<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1998.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WASTE CONNECTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<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:
CAROLYN S. REISER, ESQ.
SHARTSIS, FRIESE & GINSBURG LLP
ONE MARITIME PLAZA, 18TH FLOOR
SAN FRANCISCO, CALIFORNIA 94111
(415) 421-6500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C>
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- --------------------------------------------------------------------------------------------------------------
AMOUNT PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value............... 3,000,000 $56,062,500 $16,538.44
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and based on the average high and low sales prices
of the Common Stock reported by the Nasdaq National Market on July 9, 1998.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL 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.
- --------------------------------------------------------------------------------
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<PAGE> 2
WASTE CONNECTIONS, INC.
CROSS REFERENCE SHEET SHOWING LOCATION IN THE
PROSPECTUS OF INFORMATION REQUIRED BY FORM S-4
<TABLE>
<CAPTION>
ITEM OF FORM S-4 LOCATION IN PROSPECTUS
---------------- ----------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside Outside Front Cover Page
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page; Back Cover Page
Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Charges Cover Page; Prospectus Summary; Risk Factors;
and Other Information Selected Historical and Pro Forma Financial
and Operating Data
4. Terms of the Transaction *
5. Pro Forma Financial Information *
6. Material Contracts with the Company Being Acquired *
7. Additional Information Required for Reoffering by Outstanding Securities Covered by this
Persons and Parties Deemed Underwriters Prospectus*
8. Interests of Named Experts and Counsel Experts; Legal Matters
9. Disclosure of Commission Position on **
Indemnification for Securities Act Liabilities
10. Information with Respect to S-3 Registrants **
11. Incorporation of Certain Information By Reference **
12. Information with Respect to S-2 or S-3 Registrants **
13. Incorporation of Certain Information By Reference **
14. Information with Respect to Registrants Other Than Prospectus Summary; Summary Historical and
S-2 or S-3 Registrants Pro Forma Financial and Operating Data; Price
Range of Common Stock; Selected Historical
and Pro Forma Financial and Operating Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business
15. Information with Respect to S-3 Companies **
16. Information with Respect to S-2 or S-3 Companies **
17. Information with Respect to Companies Other than *
S-3 or S-2 Companies
18. Information if Proxies, Consents or Authorizations *
are to be Solicited
19. Information if Proxies, Consents or Authorizations *
are not to be Solicited or in an Exchange Offer
</TABLE>
- ---------------
* Not applicable or partially not applicable as of the filing of this
Registration Statement. Information, however, may be included in subsequent
amendments under certain circumstances.
** Not applicable or the answer is negative.
<PAGE> 3
3,000,000 SHARES
[WASTE CONNECTIONS, INC. LOGO]
COMMON STOCK
------------------------
This Prospectus relates to the offer and sale by Waste Connections, Inc., a
Delaware corporation (the "Company"), of 3,000,000 shares of the Company's
Common Stock, $0.01 par value ("Common Stock"), from time to time in connection
with the Company's acquisition, directly or indirectly, of the stock or assets
of solid waste collection, transportation, disposal and recycling businesses.
The consideration for the acquisition of the stock or assets of such businesses
may consist of cash, the assumption of liabilities, Common Stock, or any
combination thereof, as determined by direct, arms'-length negotiations with the
owners or controlling persons of such businesses. The shares of Common Stock
issued pursuant hereto will be valued at prices reasonably related to market
prices that are current either at the time an acquisition is agreed to or at or
about the time of delivery of such shares. No underwriting discounts or
commissions will be paid, although finder's fees may be paid from time to time
with respect to specific acquisitions. Any person receiving such fees may be
deemed to be an underwriter within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"). The Common Stock may be offered in such amounts,
at such prices and on such terms to be set forth in one or more supplements
(each, a "Prospectus Supplement") or post-effective amendments (each, a
"Post-Effective Amendment") to this Prospectus, each of which will include the
specific number of shares of Common Stock and the issue price per share.
Common Stock issued pursuant to this Prospectus and to any Prospectus
Supplement or Post-Effective Amendment, as described above, may be reoffered
pursuant hereto by the holders of such Common Stock (the "Selling Stockholders")
from time to time in transactions on the Nasdaq Stock Market's National Market
(the "Nasdaq National Market"), in negotiated transactions, through the writing
of options on Common Stock, or a combination of such methods of sale, at fixed
prices that may be changed, at market prices then prevailing at the time of
sale, at prices relating to the prevailing market prices, or at negotiated
prices. The Selling Stockholders may effect such transactions by selling shares
of Common Stock to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Stockholders or the purchasers of shares for whom such
broker-dealers may act as agents or to whom they may sell as principals, or
both. See "Outstanding Securities Covered by this Prospectus."
The Company will not receive any part of the proceeds from the resale by
the Selling Stockholders of any Common Stock pursuant to this Prospectus. The
Company will bear all expenses (other than selling discounts and commissions and
fees and expenses of the Selling Stockholders) in connection with the
registration of the Common Stock being reoffered by the Selling Stockholders.
The terms for the issuance of Common Stock may include provisions for the
indemnification of the Selling Stockholders from certain civil liabilities,
including liabilities under the Securities Act.
On July 1, 1998, the Company had 8,523,397 shares of Common Stock
outstanding. The Company's Common Stock is traded on the Nasdaq National Market
(symbol: WCNX). On July 15, 1998, the last sale price of the Common Stock on the
Nasdaq National Market was $20.25 per share.
The Company's executive offices are located at 2260 Douglas Boulevard,
Suite 280, Roseville, California 95661, and its telephone number is (916)
772-2221.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN 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.
------------------------
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES
UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
The date of this Prospectus is July 16, 1998.
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-4 (herein, together with all
amendments and exhibits, referred to as the "Registration Statement") under the
Securities Act with respect to the Common Stock. This Prospectus and any
accompanying Prospectus Supplement do not contain all of the information set
forth in the Registration Statement, certain parts of which have been omitted as
permitted by the rules and regulations of the Commission. Statements contained
in this Prospectus regarding the contents of 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.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Commission. The
Registration Statement, reports, proxy statements and other information filed by
the Company with the Commission may be inspected without charge at the principal
office of the Commission 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 other 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. The Company's Common Stock is listed on the Nasdaq National
Market, and such reports, proxy statements and other information may also be
inspected and copied at the offices of the National Association of Securities
Dealers, Inc., located at 1735 K Street, N.W., Washington, D.C. 20549, at
prescribed rates.
2
<PAGE> 5
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. 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 July 1, 1998, the Company served
more than 150,000 commercial, industrial and residential customers in
California, Idaho, Oklahoma, Oregon, South Dakota, Utah, Washington and Wyoming.
The Company currently owns and operates 13 collection operations, three transfer
stations and one Subtitle D landfill and operates an additional five 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 17 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 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.
3
<PAGE> 6
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
RECENT 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, and 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. 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 June 1, 1998,
the Company acquired substantially all of the business assets of Contractor's
Waste Removal, L.C., a provider of solid waste collection and transportation
services to more than 450 customers in Orem, Utah. On June 5, 1998, the Company
acquired the stock of B&B Sanitation, Inc., Red Carpet Landfill, Inc. and Darlin
Equipment, Inc., providers of, respectively, solid waste and recyclables
collection and transportation, landfill, and equipment leasing services to an
aggregate of more than 2,600 customers in western Oklahoma. On June 17, 1998,
the Company acquired the stock of Arrow Sanitary Service, Inc., an Oregon
corporation doing business as "Oregon Paper Fiber" that provides solid waste and
recyclables collection, transportation and handling services to more than 2,000
customers in Clark County, Washington and Multnomah and Clackamas Counties,
Oregon. On June 25, 1998, the Company acquired the stock of Curry Transfer and
Recycling and Oregon Waste Technology and certain real estate located in Curry
County, Oregon and used in those businesses. Those companies provide solid waste
and recyclables collection and transportation services to more than 5,400
customers in Brookings, Goldbeach and Port Orford, Oregon and the unincorporated
areas of Curry and Lane Counties, Oregon.
LETTERS OF INTENT TO ACQUIRE ADDITIONAL OPERATIONS
As of July 1, 1998, the Company had entered into nonbinding, preliminary
letters of intent relating to the possible acquisition of six collection and
transfer companies and one integrated collection and landfill company, which the
Company estimates represent aggregate annualized revenues of more than $17
million, and which would result in expansion into one new market. 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. Management of the
Company does not believe that the consummation of any of the foregoing potential
acquisitions is probable.
4
<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 PRO FORMA THREE MONTHS ENDED
INCEPTION ADJUSTED MARCH 31, 1998
(SEPTEMBER 9, 1997) YEAR ENDED ---------------------------
THROUGH DECEMBER 31, PRO FORMA
DECEMBER 31, 1997 1997(1) ACTUAL AS ADJUSTED(1)
------------------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 6,237 $ 38,405 $ 7,601 $ 9,763
Cost of operations.............................. 4,703 29,274 5,397 6,954
Selling, general and administrative............. 619 4,660 770 1,046
Depreciation and amortization................... 354 2,360 541 676
Start-up and integration........................ 493 493 -- --
Stock compensation.............................. 4,395 4,395 320 320
---------- ---------- ---------- ----------
Income (loss) from operations................... (4,327) (2,777) 573 767
Interest expense................................ (1,035) (2,756) (301) (742)
Other income (expense), net..................... (36) 149 -- 20
---------- ---------- ---------- ----------
Income (loss) before income taxes............... (5,398) (5,384) 272 45
Income tax (provision) benefit.................. 332 250 (237) (167)
---------- ---------- ---------- ----------
Net income (loss)............................... $ (5,066) $ (5,134) $ 35 $ (122)
========== ========== ========== ==========
Redeemable convertible preferred stock
accretion..................................... $ (531) $ (531) $ (572) $ (572)
---------- ---------- ---------- ----------
Net loss applicable to common stockholders...... $ (5,597) $ (5,665) $ (537) $ (694)
========== ========== ========== ==========
Basic net loss per share........................ $ (2.99) $ (2.72) $ (0.23) $ (.27)
========== ========== ========== ==========
Shares used in calculating basic net loss per
share......................................... 1,872,567 2,086,317 2,311,111 2,524,861
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, PRO FORMA
1997 ACTUAL AS ADJUSTED(3)
------------ ------ --------------
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BALANCE SHEET DATA:
Cash...................................................... $ 820 $2,386 $2,199
Working capital........................................... 836 988 880
Property and equipment, net............................... 4,185 7,316 7,629
Total assets.............................................. 18,880 41,033 52,726
Long-term debt(4)......................................... 6,762 16,289 24,228
Redeemable convertible preferred stock.................... 7,523 8,095 8,095
Redeemable common stock(5)................................ -- 7,500 7,500
Total stockholders' equity (deficit)...................... (551) 1,181 4,226
</TABLE>
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(1) Assumes the Company's acquisitions of Arrow Sanitary Service, Inc.
("Arrow"), Madera Disposal Systems, Inc. ("Madera") and the Company's
predecessors occurred on January 1, 1997. See "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 (September 9,
1997) 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) Assumes the Company's acquisition of Arrow occurred on March 31, 1998.
(4) Excludes redeemable Common Stock and redeemable convertible Preferred Stock.
(5) Common Stock issued in connection with the acquisition of Madera was
redeemable in certain circumstances, as defined in the Stock Purchase
Agreement between the Company and the Madera shareholders; however, the
redemption right expired upon the closing of the Company's initial public
offering. See Notes 2 and 9 of Notes to the Company's Financial Statements
included elsewhere herein.
5
<PAGE> 8
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.
From October 1, 1997, through July 1, 1998, the Company acquired 17 solid
waste collection, transfer, disposal and recycling operations. If the Company is
able to continue 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 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."
6
<PAGE> 9
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 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."
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
7
<PAGE> 10
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 $7.0 million. 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
"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 California, Idaho, Oklahoma, Oregon, South Dakota, Utah, Washington
and Wyoming, and the Company expects to focus its operations on the Western U.S.
for at least the foreseeable future. The Company estimates that as of July 1,
1998, approximately 45% 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."
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
8
<PAGE> 11
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.
In connection with owning and operating landfills, the Company is required
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 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 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
9
<PAGE> 12
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 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 and operates one landfill and operates another landfill. The Company's
ability to meet its growth objectives may depend in part on its ability to
acquire, lease and expand landfills and develop new landfill sites. As of July
1, 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. As of that date, the
estimated total remaining permitted disposal capacity of the Red Carpet Landfill
in Major County, Oklahoma owned and operated by the Company was approximately
650,000 tons, with approximately 1.7 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 and Red Carpet Landfills once their 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
10
<PAGE> 13
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 only one landfill and operates
another 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 provides accruals for future financial obligations
relating to closure and post-closure costs of its owned 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."
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.
Thirteen of the Company's existing 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
11
<PAGE> 14
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 were issued as Series A Preferred Stock and automatically
converted into shares of Common Stock on a one-for-one basis upon the closing of
the Company's initial public offering. Currently, no shares of Preferred Stock
are outstanding. The Board of Directors has the authority to issue shares of
Preferred Stock and to determine the price, designation, rights, preferences,
privileges, restrictions and conditions, including voting and dividend rights,
of these shares of Preferred Stock without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of holders of any Preferred Stock that
may be issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could make it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any Preferred Stock. See "Description of Capital Stock."
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."
Subsequent Share Issuances; Shares Eligible for Future Sale. The sale of
substantial amounts of the Company's Common Stock in the public market, or the
perception that such sales could occur, or the issuance of substantial amounts
of Common Stock to effect business acquisitions, could cause dilution to
existing stockholders and could adversely affect prevailing market prices of the
Company's Common Stock and the future ability of the Company to issue its Common
Stock to effect business acquisitions. Shares issued under this Registration
Statement will generally be eligible for public sale under the Federal
securities laws immediately after issuance.
12
<PAGE> 15
As of the date of this Prospectus, no shares other than the 2,300,000
shares sold in the Company's initial public offering in May 1998 are eligible
for sale in the public market. A total of 6,223,397 additional shares are
"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. In addition, 5,932,724 of
such shares are subject to contractual restrictions that prohibit the
stockholders from selling or otherwise disposing of such shares before November
17, 1998 without the prior written consent of BT Alex. Brown Incorporated. The
Company has also agreed not to sell any shares of Common Stock before November
17, 1998, 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. On November 17, 1998, 4,749,998 of the
shares of Common Stock that are currently outstanding 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 423,399 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 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
own approximately 6,140,671 shares of Common Stock, have the right for the five
years after the closing of the Company's initial public 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."
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.
Fluctuations in Quarterly Results; Potential Stock Price Volatility. The
Company believes that period-to-period comparisons of its operating results
should not be relied upon as an indication of future performance. Due to a
variety of factors, including general economic conditions, 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.
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
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<PAGE> 16
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.
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.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "WCNX." The following table sets forth the range of high and low sale
prices for the Common Stock for the period from May 22, 1998, the date of the
Company's initial public offering, through June 30, 1998.
<TABLE>
<CAPTION>
1998 HIGH LOW
---- ---- ---
<S> <C> <C>
Second Quarter (from May 22, 1998)......................... $20.75 $13.75
</TABLE>
On July 15, 1998, the last sale price of the Common Stock as reported by
the Nasdaq National Market was $20.25 per share. See "Description of Capital
Stock."
14
<PAGE> 17
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 the
Company's acquisitions of Arrow Sanitary Service, Inc. ("Arrow"), Madera
Disposal Systems, Inc. ("Madera"), 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.
15
<PAGE> 18
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,
THE THE INC.
