States office of the Lender to United States residents). The Adjusted
LIBO Rate shall be adjusted automatically on and as of the effective date of any
change in the Euro-Dollar Reserve Percentage.
"Event of Default" has the meaning set forth in Section 7.1.
"Facility A Commitment" means $20,000,000, as such amount may be
reduced from time to time pursuant to Section 2.8.
- 8 -
<PAGE>
"Facility A Fee" has the meaning set forth in Section 2.7(b).
"Facility A Loans" has the meaning set forth in Section 2.1(a).
"Facility A Maturity Date" means, with respect to the Facility A
Commitment and the Facility A Loans, April 1, 2006, or such later date as may be
agreed upon by the Lender and the Borrower, each acting in its sole and absolute
discretion, as evidenced by a written amendment to this Agreement.
"Facility A Note" means the promissory note of the Borrower provided
for by Section 2.4(a) and all promissory notes delivered in substitution or
exchange therefor, in each case as the shall same be modified, amended,
supplemented, restated, extended, consolidated, renewed or replaced and in
effect from time to time.
"Facility A Payment Dates" means May 1, 1999, and the first day of each
month thereafter until and including March 1, 2006; PROVIDED that if any such
day is not a Domestic Business Day, such Facility A Payment Date shall be on the
next succeeding Domestic Business Day.
"Facility A Termination Date" means, with respect to the Facility A
Commitment, April 1, 1999, or such later date as may be agreed upon by the
Lender and the Borrower, each acting in its sole and absolute discretion, as
evidenced by a written amendment to this Agreement.
"Facility B Commitment" means $5,000,000, as such amount may be reduced
from time to time pursuant to Section 2.8.
"Facility B Loans" has the meaning set forth in Section 2.1(b).
"Facility B Maturity Date" means, with respect to the Facility B
Commitment and the Facility B Loans, April 1, 1998, or such later date as may be
agreed upon by the Lender and the Borrower, each acting in its sole and absolute
discretion, as evidenced by a written amendment to this Agreement.
"Facility B Note" means the promissory note of the Borrower provided
for by Section 2.4(b) and all promissory notes delivered in substitution or
exchange therefor, in each case as the shall same be modified, amended,
supplemented, restated, extended, consolidated, renewed or replaced and in
effect from time to time.
"Fair Market Value" means , at any time, the sale value of property
that would be realized in an arm's-length sale at such time between an informed
and willing buyer, and an informed and willing seller, under no compulsion to by
or to sell, respectively.
"Fiscal Quarter" means any fiscal quarter of the Borrower.
"Fiscal Year" means any fiscal year of the Borrower.
- 9 -
<PAGE>
"GAAP" means generally accepted accounting principles applied on a
basis consistent with those which, in accordance with Section 1.2, are to be
used in making the calculations for purposes of determining compliance with the
terms of this Agreement.
"Governmental Authority" means any nation or government, any federal,
state, local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, or any instrumentality of any of the foregoing.
"Guaranty" or "Guarantee" means, with respect to any Person, any
obligation (except the endorsement in the ordinary course of business of
negotiable instruments for deposit or collection) of such Person guaranteeing or
in effect guaranteeing any indebtedness, dividend or other obligation of any
other Person in any manner, whether directly or indirectly, including (without
limitation) obligations incurred through an agreement, contingent or otherwise,
by such Person:
(a) to purchase such indebtedness or obligation or any
property constituting security therefor;
(b) to advance or supply funds for the purchase or payment of
such indebtedness or obligation, or to maintain any working capital or
other balance sheet condition or any income statement condition of any
Person or otherwise to advance or make available funds for the purchase
or payment of such indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such indebtedness or
obligation of the ability of any other Person to make payment of the
indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness of
obligation against loss in respect thereof.
In any computation of the indebtedness of other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
"Hazardous Materials" means (a) solid or hazardous waste, as defined in
the Resource Conservation and Recovery Act of 1980, 42 U.S.C. ss.6901 et seq.,
or in any applicable state or local law or regulation, (b) hazardous substances
as defined in CERCLA, or in any applicable state or local law or regulation, (c)
gasoline, or any other petroleum product or by- product, (d) toxic substances,
as defined in the Toxic Substances Control Act of 1976, or in any applicable
state or local law or regulation, or (e) insecticides, fungicides, or
rodenticides, as defined in the Federal Insecticide, Fungicide, and Rodenticide
Act of 1975, or in any applicable state or local law or regulation, as each such
Act, statute or regulation may be amended and in effect from time to time.
- 10 -
<PAGE>
"Hostile Tender Offer" means, with respect to the use of proceeds of
any Borrowing, any offer to purchase, or any purchase of, shares of Stock of any
corporation or equity interests in any other entity, or Securities convertible
into or representing the beneficial ownership of, or rights to acquire, any such
shares or equity interests, if such shares, equity interests, Securities or
rights are of a class that is publicly traded on any securities exchange or in
any over-the-counter market, other than purchases of such shares, equity
interests, Securities or rights representing less than 5% of the equity
interests or beneficial ownership of such corporation or other entity for
portfolio investment purposes, and such offer or purchase has not been duly
approved by the board of directors of such corporation or equivalent governing
body of such other entity prior to the date on which the Borrower makes a
Borrowing.
"Investment" means, when used with respect to any Person, any direct or
indirect advance, loan or other extension of credit or capital contribution by
such Person (by means of transfer of property to others or payments for property
or services for the account or use of others, or otherwise) to any other Person,
or any direct or indirect purchase or other acquisition or beneficial ownership
by such Person of, or of a beneficial interest in, Stock, partnership interest,
bonds, notes, debentures or other Securities issued by any other Person.
"LC Fee" has the meaning set forth in Section 2.7(c).
"Lender" means Branch Banking and Trust Company, a North Carolina
banking corporation, and its successors and assigns.
"Letter of Credit" has the meaning set forth in Section 2.2(a).
"Letter of Credit Application" has the meaning set forth in Section
2.2(a).
"Letter of Credit Obligations" means, at any time, the sum of (i) the
maximum amount which is, or at any time thereafter may become, available to be
drawn under Letters of Credit then outstanding, assuming compliance with all
requirements for drawings referred to in such Letters of Credit PLUS (ii) the
aggregate amount of all drawings under Letters of Credit honored by the Lender
and not theretofore reimbursed.
"LIBO Rate" means, for any calendar month, a rate per annum equal to
the arithmetic average (rounded, if necessary, to the nearest 1/100 of 1% or, if
there is no nearest 1/100 of 1%, to the next higher 1/100 of 1%) of rates quoted
in the Wall Street Journal (Credit Markets Section) or on Bloomberg Screen
MMR42, for value or settlement on the first Euro- Dollar Business Day of such
month for deposits in Dollars offered in the London interbank market by five
major European Lenders or (if the above method shall not be available) a rate
determined by a substitute method of determination agreed on by the Borrower and
the Lender; PROVIDED that, if such an agreement is not reached within a
reasonable period of time (as determined in the Lender's sole, reasonable
judgment), the "LIBO Rate" for such month shall be a rate per annum reasonably
determined by the Lender in its sole discretion as a rate being paid, for value
as of the first Euro-Dollar Business Day of such month, by first class
- 11 -
<PAGE>
banking organizations (as determined by the Lender) in the London interbank
market for Dollar deposits.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
(statutory or otherwise) or charge of any kind (including any agreement to give
any of the foregoing, any conditional sale or other title retention agreement,
any lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction)
except in connection with an Operating Lease permitted under Section 6.15, or
any other type of preferential arrangement for the purpose, or having the
effect, of protecting a creditor against loss or securing the payment or
performance of an obligation.
"Loans" means Facility A Loans and Facility B Loans.
"Loan Documents" means this Agreement, the Notes, the Letter of Credit
Applications, any amendment of this Agreement, any Note or any Letter of Credit
Application, any other document evidencing, relating to, securing or guarantying
the payment of the Loans or the Letter of Credit Obligations, and any other
document or instrument delivered from time to time in connection with this
Agreement, the Notes, the Loans, the Letters of Credit or the Letter of Credit
Obligations, as any such document or instrument shall be modified, amended,
supplemented or restated and in effect from time to time.
"Long Term Debt" at any time means all Consolidated Debt at such time
that, in accordance with GAAP, would be classified as long-term debt, but in any
event shall include, without limitation, (i) any Consolidated Debt that matures
(or the maturity of which may at the option of the Borrower or any Subsidiary be
extended such that it matures) more than one year after the creation of such
Consolidated Debt or issuance of the commitment to advance the same, and (ii)
without duplication, any Consolidated Debt outstanding under line of credit,
revolving credit or similar facilities the commitment for which to advance the
same expires (or the expiration of which may at the option of the Borrower or
any Subsidiary be extended such that it expires) more than one year after the
date of such commitment. All references to Long Term Debt include the current
portion thereof. To the extent not otherwise included and notwithstanding
anything to the contrary herein, Long Term Debt shall include, without
limitation, Facility B Loans and Letter of Credit Obligations.
"Margin Stock" means "margin stock" as defined in Regulation G, T, U or
X of the Board of Governors of the Federal Reserve System, as in effect from
time to time, together with all official rulings and interpretations issued
thereunder.
"Material Adverse Effect" means, with respect to any event, act,
condition, occurrence or circumstance of whatever nature (including any adverse
determination in any litigation, arbitration, or governmental investigation or
proceeding), whether singly or in conjunction with any other event or events,
act or acts, condition or conditions, occurrence or occurrences or circumstance
or circumstances, whether or not related, a material adverse change in, or a
material adverse effect upon, any of (a) the condition (financial or otherwise),
operations, business, properties or prospects of the Borrower and its
Consolidated Subsidiaries taken as a whole, (b) the rights and remedies of the
Lender under the Loan Documents, or the ability of
- 12 -
<PAGE>
the Borrower to perform its obligations under the Loan Documents to which it is
a party, as applicable, or (c) the legality, validity or enforceability of any
Loan Document.
"Maturity Dates" means the Facility A Maturity Date and the Facility B
Maturity Date.
"Multiemployer Plan" has the meaning set forth in Section 4001(a)(3) of
ERISA.
"Net Income" means, as applied to any Person for any period, the
aggregate amount of net income of such Person, after taxes, for such period, as
determined in accordance with GAAP.
"Net Proceeds of Stock" means any proceeds received by the Borrower or
a Consolidated Subsidiary in respect of the issuance of Stock of the Borrower or
such Subsidiary, after deducting therefrom all reasonable and customary costs
and expenses incurred by the Borrower or such Consolidated Subsidiary directly
in connection with the issuance of such Stock.
"Non-Redeemable Stock" of any Person means any Stock of such Person
that is not Redeemable Stock of such Person.
"Notes" means the Facility A Note and the Facility B Note.
"Notice of Borrowing" has the meaning set forth in Section 2.3(a).
"Obligations" means all indebtedness, obligations and liabilities to
the Lender existing on the date of this Agreement or arising thereafter, direct
or indirect, joint or several, absolute or contingent, matured or unmatured,
liquidated or unliquidated, secured or unsecured, arising by contract, operation
of law or otherwise, of the Borrower under this Agreement or any other Loan
Document.
"Operating Lease" means any lease of real or personal property, plant,
equipment or buildings for a term (including any renewals or extensions
permitted) greater than one year, which is not a Capitalized Lease Obligation.
"Participant" has the meaning set forth in Section 9.6(b).
"Partnership" means Property Management Group, a North Carolina general
partnership.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Acquisitions" has the meaning set forth in Section 6.13.
"Person" means an individual, a corporation, a partnership (including
without limitation, a joint venture), a limited liability company, an
unincorporated association, a trust
- 13 -
<PAGE>
or any other entity or organization, including, but not limited to, a government
or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan that is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by a member of the
Controlled Group for employees of any member of the Controlled Group or (ii)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding 5 plan years made contributions.
"Priority Debt" means, at any time, (i) all Debt of the Borrower that
is secured by any Lien on any property of the Borrower or any Subsidiary, other
than a Lien described in paragraphs (b), (c), (i) and (j) of Section 6.14, and
(ii) all Debt of any Subsidiary, other than Debt owing exclusively to the
Borrower or to a Wholly Owned Subsidiary.
"Pro Forma Financial Statements" has the meaning set forth in Section
3.1(c)(v).
"Properties" means all real property owned, leased or otherwise used or
occupied by the Borrower or any Subsidiary or (at any time prior to the
Combination) by any other member of the Combined Group, wherever located.
"Prudential" means The Prudential Insurance Company of America.
"Quarterly Dates" means the first Domestic Business Day of January,
April, July and October in each year, the first of which shall be the first such
day after the date of this Agreement.
"Reasonable Attorneys' Fees" means attorneys' fees based upon actual
hours worked at normal hourly billing rates and not based upon any percentage of
any amount owing or in dispute, premium, results achieved or any non-hourly
charge.
"Redeemable Stock" of any Person means any Stock of such Person that
is, by the terms thereof or by the terms of such Person's Certificate or
Articles of Incorporation, at any time prior to the Maturity Date of any Class
either (i) mandatorily redeemable (by sinking fund or similar payments or
otherwise) or (ii) redeemable at the option of the holder thereof.
"Rentals" means, for any period of determination, all fixed rents or
charges (including as such all payments during any such period of determination
which the lessee is obligated to make on termination of the lease or surrender
of the property) payable by the Borrower or a Subsidiary (as lessee, sublessee,
licensee, franchisee or the like) for such period under a lease, license, or
other agreement for the use or possession of real or personal property, tangible
or intangible, as determined in accordance with GAAP.
"Reported Net Income" means, for any period, the Net Income of the
Borrower and its Consolidated Subsidiaries determined on a consolidated basis.
- 14 -
<PAGE>
"Requirements of Law" means, as to any Person, the articles or
certificate of incorporation, charter and by-laws or other organizational or
governing documents of such Person (including, without limitation, certificates
of designation of any Stock of such Person), and any law, rule or regulation, or
order, award, judgment, decree, writ or determination of an arbitrator or a
court or other Governmental Authority, in each case applicable to such Person or
binding on such Person or any of its property or to which such Person or any of
its property is subject, including without limitation, the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended, Regulations
G, U or X of the Board of Governors of the Federal Reserve System, ERISA, the
Fair Labor Standards Act, any Environmental Requirement, any Environmental
Authorization, any Environmental Judgments and Orders, and any certificate of
occupancy, zoning ordinance, building, environmental or land use requirement or
environmental, labor, employment, occupational safety or health law, rule or
regulation.
"Restricted Payment" means (a) any dividend or other distribution on or
in respect of any shares of the Borrower's Stock (b) any dividend or other
distribution on or in respect of the shares of any Subsidiaries Stock that is
payable to any Person other than the Borrower or a Wholly Owned Subsidiary, or
(c) any payment by the Borrower or any Subsidiary on account of the purchase,
redemption, retirement or acquisition of (i) any shares of the Borrower's or
such Subsidiary's Stock (except shares acquired upon the conversion thereof into
other shares of its Non-Redeemable Stock) or (ii) any option, warrant or other
right to acquire shares of the Borrower's Stock or other Securities or the
Borrower or any Subsidiary convertible into shares of the Borrower's Stock.
"Security" has the meaning assigned to such term in Section 2(l) of the
Securities Act of 1933, as amended.
"Senior Note Agreement" means the Note Purchase and Private Shelf
Agreement, dated as of April 2, 1996, by and between the Borrower and
Prudential, as the same shall be amended, supplemented, restated, extended,
renewed or otherwise modified and in effect from time.
"Senior Notes" means the Borrower's 7.28% Senior Series A Notes due
April 2, 2006, issued to Prudential pursuant to the Senior Note Agreement.
"Shelf Notes" means the Borrower's senior unsecured promissory notes
issued from time to time under Section 2B of the Senior Note Agreement.
"Stock" of any Person means any capital stock or other equity Security,
of any classification, of such Person or any Subsidiary of such Person (to the
extent issued to a Person other than such Person or a Wholly Owned Subsidiary of
such Person).
"Stock Option Agreements" means each of those stock option agreements
between a member of the Combined Group and certain of its employees, entered
into prior to the date hereof, pursuant to which such member granted to such
employee an option to purchase a designated number of shares of such member's
Stock.
- 15 -
<PAGE>
"Stock Purchase Agreements" means each of those stock purchase
agreements between a member of the Combined Group and certain of its employees,
entered into prior to the date hereof, pursuant to which such member has agreed
to purchase, and such employee has agreed to sell, the shares of Stock of such
member issued to such employee pursuant to a Stock Option Agreement between such
member and such employee.
"Stock Option Plan Shares" means the shares of Stock of the respective
members of the Combined Group issued upon the exercise of options granted
pursuant to the Stock Option Agreements, and includes, in the case of such
shares so issued by a member of the Combined Group other than the Borrower,
shares of the Borrower's voting or non-voting common Stock, as applicable,
issued or to be issued in exchange therefor in connection with the merger of
such member with and into the Borrower, as the surviving corporation, as part of
the Combination.
"Stock Option Plan Documents" means the Stock Option Agreements and the
Stock Purchase Agreements.
"Subordinated Debt" means Debt of the Borrower or of any Consolidated
Subsidiary that is at all times fully subordinated, without qualification or
contingency and otherwise in right of payment, in right to participate in
liquidating distributions and in all other respects on terms not less favorable
than those set forth in Schedule 6.10.
"Subsidiary" of any Person means any corporation or other entity of
which Stock or other ownership interests having ordinary voting power to elect a
majority of the board of directors (or other Persons performing similar
functions) are at the time directly or indirectly owned by such Person. Unless
otherwise indicated, all references herein to Subsidiaries refer to Subsidiaries
of the Borrower.
"Substantial Part" means, with respect to any transfer, assets which
(a) together with all other assets disposed of by the Borrower or any Subsidiary
in the same Fiscal Year constitute 10% or more of the Consolidated assets of the
Borrower and its Consolidated Subsidiaries as of the beginning of such Fiscal
Year or (b) contributed 10% or more of Consolidated Net Income for the period of
four consecutive Fiscal Quarters most recently ended.
"Taxes" has the meaning set forth in Section 2.11(c).
"Third Parties" means all lessees, sublessees, licensees and other
users of the Properties, excluding those users of the Properties in the ordinary
course of the Borrower's business and on a temporary basis.
"Transferee" has the meaning set forth in Section 9.6(d).
"Treasury Rate" means, for any calendar month, a rate per annum equal
to the weekly average yield on United States Treasury Notes adjusted to a
constant maturity of one year, as most recently published by the Board of
Governors of the Federal Reserve System, and as
- 16 -
<PAGE>
listed in the Wall Street Journal or on Bloomberg Screen H15T1Y, three Business
Days prior to the first day of such month.
"Type" has the meaning set forth in Section 1.7.
"Unused Facility A Commitment" means, at any date with respect to the
Facility A Commitment, an amount equal to such Commitment less the aggregate
principal amount of the Facility A Loans then outstanding.
"Unused Facility B Commitment" means, at any date with respect to the
Facility B Commitment, an amount equal to such Commitment less the sum of the
aggregate principal amount of the Facility B Loans and Letter of Credit
Obligations then outstanding.
"Voting Stock" means Securities of any class or classes, the holders of
which are ordinarily, in the absence of contingencies, entitled to vote in an
election of the Borrower's corporate directors (or Persons performing similar
functions).
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such
Person all of the shares of Stock or other ownership interests of which (except
directors' qualifying shares) are at the time directly or indirectly owned by
such Person. Unless otherwise indicated, all references herein to Wholly Owned
Subsidiaries refer to Wholly Owned Subsidiaries of the Borrower.
1.2. Accounting Terms and Determinations.
(a) APPLICATION OF GAAP. Unless otherwise specified herein, all terms
of an accounting character used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared in accordance with GAAP, applied on a
basis consistent (except for changes concurred in by the Borrower's independent
public accountants or otherwise required by a change in GAAP) with the most
recent audited consolidated financial statements of the Borrower and its
Consolidated Subsidiaries delivered to the Lender, unless with respect to any
such change concurred in by the Borrower's independent public accountants or
required by GAAP, in determining compliance with any of the provisions of this
Agreement or any of the other Loan Documents: (i) the Borrower shall have
objected to determining such compliance on such basis at the time of delivery of
such financial statements, or (ii) the Lender shall so object in writing within
30 days after the delivery of such financial statements, in either of which
events such calculations shall be made on a basis consistent with those used in
the preparation of the latest financial statements as to which such objection
shall not have been made (which, if objection is made in respect of the first
financial statements delivered under Section 5.1, means the financial statements
referred to in Section 4.4).
(b) COMBINED FINANCIAL POSITION OR RESULTS OF OPERATIONS. Whenever any
determination is to be made hereunder for any fiscal period which includes, as a
part thereof, any period prior to the consummation of the Combination (a
"Pre-Combination Period"), then such determination shall be made on the basis of
(i) the combined and consolidated financial
- 17 -
<PAGE>
position or results of operations of the Borrower and its Consolidated
Subsidiaries for such Pre-Combination Period, determined on a PRO FORMA basis
after giving effect to the Combination, and (ii) the consolidated financial
position or results of operations of the Borrower and its Consolidated
Subsidiaries for the remainder of such period. For any Pre- Combination Period,
the Borrower shall submit to the Lender restated financial statements, prepared
on a PRO FORMA basis to reflect the Combination, in sufficient detail to permit
verification of the Borrower's compliance with the covenants set forth in
Article 6.
1.3. Use of Defined Terms. All terms defined in this Agreement shall
have the same meanings when used in any of the other Loan Documents, unless
otherwise defined therein or unless the context shall otherwise require.
1.4. Terminology. Except as otherwise expressly provided in this
Agreement: all personal pronouns used in this Agreement, whether used in the
masculine, feminine or neuter gender, shall include all other genders; the
singular shall include the plural and the plural shall include the singular; the
words "herein," "hereof," "hereunder" and other words of similar import refer to
this Agreement as a whole, including the Schedules hereto, if any, that are a
part hereof, and not to any particular Section, Article, paragraph or other
subdivision; "or" is not exclusive; and the words "include," "includes" and
"including" are not limiting.
1.5. Headings. Article, Section and other headings in this Agreement
are included for convenience of reference only and shall not constitute a part
of this Agreement for any other purpose or be given any substantive effect.
1.6. References. Except as otherwise expressly provided in this
Agreement: a reference to an Article, Section, paragraph or other subdivision,
or to a Schedule or an Exhibit, is a reference to an Article, Section, paragraph
or other subdivision of, or to a Schedule or an Exhibit to, this Agreement; a
reference to any agreement or other contract includes past and future permitted
supplements, amendments, modifications and restatements thereto or thereof; a
reference to any law includes any amendment or modification to such law, any
replacement or successor law or laws and any rules and regulations promulgated
under such law or any replacement or successor law or laws; a reference to a
particular provision of any law, rule or regulation includes any successor
provision or provisions; a reference to a Person includes its permitted
successors and assigns; any right may be exercised at any time and from time to
time; and, except as otherwise expressly provided therein, all obligations under
any agreement or other contract are continuing obligations throughout the term
of such agreement or contract.
1.7. Classes and Types of Loans. Loans hereunder are distinguished by
"Class" and by "Type". The "Class" of a Loan (or of a Borrowing of a Loan, a
Commitment to make or a Loan or a Maturity Date for such Commitment or Loan)
refers to whether such Loan is a Facility A Loan or a Facility B Loan, each of
which constitutes a Class. The "Type" of a Loan refers to whether such Loan
bears interest at the Adjusted Treasury Rate or at the a Euro-Dollar Rate, each
of which constitutes a Type. Loans may be identified by both Class and Type.
- 18 -
<PAGE>
ARTICLE 2. THE CREDITS
2.1. Commitments to Make Loans.
(a) FACILITY A COMMITMENT. The Lender agrees, on the terms and
conditions set forth herein, to make loans to the Borrower from time to time
before the Facility A Termination Date; PROVIDED that, immediately after each
such loan is made, the aggregate outstanding principal amount of such loans
shall not exceed the amount of the Facility A Commitment (the loans described in
this Section 2.1(a) are referred to herein as "Facility A Loans"). Within the
foregoing limits and subject to paragraph (c) of this Section, the Borrower may
borrow under this Section 2.1(a), repay and reborrow Facility A Loans under this
Section 2.1(a) at any time before the Facility A Termination Date. The proceeds
of the initial Facility A Borrowing hereunder shall be used only for the
refinancing of Consolidated Debt outstanding on the date of this Agreement, the
purchase of properties by the Borrower from the Partnership as part of the
Combination, and to pay closing costs relating to or arising out of the
Combination, the Senior Note Agreement and this Agreement. The proceeds of all
subsequent Facility A Borrowings shall be used only for the funding the costs of
Permitted Acquisitions and Capital Expenditures.
(b) FACILITY B COMMITMENT. The Lender agrees, on the terms and
conditions set forth herein, to make loans to the Borrower from time to time
before the Facility B Maturity Date; PROVIDED that, immediately after each such
loan is made, the sum of the aggregate outstanding principal amount of such
loans PLUS the then outstanding Letter of Credit Obligations shall not exceed
the amount of the Facility B Commitment (the loans described in this Section
2.1(b) are referred to herein as "Facility B Loans"). Within the foregoing
limits and subject to paragraph (c) of this Section and subject further to
Section 2.10(b), the Borrower may borrow under this Section 2.1(b), repay and
reborrow Facility B Loans under this Section 2.1(b) at any time before the
Facility B Maturity Date. The proceeds of any Facility B Borrowing shall be used
only for the payment of reimbursement obligations with respect to Letters of
Credit issued hereunder and for working capital and other valid corporate
purposes.
(c) COMMITMENT TERMINATION. Notwithstanding anything herein to the
contrary, in the event that the Commitment of either Class shall be terminated
pursuant to Section 2.8 or Section 7.2 prior to, or (in the absence of such a
termination) from and after the expiration of such Commitment on, the Facility A
Termination Date (in the case of the Facility A Commitment) or the Facility B
Maturity Date (in the case of the Facility B Commitment), no further Loans of
such Class shall be made.
2.2. Letter of Credit Subfacility.
(a) ISSUANCE. Subject to the terms and conditions hereof and of the
letter of credit application executed in connection with the issuance of each
standby letter of credit (each a "Letter of Credit Application"), if any, and
any other terms and conditions which the Lender may reasonably require, the
Lender will from time to time issue such standby letters of credit (each such
standby letter of credit, as extended, renewed, modified or replaced from time
to
- 19 -
<PAGE>
time, a "Letter of Credit") from the Closing Date until the Facility B Maturity
Date as the Borrower may request, in a form reasonably acceptable to the Lender;
PROVIDED that (i) the sum of Facility B Loans outstanding plus Letter of Credit
Obligations outstanding shall not at any time exceed the Facility B Commitment
as then in effect, and (ii) unless otherwise agreed by Lender, (A) no
documentary letters of credit shall be issued and (B) Letters of Credit shall be
issued solely to secure the performance by the Borrower of its contractual
obligations. Except as otherwise expressly agreed, no Letter of Credit shall
have an original expiry date more than one year from the date of issuance;
PROVIDED that, no Letter of Credit (as originally issued or as extended) shall
have an expiry date extending beyond the Facility B Maturity Date.
(b) NOTICE. Each request for the issuance of a Letter of Credit shall
be submitted to the Lender at least three (3) Domestic Business Days prior to
the requested date of issuance.
(c) REIMBURSEMENT. In the event of any drawing under any Letter of
Credit, the Lender will promptly notify the Borrower. Unless the Borrower shall
immediately notify the Lender of its intent to otherwise reimburse the Lender,
the Borrower shall be deemed to have requested a Facility B Loan in the amount
of such drawing, the proceeds of which will be used to satisfy the reimbursement
obligations resulting from such drawing. The Borrower shall reimburse the Lender
on the day of drawing under any Letter of Credit (either with the proceeds of a
Facility B Loan obtained hereunder or otherwise) in same day funds as provided
in the Letter of Credit Application. If the Borrower shall fail to reimburse the
Lender as provided hereinabove, the unreimbursed amount of such drawing shall
bear interest (computed on the basis of the actual number of days elapsed over a
year of 360 days) at a per annum rate equal to the Treasury Rate PLUS four
percent (4.0%) per annum. The Borrower's reimbursement obligations hereunder
shall be absolute and unconditional under all circumstances irrespective of any
rights of set-off, counterclaim or defense to payment the Borrower may claim or
have against the Lender, the beneficiary of the Letter of Credit drawn upon or
any other Person, including without limitation any defense based on any failure
of the Borrower to receive consideration or the legality, validity, regularity
or unenforceability of the Letter of Credit.
(d) AMENDMENTS, RENEWALS, ETC. The issuance of any supplement,
modification or amendment to any Letter of Credit that extends the expiration
date of, or the issuance of any other renewal or extension of any Letter of
Credit, shall in each case, for purposes hereof, be treated in all respects the
same as the issuance of a new Letter of Credit hereunder.
(e) CASH COLLATERAL. If for any reason the Letter of Credit Obligations
outstanding at any time shall exceed the Facility B Commitment as then in
effect, the Borrower shall, immediately upon Lender's demand, deposit with
Lender cash in an amount equal to such excess, to be held by the Lender in an
interest bearing cash collateral account as additional security for the Letter
of Credit Obligations for subsequent drawings under all then outstanding Letters
of Credit (and the Borrower hereby grants to Lender a security interest in all
such cash).
- 20 -
<PAGE>
(f) ADDITIONAL PROVISIONS.
(i) In addition to its other obligations under this Section
2.2, the Borrower hereby agrees to protect, indemnify, pay and save the
Lender harmless from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including
reasonable attorneys' fees) that the Lender may incur or be subject to
as a consequence, direct or indirect, of (A) the issuance of any Letter
of Credit or (B) the failure of the Lender to honor a drawing under a
Letter of Credit as a result of any act or omission, whether rightful
or wrongful, of any present or future de jure or de facto Governmental
Authority (all such acts or omissions, herein called "Government
Acts").
(ii) As between the Borrower and the Lender, the Borrower
shall assume all risks of the acts, omissions or misuse of any Letter
of Credit by the beneficiary thereof. The Lender shall not be
responsible: (A) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in
connection with the application for and issuance of any Letter of
Credit, even if it should in fact prove to be in any or all respects
invalid, insufficient, inaccurate, fraudulent or forged; (B) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, that may
prove to be invalid or ineffective for any reason; (C) for failure to
honor a drawing under a Letter of Credit in any instance where the
beneficiary of such Letter of Credit shall fail to comply fully with
conditions required in order to draw upon such Letter of Credit; (D)
for errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; (E) for errors in
interpretation of technical terms; (F) for any loss or delay in the
transmission or otherwise of any document required in order to make a
drawing under a Letter of Credit or of the proceeds thereof; or (G) for
any consequences arising from causes beyond the control of the Lender,
including, without limitation, any Government Acts. None of the above
shall affect, impair, or prevent the vesting of the Lender's rights or
powers hereunder.
(iii) In furtherance and extension and not in limitation of
the specific provisions hereinabove set forth, any action taken or
omitted by the Lender, under or in connection with any Letter of Credit
or the related certificates, if taken or omitted in good faith, shall
not put the Lender under any resulting liability to the Borrower. It is
the intention of the parties that this Agreement shall be construed and
applied to protect and indemnify the Lender against any and all risks
involved in the issuance of the Letters of Credit, all of which risks
are hereby assumed by the Borrower, including, without limitation, any
and all risks of the acts or omissions, whether rightful or wrongful,
of any present or future Government Acts. The Lender shall not, in any
way, be liable for any failure by the Lender or anyone else to pay any
drawing under any Letter of Credit as a result of any Government Acts
or any other cause beyond the control of the Lender.
- 21 -
<PAGE>
(iv) Nothing in this Section 2.2(f) is intended to limit the
reimbursement obligation of the Borrower contained in Section 2.2(c)
hereof. The obligations of the Borrower under this Section 2.2(f) shall
survive the termination of this Agreement and the payment of the
Obligations. No act or omissions of any current or prior beneficiary of
a Letter of Credit shall in any way affect or impair the rights of the
Lender to enforce any right, power or benefit under this Agreement.
(v) Notwithstanding anything to the contrary contained in this
Section 2.2(f), the Borrower shall have no obligation to indemnify the
Lender in respect of any liability incurred by the Lender as a result
of the Lender's gross negligence or willful misconduct, as determined
by a court of competent jurisdiction.
2.3. Method of Borrowing Loans.
(a) NOTICE. The Borrower shall give the Lender prior notice of each
Borrowing, which notice (X) if for a Facility A Borrowing, shall be in writing,
duly executed by not less than two authorized signatories or (in the case of a
Borrowing on the Closing Date) one authorized signatory of the Borrower and in
the form attached hereto as Exhibit A (a "Notice of Borrowing") or (Y) if for a
Facility B Borrowing, may be telephonic or written and, if written, made by the
delivery of a Notice of Borrowing duly executed by the Borrower. Each such
notice must be received prior to 11:00 A.M. (Raleigh, North Carolina time) at
least 3 Euro-Dollar Business Days or (if for any reason the Loans are then
accruing, or on the date of such Borrowing, will accrue, interest at the
Adjusted Treasury Rate) 1 Domestic Business Day before each Borrowing, and shall
specify:
(i) the date of such Borrowing, which shall be a Domestic
Business Day,
(ii) the amount of such Borrowing, and
(iii) whether the Loan comprising such Borrowing is to be a
Facility A Loan or a Facility B Loan.
