<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1998.
REGISTRATION NO. 333-48029
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WASTE CONNECTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 4953 94-3283464
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2260 DOUGLAS BOULEVARD, SUITE 280
ROSEVILLE, CALIFORNIA 95661
(916) 772-2221
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RONALD J. MITTELSTAEDT
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN
WASTE CONNECTIONS, INC.
2260 DOUGLAS BOULEVARD, SUITE 280
ROSEVILLE, CALIFORNIA 95661
(916) 772-2221
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS TO:
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ROBERT D. EVANS, ESQ. STEPHEN A. RIDDICK, ESQ.
SHARTSIS, FRIESE & GINSBURG LLP PIPER & MARBURY L.L.P.
ONE MARITIME PLAZA, 18TH FLOOR 36 SOUTH CHARLES STREET
SAN FRANCISCO, CALIFORNIA 94111 BALTIMORE, MARYLAND 21201
(415) 421-6500 (410) 539-2530
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please 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, 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(d)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE(1)
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value...................... $27,600,000 $8,142.00
=====================================================================================================================
</TABLE>
(1) Previously paid.
------------------------
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 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> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
MAY 19, 1998
2,000,000 SHARES
LOGO
COMMON STOCK
------------------
All of the 2,000,000 shares of Common Stock (the "Common Stock") offered
hereby are being sold by Waste Connections, Inc. (the "Company"). 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
$10.00 and $12.00 per share. For information relating to factors to be
considered in determining the initial public offering price, see "Underwriting."
The Common Stock has been approved for quotation on the Nasdaq National Market
under the symbol "WCNX," subject to notice of issuance.
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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============================================================================================================
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
- ------------------------------------------------------------------------------------------------------------
Per Share................................. $ $ $
- ------------------------------------------------------------------------------------------------------------
Total(2).................................. $ $ $
============================================================================================================
</TABLE>
(1) Before deducting expenses of the offering payable by the Company estimated
at $1,200,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 300,000 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 BT Alex. Brown Incorporated, Baltimore, Maryland, on or about ,
1998.
BT ALEX. BROWN CIBC OPPENHEIMER
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
This Prospectus contains registered service marks, trademarks and trade
names of the Company, including the Waste Connections, Inc. name and logo.
The Company intends to furnish its stockholders 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 fiscal year.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS 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 THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements, including the Notes thereto, appearing
elsewhere in this Prospectus. Except as otherwise noted herein, all information
in this Prospectus: (i) gives effect to the automatic conversion upon
consummation of this offering of all outstanding shares of Series A Preferred
Stock into 2,499,998 shares of Common Stock; and (ii) assumes no exercise of the
Underwriters' over-allotment option. See "Description of Capital Stock,"
"Underwriting" and Notes 8 and 9 of Notes to the Company's Financial Statements
included elsewhere herein. Unless otherwise specified herein, all references to
the "Company" or "Waste Connections" mean Waste Connections, Inc. and its
subsidiaries, and all references to "solid waste" mean non-hazardous solid
waste.
THE COMPANY
Waste Connections is a regional, integrated solid waste services company
that provides solid waste collection, transfer, disposal and recycling services
in secondary markets of the Western U.S. As of May 15, 1998, the Company served
more than 139,000 commercial, industrial and residential customers in
Washington, California, Idaho, Wyoming and South Dakota. The Company currently
owns nine collection operations and operates three transfer stations, one
Subtitle D landfill and one recycling facility. See "Business -- Introduction"
and "-- Services."
Waste Connections was founded in September 1997 to execute an
acquisition-based growth strategy in secondary markets of the Western U.S. The
Company has acquired ten solid waste services businesses since its formation and
has identified more than 300 independent operators of such businesses in the
states where it currently operates, many of which it believes may be suitable
for acquisition by the Company. In addition, the Company is currently assessing
potential acquisitions of solid waste services operations in several other
Western States. See "Business -- Acquisition Program."
The Company has targeted secondary markets in the Western U.S. because it
believes that (i) a large number of independent solid waste services companies
suitable for acquisition by the Company are located in these markets; (ii) there
is less competition in these markets from large, well-capitalized solid waste
services companies; and (iii) these markets have strong projected economic and
population growth rates. In addition, the Company's senior management team has
extensive experience acquiring and operating solid waste services businesses in
the Western U.S.
The Company has developed a market-based operating strategy tailored to the
competitive and regulatory factors that affect its markets. In certain Western
U.S. markets, where waste collection services are governed by exclusive
franchise agreements, municipal contracts and governmental certificates
(referred to in Washington as "G certificates"), the Company generally intends
to pursue a collection-based operating strategy. In these markets, the Company
believes that controlling the waste stream by providing collection services
under exclusive franchise agreements, municipal contracts and governmental
certificates is often more important to a solid waste services company's growth
and profitability than owning or operating landfills. In markets where the
Company considers ownership of landfills advantageous due to competitive and
regulatory factors, the Company generally intends to pursue an integrated,
disposal-based strategy. See "Business -- Strategy."
The Company's objective is to build a leading solid waste services company
in the secondary markets of the Western U.S. by (i) acquiring collection,
transfer, disposal and recycling operations in new markets and through "tuck-in"
acquisitions in existing markets; (ii) securing additional exclusive franchises,
municipal contracts and governmental certificates; (iii) generating internal
growth in existing markets by increasing market penetration and adding services
to its existing operations; and (iv) enhancing profitability by increasing
operating efficiencies of existing and acquired operations. The Company believes
that the experience of the members of its senior management team and their
knowledge of and reputation in the solid waste industry in the
3
<PAGE> 5
Company's targeted markets will provide the Company with competitive advantages
as it pursues its growth strategy. See "Business -- Strategy."
The Company was incorporated in Delaware in 1997. Its principal executive
offices are located at 2260 Douglas Boulevard, Suite 280, Roseville, California
95661, and its telephone number is (916) 772-2221.
BACKGROUND
In September 1997, the Company joined with two other parties to bid on
certain solid waste and recycling businesses offered for sale by Browning-Ferris
Industries, Inc. ("BFI"). The Company acquired the stock of Browning-Ferris
Industries of Washington, Inc., a provider of solid waste services to more than
78,000 customers through three municipal contracts and one G certificate in and
around Clark County, Washington, and the stock of its subsidiary, Fibres
International, Inc., a provider of solid waste services to more than 24,000
customers through eight municipal contracts and one G certificate in King and
Snohomish Counties, Washington. The acquired companies subsequently changed
their names to Waste Connections of Washington, Inc. and Waste Connections
International, Inc., respectively. The two other parties acquired selected BFI
solid waste collection and transportation assets and operations in Idaho, and
BFI's recycling assets and operations in Washington, Idaho and Oklahoma.
RECENT DEVELOPMENTS
MADERA ACQUISITION
Effective February 1, 1998, the Company acquired Madera Disposal Systems,
Inc. ("Madera"), an integrated solid waste services company operating in north
central California, with 1997 revenues of approximately $7.8 million. In
connection with the Madera acquisition, the Company acquired one franchise
agreement and one municipal contract, pursuant to which it serves more than
9,000 commercial, industrial and residential customers, and agreements to
operate two transfer stations, one Subtitle D landfill (the "Fairmead Landfill")
and one recycling facility. The Fairmead Landfill is estimated to have a
remaining life of approximately 26 years.
IDAHO ACQUISITIONS
On January 30, 1998, the Company acquired from affiliates of the Company
the stock of Waste Connections of Idaho, Inc., a provider of solid waste
collection services to more than 10,000 customers in and around Idaho Falls and
Pocatello, Idaho. Waste Connections of Idaho, Inc. was formed in September 1997
by affiliates of the Company for the purpose of acquiring certain assets of
Browning-Ferris Industries of Idaho, Inc. See "Certain Transactions."
Effective March 1, 1998, the Company acquired certain solid waste
collection assets from Hunter Enterprises, Inc., a solid waste services company
located in eastern Idaho that serves approximately 2,800 customers.
WYOMING ACQUISITIONS
On April 8, 1998, the Company acquired solid waste collection assets from
A-1 Disposal, Inc. and Jesse's Disposal, which together serve approximately
2,300 customers in northeastern Wyoming.
On May 11, 1998, the Company acquired T&T Disposal, Inc., a provider of
solid waste and recyclables collection services to more than 500 customers in
eastern Wyoming.
4
<PAGE> 6
SOUTH DAKOTA ACQUISITIONS
On May 8, 1998, the Company acquired Sowers' Sanitation, Inc. and Sunshine
Sanitation Incorporated, providers of solid waste and recyclables collection
services to an aggregate of more than 7,000 customers in western South Dakota.
LETTERS OF INTENT TO ACQUIRE ADDITIONAL OPERATIONS
As of May 15, 1998, the Company had entered into nonbinding, preliminary
letters of intent relating to the possible acquisition of five collection and
transfer companies and one integrated collection and landfill company, which the
Company estimates represent aggregate annualized revenues of more than $17.0
million, and which would result in expansion into five new markets. There can be
no assurance that actual revenues realized by the Company from the successful
acquisition of these potential acquisition candidates will not differ materially
from the Company's estimate or that any of these letters of intent will lead to
completed acquisitions on the terms currently contemplated.
AMENDMENT AND INCREASE OF CREDIT FACILITY
On April 21, 1998, the Company received a preliminary letter of commitment
to amend and increase its credit facility with a syndicate of banks led by
BankBoston, N.A. The amendment is contingent on this offering and will, among
other things, increase the Company's borrowing capacity from $25.0 million to
$60.0 million, modify certain covenants and lower the Company's borrowing costs.
As of May 15, 1998, the aggregate outstanding principal indebtedness under the
current credit facility was approximately $20.1 million.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.................. 2,000,000 shares
Common Stock to be outstanding after this offering... 7,932,724 shares(1)
Use of proceeds...................................... Repayment of existing indebtedness
and for general corporate purposes,
including possible acquisitions and
capital expenditures.
Nasdaq National Market symbol........................ WCNX
</TABLE>
- ---------------
(1) Excludes 2,281,600 shares of Common Stock issuable upon the exercise of
warrants and options outstanding as of May 15, 1998, at a weighted average
exercise price of $3.69 per share. See "Management -- Stock Option Plan,"
"Certain Transactions" and Note 9 of Notes to the Company's Financial
Statements included elsewhere herein.
5
<PAGE> 7
WASTE CONNECTIONS, INC.
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION PRO FORMA AS THREE MONTHS ENDED
(SEPTEMBER 9, ADJUSTED MARCH 31, 1998
1997) THROUGH YEAR ENDED -----------------------------
DECEMBER 31, DECEMBER 31, PRO FORMA
1997 1997(1) ACTUAL AS ADJUSTED(1)
-------------- ------------ ---------- ----------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.................................................. $ 6,237 $ 35,013 $ 7,601 $ 8,462
Cost of operations........................................ 4,703 26,114 5,397 6,017
Selling, general and administrative....................... 619 4,252 770 897
Depreciation and amortization............................. 354 2,431 541 623
Start-up and integration.................................. 493 493 -- --
Stock compensation........................................ 4,395 4,395 320 320
---------- ---------- ---------- ----------
Income (loss) from operations............................. (4,327) (2,672) 573 605
Interest expense.......................................... (1,035) -- (301) --
Other income (expense), net............................... (36) 151 -- 16
---------- ---------- ---------- ----------
Income (loss) before income taxes......................... (5,398) (2,521) 272 621
Income tax (provision) benefit............................ 332 (781) (237) (377)
---------- ---------- ---------- ----------
Net income (loss)......................................... $ (5,066) $ (3,302) $ 35 $ 244
========== ========== ========== ==========
Redeemable convertible preferred stock accretion.......... $ (531) $ -- $ (572) $ --
---------- ---------- ---------- ----------
Net loss applicable to common stockholders................ $ (5,597) $ (3,302) $ (537) $ 244
========== ========== ========== ==========
Basic net income (loss) per share......................... $ (2.99) $ (0.45) $ (0.23) $ 0.03
========== ========== ========== ==========
Shares used in calculating basic net income
(loss) per share........................................ 1,872,567 7,372,565 2,311,111 7,811,109
Diluted net income per share.............................. $ 0.03
==========
Shares used in calculating diluted net income per share... 8,835,415
Pro forma basic net income (loss) per share(2)............ $ (1.16) $ 0.01
========== ==========
Shares used in calculating pro forma basic net income
(loss) per share........................................ 4,372,565 5,811,109
Pro forma diluted net income per share(2)................. $ 0.01
==========
Shares used in calculating pro forma diluted
net income per share.................................... 6,835,415
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
DECEMBER 31, --------------------------
1997 ACTUAL AS ADJUSTED(3)
------------ --------- --------------
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BALANCE SHEET DATA:
Cash...................................................... $ 820 $ 2,386 $ 5,234
Working capital........................................... 836 988 3,836
Property and equipment, net............................... 4,185 7,316 7,316
Total assets.............................................. 18,880 41,033 43,881
Long-term debt(4)......................................... 6,762 16,289 --
Redeemable convertible preferred stock.................... 7,523 8,095 --
Redeemable common stock(5)................................ -- 7,500 --
Total stockholders' equity (deficit)...................... (551) 1,181 35,913
</TABLE>
(see footnotes on following page)
6
<PAGE> 8
- ---------------
(1) Assumes the Company's acquisitions of Madera Disposal Systems, Inc., Waste
Connections of Idaho, Inc. and predecessor and the Company's predecessors
occurred on January 1, 1997, adjusted to reflect the sale of the Common
Stock offered hereby at an assumed initial public offering price of $11.00
per share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds" and "Unaudited Pro Forma Financial Statements."
(2) Adjusted to reflect the conversion of all outstanding shares of redeemable
convertible Preferred Stock for the period from inception through December
31, 1997, and the conversion of redeemable convertible Preferred Stock and
all outstanding shares of redeemable Common Stock for the three months ended
March 31, 1998, as if such conversions had occurred as of the first day of
each of the periods presented. See Note 11 of Notes to the Company's
Financial Statements included elsewhere herein for an explanation of the pro
forma historical per share calculations.
(3) Adjusted to reflect the sale of the Common Stock offered by the Company
hereby at an assumed initial public offering price of $11.00 per share and
the application of the estimated net proceeds therefrom, as described in
"Use of Proceeds."
(4) Excludes redeemable Common Stock and redeemable convertible Preferred Stock.
(5) Common Stock issued in connection with the acquisition of Madera is
redeemable in certain circumstances, as defined in the Stock Purchase
Agreement between the Company and the Madera shareholders; however, the
redemption right expires upon the closing of this offering. See Notes 2 and
9 of Notes to the Company's Financial Statements included elsewhere herein.
7
<PAGE> 9
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered by this
Prospectus. This Prospectus contains certain forward-looking statements that
involve risks and uncertainties. Discussions containing such forward-looking
statements may be found in the material set forth under "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as in the Prospectus generally.
The cautionary statements contained in this Prospectus should be read as
applying to all related forward-looking statements wherever they appear in this
Prospectus. The Company's actual results could differ materially from those
discussed here as a result of various factors, including without limitation
those discussed below and elsewhere in this Prospectus.
Limited Operating History; Integration of Completed Acquisitions. The
Company was formed in September 1997 and commenced operations on October 1,
1997. Accordingly, the Company has only a limited operating history upon which
to base an evaluation of its business and its prospects. The disclosures
regarding the Company contained in this Prospectus must be considered in light
of the risks, expenses and difficulties frequently encountered by companies in
their early stages of development. In addition, there can be no assurance that
the Company's recently assembled senior management team will be able to manage
the Company successfully and implement the Company's operating and growth
strategies effectively.
The Company's effective integration of acquired businesses into its
organization and operations is and will continue to be important to the
Company's growth and future financial performance. A part of the Company's
strategy is to achieve economies of scale and operating efficiencies by
increasing its size through acquisitions. These goals may not be achieved unless
the Company effectively combines the operations of acquired businesses with its
existing operations. Because of the Company's limited operating history, there
can be no assurance that its recently assembled senior management team will
succeed in integrating the Company's completed and future acquisitions. Any
difficulties the Company encounters in the integration process could have a
material adverse effect on its business, financial condition and results of
operations.
Growth Strategy Implementation; Ability to Manage Growth. The Company's
growth strategy includes (i) expanding through acquisitions, (ii) acquiring
additional exclusive franchise agreements and municipal contracts and (iii)
generating internal growth. The Company's ability to execute its growth strategy
will depend on a number of factors, including the success of existing and
emerging competition, the availability of acquisition targets, the ability to
maintain profit margins in the face of competitive pressures, the ability to
continue to recruit, train and retain qualified employees, the strength of
demand for the Company's services and the availability of capital to support its
growth.
If the Company is able to execute its growth strategy, it may experience
periods of rapid growth. Such growth, if it occurs, could place a significant
strain on the Company's management, 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 its operational
and financial systems and controls. Moreover, the Company will need to attract,
train, motivate, retain and manage additional senior managers, technical
professionals and other employees. Any failure to expand the Company's
operational and financial systems and controls or to recruit and integrate
appropriate personnel at a pace consistent with the Company's revenue growth
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Strategy."
Availability of Acquisition Targets. The Company expects that a substantial
part of its future growth will come from acquiring solid waste collection,
transfer and disposal operations. While the Company has identified numerous
acquisition candidates that it believes are suitable, no assurance
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<PAGE> 10
can be given that the Company will be able to negotiate their acquisition at
prices or on terms and conditions favorable to the Company. The Company's
failure to implement its acquisition strategy successfully would limit its
potential growth. See "Business -- Strategy" and "-- Acquisition Program."
The Company competes for acquisition candidates with other entities, some
of which have greater financial resources than the Company. Increased
competition for acquisition candidates may result in fewer acquisition
opportunities being available to the Company, as well as less attractive
acquisition terms, including increased purchase prices. These circumstances may
increase acquisition costs to levels that are beyond the Company's financial
capability or pricing parameters or that may have an adverse effect on the
Company's results of operations and financial condition. 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
consideration for potential acquisition candidates. This attractiveness may
depend in large part on the relative market price and capital appreciation
prospects of the Common Stock compared to the equity securities of the Company's
competitors. If the market price of the Company's Common Stock were to decline
materially over a prolonged period of time, the Company's acquisition program
could be materially adversely affected.
Highly Competitive Industry. The solid waste services industry is highly
competitive and fragmented and requires substantial labor and capital resources.
Certain of the markets in which the Company competes or will likely compete are
served by one or more large, national solid waste companies, as well as by
numerous regional and local solid waste companies of varying sizes and
resources, some of which have accumulated substantial goodwill. The Company also
competes with counties, municipalities and solid waste districts that maintain
their own waste collection and disposal operations. These counties,
municipalities and solid waste districts may have financial advantages over the
Company, because of their access to user fees and similar charges, tax revenues
and tax-exempt financing. Certain of the Company's competitors may also be
better capitalized, have greater name recognition or be able to provide services
at a lower cost than the Company. The Company's inability to compete with
governmental service providers and larger and better capitalized companies could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company derives a substantial portion of its revenue from exclusive
municipal contracts and franchise agreements, of which a significant number will
be subject to competitive bidding at some time in the future. See
"Business -- Services." The Company intends to bid on additional municipal
contracts and franchise agreements as a means of adding customers. There can be
no assurance that the Company will be the successful bidder to obtain or retain
contracts that come up for competitive bidding. In addition, some of the
Company's contracts may be terminated by the customer before the end of the
contract term. Municipalities in Washington may by law annex unincorporated
territory, which would remove such territory from the area covered by G
certificates issued by the Washington Utilities and Transportation Commission.
Such annexation could reduce the areas covered by the Company's G certificates
and subject more of the Company's Washington operations to competitive bidding
in the future. Moreover, the laws governing G Certificates could be amended or
repealed by legislative action, which action could have a material adverse
effect on the Company. See "Business -- G Certificates." The Company's inability
to replace revenues from contracts lost through competitive bidding or early
termination or the renegotiation of existing contracts with other revenues
within a reasonable time period could have a material adverse effect on the
Company's business, financial condition and results of operations.
Intense competition exists not only to provide services to customers but
also to acquire other businesses within each market. Other companies have
adopted or should be expected to adopt the Company's strategy of acquiring and
consolidating regional and local businesses to develop a national presence.
Increasing consolidation in the solid waste services industry is expected to
increase competitive pressures. See "Business -- Competition."
9
<PAGE> 11
Potential Inability to Finance the Company's Potential Growth. The Company
anticipates that any future business acquisitions will be financed through cash
from operations, borrowings under its bank line of credit, the issuance of
shares of the Company's Common Stock and/or seller financing. If acquisition
candidates are unwilling to accept, or the Company is unwilling to issue, shares
of the Company's Common Stock as part of the consideration for such
acquisitions, the Company may be required to use more of its available cash
resources or borrowings under its credit facility to fund such acquisitions. To
the extent that cash from operations and borrowings under the Company's credit
facility are insufficient to fund acquisitions, the Company will require
additional equity and/or debt financing. Additionally, growth through the
development or acquisition of new landfills, transfer stations and other
facilities, as well as the ongoing maintenance of such landfills, transfer
stations or other facilities, may require substantial capital expenditures.
There can be no assurance that the Company will have sufficient existing capital
resources or be able to raise sufficient additional capital resources on terms
satisfactory to the Company to meet any or all of the foregoing capital
requirements.
The terms of the Company's credit facility require the Company to obtain
the consent of the lending banks prior to consummating acquisitions of other
businesses for cash consideration (including all liabilities assumed) in excess
of $3.0 million. In addition, the Company may not incur aggregate indebtedness
greater than $250,000 to sellers in acquisition transactions without its
lenders' consent. The Company's inability to obtain such consent could prevent
the Company from completing certain acquisitions, which could inhibit the
Company's ability to execute its growth strategy. Furthermore, the Company's
credit facility contains various financial covenants predicated on the Company's
current and projected financial condition following completion of an
acquisition. If the Company is unable to satisfy these financial covenants on a
pro forma basis following completion of an acquisition, it would be unable to
complete the acquisition without a waiver from its lending banks. Whether or not
a waiver is needed, if the results of the Company's future operations differ
materially from those that are anticipated, the Company may no longer be able to
comply with the covenants in the credit facility. The Company's failure to
comply with such covenants may result in a default under the credit facility,
which could result in acceleration of the date for repayment of debt incurred
under the credit facility and would have a material adverse effect on the
Company's business, financial condition and results of operations. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and Note 5 of Notes to
the Company's Financial Statements.
Dependence on Management. The Company depends significantly on the services
of the members of its senior management team, the loss of any of whom may have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company currently maintains "key man" life insurance
with respect to Ronald J. Mittelstaedt, its President, Chief Executive Officer
and Chairman, in the amount of $3.0 million. See "Management." Key members of
the Company's management have entered into employment agreements with the
Company with terms ranging from three to five years. See
"Management -- Employment Agreements." No assurance can be given that these
agreements would be enforceable by the Company.
Geographic Concentration. The Company's operations and customers are
located in Washington, California, Idaho, Wyoming and South Dakota, and the
Company expects to focus its operations on the Western U.S. for at least the
foreseeable future. As of March 31, 1998, approximately 74% of the Company's
total annualized revenues were derived from customers located in Washington.
Therefore, the Company's business, financial condition and results of operations
are susceptible to downturns in the general economy in the Western U.S.,
particularly in Washington, and other factors affecting the region, such as
state regulations affecting the solid waste services industry and severe weather
conditions. In addition, the costs and time involved in permitting, and the
scarcity of, available landfills in the Western U.S. could make it difficult for
the Company to expand vertically in those markets. There can be no assurance
that the Company will complete a sufficient number of acquisitions in other
markets to lessen its geographic concentration. See "Business -- Strategy."
10
<PAGE> 12
Seasonality of Business. Based on historic trends experienced by the
businesses acquired by the Company, the Company's results of operations will
vary seasonally, with revenues typically lowest in the first quarter of the
year, higher in the second and third quarters, and lower in the fourth quarter
than in the second and third quarters. This seasonality reflects the lower
volume of solid waste generated during the late fall, winter and early spring
months, resulting from decreased solid waste volume relating to construction and
demolition activities during the winter months in the Western U.S. In addition,
certain of the Company's operating costs should be generally higher in the
winter months, because adverse winter weather conditions slow waste collection
activities, resulting in higher labor costs, and greater precipitation increases
the weight of collected waste, resulting in higher disposal costs, which are
calculated on a per ton basis. Because a majority of the Company's operating
expenses are expected to remain fairly constant throughout the fiscal year,
operating income should be expected to be generally lower in the winter months.
There can be no assurance that future seasonal and quarterly fluctuations will
not have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Government Regulation. The Company is subject to extensive and evolving
environmental laws and regulations, the enforcement of which has become
increasingly stringent in recent years as a result of greater public interest in
protecting the environment. These laws and regulations impose substantial costs
on the Company and affect the Company's business in many ways, including as set
forth below and under "Business -- Regulation." In addition, the nature and
extent to which federal, state and local governments grant rights to and impose
restrictions on companies in the solid waste services industry is inherently
subject to change, and such changes could have a material adverse effect on the
Company.
If the Company implements its strategy for 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 ownership or operation (including capacity increases) of any future
landfill activities engaged in by the Company, 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 results of
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 (the "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 to these regulations may require the Company to
modify, supplement or replace equipment or facilities at costs that may be
substantial. The failure of regulatory agencies to enforce these regulations
vigorously or consistently may give an advantage to competitors of the Company
whose facilities do not comply with the Subtitle D Regulations or their state
counterparts. The Company's financial obligations arising from any failure to
comply with these regulations could have a material adverse effect on the
Company's business, financial condition and results of operations. 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. Governmental agencies may seek to impose fines or penalties on
the Company or to revoke or deny renewal of the Company's operating permits,
franchises or
11
<PAGE> 13
licenses for violations or alleged violations of environmental laws or
regulations or require the Company to 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. The Company may also be subject to actions brought by
individuals or community groups in connection with the permitting, franchising
or licensing of its operations, any alleged violation of such permits,
franchises or licenses or other matters. Any adverse outcome in these
proceedings could have a material adverse effect on the Company's business,
financial condition and results of operations and may subject the Company to
adverse publicity. See "Potential Environmental Liability" below and
"Business -- Legal Proceedings."
Potential Environmental Liability. The Company is subject to liability for
any environmental damage that its solid waste facilities may cause, including
damage to neighboring landowners or residents, particularly as a result of the
contamination of soil, groundwater or surface water, and especially drinking
water. The Company's potential liability includes 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 business, financial condition
and results of operations. See "Business -- Regulation."
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA" or "Superfund"), 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.
CERCLA defines the term "hazardous substances" very broadly to include more than
700 substances that are specified under RCRA, have specific hazardous
characteristics defined under RCRA or are regulated under any of several other
statutes.
Similar liability is imposed on the generators of waste that contains
hazardous substances and on 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 on the existence of even
very small amounts of hazardous substances; unlike most of the other statutes
that regulate hazardous substances, CERCLA does not require any minimum volume
or concentration of a hazardous substance to be present before imposing
liability. It is likely that hazardous substances have in the past come to be
located in landfills with which the Company is or will become associated. If any
of the Company's sites or operations ever experiences environmental problems,
the Company could be subject to substantial liability, which could have a
material adverse effect on its business, financial condition and results of
operations. The Company has not been named as a PRP in any action brought under
CERCLA. See "Business -- Regulation."
With respect to each business that the Company acquires or has acquired,
there may be liabilities that the Company fails 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, because of their limited scope, amount or
duration, the financial limitations of the warrantor or indemnitor or other
reasons. Certain environmental liabilities, even though expressly not assumed by
the Company, may nonetheless be imposed on the Company under certain legal
theories of successor liability, particularly under CERCLA. The Company's
insurance program does not cover liabilities associated with any environmental
cleanup or
12
<PAGE> 14
remediation of the Company's own sites. An uninsured claim against the Company,
if successful and of sufficient magnitude, could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Acquisition Program."
Limitations on Landfill Permitting and Expansion. The Company currently
owns no landfills and operates only one landfill. The Company's ability to meet
its growth objectives may depend in part, however, on its ability to acquire,
lease and expand landfills and develop new landfill sites. As of May 15, 1998,
the estimated total remaining permitted disposal capacity of the Fairmead
Landfill in Madera County, California operated by the Company was approximately
600,000 tons, with approximately 3.5 million additional tons of disposal
capacity in various stages of permitting. There can be no assurance that the
Company will be successful in obtaining new landfill sites or expanding the
permitted capacity of the Fairmead Landfill once its remaining permitted
disposal capacity has been consumed.
In some areas in which the Company operates, suitable land for new sites or
expansion of existing landfill sites may be unavailable. Landfills in states in
which the Company operates are subject to state regulations and practices that
generally require operating permits to be renewed at least every five years. The
process of obtaining required permits and approvals to build, operate and expand
solid waste management facilities, including landfills and transfer stations,
has become increasingly difficult and expensive, often taking several years,
requiring numerous hearings and compliance with zoning, environmental and other
requirements and often subject to resistance from citizen, public interest or
other groups. There can be no assurance that the Company will succeed in
obtaining or maintaining the permits it requires to expand or that such permits
will not contain burdensome terms and conditions. Even when granted, final
permits to expand are often not approved until the remaining permitted disposal
capacity of a landfill is very low. Furthermore, local laws and ordinances also
may affect the Company's ability to obtain permits to expand landfills. If the
Company were to exhaust its permitted capacity at a landfill, its ability to
expand internally would be limited, and the Company could be required to cap and
close that landfill and forced to dispose of collected waste at more distant
landfills or at landfills operated by its competitors. The resulting increased
costs would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Services -- Landfills."
Alternatives to Landfill Disposal; Waste Reduction Programs. Alternatives
to landfill disposal, such as recycling, composting and incineration, are
available in some areas in which the Company operates. In addition, state and
local authorities increasingly mandate recycling and waste reduction at the
source and prohibit the disposal of certain types of wastes, such as yard
wastes, at landfills. These developments may result in the volume of waste being
reduced in certain areas. For example, California has adopted plans that set
goals for percentages of certain solid waste items to be recycled, which are
being phased in over the next several years. Increased use of alternatives to
landfill disposal may have a material adverse effect on the Company's business,
financial condition and results of operations.
Potential Inadequacy of Accruals for Closure and Post-Closure
Costs. Although the Company currently owns no landfills and operates only one
landfill, it may own and/or operate additional landfills in the future. In such
case, the Company will have material financial obligations relating to closure
and post-closure costs of landfills and any disposal facilities that it owns or
operates. The Company will in the future provide accruals for future financial
obligations relating to closure and post-closure costs of its owned or operated
landfills (generally for a term of 30 years after final closure of a landfill),
based on engineering estimates of consumption of permitted landfill airspace
over the useful life of any such landfill. There can be no assurance that the
Company's financial obligations for closing or post-closing costs will not
exceed the amount accrued and reserved or amounts otherwise receivable pursuant
to funds or reserves established for such purpose. Such a circumstance could
have a material adverse effect on the Company's business, financial condition
and results of operation. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Services -- Landfills."
13
<PAGE> 15
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. 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 completed successfully. Therefore, the Company may be
required to incur a charge against earnings in future periods, which charge,
depending on its magnitude, could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Potential Inability to Obtain Performance or Surety Bonds, Letters of
Credit or Insurance. Municipal solid waste services contracts and landfill
closure obligations may require performance or surety bonds, letters of credit,
or other means of financial assurance to secure contractual performance. Ten of
the Company's existing 34 solid waste collection and recycling contracts require
the Company to obtain performance bonds, which it has obtained. If the Company
in the future were unable to obtain performance or surety bonds or letters of
credit in sufficient amounts or at acceptable rates, it could be precluded from
entering into additional municipal solid waste services contracts or obtaining
or retaining landfill operating permits. Any future difficulty in obtaining
insurance could also impair the Company's ability to secure future contracts
conditioned on the contractor's having adequate insurance coverage. Accordingly,
the failure of the Company to obtain performance or surety bonds, letters of
credit or other means of financial assurance or to maintain adequate insurance
coverage could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Risk Management,
Insurance and Performance Bonds."
Commodity Risk Upon Resale of Recyclables. The Company provides recycling
services to some of its customers. The sale prices of and demand for recyclable
waste products, particularly wastepaper, have been, and may continue to be,
volatile and subject to changing market conditions. Accordingly, the Company's
results of operations may be affected by changing resale prices or demand for
certain recyclable waste products, particularly wastepaper. These changes may
contribute to variability in the Company's period-to-period results of
operations. See "Business -- Services -- Recycling and Other Services."
Potential Anti-Takeover Effect of Certain Charter and By-Law Provisions and
Delaware Law. The Company's Amended and Restated Certificate of Incorporation
(the "Restated Certificate of Incorporation") and Amended and Restated By-Laws
(the "Restated By-Laws") provide for the Company's Board of Directors to be
divided into three classes of directors serving staggered three-year terms. As a
result, beginning in 1998, approximately one-third of the Company's Board will
be elected each year. The classified Board is designed to ensure continuity and
stability in the Board's composition and policies in the event of a hostile
takeover attempt or proxy contest. The classification of the Board would extend
the time required to effect any changes in control of the Board and may
discourage any hostile takeover bid for the Company. The classified Board may
also make the removal of the Company's incumbent management more difficult, even
if such removal would be beneficial to stockholders generally, and therefore may
discourage certain tender offers.
The authorized capital of the Company includes 10,000,000 shares of "blank
check" Preferred Stock, of which 2,500,000 shares have been authorized and
2,499,998 shares have been issued as Series A Preferred Stock. All outstanding
shares of Series A Preferred Stock automatically convert into shares of Common
Stock on a one-for-one basis upon the closing of this offering. The Board of
Directors has the authority to issue shares of Preferred Stock and to determine
the price, designation, rights, preferences, privileges, restrictions and
conditions, including voting and dividend rights, of these shares of Preferred
Stock without any further vote or action by the
14
<PAGE> 16
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of holders of any Preferred Stock that
may be issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could make it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any additional Preferred Stock. See "Description of
Capital Stock."
The Company is subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law, which, subject to certain exceptions,
prohibits the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the time that
such stockholder became an interested stockholder. The application of Section
203 also could have the effect of delaying or preventing a change of control of
the Company. These provisions, and provisions of the Restated Certificate of
Incorporation and Restated By-Laws, may deter hostile takeovers or delay or
prevent changes in control or management of the Company, including transactions
in which stockholders might otherwise receive a premium for their shares over
then current market prices. In addition, these provisions may limit the ability
of stockholders to approve transactions that they may deem to be in their best
interests. See "Description of Capital Stock -- Preferred Stock" and "-- Certain
Statutory, Charter and By-Law Provisions."
Shares Eligible for Future Sale; Registration Rights. The sale of
substantial amounts of the Company's Common Stock in the public market following
this offering (including shares issued on the exercise of outstanding warrants
and stock options), 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. The
remaining 5,932,724 shares of Common Stock held by existing stockholders on
completion of this offering will be "restricted securities," as that term is
defined in Rule 144 under the Securities Act. Restricted securities may be sold
in the public market only if they are registered or if they qualify for an
exemption from registration under Rule 144 or 701 promulgated under the
Securities Act. All of the shares outstanding prior to completion of this
offering are subject to contractual restrictions that prohibit the stockholders
from selling or otherwise disposing of such shares for a period of 180 days
after the date of this Prospectus without the prior written consent of BT Alex.
Brown Incorporated. The Company has also agreed not to sell any shares of Common
Stock for 180 days after the date of this Prospectus without the prior written
consent of BT Alex. Brown Incorporated, except as consideration for business
acquisitions, upon the exercise of currently outstanding stock options or
warrants, or upon the issuance of options to employees, consultants and
directors under the Company's 1997 Stock Option Plan and the exercise of such
options. After this 180-day period expires, 4,749,998 of the shares of Common
Stock that are either currently outstanding or will be outstanding on conversion
of the currently outstanding Series A Preferred Stock will be eligible for
resale in the public market under Rule 144 promulgated under the Securities Act.
An additional 1,000,000 of the currently outstanding shares of Common Stock will
become saleable in the public market in February 1999, an additional 132,726 of
the currently outstanding shares will become saleable in the public market later
in 1999, and an additional 50,000 of the currently outstanding shares of Common
Stock will become saleable in the public market ratably over three years, in
each case subject to the restrictions of Rule 144. In addition, certain
stockholders, who after the closing of this offering will own approximately
5,849,998 shares of Common Stock, have the right for the five years after the
closing of this offering, subject to certain conditions, to include their shares
in future registration statements relating to the Company's securities and to
cause the Company to register certain shares of Common Stock owned by them. See
"Shares Eligible for Future Sale."
After the completion of this offering, the Company intends to file a
registration statement under the Securities Act to register all shares issuable
on exercise of stock options or other awards granted or to be granted under its
existing stock plan. See "Management -- 1997 Stock Option Plan." After the
filing of such registration statement and subject to certain restrictions under
Rule 144, those shares will be freely saleable in the public market immediately
following exercise of such options.
15
<PAGE> 17
The Company currently intends to file a shelf registration statement
covering up to an additional 3,000,000 shares of Common Stock under the
Securities Act for its use in connection with future acquisitions. Such shares,
when issued, could be freely saleable in the public market 180 days after the
date of this Prospectus, or earlier on prior written approval of BT Alex. Brown
Incorporated by persons not affiliated with the Company, unless the Company
contractually restricts their resale. See "Shares Eligible for Future Sale" and
"Underwriting."
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
as an indication of future performance. Due to a variety of factors, including
general economic conditions, government regulatory action, acquisitions, capital
expenditures and other costs related to the expansion of operations and
services, pricing changes and adverse weather conditions, it is possible that in
some future quarter, the Company's operating results will be below the
expectations of securities analysts and investors. In such event, the price of
the Company's Common Stock would likely be materially adversely affected. The
price of the Company's Common Stock may be highly volatile and is likely to be
affected by the foregoing 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. These broad market fluctuations, however, may
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 company. There can be no
assurance that such litigation will not occur in the future with respect to the
Company. Litigation could result in substantial costs and divert 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 any such litigation could also subject the Company to
significant liabilities.
Immediate and Substantial Dilution. Purchasers of shares of Common Stock in
this offering will incur an immediate and substantial dilution in the net
tangible book value per share of the Common Stock from the initial public
offering price. Investors will experience additional dilution as a result of
Common Stock being issued upon the exercise of outstanding stock options and
warrants. To implement its acquisition strategy, the Company intends to register
up to 3,000,000 additional shares of Common Stock for issuance in connection
with future acquisitions. If shares of Common Stock are issued in connection
with future acquisitions, purchasers of shares of Common Stock in this offering
may experience additional dilution. See "Dilution" and "Shares Eligible for
Future Sale."
No Dividends. The Company does not intend to pay cash dividends on the
Common Stock in the foreseeable future and anticipates that future earnings will
be retained to finance future operations and expansion. In addition, the terms
of the Company's credit facility prohibit the Company from paying dividends or
making other payments with respect to its Common Stock without the consent of
the lenders. See "Dividend Policy."
Impact of the Year 2000. The Company will need to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 ("Year 2000") and thereafter. The Company
expects to complete those modifications and upgrades during 1999. The total Year
2000 project cost is estimated to be approximately $100,000. To date, the
Company has not incurred any costs related to the Year 2000 project. The Company
does not believe that its expenditures relating to the Year 2000 project will be
material. However, if the required Year 2000 modifications and conversions are
not made or are not completed in a timely manner, the Year 2000 issue could
materially affect the Company's operations.
16
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby (after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company) are
estimated to be $19.3 million ($22.3 million if the Underwriters' overallotment
option is exercised in full), assuming an initial public offering price of
$11.00 per share.
The Company intends to use the net proceeds to reduce outstanding
indebtedness under its credit facility with BankBoston, N.A. Approximately $20.1
million was outstanding under that facility as of May 15, 1998. The Company's
credit facility provides for borrowing capacity of up to $25.0 million,
presently bears interest based on either an adjusted prime rate or the
Eurodollar rate plus 2.0% to 2.75% per annum (the applicable rate was 8.4% as of
the date of this Prospectus) and will mature on January 30, 2001. The credit
facility was obtained primarily to fund acquisitions and to refinance debt
incurred in connection with the acquisition the Company completed in September
1997. The terms of the credit facility permit the Company to redraw on the
credit facility as needed for future acquisitions and capital expenditures
(subject to certain restrictions) and general corporate purposes. On April 21,
1998, the Company received a preliminary letter of commitment from its lender to
amend and increase its credit facility. The amendment is contingent on the
completion of this offering and will, among other things, increase the Company's
borrowing capacity to $60.0 million, modify certain covenants and lower the
Company's borrowing costs.
The balance of the estimated net offering proceeds, if any, will be used
for acquisitions, capital expenditures and working capital. Pending specific
application of the net proceeds, the Company intends to invest unused net
proceeds in short-term, interest-bearing securities. The Company continually
evaluates potential acquisition candidates and intends to continue to pursue
acquisition opportunities that may become available.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock, and the
Company does not anticipate paying any cash dividends on the Common Stock in the
foreseeable future. The Company intends to retain all earnings for use in the
operation and expansion of its business. In addition, the Company's credit
facility contains restrictions on the payment of cash dividends. The Series A
Preferred Stock provides for cumulative dividends, which the Company intends to
pay in cash prior to the conversion of the Series A Preferred Stock into Common
Stock upon consummation of this offering.
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<PAGE> 19
CAPITALIZATION
The following table sets forth, as of March 31, 1998, (i) the long-term
debt and capitalization of the Company on an historical basis, and (ii) such
long-term debt and capitalization as adjusted to give effect to the sale by the
Company of the 2,000,000 shares offered hereby, at an assumed initial public
offering price of $11.00 per share, after deducting underwriting discounts and
commissions and estimated offering expenses, after conversion of all outstanding
shares of redeemable Common Stock and redeemable convertible Preferred Stock
into 1,000,000 and 2,499,998 shares of Common Stock, respectively, after payment
of $123,000 in accumulated Preferred Stock dividends, and after the application
of a portion of the estimated net offering proceeds to repay indebtedness as
described under "Use of Proceeds." This table should be read in conjunction with
the Company's Financial Statements and Notes thereto and the Unaudited Pro Forma
Financial Statements and Notes thereto, which are included elsewhere in this
Prospectus. See "Description of Capital Stock."
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
(IN THOUSANDS)
ACTUAL AS ADJUSTED(1)
------- --------------
<S> <C> <C>
Long-term debt, net......................................... $16,289 $ --
------- -------
Redeemable Convertible Preferred Stock, $.01 par value,
2,500,000 shares authorized; 2,499,998 shares issued and
outstanding actual; no shares issued and outstanding as
adjusted.................................................. 8,095 --
Redeemable Common Stock, $.01 par value; 1,000,000 shares
issued and outstanding actual; no shares issued and
outstanding as adjusted(2)................................ 7,500 --
Stockholder's equity:
Preferred Stock, $.01 par value, 7,500,000 shares
authorized; no shares issued and outstanding actual and
as adjusted............................................ -- --
Common Stock, $.01 par value, 50,000,000 shares
authorized; 2,350,000 shares issued and outstanding
actual; 7,849,998 shares issued and outstanding as
adjusted(3)............................................ 24 79
Additional paid-in capital................................ 8,114 42,791
Stockholder notes receivable.............................. (82) (82)
Deferred stock compensation(4)............................ (741) (741)
Accumulated deficit....................................... (6,134) (6,134)
------- -------
Total stockholders' equity (deficit)...................... 1,181 35,913
------- -------
Total capitalization.............................. $33,065 $35,913
======= =======
</TABLE>
- ---------------
(1) A portion of the estimated net proceeds from this offering will be used to
repay all of the Company's then outstanding indebtedness.
(2) Common Stock issued in connection with the acquisition of Madera is
redeemable in certain circumstances. Upon completion of this offering, these
shares will no longer be redeemable. See Notes 2 and 9 of Notes to the
Company's Financial Statements included elsewhere herein.
(3) Excludes 2,276,300 shares issuable on the exercise of options and warrants
outstanding at March 31, 1998, at a weighted average exercise price of $3.68
per share. See "Management -- 1997 Stock Option Plan," "Certain
Transactions" and Note 9 of Notes to the Company's Financial Statements
included elsewhere herein.
(4) Deferred stock compensation relates to stock options granted to employees
with exercise prices below the estimated fair value of the stock on the date
of grant. Deferred stock compensation is being amortized to stock
compensation expense over the vesting periods of the respective stock
options. See Notes 1 and 9 of Notes to the Company's Financial Statements
included elsewhere herein.
18
<PAGE> 20
DILUTION
The negative net tangible book value of the Company's Common Stock as of
March 31, 1998, was $(9.0) million, or $(1.54) per share. Net tangible book
value per share represents the amount of the Company's total tangible assets,
less its total liabilities (excluding redeemable Common Stock and redeemable
convertible Preferred Stock), divided by the total number of shares of Common
and Preferred Stock (including redeemable stock) outstanding immediately prior
to this offering.
After giving effect to the sale by the Company of 2,000,000 shares of
Common Stock in this offering at an assumed public offering price of $11.00 per
share (and after deduction of the underwriting discounts and commissions and
estimated offering expenses), the Company's net tangible book value as of March
31, 1998, would have been approximately $10.2 million, or $1.30 per share of
Common Stock. This represents an immediate increase in net tangible book value
of approximately $2.84 per share to existing stockholders and an immediate
dilution of net tangible book value of approximately $9.70 per share to new
investors purchasing Common Stock in this offering, as illustrated in the
following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Negative net tangible book value per share prior to
this offering......................................... $(1.54)
Increase in net tangible book value per share
attributable to new investors......................... 2.84
------
Net tangible book value per share after this offering....... 1.30
------
Dilution in net tangible book value per share to new
investors................................................. $ 9.70
======
</TABLE>
The following table sets forth, as of March 31, 1998, the difference
between existing stockholders and new investors purchasing shares of Common
Stock 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 stockholders.............. 5,849,998 74.5% $14,663,000 40.0% $ 2.51
New investors...................... 2,000,000 25.5 22,000,000 60.0 $ 11.00
--------- ----- ----------- -----
Total.................... 7,849,998 100.0% $36,663,000 100.0%
========= ===== =========== =====
</TABLE>
As of March 31, 1998, the Company had outstanding stock options and
warrants exercisable for 2,276,300 shares of Common Stock at a weighted average
exercise price of $3.68 per share. If these options and warrants are exercised,
further dilution to new investors will occur. The Company may also issue
additional shares to effect future business acquisitions or upon exercise of
stock options granted in the future or other equity awards, which could result
in additional dilution to then existing stockholders. See
"Management -- Executive Compensation -- Stock Options and Warrants."
19
<PAGE> 21
SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
The following table presents selected historical and pro forma consolidated
statements of operations and balance sheet data of the Company and its
predecessors for the periods indicated.
The entities the Company acquired in September 1997 from BFI are
collectively referred to herein as the Company's predecessors. BFI acquired the
predecessor operations at various times during 1995 and 1996, and prior to being
acquired by BFI, the predecessors operated as separate stand-alone businesses.
The selected financial information of the Company's predecessors as of December
31, 1996, for the nine months ended September 30, 1997, and for the years ended
December 31, 1995 and 1996 has been derived from audited financial statements
included elsewhere in this Prospectus. The selected financial information of the
Company as of December 31, 1997, and for the period from inception (September 9,
1997) through December 31, 1997, has been derived from audited financial
statements included elsewhere in this Prospectus. The selected financial
information of the Company's predecessors as of December 31, 1993, 1994 and
1995, and for the years ended December 31, 1993 and 1994 has been derived from
financial statements that have not been audited. The selected financial
information as of March 31, 1998 and for the three months ended March 31, 1997
and 1998 has been derived from unaudited financial statements included elsewhere
in this Prospectus. In the opinion of the Company's management, the unaudited
financial data include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for the unaudited periods. The Company's operating results
for the three months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998. Various
factors affect the year-to-year comparability of the amounts presented herein.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Basis of Presentation" and "-- Results of Operations" for
additional information concerning the Company and its predecessor operations.
The selected pro forma financial information for the three months ended
March 31, 1998 and for the year ended December 31, 1997, gives effect to this
offering and the Company's acquisitions of Waste Connections of Idaho, Inc.,
Madera Disposal Systems, Inc. and the Company's predecessors as of the dates and
for the periods indicated, and has been derived from unaudited pro forma
financial statements included elsewhere in this Prospectus. The pro forma
financial information does not purport to represent what the Company's results
actually would have been if such events had occurred at the dates indicated, nor
does such information purport to project the results of the Company for any
future period.
The selected historical and pro forma financial information should be read
in conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations, the audited and unaudited Financial Statements and
Notes thereto of the Company and its predecessors, and the Unaudited Pro Forma
Financial Statements and Notes thereto included elsewhere in this Prospectus.
20
<PAGE> 22
WASTE CONNECTIONS, INC. AND PREDECESSORS
SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FIBRES
INTERNATIONAL,
INC.
FIBRES THE DISPOSAL FIBRES THE DISPOSAL PERIOD FROM
INTERNATIONAL, GROUP INTERNATIONAL, GROUP JANUARY 1,
INC. COMBINED INC. COMBINED 1995
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, NOVEMBER 30,
1993 1993 1994 1994 1995
-------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA(1):
Revenues............................... $3,787 $20,794 $5,610 $22,004 $7,340
Cost of operations..................... 2,737 16,775 4,432 18,298 5,653
Selling, general and administrative.... 553 3,559 552 3,320 823
Depreciation and amortization.......... 428 520 642 606 715
------ ------- ------ ------- ------
Income (loss) from operations.......... 69 (60) (16) (220) 149
Interest expense....................... (78) (390) (191) (548) (162)
Other income (expense), net............ 1 684 (2) 871 98
------ ------- ------ ------- ------
Income (loss) before income taxes...... (8) 234 (209) 103 85
Income tax (provision) benefit......... -- (77) -- -- (29)
------ ------- ------ ------- ------
Net income (loss)...................... $ (8) $ 157 $ (209) $ 103 $ 56
====== ======= ====== ======= ======
<CAPTION>
THE
DISPOSAL
GROUP
COMBINED
PERIOD
THE DISPOSAL FROM PREDECESSORS
PREDECESSORS GROUP JANUARY 1, COMBINED
ONE MONTH COMBINED 1996 PERIOD
ENDED YEAR ENDED THROUGH ENDED
DECEMBER 31, DECEMBER 31, JULY 31, DECEMBER 31,
1995 1995 1996 1996
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA(1):
Revenues............................... $595 $19,660 $8,738 $13,422
Cost of operations..................... 527 16,393 6,174 11,420
Selling, general and administrative.... 72 3,312 2,126 1,649
Depreciation and amortization.......... 74 628 324 962
---- ------- ------ -------
Income (loss) from operations.......... (78) (673) 114 (609)
Interest expense....................... (1) (206) (12) (225)
Other income (expense), net............ 5 -- 2,661 (147)
---- ------- ------ -------
Income (loss) before income taxes...... (74) (879) 2,763 (981)
Income tax (provision) benefit......... -- 298 (505) --
---- ------- ------ -------
Net income (loss)...................... $(74) $ (581) $2,258 $ (981)
==== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
WASTE
CONNECTIONS, INC.
PERIOD FROM PREDECESSORS
PREDECESSORS INCEPTION COMBINED WASTE CONNECTIONS, INC.
COMBINED (SEPTEMBER 9, PRO FORMA AS THREE THREE MONTHS ENDED
NINE MONTHS 1997) ADJUSTED MONTHS MARCH 31, 1998
ENDED THROUGH YEAR ENDED ENDED ---------------------------
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, MARCH 31, PRO FORMA
1997 1997 1997(2) 1997 ACTUAL AS ADJUSTED(2)
------------- ----------------- ------------ ------------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA(1):
Revenues......................... $18,114 $ 6,237 $ 35,013 $5,694 $ 7,601 $ 8,462
Cost of operations............... 14,753 4,703 26,114 4,674 5,397 6,017
Selling, general and 3,009 619 4,252 715 770 897
administrative.................
Depreciation and amortization.... 1,083 354 2,431 378 541 623
Start-up and integration......... -- 493 493 -- -- --
Stock compensation............... -- 4,395 4,395 -- 320 320
------- ---------- ---------- ------ ---------- ----------
Income (loss) from operations.... (731) (4,327) (2,672) (73) 573 605
Interest expense................. (456) (1,035) -- (152) (301) --
Other income (expense), net...... 14 (36) 151 -- -- 16
------- ---------- ---------- ------ ---------- ----------
Income (loss) before income (1,173) (5,398) (2,521) (225) 272 621
taxes..........................
Income tax (provision) benefit... -- 332 (781) -- (237) (377)
------- ---------- ---------- ------ ---------- ----------
Net income (loss)................ $(1,173) $ (5,066) $ (3,302) $ (225) $ 35 $ 244
======= ========== ========== ====== ========== ==========
Redeemable convertible preferred (531) -- (572) --
stock accretion................
---------- ---------- ---------- ----------
Net income (loss) applicable to $ (5,597) $ (3,302) $ (537) $ 244
common stockholders............
========== ========== ========== ==========
Basic net income (loss) per $ (2.99) $ (0.45) $ (0.23) $ 0.03
share..........................
========== ========== ========== ==========
Shares used in calculating basic 1,872,567 7,372,565 2,311,111 7,811,109
net income (loss) per share....
Diluted net income per share..... $ 0.03
==========
Shares used in calculating 8,835,415
diluted net income per share...
Pro forma basic net income (loss) $ (1.16) $ 0.01
per share(3)...................
========== ==========
Shares used in calculating pro 4,372,565 5,811,109
forma basic net income (loss)
per share......................
Proforma diluted net income per $ 0.01
share(3).......................
==========
Shares used in calculating pro 6,835,415
forma diluted net income per
share..........................
</TABLE>
(see footnotes on following page)
21
<PAGE> 23
<TABLE>
<CAPTION>
FIBRES THE DISPOSAL FIBRES THE DISPOSAL THE DISPOSAL
INTERNATIONAL, GROUP INTERNATIONAL, GROUP PREDECESSORS GROUP PREDECESSORS
INC. COMBINED INC. COMBINED COMBINED COMBINED COMBINED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1993 1994 1994 1995 1995 1996
-------------- ------------ -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA(1):
Cash and
equivalents....... $ 3 $ 196 $ 321 $ 203 $ 184 $ 961 $ 102
Working capital..... 494 (1,497) 155 (4,279) 90 2,498 695
Property and
equipment, net.... 1,454 2,440 3,810 2,771 4,035 2,221 5,069
Total assets........ 3,325 7,455 6,317 7,318 9,151 6,942 15,291
Long-term debt(5)... 1,167 1,258 2,353 90 149 6,890 89
Redeemable
convertible
preferred stock... -- -- -- -- -- -- --
Redeemable common
stock(6).......... -- -- -- -- -- -- --
Total stockholders'
equity
(deficit)......... 991 (163) 3,045 (1,486) -- (2,067) --
<CAPTION>
WASTE CONNECTIONS, INC.
----------------------------------------------
MARCH 31, 1998
DECEMBER 31, --------------------------
1997 ACTUAL AS ADJUSTED(4)
----------------- --------- --------------
<S> <C> <C> <C>
BALANCE SHEET
DATA(1):
Cash and
equivalents....... $ 820 $ 2,386 $ 5,234
Working capital..... 836 988 3,836
Property and
equipment, net.... 4,185 7,316 7,316
Total assets........ 18,880 41,033 43,881
Long-term debt(5)... 6,762 16,289 --
Redeemable
convertible
preferred stock... 7,523 8,095 --
Redeemable common
stock(6).......... -- 7,500 --
Total stockholders'
equity
(deficit)......... (551) 1,181 35,913
</TABLE>
- ---------------
(1) The entities the Company acquired in September 1997 from BFI are
collectively referred to herein as the Company's predecessors. BFI acquired
the predecessor operations at various times during 1995 and 1996, and prior
to being acquired by BFI, the predecessors operated as separate stand-alone
businesses. Various factors affect the year-to-year comparability of the
amounts presented. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-- Basis of Presentation" and
"-- Results of Operations" for additional information concerning the
Company and its predecessor operations.
(2) Assumes the Company's acquisitions of Waste Connections of Idaho, Inc.,
Madera Disposal Systems, Inc. and the Company's predecessors occurred on
January 1, 1997, adjusted to reflect the sale of the Common Stock offered
hereby at an assumed initial public offering price of $11.00 per share, and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Unaudited Pro Forma Financial Statements."
(3) Adjusted to reflect the conversion of all outstanding shares of redeemable
convertible Preferred Stock for the period from inception through December
31, 1997, and the conversion of redeemable convertible Preferred Stock and
all outstanding shares of redeemable Common Stock for the three months
ended March 31, 1998, as if such conversions had occurred as of the first
day of each of the periods presented. See Note 11 of Notes to the Company's
Financial Statements included elsewhere herein for an explanation of the
pro forma historical per share calculations.
(4) Adjusted to reflect the sale of the Common Stock offered hereby at an
assumed initial public offering price of $11.00 per share, and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Unaudited Pro Forma Financial Statements."
(5) Excludes redeemable Common Stock and redeemable convertible Preferred
Stock.
(6) Common stock issued in connection with the acquisition of Madera is
redeemable in certain circumstances, as defined in the Stock Purchase
Agreement between the Company and the Madera shareholders; however, the
redemption right expires upon the closing of this offering. See Notes 2 and
9 of Notes to the Company's Financial Statements included elsewhere herein.
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Unaudited
Pro Forma Financial Statements and Notes thereto, the audited and unaudited
Financial Statements and Notes thereto of the Company and its predecessors,
Madera's audited Financial Statements and Notes thereto, and other financial
information included elsewhere in this Prospectus. This Prospectus contains
forward-looking statements that 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 Connections is a regional, integrated solid waste services company
that provides solid waste collection, transfer, disposal and recycling services
in secondary markets of the Western U.S. As of May 15, 1998, the Company served
more than 139,000 commercial, industrial and residential customers in
Washington, California, Idaho, Wyoming and South Dakota. The Company currently
owns nine collection operations and operates three transfer stations, one
Subtitle D landfill and one recycling facility.
The Company generally intends to pursue an acquisition-based growth
strategy and has acquired ten companies since its inception in September 1997.
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.
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 expects
to invest in collection vehicles and equipment, maintenance of existing
equipment, and management information systems, which should enable the Company
to expand internally and through acquisitions based on its existing
infrastructure. The Company anticipates that any future business acquisitions
will be financed through cash from operations, borrowings under its bank line of
credit, the issuance of shares of the Company's Common Stock and/or seller
financing.
In September 1997, the Company joined with two other parties to bid on
certain solid waste and recycling businesses offered for sale by BFI. The
Company acquired the stock of Browning-Ferris Industries of Washington, Inc., a
provider of solid waste services to more than 78,000 customers through three
municipal contracts and one G certificate in and around Clark County,
Washington, and the stock of its subsidiary, Fibres International, Inc., a
provider of solid waste services to more than 24,000 customers through eight
municipal contracts and one G certificate in King and Snohomish Counties,
Washington. The acquired companies subsequently changed their names to Waste
Connections of Washington, Inc. and Waste Connections International, Inc.,
respectively. The two other parties acquired selected BFI solid waste collection
and transportation assets and operations in Idaho, and BFI's recycling assets
and operations in Washington, Idaho and Oklahoma.
On January 30, 1998, the Company acquired the stock of Waste Connections of
Idaho, Inc., a provider of solid waste collection services to more than 10,000
customers in and around Idaho Falls and Pocatello, Idaho through subscription
agreements with residential customers and seven municipal contracts. Waste
Connections of Idaho, Inc., was formed in September 1997 by affiliates of the
Company for the purpose of acquiring certain assets of Browing-Ferris Industries
of Idaho, Inc.
Effective February 1, 1998, the Company acquired Madera, an integrated
solid waste services company operating in north central California, with 1997
revenues of approximately $7.8 million. In connection with the Madera
acquisition, the Company acquired one franchise agreement and one municipal
contract, pursuant to which it serves more than 9,000 commercial, industrial and
23
<PAGE> 25
residential customers, and agreements to operate two transfer stations, one
Subtitle D landfill and one recycling facility.
Effective March 1, 1998, the Company acquired certain solid waste
collection assets from Hunter Enterprises, Inc., a solid waste services company
located in eastern Idaho. These assets "tuck in" to the Company's Idaho
operations and serve approximately 2,800 residential and commercial customers.
On April 8, 1998, the Company acquired solid waste collection assets from
A-1 Disposal, Inc. and Jesse's Disposal, both operating in northeastern Wyoming,
and together serving approximately 2,300 residential and commercial customers.
On May 8, 1998, the Company acquired Sowers' Sanitation, Inc. and Sunshine
Sanitation Incorporated, providers of solid waste and recyclables collection
services to an aggregate of more than 7,000 customers in western South Dakota.
On May 11, 1998, the Company acquired T&T Disposal, Inc., a provider of
solid waste and recyclables collection services to more than 500 customers in
eastern Wyoming.
The entities the Company acquired in September 1997 from various
subsidiaries of BFI are collectively referred to herein as the Company's
predecessors. BFI acquired the predecessor operations at various times during
1995 and 1996, and prior to being acquired by BFI, the predecessors operated as
separate stand-alone businesses.
GENERAL
The Company's revenues are attributable primarily to fees charged to
customers for solid waste collection, transfer, disposal and recycling services.
The Company derives a substantial portion of its collection revenues from
commercial, industrial and residential services, which are frequently performed
under service agreements or pursuant to franchise agreements with counties or
municipal contracts. County franchise agreements and municipal contracts
generally last from one to ten years. The Company's existing franchise agreement
and all of its existing municipal contracts give the Company the exclusive right
to provide specified waste services in the specified territory during the
contract term. Such exclusive arrangements are awarded, at least initially, on a
competitive bid basis and thereafter on a bid or negotiated basis. Some of the
Company's residential collection services are also performed on a subscription
basis with individual households. A substantial portion of the Company's
collection business in Washington is performed under G certificates awarded by
the Washington Utilities and Transportation Commission, which grant the Company
collection rights in certain areas. These rights are generally perpetual and
exclusive. See "Business -- G Certificates." Contracts with counties and
municipalities and G certificates provide relatively consistent cash flow during
the term of the contracts. Because most residential customers on a subscription
basis are billed quarterly, subscription agreements also are a stable source of
revenues for the Company. The Company's collection business also generates
revenues from the sale of recyclable commodities.
Transfer station and landfill customers are charged a tipping fee on a per
ton basis for disposing of their solid waste at the transfer stations and
disposal facility operated by the Company under contract with the County of
Madera. The majority of the Company's transfer and landfill customers are under
one to ten year disposal contracts, most of which provide for annual cost of
living increases.
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 by competitors 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
24
<PAGE> 26
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.
Costs of operations include labor, fuel, equipment maintenance and tipping
fees paid to third party disposal facilities, worker's compensation and vehicle
insurance, the cost of materials purchased to be recycled, third party
transportation expense, district and state taxes, host community fees and
royalties. The Company operates three 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.
Selling, general and administrative ("SG&A") expenses include management,
clerical and administrative compensation and overhead costs associated with the
Company's marketing and sales force, professional services and community
relations expense.
Depreciation and amortization expense includes depreciation of fixed assets
over the estimated useful life of the assets using the straight line method and
the amortization of goodwill and other intangible assets using the straight line
method.
The Company capitalizes certain third party expenditures related to pending
acquisitions or development projects, such as legal and engineering expenses.
Indirect acquisition 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 successfully completed. At March 31,
1998, the Company had no such capitalized costs. The Company routinely evaluates
all capitalized costs, and expenses those related to projects the Company
believes are not likely to be successful.
Because it does not currently own any landfills, the Company does not
accrue for estimated landfill closure and post-closure maintenance costs. Under
regulations pursuant to which the permit for the Fairmead Landfill was issued,
the Company and Madera County, as operator and owner, respectively, are jointly
liable for closure and post-closure liabilities with respect to the landfill.
The Company has not accrued for such liabilities because Madera County, as
required by state law, has established a special fund, into which a designated
portion of tipping fee surcharges are deposited, to pay such liabilities.
Consequently, management of the Company does not believe Madera had any
financial obligation for closure and post-closure costs for the Fairmead
Landfill as of March 31, 1998. The Company will have material financial
obligations relating to closure and post-closure costs of any disposal
facilities it may own or operate in the future, and in such case the Company
will provide accruals for future financial obligations relating to closure and
post-closure costs of its landfills (generally for a term of 30 years after
final closure of a landfill), based on engineering estimates of consumption of
permitted landfill airspace over the useful life of any such landfill.
BASIS OF PRESENTATION
The entities the Company acquired in September 1997 from BFI are
collectively referred to herein as the Company's predecessors. BFI acquired the
predecessor operations at various times during 1995 and 1996, and prior to being
acquired by BFI, the predecessors operated as separate stand-alone businesses.
During the periods in which the Company's predecessors operated as wholly
owned subsidiaries of BFI, they maintained intercompany accounts with BFI for
recording intercompany charges for costs and expenses, intercompany purchases of
equipment and additions under capital leases and intercompany transfers of cash,
among other transactions. It is not feasible to ascertain the amount of related
interest expense that would have been recorded in the historical financial
statements had the predecessors been operated as stand-alone entities. Charges
for interest expense
25
<PAGE> 27
were allocated to the Company's predecessors by BFI as disclosed in the
statement of operations data. The interest expense allocations from BFI are
based on formulas that do not necessarily correspond to the balances in the
related intercompany accounts. Moreover, the financial position and results of
operations of the predecessors during this period may not necessarily be
indicative of the financial position or results of operations that would have
been realized had the predecessors been operated as stand-alone entities. For
the periods in which the predecessors operated as wholly owned subsidiaries of
BFI, the statements of operations include amounts allocated by BFI to the
predecessors for selling, general and administrative expenses based on certain
allocation methodologies.
During the periods prior to their acquisition by BFI, the Company's
predecessors operated as separate stand-alone businesses. The acquisitions of
the predecessors by BFI were accounted for using the purchase method of
accounting, and the respective purchase prices were allocated to the fair values
of the assets acquired and liabilities assumed. Similarly, the Company's
acquisitions of the predecessors from BFI in September 1997 were accounted for
using the purchase method of accounting, and the purchase price was allocated to
the fair value of the assets acquired and liabilities assumed. Consequently, the
amounts of depreciation and amortization included in the statements of
operations for the periods presented reflect the changes in basis of the
underlying assets that were made as a result of the changes in ownership that
occurred during the periods presented. In addition, because the predecessor
companies operated independently and were not under common control or management
during these periods, and because different tax strategies may have influenced
their results of operations, the data may not be comparable to or indicative of
their operating results after their acquisition by BFI.
26
<PAGE> 28
RESULTS OF OPERATIONS
The financial information for the Company and its predecessors included in
this section and in the audited financial statements included elsewhere herein
relates to the following entities for the periods indicated:
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31, 1995:
The Disposal Group Combined Year ended December 31, 1995
Fibres International, Inc. January 1, 1995 through November 30, 1995
(BFI acquisition date)
Predecessors One month ended December 31, 1995 (represents the
results of operations of Fibres International,
Inc. subsequent to the BFI acquisition date)
YEAR ENDED DECEMBER 31, 1996:
The Disposal Group Combined January 1, 1996 through July 31, 1996
(BFI acquisition date)
Predecessors Combined Period ended December 31, 1996 (represents the
combined results of operations of The Disposal
Group subsequent to the BFI acquisition date and
the operations for the year ended December 31,
1996 of Fibres International, Inc., which was
acquired by BFI in 1995)
YEAR ENDED DECEMBER 31, 1997:
Predecessors Combined Nine months ended September 30, 1997 (represents
the combined results of operations for the nine-
month period of the entities acquired by BFI in
1995 and 1996 described above)
Waste Connections, Inc. Period from inception (September 9, 1997) through
December 31, 1997
</TABLE>
The Disposal Group Combined consists of three entities that were under
common control prior to their acquisition by BFI: Diamond Fab and Welding
Service, Inc., Buchmann Sanitary Service, Inc., and The Disposal Group.
Due to the fact that the predecessor operations existed for different
periods, year-to-year comparisons are not meaningful and therefore discussions
of SG&A, depreciation and amortization and interest expense have not been
included in this Prospectus.
Waste Connections, Inc. -- Three Months Ended March 31, 1998 vs. Predecessors
Combined -- Three Months Ended March 31, 1997
Revenue. Total revenues increased $1.9 million, or 33.5%, to $7.6 million
in 1998 from $5.7 million in 1997. The increase was primarily attributable to
the inclusion of two months of the Idaho operations acquired January 30, 1998
and the Madera operations acquired February 1, 1998 and growth in the base
business.
Cost of Operations. Total cost of operations increased $723,000, or 15.5%,
to $5.4 million in 1998 from $4.7 million in 1997. The increase was primarily
attributable to the inclusion of two months of the Idaho operations and the
Madera operations and a decline in expenses in the existing business as a result
of cost reduction measures.
27
<PAGE> 29
1997 vs. 1996
Revenue. The Company's total revenue for 1997 was $6.2 million. The total
revenue was attributable to the purchase of the Company's predecessors on
September 30, 1997. Revenues related to the Company's Predecessors Combined for
the nine months ended September 30, 1997 were $18.1 million. The Company's
Predecessors Combined for the period ended December 31, 1996 had revenues of
$13.4 million. The Disposal Group Combined had revenues of $8.7 million for the
period from January 1, 1996 to July 31, 1996. The monthly revenue run rate for
the Company and the Company's Predecessors Combined remained relatively
unchanged in 1997 versus 1996.
Cost of Operations. The Company's total cost of operations in 1997 was $4.7
million, or 75.4% of revenue. The total cost of operations was attributable to
the purchase of the Company's predecessors on September 30, 1997. Cost of
operations of the Company's Predecessors Combined for the nine months ended
September 30, 1997 was $14.8 million, or 81.4% of revenue. The Company's
Predecessors Combined for the period ended December 31, 1996 had cost of
operations of $11.4 million, or 85.1% of revenue. The Disposal Group during the
period from January 1, 1996 to July 31, 1996 had cost of operations of $6.2
million, or 70.7% of revenue. The Company's cost of operations as a percentage
of revenue in 1997 declined from the Company's Predecessors Combined cost of
operations as a percentage of revenues in 1997 and 1996, due to price increases
in the fourth quarter of 1997 and operating cost savings in lease expense,
environmental accrual fee allocations from BFI, franchise fees and amortization
of loss contract accrual. The Company's Predecessors Combined cost of operations
as a percentage of revenue for the nine months ended September 30, 1997 declined
from 1996 due to the rollover effect of the acquisition of The Disposal Group in
1996, which had generally higher margins than the existing businesses.
1996 vs. 1995
Revenue. The Company's Predecessors Combined total revenue for 1996 was
$13.4 million. The Disposal Group Combined total revenue for the period from
January 1, 1996 to July 31, 1996 was $8.7 million. The Company's Predecessors
Combined had revenues of $595,000 for the period ended December 31, 1995. The
Disposal Group Combined had revenues of $19.7 million for the year ended
December 31, 1995. Fibres International, Inc. had revenues of $7.3 million for
the period from January 1, 1995 to November 30, 1995. The monthly revenue run
rate for all of the Company's predecessors declined in 1996 from 1995 because of
the expiration of a municipal contract and a reduction in revenue from sales of
recyclable materials due to a reduction in prices of recyclable materials.
Cost of Operations. The Company's Predecessors Combined total cost of
operations for 1996 was $11.4 million, or 85.1% of revenue, and The Disposal
Group Combined cost of operations for the period from January 1, 1996 to July
31, 1996 was $6.2 million, or 70.7% of revenue. Cost of operations of the
Company's Predecessors Combined for the period ended December 31, 1995 was
$527,000 or 88.6% of revenue. Cost of operations of The Disposal Group Combined
for the year ended December 31, 1995 was $16.4 million, or 83.4% of revenue.
Cost of operations of Fibres International, Inc. for the period from January 1,
1995 to November 30, 1995 was $5.7 million, or 77.0% of revenue. Changes in cost
of operations as a percentage of revenue were impacted by reductions in prices
of recyclable materials in 1996, offset by the expiration of a low margin
municipal contract in 1995.
Madera General
Effective February 1, 1998, the Company acquired Madera, an integrated
solid waste services company operating in north central California, with 1997
revenues of approximately $7.8 million. In connection with the Madera
acquisition, the Company acquired one franchise agreement and one municipal
contract, pursuant to which it serves more than 9,000 commercial, industrial and
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<PAGE> 30
residential customers, and agreements to operate two transfer stations, one
Subtitle D landfill and one recycling facility. Selected historical financial
data for Madera follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues.................................................. $ 7,008 $ 7,770 $ 7,845
Operating expenses:
Cost of operations...................................... 5,288 5,512 5,289
Selling, general and administrative..................... 996 969 1,041
Depreciation and amortization........................... 467 585 627
------- ------- -------
Income from operations.................................... 257 704 888
Interest expense.......................................... (237) (259) (280)
Other income, net......................................... 68 113 173
------- ------- -------
Net income................................................ $ 88 $ 558 $ 781
======= ======= =======
Pro forma income taxes(1)................................. $ (30) $ (208) $ (295)
------- ------- -------
Pro forma net income(1)................................... $ 58 $ 350 $ 486
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents...................................... $ 1,064 $ 1,527
Working capital........................................... 622 942
Property and equipment, net............................... 3,800 3,636
Total assets.............................................. 6,004 6,297
Long-term obligations, net of current portion............. 2,194 1,894
Total shareholders' equity................................ 2,264 2,800
</TABLE>
- ---------------
(1) Prior to its acquisition by the Company, Madera operated under Subchapter S
of the Internal Revenue Code and was not subject to corporate federal and
state income tax. The Subchapter S election was terminated upon its
acquisition by the Company. Had Madera filed federal and state income tax
returns as a regular corporation for 1995, 1996 and 1997, income tax expense
under the provisions of Financial Accounting Standards No. 109 would have
been $30, $208 and $295, respectively. See Note 7 of Notes to Madera's
Financial Statements included elsewhere herein.
Madera 1997 vs. 1996
Revenue. Total revenues increased $75,000, or 1.0%, to $ 7.8 million in
1997 from $7.8 million in 1996. Exclusive of Madera's Professional Cleaning
Division ("PCD"), which ceased operations in July, 1997, revenues increased
$667,000, or 9.5%, to $7.7 million in 1997 from $7.0 million in 1996. This
increase was primarily attributable to increased landfill and collection volumes
resulting from existing franchise contracts, partially offset by a reduction in
landfill construction revenues.
Cost of Operations. Total cost of operations decreased $223,000 to $5.3
million in 1997 from $5.5 million in 1996. The decrease was principally due to
the elimination of PCD, which was offset by increased operating cost associated
with increased volumes of waste from existing contracts. Cost of operations as a
percentage of revenues decreased to 67.4% from 70.9% in 1996. The percentage
decrease was primarily due to the elimination of PCD.