FIBRES DISPOSAL FIBRES DISPOSAL PERIOD FROM
INTERNATIONAL GROUP INTERNATIONAL, GROUP JANUARY 1, PREDECESSORS
INC. COMBINED INC. COMBINED 1995 ONE MONTH
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, NOVEMBER 30, DECEMBER 31,
1993 1993 1994 1994 1995 1995
------------- ------------ -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA(1):
Revenues............... $3,787 $20,794 $5,610 $22,004 $7,340 $595
Cost of operations..... 2,737 16,775 4,432 18,298 5,653 527
Selling, general and
administrative....... 553 3,559 552 3,320 823 72
Depreciation and
amortization......... 428 520 642 606 715 74
------ ------- ------ ------- ------ ----
Income (loss) from
operations........... 69 (60) (16) (220) 149 (78)
Interest expense....... (78) (390) (191) (548) (162) (1)
Other income (expense),
net.................. 1 684 (2) 871 98 5
------ ------- ------ ------- ------ ----
Income (loss) before
income taxes......... (8) 234 (209) 103 85 (74)
Income tax (provision)
benefit.............. -- (77) -- -- (29) --
------ ------- ------ ------- ------ ----
Net income (loss)...... $ (8) $ 157 $ (209) $ 103 $ 56 $(74)
====== ======= ====== ======= ====== ====
<CAPTION>
THE
DISPOSAL
GROUP
THE COMBINED
DISPOSAL PERIOD FROM PREDECESSORS
GROUP JANUARY 1, COMBINED
COMBINED 1996 PERIOD
YEAR ENDED THROUGH ENDED
DECEMBER 31, JULY 31, DECEMBER 31,
1995 1996 1996
------------ ----------- ------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA(1):
Revenues............... $19,660 $8,738 $13,422
Cost of operations..... 16,393 6,174 11,420
Selling, general and
administrative....... 3,312 2,126 1,649
Depreciation and
amortization......... 628 324 962
------- ------ -------
Income (loss) from
operations........... (673) 114 (609)
Interest expense....... (206) (12) (225)
Other income (expense),
net.................. -- 2,661 (147)
------- ------ -------
Income (loss) before
income taxes......... (879) 2,763 (981)
Income tax (provision)
benefit.............. 298 (505) --
------- ------ -------
Net income (loss)...... $ (581) $2,258 $ (981)
======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
WASTE
CONNECTIONS, INC.
PERIOD FROM
PREDECESSORS INCEPTION PREDECESSORS WASTE CONNECTIONS, INC.
COMBINED (SEPTEMBER 9, PRO FORMA AS COMBINED THREE MONTHS ENDED
NINE MONTHS 1997) ADJUSTED THREE 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 $ 38,405 $5,694 $ 7,601 $ 9,763
Cost of operations.............. 14,753 4,703 29,274 4,674 5,397 6,954
Selling, general and
administrative................ 3,009 619 4,660 715 770 1,046
Depreciation and amortization... 1,083 354 2,360 378 541 676
Start-up and integration........ -- 493 493 -- -- --
Stock compensation.............. -- 4,395 4,395 -- 320 320
------- ---------- ---------- ------ ---------- -----------
Income (loss) from operations... (731) (4,327) (2,777) (73) 573 767
Interest expense................ (456) (1,035) (2,756) (152) (301) (742)
Other income (expense), net..... 14 (36) 149 -- -- 20
------- ---------- ---------- ------ ---------- -----------
Income (loss) before income
taxes......................... (1,173) (5,398) (5,384) (225) 272 45
Income tax (provision)
benefit....................... -- 332 250 -- (237) (167)
------- ---------- ---------- ------ ---------- -----------
Net income (loss)............... $(1,173) $ (5,066) $ (5,134) $ (225) $ 35 $ (122)
======= ========== ========== ====== ========== ===========
Redeemable convertible preferred
stock accretion............... (531) (531) (572) (572)
---------- ---------- ---------- -----------
Net loss applicable to common
stockholders.................. $ (5,597) $ (5,665) $ (537) $ (694)
========== ========== ========== ===========
Basic net loss per share........ $ (2.99) $ (2.72) $ (0.23) $ (.27)
========== ========== ========== ===========
Shares used in calculating basic
net loss per share............ 1,872,567 2,086,317 2,311,111 2,524,861
===========
Pro forma basic net income
(loss) per share(3)........... $ (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(3)...................... $ 0.01
==========
Shares used in calculating pro
forma diluted net income per
share......................... 6,835,415
</TABLE>
(See footnotes on following page)
16
<PAGE> 19
<TABLE>
<CAPTION>
FIBRES THE DISPOSAL FIBRES THE DISPOSAL THE DISPOSAL
INTERNATIONAL, GROUP INTERNATIONAL, GROUP PREDECESSORS GROUP
INC. COMBINED INC. COMBINED COMBINED COMBINED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1993 1994 1994 1995 1995
-------------- ------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1):
Cash and equivalents...... $ 3 $ 196 $ 321 $ 203 $ 184 $ 961
Working capital........... 494 (1,497) 155 (4,279) 90 2,498
Property and equipment,
net..................... 1,454 2,440 3,810 2,771 4,035 2,221
Total assets.............. 3,325 7,455 6,317 7,318 9,151 6,942
Long-term debt(5)......... 1,167 1,258 2,353 90 149 6,890
Redeemable convertible
preferred stock......... -- -- -- -- -- --
Redeemable common
stock(6)................ -- -- -- -- -- --
Total stockholders' equity
(deficit)............... 991 (163) 3,045 (1,486) -- (2,067)
<CAPTION>
WASTE CONNECTIONS, INC.
---------------------------------------
PREDECESSORS MARCH 31, 1998
COMBINED ------------------------
DECEMBER 31, DECEMBER 31, PRO FORMA
1996 1997 ACTUAL AS ADJUSTED(4)
------------ ------------ ------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA(1):
Cash and equivalents...... $ 102 $ 820 $ 2,386 $ 2,199
Working capital........... 695 836 988 880
Property and equipment,
net..................... 5,069 4,185 7,316 7,629
Total assets.............. 15,291 18,880 41,033 52,726
Long-term debt(5)......... 89 6,762 16,289 24,228
Redeemable convertible
preferred stock......... -- 7,523 8,095 8,095
Redeemable common
stock(6)................ -- -- 7,500 7,500
Total stockholders' equity
(deficit)............... -- (551) 1,181 4,226
</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 Arrow, Madera and the Company's
predecessors occurred on January 1, 1997. See "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) Assumes the Company's acquisition of Arrow occurred on March 31, 1998.
(5) Excludes redeemable Common Stock and redeemable convertible Preferred Stock.
(6) Common stock issued in connection with the acquisition of Madera was
redeemable in certain circumstances, as defined in the Stock Purchase
Agreement between the Company and the Madera shareholders; however, the
redemption right expired upon the closing of the Company's initial public
offering. See Notes 2 and 9 of Notes to the Company's Financial Statements
included elsewhere herein.
17
<PAGE> 20
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 July 1, 1998, the Company served
more than 150,000 commercial, industrial and residential customers in
California, Idaho, Oklahoma, Oregon, South Dakota, Utah, Washington and Wyoming.
The Company currently owns and operates 13 collection operations, three transfer
stations and one Subtitle D landfill and operates an additional five 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 Browning-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
residential customers, and agreements to operate two transfer stations, one
Subtitle D landfill and one recycling facility.
19
<PAGE> 21
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. On June 1, 1998, Waste Connections of Utah, Inc. acquired substantially
all of the business assets of Contractor's Waste Removal, L.C., a provider of
solid waste collection and transportation services to more than 450 customers in
Orem, Utah. On June 5, 1998, the Company acquired the stock of B&B Sanitation,
Inc., Red Carpet Landfill, Inc. and Darlin Equipment, Inc., providers of,
respectively, solid waste and recyclables collection and transportation,
landfill, and equipment leasing services to an aggregate of more than 2,600
customers in western Oklahoma. On June 17, 1998, the Company acquired the stock
of Arrow Sanitary Service, Inc., an Oregon corporation doing business as "Oregon
Paper Fiber" that provides solid waste and recyclables collection,
transportation and handling services to more than 2,000 customers in Clark
County, Washington and Multnomah and Clackamas Counties, Oregon. On June 25,
1998, the Company acquired the stock of Curry Transfer and Recycling and Oregon
Waste Technology and certain real estate located in Curry County, Oregon and
used in those businesses. Those companies provide solid waste and recyclables
collection and transportation services to more than 5,400 customers in
Brookings, Goldbeach and Port Orford, Oregon and the unincorporated areas of
Curry and Lane Counties, Oregon.
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, California and the landfill owned and operated by the Company in Major
County, Oklahoma. 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.
20
<PAGE> 22
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 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 owns and/or operates eight 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.
The Company accrues for estimated landfill closure and post-closure
maintenance costs at the Red Carpet Landfill it owns in Major County, Oklahoma.
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 additional 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
21
<PAGE> 23
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 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.
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>
22
<PAGE> 24
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.
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.
23
<PAGE> 25
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
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>
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>
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(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.
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<PAGE> 26
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%.
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.
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<PAGE> 27
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 July 1, 1998, the Company had sold or issued an
additional 3,723,399 shares of Common Stock at a weighted average value of
$10.66 per share, and granted options and warrants to purchase 2,357,911 shares
of Common Stock at a weighted average exercise price of $4.02 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 $12.00 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."
The Company has a $60.0 million revolving credit facility with a syndicate
of banks for which BankBoston, N.A. acts as agent, 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 and bears 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 credit
facility 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. It also requires the lenders' approval of
acquisitions in certain circumstances. See "Risk Factors -- Potential Inability
to Finance the Company's Potential Growth." As of June 30, 1998, an aggregate of
approximately $20.6 million was outstanding under the Company's credit facility,
and the interest rate on outstanding borrowings under the current credit
facility was approximately 7.5%.
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
$4.8 million. On June 16, 1998, Madera completed a $1.8 million bond financing
for certain capital expenditures that were contingent on the
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<PAGE> 28
financing. These expenditures are expected to be largely completed in 1998. On
June 11, 1998, the Company won an additional contract to provide services to the
city of Vancouver, which will require approximately $1.2 million of additional
capital expenditures. These expenditures, coupled with the capital expenditures
required for the acquisitions closed since the Company's initial public
offering, have increased the estimated capital expenditures for 1998 to
approximately $4.8 million. The Company intends to fund its planned 1998 capital
expenditures principally through internally generated funds, proceeds from its
initial public offering and borrowings under its existing credit facility. 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
additional landfill disposal facilities, the Company may also be required to
make significant expenditures to bring any such newly acquired disposal
facilities into compliance with applicable regulatory requirements, obtain
permits for any such newly acquired disposal facilities or expand the available
disposal capacity at any such newly acquired disposal facilities. The amount of
these expenditures cannot be currently determined, 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 net proceeds of its initial public 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
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<PAGE> 29
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> 30
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 July 1, 1998, the Company served
more than 150,000 commercial, industrial and residential customers in
California, Idaho, Oklahoma, Oregon, South Dakota, Utah, Washington and Wyoming.
The Company currently owns and operates 13 collection operations, three transfer
stations and one Subtitle D landfill and operates an additional five 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 17 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 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.
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
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<PAGE> 31
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 two landfills, of which it owns one, 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.
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
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<PAGE> 32
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 California, Idaho, Oklahoma, Oregon, South Dakota, Utah, Washington
and Wyoming and is assessing potential acquisitions of solid waste services
operations in Kansas, Montana, Nebraska 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
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 owns and/or operates eight
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
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<PAGE> 33
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 California, Idaho, Oklahoma, Oregon,
South Dakota, Utah, Washington and Wyoming 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 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
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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 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. 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. On June 1, 1998, the Company acquired
substantially all of the business assets of Contractor's Waste Removal, L.C., a
provider of solid waste collection and transportation services to more than 450
customers in Orem, Utah. On June 5, 1998, the Company acquired the stock of B&B
Sanitation, Inc., Red Carpet Landfill, Inc. and Darlin Equipment, Inc.,
providers of, respectively, solid waste and recyclables collection and
transportation, landfill, and equipment leasing services to an aggregate of more
than 2,600 customers in western Oklahoma. On June 17, 1998, the Company acquired
the stock of Arrow Sanitary Service, Inc., an Oregon corporation doing business
as "Oregon Paper Fiber" that provides solid waste and recyclables collection,
transportation and handling services to more than 2,000 customers in Clark
County, Washington and Multnomah and Clackamas Counties, Oregon. On June 25,
1998, the Company acquired the stock of Curry Transfer and Recycling and Oregon
Waste Technology and certain real estate located in Curry County, Oregon and
used in those businesses. Those companies provide solid waste and recyclables
collection and transportation services to more than 5,400 customers in
Brookings, Goldbeach and Port Orford, Oregon and the unincorporated areas of
Curry and Lane Counties, Oregon.
Letters of Intent to Acquire Additional Operations
As of July 1, 1998, the Company had entered into nonbinding, preliminary
letters of intent relating to the possible acquisition of six collection and
transfer companies and one integrated collection and landfill company (one new
service market), which the Company estimates represent aggregate annualized
revenues of more than $17 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. Management of the Company does
not believe that the consummation of any of the foregoing acquisitions is
probable.
SERVICES
Commercial, Industrial and Residential Waste Services
The Company serves more than 150,000 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 13,200 are served under exclusive
franchise agreements with remaining terms ranging from seven to 18 years, and
approximately 66,000 are served under exclusive municipal contracts with
generally 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
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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, one transfer station in Washington
and five transfer stations in Oregon, 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 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 two Subtitle D landfills, the Fairmead Landfill and
the Red Carpet Landfill, and owns the Red Carpet Landfill. The Company operates
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 July 1,
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.
As of July 1, 1998, the Red Carpet Landfill consisted of 82 total acres, of
which 40 acres were permitted for disposal. As of that date, the Red Carpet
Landfill had approximately 650,000 tons of unused permitted capacity remaining,
with approximately 1.7 million additional tons of capacity in various stages of
permitting, and was estimated to have a remaining life of 40 years. The Red
Carpet Landfill is currently permitted to accept up to 350 tons per day of
municipal solid waste.
The Company monitors the available permitted in-place disposal capacity of
the Fairmead and Red Carpet Landfills 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.
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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 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 13 operating locations
serving nine 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
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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 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
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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.
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 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
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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 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.
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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
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.
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.
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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 or operates landfills other
than the Fairmead Landfill and the Red Carpet 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 landfills. The Company has not
experienced difficulty in obtaining performance bonds or letters of credit for
its current operations. At July 1, 1998, the Company had provided customers and
various regulatory authorities with surety bonds and letters of credit in the
aggregate amount of approximately $2.7 million to secure its obligations. The
Company's credit facility provides for the issuance of letters of credit in an
amount up to $15 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
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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 Brookings, Oregon, Curry County, Oregon and
Converse County, Wyoming, under leases expiring in 1998, in Maltby, Washington,
Idaho Falls and Pocatello, Idaho, under leases expiring at the end of 1999, and
in Orem, Utah under a lease expiring in 2000. The Company subleases real
property in Vancouver, Washington under a sublease expiring in 2001. The Company
leases real property in Deadwood, South Dakota and Issaquah, Washington under
leases expiring in 2003 and 2008, respectively, and subleases real property in
Portland, Oregon under a sublease expiring in 2014. 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 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 acquisitions in Wyoming, South Dakota and
Oregon, the Company also acquired real estate in Wright, Wyoming, Butte County,
South Dakota and Curry County, Oregon.
At July 1, 1998, the Company owned or leased approximately 270 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. 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 July 1, 1998, the Company employed approximately 382 full-time
employees, including approximately 34 persons classified as professionals or
managers, approximately 309 employees involved in collection, transfer, disposal
and recycling operations, and approximately 39 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.
Approximately 11 drivers at Arrow are currently represented by the Teamsters
Union, with which Arrow entered a three-year collective bargaining agreement in
March 1998. 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 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
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<PAGE> 44
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> 45
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the Company's
executive officers and directors as of July 1, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Ronald J. Mittelstaedt(1)(2)........... 35 President, Chief Executive Officer and
Chairman
Steven F. Bouck........................ 41 Executive Vice President and Chief Financial
Officer
Eugene V. Dupreau(3)................... 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)(3)............. 37 Director
William J. Razzouk(1)(2)(3)............ 50 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
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 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
44
<PAGE> 46
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.