Upon receipt of any such notice (whether written or telephonic), such notice
shall not thereafter be revocable by the Borrower. If a Facility A Borrowing and
Facility B Borrowing are to be made on the same date, a separate Notice of
Borrowing shall be required for each.
(b) FUNDING. Not later than 11:00 A.M. (Raleigh, North Carolina time)
on the date of each Borrowing, the Lender shall make available such Borrowing,
in Federal or other funds immediately available in Raleigh, North Carolina, to
the Borrower at the Lender's address referred to in or specified pursuant to
Section 9.1.
(c) CASH MANAGEMENT BORROWINGS. If, in connection with any cash
management services now or hereafter provided by the Lender to the Borrower or
any of its Subsidiaries, funds of the Borrower or any such Subsidiary on deposit
in an account with the Lender established in connection with such services are
less than any targeted amount for such account or are otherwise insufficient to
honor any items of payment drawn on any account of
- 22 -
<PAGE>
the Borrower or such Subsidiary maintained with the Lender, the Borrower hereby
authorizes the Lender to make a Facility B Loan, subject to the terms,
provisions and limitations set forth herein, in the amount of such deficiency or
insufficiency and to credit the proceeds of such Loan to such account or to
apply such proceeds to the payment of such items of payment, as the case may be.
No Notice of Borrowing shall be required in connection with any such Facility B
Loan.
(d) RECORDS OF BORROWING REQUESTS AND OF LOANS. The Lender's records of
notices of and request for Borrowings, and of Loans made hereunder, shall
constitute PRIMA FACIE evidence of all Borrowing and of all Loans hereunder and
may be introduced in any proceeding in connection with this Agreement as
presumptive evidence thereof.
2.4. Notes.
(a) FACILITY A NOTE. The Facility A Loans shall be evidenced by a
single separate promissory note of the Borrower, payable to the order of the
Lender for the account of its Applicable Lending Office in a principal amount
equal to the original amount of the Facility A Commitment. Such note shall be
dated the Closing Date and shall be substantially in the form attached as
Exhibit B and otherwise duly completed.
(b) FACILITY B NOTE. The Facility B Loans shall be evidenced by a
single separate promissory note of the Borrower, payable to the order of the
Lender for the account of its Applicable Lending Office in a principal amount
equal to the original amount of the Facility B Commitment. Such note shall be
dated the Closing Date and shall be substantially in the form attached as
Exhibit C and otherwise duly completed.
2.5. Repayment and Maturity of Loans.
(a) FACILITY A LOANS. Unless sooner payable in accordance with the
provisions of Section 2.8, Section 2.9, Section 2.10 or Section 7.2, the
aggregate principal amount of the Facility A Loans outstanding on the Facility A
Termination Date shall be repaid in eight-four (84) consecutive monthly
installments on each Facility A Payment Date and on the Facility A Maturity
Date. Each of the first eighty-three (83) such principal installments (due on
the Facility Payment Dates) shall be in an amount equal to the result (rounded
to the nearest whole multiple of $100 or, if there is no nearest whole multiple
of $100, to the next highest whole multiple of $100) obtained by dividing (i)
the aggregate principal balance of all Facility A Loans outstanding on the
Facility A Termination Date by (ii) eighty-four (84). The final such principal
installment, due and payable on the Facility A Maturity Date, shall be in an
amount equal the aggregate principal balance of the Facility A Loans outstanding
on the Facility A Maturity Date, on which date the entire unpaid principal of
and all accrued and unpaid interest on the Facility A Loans shall be due and
payable in full.
(b) FACILITY B LOANS. Unless sooner payable in accordance with the
provisions of Section 2.8, Section 2.9 or Section 7.2, the aggregate principal
amount of the Facility B Loans outstanding on the Facility B Maturity Date,
together with all accrued and unpaid interest thereon, shall be due and payable
in full on the Facility B Maturity Date.
- 23 -
<PAGE>
2.6. Interest.
(a) ACCRUAL AND PAYMENT OF INTEREST. Subject to the provisions of
Article 8, for each day that any principal of any Loan is outstanding (from
including the date such principal is advanced hereunder to but excluding the
date such principal shall have repaid), such principal shall bear interest at a
rate per annum equal to the Euro-Dollar Rate for such day; PROVIDED that, if a
Default shall have occurred and is continuing, the Lender may elect, effective
immediately (with notice of such election to be promptly given to the Borrower),
that the principal of all Loans outstanding from time to time shall bear
interest at the Adjusted Treasury Rate for each day until such Default shall
have been waived or cured to Lender's satisfaction; and PROVIDED FURTHER that
any overdue principal of and, to the extent permitted by applicable law, overdue
interest (whether accruing at the Euro-Dollar Rate or the Adjusted Treasury
Rate) on any Loan shall bear interest, for each day until paid, at a rate per
annum equal to the Default Rate. The interest on any Loan, whether accruing at
the Euro-Dollar Rate or the Adjusted Treasury Rate, shall be due and payable in
arrears on the first day of each month, commencing on the first such day after
the Borrowing of such Loan, and any interest accruing at the Default Rate shall
be payable upon demand.
(b) RATE DETERMINATIONS. The Lender shall determine the Euro-Dollar
Rate for each month (subject to any change thereof as the result of a change in
the Euro-Dollar Reserve Percentage or the Applicable Percentage), and the
Lender's determination thereof shall be conclusive in the absence of manifest
error.
(c) INTEREST AT DEFAULT RATE. After the occurrence and during the
continuance of an Event of Default, the principal amount of the Loans and all
unpaid reimbursement obligations arising from a drawing under any Letter of
Credit (and, to the extent permitted by applicable law, all accrued interest
thereon) shall, at the election of the Lender, bear interest at the Default
Rate, payable upon demand.
2.7. Fees.
(a) CLOSING FEE. On the Closing Date the Borrower shall pay to the
Lender a closing fee in the amount of $62,500. Such fee shall be fully earned by
the Lender on the Closing Date.
(b) FACILITY A FEE. The Borrower shall pay to the Lender an unused
commitment fee (the "Facility A Fee") calculated at the rate of one-eighth of
one percent (0.125%) per annum on the daily average amount of the Unused
Facility A Commitment. The Facility A Fees shall accrue from and including the
Closing Date to but excluding the Facility A Termination Date and shall be
payable on the first Domestic Business Day in July of 1997, on each Quarterly
Date thereafter, and on the Facility A Termination Date; PROVIDED that, should
the Facility A Commitment be terminated at any time prior to the Facility A
Termination Date for any reason, the entire accrued and unpaid Facility A Fee
shall be paid on the date of such termination for the period that the Facility A
Commitment was in effect.
- 24 -
<PAGE>
(c) LC FEE. Upon or prior to the issuance or renewal of each Letter of
Credit hereunder, the Borrower shall pay to Lender a commission (in respect of
any Letter of Credit, the "LC Fee") in an amount equal to the product obtained
by multiplying (i) the product of the face amount of such Letter of Credit TIMES
the Applicable Percentage in effect at the time of such issuance or renewal
TIMES (ii) a fraction, the denominator of which is 360 and the numerator of
which is the total number of days during the entire initial or renewal term, as
the case may be, of such Letter of Credit; PROVIDED that if for any reason the
original or renewal term of such Letter of Credit shall be greater than one
year, then for such Letter of Credit the LC Fee shall be equal to the sum of (X)
the product of the face amount of such Letter of Credit TIMES such Applicable
Percentage TIMES the number of whole years during such term and (Y) for the
remaining period of such term, the product obtained by multiplying (1) the
product of the face amount of such Letter of Credit TIMES such Applicable
Percentage TIMES (2) a fraction, the denominator of which is 360 and the
numerator of which is the total number of days during such remaining period.
2.8. Optional Termination or Reduction of Commitments. Upon at least
three Domestic Business Days' notice to the Lender, the Borrower may (a)
terminate either Commitment at any time or (b) reduce either Commitment from
time to time by an amount designated by the Borrower in such notice; PROVIDED
that no such termination or reduction shall be made which would reduce the
Commitment of either Class to an amount less than the sum of the Loans of such
Class then outstanding PLUS (in the case of a termination or reduction of the
Facility B Commitment) the Letter of Credit Obligations then outstanding. If a
Commitment of either Class is terminated in its entirety, then notwithstanding
anything herein to the contrary the entire, aggregate principal balance all
Loans of such Class then outstanding, all accrued and unpaid interest on such
Loans, and all accrued fees in respect of such Commitment (as provided in
paragraph (b) or (c), as applicable, of Section 2.8) shall be due and payable in
full on the effective date of such termination. A notice of reduction or
termination of a Commitment hereunder, once given, shall not thereafter be
revocable by the Borrower.
2.9. Optional Prepayments. Subject to the provisions of this Agreement,
the Loans of either Class may be borrowed, repaid and reborrowed from time to
time prior to the termination or expiration of the Commitment of such Class.
From and after the expiration of the Facility A Commitment on the Facility A
Termination Date, the Borrower may, upon at least one Domestic Business Day's
notice to the Lender, prepay the outstanding Facility A Loans in whole at any
time, or in part from time to time, by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment. Each such
notice shall specify that it is a notice of prepayment given pursuant to this
Section 2.9 and shall designate (a) the date of such prepayment and (b) the
principal amount of the Facility A Loans that is to be so prepaid by the
Borrower on such date. On the date so designated by the Borrower for prepayment
in any such notice there shall be due and payable to Lender the principal of the
Facility A Loans in an amount equal to the prepayment amount so designated in
such notice, together with all accrued and unpaid interest thereon. A notice of
prepayment pursuant to this Section, once delivered, shall not thereafter be
revocable by the Borrower. Any partial prepayment of the Facility A Loans shall
be applied to the principal installments of the Facility A Loans, due pursuant
to Section 2.5(a), in the inverse order of their maturity.
- 25 -
<PAGE>
2.10. Mandatory Payments and Prepayments.
(a) LOANS IN EXCESS OF COMMITMENTS. If on any date the sum of the
aggregate principal amount of the Loans of either Class PLUS (in the case of
Facility B Loans) the Letter of Credit Obligations then outstanding shall exceed
the Commitment of such Class for any reason (including, without limitation, a
termination or reduction of such Commitment pursuant to Section 2.8 or
otherwise), then, upon the Borrower's receipt of written notice from the Lender,
the Borrower shall immediately pay to Lender, on such date, the amount of such
excess as a principal repayment of such Loans, together with all interest
accrued on the principal amount thereof so repaid.
(b) THIRTY DAY PAYOUT. At least once during each period of twelve (12)
consecutive calendar months the Borrower shall, either through a single payment
or series of payments, repay all outstanding Facility B Loans , and thereafter
no additional Facility B Loans shall be made until thirty (30) consecutive days
shall have elapsed from the date all such Facility Loans shall have been repaid;
PROVIDED that nothing herein shall require the termination or cancellation, or
(subject to the provisions of this Agreement governing such issuance) limit the
Borrower's rights hereunder to request the issuance, of Letters of Credit except
to the extent that a Default shall have occurred and be continuing by reason of
a violation of the provisions of this paragraph.
2.11. General Provisions as to Payments.
(a) MANNER OF PAYMENT. The Borrower shall make each payment of
principal of, and interest on, the Loans and of the Facility A Fee and the LC
Fee, not later than 11:00 A.M. (Raleigh, North Carolina time) on the date when
due, in Federal or other funds immediately available at the place where payment
is due, to the Lender at its address set forth on its signature page hereto.
Funds received after 11:00 a.m. (Raleigh, North Carolina time) on any day shall
be deemed to have been paid on the next following Domestic Business Day.
(b) DUE DATES ON NON-BUSINESS DAYS. Whenever any payment of principal
of, or interest on, the Loans or any Letter of Credit Obligation, or of the
Facility A Fee or the LC Fee, shall be due on a day that is not a Domestic
Business Day, the date for payment thereof shall be extended to the next
succeeding Domestic Business Day. If the date for any payment of principal is
extended by operation of law or otherwise, interest thereon shall be payable for
such extended time.
(c) TAXES. All payments of principal, interest and fees and all other
amounts to be made by the Borrower pursuant to this Agreement with respect to
any Loan or fee shall be paid without deduction for, and free from, any tax,
imposts, levies, duties, deductions, or withholdings of any nature now or at
anytime hereafter imposed by any Governmental Authority or by any taxing
authority thereof or therein, excluding (i) taxes imposed on or measured by the
Lender's net income, and franchise taxes imposed on it, by the jurisdiction
under the laws of which the Lender is organized or any political subdivision
thereof and (ii) taxes imposed on the Lender's income, and franchise taxes
imposed on it, by the jurisdiction of any Applicable Lending Office or any
political subdivision thereof (all such non-excluded
- 26 -
<PAGE>
taxes, imposts, levies, duties, deductions or withholdings of any nature being
"Taxes"). In the event that the Borrower is required by any applicable
Requirement of Law to make any such withholding or deduction of Taxes with
respect to any Loan or fee or other amount, the Borrower shall pay such
deduction or withholding to the applicable taxing authority, shall promptly
furnish to the Lender in respect of which such deduction or withholding is made
all receipts and other documents evidencing such payment and shall pay to the
Lender additional amounts as may be necessary in order that the amount received
by the Lender after the required withholding or other payment shall equal the
amount the Lender would have received had no such withholding or other payment
been made. If the Borrower fails to provide such original or certified copy of a
receipt evidencing payment of Taxes, the Borrower hereby agrees to compensate
the Lender for, and indemnify the Lender with respect to, the tax consequences
of the Borrower's failure to provide evidence of tax payments.
In the event the Lender receives a refund of any Taxes paid by the
Borrower pursuant to this Section 2.11(c), it will pay to the Borrower the
amount of such refund promptly upon receipt thereof; PROVIDED that, if at any
time thereafter the Lender is required to return such refund, the Borrower shall
promptly repay to the Lender the amount of such refund.
The agreements and obligations of the Borrower contained in this
Section 2.11(c) shall be applicable with respect to any Participant, Assignee or
other Transferee, and any calculations required by such provisions shall be made
based upon the circumstances of such Participant, Assignee or other Transferee.
Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.11(c) constitute continuing agreements for the benefit of the
Lender and its Participants, Assignees and other Transferees and shall survive
the termination of this Agreement and the payment in full or cancellation of the
Notes.
2.12. Computation of Interest and Fees. Interest on all Loans, and the
Facility A Fee and the LC Fee, shall be computed on the basis of a year of 360
days and paid for the actual number of days elapsed (including the first day but
excluding the last day).
ARTICLE 3. CONDITIONS TO BORROWINGS
3.1. Conditions to First Borrowing or Letter of Credit Issuance. The
obligation of the Lender to make a Loan on the occasion of the first Borrowing
and to issue the initial Letter of Credit hereunder is subject to the
satisfaction of (a) the conditions set forth in Section 3.3 and (if such
Borrowing is a Facility A Borrowing) in Section 3.2, (b) the condition that
Lender shall have received the closing fee referenced in Section 2.7(a), and (c)
the condition that the Lender shall have received each of the following items in
form and substance reasonably satisfactory to the Lender and its counsel:
(i) a duly executed counterpart of this Agreement signed by
the Borrower;
- 27 -
<PAGE>
(ii) the Notes evidencing the Facility A Loans and the
Facility B Loans, respectively, duly executed by the Borrower, each
dated the Closing Date and complying with the provisions of Section
2.4;
(iii) the legal opinion of Wyrick, Robbins, Yates & Ponton,
L.L.P., counsel for the Borrower, dated the Closing Date, substantially
in the form of Exhibit D hereto and covering such additional matters
relating to the transactions contemplated hereby as the Lender may
reasonably request;
(iv) a certificate of a principal financial officer of the
Borrower, dated the date of the first Borrowing or Letter of Credit
issuance, (i) to the effect that (A) no Default has occurred and is
continuing on the date of the first Borrowing or Letter of Credit
Issuance, (B) the representations and warranties of the Borrower
contained in Article 4 are true on and as of the date of the first
Borrowing or Letter of Credit issuance hereunder, (C) the Combination
has been fully completed, and (D) the Senior Notes have been issued and
the Borrower has received the proceeds from the purchase thereof in an
amount not less than $25,000,000, (ii) stating as of December 31, 1995
on a PRO FORMA basis (after giving effect to the Combination), the
amount of Consolidated Debt on such date, the amount of EBITDA for the
period of four consecutive Fiscal Quarters then ended, and the ratio of
such Consolidated Debt to such EBITDA, setting forth in reasonable
detail the calculation or the basis of determination of such amounts
and ratio, and (iii) covering such additional matters relating to the
transactions contemplated hereby as the Lender may reasonably request;
(v) a consolidated balance sheet as of December 31, 1995, and
related consolidated statements of income, shareholders' equity and
cash flows for the Fiscal Year then ended, setting forth, in conformity
with GAAP, on a PRO FORMA basis (after giving effect to the
Combination), the financial position of the Borrower as of such date
and its results of operations and cash flows for such Fiscal Year, all
certified as to fairness of presentation in all material respects, GAAP
and consistency by the chief financial officer or the chief accounting
officer of the Borrower (collectively, the "Pro Forma Financial
Statements");
(vi) a copy of the Articles of Incorporation of the Borrower,
certified by the Secretary of State of the State of North Carolina not
more than five Domestic Business Days prior to the Closing Date, which
shall include all amendments, if any, to the Borrower's Articles of
Incorporation made in connection with the Combination;
(vii) a certificate, dated not more than five Domestic
Business Days prior to the Closing Date, of the Secretary of State of
the State of North Carolina as to the existence of the Borrower as a
North Carolina corporation;
(viii) certificates, dated not earlier than March 14, 1996, of
the relevant taxing authorities of the State of North Carolina that the
Borrower and each other member of the Combined Group has filed all
returns then required to have been filed with such
- 28 -
<PAGE>
authorities (subject to any permitted extensions of the time for such
filing) and paid all taxes then required to have been paid as shown on
such returns;
(ix) evidence that (A) the Combination has been completed,
including, without limitation, copies, certified by the North Carolina
Secretary of State, of the Articles of Merger for the merger of each of
the members of the Combined Group (other than the Borrower) with and
into the Borrower as the surviving corporation, and (B) all consents,
approvals and other actions of, and all filings with, Governmental
Authorities required to effect the Combination, as set forth in
Schedule 4.2, have been given, obtained or made;
(x) the following items, each certified by the Secretary or an
Assistant Secretary of the Borrower on date of such Borrowing or Letter
of Credit issuance:
(A) a copy of the Borrower's Bylaws,
(B) a copy of the action taken by the Board of
Directors of the Borrower authorizing the Borrower's
execution, delivery and performance of this Agreement, the
Notes, the other Loan Documents to which the Borrower is a
party, and the Note Agreement, the borrowings hereunder, the
issuance of the Senior Notes and the consummation of the other
transactions contemplated hereby and by the Note Agreement,
(C) true signatures of the officer or officers of the
Borrower authorized to execute and deliver this Agreement, the
Notes and the other Loan Documents,
(D) copies of the Note Agreement, the Senior Notes
and all other instruments, agreements and other documents
delivered at the closing of the issuance of the Senior Notes,
(E) a copy of the Cross Purchase Agreement, as
amended and in effect on the date of this Agreement, and
(F) a true and correct listing of (1) each Stock
Option Agreement and each Stock Purchase Agreement in effect
on the Closing Date, identifying in each case the member of
the Combined Group party thereto and each other party thereto
(each such other party is referred to herein as a
"Participant"), other than such member of the Combined Group,
(2) the number of Stock Option Plan Shares of each member of
the Controlled Group issued pursuant to each such Participant
upon the exercise of the option granted under each such Stock
Option Agreement, together with the aggregate purchase price
paid by such Participant for such shares, and (3) with respect
to the Stock Option Plan Shares issued by each member of the
Combined Group (other than the Borrower) to each Participant,
the number of shares of the Stock Option Plan Shares of the
Borrower issued or to be issued to such Participant in
exchange
- 29 -
<PAGE>
for the Stock Option Plan Shares of such member in connection
with the merger of such member with and into the Borrower, as
the surviving corporation, as part of the Combination.
(G) a copy of a representative set of Stock Option
Plan Documents, which shall be substantially identical to the
all other Stock Option Plan Documents except for dates, number
of shares, exercise price and the identity of the parties
thereto;
(H) copies of all instruments and agreements pursuant
to which the Borrower shall have acquired, or contracted to
acquire, from the Partnership all of the properties used or
occupied by any member of the Combined Group; and
(xi) such other agreements, certificates, instruments,
opinions and other documents and materials as the Lender may reasonably
request.
3.2. Conditions to Facility A Borrowings. The obligation of the Lender
to make a Facility A Loan on the occasion of each Facility A Borrowing is
subject to the satisfaction of (a) the conditions set forth in Section 3.3 and
(b) the following additional conditions:
(i) that, if such Facility A Borrowing is the initial Facility
A Borrowing hereunder, the Lender shall have received evidence that the
proceeds of such Borrowing shall be applied by the Borrower to repay
Consolidated Debt outstanding on the date of this Agreement, and such
proceeds shall be remitted for the Borrower's account directly to the
holder or holders of such Consolidated Debt to be so repaid, or to an
agent or trustee for (and designated by) such holder or holders; and
(ii) that, in the case of any other Facility A Borrowing, the
Lender shall have received from the Borrower each of the following
items in form and substance reasonably satisfactory to the Lender:
(A) evidence that the proceeds of such Borrowing are
to be applied to (1) the price to be paid for the Stock or
assets to be acquired by the Borrower in a Permitted
Acquisition, (2) the price to be paid for the acquisition of
assets for the growth of the Borrower's business, and (3) the
reasonable and actual transaction costs incurred by the
Borrower in connection such Permitted Acquisition or asset
purchase;
(B) evidence that the conditions set forth in
paragraphs (a) and (c) of Section 6.13 have been satisfied in
connection with the Permitted Acquisition to be funded or
financed with the proceeds of such Borrowing; and
(C) all of the financial statements and certificates
required to be delivered by the Borrower pursuant to Section
6.13(b) in connection with the Permitted Acquisition to be
funded or financed with the proceeds of such Borrowing.
- 30 -
<PAGE>
3.3. Conditions to All Borrowings. The obligation of the Lender to make
a Loan of either Class on the occasion of each Borrowing of such Class or to
issue any Letter of Credit is subject to the satisfaction of the following
conditions:
(a) receipt by the Lender of (i) in the case of a Borrowing, a
notice of such Borrowing conforming to the requirements of Section 2.3
(a), or (ii) in the case of a Letter of Credit issuance, a Letter of
Credit Application pursuant to Section 2.2(a) and a request for a
Letter of Credit pursuant to Section 2.2(b), each duly executed by the
Borrower;
(b) the fact that no Default shall have occurred and be
continuing or, after giving effect to such Borrowing or Letter of
Credit issuance, as the case may be, will result therefrom;
(c) the fact that the representations and warranties of the
Borrower contained in Article 4 (other than, in the case of any
Borrowing hereunder other than the first, representations and
warranties expressly made as of a specific date) shall be true on and
as of the date of such Borrowing or such Letter of Credit issuance, as
the case may be, subject to such changes since the date of this
Agreement that shall have been disclosed to the Lender in writing and
to which the Lender, in its sole and reasonable discretion, shall have
consented in writing; and
(d) the fact that, immediately after such Borrowing or such
Letter of Credit issuance, as the case may be, the sum of the aggregate
outstanding principal amount of the Loans of such Class PLUS (in the
case of a Facility B Borrowing or a Letter of Credit issuance) the
Letter of Credit Obligations then outstanding will not exceed the
amount of the Commitment of such Class as of such date.
Each Borrowing hereunder and the issuance of each Letter of Credit hereunder
shall be deemed to be a representation and warranty by the Borrower on the date
of such Borrowing or of such Letter of Credit issuance, as the case may be, as
to the truth and accuracy of the facts specified in clauses (b), (c) and (d) of
this Section.
3.4. Waiver of Conditions Precedent. If the Lender makes any Loan or
issues any Letter of Credit hereunder prior to the fulfillment of any of the
conditions precedent set forth in this Article 3, the making of such Loan or the
issuance of such Letter of Credit shall constitute only an extension of time for
the fulfillment of such condition and not a waiver thereof, and unless the
Lender indicates otherwise in writing, the Borrower shall thereafter use its
best efforts to fulfill each such condition promptly. No failure by the Borrower
to fulfill any such condition precedent shall constitute a Default hereunder,
except to the extent any such failure is continuing after the expiration of any
period within which such condition is specifically required to be fulfilled.
- 31 -
<PAGE>
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
4.1. Corporate Existence and Power. Each of the Borrower and (until the
consummation of the Combination) the other members of the Combined Group is
(a) a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, and
(b) duly qualified to transact business in every jurisdiction
wherein the failure to so qualify could reasonably be expected to have
or cause a Material Adverse Effect,
having all corporate powers and (except where the failure to have obtained the
same could not reasonably be expected to have or cause a Material Adverse
Effect) all governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
4.2. Corporate and Governmental Authorization; No Contravention.
(a) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and
performance by the Borrower of this Agreement, the Notes and the other Loan
Documents (i) are within the Borrower's corporate powers, (ii) have been duly
authorized by all necessary corporate action, (iii) require no action by or in
respect of, or filing with, any Governmental Authority, (iv) do not contravene,
or constitute a default under, any Requirements of Law applicable to the
Borrower or any of its Subsidiaries or of any judgment, injunction, order,
decree or other instrument binding upon the Borrower or any of its Subsidiaries,
or any agreement, instrument or contract to which the Borrower or any of its
Subsidiaries is a party or by or to which the Borrower, any Subsidiary or any
properties of the Borrower or any Subsidiary may be affected, bound or subject,
and (v) do not result in the creation or imposition of any Lien on any asset of
the Borrower or any of its Subsidiaries.
(b) THE COMBINATION. The execution and delivery of the instruments and
agreements to be entered into, and the performance of the transactions
contemplated, in connection with the Combination by each member of the Combined
Group (i) are within such members corporate or (in the case of the Partnership)
partnership powers, (ii) have been duly authorized by all necessary corporate or
partnership action, (iii) except as set forth in Schedule 4.2, require no action
by or in respect of, or (except for the filing of articles of merger) filing
with, any Governmental Authority, (iv) do not contravene, or constitute a
default under, any Requirements of Law applicable to any such member or of any
judgment, injunction, order, decree or other instrument binding upon any such
member, or any agreement, instrument or contract to which any such member is a
party or by or to which any such member or any of its properties may be
affected, bound or subject, and (v) do not result in the creation or imposition
of any Lien on any asset of any such member.
- 32 -
<PAGE>
4.3. Binding Effect. This Agreement constitutes a valid and binding
agreement of the Borrower enforceable in accordance with its terms, and the
Notes and the other Loan Documents, when executed and delivered in accordance
with this Agreement, will constitute valid and binding obligations of the
Borrower enforceable in accordance with their respective terms, PROVIDED that
the enforceability hereof and thereof is subject in each case to general
principles of equity and to bankruptcy, insolvency and similar laws affecting
the enforcement of creditors' rights generally.
4.4. Financial Information.
(a) CURRENT FINANCIAL STATEMENTS. The combined balance sheet of the
Borrower and other members of the Combined Group (other than AmLease, Inc.) as
of December 31, 1994, and the related combined statements of stockholders'
equity, income and retained earnings and cash flows for the Fiscal Year then
ended, reported on by Deloitte & Touche, copies of which have been delivered to
the Lender, the unaudited combined financial balance sheet of the Borrower and
all of the other members of the Combined Group for the 12 month period ended
December 31, 1995, and the related statements of stockholders' equity, income
and retained earnings, and cash flows, copies of which have been delivered to
the Lender, and the comparison of key ratios and statistics of the Borrower and
all of the other members of the Combined Group as of December 31, 1995 and
December 31, 1994, a copy of all of which has been delivered to the Lender,
fairly present, in conformity with GAAP, the combined financial position of such
members of the Combined Group as of such dates and their combined results of
operations and cash flows for such periods stated. Since December 31, 1994, and
since December 31, 1995, there has been no event, act, condition, circumstance
or occurrence having, or that could reasonably be expected to have or cause, a
Material Adverse Effect.
(b) PRO FORMA FINANCIAL STATEMENTS. When delivered pursuant to Section
3.1(c)(v), the Pro Forma Financial Statements fairly present, in all material
respects in conformity with GAAP consistently applied, and on a PRO FORMA basis
(after giving effect to the Combination), the financial position of the Borrower
as of December 31, 1995, and the results of its operations and cash flows for
the Fiscal Year then ending.
4.5. Litigation. Except as shown in Schedule 4.5, there is no action,
suit or proceeding pending, or to the knowledge of the Borrower threatened,
against or affecting the Borrower or any of its Subsidiaries before any court or
arbitrator or any Governmental Authority that could reasonably be expected to
have or cause a Material Adverse Effect or that in any manner draws into
question the validity or enforceability of, or could impair the ability of the
Borrower, in any material respect, to perform its obligations under, this
Agreement, the Notes or any of the other Loan Documents.
4.6. Requirements of Law. Each member of the Combined Group (other than
the Borrower) is and until the consummation of the Combination will be, and each
of the Borrower and its Subsidiaries is, in compliance with all Requirements of
Law applicable to it and its business, where the failure to so comply would
have, or could reasonably be expected to have, alone or in the aggregate, a
Material Adverse Effect.
- 33 -
<PAGE>
4.7. Compliance with ERISA. The Borrower and each member of the
Controlled Group have fulfilled their obligations under the minimum funding
standards of ERISA and the Code with respect to each Plan and are in compliance
in all material respects with the presently applicable provisions of ERISA and
the Code, and have not incurred any liability to the PBGC or a Plan under Title
IV of ERISA. Neither the Borrower nor any member of the Controlled Group is or
ever has been obligated to contribute to any Multiemployer Plan.
4.8. Taxes.
(a) PAYMENT OF TAXES; RETURNS. There have been filed on behalf of the
Borrower, its Subsidiaries and each other member of the Combined Group all
Federal, state and local income, excise, property and other tax returns that are
required to be filed by them and all taxes due pursuant to such returns or
pursuant to any assessment received by or on behalf of the Borrower, any
Subsidiary or any such member have been paid, except such taxes as are being
contested in good faith by appropriate proceedings for which adequate reserves
have been established in accordance with GAAP. The charges, accruals and
reserves on the books of the Borrower and its Subsidiaries and of each such
member of the Combined Group in respect of taxes or other governmental charges
are, in the opinion of the Borrower, adequate. United States income tax returns
of each member of the Combined Group have been examined and closed, or are
otherwise closed to examination by the applicable statute of limitations,
through the following dates:
<TABLE>
<CAPTION>
Member of Controlled Group Date Through Which Closed
<S> <C>
Borrower December 31, 1992
Waste Enterprises, Inc. December 31, 1992
Waste Industries West, Inc. December 31, 1992
Waste Industries South, Inc. December 31, 1992
Waste Industries East, Inc. December 31, 1992
KABCO, Inc. December 31, 1992
AmLease, Inc. December 31, 1994
Conway 378 Properties, Inc. December 31, 1992
</TABLE>
(b) PAYROLL WITHHOLDING TAXES. The Borrower has paid to all appropriate
Governmental Authorities all federal, state and local payroll withholding taxes
as and when the payment thereof became due.
4.9. Subsidiaries.
(a) Set forth on Schedule 4.9 hereto is a complete and accurate list of
the Subsidiaries, if any, of the Borrower on the date of this Agreement and
(after giving effect to the Combination) on the date of the first Borrowing or
Letter of Credit issuance hereunder, showing with respect to each such
Subsidiary (i) such Subsidiary's jurisdiction of incorporation or organization,
(ii) the classes of Stock of such Subsidiary, (iii) the number of issued and
outstanding shares in each such class of Stock, (iv) the names of each Person
owning shares, and the number of shares owned by such Person, of each such class
of Stock,
- 34 -
<PAGE>
and (v) the percentage of the Borrower's direct and indirect ownership of the
outstanding shares of each class of such Stock. All of the outstanding Stock or
other interest of each such Subsidiary has been validly issued, is fully paid
and nonassessable. All of the issued and outstanding shares of Stock of each of
the Borrower's Wholly Owned Subsidiaries is owned by the Borrower free and clear
of any Lien or adverse claim, directly or indirectly through one or more other
Wholly Owned Subsidiaries. At least a majority of the issued shares of Voting
Stock of each of the Borrower's other Subsidiaries, if any, is owned by the
Borrower free and clear of any Lien or adverse claim, directly or indirectly
through one or more Wholly Owned Subsidiaries.