SG&A. SG&A expenses increased approximately $72,000 to $1.0 million in 1997
from $969,000 in 1996. As a percentage of revenues, SG&A increased to 13.3% from
12.5% in 1996.
Depreciation and Amortization. Depreciation and amortization expense
increased approximately $42,000 to $627,000 in 1997 from $585,000 in 1996.
Depreciation and amortization increased as a percentage of revenues to 8.0% from
7.5%.
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<PAGE> 31
Interest Expense. Interest expense increased approximately $21,000 to
$280,000 in 1997 from approximately $259,000 in 1996. Interest expense as a
percentage of revenues increased to 3.6% in 1997 from 3.3% in 1996.
Madera 1996 vs. 1995
Revenue. Total revenues increased $762,000, or 10.9%, to $7.8 million in
1996 from $7.0 million in 1995. Exclusive of PCD, revenues increased $508,000,
or 7.8%, to $7.0 million in 1996 from $6.5 million in 1995. This increase was
primarily attributable to increased landfill and collection volumes resulting
from existing franchise contracts and landfill construction revenues. This was
partially offset by decreased revenue from sales of recyclable materials due to
a decrease in the pricing associated with recyclable materials.
Cost of Operations. Total cost of operations increased $224,000 to $5.5
million in 1996 from $5.3 million in 1995. The principal reason for the increase
was the start up of the PCD. Cost of operations as a percentage of revenues
decreased to 70.9% from 75.5% in 1996. The decrease was primarily due to the
increased volume of proportionately higher margin services.
SG&A. SG&A expenses decreased approximately $27,000 to $969,000 in 1996
from $996,000 in 1995. As a percentage of revenues, SG&A decreased to 12.5% from
14.2% in 1996 due to improved economies of scale in the Company's landfill and
collections operations as a result of additional volumes from existing
customers.
Depreciation and Amortization. Depreciation and amortization expense
increased approximately $118,000 to $585,000 in 1996 compared to $467,000 in
1995. Depreciation and amortization increased as a percentage of revenues to
7.5% in 1996 from 6.7% in 1995.
Interest Expense. Interest expense increased approximately $22,000 to
$259,000 in 1996 from approximately $237,000 in 1995. Interest expense as a
percentage of revenues decreased to 3.3% in 1996 from 3.4% in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business is capital intensive. The Company's capital
requirements include acquisitions and fixed asset purchases and are expected in
the future to include capital expenditures for landfill cell construction,
landfill development and landfill closure activities. The Company plans to meet
its capital needs through various financing sources, including internally
generated funds and debt and equity financing.
As of March 31, 1998, the Company had working capital of $965,000,
including cash and cash equivalents of $2.4 million. The Company's strategy in
managing its working capital is generally to apply the cash generated from its
operations that 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.
At inception, the Company sold 2,300,000 shares of Common Stock at $0.01
per share to its founders and 2,499,998 shares of Series A Preferred Stock at
$2.80 per share. As of May 15, 1998, the Company had sold or issued an
additional 1,132,726 shares of Common Stock at a weighted average value of $7.55
per share, and granted options and warrants to purchase 2,281,600 shares of
Common Stock at a weighted average exercise price of $3.69 per share. The
weighted average value at which shares were issued, and the weighted average
exercise price of the outstanding options and warrants, are significantly below
the assumed initial public offering price per share of Common Stock. The
Company's liquidity and capital resources would be greater if the Company had
sold shares at higher prices and issued options and warrants with higher
exercise prices. In addition, the Company's results of operations on a per share
basis would be more favorable if there were fewer shares outstanding. See "Risk
Factors -- Immediate and Substantial Dilution" and "Dilution."
30
<PAGE> 32
The Company has a $25.0 million revolving credit facility with BankBoston,
N.A., which is secured by all assets of the Company, including the Company's
interest in the equity securities of its subsidiaries. The credit facility
matures in 2001. It requires the Company to maintain certain financial ratios
and satisfy other predetermined requirements, such as minimum net worth, net
income and limits on capital expenditures. The credit facility also requires the
lenders' approval of acquisitions in certain circumstances. See "Risk
Factors -- Potential Inability to Finance the Company's Potential Growth." As of
March 31, 1998, an aggregate of approximately $17.0 million was outstanding
under the revolving line of credit. The interest rate on outstanding borrowings
under the BankBoston facility was 8.4% as of March 31, 1998. The Company has
obtained a preliminary letter of commitment from a syndicate of banks led by
BankBoston, contingent on the closing of this offering, to increase the credit
facility to $60.0 million. The credit facility will be used for: (i) refinancing
any existing debt; (ii) permitted acquisitions; (iii) capital expenditures; (iv)
working capital; (v) standby letters of credit; and (vi) general corporate
purposes. The facility will mature three years from the closing of this offering
and will be secured by substantially all the assets of the Company. The expanded
credit facility will bear interest at a rate per annum equal to, at the
Company's discretion, either: (i) the BankBoston Base Rate; or (ii) the
Eurodollar Rate plus applicable margin. The expanded credit facility is expected
to allow the Company to continue its acquisition-based growth strategy.
For the three months ended March 31, 1998, net cash provided by operations
was approximately $713,000 and was primarily provided by net income for the
period. For the period from inception to December 31, 1997, net cash provided by
operations was $2.6 million. This was primarily the result of the net loss for
the period offset by non-cash charges for stock compensation expenses and cash
provided by changes in operating assets and liabilities. For example, accounts
payable increased as vendors extended credit to the Company. This was offset by
a decline in accounts receivable as the Company collected outstanding
receivables.
For the three months ended March 31, 1998, net cash used in investing
activities was $9.2 million. Of this, $8.8 million was used to fund the cash
portion of the acquisitions of Madera, Waste Connections of Idaho and Hunter
Enterprises. The remaining cash was primarily invested in MIS systems, trucks
and containers. For the period from inception to December 31, 1997, net cash
used in investing activities was $11.9 million. Of this, $11.5 million was used
for the acquisition of the Company's predecessor operations from BFI. The
remainder was primarily invested in additional trucks, MIS systems and property
improvements.
For the three months ended March 31, 1998, net cash provided by financing
activities was $10.0 million, which was provided by net borrowings under the
Company's various debt arrangements. For the period from inception to December
31, 1997, net cash provided by financing activities was $10.1 million, which was
provided by net borrowings of $3.2 million and sales of Preferred Stock for $7.0
million. At March 31, 1998, the Company had approximately $17.0 million of
long-term debt outstanding.
The Company recorded an income tax benefit of $332,000 for the period from
inception (September 9, 1997) through December 31, 1997. The income tax benefit
was recognized because of the likelihood that it will be utilized through the
reversal of existing temporary differences.
Capital expenditures for 1998 are currently expected to be approximately
$1.3 million, of which approximately $1.1 million is expected to be utilized for
vehicle and equipment additions and replacements. The Company intends to fund
its planned 1998 capital expenditures principally through internally generated
funds, proceeds from 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
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<PAGE> 33
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, because they will depend on the nature and
extent of any acquired landfill disposal facilities, the condition of any
facilities acquired and the permitted status of any acquired sites. The Company
believes that the credit facility, the funds expected to be generated from
operations, and the anticipated net proceeds of the offering will provide
adequate cash to fund the Company's working capital and other cash needs for the
foreseeable future.
The Company derives a substantial portion of its revenues from exclusive
municipal contracts and franchise agreements. Its single largest contract, with
the City of Vancouver, accounted for approximately 18.1% of the Company's
revenues during the period from inception (September 9, 1997) through December
31, 1997, and 15.8% during the three months ended March 31, 1998. There are
approximately nine years remaining under that contract. No other single contract
or customer accounted for more than 7.1% of the Company's revenues during the
period from inception (September 9, 1997) through December 31, 1997, or 6.0%
during the three months ended March 31, 1998 or is material to its liquidity and
cash flow. The weighted average life, based on revenues, of the municipal
contracts and franchise agreement is approximately seven years.
INFLATION
To date, inflation has not had a significant effect on the Company's
operations. Consistent with industry practice, many of the Company's contracts
provide for a pass-through of certain costs, including increases in landfill
tipping fees and, in some cases, fuel costs. The Company believes, therefore,
that it should be able to implement price increases to offset many cost
increases resulting from inflation. However, competitive pressures may require
the Company to absorb at least part of these cost increases, particularly during
periods of high inflation.
SEASONALITY
Based on historic trends experienced by the businesses the Company has
acquired, the Company's results of operations should be expected to vary
seasonally, with revenues typically lowest in the first quarter, higher in the
second and third quarters and lower in the fourth quarter than in the second and
third quarters. This seasonality reflects the lower volume of solid waste
generated during the late fall, winter and early spring months, resulting from
decreased solid waste volume relating to construction and demolition activities
during the winter months in the Western U.S. In addition, certain of the
Company's operating costs should be expected to be generally higher in the
winter months; winter weather conditions slow waste collection activities,
resulting in higher labor costs, and greater precipitation increases the weight
of collected waste, resulting in higher disposal costs (which are calculated per
ton). Because a majority of the Company's operating expenses are expected to
remain fairly constant throughout the fiscal year, operating income should be
expected to be generally lower during the winter.
IMPACT OF YEAR 2000
The Company will need to modify or replace portions of its software so that
its computer systems will function properly with respect to dates in the year
2000 ("Year 2000") and thereafter. The Company expects to complete those
modifications and upgrades during 1999. The total Year 2000 project cost is
estimated to be approximately $100,000, which includes approximately $40,000 for
the purchase of new software that will be capitalized and approximately $60,000
that will be expensed as incurred. To date, the Company has not incurred any
costs related to the Year 2000 project. The Company does not believe that its
expenditures relating to the Year 2000 project will be material. However, if the
required Year 2000 modifications and conversions are not made or are not
completed in a timely manner, the Year 2000 issue could materially affect the
Company's operations.
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<PAGE> 34
BUSINESS
INTRODUCTION
Waste Connections is a regional, integrated solid waste services company
that provides solid waste collection, transfer, disposal and recycling services
in secondary markets of the Western U.S. As of May 15, 1998, the Company served
more than 139,000 commercial, industrial and residential customers in
Washington, California, Idaho, Wyoming and South Dakota. The Company currently
owns nine collection operations and operates three transfer stations, one
Subtitle D landfill and one recycling facility.
Waste Connections was founded in September 1997 to execute an
acquisition-based growth strategy in secondary markets of the Western U.S. The
Company has acquired ten solid waste services businesses since its formation and
has identified more than 300 independent operators of such businesses in the
states where is currently operates, many of which it believes may be suitable
for acquisition by the Company. In addition, the Company is currently assessing
potential acquisitions of solid waste services operations in Kansas, Montana,
Nebraska, Oklahoma, Oregon and Texas.
The Company has targeted secondary markets in the Western U.S. because it
believes that: (i) a large number of independent solid waste services companies
suitable for acquisition by the Company are located in these markets; (ii) there
is less competition in these markets from large, well-capitalized solid waste
services companies; and (iii) these markets have strong projected economic and
population growth rates. In addition, the Company's senior management team has
extensive experience acquiring and operating solid waste services businesses in
the Western U.S.
INDUSTRY OVERVIEW
According to Waste Age, an industry trade publication, the U.S. solid waste
services industry generated estimated revenues of $36.9 billion in 1997. The
solid waste services industry has undergone significant consolidation and
integration since 1990. The Company believes that, particularly in the Western
U.S., this consolidation and integration have been caused primarily by: (i)
stringent environmental regulation and enforcement, resulting in increased
capital requirements for collection companies and landfill operators; (ii) the
evolution of an industry competitive model that emphasizes integrating
collection and disposal capabilities; (iii) the ability of larger integrated
operators to achieve certain economies of scale; and (iv) the existence of a
regulatory framework that allows the acquisition of exclusive, long-term waste
collection rights through franchise agreements, municipal contracts and
governmental certificates.
Increased Regulatory Impact. Stringent industry regulations, such as the
Subtitle D regulations, have resulted in rising operating and capital costs and
have accelerated consolidation and acquisition activities in the solid waste
collection and disposal industry. Many 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 ongoing costs
are combined with increased financial reserve requirements for solid waste
landfill operators relating to 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.
Integrating Collection and Disposal Operations. The evolution of the
industry competitive model is forcing 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.
Operators have adopted a variety of disposal strategies, including owning
landfills, establishing strategic relationships to secure access to landfills
and otherwise capturing significant waste stream volumes, to gain leverage in
negotiating lower landfill fees and securing long-term, most-favored-pricing
contracts with high capacity landfills.
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<PAGE> 35
Economies of Scale. Larger integrated operators achieve economies of scale
through vertical integration of their operations. These integrated companies
have increased their acquisition activity to expand the breadth of services and
density in their market areas. Control of the waste stream in these market
areas, combined with access to significant financial resources to make
acquisitions, has allowed larger solid waste collection and disposal companies
to be more cost-effective and competitive.
Despite the considerable consolidation and integration that has occurred in
the solid waste industry since 1990, the industry remains primarily regional in
nature and highly fragmented. Based on published industry sources, approximately
27% of the total revenues of the U.S. solid waste industry is accounted for by
more than 5,000 private, predominantly small, collection and disposal
businesses, approximately 41% by publicly traded solid waste companies and
approximately 32% by municipal governments that provide collection and disposal
services. The Company expects the current consolidation trends in the solid
waste industry to continue, because many independent landfill and collection
operators lack the capital resources, management skills and technical expertise
necessary both to operate in compliance with stringent environmental and other
governmental regulations and to compete with larger, more efficient integrated
operators. The Company believes that the fragmented nature of the industry
presents substantial consolidation and growth opportunities for companies with
disciplined acquisition programs, decentralized operating strategies and access
to financial resources.
Regulatory Framework. In the Western U.S., waste collection services are
provided largely under three types of contractual arrangements: certificates or
permits, franchise agreements and municipal contracts. Certificates or permits,
such as G certificates awarded to waste collection service providers in
unincorporated areas and electing municipalities of Washington by the Washington
Utilities and Transportation Commission, typically grant the certificate holder
the right, which is generally perpetual and exclusive, to provide specific
residential, commercial and industrial waste services in a specified area. See
"G Certificates" below. Franchise agreements typically provide an exclusive
service period of five to ten years or longer and specify the service territory,
a broad range of services to be provided, and rates for the services. They also
often give the service provider a right of first refusal to extend the term of
the agreement. Municipal contracts typically provide a shorter service period
and a more limited scope of services than franchise agreements and generally
require competitive bidding at the end of the contract term. Unless customers
within the areas covered by certain permits or certificates (including G
certificates), franchise agreements and municipal contracts elect not to receive
any waste collection services, they are required to pay collection fees to the
company providing such services in their area.
The Company operates one landfill and may acquire or operate others in the
future. The Company believes, however, that in those secondary markets of the
Western U.S. where waste collection services are provided under exclusive
certificates, franchises or contracts, or where waste disposal is municipally
funded or available from multiple sources, controlling the waste stream by
providing collection services under exclusive arrangements is often more
important to a waste services company's growth and profitability than owning or
operating landfills. Several other characteristics of secondary markets in the
Western U.S. limit the economic attractiveness of owning or operating landfills
in those markets. For example, certain state and local regulations in the
Western U.S. restrict the amount of waste that may be accepted from specific
geographic areas. In addition, the relatively expansive geographic area of many
western states increases the cost of interstate and long haul disposal, which
heightens the effects of state and local regulations limiting the type and
origin of waste that may be accepted at a landfill and makes it more difficult
for a landfill to achieve the disposal volume necessary to operate profitably,
given its capital and operating costs. The Company believes that significant
opportunities exist for a well-capitalized company operating in secondary
markets of the Western U.S., and that the highly fragmented nature of this
industry should allow the Company to consolidate existing solid waste services
businesses in this region.
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<PAGE> 36
STRATEGY
The Company's objective is to build a leading integrated solid waste
services company in secondary markets of the Western U.S. The Company's strategy
for achieving this objective is to: (i) acquire collection, transfer, disposal
and recycling operations in new markets and through "tuck-in" acquisitions in
existing markets; (ii) secure additional franchises, municipal contracts and
governmental certificates; (iii) generate internal growth in existing markets by
increasing market penetration and adding services to its existing operations;
and (iv) enhance profitability by increasing operating efficiencies of existing
and acquired operations. The Company's ability to implement this strategy is
enhanced by the experience of the members of its senior management team and
their knowledge of and reputation in the solid waste services industry in the
Company's targeted markets. The Company intends to implement its strategy as
follows:
Expansion Through Acquisitions
The Company intends to expand significantly the scope of its operations by:
(i) acquiring solid waste collection, transfer, disposal and recycling
operations in new markets; and (ii) acquiring solid waste collection, transfer,
disposal and recycling operations in existing and adjacent markets through
"tuck-in" acquisitions.
The Company intends to follow a regional expansion strategy by entering new
markets through acquisitions. An initial acquisition in a new market is used as
an operating base for the Company in that area. The Company then seeks to
strengthen the acquired operation's presence in that market by providing
additional services, adding new customers and making tuck-in acquisitions. The
Company can then broaden its regional presence by adding additional operations
in markets adjacent to the new location. The Company is currently examining
opportunities to expand its presence in the Western U.S. in states other than
Washington, California, Idaho, Wyoming and South Dakota and is assessing
potential acquisitions of solid waste services operations in Kansas, Montana,
Nebraska, Oklahoma, Oregon and Texas.
The Company believes that numerous "tuck-in" acquisition opportunities
exist within its current and targeted market areas. For example, the Company has
identified more than 300 independent entities that provide collection and
disposal services in California, Washington and Idaho. The Company believes that
throughout the Western U.S., many independent entities are suitable for
acquisition by the Company and would provide the Company opportunities to
improve market share and route density.
Franchise Agreements, Municipal Contracts and Governmental Certificates
The Company intends to devote significant resources to securing additional
franchise agreements and municipal contracts through competitive bidding and
additional governmental certificates through the acquisition of other companies.
In bidding for franchises and municipal contracts and evaluating the acquisition
of companies holding governmental certificates, 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's district managers manage
relationships with local governmental officials within their respective service
areas, and sales representatives may be assigned to cover specific
municipalities. These personnel focus on maintaining, renewing and renegotiating
existing franchise agreements and municipal contracts and on securing additional
agreements, contracts and governmental certificates.
Internal Growth
To generate continued internal growth, the Company will focus on increasing
market penetration in its current and adjacent markets, soliciting new
commercial, industrial, and residential customers in markets where such
customers may elect whether or not to receive waste collection services,
marketing upgraded or additional services (such as compaction or automated
35
<PAGE> 37
collection) to existing customers and, where appropriate, raising prices. Where
possible, the Company intends to leverage its franchise-based platforms to
expand its customer base beyond its exclusive market territories. As customers
are added in existing markets, the Company's revenue per routed truck increases,
which generally increases the Company's collection efficiencies and
profitability. In markets in which it has exclusive contracts, franchises and
certificates, the Company expects internal growth to at least track population
and business growth.
The Company expects to use transfer stations as an important part of its
internal growth strategy, by extending the direct-haul reach of the Company and
linking disparate collection operations with Company-owned, operated or
contracted disposal capacity. The Company currently operates three transfer
stations. By operating transfer stations, the Company also engages in direct
communications with municipalities and private operators that deliver waste to
its transfer stations. This better positions the Company to gain additional
business in its markets in the event any municipality privatizes its solid waste
operations or rebids existing contracts, and it increases the Company's
opportunities to acquire private collection operations.
Operating Enhancements
The Company has developed company-wide operating standards, which are
tailored for each of its markets based on industry standards and local
conditions. Using these standards, the Company tracks collection and disposal
routing efficiency and equipment utilization. It also implements cost controls
and employee training and safety procedures, and establishes a sales and
marketing plan for each market. The Company has installed a wide area network,
implemented advanced management information systems and financial controls, and
consolidated accounting functions, customer service, productivity reporting and
dispatching systems. The Company believes that by establishing operating
standards, closely monitoring performance and streamlining certain
administrative functions, it can improve the profitability of existing
operations.
To improve an acquired business' operational productivity, administrative
efficiency and profitability, the Company applies the same operating standards,
information systems and financial controls to acquired businesses as are
employed at the Company's existing operations. Moreover, if the Company is able
to internalize the waste stream of acquired operations, it can further increase
operating efficiencies and improve capital utilization. Where not restricted by
exclusive agreements, contracts, permits or certificates, the Company also
solicits new commercial, industrial and residential customers in areas within
and surrounding the markets served by acquired collection operations, as a means
of further improving operating efficiencies and increasing the volume of solid
waste collected by the acquired operations.
ACQUISITION PROGRAM
The Company currently operates in Washington, California, Idaho, Wyoming
and South Dakota and believes that these and other markets in the Western U.S.
with similar characteristics offer significant opportunities for achieving its
objective. The Company focuses on markets that are generally characterized by:
(i) a geographically dispersed population, which the Company believes deters
competition from larger, established waste management companies; (ii) a
potential revenue base of at least $15 million; (iii) the opportunity for the
Company to acquire a significant market share; (iv) the availability of adequate
disposal capacity, either through acquisition by the Company or through
agreements with third parties; (v) a favorable regulatory environment; or (vi)
strong projected economic or population growth rates. The Company believes that
these market characteristics provide significant growth opportunities for a
well-capitalized market entrant and create economic and operational barriers to
entry by new competitors.
The Company believes that its experienced management, decentralized
operating strategy, financial strength and size 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
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criteria to assist management in evaluating acquisition candidates. These
criteria evaluate a variety of factors, including, but not limited to: (i) the
candidate's historical and projected financial performance; (ii) the candidate's
internal rate of return, return on assets and return on revenue; (iii) the
experience and reputation of the candidate's management and customer service
providers, their relationships with local communities and their willingness to
continue as employees of the Company; (iv) the composition and size of the
candidate's customer base and whether the customer base is served under
franchise agreements, municipal contracts, governmental certificates or other
exclusive arrangements; (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 potential synergies that may be gained by combining the candidate with
the Company's existing operations; and (viii) the liabilities of the candidate.
Before completing an acquisition, the Company performs extensive
environmental, operational, engineering, legal, human resources and financial
due diligence. All acquisitions are subject to initial evaluation and approval
by the Company's management before being recommended to the Executive Committee
of the Board of Directors. The Company seeks to integrate each acquired business
promptly and to minimize disruption to the ongoing operations of both the
Company and the acquired business, and generally attempts to retain the senior
management of acquired businesses. The Company believes its senior management
team has a proven track record in integrating acquisitions.
Recent Acquisition Developments
On January 30, 1998, the Company acquired from affiliates of the Company
the stock of Waste Connections of Idaho, Inc., a provider of solid waste
collection services to more than 10,000 customers in and around Idaho Falls and
Pocatello, Idaho through subscription agreements with residential customers and
seven municipal contracts. Waste Connections of Idaho, Inc. was formed in
September 1997 by affiliates of the Company for the purpose of acquiring certain
assets of Browning-Ferris Industries of Idaho, Inc. See "Certain Transactions."
Effective February 1, 1998, the Company acquired Madera Disposal Systems,
Inc. ("Madera"), an integrated solid waste services company operating in north
central California, with 1997 revenues of approximately $7.8 million. In
connection with the Madera acquisition, the Company acquired one franchise
agreement and one municipal contract, pursuant to which it serves more than
9,000 commercial, industrial and residential customers, and agreements to
operate two transfer stations, one Subtitle D landfill (the "Fairmead Landfill")
and one recycling facility. The operating agreement for the Fairmead Landfill
has a remaining term of approximately 11 years. As of April 15, 1998, the
Fairmead Landfill is estimated to have a remaining life of approximately 26
years. Approximately 45% of the solid waste disposed of at the Fairmead Landfill
in 1997 was delivered by Madera.
Effective March 1, 1998, the Company acquired certain solid waste
collection assets from Hunter Enterprises, Inc., a solid waste services company
located in eastern Idaho. These assets "tuck in" to the Company's Idaho
operations and serve approximately 2,800 residential and commercial customers.
On April 8, 1998, the Company acquired certain solid waste collection
assets from A-1 Disposal, Inc. and Jesse's Disposal, both unrelated parties
operating in northeastern Wyoming, and together serving approximately 2,300
customers.
On May 8, 1998, the Company acquired Sowers' Sanitation, Inc. and Sunshine
Sanitation Incorporated, providers of solid waste and recyclables collection
services to an aggregate of more than 7,000 customers in western South Dakota.
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On May 11, 1998, the Company acquired T&T Disposal, Inc., a provider of
solid waste and recyclables collection services to more than 500 customers in
eastern Wyoming.
Letters of Intent to Acquire Additional Operations
As of May 15, 1998, the Company had entered into nonbinding, preliminary
letters of intent relating to the possible acquisition of five collection and
transfer companies and one integrated collection and landfill company (five new
service markets), which the Company estimates represent aggregate annualized
revenues of more than $17.0 million. There can be no assurance that actual
revenues realized by the Company from the successful acquisition of these
potential acquisition candidates will not differ materially from the Company's
estimate or that any of these letters of intent will lead to completed
acquisitions on the terms currently contemplated.
SERVICES
Commercial, Industrial and Residential Waste Services
The Company serves more than 139,000 commercial, industrial and residential
customers. Of these, more than 49,000 are served under G certificates that grant
the Company rights, which are generally perpetual and exclusive, to provide
services within specified areas, approximately 6,600 are served under an
exclusive franchise agreement with a remaining term of 11 years, and
approximately 64,000 are served under exclusive municipal contracts with shorter
contract terms.
The Company's commercial and industrial services that are not performed
under G certificates, franchise agreements or municipal contracts are provided
under one to five year service agreements. Fees under these agreements 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
consolidation of these volumes allows the Company to negotiate more favorable
disposal prices. The Company's commercial and industrial customers use portable
containers for storage, enabling the Company to service many customers with
fewer collection vehicles. Commercial and industrial collection vehicles
normally require one operator. The Company provides one to eight cubic yard
containers to commercial customers, 10 to 50 cubic yard containers to industrial
customers, and 30 to 95 gallon carts to residential customers. For an additional
fee, 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 material to the Company's results of
operations.
The Company's residential waste services that are not performed under G
certificates, franchise agreements or municipal contracts are provided under
contracts with homeowners' associations, apartment owners or mobile home park
operators, or on a subscription basis with individual households. 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 that market for similar services.
Collection fees are paid either by the municipalities from tax revenues or
directly by the residents receiving the services.
Transfer Station Services
The Company has an active program to acquire, develop, own and operate
transfer stations in markets proximate to its operations. Currently, the Company
operates two transfer stations in California and one transfer station in
Washington which receive, compact, and transfer solid waste to larger vehicles
for transport to landfills. The Company believes that the transfer stations
benefit the Company by: (i) concentrating the waste stream from a wider area,
which increases the volume of
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disposal at Company-operated landfills and gives the Company greater leverage in
negotiating for more favorable disposal rates at other landfills; (ii) improving
utilization of collections personnel and equipment; and (iii) building
relationships with municipalities and private operators that deliver waste,
which can lead to additional growth opportunities.
Landfills
The Company operates one Subtitle D landfill, the Fairmead Landfill, under
an operating agreement with Madera County with a remaining term of 11 years. In
fiscal 1997, approximately 45% of the solid waste disposed of at the Fairmead
Landfill was delivered by Madera. As of May 15, 1998, the Fairmead Landfill
consisted of 160 total acres, of which 20 acres were permitted for disposal. As
of that date, the Fairmead Landfill had approximately 600,000 tons of unused
permitted capacity remaining, with approximately 3.5 million additional tons of
capacity in various stages of permitting, and was estimated to have a remaining
life of 26 years. The Fairmead Landfill is currently permitted to accept up to
395 tons per day of municipal solid waste.
The Company monitors the available permitted in-place disposal capacity of
the Fairmead Landfill on an ongoing basis and evaluates whether to seek to
expand this capacity. In making this evaluation, the Company considers various
factors, including the volume of waste projected to be disposed of at the
landfill, the size of the unpermitted acreage included in the landfill, the
likelihood that the Company will be successful in obtaining the necessary
approvals and permits required for the expansion and the costs that would be
involved in developing the additional capacity. The Company also regularly
considers whether it is advisable, in light of changing market conditions and/or
regulatory requirements, to seek to expand or change the permitted waste streams
or to seek other permit modifications.
The Company is actively engaged in identifying solid waste landfill
acquisition candidates to achieve vertical integration in markets where the
economic and regulatory environment makes such acquisitions attractive. The
Company believes that in some markets, acquiring landfills would provide
opportunities to vertically integrate its collection, transfer and disposal
operations while improving operating margins. The Company evaluates landfill
candidates by determining, among other things, the amount of waste that could be
diverted to the landfill in question, whether access to the landfill is
economically feasible from the Company's existing market areas either directly
or through transfer stations, the expected life of the landfill, the potential
for expanding the landfill, and current disposal costs compared to the cost of
acquiring the landfill. Where the acquisition of a landfill is not attractive,
the Company pursues long term disposal contracts with facilities located in
proximity to its markets.
Recycling and Other Services
The Company offers municipal, commercial, industrial and residential
customers recycling services for a variety of recyclable materials, including
cardboard, office paper, plastic containers, glass bottles and ferrous and
aluminum metals. The Company operates one recycling processing facility and
sells other collected recyclable materials to third parties for processing
before resale. The profits from the Company's resale of recycled materials are
often shared between the Company and the other parties to its recycling
contracts. For example, certain of the Company's municipal recycling contracts
in Washington and Idaho, which were negotiated before the Company acquired those
businesses, specify certain benchmark resale prices for recycled commodities. To
the extent the prices the Company actually receives for the processed recycled
commodities collected under the contract exceed the prices specified in the
contract, the Company shares the excess with the municipality, after recovering
any previous shortfalls resulting from actual market prices falling below the
prices specified in the contract. In an effort to reduce its exposure to
commodity price risk with respect to recycled materials, the Company has adopted
a pricing strategy of charging collection and processing fees for recycling
volume collected from third parties. The Company believes that recycling will
continue to be an important component of local and state solid waste
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management plans, due to the public's increasing environmental awareness and
expanding regulations that mandate or encourage recycling.
The Company also provides other waste management services, most of which
are project-based, including transporting and disposing of non-hazardous
contaminated soils and similar materials, transporting special waste products,
including asbestos, and arranging for the transportation of construction and
demolition waste and disposal of soil and special waste products.
OPERATIONS
The Company is managed on a decentralized basis, which places
decision-making authority close to the customer, enabling the Company to
identify customers' needs quickly and to address those needs in a cost-effective
manner. The Company believes that decentralization provides a low-overhead,
highly efficient operational structure that allows the Company to expand into
geographically contiguous markets and operate in relatively small communities
that larger competitors may not find attractive. The Company believes that this
structure gives the Company a strategic competitive advantage, given the
relatively rural nature of much of the Western U.S., and makes the Company an
attractive buyer to many potential acquisition candidates.
The Company currently delivers its services from nine operating locations
serving six market areas, or districts. Each district has a district manager,
who has autonomous service and decision-making authority for that district and
is responsible for maintaining service quality, promoting safety in the
district's operations, implementing marketing programs, and overseeing
day-to-day operations, including contract administration. District managers also
assist in identifying acquisition candidates. Once the Company begins the
acquisition process, business development managers, under the supervision of
district and executive managers, obtain the permits and other governmental
approvals required for the Company to operate the acquired business, including
those related to zoning, environmental and land use.
The Company's financial management, accounting, management information
systems, environmental compliance, risk management and certain personnel
functions are centralized and shared among locations to improve productivity,
lower operating costs and stimulate internal growth. The Company has installed a
Company-wide management information system that assists district personnel in
making decisions based on centralized, real-time financial, productivity,
maintenance and customer information. While district management operates with a
high degree of autonomy, the Company's senior officers monitor district
operations and require adherence to the Company's accounting, purchasing,
marketing and internal control policies, particularly with respect to financial
matters. The Company's executive officers review the performance of district
managers and operations on a regular basis.
G CERTIFICATES
A substantial portion of the Company's collection business in Washington is
performed under G certificates awarded by the Washington Utilities and
Transportation Commission (the "WUTC"). G certificates apply only to
unincorporated areas of Washington and municipalities that have elected to have
their solid waste collection overseen by the WUTC. G certificates generally
grant the holder the perpetual right to provide specified solid waste collection
and transportation services in a specified territory. The WUTC has repeatedly
determined that, in enacting the statute authorizing G certificates, the
Washington Legislature intended to favor grants of exclusive, rather than
overlapping, service rights for conventional solid waste services. Accordingly,
most G certificates currently grant exclusive solid waste collection and
transportation rights for conventional solid waste services in their specified
territories.
G certificates have generally been construed by the WUTC and the Washington
Legislature as conferring vested property rights that may be defeated,
diminished or cancelled only upon the occurrence of specified events of default,
the demonstrated lack of fitness of the certificate holder, or
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municipalities' annexation of territory covered by a certificate. Thus, a
certificate holder is entitled to due process in challenging any action that
affects its rights. In addition, legislation passed in 1997 requires a
municipality that annexes territory covered by a G certificate either to grant
the certificate holder an exclusive franchise, generally with a minimum term of
seven years, to continue to provide services in the affected area, or to
negotiate with the certificate holder some other compensation for the collection
rights in the affected area. The statute expressly permits the certificate
holder to sue the annexing municipality for measurable damages that exceed the
value of a seven-year franchise agreement to provide services in the affected
area. Under one of the contracts with a municipality in Washington acquired by a
predecessor of the Company, the predecessor purported to waive its rights to
compensation or damages under the statute in return for the right to service any
current or prospectively annexed areas formerly covered by its G certificate.
In addition to awarding G certificates, the WUTC is required by statute to
establish just, reasonable and compensatory rates to customers of regulated
solid waste collection companies. The WUTC is charged with balancing the needs
of service providers to earn fair and sufficient returns on their investments in
plant and equipment against the needs of commercial and residential customers to
receive adequate and reasonably priced services. Over the past decade, the WUTC
has employed a ratemaking methodology known as the "Lurito-Gallagher" method.
This method calculates rates based on the income statements and balance sheets
of each service provider, with the goal of establishing rates that reflect the
costs of providing service and that motivate service providers to invest in
equipment that improves operating efficiency in a cost-effective manner. The
Lurito-Gallagher rate-setting methodology was adjusted in the early 1990's to
better reflect the costs of providing recycling services, by accounting for
providers' increasing use of automated equipment and adjusting for the
cyclicality of the secondary recyclables markets. This has often resulted in
more frequent rate adjustments in response to material cost shifts.
SALES AND MARKETING
In most of the Company's existing markets, waste collection, transfer and
disposal services are provided to municipalities and governmental authorities
under exclusive franchise agreements, municipal contracts and G certificates;
service providers do not contract directly with individual customers. In
addition, because the Company's growth to date has primarily been through
acquisitions, the Company has generally assumed existing franchise agreements,
municipal contracts and G certificates from the acquired companies, rather than
obtaining new contracts. For these reasons, the Company's sales and marketing
efforts to date have been narrowly focused. The Company expects to add sales and
marketing personnel as necessary to: (i) solicit new customers in markets where
it is not the exclusive provider of solid waste services; (ii) expand its
presence into areas adjacent to or contiguous with its existing markets; and
(iii) market additional services to existing customers.
The Company has a diverse customer base. Its largest single contract, with
the City of Vancouver, accounted for approximately 18.1% of the Company's
revenues during the period from inception (September 9, 1997) through December
31, 1997, and 15.8% during the three months ended March 31, 1998. Under this
contract, the Company serves more than 34,000 residential and commercial
customers. There are approximately nine years remaining under that contract. No
other single contract or customer accounted for more than 7.1% of the Company's
revenues during the period from inception (September 9, 1997) through December
31, 1997 or 6.0% during the three months ended March 31, 1998. The weighted
average life of the Company's municipal contracts and franchise agreement, based
on revenues, is approximately seven years.
COMPETITION
The solid waste services industry is highly competitive and fragmented and
requires substantial labor and capital resources. The industry presently
includes five large national waste companies: Allied Waste Industries, Inc.,
Browning-Ferris Industries, Inc., Republic Industries, Inc., USA Waste Services,
Inc. and Waste Management, Inc. (which has announced an impending merger with
USA
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Waste Services, Inc.) Several other public companies have annual revenues in
excess of $100 million, including American Disposal Services, Inc., Casella
Waste Systems, Inc., Eastern Environmental Services, Inc., Superior Services,
Inc. and Waste Industries, Inc. Certain of the markets in which the Company
competes or will likely compete are served by one or more large, national solid
waste companies, as well as by numerous regional and local solid waste companies
of varying sizes and resources, some of which have accumulated substantial
goodwill in their markets. The Company also competes with operators of
alternative disposal facilities, including incinerators, and with counties,
municipalities, and solid waste districts that maintain their own waste
collection and disposal operations. Public sector operations may have financial
advantages over the Company, because of their access to user fees and similar
charges, tax revenues and tax-exempt financing.
The Company competes for collection, transfer and disposal volume based
primarily on the price and quality of its services. From time to time,
competitors may reduce the price of their services in an effort to expand their
market shares or service areas or to win competitively bid municipal contracts.
These practices may cause the Company to reduce the price of its services or, if
it elects not to do so, to lose business. The Company provides a substantial
portion of its residential, commercial and industrial collection services under
exclusive franchise and municipal contracts and certificates, some of which are
subject to periodic competitive bidding. The balance of the Company's services
are provided under subscription agreements with individual households and one to
five year service contracts with commercial and industrial customers.
Intense competition exists not only for collection, transfer and disposal
volume, but also for acquisition candidates. The Company generally competes for
acquisition candidates with publicly owned regional and large national waste
management companies.
REGULATION
Introduction
The Company is subject to extensive and evolving federal, state and local
environmental laws and regulations, the enforcement of which has become
increasingly stringent in recent years. The environmental regulations affecting
the Company are administered by the EPA and other federal, state and local
environmental, zoning, health and safety agencies. A substantial portion of the
Company's collection business in Washington is performed under G certificates
awarded by the Washington Utilities and Transportation Commission, which
generally grant the Company perpetual and exclusive collection rights in certain
areas. The Company is currently in substantial compliance with applicable
federal, state and local environmental laws, permits, orders and regulations,
and it does not currently anticipate any material environmental costs necessary
to bring its operations into compliance (although there can be no assurance in
this regard). The Company anticipates that regulation, legislation and
regulatory enforcement actions related to the solid waste services industry will
continue to increase. The Company attempts to anticipate future regulatory
requirements and to plan in advance as necessary to comply with them.
To transport solid waste, the Company must possess and comply with one or
more permits from state or local agencies. These permits also must be
periodically renewed and may be modified or revoked by the issuing agency.
The principal federal, state and local statutes and regulations that apply
to the Company's operations are described below.
The Resource Conservation and Recovery Act of 1976 ("RCRA")
RCRA regulates the generation, treatment, storage, handling, transportation
and disposal of solid waste and requires states to develop programs to ensure
the safe disposal of solid waste. RCRA divides solid waste into two groups,
hazardous and nonhazardous. Wastes are generally classified as hazardous if they
either (i) are specifically included on a list of hazardous wastes, or (ii)
exhibit
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certain characteristics defined as hazardous. Household wastes are specifically
designated as nonhazardous. Wastes classified as hazardous under RCRA are
subject to much stricter regulation than wastes classified as nonhazardous, and
businesses that deal with hazardous waste are subject to regulatory obligations
in addition to those imposed on handlers of nonhazardous waste.
The EPA regulations issued under Subtitle C of RCRA impose a comprehensive
"cradle to grave" system for tracking the generation, transportation, treatment,
storage and disposal of hazardous wastes. The Subtitle C Regulations impose
obligations on generators, transporters and disposers of hazardous wastes, and
require permits that are costly to obtain and maintain for sites where such
material is treated, stored or disposed. Subtitle C requirements include
detailed operating, inspection, training and emergency preparedness and response
standards, as well as requirements for manifesting, record keeping and
reporting, corrective action, facility closure, post-closure and financial
responsibility. Most states have promulgated regulations modelled on some or all
of the Subtitle C provisions issued by the EPA. Some state regulations impose
different, additional and more stringent obligations, and may regulate certain
materials as hazardous wastes that are not so regulated under the federal
Subtitle C Regulations. From the date of inception through March 31, 1998, the
Company did not, to its knowledge, transport hazardous wastes in volumes that
would subject the Company to hazardous waste regulations under RCRA.
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) intended to keep leachate out of groundwater and have
extensive collection systems to carry away leachate for treatment prior to
disposal. Groundwater monitoring wells must also be installed at virtually all
landfills to monitor groundwater quality and, indirectly, the effectiveness of
the leachate collection system. The Subtitle D Regulations also require, where
certain regulatory thresholds are exceeded, that facility owners or operators
control emissions of methane gas generated at landfills in a manner intended to
protect human health and the environment. Each state is required to revise its
landfill regulations to meet these requirements or such requirements will be
automatically imposed by the EPA on landfill owners and operators in that state.
Each state is also required to adopt and implement a permit program or other
appropriate system to ensure that landfills in the state comply with the
Subtitle D Regulations. Various states in which the Company operates or in which
it may operate in the future have adopted regulations or programs as stringent
as, or more stringent than, the Subtitle D Regulations.
The Federal Water Pollution Control Act of 1972, as amended
(the "Clean Water Act")
The Clean Water Act regulates the discharge of pollutants from a variety of
sources, including solid waste disposal sites and transfer stations, into waters
of the United States. If run-off from the Company's transfer stations or run-off
or collected leachate from the Company's owned or operated landfills is
discharged into streams, rivers or other surface waters, the Clean Water Act
would require the Company to apply for and obtain a discharge permit, conduct
sampling and monitoring and, under certain circumstances, reduce the quantity of
pollutants in such discharge. Also, virtually all landfills are required to
comply with the EPA's storm water regulations issued in November 1990, which are
designed to prevent contaminated landfill storm water runoff from flowing into
surface waters. The Company believes that its facilities comply in all material
respects with the Clean Water Act requirements. Various states in which the
Company operates or in which it may operate in the future have been delegated
authority to implement the Clean Water Act permitting requirements, and some of
these states have adopted regulations that are more stringent than the federal
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requirements. For example, states often require permits for discharges to ground
water as well as surface water.
The Comprehensive Environmental Response, Compensation,
and Liability Act of 1980 ("CERCLA")
CERCLA established a regulatory and remedial program intended to provide
for the investigation and cleanup of facilities where or from which a release of
any hazardous substance into the environment has occurred or is threatened.
CERCLA's primary mechanism for remedying such problems is to impose strict joint
and several liability for cleanup of facilities on current owners and operators
of the site, former owners and operators of the site at the time of the disposal
of the hazardous substances, any person who arranges for the transportation,
disposal or treatment of the hazardous substances, and the transporters who
select the disposal and treatment facilities. CERCLA also imposes liability for
the cost of evaluating and remedying any damage to natural resources. The costs
of CERCLA investigation and cleanup can be very substantial. Liability under
CERCLA does not depend on the existence or disposal of "hazardous waste" as
defined by RCRA; it can also be based on the existence of even very small
amounts of the more than 700 "hazardous substances" listed by the EPA, many of
which can be found in household waste. In addition, the definition of "hazardous
substances" in CERCLA incorporates substances designated as hazardous or toxic
under the federal Clean Water Act, Clear Air Act and Toxic Substances Control
Act. If the Company were found to be a responsible party for a CERCLA cleanup,
the enforcing agency could hold the Company, or any other generator, transporter
or the owner or operator of the contaminated facility, responsible for all
investigative and remedial costs, even if others were also liable. CERCLA also
authorizes the imposition of a lien in favor of the United States on all real
property subject to, or affected by, a remedial action for all costs for which a
party is liable. CERCLA gives a responsible party the right to bring a
contribution action against other responsible parties for their allocable shares
of investigative and remedial costs. The Company's ability to obtain
reimbursement from others for their allocable shares of such costs would be
limited by the Company's ability to find other responsible parties and prove the
extent of their responsibility and by the financial resources of such other
parties.
The Clean Air Act
The Clean Air Act generally, through state implementation of federal
requirements, regulates emissions of air pollutants from certain landfills based
on the date of the landfill construction and volume per year of emissions of
regulated pollutants. Larger landfills and landfills located in areas that do
not comply with certain requirements of the Clean Air Act may be subject to even
more extensive air pollution controls and emission limitations. In addition, the
EPA has issued standards regulating the disposal of asbestos-containing
materials. Air permits to construct may be required for gas collection and
flaring systems, and operating permits may be required, depending on the
estimated volume of emissions.
All of the federal statutes described above contain provisions authorizing,
under certain circumstances, the institution of lawsuits by private citizens to
enforce the provisions of the statutes. In addition to a penalty award to the
United States, some of those statutes authorize an award of attorneys' fees to
parties successfully advancing such an action.
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The Occupational Safety and Health Act of 1970 (the "OSH Act")
The OSH Act is administered by the Occupational Safety and Health
Administration ("OSHA"), and in many states by state agencies whose programs
have been approved by OSHA. The OSH Act establishes employer responsibilities
for worker health and safety, 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 OSHA standards may apply to the Company's
operations, including 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.
Flow Control/Interstate Waste Restrictions
Certain permits and approvals, as well as certain state and local
regulations, may limit a landfill to accepting waste that originates from
specified geographic areas, restrict the importation of out-of-state waste or
otherwise discriminate against out-of-state waste. These restrictions, generally
known as flow control restrictions, are controversial, and some courts have held
that some flow control schemes violate constitutional limits on state or local
regulation of interstate commerce. From time to time, federal legislation is
proposed that would allow some local flow control restrictions. Although no such
federal legislation has been enacted to date, if such federal legislation should
be enacted in the future, states in which the Company operates landfills could
act to limit or prohibit the importation of out-of-state waste or direct that
wastes be handled at specified facilities. Such state actions could adversely
affect the Company's landfills. 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 adversely
affected.
Even in the absence of federal legislation, certain state and local
jurisdictions may seek to enforce flow control restrictions through local
legislation or contractually and, in certain cases, the Company may elect not to
challenge such restrictions based on various considerations. These restrictions
could result in the volume of waste going to landfills being reduced in certain
areas, which may adversely affect the Company's ability to operate its landfills
at their full capacity and/or reduce the prices that the Company can charge for
landfill disposal services. These restrictions may also result in higher
disposal costs for the Company's collection operations. If the Company were
unable to pass such higher costs through to its customers, the Company's
business, financial condition and results of operations could be adversely
affected.
State and Local Regulation
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, occupational safety and health,
water and air pollution and, in most cases, the siting, design, operation,
maintenance, closure and post-closure maintenance of landfills and transfer
stations. In addition, many states have adopted statutes comparable to, and in
some cases more stringent than, CERCLA. These statutes impose requirements for
investigation and cleanup of contaminated sites and liability for costs and
damages associated with such sites, and some provide for the imposition of liens
on property owned by responsible parties. 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 such franchises out
for bid, and bans or other restrictions on the movement of solid wastes into a
municipality.
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<PAGE> 47
Permits or other land use approvals with respect to a landfill, as well as
state or local laws and regulations, may specify the quantity of waste that may
be accepted at the landfill during a given time period, and/or specify the types
of waste that may be accepted at the landfill. Once an operating permit for a
landfill is obtained, it must generally be renewed periodically.
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.
Some state and local authorities enforce certain federal laws in addition
to state and local laws and regulations. For example, in some states, RCRA, the
OSH Act, parts of the Clean Air Act and parts of the Clean Water Act are
enforced by local or state authorities instead of by the EPA, and in some states
those laws are enforced jointly by state or local and federal authorities.
Public Utility Regulation
The rates that landfill operators may charge are regulated in many states
by public authorities. The rates that the Company may charge at its Fairmead
Landfill for the disposal of municipal solid waste are regulated by the Madera
County Board of Supervisors. The adoption of rate regulation or the reduction of
current rates in states in which the Company owns or operates landfills could
have an adverse effect on the Company's business, financial condition and
results of operations.
Solid waste collection services in all unincorporated areas of Washington
and in electing municipalities in Washington are provided under G certificates
awarded by the Washington Utilities and Transportation Commission. The WUTC also
sets rates for regulated solid waste collection services in Washington.
RISK MANAGEMENT, INSURANCE AND PERFORMANCE BONDS
The Company maintains an environmental and other risk management programs
appropriate for its business. The Company's environmental risk management
program includes evaluating existing facilities and potential acquisitions for
environmental law compliance. The Company does not presently expect
environmental compliance costs to increase above current levels, but the Company
cannot predict whether future acquisitions will result in an increase in such
costs. The Company also maintains a worker safety program that encourages safe
practices in the workplace. Operating practices at all Company operations
emphasize minimizing the possibility of environmental contamination and
litigation. The Company's facilities comply in all material respects with
applicable federal and state regulations.
The Company carries a broad range of insurance, which the Company's
management considers adequate to protect the Company's assets and operations.
The coverage includes general liability, comprehensive property damage,
workmen's compensation and other coverage customary in the industry. These
policies generally exclude coverage for damages associated with environmental
conditions. Because of the limited availability and high cost of environmental
impairment liability insurance, and in light of the Company's limited landfill
operations, the Company has not obtained such coverage. If the Company were to
incur liability for environmental cleanups, corrective action or damage, its
financial condition could be materially and adversely affected. The Company will
continue to investigate the possibility of obtaining environmental impairment
liability insurance, particularly if it acquires landfills or operates landfills
other than the Fairmead Landfill. The Company believes that most other landfill
operators do not carry such insurance.
Municipal solid waste collection contracts may require performance bonds or
other means of financial assurance to secure contractual performance. Certain
environmental regulations also require demonstrated financial assurance to meet
closure and post-closure requirements for
46
<PAGE> 48
landfills. The Company has not experienced difficulty in obtaining performance
bonds or letters of credit for its current operations. At May 15, 1998, the
Company had provided customers and various regulatory authorities with bonds and
letters of credit in the aggregate amount of approximately $800,000 to secure
its obligations. The Company's credit facility provides for the issuance of
letters of credit in an amount up to $5 million, but any letters of credit
issued reduce the availability of borrowings for acquisitions and other general
corporate purposes. 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.
PROPERTY AND EQUIPMENT
The Company leases the real estate, buildings and other physical properties
for its solid waste operations. These leases include a lease of approximately
5,500 square feet of office space in Roseville, California for the Company's
principal executive offices, which lease expires in November 2002. The Company
also leases real property in Issaquah, Washington under a lease expiring in 2008
and in Maltby, Washington, Idaho Falls and Pocatello, Idaho, under leases
expiring at the end of 1999. The Company subleases real property in Vancouver,
Washington under a lease expiring in 2001, with an option to extend the term for
five years. The Company leases real property in Deadwood, South Dakota and
Converse County, Wyoming under leases expiring in 2003 and late 1998,
respectively. Under its agreement with the County of Madera to operate Fairmead
Landfill, the Company is permitted to maintain an equipment yard and office on
the landfill premises without charge. In connection with two recent acquisitions
in Wyoming, the Company acquired ownership of real estate formerly used by one
of the collection operations and assumed a lease that terminates in August 1998.
The Company expects to renew this lease and consolidate its operations in
Gillette, Wyoming, at the leased facility and to dispose of the real estate that
it acquired in connection with those acquisitions. In connection with recent
acquisitions in Wyoming and South Dakota, the Company also acquired real estate
in Wright, Wyoming and Butte County, South Dakota.
At May 15, 1998, the Company owned or leased approximately 170 pieces of
equipment, including waste collection vehicles and related support vehicles, as
well as bulldozers, compactors, earth movers and related heavy equipment used in
landfill operations, and had more than 62,000 carts and containers in use, with
such carts ranging in size from 30 to 95 gallons and such containers ranging
from one to 50 cubic yards. The Company has a regular maintenance program for
its vehicles, equipment and operating properties. However, the Company expects
to make substantial investments in additional equipment and property for
expansion and replacement of assets and in connection with future acquisitions.
EMPLOYEES
At May 15, 1998, the Company employed approximately 266 full-time
employees, including approximately 30 persons classified as professionals or
managers, approximately 209 employees involved in collection, transfer, disposal
and recycling operations, and approximately 27 sales, clerical, data processing
or other administrative employees.
Approximately 55 drivers and mechanics at the Company's Vancouver,
Washington operation are represented by the Teamsters Union, with which
Browning-Ferris Industries of Washington, Inc., the Company's predecessor in
Vancouver, entered a four-year collective bargaining agreement in January 1997.
In addition, in July 1997, the employees at the Company's facility in Issaquah,
Washington, adopted a measure to select a union to represent them in labor
negotiations with management. The union and management are currently operating
under a one-year negotiating agreement, and, if those negotiations are
unsuccessful, the earliest date on which the union would be permitted to take
additional action is July 27, 1998. Such additional action includes calling a
strike or, if the Company agrees, continuing to negotiate or commencing
arbitration of the
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<PAGE> 49
outstanding issues. The Company is not aware of any other organizational efforts
among its employees and believes that its relations with its employees are good.
LEGAL PROCEEDINGS
In the normal course of its business and as a result of the extensive
governmental regulation of the solid 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 deny renewal of an operating
permit held by the Company. From time to time, the Company may also be subject
to actions brought by citizens' groups or adjacent landowners or residents in
connection with the permitting and licensing of landfills and transfer stations,
or alleging environmental damage or violations of the permits and licenses
pursuant to which the Company operates.
In addition, the Company may become party to various claims and suits
pending for alleged damages to persons and property, alleged violations of
certain laws and alleged liabilities arising out of matters occurring during the
normal operation of a waste management business. However, there is no current
proceeding or litigation involving the Company that the Company believes will
have a material adverse impact on the Company's business, financial condition,
results of operations or cash flows.
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<PAGE> 50
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the Company's
executive officers and directors as of May 1, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Ronald J. Mittelstaedt(1).............. 35 President, Chief Executive Officer and
Chairman
Steven F. Bouck........................ 41 Executive Vice President and Chief
Financial Officer
Eugene V. Dupreau...................... 50 Vice President -- Madera; Director
Charles B. Youngclaus.................. 58 Vice President -- Madera; Advisory
Director
Darrell W. Chambliss................... 33 Vice President -- Operations; Secretary
Michael R. Foos........................ 32 Vice President and Corporate Controller
Eric J. Moser.......................... 31 Treasurer and Assistant Corporate
Controller
Michael W. Harlan(1)(2)................ 37 Director
William J. Razzouk(1)(3)............... 50 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee, upon consummation of the offering.
(3) Member of the Compensation Committee, upon consummation of the offering.
Ronald J. Mittelstaedt has been President, Chief Executive Officer and a
director of the Company since it was formed, and was elected Chairman in January
1998. He also served as a consultant to the Company in August and September
1997. Mr. Mittelstaedt has more than ten years of experience in the solid waste
industry. He served as a consultant to United Waste Systems, Inc., with the
title of Executive Vice President, from January 1997 to August 1997, where he
was responsible for corporate development for all states west of Colorado. As
Regional Vice President of USA Waste Services, Inc. (including Sanifill, Inc.,
which was acquired by USA Waste Services, Inc.) from November 1993 to January
1997, he was responsible for all operations in 16 states and Canada. Mr.
Mittelstaedt held various positions at Browning-Ferris Industries, Inc. from
August 1987 to November 1993, most recently as Division Vice President in
northern California, overseeing the San Jose market. Previously he was the
District Manager responsible for BFI's operations in Sacramento and the
surrounding areas. He holds a B.S. in Finance from the University of California
at Santa Barbara.
Steven F. Bouck has been Executive Vice President and Chief Financial
Officer of the Company since February 1998. Mr. Bouck held various positions
with First Analysis Corporation from 1986 to 1998, including most recently as
Managing Director coordinating corporate finance. In that capacity, he provided
merger and acquisition advisory services to companies in the environmental
industry. Mr. Bouck was also responsible for assisting in investing venture
capital funds focussed on the environmental industry that were managed by First
Analysis. In connection with those investments, he served on the boards of
directors of several companies. While at First Analysis, Mr. Bouck also provided
analytical research coverage of a number of publicly traded environmental
services companies. Mr. Bouck holds B.S. and M.S. degrees in mechanical
engineering from Rensselaer Polytechnic Institute and an M.B.A. in Finance from
the Wharton School. He has been a Chartered Financial Analyst since 1990.
Eugene V. Dupreau has been Vice President -- Madera and a director of the
Company since February 23, 1998. Mr. Dupreau served as President and a director
of Madera Disposal Systems, Inc. beginning in 1981 and 1985, respectively, and
held both positions until the Company acquired Madera in 1998. Mr. Dupreau holds
a B.S. in Business Administration from Fresno State University
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<PAGE> 51
and has completed advanced coursework in waste management. He serves as a
director of several civic and charitable organizations in Madera County.
Charles B. Youngclaus has been Vice President -- Madera and an advisory
director of the Company since February 23, 1998. Mr. Youngclaus founded Madera
Disposal Systems, Inc. in 1981 and was its Chief Operating Officer and Vice
President before its acquisition by the Company in 1998. Mr. Youngclaus owned
and operated Madera's predecessor company, Madera County Disposal, from 1965 to
1981. Mr. Youngclaus holds a B.S. from Fresno State University and has completed
advanced coursework in waste management, including certification in clay liner
construction by the University of Texas in 1992. Mr. Youngclaus is a Board
Member of the California Refuse Removal Council and is incoming Treasurer of the
Northern California chapter.
Darrell W. Chambliss has been Vice President -- Operations and Secretary of
the Company since October 1, 1997. Mr. Chambliss held various management
positions at USA Waste Services, Inc. (including Sanifill, Inc. and United
Waste, Inc., both of which were acquired by USA Waste Services, Inc.) from April
1995 to September 1997, including most recently Division Manager in Corning,
California, where he was responsible for the operations of 19 operating
companies as well as supervising and integrating acquisitions. From July 1989 to
April 1995, he held various management positions with Browning-Ferris
Industries, Inc., including serving as Assistant District Manager in San Jose,
California, where he was responsible for a significant hauling operation, and
serving as District Manager in Tucson, Arizona for more than three years. Mr.
Chambliss holds a B.S. in Business Administration from the University of
Arkansas.
Michael R. Foos has been Vice President and Corporate Controller of the
Company since October 1, 1997. Mr. Foos served as Division Controller of USA
Waste Services, Inc. (including Sanifill, Inc., which was acquired by USA Waste
Services, Inc.) from October 1996 to September 1997, where he was responsible
for financial compilation and reporting and acquisition due diligence for a
seven-state region. Mr. Foos served as Assistant Regional Controller at USA
Waste Services, Inc. from August 1995 to September 1996, where he was
responsible for internal financial reporting for operations in six states and
Canada. Mr. Foos also served as District Controller for Waste Management, Inc.
from February 1990 to July 1995, and was a member of the audit staff of Deloitte
& Touche from 1987 to 1990. Mr. Foos holds a B.S. in Accounting from Ferris
State University.
Eric J. Moser has been the Company's Treasurer and Assistant Corporate
Controller since October 1, 1997. From August 1995 to September 1997, Mr. Moser
held various finance positions at USA Waste Services, Inc. (including Sanifill,
Inc., which was acquired by USA Waste Services, Inc.), most recently as
Controller of the Ohio Division, where he was responsible for internal financial
compilation and reporting and acquisition due diligence. Previously Mr. Moser
was Controller of the Michigan Division of USA Waste Services, Inc., where he
was responsible for internal financial reporting. Mr. Moser served as Controller
for Waste Management, Inc. from June 1993 to August 1995, where he was
responsible for internal financial reporting for a hauling company, landfill and
transfer station. Mr. Moser holds a B.S. in Accounting from Illinois State
University.
Michael W. Harlan has been a director of the Company since January 30,
1998. From November 1997 to January 30, 1998, Mr. Harlan served as a consultant
to the Company on various financial matters. Since March 1997, Mr. Harlan has
been Vice President and Chief Financial Officer of Apple Orthodontix, Inc., a
publicly traded company that provides practice management services to
orthodontic practices in the U.S. and Canada. From April 1991 to December 1996,
Mr. Harlan held various positions in the finance and acquisition departments of
USA Waste Services, Inc. (including Sanifill, Inc., which was acquired by USA
Waste Services, Inc.), including serving as Treasurer and Assistant Secretary
beginning in September 1993. From May 1982 to April 1991, Mr. Harlan held
various positions in the tax and corporate financial consulting services
division of Arthur Andersen LLP, where he was a Manager since July 1986. Mr.
Harlan is a Certified Public Accountant and holds a B.A. from the University of
Mississippi.
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<PAGE> 52
William J. Razzouk has been a director of the Company since January 30,
1998. Mr. Razzouk owns a management consulting business and an investment
company that focuses on identifying strategic acquisitions. From September 1997
until April 1998, he was also the President, Chief Operating Officer and a
director of Storage USA, Inc., a publicly traded real estate investment trust
that owns and operates more than 350 mini storage warehouses. He served as the
President and Chief Operating Officer of America Online from February 1996 to
June 1996. From 1983 to 1996, Mr. Razzouk held various management positions at
Federal Express Corporation, most recently as Executive Vice President, World
Wide Customer Operations, with full worldwide profit and loss responsibility.
Mr. Razzouk previously held management positions at ROLM Corporation, Philips
Electronics and Xerox Corporation. He is a member of the Board of Directors of
La Quinta Motor Inns and Fritz Companies, Inc. and previously was a director of
Sanifill, Inc. and Cordis Corp. He holds a Bachelor of Journalism degree from
the University of Georgia.
CLASSIFICATION OF BOARD OF DIRECTORS
The Board of Directors is divided into three classes. The term of office of
the first class (currently comprised of Eugene V. Dupreau) will expire at the
annual meeting of stockholders following the fiscal year ending December 31,
1998, the term of office of the second class (currently comprised of Michael W.
Harlan and William J. Razzouk) will expire at the annual meeting of stockholders
following the fiscal year ending December 31, 1999, and the term of office of
the third class (currently comprised of Ronald J. Mittelstaedt) will expire at
the annual meeting of stockholders following the fiscal year ending December 31,
2000. At each annual meeting of stockholders, successors to directors of the
class whose term expires at such meeting will be elected to serve for three-year
terms and until their successors are elected and qualified. See "Description of
Capital Stock -- Certain Charter and By-Law Provisions -- Classified Board of
Directors."
COMMITTEES OF THE BOARD
The Board of Directors has established an Executive Committee and has
authorized an Audit Committee and a Compensation Committee to become operative
upon the closing of this offering. A majority of the members of the Executive
Committee are, and both members of each of the Audit and Compensation Committees
will be, independent directors who are not employees of the Company or one of
its subsidiaries.
COMPENSATION OF DIRECTORS
Directors do not currently receive any compensation for attending meetings
of the Board of Directors. After completion of this offering, each independent
director will receive a fee of $1,500 for attendance at each Board meeting and
each committee meeting (unless held on the same day as the full Board meeting),
in addition to reimbursement of reasonable expenses.
Each independent director who has not been an employee of the Company at
any time during the 12 months preceding his initial election and appointment to
the Board is granted an option to purchase 15,000 shares of the Company's Common
Stock at the time of his or her initial election or appointment. The Company has
granted to each of Messrs. Harlan and Razzouk options to purchase 15,000 shares
of Common Stock at $3.00 per share, exercisable on October 1, 1998.
Commencing in 1999, the Company will grant each independent director, on
February 1 of each year during which such person serves on the Board, an option
to purchase 7,500 shares of the Company's Common Stock. All such options will
have an exercise price equal to the fair market value of the Common Stock on the
grant date, will vest in full on the grant date, and will expire upon the
earlier to occur of ten years after the grant date or one year after the
director ceases to be a member of the Board.
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<PAGE> 53
EXECUTIVE COMPENSATION
Summary Compensation Information
The Company was incorporated in September 1997. The following table sets
forth information with respect to the annual and long-term compensation earned
in 1997 by the Chief Executive Officer. The Chief Executive Officer has been
compensated in accordance with the terms of his Employment Agreement described
below.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
SHARES
ANNUAL COMPENSATION UNDERLYING
---------------------------- RESTRICTED OPTIONS/ WARRANTS ALL OTHER
SALARY(1) BONUS(1) OTHER STOCK GRANTED(2) COMPENSATION(3)
--------- -------- ----- ---------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Ronald J.
Mittelstaedt......... $39,903 $25,000 -- $0 200,000 $10,000
</TABLE>
- ---------------
(1) Salary and bonus figures reflect employment from October 1, 1997 through
December 31, 1997. Bonus figure reflects portion earned during 1997; such
bonus is payable in 1998.
(2) See "Option and Warrant Grants" below.
(3) Consists of consulting fees for services rendered prior to the Company's
formation.
Stock Options and Warrants
Option and Warrant Grants. The following table contains information
concerning the grant of options and warrants to purchase shares of the Company's
Common Stock to the Company's Chief Executive Officer during the period from
inception (September 9, 1997) through December 31, 1997:
1997 OPTION AND WARRANT GRANTS
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
NUMBER OF ANNUAL RATES OF
SHARES % OF TOTAL STOCK PRICE
UNDERLYING OPTIONS AND APPRECIATION FOR
OPTIONS WARRANT OPTION/WARRANT
AND GRANTED TO TERM(2)
NAME OF WARRANT EMPLOYEES IN EXERCISE PRICE -----------------------
BENEFICIAL OWNER GRANTED 1997 PER SHARE(1) EXPIRATION DATE 5% 10%
---------------- ---------- ------------ -------------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ronald J. Mittelstaedt... 100,000(3) 15.9% $2.80 Dec. 14, 2007 $1,512,000 $2,573,000
100,000(4) 15.9% $2.80 Dec. 14, 2002 $1,124,000 $1,492,000
</TABLE>
- ---------------
(1) The options and warrant were granted at or above fair market value as
determined by the Board of Directors on the date of grant.
(2) Amounts reported in these columns represent amounts that may be realized on
exercise of options and warrant immediately prior to the expiration of their
term assuming the specified assumed rates of stock price appreciation (5%
and 10%) on the Company's Common Stock over the term of the options and
warrant, assuming an initial public offering price of $11.00 per share. The
potential realizable values set forth above do not take into account
applicable tax and expense payments that may be associated with such
exercises. Actual realizable value, if any, will depend 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 and
warrants used in the table above are mandated by the rules of the Securities
and Exchange Commission (the "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.
52
<PAGE> 54
(3) Warrant vested immediately on date of grant.
(4) Options vest 33% on October 1, 1998, 33% on October 1, 1999, and 34% on
October 1, 2000.
Option and Warrant Values. The following table sets forth information for
the Chief Executive Officer with respect to the value of unexercised options and
warrants outstanding as of December 31, 1997. The Chief Executive Officer did
not exercise any options or warrants during 1997.
1997 OPTION AND WARRANT VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AND IN-THE-MONEY OPTIONS AND
WARRANT AT WARRANT AT
DECEMBER 31, 1997 DECEMBER 31, 1997 (1)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ronald J. Mittelstaedt............... 100,000 100,000 -- --
</TABLE>
- ---------------
(1) There was no public trading market for the Company's Common Stock at
December 31, 1997. Accordingly, as permitted by the rules of the Commission,
these values have been calculated based on the fair market value of the
Company's Common Stock as of December 31, 1997, of $2.02 per share, as
determined by the Board of Directors based on an independent valuation, less
the aggregate exercise price.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Steven F. Bouck,
Eugene V. Dupreau, Charles B. Youngclaus, Darrell W. Chambliss, Michael R. Foos
and Eric J. Moser. Each agreement has a three-year term.
The Company entered into an employment agreement with Ronald J.
Mittelstaedt, the President and the Chief Executive Officer, on October 1, 1997.
The initial annual base salary is $170,000. If this offering is consummated by
October 1, 1998, Mr. Mittelstaedt's base salary will be adjusted to at least
$250,000. The agreement provides for a minimum bonus of $125,000 for the
15-month period ending December 31, 1998, if the Company achieves certain
acquisition and financial targets.
The agreement provides for an initial five-year term, at the end of which
the agreement automatically renews for additional successive one-year terms
unless terminated earlier upon written notice of either Mr. Mittelstaedt or the
Company or extended further by the Board. The Company or Mr. Mittelstaedt may at
any time terminate the agreement, with or without cause, provided that if the
Company terminates the agreement without cause (as defined in the agreement) or
if Mr. Mittelstaedt terminates the agreement for good reason (as defined in the
agreement), the Company is required to make certain severance payments, and all
of Mr. Mittelstaedt's unvested options, warrants and rights relating to capital
stock of the Company will immediately vest. The agreement also provides that a
change of control of the Company (as defined in the agreement) will be deemed a
termination of Mr. Mittelstaedt without cause, unless Mr. Mittelstaedt waives
that provision.
Pursuant to the employment agreement, the Company sold Mr. Mittelstaedt
617,500 shares of the Company's Common Stock for $0.01 per share and 357,143
shares of the Company's Series A Preferred Stock for $1,000,000. Mr.
Mittelstaedt may recommend nominees for election to the Company's Board of
Directors. If the Board consists of five or fewer members, Mr. Mittelstaedt may
recommend two nominees, and if it consists of more than five members, he may
recommend three nominees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The full Board of Directors served as the compensation committee of the
Board during 1997. At the time the employment agreement with Mr. Mittelstaedt
was approved by the Board of Directors,
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<PAGE> 55
Mr. Mittelstaedt was one of three members of the Board of Directors. No
executive officer of the Company served as a director or member of the
compensation committee of another entity, one of whose executive officers served
as a director or member of the Compensation Committee of the Company.
1997 STOCK OPTION PLAN
The 1997 Stock Option Plan (the "Stock Option Plan") was adopted by the
Board of Directors effective as of October 1, 1997, and was approved by the
stockholders on March 12, 1998. The Stock Option Plan is intended to provide
employees, consultants and directors with additional incentives by increasing
their proprietary interests in the Company. Under the Stock Option Plan, the
Company may grant options with respect to a maximum of 1,200,000 shares of
Common Stock. As of May 15, 1998, the Company had granted options to purchase
880,600 shares of Common Stock at a weighted average exercise price of $5.44 per
share.
The Stock Option Plan is currently administered by the Board of Directors.
Upon consummation of the offering, the Compensation Committee will administer
the Stock Option Plan. The administrator of the Stock Option Plan has the
authority to determine the employees, consultants and directors to whom options
are granted (the "Optionees"), the type, size and term of the options, the grant
date, the expiration date, the vesting schedule and other terms and conditions
of the options.
The Stock Option Plan provides for the grant of incentive stock options
("ISOs") as defined in section 422 of the Internal Revenue Code, as amended, and
nonqualified stock options. Only employees of the Company may receive ISOs. The
aggregate fair market value, as of the grant date, of the Common Stock subject
to ISOs that become exercisable by any employee during any calendar year may not
exceed $100,000. Options generally become exercisable in installments pursuant
to a vesting schedule set forth in the option agreement. No option shall be
granted after September 30, 2007. No option will remain exercisable later than
10 years after the grant date (or five years in the case of ISOs granted to
Optionees owning more than 10% of the total combined voting power of all classes
of the Company's outstanding capital stock (a "Ten Percent Stockholder")). The
exercise price of ISOs granted under the Stock Option Plan may be no less than
the fair market value of a share of Common Stock on the grant date (or 110% of
such fair market value, in the case of ISOs granted to Ten Percent
Stockholders).
If an Optionee with outstanding options retires or becomes disabled and
does not die within the three months following retirement or disability, the
Optionee may exercise his or her options, but only within the period ending,
subject to the discretion of the administrator of the Stock Option Plan, on the
earlier of: (i) six months after retirement or disability; or (ii) the
expiration of the option set forth in the option agreement. If the Optionee does
not exercise his or her options within that time period, the options will
terminate, and the shares of Common Stock subject to the options will become
available for issuance under the Stock Option Plan. If the Optionee ceases to be
an employee, consultant or director of the Company other than because of
retirement, death or disability, his or her options terminate on the date such
relationship terminates, subject to the discretion of the administrator of the
Stock Option Plan, and the shares of Common Stock subject to the options will
become available for issuance under the Stock Option Plan. Each option agreement
may include the right of the Company to repurchase any and all shares acquired
by an Optionee under the Stock Option Plan upon termination of the Optionee,
whether voluntary or involuntary or with or without cause.
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<PAGE> 56
CERTAIN TRANSACTIONS
Initial Funding
In September and October 1997, the Company sold an aggregate of 2,300,000
shares of Common Stock at a price of $0.01 per share and 2,499,998 shares of
Series A Preferred Stock at a price of $2.80 per share to 19 accredited
investors, including certain officers and directors of the Company, in a private
placement. Such sales were made in accordance with Regulation D promulgated
under the Securities Act of 1933, as amended (the "Securities Act"). The
investors included the following officers and directors of the Company, their
immediate family members, and entities controlled by them:
Mittelstaedt Family Trust dated 6/18/97 (trustee is Ronald J.
Mittelstaedt, President, Chief Executive Officer and Chairman): 357,143
shares of Series A Preferred for $1,000,000 and 617,500 shares of Common
Stock for $6,175;
J. Bradford Bishop (former director; resigned January 30, 1998):
678,750 shares of Common Stock for $6,787.50;
James N. Cutler, Jr. (former director; resigned January 30, 1998):
678,750 shares of Common Stock for $6,787.50;
Bishop-Cutler L.L.C. (controlled by former directors J. Bradford
Bishop and James N. Cutler, Jr.): 339,285 shares of Series A Preferred
Stock for $950,000;
Frank W. Cutler (brother of former director James N. Cutler, Jr.):
142,857 shares of Series A Preferred Stock for $400,000 and 275,000 shares
of Common Stock for $2,750;
Darrell W. Chambliss (Vice President -- Operations): 20,000 shares of
Common Stock for $200;
Michael R. Foos (Vice President and Corporate Controller): 20,000
shares of Common Stock for $200;
Eric J. Moser (Treasurer and Assistant Corporate Controller): 10,000
shares of Common Stock for $100.
Options and Warrants to Management Group
On October 1, 1997, Darrell W. Chambliss, Michael R. Foos and Eric J. Moser
were granted options to purchase 150,000, 150,000 and 85,000 shares,
respectively, of Common Stock, pursuant to their respective employment
agreements with the Company.
On December 15, 1997, each of then directors James N. Cutler and J.
Bradford Bishop and Board consultant Frank W. Cutler was granted a warrant to
purchase 247,000 shares of Common Stock at an exercise price of $2.80 per share.
Messrs. Cutler and Bishop resigned as directors on January 30, 1998, and Frank
W. Cutler's consulting relationship with the Board terminated on that date. On
December 15, 1997, Ronald J. Mittelstaedt was granted a warrant to purchase
100,000 shares of Common Stock at an exercise price of $2.80 per share and an
option to purchase 100,000 shares of Common Stock at an exercise price of $2.80
per share. All of the above warrants and options are currently exercisable,
except for the option to purchase 100,000 shares granted to Mr. Mittelstaedt,
one-third of which becomes exercisable on each of October 1, 1998, October 1,
1999, and October 1, 2000.