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
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<PAGE> 47
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. A majority of the
members of the Executive Committee are, and both members of each of the Audit
and Compensation Committees are, 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. Each independent director receives 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.
46
<PAGE> 48
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 EXPIRATION -----------------------
BENEFICIAL OWNER GRANTED 1997 PER SHARE(1) DATE 5% 10%
---------------- ---------- ------------ -------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ronald J. Mittelstaedt....... 100,000(3) 15.9% $2.80 Dec. 14, 2007 $1,675,000 $2,832,000
100,000(4) 15.9% $2.80 Dec. 14, 2002 $1,252,000 $1,653,000
</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. 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 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.
(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.
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<PAGE> 49
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. Mr. Mittelstaedt's base salary will
be adjusted to at least $250,000 on October 1, 1998. 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, 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.
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<PAGE> 50
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 July 1, 1998, the Company had granted options to purchase
937,300 shares of Common Stock at a weighted average exercise price of $5.92 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.
49
<PAGE> 51
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.
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,
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<PAGE> 52
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 lia-
bility 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. Net
payments by the Company to Fibres for the period ending March 31, 1998, were
$23,195.
51
<PAGE> 53
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of July 1, 1998, 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>
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENTAGE
--------------------------- --------- ----------
<S> <C> <C>
James N. Cutler, Jr.(2)(3)............................ 977,322 11.1%
J. Bradford Bishop(2)(3).............................. 916,607 10.5
Ronald J. Mittelstaedt(2)(4).......................... 1,025,043 11.9
Frank W. Cutler(2)(3)................................. 672,246 7.7
Eugene V. Dupreau(2)(5)............................... 397,000 4.6
Charles B. Youngclaus(2)(5)........................... 375,000 4.4
Kieckhefer Partnership 84-1(2)........................ 562,104 6.6
Michael W. Harlan(2).................................. -- --
William J. Razzouk(2)................................. -- --
Eugene P. Polk(2)(7).................................. 749,470 8.8
All executive officers and directors as a group (9
persons)............................................ 1,926,758 22.0%
</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.
(3) Includes 247,000 shares purchasable under currently exercisable warrants.
(4) 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.
(5) Includes 66,667 shares purchasable under immediately exercisable warrants.
(6) Includes 66,666 shares purchasable under immediately exercisable warrants.
(7) Includes 285,713 shares beneficially owned through three trusts for which
Eugene Polk 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 held by the Polk Investment Partnership 93-1,
for which Eugene Polk serves as a Manager; and 281,052 shares held by
Kieckhefer Trust Partnership, for which Eugene Polk serves as Manager.
52
<PAGE> 54
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 8,523,397 shares of Common Stock outstanding and no shares
of Preferred Stock outstanding.
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. 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, and the shares of Common Stock to be issued pursuant to
this Prospectus and any Prospectus Supplement, 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. 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.
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,
53
<PAGE> 55
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 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
54
<PAGE> 56
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.
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.
55
<PAGE> 57
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. 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 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., serves as transfer agent and
registrar for the Common Stock.
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<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
As of July 1, 1998, the Company had 8,523,397 shares of Common Stock
outstanding. Of those shares, the 2,300,000 sold in the Company's initial public
offering are freely saleable in the public market, unless acquired by affiliates
of the Company. All of the 5,932,724 shares outstanding prior to completion of
the initial public offering are subject to contractual restrictions that
prohibit the stockholder from selling or otherwise disposing of shares before
November 17, 1998, without the prior written consent of BT Alex. Brown
Incorporated. After that date, 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 423,399 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 before November 17, 1998, 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 (85,233 shares
as of July 1, 1998) 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.
A public trading market for the Common Stock has existed only since May 22,
1998, and no assurance can be given that an active public market for the Common
stock will develop or be sustained. 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.
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.
OUTSTANDING SECURITIES COVERED BY THIS PROSPECTUS
This Prospectus, and Post-Effective Amendments and Prospectus Supplements,
as appropriate, may be used from time to time by persons who have received
shares of Common Stock covered by the Registration Statement in acquisitions of
businesses by the Company, or their transferees ("Selling Stockholders"), and
who desire to offer and sell such shares in transactions in which they and any
broker-dealers through whom such shares are sold may be deemed to be
underwriters within the meaning of the Securities Act.
The Company will not receive any of the proceeds from any such sales. Any
commissions paid or concessions allowed to any broker-dealer and, if any
broker-dealer purchases such shares as principal, any profits received on the
resale of such shares, may be deemed to be underwriting discounts and
commissions under the Securities Act. Printing, certain legal, filing and other
similar expenses of this offering will be paid
57
<PAGE> 59
by the Company. Selling Stockholders will bear all other expenses of this
offering, including any brokerage fees, underwriting discounts or commissions.
Upon the Company's being notified by a Selling Stockholder that any
material arrangement has been entered into with a broker-dealer for the sale of
shares through a block trade, special offering, exchange distribution or
secondary distribution, a Prospectus Supplement will be filed, pursuant to Rule
424 under the Securities Act, setting forth (i) the name of such Selling
Stockholder and the participating broker-dealer, (ii) the number of shares
involved, (iii) the price at which such shares were sold, (iv) the commissions
paid or discounts or concessions allowed to such broker-dealer, where
applicable, (v) that such broker-dealer did not conduct any investigation to
verify the information set out in this Prospectus, and (vi) other facts material
to the transaction.
Selling Stockholders may sell the shares being offered hereby from time to
time in transactions on the Nasdaq National Market or on a securities exchange
on which the Company's Common Stock may then be listed, in negotiated
transactions or otherwise, at market prices then prevailing at the time of sale
or at negotiated prices. Selling Stockholders may sell some or all of the shares
in transactions involving broker-dealers, who may act solely as agents and/or
may acquire shares as principals. Broker-dealers participating in such
transactions as agents may receive commissions from Selling Stockholders (and,
if they act as agents for the purchasers of such shares, from such purchasers).
Participating broker-dealers may agree with Selling Stockholders to sell a
specified number of shares at a stipulated price per share and, to the extent
such broker-dealers are unable to do so acting as agents for the Selling
Stockholders, to purchase as principal any unsold shares at the price required
to fulfill the broker-dealers' commitments to the Selling Stockholders.
In addition or alternatively, shares may be sold by the Selling
Stockholders and/or by or through other broker-dealers in special offerings,
exchange distributions or secondary distributions pursuant to and in compliance
with the governing rules of the Nasdaq National Market or on a securities
exchange on which the Company's Common Stock may then be listed. In connection
therewith, commissions in excess of the customary commission prescribed by the
rules of such securities exchange may be paid to participating broker-dealers,
or, in the case of certain secondary distributions, a discount or concession
from the offering price may be allowed to participating broker-dealers in excess
of such customary commission. Broker-dealers who acquire shares as principals
thereafter may resell such shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other broker-dealers, including transactions of the nature described in
the preceding two sentences) on the Nasdaq National Market or on a securities
exchange on which the Company's Common Stock may then be listed, in negotiated
transactions or otherwise, at market prices prevailing at the time of sale or at
negotiated prices and, in connection with such resales, may pay to or receive
commissions from the purchasers of such shares.
Each Selling Stockholder may indemnify any broker-dealer that participates
in transactions involving sales of the shares against certain liabilities,
including liabilities arising under the Securities Act.
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. 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, the financial statements of Madera Disposal Systems, Inc. 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 Arrow Sanitary Service,
Inc. as of
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<PAGE> 60
September 30, 1997, and for the year then ended, 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.
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<PAGE> 61
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> 62
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MADERA DISPOSAL SYSTEMS, INC.
Report of Ernst & Young LLP, Independent Auditors......... F-39
Balance sheets as of December 31, 1996 and 1997........... F-40
Statements of income and retained earnings for the years
ended December 31, 1995, 1996 and 1997................. F-41
Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997.................................... F-42
Notes to Financial Statements............................. F-43
ARROW SANITARY SERVICE, INC.
Report of Ernst & Young LLP, Independent Auditors......... F-49
Balance sheets as of September 30, 1997 (Audited) and
March 31, 1998 (Unaudited)............................. F-50
Statements of income and retained earnings for the year
ended September 30, 1997 (Audited) and the six months
ended March 31, 1997 and 1998 (Unaudited).............. F-51
Statements of Cash Flows for the year ended September 30,
1997 (Audited) and the six months ended March 31, 1997
and 1998 (Unaudited)................................... F-52
Notes to Financial Statements............................. F-53
</TABLE>
F-2
<PAGE> 63
WASTE CONNECTIONS, INC.
INTRODUCTION TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Balance Sheet as of March
31, 1998 assumes the Company's acquisition of Arrow Sanitary Service, Inc.
occurred on that date. 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 the business combinations involving Waste Connections,
Inc., (the "Company"), its predecessors, Madera Disposal Systems, Inc.
("Madera") and Arrow Sanitary Service, Inc. ("Arrow"). Such combinations were
accounted for using the purchase method of accounting.
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 Arrow 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 financial statements, including adjusting
depreciation expense to reflect purchase price allocations, adjusting interest
expense to reflect acquisition-related debt 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 Arrow 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> 64
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
CONNECTIONS, WASTE
INC. CONNECTIONS,
PERIOD FROM PRO FORMA INC. AND MADERA
INCEPTION PREDECESSORS ADJUSTMENTS PREDECESSORS DISPOSAL
(SEPTEMBER COMBINED NINE TO COMBINE WASTE COMBINED SYSTEMS, INC.
9, 1997) TO MONTHS ENDED CONNECTIONS, YEAR ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30, INC. AND DECEMBER 31, DECEMBER 31,
1997 1997 PREDECESSORS 1997 1997
------------ ------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues........................... $ 6,237 $18,114 $ -- $24,351 $7,845
Operating expenses:
Cost of operations................ 4,703 14,753 (146)(a) 19,015 5,289
(195)(b)
(100)(c)
Selling, general and
administrative.................. 619 3,009 (570)(d) 2,926 1,041
(132)(e)
Depreciation and amortization..... 354 1,083 81(f) 1,416 627
(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
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
(Provision) benefit for income
taxes............................. 332 -- (561)(i) 240 --
469(j)
--------- ------- ------ ------- ------
Net income (loss).................. $ (5,066) $(1,173) $1,310 $(4,929) $ 781
========= ======= ====== ======= ======
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>
ARROW
SANITARY
SERVICE, INC.
YEAR
ENDED PRO FORMA
SEPTEMBER 30, PRO FORMA AS
1997 ADJUSTMENTS ADJUSTED
-------------- ----------- ---------
<S> <C> <C> <C>
Revenues........................... $6,209 -- $ 38,405
Operating expenses:
Cost of operations................ 4,970 -- 29,274
Selling, general and
administrative.................. 776 (83)(k) 4,660
Depreciation and amortization..... 143 (377)(l) 2,360
364(m)
(78)(q)
265(r)
Start-up and integration.......... -- -- 493
Stock compensation................ -- -- 4,395
------ ------- ---------
Income (loss) from operations...... 320 (91) (2,777)
Interest expense................... (72) 280(n) (2,756)
(897)(o)
72(s)
(606)(t)
Other income (expense), net........ (2) -- 149
------ ------- ---------
Income (loss) before (provision)
benefit for income taxes.......... 246 (1,242) (5,384)
(Provision) benefit for income
taxes............................. (117) (297)(p) 250
198(i)
226(u)
------ ------- ---------
Net income (loss).................. $ 129 $(1,115) $ (5,134)
====== ======= =========
Redeemable convertible preferred
stock accretion................... $ (531)
---------
Net loss applicable to common
stockholders...................... $ (5,665)
=========
Basic net loss per common share.... $ (2.72)
=========
Shares used in the per share
calculation....................... 2,086,317
=========
</TABLE>
See accompanying notes.
F-4
<PAGE> 65
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
CONSOLIDATED DISPOSAL ARROW SANITARY
THREE SYSTEMS, SERVICE, INC.
MONTHS INC. ONE THREE MONTHS
ENDED MONTH ENDED ENDED PRO FORMA
MARCH 31, JANUARY 31, MARCH 31, PRO FORMA COMBINED
1998 1998 1998 ADJUSTMENTS AS ADJUSTED
------------ ----------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues.............................. $ 7,601 $ 611 $1,551 $ -- $ 9,763
Operating expenses:
Cost of operations.................. 5,397 412 1,145 -- 6,954
Selling, general and
administrative................... 770 112 183 (19)(k) 1,046
Depreciation and amortization....... 541 69 40 (19)(l)(m) 676
45(q)(r)
Stock compensation.................. 320 -- -- 320
--------- ----- ------ ----- ---------
Income (loss) from operations......... 573 18 183 (7) 767
Interest expense...................... (301) (289) (14) 14(s) (742)
(152)(t)
Other income (expense), net........... -- 16 4 -- 20
--------- ----- ------ ----- ---------
Income (loss) before (provision)
benefit for income taxes............ 272 (255) 173 (145) 45
(Provision) benefit for income
taxes............................... (237) -- (75) 83(p)(i) (167)
62(u)
--------- ----- ------ ----- ---------
Net income (loss)..................... $ 35 $(255) $ 98 $ -- $ (122)
========= ===== ====== ===== =========
Redeemable convertible preferred stock
accretion........................... $ (572) $ (572)
--------- ---------
Net loss applicable to common
stockholders........................ $ (537) $ (694)
========= =========
Basic net loss per common share....... $ (0.23) $ (0.27)
========= =========
Shares used in the per share
calculations:
Basic............................... 2,311,111 2,524,861
========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 66
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 predecessors, Madera
and Arrow 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 Madera and Arrow consist of the following:
<TABLE>
<CAPTION>
MADERA ARROW
-------- -------
<S> <C> <C>
Cash paid to shareholders............................... $6,949 $ 7,656
Common stock issued..................................... 7,500 3,045
Liabilities assumed..................................... 4,256 1,358
Acquisition costs....................................... 180 95
Common stock warrants issued............................ 954 --
-------- -------
$19,839 $12,154
======== =======
</TABLE>
The Company has preliminary allocated the purchase prices as follows:
<TABLE>
<CAPTION>
MADERA ARROW
-------- -------
<S> <C> <C>
Tangible assets purchased............................... $4,534 $ 1,334
Goodwill................................................ 14,580 10,770
Covenant not to compete................................. -- 50
Long-term franchise agreements and contracts............ 725 --
-------- -------
$19,839 $12,154
======== =======
</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 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-6
<PAGE> 67
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(f) To increase depreciation for the increase in the property and
equipment's carrying value to fair value related to the Madera
acquisition.
(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 for the Madera acquisition 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 Company's 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 related to the Madera
acquisition.
(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 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%.
(q) To reduce depreciation for the reduction in property and equipment's
carrying value to fair value related to the Arrow acquisition.
(r) To increase goodwill and covenant not to compete amortization for the
increases resulting from the Arrow acquisition. Goodwill is amortized
over a term of 40 years and the covenant not to compete is amortized
over a term of five years.
(s) To eliminate interest expense associated with the debt obligations of
Arrow which were paid off in connection with the acquisition.
(t) To record interest expense on the additional long-term debt
obligations incurred by the Company in connection with the Arrow
acquisition.
(u) To record the estimated tax provision associated with the pro forma
adjustments for the Arrow acquisition at an estimated effective tax
rate of 38%.