(b) Each of the Borrower's Subsidiaries (i) is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, (ii) is duly qualified to transact business in
each jurisdiction wherein the failure to be so qualified could reasonably be
expected to have or cause a Material Adverse Effect, and (iii) has all corporate
power and authority and legal right to carry on its business as now conducted.
4.10. Not an Investment Company. Neither the Borrower, any of its
Subsidiaries or any other member of the Combined Group is, and after receiving
the proceeds of any Loan neither the Borrower nor any of its Subsidiaries will
be, an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
4.11. Public Utility Holding Company Act. Neither the Borrower, any of
its Subsidiaries or any other member of the Combined Group is a "holding
company", or a "subsidiary company" of a "holding company", or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company", as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended.
4.12. Ownership of Assets; Liens. Each of the Borrower and its
Consolidated Subsidiaries has and (after giving effect to the Combination and at
all times thereafter) will have title to its Properties and other assets
(tangible and intangible) sufficient for the conduct of its business, and none
of such Properties or other assets is or (after giving effect to the Combination
and at all times thereafter) will be subject to any Lien except for Liens
permitted by Section 6.14.
4.13. Credit Arrangements. Set forth on Schedule 4.13 is a complete and
correct list of all credit agreements, indentures, purchase agreements,
guaranties, Capitalized Lease Obligations and other investments, agreements and
arrangements presently on the date of this Agreement or (after giving effect to
the Combination) on the date of the first Borrowing or Letter of Credit issuance
hereunder providing for or relating to extensions of credit (including
agreements and arrangements for the issuance of letters of credit or for
acceptance financing) in respect of which the Borrower or any of its
Subsidiaries is in any manner directly or contingently obligated; and the
maximum principal or face amounts of the credit in question, outstanding and
that can be outstanding, are correctly stated, and all Liens of any nature given
or agreed to be given as security therefor are correctly described or indicated
in such Schedule 4.13.
- 35 -
<PAGE>
4.14. Capitalization. The authorized capital stock of the Borrower
consists, on the date of the first Borrowing or Letter of Credit issuance
hereunder (after giving effect to the Combination), of an aggregate of
40,000,000 shares consisting of (i) 4,000,000 shares of voting common stock, par
value $0.0380286 per share, of which 2,418,941 shares are duly and validly
issued and outstanding (and no shares of which are held in treasury), each of
which shares is fully paid and nonassessable, and (ii) 36,000,000 shares of
non-voting common stock, no par value, of which 21,581,451 shares are duly and
validly issued and outstanding (and no shares of which are held in treasury),
each of which shares is fully paid and nonassessable. As of the date of the
first Borrowing or Letter of Credit issuance hereunder, such issued and
outstanding shares of voting common stock and non-voting common stock are owned
beneficially and of record by the Persons identified in Schedule 4.14. As of the
date of the first Borrowing or Letter of Credit issuance hereunder (after giving
effect to the Combination), (X) there are no outstanding Equity Rights with
respect to the Borrower or any Subsidiary except for the unexercised options
granted pursuant to the Stock Option Agreements, and (Y) except as set forth in
Schedule 4.14, there are no outstanding obligations of the Borrower or any of
its Subsidiaries to make payments to any Person, such as "phantom stock"
payments, where the amount thereof is calculated with reference to the fair
market value or equity value of the Borrower or any of its Subsidiaries.
4.15. Stock Purchase Obligations. Neither the Borrower nor any of its
Subsidiaries has any outstanding obligation to repurchase, redeem or otherwise
acquire any shares of Stock of the Borrower except pursuant to
(a) the Cross Purchase Agreement, which requires the Borrower
to purchase shares of its Stock from certain of its shareholders under
the circumstances generally described in a letter, dated March 29,
1996, from James M. Yates, Jr., of Wyrick, Robbins, Yates & Ponton,
L.L.P., to Alex Spiro and Stephen Yeagy (the "Yates Letter"), a copy of
which is attached hereto at Schedule 4.15; and
(b) the Stock Option Agreements, which requires the Borrower
to purchase Stock Option Plan Shares under the circumstances generally
described in the Yates Letter.
4.16. No Default. Neither the Borrower, any of its Consolidated
Subsidiaries or (on the date hereof and on the date of the consummation of the
Combination) any member of the Combined Group is in default under or with
respect to any agreement, instrument or undertaking to which it is a party or by
which it or any of its property is bound that could reasonably be expected to
have or cause a Material Adverse Effect. No Default has occurred and is
continuing.
4.17. Full Disclosure. All information heretofore furnished by the
Borrower to the Lender for purposes of or in connection with this Agreement or
any transaction contemplated hereby is, and all such information hereafter
furnished by the Borrower to the Lender will be, true, accurate and complete in
every material respect or based on reasonable estimates on the date as of which
such information is stated or certified. The Borrower has disclosed to the
- 36 -
<PAGE>
Lender in writing any and all facts that could reasonably be expected to have or
cause a Material Adverse Effect.
4.18. Environmental Matters.
(a) Except as set forth in Schedule 4.18, neither the Borrower nor any
Subsidiary is subject to any Environmental Liability that could reasonably be
expected to have or cause a Material Adverse Effect and neither the Borrower,
any Subsidiary or any other member of the Combined Group has been designated as
a potentially responsible party under CERCLA or under any state statute similar
to CERCLA. None of the Properties has been identified on any current or proposed
(i) National Priorities List under 40 C.F.R. ss. 300, (ii) CERCLIS list or (iii)
any list arising from a state statute similar to CERCLA.
(b) To the Borrower's knowledge, no Hazardous Materials (i) have been
or are being used, produced, manufactured, processed, treated, recycled,
generated, stored, disposed of, managed or otherwise handled at, or shipped or
transported to or from the Properties during such period of time as the Borrower
any of its Subsidiaries or (prior to the Combination) any member of the Combined
Group (other than the Borrower) or the Partnership has owned, leased or
otherwise used, occupied or operated each such Property, or (ii) are otherwise
present at, on, in or under the Properties, or at or from any adjacent site or
facility, except in each case (X) in compliance with all applicable
Environmental Requirements and (Y) for Hazardous Materials present in amounts
which have not required and do not require remediation, pursuant to applicable
laws or regulations or, if remediation is required, such remediation could not
reasonably be expected to have or cause a Material Adverse Effect.
(c) The Borrower and each of its Subsidiaries have procured all
Environmental Authorizations necessary for the conduct of its business, and is
in compliance with all Environmental Requirements except to the extent the
failure to do so could not reasonably be expected to have or cause a Material
Adverse Effect.
4.19. Issuance of Stock and Other Securities. All Stock and other
Securities of or issued by the Borrower, any of its Subsidiaries or any other
member of the Combined Group have been validly and properly issued in accordance
with all applicable laws, including, but not limited to, the "Blue Sky" laws of
all applicable states and the federal securities laws.
4.20. Margin Stock. Neither the Borrower nor any of its Subsidiaries is
engaged principally, or as one of its important activities, in the business of
purchasing or carrying any Margin Stock.
4.21. Insolvency. The Borrower (a) is not, nor after giving effect to
the execution and delivery of the Loan Documents and the making of any Loans or
the issuance of any Letters of Credit under this Agreement (on the date of the
initial or any subsequent Borrowing or Letter of Credit issuance hereunder) will
the Borrower be or be rendered, (i) "insolvent," within the meaning of such term
as defined in ss. 101 of Title 11 of the United States Code or Section 2 of the
Uniform Fraudulent Transfer Act, or as used or defined in any other
- 37 -
<PAGE>
applicable state law pertaining to fraudulent transfers, as each may be amended
from time to time, or (ii) unable to pay its debts generally as such debts
become due, and (b) does not, nor after giving effect to the execution and
delivery of the Loan Documents, the making of any Loans and the issuance of any
Letters of Credit under this Agreement (on the date of the initial or any
subsequent Borrowing or Letter of Credit issuance hereunder) will the Borrower,
have an unreasonably small capital to engage in any business or transaction,
whether current or contemplated.
ARTICLE 5. AFFIRMATIVE COVENANTS
The Borrower hereby covenants and agrees that so long as this Loan
Agreement is in effect, and until all of the Obligations have been paid and
satisfied in full, no Letters of Credit are outstanding and the Commitments
shall have terminated:
5.1. Information. The Borrower will deliver to the Lender:
(a) as soon as available and in any event within 90 days after
the end of each Fiscal Year, consolidated and consolidating balance
sheets of the Borrower and its Consolidated Subsidiaries as of the end
of such Fiscal Year and the related consolidated and consolidating
statements of income, shareholders' equity and cash flows for such
Fiscal Year, setting forth in each case in comparative form the figures
for the previous Fiscal Year, all audited and certified by Deloitte &
Touche, LLP, or other independent public accountants of nationally
recognized standing selected by the Borrower, with such certification
to be free of exceptions and qualifications not reasonably acceptable
to the Lender (it being agreed that, if the Borrower has no
subsidiaries, such balance sheet and statements need only be of the
Borrower), PROVIDED that delivery pursuant to paragraph (c) of this
Section of copies of the Annual Report on Form 10-K of the Borrower for
such Fiscal Year filed with the Securities and Exchange Commission
shall be deemed to satisfy the requirements of this paragraph (a);
(b) as soon as available and in any event within 45 days after
the end of each of the first three Fiscal Quarters of each Fiscal Year,
consolidated and consolidating balance sheets of the Borrower and its
Consolidated Subsidiaries as of the end of such Fiscal Quarter and the
related consolidated and consolidating statements of income and of cash
flows for such Fiscal Quarter and for the portion of the Fiscal Year
ended at the end of such Fiscal Quarter, setting forth in each case in
comparative form the figures for the corresponding Fiscal Quarter and
the corresponding portion of the previous Fiscal Year, all certified
(subject to normal year-end adjustments and the inclusion of
abbreviated footnotes) as to fairness of presentation in all material
respects, in accordance with GAAP consistently applied, by the chief
financial officer or the chief accounting officer of the Borrower (it
being agreed that, if the Borrower has no subsidiaries, such balance
sheet and statements need only be of the Borrower), PROVIDED that
delivery pursuant to paragraph (c) of this Section of copies of the
Quarterly Report on Form 10-Q of the Borrower for such
- 38 -
<PAGE>
Fiscal Quarter filed with the Securities and Exchange Commission shall
be deemed to satisfy the requirements of this paragraph (b);
(c) if the Borrower shall be publicly held, promptly upon the
transmission thereof, copies of all such financial statements, proxy
statements, notices and reports as it shall send to its public
stockholders and copies of all registration statements (without
exhibits) and all reports (other than any registration statement filed
on Form S-8) which it files with the Securities and Exchange Commission
(or any Governmental Authority succeeding to the functions of the
Securities and Exchange Commission);
(d) promptly upon receipt thereof, a copy of each other report
(including, without limitation, management letters) submitted to the
Borrower or any Subsidiary by independent accountants in connection
with any annual, interim or special audit made by them of the books of
the Borrower or any Subsidiary;
(e) promptly upon receipt thereof, a copy of each report,
survey, study, evaluation, assessment or other document prepared by any
consultant, engineer, Environmental Authority or other Person relating
to compliance by the Borrower or any Subsidiary with any Environmental
Requirements, if the cost of remediation, repair or compliance may
reasonably be expected to exceed $250,000 in any one case or in the
aggregate;
(f) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above for any Fiscal Year
or Fiscal Quarter, a certificate, substantially in the form of Exhibit
E (a "Compliance Certificate"), of the chief financial officer or the
chief accounting officer of the Borrower (i) setting forth in
reasonable detail the calculations required to establish whether the
Borrower was in compliance with the requirements of Section 6.1 through
Section 6.8, inclusive, Section 6.11 through Section 6.16, inclusive,
in each case on the date of such financial statements and (ii) stating
whether any Default exists on the date of such certificate or on the
last day of such Fiscal Year or Fiscal Quarter and, if any Default then
exists or existed, setting forth the details thereof and the action
that the Borrower is taking or proposes to take with respect thereto;
(g) simultaneously with the delivery of each set of annual
financial statements referred to in clause (a) above, a statement of
the firm of independent public accountants that reported on such
statements to the effect that nothing has come to their attention to
cause them to believe that any Default existed on the date of such
financial statements;
(h) not later than 45 days after the end of each Fiscal
Quarter (including the fourth and final Fiscal Quarter) of each Fiscal
Year, a certificate of the chief financial officer or the chief
accounting officer of the Borrower, stating the amount of Consolidated
Debt as of the last day of such Fiscal Quarter, the amount of EBITDA
for the period of four consecutive Fiscal Quarters then ended, and the
ratio of such
- 39 -
<PAGE>
Consolidated Debt to such EBITDA, setting forth in reasonable detail
the calculation or the basis of determination of such amounts and
ratio;
(i) not later than the last day of each Fiscal Year, a
detailed operating budget, and a detailed budget of Capital
Expenditures (specifying figures for both Capital Expenditures for the
maintenance of existing assets and for the acquisition of new assets),
of the Borrower and its Consolidated Subsidiaries for the immediately
following Fiscal Year;
(j) within five Domestic Business Days after the Borrower
becomes aware of the occurrence of any Default, a certificate of the
chief financial officer or the chief accounting officer of the Borrower
setting forth the details thereof and the action that the Borrower is
taking or proposes to take with respect thereto;
(k) a copy of each of the following notices if and when the
Borrower or any member of the Controlled Group gives, is required to
give or receives the same: (i) any notice that the Borrower or any
member of the Controlled Group gives or is required to give to the PBGC
of any "reportable event" (as defined in Section 4043 of ERISA) with
respect to any Plan that might constitute grounds for a termination of
such Plan under Title IV of ERISA, or knows that the plan administrator
of any Plan has given or is required to give notice of any such
reportable event; (ii) any notice that the Borrower or any member of
the Controlled Group of complete or partial withdrawal liability under
Title IV of ERISA; or (iii) any notice that the Borrower or any member
of the Controlled Group from the PBGC under Title IV of ERISA of an
intent to terminate or appoint a trustee to administer any Plan;
(l) promptly after the Borrower knows of the commencement
thereof, notice of any litigation, dispute or proceeding involving a
claim against the Borrower and/or any Subsidiary for $500,000 or more
(in any one case or in the aggregate) in excess of amounts covered in
full by applicable insurance; and
(m) from time to time such additional information regarding
the financial position or business of the Borrower and its Subsidiaries
as the Lender may reasonably request.
5.2. Inspection of Property, Books and Records. The Borrower will (a)
keep, and will cause each Subsidiary to keep, proper books of record and account
in which full, true and correct entries (in all material respects subject to
normal year-end audit adjustments and, as to interim statements, the absence of
footnotes and otherwise in conformity with GAAP) shall be made of all dealings
and transactions in relation to its business and activities; and (b) permit, and
will cause each Subsidiary to permit, representatives of the Lender at the
Lender's expense prior to the occurrence of a Default and at the Borrower's
expense after the occurrence of and during the continuance of a Default to visit
and inspect any of their respective properties, to examine and make abstracts
from any of their respective books and records and to discuss their respective
affairs, finances and accounts with their respective officers, employees and
independent public accountants. The Borrower agrees to cooperate
- 40 -
<PAGE>
and assist in such visits and inspections, in each case at such reasonable times
and as often as may reasonably be desired.
5.3. Minimum Balances. The Borrower shall maintain with Lender average
collected non-interest bearing demand deposit balances of not less than $375,000
during each period of 12 consecutive calendar months, all such balances to be
free balances (I.E., balances not required to support operational activity
charges before deduction of reserve requirements).
5.4. Primary Depositary. The Borrower shall at all times use Lender as
its primary depositary institution.
5.5. Maintenance of Existence. The Borrower shall, and shall cause each
Subsidiary to, maintain its corporate existence and carry on its business in
substantially the same manner and in substantially the same fields as such
business is now carried on and maintained.
5.6. Compliance with Laws; Payment of Taxes. The Borrower will, and
will cause each of its Subsidiaries and each member of the Controlled Group to,
comply with applicable Requirements of Law, including, without limitation, all
Environmental Requirements, except where the necessity of such compliance is
being contested in good faith through appropriate proceedings diligently pursued
or where the failure to so comply could reasonably be expected to have or cause
a Material Adverse Effect. The Borrower will, and will cause each of its
Subsidiaries to, pay promptly when due (i) all federal, state and local payroll
withholding taxes and (ii) all other taxes, assessments, governmental charges,
claims for labor, supplies, rents and other obligations that, if unpaid, might
become a Lien against any Property or other asset of the Borrower or any
Subsidiary, other than as permitted by paragraphs (b), (c) and (d) of Section
6.14.
5.7. Insurance. The Borrower will maintain, and will cause each of its
Subsidiaries to maintain (either in the name of the Borrower or in such
Subsidiary's own name), with responsible and reputable insurance companies,
insurance on all its Property and other assets in at least such amounts and
against at least such risks as are usually insured against in the same general
area by companies of established repute engaged in the same or similar business;
PROVIDED that the Borrower and its Subsidiaries may elect to continue,
consistent with business practices of the Borrower and the other members of the
Combined Group in effect on the date of this Agreement, to self-insure (i) their
waste containers, (ii) certain immaterial assets such as radio towers, and (iii)
certain risks under medical and short-term disability plans.
5.8. Maintenance of Property. The Borrower shall, and shall cause each
Subsidiary to, maintain all of its properties and assets in good condition,
repair and working order, ordinary wear and tear excepted, except where the
failure to do so could not reasonably be expected to have or cause a Material
adverse Effect.
5.9. Environmental Notices. The Borrower shall furnish to the Lender
prompt written notice of all Environmental Liabilities, pending or (to the
extent the Borrower has knowledge thereof) threatened or anticipated
Environmental Proceedings, Environmental Notices, Environmental Judgments and
Orders, and Environmental Releases at, on, in, under,
- 41 -
<PAGE>
from or in any way affecting the Properties or any adjacent property, and all
facts, events, or conditions that could reasonably be expected to lead to any of
the foregoing.
5.10. Environmental Matters. The Borrower and its Subsidiaries will
not, and will not permit any Third Party to, use, produce, manufacture, process,
treat, recycle, generate, store, dispose of, manage at, or otherwise handle or
ship or transport to or from the Properties any Hazardous Materials except in
each case (i) in compliance with all applicable Environmental Requirements and
(ii) for Hazardous Materials in amounts which do not require compliance with
applicable Environmental Requirements or, if compliance is required, where the
failure to so comply could not reasonably be expected to have or cause a
Material Adverse Effect. The Borrower and its Subsidiaries will keep in force
and effect all Environmental Authorizations reasonably necessary for the conduct
of their respective businesses except to the extent the failure to do so could
not reasonably be expected to have or cause a Material Adverse Effect.
5.11. Environmental Release. The Borrower agrees that, upon the
occurrence of an Environmental Release at, on or from any of the Properties, it
will act immediately to investigate the extent of, and to take appropriate
remedial action to eliminate, such Environmental Release, to the extent ordered
or otherwise directed to do so by any Environmental Authority.
5.12. Lines of Business. Neither the Borrower nor any of its
Subsidiaries shall engage to any substantial extent in any line or lines of
business activity other than the business of solid waste management and disposal
and related activities.
5.13. Covenant to Ratably Secure. If the Borrower or any Subsidiary
shall create or assume any Lien upon any of its property or assets, whether now
owned or hereafter acquired, other than Liens permitted by Section 6.14, then
(unless the Lender shall have otherwise agreed in writing) the Borrower shall,
and shall cause such Subsidiary to, make or cause to be made effective provision
whereby the Obligations shall be secured equally and ratably with any and all
other Debt thereby secured so long as any such Debt shall be so secured;
PROVIDED that nothing herein shall effect or be construed as a waiver of any
Default arising from any breach or violation of any other provision of this
Agreement, nor shall the compliance by the Borrower with this Section effect any
cure of any such Default.
5.14. Guaranteed Obligations. If any Person (other than the Borrower)
shall guarantee or provide collateral in any manner for any Debt of the Borrower
or any Subsidiary, the Borrower shall simultaneously cause such Person to
Guarantee or provide collateral for the Obligations equally and ratably with all
Debt Guaranteed or secured by such Person for so long as such Debt is so
Guaranteed or secured and pursuant to documentation in form and substance
reasonably satisfactory to the Lender; PROVIDED that nothing herein shall effect
or be construed as a waiver of any Default arising from any breach or violation
of any other provision of this Agreement, nor shall the compliance by the
Borrower with this Section effect any cure of any such Default.
- 42 -
<PAGE>
ARTICLE 6. NEGATIVE COVENANTS
The Borrower hereby covenants and agrees that so long as this Loan
Agreement is in effect, and until all of the Obligations have been paid and
satisfied in full, no Letters of Credit are outstanding and the Commitments
shall have terminated:
6.1. Ratio of Consolidated Debt to EBITDA. The Borrower shall not
suffer or permit Consolidated Debt at any date to be greater than 400% of EBITDA
for the period of four consecutive Fiscal Quarters most recently ended.
6.2. Ratio of Consolidated Senior Debt to EBITDA. The Borrower shall
not suffer or permit Consolidated Senior Debt at any date to be greater than
350% of EBITDA for the period of four consecutive Fiscal Quarters most recently
ended.
6.3. Limitation on Priority Debt. The Borrower shall not suffer or
permit Priority Debt at any date to exceed 5% of Consolidated Total Capital.
6.4. Fixed Charges Coverage. The Borrower shall not suffer or permit
the sum of Consolidated Fixed Charges for any period of four consecutive Fiscal
Quarters PLUS EBITDA for such period to be less than 250% of Consolidated Fixed
Charges for such period.
6.5. Minimum Consolidated Net Worth. The Borrower shall not, at any
time, suffer or permit Consolidated Net Worth to be less than $12,500,000 plus
40% of the cumulative Reported Net Income of the Borrower and its Consolidated
Subsidiaries during any period after December 31, 1995 (taken as one accounting
period), calculated quarterly but excluding from such calculations of Reported
Net Income for purposes of this Section any quarter in which the Reported Net
Income of the Borrower and its Consolidated Subsidiaries is negative.
6.6. Consolidated Net Income. The Borrower shall not suffer or permit
Consolidated Net Income for any period of 12 consecutive calendar months to be
less than $1.00.
6.7. Capital Expenditures. The Borrower shall not suffer or permit the
aggregate amount of Capital Expenditures in any Fiscal Year to exceed 300% of
the amount charged to operations during the next preceding Fiscal Year for
Depreciation and Amortization; PROVIDED that after giving effect to the
incurrence of any Capital Expenditures permitted by this Section, no Default
shall have occurred and be continuing. For purposes of this Section, Capital
Expenditures shall not include expenditures made in connection with Permitted
Acquisitions or for the purchase of assets necessary to enable the Borrower's
performance of service agreements and agreements for the lease of tangible
assets owned by the Borrower, which agreements are entered into following the
date of this Agreement in the ordinary course of business.
6.8. Consolidated Operating Cash Flow. The Borrower shall not suffer or
permit the sum of Consolidated Operating Cash Flow for any period of four
consecutive Fiscal Quarters to be less than 120% of the sum of (a) Consolidated
Interest Charges for such
- 43 -
<PAGE>
period, PLUS (b) Current Maturities of Long Term Debt as of the first day of
such period, excluding, however, Current Maturities of Long Term Debt that shall
have been repaid during such period with the proceeds of Debt permitted to be
incurred by the Borrower and its Consolidated Subsidiaries under Section 6.9 .
6.9. Debt Limitation. Neither the Borrower nor any of its Subsidiaries
shall incur any Debt except (a) Debt under this Agreement, (b) Debt evidenced by
the Senior Notes or incurred in connection with any repayment of such Debt on
substantially similar terms, (c) Debt evidenced by a Shelf Note, and Debt
incurred in connection with any repayment of such Debt evidenced by a Shelf Note
on substantially similar terms, (d) Priority Debt to the extent permitted by
Section 6.3, and (e) Subordinated Debt to the extent permitted by Section 6.10;
PROVIDED that, in each instance, such Debt shall not be so incurred if a Default
shall have occurred and is continuing or, after giving PRO FORMA effect thereto,
would occur as a result thereof. For purposes of this Section, Debt of any
Person that remains outstanding on the date that such Person becomes a
Subsidiary shall be deemed to have been incurred by such Subsidiary on such
date.
6.10. Subordinated Debt. The Borrower will not, nor will the Borrower
permit any of its Subsidiaries to:
(a) purchase, redeem, retire or otherwise acquire for value,
or set apart any money for a sinking, defeasance or other analogous
fund for, the purchase, redemption, retirement or other acquisition of,
or make any payment or prepayment of the principal of or interest or
premium on, or any other amount owing in respect of, any Subordinated
Debt, or otherwise take or fail to take any action with respect
thereto, if either (i) a Default shall have occurred and is continuing
or, if after giving PRO FORMA effect thereto, a Default would occur or
(ii) to do so would result in a violation of any of the provisions
governing the subordination of such Subordinated Debt to Consolidated
Senior Debt;
(b) issue, incur, or suffer or permit to exist, any
Subordinated Debt (and, for purposes of this paragraph, Debt of any
Person that remains outstanding on the date that such Person becomes a
Subsidiary shall be deemed to have been incurred by such Subsidiary on
such date) unless the Borrower has provided evidence to the Lender, in
form and substance reasonably satisfactory to the Lender, that it has
satisfied each of the following:
(i) no Default or Event of Default shall have
occurred and be continuing or would arise as a result thereof;
(ii) such Subordinated Debt that is at all times
fully subordinated, without qualification or contingency, in
right of payment, in right to participate in liquidating
distributions and in all other respects to the Obligations,
and all other obligations and indebtedness now or hereafter
owed by the Borrower or any Subsidiary to the Lender, to any
of its Affiliates or, if the Lender or any of its Affiliates
acts as agent for any other Person or Persons, to such other
Person
- 44 -
<PAGE>
or Persons, all upon terms and conditions no less favorable
to, and in form and substance as set forth in, the
requirements set forth in Schedule 6.10 hereto;
(iii) the interest rate on such Subordinated Debt
shall be set on an arm's-length basis and shall not exceed the
market rate then in effect and shall be reasonably acceptable
to the Lender;
(iv) the events of default of the Subordinated Debt
shall be limited to (i) acceleration of the Senior Debt (as
defined in Schedule 6.10), (ii) the occurrence of a Bankruptcy
Proceeding (as defined in Schedule 6.10) with respect to the
Borrower, and (iii) a failure of the Borrower or such
Subsidiary to pay interest on or principal of the Subordinated
Debt for a period of 180 days after the date such payment was
due; and
(v) the affirmative covenants are customary for
subordinated indebtedness and such Subordinated Debt does not
contain or receive the benefit of any negative covenants;
(c) seek, agree or consent to any modification, supplement,
waiver termination or change of the terms of any instrument agreement
evidencing or governing the terms of any Subordinated Debt in any
respect without, in each instance, the prior written consent of the
Lender; or
(d) if a Default shall have occurred and so long as the same
be continuing, retain any payment or distribution received pursuant to
the terms of paragraph (f) of Schedule 6.10 (or any similar provision)
and the Borrower hereby agrees that it shall, and shall cause each
Subsidiary to, immediately pay over or deliver and transfer to the
Senior Creditors (as defined in Schedule 6.10) any such payment or
distribution in accordance with the priorities then existing among such
Senior Creditors.
6.11. Restricted Payments. The Borrower will not declare or make any
Restricted Payment except
(a) Restricted Payments made after January 1, 1996, if the
aggregate amount of all such Restricted Payments would exceed the sum
of (i) $500,000 PLUS (ii) sixty percent (60%) of cumulative Reported
Net Income of the Borrower and its Consolidated Subsidiaries so long as
the Borrower shall be organized as a Subchapter S corporation under the
Code, and 35% of cumulative Reported Net Income of the Borrower and its
Consolidated Subsidiaries if the Borrower shall be organized as a "C"
corporation under the Code, during any period after December 31, 1995
(taken as one accounting period), calculated quarterly but excluding
from such calculations of Reported Net Income for purposes of this
Section any fiscal period in which the Reported Net Income of the
Borrower and its Consolidated Subsidiaries is negative;
(b) mandatory purchases of shares of the Borrower's Stock
required to be made pursuant to the Cross Purchase Agreement so long as
such purchase is made
- 45 -
<PAGE>
strictly in accordance with the applicable provisions of the Cross
Purchase Agreement and the purchase price for such shares is paid only
as required by the Cross Purchase Agreement with no prepayment of any
installment of such purchase price; and
(c) mandatory purchases of Stock Option Plan Shares required
to be made pursuant to the Stock Purchase Agreements so long as such
each such purchase is made strictly in accordance with the applicable
provisions of the applicable Stock Purchase Agreement and the purchase
price for such Stock Option Plan Shares is paid only as required by the
applicable Stock Purchase Agreement with no prepayment of any
installment of such purchase price; and
PROVIDED that after giving effect to the declaration or payment of any such
Restricted Payments, no Default shall have occurred and be continuing.
6.12. Investments. The Borrower shall not, nor shall it permit any
Subsidiary to, make or permit to remain outstanding any Investments, except that
the Borrower or any Subsidiary may:
(a) make or own Investments in any Subsidiary or any Person
which immediately after giving effect to such Investment will be a
Subsidiary;
(b) own, purchase or otherwise acquire (i) notes or account
receivable arising from transactions with customers, suppliers and
employees in the ordinary course of business or (ii) Stock or
Securities received as settlements of debts created in the ordinary
course of business;
(c) endorse negotiable instruments for collection in the
ordinary course of business;
(d) advances or loans to officers and employees in the
ordinary course of business in an aggregate amount not in excess of
$500,000.00 during any Fiscal Year;
(e) own, purchase or acquire (i) prime commercial paper or
certificates of deposit or repurchase agreements of U.S. commercial
banks having capital and surplus in excess of $500,000,000 and a long
term debt rating of A or better by Moody's or S&P, in each case, due
within one year from the date of purchase and payable in U.S. dollars,
or (ii) obligations of the United States Government or any agency
thereof for which the full faith and credit of the United States
Government is pledged due within one year from the date of purchase, or
(iii) obligations guaranteed by the United States Government due within
one year from the date of purchase; or
(f) make Investments permitted by Section 6.13.
6.13. Permitted Acquisitions. In addition to the Investments permitted
by Section 6.12, the Borrower may acquire for cash, Stock of the Borrower and/or
(subject to Section 6.10) Subordinated Debt all of the Stock of another Person
or all or a substantial part of the
- 46 -
<PAGE>
assets of another Person, subject in each instance to the following conditions
(any such Investment that satisfies the conditions set forth in this Section is
referred to herein as a "Permitted Acquisition"):
(a) that, both immediately before the time of such Investment
and after giving effect thereto (including, without limitation, the
incurrence of any Debt to finance such Investment), no Default shall
have occurred and be continuing;
(b) that, prior to making such Investment the Borrower shall
have delivered to the Lender:
(i) if available to the Borrower, the most recent
unaudited and the most recent audited financial statements for
such Person or (in the case of an asset acquisition) for the
Person whose assets are to be so acquired and (in the case of
an asset acquisition and if available) for the assets to be so
acquired;
(ii) the following financial statements as of the
last day of the most recently ended Fiscal Quarter (for such
Investment, the "Reconciliation Date") and for the period of
four consecutive Fiscal Quarters then ended (for such
Investment, the "Reconciliation Period"):
(A) a balance sheet as of such
Reconciliation Date of such Person or (in the case of
the asset acquisition) for the assets to be so
acquired and the related statements of such Person's
or (in the case of an asset acquisition) such assets'
income, shareholders' equity and cash flows for such
Reconciliation Period, certified by the chief
accounting officer or chief financial officer of such
Person or (in the case of an asset acquisition) of
the Person whose assets are to be so acquired,
(B) a restatement of the balance sheet and
statements of income, shareholders' equity and cash
flows delivered pursuant to clause (A) of this
Section 6.13(b)(ii), as of such Reconciliation Date
and for such Reconciliation Period, certified by the
chief accounting officer or chief financial officer
of the Borrower as accurately reflecting in all
material respects, on a PRO FORMA basis as if such
Investment had been made on the first day of such
Reconciliation Period, the financial position and
results of operations of such Person or (in the case
of an asset acquisition) assets that would have been
achieved as of such Reconciliation Date and for such
Reconciliation Period, determined on the basis of the
actual level of revenues of such Person or assets and
the Borrower's actual average operating margins
(rather than those of such Person or of the Person
from whom such assets are to be acquired), in each
case during such Reconciliation Period,
(C) a restatement of the consolidated
balance sheet of the Borrower and its Subsidiaries as
of such Reconciliation Date and the
- 47 -
<PAGE>
related statements of income, shareholders' equity
and cash flows for such Reconciliation Period
delivered pursuant to Section 5.1, certified by the
chief accounting officer or chief financial officer
of the Borrower as accurately reflecting in all
material respects, on a PRO FORMA basis as if such
Investment had been made on the first day of such
Reconciliation Period, the consolidated financial
position and the consolidated results of operations
of the Borrower and its Subsidiaries that would have
been achieved as of such Reconciliation Date and for
such Reconciliation Period, determined on the basis
of a consolidation of (X) the consolidated financial
performance and results of operations of the Borrower
and its Subsidiaries during such Reconciliation
Period and (Y) the actual level of revenues of such
Person or of the assets to be so acquired, but
assuming the Borrower's actual average operating
margins (rather than those of such Person or of the
Person from whom such assets are to be acquired), in
each case for such Reconciliation Period, and
(D) a certificate of chief accounting
officer or chief financial officer of the Borrower
demonstrating in reasonable detail and setting forth
the calculations required to establish, on a PRO
FORMA basis as if such Investment had been made on
the first day of such period and based on the
restated financial statements delivered pursuant to
clause (C) of this Section 6.13(b)(ii), the
Borrower's compliance as of such Reconciliation Date
with the covenants set forth in Section 6.1 through
Section 6.15, inclusive;
(c) that, after giving PRO FORMA effect to such Investment if
made on the first day of the Reconciliation Period thereof and on the
basis of the restated financial statements delivered pursuant to
Section 6.13(b)(ii)(C), the Borrower would have been in full compliance
with the covenants set forth in Section 6.1 through Section 6.15.