On December 15, 1997, Michael W. Harlan was granted a warrant to purchase
5,000 shares of Common Stock at an exercise price of $2.80 per share,
exercisable on October 1, 1998. On January 30, 1998, Mr. Harlan and William J.
Razzouk were each granted an option to purchase 15,000 shares of Common Stock at
an exercise price of $3.00 per share, exercisable on October 1, 1998.
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<PAGE> 57
On February 1, 1998, Steven F. Bouck was granted options to purchase
200,000 shares of Common Stock, pursuant to his employment agreement with the
Company. These options include an option to purchase 100,000 shares at an
exercise price of $2.80 per share, of which one-third is exercisable on each of
October 1, 1998, October 1, 1999, and October 1, 2000. Of Mr. Bouck's remaining
options, an option to purchase 50,000 shares has an exercise price of $9.50 per
share, and an option to purchase 50,000 shares has an exercise price of $12.50
per share; one-third of each of these options vests on each of October 1, 1998,
October 1, 1999, and October 1, 2000. On February 1, 1998, Mr. Bouck was granted
an immediately exercisable warrant to purchase 50,000 shares of Common Stock at
an exercise price of $2.80 per share, which was exercised in March 1998.
On February 23, 1998, Eugene V. Dupreau and Charles B. Youngclaus were
granted warrants in connection with the Company's acquisition of Madera. See
"Purchase of Madera Disposal Systems, Inc." below.
Purchase of Waste Connections of Idaho, Inc.
On January 30, 1998, the Company purchased all of the outstanding stock of
Waste Connections of Idaho, Inc. ("Waste Connections Idaho") from Ronald J.
Mittelstaedt, J. Bradford Bishop and James N. Cutler, Jr., the sole shareholders
of Waste Connections Idaho. The aggregate purchase price was $3,000, which was
the aggregate price paid initially by Messrs. Mittelstaedt, Bishop and Cutler
for such shares. Messrs. Mittelstaedt, Bishop and Cutler formed Waste
Connections Idaho in September 1997 for the purpose of acquiring certain assets
from Browning-Ferris Industries of Idaho, Inc.
Purchase of Madera Disposal Systems, Inc.
Eugene V. Dupreau was President and a 16.7% shareholder of Madera Disposal
Systems, Inc. before it was acquired by the Company on February 23, 1998.
Charles B. Youngclaus was Chief Operating Officer and a 16.7% shareholder of
Madera before it was acquired by the Company. For their shares of Madera's
common stock, each of Messrs. Dupreau and Youngclaus received $630,662 in cash,
333,333 shares of the Company's Common Stock and warrants to purchase 66,667
shares of the Company's Common Stock at an exercise price of $4.00 per share.
Each of Messrs. Dupreau and Youngclaus has been engaged by the Company as Vice
President -- Madera. Mr. Dupreau was appointed a director of the Company,
effective February 23, 1998.
In addition, the Company is required to pay contingent consideration to
certain former Madera shareholders, subject to their involvement in the events
that give rise to the consideration, if the Company enters into certain
specified business transactions by February 3, 2001. These shareholders may
include Messrs. Dupreau and Youngclaus.
Other Transactions.
The Company has entered into certain transactions with Continental Paper,
LLC, an Oregon limited liability company doing business as Fibres International
("Fibres"). J. Bradford Bishop and James N. Cutler, Jr. own 60% of the
membership interests in Fibres, were directors of the Company when some of these
transactions occurred and may be deemed promoters of the Company. In markets
where Fibres has processing facilities (which include three of the Company's
four current markets), the Company delivers to Fibres' processing facilities all
of the Company's collected recyclable materials for which Fibres pays the market
rate (adjusted to reflect the Company's costs of transporting the materials to
Fibres or another processor) otherwise obtainable by the Company for such
materials. The gross revenues received by the Company from Fibres from the
Company's inception through December 31, 1997, were approximately $222,701. The
net amount retained by the Company, after deducting the fees the Company paid to
Fibres for the right to collect the recyclables, was approximately $10,860 for
such period.
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<PAGE> 58
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of May 15, 1998, and after the
sale of the shares of Common Stock offered hereby and the automatic conversion
to Common Stock of all outstanding shares of Series A Preferred Stock, by: (i)
each person or entity known to the Company to beneficially own more than 5% of
the Company's Common Stock; (ii) Mr. Mittelstaedt and each director of the
Company; and (iii) all current directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
TO BE OWNED AFTER
OWNED AS OF MAY 15, 1998 THE OFFERING
NAME OF ------------------------- -----------------------
BENEFICIAL OWNER(1) NUMBER PERCENTAGE NUMBER PERCENTAGE
------------------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
James N. Cutler, Jr.(2)(3)(4)............. 923,750 26.9% 977,322 12.3%
J. Bradford Bishop(2)(3)(4)............... 905,750 26.4 923,607 11.6
Ronald J. Mittelstaedt(2)(4)(5)........... 667,900 19.5 1,025,043 12.9
Frank W. Cutler(2)(3)(4).................. 522,000 15.2 672,246 8.5
Eugene V. Dupreau(2)(6)................... 397,000 11.6 397,000 5.0
Charles B. Youngclaus(2)(6)............... 375,000 10.9 375,000 4.7
Melvin G. Dias(2)(7)...................... 400,000 11.7 400,000 5.0
Imperial Bank(2)(8)....................... 200,000 5.8 200,000 2.5
Kieckhefer Partnership 84-1(2)(4)......... -- -- 562,104 7.1
Michael W. Harlan(2)...................... -- -- -- --
William J. Razzouk(2)..................... -- -- -- --
Eugene P. Polk(2)(9)...................... -- -- 468,418 5.9
All executive officers and directors as a
group (9 persons)(4)(5)................. 1,533,900 44.7% 1,926,758 24.3%
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission, and includes generally voting power and/or investment power with
respect to securities. Shares of Common Stock subject to options and/or
warrants currently exercisable or exercisable within 60 days of the date
hereof are deemed outstanding for computing the percentage beneficially
owned by the person holding such options but are not deemed outstanding for
computing the percentage beneficially owned by any other person. Except as
otherwise indicated by footnote, the Company believes that the persons named
in this table, based on information provided by such persons, have sole
voting and investment power with respect to the shares of Common Stock
shown.
(2) The address of Mr. Mittelstaedt is 2260 Douglas Boulevard, Suite 280,
Roseville, California 95661. The address of J. Bradford Bishop and James N.
Cutler, Jr. is 6950 S.W. Hampton Street, Suite 200, Portland, Oregon 97223.
The address of Kieckhefer Partnership 84-1 and Eugene P. Polk is P.O. Box
1151, Prescott, Arizona 86302. The address of Frank W. Cutler is 711 North
Bayfront, Newport Beach, California 92662. The address of Eugene V. Dupreau,
Charles B. Youngclaus and Melvin G. Dias is Madera Disposal Systems, Inc.,
21739 Road 19, Chowchilla, California 93610. The address of Michael W.
Harlan is 2777 Allen Parkway, Suite 700, Houston, Texas 77019. The address
of William J. Razzouk is 165 Madison Avenue, Suite 1300, Memphis, Tennessee
38103. The address of Imperial Bank is 777 108th Avenue NE, Suite 1670,
Bellevue, Washington 98004.
(3) Includes 247,000 shares purchasable under currently exercisable warrants.
(4) As of May 15, 1998, the Mittelstaedt Family Trust, J. Bradford Bishop, James
N. Cutler, Jr., Kieckhefer Partnership 84-1, Kieckhefer Trust Partnership
61-1 and Frank W. Cutler beneficially owned 357,143, 17,857, 53,572,
562,104, 281,052 and 150,246 shares, respectively, of Series A Preferred
Stock. Those shares automatically convert to the same number of shares of
Common Stock on the closing of the offering.
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(5) Includes 100,000 shares purchasable under currently exercisable warrants.
Also includes 567,900 shares held by the Mittelstaedt Family Trust dated
6/18/97, of which Mr. Mittelstaedt is the Trustee.
(6) Includes 66,667 shares purchasable under immediately exercisable warrants.
(7) Includes 66,666 shares purchasable under immediately exercisable warrants.
(8) Shares purchasable under currently exercisable warrants.
(9) As of May 15, 1998, Eugene Polk beneficially owned 468,418 shares of Series
A Preferred Stock: 285,713 through three trusts for which he serves as a
trustee (190,562 shares -- Eugene P. Polk and Barbara J. Polk Revocable
Trust U/A 11/18/68; 53,571 shares -- Margaret T. Morris Trust U/A 5/1/67;
and 53,571 shares -- Margaret T. Morris Trust U/A 4/19/69) and 170,714
shares through the Polk Investment Partnership 93-1, for which he serves as
a Manager. Those shares automatically convert to the same number of shares
of Common Stock on the closing of the offering.
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<PAGE> 60
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, par value $0.01 per share, and 10,000,000 shares of Preferred
Stock, par value $0.01 per share (the "Preferred Stock"). As of the date of this
Prospectus, there are 3,432,726 shares of Common Stock outstanding and 2,499,998
shares of Series A Preferred Stock outstanding. The Series A Preferred shares
will automatically convert to 2,499,998 shares of Common Stock upon the
consummation of this offering. After giving effect to this offering, there will
be 7,932,724 shares of Common Stock outstanding (8,232,724 if the Underwriters'
over-allotment option is exercised in full).
The following description of the Company's capital stock is a summary of
the material terms of such stock. The following does not purport to be complete
and is subject in all respects to applicable Delaware law and to the provisions
of the Company's Amended and Restated Certificate of Incorporation and Amended
and Restated By-laws.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote per share
held on all matters submitted to a vote at a meeting of stockholders. Cumulative
voting for the election of directors is not permitted. Subject to such
preferences to which holders of shares of Preferred Stock, if any, may be
entitled, the holders of outstanding shares of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available therefor. In the event of
a liquidation, dissolution or winding up of the Company, the holders of
outstanding shares of Common Stock are entitled to share ratably in all assets
of the Company which are legally available for distribution to stockholders,
subject to the prior rights on liquidation of creditors and to preferences, if
any, to which holders of shares of Preferred Stock, if any, may be entitled. In
connection with the acquisition of Madera, the Company issued 1,000,000 shares
of Common Stock, which was redeemable under certain circumstances. Upon the
consummation of this offering, those shares will no longer be redeemable. The
holders of outstanding shares of Common Stock do not have any preemptive,
subscription, redemption, conversion or sinking fund rights. The outstanding
shares of Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Company is authorized by its Amended and Restated Certificate of
Incorporation to issue a maximum of 10,000,000 shares of Preferred Stock, in one
or more series and containing such rights, privileges and limitations, including
dividend rights, voting rights, conversion privileges, redemption rights,
liquidation rights and/or sinking fund rights, as may from time to time be
determined by the Board of Directors of the Company. The Company has issued
2,499,998 shares of Series A Preferred Stock, which on the closing of this
offering will convert automatically to 2,499,998 shares of Common Stock. The
Series A Preferred Stock provides for cumulative dividends, which if not paid in
cash prior to the Preferred Stock's conversion into Common Stock are to be paid
in additional shares of Common Stock. The Company intends to pay any such
accumulated dividends in cash prior to conversion. Additional Preferred Stock
may be issued in the future in connection with acquisitions, financings or such
other matters as the Board of Directors deems to be appropriate. The effect of
having such Preferred Stock authorized is that the Company's Board of Directors
alone, within the bounds and subject to the federal securities laws and the
Delaware General Corporation Law (the "Delaware Law"), may be able to authorize
the issuance of Preferred Stock, which may adversely affect the voting and other
rights of holders of Common Stock. The issuance of Preferred Stock may also have
the effect of delaying, deferring or preventing a change in control of the
Company.
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<PAGE> 61
CERTAIN STATUTORY, CHARTER AND BY-LAW PROVISIONS
The following brief description of certain provisions of the Delaware Law
and the Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") and Amended and Restated By-laws (the "Restated
By-laws") does not purport to be complete and is subject in all respects to the
provisions of the Delaware Law, the Restated Certificate and the Restated
By-laws, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part.
Classified Board of Directors. The Restated Certificate provides that the
Board shall be divided into three classes and that the number of directors in
each class shall be as nearly equal as is possible based on the number of
directors constituting the entire Board. The Restated Certificate effectively
provides that the term of office of the first class will expire at the annual
meeting of stockholders following December 31, 1998, the term of office of the
second class will expire at the annual meeting of stockholders following
December 31, 1999, and the term of office of the third class will expire at the
annual meeting of stockholders following December 31, 2000. At each annual
meeting of stockholders, successors to directors of the class whose term expires
at such meeting will be elected to serve for three-year terms and until their
successors are elected and qualified.
The classification of directors has the effect of making it more difficult
for stockholders to change the composition of the Board. At least two annual
meetings of stockholders, instead of one, will generally be required to effect a
change in a majority of the Board. Such a delay may help ensure that the
Company's directors, if confronted by a third party attempting to force a proxy
contest, a tender or exchange offer or other extraordinary corporate
transaction, would have sufficient time to review the proposal as well as any
available alternatives to the proposal and to act in what they believe to be the
best interests of the stockholders. However, such classification provisions
could also have the effect of discouraging a third party from initiating a proxy
contest, making a tender offer or otherwise attempting to obtain control of the
Company, even though such an attempt might be beneficial to the Company and its
stockholders. The classification of the Board could thus increase the likelihood
that incumbent directors will retain their positions.
Number of Directors; Removal; Filling Vacancies. The Restated Certificate
provides that, subject to any rights of holders of Preferred Stock to elect
additional directors under specified circumstances, the number of directors
comprising the entire Board will be fixed from time to time by action of not
less than a majority of the directors then in office. In no event shall such
number be less than three or more than nine, unless approved by action of not
less than two-thirds of the directors then in office. In addition, the Restated
Certificate provides that, subject to any rights of holders of Preferred Stock,
newly created directorships resulting from an increase in the authorized number
of directors, vacancies on the Board resulting from death, resignation,
retirement, disqualification or removal of directors or any other cause may be
filled only by the Board (and not by the stockholders unless there are no
directors in office), provided that a quorum is then in office and present, or
by a majority of the directors then in office, if less than a quorum is then in
office, or by the sole remaining director. Accordingly, the Board could prevent
any stockholder from enlarging the Board and filling the new directorships with
such stockholder's own nominees.
Under the Delaware Law, unless otherwise provided in the certificate of
incorporation, directors serving on a classified board may only be removed by
the stockholders for cause. The Restated Certificate provides that following the
offering, directors may be removed only for cause and only on the affirmative
vote of holders of at least 66 2/3% of the voting power of all the then
outstanding shares of stock entitled to vote generally in the election of
directors ("Voting Stock"), voting together as a single class.
The provisions of the Restated Certificate governing the number of
directors, their removal and the filling of vacancies may have the effect of
discouraging a third party from initiating a proxy contest, making a tender
offer or otherwise attempting to gain control of the Company, or of attempting
to change the composition or policies of the Board, even though such attempts
might be
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beneficial to the Company or its stockholders. These provisions of the Restated
Certificate could thus increase the likelihood that incumbent directors retain
their positions.
Limitation on Special Meetings; No Stockholder Action by Written
Consent. The Restated Certificate and the Restated By-laws provide that (subject
to the rights, if any, of holders of any class or series of Preferred Stock then
outstanding): (i) only a majority of the Board of Directors or the President or
Chairman of the Board will be able to call a special meeting of stockholders;
(ii) the business permitted to be conducted at a special meeting of stockholders
shall be limited to matters stated in the notice of meeting or properly brought
before the meeting by or at the direction of the Board of Directors; and (iii)
following the offering, stockholder action may be taken only at a duly called
and convened annual or special meeting of stockholders and may not be taken by
written consent. These provisions, taken together, prevent stockholders from
forcing consideration by the stockholders of stockholder proposals over the
opposition of the Board, except at an annual meeting.
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals. The Restated By-laws establish an advance notice procedure for
stockholders to make nominations of candidates for election as director, or to
bring other business before an annual meeting of stockholders of the Company
(the "Stockholder Notice Procedure").
The Stockholder Notice Procedure provides that, subject to the rights of
any holders of Preferred Stock, only persons who are nominated by or at the
direction of the Board, any committee appointed by the Board, or by a
stockholder who has given timely written notice to the Secretary of the Company
prior to the meeting at which directors are to be elected, will be eligible for
election as directors of the Company. The Stockholder Notice Procedure provides
that at an annual meeting, only such business may be conducted as has been
brought before the meeting by, or at the direction of, the Board, any committee
appointed by the Board, or by a stockholder who has given timely written notice
to the Secretary of the Company of such stockholder's intention to bring such
business before such meeting. Under the Stockholder Notice Procedure, to be
timely, notice of stockholder nominations or proposals to be made at an annual
or special meeting must be received by the Company not less than 60 days nor
more than 90 days prior to the scheduled date of the meeting (or, if less than
70 days' notice or prior public disclosure of the date of the meeting is given,
then the 15th day following the earlier of: (i) the day such notice was mailed;
or (ii) the day such public disclosure was made).
Under the Stockholder Notice Procedure, a stockholder's notice to the
Company proposing to nominate a person for election as director must contain
certain information about the nominating stockholder and the proposed nominee,
and a stockholder's notice relating to the conduct of business other than the
nomination of directors must contain certain information about such business and
about the proposing stockholder. If the Chairman or other officer presiding at a
meeting determines that a person was not nominated, or other business was not
brought before the meeting, in accordance with the Stockholder Notice Procedure,
such person will not be eligible for election as a director, or such business
will not be conducted at such meeting, as the case may be.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure affords the Board an opportunity to consider the qualifications
of the proposed nominees and, to the extent deemed necessary or desirable by the
Board, to inform stockholders about such qualifications. By requiring advance
notice of other proposed business, the Stockholder Notice Procedure also
provides a more orderly procedure for conducting annual meetings of stockholders
and, to the extent deemed necessary or desirable by the Board, provides the
Board with an opportunity to inform stockholders, prior to such meetings, of any
business proposed to be conducted at such meetings, together with any
recommendations as to the Board's position regarding action to be taken with
respect to such business, so that stockholders can better decide whether to
attend such a meeting or to grant a proxy regarding the disposition of any such
business.
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Although the Restated By-laws do not give the Board any power to approve or
disapprove stockholder nominations for the election of directors or proposals
for action, the forgoing provisions may have the effect of precluding a contest
for the election of directors or the consideration of stockholder proposals and
of discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposal, if
the proper advance notice procedures are not followed, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
the Company and its stockholders.
Certain Provisions Relating to Potential Change of Control. The Restated
Certificate authorizes the Board and any committee of the Board to take such
action as it may determine to be reasonably necessary or desirable to encourage
any person or entity to enter into negotiations with the Board and management
regarding any transaction which may result in a change of control of the
Company, or to contest or oppose any such transaction which the Board determines
to be unfair, abusive or otherwise undesirable to the Company, its business,
assets, properties or stockholders. The Board or any such committee is
specifically authorized to adopt plans or to issue securities of the Company
including plans, rights, options, capital stock, notes, debentures or other debt
securities, which securities may be exchangeable or convertible into cash or
other securities on such terms and conditions as the Board or any such committee
determines. In addition, the Board or such committee of the Board may provide
that any holder or class of holders of such designated securities will be
treated differently than, and unequally to, all other security holders in
respect of the terms, conditions, provisions and rights of such securities.
The existence of this authority or the actions which may be taken by the
Board pursuant thereto are intended to give the Board flexibility in order to
act in the best interests of stockholders in the event of a potential change of
control transaction. Such provisions may, however, deter potential acquirors
from proposing unsolicited transactions not approved by the Board and might
enable the Board to hinder or frustrate such a transaction if proposed.
Limitation of Liability of Directors. The Restated Certificate provides
that a director will not be personally liable to the Company or its stockholders
for monetary damages for any breach of fiduciary duty as a director, except for
liability: (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the Delaware Law, which concerns unlawful payments of dividends,
stock purchases or redemptions; or (iv) for any transaction from which the
director derived an improper personal benefit. If the Delaware Law is
subsequently amended to permit further limitation of the personal liability of
directors, the liability of a director of the Company will be eliminated or
limited to the fullest extent permitted by the Delaware Law as so amended.
Amendment of the Certificate of Incorporation and By-laws. The Restated
Certificate contains provisions requiring the affirmative vote of the holders of
at least 66 2/3% of the voting power of the Voting Stock to amend certain
provisions of the Restated Certificate (including the provisions discussed above
relating to the size and classification of the Board, replacement and/or removal
of Board members, action by written consent, special stockholder meetings, the
authorization for the Board to take steps to encourage or oppose, as the case
may be, transactions which may result in a change of control of the Company, and
limitation of the liability of directors) or to amend any provision of the
Restated By-laws by action of stockholders following the offering. These
provisions make it more difficult for stockholders to make changes in the
Restated Certificate and the Restated By-laws, including changes designed to
facilitate the exercise of control over the Company.
Business Combination Provisions of Delaware Law. The Company is a Delaware
corporation and is subject to section 203 of the Delaware Law. In general,
section 203 prevents a Delaware corporation from engaging in a "business
combination" (as defined) with an "interested stockholder" (defined generally as
a person owning 15% or more of a corporation's outstanding voting stock or
affiliate or associate) for three years following the time such stockholder
became an
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interested stockholder, unless: (i) before such person became an interested
stockholder, the board of directors of the corporation approved the business
combination or the transaction in which the interested stockholder became an
interested stockholder; (ii) upon consummation of the transaction that resulted
in the interested stockholder's becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the corporation and by employee stock plans
that do not provide employees with the rights to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (iii) at or subsequent to the time such person became an interested
stockholder, the business combination was approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of 66 2/3% of the outstanding voting stock of the
corporation not owned by the interested stockholder. Under section 203, the
restrictions described above also do not apply to certain business combinations
proposed by an interested stockholder following the announcement or notification
of one of certain extraordinary transactions involving the corporation and a
person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the corporation's directors, if such extraordinary transaction is approved or
not opposed by a majority of the directors who were directors prior to any
person becoming an interested stockholder during the previous three years or
were recommended for election or elected to succeed such directors by a majority
of such directors.
TRANSFER AGENT AND REGISTRAR
BankBoston, N.A., c/o Boston EquiServe, L.P., will serve as transfer agent
and registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 7,932,724 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 that prohibit the
stockholder 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 BT
Alex. Brown Incorporated. After this 180-day period expires, 4,749,998 of the
currently outstanding shares will be eligible for resale in the public market
under Rule 144 promulgated under the Securities Act, an additional 1,000,000 of
the currently outstanding shares will become eligible for resale in the public
market in February 1999, an additional 132,726 of the currently outstanding
shares will become eligible for resale in the public market later in 1999, and
an additional 50,000 of the currently outstanding shares will become eligible
for resale in the public market ratably over three years, in each case subject
to the restrictions of Rule 144. Shares of Common Stock 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, upon exercise of
currently outstanding stock options or warrants or upon the issuance of options
to employees, consultants and directors under the Company's 1997 Stock Option
Plan, and the exercise of such options, without the prior written consent of BT
Alex. Brown Incorporated.
In general, under Rule 144, 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 (79,327 shares
63
<PAGE> 65
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.
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.
After the completion of this offering, the Company intends to file a
registration statement under the Securities Act to register all shares issuable
on exercise of stock options or other awards granted or to be granted under its
Stock Option Plan. After the filing of such registration statement and subject
to certain restrictions under Rule 144, those shares will be freely saleable in
the public market immediately following exercise of such options. The Company
currently intends to file a shelf registration statement covering up to an
additional 3,000,000 shares of Common Stock under the Securities Act, for its
use in connection with acquisitions that may be made by the Company. Such
shares, when issued, could be freely saleable in the public market 180 days
after the date of this Prospectus, or earlier on prior approval of BT Alex.
Brown Incorporated by persons not affiliated with the Company, unless the
Company contractually restricts their resale. See "Underwriting."
64
<PAGE> 66
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives, BT
Alex. Brown Incorporated and CIBC Oppenheimer Corp., have severally agreed to
purchase from the Company 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>
BT Alex. Brown Incorporated.................................
CIBC Oppenheimer Corp.......................................
Total............................................. 2,000,000
==========
</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 Common Stock offered hereby if
any of such shares are purchased.
The Company has 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
re-allow, 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 300,000
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 over-allotments made in connection with the sale of the Common
Stock offered hereby. If purchased, such additional shares will be offered by
the Underwriters on the same terms as those on which the 2,000,000 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.
65
<PAGE> 67
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
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, upon exercise of
currently outstanding stock options or warrants, or upon the issuance of options
to employees, consultants and directors under the Company's 1997 Stock Option
Plan, and the exercise of such options, without the prior written consent of BT
Alex. Brown Incorporated. All stockholders, 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 without the prior written
consent of BT Alex. Brown Incorporated.
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 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
that 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 by Shartsis, Friese & Ginsburg LLP, San
Francisco, California. Certain legal matters related to this offering will be
passed upon for the Underwriters by Piper & Marbury L.L.P., Baltimore, Maryland.
The statements pertaining to the Company's G certificates awarded by the WUTC
under "Risk Factors -- Highly Competitive Industry," "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- General,"
"Business -- Industry Overview," and "Business -- G Certificates" will be passed
upon for the Company by Williams, Kastner & Gibbs PLLC, Seattle, Washington.
EXPERTS
The financial statements of Waste Connections, Inc. and Predecessors as of
December 31, 1996 and 1997, and for each of the three years in the period ended
December 31, 1997, and the Financial Statements of Madera Disposal Systems, Inc.
at December 31, 1996 and 1997, and for each of the three years in the period
ended December 31, 1997, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere in this Prospectus and Registration
Statement. Such financial statements have been included in this Prospectus in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (of
which the Prospectus is a part) on Form S-1 (together with all amendments
thereto, the "Registration Statement"), under the Securities Act with respect to
the shares of Common Stock offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement and the exhibits and
schedules filed therewith, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. Statements contained
in this Prospectus regarding the contents of
66
<PAGE> 68
any contract or other document filed as an exhibit to the Registration Statement
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 deemed to be qualified in its entirety by
such reference. For further information with respect to the Company and the
Common Stock offered hereby, reference is hereby made to the Registration
Statement and to the exhibits and schedules filed therewith. The Registration
Statement, including all exhibits and schedules thereto, may be inspected
without charge at the principal office of the Commission located at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Room 1204, 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.
67
<PAGE> 69
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WASTE CONNECTIONS, INC. UNAUDITED PRO FORMA FINANCIAL
STATEMENTS
Introduction to Unaudited Pro Forma Consolidated Financial
Statements............................................. F-3
Unaudited Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1997................... F-4
Unaudited Pro Forma Consolidated Statement of Operations
for the three months ended March 31, 1998.............. F-5
Notes to Unaudited Pro Forma Consolidated Statements of
Operations............................................. F-6
Unaudited Pro Forma Consolidated Balance Sheet as of March
31, 1998............................................... F-9
Notes to Unaudited Pro Forma Consolidated Balance Sheet... F-10
WASTE CONNECTIONS, INC. AND PREDECESSORS
Report of Ernst & Young LLP, Independent Auditors......... F-11
Combined Balance Sheet of Predecessors as of December 31,
1996................................................... F-12
Consolidated Balance Sheet of Waste Connections, Inc. as
of December 31, 1997 (Audited) and March 31, 1998
(Unaudited)............................................ F-12
Combined Statement of Operations of Predecessors for the
nine months ended September 30, 1997................... F-13
Consolidated Statement of Operations of Waste Connections,
Inc. for the period from inception (September 9, 1997)
through December 31, 1997 (Audited) and the three
months ended March 31, 1997 and 1998 (Unaudited)....... F-13
Combined Statement of Operations of The Disposal Group for
the period from January 1, 1996 through July 31,
1996................................................... F-14
Combined Statement of Operations of Predecessors for the
period ended December 31, 1996......................... F-14
Combined Statement of Operations of The Disposal Group for
the year ended December 31, 1995....................... F-15
Statement of Operations of Fibres International, Inc. for
the period from January 1, 1995 through November 30,
1995................................................... F-15
Statement of Operations of Predecessors for the one month
ended December 31, 1995................................ F-15
Consolidated Statement of Redeemable Stock and
Stockholders' Equity (Deficit) of Waste Connections,
Inc. for the period from inception (September 9, 1997)
through December 31, 1997 (Audited) and the three
months ended March 31, 1998 (Unaudited)................ F-16
Combined Statement of Cash Flows of Predecessors for the
nine months ended September 30, 1997................... F-17
Consolidated Statement of Cash Flows of Waste Connections,
Inc. for the period from inception (September 9, 1997)
through December 31, 1997 (Audited) and the three
months ended March 31, 1997 and 1998 (Unaudited)....... F-17
Combined Statement of Cash Flows of The Disposal Group for
the period from January 1, 1996 through July 31,
1996................................................... F-18
Combined Statement of Cash Flows of Predecessors for the
period ended December 31, 1996......................... F-18
Combined Statement of Cash Flows of The Disposal Group for
the year ended December 31, 1995....................... F-19
Statement of Cash Flows of Fibres International, Inc. for
the period from January 1, 1995 through November 30,
1995................................................... F-19
Statement of Cash Flows of Predecessors for the one month
ended December 31, 1995................................ F-19
Notes to Financial Statements............................. F-20
</TABLE>
F-1
<PAGE> 70
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MADERA DISPOSAL SYSTEMS, INC.
Report of Ernst & Young LLP, Independent Auditors......... F-41
Balance sheets as of December 31, 1996 and 1997........... F-42
Statements of income and retained earnings for the years
ended December 31, 1995, 1996 and 1997................. F-43
Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997.................................... F-44
Notes to Financial Statements............................. F-45
</TABLE>
F-2
<PAGE> 71
WASTE CONNECTIONS, INC.
INTRODUCTION TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Balance Sheet as of March
31, 1998 gives effect to this offering and the Unaudited Pro Forma Consolidated
Statements of Operations for the year ended December 31, 1997 and the three
months ended March 31, 1998, give effect to this offering and the business
combinations involving Waste Connections, Inc., (the "Company"), its
predecessors, Waste Connections of Idaho, Inc. ("WCII"), its predecessors and
Madera Disposal Systems, Inc. ("Madera"). Such combinations were accounted for
using the purchase method of accounting. The Unaudited Pro Forma Consolidated
Balance Sheet is presented as if this offering had occurred on March 31, 1998,
and the Pro Forma Consolidated Statements of Operations for the year ended
December 31, 1997 and for the three months ended March 31, 1998 are presented as
if this offering and the Company's acquisitions of its predecessors, WCII and
its predecessors and Madera had occurred as of January 1, 1997.
The Company has preliminarily analyzed the savings that it expects to be
realized by consolidating certain operational and general and administrative
functions. The Company has not and cannot quantify all of these savings due to
the short period of time since the predecessor, Madera and WCII acquisitions
occurred. It is anticipated that these savings will be partially offset by the
costs of being a publicly held company and the incremental increase in costs
related to the Company's corporate management. However, these costs, like the
savings they offset, cannot be quantified accurately. Neither the anticipated
savings nor the anticipated costs have been included in the Unaudited Pro Forma
Consolidated Financial Statements.
The Unaudited Pro Forma Consolidated Financial Statements include certain
adjustments to the historical combined financial statements of the predecessors,
including adjusting depreciation expense to reflect purchase price allocations,
reducing interest expense to reflect retirement of the outstanding
acquisition-related debt with the proceeds of this offering and the related
income tax effects of these adjustments.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions and may be revised as additional information
becomes available. The Unaudited Pro Forma Consolidated Financial Statements do
not purport to represent what the Company's financial position or results of
operations would actually have been if such transactions in fact had occurred on
those dates or to project the Company's financial position or results of
operations for any future period. Because the Company, its predecessors, Madera,
and WCII and its predecessors were not under common control or management for
all periods, historical combined results may not be comparable to, or indicative
of, future performance. The Unaudited Pro Forma Consolidated Financial
Statements should be read in conjunction with the other financial statements and
notes thereto included elsewhere in this Prospectus, as well as information
included under the headings "Selected Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Risk
Factors" included elsewhere herein.
F-3
<PAGE> 72
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
WASTE ADJUSTED WASTE
CONNECTIONS, WASTE CONNECTIONS
INC. CONNECTIONS, OF IDAHO, INC.
PERIOD FROM PRO FORMA INC. AND MADERA PREDECESSORS
INCEPTION PREDECESSORS ADJUSTMENTS PREDECESSORS DISPOSAL COMBINED
(SEPTEMBER COMBINED NINE TO COMBINE WASTE COMBINED SYSTEMS, INC. NINE MONTHS
9, 1997) TO MONTHS ENDED CONNECTIONS, YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, INC. AND DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1997 PREDECESSORS 1997 1997 1997
------------ ------------- ---------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 6,237 $18,114 $ -- $24,351 $7,845 $2,053
Operating expenses:
Cost of operations......... 4,703 14,753 (146)(a) 19,015 5,289 1,377
(195)(b)
(100)(c)
Selling, general and
administrative........... 619 3,009 (570)(d) 2,926 1,041 312
(132)(e)
Depreciation and
amortization............. 354 1,083 81(f) 1,416 627 307
(102)(g)
Start-up and integration... 493 -- -- 493 -- --
Stock compensation......... 4,395 -- -- 4,395 -- --
--------- ------- ------ ------- ------ ------
Income (loss) from
operations................. (4,327) (731) 1,164 (3,894) 888 57
Interest expense............ (1,035) (456) 456(h) (1,253) (280) --
(218)(h)
Other income (expense),
net........................ (36) 14 -- (22) 173 --
--------- ------- ------ ------- ------ ------
Income (loss) before
(provision) benefit for
income taxes............... (5,398) (1,173) 1,402 (5,169) 781 57
(Provision) benefit for
income taxes............... 332 -- (561)(i) 240 -- --
469(j)
--------- ------- ------ ------- ------ ------
Net income (loss)........... $ (5,066) $(1,173) $1,310 $(4,929) $ 781 $ 57
========= ======= ====== ======= ====== ======
Redeemable convertible
preferred stock
accretion.................. $ (531)
---------
Net loss applicable to
common stockholders........ $ (5,597)
=========
Basic net loss per common
share...................... $ (2.99)
=========
Shares used in the per share
calculation................ 1,872,567
=========
<CAPTION>
WASTE
CONNECTIONS
OF IDAHO, INC.
PERIOD FROM
INCEPTION
(SEPTEMBER 25,
1997) TO PRO FORMA
DECEMBER 31, PRO FORMA AS
1997 ADJUSTMENTS ADJUSTED
-------------- ----------- ---------
<S> <C> <C> <C>
Revenues.................... $764 $ -- $ 35,013
Operating expenses:
Cost of operations......... 433 -- 26,114
Selling, general and
administrative........... 56 (83)(k) 4,252
Depreciation and
amortization............. 94 (377)(l) 2,431
364(m)
Start-up and integration... -- -- 493
Stock compensation......... -- -- 4,395
---- -------- ---------
Income (loss) from
operations................. 181 96 (2,672)
Interest expense............ (50) 280(n) --
(897)(o)
2,200(p)
Other income (expense),
net........................ -- -- 151
---- -------- ---------
Income (loss) before
(provision) benefit for
income taxes............... 131 1,679 (2,521)
(Provision) benefit for
income taxes............... (52) (297)(q) (781)
(672)(i)
---- -------- ---------
Net income (loss)........... $ 79 $ 710 $ (3,302)
==== ======== =========
Redeemable convertible
preferred stock
accretion.................. $ --
---------
Net loss applicable to
common stockholders........ $ (3,302)
=========
Basic net loss per common
share...................... $ (0.45)
=========
Shares used in the per share
calculation................ 7,372,565
=========
</TABLE>
See accompanying notes.
F-4
<PAGE> 73
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE
CONNECTIONS,
INC. MADERA WASTE
CONSOLIDATED DISPOSAL CONNECTIONS,
THREE SYSTEMS, INC. OF IDAHO
MONTHS INC. ONE ONE
ENDED MONTH ENDED MONTH ENDED PRO FORMA
MARCH 31, JANUARY 31, JANUARY 31, PRO FORMA COMBINED
1998 1998 1998 ADJUSTMENTS AS ADJUSTED
------------ ----------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues........................ $ 7,601 $ 611 $250 $ -- $ 8,462
Operating expenses:
Cost of operations............ 5,397 412 208 -- 6,017
Selling, general and
administrative............. 770 112 34 (19)(k) 897
Depreciation and
amortization............... 541 69 32 (19)(l)(m) 623
Stock compensation............ 320 -- -- -- 320
--------- ----- ---- ----- ---------
Income (loss) from operations... 573 18 (24) 38 605
Interest expense................ (301) (289) (7) 597(p) --
Other income (expense), net..... -- 16 -- -- 16
--------- ----- ---- ----- ---------
Income (loss) before (provision)
benefit for income taxes...... 272 (255) (31) 635 621
(Provision) benefit for income
taxes......................... (237) -- 19 (159)(q)(i) (377)
--------- ----- ---- ----- ---------
Net income (loss)............... $ 35 $(255) $(12) $ 476 $ 244
========= ===== ==== ===== =========
Redeemable convertible preferred
stock accretion............... $ (572) $ --
--------- ---------
Net income (loss) applicable to
common stockholders........... $ (537) $ 244
========= =========
Basic net income (loss) per
common share.................. $ (0.23) $ 0.03
========= =========
Diluted net income per share.... $ 0.03
=========
Shares used in the per share
calculations:
Basic......................... 2,311,111 7,811,109
========= =========
Diluted....................... 8,835,415
=========
</TABLE>
See accompanying notes.
F-5
<PAGE> 74
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
ASSUMPTIONS. The unaudited pro forma consolidated statements of operations
for the year ended December 31, 1997, and for the three months ended March 31,
1998 are presented as if the acquisitions of the Company's and WCII's
predecessors, WCII and Madera had occurred on January 1, 1997.
ACQUISITIONS. The acquisitions are being accounted for under the purchase
method of accounting for business combinations. Certain items affecting the
purchase prices and their allocations are preliminary. The preliminary purchase
prices of WCII and Madera consist of the following:
<TABLE>
<CAPTION>
WCII MADERA
------ --------
<S> <C> <C>
Cash paid to shareholders.............................. $ 3 $6,949
Common stock issued.................................... -- 7,500
Pay-off of long-term debt and capital lease
obligations.......................................... -- 2,630
Liabilities assumed.................................... 1,943 1,626
Acquisition costs...................................... -- 180
Common stock warrants issued........................... -- 954
------ --------
$1,946 $19,839
====== ========
</TABLE>
The Company has preliminary allocated the purchase prices as follows:
<TABLE>
<CAPTION>
WCII MADERA
------ --------
<S> <C> <C>
Tangible assets purchased.............................. $1,946 $4,534
Goodwill............................................... -- 14,580
Long-term franchise agreements and contracts........... -- 725
------ --------
$1,946 $19,839
====== ========
</TABLE>
PRO FORMA ADJUSTMENTS. The following adjustments have been made to the
unaudited pro forma consolidated statements of operations:
(a) To eliminate BFI corporate environmental expense allocation related to
BFI landfill closure costs which do not exist for the Company.
(b) To record amortization of the loss contract accrual that was recorded
in connection with the acquisitions of the predecessor operations. The
loss contract accrual is being amortized to operating expenses over
the related terms of the loss contracts which range from 6 to 65
months. The loss contract accrual represents the estimated incremental
losses to the Company related to certain unfavorable contracts the
Company acquired in connection with the acquisition of the predecessor
operations.
(c) To reduce facilities lease expense to the amounts provided for in the
sublease agreement entered into with BFI in connection with the
acquisitions of the predecessor operations. The sublease agreement was
directly attributable to, a required element of, and a condition to
the closing of the acquisition.
(d) To reduce BFI corporate overhead expense allocations to the amount of
corporate overhead currently being incurred by the Company.
(e) To eliminate consulting expenses incurred by BFI related to the
acquisition of The Disposal Group which the Company did not assume in
connection with the acquisitions of
F-6
<PAGE> 75
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
the predecessors. The non-assumption of the consulting agreement was
directly attributable to, a required element of, and a condition to
the closing of the acquisition.
(f) To increase depreciation for the increase in the property and
equipment's carrying value to fair value.
(g) To decrease goodwill amortization for the lower goodwill amount
recorded by the Company in connection with its acquisition of the
predecessor operations.
(h) To eliminate the predecessor's interest expense and record interest
expense on the debt obligations incurred by the Company in connection
with the acquisitions of the predecessors.
(i) To record the estimated tax provision associated with the pro forma
adjustments using the Company's estimated effective tax rate of 40%.
(j) To record an income tax benefit for the net operating loss incurred by
the predecessors for the nine months ended September 30, 1997 using
the Company's effective tax rate of 40%.
(k) To adjust officers' salaries to levels provided for in the new
employment agreements which were directly attributable to, required
elements of, and a condition to the closing of the Madera acquisition.
(l) To reduce depreciation for the reduction in the property and
equipment's carrying value to fair value.
(m) To increase goodwill amortization for the increase in goodwill
resulting from the Madera acquisition. Goodwill is being amortized
over a term of 40 years.
(n) To eliminate interest expense associated with the outstanding debt
obligations of Madera which were paid-off in connection with the
acquisition.
(o) To record interest expense on the additional long-term debt
obligations incurred by the Company in connection with the Madera
acquisition.
(p) To eliminate all interest expense, as the offering proceeds will be
used to pay off all outstanding debt obligations of the Company.
(q) To record income taxes for Madera, which was a subchapter S
corporation for income tax purposes for all periods prior to its
acquisition by the Company. The effective income tax rate used was
38%.
F-7
<PAGE> 76
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
PRO FORMA PER SHARE DATA. The shares used in computing the unaudited pro
forma net income (loss) per share for the year ended December 31, 1997, and the
three months ended March 31, 1998 are based upon the pro forma number of common
shares as summarized in the table below. See Note 1 of the Company's Notes to
Financial Statements included elsewhere herein for information concerning the
computation of basic and diluted net income (loss) per share.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
<S> <C> <C>
Company weighted average shares outstanding.... 1,872,567 2,311,111
Shares issued in connection with the
acquisition of Madera........................ 1,000,000 1,000,000
Shares issuable upon conversion of redeemable
Convertible Preferred Stock.................. 2,499,998 2,499,998
Shares issuable in connection with the
offering..................................... 2,000,000 2,000,000
---------- -----------
Shares used in calculating pro forma basic net
income (loss) per share...................... 7,372,565 7,811,109
==========
Dilutive effect of employee stock options and
stock purchase warrants...................... 1,024,306
-----------
Shares used in calculating pro forma diluted
net income per share......................... 8,835,415
===========
</TABLE>
ACQUISITION COSTS. The Company incurred costs of $180 related to the Madera
acquisition, which have been factored into the purchase price. Costs incurred by
Madera were expensed as incurred.
CONTINGENT PAYMENTS. In connection with the Madera acquisition the Company
is required to pay contingent consideration to certain former Madera
shareholders, subject to their involvement in specified events that give rise to
the consideration. No amounts related to these contingent payments have been
included in the pro forma financial statements as the events which would give
rise to such payments have not yet occurred.
OTHER. The Professional Cleaning business of Madera ceased operations in
July 1997. This business had revenues of $193 and an operating loss of $215
during the year ended December 31, 1997.
Shortly before the acquisition of the predecessor operations by the
Company, BFI amended a franchise agreement with a municipality which provided
for a reduction in the franchise fees. Had this amended franchise agreement been
in effect as of January 1, 1997, pro forma cost of operations would have been
approximately $135 lower during the year ended December 31, 1997.
F-8
<PAGE> 77
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
WASTE
CONNECTIONS, INC. PRO FORMA PRO FORMA
CONSOLIDATED ADJUSTMENTS AS ADJUSTED
------------------ ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.......................................... $ 2,386 $ 19,260(1) $ 5,234
(123)(2)
(16,289)(2)
Accounts receivable, net...................... 4,198 -- 4,198
Prepaid expenses and other current assets..... 1,061 -- 1,061
------- -------- -------
Total current assets.................. 7,645 2,848 10,493
Property and equipment, net..................... 7,316 -- 7,316
Goodwill, net................................... 24,935 -- 24,935
Other assets.................................... 1,137 -- 1,137
------- -------- -------
$41,033 $ 2,848 $43,881
======= ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................. $ 3,661 $ -- $ 3,661
Deferred revenue.............................. 972 -- 972
Accrued liabilities........................... 1,701 -- 1,701
Current portion of accrued losses on acquired
contracts.................................. 323 -- 323
------- -------- -------
Total current liabilities............. 6,657 -- 6,657
Accrued losses on acquired contracts............ 1,149 -- 1,149
Long-term debt, net............................. 16,289 (16,289)(2) --
Deferred income taxes........................... 162 -- 162
Redeemable convertible preferred stock.......... 8,095 (123)(2) --
(7,972)(3)
Redeemable common stock......................... 7,500 (7,500)(4) --
Stockholders' equity (deficit):
Common stock.................................. 24 20(1) 79
25(3)
10(4)
Additional paid-in capital.................... 8,114 19,240(1) 42,791
7,947(3)
7,490(4)
Stockholder notes receivable.................. (82) -- (82)
Deferred stock compensation................... (741) -- (741)
Accumulated deficit........................... (6,134) -- (6,134)
------- -------- -------
Total stockholders' equity
(deficit)........................... 1,181 34,732 35,913
------- -------- -------
$41,033 $ 2,848 $43,881
======= ======== =======
</TABLE>
See accompanying notes.
F-9
<PAGE> 78
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSUMPTIONS. The unaudited pro forma consolidated balance sheet as of March
31, 1998 is presented as if the Company's initial public offering had occurred
on March 31, 1998.
PRO FORMA ADJUSTMENTS. The following adjustments have been made to the
unaudited pro forma consolidated balance sheet to reflect the Company's initial
public offering:
(1) Issuance of 2,000,000 shares of Common Stock with estimated net
proceeds of $19,260
(2) Pay-off of all outstanding debt obligations of the Company
($16,868) and accumulated preferred stock dividends ($123)
(3) Conversion of 2,499,998 shares of redeemable Series A Preferred
Stock into 2,499,998 shares of Common Stock which automatically
converts upon the Company's initial public offering.
(4) Reclassification of 1,000,000 shares of redeemable Common Stock to
Common Stock since the Company's initial public offering will
cause the redemption feature to be cancelled.
F-10
<PAGE> 79
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Waste Connections, Inc.
We have audited the accompanying financial statements of Waste Connections,
Inc. and Predecessors as of December 31, 1996 and 1997, and for each of the
three years in the period ended December 31, 1997 which appear on pages F-12
through F-19 herein as listed in the accompanying Index to Financial Statements.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Waste Connections, Inc. and
Predecessors at December 31, 1996 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Sacramento, California
March 6, 1998
F-11
<PAGE> 80
WASTE CONNECTIONS, INC. AND PREDECESSORS
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE CONNECTIONS, INC.
CONSOLIDATED
-----------------------------------------------
PRO FORMA REDEEMABLE
PREDECESSORS STOCK AND
COMBINED STOCKHOLDERS' EQUITY
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1996 (NOTE 1) 1997 1998 1998 (NOTE 14)
------------- ------------ --------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.............................................. $ 102 $ 820 $ 2,386
Accounts receivable, less allowance for doubtful
accounts of $56 at March 31, 1998 and $19 at
December 31, 1997 ($81 in 1996)................. 2,650 3,940 4,198
Prepaid expenses and other current assets......... 339 358 1,061
------- ------- --------
Total current assets........................ 3,091 5,118 7,645
Property and equipment, net......................... 5,069 4,185 7,316
Goodwill, net....................................... 6,762 9,408 24,935
Other assets........................................ 369 169 1,137
------- ------- --------
$15,291 $18,880 $ 41,033
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................. $ 1,025 $ 2,609 $ 3,661
Deferred revenue.................................. 564 597 972
Accrued liabilities............................... 634 825 1,701
Current portion of accrued losses on acquired
contracts....................................... 119 251 323
Current portion of long-term debt................. 54 -- --
------- ------- --------
Total current liabilities................... 2,396 4,282 6,657
Accrued losses on acquired contracts................ -- 702 1,149
Long-term debt...................................... 89 6,762 16,289
Deferred income taxes............................... -- 162 162
Commitments and contingencies (Note 7)
Redeemable convertible preferred stock: $.01 par
value; 2,500,000 shares authorized; 2,499,998
shares issued and outstanding at December 31, 1997
and March 31, 1998; no shares issued and
outstanding pro forma (aggregate liquidation
preference of $10,500 at December 31, 1997 and
March 31, 1998)................................... -- 7,523 8,095 $ --
=======
Redeemable common stock $.01 par value; no shares
issued and outstanding at December 31, 1997;
1,000,000 shares issued and outstanding at March
31, 1998; and no shares issued and outstanding pro
forma............................................. -- -- 7,500 $ --
=======
Net intercompany balance............................ 12,806 -- -- --
Stockholders' equity (deficit):
Preferred stock: $.01 par value; 7,500,000 shares
authorized; none issued and outstanding actual
and pro forma................................... -- -- -- --
Common stock: $.01 par value; 50,000,000 shares
authorized; 2,300,000 shares issued and
outstanding at December 31, 1997; 2,350,000
shares issued and outstanding at March 31, 1998;
5,849,998 shares issued and outstanding pro
forma........................................... -- 23 24 59
Additional paid-in capital........................ -- 5,105 8,114 23,674
Stockholder notes receivable...................... -- (82) (82) (82)
Deferred stock compensation....................... -- -- (741) (741)
Accumulated deficit............................... -- (5,597) (6,134) (6,134)
------- ------- -------- -------
Total stockholders' equity (deficit)........ -- (551) 1,181 $16,776
------- ------- -------- =======
$15,291 $18,880 $ 41,033
======= ======= ========
</TABLE>
See accompanying notes.
F-12
<PAGE> 81
WASTE CONNECTIONS, INC. AND PREDECESSORS
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 (AUDITED)
AND THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE
CONNECTIONS, INC.
PREDECESSORS CONSOLIDATED WASTE
COMBINED PERIOD FROM PREDECESSORS CONNECTIONS, INC.
NINE MONTHS INCEPTION COMBINED CONSOLIDATED
ENDED (SEPTEMBER 9, 1997) THREE MONTHS THREE MONTHS
SEPTEMBER 30, THROUGH ENDED ENDED
1997 (NOTE 1) DECEMBER 31, 1997 MARCH 31, 1997 MARCH 31, 1998
------------- ------------------- -------------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
- -----------------------------------------
Revenues................................. $18,114 $ 6,237 $5,694 $ 7,601
Operating expenses:
Cost of operations..................... 14,753 4,703 4,674 5,397
Selling, general and administrative.... 3,009 619 715 770
Depreciation and amortization.......... 1,083 354 378 541
Start-up and integration............... -- 493 -- --
Stock compensation..................... -- 4,395 -- 320
------- ---------- ------ -----------------
Income (loss) from operations............ (731) (4,327) (73) 573
Interest expense......................... (456) (1,035) (152) (301)
Other income (expense), net.............. 14 (36) -- --
------- ---------- ------ -----------------
Income (loss) before income taxes........ (1,173) (5,398) (225) 272
Income tax (provision) benefit........... -- 332 -- (237)
------- ---------- ------ -----------------
Net income (loss)........................ $(1,173) (5,066) $ (225) 35
======= ======
Redeemable convertible preferred stock
accretion.............................. (531) (572)
---------- -----------------
Net loss applicable to common
stockholders........................... $ (5,597) $ (537)
========== =================
Basic net loss per share................. $ (2.99) $ (0.23)
========== =================
Shares used in calculating basic net loss
per share.............................. 1,872,567 2,311,111
Pro forma basic net income (loss) per
share.................................. $ (1.16) $ 0.01
========== =================
Shares used in calculating pro forma
basic net loss per share............... 4,372,565 5,811,109
Pro forma diluted net income per share... $ 0.01
=================
Shares used in calculating pro forma
diluted net income per share........... 6,835,415
- -----------------------------------------
</TABLE>
See accompanying notes.
F-13
<PAGE> 82
WASTE CONNECTIONS, INC. AND PREDECESSORS
STATEMENTS OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSORS
------------------------------------
THE DISPOSAL
GROUP
COMBINED PREDECESSORS
PERIOD FROM COMBINED PERIOD
JANUARY 1, 1996 ENDED
THROUGH DECEMBER 31, 1996
JULY 31, 1996 (NOTE 1)
--------------- -----------------
<S> <C> <C>
Revenues.................................................. $8,738 $13,422
Operating expenses:
Cost of operations...................................... 6,174 11,420
Selling, general and administrative..................... 2,126 1,649
Depreciation and amortization........................... 324 962
------ -------
Income (loss) from operations............................. 114 (609)
Interest expense.......................................... (12) (225)
Other income (expense), net............................... 2,661 (147)
------ -------
Income (loss) before income taxes......................... 2,763 (981)
Income tax (provision) benefit............................ (505) --
------ -------
Net income (loss)......................................... $2,258 $ (981)
====== =======
</TABLE>
See accompanying notes.
F-14
<PAGE> 83
WASTE CONNECTIONS, INC. AND PREDECESSORS
STATEMENTS OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSORS
----------------------------------------------------
THE DISPOSAL FIBRES
GROUP INTERNATIONAL, INC. PREDECESSORS
COMBINED PERIOD FROM ONE MONTH
YEAR ENDED JANUARY 1, 1995 ENDED
DECEMBER 31, THROUGH DECEMBER 31,
1995 NOVEMBER 30, 1995 1995(NOTE 1)
------------ -------------------- ------------
<S> <C> <C> <C>
Revenues.............................. $19,660 $7,340 $595
Operating expenses:
Cost of operations.................. 16,393 5,653 527
Selling, general and
administrative................... 3,312 823 72
Depreciation and amortization....... 628 715 74
------- ------ ----
Income (loss) from operations......... (673) 149 (78)
Interest expense...................... (206) (162) (1)
Other income, net..................... -- 98 5
------- ------ ----
Income (loss) before income taxes..... (879) 85 (74)
Income tax (provision) benefit........ 298 (29) --
------- ------ ----
Net income (loss)..................... $ (581) $ 56 $(74)
======= ====== ====
</TABLE>
See accompanying notes.
F-15
<PAGE> 84
WASTE CONNECTIONS, INC. AND PREDECESSORS
CONSOLIDATED STATEMENT OF REDEEMABLE STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM INCEPTION (SEPTEMBER 9, 1997) THROUGH DECEMBER 31, 1997 (AUDITED)
AND THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE CONNECTIONS, INC. CONSOLIDATED
---------------------------------------------
REDEEMABLE STOCKHOLDERS' EQUITY (DEFICIT)
CONVERTIBLE REDEEMABLE ---------------------------------------------
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL STOCKHOLDER
------------------ ------------------ ------------------ PAID-IN NOTES
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE
--------- ------ --------- ------ --------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at inception............ -- $ -- -- $ -- -- -- $ -- $ --
Sale of redeemable convertible
preferred stock................. 2,499,998 6,992 -- -- -- -- -- --
Sale of common stock............. -- -- -- -- 2,300,000 23 4,395 --
Issuance of common stock
warrants........................ -- -- -- -- -- -- 710 --
Issuance of stockholder notes
receivable...................... -- -- -- -- -- -- -- (82)
Accretion of redeemable
convertible preferred stock..... -- 531 -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- -- --
--------- ------ --------- ------ --------- --- ------ ----
Balances at December 31, 1997.... 2,499,998 7,523 -- -- 2,300,000 23 5,105 (82)
Exercise of warrants
(unaudited)..................... -- -- -- -- 50,000 1 139 --
Issuance of redeemable common
stock (unaudited)............... -- -- 1,000,000 7,500 -- -- -- --
Issuance of common stock warrants
(unaudited)..................... -- -- -- -- -- -- 2,049 --
Accretion of redeemable
convertible preferred stock
(unaudited)..................... -- 572 -- -- -- -- -- --
Deferred stock compensation
associated with stock options
(unaudited)..................... -- -- -- -- -- -- 821 --
Amortization of deferred stock
compensation (unaudited)........ -- -- -- -- -- -- -- --
Net income (unaudited)........... -- -- -- -- -- -- -- --
--------- ------ --------- ------ --------- --- ------ ----
Balances at March 31, 1998
(unaudited)..................... 2,499,998 $8,095 1,000,000 $7,500 2,350,000 $24 $8,114 $(82)
========= ====== ========= ====== ========= === ====== ====
<CAPTION>
WASTE CONNECTIONS, INC. CONSOLIDATED
------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------------
DEFERRED
STOCK ACCUMULATED
COMPENSATION DEFICIT TOTAL
------------ ----------- -------
<S> <C> <C> <C>
Balances at inception............ $ -- $ -- $ --
Sale of redeemable convertible
preferred stock................. -- -- --
Sale of common stock............. -- -- 4,418
Issuance of common stock
warrants........................ -- -- 710
Issuance of stockholder notes
receivable...................... -- -- (82)
Accretion of redeemable
convertible preferred stock..... -- (531) (531)
Net loss......................... -- (5,066) (5,066)
----- ------- -------
Balances at December 31, 1997.... -- (5,597) (551)
Exercise of warrants
(unaudited)..................... -- -- 140
Issuance of redeemable common
stock (unaudited)............... -- -- --
Issuance of common stock warrants
(unaudited)..................... -- -- 2,049
Accretion of redeemable
convertible preferred stock
(unaudited)..................... -- (572) (572)
Deferred stock compensation
associated with stock options
(unaudited)..................... (821) -- --
Amortization of deferred stock
compensation (unaudited)........ 80 -- 80
Net income (unaudited)........... -- 35 35
----- ------- -------
Balances at March 31, 1998
(unaudited)..................... $(741) $(6,134) $ 1,181
===== ======= =======
</TABLE>
See accompanying notes.
F-16
<PAGE> 85
WASTE CONNECTIONS, INC. AND PREDECESSORS
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 (AUDITED)
AND THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
WASTE CONNECTIONS, INC.
PREDECESSORS CONSOLIDATED
COMBINED PERIOD FROM PREDECESSORS WASTE CONNECTIONS, INC.
NINE MONTHS INCEPTION COMBINED CONSOLIDATED
ENDED (SEPTEMBER 9, 1997) THREE THREE MONTHS
SEPTEMBER 30, THROUGH MONTHS ENDED ENDED
1997 (NOTE 1) DECEMBER 31, 1997 MARCH 31, 1997 MARCH 31, 1998
------------- ----------------------- -------------- -----------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
- ---------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................... $(1,173) $ (5,066) $(225) $ 35
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Gain on sale of assets................... (4) -- -- --
Depreciation and amortization............ 1,083 354 378 541
Deferred income taxes.................... -- (369) -- --
Amortization of debt issuance costs, debt
guarantee fees and accretion of
discount on long-term debt............. -- 860 -- 47
Stock compensation....................... -- 4,395 -- 320
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Accounts receivable, net............... (604) (1,021) (174) 1,432
Prepaid expenses and other current
assets............................... (74) (51) 173 (641)
Accounts payable....................... (221) 2,607 241 (1,167)
Deferred revenue....................... (137) 169 (137) (110)
Accrued liabilities.................... (450) 801 323 334
Accrued losses on acquired contracts... -- (65) (33) (78)
------- ---------- ----- -------
Net cash provided by (used in) operating
activities............................... (1,580) 2,614 546 713
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment................................ 188 -- -- --
Payments for acquisitions, net of cash
acquired................................. -- (11,493) -- (8,848)
Prepaid acquisition costs.................. -- (20) -- --
Capital expenditures for property and
equipment................................ (735) (264) (716) (343)
Decrease (increase) in other assets........ 22 (19) (38) --
Issuance of stockholder notes receivable... -- (82) -- --
------- ---------- ----- -------
Net cash used in investing activities........ (525) (11,878) (754) (9,191)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net intercompany balance................... 2,142 -- 221 --
Proceeds from short-term borrowings........ -- 600 -- --
Proceeds from long-term debt............... -- 5,500 -- 17,109
Principal payments on notes payable........ (38) (2,724) -- (195)
Principal payments on long-term debt....... -- (157) -- (6,762)
Proceeds from sale of redeemable
convertible preferred stock.............. -- 6,992 -- --
Proceeds from sale of common stock......... -- 23 -- 140
Debt issuance costs........................ -- (150) -- (248)
------- ---------- ----- -------
Net cash provided by financing activities.... 2,104 10,084 221 10,044
------- ---------- ----- -------
Net increase (decrease) in cash.............. (1) 820 13 1,566
Cash at beginning of period.................. 102 -- 102 820
------- ---------- ----- -------
Cash at end of period........................ $ 101 $ 820 $ 115 $ 2,386
======= ========== ===== =======
SUPPLEMENTARY DISCLOSURES OF CASH FLOW
INFORMATION AND NON-CASH TRANSACTIONS:
Cash paid for income taxes................. $ -- $ -- $ 80
======= ========== =======
Cash paid for interest..................... $ -- $ 183 $ 98
======= ========== =======
Redeemable convertible preferred stock
accretion................................ $ 531 $ 572
========== =======
In connection with the BFI related
acquisitions (Note 2), the Company
assumed liabilities as follows:
Fair value of assets acquired............ $ 17,040 $15,571
Cash paid for acquisitions (including
acquisition costs)..................... (11,493) (8,848)
---------- -------
Liabilities assumed, stock and notes
payable to seller...................... $ 5,547 $ 6,723
========== =======
</TABLE>
See accompanying notes.
F-17
<PAGE> 86
WASTE CONNECTIONS, INC. AND PREDECESSORS
STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSORS
-------------------------------
THE DISPOSAL
GROUP COMBINED PREDECESSORS
PERIOD FROM COMBINED
JANUARY 1, PERIOD ENDED
1996 THROUGH DECEMBER 31,
JULY 31, 1996 1996 (NOTE 1)
--------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $2,258 $ (981)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 324 962
Deferred income taxes.................................. 298 --
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable, net............................. 1,201 (1,992)
Prepaid expenses and other current assets............ (2) (104)
Accounts payable..................................... (45) 713
Deferred revenue..................................... (522) 421
Accrued liabilities.................................. (987) 428
------ ------
Net cash provided by (used in) operating activities....... 2,525 (553)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.............. -- 117
Capital expenditures for property and equipment........... (7) (282)
Decrease in other assets.................................. -- 33
------ ------
Net cash used in investing activities....................... (7) (132)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net intercompany balance.................................. -- 642
Proceeds from long-term debt.............................. 142 --
Principal payments on long-term debt...................... (427) --
Principal payments on notes payable....................... -- (39)
------ ------
Net cash provided by (used in) financing activities......... (285) 603
------ ------
Net increase (decrease) in cash............................. 2,233 (82)
Cash at beginning of period................................. 961 184
------ ------
Cash at end of period....................................... $3,194 $ 102
====== ======
</TABLE>
See accompanying notes.
F-18
<PAGE> 87
WASTE CONNECTIONS, INC. AND PREDECESSORS
STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSORS
-----------------------------------
THE DISPOSAL FIBRES
GROUP INTERNATIONAL, INC. PREDECESSORS
COMBINED PERIOD FROM ONE MONTH
YEAR ENDED JANUARY 1, 1995 ENDED
DECEMBER 31, THROUGH DECEMBER 31,
1995 NOVEMBER 30, 1995 1995 (NOTE 1)
------------ ------------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ (581) $ 56 $ (74)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Loss on sale of assets................. 18 -- --
Depreciation and amortization.......... 628 778 74
Deferred income taxes.................. (298) -- --
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Accounts receivable, net............. 592 59 10
Prepaid expenses and other current
assets............................ (18) -- (30)
Accounts payable..................... (49) 53 (30)
Deferred revenue..................... 65 30 (26)
Accrued liabilities.................. 2,218 47 20
------- ----- -----
Net cash provided by (used in) operating
activities............................. 2,575 1,023 (56)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and
equipment.............................. (87) (827) --
Decrease in other assets.................. -- 3 10
------- ----- -----
Net cash provided by (used in) investing
activities................................ (87) (824) 10
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............. 306 -- --
Principal payments on long-term debt...... (2,037) (288) --
Principal payments on notes payable....... -- -- (2)
------- ----- -----
Net cash used in financing activities..... (1,731) (288) (2)
------- ----- -----
Net increase (decrease) in cash............. 757 (89) (48)
Cash at beginning of period................. 204 321 232
------- ----- -----
Cash at end of period....................... $ 961 $ 232 $ 184
======= ===== =====
</TABLE>
See accompanying notes.
F-19
<PAGE> 88
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Waste Connections, Inc. ("WCI" or "the Company") was incorporated in
Delaware on September 9, 1997 and commenced its operations on October 1, 1997
through the purchase of certain solid waste operations in Washington, as more
fully described below and in Note 2. The Company is a regional, integrated,
non-hazardous solid waste services company that provides collection, transfer,
disposal and recycling services to commercial, industrial and residential
customers.
Basis of Presentation
The consolidated financial statements of the Company include the accounts
of WCI and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
The entities the Company acquired in September 1997 from Browning-Ferris
Industries, Inc. ("BFI") are collectively referred to herein as the Company's
predecessors. BFI acquired the predecessor operations at various times during
1995 and 1996, and prior to being acquired by BFI, the predecessors operated as
separate stand-alone businesses.
During the periods in which the Company's predecessors operated as wholly
owned subsidiaries of BFI, they maintained intercompany accounts with BFI for
recording intercompany charges for costs and expenses, intercompany purchases of
equipment and additions under capital leases and intercompany transfers of cash,
among other transactions. It is not feasible to ascertain the amount of related
interest expense that would have been recorded in the historical financial
statements had the predecessors been operated as stand-alone entities. Charges
for interest expense were allocated to the Company's predecessors by BFI as
disclosed in the accompanying Statement of Operations. The interest expense
allocations from BFI are based on formulas that do not necessarily correspond
with the balances in the related intercompany accounts. Moreover, the financial
position and results of operations of the predecessors during this period may
not necessarily be indicative of the financial position or results of operations
that would have been realized had the predecessors been operated as stand-alone
entities. For the periods in which the predecessors operated as wholly owned
subsidiaries of BFI, the statements of operations include amounts allocated by
BFI to the predecessors for selling, general and administrative expenses based
on certain allocation methodologies.
During the periods prior to their acquisition by BFI, the Company's
predecessors operated as separate stand-alone businesses. The acquisitions of
the predecessors by BFI were accounted for using the purchase method of
accounting, and the respective purchase prices were allocated to the fair values
of the assets acquired and liabilities assumed. Similarly, the Company's
acquisitions of the predecessors from BFI in September 1997 were accounted for
using the purchase method of accounting, and the purchase price was allocated to
the fair value of the assets acquired and liabilities assumed. Consequently, the
amounts of depreciation and amortization included in the statements of
operations for the periods presented reflect the changes in basis of the
underlying assets that were made as a result of the changes in ownership that
occurred during the periods presented. In addition, because the predecessor
companies operated independently and were not
F-20
<PAGE> 89
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
under common control or management during these periods, and because different
tax strategies may have influenced their results of operations, the data may not
be comparable to or indicative of their operating results after their
acquisition by BFI.
Due to the manner in which BFI intercompany transactions were recorded as
described above, it is not feasible to present a detailed analysis of
transactions reflected in the net intercompany balance with BFI. The change in
the predecessors' combined intercompany balance with BFI (net of income (loss)
and initial investment in the acquired companies) was $642 and $2,142 during the
period ended December 31, 1996 and the nine months ended September 30, 1997,
respectively.
The accompanying statements of operations and cash flows for the Company
and its predecessors for the years ended December 31, 1995, 1996 and 1997 are
comprised of the following entities for the periods indicated:
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31, 1995:
The Disposal Group Combined Year ended December 31, 1995
Fibres International, Inc. January 1, 1995 through November 30, 1995
(BFI acquisition date)
Predecessors One month ended December 31, 1995 (represents the
results of operations of Fibres International,
Inc. subsequent to the BFI acquisition date)
YEAR ENDED DECEMBER 31, 1996:
The Disposal Group Combined January 1, 1996 through July 31, 1996
(BFI acquisition date)
Predecessors Combined Period ended December 31, 1996 (represents the
combined results of operations of The Disposal
Group subsequent to the BFI acquisition date and
the operations for the year ended December 31,
1996 of Fibres International, Inc. which was
acquired by BFI in 1995)
YEAR ENDED DECEMBER 31, 1997:
Predecessors Combined Nine months ended September 30, 1997 (represents
the combined results of operations for the nine
month period of the entities acquired by BFI in
1995 and 1996 described above)
Waste Connections, Inc. Period from inception (September 9, 1997) through
December 31, 1997
</TABLE>
The Disposal Group Combined consists of three entities that were under
common control prior to their acquisition by BFI: Diamond Fab and Welding
Service, Inc., Buchmann Sanitary Service, Inc., and The Disposal Group.
F-21
<PAGE> 90
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
Interim Financial Information
The unaudited interim consolidated financial statements as of March 31,
1998 and for the three months ended March 31, 1997 and 1998 have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three months ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
\ Common Stock Valuation
In connection with the Company's organization and initial capitalization in
September 1997, the Company sold 2.3 million shares of common stock for $.01 per
share to certain directors, consultants, and management. As a result, the
Company recorded a non-recurring, non-cash stock compensation charge of $4,395
in the accompanying consolidated statement of operations, representing the
difference between the amount paid for the shares and the estimated fair value
of the shares of $1.92 per share on the date of sale. The estimated fair value
of the common shares was determined by the Company based on an independent
valuation of the common stock.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risks consist primarily of accounts receivable. Credit
risk on accounts receivable is minimized as a result of the large and diverse
nature of the Company's customer base. The Company maintains an allowance for
losses based on the expected collectibility of accounts receivable. Credit
losses have been within management's expectations.
Property and Equipment
Property and equipment are stated at cost. Improvements or betterments
which significantly extend the life of an asset are capitalized. Expenditures
for maintenance and repair costs are charged to operations as incurred. The cost
of assets retired or otherwise disposed of and the related accumulated
depreciation are eliminated from the accounts in the year of disposal. Gains and
losses resulting from property disposals are included in other income (expense).
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets.
F-22
<PAGE> 91
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
The estimated useful lives are as follows:
<TABLE>
<S> <C>
Machinery and equipment........ 3 - 10 years
Rolling stock.................. 10 years
Containers..................... 5 - 12 years
Furniture and fixtures......... 3 - 6 years
</TABLE>
In connection with the BFI acquisitions (Note 2) the Company acquired
certain used property and equipment. This used property and equipment is being
depreciated using the straight-line method over its estimated remaining useful
lives, which range from one to nine years.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
the net assets of the acquired entities (Note 2), and is amortized on a
straight-line basis over the period of expected benefit of 40 years. Accumulated
amortization amounted to $279 and $64 as of December 31, 1996 and 1997,
respectively.
The Company continually evaluates the value and future benefits of its
intangibles. The Company assesses recoverability from future operations using
income from operations of the related acquired business as a measure. Under this
approach, the carrying value would be reduced if it becomes probable that the
Company's best estimate for expected future cash flows of the related business
would be less than the carrying amount of the intangible over the remaining
amortization period. For the period ending December 31, 1997, there were no
adjustments to the carrying amounts of intangibles resulting from these
evaluations.
Fair Value of Financial Instruments
The carrying values of the line of credit (Note 5) and other long-term debt
(Note 6) approximate their fair values as of December 31, 1997 and March 31,
1998, based on current incremental borrowing rates for similar types of
borrowing arrangements.
Income Taxes
The Company, The Disposal Group, and Fibres International, Inc., use the
liability method to account for income taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
During the periods in which the predecessors were owned by BFI, their
operations were included in the consolidated income tax returns of BFI, and no
allocations of income taxes were reflected in the historical statements of
operations. For purposes of the combined predecessor financial statements,
current and deferred income taxes have been provided on a separate income tax
return basis.
F-23
<PAGE> 92
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
Revenue Recognition
Revenues are recognized as services are provided. Certain customers are
billed in advance and, accordingly, recognition of the related revenues is
deferred until the services are provided.
Start-Up and Integration Expenses
During the period from inception (September 9, 1997) through December 31,
1997, the Company incurred certain start-up expenses relating to the formation
of the Company, primarily for legal and other professional services, and the
costs associated with recruiting the Company's initial management team. In
addition, the Company incurred certain integration expenses relating to the
Acquisitions (Note 2). These start-up and integration expenses have been charged
to operations as incurred.
As described in Note 9, the Company issued warrants during the period from
inception (September 9, 1997) through December 31, 1997 to a bank in connection
with a line of credit and term loan payable, and to certain directors and
stockholders of the Company in connection with their guarantee of certain of the
Company's debt obligations. The fair value of these warrants is being amortized
into interest expense. During the period from inception (September 9, 1997)
through December 31, 1997, $710 relating to these warrants is included in
interest expense in the accompanying statement of operations of the Company.
Stock-Based Compensation
As permitted under the provisions of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation" ("SFAS 123"), the Company has elected
to account for stock-based compensation using the intrinsic value method
prescribed by Accounting Principles Board's Opinion No. 25 "Accounting for Stock
Issued to Employees" ("APB 25"). Under the intrinsic value method, compensation
cost is the excess, if any, of the quoted market price or fair value of the
stock at the grant date or other measurement date over the amount an employee
must pay to acquire the stock. None of the predecessor entities awarded
stock-based compensation to employees. Consequently, the related disclosures in
the accompanying financial statements and notes relate solely to the Company.
Per Share Information
In 1997, the Financial Accounting Standards Board ("FASB")issued Statement
No. 128, Earnings per Share. Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts have been presented on the
basis set forth in Statement 128 (Note 11). Earnings per share data have not
been presented for the predecessor operations because such data is not
meaningful.
Pro-forma basic net income (loss) per share is computed by dividing the net
income (loss) by the sum of the weighted average number of shares of common
stock outstanding and common
F-24
<PAGE> 93
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
shares issuable upon the conversion of all outstanding shares of Redeemable
Convertible Preferred Stock (Note 8) as though such conversion occurred at the
beginning of the period.
Pro-forma diluted net income per share is computed by dividing net income
by the sum of the weighted average number of shares of common stock outstanding,
common shares issuable upon conversion of all outstanding shares of Redeemable
Convertible Preferred Stock (Note 8) as though such conversion occurred at the
beginning of the period, and common shares issuable upon the exercise of
outstanding common stock options and warrants (calculated using the treasury
stock method.)
Closure and Post-Closure Costs
Because it does not currently own any landfills, the Company does not
accrue for estimated landfill closure and post-closure maintenance costs. The
Company may have material financial obligations relating to closure and
post-closure costs of any disposal facilities it may own or operate in the
future, and in such case the Company will provide accruals for future financial
obligations relating to closure and post-closure costs of its landfills
(generally for a term of 30 years after final closure of a landfill), based on
engineering estimates of consumption of permitted landfill airspace over the
useful life of any such landfill.