F-7
<PAGE> 68
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 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 Arrow........................................ 213,750 213,750
---------- -----------
Shares used in calculating pro forma basic net
loss per share.................................. 2,086,317 2,524,861
========== ===========
</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. The Company incurred costs of $95 related to
the Arrow acquisition, which have been factored into the purchase price. Costs
incurred by Arrow 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> 69
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ARROW
WASTE SANITARY
CONNECTIONS, INC. SERVICE, PRO FORMA PRO FORMA
CONSOLIDATED INC. ADJUSTMENTS AS ADJUSTED
------------------ -------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................... $ 2,386 $ 274 $(7,751)(1) $ 2,199
(510)(4)
7,800(5)
Accounts receivable, net............... 4,198 694 -- 4,892
Prepaid expenses and other current
assets.............................. 1,061 48 -- 1,109
------- ------ ------- -------
Total current assets........... 7,645 1016 (461) 8,200
Property and equipment, net.............. 7,316 926 (613)(2) 7,629
Goodwill, net............................ 24,935 -- 10,770(3) 35,705
Other intangible assets.................. -- 118 (118)(2) 50
50(3)
Other assets............................. 1,137 13 (8)(2) 1,142
------- ------ ------- -------
$41,033 $2,073 $ 9,620 $52,726
======= ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 3,661 $ 439 $ -- $ 4,100
Deferred revenue....................... 972 11 -- 983
Accrued liabilities.................... 1,701 213 -- 1,914
Current portion of long term debt...... -- 154 (154)(4) --
Current portion of accrued losses on
acquired contracts.................. 323 -- -- 323
------- ------ ------- -------
Total current liabilities...... 6,657 817 (154) 7,320
Accrued losses on acquired contracts..... 1,149 -- -- 1,149
Long-term debt, net...................... 16,289 495 (356)(4) 24,228
7,800(5) --
Deferred income taxes.................... 162 46 -- 208
Redeemable convertible preferred stock... 8,095 -- -- 8,095
Redeemable common stock.................. 7,500 -- -- 7,500
Stockholders' equity:
Common stock........................... 24 47 2(6) 26
(47)(7)
Additional paid-in capital............. 8,114 3,043(6) 11,157
Treasury stock payments................ -- (25) 25(7) --
Stockholder notes receivable........... (82) -- -- (82)
Deferred stock compensation............ (741) -- -- (741)
Retained earnings (deficit)............ (6,134) 693 (693)(7) (6,134)
------- ------ ------- -------
Total stockholders' equity..... 1,181 715 2,330 4,226
------- ------ ------- -------
$41,033 $2,073 $ 9,620 $52,726
======= ====== ======= =======
</TABLE>
See accompanying notes.
F-9
<PAGE> 70
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 acquisition of Arrow 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 acquisition of
Arrow.
(1) Cash payments to the former shareholders of Arrow ($7,656) and
payment of acquisition costs ($95).
(2) To reduce the property, plant and equipment ($613) and intangibles
($126) acquired from Arrow to fair value.
(3) To record the excess of the purchase price over the net assets
acquired from Arrow for goodwill and intangible assets of $10,770
and $50. respectively.
(4) To pay off certain of the outstanding debt obligations of Arrow.
(5) To record additional long term debt associated with the acquisition
of Arrow.
(6) To record the common stock issued in connection with the
acquisition of Arrow.
(7) To eliminate the equity accounts of Arrow.
F-10
<PAGE> 71
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> 72
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> 73
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 CONNECTIONS, INC.
NINE MONTHS INCEPTION PREDECESSORS CONSOLIDATED
ENDED (SEPTEMBER 9, 1997) COMBINED 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>
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> 74
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> 75
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> 76
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> 77
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 WASTE CONNECTIONS, INC.
NINE MONTHS INCEPTION PREDECESSORS CONSOLIDATED
ENDED (SEPTEMBER 9, 1997) COMBINED 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> 78
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> 79
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> 80
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 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
F-20
<PAGE> 81
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)
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.
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
F-21
<PAGE> 82
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)
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.
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.
F-22
<PAGE> 83
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)
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.
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
F-23
<PAGE> 84
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 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 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
F-24
<PAGE> 85
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)
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.
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>
F-25
<PAGE> 86
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)
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.
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-26
<PAGE> 87
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>
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>
F-27
<PAGE> 88
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)
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 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.
F-28
<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)
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).
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.
F-29
<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)
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 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
F-30
<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)
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 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.
F-31
<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)
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>
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.
F-32
<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)
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>
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
F-33
<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)
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.
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
F-34
<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)
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.
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-35
<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)
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-36
<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)
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 and 1,024,306
warrants outstanding................. -- -- -- --
Common shares issuable upon conversion 2,499,998
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 Company and it's subsidiaries including among
other things, the incurrence of additional indebtedness,
F-37
<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)
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-38
<PAGE> 99
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-39
<PAGE> 100
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-40
<PAGE> 101
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-41
<PAGE> 102
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-42
<PAGE> 103
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.
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.
F-43
<PAGE> 104
MADERA DISPOSAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
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 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.
F-44
<PAGE> 105
MADERA DISPOSAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
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>
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.
F-45
<PAGE> 106
MADERA DISPOSAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
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>
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.
F-46
<PAGE> 107
MADERA DISPOSAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
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 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.
F-47
<PAGE> 108
MADERA DISPOSAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
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-48
<PAGE> 109
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Arrow Sanitary Service, Inc.
We have audited the accompanying balance sheet of Arrow Sanitary Service,
Inc. as of September 30, 1997, and the related statement of income and retained
earnings, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Arrow Sanitary Service, Inc.
at September 30, 1997, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Sacramento, California
July 8, 1998
F-49
<PAGE> 110
ARROW SANITARY SERVICE, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 205 $ 274
Accounts receivable....................................... 520 694
Prepaid expenses and other current assets................. 37 48
------ ------
Total current assets.............................. 762 1,016
Property and equipment, net................................. 815 926
Intangible assets, net...................................... 121 118
Other assets................................................ 48 13
------ ------
$1,746 $2,073
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 470 $ 439
Deferred revenue.......................................... 11 11
Accrued liabilities....................................... 151 213
Current portion of long-term debt......................... 168 154
------ ------
Total current liabilities......................... 800 817
Long-term portion of capital lease obligations.............. -- 45
Long-term debt.............................................. 429 450
Deferred income taxes....................................... 34 46
Commitments and contingencies (Note 4)
Shareholders' equity:
Common stock: no par value; 1,000 shares authorized; 600
shares issued and outstanding.......................... 47 47
Treasury stock payments................................... (25) (25)
Retained earnings......................................... 461 693
------ ------
Total shareholders' equity........................ 483 715
------ ------
$1,746 $2,073
====== ======
</TABLE>
See accompanying notes.
F-50
<PAGE> 111
ARROW SANITARY SERVICE, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31,
SEPTEMBER 30, ----------------
1997 1997 1998
------------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Revenues.................................................... $6,209 $2,872 $3,148
Operating expenses:
Cost of operations........................................ 4,970 2,080 2,255
Selling, general and administrative....................... 776 448 369
Depreciation and amortization............................. 143 70 85
------ ------ ------
Income from operations...................................... 320 274 439
Interest expense............................................ (72) (39) (30)
Other income (expense), net................................. (2) (5) 40
------ ------ ------
Income before income taxes.................................. 246 230 449
Income tax expense.......................................... (117) (98) (217)
------ ------ ------
Net income.................................................. 129 132 232
Retained earnings, beginning of period...................... 332 332 461
------ ------ ------
Retained earnings, end of period............................ $ 461 $ 464 $ 693
====== ====== ======
</TABLE>
See accompanying notes.
F-51
<PAGE> 112
ARROW SANITARY SERVICE, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31,
SEPTEMBER 30, ----------------
1997 1997 1998
------------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 129 $ 132 $ 232
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 143 70 85
Deferred income taxes.................................. 34 -- 12
Gain on sale of property and equipment................. (2) -- --
Changes in operating assets and liabilities:
Accounts receivable.................................. (2) (105) (174)
Prepaid expenses and other current assets............ 19 17 (11)
Other assets......................................... 1 2 35
Accounts payable..................................... 43 (46) (31)
Accrued liabilities.................................. 70 110 62
----- ----- -----
Net cash provided by operating activities................. 435 180 210
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment........... (117) (80) (134)
Treasury stock payments................................... (5) -- --
----- ----- -----
Net cash used in investing activities....................... (122) (80) (134)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. --....... 200 97
Principal payments on long-term debt...................... (191) (298) (104)
----- ----- -----
Net cash used in financing activities....................... (191) (98) (7)
----- ----- -----
Net increase in cash........................................ 122 2 69
Cash and cash equivalents, beginning of period.............. 83 83 205
----- ----- -----
Cash and cash equivalents, end of period.................... $ 205 $ 85 $ 274
===== ===== =====
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION AND
NON-CASH TRANSACTIONS:
Cash paid for interest...................................... $ 74 $ 39 $ 33
===== ===== =====
</TABLE>
See accompanying notes.
F-52
<PAGE> 113
ARROW SANITARY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO MARCH 31, 1998 AND
THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Arrow Sanitary Service, Inc. (the "Company") is a regional, integrated,
non-hazardous solid waste services company that provides collection, hauling and
disposal of recyclable materials for residential and commercial customers in
various counties of Oregon and Washington in and around Portland, Oregon.
SALE OF THE COMPANY
On June 17, 1998, the Company's shareholders entered into an agreement to
sell all capital stock in the Company to Waste Connections, Inc. ("WCI") for
cash and common stock of WCI.
INTERIM FINANCIAL INFORMATION
The unaudited interim financial statements as of March 31, 1998 and for the
six 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 six months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended September 30,
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.
CASH EQUIVALENTS
The Company 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 the Company to
concentrations of credit risk 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. 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.
F-53
<PAGE> 114
ARROW SANITARY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO MARCH 31, 1998 AND
THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The estimated useful lives of property and equipment are as follows:
<TABLE>
<S> <C>
Buildings............................................... 30 years
Machinery and equipment................................. 3 - 10 years
Rolling stock........................................... 10 years
Furniture and fixtures.................................. 3 - 6 years
Containers.............................................. 5 - 12 years
</TABLE>
INTANGIBLE ASSETS
Intangible assets are comprised of the following at September 30, 1997:
<TABLE>
<S> <C>
Goodwill.................................................... $126
Covenant not to compete..................................... 12
----
138
Accumulated amortization.................................... (17)
----
$121
====
</TABLE>
Goodwill represents the excess of the purchase price over the fair value of
the net assets of entities previously acquired by the Company and is amortized
on a straight-line basis over the period of expected benefit of 40 years. The
covenant not to compete is amortized on a straight-line basis over the period of
expected benefit of 5 years.
REVENUE RECOGNITION
The Company 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
The Company uses 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.
SIGNIFICANT CUSTOMERS AND SUPPLIERS
The Company has three major customers which represent 21%, 14% and 11% of
total sales, respectively, for the year ended September 30, 1997. In addition,
the Company purchases a substantial portion of its recyclable materials and
equipment from four major suppliers.
F-54
<PAGE> 115
ARROW SANITARY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO MARCH 31, 1998 AND
THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
Land................................................. $ 121 $ 121
Buildings............................................ 168 168
Machinery and equipment.............................. 480 593
Rolling stock........................................ 1,026 1,028
Furniture and fixtures............................... 104 109
Containers........................................... 296 342
------- -------
2,195 2,361
Less accumulated depreciation and amortization....... (1,380) (1,435)
------- -------
$ 815 $ 926
======= =======
</TABLE>
3. FINANCING ARRANGEMENTS
BANK LINE OF CREDIT
The Company maintains a revolving line of credit with a financial
institution. Under the agreement, the Company may borrow an amount up to $150.
Interest on the revolving line of credit accrues at the financial institution's
prime rate (8.5% at September 30, 1997) plus 1.5%. The agreement provides that
the Company comply with various financial and other covenants. The line of
credit had no amounts outstanding at September 30, 1997.
LONG-TERM DEBT
Long-term debt as of September 30, 1997 consists of the following:
<TABLE>
<S> <C>
Contract financing notes payable bearing interest at 9%;
payable in monthly installments of principal and interest
(ranging from $1 to $2); maturing between October 20, 1998
and November 15, 2004..................................... $159
Mortgage financing notes payable bearing interest at 8.25%;
payable in monthly installments of principal and interest
of $1; maturing on January 20, 2022; secured by certain
real estate............................................... 139
Equipment financing notes payable bearing interest (ranging
from 8.5% to 10.75%); payable in monthly installments of
principal (ranging from $2 to $5) plus interest; maturing
on March 20, 1998 and October 12, 2000; secured by the
Company's accounts receivable, inventory, equipment, and
certain other assets...................................... 299
----
597
Less: current portion....................................... 168
----
Long-term debt.............................................. $429
====
</TABLE>
One of the equipment financing notes, with no outstanding balance at
September 30, 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.
F-55
<PAGE> 116
ARROW SANITARY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO MARCH 31, 1998 AND
THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
3. FINANCING ARRANGEMENTS (CONTINUED)
As of September 30, 1997, aggregate contractual future principal payments
by fiscal year on long-term debt are due as follows:
<TABLE>
<S> <C>
1998........................................................ $168
1999........................................................ 121
2000........................................................ 81
2001........................................................ 27
2002........................................................ 26
Thereafter.................................................. 174
----
$597
====
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Operating Leases
The Company leases its facilities and certain equipment under noncancelable
operating leases. Rent expense under these agreements approximated $50 for the
year ended September 30, 1997.
The future minimum lease payments under these agreements as of September
30, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 54
1999........................................................ 54
2000........................................................ 49
2001........................................................ 48
2002........................................................ 48
Thereafter.................................................. 494
----
$747
====
</TABLE>
CONTINGENCIES
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 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 September 30,
1997, there is
F-56
<PAGE> 117
ARROW SANITARY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO MARCH 31, 1998 AND
THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
4. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
Employees
Approximately 13 of the Company's route drivers are represented by the
Teamsters Union. The Company entered into a three-year collective bargaining
agreement in March 1998. The Company is not aware of any other organizational
efforts among its employees and believes that its relations with its employees
are good.
5. 401(k) PLAN
The Company has a voluntary savings and investment plan (the "401(k)
Plan"). The 401(k) Plan is available to all eligible employees of the Company.
Under the 401(k) Plan the Company is required to match 3% of employees'
contributions up to a maximum of 6% of the employees' wages once the employee
contributes a minimum of 3%. The Company will match 100% of employee
contributions between 3 and 6%. Sixteen of twenty-one eligible employees
participated in the plan with minimum contributions of at least 3%. During the
year ended September 30, 1997, the Company's 401(k) Plan expense was
approximately $35.
6. INCOME TAXES
The provision for income taxes for the year ended September 30, 1997
consists of the following:
<TABLE>
<S> <C>
Current:
Federal................................................... $ 60
State..................................................... 23
Deferred:
Federal................................................... 29
State..................................................... 5
----
$117
====
</TABLE>
Deferred taxes result from temporary differences in the recognition of
certain expense items for income tax and financial reporting purposes. The
Company's deferred taxes as of September 30, 1997 are substantially comprised of
depreciation deducted for tax purposes that will be recorded in future periods
for financial reporting purposes.
The principal reasons for the difference between the effective income tax
rate and the federal statutory income tax rate are as follows:
<TABLE>
<S> <C>
Federal expense expected at statutory rates................. $ 84
State and local income taxes, net of Federal benefit........ 15
Officers life insurance expense............................. 17
Other....................................................... 1
----
$117
====
</TABLE>
The Company paid $10 for income taxes during the year ended September 30,
1997.
F-57
<PAGE> 118
ARROW SANITARY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO MARCH 31, 1998 AND
THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
7. YEAR 2000 (UNAUDITED)
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. 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.
F-58
<PAGE> 119
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR 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 SELLING
STOCKHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOT 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>
Available Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 6
Dividend Policy....................... 14
Price Range of Common Stock........... 14
Selected Historical and Pro Forma
Financial and Operating Data........ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 29
Management............................ 44
Certain Transactions.................. 50
Principal Stockholders................ 52
Description of Capital Stock.......... 53
Shares Eligible for Future Sale....... 57
Outstanding Securities Covered by this
Prospectus.......................... 57
Legal Matters......................... 58
Experts............................... 58
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,000,000 SHARES
(LOGO)
COMMON STOCK
------------------------
PROSPECTUS
------------------------
JULY 16, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 120
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 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
II-1
<PAGE> 121
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.