6.14. Negative Pledge. Neither the Borrower nor any Consolidated
Subsidiary will create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by it, except:
(a) Liens existing on the Closing Date and specified on
Schedule 6.14, securing Consolidated Debt in an aggregate principal
amount not exceeding $200,000;
(b) Liens for taxes (including ad valorem and property taxes)
and assessments or governmental charges or levies not yet due or which
are being actively contested in good faith by appropriate proceedings
during the pendency of which enforcement of the applicable Liens are
effectively stayed and for which adequate reserves are maintained on
the books of the Borrower or the affected Subsidiary, as the case may
be, in accordance with GAAP;
- 48 -
<PAGE>
(c) other Liens incidental to the conduct of its business or
the maintenance, operation, construction or ownership of its property
and assets (including pledges or deposits in connection with workers'
compensation and social security taxes, assessments and charges, and
landlords, mechanics and materialmen Liens and survey exceptions or
encumbrances, easements or reservations, rights-of-way, or zoning
restrictions) PROVIDED that (i) such Liens were not incurred in
connection with the borrowing of money, or the obtaining of advances or
credit or the payment of the deferred purchase price of property and
(ii) the existence of such Lien does not materially detract from the
value of such property or assets to the Borrower or any Subsidiary or
unreasonably interfere with the ordinary conduct of business;
(d) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business to secure (or to
obtain letters of credit that secure) the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases,
performance bonds, purchase, construction or sales contracts and other
similar obligations, in each case not incurred or made in connection
with any Debt;
(e) any Lien created to secure all or any part of the purchase
price incurred or assumed to pay all or any part of the purchase price
of property acquired by the Borrower or a Subsidiary after the date of
this Agreement, PROVIDED that:
(i) any such Lien shall be confined solely to the
item or items of property so acquired and, if required by the
terms of the instrument originally creating such Lien, other
property which is an improvement to or for specific use with
such acquired property; and
(ii) the principal amount of the Debt secured by any
such Lien shall at not time exceed 100% of the lesser of (A)
the cost to the Borrower or such Subsidiary of the property
acquired and (B) the Fair Market Value of such property (as
determined in good faith by the Borrower's Board of Directors)
at the time of such acquisition;
(f) Liens securing Capitalized Lease Obligations of the
Borrower and its Subsidiaries, PROVIDED each such Lien is limited to
the property subject to the applicable Capital Lease;
(g) any right of set off or banker's lien (whether by common
law, statute, contract or otherwise) in connection with ordinary course
of business deposit arrangements maintained by the Borrower or its
Subsidiaries with any banks or other financial institutions (other than
the Lender) so long as any such bank or other financial institution (i)
shall not at any time make loans or otherwise extend credit to the
Borrower or any Subsidiary (ii) does not maintain account (for the
deposit of cash or otherwise) for the benefit of the Borrower or any
Subsidiary, (iii) shall have waived in writing for the benefit of each
holder of a Note such right of setoff or banker's liens or (iv) shall
be subject to a pro rata sharing agreement in form and substance
satisfactory to the Lender; or
- 49 -
<PAGE>
(h) any Lien renewing, extending, or refunding any outstanding
obligations secured by a Lien described in paragraph (a) hereof,
PROVIDED the principal amount secured is not increased and such Lien is
not extended to any other property of the Borrower or its Subsidiaries;
(i) Liens securing judgments rendered against the Borrower or
any of its Subsidiaries or arising in connection with any court
proceedings, PROVIDED (i) such Liens are being contested in good faith
by appropriate proceedings and (ii) no action has been taken by any
Person to execute or otherwise collect on such Lien;
(j) Liens securing (i) Debt, held by the Borrower, of any
Subsidiary or (ii) Debt, held by any Subsidiary, of any other
Subsidiary; and
(k) additional Liens securing Priority Debt permitted by
Section 6.3.
6.15. Operating Leases. The Borrower shall not, or permit any
Subsidiary to, enter into, or permit to remain in effect, or become or remain
liable, directly or indirectly, as lessor or guarantor (or other surety) under
an Operating Lease, which when combined with all other Operating Leases would
require aggregate payments by the Borrower and its Subsidiaries during a Fiscal
Year to exceed an aggregate amount equal to 3.5% of the Consolidated revenues of
the Borrower and its Subsidiaries for such Fiscal Year.
6.16. Sale of Property. The Borrower will not, and will not permit any
Subsidiary to, Dispose of any property or assets, except:
(a) any Subsidiary may Dispose of its assets to the Borrower
or a Subsidiary; or
(b) the Borrower or any Subsidiary may dispose of its assets
(whether or not leased back) so long as, immediately after giving
effect to such proposed Disposition:
(i) the consideration for such assets represents the
Fair Market Value of such assets (as determined in good faith
by the Borrower's Board of Directors at the time of such
Disposition;
(ii) The net book value of all assets so Disposed of
by the Borrower and its Subsidiaries during the prior 12
months, does not constitute a Substantial Part of the
Consolidated assets of the Borrower and its Consolidated
Subsidiaries; and
(iii) no Default or Event of Default shall exist.
For purposes of this Section 6.16:
- 50 -
<PAGE>
(A) "DISPOSE" means the sale, lease, transfer or other
disposition of property of the Borrower or any of its Subsidiaries, and
"DISPOSITION" and "DISPOSED OF" has a corresponding meaning to Dispose;
(B) the net book value of any assets shall be determined as of
the respective date of Disposition of those assets; and
(C) in the case of the sale or issuance of the stock of a
Subsidiary, the amount of Consolidated Assets of the Borrower and its
Consolidated Subsidiaries contributed by the stock Disposed of shall be
assumed to be the percentage of outstanding stock sold or to be sold.
6.17. Acquisition and Creation of Subsidiaries. Without prior written
notice to the Lender in each instance, the Borrower shall not form or create, or
acquire (whether in connection with a Permitted Acquisition or otherwise), any
Subsidiaries.
6.18. Dissolution. Neither the Borrower nor any of its Subsidiaries
shall suffer or permit dissolution or liquidation either in whole or in part or
redeem or retire any shares of its own Stock or that of any Subsidiary, except
through corporate reorganization to the extent permitted by Section 6.19.
6.19. Consolidations, Mergers and Sales of Assets. The Borrower will
not, nor will it permit any Subsidiary to, consolidate or merge with or into, or
(except as permitted by Section 6.16) sell, lease or otherwise transfer all or
any substantial part of its assets to, any other Person, or discontinue or
eliminate any business line or segment, PROVIDED that
(a) the Borrower may merge with another Person if (i) such
Person was organized under the laws of the United States of America,
one of its states or the District of Columbia, (ii) the Borrower is the
corporation surviving such merger and (iii) immediately after giving
effect to such merger, no Default shall have occurred and be
continuing, and
(b) Subsidiaries of the Borrower may merge with one another,
PROVIDED that in the case of any such merger involving a Wholly Owned
Subsidiary, the corporation surviving such merger is and remains a
Wholly Owned Subsidiary.
6.20. ERISA. The Borrower shall not, nor shall it permit any member of
the Controlled Group to,
(a) terminate or withdraw from any Plan (other than a
Multiemployer Plan) resulting in the incurrence of any material
liability to the PBGC;
(b) engage in or permit any Person to engage in any prohibited
transaction (as defined in Section 4975 of the Code) involving any Plan
(other than a Multiemployer Plan) which would subject the Borrower or
any member of the Controlled Group to any material tax, penalty or
other liability;
R#0172880.06
- 51 -
<PAGE>
(c) incur or suffer to exist any material accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, involving any Plan (other than a
Multiemployer Plan); or
(d) allow or suffer to exist any risk or condition that
presents a risk of incurring a material liability to the PBGC.
6.21. Use of Proceeds. No portion of the proceeds of the Loans will be
used, directly or indirectly, by the Borrower or any Subsidiary (i) to finance a
Hostile Tender Offer, (ii) for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any Margin Stock or to extend credit to
others for the purpose of purchasing or carrying any Margin Stock, or (iii) for
any purpose in violation of or inconsistent with any applicable Requirements of
Law (including, without limitation, the provisions of Regulation X of the Board
of Governors of the Federal Reserve System, as in effect from time to time).
6.22. Change in Fiscal Year. The Borrower will not change its Fiscal
Year without having given prior written notice to the Lender.
6.23. Transactions with Related Parties. The Borrower shall not, nor
shall it permit any Subsidiary to, effect any transaction with any Affiliate or
Subsidiary by which any asset or services of the Borrower or a Subsidiary of the
Borrower is transferred to such Affiliate or Subsidiary, or from such Affiliate
or Subsidiary or enter into any other transaction with an Affiliate or
Subsidiary, on terms more favorable than would be reasonably expected to be
given in a similar transaction with an unrelated entity.
6.24. Amendments to Senior Note Agreement. The Borrower shall not,
without the prior written consent of the Lender, enter into any amendment to or
restatement of the Senior Note Agreement if, after giving effect thereto, a
Default would occur. The Borrower shall not, without prior written notice to the
Lender, (a) enter into any amendment to or restatement of the Senior Note
Agreement, (b) request or accept delivery of any additional loan except as
expressly provided for in the Senior Loan Agreement, or (c) offer any Guaranty
of or collateral for any of the Borrower's indebtedness and obligations under
the Senior Note Agreement, the Senior Notes or the Shelf Notes or deliver or
permit to be delivered any instrument, agreement or other document providing any
such Guaranty or collateral; PROVIDED that nothing herein shall effect or be
construed as a waiver of any Default arising from any breach or violation of any
other provision of this Agreement, nor shall the compliance by the Borrower with
this Section effect any cure of any such Default.
ARTICLE 7. DEFAULTS
7.1. Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default by the Borrower under this
Agreement, whatever the reason for such event and whether it shall be voluntary
or involuntary, within or without the control of the Borrower, or be effected by
operation of law or pursuant to any judgment or
R#0172880.06
- 52 -
<PAGE>
order of any court or any order, rule or regulation of any Governmental
Authority or non-governmental body:
(a) the Borrower shall fail to pay, within ten (10) days after
the same shall become due (whether on the scheduled due date, a date
set or established for prepayment or at maturity, by reason of
acceleration or otherwise) (i) any principal of any Loan or any
reimbursement obligation arising from a drawing under any Letter of
Credit, (ii) any interest on any Loan or on any reimbursement
obligation arising from a drawing under any Letter of Credit or (iii)
any Facility A Fee, LC Fee or other amount payable hereunder; or
(b) the Borrower shall fail to observe or perform any covenant
contained in Section 5.1(j), in Section 5.2(b), in Section 5.13, in
Section 5.14 or in Article 6; or
(c) the Borrower shall fail to observe or perform any covenant
or agreement contained or incorporated by reference in this Agreement
(other than those covered by clause (a) or (b) above) for thirty days
after the earlier of (i) the first day on which a responsible officer
of the Borrower has knowledge of such failure or (ii) written notice
thereof has been given to the Borrower by the Lender; or
(d) any representation, warranty, certification or statement
made or deemed made by the Borrower in Article 4 of this Agreement, in
any other Loan Document, in any amendment hereto or thereto or in any
certificate, financial statement or other document delivered pursuant
to this Agreement, any other Loan Document or any such amendment shall
prove to have been incorrect or misleading in any material respect when
made or repeated (or deemed made or repeated); or
(e) the Borrower or any Subsidiary shall fail to make when
due, or within any applicable grace period, any payment in respect of
Debt outstanding (other than the Notes), if the aggregate amount of
such Debt is $500,000 or more; or
(f) any event or condition shall occur that (i) results in the
acceleration of the maturity, or in a requirement for the purchase
(prior to the scheduled maturity thereof) by the Borrower or any
Subsidiary (or the designee of the Borrower or any Subsidiary), of any
outstanding Debt (other than in respect of the Notes) of the Borrower
or any Subsidiary if the aggregate amount of such Debt is $500,000 or
more, or (ii) enables (or, with the giving of notice or lapse of time
or both, would enable) the holders of such Debt or any Person acting on
such holders' behalf to accelerate the maturity thereof or require the
purchase thereof by the Borrower (or its designee) or such Subsidiary
(or its designee) prior to the scheduled maturity thereof, without
regard to whether such holders or other Person shall have exercised
their right to do so; or
(g) the Borrower or any Subsidiary shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or
R#0172880.06
- 53 -
<PAGE>
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief
or to the appointment of or taking possession by any such official in
an involuntary case or other proceeding commenced against it, or shall
make a general assignment for the benefit of creditors, or shall fail
generally, or shall admit in writing its inability, to pay its debts as
they become due, or shall take any corporate action to authorize any of
the foregoing; or
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of 60 days; or an order
for relief shall be entered against the Borrower or any Subsidiary
under the federal bankruptcy laws as now or hereafter in effect; or
(i) the Borrower or any member of the Controlled Group shall
fail to pay when due any material amount that it shall have become
liable to pay to the PBGC or to a Plan under Title IV of ERISA; or
notice of intent to terminate a Plan or Plans shall be filed under
Title IV of ERISA by the Borrower, any member of the Controlled Group,
any plan administrator or any combination of the foregoing; or the PBGC
shall institute proceedings under Title IV of ERISA to terminate or to
cause a trustee to be appointed to administer any such Plan or Plans or
a proceeding shall be instituted by a fiduciary of any such Plan or
Plans to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding
shall not have been dismissed within 30 days thereafter; or a condition
shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any such Plan or Plans must be terminated; or
the Borrower or any other member of the Controlled Group shall enter
into, contribute or be obligated to contribute to, terminate or incur
any withdrawal liability with respect to, a Multiemployer Plan; or
(j) one or more judgments or orders for the payment of money
in an aggregate amount in excess of $500,000 shall be rendered against
the Borrower or any Subsidiary and such judgment or order shall
continue unsatisfied and unstayed for a period of 30 days; or
(k) a federal tax lien shall be filed against the Borrower or
any Subsidiary under Section 6323 of the Code or a lien of the PBGC
shall be filed against the Borrower or any Subsidiary under Section
4068 of ERISA and in either case such lien shall remain undischarged
for a period of 25 days after the date of filing; or
(l) any Person (other than a Person identified in Part I of
Schedule 4.14 as being a beneficial owner of the Borrower's voting
common stock on the date hereof) or two or more Persons (other than
Persons identified in Part I of Schedule 4.14 as being a beneficial
owner of the Borrower's voting common stock on the date hereof)
R#0172880.06
- 54 -
<PAGE>
acting in concert shall have acquired, in a single transaction or
series of transactions, beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934) of 50% or more of the outstanding
shares of the Voting Stock of the Borrower; or
(m) the occurrence of any "Event of Default" under, and as
defined in, the Senior Note Agreement.
7.2. Remedies. If an Event of Default shall have occurred and is
continuing, then the Lender may, by notice to the Borrower,
(a) by notice to the Borrower terminate the Commitments and
they shall thereupon terminate,
(b) by notice to the Borrower declare the Notes (together with
accrued interest thereon) and all other amounts payable hereunder and
under the other Loan Documents to be, and the Notes (together will all
accrued interest thereon) and all other amounts payable hereunder and
under the other Loan Documents shall thereupon become, immediately due
and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower, and
(c) by notice to the Borrower direct the Borrower to pay (and
the Borrower agrees that upon receipt of such notice it will
immediately pay) to the Lender additional cash in an amount equal to
the maximum aggregate amount which may be drawn under all Letters of
Credits then outstanding, to be held by the Lender in an interest
bearing cash collateral account as security for the Letter of Credit
Obligations for subsequent drawings under all then outstanding Letters
of Credit (and the Borrower hereby grants to Lender a security interest
in all such cash);
; PROVIDED that, if any Event of Default specified in Section 7.1(g) or Section
7.1(h) shall occur, without any notice to the Borrower or any other act by the
Lender,
(i) the Commitments shall thereupon automatically terminate,
(ii) the Notes (together with accrued interest thereon) and
all other amounts payable hereunder and under the other Loan Documents
shall automatically become immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower, and
(iii) the Borrower will immediately pay to the Lender
additional cash in an amount equal to the maximum aggregate amount
which may be drawn under all Letters of Credits then outstanding, to be
held by the Lender in an interest bearing cash collateral account as
additional security for the Letter of Credit Obligations for subsequent
drawings under all then outstanding Letters of Credit (and the Borrower
hereby grants to Lender a security interest in all such cash).
- 55 -
<PAGE>
Notwithstanding the foregoing, the Lender shall have all other remedies
available to it or them under the other Loan Documents or otherwise available to
it or them at law or in equity, and the Lender shall exercise any one or all of
such remedies available to it at the request of the Lender.
ARTICLE 8. CHANGE IN CIRCUMSTANCES; COMPENSATION
8.1. Basis for Determining Interest Rate Inadequate or Unfair. If on or
prior to the first day of any month:
(a) the Lender determines that deposits in Dollars (in the
applicable amounts) are not being offered in the relevant market for
such month, or
(b) the Lender notifies the Borrower that the LIBO Rate as
determined by the Lender will not adequately and fairly reflect the
cost to the Lender of funding Loans during such month bearing interest
at the Euro-Dollar Rate or otherwise maintaining the Euro-Dollar Rate
as the applicable interest rate under Section 2.6,
the Lender shall forthwith give notice thereof to the Borrower, whereupon until
the Lender notifies the Borrower that the circumstances giving rise to such
suspension no longer exist, the obligation of the Lender to maintain the
Euro-Dollar Rate as the interest rate applicable to the Loans under Section 2.6
shall be suspended and during the period of such suspension the principal
balance of all Loans from time to time outstanding (including, without
limitation, all Loans made during such period) shall bear interest at the
Adjusted Treasury Rate. Unless the Borrower notifies the Lender at least 2
Domestic Business Days before the date of any Borrowing during such period for
which a Notice of Borrowing has previously been given that it elects not to
borrow on such date, the Loan or Loans made as a part of such Borrowing shall
bear interest at the Adjusted Treasury Rate. Notwithstanding the foregoing, no
notice of suspension shall be given with respect to a matter referenced in
clause (b) of this Section so long as there is then free and active trading in
Dollar deposits in the London interbank market and the Lender has access to such
market for such deposits.
8.2. Illegality. If, after the date hereof, the adoption of any
applicable law, rule or regulation, or any change in any existing or future law,
rule or regulation, or any change in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof (any such Governmental
Authority, bank or agency being referred to as an "Authority" and any such event
being referred to as a "Change of Law"), or compliance by the Lender (or its
Applicable Lending Office) with any request or directive (whether or not having
the force of law) of any Authority shall make it unlawful or impossible for the
Lender (or its Applicable Lending Office) to make or fund Loans bearing interest
based on the LIBO Rate, or to maintain the LIBO Rate as the basis for the
applicable rate of interest hereunder, and the Lender shall so notify the
Borrower, the obligation of the Lender to maintain the Euro-Dollar Rate as the
applicable interest rate under Section 2.6 for all Loans (including, without
limitation, those Loans during such period) thereupon shall be suspended until
the Lender
R#0172880.06
- 56 -
<PAGE>
notifies the Borrower that the circumstances giving rise to such suspension no
longer exist, and during the period of such suspension the principal balance of
all Loans from time to time outstanding (including, without limitation, those
Loans made or funded during such period) shall bear interest at the Adjusted
Treasury Rate. Before giving any notice pursuant to this Section, the Lender
shall designate a different Applicable Lending Office if able to do so and if
such designation will avoid the need for giving such notice and will not, in the
reasonable judgment of the Lender, be otherwise disadvantageous to the Lender.
8.3. Increased Cost and Reduced Return.
(a) If after the date hereof, a Change of Law or compliance by the
Lender (or its Applicable Lending Office) with any request or directive (whether
or not having the force of law) of any Authority:
(i) shall subject the Lender (or its Applicable Lending
Office) to any tax, duty or other charge with respect to Loans bearing
interest at the Euro-Dollar Rate, the Notes or its obligation to make
or maintain the interest rate hereunder at the Euro- Dollar Rate, or
shall change the basis of taxation of payments to the Lender (or its
Applicable Lending Office) of the principal of or interest on Loans
bearing interest at the Euro-Dollar Rate, or any other amounts due
under this Agreement in respect of such Loans, or its obligation to
maintain the applicable interest rate hereunder at the Euro-Dollar Rate
(except for changes in the rate of tax on the overall net income of the
Lender or its Applicable Lending Office imposed by the jurisdiction in
which the Lender's principal executive office or Applicable Lending
Office is located); or
(ii) shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal
Reserve System, but excluding any such requirement included in an
applicable Euro-Dollar Reserve Percentage) against assets of, deposits
with or for the account of, or credit extended by, the Lender (or its
Applicable Lending Office); or
(iii) shall impose on the Lender (or its Applicable Lending
Office) or on the London interbank market any other condition affecting
Loans bearing interest at the Euro-Dollar Rate, the Notes or its
obligation to fund or maintain Loans bearing interest at the
Euro-Dollar Rate;
and the result of any of the foregoing is to increase the cost to the Lender (or
its Applicable Lending Office) of making such Loans or maintaining the
Euro-Dollar Rate as the applicable interest rate hereunder, or to reduce the
amount of any sum received or receivable by the Lender (or its Applicable
Lending Office) under this Agreement or under the Notes with respect thereto, by
an amount deemed by the Lender to be material, then, within 15 days after demand
by the Lender, the Borrower shall pay to the Lender such additional amount or
amounts as will compensate the Lender for such increased cost or reduction.
R#0172880.06
- 57 -
<PAGE>
(b) If the Lender shall have determined that the adoption after the
date hereof of any applicable law, rule or regulation regarding capital
adequacy, or any change after the date hereof in any existing or future law,
rule or regulation, or any change in the interpretation or administration
thereof, or compliance by the Lender (or its Applicable Lending Office) with any
request or directive regarding capital adequacy (whether or not having the force
of law) of any Authority, has or would have the effect of reducing the rate of
return on the Lender's capital as a consequence of its obligations hereunder to
a level below that which the Lender could have achieved but for such adoption,
change or compliance (taking into consideration the Lender's policies with
respect to capital adequacy) by an amount deemed by the Lender to be material,
then from time to time, within 15 days after demand by the Lender, the Borrower
shall pay to the Lender such additional amount or amounts as will compensate the
Lender for such reduction.
(c) The Lender will promptly notify the Borrower of any event of which
it has knowledge, occurring after the date hereof, that will entitle the Lender
to compensation pursuant to this Section and will designate a different
Applicable Lending Office if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the judgment of the Lender, be
otherwise disadvantageous to the Lender. A certificate of the Lender claiming
compensation under this Section and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error. In determining such amount, the Lender may use any reasonable
averaging and attribution methods.
(d) The provisions of this Section 8.3 shall be applicable with respect
to any Participant, Assignee or other Transferee and, subject to Section 9.6(e),
any calculations required by such provisions shall be made based upon the
circumstances of such Participant, Assignee or other Transferee.
8.4. Borrower's Option to Convert Interest Rate. If the Lender has
demanded compensation under Section 8.3 and a conversion of the applicable
interest rate under Section 2.6 to the Adjusted Treasury Rate would obviate the
requirement for such compensation, and if the Borrower, by at least one Domestic
Business Day's prior notice to the Lender, shall have elected that the
provisions of this Section shall apply, then, until the Lender notifies the
Borrower that the circumstances giving rise to such suspension or demand for
compensation no longer apply (which the Lender shall do as soon as practicable
thereafter), the principal balance of all Loans from time to time outstanding
shall bear interest at the Adjusted Treasury Rate. In the event that the
Borrower shall elect that the provisions of this Section shall apply, the
Borrower shall remain liable for, and shall pay to the Lender as provided
herein, all amounts due the Lender under Section 8.3 in respect of the period
preceding the date on which the Loans shall first bear interest at the Adjusted
Treasury Rate pursuant to this Section.
R#0172880.06
- 58 -
<PAGE>
ARTICLE 9. MISCELLANEOUS
9.1. Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including facsimile transmission or similar
writing) and shall be given to such party at its address or telecopy number set
forth on the signature pages hereof or such other address or telecopy number as
such party may hereafter specify for the purpose by notice to each other party.
Each such notice, request or other communication shall be effective (i) if given
by telecopier, when such telecopy is transmitted to the telecopy number referred
to in or specified pursuant to this Section and the telecopy machine used by the
sender provides a written confirmation that such telecopy has been so
transmitted or receipt of such telecopy transmission is otherwise confirmed,
(ii) if given by mail, 72 hours after such communication is deposited in the
mails with first class postage prepaid, addressed as aforesaid, or (iii) if
given by any other means, with confirmed delivery when delivered at the address
referred to in or specified pursuant to this Section; PROVIDED that notices to
the Lender under Article 2 or Article 8 shall not be effective until received.
9.2. No Waivers. No failure or delay by the Lender in exercising any
right, power or privilege hereunder or under any Notes or other Loan Document
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
9.3. Expenses; Documentary Taxes; Indemnification.
(a) EXPENSES. The Borrower shall pay (i) all out-of-pocket expenses of
the Lender, including Reasonable Attorneys' Fees and disbursements of the
Lender's counsel, in connection with the preparation of this Agreement and the
other Loan Documents, any waiver or consent hereunder or thereunder or any
amendment hereof or thereof or any Default or alleged Default hereunder or
thereunder and (ii) if a Default occurs, all out-of-pocket expenses incurred by
the Lender, including Reasonable Attorneys' Fees and disbursements of counsel,
in connection with such Default and collection and other enforcement proceedings
resulting therefrom, including out-of-pocket expenses incurred in enforcing this
Agreement and the other Loan Documents.
(b) TAXES. The Borrower shall indemnify the Lender against any and all
documentary stamp taxes, transfer taxes, assessments or charges which may at any
time be determined to be payable by the Lender by reason of the execution and
delivery of this Agreement or any other Loan Document or the issuance by the
Borrower of the Notes.
(c) INDEMNIFICATION. The Borrower agrees to indemnify the Lender, each
affiliate of the Lender and all of their respective directors, officers,
employees and agents (each an "Indemnified Party") from, and hold each
Indemnified Party harmless from and against, any and all losses, costs, charges,
expenses (including, without limitation, Reasonable Attorneys' Fees,
disbursements of counsel, and expenses of litigation or preparation therefor,
whether or not such Indemnified Party is a party thereto), claims, demands,
suits, damages, penalties, taxes (other than state, Federal, local or foreign
income, intangibles and franchise taxes),
R#0172880.06
- 59 -
<PAGE>
fines, levies and assessments that may be asserted or imposed against, or
suffered or incurred by, such Indemnified Party to the extent caused, directly
or indirectly, by:
(i) this Agreement, the Notes, the other Loan Documents, the
Obligations, the Letters of Credit, the transactions contemplated by
the Loan Documents, the making of any Loans or the direct or indirect
use or application, or proposed use or application, of the proceeds of
any Loans or any Letters of Credit,
(ii) any violation of any Environmental Requirements, the
past, present or future operations of the Borrower or any Subsidiary or
its predecessors in interest, or the past, present or future
environmental, health or safety condition of any Property or any
Environmental Release or threatened Environmental Release,
(iii) any representation or warranty of the Borrower in this
Agreement or
any other Loan Document being untrue or inaccurate in any respect, or
(iv) the failure by the Borrower to observe, perform or comply
with any of its covenants, undertakings or obligations set forth in
this Agreement or any other Loan Document;
PROVIDED that the Borrower shall have no obligation to indemnify an Indemnified
Party hereunder in respect of the foregoing to the extent the same shall
primarily be caused by the gross negligence or willful misconduct of such
Indemnified Party.
(d) SURVIVAL. The obligations of the Borrower under this Section shall
survive the payment of the Loans and all other Obligations.
9.4. Setoffs. In addition to, and not in lieu or limitation of, all
rights of offset that the Lender or other holder of any Note may have under
applicable law, the Borrower hereby grants to the Lender, and to each
Participant, Assignee or other Transferee, as security for the full and punctual
payment and performance of the Obligations, a continuing lien on and security
interest in all deposits and other sums credited by or due from the Lender (or
such Participant, Assignee or other Transferee) to the Borrower or subject to
withdrawal by the Borrower; and regardless of the adequacy of any collateral or
other means of obtaining repayment of the Obligations, if an Event of Default
shall have occurred and is continuing, the Lender, Participant, Assignee or
other Transferee may at any time, and without notice to the Borrower, set off
the whole or any portion or portions of any or all such deposits and other sums
against such obligations, whether or not any other Person or Persons could also
withdraw money therefrom.
9.5. Amendments and Waivers. Any provision of this Agreement, the Notes
or any other Loan Documents may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by the Borrower and the Lender.
R#0172880.06
- 60 -
<PAGE>
9.6. Successors and Assigns.
(a) BINDING EFFECT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns; PROVIDED that, without the Lender's prior written
consent, the Borrower may not assign or otherwise transfer any of its rights
under this Agreement except by operation of law as a result of a merger,
consolidation or other reorganization permitted by the express terms of this
Agreement.
(b) PARTICIPATIONS. The Lender may at any time sell to one or more
Persons (each a "Participant") participating interests in any Loan owing to the
Lender, any Note held by the Lender, any Commitment hereunder or any other
interest of the Lender hereunder; PROVIDED that, without the Borrower's prior
written consent, no such participating interest in the Loans shall be offered or
sold to any Person unless such Person is (i) a bank, savings bank, savings and
loan association or insurance company, (ii) a pension plan or portfolio or
investment fund managed or administered by any bank, savings bank, savings and
loan association or insurance company, (iii) an investment company owned by any
bank, savings bank, savings and loan association or insurance company, the
majority of the shares of the Stock of which are traded on a national securities
exchange or in the National Association of Securities Dealers automated
quotation system, or (iv) an investment banking company. In the event of any
such sale by the Lender of a participating interest to a Participant, the
Lender's obligations under this Agreement shall remain unchanged, the Lender
shall remain solely responsible for the performance thereof, the Lender shall
remain the holder of any such Note for all purposes under this Agreement, and
the Borrower shall continue to deal solely and directly with the Lender in
connection with the Lender's rights and obligations under this Agreement. In no
event shall a Lender that sells a participation be obligated to the Participant
to take or refrain from taking any action hereunder except that the Lender may
agree that it will not (except as provided below), without the consent of the
Participant, agree to (A) the change of any date fixed for the payment of
principal of or interest on the related Loan or Loans, (B) the change of the
amount of any principal, interest or fees due on any date fixed for the payment
thereof with respect to the related Loan or Loans, (C) the change of the
principal of the related Loan or Loans, (D) any change in the rate at which
either interest is payable thereon or (if the Participant is entitled to any
part thereof) commitment fee is payable hereunder from the rate at which the
Participant is entitled to receive interest or commitment fee (as the case may
be) in respect of such participation, (E) the release or substitution of all or
any substantial part of the collateral (if any) held as security for the Loans,
or (F) the release of any guaranty (if any) given to support payment of the
Loans. Within 10 Domestic Business Days of the sale of a participating interest
in any Loan, Note, Commitment or other interest under this Agreement, the Lender
shall provide the Borrower with written notification stating that such sale has
occurred and identifying the Participant and the interest purchased by such
Participant. The Borrower agrees that each Participant shall be entitled to the
benefits of Article 8 and Section 8.4 with respect to its participation in Loans
outstanding from time to time.