New Accounting Pronouncements
In February 1997, the FASB issued Statement No. 129, Disclosure of
Information about Capital Structure, which is effective for financial statements
for periods ending after December 15, 1997. This statement establishes standards
for disclosing information about an entity's capital structure. Adoption of
Statement 129 will have no impact on the Company's existing disclosures.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income. Statement 130 establishes standards for reporting and disclosure of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. Statement 130, which is
effective for fiscal years beginning after December 15, 1997, requires
reclassification of financial statements for earlier periods to be provided for
comparative purposes. The Company anticipates that implementing the provisions
of Statement 130 will not have a significant impact on the Company's existing
disclosures.
In June 1997, the FASB issued Statement No. 131, Disclosure About Segments
of an Enterprise and Related Information. Statement 131 establishes standards
for the way that public business enterprises report information about operating
segments. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. Statement 131 is effective
for fiscal years beginning after December 15, 1997. In the initial year of
application, comparative information for earlier years must be restated. The
Company anticipates that implementing the provisions of Statement 131 will not
have a significant impact on the Company's existing disclosures.
F-25
<PAGE> 94
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
2. ACQUISITIONS
Browning-Ferris Industries Related
On September 29, 1997, the Company purchased all of the outstanding stock
of Browning-Ferris Industries of Washington, Inc. and Fibres International, Inc.
from BFI (collectively the "Acquisitions"). The total purchase price for the
Acquisitions was approximately $15,036, comprised principally of $11,493 in cash
and promissory notes payable to BFI totaling $3,543. Of the combined $15,036
purchase price, $9,578 was recorded as goodwill and $150 was assigned to a
non-competition agreement. The Acquisitions were accounted for in accordance
with the purchase method of accounting and, accordingly, the net assets acquired
were included in the Company's consolidated balance sheet based upon their
estimated fair values on the date of the Acquisitions. The Company's
consolidated statement of operations includes the revenues and expenses of the
acquired businesses after the effective date of the transaction.
Certain items affecting the purchase price and the allocation are
preliminary. A summary of the preliminary purchase price allocation as of
December 31, 1997 for the Acquisitions is as follows:
<TABLE>
<S> <C>
Acquired assets:
Accounts receivable................................... $ 2,919
Prepaid expenses and other current assets............. 287
Property and equipment................................ 4,106
Goodwill.............................................. 9,578
Non-competition agreement............................. 150
Assumed liabilities:
Deferred revenue...................................... (428)
Accounts payable and accrued liabilities.............. (26)
Accrued losses on acquired contracts.................. (1,018)
Deferred income taxes................................. (532)
-------
$15,036
=======
</TABLE>
During the three months ended March 31, 1998, the Company increased the
accrual for losses on acquired contracts and goodwill by approximately $291 to
reflect revised estimates of additional losses on the acquired contracts that
are expected to be incurred.
Waste Connections of Idaho, Inc.
On January 30, 1998, the Company acquired all of the outstanding stock of
Waste Connections of Idaho, Inc. ("WCII") for $3 and the assumption of
liabilities in the amount of $1,943. WCII was owned by affiliates of the Company
and commenced operations in September 1997 through the purchase of certain solid
waste collection assets located in Eastern Idaho from Browning-Ferris of Idaho,
Inc. The acquisition has been accounted for in accordance with the purchase
method of accounting.
F-26
<PAGE> 95
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
Certain items affecting the purchase price and the allocation are
preliminary. A summary of the preliminary purchase price allocation for the WCII
acquisition is as follows:
<TABLE>
<S> <C>
Acquired assets:
Accounts receivable................................... $ 785
Prepaid expenses and other current assets............. 167
Property and equipment................................ 994
Assumed liabilities:
Deferred revenue...................................... (237)
Accounts payable and accrued liabilities.............. (256)
Notes payable......................................... (1,450)
-------
$ 3
=======
</TABLE>
Madera Disposal Systems, Inc.
On February 23, 1998, the Company purchased all of the outstanding stock of
Madera Disposal Systems, Inc. ("Madera") effective February 1, 1998, pursuant to
a Stock Purchase Agreement (the "Agreement"). The Agreement requires the Company
to pay to the shareholders of Madera $9,579 in cash (a portion of which was used
to repay Madera outstanding debt on the date of acquisition and which is subject
to other adjustments as specified in the Agreement), 1,000,000 shares of the
Company's common stock with a fair market value of $7,500 (the "Stock"),
warrants to purchase 200,000 shares of the Company's common stock at $4.00 per
share with a fair market value of $954 (the "Warrants") and other contingent
consideration. The Agreement provides that in the event the Company does not
complete an initial public offering ("IPO") of its stock by March 31, 1999, with
aggregate gross proceeds of at least $5,000, the Company may be required to
repurchase the Stock and the Warrants from the former shareholders of Madera for
$2,800 in cash if certain other conditions are also met.
The Madera acquisition has been accounted for in accordance with the
purchase method of accounting. The total purchase price and the excess of the
purchase price over the fair value of the net assets acquired in the Madera
acquisition were approximately $18,213 and $14,580, respectively.
Certain items affecting the purchase price and the allocation are
preliminary. A summary of the preliminary purchase price allocation for the
Madera acquisition is as follows:
F-27
<PAGE> 96
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
<TABLE>
<S> <C>
Acquired assets:
Cash...................................................... $ 1,388
Accounts receivable....................................... 905
Prepaid expenses and other current assets................. 141
Property and equipment.................................... 2,100
Long-term franchise agreements and contracts.............. 725
Goodwill.................................................. 14,580
Assumed liabilities:
Accounts payable and accrued liabilities.................. (1,120)
Accrued losses on acquired contracts...................... (306)
Notes payable............................................. (200)
-------
$18,213
=======
</TABLE>
Predecessor Acquisitions
As described in Note 1, BFI acquired for cash and debt Fibres
International, Inc. on November 30, 1995 and The Disposal Group Combined on July
31, 1996 in transactions that were accounted for as purchases. Accordingly, the
respective purchase prices were allocated to the fair values of the assets
acquired and liabilities assumed. The following presents purchase price
information for these acquisitions:
<TABLE>
<CAPTION>
THE
FIBRES DISPOSAL
INTERNATIONAL, GROUP
INC. COMBINED
-------------- ---------
<S> <C> <C>
Tangible assets acquired................... $5,076 $2,076
Goodwill................................... 4,187 2,671
Assumed liabilities........................ (969) (33)
------ ------
$8,294 $4,714
====== ======
</TABLE>
F-28
<PAGE> 97
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
3. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1996 and 1997 and March 31, 1998
consists of the following:
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
COMBINED --------------------------
DECEMBER 31, DECEMBER 31, MARCH 31,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Land and buildings............ $2,314 $ -- $1,000
Machinery and equipment....... 146 60 761
Rolling stock................. 2,068 2,353 3,612
Containers.................... 1,084 1,995 2,656
Furniture and fixtures........ 137 67 119
------ ------ ------
5,749 4,475 8,148
Less accumulated
depreciation................ (680) (290) (832)
------ ------ ------
$5,069 $4,185 $7,316
====== ====== ======
</TABLE>
Combined depreciation expense for the predecessor operations was $1,304,
$1,101, and $789 for the years ended December 31, 1995 and 1996, and the nine
months ended September 30, 1997, respectively. The Company's depreciation
expense for the period from inception (September 9, 1997) through December 31,
1997 was $290.
4. OTHER ASSETS
Other assets as of December 31, 1996 and 1997 and March 31, 1998 consist of
the following:
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
COMBINED --------------------------
DECEMBER 31, DECEMBER 31, MARCH 31,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Long-term franchise agreements and
contracts........................... $ -- $ -- $ 725
Non-competition agreement, net........ -- 142 150
Other................................. 369 27 262
---- ---- ------
$369 $169 $1,137
==== ==== ======
</TABLE>
Related to certain of the Acquisitions (Note 2), the Company acquired
certain long-term franchise agreements and contracts and entered into a
non-competition agreement. The estimated fair value of the acquired long-term
franchise agreements and contracts was determined by management based on the
discounted net cash flows associated with the agreements and contracts. The
amounts assigned to the franchise agreements and contracts is being amortized on
a straight-line method over the remaining term of the related agreements (11
years). The estimated fair value of the non-competition agreement was determined
by management based on the discounted adjusted operating income stream that
would have otherwise been subject to competition. The amount assigned to the
non-competition agreement is being amortized on a straight-line method
F-29
<PAGE> 98
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
over the term of the agreement (five years). Accumulated amortization amounted
to $8 as of December 31, 1997.
5. LINE OF CREDIT
On September 30, 1997, the Company obtained a revolving line of credit (the
"Line") from a bank (the "Bank"). The maximum amount available under the terms
of the Line was $2,000 and borrowings bore interest based on the prime rate plus
1.5% (aggregating 10.0% at December 31, 1997). Interest was payable monthly and
the Line was to expire on September 29, 1998. Borrowings under the Line were
secured by substantially all of the Company's assets and were subordinate to the
notes payable to BFI (Note 6) with respect to certain specified assets. The Line
was personally guaranteed by certain officers and stockholders of the Company
(Note 9). As of December 31, 1997, $600 was outstanding under the Line.
Management used borrowings from a new credit facility obtained in January
1998 (Note 12) to pay off amounts outstanding under the Line, and as such, these
amounts have been included in long-term debt as of December 31, 1997.
6. OTHER LONG-TERM DEBT
Other long-term debt consists of the following as of December 31, 1997:
<TABLE>
<S> <C>
Term loan payable to the Bank bearing interest at the Bank's
prime rate plus 2.0% (aggregating 10.5% as of December 31,
1997); monthly principal payments of $76 plus interest
beginning October 1997 through August 2002; all
outstanding principal and interest are due September 2002;
secured by substantially all of the Company's assets;
subordinate to the notes payable to BFI with respect to
certain specified assets.................................. $5,343
Note payable to BFI bearing interest at 6.0%; all
outstanding principal and interest are due December 1997;
secured by substantially all of the Company's accounts
receivable................................................ 319
Note payable to BFI bearing interest at 10.0%; quarterly
payments of interest beginning December 1997; all
outstanding principal and interest are due March 1998;
secured by substantially all of WCII's assets............. 500
------
$6,162
======
</TABLE>
The term loan payable to the Bank and the notes payable to BFI were
personally guaranteed by certain officers and stockholders of the Company (Note
9).
F-30
<PAGE> 99
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
As of December 31, 1997, aggregate contractual future principal payments by
calendar year on long-term debt are due as follows:
<TABLE>
<S> <C>
1998................................ $1,736
1999................................ 917
2000................................ 917
2001................................ 917
2002................................ 917
Thereafter.......................... 758
------
$6,162
======
</TABLE>
Management used borrowings from a new credit facility obtained in January
1998 (Note 12) to pay off all amounts outstanding under the term loan payable to
the Bank and all notes payable to BFI, and as such, these amounts have been
classified as long-term debt as of December 31, 1997.
7. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Leases
The Company leases its facilities and certain equipment under
non-cancelable operating leases for periods ranging from one to five years.
Combined rent expense for the predecessor operations was $398, $412, and $441
for the years ended December 31, 1995 and 1996, and the nine months ended
September 30, 1997, respectively. The Company's rent expense under operating
leases during the period from inception (September 9, 1997) through December 31,
1997 amounted to $52.
As of December 31, 1997, future minimum lease payments under these leases,
by calendar year, are as follows:
<TABLE>
<S> <C>
1998................................. $206
1999................................. 196
2000................................. 192
2001................................. 140
2002................................. 10
----
$744
====
</TABLE>
Performance Bonds and Letters of Credit
Municipal solid waste collection contracts may require performance bonds or
other means of financial assurance to secure contractual performance. As of
December 31, 1997, the Company had provided customers and various regulatory
authorities with bonds and letters of credit of approximately $800 to secure its
obligations. The Company's new credit facility (Note 12) provides for the
issuance of letters of credit in an amount up to $5,000, but any letters of
credit issued reduce the availability of borrowings for acquisitions or other
general corporate purposes. If the Company were unable to obtain surety bonds or
letters of credit in sufficient amounts or at acceptable rates, it
F-31
<PAGE> 100
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
could be precluded from entering into additional municipal solid waste
collection contracts or obtaining or retaining landfill operating permits.
CONTINGENCIES
Environmental Risks
The Company is subject to liability for any environmental damage that its
solid waste facilities may cause to neighboring landowners or residents,
particularly as a result of the contamination of soil, groundwater or surface
water, and especially drinking water, 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, results of operations or
cash flows. As of December 31, 1997 and March 31, 1998, the Company is not aware
of any such environmental liabilities.
Legal Proceedings
In the normal course of its business and as a result of the extensive
governmental regulation of the solid 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 deny renewal of an operating
permit held by the Company. From time to time the Company may also be subject to
actions brought by citizens' groups or adjacent landowners or residents in
connection with the permitting and licensing of landfills and transfer stations,
or alleging environmental damage or violations of the permits and licenses
pursuant to which the Company operates.
In addition, the Company may become party to various claims and suits
pending for alleged damages to persons and property, alleged violations of
certain laws and alleged liabilities arising out of matters occurring during the
normal operation of the waste management business. However, as of December 31,
1997 and March 31, 1998 there is no current proceeding or litigation involving
the Company that the Company believes will have a material adverse impact on the
Company's business, financial condition, results of operations or cash flows.
During the period from January 1, 1996 through July 31, 1996, The Disposal
Group won a lawsuit against the city of Vancouver, Washington relating to the
city's annexation of certain territories served by The Disposal Group. The
Disposal Group received approximately $2.6 million from the lawsuit, which is
included in other income in the accompanying statement of operations.
Employees
Approximately 55 drivers and mechanics at the Company's Vancouver,
Washington operation are represented by the Teamsters Union, with which
Browning-Ferris Industries of Washington, Inc., the Company's predecessor in
Vancouver, entered a four-year collective bargaining agreement in January 1997.
In addition, in July 1997, the employees at the Company's facility in Issaquah,
Washington, adopted a measure to select a union to represent them in labor
negotiations with
F-32
<PAGE> 101
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
management. The union and management are currently operating under a one-year
negotiating agreement, and, if those negotiations are unsuccessful, the earlier
date on which the union would be permitted to take additional action is July 27,
1998. Such additional action includes calling a strike or, if the Company
agrees, continuing to negotiate or commencing arbitration of the outstanding
issues. The Company is not aware of any other organizational efforts among its
employees and believes that its relations with its employees are good.
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In September 1997, the Company received net proceeds of $6,992 from the
sale of 2,499,998 shares of redeemable convertible preferred stock (the
"Preferred Stock"). The Preferred Stock accrues cumulative dividends at the rate
of $.098 per share annually. Accumulated and unpaid dividends on Preferred Stock
amounted to $61 as of December 31, 1997. The Preferred Stock and any accumulated
and unpaid dividends are convertible at the holder's option into shares of the
Company's common stock at the calculated rate of $2.80 per share divided by the
"Conversion Price" subject to certain anti-dilution adjustments. As of December
31, 1997 and March 31, 1998, the Conversion Price was $2.80 per share. Each
share will automatically be converted into common stock immediately upon the
closing of a registered public offering of the Company's common stock with
proceeds to the Company of at least $5.00 per share and aggregate proceeds of at
least $5,000.
Each share of Preferred Stock is redeemable, at the holder's option, during
the period from April 1, 1999 through October 1, 1999 for $4.20 per share plus
any accumulated and unpaid dividends. The difference between the carrying value
of the Preferred Stock and the redemption value (including accumulated
dividends) is being accreted using the interest method through the earliest
redemption date. The redemption of the Preferred Stock is not mandatory if it
would cause the Company to incur additional indebtedness or if it is prohibited
under any of the Company's then existing debt agreements.
The preferred stockholders are entitled to one vote for each share of
common stock into which such shares can be converted, and are also entitled to
liquidation preferences equal to the greater of the initial purchase price per
share ($2.80) plus any accumulated and unpaid dividends, plus the greater of
$4.20 per share or an amount which equals an internal rate of return of 50% to
the investor. After receiving such preference, the holders of the preferred
stock share remaining proceeds with the common stockholders on an as converted
basis.
9. STOCKHOLDERS' EQUITY
Common Stock
Of the 47,700,000 shares of common stock authorized but unissued as of
December 31, 1997, the following shares were reserved for issuance:
<TABLE>
<S> <C>
Preferred Stock.................................. 2,521,874
Madera acquisition (Note 2)...................... 1,200,000
Stock option plan................................ 1,200,000
Stock purchase warrants.......................... 1,056,000
---------
5,977,874
=========
</TABLE>
F-33
<PAGE> 102
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
Stockholder Notes Receivable
In December 1997, the Company provided loans in the aggregate amount of $82
to certain employees, who are also common stockholders, for the purchase of
shares of the Company's Preferred Stock. The notes bear interest at 8%, are due
on January 1, 1999 and are secured by the Preferred Stock purchased and common
stock owned by the employees.
Stock Options
In November 1997, the Company's Board of Directors adopted a stock option
plan in which all officers, employees, directors and consultants may participate
(the "Option Plan"). Options granted under the Option Plan may either be
incentive stock options or nonqualified stock options (the "Options") and they
will generally have a term of 10 years from the date of grant and will vest over
periods determined at the date of grant. The exercise prices of the options are
determined by the Company's Board of Directors and will be at least 100% or 110%
of the fair market value of the Company's common stock on the date of grant as
provided for in the Option Plan.
In connection with the Option Plan, the Company's Board of Directors
approved the reservation of 1,200,000 shares of common stock for issuance
thereunder. As of December 31, 1997 and March 31, 1998, no options to purchase
common stock were exercisable under the Option Plan. In addition, as of December
31, 1997 and March 31, 1998, options for 671,500 and 324,700 shares,
respectively of common stock were available for future grants under the Option
Plan.
A summary of the Company's stock option activity and related information
during the period from inception (September 9, 1997) through December 31, 1997
and the three months ended March 31, 1998 is presented below:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES (OPTIONS) EXERCISE PRICE
---------------- ----------------
<S> <C> <C>
Outstanding at inception.......... -- $ --
Granted........................... 528,500 4.92
Forfeited......................... -- --
Exercised......................... -- --
-------
Outstanding as of December 31,
1997............................ 528,500 4.92
Granted (unaudited)............... 346,800 6.14
Forfeited (unaudited)............. -- --
Exercised (unaudited)............. -- --
-------
Outstanding as of March 31, 1998
(unaudited)..................... 875,300 5.40
=======
</TABLE>
F-34
<PAGE> 103
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
The following table summarizes information about stock options outstanding
as of December 31, 1997 and March 31, 1998:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
EXERCISE PRICES 1997 1998
--------------- ------------ -----------
(UNAUDITED)
<S> <C> <C>
$ 2.80......................... 376,000 496,000
$ 3.00......................... -- 70,000
$ 5.00......................... 9,500 13,800
$ 6.00......................... -- 19,500
$ 9.00......................... -- 3,000
$ 9.50......................... -- 50,000
$10.50......................... 143,000 168,000
$11.00......................... -- 5,000
$12.50......................... -- 50,000
------- -------
528,500 875,300
======= =======
</TABLE>
The weighted average remaining contractual life of stock options
outstanding as of December 31, 1997, was 9.4 years.
Pro Forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for the period from inception (September 9, 1997) through December
31, 1997: risk-free interest rate of 6%; dividend yield of zero; volatility
factor of the expected market price of the Company's common stock of .40; and a
weighted-average expected life of the option of 4 years.
The Black-Scholes option valuation model was developed for us in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net loss and pro forma basic net loss per share for the period from
inception (September 9, 1997) through December 31, 1997 were $(5,070) and
$(2.99) per share, respectively.
During the three months ended March 31, 1998, the Company recorded deferred
stock compensation of $821 relating to stock options granted during the period
with exercise prices less than the estimated fair value of the Company's common
stock on the date of grant. The deferred stock compensation is being amortized
into expense over the vesting periods of the stock options which generally range
from 1 to 3 years. Compensation expense of $80 was recorded during the three
months ended March 31, 1998 relating to these options, and the remaining $741
will be amortized into expense in future periods.
F-35
<PAGE> 104
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
Stock Purchase Warrants
In September 1997, the Company issued a warrant to purchase 200,000 shares
of the Company's common stock to the Bank that provided the Line and term loan
payable (Notes 5 and 6). The exercise price of the warrant is $.01 per share.
The warrant was valued at $382 on its date of issuance using the Black-Scholes
pricing model with an assumed stock price volatility of .40, risk-free interest
rate of 6.0%, estimated fair value of the common stock of $1.92 per share and an
expected life of 7 years. The value assigned to the warrant was reflected as a
discount on long-term debt. The discount was fully accreted to interest expense
using the straight-line method over the expected term of the debt agreements
(approximately three months).
In connection with their guarantee of certain of the Company's debt
obligations (Notes 5 and 6), the Company issued warrants to purchase 841,000
shares of the Company's common stock to certain directors and stockholders of
the Company. The exercise price of the warrants is $2.80 per share. The warrants
were valued at $328 on their date of issuance using the Black-Scholes pricing
model with an assumed stock price volatility of .40, risk-free interest rate of
6.0%, estimated fair value of the common stock of $1.92 per share and expected
lives of 3 years. The value assigned to these warrants was fully amortized to
interest expense over the expected term of the debt agreements (approximately
three months).
In December 1997, the Company issued to consultants warrants to purchase
15,000 shares of the Company's common stock. Warrants to purchase 10,000 and
5,000 shares of common stock had exercise prices of $5.00 per share and $2.80
per share, respectively.
In February 1998, the Company granted warrants to an employee to purchase
50,000 shares of the Company's common stock at $2.80 per share. The Company
recorded stock compensation expense of approximately $235 relating to these
warrants.
Initial Public Offering
In December 1997, the Company's board of directors authorized the filing of
a registration statement with the Securities and Exchange Commission permitting
the Company to sell up to an aggregate of 2,300,000 shares of common stock
(including the underwriters' over-allotment option) to the public. Under the
terms of the offering currently contemplated, the Preferred Stock will be
converted into common stock, prior to or concurrently with the completion of the
offering, and the redemption provisions of the common stock issued in connection
with the Madera acquisition (Note 2) will expire.
F-36
<PAGE> 105
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
10. INCOME TAXES
The provision (benefit) for income taxes for the periods ended December 31,
1995 and 1996, the nine months ended September 30, 1997 and for the period from
inception (September 9, 1997) through December 31, 1997 consists of the
following:
<TABLE>
<CAPTION>
PREDECESSORS
-------------------------------------------------------------
FIBRES THE DISPOSAL GROUP WASTE CONNECTIONS, INC.
INTERNATIONAL, INC. COMBINED CONSOLIDATED
THE DISPOSAL GROUP PERIOD FROM PERIOD FROM PERIOD FROM INCEPTION
COMBINED JANUARY 1, 1995 JANUARY 1, 1996 (SEPTEMBER 9, 1997)
YEAR ENDED THROUGH THROUGH THROUGH
DECEMBER 31, 1995 NOVEMBER 30, 1995 JULY 31, 1996 DECEMBER 31, 1997
------------------ ------------------- ------------------ -----------------------
<S> <C> <C> <C> <C>
Current:
Federal............ $ -- $ 29 $207 $ 38
State.............. -- -- -- --
Deferred:
Federal............ (298) -- 298 (370)
State.............. -- -- -- --
----- ---- ---- -----
$(298) $ 29 $505 $(332)
===== ==== ==== =====
</TABLE>
Significant components of the Company's deferred income tax assets and
liability were as follows as of December 31, 1996 and 1997:
<TABLE>
<CAPTION>
PREDECESSORS
COMBINED COMPANY
1996 1997
------------ -------
<S> <C> <C>
Deferred income tax assets:
Accounts receivable reserves...................... $ 32 $ 8
Amortization...................................... -- 290
Accrued expenses.................................. 4 --
Vacation accrual.................................. 2 15
Net operating losses.............................. 208 54
------ ------
Total deferred income tax assets.................... 246 367
Deferred income tax liability:
Depreciation...................................... -- (529)
------ ------
Net deferred income tax asset (liability)........... 246 (162)
Less valuation allowance............................ (246) --
------ ------
$ -- $ (162)
====== ======
</TABLE>
F-37
<PAGE> 106
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
The differences between the Company's provision (benefit) for income taxes
as presented in the accompanying statements of operations and benefit for income
taxes computed at the federal statutory rate is comprised of the items shown in
the following table as a percentage of pre-tax income (loss):
<TABLE>
<CAPTION>
PREDECESSORS
-------------------------------------------------------------------------------
THE DISPOSAL
FIBRES GROUP
THE DISPOSAL INTERNATIONAL, INC. COMBINED
GROUP PERIOD FROM PERIOD FROM
COMBINED JANUARY 1, 1995 PREDECESSORS JANUARY 1, 1996
YEAR ENDED THROUGH ONE MONTH ENDED THROUGH
DECEMBER 31, 1995 NOVEMBER 30, 1995 DECEMBER 31, 1995 JULY 31, 1996
----------------- ------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Income tax provision
(benefit) at the
statutory rate....... (34.0%) 34.0% 34.0% 34.0%
Effect of valuation
allowance............ -- -- (34.0%) (16.0%)
------- ------- ------- --------
(34.0%) 34.0% -- 18.0%
======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
PREDECESSORS
-------------------------------------
PREDECESSORS WASTE CONNECTIONS, INC.
COMBINED CONSOLIDATED
PREDECESSORS NINE MONTHS PERIOD FROM INCEPTION
COMBINED ENDED (SEPTEMBER 9, 1997)
PERIOD ENDED SEPTEMBER 30, THROUGH
DECEMBER 31, 1996 1997 DECEMBER 31, 1997
----------------- ----------------- -----------------------
<S> <C> <C> <C>
Income tax benefit at the statutory
rate.............................. (34.0%) (34.0%) (34.0%)
Effect of valuation allowance....... 34.0% 34.0% --
Stock compensation expense.......... -- -- 28.0%
-------- -------- --------
-- -- (6.0%)
======== ======== ========
</TABLE>
F-38
<PAGE> 107
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
11. NET LOSS PER SHARE INFORMATION
The following table sets forth the computation of basic net loss per share
and pro forma basic net loss per share for the period from inception (September
9, 1997) through December 31, 1997 and the three months ended March 31, 1998:
<TABLE>
<CAPTION>
MARCH 31, 1998
DECEMBER 31, 1997 ------------------------------------
--------------------- (UNAUDITED)
PRO FORMA PRO FORMA PRO FORMA
BASIC BASIC BASIC BASIC DILUTED
NET LOSS NET LOSS NET LOSS NET INCOME NET INCOME
PER SHARE PER SHARE PER SHARE PER SHARE PER SHARE
--------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss).................. $ (5,066) $ (5,066) $ 35 $ 35 $ 35
Redeemable convertible preferred --
stock accretion................. (531) -- (572) --
--------- --------- --------- --------- ---------
$ (5,597) $ (5,066) $ (537) $ 35 $ 35
========= ========= ========= ========= =========
Denominator:
Weighted average common shares 3,311,111
outstanding..................... 1,872,567 1,872,567 2,311,111 3,311,111
Dilutive effect of stock options 1,024,306
and warrants outstanding........ -- -- -- --
Common shares issuable upon 2,499,998
conversion of preferred stock... -- 2,499,998 -- 2,499,998
--------- --------- --------- --------- ---------
1,872,567 4,372,565 2,311,111 5,811,109 6,835,415
========= ========= ========= ========= =========
$ (2.99) $ (1.16) $ (0.23) $ 0.01 $ 0.01
========= ========= ========= ========= =========
</TABLE>
As of December 31, 1997, outstanding options to purchase 528,500 shares of
common stock (with exercise prices ranging from $2.80 to $10.50), outstanding
warrants to purchase 1,056,000 shares of common stock (with exercise prices from
$0.01 to $5.00), and the outstanding Redeemable Convertible Preferred Stock
could potentially dilute basic earnings per share in the future and have not
been included in the computation of diluted net loss per share because to do so
would have been antidilutive for the period presented.
12. NEW CREDIT FACILITY
On January 30, 1998, the Company obtained a new revolving credit facility
from BankBoston (the "Credit Facility"). The maximum amount available under the
Credit Facility is $25,000 including stand-by letters-of-credit and the
borrowings will bear interest at various fixed and/or variable rates at the
Company's option. The Credit Facility allows for the Company to issue up to
$5,000 in stand-by letters-of-credit. The Credit Facility requires quarterly
payments of interest and it matures in January 2001. Borrowings under the Credit
Facility are secured by all of the Company's assets. The borrowings are further
secured by the shares of the Company's common and preferred stock owned by the
Company's President and Chief Executive Officer. The Credit Facility requires
the Company to pay an annual commitment fee equal to 0.5% of the unused portion
of the Credit Facility. The Credit Facility places certain business, financial
and operating restrictions on the
F-39
<PAGE> 108
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO MARCH 31, 1998 AND THE THREE MONTHS ENDED MARCH 31,
1997 AND 1998 IS UNAUDITED)
Company and it's subsidiaries including among other things, the incurrence of
additional indebtedness, investments, acquisitions, asset sales, mergers,
dividends, distributions and repurchases and redemptions of capital stock. The
Credit Facility also requires that specified financial ratios and balances be
maintained. In connection with the Credit Facility the Company granted to an
affiliate of BankBoston a warrant to purchase 140,000 shares of the Company's
common stock with an exercise price of $2.80 per share and an expiration date of
January 29, 2008.
13. RELATED PARTY TRANSACTIONS
The Company has entered into certain transactions with Continental Paper,
LLC ("Continental"), in which the Company delivers to Continental all of the
Company's collected recyclable materials in areas in which Continental has
processing facilities and Continental pays the Company market rates for the
recyclable materials. Certain of the Company's stockholders are the majority
owners of Continental. During the period from inception (September 9, 1997)
through December 31, 1997, the Company received approximately $223 from
Continental in these transactions.
14. UNAUDITED PRO FORMA REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY
The Company's unaudited pro forma redeemable stock and stockholders' equity
as of March 31, 1998, gives effect to the conversion of the Preferred Stock into
2,499,998 shares of common stock. The conversion of the Preferred Stock into
common stock will occur prior to or concurrently with the completion of the
Company's initial public offering (Note 9). In addition, the redemption
provisions of the common stock issued in connection with the Madera acquisition
(Note 2) will expire upon completion of the initial public offering.
F-40
<PAGE> 109
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Madera Disposal Systems, Inc.
We have audited the accompanying balance sheets of Madera Disposal Systems,
Inc. as of December 31, 1996 and 1997, and the related statements of income and
retained earnings, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Madera Disposal Systems,
Inc. at December 31, 1996 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Sacramento, California
February 20, 1998
F-41
<PAGE> 110
MADERA DISPOSAL SYSTEMS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents................................... $1,064 $1,527
Accounts receivable, less allowance for doubtful
accounts of $111 ($90 in 1996)........................ 788 691
Receivables from shareholders.......................... 100 113
Prepaid expenses and other current assets.............. 216 214
------ ------
Total current assets................................... 2,168 2,545
Property and equipment, net................................. 3,800 3,636
Assets held for sale........................................ -- 77
Other assets................................................ 36 39
------ ------
$6,004 $6,297
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable....................................... $ 750 $ 644
Deferred revenue....................................... 208 219
Accrued liabilities.................................... 193 178
Current portion of capital lease obligations........... 218 274
Current portion of long-term debt...................... 177 288
------ ------
Total current liabilities................................... 1,546 1,603
Long-term portion of capital lease obligations.............. 1,557 1,565
Long-term debt.............................................. 637 329
Commitments and contingencies (Note 4)
Shareholders' equity:
Common stock: $100 par value; 1,000,000 shares
authorized; 500 shares issued and outstanding......... 50 50
Retained earnings...................................... 2,214 2,750
------ ------
Total shareholders' equity.................................. 2,264 2,800
------ ------
$6,004 $6,297
====== ======
</TABLE>
See accompanying notes.
F-42
<PAGE> 111
MADERA DISPOSAL SYSTEMS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Revenues.................................................... $7,008 $7,770 $7,845
Operating expenses:
Cost of operations..................................... 5,288 5,512 5,289
Selling, general and administrative.................... 996 969 1,041
Depreciation and amortization.......................... 467 585 627
------ ------ ------
Income from operations...................................... 257 704 888
Interest expense............................................ (237) (259) (280)
Other income, net........................................... 68 113 173
------ ------ ------
Net income.................................................. 88 558 781
Retained earnings, beginning of year........................ 1,863 1,656 2,214
Distributions to shareholders............................... (295) -- (245)
------ ------ ------
Retained earnings, end of year.............................. $1,656 $2,214 $2,750
====== ====== ======
Pro forma income taxes (unaudited -- Note 7)................ $ (30) $ (208) $ (295)
------ ------ ------
Pro forma net income (unaudited -- Note 7).................. $ 58 $ 350 $ 486
====== ====== ======
</TABLE>
See accompanying notes.
F-43
<PAGE> 112
MADERA DISPOSAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1996 1997
----- ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 88 $ 558 $ 781
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 467 585 627
Gain on sale of property & equipment................... (13) (37) (71)
Changes in operating assets and liabilities:
Accounts receivable, net............................. (252) (23) 97
Receivables from shareholders........................ (21) (33) (13)
Prepaid expenses and other assets.................... -- (52) 2
Other assets......................................... (2) (9) (3)
Accounts payable..................................... 265 (29) (106)
Deferred revenue..................................... 4 16 11
Accrued liabilities.................................. 105 44 (15)
----- ------ ------
Net cash provided by operating activities:.................. 641 1,020 1,310
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment........... (274) (902) (183)
Proceeds from sale of assets.............................. 13 97 140
----- ------ ------
Net cash used in investing activities....................... (261) (805) (43)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. 265 591 --
Principal payments on long-term debt and capital lease
obligations............................................ (576) (351) (559)
Cash distributions made to shareholders................... (295) -- (245)
----- ------ ------
Net cash provided by (used in) financing activities......... (606) 240 (804)
----- ------ ------
Net increase (decrease) in cash and equivalents............. (226) 455 463
Cash and equivalents:
Beginning of year......................................... 835 609 1,064
----- ------ ------
End of year............................................... $ 609 $1,064 $1,527
===== ====== ======
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION AND
NON-CASH TRANSACTIONS:
Cash paid for interest...................................... $ 237 $ 237 $ 279
===== ====== ======
Capital lease obligations and long-term debt incurred for
the purchase of property and equipment.................... $ 854 $ -- $ 426
===== ====== ======
</TABLE>
See accompanying notes.
F-44
<PAGE> 113
MADERA DISPOSAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS)
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Madera Disposal Systems, Inc. ("Madera") is a regional, integrated,
non-hazardous solid waste services company that provides collection, transfer
disposal and recycling services to residential, commercial and industrial
customers. Madera Landfill is contracted by the County of Madera to operate the
Fairmead, the North Fork Transfer Station and the materials recovery facility
(aka, Mammoth Recycling Facility), all of which are located in the County of
Madera, State of California. Madera also holds an exclusive contract with the
County of Madera to collect solid waste within the unincorporated areas of the
County of Madera. The contracts continue in force and effect until August 2004,
and will automatically be extended for one five year period unless Madera is
then in material breach or default of its obligations under the materials
recovery facility contract. All contracts may be extended for additional periods
and upon terms as the County of Madera and Madera may mutually agree upon.
On November 9, 1993, Madera entered into an agreement with the County of
Madera, whereby Madera was to design, permit, finance, construct, equip, staff,
operate and maintain a materials recovery facility (the "Facility") at the
County's Fairmead Landfill for the purpose of providing the County of Madera
with a guaranteed reduction in the quantity of municipal solid waste requiring
landfill disposal. The Facility was to be designed, constructed and operated to
receive all municipal solid waste from the Cities of Madera and Chowchilla and
the unincorporated areas of the County of Madera. It was also to meet the
twenty-five percent (25%) waste reduction requirements of Assembly Bill 939
(Chapter 1095 of the Statutes of 1989) for the Cities of Madera and Chowchilla
and the County of Madera by January 11, 1995, through the recycling of recovered
material, and work toward the waste reduction requirements of fifty percent
(50%) that each jurisdiction must achieve by January 1, 2000. The Facility
became operational on August 15, 1994.
The County of Madera will compensate Madera for its capital costs incurred
in designing, permitting, financing, constructing and equipping the Facility.
These costs were $1,661 and are included in property and equipment in the
accompanying balance sheets. The County of Madera will reimburse Madera for the
equipment and interest costs over a ten year operational period. The County of
Madera will also reimburse Madera for its other operational costs incurred in
connection with the staffing, maintaining and operating of the materials
recovery facility. All of the aforementioned costs are reimbursed to Madera
through receipt of a specified portion of waste disposal fees collected by
Madera on behalf of the County of Madera for landfill operations.
At the termination of the contracts described above, the improvements made
by Madera become the sole and exclusive property of the County of Madera,
subject only to the County of Madera's continuing obligation to pay or reimburse
the Company for any remaining unamortized capital costs of the Facility.
In 1995, Madera started a new line of business which provided clean-up and
waste removal services to residential and commercial construction businesses.
Due to continued losses, in July 1997 Madera ceased operations in this line of
business. The estimated fair value of the remaining assets of the business is
reflected in the accompanying balance sheets as assets held for sale at December
31, 1997. For the years ended December 31, 1995, 1996, and 1997, this business
had revenues of $531, $785 and $193, respectively, and had operating losses of
$290, $397, and $215, respectively.
F-45
<PAGE> 114
MADERA DISPOSAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
Madera entered into an exclusive franchise agreement with the City of
Chowchilla on April 8, 1996, whereby Madera was granted the exclusive right and
franchise to collect, haul, and dispose of all solid waste, recyclable solid
waste, and green waste within the city limits of the City of Chowchilla. The
term of this franchise shall continue in force and effect for a period of seven
years, and the City of Chowchilla may renew and extend the franchise for an
additional period of five years or more.
SALE OF THE COMPANY
Effective February 1, 1998, Madera's shareholders entered into an agreement
to sell their stock to Waste Connections, Inc. ("WCI") for cash and stock in
WCI.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
Madera considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject Madera to concentrations of
credit risks consist primarily of accounts receivable. Credit risk on accounts
receivable is minimized as a result of the large and diverse nature of Madera's
customer base. Madera maintains an allowance for losses based on the expected
collectibility of accounts receivable. Credit losses have been within
management's expectations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Improvements or betterments
which significantly extend the life of an asset are capitalized. Expenditures
for maintenance and repair costs are charged to operations as incurred. The cost
of assets retired or otherwise disposed of and the related accumulated
depreciation are eliminated from the accounts in the year of disposal. Gains and
losses resulting from property disposals are included in other income (expense).
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets or lease term, whichever is shorter.
The estimated useful lives are as follows:
<TABLE>
<S> <C>
Machinery and equipment............................... 6 - 10 years
Leasehold improvements................................ 10 - 40 years
Furniture and fixtures................................ 6 - 10 years
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and equivalents approximate their fair values
as of December 31, 1996 and 1997. The carrying values of the long-term debt and
capital lease obligations (Notes 3
F-46
<PAGE> 115
MADERA DISPOSAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
and 4) approximate their fair values as of December 31, 1996 and 1997, based on
current incremental borrowing rates for similar types of borrowing arrangements.
REVENUE RECOGNITION
Madera recognizes revenues as services are provided. Certain customers are
billed in advance and, accordingly, recognition of the related revenues is
deferred until the services are provided.
INCOME TAXES
Madera operates under Subchapter S of the Internal Revenue Code for federal
and state income tax reporting purposes. Consequently, all of the income tax
attributes and liabilities of the Madera's operations flow through to the
individual shareholders.
CLOSURE AND POST-CLOSURE COSTS
Under regulations pursuant to which the permit for the Fairmead Landfill
was issued, Madera and Madera County, as operator and owner, respectively, are
jointly liable for closure and post-closure liabilities with respect to the
landfill. Madera has not accrued for such liabilities because Madera County, as
required by state law, has established a special fund, into which a designated
portion of tipping fee surcharges are deposited, to pay such liabilities.
Consequently, management of Madera does not believe Madera has any financial
obligation for closure and post-closure costs for the Fairmead Landfill as of
December 31, 1997.
2. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1996 and 1997 consists of the
following:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Machinery and equipment..................................... $5,480 $5,777
Leasehold improvements...................................... 498 500
Furniture and fixtures...................................... 137 133
------ ------
6,115 6,410
Less accumulated depreciation and amortization.............. 2,315 2,774
------ ------
$3,800 $3,636
====== ======
</TABLE>
F-47
<PAGE> 116
MADERA DISPOSAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
3. LONG-TERM DEBT
Long-term debt as of December 31, 1996 and 1997 consists of the following:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Equipment financing notes payable bearing interest at
various fixed and variable rates (ranging from 6.0% to 12.9%
at December 31, 1997); monthly payments of principal and
interest aggregating $16; maturing at various dates through
August 31, 2001; secured by equipment with net book values
aggregating $522 as of December 31, 1997.................... $664 $467
Notes payable to related parties bearing interest at 10.0%;
monthly payments of interest; maturing December 1, 1998..... 150 150
---- ----
814 617
Less: Current portion....................................... 177 288
---- ----
Long-term debt.............................................. $637 $329
==== ====
</TABLE>
One of the equipment financing notes, with an outstanding balance of $236
as of December 31, 1997, contains certain restrictive covenants, which among
other things require that specified financial balances and ratios be maintained,
restrict the payment of dividends and prohibit the incurrence of additional
indebtedness. As of December 31, 1997, Madera was in compliance with the
covenants.
As of December 31, 1997, aggregate contractual future principal payments by
calendar year on long-term debt are due as follows:
<TABLE>
<S> <C>
1998........................................................ $288
1999........................................................ 149
2000........................................................ 122
2001........................................................ 58
----
$617
====
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Capital Leases
Madera leases certain equipment under capital leases. As of December 31,
1996 and 1997, the following amounts are included in property and equipment as
assets under these capital leases:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Cost..................................................... $2,235 $2,605
Less: accumulated amortization........................... 527 780
------ ------
Net assets under capital leases.......................... $1,708 $1,825
====== ======
</TABLE>
F-48
<PAGE> 117
MADERA DISPOSAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
The future minimum lease payments under these capital leases along with the
present value of the minimum lease payments as of December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
MINIMUM LEASE PAYMENTS
YEAR ENDING DECEMBER 31:
------------------------
<S> <C>
1998.............................................. $ 448
1999.............................................. 489
2000.............................................. 427
2001.............................................. 352
2002.............................................. 294
Thereafter........................................ 494
------
Total minimum lease payments................................ 2,504
Less amount representing interest........................... 665
------
Present value of minimum lease payments..................... 1,839
Less current portion........................................ 274
------
Long-term portion........................................... $1,565
======
</TABLE>
OPERATING LEASES
Madera leases its facilities and certain equipment under cancelable
operating leases for periods of one year or less. Rent expense under all
operating leases during the years ended December 31, 1995, 1996 and 1997
amounted to $47, $41 and $33, respectively.
PERFORMANCE BONDS AND LETTERS OF CREDIT
Municipal solid waste collection contracts may require performance bonds to
secure contractual performance. As of December 31, 1997, Madera had provided
customers and various regulatory authorities with bonds of approximately $200 to
secure its obligations. If Madera were unable to obtain surety bonds 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.
ENVIRONMENTAL RISKS
Madera is 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 Madera. Madera 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 Madera or its
predecessors. Any substantial liability for environmental damage incurred by
Madera could have a material adverse effect on Madera's financial condition,
results of operations or cash flows.
LEGAL PROCEEDINGS
In the normal course of its business and as a result of the extensive
governmental regulation of the solid waste industry, Madera may periodically
become subject to various judicial and administrative proceeding involving
federal, state or local agencies. In these proceedings, an agency may seek to
impose fines on Madera or to revoke or deny renewal of an operating permit held
by Madera. From time to time Madera may also be subject to actions brought by
citizens' groups or adjacent landowners in connection with the permitting and
licensing of landfills and transfer
F-49
<PAGE> 118
MADERA DISPOSAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
stations, or alleging environmental damage or violations of the permits and
licenses pursuant to which Madera operates.
In addition, Madera may become party to various claims and suits pending
for alleged damages to persons and property, alleged violations of certain laws
and alleged liabilities arising out of matters occurring during the normal
operation of the waste management business. However, as of December 31, 1997,
there is no current proceeding or litigation involving Madera that Madera
believes will have a material adverse impact on Madera's business, financial
condition, results of operations or cash flows.
5. RELATED PARTY TRANSACTIONS
Madera performs repair services on equipment owned and operated by
shareholders of Madera. Revenues relating to these activities were $41, $60 and
$51 for the years ended December 31, 1995, 1996 and 1997, respectively. As of
December 31, 1996 and 1997, Madera has receivables of $100 and $113,
respectively, relating to these activities.
6. 401(K) PLAN
Madera has a voluntary savings and investment plan (the "401(k) Plan"). The
401(k) Plan is available to all eligible employees of Madera. Under the 401(k)
Plan Madera is required to match 100% of employees' contributions up to a
maximum of 3% of the employees' wages. During the years ended December 31, 1995,
1996 and 1997, Madera's 401(k) Plan expenses were approximately $78, $107 and
$108, respectively.
7. PRO FORMA INCOME TAX INFORMATION (UNAUDITED)
The following unaudited pro forma information reflects income tax expense
(benefit) as if Madera had been subject to federal and state income taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Current:
Federal........................................... $(16) $(19) $197
State............................................. -- 12 57
Deferred:
Federal........................................... 32 188 33
State............................................. 14 27 8
---- ---- ----
Pro forma income taxes.............................. $ 30 $208 $295
==== ==== ====
</TABLE>
The pro forma provisions for income taxes for the years ended December 31,
1995, 1996 and 1997 differ from the amounts computed by applying the applicable
statutory federal income tax rate (34%) to income before income taxes due to
state franchise taxes, certain non-deductible expenses and refundable tax
credits.
Madera's pro forma deferred income tax asset of approximately $20 and $54
at December 31, 1996 and 1997, respectively, relates principally to differences
in the recognition of bad debt expenses, state franchise taxes and certain other
temporary differences. Madera also has pro forma deferred tax liabilities at
December 31, 1996 and 1997 of approximately $534 and $570, respectively, which
relate to differences between tax and financial methods of depreciation.
8. SUBSEQUENT EVENTS
On January 12, 1998, Madera distributed $131 to its shareholders.
F-50
<PAGE> 119
======================================================
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 AN 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......................... 8
Use of Proceeds...................... 17
Dividend Policy...................... 17
Capitalization....................... 18
Dilution............................. 19
Selected Historical and Pro Forma
Financial and Operating Data....... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 23
Business............................. 33
Management........................... 49
Certain Transactions................. 55
Principal Stockholders............... 57
Description of Capital Stock......... 59
Shares Eligible for Future Sale...... 63
Underwriting......................... 65
Legal Matters........................ 66
Experts.............................. 66
Available Information................ 66
Index to Financial Statements........ F-1
- -------------------------------------------
UNTIL , 1998 (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.
===========================================
</TABLE>
======================================================
2,000,000 SHARES
LOGO
COMMON STOCK
-------------------
PROSPECTUS
-------------------
BT ALEX. BROWN
CIBC OPPENHEIMER
, 1998
======================================================
<PAGE> 120
APPENDIX--DESCRIPTION OF GRAPHICAL MATERIALS
INSIDE COVER
UPPER LEFT PHOTO
Caption above: "COLLECTION" - Picture of a rear end loader.
UPPER RIGHT PHOTO
Caption above: "TRANSFER" - Picture of a transfer station and transfer trailer.
LOWER LEFT PHOTO
Caption below: "DISPOSAL" - Picture of lined landfill.
LOWER RIGHT PHOTO
Caption below: "RECYCLING" - Picture of a recycling picking line.
INSIDE GATE-FOLD
OVERVIEW
Map of western United States with areas of operations highlighted and notations
of locations of the company's facilities and types of operations. Attached to
various locations are photos depicting elements of each location.
UPPER LEFT PHOTO
Caption below: "ISSAQUAH & MALTBY, WASHINGTON - Waste Connections of Washington
has two operations east of Seattle: one in Issaquah and one in Maltby. These two
operations serve more than 20,000 customers in King and Snohomish Counties under
one "G" Certificate and twelve municipal contracts. According to the Urban
Growth Act of Washington, these Seattle suburbs are projected to have strong
population growth and development over the next 5 years."
Picture of a front end loader lifting a Company container.
UPPER RIGHT PHOTO
Caption below: "VANCOUVER, WASHINGTON - Waste Connections of Washington is the
exclusive "G" certificate provider to more than 50,000 customers in Clark
County, Washington, and also serves more than 25,000 customers in the city of
Vancouver. Clark County has been the fastest growing county in the state of
Washington over the past five years, and in 1997 was recognized as one of the
ten fastest growing counties in the nation. Clark County and the city of
Vancouver are located approximately eight miles north of Portland, Oregon and
represent the southern boundary of the state of Washington, with the Columbia
River actually separating the two states."
Picture of the Columbia River
LOWER LEFT PHOTO
Caption below: "MADERA COUNTY, CALIFORNIA - Madera County is the third fastest
growing county in the state of California. Madera Disposal Systems serves more
than 10,000 residential, commercial and industrial customers in Madera County
and the city of Chowchilla. Madera Disposal Systems is the exclusive waste
services and recycling provider within the unincorporated areas of Madera
County, with a franchise for collection, two transfer stations, a MRF, and a
landfill operating contract."
<PAGE> 121
Picture of vineyard in central California.
LOWER RIGHT PHOTO
Caption below: "IDAHO FALLS & POCATELLO, IDAHO - Waste Connections of Idaho is
the largest waste services provider in Eastern Idaho, serving approximately 65%
of the market. In 1997, Idaho Falls had a population growth of more than 12%.
Eastern Idaho is served by more than 15 municipally owned landfills. In March of
1998, Waste Connections of Idaho completed the acquisition of Hunter Enterprises
as a tuck-in to its existing operation."
Picture of roll off truck in front of residential construction site.
<PAGE> 122
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 8,142
NASD Filing Fee............................................. 3,260
Nasdaq Listing Fee.......................................... 37,000
Accounting Fees and Expenses*............................... 600,000
Printing and Engraving Expenses*............................ 200,000
Legal Fees and Expenses*.................................... 300,000
Transfer Agent and Registrar Fees*.......................... 2,500
Director and Officer Insurance Premiums..................... 18,900
Miscellaneous Expenses*..................................... 30,198
----------
Total*...................................................... $1,200,000
==========
</TABLE>
- ---------------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Amended and Restated Certificate of Incorporation (the "Restated
Certificate") of the Company provides that a director will not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law (the "Delaware Law"), which concerns unlawful payments of
dividends, stock purchases or redemptions, or (iv) for any transaction from
which the director derived an improper personal benefit. If the Delaware Law is
subsequently amended to permit further limitation of the personal liability of
directors, the liability of a director of the Company will be eliminated or
limited to the fullest extent permitted by the Delaware Law as amended.
Section 145(a) of the Delaware Law provides that a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of non contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 145(b) of the Delaware Law states that a corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the
II-1
<PAGE> 123
request or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit is brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 145(c) of the Delaware Law provides that to the extent that a
director, officer, employee or agent of a corporation has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 145(d) of the Delaware Law states that any indemnification under
subsections (a) and (b) of section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsections (a) and (b). Such determination shall be made (i) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
Section 145(e) of the Delaware Law provides that expenses (including
attorneys' fees) incurred by an officer or director in defending any civil,
criminal, administrative or investigative action, suit or proceeding may be paid
by the corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in section 145. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
Section 145(f) of the Delaware Law states that the indemnification and
advancement of expenses provided by, or granted pursuant to, the other
subsections of section 145 shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
Section 145(g) of the Delaware Law provides that a corporation shall have
the power to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of section 145.
Section 145(j) of the Delaware Law states that the indemnification and
advancement of expenses provided by, or granted pursuant to, section 145 shall,
unless otherwise provided when authorized or ratified, continue as to a person
who has ceased to be a director, officer, employee or agent, and shall inure to
the benefit of the heirs, executors and administrators of such a person.
II-2
<PAGE> 124
Pursuant to Section 145 of the Delaware Law, the Registrant has purchased
insurance on behalf of its present and former directors and officers against any
liability asserted against or incurred by them in such capacity or arising out
of their status as such. The Company has entered into indemnification agreements
with each of its directors and officers providing for mandatory indemnification
and advancement of expenses to the maximum extent permitted by the Delaware Law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is a listing of all sales by the Company of unregistered
securities since the Company was incorporated on September 9, 1997. All such
sales were exempt from registration under the Securities Act, pursuant to
Section 4(2) of the Securities Act (and, as noted below, Regulation D or Rule
701 thereunder), as they were transactions not involving a public offering. The
Company believes that each of the issuances made pursuant to Section 4(2) was
made to a sophisticated investor, who had the financial resources to bear the
risk of the investment and who had the means and opportunity to obtain
information concerning the Company. The consideration paid to the Company in
respect of each issuance was cash, unless otherwise indicated. All sales
described below were made by the Company without the assistance of any
underwriters.
1. In September and October 1997, the Company in a private placement
sold an aggregate of 2,300,000 shares of Common Stock at a price of $0.01
per share and 2,499,998 shares of Series A Preferred Stock at a price of
$2.80 per share to 19 accredited investors, including certain officers and
directors of the Company. Such sales were made in accordance with
Regulation D promulgated under the Securities Act.
2. In September 1997, the Company issued warrants to purchase 200,000
shares of Common Stock, with an exercise price of $0.01 per share, to
Imperial Bank in connection with the credit facility with Imperial Bank
entered into by the Company. Such warrants were issued pursuant to
Regulation D under the Securities Act.
3. In October and November 1997, the Company issued options to purchase
428,500 shares of Common Stock to employees of the Company. Such options
have exercise prices ranging from $2.80 per share to $10.50 per share and a
weighted average exercise price of $5.42 per share. Some of such options
were issued pursuant to Regulation D under the Securities Act and others
were issued pursuant to Rule 701 under the Securities Act.
4. In December 1997, the Company issued warrants to purchase an
aggregate of 841,000 shares of Common Stock to the Company's directors and
options to purchase 100,000 shares of Common Stock to Ronald J.
Mittelstaedt. Such warrants and options have an exercise price of $2.80 per
share and were issued pursuant to Regulation D under the Securities Act.
5. In December 1997 and January 1998, the Company issued warrants to
purchase an aggregate of 15,000 shares of Common Stock to three
consultants, with an exercise price of $5.00 per share, and warrants to
purchase 5,000 shares of Common Stock to a fourth consultant, with an
exercise price of $2.80 per share. Such warrants were issued pursuant to
Rule 701 under the Securities Act.
6. In January 1998, the Company issued warrants to purchase 140,000
shares of Common Stock to BankBoston, N.A., at an exercise price of $2.80
per share, in connection with the Company's credit facility with
BankBoston, N.A. Such warrants were issued pursuant to Regulation D under
the Securities Act.
7. In January and February 1998, the Company issued options to
purchase 104,300 shares of Common Stock to various employees of the
Company, at exercise prices ranging from $2.80 to $10.50 per share, and a
weighted average exercise price of $5.27 per share. Such options were
issued pursuant to Rule 701 and Regulation D under the Securities Act.
II-3
<PAGE> 125
8. In January 1998, the Company issued options to purchase an
aggregate of 30,000 shares of Common Stock to Michael W. Harlan and William
J. Razzouk, at an exercise price of $3.00 per share. Such options were
issued pursuant to Regulation D under the Securities Act.
9. In February 1998, the Company issued to the shareholders of Madera
an aggregate of 1,000,000 shares of Common Stock and warrants to purchase
200,000 shares of Common Stock at an exercise price of $4.00 per share, all
as part of the consideration for the acquisition by the Company of Madera.
Such shares and warrants were issued pursuant to Regulation D under the
Securities Act.
10. In February 1998, the Company issued options to purchase 200,000
shares of Common Stock to Steven Bouck, of which 100,000 are exercisable at
$2.80 per share, 50,000 are exercisable at $9.50 per share, and 50,000 are
exercisable at $12.50 per share. On the same date, the Company issued to
Mr. Bouck warrants to purchase 50,000 shares of Common Stock, at an
exercise price of $2.80 per share, which were exercised in March 1998. Such
options and warrants were issued pursuant to Regulation D under the
Securities Act.
11. In March 1998, the Company issued options to purchase 5,000 shares
of Common Stock to David Goldsmith, a consultant to the Company, at an
exercise price equal to the price to the public of the shares included in
this registration statement. Such options were issued pursuant to Rule 701
and Regulation D under the Securities Act.
12. In February, March, April and May 1998, the Company issued options
to purchase 47,800 shares of Common Stock to various employees at exercise
prices of $3.00 to $11.00 per share. Such options were issued pursuant to
Rule 701 and Regulation D under the Securities Act.
13. In April 1998, the Company issued 23,636 shares of Common Stock to
A-1 Disposal, Inc. in connection with the acquisition of the solid waste
collection assets of that company. Such shares were issued pursuant to
Regulation D under the Securities Act.
14. In April 1998, the Company issued 18,182 shares of Common Stock to
Gwendolyn Sullivan in connection with the acquisition of certain solid
waste collection assets owned by her. Such shares were issued pursuant to
Regulation D under the Securities Act.
15. In May 1998, the Company issued 27,272 shares of Common Stock to
James C. Sowers and Mildred A. Sowers in connection with the acquisition of
Sowers' Sanitation, Inc. Such shares were issued pursuant to Regulation D
under the Securities Act.
16. In May 1998, the Company issued 13,636 shares of Common Stock to
Timothy Thomas in connection with the acquisition of T&T Disposal, Inc.
Such shares were issued pursuant to Regulation D under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
A. EXHIBITS.
The following exhibits are filed herewith and made a part hereof:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
1.1 Form of Underwriting Agreement among the Registrant and the
Representatives
3.1** Amended and Restated Certificate of Incorporation of the
Company, in effect as of the date hereof
3.2** Amended and Restated By-laws of the Company, in effect as of
the date hereof
4.1** Form of Common Stock Certificate
5.1 Opinion of Shartsis, Friese & Ginsburg LLP
</TABLE>
II-4
<PAGE> 126
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
10.1+** Revolving Credit Agreement, dated as of January 30, 1998,
between the Company and various banks represented by
BankBoston, N.A
10.2** 1997 Stock Option Plan
10.3** Form of Option Agreement(1)
10.4** Form of Warrant Agreement(2)
10.5** Warrant Agreement and related Anti-Dilution Agreement issued
to Imperial Bank
10.6** Warrant Agreement and related Anti-Dilution Agreement issued
to BankBoston, N.A
10.7** Form of Stock Purchase Agreement dated as of September 30,
1997(3)
10.8** Form of Second Amended and Restated Investors' Rights
Agreement dated as of September 30, 1997(3)
10.9** Form of Stockholders' Agreement dated as of September 30,
1997(3)
10.10** Employment Agreement among the Company, J. Bradford Bishop,
Frank W. Cutler, James N. Cutler, Jr. and Ronald J.
Mittelstaedt, dated as of October 1, 1997
10.11** First Amended Employment Agreement between the Company and
Darrell Chambliss, dated as of October 1, 1997
10.12** First Amended Employment Agreement between the Company and
Michael Foos, dated as of October 1, 1997
10.13** First Amended Employment Agreement between the Company and
Eric Moser, dated as of October 1, 1997
10.14** Employment Agreement between the Company and Steven Bouck,
dated as of February 1, 1998
10.15** Employment Agreement between the Company and Eugene V.
Dupreau, dated as of February 23, 1998
10.16** Employment Agreement between the Company and Charles B.
Youngclaus, dated as of February 23, 1998
10.17+** Purchase and Sale Agreement, dated as of September 29, 1997,
between Browning-Ferris Industries, Inc., Browning-Ferris,
Inc. and Browning-Ferris Industries of Idaho, Inc., as
Sellers, and the Company, Waste Connections of Idaho, Inc.
and Continental Paper Recycling, L.L.C. as Buyers
10.18** Stock Purchase Agreement, dated as of January 26, 1998,
among the Company, Waste Connections of Idaho, Inc. and the
shareholders of Waste Connections of Idaho, Inc.
10.19+** Stock Purchase Agreement, dated as of February 4, 1998,
among the Company and the shareholders of Madera Disposal
Company, Inc.
10.20+** Asset Purchase Agreement, dated as of March 1, 1998, among
the Company, Waste Connections of Idaho, Inc., Hunter
Enterprises, Inc. and the shareholder of Hunter Enterprises,
Inc.
10.21** Form of Indemnification Agreement entered into by the
Company and each of its directors and officers
10.22** Asset Purchase Agreement, dated as of April 8, 1998, between
Waste Connections, Inc., Waste Connections of Wyoming, Inc.,
A-1 Disposal, Inc., David Jones and Thomas Fries
10.23** Asset Purchase Agreement, dated as of April 8, 1998, between
Waste Connections, Inc., Waste Connections of Wyoming, Inc.
and Gwendolyn L. Sullivan
10.24 Stock Purchase Agreement, dated as of May 8, 1998, by and
among the Company, Sunshine Sanitation, Incorporated, Robert
E. Ewing and Sherry D. Ewing
</TABLE>
II-5
<PAGE> 127
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
10.25 Stock Purchase Agreement, dated as of May 8, 1998, by and
among the Company, Sowers' Sanitation, Inc., James C. Sowers
and Mildred A. Sowers
10.26 Stock Purchase Agreement, dated as of May 11, 1998, by and
among the Company, T&T Disposal, Inc. and Timothy Thomas
21.1** Subsidiaries of the Registrant
23.1 Consent of Shartsis, Friese & Ginsburg LLP (included in
opinion filed as Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Williams, Kastner & Gibbs PLLC
24.1** Power of Attorney (included in Part II of the Registration
Statement under the caption "Signatures")
27.1** Financial Data Schedule
</TABLE>
- ---------------
** Previously filed.
+ Filed without exhibits and schedules (to be provided supplementally on request
of the Commission).
(1) Pursuant to the 1997 Stock Option Plan, the Company issued options in this
form to the following officers of the Company (or in certain cases to an
entity controlled by such individual) for the number of shares of Common
Stock indicated: Darrell W. Chambliss (150,000); Michael R. Foos (150,000);
Ronald J. Mittelstaedt (100,000); Eric J. Moser (85,000); Steven F. Bouck
(200,000); Eugene V. Dupreau (10,000) and Charles B. Youngclaus (10,000).
The Company also issued options in this form to the following directors of
the Company: Michael W. Harlan (15,000); and William J. Razzouk (15,000).
(2) The Company issued warrants in this form to the following directors of the
Company (or in certain cases to an entity controlled by such individual) for
the number of shares of Common Stock indicated: James N. Cutler, Jr.
(247,000); J. Bradford Bishop (247,000); Ronald J. Mittelstaedt (100,000).
The Company also issued warrants in this form as follows: warrants to
purchase 247,000 shares of Common Stock to Board consultant Frank W. Cutler;
warrants to purchase an aggregate of 200,000 shares of Common Stock to the
shareholders of Madera in connection with the Company's acquisition of
Madera; warrants to purchase 20,000 shares of Common Stock to four
consultants to the Company; and warrants to purchase 50,000 shares of Common
Stock to Steven Bouck.
(3) Each purchaser of shares in the Company's September 1997 private placement
of 2,300,000 shares of Common Stock and 2,499,998 shares of Series A
Preferred Stock entered into a Stock Purchase Agreement, Investors' Rights
Agreement and Stockholders' Agreement in these forms with respect to the
shares purchased. Subsequent holders of the Company's Common Stock have also
become parties to the Investors' Rights and Stockholders' Agreements.
B. FINANCIAL STATEMENT SCHEDULE.
The following financial statement schedule is filed herewith and made a
part hereof:
Schedule II -- Valuation and Qualifying Accounts
II-6
<PAGE> 128
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
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the 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
(4) or 497(h) under the Securities Act of 1933 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 a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 129
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Roseville, State of California, on May 18, 1998.
WASTE CONNECTIONS, INC.
By: /s/ RONALD J. MITTELSTAEDT
------------------------------------
Ronald J. Mittelstaedt
President, Chief Executive Officer
and Chairman
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed by the following persons in the
capacities indicated on May 18, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RONALD J. MITTELSTAEDT President, Chief Executive Officer May 18, 1998
- ----------------------------------------------------- and Chairman
Ronald J. Mittelstaedt
/s/ EUGENE V. DUPREAU* Director and Vice President -- May 18, 1998
- ----------------------------------------------------- Madera
Eugene V. Dupreau
/s/ MICHAEL W. HARLAN* Director May 18, 1998
- -----------------------------------------------------
Michael W. Harlan
/s/ WILLIAM J. RAZZOUK* Director May 18, 1998
- -----------------------------------------------------
William J. Razzouk
/s/ STEVEN F. BOUCK* Executive Vice President and Chief May 18, 1998
- ----------------------------------------------------- Financial Officer
Steven F. Bouck
/s/ MICHAEL R. FOOS* Vice President and Corporate May 18, 1998
- ----------------------------------------------------- Controller
Michael R. Foos
* /s/ RONALD J. MITTELSTAEDT May 18, 1998
- -----------------------------------------------------
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 130
WASTE CONNECTIONS, INC. AND PREDECESSORS
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
----------------------- DEDUCTIONS
BALANCE AT CHARGED TO CHARGED TO (WRITE-OFFS, BALANCE
BEGINNING COSTS AND OTHER NET OF AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS COLLECTIONS) OF PERIOD
----------- ---------- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Deducted from asset accounts:
Allowance for doubtful accounts:
Fibres International, Inc.:
January 1, 1995 through
November 30, 1995........... $ 18 $ 10 $ -- $ -- $ 28
The Disposal Group Combined:
Year ended December 31, 1995... 73 139 -- (99) 113
Period from January 1, 1996
through July 31, 1996....... 113 72 -- (94) 91
Predecessors Combined:
One month ended December 31,
1995........................ 28 -- -- -- 28
Period ended December 31,
1996........................ 28 61 -- (8) 81
Nine months ended September 30,
1997........................ 81 139 -- (97) 123
Waste Connections, Inc.:
Period from inception
(September 9, 1997) through
December 31, 1997........... -- 19 -- -- 19
</TABLE>
<PAGE> 131
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
-------- ----------- ------
<S> <C> <C>
1.1 Form of Underwriting Agreement among the Registrant and the
Underwriters
3.1** Amended and Restated Certificate of Incorporation of the
Company, in effect as of the date hereof
3.2** Amended and Restated By-laws of the Company, in effect as of
the date hereof
4.1** Form of Common Stock Certificate
5.1 Opinion of Shartsis, Friese & Ginsburg LLP
10.1+** Revolving Credit Agreement, dated as of January 30, 1998,
between the Company and various banks represented by
BankBoston, N.A
10.2** 1997 Stock Option Plan
10.3** Form of Option Agreement(1)
10.4** Form of Warrant Agreement(2)
10.5** Warrant Agreement and related Anti-Dilution Agreement issued
to Imperial Bank
10.6** Warrant Agreement and related Anti-Dilution Agreement issued
to BankBoston, N.A
10.7** Form of Stock Purchase Agreement dated as of September 30,
1997(3)
10.8** Form of Investors' Rights Agreement dated as of September
30, 1997(3)
10.9** Form of Stockholders' Agreement dated as of September 30,
1997(3)
10.10** Employment Agreement among the Company, J. Bradford Bishop,
Frank W. Cutler, James N. Cutler, Jr. and Ronald J.
Mittelstaedt, dated as of October 1, 1997
10.11** First Amended Employment Agreement between the Company and
Darrell Chambliss, dated as of October 1, 1997
10.12** First Amended Employment Agreement between the Company and
Michael Foos, dated as of October 1, 1997
10.13** First Amended Employment Agreement between the Company and
Eric Moser, dated as of October 1, 1997
10.14** Employment Agreement between the Company and Steven Bouck,
dated as of February 1, 1998
10.15** Employment Agreement between the Company and Eugene V.
Dupreau, dated as of February 23, 1998
10.16** Employment Agreement between the Company and Charles B.
Youngclaus, dated as of February 23, 1998
10.17+** Purchase and Sale Agreement, dated as of September 29, 1997,
between Browning-Ferris Industries, Inc., Browning-Ferris,
Inc. and Browning-Ferris Industries of Idaho, Inc., as
Sellers, and the Company, Waste Connections of Idaho, Inc.
and Continental Paper Recycling, L.L.C. as Buyers
10.18** Stock Purchase Agreement, dated as of January 26, 1998,
among the Company, Waste Connections of Idaho, Inc. and the
shareholders of Waste Connections of Idaho, Inc.
10.19+** Stock Purchase Agreement, dated as of February 4, 1998,
among the Company and the shareholders of Madera Disposal
Company, Inc.
10.20+** Asset Purchase Agreement, dated as of March 1, 1998, among
the Company, Waste Connections of Idaho, Inc., Hunter
Enterprises, Inc. and the shareholder of Hunter Enterprises,
Inc.
</TABLE>
<PAGE> 132
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
-------- ----------- ------
<S> <C> <C>
10.21** Form of Indemnification Agreement entered into by the
Company and each of its directors and officers
10.22** Asset Purchase Agreement, dated as of April 8, 1998, between
Waste Connections, Inc., Waste Connections of Wyoming, Inc.,
A-1 Disposal, Inc., David Jones and Thomas Fries
10.23** Asset Purchase Agreement, dated as of April 8, 1998, between
Waste Connections, Inc., Waste Connections of Wyoming, Inc.
and Gwendolyn L. Sullivan
10.24 Stock Purchase Agreement, dated as of May 8, 1998, by and
among the Company, Sunshine Sanitation, Incorporated, Robert
E. Ewing and Sherry D. Ewing
10.25 Stock Purchase Agreement, dated as of May 8, 1998, by and
among the Company, Sowers' Sanitation, Inc., James C. Sowers
and Mildred A. Sowers
10.26 Stock Purchase Agreement, dated as of May 11, 1998, by and
among the Company, T&T Disposal, Inc. and Timothy Thomas
21.1** Subsidiaries of the Registrant
23.1 Consent of Shartsis, Friese & Ginsburg LLP (included in
opinion filed as Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Williams, Kastner & Gibbs PLLC
24.1** Power of Attorney (included in Part II of the Registration
Statement under the caption "Signatures")
27.1** Financial Data Schedule
</TABLE>
- ---------------
** Previously filed.
+ Filed without exhibits and schedules (to be provided supplementally on
request of the Commission).
(1) Pursuant to the 1997 Stock Option Plan, the Company issued options in this
form to the following officers of the Company (or in certain cases to an
entity controlled by such individual) for the number of shares of Common
Stock indicated: Darrell W. Chambliss (150,000); Michael R. Foos (150,000);
Ronald J. Mittelstaedt (100,000); Eric J. Moser (85,000); Steven F. Bouck
(230,000); Eugene V. Dupreau (10,000) and Charles B. Youngclaus (10,000).
The Company also issued options in this form to the following directors of
the Company: Michael W. Harlan (15,000); and William J. Razzouk (15,000).
(2) The Company issued warrants in this form to the following directors of the
Company (or in certain cases to an entity controlled by such individual) for
the number of shares of Common Stock indicated: James N. Cutler, Jr.
(247,000); J. Bradford Bishop (247,000); Ronald J. Mittelstaedt (100,000).
The Company also issued warrants in this form as follows: warrants to
purchase 247,000 shares of Common Stock to Board consultant Frank W. Cutler;
warrants to purchase an aggregate of 200,000 shares of Common Stock to the
shareholders of Madera in connection with the Company's acquisition of
Madera; warrants to purchase 20,000 shares of Common Stock to four
consultants to the Company; and warrants to purchase 50,000 shares of Common
Stock to Steven Bouck.
(3) Each purchaser of shares in the Company's September 1997 private placement
of 2,300,000 shares of Common Stock and 2,499,998 shares of Series A
Preferred Stock entered into a Stock Purchase Agreement, Investors' Rights
Agreement and Stockholders' Agreement in these forms with respect to the
shares purchased. Subsequent holders of the Company's Common Stock have also
become parties to the Investors' Rights and Stockholders' Agreements.
<PAGE> 1
EXHIBIT 1.1
2,000,000 Shares
WASTE CONNECTIONS, INC.
Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
May ____, 1998
BT Alex. Brown Incorporated
CIBC Oppenheimer Corp.
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Waste Connections, Inc., a Delaware corporation (the "Company"),
proposes 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 2,000,000 shares of the Company's Common
Stock, $0.01 par value (the "Firm Shares"). 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. The Company also proposes to sell at the
Underwriters' option an aggregate of up to 300,000 additional shares of the
Company's Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company (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 part for the
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the
-1-
<PAGE> 2
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.
The Company represents and warrants to each of the Underwriters as
follows:
(a) A registration statement on Form S-1 (File No. 333-48029) 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."
(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. Each of the subsidiaries of
the Company as listed in Exhibit 21 to Item 16(a) of the Registration Statement
(collectively, the "Subsidiaries") has been duly organized and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration Statement.
The Subsidiaries are the only subsidiaries, direct or indirect, of the Company.
The Company and each of the Subsidiaries are duly qualified to transact business
in all jurisdictions in which the conduct of their business requires such
qualification and where the failure to so qualify would have a material adverse
effect on the Company and the Subsidiaries, taken as a whole. The outstanding
shares of capital stock of each of the Subsidiaries have been
-2-
<PAGE> 3
duly authorized and validly issued, are fully paid and non-assessable and, to
the extent shown in Exhibit A hereto, are owned by the Company or another
Subsidiary free and clear of all liens, encumbrances and equities and claims,
except, in the case of the Subsidiaries, liens in favor of BankBoston N.A., as
agent, to secure the obligations of the company and the Subsidiaries pursuant to
the Revolving Credit Agreement filed as Exhibit 10.1 to the Registration
Statement; and no options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any obligations into
shares of capital stock or ownership interests in the Subsidiaries are
outstanding.
(c) The outstanding shares of Common Stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; 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 than those which have been waived
or satisfied, for or relating to the registration of any shares of Common Stock.
(d) 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.
(e) 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.
(f) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly the
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<PAGE> 4
financial position and the results of operations and cash flows of the Company
and the consolidated Subsidiaries, 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 (or as
described in the Registration Statement), and all adjustments necessary for a
fair presentation of results for such periods have been made. The summary
financial and statistical data relating to the Company 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. The pro forma
financial information included in the Registration Statement and the Prospectus
present fairly the information shown therein, have been prepared in accordance
with the Commission's rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the pro forma bases described
therein, and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
(g) Ernst & Young, 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.