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 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
a. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
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 May 29, 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)
</TABLE>
II-2
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
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* 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
10.10* First Amended Employment Agreement between the Company and
Darrell Chambliss, dated as of October 1, 1997
10.11* First Amended Employment Agreement between the Company and
Michael Foos, dated as of October 1, 1997
10.12* First Amended Employment Agreement between the Company and
Eric Moser, dated as of October 1, 1997
10.13* Employment Agreement between the Company and Steven Bouck,
dated as of February 1, 1998
10.14* Employment Agreement between the Company and Eugene V.
Dupreau, dated as of February 23, 1998
10.15* Employment Agreement between the Company and Charles B.
Youngclaus, dated as of February 23, 1998
10.16+* 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
10.17+* 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.
10.18+* Stock Purchase Agreement, dated as of February 4, 1998,
among the Company and the shareholders of Madera Disposal
Company, Inc.
10.19+* 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.
10.20* Form of Indemnification Agreement entered into by the
Company and each of its directors and officers
10.21+* Asset Purchase Agreement, dated as of April 8, 1998, between
the Company,Waste Connections of Wyoming, Inc., A-1
Disposal, Inc., David Jones and Thomas Fries
10.22+* Asset Purchase Agreement, dated as of April 8, 1998, between
the Company, Waste Connections of Wyoming, Inc. and
Gwendolyn L. Sullivan
10.23+* Stock Purchase Agreement, dated as of May 8, 1998, by and
among the Company, Sunshine Sanitation, Incorporated, Robert
E. Ewing and Sherry D. Ewing
10.24+* Stock Purchase Agreement, dated as of May 8, 1998, by and
among the Company, Sowers' Sanitation, Inc., James C. Sowers
and Mildred A. Sowers
10.25+* Stock Purchase Agreement, dated as of May 11, 1998, by and
among the Company, T&T Disposal, Inc. and Timothy Thomas
10.26+** Asset Purchase Agreement, dated as of June 1, 1998, by and
among the Company, Waste Connections of Utah, Inc.,
Contractor's Waste, L.C., and Brad Kitchen, Heath Johnston
and R. Scott McQuarrie
</TABLE>
II-3
<PAGE> 123
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
10.27+# Stock Purchase Agreement, dated as of June 5, 1998, by and
among the Company, B&B Sanitation, Inc., Red Carpet
Landfill, Inc., Darlin Equipment, Inc., Lyle J. Buller,
Larue A. Buller, the Lyle J. Buller Revocable Trust dated
10/11/96 and Larue A. Buller, Trustee of the Larue A. Buller
Revocable Trust dated 10/11/96
10.28+*** Stock Purchase Agreement dated as of June 17, 1998, by and
among the Company, Arrow Sanitary Service, Inc., Steven
Giusto, Dennis Giusto, John Giusto, Michael Giusto and
Kenneth Giusto
10.29+*** Stock Purchase Agreement dated as of June 25, 1998, by and
among the Company, Curry Transfer and Recycling, Oregon
Waste Technology, Petty H. Smart and A. Lewis Rucker
10.30+*** Purchase and Sale Agreement dated as of June 25, 1998, by
and between Petty H. Smart and the Company
10.31+ Loan Agreement dated as of June 1, 1998, between Madera
Disposal Systems, Inc. and the California Pollution Control
Financing Authority
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")
</TABLE>
- ---------------
* Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-1, Registration No. 333-48029.
** Incorporated by reference to the exhibit filed with the Registrant's Form
8-K filed on June 15, 1998.
# Incorporated by reference to the exhibit filed with the Registrant's Form
8-K filed on June 22, 1998.
***Incorporated by reference to the exhibit filed with the Registrant's Form
8-K filed on July 1, 1998.
+ 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 and an Investors'
Rights 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 Agreement.
II-4
<PAGE> 124
b. FINANCIAL STATEMENT SCHEDULE.
The following Financial Statement Schedule is filed herewith and made a
part hereof:
Schedule II -- Valuation and Quantifying Accounts.
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement 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.
The undersigned Registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
The undersigned Registrant undertakes that every prospectus that (i) is
filed pursuant to the immediately preceding paragraph, or (ii) purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise,
II-5
<PAGE> 125
the Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act of
1993 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1993 and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective, except where
the transaction in which the securities being offered pursuant to this
Registration Statement would be exempt from registration (but for the
possibility of integration) and which have an immaterial effect on the
Registrant.
II-6
<PAGE> 126
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Roseville, State of
California, on July 16, 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
Registration Statement has been signed by the following persons in the
capacities indicated on July 16, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RONALD J. MITTELSTAEDT President, Chief Executive July 16, 1998
- ----------------------------------------------------- Officer and Chairman
Ronald J. Mittelstaedt
/s/ EUGENE V. DUPREAU Director and Vice President -- July 16, 1998
- ----------------------------------------------------- Madera
Eugene V. Dupreau
/s/ MICHAEL W. HARLAN Director July 16, 1998
- -----------------------------------------------------
Michael W. Harlan
/s/ WILLIAM J. RAZZOUK Director July 16, 1998
- -----------------------------------------------------
William J. Razzouk
/s/ STEVEN F. BOUCK Executive Vice President and July 16, 1998
- ----------------------------------------------------- Chief Financial Officer
Steven F. Bouck
/s/ MICHAEL R. FOOS Vice President and Corporate July 16, 1998
- ----------------------------------------------------- Controller
Michael R. Foos
</TABLE>
II-7
<PAGE> 127
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> 128
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<S> <C> <C>
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 May 29, 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* 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...................
10.10* First Amended Employment Agreement between the Company and
Darrell Chambliss, dated as of October 1, 1997..............
10.11* First Amended Employment Agreement between the Company and
Michael Foos, dated as of October 1, 1997...................
10.12* First Amended Employment Agreement between the Company and
Eric Moser, dated as of October 1, 1997.....................
10.13* Employment Agreement between the Company and Steven Bouck,
dated as of February 1, 1998................................
10.14* Employment Agreement between the Company and Eugene V.
Dupreau, dated as of February 23, 1998......................
10.15* Employment Agreement between the Company and Charles B.
Youngclaus, dated as of February 23, 1998...................
10.16+* 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...........
10.17+* 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.............
10.18+* Stock Purchase Agreement, dated as of February 4, 1998,
among the Company and the shareholders of Madera Disposal
Company, Inc................................................
</TABLE>
<PAGE> 129
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<S> <C> <C>
10.19+* 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.........................................................
10.20* Form of Indemnification Agreement entered into by the
Company and each of its directors and officers..............
10.21+* Asset Purchase Agreement, dated as of April 8, 1998, between
the Company, Waste Connections of Wyoming, Inc., A-1
Disposal, Inc., David Jones and Thomas Fries................
10.22+* Asset Purchase Agreement, dated as of April 8, 1998, between
the Company, Waste Connections of Wyoming, Inc. and
Gwendolyn L. Sullivan.......................................
10.23+* Stock Purchase Agreement, dated as of May 8, 1998, by and
among the Company, Sunshine Sanitation, Incorporated, Robert
E. Ewing and Sherry D. Ewing................................
10.24+* Stock Purchase Agreement, dated as of May 8, 1998, by and
among the Company, Sowers' Sanitation, Inc., James C. Sowers
and Mildred A. Sowers.......................................
10.25+* Stock Purchase Agreement, dated as of May 11, 1998, by and
among the Company, T&T Disposal, Inc. and Timothy Thomas....
10.26+** Asset Purchase Agreement, dated as of June 1, 1998, by and
among the Company, Waste Connections of Utah, Inc.,
Contractor's Waste, L.C., and Brad Kitchen, Heath Johnston
and R. Scott McQuarrie......................................
10.27+# Stock Purchase Agreement, dated as of June 5, 1998, by and
among the Company, B&B Sanitation, Inc., Red Carpet
Landfill, Inc., Darlin Equipment, Inc., Lyle J. Buller,
Larue A. Buller, the Lyle J. Buller Revocable Trust dated
10/11/96 and Larue A. Buller, Trustee of the Larue A. Buller
Revocable Trust dated 10/11/96..............................
10.28+*** Stock Purchase Agreement dated as of June 17, 1998, by and
among the Company, Arrow Sanitary Service, Inc., Steven
Giusto, Dennis Giusto, John Giusto, Michael Giusto and
Kenneth Giusto..............................................
10.29+*** Stock Purchase Agreement dated as of June 25, 1998, by and
among the Company, Curry Transfer and Recycling, Oregon
Waste Technology, Petty H. Smart and A. Lewis Rucker........
10.30+*** Purchase and Sale Agreement dated as of June 25, 1998, by
and between Petty H. Smart and the Company..................
10.31+ Loan Agreement dated as of June 1, 1998, between Madera
Disposal Systems, Inc. and the California Pollution Control
Financing Authority.........................................
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")...................
</TABLE>
- ---------------
* Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-1, Registration No. 333-48029.
** Incorporated by reference to the exhibit filed with the Registrant's Form
8-K filed on June 15, 1998.
<PAGE> 130
# Incorporated by reference to the exhibit filed with the Registrant's Form
8-K filed on June 22, 1998.
***Incorporated by reference to the exhibit filed with the Registrant's Form
8-K filed on July 1, 1998.
+ 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 and an Investors'
Rights 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 Agreement.
<PAGE> 1
EXHIBIT 5.1
July 16, 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-4 filed with the Securities
and Exchange Commission on July 16, 1998, under the Securities Act of 1933, as
amended, relating to up to 3,000,000 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/ CAROLYN S. REISER
------------------------------------------
Carolyn S. Reiser
<PAGE> 1
EXHIBIT 10.1
REVOLVING CREDIT AGREEMENT
Dated as of May 29, 1998
by and among
WASTE CONNECTIONS, INC.
AND ITS SUBSIDIARIES
(the "Borrowers")
THE LENDING INSTITUTIONS PARTY HERETO
(the "Banks")
and
BANKBOSTON, N.A., AS AGENT
With
BANCBOSTON SECURITIES INC., as Arranger
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TABLE OF CONTENTS
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Section 1. DEFINITIONS AND RULES OF INTERPRETATION ............................................... 1
Section 1.1. Definitions ...................................................................... 1
Section 1.2. Rules of Interpretation .......................................................... 16
Section 2. THE REVOLVING CREDIT FACILITY ......................................................... 17
Section 2.1. Commitment to Lend ............................................................... 17
Section 2.2. Reduction of Total Commitment .................................................... 17
Section 2.3. The Revolving Credit Notes ....................................................... 18
Section 2.4. Interest on Revolving Credit Loans ............................................... 18
Section 2.5. Election of Eurodollar Rate; Notice of Election; Interest Periods; Minimum Amounts 18
Section 2.6. Requests for Revolving Credit Loans .............................................. 19
Section 2.7. Funds for Revolving Credit Loans ................................................. 20
Section 2.8. Maturity of the Loans ............................................................ 20
Section 2.9. Mandatory Repayments of the Revolving Credit Loans ............................... 21
Section 2.10. Optional Prepayments or Repayments of Revolving Credit Loans ..................... 21
Section 3. LETTERS OF CREDIT ..................................................................... 21
Section 3.1. Letter of Credit Commitments ..................................................... 21
Section 3.2. Reimbursement Obligation of the Borrowers ........................................ 22
Section 3.3. Letter of Credit Payments ........................................................ 22
Section 3.4. Obligations Absolute ............................................................. 23
Section 3.5. Reliance by Agent ................................................................ 23
Section 4. FEES, PAYMENTS, AND COMPUTATIONS; JOINT AND SEVERAL LIABILITY ......................... 24
Section 4.1. Fees ............................................................................. 24
Section 4.2. Payments ......................................................................... 24
Section 4.3. Computations ..................................................................... 25
Section 4.4. Capital Adequacy ................................................................. 25
Section 4.5. Certificate ...................................................................... 26
Section 4.6. Interest on Overdue Amounts ...................................................... 26
Section 4.7. Interest Limitation .............................................................. 26
Section 4.8. Eurodollar Indemnity ............................................................. 26
Section 4.9. Illegality; Inability to Determine Eurodollar Rate ............................... 27
Section 4.10. Additional Costs, Etc ............................................................ 27
Section 4.11. Replacement of Banks ............................................................. 28
Section 4.12. Concerning Joint and Several Liability of the Borrowers .......................... 29
Section 5. REPRESENTATIONS AND WARRANTIES ........................................................ 30
Section 5.1. Corporate Authority .............................................................. 30
Section 5.2. Governmental Approvals ........................................................... 31
Section 5.3. Title to Properties; Leases ...................................................... 31
Section 5.4. Financial Statements; Solvency ................................................... 31
Section 5.5. No Material Changes, Etc ......................................................... 32
Section 5.6. Permits, Franchises, Patents, Copyrights, Etc .................................... 32
Section 5.7. Litigation ....................................................................... 32
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Section 5.8. No Materially Adverse Contracts, Etc ..................................... 32
Section 5.9. Compliance With Other Instruments, Laws, Etc ............................. 32
Section 5.10. Tax Status ............................................................... 33
Section 5.11. No Event of Default ...................................................... 33
Section 5.12. Holding Company and Investment Company Acts .............................. 33
Section 5.13. Absence of Financing Statements, Etc ..................................... 33
Section 5.14. Employee Benefit Plans ................................................... 33
Section 5.15. Use of Proceeds .......................................................... 34
Section 5.15.1. General .................................................. 34
Section 5.15.2. Regulations U and X ...................................... 34
Section 5.15.3. Ineligible Securities .................................... 35
Section 5.16. Environmental Compliance ................................................. 35
Section 5.17. Perfection of Security Interests ......................................... 36
Section 5.18. Transactions with Affiliates ............................................. 36
Section 5.19. Subsidiaries ............................................................. 36
Section 5.20. True Copies of Charter and Other Documents ............................... 37
Section 5.21. Disclosure ............................................................... 37
Section 5.22. Capitalization ........................................................... 37
Section 5.23. Year 2000 Issue .......................................................... 37
Section 6. AFFIRMATIVE COVENANTS OF THE BORROWERS ........................................ 38
Section 6.1. Punctual Payment ......................................................... 38
Section 6.2. Maintenance of Offices ................................................... 38
Section 6.3. Records and Accounts ..................................................... 38
Section 6.4. Financial Statements, Certificates and Information ....................... 38
Section 6.5. Corporate Existence and Conduct of Business .............................. 40
Section 6.6. Maintenance of Properties ................................................ 40
Section 6.7. Insurance ................................................................ 40
Section 6.8. Taxes .................................................................... 40
Section 6.9. Inspection of Properties, Books, and Contracts ........................... 41
Section 6.10. Compliance with Laws, Contracts, Licenses and Permits; Maintenance of
Material Licenses and Permits ......................................... 41
Section 6.11. Environmental Indemnification ............................................ 41
Section 6.12. Further Assurances ....................................................... 42
Section 6.13. Notice of Potential Claims or Litigation ................................. 42
Section 6.14. Notice of Certain Events Concerning Insurance and Environmental Claims .. 42
Section 6.15. Response Actions ......................................................... 43
Section 6.16. Notice of Default ........................................................ 43
Section 6.17. New Subsidiaries ......................................................... 43
Section 6.18. Employee Benefit Plans ................................................... 43
Section 6.19. Notice of Loss of Material Contracts ..................................... 44
Section 7. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS .................................. 44
Section 7.1. Restrictions on Indebtedness ............................................. 44