(c) ASSIGNMENTS. The Lender may at any time assign to one or more banks
or financial institutions (each an "Assignee") all, or a proportionate part of
all, of its rights and
R#0172880.06
- 61 -
<PAGE>
obligations under this Agreement, the Notes and the other Loan Documents, and
such Assignee shall assume all such rights and obligations, pursuant to an
instrument reasonably acceptable to the Borrower, executed by such Assignee, the
Lender (and, in the case of an Assignee that is not then an affiliate of the
Lender, by the Borrower); PROVIDED that no interest may be sold by the Lender
pursuant to this paragraph (c) to any Assignee that is not then an affiliate of
the Lender without the consent of the Borrower, which consent shall not be
unreasonably withheld or delayed. Upon (A) execution of instrument of assumption
by such the Lender, such Assignee and (if applicable) the Borrower, (B) delivery
of an executed copy of such instrument to the Borrower, (C) payment by such
Assignee to the Lender of an amount equal to the purchase price agreed between
the Lender and such Assignee, such Assignee shall for all purposes be a Lender
party to this Agreement and shall have all the rights and obligations of a
Lender under this Agreement to the same extent as if it were an original party
hereto with a Facility A Commitment and/or Facility B Commitment as set forth in
such instrument of assumption, and the Lender shall be released from its
obligations hereunder to a corresponding extent, and no further consent or
action by the Borrower or the Lender shall be required. Upon the consummation of
any transfer to an Assignee pursuant to this paragraph (c), the Lender and the
Borrower shall make appropriate arrangements so that, if required, a new Note or
Notes are issued to each of such Assignee and the Lender.
(d) DISCLOSURE. Subject to the provisions of Section 9.7, the Borrower
authorizes the Lender to disclose to any Participant, Assignee or other
transferee (each a "Transferee") and any prospective Transferee any and all
financial and other information in the Lender's possession concerning the
Borrower that has been delivered to the Lender by the Borrower pursuant to this
Agreement or that has been delivered to the Lender by the Borrower in connection
with the Lender's credit evaluation prior to entering into this Agreement.
(e) LIMIT ON COMPENSATION. No Transferee shall be entitled to receive
any greater payment under Section 8.3 than the transferor Lender would have been
entitled to receive with respect to the rights transferred, unless such transfer
is made with the Borrower's prior written consent or by reason of the provisions
of Section 8.2 or 8.3 requiring the Lender to designate a different Applicable
Lending Office under certain circumstances or at a time when the circumstances
giving rise to such greater payment did not exist.
(f) SPECIAL ASSIGNMENTS. Anything in this Section to the contrary
notwithstanding, the Lender may assign and pledge all or any portion of the
Loans and/or obligations owing to it to any Federal Reserve Bank or the United
States Treasury as collateral security pursuant to Regulation A of the Board of
Governors of the Federal Reserve System and Operating Circular issued by such
Federal Reserve Bank, PROVIDED that any payment in respect of such assigned
Loans and/or obligations made by the Borrower to the assigning and/or pledging
Lender in accordance with the terms of this Agreement shall satisfy the
Borrower's obligations hereunder in respect of such assigned Loans and/or
obligations to the extent of such payment. No such assignment shall release the
Lender from its obligations hereunder.
9.7. Confidentiality. The Lender agrees to exercise its best efforts to
keep any information delivered or made available by the Borrower to it which is
clearly indicated to be confidential information, confidential from anyone other
than Persons employed or retained by
R#0172880.06
- 62 -
<PAGE>
the Lender who are or are expected to become engaged in evaluating, approving,
structuring or administering the Loans; PROVIDED that nothing herein shall
prevent the Lender from disclosing such information (i) upon the order or
subpoena of any court or Governmental Authority, (ii) upon the request or demand
of any Authority or Governmental Authority having jurisdiction over the Lender,
(iii) that has been publicly disclosed by the Borrower, by any Subsidiary or,
without breach of an obligation of confidence owed to the Borrower or to a
Subsidiary, by any other Person, (iv) to the extent reasonably required in
connection with any litigation to which the Lender or its affiliates may be a
party, (v) to the extent reasonably required in connection with the exercise of
any remedy hereunder, (vi) to the Lender's legal counsel and independent
auditors and (vii) to any actual or proposed Participant, Assignee or other
Transferee of all or part of the Lender's rights hereunder that has agreed in
writing to be bound by the provisions of this Section.
9.8. Representation by Lender. The Lender hereby represents that it is
a commercial lender or financial institution that makes loans in the ordinary
course of its business and that it will make the Loans hereunder for its own
account in the ordinary course of such business; PROVIDED that, subject to
Section 9.6, the disposition of the Notes shall at all times be within its
exclusive control.
9.9. Survival of Certain Obligations. Sections 2.2(f), 2.12(c), 8.3(a),
8.3(b) and 9.3, and the obligations of the Borrower thereunder, shall survive,
and shall continue to be enforceable notwithstanding, the termination of this
Agreement and the Commitments and the payment in full of the principal of and
interest on all Loans and all other Obligations.
9.10. North Carolina Law. This Agreement and each Note shall be
construed in accordance with and governed by, and any dispute arising out of or
related to the relationship established between the Borrower and the Lender in
connection with this Agreement (and whether arising in contract, tort, equity,
or otherwise) shall be resolved in accordance with, the internal laws and not
the conflicts of law provisions of the State of North Carolina. This Agreement
and the Notes are intended to be effective as instruments executed under seal.
9.11. Severability. This Agreement, the Notes and the other Loan
Documents are intended to be performed in accordance with, and only to the
extent permitted by, all applicable Requirements of Law. If any provision of any
of this Agreement, any Note or any other Loan Document or the application
thereof to any Person or circumstances shall, for any reason and to any extent,
be invalid or unenforceable, neither the remainder of this Agreement, such Note
or such other Loan Document in which such provision is contained nor the
application of such provision to other Persons or circumstances or other Loan
Documents or other instruments referred to hereinabove shall be affected
thereby, but rather, the same shall be enforced to the greatest extent permitted
by law.
9.12. Interest. In no event shall the amount of interest due or payable
hereunder or under either Note exceed the maximum rate of interest allowed by
applicable law, and in the event any such payment is inadvertently made to the
Lender by the Borrower or inadvertently received by the Lender, then such excess
sum shall be credited as a payment of principal, unless the Borrower shall
notify the Lender in writing that it elects to have such excess sum
R#0172880.06
- 63 -
<PAGE>
returned forthwith. It is the express intent hereof that the Borrower not pay
and the Lender not receive, directly or indirectly in any manner whatsoever,
interest in excess of that which may legally be paid by the Borrower under
applicable law.
9.13. Interpretation. No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other Governmental Authority by
reason of such party having or being deemed to have structured or dictated such
provision.
9.14. Waiver of Jury Trial; Consent to Jurisdiction. EACH OF THE
BORROWER AND THE LENDER (A) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, (B) SUBMITS TO PERSONAL
JURISDICTION IN THE STATE OF NORTH CAROLINA, THE COURTS THEREOF AND THE UNITED
STATES DISTRICT COURTS SITTING THEREIN, FOR THE ENFORCEMENT OF THIS AGREEMENT,
THE NOTES AND THE OTHER LOAN DOCUMENTS, (C) WAIVES ANY AND ALL PERSONAL RIGHTS
UNDER THE LAW OF ANY JURISDICTION TO OBJECT ON ANY BASIS (INCLUDING, WITHOUT
LIMITATION, INCONVENIENCE OF FORUM) TO JURISDICTION OR VENUE WITHIN THE STATE OF
NORTH CAROLINA FOR THE PURPOSE OF LITIGATION TO ENFORCE THIS AGREEMENT, THE
NOTES OR THE OTHER LOAN DOCUMENTS, AND (D) AGREES THAT SERVICE OF PROCESS MAY BE
MADE UPON IT IN THE MANNER PRESCRIBED IN SECTION 9.1 FOR THE GIVING OF NOTICE TO
IT. NOTHING HEREIN CONTAINED, HOWEVER, SHALL PREVENT THE LENDER FROM BRINGING
ANY ACTION OR EXERCISING ANY RIGHTS AGAINST ANY SECURITY AND AGAINST THE
BORROWER PERSONALLY, AND AGAINST ANY ASSETS OF THE BORROWER, WITHIN ANY OTHER
STATE OR JURISDICTION.
9.15. No Setoff. Except as otherwise expressly provided in this
Agreement, no act of commission or omission of any kind or at any time upon the
part of the Lender in respect of any matter whatsoever shall in any way affect
or impair the rights of the Lender to enforce any right, power or benefit of the
Lender under this Agreement, and no set-off, claim, reduction or diminution of
any obligation or any defense of any kind or nature that either the Borrower has
or may have against the Lender shall be available to the Borrower or asserted
against the Lender in any suit or action brought by the Lender to enforce or
collect any Obligation or to exercise right, power or benefit under this
Agreement. Nothing in this Agreement shall be construed as a waiver by the
Borrower of any rights or claims it may have against the Lender under this
Agreement or otherwise, but any recovery upon such rights and claims shall be
had from the Lender separately, the intent of this Agreement being that the
Borrower shall be unconditionally and absolutely obligated to perform fully all
of its obligations, agreements and covenants hereunder for the benefit of the
Lender.
9.16. Reproduction of Documents. This Agreement and all documents
relating hereto, including without limitation (a) consents, waivers and
modifications that may hereafter
- 64 -
<PAGE>
be executed, (b) documents received by the Lender at the closing (except the
Notes), and (c) financial statements, certificates and other information
previously or hereafter furnished to the Lender may be reproduced by the Lender
by a photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process and the Lender may destroy any original document so
reproduced. The Borrower agrees and stipulates that, to the extent permitted by
applicable law, any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence. The
purpose of this Section is to constitute a waiver of the "best evidence" rule
with respect to this Agreement and the documents referred to herein and this
Section shall not constitute a waiver of any other objection to the
admissibility of such document in any judicial or administrative proceeding.
9.17. Inconsistency of Covenants. All of the Borrower's covenants
hereunder shall be given independent effect, so that if a particular action or
condition is not permitted by any such covenant, the fact that it would be
permitted by, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or such condition
occurs.
9.18. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
[SIGNATURES FOLLOW ON SEPARATE PAGES]
- 65 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, under seal, by their respective authorized officers as of the day
and year first above written.
BORROWER:
ATTEST: WASTE INDUSTRIES, INC.
/S/ Robert H. Hall By: /S/ Lonnie C. Poole, Jr.
Secretary Title: Chairman and Chief Executive Officer
Waste Industries, Inc.
3949 Browning Place
Raleigh, North Carolina 27609
Attention: Mr. Robert H. Hall, Treasurer
Telecopy number: (910) 571-0256
Telephone number: (910) 782-0095
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT,
SIGNED BY THE PARTY NAMED ABOVE]
- 66 -
<PAGE>
[SIGNATURES CONTINUED FROM PRECEDING PAGE]
LENDER:
BRANCH BANKING AND TRUST COMPANY
By: /S/ Eric R. Daugherty
Title: Vice President
Applicable Lending Offices:
For Loans of any Type:
Branch Banking and Trust Company
P.O. Box 27961 (ZIP: 27611-7961)
434 Fayetteville Street Mall
Raleigh, North Carolina 27601
Attention: Commercial Lending Department
Telecopy number: (919) 831-4067
Telephone number: (919) 831-4026
[THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT,
SIGNED BY THE PARTY NAMED ABOVE]
- 67 -
<PAGE>
EXECUTION COUNTERPART
WASTE INDUSTRIES, INC.
NOTE PURCHASE AND
PRIVATE SHELF AGREEMENT
$25,000,000
7.28% SERIES A SENIOR NOTES DUE APRIL 3, 2006
$25,000,000
PRIVATE SHELF FACILITY
as of April 3, 1996
<PAGE>
TABLE OF CONTENTS
Paragraph Page
1. AUTHORIZATION OF ISSUE OF NOTES......................................... 1
1.1A. Authorization of Issue of Series A Notes....................... 1
1.1B. Authorization of Issue of Shelf Notes.......................... 2
2. PURCHASE AND SALE OF NOTES.............................................. 2
2.1A. Purchase and Sale of Series A Notes............................ 2
2.1B. Purchase and Sale of Shelf Notes............................... 3
2.1B.(1) Facility.......................................... 3
2.1B.(2) Issuance Period................................... 3
2.1B.(3) Request for Purchase.............................. 4
2.1B.(4) Rate Quotes....................................... 5
2.1B.(5) Acceptance........................................ 5
2.1B.(6) Market Disruption................................. 6
2.1B.(7) Facility Closings................................. 6
2.1B.(8) Fees.............................................. 7
3. CONDITIONS OF CLOSING................................................... 9
3.1A. Certain Documents.............................................. 9
3.1B. Opinion of Purchaser's Special Counsel......................... 10
3.1C. Representations and Warranties; No Default..................... 10
3.1D. Purchase Permitted by Applicable Laws.......................... 10
3.1E. Payment of Fees................................................ 11
3.1F. No Material Adverse Change..................................... 11
3.1G. Environmental Compliance....................................... 11
4. PREPAYMENTS............................................................. 11
4.1A. Required Prepayments of Series A Notes......................... 11
4.1B. Required Prepayments of Shelf Notes............................ 11
4.1C. Optional Prepayment With Yield-Maintenance Amount.............. 12
4.1D. Notice of Optional Prepayment.................................. 12
4.1E. Application of Prepayments..................................... 12
4.1F. Retirement of Notes............................................ 12
5. AFFIRMATIVE COVENANTS................................................... 13
5.1A. Reporting Requirements......................................... 13
5.1A.(1) General Information............................... 13
5.1A.(2) Officer's Certificates............................ 15
5.1A.(3) Annual Accountant's Letter........................ 15
<PAGE>
ii
Paragraph Page
5.1A.(4) Special Information............................... 15
5.1B. Inspection of Property......................................... 17
5.1C. Covenant to Secure Notes Equally............................... 17
5.1D. Guaranteed Obligations......................................... 17
5.1E. Maintenance of Insurance....................................... 17
5.1F. Maintenance of Corporate Existence/Compliance with
Law/Preservation of Property................................... 18
5.1G. Compliance with Environmental Laws............................. 18
5.1H. No Integration................................................. 19
5.1I. Financial Records.............................................. 19
6. NEGATIVE COVENANTS...................................................... 19
6.1A. Financial Limitation........................................... 20
6.1B. Liens, Debt and Other Restrictions............................. 20
6.1B.(1) Liens............................................. 20
6.1B.(2) Merger or Consolidation........................... 22
6.1B.(3) Investments....................................... 22
6.1B.(4) Operating Leases.................................. 23
6.1B.(5) Transactions with Related Party................... 23
6.1C. Sale of Property............................................... 24
6.1D. Subsidiary Stock and Debt...................................... 24
6.1E. Restricted Payments............................................ 25
6.1F. ERISA.......................................................... 26
6.1G. Environmental Matters.......................................... 26
6.1H. Specified Laws................................................. 27
6.1I. Subordinated Debt.............................................. 27
7. EVENTS OF DEFAULT....................................................... 28
7.1A. Acceleration................................................... 28
7.1B. Rescission of Acceleration............................ 31
7.1C. Notice of Acceleration or Rescission.................. 32
7.1D. Other Remedies........................................ 32
8. REPRESENTATIONS, COVENANTS AND WARRANTIES............................... 33
8.1A. Organization................................................... 33
8.1B. Financial Statements........................................... 33
8.1C. Actions Pending................................................ 34
8.1D. Outstanding Debt............................................... 34
8.1E. Title to Properties............................................ 34
<PAGE>
iii
Paragraph Page
8.1F. Taxes.......................................................... 35
8.1G. Conflicting Agreements and Other Matters....................... 35
8.1H. Offering of Notes.............................................. 35
8.1I. Use of Proceeds................................................ 36
8.1J. ERISA.......................................................... 36
8.1K. Governmental Consent........................................... 37
8.1L. Environmental Compliance....................................... 37
8.1M. Disclosure..................................................... 38
8.1N. Hostile Tender Offers.......................................... 39
9. REPRESENTATIONS OF THE PURCHASERS....................................... 39
9.1A. Nature of Purchase............................................. 39
9.1B. Source of Funds................................................ 39
9.1C. Business of Purchaser; Prohibited Transferees.................. 40
10. DEFINITIONS; ACCOUNTING MATTERS......................................... 41
10.1A. Yield-Maintenance Terms........................................ 41
10.1B. Other Terms.................................................... 42
10.1C. Accounting Principles, Terms and Determinations................ 55
11. MISCELLANEOUS........................................................... 55
11.1A. Payments....................................................... 55
11.1B. Expenses....................................................... 55
11.1C. Consent to Amendments.......................................... 57
11.1D. Form and Registration; Transfer and Exchange;
Transfer Restrictions; Lost Notes.............................. 58
11.1D.(1) Form and Registration............................. 58
11.1D.(2) Transfer and Exchange of Notes.................... 58
11.1D.(3) Transfer Restrictions............................. 58
11.1D.(4) Lost Notes........................................ 58
11.1E. Persons Deemed Owners; Participations.......................... 59
11.1F. Survival of Representations and Warranties; Entire Agreement... 59
11.1G. Successors and Assigns......................................... 59
11.1H. Independence of Covenants...................................... 59
11.1I. Notices........................................................ 60
11.1J. Payments Due on Non-Business Days.............................. 60
11.1K. Severability................................................... 61
<PAGE>
iv
Paragraph Page
11.1L. Descriptive Headings........................................... 61
11.1M. Satisfaction Requirement....................................... 61
11.1N. Governing Law; Submission to Jurisdiction...................... 61
11.1O. Severalty of Obligations....................................... 61
11.1P. Counterparts................................................... 62
11.1Q. Binding Agreement.............................................. 62
Purchaser Schedule
Information Schedule
Exhibit A-1 -- Form of Series A Note
Exhibit A-2 -- Form of Shelf Note
Exhibit B -- Form of Request for Purchase
Exhibit C -- Form of Confirmation of Acceptance
Exhibit D-1 -- Form of Opinion of Company Counsel, Series A Note
Closing
Exhibit D-2 -- Form of Opinion of Company Counsel, Shelf Note
Closing
Schedule 6B(1) -- Outstanding Liens
Schedule 6I -- Form of Subordination Provisions
Schedule 8A -- Subsidiaries
Schedule 8D -- Outstanding Debt
Schedule 8G -- Conflicting Agreements
Schedule 8I -- Use of Proceeds
Schedule 8L -- Environmental Disclosures
Schedule 11D(3) -- Prohibited Transferees
<PAGE>
Waste Industries, inc.
3949 Browning Place
Raleigh, North Carolina 27609
As of April 3, 1996
The Prudential Insurance Company
of America ("Prudential")
Each Prudential Affiliate (as hereinafter
defined) which becomes bound by certain
provisions of this Agreement as hereinafter
provided (together with Prudential, the
"Purchasers")
c/o Prudential Capital Group
Gateway Center One, 11th Floor
7-45 Raymond Boulevard West
Newark, New Jersey 07102-5311
Ladies and Gentlemen:
The undersigned, Waste Industries, Inc. (herein called the "Company"),
hereby agrees with you as follows:
1. AUTHORIZATION OF ISSUE OF NOTES.
1.1A. Authorization of Issue of Series A Notes. The Company will
authorize the issue of its senior unsecured promissory notes (the "Series A
Notes") in the aggregate principal amount of $25,000,000, to be dated the date
of issue thereof, to mature April 3, 2006, to bear interest on the unpaid
balance thereof from the date thereof until the principal thereof shall have
become due and payable at the rate of 7.28% per annum and on overdue principal,
Yield- Maintenance Amount and interest at the rate specified therein, and to be
substantially in the form of Exhibit A-1 attached hereto. The terms "Series A
Note" and "Series A Notes" as used herein shall include each Series A Note
delivered pursuant to any provision of this Agreement and each Series A Note
delivered in substitution or exchange for any such Series A Note pursuant to any
such provision.
<PAGE>
2
1.1B. Authorization of Issue of Shelf Notes. The Company will authorize
the issue of its additional senior unsecured promissory notes (the "Shelf
Notes") in the aggregate principal amount of $25,000,000, to be dated the date
of issue thereof, to mature, in the case of each Shelf Note so issued, no more
than ten years after the date of original issuance thereof, to have an average
life, in the case of each Shelf Note so issued, of no more than seven years
after the date of original issuance thereof, to bear interest on the unpaid
balance thereof from the date thereof at the rate per annum, and to have such
other particular terms, as shall be set forth, in the case of each Shelf Note so
issued, in the Confirmation of Acceptance with respect to such Shelf Note
delivered pursuant to paragraph 2B(5), and to be substantially in the form of
Exhibit A-2 attached hereto. The terms "Shelf Note" and "Shelf Notes" as used
herein shall include each Shelf Note delivered pursuant to any provision of this
Agreement and each Shelf Note delivered in substitution or exchange for any such
Shelf Note pursuant to any such provision. The terms "Note" and "Notes" as used
herein shall include each Series A Note and each Shelf Note delivered pursuant
to any provision of this Agreement and each Note delivered in substitution or
exchange for any such Note pursuant to any such provision. Notes which have
(i) the same final maturity, (ii) the same principal prepayment dates, (iii) the
same principal prepayment amounts (as a percentage of the original principal
amount of each Note), (iv) the same interest rate, (v) the same interest payment
periods and (vi) the same date of issuance (which, in the case of a Note issued
in exchange for another Note, shall be deemed for these purposes the date on
which such Note's ultimate predecessor Note was issued), are herein called a
"Series" of Notes.
2. PURCHASE AND SALE OF NOTES.
2.1A. Purchase and Sale of Series A Notes. The Company hereby agrees to
sell to Prudential and, subject to the terms and conditions herein set forth,
Prudential agrees to purchase from the Company $25,000,000 aggregate principal
amount of Series A Notes at 100% of such aggregate principal amount. On April 3,
1996 (herein called the "Series A Closing Day"), the Company will deliver to
Prudential at the offices of King & Spalding, 120 West 45th Street, New York,
New York, one or more Series A Notes registered in its name, evidencing the
aggregate principal amount of Series A Notes to be purchased by Prudential and
in the denomination or denominations specified in the Purchaser Schedule
attached hereto, against payment of the purchase price thereof by transfer of
immediately available funds for credit to the Company's account #5114191657 at
Branch Banking and Trust Company, 434 Fayetteville Street Mall, Raleigh, North
Carolina 27601, ABA Routing Number 053101121.
<PAGE>
3
2.1B. Purchase and Sale of Shelf Notes.
2.1B.(1) Facility. Prudential is willing to consider, in its sole
discretion and within limits which may be authorized for purchase by Prudential
and Prudential Affiliates from time to time, the purchase of Shelf Notes
pursuant to this Agreement. The willingness of Prudential to consider such
purchase of Shelf Notes is herein called the "Facility". At any time, the
aggregate principal amount of Shelf Notes stated in paragraph 1B, minus the
aggregate principal amount of Shelf Notes purchased and sold pursuant to this
Agreement prior to such time, minus the aggregate principal amount of Accepted
Notes (as hereinafter defined) which have not yet been purchased and sold
hereunder prior to such time, plus the aggregate principal amount of Shelf Notes
purchased and sold pursuant to this Agreement and thereafter retired prior to
such time is herein called the "Available Facility Amount" at such time.
NOTWITHSTANDING THE WILLINGNESS OF PRUDENTIAL TO CONSIDER PURCHASES OF SHELF
NOTES, THIS AGREEMENT IS ENTERED INTO ON THE EXPRESS UNDERSTANDING THAT NEITHER
PRUDENTIAL NOR ANY PRUDENTIAL AFFILIATE SHALL BE OBLIGATED TO MAKE OR ACCEPT
OFFERS TO PURCHASE SHELF NOTES, OR TO QUOTE RATES, SPREADS OR OTHER TERMS WITH
RESPECT TO SPECIFIC PURCHASES OF SHELF NOTES, AND THE FACILITY SHALL IN NO WAY
BE CONSTRUED AS A COMMITMENT BY PRUDENTIAL OR ANY PRUDENTIAL AFFILIATE.
2.1B.(2) Issuance Period. Shelf Notes may be issued and sold
pursuant to this Agreement until the earlier of:
(i) the second anniversary of the date of this Agreement (or
if such anniversary is not a Business Day, the Business Day next
preceding such anniversary),
(ii) the thirtieth day after Prudential shall have given to
the Company, or the Company shall have given to Prudential, a notice
stating that it elects to terminate the issuance and sale of Shelf
Notes pursuant to this Agreement (or if such thirtieth day is not a
Business Day, the Business Day next preceding such thirtieth day),
(iii) the last Closing Day after which there is no Available
Facility Amount,
(iv) the termination of the Facility under paragraph 7A, and
<PAGE>
4
(v) the acceleration of any Note under paragraph 7A of this
Agreement.
The period during which Shelf Notes may be issued and sold pursuant to this
Agreement is herein called the "Issuance Period".
2.1B.(3) Request for Purchase. The Company may from time to time during
the Issuance Period make requests for purchases of Shelf Notes (each such
request being herein called a "Request for Purchase"). Each Request for Purchase
shall be made to Prudential by telecopier or overnight delivery service, and
shall:
(i) specify the aggregate principal amount of Shelf Notes
covered thereby, which shall not be less than $5,000,000 and not be
greater than the Available Facility Amount at the time such Request for
Purchase is made,
(ii) specify the principal amounts, final maturities (which
shall be no more than ten years from the date of issuance), principal
prepayment dates, if any, and amounts and interest payment periods
(which shall be quarterly in arrears) of the Shelf Notes covered
thereby,
(iii) specify the use of proceeds of such Shelf Notes (which
shall not be used to finance a Hostile Tender Offer),
(iv) specify the proposed day for the closing of the
purchase and sale of such Shelf Notes, which shall be a Business Day
during the Issuance Period not less than 10 days and not more than 30
days after the making of such Request for Purchase,
(v) specify the number of the account and the name and
address of the depository institution to which the purchase prices of
such Shelf Notes are to be transferred on the Closing Day for such
purchase and sale,
(vi) certify that the representations and warranties
contained in paragraph 8 are true on and as of the date of such Request
for Purchase and that there exists on the date of such Request for
Purchase no Event of Default or Default,
(vii) specify the Designated Spread for such Shelf Notes,
and
<PAGE>
5
(viii) be substantially in the form of Exhibit B attached
hereto.
Each Request for Purchase shall be in writing and shall be deemed made when
received by Prudential.
2.1B.(4) Rate Quotes. Not later than five Business Days after the
Company shall have given Prudential a Request for Purchase pursuant to paragraph
2B(3), Prudential may, but shall be under no obligation to, provide to the
Company by telephone or telecopier, in each case between 9:30 A.M. and 2:00 P.M.
New York City local time (or such later time as Prudential may elect), interest
rate quotes for the several principal amounts, maturities, principal prepayment
schedules, and interest payment periods of Shelf Notes specified in such Request
for Purchase. Each quote shall represent the interest rate per annum payable on
the outstanding principal balance of such Shelf Notes at which Prudential or a
Prudential Affiliate would be willing to purchase such Shelf Notes at 100% of
the principal amount thereof.
2.1B.(5) Acceptance. Within 30 minutes after Prudential shall have
provided any interest rate quotes pursuant to paragraph 2B(4) or such shorter
period as Prudential may specify to the Company (such period herein called the
"Acceptance Window"), the Company may, subject to paragraph 2B(6), elect to
accept such interest rate quotes as to not less than $5,000,000 aggregate
principal amount of the Shelf Notes specified in the related Request for
Purchase. Such election shall be made by an Authorized Officer of the Company
notifying Prudential by telephone or telecopier within the Acceptance Window
(but not earlier than 9:30 A.M. or later than 2:00 P.M., New York City local
time) that the Company elects to accept such interest rate quotes, specifying
the Shelf Notes (each such Shelf Note being herein called an "Accepted Note") as
to which such acceptance (herein called a "Acceptance") relates. The day the
Company notifies Prudential of an Acceptance with respect to any Accepted Notes
is herein called the "Acceptance Day" for such Accepted Notes. Any interest rate
quotes as to which Prudential does not receive an Acceptance within the
Acceptance Window shall expire, and no purchase or sale of Shelf Notes hereunder
shall be made based on such expired interest rate quotes. Subject to paragraph
2B(6) and the other terms and conditions hereof, the Company agrees to sell to
Prudential or a Prudential Affiliate, and Prudential agrees to purchase, or to
cause the purchase by a Prudential Affiliate of, the Accepted Notes at 100% of
the principal amount of such Notes. As soon as practicable following the
Acceptance Day, the Company, Prudential and each Prudential Affiliate which is
to purchase any such Accepted Notes will execute a confirmation of such
Acceptance substantially in the form of Exhibit C attached hereto (herein called
a "Confirmation of
<PAGE>
6
Acceptance"). If the Company should fail to execute and return to Prudential
within three Business Days following receipt thereof a Confirmation of
Acceptance with respect to any Accepted Notes, Prudential may at its election at
any time prior to its receipt thereof cancel the closing with respect to such
Accepted Notes by so notifying the Company in writing.
2.1B.(6) Market Disruption. Notwithstanding the provisions of paragraph
2B(5), if Prudential shall have provided interest rate quotes pursuant to
paragraph 2B(4) and thereafter prior to the time an Acceptance with respect to
such quotes shall have been notified to Prudential in accordance with paragraph
2B(5) the domestic market for U.S. Treasury securities or other financial
instruments shall have closed or there shall have occurred a general suspension,
material limitation, or significant disruption of trading in securities
generally on the New York Stock Exchange or in the domestic market for U.S.
Treasury securities or other financial instruments, then such interest rate
quotes shall expire, and no purchase or sale of Shelf Notes hereunder shall be
made based on such expired interest rate quotes. If the Company thereafter
notifies Prudential of the Acceptance of any such interest rate quotes, such
Acceptance shall be ineffective for all purposes of this Agreement, and
Prudential shall promptly notify the Company that the provisions of this
paragraph 2B(6) are applicable with respect to such Acceptance.
2.1B.(7) Facility Closings. Not later than 11:30 A.M. (New York City
local time) on the Closing Day for any Accepted Notes, the Company will deliver
to each Purchaser listed in the Confirmation of Acceptance relating thereto at
the offices of the Prudential Capital Group, Gateway Center One, 11th Floor,
7-45 Raymond Boulevard West, Newark, New Jersey the Accepted Notes to be
purchased by such Purchaser in the form of one or more Notes in authorized
denominations as such Purchaser may request for each Series of Accepted Notes to
be purchased on the Closing Day, dated the Closing Day and registered in such
Purchaser's name (or in the name of its nominee), against payment of the
purchase price thereof by transfer of immediately available funds for credit to
the Company's account specified in the Request for Purchase of such Notes. If
the Company fails to tender to any Purchaser the Accepted Notes to be purchased
by such Purchaser on the scheduled Closing Day for such Accepted Notes as
provided above in this paragraph 2B(7), or any of the conditions specified in
paragraph 3 shall not have been fulfilled by the time required on such scheduled
Closing Day, the Company shall, prior to 1:00 P.M., New York City local time, on
such scheduled Closing Day notify Prudential (which notification shall be deemed
received by each Purchaser) in writing whether (i) such closing is to be
rescheduled (such rescheduled date to be a Business Day during the Issuance
<PAGE>
7
Period not less than one Business Day and not more than 10 Business Days after
such scheduled Closing Day (the "Rescheduled Closing Day") and certify to
Prudential (which certification shall be for the benefit of each Purchaser) that
the Company reasonably believes that it will be able to comply with the
conditions set forth in paragraph 3 on such Rescheduled Closing Day and that the
Company will pay the Delayed Delivery Fee, if applicable, in accordance with
paragraph 2B(8)(iii) or (ii) such closing is to be canceled. In the event that
the Company shall fail to give such notice referred to in the preceding
sentence, Prudential (on behalf of each Purchaser) may at its election, at any
time after 1:00 P.M., New York City local time, on such scheduled Closing Day,
notify the Company in writing that such closing is to be canceled.
Notwithstanding anything to the contrary appearing in this Agreement, the
Company may elect to reschedule a closing with respect to any given Accepted
Notes on not more than one occasion, unless Prudential shall have otherwise
consented in writing.
2.1B.(8) Fees.
2.1B.(8)(i) Facility Fee. In consideration for the time, effort and
expense involved in the preparation, negotiation and execution of this
Agreement, at the time of the execution and delivery of this Agreement by the
Company and Prudential, the Company will pay to Prudential in immediately
available funds a nonrefundable fee (herein called the "Facility Fee") in the
amount of $75,000.00.
2.1B.(8)(ii) Issuance Fee. The Company will pay to Prudential in
immediately available funds a fee (herein called the "Issuance Fee") on each
Closing Day (other than the Series A Closing Day) in an amount equal to 0.15% of
the aggregate principal amount of Notes sold on such Closing Day.
2.1B.(8)(iii) Delayed Delivery Fee. If the closing of the purchase and
sale of any Accepted Note is delayed for any reason beyond the original Closing
Day for such Accepted Note, the Company will pay to Prudential (a) on the
Cancellation Date or actual closing date of such purchase and sale and (b) if
earlier, the next Business Day following 90 days after the Acceptance Day for
such Accepted Note and on each Business Day following 90 days after the prior
payment hereunder, a fee (herein called the "Delayed Delivery Fee") calculated
as follows:
(BEY - MMY) X DTS/360 X PA
<PAGE>
8
where "BEY" means Bond Equivalent Yield, i.e., the bond equivalent yield per
annum of such Accepted Note, "MMY" means Money Market Yield, i.e., the yield per
annum on a commercial paper investment of the highest quality selected by
Prudential on the date Prudential receives notice of the delay in the closing
for such Accepted Note having a maturity date or dates the same as, or closest
to, the Rescheduled Closing Day or Rescheduled Closing Days (a new alternative
investment being selected by Prudential each time such closing is delayed);
"DTS" means Days to Settlement, i.e., the number of actual days elapsed from and
including the original Closing Day with respect to such Accepted Note (in the
case of the first such payment with respect to such Accepted Note) or from and
including the date of the next preceding payment (in the case of any subsequent
delayed delivery fee payment with respect to such Accepted Note) to but
excluding the date of such payment; and "PA" means Principal Amount, i.e., the
principal amount of the Accepted Note for which such calculation is being made.