(h) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of the
Subsidiaries before any court or administrative agency or otherwise which, if
determined adversely to the Company or any of its Subsidiaries, 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 and of the Subsidiaries taken as a whole or to prevent the
consummation of the transactions contemplated hereby, except as set forth in the
Registration Statement.
(i) The Company and the Subsidiaries have good and marketable title to
all of the properties and assets reflected in the consolidated financial
statements of the Company and the Subsidiaries (or as described in the
Registration Statement), 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 and the Subsidiaries occupy their leased properties under valid and
binding leases conforming in all material respects to the description thereof
set forth in the Registration Statement.
(j) The Company and the Subsidiaries have filed all Federal, State and
local 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.
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<PAGE> 5
(k) 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 and its Subsidiaries taken as a whole, 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 or the Subsidiaries, 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 and the
Subsidiaries have no material contingent obligations which are not disclosed in
the Company's financial statements which are included in the Registration
Statement. The Company is not aware of (i) any material adverse change in or
affecting the validity of any of the G Certificates issued to it by the
Washington Utilities and Transportation Commission (the "WUTC"), (ii) any
material breach of, or noncompliance with, any of its G Certificates (iii) any
action or proposed action by the WUTC to cancel or suspend, or which could
reasonably be expected to result in the cancellation or suspension of, any of
its G Certificates or (iv) any action or proposed action by the State of
Washington or any of its municipalities regarding the annexation of previously
unincorporated territory covered by any of its G Certificates or any other
limitation of or reduction in the scope of the territory covered by any of its G
Certificates which action or proposed action would have a material adverse
effect on the Company and the Subsidiaries, taken as a whole.
(l) Neither the Company nor any of the Subsidiaries is or with the
giving of notice or lapse of time or both, will 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
and its Subsidiaries taken as a whole or the business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company and the Subsidiaries taken as a whole. 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 trust or other agreement or instrument to which the
Company or any Subsidiary is a party, or of the Charter or By-Laws of the
Company or any order, rule or regulation applicable to the Company or any
Subsidiary of any court or of any regulatory body or administrative agency or
other governmental body having jurisdiction.
(m) 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
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<PAGE> 6
Commission or the National Association of Securities Dealers, Inc. (the "NASD")
has been obtained or made and is in full force and effect.
(n) The Company and each of the Subsidiaries holds all material
licenses, certificates and permits from governmental authorities, including G
Certificates issued by the WUTC, which are necessary to the conduct of their
businesses; and neither the Company nor any of the Subsidiaries has infringed
any patents, patent rights, trade names, trademarks or copyrights, which
infringement is material to the business of the Company and the Subsidiaries
taken as a whole. 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.
(o) 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.
(p) Neither the Company nor any Subsidiary is an "investment company"
within the meaning of such term under the Investment Company Act of 1940, as
amended (the "1940 Act") and the rules and regulations of the Commission
thereunder.
(q) 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.
(r) The Company and each of its Subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the conduct
of their respective businesses and the value of their respective properties.
(s) 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 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
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<PAGE> 7
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.
(t) Except as described in the Prospectus, no labor dispute with the
employees of the Company or any of its Subsidiaries exists, or to the knowledge
of the Company, is threatened other than such disputes which would not
individually or in the aggregate, have a material adverse effect upon the
condition (financial or otherwise), business, management, properties, assets,
rights, operations or prospects of the Company.
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 Company agrees 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.
(b) 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 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 BT
Alex. Brown 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 are 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.
(c) 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
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<PAGE> 8
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 Shares being purchased by such Underwriter bears to 2,000,000, 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 BT Alex. Brown Incorporated, 1 South Street, Baltimore, Maryland.
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.
The Company covenants and agrees with the several Underwriters that:
(a) 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.
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<PAGE> 9
(b) 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.
(c) 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.
(d) 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), and of all amendments thereto, as the Representatives
may reasonably request.
(e) The Company will comply with the Act and the Rules and Regulations,
and the Securities Exchange Act of 1934, as amended (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 Commission an
appropriate amendment to the Registration Statement or supplement to the
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<PAGE> 10
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.
(f) 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.
(g) 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 Exchange Act. 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.
(h) 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,
except as consideration for business acquisitions, [upon exercise of certain of
the currently outstanding options or warrants], upon the exercise or issuance of
options issued to employees, consultants and directors under the Company's 1997
Stock Option Plan to purchase up to 1,200,000 shares of the Company's Common
Stock or with the prior written consent of BT Alex. Brown Incorporated.
(i) The Company will use its best efforts to have the Shares approved
for quotation on The Nasdaq National Market.
(j) The Company has caused each officer, director and shareholder 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 Stock or derivative of Common Stock 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 BT Alex. Brown Incorporated ("Lockup Agreements").
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<PAGE> 11
(k) 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 and the application of the proceeds
therefrom as may be required in accordance with Rule 463 under the Act.
(l) 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 or any of the Subsidiaries to register as an investment company under
the 1940 Act.
(m) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar for the Common
Stock.
(n) 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.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company 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; the cost
of printing and delivering to, or as requested by, the Underwriters copies of
the Registration Statement, Preliminary Prospectuses, the Prospectus and 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
National Market. The Company shall not, however, be required to pay for any of
the Underwriter's expenses (other than those related to qualification under NASD
regulation) 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 to perform any
undertaking or satisfy any condition of this Agreement or to comply with any of
the terms hereof on its 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 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
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<PAGE> 12
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 contained herein, and
to the performance by the Company of its 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, 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 opinions of Shartsis, Friese &
Ginsburg LLP, counsel for the Company, 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 Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; each of the Subsidiaries
has been duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, with corporate
power and authority to own or lease its properties and conduct its business as
described in the Registration Statement; the Company and each of the
Subsidiaries are duly qualified to transact business in all jurisdictions in
which the conduct of their business requires such qualification, and in which
the failure to qualify would have a materially adverse effect upon the business
of the Company and the Subsidiaries taken as a whole; and the outstanding shares
of capital stock of each of the Subsidiaries have been duly authorized and
validly issued and are fully paid and non-assessable and are owned by the
Company or a Subsidiary; and, to the best of such counsel's knowledge, the
outstanding shares of capital stock of each of the Subsidiaries is owned free
and clear of all liens, encumbrances and equities and claims, except, in the
case of the Subsidiaries, liens in favor of BankBoston N.A., as agent, to secure
the obligations of the Company and the subsidiaries pursuant to the Revolving
Credit Agreement filed as Exhibit 10.1 to the Registration Statement, and no
options, warrants or other rights to purchase, agreements or other obligations
to issue or other rights to convert any obligations into any shares of capital
stock or of ownership interests in the Subsidiaries are outstanding.
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(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 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 Stock or other securities of the Company
included in the Registration Statement or the right, as a result of the 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
(except that such counsel need express no opinion as to matters of Washington
Law)," "Management-Employment Agreements," "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 the Act.
(vii) Such counsel does not know of any contracts or documents
required to be
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<PAGE> 14
filed as exhibits to the Registration Statement or described in the Registration
Statement or the Prospectus which are not 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 or any of the Subsidiaries
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 or any of the
Subsidiaries is a party or by which the Company or any of the Subsidiaries 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.
(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.
In rendering such opinion Shartsis, Friese & Ginsburg LLP may rely as to
matters governed by the laws of states other than Delaware or Federal laws on
local counsel in such jurisdictions, provided that in each case Shartsis, Friese
& Ginsburg LLP 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
-14-
<PAGE> 15
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, Shartsis, Friese & Ginsburg LLP 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 on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Williams, Kastner &
Gibbs PLLC, special counsel for the Company, 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) Based on an examination of the appropriate documents, the
Company holds the G Certificates awarded to it (or to its predecessors) by the
WUTC, as referenced in the Registration Statement or the Prospectus as necessary
to conduct regulated solid waste services in the State of Washington as
described in the Prospectus.
(ii) Pursuant to the Company's G Certificates, the Company has
the exclusive right, by virtue the issuance by the WUTC of the Company's G
Certificates to transport solid waste, as defined by applicable Washington
regulation, in various areas of the State of Washington, subject only to (1) the
right of municipalities to annex previously unincorporated territory covered by
the G certificates; (2) cancellation or suspension by order of the WUTC after
complaint and hearing processes; (3) overlapping authority, if any, granted by
the WUTC, if existing service is found not to be to the satisfaction of the
WUTC, which standard has been construed as a difficult threshold to be met for
overlapping authority to be issued; and (4) action by the state or federal
legislatures which revises, alters or eliminates the underlying intrastate solid
waste certificate scheme.
(iii) Such counsel has no reason to believe that any of the
Company's G Certificates will be suspended or canceled.
(iv) The statements under the captions "Risk Factors -- Highly
Competitive Industry," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations -- General,"
"Business -- Industry Overview," and " -- G Certificates" in the Prospectus,
insofar as such statements constitute a summary of documents referred to therein
or matters of law relating to G Certificates issued by the WUTC, are accurate
summaries and fairly and correctly present the information called for with
respect to the Act.
(d) 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) and (x) of Paragraph (b) of
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<PAGE> 16
this Section 6, and that the Company is a duly organized and validly existing
corporation under the laws of the State of Delaware. In rendering such opinion,
Piper & Marbury L.L.P. may rely as to all matters governed other than by the
laws of the State of Delaware or Federal laws on the opinions of counsel
referred to in Paragraphs (b) and (c) 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.
(e) 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 Ernst & Young 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.
(f) 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
Chief Executive Officer and the 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;
(ii) The representations and warranties of the Company contained
in Section 1
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<PAGE> 17
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 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 and
its Subsidiaries taken as a whole or the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and the Subsidiaries taken as a whole, whether or not
arising in the ordinary course of business.
(g) The Company 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.
(h) The Firm Shares and Option Shares, if any, have been approved for
designation upon notice of issuance on The Nasdaq National Market.
(i) The Lockup Agreements described in Section 4(j) 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 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.
In such event, 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).
-17-
<PAGE> 18
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company 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 agrees 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 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. This indemnity agreement will
be in addition to any liability which the Company 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 and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer 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
-18-
<PAGE> 19
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 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 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 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
-19-
<PAGE> 20
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 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 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 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 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 on the one hand
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 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
-20-
<PAGE> 21
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 and (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. 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 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), 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 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
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<PAGE> 22
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 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 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 BT Alex. Brown
Incorporated, 1 South Street, Baltimore, Maryland 21202, Attention: David M.
Gray, Managing Director; with a copy to BT Alex. Brown Incorporated, 1 South
Street, Baltimore, Maryland 21202, Attention: General Counsel; if to the
Company, to Waste Connections, Inc., 2260 Douglas Boulevard, Suite 280,
Roseville, California 95661, Attention: Ronald J. Mittelstaedt, President and
Chief Executive Officer; with a copy to Shartsis, Friese & Ginsburg LLP, One
Maritime Plaza, 18th Floor, San Francisco, California 94111, Attention: Robert
D. Evans, Esquire.
11. TERMINATION.
This Agreement may be terminated by you by notice to the Company 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
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<PAGE> 23
adverse change in or affecting the condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole or the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries taken as a whole,
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) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange or the NASD; (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) any downgrading in the
rating of the Company's debt securities by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g) under
the Exchange Act); 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 and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no 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 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
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<PAGE> 24
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 Delaware.
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<PAGE> 25
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 Company and the several
Underwriters in accordance with its terms.
Very truly yours,
WASTE CONNECTIONS, INC.
By:____________________________________
Ronald J. Mittelstaedt, President and Chief
Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
BT ALEX. BROWN INCORPORATED
CIBC OPPENHEIMER CORP.
As Representatives of the several
Underwriters listed on Schedule I
By: BT Alex. Brown Incorporated
By:____________________________________
Authorized Officer
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<PAGE> 26
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
- ----------- ---------------------
<S> <C>
BT Alex. Brown Incorporated
CIBC Oppenheimer Corp.
---------------------
Total 2,000,000
=====================
</TABLE>
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<PAGE> 1
EXHIBIT 5.1
May 19, 1998
Waste Connections, Inc.
2260 Douglas Blvd., Suite 280
Roseville, California 95661
Ladies and Gentlemen:
We have acted as counsel for Waste Connections, Inc. (the "Company")
in connection with its Registration Statement on Form S-1 (File No. 333-48029)
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended, relating to up to 2,300,000 shares of the Company's Common
Stock, $0.01 par value, to be sold by the Company. We are of the opinion that
the shares being so registered for sale have been duly authorized and, when
sold and delivered as contemplated in such Registration Statement, will be
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to such Registration Statement.
Very truly yours,
SHARTSIS, FRIESE & GINSBURG LLP
By /s/ Robert D. Evans
Robert D. Evans
<PAGE> 1
EXHIBIT 10.24
STOCK PURCHASE AGREEMENT
Dated as of May 8, 1998, by and among
Waste Connections, Inc.
Sunshine Sanitation, Incorporated
Robert E. Ewing
Sherry D. Ewing
<PAGE> 2
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of May 8, 1998, is entered into by
and among Waste Connections, Inc., a Delaware corporation ("WCI"), Sunshine
Sanitation, Incorporated, a South Dakota corporation (the "CORPORATION"), and
Robert E. Ewing and Sherry D. Ewing (collectively, the "SHAREHOLDER").
WHEREAS, the Corporation is engaged in the collection and transport of
solid waste and recyclables in the Cities of Spearfish, Lead, Belle Fourche,
Deadwood, Newell and Whitewood, South Dakota, and the unincorporated areas of
Meade County, Lawrence County and Butte County, South Dakota, and Crook County,
Wyoming and other related activities;
WHEREAS, the Shareholder owns all of the issued and outstanding
capital stock of the Corporation (the "CORPORATION'S STOCK");
WHEREAS, WCI wishes to acquire from the Shareholder all of the
Corporation's Stock;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto, each intending to be bound hereby, agree as
follows:
1. PURCHASE OF CORPORATION'S STOCK
1.1 SHARES TO BE PURCHASED. At the Closing (as defined in Section
2), the Shareholder shall sell and deliver to WCI all of the issued and
outstanding shares of the Corporation's Stock, being the number of shares of
the Corporation set forth on Schedule 3.2 opposite the Shareholder's name. At
the Closing, WCI shall purchase the Corporation's Stock and in exchange
therefor shall deliver to the Shareholder at the Closing or thereafter as
provided by this Agreement the purchase price described in Section 1.2 (the
"PURCHASE PRICE").
1.2 PURCHASE PRICE. The Purchase Price is composed of the
following:
(a) One million twenty-nine thousand dollars ($1,029,000)
(i) minus the Closing Date Debt (as defined in Section 3.22(a)), and
(ii) plus or minus, as the case may be, the amount by which the
Closing Date Current Assets (as defined in Section 3.22(b)) are
greater or less than the Closing Date Current Liabilities (as defined
in Section 3.22(b)). The $1,029,000 minus the Closing Date Debt shall
be payable to the Shareholder at Closing in cash by wire transfer or
check payable in clearinghouse funds. Within 120 days after the
Closing Date, WCI shall perform all necessary calculations,
adjustments and other acts necessary to convert the Corporation from a
cash to accrual basis of financial reporting, and then, based on such
accrual method, WCI shall determine the actual Closing Date Debt. If
the difference between the actual amount and the
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estimated amount provided at the Closing Date of Closing Date Debt
results in an increase in the amount that should have been paid at the
Closing over the amount that was so paid, WCI shall promptly pay such
amount to the Shareholder; if the result is a decrease in the amount
that should have been paid at the Closing from the amount that was so
paid, the Shareholder shall promptly pay such amount to WCI. In
addition, within 120 days after the Closing Date, WCI shall determine
the actual Closing Date Current Assets and Closing Date Current
Liabilities. If the Closing Date Current Assets are greater than the
Closing Date Current Liabilities, WCI shall promptly pay the
difference between the two amounts to the Shareholder; if the Closing
Date Current Liabilities are greater than the Closing Date Current
Assets, the Shareholder shall promptly the difference between the two
amounts to WCI;
(b) At the Closing, WCI shall deliver to the Shareholder
a Promissory Note (the "NOTE") in the aggregate principal amount of
two hundred thousand dollars ($200,000), which Note shall be payable
in five equal annual installments of forty thousand dollars ($40,000)
each. These annual installments shall be paid on the first, second,
third, fourth and fifth anniversaries of the Closing Date. The Note
shall be non-interest bearing and shall be secured by a lien on all of
the assets of the Corporation; and
(c) If the Shareholder owes the Corporation money
("SHAREHOLDER DEBT") and the Corporation owes the Shareholder money
("CORPORATION DEBT"), the amount by which the Shareholder Debt exceeds
the Corporation Debt will be deducted from the Purchase Price payable
to that Shareholder or the amount by which the Corporation Debt
exceeds the Shareholder Debt will be added to the Purchase Price
payable to that Shareholder and the remaining Corporation's Debt and
Shareholder Debt shall be cancelled.
1.3 ALLOCATION OF THE PURCHASE PRICE. Ten thousand dollars
($10,000) of the Purchase Price shall be allocated to the covenant not to
compete as described in Section 8.1(a) hereof, and the balance of the Purchase
Price shall be allocated to the Corporation's Stock.
1.4 EXCLUDED ASSETS. The Assets of the Corporation listed on
Schedule 1.4 (the "EXCLUDED ASSETS") shall be distributed to the Shareholder
prior to the Closing, and WCI shall acquire no interest in or claim to any of
the Excluded Assets.
2. CLOSING TIME AND PLACE
Subject to the terms and conditions of this Agreement, the closing of
the transactions contemplated herein (the "CLOSING") shall take place
concurrent with the execution of this Agreement or on such date as WCI and the
Shareholder's Representative shall agree (the "CLOSING DATE"). The Closing
shall take place at the Law Offices of Shartsis, Friese & Ginsburg LLP, One
Maritime Plaza, Suite 1800, San Francisco, California 94111, or through an
exchange of consideration and signed documents using overnight courier service.
At the Closing, WCI, the Corporation and the Shareholder shall deliver to each
other the documents, instruments and
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other items described in Section 5 of this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE SHAREHOLDER
The Corporation and the Shareholder, jointly and severally, (i)
represent and warrant that each of the following representations and warranties
is true as of the Closing Date, and (ii) agree that such representations and
warranties shall survive the Closing.
3.1 ORGANIZATION, STANDING AND QUALIFICATION. The Corporation is
duly organized, validly existing and in good standing under the laws of the
State of South Dakota. The Corporation has full corporate power and authority
to own and lease its properties and to carry on its business as now conducted.
The Corporation is registered as a foreign corporation in the State of Wyoming.
Registration in any other jurisdiction is either immaterial or not required.
3.2 CAPITALIZATION. Schedule 3.2 sets forth, as of the Closing
Date, the authorized and outstanding capital of the Corporation, the names,
address and social security numbers of the record and beneficial owner thereof,
the number of shares so owned and wire transfer instructions for the
Shareholder relating to the bank account to which the Purchase Price should be
sent. On the Closing Date, all of the issued and outstanding shares of the
capital stock of the Corporation are owned of record and beneficially by the
Shareholder, as set forth in Schedule 3.2, and are free and clear of all liens,
security interests, encumbrances and claims of every kind except as set forth
in Schedule 3.2. Each share of the capital stock of the Corporation is duly
and validly authorized and issued, fully paid and nonassessable, and was not
issued in violation of any preemptive rights of any past or present shareholder
of the Corporation. No option, warrant, call, conversion right or commitment
of any kind (including any of the foregoing created in connection with any
indebtedness of the Corporation) exists which obligates the Corporation to
issue any of its authorized but unissued capital stock or other equity interest
or which obligates the Shareholder to transfer the Corporation's Stock to any
person.
3.3 ALL STOCK BEING ACQUIRED. The Corporation's Stock being
acquired by WCI hereunder constitutes all of the outstanding capital stock of
the Corporation.
3.4 AUTHORITY FOR AGREEMENT. The Corporation and the Shareholder
have full right, power and authority to enter into this Agreement and to
perform its or his obligations hereunder. The execution and delivery of this
Agreement by the Corporation and the consummation of the transactions
contemplated hereby by the Corporation have been duly authorized by its Board
of Directors. This Agreement has been duly and validly executed and delivered
by the Corporation and the Shareholder and, subject to the due authorization,
execution and delivery by WCI, constitutes the legal, valid and binding
obligation of the Corporation and the Shareholder enforceable against each of
them in accordance with its terms.
3.5 NO BREACH OR DEFAULT. Except as disclosed on Schedule 3.5,
the execution and delivery by the Corporation and the Shareholder of this
Agreement, and the consummation by the
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Shareholder of the transactions contemplated hereby, will not:
(a) result in the breach of any of the terms or
conditions of, or constitute a default under, or allow for the
acceleration or termination of, or in any manner release any party
from any obligation under, any mortgage, lease, note, bond, indenture,
or material contract, agreement, license or other instrument or
obligation of any kind or nature to which the Corporation or the
Shareholder is a party, or by which the Corporation or the
Shareholder, or any of its or his assets, is or may be bound or
affected; or
(b) violate any law or any order, writ, injunction or
decree of any court, administrative agency or governmental authority,
or require the approval, consent or permission of any governmental or
regulatory authority; or
(c) violate the Articles of Incorporation or Bylaws of
the Corporation.
3.6 SUBSIDIARIES. Schedule 3.6 lists as of the Closing Date any
and all subsidiaries of the Corporation and any securities of any other
corporation or any securities or other interest in any other business entity
owned by the Corporation or any of its subsidiaries.
3.7 FINANCIAL STATEMENTS. The Corporation has delivered to WCI,
as Schedule 3.7, copies of financial statements ("FINANCIAL STATEMENTS") for
its three most recent fiscal years, compiled by Dean Heintz, C.P.A. and
unaudited interim financial statements for the Corporation for the period ended
April 30, 1998 (the "BALANCE SHEET DATE"). The Financial Statements are true
and correct and fairly present (i) the financial position of the Corporation as
of the respective dates of the balance sheets included in said statements, and
(ii) the results of operations for the respective periods indicated. The
Financial Statements have been prepared consistently with prior periods.
Except to the extent reflected or reserved against in the Corporation's balance
sheet as of the Balance Sheet Date, or as disclosed on Schedule 3.7 or Schedule
3.8, the Corporation had as of the Balance Sheet Date, and has as of the
Closing Date, no liabilities of any nature, whether accrued, absolute,
contingent or otherwise, including, without limitation, tax liabilities due or
to become due.
3.8 LIABILITIES. Parts I, II, III and IV of Schedule 3.8, are
accurate lists and descriptions of all liabilities of the Corporation required
to be described below in the format set forth below.
(a) Part I of Schedule 3.8 lists, as of the Closing Date,
other than with respect to trade payables and as of the end of the month prior
to the Closing Date with respect to trade payables, all indebtedness for money
borrowed and all other fixed and uncontested liabilities of any kind, character
and description (excluding all real and personal property leasehold interests
included in Part IV of Schedule 3.8), whether reflected or not reflected on the
Financial Statements and whether accrued or absolute, and states as to each
such liability the amount of such liability and to whom payable. From the date
as of which information is provided with
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respect to trade payables, trade payables have been incurred only in the
ordinary course of business consistent with comparable prior periods.
(b) Part II of Schedule 3.8 lists, as of the Closing
Date, all claims, suits and proceedings which are pending against the
Corporation, all contingent liabilities, and, to the knowledge of the
Corporation and the Shareholder, all contingent liabilities and all claims,
suits and proceedings threatened or anticipated against the Corporation. Part
II of Schedule 3.8 includes a summary description of each such liability,
including, without limitation, (A) the name of each court, agency, bureau,
board or body before which any such claim, suit or proceeding is pending, (B)
the date such claim, suit or proceeding was instituted, (C) the parties to such
claim, suit or proceeding, (D) a brief description of the factual basis alleged
to underlie such claim, suit or proceeding, including the date or dates of all
material occurrences, and (E) the amount claimed and other relief sought,
together with copies of all material documents, reports and other records
relating thereto to the extent that they are in the Corporation's or the
Shareholder's possession or control.
(c) Part III of Schedule 3.8 list, as of the Closing Date
and to the extent not otherwise included in Part I of Schedule 3.8, all liens,
claims and encumbrances secured by or otherwise affecting any asset of the
Corporation (including any Corporate Property, as hereafter defined), including
a description of the nature of such lien, claim or encumbrance, the amount
secured if it secures a liability, the nature of the obligation secured, and
the party holding such lien, claim or encumbrance.
(d) Part IV of Schedule 3.8 lists, as of the Closing Date
and to the extent not otherwise included in Part I or Part III of Schedule 3.8,
all real and personal property leasehold interests to which the Corporation is
a party as lessor or lessee or, to the knowledge of the Corporation or the
Shareholder, affecting or relating to any Corporate Property, and includes a
description of the nature and principal terms of such leasehold interest,
including, without limitation, the identity of the other party thereto, the
term of such leasehold interest (including renewal options), the base rent and
any additional rent owing thereunder (including any adjustments thereto),
security deposits, rights of first offer or first refusal, purchase options,
and restrictions on transfer.
Except as described on the applicable part of Schedule 3.8,
neither the Corporation nor the Shareholder has made any payment or committed
to make any payment since the Balance Sheet Date on or with respect to any of
the liabilities or obligations listed on Schedule 3.8 except, in the case of
liabilities and obligations listed on Parts I, III and IV of Schedule 3.8,
periodic payments required to be made under the terms of the agreements or
instruments governing such obligations or liabilities or made in the ordinary
course of business. Between the Balance Sheet Date and the Closing Date, trade
payables have been incurred only in the ordinary course of business consistent
with comparable prior periods.
3.9 CONDUCT OF BUSINESS. Except as set forth on Schedule 3.21,
since the Balance Sheet Date:
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(a) The business of the Corporation has been conducted
only in the ordinary course; and
(b) There has been no change in the condition (financial
or otherwise) of the assets, liabilities or operations of the
Corporation other than changes in the ordinary course of business,
none of which either singly or in the aggregate has been materially
adverse.
3.10 PERMITS AND LICENSES.
(a) Schedule 3.10(a) is a full and complete list, and
includes copies, of all material permits, licenses, franchises, and service
agreements pursuant to which the Corporation is authorized to collect and haul
industrial, commercial and residential solid waste (the "COLLECTION
FRANCHISES"), and of all other material permits, licenses, titles (including
motor vehicle titles and current registrations), fuel permits, zoning and land
use approvals and authorizations, including, without limitation, any
conditional or special use approvals or zoning variances, occupancy permits,
and any other similar documents constituting a material authorization or
entitlement or otherwise material to the operation of the business of the
Corporation (collectively the "GOVERNMENTAL PERMITS") owned by, issued to, held
by or otherwise benefitting the Corporation or the Shareholder as of the
Closing Date. The status of the Governmental Permits related to the disposal
areas owned or used by the Corporation, including, without limitation, any
conditions thereto and, if applicable, the expiration dates thereof, are also
described in Schedule 3.10(a). Schedule 3.10(a) also sets forth the name of
any governmental agency or other third party from whom the Shareholder, the
Corporation or WCI must obtain consent (the "REQUIRED GOVERNMENTAL CONSENTS")
in order to effect a direct or indirect transfer of the Collection Franchises
or other Governmental Permits required as a result of the consummation of the
transactions contemplated by this Agreement. All such consents have been
obtained. Except as set forth on Schedule 3.10(a), all of the Collection
Franchises and other Governmental Permits enumerated and listed on Schedule
3.10(a) are adequate for the operation of the business of the Corporation and
of each Corporate Property as presently operated and are valid and in full
force and effect. All of said Collection Franchises and other Governmental
Permits and agreements have been duly obtained and are in full force and
effect, and there are no proceedings pending or, to the actual knowledge of the
Corporation or the Shareholder, threatened which may result in the revocation,
cancellation, suspension or adverse modification of any of the same. Neither
the Corporation nor the Shareholder has any actual knowledge of any reason why
all such Governmental Permits and agreements will not remain in effect after
consummation of the transactions contemplated hereby.
(b) Schedule 3.10(b) includes: (i) all records,
notifications, reports, permit and license applications, engineering and
geologic studies, and environmental impact reports, tests or assessments
(collectively, "RECORDS, NOTIFICATIONS AND REPORTS") that (A) are material to
the operation of the business of the Corporation, or (B) relate to the
discharge or release of materials into the environment and/or the handling or
transportation of waste materials or
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hazardous or toxic substances or otherwise relate to the protection of the
public health or the environment, or (C) were filed with or submitted to
appropriate governmental agencies during the past 24 months by the Corporation
or the Shareholder or their agents with respect to the business of the
Corporation, and (ii) all material notifications from such governmental
agencies to the Corporation, the Shareholder or their agents in response to or
relating to any of such Records, Notifications and Reports.
(c) Schedule 3.10(c) lists, as of the Closing Date, each
facility owned, leased, operated or otherwise used by the Corporation, the
ownership, lease, operation or use of which is being transferred to, assumed by
or otherwise acquired directly or indirectly by WCI pursuant to this Agreement
or the Real Estate Agreement (each, a "FACILITY" and collectively, the
"FACILITIES"). Except as otherwise disclosed on Schedule 3.10(c):
(i) Each Facility is fully licensed, permitted
and authorized to carry on its current business under all applicable
federal, state and local statutes, orders, approvals, zoning or land
use requirements, rules and regulations, and no Facility or the
current use thereof constitutes a non-conforming use or is otherwise
subject to any restrictions regarding the operation, renovation or
reconstruction thereof.
(ii) All activities and operations at each
Facility are being and have been conducted in compliance in all
material respects with the requirements, criteria, standards and
conditions set forth in all applicable federal, state and local
statutes, orders, approvals, permits, zoning or land use requirements
and restrictions, variances, licenses, rules and regulations.
(iii) Each Facility is located on real property
owned or leased by the Corporation (each a "FACILITY PROPERTY") and
each Facility Property owned by the Corporation is legally described
on the preliminary title reports, surveys or site plans attached to
Schedule 3.10(c) (the "FACILITY SURVEYS/SITE PLANS"), which accurately
depict the respective Facility Property.
(iv) There are no circumstances, conditions or
reasons which are likely to be the basis for revocation or suspension
of any Facility's site assessments, permits, licenses, consents,
authorizations, zoning or land use permits, variances or approvals
relating to any Facility owned by the Corporation or owned by the
Shareholder or an Affiliate (as hereinafter defined) of the
Shareholder and leased to the Corporation, and to the knowledge of the
Corporation and the Shareholder there are no circumstances, conditions
or reasons which are likely to be the basis for revocation or
suspension of any site assessment, permits, licenses, consents,
authorizations, zoning or land use permits, variances or approvals
relating to any Facility.
3.11 CERTAIN RECEIVABLES. Schedule 3.11 is an accurate list as of
the Closing Date of the accounts and notes receivable of the Corporation from
and advances to employees, former employees, officers, directors, the
Shareholder and Affiliates of the foregoing which have not
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been repaid. For purposes of this Agreement, the term "AFFILIATE" means, with
respect to any person, any person that directly or indirectly through one or
more intermediaries controls or has an ownership interest in, or is controlled
or owned in whole or in part by, or is under common control or ownership in
whole or in part with such person, and in the case of the Corporation includes
directors and officers, in the case of individuals includes the individual's
spouse, father, mother, grandfather, grandmother, brothers, sisters, children
and grandchildren and in the case of a trust includes the grantors, trustees
and beneficiaries of the trust.
3.12 FIXED ASSETS AND REAL PROPERTY.
(a) Schedule 3.12(a) lists, as of the Closing Date,
substantially all the fixed assets (other than real estate) of the Corporation,
including, without limitation, identification of each vehicle by description
and serial number, identification of machinery, equipment and general
descriptions of parts, supplies and inventory. Except as described on Schedule
3.12(a), all of the Corporation's containers, vehicles, machinery and equipment
necessary for the operation of its business are in operable condition, and all
of the motor vehicles and other rolling stock of the Corporation are in
material compliance with all applicable laws, rules and regulations. All such
containers, vehicles, machinery and equipment are substantially free of known
defects that would cause them to fail, except as noted on Schedule 3.12(a).
All leases of fixed assets are in full force and effect and binding upon the
parties thereto; neither the Corporation nor, to the knowledge of the
Corporation or the Shareholder, any other party to such leases is in breach of
any of the material provisions thereof.
(b) Each parcel of real property leased, owned or being
purchased by the Corporation as of the Closing Date (the "CORPORATE PROPERTY"),
including the street address and, in the case of Corporate Property owned or
being purchased, the legal description thereof, is listed on Schedule 3.12(b) -
Part I, and attached to said Schedule 3.12(b) - Part I are copies of all
leases, deeds, outstanding mortgages, other encumbrances and any existing title
insurance policies or lawyer's title opinions relating to each Corporate
Property, as well as a current commitment for title insurance issued by a title
insurance company satisfactory to WCI with respect to each Corporate Property
owned or being purchased by the Corporation, together with copies of all of the
title exceptions referred to in each such commitment. All leases listed on
Schedule 3.12(b) - Part I are in full force and effect and binding on the
parties thereto; neither the Corporation nor, to the knowledge of the
Corporation and the Shareholder, any other party to any such lease is in breach
of any of the material provisions thereof; the landlord's interest in any such
lease has not been assigned to any third party nor has any such interest been
mortgaged, pledged or hypothecated; and the Corporation has not assigned any
such lease or sublet all or any part of the Corporate Property which is the
subject of any such lease. Except as described on Schedule 3.12(b) - Part II,
to the actual knowledge of the Corporation and the Shareholder, there are no
material physical or mechanical defects in any Facility located on any
Corporate Property and each such Facility is in good condition and repair.
(c) The Corporation has good, valid and marketable title
to all properties and assets, real, personal, and mixed, tangible and
intangible, actually used or necessary for the
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conduct of its business, free of any encumbrance or charge of any kind except:
(i) liens for current taxes not yet due; (ii) minor imperfections of title and
encumbrances, if any, that are not substantial in amount, do not materially
reduce the value or impair the use of the property subject thereto, do not
materially impair the value of the Corporation, and have arisen only in the
ordinary course of business and consistent with past practice; and (iii) the
liens identified on Part III of Schedule 3.8 (collectively, the "PERMITTED
LIENS"). Except as described on Schedule 3.12(b) - Part I, there are no
leases, occupancy agreements, options, rights of first refusal or any other
agreements or arrangements, either oral or written, that create or confer in
any person or entity the right to acquire, occupy or possess, now or in the
future, any Facility, any Corporate Property, or any portion thereof, or create
in or confer on any person or entity any right, title or interest therein or in
any portion thereof.
3.13 ACQUISITION/DISPOSAL OF ASSETS. Except as indicated on
Schedule 3.13, since the Balance Sheet Date, the Corporation has not acquired
or sold or otherwise disposed of any properties or assets which, singly or in
the aggregate, have a value in excess of $10,000, or which are material to the
operation of the Corporation's business as presently conducted, without the
prior written consent of WCI.
3.14 CONTRACTS AND AGREEMENTS; ADVERSE RESTRICTIONS.
(a) Schedule 3.14(a) lists, as of the Closing Date, and
includes copies of, all material contracts and agreements (other than leases
and documents included with Schedule 3.12(b)) to which the Corporation is a
party or by which it or any of its property is bound (including, but not
limited to, joint venture or partnership agreements, contracts with any labor
organizations, promissory notes, loan agreements, bonds, mortgages, deeds of
trust, liens, pledges, conditional sales contracts or other security
agreements). Except as disclosed on Schedule 3.14(a), all such contracts and
agreements included in Schedule 3.14(a) are in full force and effect and
binding upon the parties thereto. Except as described or cross referenced on
Schedule 3.14(a), neither the Corporation nor, to the Corporation's or the
Shareholder's knowledge, any other parties to such contracts and agreements is
in breach thereof, and none of the parties has threatened to breach any of the
material provisions thereof or notified the Corporation or the Shareholder of a
default thereunder, or exercised any options thereunder.
(b) Except as set forth on Schedule 3.14(b), there is no
outstanding judgment, order, writ, injunction or decree against the
Corporation, the result of which could materially adversely affect the
Corporation or its business or any of the Corporate Properties, nor has the
Corporation been notified that any such judgment, order, writ, injunction or
decree has been requested.
3.15 INSURANCE. Schedule 3.15 is a complete list and includes
copies, as of the Closing Date, of all insurance policies in effect on the
Closing Date or, with respect to "occurrence" policies that were in effect,
carried by the Corporation in respect of the Corporate Properties or any other
property used by the Corporation specifying, for each policy, the name of the
insurer, the type of risks insured, the deductible and limits of coverage, and
the annual premium therefor.
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The Corporation currently carries insurance in the type and amount ordinarily
carried by owners or corporations in similar circumstances, in respect to the
Corporation' properties, assets and business. During the last five years,
there has been no lapse in any material insurance coverage of the Corporation.
For each insurer providing coverage for any of the contingent or other
liabilities listed on Schedule 3.8, except to the extent otherwise set forth in
Part II of Schedule 3.8, each such insurer, if required, has been properly and
timely notified of such liability, no reservation of rights letters have been
received by the Corporation and the insurer has assumed defense of each suit or
legal proceeding. All such proceedings are fully covered by insurance, subject
to normal deductibles.
3.16 PERSONNEL. Schedule 3.16 is a complete list, as of the
Closing Date, of all officers, directors and employees (by type or
classification) of the Corporation and their respective rates of compensation,
including (i) the portions thereof attributable to bonuses, (ii) any other
salary, bonus, stock option, equity participation, or other compensation
arrangement made with or promised to any of them, and (iii) copies of all
employment agreements with non-union officers, directors and employees.
Schedule 3.16 also lists the driver's license number for each driver of the
Corporation's motor vehicles.
3.17 BENEFIT PLANS AND UNION CONTRACTS.
(a) Schedule 3.17(a) is a complete list as of the Closing
Date, and includes complete copies (or, in the case of oral arrangements,
descriptions), of all employee benefit plans and agreements (written or oral)
currently maintained or contributed to by the Corporation, including employment
agreements and any other agreements containing "golden parachute" provisions,
retirement plans, welfare benefit plans and deferred compensation agreements,
together with copies of such plans, agreements and any trusts related thereto,
and classifications of employees covered thereby as of the Closing Date.
Except for the employee benefit plans described on Schedule 3.17(a), the
Corporation has no other pension, retirement, welfare, profit sharing, deferred
compensation, stock option, employee stock purchase or other employee benefit
plans or arrangements with any party. Except as disclosed on Schedule 3.17(a),
all employee benefit plans listed on Schedule 3.17(a) are fully funded and in
substantial compliance with all applicable federal, state and local statutes,
ordinances and regulations. All such plans that are intended to qualify under
Section 401(a) of the Internal Revenue Code have been determined by the
Internal Revenue Service to be so qualified, and copies of such determination
letters are included as part of Schedule 3.17(a). Except as disclosed on
Schedule 3.17(a), all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, actuarial reports, audits or tax returns) have
been timely filed or distributed, and copies thereof are included as part of
Schedule 3.17(a). All employee benefit plans listed on such Schedule have been
operated in accordance with the terms and provisions of the plan documents and
all related documents and policies. The Corporation has not incurred any
liability for excise tax or penalty due to the Internal Revenue Service or U.S.
Department of Labor nor any liability to the Pension Benefit Guaranty
Corporation for any employee benefit plan, nor has the Corporation, nor
party-in-interest or disqualified person, engaged in any transaction or other
activity which would give rise to such
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liability. The Corporation has not participated in or made contributions to
any "multi-employer plan" as defined in the Employee Retirement Income Security
Act of 1974 ("ERISA"), nor would the Corporation or any affiliate be subject to
any withdrawal liability with respect to such a plan if any such employer
withdrew from such a plan immediately prior to the Closing Date. No employee
pension benefit plan is under funded on a termination basis as of the date of
this Agreement.
(b) Schedule 3.17(b) is a complete list, as of the
Closing Date, and includes complete copies of all union contracts and
agreements between the Corporation and any collective bargaining group. The
Corporation is in compliance in all material respects with all applicable
federal and state laws respecting employment and employment practices, terms
and conditions of employment, wages and hours, and nondiscrimination in
employment, and is not engaged in any unfair labor practice. There is no
charge pending or, to the Corporation's or the Shareholder's knowledge,
threatened, against the Corporation before any court or agency and alleging
unlawful discrimination in employment practices and there is no charge of or
proceeding with regard to any unfair labor practice against it pending before
the National Labor Relations Board. There is no labor strike, dispute, slow
down or stoppage as of the Closing Date, existing or threatened against the
Corporation; no union organizational activity exists respecting employees of
the Corporation not currently subject to a collective bargaining agreement; the
union contracts or other agreements delivered as part of Schedule 3.17(b)
constitute all agreements with the unions or other collective bargaining
groups, and there are no other arrangements or established practices relating
to the employees covered by any collective bargaining agreement; and Schedule
3.17(b) contains as of the date it is delivered a list of all arbitration or
grievance proceedings that have occurred since the Balance Sheet Date. No one
has petitioned within the last five years, and no one is now petitioning, for
union representation of any employees of the Corporation. The Corporation has
not experienced any labor strike, slow-down, work stoppage, labor difficulty or
other job action during the last five years.
(c) No payment made to any employee, officer, director or
independent contractor of the Corporation (the "RECIPIENT") pursuant to any
employment contract, severance agreement or other arrangement (the "Golden
Parachute Payment") will be nondeductible by the Corporation because of the
application of Sections 280G and 4999 of the Code to the Golden Parachute
Payment, nor will the Corporation be required to compensate any Recipient
because of the imposition of an excise tax (including any interest or penalties
related thereto) on the Recipient by reason of Sections 280G and 4999 of the
Code.
3.18 TAXES.
(a) The Corporation has timely filed all requisite
federal, state, local and other tax and information returns due for all fiscal
periods ended on or before the Closing Date. All such returns are accurate and
complete. Except as set forth on Schedule 3.18, there are no open years (other
than those within the statute of limitations), examinations in progress,
extensions of any statute of limitations or claims against the Corporation
relating to federal, state, local or other taxes (including penalties and
interest) for any period or periods prior to and including the
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Closing Date and no notice of any claim for taxes has been received. Copies of
(i) any tax examinations, (ii) extensions of statutory limitations and (iii)
the federal income, and state franchise, income and sales tax returns of the
Corporation for its last three fiscal years are attached as part of Schedule
3.18. Copies of all other federal, state, local and other tax and information
returns for all prior years of the Corporation's existence have been made
available to WCI and are among the records of the Corporation which will accrue
to WCI at the Closing. The Corporation has not been contacted by any federal,
state or local taxing authority regarding a prospective examination.
(b) Except as set forth on Schedule 3.18 (which schedule
also includes the amount due with respect to the Corporation) the Corporation
has duly paid all taxes and other related charges required to be paid prior to
the Closing Date.
(c) The Corporation has withheld all required amounts
from its employees for all pay periods in full and complete compliance with the
withholding provisions of applicable federal, state and local laws. All
required federal, state and local and other returns with respect to income tax
withholding, social security, and unemployment taxes have been duly filed by
the Corporation for all periods for which returns are due, and the amounts
shown on all such returns to be due and payable have been paid in full.
3.19 COPIES COMPLETE; REQUIRED CONSENTS. Except as disclosed on
Schedule 3.19, the certified copies of the Articles of Incorporation and Bylaws
of the Corporation, both as amended to the Closing Date, and the copies of all
leases, instruments, agreements, licenses, permits, certificates or other
documents that have been delivered to WCI in connection with the transactions
contemplated hereby are complete and accurate as of the Closing Date and are
true and correct copies of the originals thereof. Except as specifically
disclosed on Schedule 3.19, the rights and benefits of the Corporation will not
be adversely affected by the transactions contemplated hereby, and the
execution of this Agreement and the performance of the obligations hereunder
will not violate or result in a breach or constitute a default under any of the
terms or provisions thereof. None of such leases, instruments, agreements,
licenses, permits, site assessments, certificates or other documents requires
notice to, or consent or approval of, any governmental agency or other third
party to any of the transactions contemplated hereby, except the Required
Governmental Consents, such consents and approvals as are listed on Schedule
3.19; all of which will have been given or obtained prior to the Closing.
3.20 CUSTOMERS, BILLINGS, CURRENT RECEIPTS AND RECEIVABLES.
Schedule 3.20 is a current, accurate and complete list of, and includes:
(a) the customers the Corporation serves on an ongoing
basis, including name, location and current billing rate, as of the Closing
Date;
(b) an accurate and complete aging of all accounts and
notes receivable from customers as of the last day of the month preceding the
month in which such Schedule is delivered, showing amounts due in 30-day aging
categories; and
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(c) the average monthly revenues of the Corporation
derived from billings to its customers for each of the twelve months preceding
the Closing Date. Except as set forth on Schedule 3.20, the Corporation and
the Shareholder have no knowledge of any reason why the Corporation's average
monthly revenues derived from billings to its customers after the Closing Date
should not continue at approximately the same rate as before the Closing Date.
3.21 NO CHANGE WITH RESPECT TO THE CORPORATION. Except as set
forth on Schedule 3.21, since the Balance Sheet Date, the business of the
corporation has been conducted only in the ordinary course and there has been
no change in the condition (financial or otherwise) of the assets, liabilities
or operations of the Corporation other than changes in the ordinary course of
business, none of which either singly or in the aggregate has been materially
adverse. Specifically, and without limiting the generality of the foregoing,
except as set forth on Schedule 3.21, with respect to the Corporation, since
the Balance Sheet Date, there has not been:
(a) any material change in its financial condition,
assets, liabilities (contingent or otherwise), income, operations or
business which would have a material adverse effect on the financial
condition, assets, liabilities (contingent or otherwise), income,
operations or business of the Corporation, taken as a whole;
(b) any material damage, destruction or loss (whether or
not covered by insurance) adversely affecting any material portion of
its properties or business;
(c) any change in or agreement to change (i) its
shareholders, (ii) ownership of its authorized capital or outstanding
securities, or (iii) its securities;
(d) any declaration or payment of, or any agreement to
declare or pay, any dividend or distribution in respect of its capital
stock or any direct or indirect redemption, purchase or other
acquisition of any of its capital stock;
(e) any material increase or bonus or promised increase
or bonus in the compensation payable or to become payable by it, in
excess of usual and customary practices, to any of its directors,
officers, employees or agents, or any accrual or arrangement for or
payment of any bonus or other special compensation to any employee or
any severance or termination pay paid to any of its present or former
officers or other key employees;
(f) any labor dispute or any other event or condition of
any character with respect to the Corporation's employees, materially
adversely affecting its business or future prospects;
(g) any sale or transfer, or any agreement to sell or
transfer, any of its material assets, property or rights to any other
person, including, without limitation, the Shareholder and his
Affiliates, other than in the ordinary course of business;
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(h) any cancellation, or agreement to cancel, any
material indebtedness or other material obligation owing to it,
including, without limitation, any indebtedness or obligation of the
Shareholder or any of his Affiliates;
(i) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of its
assets, property or rights or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or any agreement,
plan or arrangement to purchase or acquire, any of its property,
rights or assets outside the ordinary course of its business;
(k) any waiver of any of its material rights or claims;
(l) any new or any amendment or termination of any
existing material contract, agreement, license, permit or other right
to which it is a party;
(m) any other material transaction outside the ordinary
course of its business.
3.22 CLOSING DATE DEBT; CLOSING DATE CURRENT ASSETS AND CLOSING
DATE CURRENT LIABILITIES.
(a) Schedule 3.22(a) is an estimate based on the
Corporation's balance sheet for the period ending on the Balance Sheet Date of
(i) the amount of the aggregate debt (excluding trade payables) of the
Corporation outstanding on the Closing Date required to be repaid by WCI at or
immediately after the Closing Date and all prepayment penalties incurred or to
be incurred by WCI or the Corporation in connection with the repayment of any
such debt, (ii) the amount of the aggregate debt (excluding trade payables) of
the Corporation outstanding on the Closing Date which will remain outstanding
obligations of the Corporation after the Closing Date, and all prepayment
penalties applicable to such debt if repaid prior to maturity, including in
each case all interest accrued through and including the Closing Date, (iii)
the aggregate amount of the present value, discounted at the lease rate factor,
if known, inherent in the lease or, if the lease rate factor is not known, at
the rate charged to the Corporation by a third party lender in connection with
its most recent borrowing to finance equipment, of all lease obligations of the
Corporation that are not capitalized lease obligations and (iv) the aggregate
amount of the present value of all capitalized lease obligations (determined in
accordance with generally accepted accounting principles) of the Corporation
(the "CLOSING DATE DEBT"). Schedule 3.22(a) includes wire transfer
instructions for creditors whose Closing Date Debt WCI has designated for
payment, and attached to Schedule 3.22(a) are pay-off letters or instructions
from such creditors in the form provided by WCI's bank.
(b) Schedule 3.22(b) is an estimate based on the
Corporation's balance sheet for the period ending on the Closing Date of the
amount of the aggregate current liabilities
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(including any reserve for unpaid taxes and excluding the current portion of
long-term debt to the extent such current portion is included in Closing Date
Debt) and trade payables of the Corporation (including billed trade payables
and trade payables incurred but not yet billed) as of the Closing Date (the
"CLOSING DATE CURRENT LIABILITIES") and the amount of the aggregate cash and
other current assets of the Corporation as of the Closing Date, including
prepaid expenses the benefit of which survives the Closing Date and the billed
and unbilled accounts receivable of the Corporation earned prior to the Closing
Date, and collectible on or after the Closing Date (the "CLOSING DATE CURRENT
ASSETS"). The Corporation and the Shareholder expressly acknowledge that in
arriving at the Closing Date Current Assets, accounts receivable owed to the
Corporation that are outstanding sixty (60) days or less prior to the Closing
Date are valued at one hundred percent (100%) of their amount, accounts
receivable outstanding sixty-one (61) to ninety (90) days prior to the Closing
Date are valued at forty percent (40%) of their amount, and that any amounts
outstanding more than ninety (90) days prior to the Closing Date are valued at
zero.
3.23 BANK ACCOUNTS.
(a) Schedule 3.23(a) is a complete and accurate list, as
of the Closing Date, of:
(i) the name of each bank in which the
Corporation has accounts or safe deposit boxes;
(ii) the name(s) in which the accounts or boxes
are held;
(iii) the type of account; and
(iv) the name of each person authorized to draw
thereon or have access thereto.
(b) Schedule 3.23(b) is a complete and accurate list, as
of the Closing Date, of:
(i) each credit card or other charge account
issued to the Corporation; and
(ii) the name of each person to whom such credit
cards or other charge accounts have been issued.
3.24 COMPLIANCE WITH LAWS. Except as disclosed on Schedule 3.24,
the Corporation, has complied with, and the Corporation is presently in
compliance with, federal, state and local laws, ordinances, codes, rules,
regulations, Governmental Permits, orders, judgments, awards, decrees, consent
judgments, consent orders and requirements applicable to it (collectively
"LAWS"), including, but not limited to, the Americans with Disabilities Act,
the Federal Occupational Safety and Health Act, and Laws relating to the public
health, safety or protection
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of the environment (collectively, "ENVIRONMENTAL LAWS"). Except as disclosed
on Schedule 3.24, there has been no assertion by any party that the Corporation
is in violation of any Laws. Specifically and without limiting the generality
of the foregoing, except as disclosed on Schedule 3.24:
(a) Except as permitted under applicable laws and
regulations, including, without limitation, the federal Resource
Conservation Recovery Act, 42 USC Section 6901 et seq. ("RCRA"), the
Corporation has not accepted, processed, handled, transferred,
generated, treated, stored or disposed of any Hazardous Material (as
defined in Section 3.24(e) below) nor has it accepted, processed,
handled, transferred, generated, treated, stored or disposed of
asbestos, medical waste, radioactive waste or municipal waste, except
in compliance with Environmental Laws.
(b) During the Corporation's ownership or leasing of the
Corporate Property owned or leased by it and, to the knowledge of the
Corporation and the Shareholder, prior to the Corporation's ownership
or leasing of such Corporate Property, no Hazardous Material, other
than that allowed under Environmental Laws, including, without
limitation, RCRA, has been disposed of, or otherwise released on any
Corporate Property.
(c) During the Corporation's ownership or leasing of the
Corporate Property owned or leased by it and, to the knowledge of the
Corporation and the Shareholder, prior to the Corporation's ownership
or leasing of such Corporate Property, no Corporate Property has ever
been subject to or received any notice of any private, administrative
or judicial action, or notice of any intended private, administrative
or judicial action relating to the presence or alleged presence of
Hazardous Material in, under, upon or emanating from any Corporate
Property or any real property now or previously owned or leased by the
Corporation. There are no pending and, to the Corporation's and
Shareholder's knowledge, no threatened actions or proceedings from any
governmental agency or any other entity involving remediation of any
condition of the Corporate Property, including, without limitation,
petroleum contamination, pursuant to Environmental Laws.
(d) Except as allowed under Environmental Laws, the
Corporation has not knowingly sent, transported or arranged for the
transportation or disposal of any Hazardous Material, to any site,
location or facility.
(e) As used in this Agreement, "HAZARDOUS MATERIAL" means
the substances (i) defined as "HAZARDOUS WASTE" in 40 CFR 261, and
substances defined in any comparable South Dakota statute or
regulation; (ii) any substance the presence of which requires
remediation pursuant to any Environmental Laws; and (iii) any
substance disposed of in a manner not in compliance with Environmental
Laws.
3.25 POWERS OF ATTORNEY. The Corporation has not granted any power
of attorney (except routine powers of attorney relating to representation
before governmental agencies) or
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entered into any agency or similar agreement whereby a third party may bind or
commit the Corporation in any manner.
3.26 UNDERGROUND STORAGE TANKS. Except as set forth on Schedule
3.26, no underground storage tanks containing petroleum products or wastes or
other hazardous substances regulated by 40 CFR 280 or Environmental Laws are
currently or have been located on any Corporate Property. Except as set forth
on Schedule 3.26, the Corporation has never owned or leased any real property
not included in the Corporate Property having any underground storage tanks
containing petroleum products or wastes or other hazardous substances regulated
by 40 CFR 280. As to each such underground storage tank ("UST") identified on
Schedule 3.26, the Corporation has provided to WCI, on Schedule 3.26:
(a) the location of the UST, information and material,
including any available drawings and photographs, showing the
location, and whether the Corporation currently owns or leases the
property on which the UST is located (and if the Corporation does not
currently own or lease such property, the dates on which it did and
the current owner or lessee of such property);
(b) the date of installation and specific use or uses of
the UST;
(c) copies of tank and piping tightness tests and
cathodic protection tests and similar studies or reports for each UST;
(d) a copy of each notice to or from a governmental body
or agency relating to the UST;
(e) other material records with regard to the UST,
including, without limitation, repair records, financial assurance
compliance records and records of ownership; and
(f) to the extent not otherwise set forth pursuant to the
above, a summary description of instances, past or present, in which,
to the Corporation's, or the Shareholder's knowledge, the UST failed
to meet applicable standards and regulations for tightness or
otherwise and the extent of such failure, and any other operational or
environmental problems with regard to the UST, including, without
limitation, spills, including spills in connection with delivery of
materials to the UST, releases from the UST and soil contamination.
Except to the extent set forth on Schedule 3.26, the Corporation has
complied with Environmental Laws regarding the installation, use, testing,
monitoring, operation and closure of each UST described on Schedule 3.26.
3.27 PATENTS, TRADEMARKS, TRADE NAMES, ETC. Schedule 3.27 lists
all patents, tradenames, fictitious business names, trademarks, service marks,
and copyrights owned by the
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Corporation or which it is licensed to use (other than licenses to use software
for personal computer operating systems that were provided when the computer
was purchased and licenses to use software for personal computers that are
granted to retail purchasers of such software). No patents, trade secrets,
know-how, intellectual property, trademarks, trade names, assumed names,
copyrights, or designations used by the Corporation in its business infringe on
any patents, trademarks, or copyrights, or any other rights of any person.
Neither the Corporation nor the Shareholder knows or has any reason to believe
that there are any claims of third parties to the use of any such names or any
similar name, or knows of or has any reason to believe that there exists any
basis for any such claim or claims. WCI gives its consent to the Shareholder
to form a corporation by the name of Sunshine, Inc.
3.28 ASSETS, ETC., NECESSARY TO BUSINESS. The Corporation owns or
leases all properties and assets, real, personal, and mixed, tangible and
intangible, and, except as disclosed on Schedules 3.5, 3.10(a), 3.10(c),
3.14(a) and 3.19, is a party to all Collection Franchises and Governmental
Permits and other agreements necessary to permit it to carry on its business as
presently conducted. All of said Collection Franchises and Governmental
Permits and agreements have been duly obtained and, except as disclosed on
Schedules 3.5, 3.8-Part II, 3.10(a), 3.10(c) 3.14(a) and 3.19, are in full
force and effect and there are no proceedings pending or threatened which may
result in the revocation, cancellation, suspension or adverse modification of
any of the same. Neither the Corporation nor the Shareholder has any knowledge
of any reason why all such Collection Franchises and Governmental Permits and
agreements will not remain in effect after consummation of the transactions
contemplated hereby.
3.29 CONDEMNATION. No Corporate Property owned or leased by the
Corporation is the subject of, or would be affected by, any pending
condemnation or eminent domain proceedings, and, to the knowledge of the
Corporation and the Shareholder, no such proceedings are threatened.
3.30 SUPPLIERS AND CUSTOMERS. The relations between the
Corporation and its customers are good. Neither the Corporation nor the
Shareholder has knowledge of any fact (other than general economic and industry
conditions) which indicates that any of the suppliers supplying products,
components, materials or providing use of, or access to, landfills or disposal
sites to the Corporation intends to cease providing such items to the
Corporation, nor does the Corporation or the Shareholder have knowledge of any
fact (other than general economic and industry conditions) which indicates that
any of the customers of the Corporation intends to terminate, limit or reduce
its business relations with the Corporation.
3.31 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the
Corporation nor the Shareholder has directly or indirectly within the past five
years given or agreed to give any gift or similar benefit to any customer,
supplier, governmental employee or other person who is or may be in a position
to help or hinder the business of the Corporation in connection with any actual
or proposed transaction which (a) might subject the Corporation to any damage
or penalty in any civil, criminal or governmental litigation or proceeding, (b)
if not given in the past, might have had an adverse effect on the financial
condition, business or results of operations of the
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Corporation, or (c) if not continued in the future, might adversely affect the
financial condition, business or operations of the Corporation or which might
subject the Corporation to suit or penalty in any private or governmental
litigation or proceeding.
3.32 RELATED PARTY TRANSACTIONS. Neither the Shareholder nor any
of his Affiliates has entered into any transaction with or is a party to any
agreement, lease or other instrument, or as of the date of this Agreement is
indebted to or is owed money by, the Corporation not disclosed on the Financial
Statements delivered to WCI prior to the date of this Agreement. Except as
disclosed in the Financial Statements, neither the Shareholder or his
Affiliates owns any direct or indirect interest of any kind in, or controls or
is a director, officer, employee, shareholder or partner of, or consultant or
lender to or borrower from or has the right to participate in the profits of,
any Person which is a competitor, supplier, customer, landlord, tenant,
creditor or debtor of the Corporation.
3.33 DISCLOSURE SCHEDULES. Any matter disclosed on any Schedule to
this Agreement shall be deemed to have been disclosed on every other Schedule
that refers to such Schedule by cross reference so long as the nature of the
matter disclosed is obvious from a fair reading of the Schedule on which the
matter is disclosed.
3.34 NO MISLEADING STATEMENTS. The representations and warranties
of the Corporation and the Shareholder contained in this Agreement, the
Exhibits and Schedules hereto and all other documents and information furnished
to WCI and its representatives pursuant hereto are complete and accurate in all
material respects and do not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements made and to be
made not misleading.
3.35 ACCURATE AND COMPLETE RECORDS. The corporate minute books,
stock ledgers, books, ledgers, financial records and other records of the
Corporation:
(a) have been made available to WCI and its agents at the
Corporation's offices or at the offices of WCI's attorneys or the
Corporation's attorneys;
(b) have been, in all material respects, maintained in
accordance with all applicable laws, rules and regulations; and
(c) are accurate and complete, reflect all material
corporate transactions required to be authorized by the Boards of
Directors and/or shareholders of the Corporation and do not contain or
reflect any material discrepancies.
3.36 KNOWLEDGE. Wherever reference is made in this Agreement to
the "KNOWLEDGE" of the Shareholder, such term means the actual knowledge of the
Shareholder or any knowledge which should have been obtained by the Shareholder
upon reasonable inquiry by a reasonable business person. Wherever reference is
made in this Agreement to the "knowledge" of the Corporation, such term means
the actual knowledge of any management employee, officer or
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director of the Corporation or any knowledge which should have been obtained by
any such person upon reasonable inquiry by a reasonable business person.
3.37 BROKERS; FINDERS. No person has acted directly or indirectly
as a broker, finder or financial advisor for the Corporation or the Shareholder
in connection with the transactions contemplated by this Agreement and no
person is entitled to any broker's, finder's, financial advisory or similar fee
or payment in respect thereof based in any way on any agreement, arrangement or
understanding made by or on behalf of the Corporation or the Shareholder.
3.38 S CORPORATION. The Corporation has elected to be taxed as an
S Corporation under the Internal Revenue Code of 1986, as amended, for all the
years listed on Schedule 3.39.
4. REPRESENTATIONS AND WARRANTIES OF WCI
WCI represents and warrants to the Shareholder that each of the
following representations and warranties is true as of the date of this
Agreement and will be true as of the Closing Date, and agrees that such
representations and warranties shall survive the Closing:
4.1 EXISTENCE AND GOOD STANDING. WCI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. WCI has full corporate power and authority to own and lease its
properties and to carry on its business as now conducted. WCI is not required
to be qualified or licensed to conduct business as a foreign corporation in any
jurisdiction where the failure to be so qualified would have a material adverse
effect on its financial condition.
4.2 NO CONTRACTUAL RESTRICTIONS. No provisions exist in any
article, document or instrument to which WCI is a party or by which it is bound
which would be violated by consummation of the transactions contemplated by
this Agreement.
4.3 AUTHORIZATION OF AGREEMENT. This Agreement has been duly
authorized, executed and delivered by WCI and, subject to the due
authorization, execution and delivery by the Corporation and the Shareholder,
constitutes a legal, valid and binding obligation of WCI. WCI has full
corporate power, legal right and corporate authority to enter into and perform
its obligations under this Agreement and to carry on its business as presently
conducted. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby and the fulfillment of and compliance
with the terms and conditions hereof do not and will not, after the giving of
notice, or the lapse of time or otherwise: (a) violate any provisions of any
judicial or administrative order, award, judgment or decree applicable to WCI;
(b) conflict with any of the provisions of the Amended and Restated Certificate
of Incorporation or Amended and Restated Bylaws of WCI; or (c) conflict with,
result in a breach of or constitute a default under any material agreement or
instrument to which WCI is a party or by which it is bound.
4.4 NO MISLEADING STATEMENTS. The representations and warranties
of WCI contained in this Agreement, the Exhibits and Schedules hereto and all
other documents and
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information furnished to the Shareholder pursuant hereto are materially
complete and accurate, and do not include any untrue statement of a material
fact or omit to state any material fact necessary to make the statements made
and to be made not misleading as of the Closing Date.
4.5 BROKERS; FINDERS. No person has acted directly or indirectly
as a broker, finder or financial advisor for WCI in connection with the
transactions contemplated by this Agreement and no person is entitled to any
broker's, finder's, financial advisory or similar fee or payment in respect
thereof based in any way on any agreement, arrangement or understanding made by
or on behalf of WCI.
4.6 DISCLOSURE SCHEDULES. Any matter disclosed by WCI on any
Schedule to this Agreement shall be deemed to have been disclosed on every
other Schedule that refers to such Schedule by cross reference so long as the
nature disclosed is obvious from a fair reading of the Schedule on which the
matter is disclosed.
5. CLOSING DELIVERIES
At the Closing, the respective parties shall make the deliveries
indicated:
5.1 WCI DELIVERIES.
(a) WCI shall deliver the cash portion of the Purchase
Price required to be delivered on the Closing Date pursuant to Section 1.2(a).
(b) WCI shall execute and deliver a Consulting Agreement
with Robert E. Ewing substantially in the form of the draft included in Exhibit
5.1(d).
5.2 SHAREHOLDER DELIVERIES.
(a) The Shareholder shall deliver to WCI the certificates
representing the outstanding Corporation's Stock free and clear of all liens,
security interests, claims and encumbrances, accompanied by a stock power duly
executed in blank.
(b) The Shareholder shall deliver to WCI an opinion of
counsel for the Shareholder, dated as of the Closing Date, in substantially the
form attached hereto as Exhibit 5.2(c).
(c) The Shareholder shall deliver evidence reasonably
satisfactory to WCI that all required third-party consents to the transactions
contemplated hereby, including without limitation all Required Governmental
Consents and all required consents of the landlords under all real estate
leases to which the Corporation is a party, were obtained and the Shareholder
shall deliver an estoppel certificate from the landlords under all real estate
leases to which the Corporation is a party confirming the terms thereof and the
rental amount owing thereunder, certifying that such lease is in full force and
effect, that the Corporation is not in default under
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any of the terms or conditions thereof, that there have been no amendments or
modifications to any such lease (or specifying the same), and otherwise
containing such statements and certifications as the Corporation may require.
(d) The Corporation shall deliver to WCI evidence
satisfactory to WCI showing that all written employment contracts and all oral
employment contracts other than those that are terminable "at will" without
payment of severance (other than normal severance benefits approved by WCI) or
other benefits with non-union employees of the Corporation (including, without
limitation, stock options or other rights to obtain equity in the Corporation)
have been terminated, effective on or before the Closing Date.
(e) The Shareholder shall execute and deliver the
Consulting Agreement in the form of Exhibit 5.1(d).
(f) The Shareholder shall cause each officer and director
of the Corporation to deliver to WCI a resignation as an officer and/or
director of the Corporation together with a general release releasing the
Corporation from all obligations under any indemnification agreements, the
charter documents of the Corporation, or otherwise, arising out of or relating
to this Agreement or the consummation of the transactions contemplated thereby,
other than obligations arising after the Closing Date under this Agreement,
except to the extent there exists insurance coverage.
6. ADDITIONAL COVENANTS OF WCI, THE CORPORATION AND THE SHAREHOLDER
6.1 RELEASE OF GUARANTIES. WCI shall use reasonable efforts to
obtain the termination and release promptly after the Closing Date of the
personal guaranties of the Shareholder listed on Schedule 6.1 (including
application and notice to the Secretary of State of South Dakota for change of
registered agent and address), all of which relate to indebtedness of the
Corporation included in the Financial Statements as of the Balance Sheet Date
or WCI shall indemnify the Shareholder and hold him harmless from and against
all losses, expenses or claims by third parties to enforce or collect
indebtedness owed by the Corporation as of the Closing Date which is personally
guaranteed by the Shareholder pursuant to such guaranties. The Shareholder may
notify the obligees under such guaranties that he has terminated his
obligations under such guaranties. The Shareholder shall cooperate with WCI in
obtaining such releases.
6.2 RELEASE OF SECURITY INTERESTS. On or after the Closing Date,
the Shareholder and his respective Affiliates shall cause those security
interests in the assets of the Corporation that have been created in favor of
financial institutions or other lenders to secure indebtedness (other than
indebtedness of the Corporation) of the Shareholder or his respective
Affiliates to be released in a manner reasonably satisfactory to WCI, and shall
cause all guaranties by the Corporation relating to the indebtedness of the
Shareholder to be released to the reasonable satisfaction of WCI.
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6.3 CONFIDENTIALITY. Neither the Corporation nor the Shareholder
shall disclose or make any public announcements of the transactions
contemplated by this Agreement without the prior written consent of WCI, unless
required to make such disclosure or announcement by law, in which event the
party making the disclosure or announcement shall notify WCI at least 24 hours
before such disclosure or announcement is expected to be made. WCI shall not
disclose or make any public announcement of the transactions contemplated by
this Agreement without the prior written consent of the Shareholder, unless in
connection with the initial public offering of WCI's Common Stock or otherwise
required to make such disclosure or announcement by law, in which event WCI
shall notify the Shareholder at least 24 hours before such disclosure or
announcement is expected to be made.
6.4 BROKERS AND FINDERS FEES. Each party shall pay and be
responsible for any broker's, finder's or financial advisory fee incurred by
such party in connection with the transactions contemplated by this Agreement.
6.5 TAXES. WCI shall reasonably cooperate, at the expense of the
Shareholder, with the Shareholder with respect to any matters involving the
Shareholder arising out of the Shareholder's ownership of the Corporation prior
to the Closing, including matters relating to tax returns and any tax audits,
appeals, claims or litigation with respect to such tax returns or the
preparation of such tax returns. In connection therewith, WCI shall safely
store, protect and make available to the Shareholder such files, documents,
books and records of the Corporation for inspection and copying as may be
reasonably requested by the Shareholder and shall cooperate with the
Shareholder with respect to retaining information and documents which relate to
such matters.
6.6 SHORT YEAR TAX RETURNS. After the Closing Date, the
Shareholder shall prepare at his sole cost and expense, all short year federal,
state, county, local and foreign tax returns required by law for the period
beginning with the first day of the Corporation's fiscal year in which the
Closing occurs and ending with the Closing Date. Each such return shall be
prepared in a financially responsible and conservative manner and shall be
delivered to WCI together with all necessary supporting schedules within 120
days following the Closing Date for its approval (but such approval shall not
relieve the Shareholder of his responsibility for the taxes assessed under
these returns). The Shareholder shall be responsible for the payment of all
taxes shown to be due or that may come to be due on such returns or otherwise
relating to the period prior to the Closing Date in excess of the amount of any
reserve for taxes included in Effective Date Current Liabilities. The
Shareholder shall also be responsible for all taxes arising from the conversion
of the Corporation from a cash to accrual basis of reporting whether or not due
on such returns or on the first return filed by the Corporation for the period
commencing after the Closing Date. At the time of the delivery of the returns,
shall contemporaneously deliver to WCI checks payable to the respective taxing
authorities in amounts equal to the amount due. WCI shall sign tax returns and
cause such returns to be timely filed with the appropriate authorities. The
Shareholder shall be entitled to receive all refunds shown on said returns and
any such refunds received by the Corporation or WCI shall be remitted to the
Shareholder.
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6.7 CERTAIN TAX MATTERS. The Shareholders acknowledge that WCI
may make an election under Section 338(h)(10) of the Internal Revenue Code of
1986, as amended. The Shareholders agree that WCI, in its discretion, may make
such election; provided, however, that such election shall be made no later
than the due date for such election. If such election is made by WCI:
(a) WCI shall be authorized to complete Form 8023-A;
(b) The Shareholders shall sign such completed Form
8023-A at the Closing; and
(c) WCI and the Shareholders shall agree upon the
allocation of the Purchase Price among the assets (including
intangible assets) of the Corporation.
(d) If WCI does make its election under Section
338(h)(10) of the Internal Revenue Code of 1986, as amended, WCI shall
reimburse the Shareholders and the Corporation for any additional
taxes, penalties, interest and costs of preparation of amended income
tax returns incurred due to such election resulting from the recapture
of depreciation previously taken on various assets of the Corporation
at ordinary income instead of capital gain rates. Such reimbursement
shall be in a sum computed by a simultaneous equation computing the
additional tax owed by stockholders, as well as the tax on the payment
of that sum.
6.8 RESERVED.
6.9 TITLE INSURANCE. The Shareholder shall arrange for an
irrevocable commitment from a title insurance company reasonably acceptable to
WCI to issue, within three business days after the Closing Date, a CLTA Owner's
Policy of title insurance for the Corporate Property, in an amount as shall be
reasonably agreed upon by the Shareholder and WCI, insuring fee simple title to
the Corporate Property in the Corporation, subject only to current real
property taxes and assessments, standard printed conditions and exceptions, and
such title exceptions as shall have been accepted in writing by WCI, and
containing such endorsements as WCI may reasonably require. The cost of such
title insurance shall be paid one-half by the Shareholder and one-half by WCI.
6.10 GENERAL RELEASE BY SHAREHOLDER. The Shareholder hereby fully
releases and discharges the Corporation and its directors, officers, agents and
employees from all rights, claims and actions, known or unknown, of any kind
whatsoever, which the Shareholder now has or may hereafter have against the
Corporation and its directors, officers, agents and employees, arising out of
or relating to events arising prior to or on the Closing Date, except (a) as
may be described in written contracts disclosed in Schedule 6.10 and expressly
described and specifically excepted from this release in Schedule 6.10, (b)
compensation as an employee of the Corporation for current periods expressly
described and excepted from such release on schedule 6.10, and (c) for the
obligations of the Corporation arising after the Closing Date under this
Agreement.
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Specifically, but not by way of limitation, the Shareholder waives any right of
indemnification, contribution or other recourse against the Corporation which
he now has or may hereafter have against the Corporation with respect to
representations, warranties or covenants made in this Agreement by the
Corporation.
The Shareholder hereby waives and relinquishes all rights and
benefits afforded by South Dakota Codified Laws ("SDCL") 20-7- 11, which states
as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS TO WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
The Shareholder understands and acknowledges the significance and consequence
of this waiver of SDCL 20-7-11 and nevertheless elects to, and does, release
those claims described in this Section 6.10, known or unknown, that he may have
now or in the future arising out of or relating to any event arising on or
prior to the date of this Agreement, except to the extent there exists
insurance coverage.
7. INDEMNIFICATION
7.1 INDEMNITY BY THE SHAREHOLDER. The Shareholder, subject to the
limitations set forth in Section 7.2, covenants and agrees that he and she will
indemnify and hold harmless WCI, the Corporation and their respective
directors, officers and agents and their respective successors and assigns
(collectively the "WCI INDEMNITEES"), from and after the date of this
Agreement, against any and all losses, damages, assessments, fines, penalties,
adjustments, liabilities, claims, deficiencies, costs, expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses
of investigation), expenditures, including, without limitation, any
"Environmental Site Losses" (as such term is hereinafter defined) identified by
a WCI Indemnitee in a Claims Notice (as defined in Section 7.4(a)), or asserted
by a WCI Indemnitee in litigation commenced against the Shareholder provided
that in either case any such Claims Notice shall be given or the litigation
commenced prior to the expiration of the applicable statute of limitations
(irrespective of the date of discovery), with respect to each of the following
contingencies (all, the "7.1 INDEMNITY EVENTS"):
(a) Any misrepresentation, breach of warranty, or
nonfulfillment of any agreement or covenant on the part of the
Shareholder or the Corporation pursuant to the terms of this Agreement
or any misrepresentation in or omission from any Exhibit, Schedule,
list, certificate, or other instrument furnished or to be furnished to
WCI pursuant to the terms of this Agreement, regardless of whether, in
the case of a breach of a representation or a warranty, WCI relied on
the truth of such representation or warranty or had any knowledge of
any breach thereof.