Section 7.2. Restrictions on Liens .................................................... 44
Section 7.3. Restrictions on Investments .............................................. 46
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Section 7.4. Merger, Consolidation and Disposition of Assets ...... 47
Section 7.4.1. Mergers and Acquisitions ............. 47
Section 7.4.2. Disposition of Assets ................ 48
Section 7.5. Sale and Leaseback ................................... 48
Section 7.6. Restricted Distributions and Redemptions ............. 48
Section 7.7. Employee Benefit Plans ............................... 49
Section 7.8. Negative Pledges ..................................... 49
Section 7.9. Business Activities .................................. 49
Section 7.10. Transactions with Affiliates ......................... 49
Section 8. FINANCIAL COVENANTS ....................................... 50
Section 8.1. Leverage Ratio ....................................... 50
Section 8.2. Funded Debt to Capitalization Ratio .................. 50
Section 8.3. Interest Coverage Ratio .............................. 50
Section 8.4. Profitable Operations ................................ 50
Section 8.5. Consolidated Net Worth ............................... 50
Section 8.6. Capital Expenditures ................................. 50
Section 9. CLOSING CONDITIONS ........................................ 50
Section 9.1. Corporate Action ..................................... 51
Section 9.2. Loan Documents, Etc .................................. 51
Section 9.3. Certificate of Secretary; Good Standing Certificates . 51
Section 9.4. Validity of Liens .................................... 51
Section 9.5. Perfection Certificates and UCC Search Results ....... 51
Section 9.6. Certificates of Insurance ............................ 52
Section 9.7. Legal Opinions ....................................... 52
Section 9.8. Environmental Permit Certificate ..................... 52
Section 9.9. Payment of Fees ...................................... 52
Section 9.10. Closing Certificate .................................. 52
Section 9.11. Contracts ............................................ 52
Section 9.12. Initial Public Offering .............................. 52
Section 10. CONDITIONS OF ALL LOANS .................................. 52
Section 10.1. Representations True; No Event of Default ........... 52
Section 10.2. Performance; No Event of Default .................... 53
Section 10.3. No Legal Impediment ................................. 53
Section 10.4. Governmental Regulation ............................. 53
Section 10.5. Proceedings and Documents ........................... 53
Section 11. COLLATERAL SECURITY ...................................... 53
Section 11.1. Security of Borrowers ......................... 53
Section 12. EVENTS OF DEFAULT; ACCELERATION; TERMINATION OF COMMITMENT 54
Section 12.1. Events of Default and Acceleration ............ 54
Section 12.2. Termination of Commitments .................... 57
Section 12.3. Remedies ...................................... 57
Section 13. SETOFF ................................................... 57
Section 14. THE AGENT ................................................ 58
Section 14.1. Appointment of Agent, Powers and Immunities ......... 58
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Section 14.2. Actions By Agent ...................................... 59
Section 14.3. INDEMNIFICATION ....................................... 59
Section 14.4. Reimbursement ......................................... 59
Section 14.5. Documents ............................................. 60
Section 14.5.1. Closing Documentation ................ 60
Section 14.5.2. Other Documents ...................... 60
Section 14.6. Non-Reliance on Agent and Other Banks ................. 60
Section 14.7. Resignation or Removal of Agent ....................... 61
Section 14.8. Consents, Amendments, Waivers, Etc .................... 61
Section 14.9. Delinquent Banks ...................................... 62
Section 15. EXPENSES AND INDEMNIFICATION ............................... 62
Section 15.1. Expenses .............................................. 62
Section 15.2. Indemnification ....................................... 63
Section 15.3. Survival .............................................. 63
Section 16. SURVIVAL OF COVENANTS, ETC ................................. 63
Section 17. ASSIGNMENT AND PARTICIPATION ............................... 64
Section 18. PARTIES IN INTEREST ........................................ 65
Section 19. NOTICES, ETC ............................................... 65
Section 20. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION .............. 65
Section 20.1. Sharing of Information with Section 20 Subsidiary .... 65
Section 20.2. Confidentiality ....................................... 66
Section 20.3. Prior Notification .................................... 66
Section 20.4. Other ................................................. 66
Section 21. MISCELLANEOUS .............................................. 66
Section 22. ENTIRE AGREEMENT, ETC ...................................... 67
Section 23. WAIVER OF JURY TRIAL ....................................... 67
Section 24. GOVERNING LAW .............................................. 67
Section 25. SEVERABILITY ............................................... 67
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SCHEDULES & EXHIBITS
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Exhibit A Form of Revolving Credit Note
Exhibit B Form of Loan and Letter of Credit Request
Exhibit C Form of Compliance Certificate
Exhibit D Form of Environmental Compliance Certificate
Exhibit E Form of Assignment and Acceptance
Schedule 1 Banks; Addresses; Commitment Percentages
Schedule 2 Subsidiaries
Schedule 5.7 Litigation
Schedule 5.9 Material Contracts
Schedule 5.16 Environmental Matters
Schedule 5.18 Transactions with Affiliates
Schedule 7.2 Existing Liens
Schedule 7.3 Existing Investments
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REVOLVING CREDIT AGREEMENT
This REVOLVING CREDIT AGREEMENT is made as of May 29, 1998 (the "Credit
Agreement"), by and among (a) WASTE CONNECTIONS, INC., a Delaware corporation
(the "Parent"), the subsidiaries of the Parent identified on Schedule 2 hereto
(the "Subsidiaries," and collectively with the Parent, the "Borrowers"), (b)
BankBoston, N.A., a national banking association having its principal place of
business at 100 Federal Street, Boston, Massachusetts 02110 (acting in its
individual capacity, "BKB") and the other BANKS and lending institutions which
become parties hereto (collectively, the "Banks"), and (c) BANKBOSTON, N.A., as
agent for the Banks (the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrowers and the Agent are party to that certain Revolving
Credit Agreement dated as of January 30, 1998, (as amended and in effect as of
the date hereof, the "Prior Credit Agreement"); and
WHEREAS, the Borrowers have requested, among other things, additional
financing and the Banks are willing to provide such financing on the terms and
conditions set forth herein to replace the Prior Credit Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements set forth herein below, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree that on the Closing Date the Prior Credit Agreement shall
be terminated and replaced by this Credit Agreement, the terms of which are as
follows:
SECTION 1. DEFINITIONS AND RULES OF INTERPRETATION.
Section 1.1. DEFINITIONS. The following terms shall have the meanings
set forth in this Section 1 or elsewhere in the provisions of this Credit
Agreement referred to below:
A-1. A-1 Disposal, Inc.
Accountants. An independent accounting firm of national standing
reasonably acceptable to the Banks and the Agent.
Affected Bank. See Section 4.11.
Agent. See Preamble.
Agent's Head Office. The Agent's head office located at 100 Federal
Street, Boston, Massachusetts 02110, or such other location as the Agent may
designate from time to time.
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Applicable Base Rate Margin. The applicable margin with respect to Base
Rate Loans as set forth in the Pricing Table.
Applicable Commitment Rate. The applicable rate with respect to the
Commitment Fee as set forth in the Pricing Table.
Applicable Eurodollar Margin. The applicable margin with respect to
Eurodollar Loans as set forth in the Pricing Table.
Applicable Laws. See Section 6.10.
Applicable L/C Margin. The applicable margin with respect to the Letter
of Credit Fee as set forth in the Pricing Table.
Arranger. BancBoston Securities Inc.
Assignment and Acceptance. See Section 17.
Balance Sheet Date. December 31, 1997.
Banks. See Preamble.
Base Rate. The higher of (a) the annual rate of interest announced from
time to time by the Agent at the Agent's Head Office as its "base rate" (it
being understood that such rate is a reference rate and not necessarily the
lowest rate of interest charged by the Agent) or (b) one percent (1%) above the
overnight federal funds effective rate, as published by the Board of Governors
of the Federal Reserve System, as in effect from time to time.
Base Rate Loans. Loans bearing interest calculated by reference to the
Base Rate.
BKB. See Preamble.
Borrowers. See Preamble.
Business Day. Any day on which banking institutions in Boston,
Massachusetts, New York, New York; Chicago, Illinois; and Los Angeles,
California are open for the transaction of banking business.
Capital Assets. Fixed assets, both tangible (such as land, buildings,
fixtures, machinery and equipment) and intangible (such as patents, copyrights,
trademarks, franchises and goodwill); provided that Capital Assets shall not
include (a) any item customarily charged directly to expense or depreciated over
a useful life of twelve (12) months or less in accordance with generally
accepted accounting principles, or (b) any item obtained through an acquisition
permitted by Section 7.4 hereof.
Capital Expenditures. Amounts paid or indebtedness incurred by the
Borrowers and their Subsidiaries in connection with (i) the purchase or lease of
Capital Assets that
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would be required to be capitalized and shown on the balance sheet of such
Person in accordance with GAAP or (ii) the lease of any assets by the Borrowers
or any Subsidiary as lessee under any Synthetic Lease to the extent that such
assets would have been Capital Assets had the Synthetic Lease been treated for
accounting purposes as a Capitalized Lease.
Capitalized Leases. Leases under which any Borrower is the lessee or
obligor, the discounted future rental payment obligations under which are
required to be capitalized on the balance sheet of the lessee or obligor in
accordance with GAAP.
CERCLA. See definition of Release.
Certified. With respect to the financial statements of any Person, such
statements as audited by a firm of independent auditors, whose report expresses
the opinion, without qualification, that such financial statements present
fairly the financial position of such Person.
CFO. See Section 6.4(b).
Closing Date. The date on which the conditions precedent set forth in
Section 9 are satisfied.
Code. The Internal Revenue Code of 1986, as amended and in effect from
time to time.
Collateral. All of the property, rights and interests of the Borrowers
(other than with respect to moneys due under the Excluded Contracts) that are or
are intended to be subject to the security interests created by the Security
Documents.
Commitment. With respect to each Bank, the amount determined by
multiplying such Bank's Commitment Percentage by the Total Commitment specified
in Section 2.1 hereof, as the same may be reduced from time to time.
Commitment Fee. See Section 4.1.
Commitment Percentage. With respect to each Bank, the percentage
initially set forth beside its name on Schedule 1 (subject to adjustment in
accordance with Section 17).
Compliance Certificate. See Section 6.4(c).
Consolidated or consolidated. With reference to any term defined herein,
shall mean that term as applied to the accounts of the Borrowers and their
Subsidiaries consolidated in accordance with GAAP.
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Consolidated Earnings Before Interest and Taxes or EBIT. For any period,
the Consolidated Net Income (or Deficit) of the Borrowers determined in
accordance with GAAP, plus (a) interest expense, (b) income taxes, (c) for the
fiscal quarter ending December 31, 1997, start-up and integration expenses taken
as a special charge in such quarter of up to $500,000 (pre-tax) in the
aggregate, (d) non-cash stock compensation charges of up to $4,500,000 in the
aggregate taken during the fiscal quarter ending December 31, 1997 and up to
$325,000 taken during the fiscal quarter ending March 31, 1998 and no more than
$745,000 in the aggregate thereafter, to the extent that each was deducted in
determining Consolidated Net Income (or Deficit), all as determined in
accordance with GAAP, (e) non-cash special charge for interest expense
attributable to loan fees paid, and warrants issued to BKB in connection with
the Prior Credit Agreement of up to $1,100,000 in the aggregate taken in the
fiscal quarter ending June 30, 1998 and (f) for a Compliance Certificate
delivered in connection with a Material Acquisition, the following adjustments,
as applicable, for purposes of calculating Section 8.3:
<TABLE>
<CAPTION>
---------------- ---------------- --------------- -------------------- -------------------- ----------------
Fiscal Quarter Fiscal Quarter Fiscal Quarter Fiscal Quarter Fiscal Quarter
ending ending ending ending ending
March 31, 1998 June 30, 1998 September 30, 1998 December 31, 1998 March 31, 1999
---------------- ---------------- --------------- -------------------- -------------------- ----------------
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Madera $570,000 $570,000 $570,000 $143,000 $0
---------------- ---------------- --------------- -------------------- -------------------- ----------------
Jesse's $0 $176,000 $176,000 $88,000 $0
& A-1
---------------- ---------------- --------------- -------------------- -------------------- ----------------
Sunshine & $0 $194,000 $194,000 $111,000 $28,000
Sowers
---------------- ---------------- --------------- -------------------- -------------------- ----------------
T&T $0 $51,000 $51,000 $29,000 $7,000
---------------- ---------------- --------------- -------------------- -------------------- ----------------
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Consolidated Earnings Before Interest, Taxes, Depreciation, and
Amortization or EBITDA. For any period (without duplication), EBIT plus (a)
depreciation expense and amortization expense, to the extent that each was
deducted in determining Consolidated Net Income (or Deficit), determined in
accordance with GAAP, and (c) as applicable, the following adjustments for
purposes of calculating EBITDA in Sections 8.1 and 7.1(d) and the Pricing Ratio:
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---------------- ---------------- --------------- -------------------- -------------------- ----------------
Fiscal Quarter Fiscal Quarter Fiscal Quarter Fiscal Quarter Fiscal Quarter
ending ending ending ending ending
March 31, 1998 June 30, 1998 September 30, 1998 December 31, 1998 March 31, 1999
---------------- ---------------- --------------- -------------------- -------------------- ----------------
Madera $726,667 $726,667 $726,667 $181,667 $0
---------------- ---------------- --------------- -------------------- -------------------- ----------------
Jesse's $0 $181,000 $181,000 $91,000 $0
& A-1
---------------- ---------------- --------------- -------------------- -------------------- ----------------
Sunshine & $0 $266,000 $266,000 $152,000 $38,000
Sowers
---------------- ---------------- --------------- -------------------- -------------------- ----------------
T&T $0 $75,000 $75,000 $43,000 $11,000
---------------- ---------------- --------------- -------------------- -------------------- ----------------
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For purposes of calculating EBITDA in Sections 8.1 and 7.1(d) and
the Pricing Ratio, the Borrowers may include the EBITDA for the prior twelve
(12) months of companies acquired by the Borrowers since September 30, 1997
(without duplication with respect to the adjustments set forth in the table
above) only if (A) the financial statements of such acquired Borrowers have been
audited for the period sought to be included by an independent accounting firm
satisfactory to the Agent, or (B) the Agent consents to such inclusion after
being furnished with other acceptable financial statements. Such acquired EBITDA
may be further adjusted to add-back non-recurring private company expenses which
are discontinued upon acquisition (such as owner's compensation), as approved by
the Agent.
Consolidated Net Income (or Deficit). The consolidated net income (or
deficit) of the Borrowers after deduction of all expenses, taxes, and other
proper charges, determined in accordance with GAAP.
Consolidated Net Worth. The excess of Consolidated Total Assets over
Consolidated Total Liabilities, less, to the extent otherwise includable in the
computation of Consolidated Net Worth, any subscriptions receivable.
Consolidated Total Assets. All assets of the Borrowers and their
Subsidiaries determined on a consolidated basis in accordance with GAAP, plus
(i) without duplication, all assets leased by the Borrowers or any Subsidiary as
lessee under any Synthetic Lease to the extent that such assets would have been
consolidated balance sheet assets had the Synthetic Lease been treated for
accounting purposes as a Capitalized Lease, plus (ii) without duplication, all
sold receivables referred to in clause (vii) of the definition of the term
"Indebtedness" to the extent that such receivables would have been consolidated
balance sheet assets had they not been sold.
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Consolidated Total Interest Expense. For any period, the aggregate
amount of interest required to be paid or accrued by the Borrowers and their
Subsidiaries during such period on all Indebtedness of the Borrowers and their
Subsidiaries outstanding during all or any part of such period, whether such
interest was or is required to be reflected as an item of expense or
capitalized, including payments consisting of interest in respect of any
Capitalized Lease or any Synthetic Lease and including commitment fees, agency
fees, facility fees, balance deficiency fees and similar fees or expenses in
connection with the borrowing of money (but excluding non-cash charges for
interest expense attributable to loan fees paid, and warrants issued to Imperial
Bank in connection with the Imperial Credit Agreement of up to $860,000 in the
aggregate taken in the fiscal quarter ending December 31, 1997.
Consolidated Total Liabilities. All liabilities of the Borrowers
determined on a consolidated basis in accordance with GAAP and classified as
such on the consolidated balance sheet of the Borrowers.
Credit Agreement. This Revolving Credit Agreement, including the
Schedules and Exhibits hereto, as amended and in effect from time to time.
Default. See Section 12.
Delinquent Bank. See Section 14.9.
Disposal (or Disposed). See definition of Release.