In no case shall the Delayed Delivery Fee be less than zero. If the foregoing
calculation yields a negative number or zero, no Delayed Delivery Fee shall be
due. Nothing contained herein shall obligate any Purchaser to purchase any
Accepted Note on any day other than the Closing Day for such Accepted Note, as
the same may be rescheduled from time to time in compliance with paragraph
2B(7).
2.1B.(8)(iv) Cancellation Fee. If the Company at any time notifies
Prudential in writing that the Company is canceling the closing of the purchase
and sale of any Accepted Note, or if Prudential notifies the Company in writing
under the circumstances set forth in the last sentence of paragraph 2B(5) or the
penultimate sentence of paragraph 2B(7) that the closing of the purchase and
sale of such Accepted Note is to be canceled, or if the closing of the purchase
and sale of such Accepted Note is not consummated on or prior to the last day of
the Issuance Period (the date of any such notification, or the last day of the
Issuance Period, as the case may be, being herein called the "Cancellation
Date"), the Company will pay the Purchasers in immediately available funds an
amount (the "Cancellation Fee") calculated as follows:
PI X PA
where "PI" means Price Increase, i.e., the quotient (expressed in decimals)
obtained by dividing (a) the excess of the ask price (as determined by
Prudential) of the Hedge Treasury Note(s) on the Cancellation Date over the bid
price (as determined by Prudential) of the Hedge Treasury Notes(s) having a
maturity date the same as, or closest to, such Accepted Note, on the Acceptance
Day (if the difference is a negative number or zero, no Cancellation Fee shall
be due) by (b)
<PAGE>
9
such bid price; and "PA" has the meaning ascribed to it in paragraph 2B(8)(iii).
The foregoing bid and ask prices shall be as reported by Telerate Systems, Inc.
(or, if such data for any reason ceases to be available through Telerate
Systems, Inc., any publicly available source of similar market data). Each price
shall be based on a U.S. Treasury security having a par value of $100.00 and
shall be rounded to the second decimal place. In no case shall the Cancellation
Fee be less than zero.
3. CONDITIONS OF CLOSING. The obligation of any Purchaser to purchase
and pay for any Notes is subject to the satisfaction, on or before the Closing
Day for such Notes, of the following conditions:
3.1A. Certain Documents. Such Purchaser shall have received the
following, each dated the date of the applicable Closing Day:
(i) The Note(s) to be purchased by such Purchaser.
(ii) Certified copies of the resolutions of the Board of
Directors of the Company authorizing the execution and delivery of this
Agreement and the issuance of the Notes, and of all documents
evidencing other necessary corporate action and governmental approvals,
if any, with respect to this Agreement and the Notes.
(iii) A certificate of the Secretary or an Assistant Secretary
and one other officer of the Company certifying the names and true
signatures of the officers of the Company authorized to sign this
Agreement and the Notes and the other documents to be delivered
hereunder.
(iv) Certified copies of the Articles of Incorporation and By-
laws of the Company.
(v) A favorable opinion of Wyrick, Robbins, Yates & Ponton, LLP,
special counsel to the Company (or such other counsel designated by the
Company and acceptable to the Purchaser(s)) satisfactory to such
Purchaser and substantially in the form of Exhibit D-1 (in the case of
the Series A Notes) or D-2 (in the case of any Shelf Notes) attached
hereto and as to such other matters as such Purchaser may reasonably
request. The Company hereby directs each such counsel to deliver such
opinion, agrees that the issuance and sale of any Notes will constitute
a reconfirmation of such direction, and understands and agrees that
each
<PAGE>
10
Purchaser receiving such an opinion will and is hereby authorized to
rely on such opinion.
(vi) A good standing certificate for the Company from the
Secretary of State of North Carolina dated of a recent date and good
standing or other certificates of qualification to do business as a
foreign corporation for the Company in the States of South Carolina and
Virginia and such other evidence of the status of the Company as such
Purchaser may reasonably request.
(vii) Additional documents or certificates with respect to legal
matters or corporate or other proceedings related to the transactions
contemplated hereby as may be reasonably requested by such Purchaser.
3.1B. Opinion of Purchaser's Special Counsel. Such Purchaser shall have
received from King & Spalding or such other counsel who is acting as special
counsel for it in connection with this transaction, a favorable opinion
satisfactory to such Purchaser as to such matters incident to the matters herein
contemplated as it may reasonably request.
3.1C. Representations and Warranties; No Default. The representations
and warranties contained in paragraph 8 shall be true on and as of such Closing
Day, except to the extent of changes caused by the transactions herein
contemplated and for any Closing Day after the Series A Closing Day changes
since the date of this Agreement which are disclosed in writing to Prudential
and to which Prudential shall have consented in writing; there shall exist on
such Closing Day no Event of Default or Default; and the Company shall have
delivered to such Purchaser an Officer's Certificate, dated such Closing Day, to
both such effects.
3.1D. Purchase Permitted by Applicable Laws. The purchase of and
payment for the Notes to be purchased by such Purchaser on the terms and
conditions herein provided (including the use of the proceeds of such Notes by
the Company) shall not violate any applicable law or governmental regulation
(including, without limitation, Section 5 of the Securities Act or Regulation G,
T or X of the Board of Governors of the Federal Reserve System) and shall not
subject such Purchaser to any tax (other than any income taxes arising from such
Purchaser's ownership of the Notes), penalty, liability or other onerous
condition under or pursuant to any applicable law or governmental regulation,
and such Purchaser shall have received such certificates or other evidence as it
may request to establish compliance with this condition.
<PAGE>
11
3.1E. Payment of Fees. The Company shall have paid to Prudential any
fees due it pursuant to or in connection with this Agreement, including any
Facility Fee due pursuant to paragraph 2B(8)(i), any Issuance Fee due pursuant
to paragraph 2B(8)(ii) and any Delayed Delivery Fee due pursuant to paragraph
2B(8)(iii).
3.1F. No Material Adverse Change. Prudential shall have received a
certificate from the chief financial officer of the Company, dated the
applicable Closing Day, saying that no material adverse change in the financial
condition, business, operations or prospects of the Company or its subsidiaries,
taken as a whole, has occurred since December 31, 1994.
3.1G. Environmental Compliance. With respect to any Closing Day other
than the Series A Closing Day, Prudential shall have received such evidence
(including without limitation certificates and environmental audits or reports
by an independent environmental consultant) satisfactory to Prudential
demonstrating (i) the accuracy of the representations under paragraph 8L
(without giving effect to any qualification with respect to the Company's
knowledge) and (ii) compliance with paragraph 5G.
4. PREPAYMENTS. The Series A Notes and any Shelf Notes shall be subject
to required prepayment as and to the extent provided in paragraphs 4A and 4B,
respectively. The Series A Notes and any Shelf Notes shall also be subject to
prepayment under the circumstances set forth in paragraph 4C. Any prepayment
made by the Company pursuant to any other provision of this paragraph 4 shall
not reduce or otherwise affect its obligation to make any required prepayment as
specified in paragraph 4A or 4B.
4.1A. Required Prepayments of Series A Notes. Until the Series A Notes
shall be paid in full, the Company shall apply to the prepayment of the Series A
Notes, without Yield-Maintenance Amount, the sum of $3,571,429.00 commencing on
April 3, 2000 and each April 3, thereafter to and including April 3, 2005, and
such principal amounts of the Series A Notes, together with interest thereon to
the payment dates, shall become due on such payment dates. The remaining unpaid
principal amount of the Series A Notes, together with interest accrued thereon,
shall become due on April 3, 2006, the maturity date of the Series A Notes.
4.1B. Required Prepayments of Shelf Notes. Each Series of Shelf Notes
shall be subject to required prepayments, if any, set forth in the Notes of such
Series.
<PAGE>
12
4.1C. Optional Prepayment With Yield-Maintenance Amount. The Notes of
each Series shall be subject to prepayment, in whole at any time or from time to
time in part (in integral multiples of $100,000 and in a minimum amount of
$1,000,000), at the option of the Company, at 100% of the principal amount so
prepaid plus interest thereon to the prepayment date and the Yield-Maintenance
Amount, if any, with respect to each such Note. Any partial prepayment of a
Series of the Notes pursuant to this paragraph 4C shall be applied in
satisfaction of required payments of principal in inverse order of their
scheduled due dates.
4.1D. Notice of Optional Prepayment. The Company shall give the holder
of each Note of a Series to be prepaid pursuant to paragraph 4C irrevocable
written notice of such prepayment not less than 10 Business Days prior to the
prepayment date, specifying such prepayment date, the aggregate principal amount
of the Notes of such Series to be prepaid on such date, the principal amount of
the Notes of such Series held by such holder to be prepaid on that date and that
such prepayment is to be made pursuant to paragraph 4C. Notice of prepayment
having been given as aforesaid, the principal amount of the Notes specified in
such notice, together with interest thereon to the prepayment date and together
with the Yield-Maintenance Amount, if any, herein provided, shall become due and
payable on such prepayment date. The Company shall, on or before the day on
which it gives written notice of any prepayment pursuant to paragraph 4C, give
telephonic notice of the principal amount of the Notes to be prepaid and the
prepayment date to each Significant Holder which shall have designated a
recipient for such notices in the Purchaser Schedule attached hereto or the
applicable Confirmation of Acceptance or by notice in writing to the Company.
4.1E. Application of Prepayments. In the case of each prepayment of
less than the entire unpaid principal amount of all outstanding Notes of any
Series pursuant to paragraphs 4A, 4B or 4C, the amount to be prepaid shall be
applied pro rata to all outstanding Notes of such Series (including, for the
purpose of this paragraph 4E only, all Notes prepaid or otherwise retired or
purchased or otherwise acquired by the Company or any of its Subsidiaries or
Affiliates other than by prepayment pursuant to paragraph 4A, 4B or 4C)
according to the respective unpaid principal amounts thereof.
4.1F. Retirement of Notes. The Company shall not, and shall not permit
any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or
in part prior to their stated final maturity (other than by prepayment pursuant
to paragraphs 4A, 4B or 4C or upon acceleration of such final maturity pursuant
to paragraph 7A), or purchase or otherwise acquire, directly or indirectly,
Notes
<PAGE>
13
of any Series held by any holder unless the Company or such Subsidiary or
Affiliate shall have offered to prepay or otherwise retire or purchase or
otherwise acquire, as the case may be, the same proportion of the aggregate
principal amount of Notes of such Series held by each other holder of Notes of
such Series at the time outstanding upon the same terms and conditions. Any
Notes so prepaid or otherwise retired or purchased or otherwise acquired by the
Company or any of its Subsidiaries or Affiliates shall not be deemed to be
outstanding for any purpose under this Agreement, except as provided in
paragraph 4E.
5. AFFIRMATIVE COVENANTS.
5.1A. Reporting Requirements.
5.1A.(1) General Information. The Company covenants that it will
deliver to each Significant Holder in triplicate:
(i) as soon as practicable and in any event within 45 days after
the end of each quarterly period (other than the fourth quarterly
period) in each fiscal year,
(1) Consolidated statements of income, stockholders'
equity and cash flows for the period from the beginning of the
current fiscal year to the end of such quarterly period, and
(2) a Consolidated balance sheet as at the end of such
quarterly period,
setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year, all in reasonable
detail and reasonably satisfactory in form to the Required Holder(s)
and certified by an authorized financial officer of the Company as
fairly presenting, in all material respects, the financial condition of
the Company and its Consolidated Subsidiaries as of the end of such
period and the results of their operations for the period then ended in
accordance with generally accepted accounting principles, subject to
changes resulting from normal year-end adjustments and the inclusion of
abbreviated footnotes; provided, however, that delivery pursuant to
clause (iii) below of copies of the Quarterly Report on Form 10-Q of
the Company for such quarterly period filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirements of this
clause (i);
<PAGE>
14
(ii) as soon as practicable and in any event within 90 days after
the end of each fiscal year,
(1) Consolidated statements of income, stockholders'
equity and cash flows for such year, and
(2) a Consolidated balance sheet as at the end of such
year,
setting forth in each case in comparative form corresponding
Consolidated figures from the preceding annual audit, all in reasonable
detail and reasonably satisfactory in scope to the Required Holder(s)
and reported on by independent public accountants of recognized
standing selected by the Company whose report shall be without
limitation as to the scope of the audit and reasonably satisfactory in
substance to the Required Holder(s); provided, however, that delivery
pursuant to clause (iii) below of copies of the Annual Report on Form
10-K of the Company for such year filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirements of this
clause (ii);
(iii) if the Company shall be publicly held, promptly upon
transmission thereof, copies of all such financial statements, proxy
statements, notices and reports as it shall send to its public
stockholders and copies of all registration statements (without
exhibits) and all reports (other than any registration statement filed
on Form S-8) which it files with the Securities and Exchange Commission
(or any governmental body or agency succeeding to the functions of the
Securities and Exchange Commission);
(iv) promptly upon receipt thereof, a copy of each other report
(including, without limitation, management letters) submitted to the
Company or any Subsidiary by independent accountants in connection with
any annual, interim or special audit made by them of the books of the
Company or any Subsidiary;
(v) promptly upon receipt thereof, a copy of each report, survey,
study, evaluation, assessment or other document prepared by any
consultant, engineer, Environmental Authority or other Person relating
to compliance by the Company or any Subsidiary with any Environmental
Requirements, if the cost of remediation, repair or compliance may be
<PAGE>
15
reasonably expected to exceed $250,000 in any one case or in the
aggregate;
(vi) with reasonable promptness, upon the request of the holder
of any Note, provide such holder, and any qualified institutional buyer
designated by such holder, such financial and other information as such
holder may reasonably determine to be necessary in order to permit
compliance with the information requirements of Rule 144A under the
Securities Act in connection with the resale of Notes, except at such
times as the Company is subject to the reporting requirements of
section 13 or 15(d) of the Exchange Act. For the purpose of this
clause (vi), the term "qualified institutional buyer" shall have the
meaning specified in Rule 144A under the Securities Act; and
(vii) with reasonable promptness, such other data relating to the
business, operations, properties or financial condition of the Company
or any of its Subsidiaries as a Significant Holder may reasonably
request;
5.1A.(2) Officer's Certificates. Together with each delivery of
financial statements required by clauses 5A(i) and (ii) above, the Company will
deliver to each Significant Holder an Officer's Certificate demonstrating (with
computations in reasonable detail) compliance with the provisions of paragraphs
6A, 6B(1), 6B(2) and 6C and stating that there exists no Event of Default or
Default, or, if any Event of Default or Default exists, specifying the nature
and period of existence thereof and what action the Company has taken, is taking
or proposes to take with respect thereto;
5.1A.(3) Annual Accountant's Letter. Together with each delivery of
financial statements required by clause 5A(ii) above, the Company will deliver
to each Significant Holder a certificate of the independent public accountants
giving the report on such financial statements stating that, in making the audit
necessary for their report, they have obtained no knowledge of any Event of
Default or Default, or, if they have obtained knowledge of any Event of Default
or Default, specifying the nature and period of existence thereof. The
accountants, however, shall not be liable to anyone as a result of this
provision by reason of their failure to obtain knowledge of any Event of Default
or Default which would not be disclosed in the course of an audit conducted in
accordance with generally accepted auditing standards;
5.1A.(4) Special Information. The Company also covenants that
immediately after any Responsible Officer obtains actual knowledge of:
<PAGE>
16
(a) an Event of Default or Default;
(b) a material adverse change in the financial condition,
business or operations of the Company and its Subsidiaries, taken as a
whole;
(c) legal proceedings filed against the Company and/or any
Subsidiary, which reasonably could be expected to have a material
adverse effect on the financial condition, business or operations of
the Company and its Subsidiaries, taken as a whole, or which in any
manner draws into question the validity of or reasonably could be
expected to impair the ability of the Company to perform its
obligations under this Agreement or the Notes;
(d) a default under any agreement or note evidencing Debt
for which the Company or any Subsidiary is liable, which individually
or in the aggregate with all other agreements and notes in default for
which the Company or any Subsidiary is liable, exceed $250,000;
(e) the occurrence of any other event that reasonably could
be expected to impair the ability of the Company to meet its
obligations hereunder;
(f) any (i) Environmental Liabilities, (ii) pending,
threatened or anticipated Environmental Proceedings, (iii)
Environmental Notices, (iv) Environmental Judgments and Orders, or (v)
Environmental Releases at, on, in, under or in any way affecting the
Properties which reasonably could be expected to have a material
adverse effect on the business, operations or financial condition of
the Company and its Subsidiaries, taken as a whole; or
(g) with respect to any Plan that is subject to the funding
requirements of Section 302 of ERISA or Section 412 of the Code, the
Company (i) has given or is required to give notice to the Pension
Benefit Guaranty Corporation that a material reportable event has
occurred with respect to such Plan, (ii) has delivered notice to the
Pension Benefit Guaranty Corporation of any intent to withdraw from or
terminate any such Plan, or (iii) has failed to make timely a
contribution to any such Plan;
<PAGE>
17
the Company will deliver to each Significant Holder an Officer's Certificate
specifying the nature and period of existence thereof and what action the
Company or the Subsidiary has taken, is taking or proposes to take with respect
thereto.
5.1B. Inspection of Property. The Company covenants that, at such
reasonable times and as often as a Significant Holder may reasonably request, it
will permit any Person designated by a Significant Holder in writing, at such
Significant Holder's expense unless a Default has occurred and is continuing in
which case at the Company's expense, to:
(i) visit and inspect any of the properties of the Company
and any Subsidiary;
(ii) examine the corporate books and financial records of
the Company and its Subsidiaries and make copies thereof or extracts
therefrom; and
(iii) discuss the affairs, finances and accounts of any of
such corporations with the principal officers of the Company or any
Subsidiary and their independent public accountants.
5.1C. Covenant to Secure Notes Equally. The Company covenants that if
it or any Subsidiary shall create or assume any Lien upon any of its property or
assets, whether now owned or hereafter acquired, other than Liens permitted by
paragraph 6B(1) (unless prior written consent shall have been obtained under
paragraph 11C), it will make or cause to be made effective provision whereby the
Notes will be secured by such Lien equally and ratably with any and all other
Debt thereby secured so long as any such other Debt shall be so secured.
5.1D. Guaranteed Obligations. The Company covenants that if any
Person (other than the Company) Guarantees or provides collateral in any manner
for any Debt of the Company or any Subsidiary, it will simultaneously cause such
Person to Guarantee or provide collateral for the Notes equally and ratably with
all Debt Guaranteed or secured by such Person for so long as such Debt is
Guaranteed and pursuant to documentation in form and substance reasonably
satisfactory to such holder.
5.1E. Maintenance of Insurance. The Company covenants that it and each
Subsidiary will maintain, with responsible insurers, insurance with respect to
its properties and business against such casualties and contingencies
(including,
<PAGE>
18
but not limited to, public liability, larceny, embezzlement or other criminal
misappropriation) and in such amounts as is customary in the case of similarly
situated corporations engaged in the same or similar businesses; provided,
however, that the Company and each Subsidiary may elect to continue to self-
insure (i) their waste containers; (i) certain immaterial assets such as radio
towers consistent with their business practices in effect on the date hereof;
and (i) certain risks under their medical and short-term disability plans..
5.1F. Maintenance of Corporate Existence/Compliance with
Law/Preservation of Property. The Company covenants that, except as permitted
under paragraphs 6B(2) and 6C, it and each Subsidiary will do or cause to be
done all things necessary to, at all times:
(i) preserve, renew and keep in full force and effect the
corporate existence of the Company and its Subsidiaries (other than
those Subsidiaries not material to the financial condition, business or
operations of the Company and its Subsidiaries taken as a whole);
(ii) comply with all laws and regulations (including,
without limitation, laws and regulations relating to equal employment
opportunity and employee safety) applicable to it and any Subsidiary
except where the failure to comply could not reasonably be expected to
have a material adverse effect on the business, operations or financial
condition of the Company and its Subsidiaries, taken as a whole;
(iii) maintain, preserve and protect all material licenses,
certificates, permits, franchises and intellectual property of the
Company and its Subsidiaries; and
(iv) preserve all the remainder of its property used or
useful in the conduct of its business and keep the same in good repair,
working order and condition excluding normal wear and tear, except
where the failure to preserve such property could not be reasonably
expected to have a material adverse effect on the business, operations
or financial condition of the Company and its Subsidiaries, taken as a
whole.
5.1G. Compliance with Environmental Laws. The Company covenants that it
and each Subsidiary will, comply in a timely fashion with, or operate pursuant
to valid waivers of the provisions of, all applicable Environmental
Requirements, including, without limitation, the emission of wastewater
effluent, solid and hazardous waste and air emissions together with any other
applicable
<PAGE>
19
Environmental Requirements for conducting, on a timely basis, periodic tests and
monitoring for contamination of ground water, surface water, air and land and
for biological toxicity of the aforesaid, and all applicable regulations of the
Environmental Protection Agency or other relevant federal, state or local
governmental authority, except where the failure to comply could not reasonably
be expected to have a material adverse effect on the business, operations or
financial condition of the Company and its Subsidiaries, taken as a whole. The
Company agrees to indemnify and hold you, your officers, agents and employees
(each an "Indemnified Person") harmless from any loss, liability, claim or
expense that you may incur or suffer as a result of a breach by the Company or
any Subsidiary, as the case may be, of this covenant other than as a result of
the gross negligence or wilful misconduct of such Indemnified Person. The
Company shall not be deemed to have breached or violated this paragraph 5G if
the Company or any Subsidiary is challenging in good faith by appropriate
proceedings diligently pursued the application or enforcement of such
Environmental Requirements for which adequate reserves have been established in
accordance with generally accepted accounting principles.
5.1H. No Integration. The Company covenants that it has taken and will
take all necessary action so that the issuance of the Notes does not and will
not require registration under the Securities Act. The Company covenants that no
future offer and sale of debt securities of the Company of any class will be
made if there is a reasonable possibility that such offer and sale would, under
the doctrine of "integration", subject the issuance of the Notes to you to the
registration requirements of the Securities Act.
5.1I. Financial Records. The Company covenants that it and each
Subsidiary will keep proper books of record and account in which full and
correct entries (in all material respects and subject to normal year end
adjustments and, as to interim statements, the absence of footnotes) will be
made of the business and affairs of the Company or such Subsidiary under
generally accepted accounting principles consistently applied (except for
changes disclosed in the financial statements furnished to you pursuant to
paragraph 5A and concurred in by the independent public accountants referred to
in paragraph 5A).
6. NEGATIVE COVENANTS. Unless the Required Holders otherwise agree in
writing, the Company shall not, and shall not permit any Subsidiary, to take any
of the following actions or permit the occurrence or existence of any of the
following events or conditions:
<PAGE>
20
6.1A. Financial Limitation. The Company covenants that it will not
permit at any time:
(i) Consolidated Debt to exceed 400% of EBITDA for the most
recently ended four fiscal quarter period; or
(ii) Consolidated Senior Debt to exceed 350% of EBITDA for
the most recently ended four fiscal quarter period; or
(iii) Priority Debt to exceed 5% of Consolidated Total
Capitalization; or
(iv) Consolidated Current Debt to exceed 20% of Consolidated
Total Capitalization; or
(v) Consolidated Fixed Charges to exceed 250% of EBITDA
plus Consolidated Fixed Charges for the most recently ended four fiscal
quarter period; or
(vi) Consolidated Net Worth to be less than $12,500,000 plus
on a cumulative basis 40% of Consolidated Net Income (if positive) for
each fiscal year ending after the date hereof.
6.1B. Liens, Debt and Other Restrictions. The Company covenants that it
will not and will not permit any Subsidiary to:
6.1B.(1) Liens. Create, assume or suffer to exist any Lien upon any of
its property or assets, whether now owned or hereafter acquired (whether or not
provision is made for the equal and ratable securing of the Notes pursuant to
paragraph 5C), except:
(i) Liens existing on the Series A Closing Day and specified
on Schedule 6B(1);
(ii) Liens for taxes (including ad valorem and property
taxes) and assessments or governmental charges or levies not yet due or
which are being actively contested in good faith by appropriate
proceedings;
(iii) other Liens incidental to the conduct of its business
or the maintenance, operation, construction or ownership of its
property and assets (including pledges or deposits in connection with
workers'
<PAGE>
21
compensation and social security taxes, assessments and charges, and
landlords, mechanics and materialmen Liens and survey exceptions or
encumbrances, easements or reservations, rights-of-way, or zoning
restrictions) provided that (A) such Liens were not incurred in
connection with the borrowing of money, or the obtaining of advances or
credit or the payment of the deferred purchase price of property and
(B) the existence of such Lien does not materially detract from the
value of such property or assets to the Company or any Subsidiary or
unreasonably interfere with the ordinary conduct of business;
(iv) Liens (other than any Lien imposed by ERISA) incurred
or deposits made in the ordinary course of business to secure (or to
obtain letters of credit that secure) the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases,
performance bonds, purchase, construction or sales contracts and other
similar obligations, in each case not incurred or made in connection
with any Debt;
(v) any Lien created to secure all or any part of the
purchase price incurred or assumed to pay all or any part of the
purchase price of property acquired by the Company or a Subsidiary
after the date of this Agreement, provided that:
(A) any such Lien shall be confined solely to the
item or items of property so acquired and, if required by
the terms of the instrument originally creating such Lien,
other property which is an improvement to or for specific
use with such acquired property; and
(B) the principal amount of the Debt secured by any
such Lien shall at no time exceed 100% of the lesser of
(1) the cost to the Company or such Subsidiary of the
property acquired and (2) the Fair Market Value of such
property (as determined in good faith by the Company's
Board) at the time of such acquisition;
(vi) Liens securing Capitalized Lease Obligations, provided
such Liens are limited to the property subject to such leases;
(vii) any right of set off or banker's lien (whether by
common law, statute, contract or otherwise) in connection with ordinary
course of business deposit arrangements maintained by the Company or
its
<PAGE>
22
Subsidiaries with its banks or other financial institutions so long as
any such bank or other financial institution (A) shall not at any time
make loans or otherwise extend credit to the Company or any Subsidiary,
(B) does not maintain accounts (for the deposit of cash or otherwise)
for the benefit of the Company or any Subsidiary, (C) shall have waived
in writing for the benefit of each holder of a Note such right of
setoff or banker's lien, or (D) shall be subject to a pro rata sharing
agreement in form and substance satisfactory to each Significant
Holder; or
(viii) any Lien renewing, extending, or refunding any
outstanding obligations secured by a Lien described in clause (i),
provided the principal amount secured is not increased and such Lien is
not extended to any other property of the Company or its Subsidiaries;
(ix) Liens securing judgments rendered against the Company
or any of its Subsidiaries or arising in connection with any court
proceedings, provided (i) such Liens are being contested in good faith
by appropriate proceedings and (i) no action has been taken by any
Person to execute or otherwise collect on such Lien;
(x) Liens securing Debt held by the Company in any
Subsidiary or Debt held by any Subsidiary in any other Subsidiary; and
(xi) additional Liens securing Priority Debt permitted by
paragraph 6A(iii).
6.1B.(2) Merger or Consolidation. Merge, consolidate or exchange shares
with any other Person, except that:
(i) any Subsidiary may merge or consolidate with the Company
or any other Subsidiary;
(ii) the Company may merge or consolidate with any other
corporation (including a Subsidiary) provided (A) the Company is the
surviving corporation, and (A) immediately after giving effect to such
transaction, no Default or Event of Default shall occur or exist; or
6.1B.(3) Investments. Make or permit to remain outstanding any
Investments, except that the Company or any Subsidiary may:
<PAGE>
23
(i) make or own Investments in any Subsidiary or any Person
which immediately after giving effect to such Investment will be a
Subsidiary;
(ii) own, purchase or otherwise acquire (A) notes or
accounts receivable arising from transactions with customers, suppliers
and employees in the ordinary course of business or (B) stock or
securities received as settlements of debts created in the ordinary
course of business;
(iii) endorse negotiable instruments for collection in the
ordinary course of business;
(iv) advances or loans to officers and employees in the
ordinary course of business in an aggregate amount not in excess of
$500,000 during any fiscal year; or
(v) own, purchase or acquire (i) prime commercial paper or
certificates of deposit or repurchase agreements of U.S. commercial
banks having capital and surplus in excess of $500,000,000 and a long
term debt rating of A or better by Moody's or S&P, in each case, due
within one year from the date of purchase and payable in U.S. dollars,
or (ii) obligations of the United States Government or any agency
thereof for which the full faith and credit of the United States
Government is pledged due within one year from the date of purchase, or
(iii) obligations guaranteed by the United States Government due within
one year from the date of purchase.
6.1B.(4) Operating Leases. Enter into, or permit to remain in effect,
or become or remain liable, directly or indirectly, as lessee or guarantor (or
other surety) under an Operating Lease, which when combined with all Operating
Leases would require aggregate payments by the Company during any fiscal year to
exceed an aggregate amount equal to 3.5% of Consolidated revenues for such
period.
6.1B.(5) Transactions with Related Party. Effect any transaction with
any Affiliate or Subsidiary by which any asset or services of the Company or a
Subsidiary of the Company is transferred to such Affiliate or Subsidiary, or
from such Affiliate or Subsidiary or enter into any other transaction with an
Affiliate or Subsidiary, on terms more favorable than would be reasonably
expected to be given in a similar transaction with an unrelated entity.
<PAGE>
24
6.1C. Sale of Property. The Company will not, and will not permit any
Subsidiary to, Dispose of any property or assets, except:
(i) any Subsidiary may Dispose of its assets to the Company
or a Subsidiary; or
(ii) the Company or any Subsidiary may Dispose of its assets
(whether or not leased back) so long as, immediately after giving
effect to such proposed Disposition:
(A) the consideration for such assets represents
the Fair Market Value of such assets (as determined in good
faith by the Company's Board) at the time of such
Disposition; and
(B) the net book value of all assets so Disposed of
by the Company and its Subsidiaries during the prior 12
months, does not constitute a Substantial Part of the
Consolidated assets; and
(C) no Default or Event of Default shall exist.
For purposes of this paragraph 6C:
(i) "Dispose" means the sale, lease, transfer or other
disposition of property of the Company or any of its Subsidiaries, and
"Disposition" and "Disposed of" has a corresponding meaning to Dispose;
(ii) Calculation of net book value. The net book value of
any assets shall be determined as of the respective date of Disposition
of those assets; and
(iii) Sales of less than all the stock of a Subsidiary. In
the case of the sale or issuance of the stock of a Subsidiary, the
amount of Consolidated Assets contributed by the stock Disposed of
shall be assumed to be the percentage of outstanding stock sold or to
be sold.
6.1D. Subsidiary Stock and Debt. The Company will not:
(i) directly or indirectly sell, assign, pledge or otherwise
dispose of any Debt of or any shares of stock of (or warrants, rights
or
<PAGE>
25
options to acquire stock of) any Subsidiary except to a Subsidiary and
except as permitted pursuant to paragraph 6C;
(ii) permit any Subsidiary directly or indirectly to sell,
assign, pledge or otherwise dispose of any Debt of the Company or any
other Subsidiary, or any shares of stock of (or warrants, rights or
options to acquire stock of) any other Subsidiary, except to the
Company or a Subsidiary and except pursuant to paragraph 6C;
(iii) permit any Subsidiary directly or indirectly to issue
or sell any shares of its stock (or warrants, rights or options to
acquire its stock) except to the Company or a Subsidiary and except as
permitted pursuant to paragraph 6B(2) and 6C; or
(iv) permit any Subsidiary to enter into or otherwise be
bound by or subject to any contract or agreement (including, without
limitation, any provision of its certificate or articles of
incorporation or bylaws) that restricts its ability to pay dividends or
other distributions on account of its stock; or
(v) permit any Subsidiary to create, incur, assume or
maintain any Debt except as permitted by paragraph 6A.
6.1E. Restricted Payments. The Company will not, and will not permit
any Subsidiary to:
(a) pay or declare any dividend on any class of its Capital
Stock or make any other distribution on account of any class of its
Capital Stock; or
(b) except as otherwise required pursuant to the Cross
Purchase Agreement and each Stock Purchase Agreement between the
Company, as an original party or as successor by merger for certain of
its Affiliates, and certain stockholders of the Company, redeem,
purchase or otherwise acquire, directly or indirectly (through a
Subsidiary or otherwise), any shares of its Capital Stock (all of the
foregoing events set forth in subsections (a) and (b), whether made in
cash or property, being herein called "Restricted Payments");
unless (i) the aggregate amount of all Restricted Payments made since the date
hereof would not exceed the sum of (A) $500,000, plus (B) since the date hereof,
<PAGE>
26
60% of cumulative Consolidated Net Income so long as the Company shall be
organized as a Subchapter S corporation under the Code and 35% of Cumulative
Consolidated Net Income if the Company shall be organized as a "C" corporation
under the Code (or, in either case, minus 100% of cumulative Consolidated Net
Income if such Cumulative Net Income for such period is a loss) and (ii) no
Default or Event of Default shall have occurred and be continuing, and no
Default or Event of Default would occur as a result of such Restricted Payment.