(b) The design, development, construction or operation
of any Facility or any
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other "Environmental Site" as hereinafter defined, or the installation
or operation of a UST during any period on or prior to the Closing
Date, in excess of the amount of liability with respect thereto, if
any, set forth on Part II of Schedule 3.8. As used in this Agreement,
"ENVIRONMENTAL SITE" shall mean any Facility, any UST and any other
waste storage, processing, treatment or disposal facility, and any
other business site or any other real property owned, leased,
controlled or operated by the Corporation or by any predecessor
thereof on or prior to the Closing Date. As used in this Agreement,
"ENVIRONMENTAL SITE LOSSES" shall mean any and all losses, damages
(including exemplary damages and penalties), liabilities, claims,
deficiencies, costs, expenses, and expenditures (including, without
limitation, expenses in connection with site evaluations, risk
assessments and feasibility studies) arising out of or required by an
interim or final judicial or administrative decree, judgment,
injunction, mandate, interim or final permit condition or restriction,
cease and desist order, abatement order, compliance order, consent
order, clean-up order, exhumation order, reclamation order or any
other remedial action that is required to be undertaken under federal,
state or local law in respect of operating activities on or affecting
any Facility, any UST or any other Environmental Site, including, but
not limited to (x) any actual or alleged violation of any law or
regulation respecting the protection of the environment, including,
but not limited to, RCRA and CERCLA or any other law or regulation
respecting the protection of the air, water and land and (y) any
remedies or violations, whether by a private or public action, alleged
or sought to be assessed as a consequence, directly or indirectly, of
any "Release" (as defined below) of pollutants (including odors) or
Hazardous Substances from any Facility, any UST or any other
Environmental Site resulting from activities thereat, whether such
Release is into the air, water (including groundwater) or land and
whether such Release arose before, during or after the Closing Date.
The term "RELEASE" as used herein means any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing into the ambient environment.
Notwithstanding anything in this paragraph to the contrary, it is
specifically understood and agreed that a Release composed solely of
Hazardous Substances contained in household waste lawfully disposed of
in a landfill during the time the Corporation owned and/or operated
such landfill does not constitute an Environmental Site Loss.
(c) All matters on Schedule 3.8 - Part II.
(d) All actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically,
but without limitation, reasonable attorneys' fees and expenses of
investigation) incident to any of the foregoing.
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7.2 LIMITATIONS ON SHAREHOLDER'S INDEMNITIES.
(a) Subject to the provisions of 7.2(b) hereof, the
obligations of the Shareholder to indemnify the WCI Indemnitees as provided in
Section 7.1 shall be equal to the amount by which the cumulative amount of all
such liabilities, claims, damages deficiencies, actions, suits, proceedings,
demands, assessments, adjustments, costs and expenses, expenditures and
Environmental Site Losses with respect to any or all 7.1 Indemnity Events
exceed $50,000 (the "GENERAL DEDUCTIBLE AMOUNT"); provided, that the amount of
any obligation of indemnity arising pursuant to Section 7.1(a) with respect to
any representation, warranty or covenant contained in Sections 3.1 through 3.5,
3.12(c), 3.18, 3.22 and 6.6 hereof and pursuant to Section 7.1(c) shall not be
subject to the General Deductible Amount.
(b) The maximum amount which WCI can recover as a result
of one or more 7.1 Indemnity Events shall not exceed:
(i) seventy-five percent (75%) of the Purchase
Price (as adjusted pursuant to Section 1.2(a) hereof) if the 7.1
Indemnity Event occurs during the time period from the Closing Date
to, and including, the first anniversary of the Closing Date;
(ii) sixty-five percent (65%) of the Purchase
Price (as adjusted pursuant to Section 1.2(a) hereof) if the 7.1
Indemnity Event occurs during the time period from the first
anniversary of the Closing Date to, and including, the second
anniversary of the Closing Date; and
(iii) sixty percent (60%) of the Purchase Price (as
adjusted pursuant to Section 1.2(a) hereof) if the Indemnity Event
occurs during the time period from the second anniversary of the
Closing Date to the third anniversary of the Closing Date.
(c) WCI shall use reasonable efforts to pursue any
insurance coverage it may have with respect to any matter resulting in a 7.1
Indemnity Event and shall apply any insurance recoveries it receives in
connection with any 7.1 Indemnity Event towards its recovery from the
Shareholder for such 7.1 Indemnity Event. Nothing herein shall require WCI
from pursuing any such insurance coverage prior to pursuing any claim against
the Shareholder.
7.3 INDEMNITY BY WCI. WCI, subject to the limitations set forth
in Section 7.4, covenants and agrees that it will indemnify and hold harmless
the Shareholder and their respective successors and assigns (collectively the
"SHAREHOLDER INDEMNITEES"), from and after the date of this Agreement, against
any and all losses, damages, assessments, fines, penalties, adjustments,
liabilities, claims, deficiencies, costs, expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation),
expenditures, including, without limitation, any Environmental Site Losses
identified by a Shareholder Indemnitee in a Claims Notice, or asserted by a
Shareholder Indemnitee in litigation commenced against WCI provided that in
either case any such Claims Notice shall be given or the litigation commenced
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prior to the expiration of the applicable statute of limitations (irrespective
of the date of discovery), with respect to each of the following contingencies
(all, the "7.3 INDEMNITY EVENTS"):
(a) Any misrepresentation, breach of warranty, or
nonfulfillment of any agreement or covenant on the part of WCI
pursuant to the terms of this Agreement or any misrepresentation in or
omission from any Exhibit, Schedule, list, certificate, or other
instrument furnished or to be furnished to the Shareholder pursuant to
the terms of this Agreement, regardless of whether, in the case of a
breach of a representation or a warranty, the Shareholder relied on
the truth of such representation or warranty or had any knowledge of
any breach thereof.
(b) The design, development, construction or operation of
any Facility or any other Environmental Site, or the installation or
operation of a UST during any period after the Closing Date, in excess
of the amount of liability with respect thereto, if any, set forth on
Part II of Schedule 3.8; provided, however, that WCI shall have no
obligation to indemnify any Shareholder Indemnitee under this section
7.3 if a 7.3 Indemnity Event is caused in whole or in part by a 7.1
Indemnity Event.
(c) All actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically,
but without limitation, reasonable attorneys' fees and expenses of
investigation) incident to any of the foregoing.
7.4 LIMITATIONS ON WCI'S INDEMNITIES.
(a) Subject to the provisions of 7.4(b) hereof, the
obligations of WCI to indemnify the Shareholder Indemnitees as provided in
Section 7.3 shall be equal to the amount by which the cumulative amount of all
such liabilities, claims, damages deficiencies, actions, suits, proceedings,
demands, assessments, adjustments, costs and expenses, expenditures and
Environmental Site Losses with respect to any or all 7.1 Indemnity Events
exceed the General Deductible Amount.
(b) The maximum amount which the Shareholder can recover
as a result of one or more 7.3 Indemnity Events shall not exceed:
(i) eighty percent (80%) of the Purchase Price
(as adjusted pursuant to Section 1.2(a) hereof) if the 7.3 Indemnity
Event occurs during the time period from the Closing Date to, and
including, the first anniversary of the Closing Date;
(ii) seventy percent (70%) of the Purchase Price
(as adjusted pursuant to Section 1.2(a) hereof) if the 7.3 Indemnity
Event occurs during the time period from the first anniversary of the
Closing Date to, and including, the second anniversary of the Closing
Date; and
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(iii) sixty-five percent (65%) of the Purchase
Price (as adjusted pursuant to Section 1.2(a) hereof) if the Indemnity
Event occurs during the time period from the second anniversary of the
Closing Date to the third anniversary of the Closing Date.
7.5 NOTICE OF INDEMNITY CLAIM.
(a) In the event that any claim ("CLAIM") is hereafter
asserted against or arises with respect to any WCI or Shareholder Indemnitee
(as applicable, an "Indemnitee") as to which such Indemnitee may be entitled to
indemnification hereunder, the Indemnitee shall notify the Shareholder (as
applicable collectively, the "INDEMNIFYING PARTY") in writing thereof (the
"CLAIMS NOTICE") within 20 days after (i) receipt of written notice of
commencement of any third party litigation against such Indemnitee, (ii)
receipt by such Indemnitee of written notice of any third party claim pursuant
to an invoice, notice of claim or assessment, against such Indemnitee, or (iii)
such Indemnitee becomes aware of the existence of any other event in respect of
which indemnification may be sought from the Indemnifying Party (including,
without limitation, any inaccuracy of any representation or warranty or breach
of any covenant). The Claims Notice shall describe the Claim and the specific
facts and circumstances in reasonable detail, and shall indicate the amount, if
known, or an estimate, if possible, of the losses that have been or may be
incurred or suffered by the Indemnitee.
(b) The Indemnifying Party may elect to defend any Claim
for money damages where the cumulative total of all Claims (including such
Claims) do not exceed the limit set forth in Section 7.2 at the time the Claim
is made, by the Indemnifying Party's own counsel; provided, however, the
Indemnifying Party may assume and undertake the defense of such a third party
Claim only upon written agreement by the Indemnifying Party that the
Indemnifying Party is obligated to fully indemnify the Indemnitee with respect
to such action. The Indemnitee may participate, at the Indemnitee's own
expense, in the defense of any Claim assumed by the Indemnifying Party.
Without the written approval of the Indemnitee, which approval shall not be
unreasonably withheld, the Indemnifying Party shall not agree to any compromise
of a Claim defended by the Indemnifying Party.
(c) If, within thirty (30) days of the Indemnifying
Party's receipt of a Claims Notice, the Indemnifying Party shall not have
provided the written agreement required by Section 7.3(b) and elected to defend
the Claim, the Indemnitee shall have the right to assume control of the defense
and/or compromise of such Claim, and the costs and expenses of such defense,
including reasonable attorneys' fees, shall be added to the Claim. The
Indemnifying Party shall promptly, and in any event within thirty (30) days
after demand therefor, reimburse the Indemnitee for the costs of defending the
Claim, including attorneys' fees and expenses.
(d) The party assuming the defense of any Claim shall
keep the other party reasonably informed at all times of the progress and
development of its or his defense of and compromise efforts with respect to
such Claim and shall furnish the other party with copies of all relevant
pleadings, correspondence and other papers. In addition, the parties to this
Agreement
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shall cooperate with each other and make available to each other and their
representatives all available relevant records or other materials required by
them for their use in defending, compromising or contesting any Claim. The
failure to timely deliver a Claims Notice or otherwise notify the Indemnifying
Party of the commencement of such actions in accordance with this Section 7.3
shall not relieve the Indemnifying Party from the obligation to indemnify
hereunder but only to the extent that the Indemnifying Party establishes by
competent evidence that it has been prejudiced thereby.
(e) In the event both the Indemnitee and the Indemnifying
Party are named as defendants in an action or proceeding initiated by a third
party, they shall both be represented by the same counsel (on whom they shall
agree), unless such counsel the Indemnitee, or the Indemnifying Party shall
determine that such counsel has a conflict of interest in representing both the
Indemnitee and the Indemnifying Party in the same action or proceeding and the
Indemnitee and the Indemnifying Party do not waive such conflict to the
satisfaction of such counsel.
7.6 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
representations and warranties of the parties contained in this Agreement and
in any certificate, Exhibit or Schedule delivered pursuant hereto, or in any
other writing delivered pursuant to the provisions of this Agreement (the
"REPRESENTATIONS AND WARRANTIES") and the liability of the party making such
Representations and Warranties for breaches thereof shall survive the
consummation of the transactions contemplated hereby. The parties hereto in
executing and delivering and in carrying out the provisions of this Agreement
are relying solely on the representations, warranties, Schedules, Exhibits,
agreements and covenants contained in this Agreement, or in any writing or
document delivered pursuant to the provisions of this Agreement, and not upon
any representation, warranty, agreement, promise or information, written or
oral, made by any persons other than as specifically set forth herein or
therein, including WCI's reliance on its knowledge of events pursuant to its
due diligence review of the Corporation.
7.7 NO EXHAUSTION OF REMEDIES OR SUBROGATION; RIGHT OF SET OFF.
The Shareholder waives any right to require any WCI Indemnitee to (i) proceed
against the Corporation; (ii) proceed against any other person; or (iii) pursue
any other remedy whatsoever in the power of any WCI Indemnitee. WCI may, but
shall not be obligated to, set off against any and all payments due the
Shareholder any amount to which any WCI Indemnitee is entitled to be
indemnified hereunder with respect to any 7.1 Indemnity Event. Such right of
set off shall be separate and apart from any and all other rights and remedies
that the Indemnities may have against Shareholder or his successors.
8. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDER AND WCI
8.1 RESTRICTIVE COVENANTS. As to the Corporation, the Shareholder
and his Affiliates acknowledge that (i) WCI, as the purchaser of the
Corporation's Stock, is and will be engaged in the same business as the
Corporation (the "BUSINESS"); (ii) the Shareholder and his Affiliates are
intimately familiar with the Business; (iii) the Business is currently
conducted in the States of
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South Dakota, Wyoming and Montana and WCI intends to continue the Business in
South Dakota and Washington and intends, by acquisition or otherwise, to expand
the Business into other geographic areas of South Dakota, Wyoming and Montana
where it is not presently conducted; (iv) the Shareholder and his Affiliates
have had access to trade secrets of, and confidential information concerning,
the Business; (v) the agreements and covenants contained in this Section 8.1
are essential to protect the Business and the goodwill being acquired; and (vi)
the Shareholder and his Affiliates have the means to support themselves and
their dependents other than by engaging in a business substantially similar to
the Business and the provisions of this Section 8 will not impair such ability.
The Shareholder covenants and agrees as set forth in (a), (b) and (c) below
with respect to the Corporation:
(a) NON-COMPETE. For a period commencing on the Closing
Date and terminating five years thereafter (the "RESTRICTED PERIOD"),
neither the Shareholder nor any of his Affiliates shall, anywhere in
the Cities of Spearfish, Lead, Belle Fourche, Deadwood, Newell and
Whitewood, South Dakota; the Counties of Lawrence, Perkins, Meade,
Butte, Harding, Pennington and Custer, South Dakota, the Counties of
Campbell, Crook and Westin, Wyoming, or Carter County, Montana, where
WCI or one of its subsidiaries owns or operates a business similar to
the Business (the "RESTRICTED COUNTIES"), directly or indirectly,
acting individually or as the owner, shareholder, partner, or employee
of any entity, (i) engage in the operation of a solid waste
collection, transporting, disposal and/or composting business,
transfer facility, recycling facility, materials recovery facility or
solid waste landfill; (ii) enter the employ of, or render any personal
services to or for the benefit of, or assist in or facilitate the
solicitation of customers for, or receive remuneration in the form of
salary, commissions or otherwise from, any business engaged in such
activities; (iii) as owner or lessor of real estate or personal
property, rent to lease any facility, equipment or other assets to any
business engaged in the same business as the Corporation; or (iv)
receive or purchase a financial interest in, make a loan to, or make a
gift in support of, any such business in any capacity, including,
without limitation, as a sole proprietor, partner, shareholder,
officer, director, principal, agent, trustee or lender; provided,
however, that the Shareholder may (x) retain all salvage rights
currently possessed by the Corporation in connection with the
operation of any rubble site; and (y) own, directly or indirectly,
solely as an investment, securities of any business traded on any
national securities exchange or NASDAQ, provided none of the
Shareholder is a controlling person of, or a member of a group which
controls, such business and further provided that the Shareholder does
not, in the aggregate, directly or indirectly, own 2% or more of any
class of securities of such business.
(b) CONFIDENTIAL INFORMATION. During the Restricted
Period and thereafter, the Shareholder and his Affiliates shall keep
secret and retain in strictest confidence, and shall not use for the
benefit of themselves or others, all data and information relating to
the Business ("CONFIDENTIAL INFORMATION"), including without
limitation, know-how, trade secrets, customer lists, supplier lists,
details of contracts, pricing policies, operational methods, marketing
plans or strategies, bidding information, practices,
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policies or procedures, product development techniques or plans, and
technical processes; provided, however, that the term "Confidential
Information" shall not include information that (i) is or becomes
generally available to the public other than as a result of disclosure
by the Shareholder or (ii) is general knowledge in the solid waste
handling and landfill business and not specifically related to the
Business.
(c) PROPERTY OF THE BUSINESS. All memoranda, notes,
lists, records and other documents or papers (and all copies thereof)
relating to the Business, including such items stored in computer
memories, on microfiche or by any other means, made or compiled by or
on behalf of the Shareholder or the Corporation or made available to
them relating to the Business, but excluding any materials (other than
the minute books of the Corporation) maintained by any attorneys for
the Corporation or the Shareholder prior to the Closing, are and shall
be the property of WCI and have been delivered or will be delivered or
made available to WCI at the Closing. The Shareholder has the right
on reasonable request to inspect and copy during normal business hours
any of such property relating to the Business.
(d) NON-SOLICITATION. Without the consent of WCI, which
may be granted or withheld by WCI in its discretion, the Shareholder
and his Affiliates shall not solicit any employees of the Corporation
to leave the employ of the Corporation and join the Shareholder or any
Affiliate in any business endeavor owned or pursued by the
Shareholder.
(e) NO DISPARAGEMENT. From and after the Closing Date,
the Shareholder shall not, in any way or to any person or entity or
governmental or regulatory body or agency, denigrate or derogate WCI
or any of its subsidiaries, or any officer, director or employee, or
any product or service or procedure of any such company whether or not
such denigrating or derogatory statements shall be true and are based
on acts or omissions which are learned by the Shareholder from and
after the date hereof or on acts or omissions which occur from and
after the date hereof, or otherwise. A statement shall be deemed
denigrating or derogatory to any person or entity if it adversely
affects the regard or esteem in which such person or entity is held by
investors, lenders or licensing, rating, or regulatory entities.
Without limiting the generality of the foregoing, the Shareholder
shall not, directly or indirectly in any way in respect of any such
company or any such directors or officers, communicate with, or take
any action which is adverse to the position of any such company with
any person, entity or governmental or regulatory body or agency who or
which has dealings or prospective dealings with any such company or
jurisdiction or prospective jurisdiction over any such company. This
paragraph does not apply to the extent that testimony is required by
legal process, provided that WCI has received not less than five days'
prior written notice of such proposed testimony.
8.2 RIGHTS AND REMEDIES UPON BREACH. If the Shareholder or any
Affiliate breaches, or threatens to commit a breach of, any of the provisions
of Section 8.1 herein (the "RESTRICTIVE COVENANTS"), WCI shall have the
following rights and remedies, each of which
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rights and remedies shall be independent of the others and severally
enforceable, and each of which is in addition to, and not in lieu of, any other
rights and remedies available to WCI at law or in equity:
(a) SPECIFIC PERFORMANCE. The right and remedy to have
the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened
breach of the Restrictive Covenants would cause irreparable injury to
WCI and that money damages would not provide an adequate remedy to
WCI. Accordingly, in addition to any other rights or remedies, WCI
shall be entitled to injunctive relief to enforce the terms of the
Restrictive Covenants and to restrain the Shareholder from any
violation thereof.
(b) ACCOUNTING. The right and remedy to require the
Shareholder to account for and pay over to WCI all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Shareholder as the result of any transactions
constituting a breach of the Restrictive Covenants.
(c) SEVERABILITY OF COVENANTS. The Shareholder
acknowledges and agrees that the Restrictive Covenants are reasonable
and valid in geographical and temporal scope and in all other
respects. If any court determines that any of the Restrictive
Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected
and shall be given full effect, without regard to the invalid
portions.
(d) BLUE-PENCILING. If any court determines that any of
the Restrictive Covenants, or any part thereof, is unenforceable
because of the duration or geographic scope of such provision, such
court shall reduce the duration or scope of such provision, as the
case may be, to the extent necessary to render it enforceable and, in
its reduced form, such provision shall then be enforced.
(e) ENFORCEABILITY IN JURISDICTION. WCI and the
Shareholder intend to and hereby confer jurisdiction to enforce the
Restrictive Covenants upon the courts of any jurisdiction within the
geographic scope of the Restrictive Covenants. If the courts of any
one or more of such jurisdictions hold the Restrictive Covenants
unenforceable by reason of the breadth of such scope or otherwise, it
is the intention of WCI and the Shareholder that such determination
not bar or in any way affect WCI's right to the relief provided above
in the courts of any other jurisdiction within the geographic scope of
the Restrictive Covenants as to breaches of such covenants in such
other respective jurisdictions, such covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and
independent covenants.
9. GENERAL
9.1 ADDITIONAL CONVEYANCES. Following the Closing, the
Shareholder and WCI shall
33
<PAGE> 35
each deliver or cause to be delivered at such times and places as shall be
reasonably agreed upon such additional instruments as WCI or the Shareholder
may reasonably request for the purpose of carrying out this Agreement. The
Shareholder and WCI and/or the Corporation will cooperate with one another on
and after the Closing Date in furnishing information, evidence, testimony and
other assistance in connection with any actions, proceedings or disputes of any
nature with respect to matters pertaining to all periods prior to the date of
this Agreement.
9.2 ASSIGNMENT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto, the successors or assigns of WCI
and the heirs, legal representatives or assigns of the Shareholder; provided,
however, that any such assignment shall be subject to the terms of this
Agreement and shall not relieve the assignor of its or his responsibilities
under this Agreement.
9.3 PUBLIC ANNOUNCEMENTS. Except as required by law, no party
shall make any public announcement or filing with respect to the transactions
provided for herein prior to the Closing Date without the prior consent of the
other parties hereto.
9.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
9.5 NOTICES. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given if in writing
and either delivered personally, sent by facsimile transmission or by air
courier service, or mailed by postage prepaid registered or certified U.S.
mail, return receipt requested, to the addresses designated below or such other
addresses as may be designated in writing by notice given hereunder, and shall
be effective upon personal delivery or facsimile transmission thereof or upon
delivery by registered or certified U.S. mail or one business day following
deposit with an air courier service:
If to the Shareholder: at his address set forth on Schedule 3.2
With a copy to: Thomas E. Brady, P.C.
Post Office Box 726
Spearfish, South Dakota 97783-0726
Facsimile: (605) 642-1480
If to WCI: Waste Connections, Inc.
2260 Douglas Boulevard, Suite 280
Roseville, California 95661
Attention: Ronald J. Mittelstaedt
Facsimile: (916) 772-2920
With a copy to: Robert D. Evans, Esq.
Shartsis, Friese & Ginsburg LLP
34
<PAGE> 36
One Maritime Plaza, 18th Floor
San Francisco, California 94111
Facsimile: (415) 421-2922
9.6 ATTORNEYS' FEES. In the event of any dispute or controversy
between WCI on the one hand and the Corporation or the Shareholder on the other
hand relating to the interpretation of this Agreement or to the transactions
contemplated hereby, the prevailing party shall be entitled to recover from the
other party reasonable attorneys' fees and expenses incurred by the prevailing
party. Such award shall include post-judgment attorney's fees and costs.
9.7 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of South Dakota without
regard to its conflict of laws provisions.
9.8 PAYMENT OF FEES AND EXPENSES. Whether or not the transactions
herein contemplated shall be consummated, each party hereto will pay its own
fees, expenses and disbursements incurred in connection herewith and all other
costs and expenses incurred in the performance and compliance with all
conditions to be performed hereunder (including, in the case of the
Shareholder, any such fees, expenses and disbursements paid or accrued by, or
charged to, the Corporation).
9.9 INCORPORATION BY REFERENCE. All Schedules and Exhibits
attached hereto are incorporated herein by reference as though fully set forth
at each point referred to in this Agreement.
9.10 CAPTIONS. The captions in this Agreement are for convenience
only and shall not be considered a part hereof or affect the construction or
interpretation of any provisions of this Agreement.
9.11 NUMBER AND GENDER OF WORDS; CORPORATION. Whenever the
singular number is used herein, the same shall include the plural where
appropriate, and shall apply to all of such number, and to each of them,
jointly and severally, and words of any gender shall include each other gender
where appropriate.
9.12 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Exhibits hereto) and the other documents delivered pursuant hereto constitute
the entire Agreement and understanding between the Corporation, the Shareholder
and WCI and supersedes any prior agreement and understanding relating to the
subject matter of this Agreement. This Agreement may be modified or amended
only by a written instrument executed by the Corporation, the Shareholder and
WCI acting through its officers, thereunto duly authorized by its Board of
Directors.
9.13 WAIVER. No waiver by any party hereto at any time of any
breach of, or compliance with, any condition or provision of this Agreement to
be performed by any other
35
<PAGE> 37
party hereto may be deemed a waiver of similar or dissimilar provisions or
conditions at the same time or at any prior or subsequent time.
9.14 CONSTRUCTION. The language in all parts of this Agreement
must be in all cases construed simply according to its fair meaning. Unless
expressly set forth otherwise, all references herein to a "day" are deemed to
be a reference to a calendar day. All references to "BUSINESS DAY" mean any
day of the year other than a Saturday, Sunday or a public or bank holiday in
South Dakota or California. Unless expressly stated otherwise,
cross-references herein refer to provisions within this Agreement and are not
references to the overall transaction or to any other document.
36
<PAGE> 38
10. GLOSSARY
The definitions of the terms used below can be found at the Section
indicated:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Affiliate Section 3.11
Balance Sheet Date Section 3.7
Business Section 8.1
business day Section 9.14
Claim Section 7.3
Claims Notice Section 7.3(a)
Closing Section 2
Closing Date Section 2
Closing Date Debt Section 3.22(a)
Closing Date Current Assets Section 3.22(b)
Closing Date Current Liabilities Section 3.22(b)
Collection Franchises Section 3.10(a)
Confidential Information Section 8.1(b)
Corporate Property Section 3.12(b)
Corporation Parties
Corporation Debt Section 1.2(c)
Corporation's Stock Second Recital
Environmental Laws Section 3.24
Environmental Site Section 7.1(b)
Environmental Site Losses Section 7.1
Environmental Site Losses Section 7.1(b)
Ewing Parties
ERISA Section 3.17(a)
Excluded Assets Section 1.5
Facility Section 3.10(c)
Facilities Section 3.10(c)
Facility Property Section 3.10(c)(iii)
Facility Surveys/Site Plans Section 3.10(c)(iii)
Financial Statements Section 3.7
General Deductible Amount Section 7.2(a)
Governmental Permits Section 3.10(a)
Hazardous Material Section 3.24(e)
Hazardous Waste Section 3.24(e)
Indemnifying Party Section 7.3(a)
7.1 Indemnity Events Section 7.1
7.3 Indemnity Events Section 7.3
knowledge Section 3.36
Laws
</TABLE>
37
<PAGE> 39
<TABLE>
<S> <C>
Note Section 1.2(b)
Permitted Liens Section 3.12(c)
Purchase Price Section 1.1
RCRA Section 3.24(a)
Recipient Section 3.17(c)
Records, Notifications and Reports Section 3.10(b)
Release Section 7.1(b)
Representations and Warranties Section 7.4
Restricted Counties Section 8.1(a)
Restricted Period Section 8.1(a)
Restrictive Covenants Section 8.2
Required Governmental Consents Section 3.10(a)
SEC Section 3.38(g)
Shareholder Parties
Shareholder Debt Section 1.2(c)
Shareholder Indemnitees Section 7.3
UST Section 3.26
WCI Indemnitees Section 7.1
WCI Parties
</TABLE>
38
<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
persons thereunto duly authorized as of the date first above written.
WCI: WASTE CONNECTIONS, INC.
By: ___________________________________
Ronald J. Mittelstaedt
Chief Executive Officer & President
THE CORPORATION: SUNSHINE SANITATION, INCORPORATED
By: ___________________________________
Robert E. Ewing
President
THE SHAREHOLDER:
_______________________________________
Robert E. Ewing
_______________________________________
Sherry D. Ewing
39
<PAGE> 41
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. PURCHASE OF CORPORATION'S STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Shares to be Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Allocation of the Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. CLOSING TIME AND PLACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE SHAREHOLDER . . . . . . . . . . . . . 3
3.1 Organization, Standing and Qualification . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3 All Stock Being Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.4 Authority for Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.5 No Breach or Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.8 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.9 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.10 Permits and Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.11 Certain Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.12 Fixed Assets and Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.13 Acquisition/Disposal of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.14 Contracts and Agreements; Adverse Restrictions . . . . . . . . . . . . . . . . . . . . . 9
3.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.16 Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.17 Benefit Plans and Union Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.18 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.19 Copies Complete; Required Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.20 Customers, Billings, Current Receipts and Receivables . . . . . . . . . . . . . . . . . 12
3.21 No Change With Respect to the Corporation . . . . . . . . . . . . . . . . . . . . . . . 12
3.22 Closing Date Debt; Closing Date Current Assets and Closing Date Current Liabilities . . 14
3.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.24 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.25 Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.26 Underground Storage Tanks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.27 Patents, Trademarks, Trade Names, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.28 Assets, etc., Necessary to Business . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
i
<PAGE> 42
<TABLE>
<S> <C> <C>
3.29 Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.30 Suppliers and Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.31 Absence of Certain Business Practices . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.32 Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.33 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.34 No Misleading Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.35 Accurate and Complete Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.36 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.37 Brokers; Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4. REPRESENTATIONS AND WARRANTIES OF WCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.1 Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.2 No Contractual Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.3 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.4 No Misleading Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.5 Brokers; Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.6 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5. CLOSING DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.1 WCI Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.2 Shareholder Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6. ADDITIONAL COVENANTS OF WCI, THE CORPORATION AND THE SHAREHOLDER . . . . . . . . . . . . . . . . 21
6.1 Release of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.2 Release of Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.3 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.4 Brokers and Finders Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.5 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.6 Short Year Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.7 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.10 General Release by Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.1 Indemnity by the Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.2 Limitations on Shareholder's Indemnities . . . . . . . . . . . . . . . . . . . . . . . . 26
7.3 Indemnity by WCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.4 Limitations on WCI's Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.5 Notice of Indemnity Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
ii
<PAGE> 43
<TABLE>
<S> <C> <C>
7.6 Survival of Representations, Warranties and Agreements . . . . . . . . . . . . . . . . . 29
7.7 No Exhaustion of Remedies or Subrogation; Right of Set Off . . . . . . . . . . . . . . . 29
8. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDER AND WCI . . . . . . . . . . . . . . . . . . . . 29
8.1 Restrictive Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.2 Rights and Remedies Upon Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.1 Additional Conveyances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.3 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.6 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.7 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.8 Payment of Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.9 Incorporation by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.10 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.11 Number and Gender of Words; Corporation . . . . . . . . . . . . . . . . . . . . . . . . 34
9.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.13 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.14 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10. GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
iii
<PAGE> 1
EXHIBIT 10.25
STOCK PURCHASE AGREEMENT
Dated as of May 8, 1998, by and among
Waste Connections, Inc.
Sowers' Sanitation, Inc.
James C. Sowers
Mildred A. Sowers
<PAGE> 2
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of May 8, 1998, is entered into by
and among Waste Connections, Inc., a Delaware corporation ("WCI"), Sowers'
Sanitation, Inc., a South Dakota corporation (the "CORPORATION"), and James C.
Sowers ("CLARK") and Mildred A. Sowers (collectively, the "SHAREHOLDERS").
WHEREAS, the Corporation is engaged in the collection and transport of
solid waste and recyclables in the Cities of Deadwood, Whitewood, Nisland and
Central City, South Dakota, the unincorporated areas of Lawrence County, South
Dakota and Butte County, South Dakota and other related activities;
WHEREAS, the Shareholders own all of the issued and outstanding
capital stock of the Corporation (the "CORPORATION'S STOCK");
WHEREAS, WCI wishes to acquire from the Shareholders all of the
Corporation's Stock;
WHEREAS, concurrent with the execution of this Agreement, WCI, as
lessee, and the Shareholders, as lessor (the "LESSOR"), will enter into a Lease
(the "LEASE") of certain real estate located in Deadwood, South Dakota, used in
the Corporation's business;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto, each intending to be bound hereby, agree as
follows:
1. PURCHASE OF CORPORATION'S STOCK
1.1 SHARES TO BE PURCHASED. At the Closing (as defined in Section
2), the Shareholders shall sell and deliver to WCI all of the issued and
outstanding shares of the Corporation's Stock, being the number of shares of
the Corporation set forth on Schedule 3.2 opposite each Shareholder's name. At
the Closing, WCI shall purchase the Corporation's Stock and in exchange
therefor shall deliver to the Shareholders at the Closing or thereafter as
provided by this Agreement the purchase price described in Section 1.2 (the
"PURCHASE PRICE").
1.2 PURCHASE PRICE. The Purchase Price is:
(a) six hundred thousand dollars ($600,000), (i) minus
the Closing Date Debt (as defined in Section 3.22(a)), and (ii) plus
or minus, as the case may be, the amount by which the Closing Date
Current Assets (as defined in Section 3.22(b)) are greater or less
than the Closing Date Current Liabilities (as defined in Section
3.22(b)). The $600,000 minus the Closing Date Debt shall be payable
to the Shareholders at Closing in cash by
1
<PAGE> 3
wire transfer or check payable in clearinghouse funds. Within 120
days after the Closing Date, WCI shall perform all necessary
calculations, adjustments and other acts necessary to convert the
Corporation from a cash to accrual basis of financial reporting, and
then, based on such accrual method, WCI shall determine the actual
Closing Date Debt. If the difference between the actual amount and
the estimated amount provided at the Closing Date of Closing Date Debt
results in an increase in the amount that should have been paid at the
Closing over the amount that was so paid, WCI shall promptly pay such
amount to the Shareholder; if the result is a decrease in the amount
that should have been paid at the Closing from the amount that was so
paid, the Shareholders shall promptly pay such amount to WCI. In
addition, within 120 days after the Closing Date, WCI shall determine
the actual Closing Date Current Assets and Closing Date Current
Liabilities. If the Closing Date Current Assets are greater than the
Closing Date Current Liabilities, WCI shall promptly pay the
difference between the two amounts to the Shareholder; if the Closing
Date Current Liabilities are greater than the Closing Date Current
Assets, the Shareholders shall promptly the difference between the two
amounts to WCI;
(b) 27,272 shares (the "SHARES") of the WCI's Common
Stock, $0.01 par value (the "WCI STOCK"), which shall be delivered by
WCI to the Shareholders at the Closing;
(c) At the Closing, WCI shall deliver to the Shareholders
a Promissory Note (the "SHAREHOLDER NOTE") in the aggregate principal
amount of two hundred fifty thousand dollars ($250,000), which
Shareholder Note shall be payable in three equal annual installments
of eighty-three thousand three hundred thirty-three dollars ($83,333)
each. These annual installments shall be paid on the first, second
and third anniversaries of the Closing Date. The Shareholder Note
shall be non-interest bearing and shall be secured by a lien on all of
the assets of the Corporation;
(d) At the Closing, WCI shall deliver to Clark a
Promissory Note (the "CLARK NOTE") in the aggregate principal amount
of one hundred fifteen thousand five hundred dollars ($115,500), which
Clark Note shall be payable in thirty-six equal monthly installments
of three thousand two hundred eight dollars and thirty-three cents
($3,208.33) each. These monthly installments shall be paid on the
same day of each month as the date on which the Closing Date occurs;
and
(e) If a Shareholder owes the Corporation money
("SHAREHOLDER DEBT") and the Corporation owes a Shareholder money
("CORPORATION DEBT"), the amount by which the Shareholder Debt exceeds
the Corporation Debt will be deducted from the Purchase Price payable
to that Shareholder or the amount by which the Corporation Debt
exceeds the Shareholder Debt will be added to the Purchase Price
payable to that Shareholder and the remaining Corporation Debt and
Shareholder Debt shall be cancelled.
1.3 PRICE PROTECTION FOR SHARES OF THE WCI STOCK. If the gross
offering price of the WCI Stock in the IPO (as defined below), before
underwriting discounts and commissions and
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payment of expenses of the offering (the "IPO PRICE"), is less than nine
dollars ($9.00) per share, WCI will, within 15 days after the closing of the
IPO, issue to Seller a number of additional shares of the WCI Stock determined
by multiplying (x) the difference between the IPO Price and nine dollars
($9.00) and (y) 27,272 shares and dividing that product by the IPO price. In
lieu of issuing any fractional shares, WCI shall pay cash to Seller an amount
equal to the fraction of a share that would have been delivered times the IPO
Price. For purposes of this agreement, "IPO" means a public offering of the
WCI Stock registered under the Securities Act of 1933 (the "ACT") and sold
through underwriters pursuant to a firm commitment in the amount of at least
five million dollars at an IPO Price of at least five dollars ($5.00) per
share. If the closing of the IPO shall not have occurred by July 31, 1998,
Seller may, at its option exercised no later than August 15, 1998, by written
notice to WCI, cause WCI to repurchase all or any portion of the WCI Stock
issued to Seller for eleven dollars ($11.00) per share, payable by wire
transfer to the account of Seller. Promptly upon exercise of such option,
Seller and WCI shall arrange for a closing of the sale of such WCI Stock, such
closing to occur no later than August 31, 1998.
1.4 ALLOCATION OF THE PURCHASE PRICE. Ten thousand dollars
($10,000) of the Purchase Price shall be allocated to the covenant not to
compete as described in Section 8.1(a) hereof, and the balance of the Purchase
Price shall be allocated to the Corporation's Stock.
1.5 EXCLUDED ASSETS. The Assets of the Corporation listed on
Schedule 1.5 (the "EXCLUDED ASSETS") shall be distributed to the Shareholders
prior to the Closing, and WCI shall acquire no interest in or claim to any of
the Excluded Assets.
2. CLOSING TIME AND PLACE
Subject to the terms and conditions of this Agreement, the closing of
the transactions contemplated herein (the "CLOSING") shall take place
concurrent with the execution of this Agreement or on such date as WCI and the
Shareholders' Representative shall agree (the "CLOSING DATE"). The Closing
shall take place through an exchange of consideration and signed documents by
facsimile, to be promptly followed by an exchange of documents bearing original
signatures by overnight courier service. At the Closing, WCI, the Corporation
and the Shareholders shall deliver to each other the documents, instruments and
other items described in Section 5 of this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE SHAREHOLDERS
The Corporation and the Shareholders, jointly and severally, (i)
represent and warrant that each of the following representations and warranties
is true as of the Closing Date, and (ii) agree that such representations and
warranties shall survive the Closing.
3.1 ORGANIZATION, STANDING AND QUALIFICATION. The Corporation is
duly organized, validly existing and in good standing under the laws of the
State of South Dakota. The
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Corporation has full corporate power and authority to own and lease its
properties and to carry on its business as now conducted. The Corporation is
not required to be qualified or licensed to conduct business as a foreign
corporation in any other jurisdiction.
3.2 CAPITALIZATION. Schedule 3.2 sets forth, as of the Closing
Date, the authorized and outstanding capital of the Corporation, the names,
addresses and social security numbers or taxpayer identification numbers of the
record and beneficial owners thereof, the number of shares so owned, the
allocation of the cash and Shares among the Shareholders as agreed to among
themselves, and wire transfer instructions for each Shareholder relating to the
bank account to which the Purchase Price should be sent. On the Closing Date,
all of the issued and outstanding shares of the capital stock of the
Corporation are owned of record and beneficially by the Shareholders, as set
forth in Schedule 3.2, and are free and clear of all liens, security interests,
encumbrances and claims of every kind except as set forth in Schedule 3.2.
Each share of the capital stock of the Corporation is duly and validly
authorized and issued, fully paid and nonassessable, and was not issued in
violation of any preemptive rights of any past or present shareholder of the
Corporation. No option, warrant, call, conversion right or commitment of any
kind (including any of the foregoing created in connection with any
indebtedness of the Corporation) exists which obligates the Corporation to
issue any of its authorized but unissued capital stock or other equity interest
or which obligates any Shareholder to transfer the Corporation's Stock to any
person.
3.3 ALL STOCK BEING ACQUIRED. The Corporation's Stock being
acquired by WCI hereunder constitutes all of the outstanding capital stock of
the Corporation.
3.4 AUTHORITY FOR AGREEMENT. The Corporation and each of the
Shareholders have full right, power and authority to enter into this Agreement
and to perform its, his or her obligations hereunder. The execution and
delivery of this Agreement by the Corporation and the consummation of the
transactions contemplated hereby by the Corporation have been duly authorized
by its Board of Directors. This Agreement has been duly and validly executed
and delivered by the Corporation and each of the Shareholders and, subject to
the due authorization, execution and delivery by WCI, constitutes the legal,
valid and binding obligation of the Corporation and each of the Shareholders
enforceable against each of them in accordance with its terms.
3.5 NO BREACH OR DEFAULT. Except as disclosed on Schedule 3.5,
the execution and delivery by the Corporation and the Shareholders of this
Agreement, and the consummation by the Shareholders of the transactions
contemplated hereby, will not:
(a) result in the breach of any of the terms or
conditions of, or constitute a default under, or allow for the
acceleration or termination of, or in any manner release any party
from any obligation under, any mortgage, lease, note, bond, indenture,
or material contract, agreement, license or other instrument or
obligation of any kind or nature to which the Corporation or any of
the Shareholders is a party, or by which the Corporation or any of the
Shareholders, or any of its or their assets, is or may be bound
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or affected; or
(b) violate any law or any order, writ, injunction or
decree of any court, administrative agency or governmental authority,
or require the approval, consent or permission of any governmental or
regulatory authority; or
(c) violate the Articles of Incorporation or Bylaws of
the Corporation.
3.6 SUBSIDIARIES. Schedule 3.6 lists as of the Closing Date any
and all subsidiaries of the Corporation and any securities of any other
corporation or any securities or other interest in any other business entity
owned by the Corporation or any of its subsidiaries.
3.7 FINANCIAL STATEMENTS. The Corporation has delivered to WCI,
as Schedule 3.7, copies of financial statements ("FINANCIAL STATEMENTS") for
its three most recent fiscal years, compiled by Lang & Spidel and unaudited
interim financial statements for the Corporation, prepared by David Pummel &
Associates, Certified Public Accountants, for the period ended January 31, 1998
(the "BALANCE SHEET DATE"). The Financial Statements are true and correct and
fairly present (i) the financial position of the Corporation as of the
respective dates of the balance sheets included in said statements, and (ii)
the results of operations for the respective periods indicated. Except to the
extent reflected or reserved against in the Corporation's balance sheet as of
the Balance Sheet Date, or as disclosed on Schedule 3.7 or Schedule 3.8, the
Corporation had as of the Balance Sheet Date, and has as of the Closing Date,
no liabilities of any nature, whether accrued, absolute, contingent or
otherwise, including, without limitation, tax liabilities due or to become due.
3.8 LIABILITIES. Parts I, II, III and IV of Schedule 3.8, are
accurate lists and descriptions of all liabilities of the Corporation required
to be described below in the format set forth below.
(a) Part I of Schedule 3.8 lists, as of the Closing Date,
other than with respect to trade payables and as of the end of the
month prior to the Closing Date with respect to trade payables, all
indebtedness for money borrowed and all other fixed and uncontested
liabilities of any kind, character and description (excluding all real
and personal property leasehold interests included in Part IV of
Schedule 3.8), whether reflected or not reflected on the Financial
Statements and whether accrued or absolute, and states as to each such
liability the amount of such liability and to whom payable. From the
date as of which information is provided with respect to trade
payables, trade payables have been incurred only in the ordinary
course of business consistent with comparable prior periods.
(b) Part II of Schedule 3.8 lists, as of the Closing
Date, all claims, suits and proceedings which are pending against the
Corporation, all contingent liabilities, and, to the knowledge of the
Corporation and the Shareholders, all contingent liabilities and all
claims, suits and proceedings threatened or anticipated against the
Corporation. Part II of Schedule 3.8 includes a summary description
of each such liability, including, without
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limitation, (A) the name of each court, agency, bureau, board or body
before which any such claim, suit or proceeding is pending, (B) the
date such claim, suit or proceeding was instituted, (C) the parties to
such claim, suit or proceeding, (D) a brief description of the factual
basis alleged to underlie such claim, suit or proceeding, including
the date or dates of all material occurrences, and (E) the amount
claimed and other relief sought, together with copies of all material
documents, reports and other records relating thereto to the extent
that they are in the Corporation's or the Shareholders' possession or
control.
(c) Part III of Schedule 3.8 list, as of the Closing Date
and to the extent not otherwise included in Part I of Schedule 3.8,
all liens, claims and encumbrances secured by or otherwise affecting
any asset of the Corporation (including any Corporate Property, as
hereafter defined), including a description of the nature of such
lien, claim or encumbrance, the amount secured if it secures a
liability, the nature of the obligation secured, and the party holding
such lien, claim or encumbrance.
(d) Part IV of Schedule 3.8 lists, as of the Closing Date
and to the extent not otherwise included in Part I or Part III of
Schedule 3.8, all real and personal property leasehold interests to
which the Corporation is a party as lessor or lessee or, to the
knowledge of the Corporation or the Shareholders, affecting or
relating to any Corporate Property, and includes a description of the
nature and principal terms of such leasehold interest, including,
without limitation, the identity of the other party thereto, the term
of such leasehold interest (including renewal options), the base rent
and any additional rent owing thereunder (including any adjustments
thereto), security deposits, rights of first offer or first refusal,
purchase options, and restrictions on transfer.
Except as described on the applicable part of Schedule 3.8,
neither the Corporation nor any of the Shareholders has made any payment or
committed to make any payment since the Balance Sheet Date on or with respect
to any of the liabilities or obligations listed on Schedule 3.8 except, in the
case of liabilities and obligations listed on Parts I, III and IV of Schedule
3.8, periodic payments required to be made under the terms of the agreements or
instruments governing such obligations or liabilities or made in the ordinary
course of business. Between the Balance Sheet Date and the Closing Date, trade
payables have been incurred only in the ordinary course of business consistent
with comparable prior periods.
3.9 CONDUCT OF BUSINESS. Except as set forth on Schedule 3.21,
since the Balance Sheet Date:
(a) The business of the Corporation has been conducted
only in the ordinary course; and
(b) There has been no change in the condition (financial
or otherwise) of the assets, liabilities or operations of the
Corporation other than changes in the ordinary course of business,
none of which either singly or in the aggregate has been materially
adverse.
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3.10 PERMITS AND LICENSES.
(a) Schedule 3.10(a) is a full and complete list, and
includes copies, of all material permits, licenses, franchises, and
service agreements pursuant to which the Corporation is authorized to
collect and haul industrial, commercial and residential solid waste
(the "COLLECTION FRANCHISES"), and of all other material permits,
licenses, titles (including motor vehicle titles and current
registrations), fuel permits, zoning and land use approvals and
authorizations, including, without limitation, any conditional or
special use approvals or zoning variances, occupancy permits, and any
other similar documents constituting a material authorization or
entitlement or otherwise material to the operation of the business of
the Corporation (collectively the "GOVERNMENTAL PERMITS") owned by,
issued to, held by or otherwise benefitting the Corporation or the
Shareholders as of the Closing Date. The status of the Governmental
Permits related to the disposal areas owned or used by the
Corporation, including, without limitation, any conditions thereto
and, if applicable, the expiration dates thereof, are also described
in Schedule 3.10(a). Schedule 3.10(a) also sets forth the name of any
governmental agency or other third party from whom the Shareholders,
the Corporation or WCI must obtain consent (the "REQUIRED GOVERNMENTAL
CONSENTS") in order to effect a direct or indirect transfer of the
Collection Franchises or other Governmental Permits required as a
result of the consummation of the transactions contemplated by this
Agreement. All such consents have been obtained. Except as set forth
on Schedule 3.10(a), all of the Collection Franchises and other
Governmental Permits enumerated and listed on Schedule 3.10(a) are
adequate for the operation of the business of the Corporation and of
each Corporate Property as presently operated and are valid and in
full force and effect. All of said Collection Franchises and other
Governmental Permits and agreements have been duly obtained and are in
full force and effect, and there are no proceedings pending or, to the
knowledge of the Corporation or the Shareholders, threatened which may
result in the revocation, cancellation, suspension or adverse
modification of any of the same. Neither the Corporation nor any of
the Shareholders has any knowledge of any reason why all such
Governmental Permits and agreements will not remain in effect after
consummation of the transactions contemplated hereby.
(b) Schedule 3.10(b) includes: (i) all records,
notifications, reports, permit and license applications, engineering
and geologic studies, and environmental impact reports, tests or
assessments (collectively, "RECORDS, NOTIFICATIONS AND REPORTS") that
(A) are material to the operation of the business of the Corporation,
or (B) relate to the discharge or release of materials into the
environment and/or the handling or transportation of waste materials
or hazardous or toxic substances or otherwise relate to the protection
of the public health or the environment, or (C) were filed with or
submitted to appropriate governmental agencies during the past 24
months by the Corporation or any of the Shareholders or their agents
with respect to the business of the Corporation, and (ii) all material
notifications from such governmental agencies to the Corporation, the
Shareholders or their agents in response to or relating to any of such
Records,
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Notifications and Reports.
(c) Schedule 3.10(c) lists, as of the Closing Date, each
facility owned, leased, operated or otherwise used by the Corporation,
the ownership, lease, operation or use of which is being transferred
to, assumed by or otherwise acquired directly or indirectly by WCI
pursuant to this Agreement (each, a "FACILITY" and collectively, the
"FACILITIES"). Except as otherwise disclosed on Schedule 3.10(c):
(i) Each Facility is fully licensed, permitted
and authorized to carry on its current business under all
applicable federal, state and local statutes, orders,
approvals, zoning or land use requirements, rules and
regulations, and no Facility or the current use thereof
constitutes a non-conforming use or is otherwise subject to
any restrictions regarding the operation, renovation or
reconstruction thereof.
(ii) All activities and operations at each
Facility are being and have been conducted in compliance in
all material respects with the requirements, criteria,
standards and conditions set forth in all applicable federal,
state and local statutes, orders, approvals, permits, zoning
or land use requirements and restrictions, variances,
licenses, rules and regulations.
(iii) Each Facility is located on real property
owned or leased by the Corporation (each a "FACILITY
PROPERTY") and each Facility Property owned by the Corporation
is legally described on the preliminary title reports, surveys
or site plans attached to Schedule 3.10(c) (the "FACILITY
SURVEYS/SITE PLANS"), which accurately depict the respective
Facility Property.
(iv) There are no circumstances, conditions or
reasons which are likely to be the basis for revocation or
suspension of any Facility's site assessments, permits,
licenses, consents, authorizations, zoning or land use
permits, variances or approvals relating to any Facility owned
by the Corporation or owned by any of the Shareholders or an
Affiliate (as hereinafter defined) of any of the Shareholders
and leased to the Corporation, and to the knowledge of the
Corporation and the Shareholders there are no circumstances,
conditions or reasons which are likely to be the basis for
revocation or suspension of any site assessment, permits,
licenses, consents, authorizations, zoning or land use
permits, variances or approvals relating to any Facility.
3.11 CERTAIN RECEIVABLES. Schedule 3.11 is an accurate list as of
the Closing Date of the accounts and notes receivable of the Corporation from
and advances to employees, former employees, officers, directors, the
Shareholders and Affiliates of the foregoing which have not been repaid. For
purposes of this Agreement, the term "AFFILIATE" means, with respect to any
person, any person that directly or indirectly through one or more
intermediaries controls or has an ownership interest in, or is controlled or
owned in whole or in part by, or is under common control or ownership in whole
or in part with such person, and in the case of the Corporation
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includes directors and officers, in the case of individuals includes the
individual's spouse, father, mother, grandfather, grandmother, brothers,
sisters, children and grandchildren and in the case of a trust includes the
grantors, trustees and beneficiaries of the trust.
3.12 FIXED ASSETS AND REAL PROPERTY.
(a) Schedule 3.12(a) lists, as of the Closing Date,
substantially all the fixed assets (other than real estate) of the
Corporation, including, without limitation, identification of each
vehicle by description and serial number, identification of machinery,
equipment and general descriptions of parts, supplies and inventory.
Except as described on Schedule 3.12(a), all of the Corporation's
containers, vehicles, machinery and equipment necessary for the
operation of its business are in operable condition, and all of the
motor vehicles and other rolling stock of the Corporation are in
material compliance with all applicable laws, rules and regulations.
All such containers, vehicles, machinery and equipment are
substantially free of known defects that would cause them to fail.
All leases of fixed assets are in full force and effect and binding
upon the parties thereto; neither the Corporation nor, to the
knowledge of the Corporation or the Shareholders, any other party to
such leases is in breach of any of the material provisions thereof.
(b) Each parcel of real property leased, owned or being
purchased by the Corporation as of the Closing Date (the "CORPORATE
PROPERTY"), including the street address and, in the case of Corporate
Property owned or being purchased, the legal description thereof, is
listed on Schedule 3.12(b) - Part I, and attached to said Schedule
3.12(b) - Part I are copies of all leases, deeds, outstanding
mortgages, other encumbrances and any existing title insurance
policies or lawyer's title opinions relating to each Corporate
Property, as well as a current commitment for title insurance issued
by a title insurance company satisfactory to WCI with respect to each
Corporate Property owned or being purchased by the Corporation,
together with copies of all of the title exceptions referred to in
each such commitment. All leases listed on Schedule 3.12(b) - Part I
are in full force and effect and binding on the parties thereto;
neither the Corporation nor any other party to any such lease is in
breach of any of the material provisions thereof; the landlord's
interest in any such lease has not been assigned to any third party
nor has any such interest been mortgaged, pledged or hypothecated; and
the Corporation has not assigned any such lease or sublet all or any
part of the Corporate Property which is the subject of any such lease.
Except as described on Schedule 3.12(b) - Part II, there are no
material physical or mechanical defects in any Facility located on any
Corporate Property and each such Facility is in good condition and
repair.
(c) The Corporation has good, valid and marketable title
to all properties and assets, real, personal, and mixed, tangible and
intangible, actually used or necessary for the conduct of its
business, free of any encumbrance or charge of any kind except: (i)
liens for current taxes not yet due; (ii) minor imperfections of title
and encumbrances, if any, that are not substantial in amount, do not
materially reduce the value or impair the
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use of the property subject thereto, do not materially impair the
value of the Corporation, and have arisen only in the ordinary course
of business and consistent with past practice; and (iii) the liens
identified on Part III of Schedule 3.8 (collectively, the "PERMITTED
LIENS"). Except as described on Schedule 3.12(b) - Part I, there are
no leases, occupancy agreements, options, rights of first refusal or
any other agreements or arrangements, either oral or written, that
create or confer in any person or entity the right to acquire, occupy
or possess, now or in the future, any Facility, any Corporate
Property, or any portion thereof, or create in or confer on any person
or entity any right, title or interest therein or in any portion
thereof.
3.13 ACQUISITION/DISPOSAL OF ASSETS. Except as indicated on
Schedule 3.13, since the Balance Sheet Date, the Corporation has not acquired
or sold or otherwise disposed of any properties or assets which, singly or in
the aggregate, have a value in excess of $10,000, or which are material to the
operation of the Corporation's business as presently conducted, without the
prior written consent of WCI.
3.14 CONTRACTS AND AGREEMENTS; ADVERSE RESTRICTIONS.
(a) Schedule 3.14(a) lists, as of the Closing Date, and
includes copies of, all material contracts and agreements (other than
leases and documents included with Schedule 3.12(b)) to which the
Corporation is a party or by which it or any of its property is bound
(including, but not limited to, joint venture or partnership
agreements, contracts with any labor organizations, promissory notes,
loan agreements, bonds, mortgages, deeds of trust, liens, pledges,
conditional sales contracts or other security agreements). Except as
disclosed on Schedule 3.14(a), all such contracts and agreements
included in Schedule 3.14(a) are in full force and effect and binding
upon the parties thereto. Except as described or cross referenced on
Schedule 3.14(a), neither the Corporation nor, to the Corporation's or
any of the Shareholder's knowledge, any other parties to such
contracts and agreements is in breach thereof, and none of the parties
has threatened to breach any of the material provisions thereof or
notified the Corporation or any of the Shareholders of a default
thereunder, or exercised any options thereunder.
(b) Except as set forth on Schedule 3.14(b), there is no
outstanding judgment, order, writ, injunction or decree against the
Corporation, the result of which could materially adversely affect the
Corporation or its business or any of the Corporate Properties, nor
has the Corporation been notified that any such judgment, order, writ,
injunction or decree has been requested.
3.15 INSURANCE. Schedule 3.15 is a complete list and includes
copies, as of the Closing Date, of all insurance policies in effect on the
Closing Date or, with respect to "occurrence" policies that were in effect,
carried by the Corporation in respect of the Corporate Properties or any other
property used by the Corporation specifying, for each policy, the name of the
insurer, the type of risks insured, the deductible and limits of coverage, and
the annual premium therefor. The Corporation currently carries insurance in
the type and amount ordinarily carried by owners
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or corporations in similar circumstances, in respect to the Corporation
properties, assets and business. WCI shall continue to maintain insurance
policies at least equivalent to coverages currently carried by the Corporation
and shall use reasonable efforts to designate James C. Sowers and Mildred A.
Sowers as additional insureds. During the last five years, there has been no
lapse in any material insurance coverage of the Corporation. For each insurer
providing coverage for any of the contingent or other liabilities listed on
Schedule 3.8, except to the extent otherwise set forth in Part II of Schedule
3.8, each such insurer, if required, has been properly and timely notified of
such liability, no reservation of rights letters have been received by the
Corporation and the insurer has assumed defense of each suit or legal
proceeding. All such proceedings are fully covered by insurance, subject to
normal deductibles.
3.16 PERSONNEL. Schedule 3.16 is a complete list, as of the
Closing Date, of all officers, directors and employees (by type or
classification) of the Corporation and their respective rates of compensation,
including (i) the portions thereof attributable to bonuses, (ii) any other
salary, bonus, stock option, equity participation, or other compensation
arrangement made with or promised to any of them, and (iii) copies of all
employment agreements with non-union officers, directors and employees.
Schedule 3.16 also lists the driver's license number for each driver of the
Corporation's motor vehicles.
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3.17 BENEFIT PLANS AND UNION CONTRACTS.
(a) Schedule 3.17(a) is a complete list as of the Closing
Date, and includes complete copies (or, in the case of oral
arrangements, descriptions), of all employee benefit plans and
agreements (written or oral) currently maintained or contributed to by
the Corporation, including employment agreements and any other
agreements containing "golden parachute" provisions, retirement plans,
welfare benefit plans and deferred compensation agreements, together
with copies of such plans, agreements and any trusts related thereto,
and classifications of employees covered thereby as of the Closing
Date. Except for the employee benefit plans described on Schedule
3.17(a), the Corporation has no other pension, retirement, welfare,
profit sharing, deferred compensation, stock option, employee stock
purchase or other employee benefit plans or arrangements with any
party. Except as disclosed on Schedule 3.17(a), all employee benefit
plans listed on Schedule 3.17(a) are fully funded and in substantial
compliance with all applicable federal, state and local statutes,
ordinances and regulations. All such plans that are intended to
qualify under Section 401(a) of the Internal Revenue Code have been
determined by the Internal Revenue Service to be so qualified, and
copies of such determination letters are included as part of Schedule
3.17(a). Except as disclosed on Schedule 3.17(a), all reports and
other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not
limited to, actuarial reports, audits or tax returns) have been timely
filed or distributed, and copies thereof are included as part of
Schedule 3.17(a). All employee benefit plans listed on such Schedule
have been operated in accordance with the terms and provisions of the
plan documents and all related documents and policies. The
Corporation has not incurred any liability for excise tax or penalty
due to the Internal Revenue Service or U.S. Department of Labor nor
any liability to the Pension Benefit Guaranty Corporation for any
employee benefit plan, nor has the Corporation, nor party-in-interest
or disqualified person, engaged in any transaction or other activity
which would give rise to such liability. The Corporation has not
participated in or made contributions to any "multi-employer plan" as
defined in the Employee Retirement Income Security Act of 1974
("ERISA"), nor would the Corporation or any affiliate be subject to
any withdrawal liability with respect to such a plan if any such
employer withdrew from such a plan immediately prior to the Closing
Date. No employee pension benefit plan is under funded on a
termination basis as of the date of this Agreement.
(b) Schedule 3.17(b) is a complete list, as of the
Closing Date, and includes complete copies of all union contracts and
agreements between the Corporation and any collective bargaining
group. The Corporation is in compliance in all material respects with
all applicable federal and state laws respecting employment and
employment practices, terms and conditions of employment, wages and
hours, and nondiscrimination in employment, and is not engaged in any
unfair labor practice. There is no charge pending or, to the
Corporation's or the Shareholders' knowledge, threatened, against the
Corporation before any court or agency and alleging unlawful
discrimination in
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employment practices and there is no charge of or proceeding with
regard to any unfair labor practice against it pending before the
National Labor Relations Board. There is no labor strike, dispute,
slow down or stoppage as of the Closing Date, existing or threatened
against the Corporation; no union organizational activity exists
respecting employees of the Corporation not currently subject to a
collective bargaining agreement; the union contracts or other
agreements delivered as part of Schedule 3.17(b) constitute all
agreements with the unions or other collective bargaining groups, and
there are no other arrangements or established practices relating to
the employees covered by any collective bargaining agreement; and
Schedule 3.17(b) contains as of the date it is delivered a list of all
arbitration or grievance proceedings that have occurred since the
Balance Sheet Date. No one has petitioned within the last five years,
and no one is now petitioning, for union representation of any
employees of the Corporation. The Corporation has not experienced any
labor strike, slow-down, work stoppage, labor difficulty or other job
action during the last five years.
(c) No payment made to any employee, officer, director or
independent contractor of the Corporation (the "RECIPIENT") pursuant
to any employment contract, severance agreement or other arrangement
(the "Golden Parachute Payment") will be nondeductible by the
Corporation because of the application of Sections 280G and 4999 of
the Code to the Golden Parachute Payment, nor will the Corporation be
required to compensate any Recipient because of the imposition of an
excise tax (including any interest or penalties related thereto) on
the Recipient by reason of Sections 280G and 4999 of the Code.
3.18 TAXES.
(a) The Corporation has timely filed all requisite
federal, state, local and other tax and information returns due for
all fiscal periods ended on or before the Closing Date. All such
returns are accurate and complete. Except as set forth on Schedule
3.18, there are no open years (other than those within the statute of
limitations), examinations in progress, extensions of any statute of
limitations or claims against the Corporation relating to federal,
state, local or other taxes (including penalties and interest) for any
period or periods prior to and including the Closing Date and no
notice of any claim for taxes has been received. Copies of (i) any
tax examinations, (ii) extensions of statutory limitations and (iii)
the federal income, and state franchise, income and sales tax returns
of the Corporation for its last three fiscal years are attached as
part of Schedule 3.18. Copies of all other federal, state, local and
other tax and information returns for all prior years of the
Corporation's existence have been made available to WCI and are among
the records of the Corporation which will accrue to WCI at the
Closing. The Corporation has not been contacted by any federal, state
or local taxing authority regarding a prospective examination.
(b) Except as set forth on Schedule 3.18 (which schedule
also includes the amount due with respect to the Corporation) the
Corporation has duly paid all taxes and
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other related charges required to be paid prior to the Closing Date.
The reserves for taxes contained in the Financial Statements of the
Corporation are adequate to cover its tax liability as of the Closing
Date.
(c) The Corporation has withheld all required amounts
from its employees for all pay periods in full and complete compliance
with the withholding provisions of applicable federal, state and local
laws. All required federal, state and local and other returns with
respect to income tax withholding, social security, and unemployment
taxes have been duly filed by the Corporation for all periods for
which returns are due, and the amounts shown on all such returns to be
due and payable have been paid in full.
3.19 COPIES COMPLETE; REQUIRED CONSENTS. Except as disclosed on
Schedule 3.19, the certified copies of the Articles of Incorporation and Bylaws
of the Corporation, both as amended to the Closing Date, and the copies of all
leases, instruments, agreements, licenses, permits, certificates or other
documents that have been delivered to WCI in connection with the transactions
contemplated hereby are complete and accurate as of the Closing Date and are
true and correct copies of the originals thereof. Except as specifically
disclosed on Schedule 3.19, the rights and benefits of the Corporation will not
be adversely affected by the transactions contemplated hereby, and the
execution of this Agreement and the performance of the obligations hereunder
will not violate or result in a breach or constitute a default under any of the
terms or provisions thereof. None of such leases, instruments, agreements,
licenses, permits, site assessments, certificates or other documents requires
notice to, or consent or approval of, any governmental agency or other third
party to any of the transactions contemplated hereby, except the Required
Governmental Consents, such consents and approvals as are listed on Schedule
3.19; all of which will have been given or obtained prior to the Closing.
3.20 CUSTOMERS, BILLINGS, CURRENT RECEIPTS AND RECEIVABLES.
Schedule 3.20 is a current, accurate and complete list of, and includes:
(a) the customers the Corporation serves on an ongoing
basis, including name, location and current billing rate, as of the
Closing Date;
(b) an accurate and complete aging of all accounts and
notes receivable from customers as of the last day of the month
preceding the month in which such Schedule is delivered, showing
amounts due in 30-day aging categories. Except to the extent of the
allowance for bad debts reflected on the Financial Statements or
otherwise disclosed on Schedules 3.11 and 3.20, the Corporation's
accounts and notes receivable are collectible in the amounts shown on
Schedules 3.11 and 3.20; and
(c) the average monthly revenues of the Corporation
derived from billings to its customers for each of the twelve months
preceding the Closing Date. Except as set forth on Schedule 3.20, the
Corporation and the Shareholders have no knowledge of any reason why
the Corporation's average monthly revenues derived from billings to
its customers after the Closing Date should not continue at
approximately the same rate as
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before the Closing Date.
3.21 NO CHANGE WITH RESPECT TO THE CORPORATION. Except as set
forth on Schedule 3.21, since the Balance Sheet Date, the business of the
corporation has been conducted only in the ordinary course and there has been
no change in the condition (financial or otherwise) of the assets, liabilities
or operations of the Corporation other than changes in the ordinary course of
business, none of which either singly or in the aggregate has been materially
adverse. Specifically, and without limiting the generality of the foregoing,
except as set forth on Schedule 3.21, with respect to the Corporation, since
the Balance Sheet Date, there has not been:
(a) any material change in its financial condition,
assets, liabilities (contingent or otherwise), income, operations or
business which would have a material adverse effect on the financial
condition, assets, liabilities (contingent or otherwise), income,
operations or business of the Corporation, taken as a whole;
(b) any material damage, destruction or loss (whether or
not covered by insurance) adversely affecting any material portion of
its properties or business;
(c) any change in or agreement to change (i) its
shareholders, (ii) ownership of its authorized capital or outstanding
securities, or (iii) its securities;
(d) any declaration or payment of, or any agreement to
declare or pay, any dividend or distribution in respect of its capital
stock or any direct or indirect redemption, purchase or other
acquisition of any of its capital stock;
(e) any material increase or bonus or promised increase
or bonus in the compensation payable or to become payable by it, in
excess of usual and customary practices, to any of its directors,
officers, employees or agents, or any accrual or arrangement for or
payment of any bonus or other special compensation to any employee or
any severance or termination pay paid to any of its present or former
officers or other key employees;
(f) any labor dispute or any other event or condition of
any character with respect to the Corporation's employees, materially
adversely affecting its business or future prospects;
(g) any sale or transfer, or any agreement to sell or
transfer, any of its material assets, property or rights to any other
person, including, without limitation, the Shareholders and their
Affiliates, other than in the ordinary course of business;
(h) any cancellation, or agreement to cancel, any
material indebtedness or other material obligation owing to it,
including, without limitation, any indebtedness or obligation of any
of the Shareholders or any Affiliate thereof;
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(i) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of its
assets, property or rights or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or any agreement,
plan or arrangement to purchase or acquire, any of its property,
rights or assets outside the ordinary course of its business;
(k) any waiver of any of its material rights or claims;
(l) any new or any amendment or termination of any
existing material contract, agreement, license, permit or other right
to which it is a party;
(m) any other material transaction outside the ordinary
course of its business.
3.22 CLOSING DATE DEBT; CLOSING DATE CURRENT ASSETS AND CLOSING
DATE CURRENT LIABILITIES.
(a) Schedule 3.22(a) is as of the Closing Date (i) the
amount of the aggregate debt (excluding trade payables) of the
Corporation outstanding on the Closing Date required to be repaid by
WCI at or immediately after the Closing Date and all prepayment
penalties incurred or to be incurred by WCI or the Corporation in
connection with the repayment of any such debt, (ii) the amount of the
aggregate debt (excluding trade payables) of the Corporation
outstanding on the Closing Date which will remain outstanding
obligations of the Corporation after the Closing Date, and all
prepayment penalties applicable to such debt if repaid prior to
maturity, including in each case all interest accrued through and
including the Closing Date, (iii) the aggregate amount of the present
value, discounted at the lease rate factor, if known, inherent in the
lease or, if the lease rate factor is not known, at the rate charged
to the Corporation by a third party lender in connection with its most
recent borrowing to finance equipment, of all lease obligations of the
Corporation that are not capitalized lease obligations and (iv) the
aggregate amount of the present value of all capitalized lease
obligations (determined in accordance with generally accepted
accounting principles) of the Corporation (the "CLOSING DATE DEBT").
Schedule 3.22(a) includes wire transfer instructions for creditors
whose Closing Date Debt WCI has designated for payment, and attached
to Schedule 3.22(a) are pay-off letters or instructions from such
creditors in the form provided by WCI's bank.
(b) Schedule 3.22(b) is an estimate as of the Closing
Date of the amount of the aggregate current liabilities (including any
reserve for unpaid taxes and excluding the current portion of
long-term debt to the extent such current portion is included in
Closing Date Debt) and trade payables of the Corporation as of the
Closing Date (the "CLOSING DATE CURRENT LIABILITIES") and the amount
of the aggregate cash and other current assets of the Corporation as
of the Closing Date, including prepaid expenses the benefit of
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which survives the Closing Date and the accounts receivable of the
Corporation earned prior to the Closing Date, and collectible (less an
allowance for doubtful accounts) on or after the Closing Date (the
"CLOSING DATE CURRENT ASSETS"). The Corporation and the Shareholder
expressly acknowledge that in arriving at the Closing Date Current
Assets, accounts receivable owed to the Corporation that are
outstanding sixty (60) days or less prior to the Closing Date are
valued at one hundred percent (100%) of their amount, accounts
receivable outstanding sixty-one (61) to ninety (90) days prior to the
Closing Date are valued at forty percent (40%) of their amount, and
that any amounts outstanding more than ninety (90) days prior to the
Closing Date are valued at zero.
3.23 BANK ACCOUNTS.
(a) Schedule 3.23(a) is a complete and accurate list, as
of the Closing Date, of:
(i) the name of each bank in which the
Corporation has accounts or safe deposit boxes;
(ii) the name(s) in which the accounts or boxes
are held;
(iii) the type of account; and
(iv) the name of each person authorized to draw
thereon or have access thereto.
(b) Schedule 3.23(b) is a complete and accurate list, as
of the Closing Date, of:
(i) each credit card or other charge account
issued to the Corporation; and
(ii) the name of each person to whom such credit
cards or other charge accounts have been issued.
3.24 COMPLIANCE WITH LAWS. Except as disclosed on Schedule 3.24,
the Corporation has complied with, and the Corporation is presently in
compliance with, federal, state and local laws, ordinances, codes, rules,
regulations, Governmental Permits, orders, judgments, awards, decrees, consent
judgments, consent orders and requirements applicable to it (collectively
"LAWS"), including, but not limited to, the Americans with Disabilities Act,
the Federal Occupational Safety and Health Act, and Laws relating to the public
health, safety or protection of the environment (collectively, "ENVIRONMENTAL
LAWS"). Except as disclosed on Schedule 3.24, there has been no assertion by
any party that the Corporation is in violation of any Laws. Specifically and
without limiting the generality of the foregoing, except as disclosed on
Schedule 3.24:
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(a) Except as permitted under applicable laws and
regulations, including, without limitation, the federal Resource
Conservation Recovery Act, 42 USC Section 6901 et seq. ("RCRA"), the
Corporation has not accepted, processed, handled, transferred,
generated, treated, stored or disposed of any Hazardous Material (as
defined in Section 3.24(e) below) nor has it accepted, processed,
handled, transferred, generated, treated, stored or disposed of
asbestos, medical waste, radioactive waste or municipal waste, except
in compliance with Environmental Laws.
(b) During the Corporation's ownership or leasing of the
Corporate Property owned or leased by it and, to the knowledge of the
Corporation and the Shareholders, prior to the Corporation's ownership
or leasing of such Corporate Property, no Hazardous Material, other
than that allowed under Environmental Laws, including, without
limitation, RCRA, has been disposed of, or otherwise released on any
Corporate Property.
(c) During the Corporation's ownership or leasing of the
Corporate Property owned or leased by it and, to the knowledge of the
Corporation and the Shareholders, prior to the Corporation's ownership
or leasing of such Corporate Property, no Corporate Property has ever
been subject to or received any notice of any private, administrative
or judicial action, or notice of any intended private, administrative
or judicial action relating to the presence or alleged presence of
Hazardous Material in, under, upon or emanating from any Corporate
Property or any real property now or previously owned or leased by the
Corporation. There are no pending and, to the Corporation's and
Shareholders' knowledge, no threatened actions or proceedings from any
governmental agency or any other entity involving remediation of any
condition of the Corporate Property, including, without limitation,
petroleum contamination, pursuant to Environmental Laws.
(d) Except as allowed under Environmental Laws, the
Corporation has not knowingly sent, transported or arranged for the
transportation or disposal of any Hazardous Material, to any site,
location or facility.
(e) As used in this Agreement, "HAZARDOUS MATERIAL" means
the substances (i) defined as "HAZARDOUS WASTE" in 40 CFR 261, and
substances defined in any comparable South Dakota statute or
regulation; (ii) any substance the presence of which requires
remediation pursuant to any Environmental Laws; and (iii) any
substance disposed of in a manner not in compliance with Environmental
Laws.
3.25 POWERS OF ATTORNEY. The Corporation has not granted any power
of attorney (except routine powers of attorney relating to representation
before governmental agencies) or entered into any agency or similar agreement
whereby a third party may bind or commit the Corporation in any manner.
3.26 UNDERGROUND STORAGE TANKS. Except as set forth on
Schedule 3.26, no
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underground storage tanks containing petroleum products or wastes or other
hazardous substances regulated by 40 CFR 280 or Environmental Laws are
currently or have been located on any Corporate Property. Except as set forth
on Schedule 3.26, the Corporation has never owned or leased any real property
not included in the Corporate Property having any underground storage tanks
containing petroleum products or wastes or other hazardous substances regulated
by 40 CFR 280. As to each such underground storage tank ("UST") identified on
Schedule 3.26, the Corporation has provided to WCI, on Schedule 3.26:
(a) the location of the UST, information and material,
including any available drawings and photographs, showing the
location, and whether the Corporation currently owns or leases the
property on which the UST is located (and if the Corporation does not
currently own or lease such property, the dates on which it did and
the current owner or lessee of such property);
(b) the date of installation and specific use or uses of
the UST;
(c) copies of tank and piping tightness tests and
cathodic protection tests and similar studies or reports for each UST;
(d) a copy of each notice to or from a governmental body
or agency relating to the UST;
(e) other material records with regard to the UST,
including, without limitation, repair records, financial assurance
compliance records and records of ownership; and
(f) to the extent not otherwise set forth pursuant to the
above, a summary description of instances, past or present, in which,
to the Corporation's, or the Shareholders' knowledge, the UST failed
to meet applicable standards and regulations for tightness or
otherwise and the extent of such failure, and any other operational or
environmental problems with regard to the UST, including, without
limitation, spills, including spills in connection with delivery of
materials to the UST, releases from the UST and soil contamination.