Distribution. The declaration or payment of any dividend or distribution
on or in respect of any shares of any class of capital stock, any partnership
interests or any membership interests of any Person (other than dividends or
other distributions payable solely in shares of common stock, partnership
interests or membership units of such Person, as the case may be); the purchase,
redemption, or other retirement of any shares of any class of capital stock,
partnership interests or membership units of such Person, directly or indirectly
through a Subsidiary or otherwise; the return of equity capital by any Person to
its shareholders, partners or members as such; or any other distribution on or
in respect of any shares of any class of capital stock, partnership interest or
membership unit of such Person.
Dollars or $. Dollars in lawful currency of the United States of
America.
Drawdown Date. The date on which any Revolving Credit Loan is made or is
to be made, and the date on which any Revolving Credit Loan is converted or
continued in accordance with Section 2.5.
Eligible Assignee. Any of (i) a commercial bank organized under the laws
of the United States, or any State thereof or the District of Columbia, and
having total assets in excess of $1,000,000,000; (ii) a savings and loan
association or savings bank organized under the laws of the United States, or
any State thereof or the District of Columbia, and having a net worth of at
least $100,000,000, calculated in accordance with generally
<PAGE> 13
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accepted accounting principles; (iii) a commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having total assets in excess of $1,000,000,000, provided that such
bank is acting through a branch or agency located in the country in which it is
organized or another country which is also a member of the OECD; (iv) the
central bank of any country which is a member of the OECD; and (v) if, but only
if, any Event of Default has occurred and is continuing, any other bank,
insurance company, commercial finance company or other financial institution
approved by the Agent, such approval not to be unreasonably withheld.
Eligible Foreign Bank. (a) Any commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, provided that such bank is acting through a branch or agency located in
the country in which it is organized or another country which is also a member
of the OECD; or (b) the central bank of any country which is a member of the
OECD.
Employee Benefit Plan. Any employee benefit plan within the meaning of
Section 3(3) of ERISA maintained or contributed to by the Borrowers or any ERISA
Affiliate, other than a Guaranteed Pension Plan or a Multiemployer Plan.
Environmental Laws. See Section 5.16(a).
EPA. See Section 5.16(b).
Equipment Financing. Indebtedness of the Borrowers with respect to
equipment leases or equipment chattel mortgages, including any such Indebtedness
assumed in connection with an acquisition permitted under Section 7.4.
ERISA. The Employee Retirement Income Security Act of 1974, as amended
and in effect from time to time.
ERISA Affiliate. Any Person which is treated as a single employer with
the Borrowers under Section 414 of the Code.
ERISA Reportable Event. A reportable event with respect to a Guaranteed
Pension Plan within the meaning of Section 4043 of ERISA and the regulations
promulgated thereunder.
Eurodollar Business Day. Any Business Day on which dealings in foreign
currency and exchange are carried on among banks in London, England.
Eurodollar Interest Determination Date. For any Interest Period, the
date two Eurodollar Business Days prior to the first day of such Interest
Period.
Eurodollar Loans. Revolving Credit Loans bearing interest calculated by
reference to the Eurodollar Rate.
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Eurodollar Offered Rate. The rate per annum at which deposits of dollars
are offered to the Agent by prime banks in whatever Eurodollar interbank market
may be selected by the Agent, in its sole discretion, acting in good faith, at
or about 11:00 a.m. local time in such interbank market, on the Eurodollar
Interest Determination Date, for a period equal to the requested Interest Period
in an amount substantially equal to the principal amount requested to be loaned
at or converted to a rate based on the Eurodollar Rate.
Eurodollar Rate. The rate per annum, rounded upwards to the nearest 1/16
of 1%, determined by the Agent with respect to an Interest Period in accordance
with the following formula:
Eurodollar Rate = Eurodollar Offered Rate
-----------------------
1 - Reserve Rate
Event of Default. See Section 12.
Excluded Contracts. The (a) Contract for Curbside and Drop Box Recycling
Services among (i) the Six East Snohomish County Cities of Snohomish, Monroe,
Lake Stevens, Sultan, Granite Falls and Gold Bar (Operating as ESCARC) and (ii)
Fibres International, Incorporated d.b.a. Pacific Resource Management/Bill's
Disposal, dated as of September 1, 1995 and (b) Single Family Recyclables
Collection Contract between City of Vancouver and Browning Ferris Industries of
Washington, Inc., dated as of December 2, 1996, each as amended and in effect
from time to time.
Financial Letter of Credit. A Letter of Credit where the event which
triggers payment is financial, such as the failure to pay money, and not
performance-related, such as failure to ship a product or provide a service, as
set forth in greater detail in the letter dated March 30, 1995 from the Board of
Governors of the Federal Reserve System or in any applicable directive or letter
ruling of the Board of Governors of the Federal Reserve System issued subsequent
thereto.
Funded Debt. Consolidated Indebtedness of the Borrowers for borrowed
money, the net present value (using the Base Rate as the discount rate) of every
obligation of such Person issued or assumed as the deferred purchase price of
property or services (including securities repurchase agreements but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business which are not overdue or which are being contested in good faith), and
guarantees of such Indebtedness, recorded on the Consolidated balance sheet of
the Borrowers, including reimbursement obligations of the Borrowers with respect
to letters of credit and the amount of any Indebtedness of such Persons for
Capitalized Leases which corresponds to principal.
generally accepted accounting principles or GAAP. When used in general,
generally accepted accounting principles means (1) principles that are
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, in effect for the fiscal year
ended on the Balance Sheet Date, as shall be
<PAGE> 15
-9-
concurred in by independent certified public accountants of recognized standing
whose report expresses an unqualified opinion (other than a qualification
regarding changes in generally accepted accounting principles) as to financial
statements in which such principles have been applied; and (2) when used with
reference to the Borrowers, such principles shall include (to the extent
consistent with such principles) the accounting practices reflected in the
consolidated financial statements for the year ended on the Balance Sheet Date.
Guaranteed Pension Plan. Any employee pension benefit plan within the
meaning of Section 3(2) of ERISA maintained or contributed to by the Borrowers
or any ERISA Affiliate, the benefits of which are guaranteed on termination in
full or in part by the PBGC pursuant to Title IV of ERISA, other than a
Multiemployer Plan.
Hazardous Substances. See Section 5.16(b).
Imperial Credit Agreement. The Loan and Security Agreement, dated as of
September 30, 1997, among Imperial Bank and the Parent, Browning-Ferris
Industries of Washington, Inc., and Fibres International, Inc., as amended and
in effect from time to time.
Indebtedness. As to any Person and whether recourse is secured by or is
otherwise available against all or only a portion of the assets of such Person
and whether or not contingent, but without duplication:
(i) every obligation of such Person for money borrowed,
(ii) every obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments, including obligations
incurred in connection with the acquisition of property, assets or
businesses,
(iii) every reimbursement obligation of such Person with respect
to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person,
(iv) the net present value (using the Base Rate as the discount
rate) of every obligation of such Person issued or assumed as the
deferred purchase price of property or services (including securities
repurchase agreements but excluding (A) trade accounts payable or
accrued liabilities arising in the ordinary course of business which are
not overdue or which are being contested in good faith and (B)
contingent purchase price obligations solely to the extent that the
contingency upon which such obligation is conditioned has not yet
occurred),
(v) every obligation of such Person under any Capitalized Lease,
(vi) every obligation of such Person under any Synthetic Lease,
(vii) all sales by such Person of (A) accounts or general
intangibles for money due or to become due, (B) chattel paper,
instruments or documents
<PAGE> 16
-10-
creating or evidencing a right to payment of money or (C) other
receivables (collectively, "receivables"), whether pursuant to a
purchase facility or otherwise, other than in connection with the
disposition of the business operations of such Person relating thereto
or a disposition of defaulted receivables for collection and not as a
financing arrangement, and together with any obligation of such Person
to pay any discount, interest, fees, indemnities, penalties, recourse,
expenses or other amounts in connection therewith, provided, however,
that sales referred to in clauses (B) and (C) shall not constitute
Indebtedness to the extent that such sales are non-recourse to such
Person;
(viii) every obligation of such Person (an "equity related
purchase obligation") to purchase, redeem, retire or otherwise acquire
for value any shares of capital stock of any class issued by such
Person, any warrants, options or other rights to acquire any such
shares, or any rights measured by the value of such shares, warrants,
options or other rights,
(ix) every obligation of such Person under any forward contract,
futures contract, swap, option or other financing agreement or
arrangement (including, without limitation, caps, floors, collars and
similar agreements), the value of which is dependent upon interest
rates, currency exchange rates, commodities or other indices,
(x) every obligation in respect of Indebtedness of any other
entity (including any partnership in which such Person is a general
partner) to the extent that such Person is liable therefor as a result
of such Person's ownership interest in or other relationship with such
entity, except to the extent that the terms of such Indebtedness provide
that such Person is not liable therefor and such terms are enforceable
under applicable law,
(xi) every obligation, contingent or otherwise, of such Person
guaranteeing, or having the economic effect of guarantying or otherwise
acting as surety for, any obligation of a type described in any of
clauses (i) through (x) (the "primary obligation") of another Person
(the "primary obligor"), in any manner, whether directly or indirectly,
and including, without limitation, any obligation of such Person (A) to
purchase or pay (or advance or supply funds for the purchase of) any
security for the payment of such primary obligation, (B) to purchase
property, securities or services for the purpose of assuring the payment
of such primary obligation, or (C) to maintain working capital, equity
capital or other financial statement condition or liquidity of the
primary obligor so as to enable the primary obligor to pay such primary
obligation.
The "amount" or "principal amount" of any Indebtedness at any time of
determination represented by (v) any Indebtedness, issued at a price that is
less than the principal amount at maturity thereof, shall be the amount of the
liability in respect thereof determined in accordance with generally accepted
accounting principles, (w) any Capitalized Lease shall be the principal
component of the aggregate of the rentals obligation under such Capitalized
Lease payable over the term thereof that is not subject
<PAGE> 17
-11-
to termination by the lessee, (x) any sale of receivables shall be the amount of
unrecovered capital or principal investment of the purchaser (other than the
Borrowers) thereof, excluding amounts representative of yield or interest earned
on such investment, (y) any Synthetic Lease shall be the stipulated loss value,
termination value or other equivalent amount and (z) any equity related purchase
obligation shall be the maximum fixed redemption or purchase price thereof
inclusive of any accrued and unpaid dividends to be comprised in such redemption
or purchase price.
Ineligible Securities. Securities which may not be underwritten or dealt
in by member banks of the Federal Reserve System under Section 16 of the Banking
Act of 1993 (12 U.S.C. Section 24, Seventh), as amended.
Initial Public Offering. The initial underwritten public offering of the
common stock of the Company registered under the Securities Act of 1933.
Interest Period. With respect to each Eurodollar Loan:
(a) initially, the period commencing on the date of the making of
a Eurodollar Loan or the conversion from a Base Rate Loan into a Eurodollar Loan
and ending one (1), two (2), three (3), or six (6) months thereafter, as
selected by the Borrowers in a Loan and Letter of Credit Request; and
(b) thereafter, each subsequent Interest Period shall begin on
the last day of the preceding Interest Period and shall end one (1), two (2),
three (3), or six (6) months thereafter, as selected by the Borrowers in a Loan
and Letter of Credit Request;
provided, however, that whenever the first day of any Interest
Period occurs on a day of an initial calendar month for which there is no
numerically corresponding day in the calendar month that succeeds such initial
calendar month by the number of months equal to the number of months in such
Interest Period, such Interest Period shall end on the last Business Day of such
succeeding calendar month.
Jesse's. The sole proprietorship of Gwendolyn L. Sullivan d.b.a. Jesse's
Disposal Service.
Letter of Credit Applications. Letter of Credit Applications in such
form as may be agreed upon by the Borrowers and the Agent from time to time
which are entered into pursuant to Section 3 hereof, as such Letter of Credit
Applications are amended, varied or supplemented from time to time.
Letter of Credit Fee. See Section 4.1(b).
Letter of Credit Participation. See Section 3.1(b).
Letters of Credit. Standby Letters of Credit and the Madera Letter of
Credit issued or to be issued by the Agent under Section 3 hereof for the
account of the Borrowers.
Leverage Ratio. See Section 8.1.
<PAGE> 18
-12-
Loan and Letter of Credit Request. See Section 2.6.
Loan Documents. This Credit Agreement, the Notes, the Letter of Credit
Applications, the Letters of Credit, and the Security Documents, each as amended
and in effect from time to time.
Loans. The Revolving Credit Loans.
Madera. Madera Disposal Systems, Inc., a California corporation and a
wholly-owned Subsidiary of the Parent.
Madera Bond. The $1,800,000 Variable Rate Demand Solid Waste Disposal
Revenue Bonds, Madera Disposal Systems, Inc. Project, Series 1998A, to be issued
by the California Pollution Control Financing Authority.
Madera Bond Documents. The documentation to be executed in connection
with the Madera Bond.
Madera Letter of Credit. The direct pay letter of credit to support the
Madera Bond.
Majority Banks. As of any date, the Banks holding sixty-six and
two-thirds percent (66-2/3%) of the outstanding principal amount of the Loans on
such date; and if no such principal is outstanding, the Banks whose aggregate
Commitments constitute sixty-six and two-thirds percent (66-2/3%) of the Total
Commitment.
Material Acquisition. Any acquisition or series of related acquisitions
permitted under Section 7.4.1 with respect to which the aggregate cash
consideration paid therefor (including deferred payments and the aggregate
amount of all Funded Debt assumed) exceeds $7,000,000.
Material Contract. Any contract, franchise agreement or G Permit from
which the Borrowers derived more than five percent (5%) of their consolidated
revenues for the fiscal year most recently ending.
Maturity Date. May 29, 2001.
Maximum Drawing Amount. The maximum aggregate amount from time to time
that the beneficiaries may draw under outstanding Letters of Credit.
Maximum Rate. With respect to each Bank, the maximum lawful nonusurious
rate of interest (if any) which under Applicable Law such Bank may charge the
Borrowers on the Loans and other Obligations from time to time.
Multiemployer Plan. Any multiemployer plan within the meaning of Section
3(37) of ERISA maintained or contributed to by the Borrowers or any ERISA
Affiliate.
Notes. The Revolving Credit Notes.
<PAGE> 19
-13-
Obligations. All indebtedness, obligations and liabilities of the
Borrowers to any of the Banks or the Agent, individually or collectively,
existing on the date of this Credit Agreement or arising thereafter, direct or
indirect, joint or several, absolute or contingent, matured or unmatured,
liquidated or unliquidated, secured or unsecured, arising by contract, operation
of law or otherwise, arising or incurred under this Credit Agreement or any of
the other Loan Documents, or under any Swap Contract between the Borrowers and
any Bank, or in respect of any of the Loans made or Reimbursement Obligations
incurred or the Letters of Credit, the Notes or any other instrument at any time
evidencing any thereof.
Parent Stock Pledge Agreement. The Stock Pledge Agreement, to be dated
as of the Closing Date, as amended and in effect from time to time, between the
Parent and the Agent, pursuant to which 100% of the capital stock of the
Subsidiaries (other than W.C. International) is pledged to the Agent for the
benefit of the Banks.
PBGC. The Pension Benefit Guaranty Corporation created by Section 4002
of ERISA and any successor entity or entities having similar responsibilities.
Performance Letter of Credit. A Letter of Credit which is not a
Financial Letter of Credit.
Permitted Liens. See Section 7.2.
Person. Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.
Preferred Stock. The Series A Preferred Stock issued by the Parent
pursuant to the Certificate of Designations, Preferences and Rights of Preferred
Stock, Series A, dated as of September 29, 1997, consisting of not more than
2,500,000 shares.
Pricing Ratio. As at the end of any fiscal quarter, the ratio of (a)
Funded Debt to (b) EBITDA (i) on an annualized basis for the fiscal quarters
ending March 31, 1998 through June 30, 1998, and (ii) thereafter, for the four
fiscal quarters ending on such date.