6.1F. ERISA. The Company covenants that it will not, nor permit any
Subsidiary to:
(i) terminate or withdraw from any Plan (other than a
Multiemployer Plan) resulting in the incurrence of any material
liability to the Pension Benefit Guaranty Corporation;
(ii) engage in or permit any Person to engage in any
prohibited transaction (as defined in Section 4975 of the Code)
involving any Plan (other than a Multiemployer Plan) which would
subject the Company or any Subsidiary to any material tax, penalty or
other liability;
(iii) incur or suffer to exist any material accumulated
funding deficiency (as defined in section 302 of ERISA and section 412
of the Code), whether or not waived, involving any Plan (other than a
Multiemployer Plan); or
(iv) allow or suffer to exist any risk or condition which
presents a risk of incurring a material liability to the Pension
Benefit Guaranty Corporation.
6.1G. Environmental Matters. The Company covenants that it will not,
and will not permit any Third Party to, use, produce, manufacture, process,
generate, store, dispose of, manage at, or ship or transport to or from the
Properties any Hazardous Materials except for Hazardous Materials used,
produced, released or managed in the ordinary course of business in compliance
with all applicable Environmental Requirements except where the failure to do so
could not reasonably be expected to have a material adverse effect on the
business, operations or financial condition of the Company and its Subsidiaries
taken as a whole and except for Hazardous Materials released in amounts which do
not require remediation pursuant to applicable Environmental Requirements or if
remediation is required, such remediation could not reasonably be expected
<PAGE>
27
to have a material adverse effect on the business, operations or financial
condition of the Company and its Subsidiaries taken as a whole.
6.1H. Specified Laws. Neither the Company nor any agent acting on
its behalf will take any action which could reasonably be expected to cause this
Agreement or the Notes to violate Regulation G, Regulation T or any other
regulation of the Board of Governors of the Federal Reserve System or to violate
the Exchange Act, in any case as in effect now or as the same may hereafter be
in effect.
6.1I. Subordinated Debt. The Company covenants that, until the Notes
have been paid in full, it will not and will not permit any Subsidiary to:
(a) pay principal (including prepayments), interest or
premium, if any, on any Subordinated Debt or retire, redeem, purchase,
defease or otherwise acquire any Subordinated Debt if a Default or
Event of Default shall have occurred and be continuing; or
(b) issue any Subordinated Debt unless the Company has
provided evidence to you, all in form and substance reasonably
satisfactory to you, that it has satisfied each of the following:
(i) no Default or Event of Default exists or would
occur upon such issuance;
(i) the Subordinated Debt is effectively
subordinated to the Notes upon terms and conditions no less
favorable to the holders of the Notes and in form and
substance as set forth in Schedule 6I attached hereto;
(i) the interest rate shall be set on an
arm's-length basis and shall not exceed the market rate and
shall be reasonably acceptable to you;
(iv) the events of default of the Subordinated Debt
shall be limited to (1) acceleration of the Senior Debt (as
defined in Schedule 6I), (2) the occurrence of a Bankruptcy
Proceeding (as defined in Schedule 6I) with respect to the
Company and (3) a failure of the Company to pay interest on
or principal of the Subordinated Debt for a period of
180 days after the date such payment was due; and
<PAGE>
28
(v) the affirmative covenants are customary for
subordinated indebtedness and such Subordinated Debt does
not contain or receive the benefit of any negative
covenants; or
(c) waive, supplement, modify, amend, terminate or change
the terms of any Subordinated Debt without the consent of the Required
Holders; or
(d) so long as a Default or Event of Default shall exist,
retain any payment or distribution received pursuant to the terms of
clause (f) of Schedule 6I hereto (or any similar provision) and the
Company hereby agrees that it shall immediately pay over or deliver and
transfer to the Senior Creditors (as defined in Schedule 6I) any such
payment or distribution in accordance with the priorities then existing
among such Senior Creditors.
7. EVENTS OF DEFAULT.
7.1A. Acceleration. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment of any principal of,
or Yield- Maintenance Amount payable with respect to, any Note when the
same shall become due, either by the terms thereof or otherwise as
herein provided; or
(ii) the Company defaults in the payment of any interest on
any Note for more than 10 days after the date due; or
(iii) the Company or any Subsidiary defaults (whether as
primary obligor or as guarantor or other surety) in any payment of
principal of or interest on any other obligation for money borrowed (or
any Capitalized Lease Obligation, any obligation under a conditional
sale or other title retention agreement, any obligation issued or
assumed as full or partial payment for property whether or not secured
by a purchase money mortgage or any obligation under notes payable or
drafts accepted representing extensions of credit) beyond any period of
grace provided with respect thereto, or the Company or any Subsidiary
fails to perform or observe any other agreement, term or condition
contained in any
<PAGE>
29
agreement under which any such obligation is created (or if any other
event thereunder or under any such agreement shall occur and be
continuing) and the effect of such failure or other event is to cause,
or to permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause, such obligation to become
due (or to be repurchased by the Company or any Subsidiary) prior to
any stated maturity, provided that the aggregate amount of all
obligations as to which such a payment default shall occur and be
continuing or such a failure or other event causing or permitting
acceleration (or resale to the Company or any Subsidiary) shall occur
and be continuing exceeds $500,000; or
(iv) any representation or warranty made by the Company
herein or by the Company or any of its officers in any writing
furnished in connection with or pursuant to this Agreement shall be
false in any material respect on the date as of which made; or
(v) the Company fails to perform or observe any agreement
contained in paragraph 6; or
(vi) the Company fails to perform or observe any other
agreement, term or condition contained herein and such failure shall
not be remedied within 30 days after any Responsible Officer obtains
knowledge or notice thereof; or
(vii) the Company or any Subsidiary makes an assignment for
the benefit of creditors or is generally not paying its debts as such
debts become due; or
(viii) any decree or order for relief in respect of the
Company or any Subsidiary is entered under any bankruptcy,
reorganization, compromise, arrangement, insolvency, readjustment of
debt, dissolution or liquidation or similar law, whether now or
hereafter in effect (herein called the "Bankruptcy Law"), of any
jurisdiction; or
(ix) the Company or any Subsidiary petitions or applies to
any tribunal for, or consents to, the appointment of, or taking
possession by, a trustee, receiver, custodian, liquidator or similar
official of the Company or any Subsidiary, or of any substantial part
of the assets of the Company or any Subsidiary, or commences a
voluntary case under the Bankruptcy Law of the United States or any
proceedings (other than
<PAGE>
30
proceedings for the voluntary liquidation and dissolution of a
Subsidiary) relating to the Company or any Subsidiary under the
Bankruptcy Law of any other jurisdiction; or
(x) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any Subsidiary and
the Company or such Subsidiary by any act indicates its approval
thereof, consent thereto or acquiescence therein, or an order, judgment
or decree is entered appointing any such trustee, receiver, custodian,
liquidator or similar official, or approving the petition in any such
proceedings, and such order, judgment or decree remains unstayed and in
effect for more than 45 days; or
(xi) any order, judgment or decree is entered in any
proceedings against the Company decreeing the dissolution of the
Company and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or
(xii) any order, judgment or decree is entered in any
proceedings against the Company or any Subsidiary decreeing a split-up
of the Company or such Subsidiary which requires the divestiture of
assets representing a substantial part, or the divestiture of the stock
of a Subsidiary whose assets represent a substantial part, of the
consolidated assets of the Company and its Subsidiaries (determined in
accordance with generally accepted accounting principles) or which
requires the divestiture of assets, or stock of a Subsidiary, which
shall have contributed a substantial part of the consolidated net
income of the Company and its Subsidiaries (determined in accordance
with generally accepted accounting principles) for any of the three
fiscal years then most recently ended, and such order, judgment or
decree remains unstayed and in effect for more than 60 days; or
(xiii) one or more final judgments in an aggregate amount in
excess of $500,000 is rendered against the Company or any Subsidiary
and, within 60 days after entry thereof, any such judgment is not
discharged or execution thereof stayed pending appeal, or within 60
days after the expiration of any such stay, such judgment is not
discharged; or
(xiv) the Company or any ERISA Affiliate, in its capacity as
an employer under a Multiemployer Plan, makes a complete or partial
<PAGE>
31
withdrawal from such Multiemployer Plan resulting in the incurrence by
such withdrawing employer of a withdrawal liability in an amount
exceeding $500,000;
then:
(a) if such event is an Event of Default specified in clause
(i) or (ii) of this paragraph 7A, any holder (other than the Company or
any of its Subsidiaries) of any Note may at its option during the
continuance of such Event of Default, by notice in writing to the
Company, terminate the Facility and/or declare all of the Notes held by
such holder to be, and all of the Notes held by such holder shall
thereupon be and become, immediately due and payable at par together
with interest accrued thereon, without presentment, demand, protest or
notice of any kind, all of which are hereby waived by the Company,
(b) if such event is an Event of Default specified in clause
(viii), (ix) or (x) of this paragraph 7A with respect to the Company,
the Facility shall automatically terminate and all of the Notes at the
time outstanding shall automatically become immediately due and payable
together with interest accrued thereon and together with the Yield-
Maintenance Amount, if any, with respect to each Note, without
presentment, demand, protest or notice of any kind, all of which are
hereby waived by the Company, and
(c) with respect to any event constituting an Event of
Default, the Required Holder(s) of the Notes of any Series may at its
or their option during the continuance of such Event of Default, by
notice in writing to the Company, terminate the Facility and/or declare
all of the Notes of such Series to be, and all of the Notes of such
Series shall thereupon be and become, immediately due and payable
together with interest accrued thereon and together with the
Yield-Maintenance Amount, if any, with respect to each Note of such
Series, without presentment, demand, protest or notice of any kind, all
of which are hereby waived by the Company.
7.1B. Rescission of Acceleration. At any time after any or all of the
Notes of any Series shall have been declared immediately due and payable
pursuant to paragraph 7A, the Required Holder(s) of the Notes of such Series
may, by notice in writing to the Company, rescind and annul such declaration and
its consequences if:
<PAGE>
32
(i) the Company shall have paid all overdue interest on the
Notes of such Series, the principal of and Yield-Maintenance Amount, if
any, payable with respect to any Notes of such Series which have become
due otherwise than by reason of such declaration, and interest on such
overdue interest and overdue principal and Yield-Maintenance Amount at
the rate specified in the Notes of such Series,
(ii) the Company shall not have paid any amounts which
have become due solely by reason of such declaration,
(iii) all Events of Default and Defaults, other than non-
payment of amounts which have become due solely by reason of such
declaration, shall have been cured or waived pursuant to paragraph 11C,
and
(iv) no judgment or decree shall have been entered for the
payment of any amounts due pursuant to the Notes of such Series or this
Agreement.
No such rescission or annulment shall extend to or affect any subsequent Event
of Default or Default or impair any right arising therefrom.
7.1C. Notice of Acceleration or Rescission. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 7A or any such
declaration shall be rescinded and annulled pursuant to paragraph 7B, the
Company shall forthwith give written notice thereof to the holder of each Note
of each Series at the time outstanding.
7.1D. Other Remedies. If any Event of Default or Default shall occur
and be continuing, the holder of any Note may proceed to protect and enforce its
rights under this Agreement and such Note by exercising such remedies as are
available to such holder in respect thereof under applicable law, either by suit
in equity or by action at law, or both, whether for specific performance of any
covenant or other agreement contained in this Agreement or in aid of the
exercise of any power granted in this Agreement. No remedy conferred in this
Agreement upon the holder of any Note is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy conferred herein or now or hereafter existing at
law or in equity or by statute or otherwise.
<PAGE>
33
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents,
covenants and warrants as follows (all references to "Subsidiary" and
"Subsidiaries" in this paragraph 8 shall be deemed omitted if the Company has no
Subsidiaries at the time the representations herein are made or repeated):
8.1A. Organization.
(i) The Company is a corporation duly organized and existing in good
standing under the laws of the State of North Carolina, and each Subsidiary is
duly organized and existing in good standing under the laws of the jurisdiction
in which it is incorporated. Schedule 8A hereto is an accurate and complete list
of all Subsidiaries as of the Series A Closing Day, including the jurisdiction
of incorporation and ownership of all such Subsidiaries. The Company and each
Subsidiary has the corporate power to own its respective properties and to carry
on its respective businesses as now being conducted and is duly qualified and
authorized to do business in each other jurisdiction in which the character of
its respective properties or the nature of its respective businesses require
such qualification or authorization except where the failure to be so qualified
or authorized could not reasonably be expected to have a material adverse effect
on the business, operations or financial condition of the Company and its
Subsidiaries, taken as a whole.
(ii) No Subsidiary is a party to, or otherwise subject to, any legal
restriction or any agreement restricting the ability of such Subsidiary to pay
dividends out of profits or make other similar distributions of profits to the
Company or any of its Subsidiaries that owns outstanding shares of Capital Stock
or similar equity interests of such Subsidiary.
8.1B. Financial Statements. The Company has furnished you with the
following financial statements, identified by a principal financial officer of
the Company:
(i) a Consolidated balance sheet as at the last day of the
fiscal year in each of the years 1989 to 1994, inclusive, a
Consolidated statement of income, stockholders' equity and cash flows
for each such year, all reported on by Deloitte & Touche; and
(ii) a Consolidated balance sheet as at September 30, 1995
and Consolidated statements of income, stockholders' equity and cash
<PAGE>
34
flows for the nine-month period ended on each such date, prepared by
the Company.
Those financial statements (including any related schedules and/or notes) fairly
present in all material respects (subject, as to interim statements, to the
absence of footnotes or to changes resulting from normal year-end adjustments)
the financial condition of the Company and have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved and show all liabilities, direct and contingent, of the Company
and its Subsidiaries required to be shown in accordance with such principles.
The balance sheets fairly present, in all material respects, the Consolidated
financial condition of the Company and its Subsidiaries as at the dates thereof,
and the statements of income, stockholders' equity and cash flows fairly
present, in all material respects, the Consolidated results of the operations of
the Company and its Subsidiaries, the changes in the Company's stockholders'
equity and their Consolidated cash flows for the periods indicated. There has
been no material adverse change in the business, condition (financial or
otherwise) or operations of the Company and its Subsidiaries taken as a whole
since December 31, 1994.
8.1C. Actions Pending. Except as set forth on Schedule 8L hereto, there
is no action, suit, investigation or proceeding pending or, to the knowledge of
the Company, threatened against the Company or any of its Subsidiaries, or any
properties or rights of the Company or any of its Subsidiaries, by or before any
court, arbitrator or administrative or governmental body which could reasonably
be expected to result in any material adverse change in the business, property
or assets, condition (financial or otherwise) or operations of the Company and
its Subsidiaries taken as a whole.
8.1D. Outstanding Debt. Neither the Company nor any of its Subsidiaries
has outstanding any Debt except as permitted by paragraph 6A. There exists no
default under the provisions of any instrument evidencing such Debt or of any
agreement relating thereto. Schedule 8D hereto (as such Schedule 8D may have
been modified from time to time by written supplements thereto delivered by the
Company to Prudential) is an accurate and complete list of Debt of the Company
and its Subsidiaries on the applicable Closing Day.
8.1E. Title to Properties. The Company has and each of its Subsidiaries
has good and indefeasible title to its respective real properties (other than
properties which it leases) and good title to all of its other respective
properties and assets, including the properties and assets reflected in the most
<PAGE>
35
recent audited balance sheet referred to in paragraph 8B (other than properties
and assets disposed of in the ordinary course of business), subject to no Lien
of any kind except Liens permitted by paragraph 6B(1). All leases necessary in
any material respect for the conduct of the respective businesses of the Company
and its Subsidiaries are valid and subsisting and are in full force and effect.
8.1F. Taxes. The Company has filed and each of its Subsidiaries has
filed all federal, state and other income tax returns which, to the best
knowledge of the Chief Financial Officer of the Company and its Subsidiaries,
are required to be filed, and each has paid all taxes as shown on such returns
and on all assessments received by it to the extent that such taxes have become
due, except such taxes as are being contested in good faith by appropriate
proceedings for which adequate reserves have been established in accordance with
generally accepted accounting principles.
8.1G. Conflicting Agreements and Other Matters. Neither the Company nor
any of its Subsidiaries is a party to any contract or agreement or subject to
any charter or other corporate restriction which materially and adversely
affects its business, property or assets, condition (financial or otherwise) or
operations. Neither the execution nor delivery of this Agreement or the Notes,
nor the offering, issuance and sale of the Notes, nor fulfillment of nor
compliance with the terms and provisions hereof and of the Notes will conflict
with, or result in a breach of the terms, conditions or provisions of, or
constitute a default under, or result in any violation of, or result in the
creation of any Lien upon any of the properties or assets of the Company or any
of its Subsidiaries pursuant to, the charter or by-laws of the Company or any of
its Subsidiaries, any award of any arbitrator or any agreement (including any
agreement with stockholders), instrument, order, judgment, decree, statute, law,
rule or regulation to which the Company or any of its Subsidiaries is subject.
Neither the Company nor any of its Subsidiaries is a party to, or otherwise
subject to any provision contained in, any instrument evidencing Debt of the
Company or such Subsidiary, any agreement relating thereto or any other contract
or agreement (including its charter) which limits the amount of, or otherwise
imposes restrictions on the incurring of, Debt of the Company of the type to be
evidenced by the Notes except as set forth in the agreements listed in Schedule
8G hereto.
8.1H. Offering of Notes. Neither the Company nor any agent acting on
its behalf has, directly or indirectly, offered the Notes or any similar
security of the Company for sale to, or solicited any offers to buy the Notes or
any similar security of the Company from, or otherwise approached or negotiated
<PAGE>
36
with respect thereto with, any Person other than institutional investors, and
neither the Company nor any agent acting on its behalf has taken or will take
any action which would subject the issuance or sale of the Notes to the
provisions of Section 5 of the Securities Act or to the provisions of any
securities or Blue Sky law of any applicable jurisdiction. The Company hereby
represents and warrants to you that, within the preceding twelve months, neither
the Company nor any other Person acting on behalf of the Company has offered or
sold to any Person (other than accredited investors) any Notes, or any
securities of the same or a similar class as the Notes, or any other
substantially similar securities of the Company.
8.1I. Use of Proceeds. The proceeds of the Series A Notes will be used
to repay the Debt specified in Schedule 8I. None of the proceeds of the sale of
any Notes will be used, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any "margin stock"
as defined in Regulation G (12 C.F.R. Part 207) of the Board of Governors of the
Federal Reserve System (herein called "margin stock") or for the purpose of
maintaining, reducing or retiring any Debt which was originally incurred to
purchase or carry any stock that is then currently a margin stock or for any
other purpose which might constitute the purchase of such Notes a "purpose
credit" within the meaning of such Regulation G, unless the Company shall have
delivered to the Purchaser which is purchasing such Notes, on the Closing Day
for such Notes, an opinion of counsel satisfactory to such Purchaser stating
that the purchase of such Notes does not constitute a violation of such
Regulation G. Neither the Company nor any agent acting on its behalf has taken
or will take any action which might cause this Agreement or the Notes to violate
Regulation G, Regulation T or any other regulation of the Board of Governors of
the Federal Reserve System or to violate the Exchange Act, in each case as in
effect now or as the same may hereafter be in effect.
8.1J. ERISA. No accumulated funding deficiency (as defined in
section 302 of ERISA and section 412 of the Code), whether or not waived,
exists with respect to any Plan (other than a Multiemployer Plan). No liability
to the Pension Benefit Guaranty Corporation has been or is expected by the
Company or any ERISA Affiliate to be incurred with respect to any Plan (other
than a Multiemployer Plan) by the Company, any Subsidiary or any ERISA
Affiliate which is or would be materially adverse to the business, property or
assets, condition (financial or otherwise) or operations of the Company and its
Subsidiaries taken as a whole. Neither the Company, any Subsidiary nor any
ERISA Affiliate has incurred or presently expects to incur any withdrawal
liability under Title IV of ERISA with respect to any Multiemployer Plan which
<PAGE>
37
is or would be materially adverse to the business, property or assets, condition
(financial or otherwise) or operations of the Company and its Subsidiaries taken
as a whole. The execution and delivery of this Agreement and the issuance and
sale of the Notes will be exempt from or will not involve any transaction which
is subject to the prohibitions of section 406 of ERISA and will not involve any
transaction in connection with which a penalty could be imposed under section
502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the
Code. The representation by the Company in the next preceding sentence is
made in reliance upon and subject to the accuracy of the representation of each
Purchaser in paragraph 9B as to the source of funds to be used by it to
purchase any Notes.
8.1K. Governmental Consent. Neither the nature of the Company or of any
Subsidiary, nor any of their respective businesses or properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor any
circumstance in connection with the offering, issuance, sale or delivery of the
Notes is such as to require any authorization, consent, approval, exemption or
any action by or notice to or filing with any court or administrative or
governmental body (other than routine filings after the Closing Day for any
Notes with the Securities and Exchange Commission and/or state Blue Sky
authorities) in connection with the execution and delivery of this Agreement,
the offering, issuance, sale or delivery of the Notes or fulfillment of or
compliance with the terms and provisions hereof or of the Notes.
8.1L. Environmental Compliance.
(i) The Company and its Subsidiaries and all of their respective
Properties have complied at all times (during such period of time the Company or
its Subsidiaries have owned or operated each such Property) and in all respects
with all Environmental Requirements where failure to comply could reasonably be
expected to have a material adverse effect on the business, condition (financial
or otherwise) or operations of the Company and its Subsidiaries taken as a
whole.
(ii) Except as set forth in Schedule 8L, neither the Company nor any
Subsidiary is subject to any Environmental Liability or Environmental
Requirement which could reasonably be expected to have a material adverse effect
on the business, condition (financial or otherwise) or operations of the Company
and its Subsidiaries, taken as a whole.
<PAGE>
38
(iii) Except as set forth in Schedule 8L, neither the Company nor any
Subsidiary has been designated as a potentially responsible party under CERCLA
or under any state statute similar to CERCLA. None of the Properties has been
identified on any current or proposed National Priorities List under 40 C.F.R.
& 300 or any list arising from a state statute similar to CERCLA. None of the
Properties has been identified on any CERCLIS list.
(iv) No Hazardous Materials have been or are being used, produced,
manufactured, processed, generated, stored, disposed of, released, managed at or
shipped or transported to or from the Properties (during such period of time the
Company or its Subsidiaries have owned or operated each such Property) or, to
the actual knowledge of the Company, are otherwise present at, on, in or under
the Properties or, to the actual knowledge of the Company, at or from any
adjacent site or facility, except for Hazardous Materials used, produced,
manufactured, processed, generated, stored, disposed of, released and managed in
the ordinary course of the Company's and any Subsidiary's business in compliance
with all applicable Environmental Requirements and except for Hazardous
Materials present in amounts which have not required and do not require
remediation, pursuant to applicable law or regulation, or if remediation is
required, such remediation could not reasonably be expected to have a material
adverse effect on the business, condition (financial or otherwise) or operations
of the Company and its Subsidiaries, taken as a whole.
(v) The Company and each Subsidiary have procured all permits necessary
under Environmental Requirements for the conduct of their respective businesses
or is otherwise in compliance with all applicable Environmental Requirements,
except to the extent the failure to do so would not reasonably expected to have
a material adverse effect on the business, condition (financial or otherwise) or
operations of the Company and its Subsidiaries, taken as a whole.
8.1M. Disclosure. Neither this Agreement nor any other document,
certificate or statement furnished to any Purchaser by or on behalf of the
Company in connection herewith contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact peculiar to the
Company or any of its Subsidiaries which materially adversely affects or in the
future may (so far as the Company can now reasonably foresee) materially
adversely affect the business, property or assets, condition (financial or
otherwise) or operations of the Company or any of its Subsidiaries and which has
not been set forth in this Agreement.
<PAGE>
39
8.1N. Hostile Tender Offers. None of the proceeds of the sale of any
Notes have been or will be used to finance a Hostile Tender Offer.
9. REPRESENTATIONS OF THE PURCHASERS.
Each Purchaser represents as follows:
9.1A. Nature of Purchase. Such Purchaser will acquire the Series A
Notes and any other Shelf Notes purchased from the Company pursuant to this
Agreement for investment for its own account, not as a nominee or agent, and not
with a view to, or for resale in connection with, any distribution thereof
within the meaning of the Securities Act, provided that the disposition of such
Purchaser's property shall at all times be and remain within its control.
9.1B. Source of Funds. You represent that at least one of the
following statements is an accurate representation as to each source of funds (a
"Source") to be used by you to pay the purchase price of the Notes to be
purchased by you hereunder:
(a) the Source constitutes assets allocated to your
"insurance company general account" (as such term is defined under
Section V of the United States Department of Labor's Prohibited
Transaction Exemption ("PTE") 95-60), and as of the date of the
purchase of the Notes, you satisfy all of the applicable requirements
for relief under Sections I and IV of PTE 95-60; or
(b) if you are an insurance company, the Source does not
include assets allocated to any separate account maintained by you in
which any employee benefit plan (or its related trust) has any
interest, other than a separate account that is maintained solely in
connection with your fixed contractual obligations under which the
amounts payable, or credited, to such plan and to any participant or
beneficiary of such plan (including any annuitant) are not affected in
any manner by the investment performance of the separate account; or
(c) the Source is either (i) an insurance company pooled
separate account, within the meaning PTE 90-1 (issued January 29,
1990), or (i) a bank collective investment fund, within the meaning of
the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed
to the Company in writing pursuant to this paragraph (c), no employee
benefit plan or group of plans maintained by the same employer or
<PAGE>
40
employee organization beneficially owns more than 10% of all assets
allocated to such pooled separate account or collective investment
fund; or
(d) the Source constitutes asset of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning of
Part V of the QPAM Exemption), no employee benefit plan's assets that
are included in such investment fund, when combined with the assets of
all other employee benefit plans established or maintained by the same
employer or by an affiliate (within the meaning of Section V(c)(1) of
the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client
assets managed by such QPAM, the conditions of Part I(c) and (g) of the
QPAM Exemption are satisfied, neither the QPAM nor a person controlling
or controlled by the QPAM (applying the definition of "control" in
Section V(e) of the QPAM Exemption) owns a 5% or more interest in the
company and (i) the identity of such QPAM and (i) the names of all
employee benefit plans whose assets are included in such investment
fund have been disclosed to the Company in writing pursuant to
clause (c); or
(e) the Source is a governmental plan; or
(f) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Company in
writing pursuant to this clause (f); or
(g) the Source does not include assets of any employee
benefit plan, other than a plan exempt from the coverage of ERISA.
As used in this paragraph 9B, the terms "employee benefit plan",
"governmental plan", "party in interest" and "separate account" shall have the
respective meanings assigned to such terms in Section 3 of ERISA.
9.1C. Business of Purchaser; Prohibited Transferees. Neither
Purchaser, nor any Affiliate of such Purchaser, is engaged in, or owns a 5%
or more interest in a Person engaged in, the hauling of waste or commercial
recycling, nor shall such Purchaser transfer any Note to any Person engaged
<PAGE>
41
in, or who owns a 5% or more interest in a Person engaged in, the hauling of
waste or commercial recycling.
10. DEFINITIONS; ACCOUNTING MATTERS. For the purpose of this Agreement,
the terms defined in paragraphs 10A and 10B (or within the text of any other
paragraph) shall have the respective meanings specified therein and all
accounting matters shall be subject to determination as provided in paragraph
10C.
10.1A. Yield-Maintenance Terms.
"Called Principal" shall mean, with respect to any Note, the principal
of such Note that is to be prepaid pursuant to paragraph 4C or is declared to be
immediately due and payable pursuant to paragraph 7A, as the context requires.
"Designated Spread" shall mean .50 of 1% in the case of each Series A
Note and 0% in the case of each Note of any other Series unless the Confirmation
of Acceptance with respect to the Notes of such other Series specifies a
different Designated Spread in which case it shall mean, with respect to each
Note of such other Series, the Designated Spread so specified.
"Discounted Value" shall mean, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due dates
to the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (as converted to reflect
the periodic basis on which interest on such Note is payable, if payable other
than on a semi-annual basis) equal to the Reinvestment Yield with respect to
such Called Principal.
"Reinvestment Yield" shall mean, with respect to the Called Principal
of any Note, the Designated Spread over the yield to maturity implied by (i) the
yields reported, as of 10:00 A.M. (New York City local time) on the Business Day
next preceding the Settlement Date with respect to such Called Principal, on the
display designated as Page 678 on the Telerate Service (or such other display as
may replace page 678 on the Telerate Service) for actively traded U.S. Treasury
securities having a maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date, or (ii) if such yields shall not be
reported as of such time or the yields reported as of such time shall not be
ascertainable, the Treasury Constant Maturity Series yields reported, for the
latest day for which such yields shall have been so reported as of the Business
<PAGE>
42
Day next preceding the Settlement Date with respect to such Called Principal, in
Federal Reserve Statistical Release H.15 (519) (or any comparable successor
publication) for actively traded U.S. Treasury securities having a constant
maturity equal to the Remaining Average Life of such Called Principal as of such
Settlement Date. Such implied yield shall be determined, if necessary, by (a)
converting U.S. Treasury bill quotations to bond-equivalent yields in accordance
with accepted financial practice and (b) interpolating linearly between yields
reported for various maturities.
"Remaining Average Life" shall mean, with respect to the Called
Principal of any Note, the number of years (calculated to the nearest
one-twelfth year) obtained by dividing (i) such Called Principal into (i) the
sum of the products obtained by multiplying (a) each Remaining Scheduled Payment
of such Called Principal (but not of interest thereon) by (a) the number of
years (calculated to the nearest one-twelfth year) which will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due date
of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" shall mean, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to its
scheduled due date.
"Settlement Date" shall mean, with respect to the Called Principal of
any Note, the date on which such Called Principal is to be prepaid pursuant to
paragraph 4A or is declared to be immediately due and payable pursuant to
paragraph 7A, as the context requires.
"Yield-Maintenance Amount" shall mean, with respect to any Note, an
amount equal to the excess, if any, of the Discounted Value of the Called
Principal of such Note over the sum of (i) such Called Principal plus (i)
interest accrued thereon as of (including interest due on) the Settlement Date
with respect to such Called Principal. The Yield-Maintenance Amount shall in no
event be less than zero.
10.1B. Other Terms.
"Acceptance" shall have the meaning specified in paragraph 2B(5).
"Acceptance Day" shall have the meaning specified in paragraph 2B(5).
<PAGE>
43
"Acceptance Window" shall have the meaning specified in paragraph
2B(5).
"Accepted Note" shall have the meaning specified in paragraph 2B(5).
"Affiliate" shall mean any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, the Company,
except a Subsidiary. A Person shall be deemed to control a corporation if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract or otherwise.
"Authorized Officer" shall mean (i) in the case of the Company, its
chief executive officer, its president and chief operating officer, its chief
financial officer, any vice president of the Company designated as an
"Authorized Officer" of the Company in the Information Schedule attached hereto
or any vice president of the Company designated as an "Authorized Officer" of
the Company for the purpose of this Agreement in an Officer's Certificate
executed by the Company's chief executive officer or chief financial officer and
delivered to Prudential, and (i) in the case of Prudential, any officer of
Prudential designated as its "Authorized Officer" in the Information Schedule or
any officer of Prudential designated as its "Authorized Officer" for the purpose
of this Agreement in a certificate executed by one of its Authorized Officers.
Any action taken under this Agreement on behalf of the Company by any individual
who on or after the date of this Agreement shall have been an Authorized Officer
of the Company and whom Prudential in good faith believes to be an Authorized
Officer of the Company at the time of such action shall be binding on the
Company even though such individual shall have ceased to be an Authorized
Officer of the Company, and any action taken under this Agreement on behalf of
Prudential by any individual who on or after the date of this Agreement shall
have been an Authorized Officer of Prudential and whom the Company in good faith
believes to be an Authorized Officer of Prudential at the time of such action
shall be binding on Prudential even though such individual shall have ceased to
be an Authorized Officer of Prudential.
"Available Facility Amount" shall have the meaning specified in
paragraph 2B(1).
"Bankruptcy Law" shall have the meaning specified in clause (viii) of
paragraph 7A.
<PAGE>
44
"Business Day" shall mean any day other than (i) a Saturday or a
Sunday, (i) a day on which commercial banks in New York City are required or
authorized to be closed and (i) for purposes of paragraph 2B(3) hereof only, a
day on which The Prudential Insurance Company of America is not open for
business.
"Cancellation Date" shall have the meaning specified in paragraph
2B(8)(iv).