Except to the extent set forth on Schedule 3.26, the Corporation has
complied with Environmental Laws regarding the installation, use, testing,
monitoring, operation and closure of each UST described on Schedule 3.26.
3.27 PATENTS, TRADEMARKS, TRADE NAMES, ETC. Schedule 3.27 lists
all patents, tradenames, fictitious business names, trademarks, service marks,
and copyrights owned by the Corporation or which it is licensed to use (other
than licenses to use software for personal computer operating systems that were
provided when the computer was purchased and licenses to use software for
personal computers that are granted to retail purchasers of such software). No
patents, trade secrets, know-how, intellectual property, trademarks, trade
names, assumed
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names, copyrights, or designations used by the Corporation in its business
infringe on any patents, trademarks, or copyrights, or any other rights of any
person. Neither the Corporation nor any of the Shareholders knows or has any
reason to believe that there are any claims of third parties to the use of any
such names or any similar name, or knows of or has any reason to believe that
there exists any basis for any such claim or claims.
3.28 ASSETS, ETC., NECESSARY TO BUSINESS. The Corporation owns or
leases all properties and assets, real, personal, and mixed, tangible and
intangible, and, except as disclosed on Schedules 3.5, 3.10(a), 3.10(c),
3.14(a) and 3.19, is a party to all Collection Franchises and Governmental
Permits and other agreements necessary to permit it to carry on its business as
presently conducted. All of said Collection Franchises and Governmental
Permits and agreements have been duly obtained and, except as disclosed on
Schedules 3.5, 3.8-Part II, 3.10(a), 3.10(c) 3.14(a) and 3.19, are in full
force and effect and there are no proceedings pending or threatened which may
result in the revocation, cancellation, suspension or adverse modification of
any of the same. Neither the Corporation nor any of the Shareholders has any
knowledge of any reason why all such Collection Franchises and Governmental
Permits and agreements will not remain in effect after consummation of the
transactions contemplated hereby.
3.29 CONDEMNATION. No Corporate Property owned or leased by the
Corporation is the subject of, or would be affected by, any pending
condemnation or eminent domain proceedings, and, to the knowledge of the
Corporation and the Shareholders, no such proceedings are threatened.
3.30 SUPPLIERS AND CUSTOMERS. The relations between the
Corporation and its customers are good. Neither the Corporation nor any of the
Shareholders has knowledge of any fact (other than general economic and
industry conditions) which indicates that any of the suppliers supplying
products, components, materials or providing use of, or access to, landfills or
disposal sites to the Corporation intends to cease providing such items to the
Corporation, nor does the Corporation or any of the Shareholders have knowledge
of any fact (other than general economic and industry conditions) which
indicates that any of the customers of the Corporation intends to terminate,
limit or reduce its business relations with the Corporation.
3.31 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the
Corporation nor any of the Shareholders has directly or indirectly within the
past five years given or agreed to give any gift or similar benefit to any
customer, supplier, governmental employee or other person who is or may be in a
position to help or hinder the business of the Corporation in connection with
any actual or proposed transaction which (a) might subject the Corporation to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding, (b) if not given in the past, might have had an adverse effect on
the financial condition, business or results of operations of the Corporation,
or (c) if not continued in the future, might adversely affect the financial
condition, business or operations of the Corporation or which might subject the
Corporation to suit or penalty in any private or governmental litigation or
proceeding.
3.32 RELATED PARTY TRANSACTIONS. None of the Shareholders or their
respective
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Affiliates has entered into any transaction with or is a party to any
agreement, lease or other instrument, or as of the date of this Agreement is
indebted to or is owed money by, the Corporation not disclosed on the Financial
Statements delivered to WCI prior to the date of this Agreement. Except as
disclosed in the Financial Statements, none of the Shareholders or their
Affiliates owns any direct or indirect interest of any kind in, or controls or
is a director, officer, employee, shareholder or partner of, or consultant or
lender to or borrower from or has the right to participate in the profits of,
any Person which is a competitor, supplier, customer, landlord, tenant,
creditor or debtor of the Corporation.
3.33 DISCLOSURE SCHEDULES. Any matter disclosed on any Schedule to
this Agreement shall be deemed to have been disclosed on every other Schedule
that refers to such Schedule by cross reference so long as the nature of the
matter disclosed is obvious from a fair reading of the Schedule on which the
matter is disclosed.
3.34 NO MISLEADING STATEMENTS. The representations and warranties
of the Corporation and the Shareholders contained in this Agreement, the
Exhibits and Schedules hereto and all other documents and information furnished
to WCI and its representatives pursuant hereto are complete and accurate in all
material respects and do not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements made and to be
made not misleading.
3.35 ACCURATE AND COMPLETE RECORDS. The corporate minute books,
stock ledgers, books, ledgers, financial records and other records of the
Corporation:
(a) have been made available to WCI and its agents at the
Corporation's offices or at the offices of WCI's attorneys or the
Corporation's attorneys;
(b) have been, in all material respects, maintained in
accordance with all applicable laws, rules and regulations; and
(c) are accurate and complete, reflect all material
corporate transactions required to be authorized by the Boards of
Directors and/or shareholders of the Corporation and do not contain or
reflect any material discrepancies.
3.36 KNOWLEDGE. Wherever reference is made in this Agreement to
the "KNOWLEDGE" of the Shareholders, such term means the actual knowledge of
the Shareholders or any knowledge which should have been obtained by the
Shareholders upon reasonable inquiry by a reasonable business person. In the
case of a Shareholder that is a trust, the term "knowledge" means the actual
knowledge of the trustee or trustees of the trust or any knowledge which should
have been obtained by the trustee or trustees upon reasonable inquiry by a
reasonable business person. Wherever reference is made in this Agreement to
the "knowledge" of the Corporation, such term means the actual knowledge of any
management employee, officer or director of the Corporation or any knowledge
which should have been obtained by any such person upon reasonable inquiry by a
reasonable business person.
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3.37 BROKERS; FINDERS. No person has acted directly or indirectly
as a broker, finder or financial advisor for the Corporation or the
Shareholders in connection with the transactions contemplated by this Agreement
and no person is entitled to any broker's, finder's, financial advisory or
similar fee or payment in respect thereof based in any way on any agreement,
arrangement or understanding made by or on behalf of the Corporation or the
Shareholders.
3.38 INVESTMENT REPRESENTATIONS. The Shareholders further
represent that:
(a) Each of the Shareholders has such knowledge and
experience in financial matters, either alone or with the
Shareholder's professional advisors, that he or she is capable of
evaluating the merits and risks of the investment in the Shares.
(b) Each is a resident of the State of South Dakota.
(c) Each of the Shareholders has had access to such
information relating to WCI as such Shareholder feels is reasonably
necessary to make an informed investment decision with respect to the
Shares.
(d) Each of the Shareholders has had the opportunity to
ask questions and receive answers concerning the terms and conditions
of the transactions contemplated by this Agreement and to obtain
additional information that WCI possesses or can obtain without
unreasonable effort or expense that is necessary to verify the
accuracy of the information provided.
(e) Each of the Shareholders is acquiring the Shares
pursuant to this Agreement for its own account, not as a nominee or
agent. No one else has any interest, beneficial or otherwise, in any
of the Shares.
(f) Each of the Shareholders is able to bear the economic
risk of such an investment in the Shares is aware that he, she or it
must be prepared to hold such Shares for an indefinite period and is
aware that the Shares have not been registered under the Act, or
registered or qualified under the securities laws of any state, on the
ground, among others, that no unregistered distribution or public
offering of Shares is to be effected and the Shares are being issued
by WCI without any public offering within the meaning of section 4(2)
of the Act.
(g) Without in any way limiting the representations
herein, each of the Shareholders further agrees that such Shareholder
shall not encumber, pledge, hypothecate, sell, transfer, assign or
otherwise dispose of, or receive any consideration for, any Shares or
any interest in them, unless and until prior to any proposed
encumbrance, pledge, hypothecation, sale, transfer, assignment or
other disposition, (i) a registration statement on Form S-1 or S-3 (or
any other form appropriate for the purpose or replacing such form)
under the Act with respect to the shares proposed to be
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transferred or otherwise disposed of shall be then effective (ii)(a)
he, she or it shall have furnished WCI with a detailed statement of
the circumstances of the proposed disposition, and (b) he, she or it
shall have furnished WCI with an opinion of counsel or no-action
letter issued by the Staff of the Securities and Exchange Commission
("SEC") (obtained at the Shareholders' expense) in form and substance
satisfactory to WCI to the effect that such disposition will not
require registration of any such Shares under the Act or qualification
of any such Shares under any other securities law; or (iii) Rule 144
is available with respect to such transaction.
(h) Each of the Shareholders understands and agrees that
each certificate or other instrument representing the Shares will bear
a legend on the face thereof (or on the reverse thereof with a
reference to such legend on the face thereof) which legend restricts
the sale, transfer or other disposition of the Shares otherwise than
in accordance with Sections 3.38(g) of this Agreement provided,
however, that WCI shall, on the request of any of the Shareholders,
cause such legends to be removed from the certificates or other
instrument evidencing the Shares if such Shareholder has held such
Shares for the period contemplated by Rule 144(k) under the Act and if
the Shareholder is not then and has not been during the three months
preceding such request an affiliate of WCI (as defined in Rule 144
under the Act).
(i) Each of the Shareholders understands and agrees that
the Shares will be "restricted securities" as that term is defined in
Rule 144 under the Act and, accordingly, that the Shares must be held
indefinitely unless subsequently registered under the Act or an
exemption from such registration is available.
(j) The Shareholders agree to be bound with respect to
the Shares by any "lock up" provisions to which the executive officers
and directors of WCI are also bound as may be requested by any
underwriters of any offering of WCI Stock or securities convertible
into WCI Stock.
4. REPRESENTATIONS AND WARRANTIES OF WCI
WCI represents and warrants to the Shareholders that each of the
following representations and warranties is true as of the date of this
Agreement and will be true as of the Closing Date, and agrees that such
representations and warranties shall survive the Closing:
4.1 EXISTENCE AND GOOD STANDING. WCI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. WCI has full corporate power and authority to own and lease its
properties and to carry on its business as now conducted. WCI is not required
to be qualified or licensed to conduct business as a foreign corporation in any
jurisdiction where the failure to be so qualified would have a material adverse
effect on its financial condition.
4.2 NO CONTRACTUAL RESTRICTIONS. No provisions exist in any article,
document or
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instrument to which WCI is a party or by which it is bound which would be
violated by consummation of the transactions contemplated by this Agreement.
4.3 AUTHORIZATION OF AGREEMENT. This Agreement has been duly
authorized, executed and delivered by WCI and, subject to the due
authorization, execution and delivery by the Corporation and the Shareholders,
constitutes a legal, valid and binding obligation of WCI. WCI has full
corporate power, legal right and corporate authority to enter into and perform
its obligations under this Agreement and to carry on its business as presently
conducted. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby and the fulfillment of and compliance
with the terms and conditions hereof do not and will not, after the giving of
notice, or the lapse of time or otherwise: (a) violate any provisions of any
judicial or administrative order, award, judgment or decree applicable to WCI;
(b) conflict with any of the provisions of the Amended and Restated Certificate
of Incorporation or Amended and Restated Bylaws of WCI; or (c) conflict with,
result in a breach of or constitute a default under any material agreement or
instrument to which WCI is a party or by which it is bound.
4.4 STATUS OF SHARES. The Shares delivered to the Shareholders at
the Closing are duly authorized and delivered shares of WCI, and shall be fully
paid and nonassessable.
4.5 NO MISLEADING STATEMENTS. The representations and warranties
of WCI contained in this Agreement, the Exhibits and Schedules hereto and all
other documents and information furnished to the Shareholders pursuant hereto
are materially complete and accurate, and do not include any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements made and to be made not misleading as of the Closing Date.
4.6 BROKERS; FINDERS. No person has acted directly or indirectly
as a broker, finder or financial advisor for WCI in connection with the
transactions contemplated by this Agreement and no person is entitled to any
broker's, finder's, financial advisory or similar fee or payment in respect
thereof based in any way on any agreement, arrangement or understanding made by
or on behalf of WCI.
4.7 DISCLOSURE SCHEDULES. Any matter disclosed by WCI on any
Schedule to this Agreement shall be deemed to have been disclosed on every
other Schedule that refers to such Schedule by cross reference so long as the
nature disclosed is obvious from a fair reading of the Schedule on which the
matter is disclosed.
5. CLOSING DELIVERIES
At the Closing, the respective parties shall make the deliveries
indicated:
5.1 WCI DELIVERIES.
(a) WCI shall deliver the cash portion of the Purchase
Price required to be delivered on the Closing Date pursuant to Section
1.2(a).
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(b) WCI shall deliver to the Shareholders certificates
for the Shares.
(c) WCI shall execute and deliver an Employment Agreement
with Clark substantially in the form of the draft included in Exhibit
5.1(d).
(d) WCI shall execute and deliver the Lease.
(e) WCI shall execute and deliver the Shareholder Note
and the accompanying Security Agreement.
(f) WCI shall execute and deliver the Clark Note.
5.2 SHAREHOLDERS DELIVERIES.
(a) The Shareholders shall deliver to WCI the
certificates representing the outstanding Corporation's Stock free and
clear of all liens, security interests, claims and encumbrances,
accompanied by a stock power duly executed in blank.
(b) The Shareholders shall deliver to WCI an opinion of
counsel for the Shareholders, dated as of the Closing Date, in
substantially the form attached hereto as Exhibit 5.2(c).
(c) The Shareholders shall deliver evidence reasonably
satisfactory to WCI that all required third-party consents to the
transactions contemplated hereby, including without limitation all
Required Governmental Consents and all required consents of the
landlords under all real estate leases to which the Corporation is a
party, were obtained and the Shareholders shall deliver an estoppel
certificate from the landlords under all real estate leases to which
the Corporation is a party confirming the terms thereof and the rental
amount owing thereunder, certifying that such lease is in full force
and effect, that the Corporation is not in default under any of the
terms or conditions thereof, that there have been no amendments or
modifications to any such lease (or specifying the same), and
otherwise containing such statements and certifications as the
Corporation may require.
(d) The Corporation shall deliver to WCI evidence
satisfactory to WCI showing that all written employment contracts and
all oral employment contracts other than those that are terminable "at
will" without payment of severance (other than normal severance
benefits approved by WCI) or other benefits with non-union employees
of the Corporation (including, without limitation, stock options or
other rights to obtain equity in the Corporation) have been
terminated, effective on or before the Closing Date.
(e) Clark shall execute and deliver the Employment
Agreement in the form of Exhibit 5.1(d).
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(f) The Lessor shall execute and deliver the Lease.
(g) The Shareholders shall cause each officer and
director of the Corporation to deliver a resignation as an officer
and/or director of the Corporation.
(h) The Shareholders shall execute and deliver the
Security Agreement in connection with the Shareholder Note.
(i) The Shareholders shall deliver a One Hundred Eighty
Day Real Estate Mortgage.
(j) The Shareholders shall deliver original motor vehicle
titles.
6. ADDITIONAL COVENANTS OF WCI, THE CORPORATION AND THE SHAREHOLDERS
6.1 RELEASE OF GUARANTIES. WCI shall use reasonable efforts to
obtain the termination and release promptly after the Closing Date of the
personal guaranties of the Shareholders listed on Schedule 6.1, all of which
relate to indebtedness of the Corporation included in the Financial Statements
as of the Balance Sheet Date or WCI shall indemnify the Shareholders and hold
them harmless from and against all losses, expenses or claims by third parties
to enforce or collect indebtedness owed by the Corporation as of the Closing
Date which is personally guaranteed by the Shareholders pursuant to such
guaranties. The Shareholders may notify the obligees under such guaranties
that they have terminated their obligations under such guaranties. The
Shareholders shall cooperate with WCI in obtaining such releases.
6.2 RELEASE OF SECURITY INTERESTS. On or after the Closing Date,
the Shareholders and their respective Affiliates shall cause those security
interests in the assets of the Corporation that have been created in favor of
financial institutions or other lenders to secure indebtedness (other than
indebtedness of the Corporation) of the Shareholders or their respective
Affiliates to be released in a manner reasonably satisfactory to WCI, and shall
cause all guaranties by the Corporation relating to the indebtedness of the
Shareholders to be released to the reasonable satisfaction of WCI.
6.3 CONFIDENTIALITY. Neither the Corporation nor any of the
Shareholders shall disclose or make any public announcements of the
transactions contemplated by this Agreement without the prior written consent
of WCI, unless required to make such disclosure or announcement by law, in
which event the party making the disclosure or announcement shall notify WCI at
least 24 hours before such disclosure or announcement is expected to be made.
WCI shall not disclose or make any public announcement of the transactions
contemplated by this Agreement without the prior written consent of the
Shareholders' Representative, unless in connection with the initial public
offering of WCI Stock or otherwise required to make such disclosure or
announcement by law, in which event WCI shall notify the Shareholders'
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Representative at least 24 hours before such disclosure or announcement is
expected to be made.
6.4 BROKERS AND FINDERS FEES. Each party shall pay and be
responsible for any broker's, finder's or financial advisory fee incurred by
such party in connection with the transactions contemplated by this Agreement.
6.5 TAXES. WCI shall reasonably cooperate, at the expense of the
Shareholders, with the Shareholders with respect to any matters involving the
Shareholders arising out of the Shareholders' ownership of the Corporation
prior to the Closing, including matters relating to tax returns and any tax
audits, appeals, claims or litigation with respect to such tax returns or the
preparation of such tax returns. In connection therewith, WCI shall make
available to the Shareholders such files, documents, books and records of the
Corporation for inspection and copying as may be reasonably requested by the
Shareholders and shall cooperate with the Shareholders with respect to
retaining information and documents which relate to such matters.
6.6 SHORT YEAR TAX RETURNS. After the Closing Date, the
Shareholders shall prepare at their sole cost and expense, all short year
federal, state, county, local and foreign tax returns required by law for the
period beginning with the first day of the Corporation's fiscal year in which
the Closing occurs and ending with the Closing Date. Each such return shall be
prepared in a financially responsible and conservative manner and shall be
delivered to WCI together with all necessary supporting schedules within 120
days following the Closing Date for its approval (but such approval shall not
relieve the Shareholders of their responsibility for the taxes assessed under
these returns). The Shareholders shall be responsible for the payment of all
taxes shown to be due or that may come to be due on such returns or otherwise
relating to the period prior to the Closing Date in excess of the amount of any
reserve for taxes included in Effective Date Current Liabilities. The
Shareholders shall also be responsible for all taxes arising from the
conversion of the Corporation from a cash to accrual basis of reporting whether
or not due on such returns or on the first return filed by the Corporation for
the period commencing after the Closing Date. At the time of the delivery of
the returns, shall contemporaneously deliver to WCI checks payable to the
respective taxing authorities in amounts equal to the amount due. WCI shall
sign tax returns and cause such returns to be timely filed with the appropriate
authorities. The Shareholders shall be entitled to receive all refunds shown
on said returns and any such refunds received by the Corporation or WCI shall
be remitted to the Shareholders.
6.7 TITLE INSURANCE. The Shareholders shall arrange for an
irrevocable commitment from a title insurance company reasonably acceptable to
WCI to issue, within three business days after the Closing Date, a CLTA Owner's
Policy of title insurance for the Corporate Property, in an amount as shall be
reasonably agreed upon by the Shareholders and WCI, insuring fee simple title
to the Corporate Property in the Corporation, subject only to current real
property taxes and assessments, standard printed conditions and exceptions, and
such title exceptions as shall have been accepted in writing by WCI, and
containing such endorsements as WCI may reasonably require. The cost of such
title insurance shall be paid one-half by the Shareholders and one-half by WCI.
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6.8 SHAREHOLDERS' REPRESENTATIVE.
(a) In order to administer efficiently the rights
and obligations of the Shareholders under this Agreement, the
Shareholders hereby designate and appoint Clark as the Shareholders'
Representative, to serve as the Shareholders' agent, proxy and
attorney-in-fact for the limited purposes set forth in this Agreement.
(b) Each of the Shareholders hereby appoints the
Shareholders' Representative as such Shareholder's agent, proxy and
attorney-in-fact, with full power of substitution, for all purposes
set forth in this Agreement, including, without limitation, the full
power and authority on such Shareholder's behalf (i) to consummate the
transactions contemplated by this Agreement, (ii) to disburse any
funds received hereunder to the Shareholders, (iii) to execute and
deliver on behalf of each Shareholder any amendment or waiver under
this Agreement, to agree to the amount of the actual Closing Date
Debt, Closing Date Current Assets and Closing Date Current Liabilities
pursuant to Section 1.2(a), and to agree to resolution of all Claims
hereunder, (iv) to retain legal counsel and other professional
services, at the expense of the Shareholders, in connection with the
performance by the Shareholders' Representative of this Agreement, and
(v) to do each and every act and exercise any and all rights which
such Shareholder or Shareholders are permitted or required to do or
exercise under this Agreement and the other agreements, documents and
certificates executed in connection herewith. Each of the
Shareholders agrees that such agency and proxy are coupled with an
interest, are therefore irrevocable without the consent of the
Shareholders' Representative and shall survive the death, bankruptcy
or other incapacity of any Shareholder.
(c) Each of the Shareholders hereby agrees that
any amendment or waiver under this Agreement, and any action taken on
behalf of the Shareholders to enforce the rights of the Shareholders
under this Agreement, and any action taken with respect to any
adjustment or Claim (including any action taken to object to, defend,
compromise or agree to the payment of such adjustment or Claim), shall
be effective if approved in writing by persons who were the holders of
a majority of the Corporation's Stock immediately prior to the
Closing, and that each and every action so taken shall be binding and
conclusive on every Shareholder, whether or not such Shareholder had
notice of, or approved, such amendment or waiver.
(d) Clark shall serve as the Shareholders'
Representative until he resigns or is otherwise unable or unwilling to
serve. In the event that a Shareholders' Representative resigns from
such position or is otherwise unable or unwilling to serve, the
remaining Shareholders shall select, by the vote of the holders of a
majority of the Corporation's Stock immediately prior to the Closing,
a successor representative to fill such vacancy, shall provide prompt
written notice to WCI of such change and such substituted
representative shall then be deemed to be the Shareholders'
Representative for all purposes of this Agreement.
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6.9 GENERAL RELEASE BY SHAREHOLDERS. Except as may be otherwise
covered by any policy of insurance carried by the Corporation, each of the
Shareholders hereby fully releases and discharges the Corporation and its
directors, officers, agents and employees from all rights, claims and actions,
known or unknown, of any kind whatsoever, which any of such Shareholders now
has or may hereafter have against the Corporation and its directors, officers,
agents and employees, arising out of or relating to events arising prior to or
on the Closing Date, except (a) as may be described in written contracts
disclosed in Schedule 6.9 and expressly described and specifically excepted
from this release in Schedule 6.9, (b) compensation as an employee of the
Corporation for current periods expressly described and excepted from such
release on schedule 6.9, and (c) for the obligations of the Corporation arising
after the Closing Date under this Agreement. Specifically, but not by way of
limitation, each of the Shareholders waives any right of indemnification,
contribution or other recourse against the Corporation which he now has or may
hereafter have against the Corporation with respect to representations,
warranties or covenants made in this Agreement by the Corporation.
Each of the Shareholders hereby waives and relinquishes all
rights and benefits afforded by Section 1542 of the California Civil Code,
which states as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS TO WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
Each of the Shareholders understands and acknowledges the significance and
consequence of this waiver of Section 1542 and nevertheless elects to, and
does, release those claims described in this Section 6.9, known or unknown,
that it may have now or in the future arising out of or relating to any event
arising on or prior to the date of this Agreement.
6.10 CONTINUING EMPLOYEES. WCI shall maintain the same or
comparable compensation and insurance coverage for employees of the Corporation
after the Closing Date so long as those employees remain employees of the
Corporation.
7. INDEMNIFICATION
7.1 INDEMNITY BY THE SHAREHOLDERS. Except as may be otherwise
covered by any policy of insurance carried by the Corporation, each of the
Shareholders, jointly and severally, subject to the limitations set forth in
Section 7.2, covenants and agrees that he or she will indemnify and hold
harmless WCI, the Corporation and their respective directors, officers and
agents and their respective successors and assigns (collectively the "WCI
INDEMNITEES"), from and after the date of this Agreement, against any and all
losses, damages, assessments, fines, penalties, adjustments, liabilities,
claims, deficiencies, costs, expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation),
expenditures, including, without limitation, any "Environmental Site Losses"
(as such term is hereinafter defined) identified by a WCI Indemnitee in a
Claims Notice (as defined in Section 7.3(a)), or
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asserted by a WCI Indemnitee in litigation commenced against the Shareholders
provided that in either case any such Claims Notice shall be given or the
litigation commenced prior to the third anniversary of this Agreement
(irrespective of the date of discovery), with respect to each of the following
contingencies (all, the "7.1 INDEMNITY EVENTS"):
(a) Any misrepresentation, breach of warranty, or
nonfulfillment of any agreement or covenant on the part of the
Shareholders or the Corporation pursuant to the terms of this
Agreement or any misrepresentation in or omission from any Exhibit,
Schedule, list, certificate, or other instrument furnished or to be
furnished to WCI pursuant to the terms of this Agreement, regardless
of whether, in the case of a breach of a representation or a warranty,
WCI relied on the truth of such representation or warranty or had any
knowledge of any breach thereof.
(b) The design, development, construction or operation of
any Facility or any other "Environmental Site" as hereinafter defined,
or the installation or operation of a UST during any period on or
prior to the Closing Date, in excess of the amount of liability with
respect thereto, if any, set forth on Part II of Schedule 3.8. As
used in this Agreement, "ENVIRONMENTAL SITE" shall mean any Facility,
any UST and any other waste storage, processing, treatment or disposal
facility, and any other business site or any other real property
owned, leased, controlled or operated by the Corporation or by any
predecessor thereof on or prior to the Closing Date. As used in this
Agreement, "ENVIRONMENTAL SITE LOSSES" shall mean any and all losses,
damages (including exemplary damages and penalties), liabilities,
claims, deficiencies, costs, expenses, and expenditures (including,
without limitation, expenses in connection with site evaluations, risk
assessments and feasibility studies) arising out of or required by an
interim or final judicial or administrative decree, judgment,
injunction, mandate, interim or final permit condition or restriction,
cease and desist order, abatement order, compliance order, consent
order, clean-up order, exhumation order, reclamation order or any
other remedial action that is required to be undertaken under federal,
state or local law in respect of operating activities on or affecting
any Facility, any UST or any other Environmental Site, including, but
not limited to (x) any actual or alleged violation of any law or
regulation respecting the protection of the environment, including,
but not limited to, RCRA and CERCLA or any other law or regulation
respecting the protection of the air, water and land and (y) any
remedies or violations, whether by a private or public action, alleged
or sought to be assessed as a consequence, directly or indirectly, of
any "Release" (as defined below) of pollutants (including odors) or
Hazardous Substances from any Facility, any UST or any other
Environmental Site resulting from activities thereat, whether such
Release is into the air, water (including groundwater) or land and
whether such Release arose before, during or after the Closing Date.
The term "RELEASE" as used herein means any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing into the ambient environment.
Notwithstanding anything in this paragraph to the contrary, it is
specifically understood and agreed that a Release composed solely of
Hazardous Substances contained in household waste lawfully disposed of
in a landfill during the time the Corporation owned
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and/or operated such landfill does not constitute an Environmental
Site Loss.
(c) All matters on Schedule 3.8 - Part II.
(d) All actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically,
but without limitation, reasonable attorneys' fees and expenses of
investigation) incident to any of the foregoing.
7.2 LIMITATIONS ON SHAREHOLDERS' INDEMNITIES.
(a) Except as may be otherwise covered by any policy of
insurance carried by the Corporation, subject to the provisions of
7.2(b) hereof, the obligations of the Shareholders to indemnify the
WCI Indemnitees as provided in Section 7.1 shall be equal to the
amount by which the cumulative amount of all such liabilities, claims,
damages deficiencies, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses, expenditures and
Environmental Site Losses with respect to any or all 7.1 Indemnity
Events exceed $40,000 (the "GENERAL DEDUCTIBLE AMOUNT"); provided,
that the amount of any obligation of indemnity arising pursuant to
Section 7.1(a) with respect to any representation, warranty or
covenant contained in Sections 3.1 through 3.5, 3.12(c), 3.18, 3.22
and 6.6 hereof and pursuant to Section 7.1(c) shall not be subject to
the General Deductible Amount.
(b) The maximum amount which WCI can recover as a result
of one or more 7.1 Indemnity Events shall not exceed the Purchase
Price (as adjusted pursuant to Section 1.2(a) hereof.
For this purpose, the Shares shall be valued at the $300,000 in the aggregate.
(c) WCI shall use reasonable efforts to pursue any
insurance coverage it may have with respect to any matter resulting in a 7.1
Indemnity Event and shall apply any insurance recoveries it receives in
connection with any 7.1 Indemnity Event towards its recovery from the
Shareholder for such 7.1 Indemnity Event. Nothing herein shall require WCI
from pursuing any such insurance coverage prior to pursuing any claim against
the Shareholder.
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7.3 NOTICE OF INDEMNITY CLAIM.
(a) In the event that any claim ("CLAIM") is hereafter
asserted against or arises with respect to any WCI Indemnitee as to
which such Indemnitee may be entitled to indemnification hereunder,
the WCI Indemnitee shall notify the Shareholders (as applicable
collectively, the "INDEMNIFYING PARTY") in writing thereof (the
"CLAIMS NOTICE") within 60 days after (i) receipt of written notice of
commencement of any third party litigation against such WCI
Indemnitee, (ii) receipt by such WCI Indemnitee of written notice of
any third party claim pursuant to an invoice, notice of claim or
assessment, against such WCI Indemnitee, or (iii) such WCI Indemnitee
becomes aware of the existence of any other event in respect of which
indemnification may be sought from the Indemnifying Party (including,
without limitation, any inaccuracy of any representation or warranty
or breach of any covenant). The Claims Notice shall describe the
Claim and the specific facts and circumstances in reasonable detail,
and shall indicate the amount, if known, or an estimate, if possible,
of the losses that have been or may be incurred or suffered by the WCI
Indemnitee.
(b) The Indemnifying Party may elect to defend any Claim
for money damages where the cumulative total of all Claims (including
such Claims) do not exceed the limit set forth in Section 7.2 at the
time the Claim is made, by the Indemnifying Party's own counsel;
provided, however, the Indemnifying Party may assume and undertake the
defense of such a third party Claim only upon written agreement by the
Indemnifying Party that the Indemnifying Party is obligated to fully
indemnify the WCI Indemnitee with respect to such action. The WCI
Indemnitee may participate, at the WCI Indemnitee's own expense, in
the defense of any Claim assumed by the Indemnifying Party. Without
the written approval of the WCI Indemnitee, which approval shall not
be unreasonably withheld, the Indemnifying Party shall not agree to
any compromise of a Claim defended by the Indemnifying Party.
(c) If, within thirty (30) days of the Indemnifying
Party's receipt of a Claims Notice, the Indemnifying Party shall not
have provided the written agreement required by Section 7.3(b) and
elected to defend the Claim, the WCI Indemnitee shall have the right
to assume control of the defense and/or compromise of such Claim, and
the costs and expenses of such defense, including reasonable
attorneys' fees, shall be added to the Claim. The Indemnifying Party
shall promptly, and in any event within thirty (30) days after demand
therefor, reimburse the WCI Indemnitee for the costs of defending the
Claim, including attorneys' fees and expenses.
(d) The party assuming the defense of any Claim shall
keep the other party reasonably informed at all times of the progress
and development of its or their defense of and compromise efforts with
respect to such Claim and shall furnish the other party with copies of
all relevant pleadings, correspondence and other papers. In addition,
the parties to this Agreement shall cooperate with each other and make
available to each other and
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their representatives all available relevant records or other
materials required by them for their use in defending, compromising or
contesting any Claim. The failure to timely deliver a Claims Notice
or otherwise notify the Indemnifying Party of the commencement of such
actions in accordance with this Section 7.3 shall not relieve the
Indemnifying Party from the obligation to indemnify hereunder but only
to the extent that the Indemnifying Party establishes by competent
evidence that it has been prejudiced thereby.
(e) In the event both the WCI Indemnitee and the
Indemnifying Party are named as defendants in an action or proceeding
initiated by a third party, they shall both be represented by the same
counsel (on whom they shall agree), unless such counsel the WCI
Indemnitee, or the Indemnifying Party shall determine that such
counsel has a conflict of interest in representing both the WCI
Indemnitee and the Indemnifying Party in the same action or proceeding
and the WCI Indemnitee and the Indemnifying Party do not waive such
conflict to the satisfaction of such counsel.
7.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
representations and warranties of the parties contained in this Agreement and
in any certificate, Exhibit or Schedule delivered pursuant hereto, or in any
other writing delivered pursuant to the provisions of this Agreement (the
"REPRESENTATIONS AND WARRANTIES") and the liability of the party making such
Representations and Warranties for breaches thereof shall survive the
consummation of the transactions contemplated hereby. The parties hereto in
executing and delivering and in carrying out the provisions of this Agreement
are relying solely on the representations, warranties, Schedules, Exhibits,
agreements and covenants contained in this Agreement, or in any writing or
document delivered pursuant to the provisions of this Agreement, and not upon
any representation, warranty, agreement, promise or information, written or
oral, made by any persons other than as specifically set forth herein or
therein. There are no third party beneficiaries to this Agreement other than
the WCI Indemnitees.
7.5 NO EXHAUSTION OF REMEDIES OR SUBROGATION; RIGHT OF SET OFF.
The Shareholders waive any right to require any WCI Indemnitee to (i) proceed
against the Corporation; (ii) proceed against any other person; or (iii) pursue
any other remedy whatsoever in the power of any WCI Indemnitee. WCI may, but
shall not be obligated to, set off against any and all payments due any
Shareholder any amount to which any WCI Indemnitee is entitled to be
indemnified hereunder with respect to any 7.1 Indemnity Event. Such right of
set off shall be separate and apart from any and all other rights and remedies
that the Indemnities may have against Shareholders or their successors.
8. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND WCI
8.1 RESTRICTIVE COVENANTS. As to the Corporation, the
Shareholders and their Affiliates acknowledge that (i) WCI, as the purchaser of
the Corporation's Stock, is and will be engaged in the same business as the
Corporation (the "BUSINESS"); (ii) the Shareholders and their Affiliates are
intimately familiar with the Business; (iii) the Business is currently
conducted in the State of South Dakota and WCI intends to continue the Business
in South Dakota and intends, by
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acquisition or otherwise, to expand the Business into other geographic areas of
South Dakota where it is not presently conducted; (iv) the Shareholders and
their Affiliates have had access to trade secrets of, and confidential
information concerning, the Business; (v) the agreements and covenants
contained in this Section 8.1 are essential to protect the Business and the
goodwill being acquired; and (vi) the Shareholders and their Affiliates have
the means to support themselves and their dependents other than by engaging in
a business substantially similar to the Business and the provisions of this
Section 8 will not impair such ability. The Shareholders covenant and agree as
set forth in (a), (b) and (c) below with respect to the Corporation:
(a) NON-COMPETE. For a period commencing on the Closing
Date and terminating five years thereafter (the "RESTRICTED PERIOD"),
neither the Shareholders nor any of their Affiliates shall, anywhere
in the Cities of Deadwood, Whitewood, Nisland or Central City, South
Dakota; the Counties of Lawrence, Perkins, Meade, Butte, Harding,
Pennington and Custer, South Dakota, the Counties of Campbell, Crook
and Westin, Wyoming, or Carter County, Montana; where WCI or one of
its subsidiaries owns or operates a business similar to the Business
(the "RESTRICTED COUNTIES"), directly or indirectly, acting
individually or as the owner, shareholder, partner, or employee of any
entity, (i) engage in the operation of a solid waste collection,
transporting, disposal and/or composting business, transfer facility,
recycling facility, materials recovery facility or solid waste
landfill; (ii) enter the employ of, or render any personal services to
or for the benefit of, or assist in or facilitate the solicitation of
customers for, or receive remuneration in the form of salary,
commissions or otherwise from, any business engaged in such
activities; (iii) as owner or lessor of real estate or personal
property, rent to lease any facility, equipment or other assets to any
business engaged in the same business as the Corporation; or (iv)
receive or purchase a financial interest in, make a loan to, or make a
gift in support of, any such business in any capacity, including,
without limitation, as a sole proprietor, partner, shareholder,
officer, director, principal, agent, trustee or lender; provided,
however, that any of the Shareholders may own, directly or indirectly,
solely as an investment, securities of any business traded on any
national securities exchange or NASDAQ, provided none of the
Shareholders is a controlling person of, or a member of a group which
controls, such business and further provided that the Shareholders do
not, in the aggregate, directly or indirectly, own 2% or more of any
class of securities of such business.
(b) CONFIDENTIAL INFORMATION. During the Restricted
Period and thereafter, the Shareholders and their Affiliates shall
keep secret and retain in strictest confidence, and shall not use for
the benefit of themselves or others, all data and information relating
to the Business ("CONFIDENTIAL INFORMATION"), including without
limitation, know-how, trade secrets, customer lists, supplier lists,
details of contracts, pricing policies, operational methods, marketing
plans or strategies, bidding information, practices, policies or
procedures, product development techniques or plans, and technical
processes; provided, however, that the term "Confidential Information"
shall not include information that (i) is or becomes generally
available to the public other than as a result of disclosure by the
Shareholders or (ii) is general knowledge in the solid waste handling
and landfill
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business and not specifically related to the Business.
(c) PROPERTY OF THE BUSINESS. All memoranda, notes,
lists, records and other documents or papers (and all copies thereof)
relating to the Business, including such items stored in computer
memories, on microfiche or by any other means, made or compiled by or
on behalf of the Shareholders or the Corporation or made available to
them relating to the Business, but excluding any materials (other than
the minute books of the Corporation) maintained by any attorneys for
the Corporation or the Shareholders prior to the Closing, are and
shall be the property of WCI and have been delivered or will be
delivered or made available to WCI at the Closing.
(d) NON-SOLICITATION. Without the consent of WCI, which
may be granted or withheld by WCI in its discretion, the Shareholders
and their Affiliates shall not solicit any employees of the
Corporation to leave the employ of the Corporation and join the
Shareholders or any Affiliate in any business endeavor owned or
pursued by the Shareholders.
(e) NO DISPARAGEMENT. From and after the Closing Date,
none of the Shareholders shall, in any way or to any person or entity
or governmental or regulatory body or agency, denigrate or derogate
WCI or any of its subsidiaries, or any officer, director or employee,
or any product or service or procedure of any such company whether or
not such denigrating or derogatory statements shall be true and are
based on acts or omissions which are learned by the Shareholders from
and after the date hereof or on acts or omissions which occur from and
after the date hereof, or otherwise. A statement shall be deemed
denigrating or derogatory to any person or entity if it adversely
affects the regard or esteem in which such person or entity is held by
investors, lenders or licensing, rating, or regulatory entities.
Without limiting the generality of the foregoing, none of the
Shareholders shall, directly or indirectly in any way in respect of
any such company or any such directors or officers, communicate with,
or take any action which is adverse to the position of any such
company with any person, entity or governmental or regulatory body or
agency who or which has dealings or prospective dealings with any such
company or jurisdiction or prospective jurisdiction over any such
company. This paragraph does not apply to the extent that testimony
is required by legal process, provided that WCI has received not less
than five days' prior written notice of such proposed testimony.
8.2 RIGHTS AND REMEDIES UPON BREACH. If any of the Shareholders
or any Affiliate breaches, or threatens to commit a breach of, any of the
provisions of Section 8.1 herein (the "RESTRICTIVE COVENANTS"), WCI shall have
the following rights and remedies, each of which rights and remedies shall be
independent of the others and severally enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to WCI
at law or in equity:
(a) SPECIFIC PERFORMANCE. The right and remedy to have
the Restrictive
35
<PAGE> 37
Covenants specifically enforced by any court of competent jurisdiction,
it being agreed that any breach or threatened breach of the Restrictive
Covenants would cause irreparable injury to WCI and that money damages
would not provide an adequate remedy to WCI. Accordingly, in addition
to any other rights or remedies, WCI shall be entitled to injunctive
relief to enforce the terms of the Restrictive Covenants and to
restrain the Shareholders from any violation thereof.
(b) ACCOUNTING. The right and remedy to require the
Shareholders to account for and pay over to WCI all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Shareholders as the result of any transactions
constituting a breach of the Restrictive Covenants.
(c) SEVERABILITY OF COVENANTS. The Shareholders
acknowledge and agree that the Restrictive Covenants are reasonable
and valid in geographical and temporal scope and in all other
respects. If any court determines that any of the Restrictive
Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected
and shall be given full effect, without regard to the invalid
portions.
(d) BLUE-PENCILING. If any court determines that any of
the Restrictive Covenants, or any part thereof, is unenforceable
because of the duration or geographic scope of such provision, such
court shall reduce the duration or scope of such provision, as the
case may be, to the extent necessary to render it enforceable and, in
its reduced form, such provision shall then be enforced.
(e) ENFORCEABILITY IN JURISDICTION. WCI and the
Shareholders intend to and hereby confer jurisdiction to enforce the
Restrictive Covenants upon the courts of any jurisdiction within the
geographic scope of the Restrictive Covenants. If the courts of any
one or more of such jurisdictions hold the Restrictive Covenants
unenforceable by reason of the breadth of such scope or otherwise, it
is the intention of WCI and the Shareholders that such determination
not bar or in any way affect WCI's right to the relief provided above
in the courts of any other jurisdiction within the geographic scope of
the Restrictive Covenants as to breaches of such covenants in such
other respective jurisdictions, such covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and
independent covenants.
9. GENERAL
9.1 ADDITIONAL CONVEYANCES. Following the Closing, the
Shareholders and WCI shall each deliver or cause to be delivered at such times
and places as shall be reasonably agreed upon such additional instruments as
WCI or the Shareholders may reasonably request for the purpose of carrying out
this Agreement. The Shareholders will cooperate with WCI and/or the
Corporation on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any actions, proceedings or
disputes of any nature with
36
<PAGE> 38
respect to matters pertaining to all periods prior to the date of this
Agreement.
9.2 ASSIGNMENT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto, the successors or assigns of WCI
and the heirs, legal representatives or assigns of the Shareholders; provided,
however, that any such assignment shall be subject to the terms of this
Agreement and shall not relieve the assignor of its or his responsibilities
under this Agreement.
9.3 PUBLIC ANNOUNCEMENTS. Except as required by law, no party
shall make any public announcement or filing with respect to the transactions
provided for herein prior to the Closing Date without the prior consent of the
other parties hereto.
9.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
9.5 NOTICES. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given if in writing
and either delivered personally, sent by facsimile transmission or by air
courier service, or mailed by postage prepaid registered or certified U.S.
mail, return receipt requested, to the addresses designated below or such other
addresses as may be designated in writing by notice given hereunder, and shall
be effective upon personal delivery or facsimile transmission thereof or upon
delivery by registered or certified U.S. mail or one business day following
deposit with an air courier service:
If to the Shareholders: at their respective addresses set forth on
Schedule 3.2
With a copy to: Richard A. Pluimer, Esq.
Law Offices
907 State Street
Belle Fourche, South Dakota 57717
Facsimile: (605) 892-6386
If to WCI: Waste Connections, Inc.
2260 Douglas Boulevard, Suite 280
Roseville, California 95661
Attention: Ronald J. Mittelstaedt
Facsimile: (916) 772-2920
With a copy to: Robert D. Evans, Esq.
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, California 94111
Facsimile: (415) 421-2922
37
<PAGE> 39
9.6 ATTORNEYS' FEES. In the event of any dispute or controversy
between WCI on the one hand and the Corporation or the Shareholders on the
other hand relating to the interpretation of this Agreement or to the
transactions contemplated hereby, the prevailing party shall be entitled to
recover from the other party reasonable attorneys' fees and expenses incurred
by the prevailing party. Such award shall include post-judgment attorney's
fees and costs.
9.7 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of South Dakota without
regard to its conflict of laws provisions.
9.8 PAYMENT OF FEES AND EXPENSES. Whether or not the transactions
herein contemplated shall be consummated, each party hereto will pay its own
fees, expenses and disbursements incurred in connection herewith and all other
costs and expenses incurred in the performance and compliance with all
conditions to be performed hereunder (including, in the case of the
Shareholders, any such fees, expenses and disbursements paid or accrued by, or
charged to, the Corporation).
9.9 INCORPORATION BY REFERENCE. All Schedules and Exhibits
attached hereto are incorporated herein by reference as though fully set forth
at each point referred to in this Agreement.
9.10 CAPTIONS. The captions in this Agreement are for convenience
only and shall not be considered a part hereof or affect the construction or
interpretation of any provisions of this Agreement.
9.11 NUMBER AND GENDER OF WORDS; CORPORATION. Whenever the
singular number is used herein, the same shall include the plural where
appropriate, and shall apply to all of such number, and to each of them,
jointly and severally, and words of any gender shall include each other gender
where appropriate.
9.12 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Exhibits hereto) and the other documents delivered pursuant hereto constitute
the entire Agreement and understanding between the Corporation, the
Shareholders and WCI and supersedes any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement may be
modified or amended only by a written instrument executed by the Corporation,
the Shareholders (or the Shareholders' Representative on their behalf) and WCI
acting through its officers, thereunto duly authorized by its Board of
Directors.
9.13 WAIVER. No waiver by any party hereto at any time of any
breach of, or compliance with, any condition or provision of this Agreement to
be performed by any other party hereto may be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or at any prior or
subsequent time.
38
<PAGE> 40
9.14 CONSTRUCTION. The language in all parts of this Agreement
must be in all cases construed simply according to its fair meaning and not
strictly for or against any party. Unless expressly set forth otherwise, all
references herein to a "day" are deemed to be a reference to a calendar day.
All references to "BUSINESS DAY" mean any day of the year other than a
Saturday, Sunday or a public or bank holiday in South Dakota or California.
Unless expressly stated otherwise, cross-references herein refer to provisions
within this Agreement and are not references to the overall transaction or to
any other document.
10. GLOSSARY
The definitions of the terms used below can be found at the Section
indicated:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Act Section 1.6
Affiliate Section 3.11
Balance Sheet Date Section 3.7
Business Section 8.1
Business Day Section 9.14
Claim Section 7.3
Claims Notice Section 7.3(a)
Clark Parties
Clark Note Section 1.2(d)
Closing Section 2
Closing Date Section 2
Closing Date Debt Section 3.22(a)
Closing Date Current Assets Section 3.22(b)
Closing Date Current Liabilities Section 3.22(b)
Collection Franchises Section 3.10(a)
Confidential Information Section 8.1(b)
Corporate Property Section 3.12(b)
Corporation Parties
Corporation Debt Section 1.2(c)
Corporation's Stock Second Recital
Environmental Laws Section 3.24
Environmental Site Section 7.1(b)
Environmental Site Losses Section 7.1
Environmental Site Losses Section 7.1(b)
ERISA Section 3.17(a)
Excluded Assets Section 1.5
Facility Section 3.10(c)
Facilities Section 3.10(c)
Facility Property Section 3.10(c)(iii)
Facility Surveys/Site Plans Section 3.10(c)(iii)
</TABLE>
39
<PAGE> 41
<TABLE>
<S> <C>
Financial Statements Section 3.7
General Deductible Amount Section 7.2(a)
Governmental Permits Section 3.10(a)
Hazardous Material Section 3.24(e)
Hazardous Waste Section 3.24(e)
</TABLE>
40
<PAGE> 42
<TABLE>
<S> <C>
Indemnifying Party Section 7.3(a)
7.1 Indemnity Events Section 7.1
IPO Section 1.6
IPO Price Section 1.6
Knowledge Section 3.36
Laws Section 3.24
Lease Fourth Recital
Lessor Fourth Recital
Permitted Liens Section 3.12(c)
Purchase Price Section 1.1
RCRA Section 3.24(a)
Recipient Section 3.17(c)
Records, Notifications and Reports Section 3.10(b)
Release Section 7.1(b)
Representations and Warranties Section 7.4
Restricted Counties Section 8.1(a)
Restricted Period Section 8.1(a)
Restrictive Covenants Section 8.2
Required Governmental Consents Section 3.10(a)
SEC Section 3.38(g)
Shareholder Debt Section 1.2(e)
Shareholder Note Section 1.2(c)
Shareholders Parties
Shares Section 1.2(b)
UST Section 3.26
WCI Indemnitees Section 7.1
WCI Parties
WCI Stock Section 1.2(b)
</TABLE>
41
<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
persons thereunto duly authorized as of the date first above written.
THE CORPORATION: SOWERS' SANITATION, INC.
By: ____________________________________
James C. Sowers
President
WCI: WASTE CONNECTIONS, INC.
By: ____________________________________
Ronald J. Mittelstaedt
Chief Executive Officer & President
THE SHAREHOLDERS:
________________________________________
James C. Sowers
________________________________________
Mildred A. Sowers
42
<PAGE> 44
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. PURCHASE OF CORPORATION'S STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Shares to be Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Price Protection for Shares of the WCI Stock . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Allocation of the Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. CLOSING TIME AND PLACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE SHAREHOLDERS . . . . . . . . . . . . . . 3
3.1 Organization, Standing and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 All Stock Being Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4 Authority for Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.5 No Breach or Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.8 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.9 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.10 Permits and Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.11 Certain Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.12 Fixed Assets and Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.13 Acquisition/Disposal of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.14 Contracts and Agreements; Adverse Restrictions . . . . . . . . . . . . . . . . . . . . . . 10
3.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.16 Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.17 Benefit Plans and Union Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.18 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.19 Copies Complete; Required Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.20 Customers, Billings, Current Receipts and Receivables . . . . . . . . . . . . . . . . . . 13
3.21 No Change With Respect to the Corporation . . . . . . . . . . . . . . . . . . . . . . . . 13
3.22 Closing Date Debt; Closing Date Current Assets and Closing Date Current Liabilities . . . 15
3.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.24 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.25 Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.26 Underground Storage Tanks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.27 Patents, Trademarks, Trade Names, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.28 Assets, etc., Necessary to Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
i
<PAGE> 45
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.29 Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.30 Suppliers and Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.31 Absence of Certain Business Practices . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.32 Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.33 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.34 No Misleading Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.35 Accurate and Complete Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.36 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.37 Brokers; Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.38 Investment Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4. REPRESENTATIONS AND WARRANTIES OF WCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.1 Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.2 No Contractual Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.3 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.4 Status of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.5 No Misleading Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.6 Brokers; Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.7 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5. CLOSING DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.1 WCI Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2 Shareholders Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. ADDITIONAL COVENANTS OF WCI, THE CORPORATION AND THE SHAREHOLDERS . . . . . . . . . . . . . . . . 24
6.1 Release of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.2 Release of Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.3 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.4 Brokers and Finders Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.5 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.6 Short Year Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.8 Shareholders' Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.9 General Release by Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.10 Continuing Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.1 Indemnity by the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.2 Limitations on Shareholders' Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.3 Notice of Indemnity Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
ii
<PAGE> 46
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
7.4 Survival of Representations, Warranties and Agreements . . . . . . . . . . . . . . . . . . 31
7.5 No Exhaustion of Remedies or Subrogation; Right of Set Off . . . . . . . . . . . . . . . . 31
8. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND WCI . . . . . . . . . . . . . . . . . . . . . 31
8.1 Restrictive Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.2 Rights and Remedies Upon Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.1 Additional Conveyances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.3 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.6 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.7 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.8 Payment of Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.9 Incorporation by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.10 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.11 Number and Gender of Words; Corporation . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.13 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.14 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10. GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
iii
<PAGE> 1
EXHIBIT 10.26
STOCK PURCHASE AGREEMENT
Dated as of May 11, 1998, by and among
Waste Connections, Inc.
T & T Disposal, Inc.
Timothy Thomas
<PAGE> 2
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of May 11, 1998, is entered into by
and among Waste Connections, Inc., a Delaware corporation ("WCI"), T & T
Disposal, Inc., a Wyoming corporation (the "CORPORATION"), and Timothy Thomas
(the "SHAREHOLDERS").
WHEREAS, the Corporation is engaged in the collection and transport of
solid waste and recyclables in Albany, Campbell, Crook, Converse, Goshen,
Niobrara, Natrona, Platte and Weston Counties, Wyoming and other related
activities;
WHEREAS, the Shareholders own all of the issued and outstanding
capital stock of the Corporation (the "CORPORATION'S STOCK");
WHEREAS, WCI wishes to acquire from the Shareholders all of the
Corporation's Stock;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto, each intending to be bound hereby, agree as
follows:
1. PURCHASE OF CORPORATION'S STOCK
1.1 SHARES TO BE PURCHASED. At the Closing (as defined in Section
2), the Corporation shall issue to WCI one hundred ninety-nine (199) new shares
of the Corporation's Stock in exchange for WCI's payment of the Closing Date
Debt (as defined in Section 3.22) in the total amount of three hundred twenty
eight thousand three hundred seventeen dollars ($328,317). Further, WCI shall
purchase, and the Shareholders shall sell and deliver to WCI, all of the issued
and outstanding shares of the Corporation's Stock before the new issuance to
WCI described above, being the number of shares of the Corporation set forth on
Schedule 3.2 opposite each Shareholder's name. At the Closing, and in exchange
therefor WCI shall deliver to the Shareholders at the Closing or thereafter as
provided by this Agreement the purchase price described in Section 1.2 (the
"PURCHASE PRICE").
1
<PAGE> 3
1.2 PURCHASE PRICE. The Purchase Price is:
(a) one hundred sixty four thousand six hundred eighty
three dollars ($164,683) plus or minus, as the case may be, the amount
by which the Closing Date Current Assets (as defined in Section
3.22(b)) are greater or less than the Closing Date Current Liabilities
(as defined in Section 3.22(b)). The $164,683 shall be payable to the
Shareholders at Closing in cash by wire transfer or check payable in
clearinghouse funds. Within 120 days after the Closing Date, WCI and
the Shareholders' Representative shall determine the actual Closing
Date Current Assets and Closing Date Current Liabilities. If the
Closing Date Current Assets are greater than the Closing Date Current
Liabilities, WCI shall promptly pay the difference between the two
amounts to the Shareholders; if the Closing Date Current Liabilities
are greater than the Closing Date Current Assets, the Shareholder
shall promptly pay the difference between the two amounts to WCI;
(b) Thirteen thousand six hundred and thirty-six (13,636)
shares (the "SHARES") of WCI's Common Stock, $0.01 par value (the "WCI
STOCK"), which shall be delivered by WCI to the Shareholders at the
Closing.
(c) WCI shall deliver to Timothy Thomas a promissory note
(the "NOTE") in the form of Exhibit 1.2(d) hereto. The Note shall be
in an amount equal to thirty thousand dollars ($30,000) to be paid in
twelve (12) equal monthly installments starting on the first day of
the month following the Closing and continuing on the first day of
each of the eleven months thereafter. The Note shall be non-interest
bearing and shall be secured by a lien on all of the assets of the
Corporation.
1.3 ALLOCATION OF THE PURCHASE PRICE. Ten thousand dollars ($
10,000) of the Purchase Price shall be allocated to the covenant not to compete
as described in Section 8.1(a) hereof, and the balance of the Purchase Price
shall be allocated to the Corporation's Stock.
1.4 EXCLUDED ASSETS. The Assets of the Corporation listed on
Schedule 1.4 (the "EXCLUDED ASSETS") shall be distributed to the Shareholders
prior to the Closing, and WCI shall acquire no interest in or claim to any of
the Excluded Assets.
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1.5 PRICE PROTECTION FOR SHARES OF THE WCI STOCK. If the gross
offering price of the WCI Stock in the IPO (as defined below), before
underwriting discounts and commissions and payment of expenses of the offering
(the "IPO PRICE"), is less than nine dollars ($9.00) per share, WCI will,
within 15 days after the closing of the IPO, issue to the Shareholders a number
of additional shares of the WCI Stock determined by multiplying (x) the
difference between the IPO Price and nine dollars ($9.00) and (y) 13,636 shares
and dividing that product by the IPO Price. In lieu of issuing any fractional
shares, WCI shall pay cash to the Shareholders in an amount equal to the
fraction of a share that would have been delivered times the greater of the IPO
Price and nine dollars ($9.00). For purposes of this agreement, "IPO" means a
public offering of the WCI Stock registered under the Securities Act of 1933
(the "ACT") and sold through underwriters pursuant to a firm commitment in the
amount of at least five million dollars at an IPO Price of at least five
dollars ($5.00) per share. If the closing of the IPO shall not have occurred
by July 31, 1998, the Shareholders may, at their option exercised no later than
August 15, 1998, by written notice to WCI, cause WCI to repurchase all or any
portion of the WCI Stock issued to the Shareholders for eleven dollars ($11.00)
per share, payable by wire transfer to the account of the Shareholders.
Promptly upon exercise of such option, the Shareholders and WCI shall arrange
for a closing of the sale of such WCI Stock, such closing to occur no later
than August 31, 1998.
2. CLOSING TIME AND PLACE
Subject to the terms and conditions of this Agreement, the closing of
the transactions contemplated herein (the "CLOSING") shall take place
concurrent with the execution of this Agreement or as the Shareholders'
Representative shall agree (the "CLOSING DATE"). The Closing shall take place
at the Law Offices of Shartsis, Friese & Ginsburg LLP, One Maritime Plaza,
Suite 1800, San Francisco, California 94111, or through an exchange of
consideration and signed documents using overnight courier service. At the
Closing, WCI, the Corporation and the Shareholders shall deliver to each other
the documents, instruments and other items described in Section 5 of this
Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE
SHAREHOLDERS
The Corporation and the Shareholders, jointly and severally, (i)
represent and warrant that each of the following representations and warranties
is true as of the Closing Date, and (ii) agree that such representations and
warranties shall survive the Closing.
3.1 ORGANIZATION, STANDING AND QUALIFICATION. The Corporation is
duly organized, validly existing and in good standing under the laws of the
State of Wyoming. The Corporation has full corporate power and authority to
own and lease its properties and to carry on its business as now conducted. As
the business of the Corporation is currently conducted, the Corporation is not
required to be qualified or licensed to conduct business as a foreign
corporation in any other jurisdiction.
3.2 CAPITALIZATION. Schedule 3.2 sets forth, as of the Closing Date, the
authorized
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and outstanding capital of the Corporation, the names, addresses and social
security numbers or taxpayer identification numbers of the record and
beneficial owners thereof, the number of shares so owned, the allocation of the
cash and Shares among the Shareholders as agreed to among themselves, and wire
transfer instructions for each Shareholder relating to the bank account to
which the Purchase Price should be sent. On the Closing Date, all of the
issued and outstanding shares of the capital stock of the Corporation are owned
of record and beneficially by the Shareholders, as set forth in Schedule 3.2,
and are free and clear of all liens, security interests, encumbrances and
claims of every kind except as set forth in Schedule 3.2. Each share of the
capital stock of the Corporation is duly and validly authorized and issued,
fully paid and nonassessable, and was not issued in violation of any preemptive
rights of any past or present shareholder of the Corporation. No option,
warrant, call, conversion right or commitment of any kind (including any of the
foregoing created in connection with any indebtedness of the Corporation)
exists which obligates the Corporation to issue any of its authorized but
unissued capital stock or other equity interest or which obligates any
Shareholder to transfer the Corporation's Stock to any person.
3.3 ALL STOCK BEING ACQUIRED. The Corporation's Stock being
acquired by WCI hereunder constitutes all of the outstanding capital stock of
the Corporation.
3.4 AUTHORITY FOR AGREEMENT. The Corporation and each of the
Shareholders have full right, power and authority to enter into this Agreement
and to perform its, his or her obligations hereunder. The execution and
delivery of this Agreement by the Corporation and the consummation of the
transactions contemplated hereby by the Corporation have been duly authorized
by its Shareholders. This Agreement has been duly and validly executed and
delivered by the Corporation and each of the Shareholders and, subject to the
due authorization, execution and delivery by WCI, constitutes the legal, valid
and binding obligation of the Corporation and each of the Shareholders
enforceable against each of them in accordance with its terms.
3.5 NO BREACH OR DEFAULT. Except as disclosed on Schedule 3.5,
the execution and delivery by the Corporation and the Shareholders of this
Agreement, and the consummation by the Shareholders of the transactions
contemplated hereby, will not:
(a) result in the breach of any of the terms or
conditions of, or constitute a default under, or allow for the
acceleration or termination of, or in any manner release any party
from any obligation under, any mortgage, lease, note, bond, indenture,
or material contract, agreement, license or other instrument or
obligation of any kind or nature to which the Corporation or any of
the Shareholders is a party, or by which the Corporation or the
Shareholders, or any of its or their assets, is or may be bound or
affected; or
(b) violate any law or any order, writ, injunction or
decree of any court, administrative agency or governmental authority,
or require the approval, consent or permission of any governmental or
regulatory authority; or
(c) violate the Articles of Incorporation of the
Corporation.
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3.6 SUBSIDIARIES. Schedule 3.6 lists as of the Closing Date any
and all subsidiaries of the Corporation and any securities of any other
corporation or any securities or other interest in any other business entity
owned by the Corporation or any of its subsidiaries.
3.7 FINANCIAL STATEMENTS. The Corporation has delivered to WCI,
as Schedule 3.7, copies of financial statements ("FINANCIAL STATEMENTS") for
its three most recent fiscal years, compiled internally by the Corporation, and
interim financial statements for the Corporation for the period ended March 31,
1998 (the "BALANCE SHEET DATE"). The Financial Statements are true and correct
and fairly present (i) the financial position of the Corporation as of the
respective dates of the balance sheets included in said statements, and (ii)
the results of operations for the respective periods indicated. The Financial
Statements have been prepared consistently with prior periods. Except to the
extent reflected or reserved against in the Corporation's balance sheet as of
the Balance Sheet Date, or as disclosed on Schedule 3.7 or Schedule 3.8, the
Corporation had as of the Balance Sheet Date, and has as of the Closing Date,
no liabilities of any nature, whether accrued, absolute, contingent or
otherwise, including, without limitation, tax liabilities due or to become due.
3.8 LIABILITIES. Parts I, II, III and IV of Schedule 3.8, are
accurate lists and descriptions of all liabilities of the Corporation required
to be described below in the format set forth below.
(a) Part I of Schedule 3.8 lists, as of the Closing Date,
other than with respect to trade payables and as of the end of the
month prior to the Closing Date with respect to trade payables, all
indebtedness for money borrowed and all other fixed and uncontested
liabilities of any kind, character and description (excluding all real
and personal property leasehold interests included in Part IV of
Schedule 3.8), whether reflected or not reflected on the Financial
Statements and whether accrued or absolute, and states as to each such
liability the amount of such liability and to whom payable. From the
date as of which information is provided with respect to trade
payables, trade payables have been incurred only in the ordinary
course of business consistent with comparable prior periods.
(b) Part II of Schedule 3.8 lists, as of the Closing
Date, all claims, suits and proceedings which are pending against the
Corporation, all contingent liabilities, and, to the knowledge of the
Corporation and the Shareholders, all contingent liabilities and all
claims, suits and proceedings threatened or anticipated against the
Corporation. Part II of Schedule 3.8 includes a summary description
of each such liability, including, without limitation, (A) the name of
each court, agency, bureau, board or body before which any such claim,
suit or proceeding is pending, (B) the date such claim, suit or
proceeding was instituted, (C) the parties to such claim, suit or
proceeding, (D) a brief description of the factual basis alleged to
underlie such claim, suit or proceeding, including the date or dates
of all material occurrences, and (E) the amount claimed and other
relief sought, together with copies of all material documents, reports
and other records relating thereto to the extent that they are in the
Corporation's or the Shareholders' possession or control.
(c) Part III of Schedule 3.8 lists, as of the Closing
Date and to the extent not
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otherwise included in Part I of Schedule 3.8, all liens, claims and
encumbrances secured by or otherwise affecting any asset of the
Corporation (including any Corporate Property, as hereafter defined),
including a description of the nature of such lien, claim or
encumbrance, the amount secured if it secures a liability, the nature
of the obligation secured, and the party holding such lien, claim or
encumbrance.
(d) Part IV of Schedule 3.8 lists, as of the Closing Date
and to the extent not otherwise included in Part I or Part III of
Schedule 3.8, all real and personal property leasehold interests to
which the Corporation is a party as lessor or lessee or, to the
knowledge of the Corporation or the Shareholders, affecting or
relating to any Corporate Property, and includes a description of the
nature and principal terms of such leasehold interest, including,
without limitation, the identity of the other party thereto, the term
of such leasehold interest (including renewal options), the base rent
and any additional rent owing thereunder (including any adjustments
thereto), security deposits, rights of first offer or first refusal,
purchase options, and restrictions on transfer.
Except as described on the applicable part of Schedule 3.8,
neither the Corporation nor any of the Shareholders has made any payment or
committed to make any payment since the Balance Sheet Date on or with respect
to any of the liabilities or obligations listed on Schedule 3.8 except, in the
case of liabilities and obligations listed on Parts I, III and IV of Schedule
3.8, periodic payments required to be made under the terms of the agreements or
instruments governing such obligations or liabilities or made in the ordinary
course of business. Between the Balance Sheet Date and the Closing Date, trade
payables have been incurred only in the ordinary course of business consistent
with comparable prior periods.
3.9 CONDUCT OF BUSINESS. Except as set forth on Schedule 3.21,
since the Balance Sheet Date:
(a) The business of the Corporation has been conducted
only in the ordinary course; and
(b) There has been no change in the condition (financial
or otherwise) of the assets, liabilities or operations of the
Corporation other than changes in the ordinary course of business,
none of which either singly or in the aggregate has been materially
adverse.
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3.10 PERMITS AND LICENSES.
(a) Schedule 3.10(a) is a full and complete list, and
includes copies, of all material permits, licenses, franchises, and
service agreements pursuant to which the Corporation is authorized to
collect and haul industrial, commercial and residential solid waste
(the "COLLECTION FRANCHISES"), and of all other material permits,
licenses, titles (including motor vehicle titles and current
registrations), fuel permits, zoning and land use approvals and
authorizations, including, without limitation, any conditional or
special use approvals or zoning variances, occupancy permits, and any
other similar documents constituting a material authorization or
entitlement or otherwise material to the operation of the business of
the Corporation (collectively the "GOVERNMENTAL PERMITS") owned by,
issued to, held by or otherwise benefitting the Corporation or the
Shareholders as of the Closing Date. The status of the Governmental
Permits related to the disposal areas owned or used by the
Corporation, including, without limitation, any conditions thereto
and, if applicable, the expiration dates thereof, are also described
in Schedule 3.10(a). Schedule 3.10(a) also sets forth the name of any
governmental agency or other third party from whom the Shareholders,
the Corporation or WCI must obtain consent (the "REQUIRED GOVERNMENTAL
CONSENTS") in order to effect a direct or indirect transfer of the
Collection Franchises or other Governmental Permits required as a
result of the consummation of the transactions contemplated by this
Agreement. All such consents, if any, have been obtained. Except as
set forth on Schedule 3.10(a), all of the Collection Franchises and
other Governmental Permits enumerated and listed on Schedule 3.10(a)
are adequate for the operation of the business of the Corporation and
of each Corporate Property as presently operated and are valid and in
full force and effect. All of said Collection Franchises and other
Governmental Permits and agreements have been duly obtained and are in
full force and effect, and there are no proceedings pending or, to the
knowledge of the Corporation or the Shareholders, threatened which may
result in the revocation, cancellation, suspension or adverse
modification of any of the same. Neither the Corporation nor any of
the Shareholders has any knowledge of any reason why all such
Governmental Permits and agreements will not remain in effect after
consummation of the transactions contemplated hereby.
(b) Schedule 3.10(b) includes: (i) all records,
notifications, reports, permit and license applications, engineering
and geologic studies, and environmental impact reports, tests or
assessments (collectively, "RECORDS, NOTIFICATIONS AND REPORTS") that
(A) are material to the operation of the business of the Corporation,
or (B) relate to the discharge or release of materials into the
environment and/or the handling or transportation of waste materials
or hazardous or toxic substances or otherwise relate to the protection
of the public health or the environment, or (C) were filed with or
submitted to appropriate governmental agencies during the past 24
months by the Corporation or any of the Shareholders or their agents
with respect to the business of the Corporation, and (ii) all material
notifications from such governmental agencies to the Corporation, the
Shareholders or their agents in response to or relating to any of such
Records, Notifications and Reports.
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(c) Schedule 3.10(c) lists, as of the Closing Date, each
facility owned, leased, operated or otherwise used by the Corporation,
the ownership, lease, operation or use of which is being transferred
to, assumed by or otherwise acquired directly or indirectly by WCI
pursuant to this Agreement (each, a "FACILITY" and collectively, the
"FACILITIES"). Except as otherwise disclosed on Schedule 3.10(c), to
the knowledge of the Shareholders:
(i) Each Facility is fully licensed, permitted
and authorized to carry on its current business under all
applicable federal, state and local statutes, orders,
approvals, zoning or land use requirements, rules and
regulations, and no Facility or the current use thereof
constitutes a non-conforming use or is otherwise subject to
any restrictions regarding the operation, renovation or
reconstruction thereof.
(ii) All activities and operations at each
Facility are being and have been conducted in compliance in
all material respects with the requirements, criteria,
standards and conditions set forth in all applicable federal,
state and local statutes, orders, approvals, permits, zoning
or land use requirements and restrictions, variances,
licenses, rules and regulations.
(iii) Each Facility is located on real property
owned or leased by the Corporation (each a "FACILITY
PROPERTY") and each Facility Property owned by the Corporation
is legally described on the preliminary title reports, surveys
or site plans attached to Schedule 3.10(c) (the "FACILITY
SURVEYS/SITE PLANS"), which accurately depict the respective
Facility Property.
(iv) There are no circumstances, conditions or
reasons which are likely to be the basis for revocation or
suspension of any Facility's site assessments, permits,
licenses, consents, authorizations, zoning or land use
permits, variances or approvals relating to any Facility owned
by the Corporation or owned by any of the Shareholders or an
Affiliate (as hereinafter defined) of any of the Shareholders
and leased to the Corporation, and to the knowledge of the
Corporation and the Shareholders there are no circumstances,
conditions or reasons which are likely to be the basis for
revocation or suspension of any site assessment, permits,
licenses, consents, authorizations, zoning or land use
permits, variances or approvals relating to any Facility.
3.11 CERTAIN RECEIVABLES. Schedule 3.11 is an accurate list as of
the Closing Date of the accounts and notes receivable of the Corporation from
and advances to employees, former employees, officers, directors, the
Shareholders and Affiliates of the foregoing which have not been repaid. For
purposes of this Agreement, the term "AFFILIATE" means, with respect to any
person, any person that directly or indirectly through one or more
intermediaries controls or has an ownership interest in, or is controlled or
owned in whole or in part by, or is under common control or ownership in whole
or in part with such person, and in the case of the Corporation includes
directors and officers, in the case of individuals includes the individual's
spouse, father, mother, grandfather, grandmother, brothers, sisters, children
and grandchildren and in the case of a trust includes the grantors, trustees
and beneficiaries of the trust.
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3.12 FIXED ASSETS AND REAL PROPERTY.
(a) Schedule 3.12(a) lists, as of the Closing Date,
substantially all the fixed assets (other than real estate) of the
Corporation, including, without limitation, identification of each
vehicle by description and serial number, identification of machinery,
equipment and general descriptions of parts, supplies and inventory.
Except as described on Schedule 3.12(a), all of the Corporation's
containers, vehicles, machinery and equipment necessary for the
operation of its business are in operable condition, and all of the
motor vehicles and other rolling stock of the Corporation are in
material compliance with all applicable laws, rules and regulations.
All such containers, vehicles, machinery and equipment are
substantially free of known defects, excepting therefrom defects from
reasonable wear, tear and use, that would cause them to fail. All
leases of fixed assets are in full force and effect and binding upon
the parties thereto; neither the Corporation nor, to the knowledge of
the Corporation or the Shareholders, any other party to such leases is
in breach of any of the material provisions thereof.
(b) Each parcel of real property leased, owned or being
purchased by the Corporation as of the Closing Date (the "CORPORATE
PROPERTY"), including the street address and, in the case of Corporate
Property owned or being purchased, the legal description thereof, is
listed on Schedule 3.12(b) - Part I, and attached to said Schedule
3.12(b) - Part I are copies of all leases, deeds, outstanding
mortgages, other encumbrances and any existing title insurance
policies or lawyer's title opinions relating to each Corporate
Property. All leases listed on Schedule 3.12(b) - Part I are in full
force and effect and binding on the parties thereto; neither the
Corporation nor any other party to any such lease is in breach of any
of the material provisions thereof; the landlord's interest in any
such lease has not been assigned to any third party nor has any such
interest been mortgaged, pledged or hypothecated; and the Corporation
has not assigned any such lease or sublet all or any part of the
Corporate Property which is the subject of any such lease. Except as
described on Schedule 3.12(b) - Part II, there are no known material
physical or mechanical defects in any Facility located on any
Corporate Property.
(c) The Corporation has good, valid and marketable title
to all properties and assets, real, personal, and mixed, tangible and
intangible, actually used or necessary for the conduct of its
business, free of any encumbrance or charge of any kind except: (i)
liens for current taxes not yet due; (ii) minor imperfections of title
and encumbrances, if any, that are not substantial in amount, do not
materially reduce the value or impair the use of the property subject
thereto, do not materially impair the value of the Corporation, and
have arisen only in the ordinary course of business and consistent
with past practice; and (iii) the liens identified on Part III of
Schedule 3.8 (collectively, the "PERMITTED LIENS") and those liens and
encumbrances disclosed on Schedule 3.8-Part I. Except as described on
Schedule 3.12(b) - Part I, there are no leases, occupancy agreements,
options, rights of first refusal or any other agreements or
arrangements, either oral or written, that create or confer in any
person or entity the right to acquire, occupy or possess, now or in
the future, any Facility, any Corporate Property, or any portion
thereof, or create in or confer on any person or entity any right,
title or interest therein or
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in any portion thereof.
3.13 ACQUISITION/DISPOSAL OF ASSETS. Except as indicated on
Schedule 3.13, since the Balance Sheet Date, the Corporation has not acquired
or sold or otherwise disposed of any properties or assets which, singly or in
the aggregate, have a value in excess of $10,000, or which are material to the
operation of the Corporation's business as presently conducted, without the
prior written consent of WCI.
3.14 CONTRACTS AND AGREEMENTS; ADVERSE RESTRICTIONS.
(a) Schedule 3.14(a) lists, as of the Closing Date, and
includes copies of, all material contracts and agreements (other than
leases and documents included with Schedule 3.12(b)) to which the
Corporation is a party or by which it or any of its property is bound
(including, but not limited to, joint venture or partnership
agreements, contracts with any labor organizations, promissory notes,
loan agreements, bonds, mortgages, deeds of trust, liens, pledges,
conditional sales contracts or other security agreements). Except as
disclosed on Schedule 3.14(a), all such contracts and agreements
included in Schedule 3.14(a) are in full force and effect and binding
upon the parties thereto. Except as described or cross referenced on
Schedule 3.14(a), neither the Corporation nor, to the Corporation's or
any of the Shareholder's knowledge, any other parties to such
contracts and agreements is in breach thereof, and none of the parties
has threatened to breach any of the material provisions thereof or
notified the Corporation or any of the Shareholders of a default
thereunder, or exercised any options thereunder.
(b) Except as set forth on Schedule 3.14(b), there is no
outstanding judgment, order, writ, injunction or decree against the
Corporation, the result of which could materially adversely affect the
Corporation or its business or any of the Corporate Properties, nor
has the Corporation been notified that any such judgment, order, writ,
injunction or decree has been requested.
3.15 INSURANCE. Schedule 3.15 is a complete list and includes
copies, as of the Closing Date, of all insurance policies in effect on the
Closing Date or, with respect to "OCCURRENCE" policies that were in effect,
carried by the Corporation in respect of the Corporate Properties or any other
property used by the Corporation specifying, for each policy, the name of the
insurer, the type of risks insured, the deductible and limits of coverage, and
the annual premium therefor. The Corporation currently carries insurance in
the type and amount ordinarily carried by owners or corporations in similar
circumstances, in respect to the Corporation' properties, assets and business.
During the last five years, there has been no lapse in any material insurance
coverage of the Corporation. For each insurer providing coverage for any of
the contingent or other liabilities listed on Schedule 3.8, except to the
extent otherwise set forth in Part II of Schedule 3.8, each such insurer, if
required, has been properly and timely notified of such liability, no
reservation of rights letters have been received by the Corporation and the
insurer has assumed defense of each suit or legal proceeding. All such
proceedings are fully covered by insurance, subject to normal deductibles.
3.16 PERSONNEL. Schedule 3.16 is a complete list, as of the
Closing Date, of all
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officers, directors and employees (by type or classification) of the
Corporation and their respective rates of compensation, including (i) the
portions thereof attributable to bonuses, (ii) any other salary, bonus, stock
option, equity participation, or other compensation arrangement made with or
promised to any of them, and (iii) copies of all employment agreements with
non-union officers, directors and employees. Schedule 3.16 also lists the
driver's license number for each driver of the Corporation's motor vehicles.
3.17 BENEFIT PLANS AND UNION CONTRACTS.
(a) Schedule 3.17(a) is a complete list as of the Closing
Date, and includes complete copies (or, in the case of oral
arrangements, descriptions), of all employee benefit plans and
agreements (written or oral) currently maintained or contributed to by
the Corporation, including employment agreements and any other
agreements containing "GOLDEN PARACHUTE" provisions, retirement plans,
welfare benefit plans and deferred compensation agreements, together
with copies of such plans, agreements and any trusts related thereto,
and classifications of employees covered thereby as of the Closing
Date. Except for the employee benefit plans described on Schedule
3.17(a), the Corporation has no other pension, retirement, welfare,
profit sharing, deferred compensation, stock option, employee stock
purchase or other employee benefit plans or arrangements with any
party. Except as disclosed on Schedule 3.17(a), all employee benefit
plans listed on Schedule 3.17(a) are fully funded and in substantial
compliance with all applicable federal, state and local statutes,
ordinances and regulations. All such plans that are intended to
qualify under Section 401(a) of the Internal Revenue Code have been
determined by the Internal Revenue Service to be so qualified, and
copies of such determination letters are included as part of Schedule
3.17(a). Except as disclosed on Schedule 3.17(a), all reports and
other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not
limited to, actuarial reports, audits or tax returns) have been timely
filed or distributed, and copies thereof are included as part of
Schedule 3.17(a). All employee benefit plans listed on such Schedule
have been operated in accordance with the terms and provisions of the
plan documents and all related documents and policies. The
Corporation has not incurred any liability for excise tax or penalty
due to the Internal Revenue Service or U.S. Department of Labor nor
any liability to the Pension Benefit Guaranty Corporation for any
employee benefit plan, nor has the Corporation, nor party-in-interest
or disqualified person, engaged in any transaction or other activity
which would give rise to such liability. The Corporation has not
participated in or made contributions to any "MULTI-EMPLOYER PLAN" as
defined in the Employee Retirement Income Security Act of 1974
("ERISA"), nor would the Corporation or any affiliate be subject to
any withdrawal liability with respect to such a plan if any such
employer withdrew from such a plan immediately prior to the Closing
Date. No employee pension benefit plan is under funded on a
termination basis as of the date of this Agreement.
(b) Schedule 3.17(b) is a complete list, as of the
Closing Date, and includes complete copies of all union contracts and
agreements between the Corporation and any collective bargaining
group. The Corporation is in compliance in all material respects with
all applicable federal and state laws respecting employment and
employment
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practices, terms and conditions of employment, wages and hours, and
nondiscrimination in employment, and is not engaged in any unfair
labor practice. There is no charge pending or, to the Corporation's
or the Shareholders' knowledge, threatened, against the Corporation
before any court or agency and alleging unlawful discrimination in
employment practices and there is no charge of or proceeding with
regard to any unfair labor practice against it pending before the
National Labor Relations Board. There is no labor strike, dispute,
slow down or stoppage as of the Closing Date, existing or threatened
against the Corporation; no union organizational activity exists
respecting employees of the Corporation not currently subject to a
collective bargaining agreement; the union contracts or other
agreements delivered as part of Schedule 3.17(b) constitute all
agreements with the unions or other collective bargaining groups, and
there are no other arrangements or established practices relating to
the employees covered by any collective bargaining agreement; and
Schedule 3.17(b) contains as of the date it is delivered a list of all
arbitration or grievance proceedings that have occurred since the
Balance Sheet Date. No one has petitioned within the last five years,
and no one is now petitioning, for union representation of any
employees of the Corporation. The Corporation has not experienced any
labor strike, slow-down, work stoppage, labor difficulty or other job
action during the last five years.
(c) No payment made to any employee, officer, director or
independent contractor of the Corporation (the "RECIPIENT") pursuant
to any employment contract, severance agreement or other arrangement
(the "GOLDEN PARACHUTE PAYMENT") will be nondeductible by the
Corporation because of the application of Sections 280G and 4999 of
the Code to the Golden Parachute Payment, nor will the Corporation be
required to compensate any Recipient because of the imposition of an
excise tax (including any interest or penalties related thereto) on
the Recipient by reason of Sections 280G and 4999 of the Code.
3.18 TAXES.
(a) The Corporation has timely filed all requisite
federal, state, local and other tax and information returns due for
all fiscal periods ended on or before the Closing Date. All such
returns are accurate and complete. Except as set forth on Schedule
3.18, there are no open years (other than those within the statute of
limitations), examinations in progress, extensions of any statute of
limitations or claims against the Corporation relating to federal,
state, local or other taxes (including penalties and interest) for any
period or periods prior to and including the Closing Date and no
notice of any claim for taxes has been received. Copies of (i) any
tax examinations, (ii) extensions of statutory limitations and (iii)
the federal income, and state franchise, income and sales tax returns
of the Corporation for its last three fiscal years are attached as
part of Schedule 3.18. Copies of all other federal, state, local and
other tax and information returns for all prior years of the
Corporation's existence have been made available to WCI and are among
the records of the Corporation which will accrue to WCI at the
Closing. The Corporation has not been contacted by any federal, state
or local taxing authority regarding a prospective examination.
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(b) Except as set forth on Schedule 3.18 (which schedule
also includes the amount due with respect to the Corporation) the
Corporation has duly paid all taxes and other related charges required
to be paid prior to the Closing Date. The reserves for taxes
contained in the Financial Statements of the Corporation are adequate
to cover its tax liability as of the Closing Date.
(c) The Corporation has withheld all required amounts
from its employees for all pay periods in full and complete compliance
with the withholding provisions of applicable federal, state and local
laws. All required federal, state and local and other returns with
respect to income tax withholding, social security, and unemployment
taxes have been duly filed by the Corporation for all periods for
which returns are due, and the amounts shown on all such returns to be
due and payable have been paid in full.
3.19 COPIES COMPLETE; REQUIRED CONSENTS. Except as disclosed on
Schedule 3.19, the copies of the Articles of Incorporation of the Corporation,
both as amended to the Closing Date, and the copies of all leases, instruments,
agreements, licenses, permits, certificates or other documents that have been
delivered to WCI in connection with the transactions contemplated hereby are
complete and accurate as of the Closing Date and are true and correct copies of
the originals thereof. Except as specifically disclosed on Schedule 3.19, the
rights and benefits of the Corporation will not be adversely affected by the
transactions contemplated hereby, and the execution of this Agreement and the
performance of the obligations hereunder will not violate or result in a breach
or constitute a default under any of the terms or provisions thereof. None of
such leases, instruments, agreements, licenses, permits, site assessments,
certificates or other documents requires notice to, or consent or approval of,
any governmental agency or other third party to any of the transactions
contemplated hereby, except the Required Governmental Consents, such consents
and approvals as are listed on Schedule 3.19; all of which will have been given
or obtained prior to the Closing.
3.20 CUSTOMERS, BILLINGS, CURRENT RECEIPTS AND RECEIVABLES.
Schedule 3.20 is a current, accurate and complete list of, and includes:
(a) the customers the Corporation serves on an ongoing
basis, including name, location and current billing rate, as of the
Closing Date;
(b) an accurate and complete aging of all accounts and
notes receivable from customers as of the last day of the month
preceding the month in which such Schedule is delivered, showing
amounts due in 30-day aging categories; and
(c) the average monthly revenues of the Corporation
derived from billings to its customers for each of the twelve months
preceding the Closing Date. Except as set forth on Schedule 3.20, the
Corporation and the Shareholders have no knowledge of any reason why
the Corporation's average monthly revenues derived from billings to
its customers after the Closing Date should not continue at
approximately the same rate as before the Closing Date.
3.21 NO CHANGE WITH RESPECT TO THE CORPORATION. Except as set
forth on
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Schedule 3.21, since the Balance Sheet Date, the business of the corporation
has been conducted only in the ordinary course and there has been no change in
the condition (financial or otherwise) of the assets, liabilities or operations
of the Corporation other than changes in the ordinary course of business, none
of which either singly or in the aggregate has been materially adverse.
Specifically, and without limiting the generality of the foregoing, except as
set forth on Schedule 3.21, with respect to the Corporation, since the Balance
Sheet Date, there has not been:
(a) any material change in its financial condition,
assets, liabilities (contingent or otherwise), income, operations or
business which would have a material adverse effect on the financial
condition, assets, liabilities (contingent or otherwise), income,
operations or business of the Corporation, taken as a whole;
(b) any material damage, destruction or loss (whether or
not covered by insurance) adversely affecting any material portion of
its properties or business;
(c) any change in or agreement to change (i) its
shareholders, (ii) ownership of its authorized capital or outstanding
securities, or (iii) its securities;
(d) any declaration or payment of, or any agreement to
declare or pay, any dividend or distribution in respect of its capital
stock or any direct or indirect redemption, purchase or other
acquisition of any of its capital stock;
(e) any material increase or bonus or promised increase
or bonus in the compensation payable or to become payable by it, in
excess of usual and customary practices, to any of its directors,
officers, employees or agents, or any accrual or arrangement for or
payment of any bonus or other special compensation to any employee or
any severance or termination pay paid to any of its present or former
officers or other key employees;
(f) any labor dispute or any other event or condition of
any character with respect to the Corporation's employees, materially
adversely affecting its business or future prospects;
(g) any sale or transfer, or any agreement to sell or
transfer, any of its material assets, property or rights to any other
person, including, without limitation, the Shareholders and their
Affiliates, other than in the ordinary course of business;
(h) any cancellation, or agreement to cancel, any
material indebtedness or other material obligation owing to it,
including, without limitation, any indebtedness or obligation of any
of the Shareholders or any Affiliate thereof;
(i) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of its
assets, property or rights or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or any agreement,
plan or arrangement to
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purchase or acquire, any of its property, rights or assets outside the
ordinary course of its business;
(k) any waiver of any of its material rights or claims;
(l) any new or any amendment or termination of any
existing material contract, agreement, license, permit or other right
to which it is a party;
(m) any other material transaction outside the ordinary
course of its business.
3.22 DEBT; CURRENT ASSETS AND CURRENT LIABILITIES.
(a) At the Closing, the Shareholders shall prepare and
deliver to WCI Schedule 3.22(a), which shall be a statement, as of the
Closing Date, of (i) the amount of the aggregate debt (excluding trade
payables) of the Corporation outstanding on the Closing Date required
to be repaid by WCI at the Closing or immediately after the Closing
Date and all prepayment penalties incurred or to be incurred by WCI or
the Corporation in connection with the repayment of any such debt,
(ii) the amount of the aggregate debt (excluding trade payables) of
the Corporation outstanding on the Closing Date which will remain
outstanding obligations of the Corporation after the Closing Date, and
all prepayment penalties applicable to such debt if repaid prior to
maturity, including in each case all interest accrued through and
including the Closing Date, (iii) the aggregate amount of the present
value, discounted at the lease rate factor, if known, inherent in the
lease or, if the lease rate factor is not known, at the rate charged
to the Corporation by a third party lender in connection with its most
recent borrowing to finance equipment, of all lease obligations of the
Corporation that are not capitalized lease obligations and (iv) the
aggregate amount of the present value of all capitalized lease
obligations (determined in accordance with generally accepted
accounting principles) of the Corporation (the "CLOSING DATE DEBT").
Schedule 3.22(a) shall include wire transfer instructions for
creditors whose Closing Date Debt WCI has designated for payment, and
attached to Schedule 3.22(a) shall be pay off letters or instructions
from such creditors in the form provided by WCI's bank;
(b) At the Closing, the Shareholders shall prepare and
deliver to WCI Schedule 3.22(b), which shall be an estimate as of the
Closing Date of the amount of the aggregate current liabilities
(including any reserve for unpaid taxes and excluding the current
portion of long-term debt to the extent such current portion is
included in Closing Date Debt) and trade payables of the Corporation
as of the Closing Date (the "CLOSING DATE CURRENT LIABILITIES") and
the amount of the aggregate cash and other current assets of the
Corporation as of the Closing Date, including prepaid expenses the
benefit of which survives the Closing Date and the accounts receivable
of the Corporation earned prior to the Closing Date, and collectible
on or after the Closing Date (the "CLOSING DATE CURRENT ASSETS"). The
Corporation and the Shareholders expressly acknowledge that in
arriving at the Closing Date Current Assets, accounts receivable owed
to the Corporation that are outstanding sixty (60) days or less prior
to the Closing Date are valued at one hundred percent (100%) of their
amount, accounts receivable outstanding sixty-one (61)
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to ninety (90) days prior to the Closing Date are valued at forty
percent (40%) of their amount, and that any amounts outstanding more
than ninety (90) days prior to the Closing Date are valued at zero.
3.23 BANK ACCOUNTS.
(a) Schedule 3.23(a) is a complete and accurate list, as
of the Closing Date, of:
(i) the name of each bank in which the
Corporation has accounts or safe deposit boxes;
(ii) the name(s) in which the accounts or boxes
are held;
(iii) the type of account; and
(iv) the name of each person authorized to draw
thereon or have access thereto.
(b) Schedule 3.23(b) is a complete and accurate list, as
of the Closing Date, of:
(i) each credit card or other charge account
issued to the Corporation; and
(ii) the name of each person to whom such credit
cards or other charge accounts have been issued.
3.24 COMPLIANCE WITH LAWS. Except as disclosed on Schedule 3.24,
the Corporation has complied with, and the Corporation is presently in
compliance with, federal, Wyoming state and local laws, ordinances, codes,
rules, regulations, Governmental Permits, orders, judgments, awards, decrees,
consent judgments, consent orders and requirements applicable to it
(collectively "LAWS"), including, but not limited to, the Americans with
Disabilities Act, the Federal Occupational Safety and Health Act, and Laws
relating to the public health, safety or protection of the environment
(collectively, "ENVIRONMENTAL LAWS"). Except as disclosed on Schedule 3.24,
there has been no assertion by any party that the Corporation is in violation
of any Laws. Specifically and without limiting the generality of the
foregoing, except as disclosed on Schedule 3.24:
(a) Except as permitted under applicable laws and
regulations, including, without limitation, the federal Resource
Conservation Recovery Act, 42 USC Section 6901 et seq. ("RCRA"), the
Corporation has not accepted, processed, handled, transferred,
generated, treated, stored or disposed of any Hazardous Material (as
defined in Section 3.24(e) below) nor has it accepted, processed,
handled, transferred, generated, treated, stored or disposed of
asbestos, medical waste, radioactive waste or municipal waste, except
in compliance with Environmental Laws.
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(b) During the Corporation's ownership or leasing of the
Corporate Property owned or leased by it and, to the knowledge of the
Corporation and the Shareholders, prior to the Corporation's ownership
or leasing of such Corporate Property, no Hazardous Material, other
than that allowed under Environmental Laws, including, without
limitation, RCRA, has been disposed of, or otherwise released on any
Corporate Property.
(c) During the Corporation's ownership or leasing of the
Corporate Property owned or leased by it and, to the knowledge of the
Corporation and the Shareholders, prior to the Corporation's ownership
or leasing of such Corporate Property, no Corporate Property has ever
been subject to or received any notice of any private, administrative
or judicial action, or notice of any intended private, administrative
or judicial action relating to the presence or alleged presence of
Hazardous Material in, under, upon or emanating from any Corporate
Property or any real property now or previously owned or leased by the
Corporation. There are no pending and, to the Corporation's and
Shareholders' knowledge, no threatened actions or proceedings from any
governmental agency or any other entity involving remediation of any
condition of the Corporate Property, including, without limitation,
petroleum contamination, pursuant to Environmental Laws.
(d) Except as allowed under Environmental Laws, the
Corporation has not knowingly sent, transported or arranged for the
transportation or disposal of any Hazardous Material, to any site,
location or facility.
(e) As used in this Agreement, "HAZARDOUS MATERIAL" means
the substances (i) defined as "HAZARDOUS WASTE" in 40 CFR 261, and
substances defined in any comparable Wyoming statute or regulation;
(ii) any substance the presence of which requires remediation pursuant
to any Environmental Laws; and (iii) any substance disposed of in a
manner not in compliance with Environmental Laws.
3.25 POWERS OF ATTORNEY. The Corporation has not granted any power
of attorney (except routine powers of attorney relating to representation
before governmental agencies) or entered into any agency or similar agreement
whereby a third party may bind or commit the Corporation in any manner.
3.26 UNDERGROUND STORAGE TANKS. Except as set forth on Schedule
3.26, no underground storage tanks containing petroleum products or wastes or
other hazardous substances regulated by 40 CFR 280 or Environmental Laws are
currently or have been located on any Corporate Property. Except as set forth
on Schedule 3.26, the Corporation has never owned or leased any real property
not included in the Corporate Property having any underground storage tanks
containing petroleum products or wastes or other hazardous substances regulated
by 40 CFR 280. As to each such underground storage tank ("UST") identified on
Schedule 3.26, the Corporation has provided to WCI, on Schedule 3.26:
(a) the location of the UST, information and material,
including any available drawings and photographs, showing the
location, and whether the Corporation currently
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owns or leases the property on which the UST is located (and if the
Corporation does not currently own or lease such property, the dates
on which it did and the current owner or lessee of such property);
(b) the date of installation and specific use or uses of
the UST;
(c) copies of tank and piping tightness tests and
cathodic protection tests and similar studies or reports for each UST;
(d) a copy of each notice to or from a governmental body
or agency relating to the UST;
(e) other material records with regard to the UST,
including, without limitation, repair records, financial assurance
compliance records and records of ownership; and
(f) to the extent not otherwise set forth pursuant to the
above, a summary description of instances, past or present, in which,
to the Corporation's, or the Shareholders' knowledge, the UST failed
to meet applicable standards and regulations for tightness or
otherwise and the extent of such failure, and any other operational or
environmental problems with regard to the UST, including, without
limitation, spills, including spills in connection with delivery of
materials to the UST, releases from the UST and soil contamination.
Except to the extent set forth on Schedule 3.26, the Corporation has
complied with Environmental Laws regarding the installation, use, testing,
monitoring, operation and closure of each UST described on Schedule 3.26.
3.27 PATENTS, TRADEMARKS, TRADE NAMES, ETC. Schedule 3.27 lists
all patents, tradenames, fictitious business names, trademarks, service marks,
and copyrights owned by the Corporation or which it is licensed to use (other
than licenses to use software for personal computer operating systems that were
provided when the computer was purchased and licenses to use software for
personal computers that are granted to retail purchasers of such software). No
patents, trade secrets, know-how, intellectual property, trademarks, trade
names, assumed names, copyrights, or designations used by the Corporation in
its business infringe on any patents, trademarks, or copyrights, or any other
rights of any person. Neither the Corporation nor any of the Shareholders
knows or has any reason to believe that there are any claims of third parties
to the use of any such names or any similar name, or knows of or has any reason
to believe that there exists any basis for any such claim or claims.
3.28 ASSETS, ETC., NECESSARY TO BUSINESS. The Corporation owns or
leases all properties and assets, real, personal, and mixed, tangible and
intangible, and, except as disclosed on Schedules 3.5, 3.10(a), 3.10(c),
3.14(a) and 3.19, is a party to all Collection Franchises and Governmental
Permits and other agreements necessary to permit it to carry on its business as
presently conducted. All of said Collection Franchises and Governmental
Permits and agreements have been duly obtained and, except as disclosed on
Schedules 3.5, 3.8-Part II,
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3.10(a), 3.10(c) 3.14(a) and 3.19, are in full force and effect and there are
no proceedings pending or threatened which may result in the revocation,
cancellation, suspension or adverse modification of any of the same. Neither
the Corporation nor any of the Shareholders has any knowledge of any reason why
all such Collection Franchises and Governmental Permits and agreements will not
remain in effect after consummation of the transactions contemplated hereby.
3.29 CONDEMNATION. No Corporate Property owned or leased by the
Corporation is the subject of, or would be affected by, any pending
condemnation or eminent domain proceedings, and, to the knowledge of the
Corporation and the Shareholders, no such proceedings are threatened.
3.30 SUPPLIERS AND CUSTOMERS. The relations between the
Corporation and its customers are good. Neither the Corporation nor any of the
Shareholders has knowledge of any fact (other than general economic and
industry conditions) which indicates that any of the suppliers supplying
products, components, materials or providing use of, or access to, landfills or
disposal sites to the Corporation intends to cease providing such items to the
Corporation, nor does the Corporation or any of the Shareholders have knowledge
of any fact (other than general economic and industry conditions) which
indicates that any of the customers of the Corporation intends to terminate,
limit or reduce its business relations with the Corporation.
3.31 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the
Corporation nor any of the Shareholders has directly or indirectly within the
past five years given or agreed to give any gift or similar benefit to any
customer, supplier, governmental employee or other person who is or may be in a
position to help or hinder the business of the Corporation in connection with
any actual or proposed transaction which (a) might subject the Corporation to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding, (b) if not given in the past, might have had an adverse effect on
the financial condition, business or results of operations of the Corporation,
or (c) if not continued in the future, might adversely affect the financial
condition, business or operations of the Corporation or which might subject the
Corporation to suit or penalty in any private or governmental litigation or
proceeding.
3.32 RELATED PARTY TRANSACTIONS. None of the Shareholders or their
respective Affiliates has entered into any transaction with or is a party to
any agreement, lease or other instrument, or as of the date of this Agreement
is indebted to or is owed money by, the Corporation not disclosed on the
Financial Statements delivered to WCI prior to the date of this Agreement.
Except as disclosed in the Financial Statements, none of the Shareholders or
their Affiliates owns any direct or indirect interest of any kind in, or
controls or is a director, officer, employee, shareholder or partner of, or
consultant or lender to or borrower from or has the right to participate in the
profits of, any Person which is a competitor, supplier, customer, landlord,
tenant, creditor or debtor of the Corporation.
3.33 DISCLOSURE SCHEDULES. Any matter disclosed on any Schedule to
this Agreement shall be deemed to have been disclosed on every other Schedule
that refers to such Schedule by cross reference so long as the nature of the
matter disclosed is obvious from a fair reading of the Schedule on which the
matter is disclosed.
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3.34 NO MISLEADING STATEMENTS. The representations and warranties
of the Corporation and the Shareholders contained in this Agreement, the
Exhibits and Schedules hereto and all other documents and information furnished
to WCI and its representatives pursuant hereto are complete and accurate in all
material respects and do not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements made and to be
made not misleading.
3.35 ACCURATE AND COMPLETE RECORDS. The corporate minute books,
stock ledgers, books, ledgers, financial records and other records of the
Corporation:
(a) have been made available to WCI and its agents at the
Corporation's offices or at the offices of WCI's attorneys or the
Corporation's attorneys;
(b) have been, in all material respects, maintained in
accordance with all applicable laws, rules and regulations; and
(c) are accurate and complete, reflect all material
corporate transactions required to be authorized by the Boards of
Directors and/or shareholders of the Corporation and do not contain or
reflect any material discrepancies.
3.36 KNOWLEDGE. Wherever reference is made in this Agreement to
the "KNOWLEDGE" of the Shareholders, such term means the actual knowledge of
the Shareholders or any knowledge which should have been obtained by the
Shareholders upon reasonable inquiry by a reasonable business person. In the
case of a Shareholders that is a trust, the term "KNOWLEDGE" means the actual
knowledge of the trustee or trustees of the trust or any knowledge which should
have been obtained by the trustee or trustees upon reasonable inquiry by a
reasonable business person. Wherever reference is made in this Agreement to
the "KNOWLEDGE" of the Corporation, such term means the actual knowledge of any
management employee, officer or director of the Corporation or any knowledge
which should have been obtained by any such person upon reasonable inquiry by a
reasonable business person.
3.37 BROKERS; FINDERS. No person has acted directly or indirectly
as a broker, finder or financial advisor for the Corporation or the
Shareholders in connection with the transactions contemplated by this Agreement
and no person is entitled to any broker's, finder's, financial advisory or
similar fee or payment in respect thereof based in any way on any agreement,
arrangement or understanding made by or on behalf of the Corporation or the
Shareholders.
3.38 INVESTMENT REPRESENTATIONS. The Shareholders further
represent that:
(a) Each of the Shareholders has such knowledge and
experience in financial matters, either alone or with the
Shareholder's professional advisors, that he or she is capable of
evaluating the merits and risks of the investment in the Shares.
(b) Each is a resident of the State of Wyoming.
(c) Each of the Shareholders has had access to such
information relating to
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WCI as such Shareholder feels is reasonably necessary to make an
informed investment decision with respect to the Shares, including,
without limitation, WCI's Prospectus dated May, 1998. Each of the
Shareholders understands that the Shares are not covered by the
Prospectus, but rather that such Prospectus has been given to the
Shareholders to provide them information about WCI.
(d) Each of the Shareholders has had the opportunity to
ask questions and receive answers concerning the terms and conditions
of the transactions contemplated by this Agreement and to obtain
additional information that WCI possesses or can obtain without
unreasonable effort or expense that is necessary to verify the
accuracy of the information provided.
(e) Each of the Shareholders is acquiring the Shares
pursuant to this Agreement for its own account, not as a nominee or
agent. No one else has any interest, beneficial or otherwise, in any
of the Shares.
(f) Each of the Shareholders is able to bear the economic
risk of such an investment in the Shares is aware that he, she or it
must be prepared to hold such Shares for an indefinite period (unless
exempt from registration or subsequently registered under the Act or
as otherwise provided in Section 1.5) and is aware that the Shares
have not been registered under the Act, or registered or qualified
under the securities laws of any state, on the ground, among others,
that no unregistered distribution or public offering of Shares is to
be effected and the Shares are being issued by WCI without any public
offering within the meaning of section 4(2) of the Act.
(g) Without in any way limiting the representations
herein, each of the Shareholders further agrees that such Shareholder
shall not encumber, pledge, hypothecate, sell, transfer, assign or
otherwise dispose of, or receive any consideration for, any Shares or
any interest in them, unless and until prior to any proposed
encumbrance, pledge, hypothecation, sale, transfer, assignment or
other disposition, (i) a registration statement on Form S-1 or S-3 (or
any other form appropriate for the purpose or replacing such form)
under the Act with respect to the shares proposed to be transferred or
otherwise disposed of shall be then effective (ii)(a) he, she or it
shall have furnished WCI with a detailed statement of the
circumstances of the proposed disposition, and (b) he, she or it shall
have furnished WCI with an opinion of counsel or no-action letter
issued by the Staff of the Securities and Exchange Commission ("SEC")
(obtained at the Shareholders' expense) in form and substance
satisfactory to WCI to the effect that such disposition will not
require registration of any such Shares under the Act or qualification
of any such Shares under any other securities law; or (iii) Rule 144
is available with respect to such transaction.
(h) Each of the Shareholders understands and agrees that
each certificate or other instrument representing the Shares will bear
a legend on the face thereof (or on the reverse thereof with a
reference to such legend on the face thereof) which legend restricts
the sale, transfer or other disposition of the Shares otherwise than
in accordance with Sections 3.38(g) of this Agreement provided,
however, that WCI shall, on the request of
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any of the Shareholders, cause such legends to be removed from the
certificates or other instrument evidencing the Shares if such
Shareholder has held such Shares for the period contemplated by Rule
144(k) under the Act and if the Shareholder is not then and has not
been during the three months preceding such request an affiliate of
WCI (as defined in Rule 144 under the Act).
(i) Each of the Shareholders understands and agrees that
the Shares will be "RESTRICTED SECURITIES" as that term is defined in
Rule 144 under the Act and, accordingly, that the Shares must be held
indefinitely unless subsequently registered under the Act or an
exemption from such registration is available.
(j) The Shareholders agree to be bound with respect to
the Shares by any "LOCK UP" provisions to which the executive officers
and directors of WCI are also bound as may be requested by any
underwriters of any offering of WCI Stock or securities convertible
into WCI Stock.
3.39 S CORPORATION. The Corporation has elected to be taxed as an
S Corporation under the Internal Revenue Code of 1986, as amended, for all of
the years listed on Schedule 3.39.
4. REPRESENTATIONS AND WARRANTIES OF WCI
WCI represents and warrants to the Shareholders that each of the
following representations and warranties is true as of the date of this
Agreement and will be true as of the Closing Date, and agrees that such
representations and warranties shall survive the Closing:
4.1 EXISTENCE AND GOOD STANDING. WCI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. WCI has full corporate power and authority to own and lease its
properties and to carry on its business as now conducted. WCI is not required
to be qualified or licensed to conduct business as a foreign corporation in any
jurisdiction where the failure to be so qualified would have a material adverse
effect on its financial condition.
4.2 NO CONTRACTUAL RESTRICTIONS. No provisions exist in any
article, document or instrument to which WCI is a party or by which it is bound
which would be violated by consummation of the transactions contemplated by
this Agreement.
4.3 AUTHORIZATION OF AGREEMENT. This Agreement has been duly
authorized, executed and delivered by WCI and, subject to the due
authorization, execution and delivery by the Corporation and the Shareholders,
constitutes a legal, valid and binding obligation of WCI. WCI has full
corporate power, legal right and corporate authority to enter into and perform
its obligations under this Agreement and to carry on its business as presently
conducted. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby and the fulfillment of and compliance
with the terms and conditions hereof do not and will not, after the giving of
notice, or the lapse of time or otherwise: (a) violate any provisions of any
judicial or administrative order, award, judgment or decree applicable to WCI;
(b) conflict with
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any of the provisions of the Amended and Restated Certificate of Incorporation
or Amended and Restated Bylaws of WCI; or (c) conflict with, result in a breach
of or constitute a default under any material agreement or instrument to which
WCI is a party or by which it is bound.
4.4 STATUS OF SHARES. The Shares delivered to the Shareholders at
the Closing are duly authorized and delivered shares of WCI, and shall be fully
paid and nonassessable.
4.5 NO MISLEADING STATEMENTS. The representations and warranties
of WCI contained in this Agreement, the Exhibits and Schedules hereto and all
other documents and information furnished to the Shareholders pursuant hereto
are materially complete and accurate, and do not include any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements made and to be made not misleading as of the Closing Date.
4.6 BROKERS; FINDERS. No person has acted directly or indirectly
as a broker, finder or financial advisor for WCI in connection with the
transactions contemplated by this Agreement and no person is entitled to any
broker's, finder's, financial advisory or similar fee or payment in respect
thereof based in any way on any agreement, arrangement or understanding made by
or on behalf of WCI.
4.7 DISCLOSURE SCHEDULES. Any matter disclosed by WCI on any
Schedule to this Agreement shall be deemed to have been disclosed on every
other Schedule that refers to such Schedule by cross reference so long as the
nature disclosed is obvious from a fair reading of the Schedule on which the
matter is disclosed.
5. CLOSING DELIVERIES
At the Closing, the respective parties shall make the deliveries
indicated:
5.1 WCI DELIVERIES.
(a) WCI shall deliver the cash portion of the Purchase
Price required to be delivered on the Closing Date pursuant to Section
1.2(a).
(b) WCI shall deliver to the Shareholders certificates
for the Shares.
(c) WCI shall deliver to the Shareholders the Note
substantially in the form of the draft included in Exhibit 1.2(d).
(d) WCI shall execute and deliver an Employment Agreement
with Timothy Thomas substantially in the form of the draft included in
Exhibit 5.1(d).
(e) If WCI does not pay off the Closing Date Debt on the
Closing Date, WCI shall either provide the Shareholders with a written
release from each creditor or place an amount equal to the Closing
Date Debt into an escrow account.
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5.2 SHAREHOLDERS DELIVERIES.
(a) The Shareholders shall deliver to WCI the
certificates representing the outstanding Corporation's Stock free and
clear of all liens, security interests, claims and encumbrances,
accompanied by a stock power duly executed in blank.
(b) The Shareholders shall deliver to WCI Uniform
Commercial Code financing statement searches from the State of
Wyoming, dated within thirty (30) days prior to the Closing Date, with
an unofficial update on the Closing Date obtained from Information
America or another reporting service, showing that there are no
security interests, judgments, taxes, other liens or encumbrances
outstanding against the Corporation or its assets, other than as
disclosed on Part III of Schedule 3.8.
(c) The Shareholders shall deliver to WCI an opinion of
counsel for the Shareholders, dated as of the Closing Date, in
substantially the form attached hereto as Exhibit 5.2(c).
(d) The Shareholders shall deliver evidence reasonably
satisfactory to WCI that all required third-party consents to the
transactions contemplated hereby, including without limitation all
Required Governmental Consents and all required consents of the
landlords under all real estate leases to which the Corporation is a
party, were obtained and the Shareholders shall deliver an estoppel
certificate from the landlords under all real estate leases to which
the Corporation is a party confirming the terms thereof and the rental
amount owing thereunder, certifying that such lease is in full force
and effect, that the Corporation is not in default under any of the
terms or conditions thereof, that there have been no amendments or
modifications to any such lease (or specifying the same), and
otherwise containing such statements and certifications as the
Corporation may require.
(e) The Corporation shall deliver to WCI evidence
satisfactory to WCI showing that all written employment contracts and
all oral employment contracts other than those that are terminable "AT
WILL" without payment of severance (other than normal severance
benefits approved by WCI) or other benefits with non-union employees
of the Corporation (including, without limitation, stock options or
other rights to obtain equity in the Corporation) have been
terminated, effective on or before the Closing Date.
(f) The Shareholders shall cause each officer of the
Corporation to deliver a resignation as an officer of the Corporation
together with a general release releasing the Corporation from all
obligations under any indemnification agreements, the charter
documents of the Corporation, or otherwise, arising out of or relating
to this Agreement or the consummation of the transactions contemplated
thereby, other than obligations arising after the Closing Date under
this Agreement.
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6. ADDITIONAL COVENANTS OF WCI, THE CORPORATION AND THE
SHAREHOLDERS
6.1 RELEASE OF GUARANTIES. WCI shall use reasonable efforts to
obtain the termination and release promptly after the Closing Date of the
personal guaranties of the Shareholders listed on Schedule 6.2, all of which
relate to indebtedness of the Corporation included in the Financial Statements
as of the Balance Sheet Date or WCI shall indemnify the Shareholders and hold
them harmless from and against all losses, expenses or claims by third parties
to enforce or collect indebtedness owed by the Corporation as of the Closing
Date which is personally guaranteed by the Shareholders pursuant to such
guaranties. The Shareholders may notify the obligees under such guaranties
that they have terminated their obligations under such guaranties. The
Shareholders shall cooperate with WCI in obtaining such releases.
6.2 RELEASE OF SECURITY INTERESTS. On or after the Closing Date,
the Shareholders and their respective Affiliates shall cause those security
interests in the assets of the Corporation that have been created in favor of
financial institutions or other lenders to secure indebtedness (other than
indebtedness of the Corporation) of the Shareholders or their respective
Affiliates to be released in a manner reasonably satisfactory to WCI, and shall
cause all guaranties by the Corporation relating to the indebtedness of the
Shareholders to be released to the reasonable satisfaction of WCI.
6.3 CONFIDENTIALITY. Neither the Corporation nor any of the
Shareholders shall disclose or make any public announcements of the
transactions contemplated by this Agreement without the prior written consent
of WCI, unless required to make such disclosure or announcement by law, in
which event the party making the disclosure or announcement shall notify WCI at
least 24 hours before such disclosure or announcement is expected to be made.
WCI shall not disclose or make any public announcement of the transactions
contemplated by this Agreement without the prior written consent of the
Shareholders' Representative, unless in connection with the initial public
offering of WCI Stock or otherwise required to make such disclosure or
announcement by law, in which event WCI shall notify the Shareholders'
Representative at least 24 hours before such disclosure or announcement is
expected to be made.
6.4 BROKERS AND FINDERS FEES. Each party shall pay and be
responsible for any broker's, finder's or financial advisory fee incurred by
such party in connection with the transactions contemplated by this Agreement.
6.5 TAXES. WCI shall reasonably cooperate, at the expense of the
Shareholders, with the Shareholders with respect to any matters involving the
Shareholders arising out of the Shareholders' ownership of the Corporation
prior to the Closing, including matters relating to tax returns and any tax
audits, appeals, claims or litigation with respect to such tax returns or the
preparation of such tax returns. In connection therewith, WCI shall make
available to the Shareholders such files, documents, books and records of the
Corporation for inspection and copying as may be reasonably requested by the
Shareholders and shall cooperate with the Shareholders with respect to
retaining information and documents which relate to such matters.
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6.6 SHORT YEAR TAX RETURNS. After the Closing Date, the
Shareholders shall prepare at their sole cost and expense, all short year
federal, state, county, local and foreign tax returns required by law for the
period beginning with the first day of the Corporation's fiscal year in which
the Closing occurs and ending with the Closing Date. Each such return shall be
prepared in a financially responsible and conservative manner and shall be
delivered to WCI together with all necessary supporting schedules within 120
days following the Closing Date for its approval (but such approval shall not
relieve the Shareholders of their responsibility for the taxes assessed under
these returns). The Shareholders shall be responsible for the payment of all
taxes shown to be due or that may come to be due on such returns or otherwise
relating to the period prior to the Closing Date in excess of the amount of any
reserve for taxes included in Effective Date Current Liabilities. The
Shareholders shall also be responsible for all taxes arising from the
conversion of the Corporation from a cash to accrual basis of reporting whether
or not due on such returns or on the first return filed by the Corporation for
the period commencing after the Closing Date. At the time of the delivery of
the returns, shall contemporaneously deliver to WCI checks payable to the
respective taxing authorities in amounts equal to the amount due. WCI shall
sign tax returns and cause such returns to be timely filed with the appropriate
authorities. The Shareholders shall be entitled to receive all refunds shown
on said returns and any such refunds received by the Corporation or WCI shall
be remitted to the Shareholders.
6.7 CERTAIN TAX MATTERS. The Shareholders acknowledge that WCI
may make an election under Section 338(h)(10) of the Internal Revenue Code of
1986, as amended. The Shareholders agree that WCI, in its discretion, may make
such election; provided, however, that such election shall be made no later
than the due date for such election. If such election is made by WCI:
(a) WCI shall be authorized to complete Form 8023-A;
(b) The Shareholders shall sign such completed Form
8023-A at the Closing; and
(c) WCI and the Shareholders shall agree upon the
allocation of the Purchase Price among the assets (including
intangible assets) of the Corporation.
(d) If WCI does make its election under Section
338(h)(10) of the Internal Revenue Code of 1986, as amended, WCI shall
reimburse the Shareholders and the Corporation for any additional
taxes, penalties, interest and costs of preparation of amended income
tax returns incurred due to such election resulting from the recapture
of depreciation previously taken on various assets of the Corporation
at ordinary income instead of capital gain rates. Such reimbursement
shall be in a sum computed by a simultaneous equation computing the
additional tax owed by stockholders, as well as the tax on the payment
of that sum.
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6.8 SHAREHOLDERS' REPRESENTATIVE.
(a) In order to administer efficiently the rights
and obligations of the Shareholders under this Agreement, the
Shareholders hereby designate and appoint Timothy Thomas as the
Shareholders' Representative, to serve as the Shareholders' agent,
proxy and attorney-in-fact for the limited purposes set forth in this
Agreement.
(b) Each of the Shareholders hereby appoints the
Shareholders' Representative as such Shareholder's agent, proxy and
attorney-in-fact, with full power of substitution, for all purposes
set forth in this Agreement, including, without limitation, the full
power and authority on such Shareholder's behalf (i) to consummate the
transactions contemplated by this Agreement, (ii) to disburse any
funds received hereunder to the Shareholders, (iii) to execute and
deliver on behalf of each Shareholder any amendment or waiver under
this Agreement, to agree to the amount of the actual Closing Date
Debt, Closing Date Current Assets and Closing Date Current Liabilities
pursuant to Section 1.2(a), and to agree to resolution of all Claims
hereunder, (iv) to retain legal counsel and other professional
services, at the expense of the Shareholders, in connection with the
performance by the Shareholders' Representative of this Agreement, and
(v) to do each and every act and exercise any and all rights which
such Shareholder or Shareholders are permitted or required to do or
exercise under this Agreement and the other agreements, documents and
certificates executed in connection herewith. Each of the
Shareholders agrees that such agency and proxy are coupled with an
interest, are therefore irrevocable without the consent of the
Shareholders' Representative and shall survive the death, bankruptcy
or other incapacity of any Shareholder.
(c) Each of the Shareholders hereby agrees that
any amendment or waiver under this Agreement, and any action taken on
behalf of the Shareholders to enforce the rights of the Shareholders
under this Agreement, and any action taken with respect to any
adjustment or Claim (including any action taken to object to, defend,
compromise or agree to the payment of such adjustment or Claim), shall
be effective if approved in writing by persons who were the holders of
a majority of the Corporation's Stock immediately prior to the
Closing, and that each and every action so taken shall be binding and
conclusive on every Shareholder, whether or not such Shareholder had
notice of, or approved, such amendment or waiver.
(d) Timothy Thomas shall serve as the
Shareholders' Representative until he resigns or is otherwise unable
or unwilling to serve. In the event that a Shareholders'
Representative resigns from such position or is otherwise unable or
unwilling to serve, the remaining Shareholders shall select, by the
vote of the holders of a majority of the Corporation's Stock
immediately prior to the Closing, a successor representative to fill
such vacancy, shall provide prompt written notice to WCI of such
change and such substituted representative shall then be deemed to be
the Shareholders' Representative for all purposes of this Agreement.
6.9 GENERAL RELEASE BY SHAREHOLDERS. Each of the Shareholders
hereby fully
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releases and discharges the Corporation and its directors, officers, agents and
employees from all rights, claims and actions, known or unknown, of any kind
whatsoever, which any of such Shareholders now has or may hereafter have
against the Corporation and its directors, officers, agents and employees,
arising out of or relating to events arising prior to or on the Closing Date,
except (a) as may be described in written contracts disclosed in Schedule 6.9
and expressly described and specifically excepted from this release in Schedule
6.9, (b) compensation as an employee of the Corporation for current periods
expressly described and excepted from such release on schedule 6.9, and (c) for
the obligations of the Corporation arising after the Closing Date under this
Agreement. Specifically, but not by way of limitation, each of the
Shareholders waives any right of indemnification, contribution or other
recourse against the Corporation which he now has or may hereafter have against
the Corporation with respect to representations, warranties or covenants made
in this Agreement by the Corporation.
Each of the Shareholders hereby waives and relinquishes all
rights and benefits afforded by Section 1542 of the California Civil Code,
which states as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS TO WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
Each of the Shareholders understands and acknowledges the significance and
consequence of this waiver of Section 1542 and nevertheless elects to, and
does, release those claims described in this Section 6.9, known or unknown,
that it may have now or in the future arising out of or relating to any event
arising on or prior to the date of this Agreement.
7. INDEMNIFICATION
7.1 INDEMNITY BY THE SHAREHOLDERS. Each of the Shareholders,
jointly and severally, subject to the limitations set forth in Section 7.2,
covenants and agrees that he or she will indemnify and hold harmless WCI, the
Corporation and their respective directors, officers and agents and their
respective successors and assigns (collectively the "WCI INDEMNITEES"), from
and after the date of this Agreement and until the third anniversary of the
Closing Date, against any and all losses, damages, assessments, fines,
penalties, adjustments, liabilities, claims, deficiencies, costs, expenses
(including specifically, but without limitation, reasonable attorneys' fees and
expenses of investigation), expenditures, including, without limitation, any
"ENVIRONMENTAL SITE LOSSES" (as such term is hereinafter defined) identified by
a WCI Indemnitee in a Claims Notice (as defined in Section 7.3(a)), or asserted
by a WCI Indemnitee in litigation commenced against the Shareholders provided
that in either case any such Claims Notice shall be given or the litigation
commenced prior to the earlier of the third anniversary of this Agreement or
the expiration of the applicable statute of limitations (irrespective of the
date of discovery), with respect to each of the following contingencies (all,
the "7.1 INDEMNITY EVENTS"):
(a) Any misrepresentation, breach of warranty, or
nonfulfillment of any agreement or covenant on the part of the
Shareholders or the Corporation pursuant to the
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terms of this Agreement or any misrepresentation in or omission from
any Exhibit, Schedule, list, certificate, or other instrument
furnished or to be furnished to WCI pursuant to the terms of this
Agreement, regardless of whether, in the case of a breach of a
representation or a warranty, WCI relied on the truth of such
representation or warranty or had any knowledge of any breach thereof.
(b) The design, development, construction or operation of
any Facility or any other "ENVIRONMENTAL SITE" as hereinafter defined,
or the installation or operation of a UST during any period on or
prior to the Closing Date, in excess of the amount of liability with
respect thereto, if any, set forth on Part II of Schedule 3.8. As
used in this Agreement, "ENVIRONMENTAL SITE" shall mean any Facility,
any UST and any other waste storage, processing, treatment or disposal
facility, and any other business site or any other real property
owned, leased, controlled or operated by the Corporation or by any
predecessor thereof on or prior to the Closing Date. As used in this
Agreement, "ENVIRONMENTAL SITE LOSSES" shall mean any and all losses,
damages (including exemplary damages and penalties), liabilities,
claims, deficiencies, costs, expenses, and expenditures (including,
without limitation, expenses in connection with site evaluations, risk
assessments and feasibility studies) arising out of or required by an
interim or final judicial or administrative decree, judgment,
injunction, mandate, interim or final permit condition or restriction,
cease and desist order, abatement order, compliance order, consent
order, clean-up order, exhumation order, reclamation order or any
other remedial action that is required to be undertaken under federal,
state or local law in respect of operating activities on or affecting
any Facility, any UST or any other Environmental Site, including, but
not limited to (x) any actual or alleged violation of any law or
regulation respecting the protection of the environment, including,
but not limited to, RCRA and CERCLA or any other law or regulation
respecting the protection of the air, water and land and (y) any
remedies or violations, whether by a private or public action, alleged
or sought to be assessed as a consequence, directly or indirectly, of
any "RELEASE" (as defined below) of pollutants (including odors) or
Hazardous Substances from any Facility, any UST or any other
Environmental Site resulting from activities thereat, whether such
Release is into the air, water (including groundwater) or land and
whether such Release arose before, during or after the Closing Date.
The term "RELEASE" as used herein means any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing into the ambient environment.
Notwithstanding anything in this paragraph to the contrary, it is
specifically understood and agreed that a Release composed solely of
Hazardous Substances contained in household waste lawfully disposed of
in a landfill during the time the Corporation owned and/or operated
such landfill does not constitute an Environmental Site Loss.
(c) All matters on Schedule 3.8, Part II.
(d) All actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically,
but without limitation, reasonable attorneys' fees and expenses of
investigation) incident to any of the foregoing.
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7.2 LIMITATIONS ON SHAREHOLDERS' INDEMNITIES.
(a) Subject to the provisions of 7.2(b) hereof, the
obligations of the Shareholders to indemnify the WCI Indemnitees as
provided in Section 7.1 shall be equal to the amount by which the
cumulative amount of all such liabilities, claims, damages
deficiencies, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses, expenditures and Environmental Site
Losses with respect to any or all 7.1 Indemnity Events exceed five
thousand dollars ($5,000) (the "GENERAL DEDUCTIBLE AMOUNT").
(b) The maximum amount which WCI can recover as a result
of one or more 7.1 Indemnity Events shall not exceed:
(i) eighty percent (80%) of the Purchase Price
(as adjusted pursuant to Section 1.2(a) hereof), if the 7.1 Indemnity
Event occurs during the time period from the Closing Date to, and
including, the first anniversary of the Closing Date;
(ii) seventy-five percent (75%) of the Purchase
Price (as adjusted pursuant to Section 1.2(a) hereof), if the 7.1
Indemnity Event occurs during the time period from the first
anniversary of the Closing Date to, and including, the second
anniversary of the Closing Date; and
(iii) sixty-five percent (65%) of the Purchase
Price (as adjusted pursuant to Section 1.2(a) hereof), if the 10.1
Indemnity Event occurs during the time period from the second
anniversary of the Closing Date to, and including, the third
anniversary of the Closing Date.
For this purpose, the Shares shall be valued at one hundred and fifty thousand
dollars ($150,000).
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7.3 NOTICE OF INDEMNITY CLAIM.
(a) In the event that any claim ("CLAIM") is hereafter
asserted against or arises with respect to any WCI Indemnitee as to
which such Indemnitee may be entitled to indemnification hereunder,
the WCI Indemnitee shall notify the Shareholders (as applicable
collectively, the "INDEMNIFYING PARTY") in writing thereof (the
"CLAIMS NOTICE") within 60 days after (i) receipt of written notice of
commencement of any third party litigation against such WCI
Indemnitee, (ii) receipt by such WCI Indemnitee of written notice of
any third party claim pursuant to an invoice, notice of claim or
assessment, against such WCI Indemnitee, or (iii) such WCI Indemnitee
becomes aware of the existence of any other event in respect of which
indemnification may be sought from the Indemnifying Party (including,
without limitation, any inaccuracy of any representation or warranty
or breach of any covenant). The Claims Notice shall describe the
Claim and the specific facts and circumstances in reasonable detail,
and shall indicate the amount, if known, or an estimate, if possible,
of the losses that have been or may be incurred or suffered by the WCI
Indemnitee.
(b) The Indemnifying Party may elect to defend any Claim
for money damages where the cumulative total of all Claims (including
such Claims) do not exceed the limit set forth in Section 7.2(b) at
the time the Claim is made, by the Indemnifying Party's own counsel;
provided, however, the Indemnifying Party may assume and undertake the
defense of such a third party Claim only upon written agreement by the
Indemnifying Party that the Indemnifying Party is obligated to fully
indemnify the WCI Indemnitee with respect to such action. The WCI
Indemnitee may participate, at the WCI Indemnitee's own expense, in
the defense of any Claim assumed by the Indemnifying Party. Without
the written approval of the WCI Indemnitee, which approval shall not
be unreasonably withheld, the Indemnifying Party shall not agree to
any compromise of a Claim defended by the Indemnifying Party.
(c) If, within thirty (30) days of the Indemnifying
Party's receipt of a Claims Notice, the Indemnifying Party shall not
have provided the written agreement required by Section 7.3(b) and
elected to defend the Claim, the WCI Indemnitee shall have the right
to assume control of the defense and/or compromise of such Claim, and
the costs and expenses of such defense, including reasonable
attorneys' fees, shall be added to the Claim. The Indemnifying Party
shall promptly, and in any event within thirty (30) days after demand
therefor, reimburse the WCI Indemnitee for the costs of defending the
Claim, including attorneys' fees and expenses.
(d) The party assuming the defense of any Claim shall
keep the other party reasonably informed at all times of the progress
and development of its or their defense of and compromise efforts with
respect to such Claim and shall furnish the other party with copies of
all relevant pleadings, correspondence and other papers. In addition,
the parties to this Agreement shall cooperate with each other and make
available to each other and their representatives all available
relevant records or other materials required by them for their use in
defending, compromising or contesting any Claim. The failure to
timely
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deliver a Claims Notice or otherwise notify the Indemnifying Party of
the commencement of such actions in accordance with this Section 7.3
shall not relieve the Indemnifying Party from the obligation to
indemnify hereunder but only to the extent that the Indemnifying Party
establishes by competent evidence that it has been prejudiced thereby.
(e) In the event both the WCI Indemnitee and the
Indemnifying Party are named as defendants in an action or proceeding
initiated by a third party, they shall both be represented by the same
counsel (on whom they shall agree), unless such counsel the WCI
Indemnitee, or the Indemnifying Party shall determine that such
counsel has a conflict of interest in representing both the WCI
Indemnitee and the Indemnifying Party in the same action or proceeding
and the WCI Indemnitee and the Indemnifying Party do not waive such
conflict to the satisfaction of such counsel.
7.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
representations and warranties of the parties contained in this Agreement and
in any certificate, Exhibit or Schedule delivered pursuant hereto, or in any
other writing delivered pursuant to the provisions of this Agreement (the
"REPRESENTATIONS AND WARRANTIES") and the liability of the party making such
Representations and Warranties for breaches thereof shall survive the
consummation of the transactions contemplated hereby. The parties hereto in
executing and delivering and in carrying out the provisions of this Agreement
are relying solely on the representations, warranties, Schedules, Exhibits,
agreements and covenants contained in this Agreement, or in any writing or
document delivered pursuant to the provisions of this Agreement, and not upon
any representation, warranty, agreement, promise or information, written or
oral, made by any persons other than as specifically set forth herein or
therein.
7.5 NO EXHAUSTION OF REMEDIES OR SUBROGATION; RIGHT OF SET OFF.
The Shareholders waive any right to require any WCI Indemnitee to (i) proceed
against the Corporation; (ii) proceed against any other person; or (iii) pursue
any other remedy whatsoever in the power of any WCI Indemnitee. WCI may, but
shall not be obligated to, set off against any and all payments due any
Shareholder any amount to which any WCI Indemnitee is entitled to be
indemnified hereunder with respect to any 7.1 Indemnity Event. Such right of
set off shall be separate and apart from any and all other rights and remedies
that the Indemnities may have against Shareholders or their successors.
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8. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND WCI
8.1 RESTRICTIVE COVENANTS. As to the Corporation, the
Shareholders and their Affiliates acknowledge that (i) WCI, as the purchaser of
the Corporation's Stock, is and will be engaged in the same business as the
Corporation (the "BUSINESS"); (ii) the Shareholders and their Affiliates are
intimately familiar with the Business; (iii) the Business is currently
conducted in the State of Wyoming and WCI intends to continue the Business in
Wyoming and intends, by acquisition or otherwise, to expand the Business into
other geographic areas of Wyoming where it is not presently conducted; (iv) the
Shareholders and their Affiliates have had access to trade secrets of, and
confidential information concerning, the Business; (v) the agreements and
covenants contained in this Section 8.1 are essential to protect the Business
and the goodwill being acquired; and (vi) the Shareholders and their Affiliates
have the means to support themselves and their dependents other than by
engaging in a business substantially similar to the Business and the provisions
of this Section 8 will not impair such ability. The Shareholders covenant and
agree as set forth in (a), (b) and (c) below with respect to the Corporation:
(a) NON-COMPETE. For a period commencing on the Closing
Date and terminating five years thereafter (the "RESTRICTED PERIOD"),
neither the Shareholders nor any of their Affiliates shall, anywhere
in the counties of Albany, Crook, Campbell, Converse, Goshen,
Niobrara, Natrona, Platte or Weston, Wyoming, where WCI or one of its
subsidiaries owns or operates a business similar to the Business (the
"RESTRICTED COUNTIES"), directly or indirectly, acting individually or
as the owner, shareholder, partner, or employee of any entity, (i)
engage in the operation of a solid waste collection, transporting,
disposal and/or composting business, transfer facility, recycling
facility, materials recovery facility or solid waste landfill; (ii)
enter the employ of, or render any personal services to or for the
benefit of, or assist in or facilitate the solicitation of customers
for, or receive remuneration in the form of salary, commissions or
otherwise from, any business engaged in such activities; (iii) as
owner or lessor of real estate or personal property, rent to lease any
facility, equipment or other assets to any business engaged in the
same business as the Corporation; or (iv) receive or purchase a
financial interest in, make a loan to, or make a gift in support of,
any such business in any capacity, including, without limitation, as a
sole proprietor, partner, shareholder, officer, director, principal,
agent, trustee or lender; provided, however, that any of the
Shareholders may own, directly or indirectly, solely as an investment,
securities of any business traded on any national securities exchange
or NASDAQ, provided none of the Shareholders is a controlling person
of, or a member of a group which controls, such business and further
provided that the Shareholders do not, in the aggregate, directly or
indirectly, own 2% or more of any class of securities of such
business.
(b) CONFIDENTIAL INFORMATION. During the Restricted
Period and thereafter, the Shareholders and their Affiliates shall
keep secret and retain in strictest confidence, and shall not use for
the benefit of themselves or others, all data and information relating
to the Business ("CONFIDENTIAL INFORMATION"), including without
limitation, know-how, trade secrets, customer lists, supplier lists,
details of contracts, pricing policies,
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operational methods, marketing plans or strategies, bidding
information, practices, policies or procedures, product development
techniques or plans, and technical processes; provided, however, that
the term "CONFIDENTIAL INFORMATION" shall not include information that
(i) is or becomes generally available to the public other than as a
result of disclosure by the Shareholders or (ii) is general knowledge
in the solid waste handling and landfill business and not specifically
related to the Business.
(c) PROPERTY OF THE BUSINESS. All memoranda, notes,
lists, records and other documents or papers (and all copies thereof)
relating to the Business, including such items stored in computer
memories, on microfiche or by any other means, made or compiled by or
on behalf of the Shareholders or the Corporation or made available to
them relating to the Business, but excluding any materials (other than
the minute books of the Corporation) maintained by any attorneys for
the Corporation or the Shareholders prior to the Closing, are and
shall be the property of WCI and have been delivered or will be
delivered or made available to WCI at the Closing.
(d) NON-SOLICITATION. Without the consent of WCI, which
may be granted or withheld by WCI in its discretion, the Shareholders
and their Affiliates shall not solicit any employees of the
Corporation to leave the employ of the Corporation and join the
Shareholders or any Affiliate in any business endeavor owned or
pursued by the Shareholders.
(e) NO DISPARAGEMENT. From and after the Closing Date,
none of the Shareholders shall, in any way or to any person or entity
or governmental or regulatory body or agency, denigrate or derogate
WCI or any of its subsidiaries, or any officer, director or employee,
or any product or service or procedure of any such company whether or
not such denigrating or derogatory statements shall be true and are
based on acts or omissions which are learned by the Shareholders from
and after the date hereof or on acts or omissions which occur from and
after the date hereof, or otherwise. A statement shall be deemed
denigrating or derogatory to any person or entity if it adversely
affects the regard or esteem in which such person or entity is held by
investors, lenders or licensing, rating, or regulatory entities.
Without limiting the generality of the foregoing, none of the
Shareholders shall, directly or indirectly in any way in respect of
any such company or any such directors or officers, communicate with,
or take any action which is adverse to the position of any such
company with any person, entity or governmental or regulatory body or
agency who or which has dealings or prospective dealings with any such
company or jurisdiction or prospective jurisdiction over any such
company. This paragraph does not apply to the extent that testimony
is required by legal process, provided that WCI has received not less
than five days' prior written notice of such proposed testimony.
8.2 RIGHTS AND REMEDIES UPON BREACH. If any of the Shareholders
or any Affiliate breaches, or threatens to commit a breach of, any of the
provisions of Section 8.1 herein (the "RESTRICTIVE COVENANTS"), WCI shall have
the following rights and remedies, each of which rights and remedies shall be
independent of the others and severally enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to WCI
at law
34
<PAGE> 36
or in equity:
(a) SPECIFIC PERFORMANCE. The right and remedy to have
the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened
breach of the Restrictive Covenants would cause irreparable injury to
WCI and that money damages would not provide an adequate remedy to
WCI. Accordingly, in addition to any other rights or remedies, WCI
shall be entitled to injunctive relief to enforce the terms of the
Restrictive Covenants and to restrain the Shareholders from any
violation thereof.
(b) ACCOUNTING. The right and remedy to require the
Shareholders to account for and pay over to WCI all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Shareholders as the result of any transactions
constituting a breach of the Restrictive Covenants.
(c) SEVERABILITY OF COVENANTS. The Shareholders
acknowledge and agree that the Restrictive Covenants are reasonable
and valid in geographical and temporal scope and in all other
respects. If any court determines that any of the Restrictive
Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected
and shall be given full effect, without regard to the invalid
portions.
(d) BLUE-PENCILING. If any court determines that any of
the Restrictive Covenants, or any part thereof, is unenforceable
because of the duration or geographic scope of such provision, such
court shall reduce the duration or scope of such provision, as the
case may be, to the extent necessary to render it enforceable and, in
its reduced form, such provision shall then be enforced.
(e) ENFORCEABILITY IN JURISDICTION. WCI and the
Shareholders intend to and hereby confer jurisdiction to enforce the
Restrictive Covenants upon the courts of any jurisdiction within the
geographic scope of the Restrictive Covenants. If the courts of any
one or more of such jurisdictions hold the Restrictive Covenants
unenforceable by reason of the breadth of such scope or otherwise, it
is the intention of WCI and the Shareholders that such determination
not bar or in any way affect WCI's right to the relief provided above
in the courts of any other jurisdiction within the geographic scope of
the Restrictive Covenants as to breaches of such covenants in such
other respective jurisdictions, such covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and
independent covenants.
35
<PAGE> 37
9. GENERAL
9.1 ADDITIONAL CONVEYANCES. Following the Closing, the
Shareholders and WCI shall each deliver or cause to be delivered at such times
and places as shall be reasonably agreed upon such additional instruments as
WCI or the Shareholders may reasonably request for the purpose of carrying out
this Agreement. The Shareholders will cooperate with WCI and/or the
Corporation on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any actions, proceedings or
disputes of any nature with respect to matters pertaining to all periods prior
to the date of this Agreement.
9.2 ASSIGNMENT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto, the successors or assigns of WCI
and the heirs, legal representatives or assigns of the Shareholders; provided,
however, that any such assignment shall be subject to the terms of this
Agreement and shall not relieve the assignor of its or his responsibilities
under this Agreement.
9.3 PUBLIC ANNOUNCEMENTS. Except as required by law, no party
shall make any public announcement or filing with respect to the transactions
provided for herein prior to the Closing Date without the prior consent of the
other parties hereto.
9.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
9.5 NOTICES. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given if in writing
and either delivered personally, sent by facsimile transmission or by air
courier service, or mailed by postage prepaid registered or certified U.S.
mail, return receipt requested, to the addresses designated below or such other
addresses as may be designated in writing by notice given hereunder, and shall
be effective upon personal delivery or facsimile transmission thereof or upon
delivery by registered or certified U.S. mail or one business day following
deposit with an air courier service:
If to the Shareholders: at their respective addresses set forth on
Schedule 3.2
With a copy to: Chad Hooker, Esq.
Lubnau, Hand & Bailey
408 S. Gillette Avenue
Gillette, WY 82717-1028
Fax: (307) 682-9340
If to WCI: Waste Connections, Inc.
2260 Douglas Boulevard, Suite 280
Roseville, California 95661
Attention: Ronald J. Mittelstaedt
36
<PAGE> 38
Fax: (916) 772-2920
With a copy to: Robert D. Evans, Esq.
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, California 94111
Fax: (415) 421-2922
9.6 ATTORNEYS' FEES. In the event of any dispute or controversy
between WCI on the one hand and the Corporation or the Shareholders on the
other hand relating to the interpretation of this Agreement or to the
transactions contemplated hereby, the prevailing party shall be entitled to
recover from the other party reasonable attorneys' fees and expenses incurred
by the prevailing party. Such award shall include post-judgment attorney's
fees and costs.
9.7 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without regard
to its conflict of laws provisions.
9.8 PAYMENT OF FEES AND EXPENSES. Whether or not the transactions
herein contemplated shall be consummated, each party hereto will pay its own
fees, expenses and disbursements incurred in connection herewith and all other
costs and expenses incurred in the performance and compliance with all
conditions to be performed hereunder (including, in the case of the
Shareholders, any such fees, expenses and disbursements paid or accrued by, or
charged to, the Corporation).
9.9 INCORPORATION BY REFERENCE. All Schedules and Exhibits
attached hereto are incorporated herein by reference as though fully set forth
at each point referred to in this Agreement.
9.10 CAPTIONS. The captions in this Agreement are for convenience
only and shall not be considered a part hereof or affect the construction or
interpretation of any provisions of this Agreement.
9.11 NUMBER AND GENDER OF WORDS; CORPORATION. Whenever the
singular number is used herein, the same shall include the plural where
appropriate, and shall apply to all of such number, and to each of them,
jointly and severally, and words of any gender shall include each other gender
where appropriate.
9.12 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Exhibits hereto) and the other documents delivered pursuant hereto constitute
the entire Agreement and understanding between the Corporation, the
Shareholders and WCI and supersedes any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement may be
modified or amended only by a written instrument executed by the Corporation,
the Shareholders (or the Shareholders' Representative on their behalf) and WCI
acting through its officers, thereunto duly authorized by its Board of
Directors.
37
<PAGE> 39
9.13 WAIVER. No waiver by any party hereto at any time of any
breach of, or compliance with, any condition or provision of this Agreement to
be performed by any other party hereto may be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or at any prior or
subsequent time.
9.14 CONSTRUCTION. The language in all parts of this Agreement
must be in all cases construed simply according to its fair meaning and not
strictly for or against any party. Unless expressly set forth otherwise, all
references herein to a "DAY" are deemed to be a reference to a calendar day.
All references to "BUSINESS DAY" mean any day of the year other than a
Saturday, Sunday or a public or bank holiday in Oregon or California. Unless
expressly stated otherwise, cross-references herein refer to provisions within
this Agreement and are not references to the overall transaction or to any
other document.
10. GLOSSARY
The definitions of the terms used below can be found at the Section
indicated:
<TABLE>
<CAPTION>
Terms Section
----- -------
<S> <C>
7.1 Indemnity Events Section 7.1
Accredited investor Section 3.38(a)
Act Section 3.38(a)
Affiliate Section 3.11
At will Section 5.2(e)
Balance Sheet Date Section 1.2(a)
Section 3.7
Business Section 8.1
Business day Section 9.14
Claim Section 7.3(a)
Claims Notice Section 7.3(a)
Closing Section 2
Closing Date Section 2
Closing Date Current Assets Section 3.22(b)
Closing Date Current Liabilities Section 3.22(b)
Closing Date Debt Section 3.22(a)
Collection Franchises Section 3.10(a)
Confidential Information Section 8.1(b)
Corporate Property Section 3.12(b)
Corporation Parties
Corporation Debt Section 1.2(c)
Corporation's Stock Shareholders
Day Section 9.14
Environmental Laws Section 3.24
Environmental Site Section 7.1(b)
Environmental Site Losses Section 7.1
ERISA Section 3.17(a)
</TABLE>
38
<PAGE> 40
<TABLE>
<S> <C>
Excluded Assets Section 1.4
Facilities Section 3.10(c)
Facility Section 3.10(c)
Facility Property Section 3.10(c)(iii)
Facility Surveys/Site Plans Section 3.10(c)(iii)
Financial Statements Section 3.7
General Deductible Amount Section 7.2(a)
Golden parachute Section 3.17(a)
Golden Parachute Payment Section 3.17(c)
Governmental Permits Section 3.10(a)
Hazardous Material Section 3.24(e)
Hazardous Waste Section 3.24(e)
Indemnifying Party Section 7.3(a)
Knowledge Section 3.36
Laws Section 3.24
Lock up Section 3.38(j)
Multi-employer plan Section 3.17(a)
Note Section 1.2(d)
Occurrence Section 3.15
Permitted Liens Section 3.12(c)
Purchase Price Section 1.1
RCRA Section 3.24(a)
Recipient Section 3.17(c)
Records, Notifications and Reports Section 3.10(b)
Release Section 7.1(b)
Representations and Warranties Section 7.4
Required Governmental Consents Section 3.10(a)
Restricted Counties Section 8.1(a)
Restricted Period Section 8.1(a)
Restricted securities Section 3.38(i)
Restrictive Covenants Section 8.2
SEC Section 3.38(g)
Shareholders Debt Section 1.2(c)
Shareholders Parties
Shares Section 1.2(b)
UST Section 3.26
WCI Parties
WCI Indemnitees Section 7.1
WCI Stock Section 1.2(b)
</TABLE>
39
<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement by persons thereunto duly authorized as of the date first
above written.
THE CORPORATION: T & T DISPOSAL, INC.
By: _______________________________________
Timothy Thomas
President
WCI: WASTE CONNECTIONS, INC.
By: _______________________________________
Ronald J. Mittelstaedt
Chief Executive Officer & President
THE SHAREHOLDERS:
___________________________________________
Timothy Thomas
40
<PAGE> 42
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C> <C>
1. PURCHASE OF CORPORATION'S STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Shares to be Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Allocation of the Purchase Price . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. CLOSING TIME AND PLACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE SHAREHOLDERS . . . . . . . . . 2
3.1 Organization, Standing and Qualification . . . . . . . . . . . . . . . . . . . 3
3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3 All Stock Being Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.4 Authority for Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.5 No Breach or Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.8 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.9 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.10 Permits and Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.11 Certain Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.12 Fixed Assets and Real Property . . . . . . . . . . . . . . . . . . . . . . . . 8
3.13 Acquisition/Disposal of Assets . . . . . . . . . . . . . . . . . . . . . . . . 9
3.14 Contracts and Agreements; Adverse Restrictions . . . . . . . . . . . . . . . . 9
3.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.16 Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.17 Benefit Plans and Union Contracts . . . . . . . . . . . . . . . . . . . . . . . 10
3.18 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.19 Copies Complete; Required Consents . . . . . . . . . . . . . . . . . . . . . . 12
3.20 Customers, Billings, Current Receipts and Receivables . . . . . . . . . . . . . 12
3.21 No Change With Respect to the Corporation . . . . . . . . . . . . . . . . . . . 13
3.22 Debt; Current Assets and Current Liabilities . . . . . . . . . . . . . . . . . 14
3.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.24 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.25 Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.26 Underground Storage Tanks . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.27 Patents, Trademarks, Trade Names, etc. . . . . . . . . . . . . . . . . . . . . 17
3.28 Assets, etc., Necessary to Business . . . . . . . . . . . . . . . . . . . . . . 17
3.29 Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.30 Suppliers and Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.31 Absence of Certain Business Practices . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
i
<PAGE> 43
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C> <C>
3.32 Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.33 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.34 No Misleading Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.35 Accurate and Complete Records . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.36 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.37 Brokers; Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.38 Investment Representations . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.39 S Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4. REPRESENTATIONS AND WARRANTIES OF WCI . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.1 Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.2 No Contractual Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.3 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.4 Status of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.5 No Misleading Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.6 Brokers; Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.7 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5. CLOSING DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.1 WCI Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.2 Shareholders Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. ADDITIONAL COVENANTS OF WCI, THE CORPORATION AND THE SHAREHOLDERS . . . . . . . . . . . 24
6.1 Release of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.2 Release of Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Brokers and Finders Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.6 Short Year Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.7 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.8 Shareholders' Representative . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.9 General Release by Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 27
7. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.1 Indemnity by the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2 Limitations on Shareholders' Indemnities . . . . . . . . . . . . . . . . . . . 29
7.3 Notice of Indemnity Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 Survival of Representations, Warranties and Agreements . . . . . . . . . . . . 31
7.5 No Exhaustion of Remedies or Subrogation; Right of Set Off . . . . . . . . . . 31
8. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND WCI . . . . . . . . . . . . . . . . 31
8.1 Restrictive Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.2 Rights and Remedies Upon Breach . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
ii
<PAGE> 44
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C> <C>
9. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.1 Additional Conveyances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.3 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.6 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.7 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.8 Payment of Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.9 Incorporation by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.10 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.11 Number and Gender of Words; Corporation . . . . . . . . . . . . . . . . . . . . 36
9.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.13 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.14 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10. GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
iii
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 6, 1998, in Amendment No. 3 to the Registration
Statement (Form S-1 No. 333-48029) and related Prospectus of Waste Connections,
Inc. for the registration of 2,300,000 shares of its common stock.
Our audits also included the financial statement schedule of Waste Connections,
Inc. and Predecessors listed in Item 16.b. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
We also consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 20, 1998, with respect to the financial
statements of Madera Disposal Systems, Inc. included in Amendment No. 3 to the
Registration Statement (Form S-1 No. 333-48029) and related Prospectus of Waste
Connections, Inc. for the registration of 2,300,000 shares of its common stock.
ERNST & YOUNG LLP
Sacramento, California
May 19, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF WILLIAMS, KASTNER & GIBBS PLLC
We consent to the reference to our firm under the caption "Legal Matters" in
Amendment No. 3 to the Registration Statement (Form S-1 No. 333-48029) and
related Prospectus of Waste Connections, Inc. for the registration of up to
2,300,000 shares of its Common Stock.
WILLIAMS, KASTNER & GIBBS PLLC
Seattle, Washington
May 19, 1998