"Cancellation Fee" shall have the meaning specified in paragraph
2B(8)(iv).
"Capital Stock" means, with respect to any Person, the outstanding
capital stock (or any options or warrants to purchase capital stock or other
securities exchangeable for or convertible into capital stock) of such Person.
"Capitalized Lease Obligation" shall mean any rental obligation which,
under generally accepted accounting principles, is or will be required to be
capitalized on the books of the Company or any Subsidiary, taken at the amount
thereof accounted for as indebtedness (net of interest expenses) in accordance
with such principles.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act.
"CERCLIS" shall mean the Comprehensive Environmental Response,
Compensation and Liability Inventory System established pursuant to CERCLA.
"Closing Day" shall mean, with respect to the Series A Notes, the
Series A Closing Day and, with respect to any Accepted Note, the Business Day
specified for the closing of the purchase and sale of such Accepted Note in the
Request for Purchase of such Accepted Note, provided that (i) if the Company and
the Purchaser which is obligated to purchase such Accepted Note agree on an
earlier Business Day for such closing, the "Closing Day" for such Accepted Note
shall be such earlier Business Day, and (i) if the closing of the purchase and
sale of such Accepted Note is rescheduled pursuant to paragraph 2B(7), the
Closing Day for such Accepted Note, for all purposes of this Agreement except
references to "original Closing Day" in paragraph 2B(8)(iii), shall mean the
Rescheduled Closing Day with respect to such Accepted Note.
<PAGE>
45
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder from time to
time.
"Confirmation of Acceptance" shall have the meaning specified in
paragraph 2B(5).
"Consolidated" shall mean, with respect to any item of financial
information, the item of financial information for the Company and its
Subsidiaries consolidated in accordance with generally accepted accounting
principles.
"Consolidated Current Debt" shall mean with respect to any Person, all
Debt of such Person which by its terms matures on demand or within one year from
the date of the creation thereof and is not directly or indirectly renewable or
extendible at the option of the obligor in respect thereto to a date one year or
more from such date.
"Consolidated Fixed Charges" shall mean, for the Company and its
Subsidiaries on a Consolidated basis, the sum (without duplication) of:
(i) all Rentals (excluding all principal components of
Rentals under Capitalized Lease Obligations) paid during the most
recently completed four fiscal quarters (the "Prior Period"); and
(ii) all Consolidated Interest Charges for the Prior Period.
"Consolidated Interest Charges" shall mean, for the Company and its
Subsidiaries on a Consolidated basis for the four fiscal quarters most recently
ended, all interest expense (as determined in accordance with generally accepted
accounting principles) on all Debt (including imputed interest in respect of
Capitalized Lease Obligations) net of interest income.
"Consolidated Net Income" shall mean, for any period, net income
determined on a consolidated basis for the Company and its Subsidiaries;
provided, however, that there shall not be included in such Consolidated Net
Income:
(i) any net income of any Person if such Person is not a
Subsidiary, except that equity in the net income of any such Subsidiary
for such period shall be included in such Consolidated Net Income up to
the aggregate amount of cash actually distributed by such Subsidiary as
a
<PAGE>
46
dividend or other distribution (subject, in the case of a dividend of
other distribution to a Subsidiary, to the limitation contained in
clause (iii) below);
(ii) any net income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such
acquisition except to the extent that there exists for any such Person
audited financial statements for the most recently ended fiscal year of
such Person;
(iii) any net income of Subsidiary if such Subsidiary is
subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Subsidiary, directly
or indirectly, to the Company, except that equity in the net income of
any such Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Subsidiary during such period as a dividend or
other distribution (subject, in the case of a dividend or other
distribution to another Subsidiary, to the limitation contained in this
clause);
(iv) any gain realized upon the sale or other disposition of
any property, plant or equipment (including pursuant to any
sale-leaseback arrangement) which is not sold or otherwise disposed of
in the ordinary course of business and any gain realized upon the sale
or other disposition of any capital stock of any Person; or
(v) any other extraordinary items.
"Consolidated Net Worth" shall mean, at any time, for the Company and
its Subsidiaries on a Consolidated basis shareholders' equity at such time
determined in accordance with generally accepted accounting principles.
"Consolidated Total Capitalization" shall mean, at any time, the sum of
(i) Consolidated Debt at such time plus (ii) Consolidated Net Worth at such
time.
"Cross Purchase Agreement" shall mean the Cross Purchase Agreement
dated July 10, 1990, by and among Lonnie C. Poole, Jr., Jimmy W. Perry, J.
Gregory Poole, Jr., Robert H. Hall, the Company, Waste Enterprises, Inc., Waste
Industries South, Inc., Waste Industries West, Inc., Waste Industries East, Inc.
and Kabco, Inc., as amended.
<PAGE>
47
"Debt" with respect to any Person means, at any time, without
duplication,
(a) its liabilities for borrowed money;
(a) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable, accrued
expenses, withholding taxes and deferred taxes, in each case arising in
the ordinary course of business, but including, without limitation, all
liabilities created or arising under any conditional sale or other
title retention agreement with respect to any such property);
(a) its Capitalized Lease Obligations;
(a) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not it
has assumed or otherwise become liable for such liabilities); and
(a) any Guaranty of such Person with respect to liabilities
of a type described in any of clauses (a) through (d) hereof.
Debt of any Person shall include all obligations of such Person of the character
described in clauses (a) through (e) to the extent such Person remains legally
liable in respect thereof notwithstanding that any such obligation is deemed to
be extinguished under GAAP and exclude any accounts payable, accrued expenses,
withholding taxes and deferred taxes, in each case arising in the ordinary
course of business.
"Delayed Delivery Fee" shall have the meaning specified in paragraph
2B(8)(iii).
"EBITDA" means, for any period, Consolidated Net Income adjusted by
adding thereto the amount of all amortization of intangibles, interest, taxes
and depreciation that was deducted in arriving at Consolidated Net Income for
such period.
"Environmental Authority" shall mean any foreign, federal, state, local
or regional government that exercises any duly authorized form of jurisdiction
or authority under any Environmental Requirement.
"Environmental Judgments and Orders" shall mean all judgments,
decrees or orders arising from or in any way associated with any Environmental
Requirements, whether or not entered upon consent or written agreements with
<PAGE>
48
an Environmental Authority or other duly authorized entity arising from or in
any way associated with any Environmental Requirement, whether or not
incorporated in a judgment, degree or order.
"Environmental Liabilities" shall mean any liabilities, whether accrued
or contingent, arising from or relating in any way to any Environmental
Requirements.
"Environmental Notices" shall mean any written communication from any
Environmental Authority stating possible or alleged noncompliance with or
possible or alleged liability under any Environmental Requirement, including
without limitation any complaints, citations, demands or requests from any
Environmental Authority for correction of any purported violation of any
Environmental Requirements or any investigation concerning any purported
violation of any Environmental Requirements. Environmental Notices also shall
mean (i) any written communication from any other Person threatening litigation
or administrative proceedings against or involving the Company relating to
alleged violation of any Environmental Requirements and (ii) any complaint,
petition or similar documents filed by any other Person commencing litigation or
administrative proceedings against or involving the Company relating to alleged
violation of any Environmental Requirements.
"Environmental Proceedings" shall mean any judicial or administrative
proceedings arising from or in any way associated with any Environmental
Requirement.
"Environmental Releases" shall mean releases (as defined in CERCLA or
under any applicable state or local environmental law or regulation) of
Hazardous Materials. Environmental Releases does not include releases for which
no remediation or reporting is required by applicable Environmental Requirements
and which do not present a danger to health, safety or the environment.
"Environmental Requirements" shall mean any applicable local, state or
federal law, rule, regulation, permit, order, decision, determination or
requirement relating in any way to Hazardous Materials or to health, safety or
the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
<PAGE>
49
"ERISA Affiliate" shall mean any corporation which is a member of the
same controlled group of corporations as the Company within the meaning of
section 414(b) of the Code, or any trade or business which is under common
control with the Company within the meaning of section 414(c) of the Code.
"Event of Default" shall mean any of the events specified in paragraph
7A, provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening of
any further condition, event or act, and "Default" shall mean any of such
events, whether or not any such requirement has been satisfied.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Facility" shall have the meaning specified in paragraph 2B(1).
"Facility Fee" shall have the meaning specified in paragraph 2B(8)(i).
"Fair Market Value" means, at any time, the sale value of property that
would be realized in an arm's-length sale at such time between an informed and
willing buyer, and an informed and willing seller, under no compulsion to buy
or sell, respectively.
"Guaranty" or "Guarantee" shall mean, with respect to any Person, any
obligation (except the endorsement in the ordinary course of business of
negotiable instruments for deposit or collection) of such Person guaranteeing or
in effect guaranteeing any indebtedness, dividend or other obligation of any
other Person in any manner, whether directly or indirectly, including (without
limitation) obligations incurred through an agreement, contingent or otherwise,
by such Person:
(i) to purchase such indebtedness or obligation or any
property constituting security therefor;
(ii) to advance or supply funds for the purchase or payment
of such indebtedness or obligation, or to maintain any working capital
or other balance sheet condition or any income statement condition of
any Person or otherwise to advance or make available funds for the
purchase or payment of such indebtedness or obligation;
<PAGE>
50
(iii) to lease properties or to purchase properties or
services primarily for the purpose of assuring the owner of such
indebtedness or obligation of the ability of any other Person to make
payment of the indebtedness or obligation; or
(iv) otherwise to assure the owner of such indebtedness or
obligation against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
"Hazardous Materials" shall mean (a) hazardous waste as defined in the
Resource Conservation and Recovery Act of 1976, or in any applicable federal,
state or local law or regulation, (b) hazardous substances, as defined in
CERCLA, or in any applicable state or local law or regulation, (c) gasoline, or
any other petroleum product or by-product, (d) toxic substances, as defined in
the Toxic Substances Control Act of 1976, or in any applicable federal, state or
local law or regulation or (e) insecticides, fungicides, or rodenticides, as
defined in the Federal Insecticide, Fungicide, and Rodenticide Act of 1975, or
in any applicable federal, state or local law or regulation, as each such Act,
statute or regulation may be amended from time to time.
"Hedge Treasury Note(s)" shall mean, with respect to any Accepted Note,
the United States Treasury Note or Notes whose duration (as determined by
Prudential) most closely matches the duration of such Accepted Note.
"Hostile Tender Offer" shall mean, with respect to the use of proceeds
of any Note, any offer to purchase, or any purchase of, shares of capital stock
of any corporation or equity interests in any other entity, or securities
convertible into or representing the beneficial ownership of, or rights to
acquire, any such shares or equity interests, if such shares, equity interests,
securities or rights are of a class which is publicly traded on any securities
exchange or in any over-the-counter market, other than purchases of such shares,
equity interests, securities or rights representing less than 5% of the equity
interests or beneficial ownership of such corporation or other entity for
portfolio investment purposes, and such offer or purchase has not been duly
approved by the board of directors of such corporation or the equivalent
governing body of such other entity prior to the date on which the Company makes
the Request for Purchase of such Note.
<PAGE>
51
"including" shall mean, unless the context clearly requires otherwise,
"including without limitation".
"Institutional Investors" shall mean (i) any bank, savings bank,
savings and loan association or insurance company, (ii) any pension plan or
portfolio or investment fund managed or administered by any bank, savings bank,
savings and loan association or insurance company, (iii) any investment company
owned by any bank, savings bank, savings and loan association or insurance
company, the majority of the shares of the capital stock of which are traded on
a national securities exchange or in the National Association of Securities
Dealers automated quotation system, or (iv) any investment banking company.
"Intangibles" shall mean goodwill, patents, trademarks, trade names,
organization expense, licenses, franchises, exploration permits and import and
export permits and other like intangibles, determined in accordance with
generally accepted accounting principles.
"Investment" shall mean, when used with respect to any Person, any
direct or indirect advance, loan or other extension of credit or capital
contribution by such Person (by means of transfers of property to others or
payments for property or services for the account or use of others, or
otherwise) to any other Person, or any direct or indirect purchase or other
acquisition or beneficial ownership by such Person of, or of a beneficial
interest in, Capital Stock, partnership interests, bonds, notes, debentures or
other securities issued by any other Person.
"Issuance Period" shall have the meaning specified in paragraph 2B(2).
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
lien (statutory or otherwise) or charge of any kind (including any agreement to
give any of the foregoing, any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of or agreement to
give any financing statement under the Uniform Commercial Code of any
jurisdiction except in connection with an Operating Lease permitted under
Paragraph 6B(4)) or any other type of preferential arrangement for the purpose,
or having the effect, of protecting a creditor against loss or securing the
payment or performance of an obligation.
"Moody's" means Moody's Investors Service, Inc. or any successor
thereto.
<PAGE>
52
"Multiemployer Plan" shall mean any Plan which is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA.
"Notes" shall have the meaning specified in paragraph 1B.
"Officer's Certificate" shall mean a certificate signed in the name of
the Company by an Authorized Officer of the Company.
"Operating Leases" shall mean any lease of real or personal property,
plant, equipment or buildings for a term (including any renewals or extension
permitted) greater than one year, which is not a Capitalized Lease Obligation.
"Person" shall mean and include an individual, a partnership, a joint
venture, limited liability company, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
"Plan" shall mean any employee pension benefit plan (as such term is
defined in section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or any
ERISA Affiliate.
"Priority Debt" means with respect any Person, at any time, without
duplication, the sum of
(i) Debt of each Subsidiary (other than Debt held by the
Company or another wholly-owned Subsidiary); and
(i) Debt secured by any Lien other than a Lien described in
clauses (ii), (iii), (ix) and (x) of paragraph 6B(1).
"Properties" shall mean all real property owned, leased or otherwise
used or occupied by the Company or any Subsidiary, wherever located.
"Prudential" shall mean The Prudential Insurance Company of America.
"Prudential Affiliate" shall mean any corporation or other entity all
of the Voting Stock (or equivalent voting securities or interests) of which is
owned by Prudential either directly or through Prudential Affiliates.
<PAGE>
53
"Purchasers" shall mean Prudential with respect to the Series A Notes
and, with respect to any Accepted Notes, Prudential and/or the Prudential
Affiliate(s), which are purchasing such Accepted Notes.
"QPAM Exemption" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
"Reasonable Attorneys' Fees" shall mean attorneys' fees based upon
actual hours worked by an attorney at such attorney's normal hourly billing rate
and shall not be based upon any percentage of any amount in dispute, premium,
results achieved or any non-hourly charge.
"Rentals" shall mean for any period of determination all fixed rents or
charges (including as such all payments during any such period of determination
which the lessee is obligated to make on termination of the lease or surrender
of the property) payable by the Company or a Subsidiary (as lessee, sublessee,
licensee, franchisee or the like) for such period under a lease, license, or
other agreement for the use or possession of real or personal property, tangible
or intangible, as determined in accordance with generally accepted accounting
principles.
"Request for Purchase" shall have the meaning specified in paragraph
2B(3).
"Required Holder(s)" shall mean the holder or holders of at least
66-2/3% of the aggregate principal amount of the Notes or of a Series of Notes,
as the context may require, from time to time outstanding.
"Rescheduled Closing Day" shall have the meaning specified in
paragraph 2B(7).
"Responsible Officer" shall mean the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of the
Company, general counsel of the Company or any other officer of the Company
involved principally in its financial administration or its controllership
function.
"S&P" means Standard & Poor's Rating Group or any successor thereto.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Senior Debt" means all Debt other than Subordinated Debt.
<PAGE>
54
"Series" shall have the meaning specified in paragraph 1B.
"Series A Closing Day" shall have the meaning specified in paragraph
2A.
"Series A Note(s)" shall have the meaning specified in paragraph 1A.
"Significant Holder" shall mean (i) Prudential, so long as Prudential
or any Prudential Affiliate shall hold (or be committed under this Agreement to
purchase) any Note, or (ii) any other holder of at least 10% of the aggregate
principal amount of the Notes of any Series from time to time outstanding.
"Subordinated Debt" shall mean Debt which is subordinated in right of
payment to Senior Debt on the terms set forth in Schedule 6I.
"Subsidiary" shall mean, as to any Person, any Person, in which such
Person, or one or more of its Subsidiaries, or such Person and one or more of
its Subsidiaries, owns sufficient equity or voting interests to enable it or
them (as a group) ordinarily, in the absence of contingencies, to elect a
majority of the directors (or Persons performing similar functions) of such
entity, and any partnership or joint venture if more than a 50% interest in the
profits or capital thereof is owned by such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries (unless such
partnership can and does ordinarily take major business actions without the
prior approval of such Person or one or more of its Subsidiaries).
"Substantial Part" shall mean, with respect to any transfer, assets
which (i) together with all other assets disposed of in the same fiscal year
constitute 10% or more of Consolidated assets determined as of the beginning of
such fiscal year or (ii) have contributed 10% or more of Consolidated Net Income
for the most recently ended period of four fiscal quarters.
"Third Party" shall mean all lessees, sublessees, licensees and other
users of the Properties, excluding those users of the Properties in the ordinary
course of the Company's business (consistent with its practices on the Series A
Closing Day) and on a temporary basis.
"Transferee" shall mean any direct or indirect transferee of all or any
part of any Note purchased by any Purchaser under this Agreement.
<PAGE>
55
"Voting Stock" shall mean, with respect to any corporation, any shares
of stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
10.1C. Accounting Principles, Terms and Determinations. All references
in this Agreement to "generally accepted accounting principles" shall be deemed
to refer to generally accepted accounting principles in effect in the United
States at the time of application thereof. Unless otherwise specified herein,
all accounting terms used herein shall be interpreted, all determinations with
respect to accounting matters hereunder shall be made, and all unaudited
financial statements and certificates and reports as to financial matters
required to be furnished hereunder shall be prepared, in accordance with
generally accepted accounting principles applied on a basis consistent with the
most recent audited financial statements delivered pursuant to clause (ii) of
paragraph 5A or, if no such statements have been so delivered, the most recent
audited financial statements referred to in clause (i) of paragraph 8B.
11. MISCELLANEOUS.
11.1A. Payments. The Company agrees that, so long as any Purchaser
shall hold any Note, it will make payments of principal of, interest on, and any
Yield-Maintenance Amount payable with respect to, such Note, which comply with
the terms of this Agreement, by wire transfer of immediately available funds for
credit (not later than 12:00 noon, New York City local time, on the date due) to
(i) the account or accounts of such Purchaser specified in the Purchaser
Schedule attached hereto in the case of any Series A Note, (ii) the account or
accounts of such Purchaser specified in the Confirmation of Acceptance with
respect to such Note in the case of any Shelf Note or (iii) such other account
or accounts in the United States as such Purchaser may from time to time
designate in writing, notwithstanding any contrary provision herein or in any
Note with respect to the place of payment. Each Purchaser agrees that, before
disposing of any Note, it will make a notation thereon (or on a schedule
attached thereto) of all principal payments previously made thereon and of the
date to which interest thereon has been paid. The Company agrees to afford the
benefits of this paragraph 11A to any Transferee which shall have made the same
agreement as the Purchasers have made in this paragraph 11A.
11.1B. Expenses. The Company agrees, whether or not the
transactions contemplated hereby shall be consummated, to pay, and save
<PAGE>
56
Prudential, each Purchaser and any Transferee harmless against liability for the
payment of, all out-of-pocket expenses arising in connection with such
transactions, including:
(i) all taxes (together in each case with interest and
penalties, if any), other than state, federal, local or foreign income
taxes, intangible taxes, or franchise taxes, including without
limitation, all stamp, recording and other similar taxes, which may be
payable with respect to the execution and delivery of this Agreement or
the execution, delivery or acquisition of any Note;
(ii) all document production and duplication charges and the
Reasonable Attorneys' Fees and expenses of any special counsel engaged
by the Purchasers in connection with this Agreement, the transactions
contemplated hereby and any subsequent proposed modification of, or
proposed consent under, this Agreement, whether or not such proposed
modification shall be effected or proposed consent granted; provided,
however, where there are multiple Purchasers for any single Series of
Notes issued under this Agreement, the Company shall pay and be liable
for the Reasonable Attorneys' Fees and expenses of a single special
counsel engaged by such Purchasers to represent all such Purchasers in
such transaction (except as set forth below); and
(iii) the reasonable costs and expenses, including
Reasonable Attorneys' Fees, actually incurred by you, any other
Purchaser or any Transferee in connection with the restructuring,
refinancing or "work out" of this Agreement or the Notes or the
transactions contemplated hereby or thereby or in enforcing (or
determining whether or how to enforce) any rights under this Agreement
or the Notes or in responding to any subpoena or other legal process or
informal investigative demand issued in connection with this Agreement
or the Notes or the transactions contemplated hereby or by reason of
your or any Transferee's having acquired any Note, including without
limitation costs and expenses incurred in any bankruptcy case.
Notwithstanding the foregoing, the Company shall not be liable for any counsel
fees incurred by any Purchaser or Transferee arising in connection with a
transfer in the ordinary course of any Note or portion thereof or interest
therein by Prudential or any other Purchaser to any Transferee. The obligations
of the Company under this paragraph 11B shall survive the transfer of any Note
or
<PAGE>
57
portion thereof or interest therein by any Purchaser or any Transferee and the
payment of any Note.
11.1C. Consent to Amendments. This Agreement may be amended, and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Company shall obtain the written consent
to such amendment, action or omission to act, of the Required Holder(s) of the
Notes of each Series except that, (i) with the written consent of the holders of
all Notes of a particular Series, and if an Event of Default shall have occurred
and be continuing, of the holders of all Notes of all Series, at the time
outstanding (and not without such written consents), the Notes of such Series
may be amended or the provisions thereof waived to change the maturity thereof,
to change or affect the principal thereof, or to change or affect the rate or
time of payment of interest on or any Yield-Maintenance Amount payable with
respect to the Notes of such Series, (ii) without the written consent of the
holder or holders of all Notes at the time outstanding, no amendment to or
waiver of the provisions of this Agreement shall change or affect the provisions
of paragraph 7A or this paragraph 11C insofar as such provisions relate to
proportions of the principal amount of the Notes of any Series, or the rights of
any individual holder of Notes, required with respect to any declaration of
Notes to be due and payable or with respect to any consent, amendment, waiver or
declaration, (iii) with the written consent of Prudential (and not without the
written consent of Prudential) the provisions of paragraph 2B may be amended or
waived (except insofar as any such amendment or waiver would affect any rights
or obligations with respect to the purchase and sale of Notes which shall have
become Accepted Notes prior to such amendment or waiver), and (iv) with the
written consent of all of the Purchasers which shall have become obligated to
purchase Accepted Notes of any Series (and not without the written consent of
all such Purchasers), any of the provisions of paragraphs 2B and 3 may be
amended or waived insofar as such amendment or waiver would affect only rights
or obligations with respect to the purchase and sale of the Accepted Notes of
such Series or the terms and provisions of such Accepted Notes. Each holder of
any Note at the time or thereafter outstanding shall be bound by any consent
authorized by this paragraph 11C, whether or not such Note shall have been
marked to indicate such consent, but any Notes issued thereafter may bear a
notation referring to any such consent. No course of dealing between the Company
and the holder of any Note nor any delay in exercising any rights hereunder or
under any Note shall operate as a waiver of any rights of any holder of such
Note. As used herein and in the Notes, the term "this Agreement" and references
thereto shall mean this Agreement as it may from time to time be amended or
supplemented.
<PAGE>
58
11.1D. Form and Registration; Transfer and Exchange; Transfer
Restrictions; Lost Notes.
11.1D.(1) Form and Registration. The Notes are issuable as registered
notes without coupons in denominations of at least $1,000,000, except as may be
necessary to reflect any principal amount not evenly divisible by $1,000,000.
The Company shall keep at its principal office a register in which the Company
shall provide for the registration of Notes and of transfers of Notes. Upon
surrender for registration of transfer of any Note at the principal office of
the Company, the Company shall, at its expense, execute and deliver one or more
new Notes of like tenor and of a like aggregate principal amount, registered in
the name of such transferee or transferees.
11.1D.(2) Transfer and Exchange of Notes. At the option of the holder
of any Note, such Note may be exchanged for other Notes of like tenor and of any
authorized denominations, of a like aggregate principal amount, upon surrender
of the Note to be exchanged at the principal office of the Company. Whenever any
Notes are so surrendered for exchange, the Company shall, at its expense,
execute and deliver the Notes which the holder making the exchange is entitled
to receive. Each installment of principal payable on each installment date upon
each new Note issued upon any such transfer or exchange shall be in the same
proportion to the unpaid principal amount of such new Note as the installment of
principal payable on such date on the Note surrendered for registration of
transfer or exchange bore to the unpaid principal amount of such Note. No
reference need be made in any such new Note to any installment or installments
of principal previously due and paid upon the Note surrendered for registration
of transfer or exchange. Every Note surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer duly executed, by the holder of such Note or such holder's attorney
duly authorized in writing. Any Note or Notes issued in exchange for any Note or
upon transfer thereof shall carry the rights to unpaid interest and interest to
accrue which were carried by the Note so exchanged or transferred, so that
neither gain nor loss of interest shall result from any such transfer or
exchange.
11.1D.(3) Transfer Restrictions. You hereby agree that you shall not
transfer any Note, or portion thereof, to any Person unless such Person is an
Institutional Investor or not specified on Schedule 11D(3).
11.1D.(4) Lost Notes. Upon receipt of written notice from the holder of
any Note of the loss, theft, destruction or mutilation of such Note and,
<PAGE>
59
in the case of any such loss, theft or destruction, upon receipt of such
holder's unsecured indemnity agreement, in form and substance reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Note, the Company will make and deliver a new
Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note.
11.1E. Persons Deemed Owners; Participations. Prior to due presentment
for registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of and interest on, and any Yield- Maintenance
Amount payable with respect to, such Note and for all other purposes whatsoever,
whether or not such Note shall be overdue, and the Company shall not be affected
by notice to the contrary. Subject to the preceding sentence, the holder of any
Note may from time to time grant participations in all or any part of such Note
to any Person on such terms and conditions as may be determined by such holder
in its sole and absolute discretion.
11.1F. Survival of Representations and Warranties; Entire Agreement.
All representations and warranties contained herein or made in writing by or on
behalf of the Company in connection herewith shall survive the execution and
delivery of this Agreement and the Notes, the transfer by any Purchaser of any
Note or portion thereof or interest therein and the payment of any Note, and may
be relied upon by any Transferee, regardless of any investigation made at any
time by or on behalf of any Purchaser or any Transferee. Subject to the
preceding sentence, this Agreement and the Notes embody the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings relating to such
subject matter.
11.1G. Successors and Assigns. All covenants and other agreements in
this Agreement contained by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee) whether so expressed or
not.
11.1H. Independence of Covenants. All covenants hereunder shall be
given independent effect so that if a particular action or condition is
prohibited by any one of such covenants, the fact that it would be permitted by
an exception to, or otherwise be in compliance within the limitations of,
another
<PAGE>
60
covenant shall not avoid the occurrence of a Default or Event of Default if such
action is taken or such condition exists.
11.1I. Notices. All written communications provided for hereunder
(other than communications provided for under paragraph 2) shall be sent by
first class mail or nationwide overnight delivery service (with charges prepaid)
and (i) if to any Purchaser, addressed as specified for such communications in
the Purchaser Schedule attached hereto (in the case of the Series A Notes) or
the Purchaser Schedule attached to the applicable Confirmation of Acceptance (in
the case of any Shelf Notes) or at such other address as any such Purchaser
shall have specified to the Company in writing, (ii) if to any other holder of
any Note, addressed to it at such address as it shall have specified in writing
to the Company or, if any such holder shall not have so specified an address,
then addressed to such holder in care of the last holder of such Note which
shall have so specified an address to the Company and (iii) if to the Company,
addressed to it at 3949 Browning Place, Raleigh, North Carolina 27609,
Attention: Robert H. Hall, Chief Financial Officer, telephone (919) 782-0095,
telecopy (919) 571-0256, provided, however, that any such communication to the
Company may also, at the option of the Person sending such communication, be
delivered by any other means either to the Company at its address specified
above or to any Authorized Officer of the Company. Any communication pursuant to
paragraph 2 shall be made by the method specified for such communication in
paragraph 2, and shall be effective to create any rights or obligations under
this Agreement only if, in the case of a telephone communication, an Authorized
Officer of the party conveying the information and of the party receiving the
information are parties to the telephone call, and in the case of a telecopier
communication, the communication is signed by an Authorized Officer of the party
conveying the information, addressed to the attention of an Authorized Officer
of the party receiving the information, and in fact received at the telecopier
terminal the number of which is listed for the party receiving the communication
in the Information Schedule or at such other telecopier terminal as the party
receiving the information shall have specified in writing to the party sending
such information.
11.1J. Payments Due on Non-Business Days. Anything in this Agreement or
the Notes to the contrary notwithstanding, any payment of principal of or
interest on, or Yield-Maintenance Amount payable with respect to, any Note that
is due on a date other than a Business Day shall be made on the next succeeding
Business Day. If the date for any payment is extended to the next succeeding
Business Day by reason of the preceding sentence, the
<PAGE>
61
period of such extension shall be included in the computation of the interest
payable on such Business Day.
11.1K. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.1L. Descriptive Headings. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11.1M. Satisfaction Requirement. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to any Purchaser, to any holder of Notes or to the
Required Holder(s), the determination of such satisfaction shall be made by such
Purchaser, such holder or the Required Holder(s), as the case may be, in the
sole and exclusive judgment (exercised in good faith) of the Person or Persons
making such determination.
11.1N. Governing Law; Submission to Jurisdiction. This Agreement shall
be construed and enforced in accordance with, and the rights of the Parties
shall be governed by, the Internal Law of the State of New York. THE COMPANY
HEREBY SUBMITS TO THE JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK
LOCATED IN NEW YORK COUNTY, NEW YORK AND THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO THE
SOLE AND ABSOLUTE ELECTION OF THE REQUIRED HOLDER(S) AND TO THE EXTENT PERMITTED
BY APPLICABLE LAW, ALL ACTIONS OR PROCEEDINGS RELATING TO THIS AGREEMENT OR THE
NOTES SHALL BE LITIGATED IN SUCH COURTS, AND THE COMPANY WAIVES ANY OBJECTION
WHICH IT MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT
OF ANY PROCEEDING IN ANY SUCH COURTS.
11.1O. Severalty of Obligations. The sales of Notes to the Purchasers
are to be several sales, and the obligations of Prudential and the Purchasers
under this Agreement are several obligations. No failure by Prudential or any
<PAGE>
62
Purchaser to perform its obligations under this Agreement shall relieve
Prudential, any other Purchaser or the Company of any of its obligations
hereunder, and neither Prudential nor any Purchaser shall be responsible for the
obligations of, or any action taken or omitted by, any other such Person
hereunder.
11.1P. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
11.1Q. Binding Agreement. When this Agreement is executed and delivered
by the Company and Prudential, it shall become a binding agreement between the
Company and Prudential. This Agreement shall also inure to the benefit of each
Purchaser which shall have executed and delivered a Confirmation of Acceptance,
and each such Purchaser shall be bound by this Agreement to the extent provided
in such Confirmation of Acceptance.
Very truly yours,
WASTE INDUSTRIES, INC.
By:
Name:
Title:
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:
Name:
Title:
<PAGE>
<PAGE>
EXHIBIT 11.1
WASTE INDUSTRIES, INC.
COMPUTATION RE: EARNINGS PER SHARE
<TABLE>
<CAPTION>
PRO FORMA (1)
YEAR ENDED DECEMBER 31,
1994 1995 1996
<S> <C> <C> <C>
Net Income.......................................................................... $2,727,599 $4,170,424 $4,203,886
Weighted average number of common shares issued and outstanding..................... 9,564,353 9,564,353 9,600,157
Common stock equivalents --
Options for common stock.......................................................... 35,804 39,721 396,000
Weighted average common stock equivalents........................................... 9,600,157 9,604,074 9,996,157
Less treasury shares assumed to be repurchased...................................... (9,880) (10,039) (311,592)
Weighted average shares outstanding................................................. 9,590,277 9,594,035 9,684,565
Net income per share................................................................ $0.28 $0.43 $0.43
</TABLE>
(1) The pro forma number of shares reflect the (i) exchange by the Company of
its common stock on a share-for-share basis for all of the outstanding
common stock of the following companies affiliated through common ownership:
Waste Enterprises, Inc., Waste Industries South, Inc., Waste Industries
West, Inc., Waste Industries East, Inc., Kabco, Inc., Conway 378, Inc. and
AmLease, Inc. in April 1996 (ii) stock dividend of nine nonvoting common
shares for each voting common share in 1995 and (iii) a 1-for-2.5 reverse
stock split and the conversion of all nonvoting common shares to common
shares in 1997.
Note: Fully diluted earnings per share are not presented as potentially dilutive
securities, in the aggregate, dilute primary earnings per share by less
than three percent.
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
NONE.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Waste Industries,
Inc. on Form S-1 of our report dated April 20, 1997, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Consolidated Financial and Operating Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Raleigh, North Carolina
April 22, 1997