Pricing Table:
<TABLE>
<CAPTION>
------------------------- ------------------- ------------------- ------------------- ------------------
APPLICABLE APPLICABLE BASE APPLICABLE
PRICING RATIO EURODOLLAR RATE MARGIN APPLICABLE COMMITMENT RATE
MARGIN (PER ANNUM) L/C MARGIN (PER ANNUM)
(PER ANNUM) (PER ANNUM)
------------------------- ------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Less than 2.50:1 1.75% 0.00% 1.75% 0.375%
------------------------- ------------------- ------------------- ------------------- ------------------
Greater than or equal 2.00% 0.00% 2.00% 0.375%
to 2.50:1 but less than
3.00:1
------------------------- ------------------- ------------------- ------------------- ------------------
Greater than or equal 2.25% 0.25% 2.25% 0.50%
to 3.00:1 but less than
3.50:1
</TABLE>
<PAGE> 20
-14-
<TABLE>
<S> <C> <C> <C> <C>
------------------------- ------------------- ------------------- ------------------- ------------------
Greater than or equal 2.50% 0.50% 2.50% 0.50%
to 3.50:1
------------------------- ------------------- ------------------- ------------------- ------------------
Initial Pricing 1.75% 0.00% 1.75% 0.375%
------------------------- ------------------- ------------------- ------------------- ------------------
</TABLE>
Any change in the applicable margin shall become effective on the first day
after receipt by the Banks of financial statements delivered pursuant to
Section 6.4(a) or (b) which indicate a change in the Pricing Ratio or, with
respect to the Eurodollar Applicable Margin, on the first day of each Interest
Period which begins three (3) or more days after receipt of such financial
statements. If at any time such financial statements are not delivered within
the time periods specified in Section 6.4(a) or (b), the applicable margin shall
be the highest rate set forth in the respective column of the Pricing Table,
subject to adjustment upon actual receipt of such financial statements. The
initial pricing set forth in the table above shall be effective until the
Borrowers deliver to the Agent a calculation of the Pricing Ratio for the fiscal
quarter ending March 31, 1998.
Prior Credit Agreement. That certain Revolving Credit Agreement among
the Borrowers and the Agent, dated as of January 30, 1998, as amended and in
effect as of the date hereof.
Pro Forma Interest Expense (as used in a Compliance Certificate
delivered in connection with a Material Acquisition). The annual interest
obligations at the current rates of interest on existing Indebtedness of the
Borrowers and the Indebtedness to be assumed or incurred in connection with an
acquisition.
RCRA. See definition of Release.
Real Property. All real property heretofore, now, or hereafter owned or
leased by the Borrowers.
Reimbursement Obligation. The Borrowers' obligation to reimburse the
Agent and the Banks on account of any drawing under any Letter of Credit as
provided in Section 3.2.
Release. Shall have the meaning specified in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Sections9601 et seq. ("CERCLA") and the term "Disposal" (or "Disposed") shall
have the meaning specified in the Resource Conservation and Recovery Act of
1976, 42 U.S.C. Sections6901 et seq. ("RCRA") and regulations promulgated
thereunder; provided that in the event either CERCLA or RCRA is amended so as to
broaden the meaning of any term defined thereby, such broader meaning shall
apply as of the effective date of such amendment and provided further, to the
extent that the laws of a state wherein the property lies establishes a meaning
for "Release" or "Disposal" which is broader than specified in either CERCLA or
RCRA, such broader meaning shall apply.
Replacement Bank. See Section 4.11.
Replacement Notice. See Section 4.11.
<PAGE> 21
-15-
Reserve Rate. The rate, expressed as a decimal, at which the Banks would
be required to maintain reserves under Regulation D of the Board of Governors of
the Federal Reserve System (or any subsequent or similar regulation relating to
such reserve requirements) against "Eurocurrency Liabilities" (as such term is
defined in Regulation D), or against any other category of liabilities which
might be incurred by the Banks to fund Eurodollar Loans, if such liabilities
were outstanding.
Revolving Credit Loans. Revolving credit loans made or to be made by the
Banks to the Borrowers pursuant to Section 2.
Revolving Credit Notes. The promissory notes of the Borrowers evidencing
the Revolving Credit Loans hereunder, dated as of the date hereof and in
substantially the form of Exhibit A hereto.
Section 20 Subsidiary. A subsidiary of the bank holding company
controlling any Bank, which subsidiary has been granted authority by the Federal
Reserve Board to underwrite and deal in certain Ineligible Securities.
Security Agreement. The Security Agreement among the Borrowers and the
Agent, to be dated as of the Closing Date, as amended and in effect from time to
time.
Security Documents. The Security Agreement, Stock Pledge Agreements, and
any other instruments or documents evidencing or perfecting the Agent's lien on
the assets of the Borrowers for the benefit of the Banks.
Seller Debt. Indebtedness of the Borrowers, including assumed
obligations, incurred in connection with acquisitions after May 7th, 1998 of any
stocks of, partnership or joint venture interests in, or assets of any Person
and owing to the seller(s) of such stocks, partnership or joint venture
interests, or assets (excluding Indebtedness of acquired companies which is
discharged within 30 days of such acquisition); provided that such acquisitions
are otherwise permitted pursuant to Section 7.4.
Stock Pledge Agreements. Collectively, (a) the Parent Stock Pledge
Agreement and (b) the Stock Pledge Agreement between W.C. of Washington and the
Agent, pursuant to which 100% of the stock of W.C. International is pledged to
the Agent for the benefit of the Banks, each to be dated as of the Closing Date,
as amended and in effect from time to time.
Subsidiary. Any corporation, association, trust, or other business
entity of which any Borrower shall at any time own directly, or indirectly
through a Subsidiary or Subsidiaries, at least a majority of the outstanding
capital stock or other interest entitled to vote generally.
Sunshine. Sunshine Sanitation, Incorporated, a South Dakota corporation
and a wholly-owned Subsidiary of the Parent.
<PAGE> 22
-16-
Sowers. Sowers' Sanitation, Inc., a South Dakota corporation and a
wholly-owned Subsidiary of the Parent.
Swap Contracts. Any agreement (including any master agreement and any
agreement, whether or not in writing, relating to any single transaction) that
is an interest rate swap agreement, basis swap, forward rate agreement,
commodity swap, commodity option, equity or equity index swap or option, bond
option, interest rate option, forward foreign exchange agreement, rate cap,
collar or floor agreement, currency swap agreement, cross-currency rate swap
agreement, swaption, currency option or other similar agreement (including any
option to enter into any of the foregoing).
Synthetic Lease. Any lease treated as an operating lease under generally
accepted accounting principles and as a loan or financing for U.S. income tax
purposes.
Total Commitment. See Section 2.1.
T&T. T & T Disposal, Inc., a Wyoming corporation and a wholly-owned
Subsidiary of the parent.
W.C. International. Waste Connections International, Inc., a Washington
corporation and a wholly-owned Subsidiary of W.C. of Washington.
W.C. of Washington. Waste Connections of Washington, Inc., a Washington
corporation and a wholly-owned Subsidiary of the Parent.
Year 2000 Issue. The risk that computer applications used by the
Borrowers may be unable to recognize and properly perform date-sensitive
functions involving certain dates prior to, and any date after, December 31,
1999.
SECTION 1.2. RULES OF INTERPRETATION.
(a) A reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented from time to time in
accordance with its terms and the terms of this Credit Agreement.
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any law includes any amendment or modification
to such law.
(d) A reference to any Person includes its permitted successors
and permitted assigns.
(e) Accounting terms capitalized but not otherwise defined herein
have the meanings assigned to them by generally accepted accounting principles
applied on a consistent basis by the accounting entity to which they refer.
<PAGE> 23
-17-
(f) The words "include," "includes" and "including" are not
limiting.
(g) All terms not specifically defined herein or by generally
accepted accounting principles, which terms are defined in the Uniform
Commercial Code as in effect in the Commonwealth of Massachusetts, have the
meanings assigned to them therein.
(h) Reference to a particular "Section" refers to that section of
this Credit Agreement unless otherwise indicated.
(i) The words "herein," "hereof," "hereunder" and words of like
import shall refer to this Credit Agreement as a whole and not to any particular
section or subdivision of this Credit Agreement.
(j) Unless otherwise expressly indicated, in the computation of
periods of time from a specified date to a later specified date, the word "from"
means "from and including," the words "to" and "until" each mean "to but
excluding," and the word "through" means "to and including."
SECTION 2. THE REVOLVING CREDIT FACILITY.
SECTION 2.1. COMMITMENT TO LEND. Subject to the terms and conditions set
forth in this Credit Agreement, each of the Banks severally agrees to lend to
the Borrowers and the Borrowers may borrow, repay, and reborrow from time to
time from the Closing Date to the Maturity Date, upon notice by the Borrowers to
the Agent given in accordance with Section 2.6, its Commitment Percentage of the
Revolving Credit Loans as are requested by the Borrowers, provided that the
outstanding amount of Revolving Credit Loans, unpaid Reimbursement Obligations,
and the Maximum Drawing Amount shall not exceed a maximum aggregate amount
outstanding of $60,000,000 at any time, as such amount may be reduced pursuant
to Section 2.2 hereof (the "Total Commitment"). The Revolving Credit Loans shall
be made pro rata in accordance with each Bank's Commitment Percentage. Each
request for a Loan hereunder shall constitute a representation and warranty by
the Borrowers that the conditions set forth in Section 9 and Section 10, as the
case may be, have been satisfied on the date of such request.
SECTION 2.2. REDUCTION OF TOTAL COMMITMENT.
(a) The Borrowers shall have the right at any time and from time
to time upon five (5) Business Days' prior written notice to the Agent to reduce
by $1,000,000 or integral multiples of $500,000 in excess thereof, or terminate
entirely, the Total Commitment, whereupon the Commitments of the Banks shall be
reduced pro rata in accordance with their respective Commitment Percentages of
the amount specified in such notice or, as the case may be, terminated. The
Agent will notify the Banks promptly after receiving any notice of the Borrowers
delivered pursuant to this Section 2.2.
<PAGE> 24
-18-
(b) No reduction or termination of the Commitments once made may
be revoked; the portion of the Commitments reduced or terminated may not be
reinstated; and amounts in respect of such reduced or terminated portion may not
be reborrowed.
SECTION 2.3. THE REVOLVING CREDIT NOTES. The Revolving Credit Loans
shall be evidenced by separate promissory notes of the Borrowers in
substantially the form of Exhibit A hereto (each a "Revolving Credit Note"),
dated as of the Closing Date and completed with appropriate insertions. One
Revolving Credit Note shall be payable to the order of each Bank in a principal
amount equal to such Bank's Commitment or, if less, the outstanding amount of
all Revolving Credit Loans made by such Bank, plus interest accrued thereon, as
set forth below. The Borrowers irrevocably authorize each Bank to make or cause
to be made, in connection with a Drawdown Date of any Revolving Credit Loan or
at the time of receipt of any payment of principal on such Bank's Revolving
Credit Note, an appropriate notation on such Bank's records reflecting the
making of such Loan or the receipt of such payment (as the case may be). The
outstanding amount of the Loans set forth on such Bank's record shall be prima
facie evidence of the principal amount thereof owing and unpaid to such Bank,
but the failure to record, or any error in so recording, any such amount shall
not limit or otherwise affect the obligation of the Borrowers hereunder or under
any Revolving Credit Note to make payments of principal of or interest on any
Revolving Credit Note when due.
SECTION 2.4. INTEREST ON REVOLVING CREDIT LOANS. The outstanding
principal amount of the Revolving Credit Loans shall bear interest at the rate
per annum equal to (a) the Base Rate plus the Applicable Base Rate Margin on
Base Rate Loans or (b) the Eurodollar Rate plus the Applicable Eurodollar Margin
on Eurodollar Loans. Interest shall be payable (i) quarterly in arrears on the
first Business Day of each calendar quarter, commencing July 1, 1998, on Base
Rate Loans, (ii) on the last day of the applicable Interest Period, and if such
Interest Period is longer than three (3) months, also on the day which is three
(3) months after the commencement of such Interest Period, on Eurodollar Loans,
and (iii) on the Maturity Date for all Revolving Credit Loans.
SECTION 2.5. ELECTION OF EURODOLLAR RATE; NOTICE OF ELECTION; INTEREST
PERIODS; MINIMUM AMOUNTS.
(a) At the Borrowers' option, so long as no Default or Event of
Default has occurred and is then continuing, the Borrowers may (i) elect to
convert any Revolving Credit Loan which is a Base Rate Loan or a portion thereof
to a Eurodollar Loan, (ii) at the time of any Loan and Letter of Credit Request,
specify that a requested Revolving Credit Loan shall be a Eurodollar Loan, or
(iii) upon expiration of the applicable Interest Period, elect to maintain an
existing Eurodollar Loan as such, provided that the Borrowers give notice to the
Agent pursuant to Section 2.5(b) hereof. Upon determining any Eurodollar Rate,
the Agent shall forthwith provide notice thereof to the Borrowers and the Banks,
and each such notice to the Borrowers and the Banks shall be considered prima
facie correct and binding, absent manifest error.
<PAGE> 25
-19-
(b) Three (3) Eurodollar Business Days prior to the making of any
Eurodollar Loan or the conversion of any Base Rate Loan to a Eurodollar Loan,
or, in the case of an outstanding Eurodollar Loan, the expiration date of the
applicable Interest Period, the Borrowers shall give telephonic notice
(confirmed by telecopy on the same Eurodollar Business Day) to the Agent not
later than 11:00 a.m. (Boston time) of their election pursuant to Section
2.5(a). Each such notice delivered to the Agent shall specify the aggregate
principal amount of the Loans to be borrowed or maintained as or converted to
Eurodollar Loans and the requested duration of the Interest Period that will be
applicable to such Eurodollar Loan, and shall be irrevocable and binding upon
the Borrowers. If the Borrowers shall fail to give the Agent notice of their
election hereunder together with all of the other information required by this
Section 2.5(b) with respect to any Revolving Credit Loan, such Loan shall be
deemed a Base Rate Loan. In the event that the Borrowers fail to provide any
such notice with respect to the continuation of any Eurodollar Loan as such,
then such Eurodollar Loan shall be automatically converted to a Base Rate Loan
at the end of the then expiring Interest Period relating thereto.
(c) Notwithstanding anything herein to the contrary, the
Borrowers may not specify an Interest Period that would extend beyond the
Maturity Date.
(d) All Revolving Credit Loans shall be in a minimum amount of
$500,000 or integral multiples of $100,000 in excess thereof. In no event shall
the Borrowers have more than five (5) different maturities of Eurodollar Loans
outstanding at any time.
SECTION 2.6. REQUESTS FOR REVOLVING CREDIT LOANS. The Borrowers shall
give to the Agent written notice in the form of Exhibit B hereto (or telephonic
notice confirmed by telecopy on the same Business Day in the form of Exhibit B
hereto) of each Revolving Credit Loan requested hereunder (a "Loan and Letter of
Credit Request") not later than (a) 11:00 a.m. Boston time one (1) Business Day
prior to the proposed Drawdown Date of any Revolving Credit Loan which is a Base
Rate Loan, or (b) 11:00 a.m. Boston time three (3) Eurodollar Business Days
prior to the proposed Drawdown Date of any Eurodollar Loan. Each such notice
shall be given by the Borrowers and shall specify the principal amount of the
Revolving Credit Loan requested and shall include a current Loan and Letter of
Credit Request reflecting the Maximum Drawing Amount. Each Loan and Letter of
Credit Request shall be irrevocable and binding on the Borrowers and shall
obligate the Borrowers to accept the Revolving Credit Loan requested from the
Banks on the proposed Drawdown Date. Each of the representations and warranties
made by or on behalf of the Borrowers to the Banks or the Agent in this Credit
Agreement or any other Loan Document shall be true and correct in all material
respects when made and shall, for all purposes of this Credit Agreement, be
deemed to be repeated on and as of the date of the submission of any Loan and
Letter of Credit Request and on and as of the Drawdown Date of such Revolving
Credit Loan, or the date of issuance of such Letter of Credit (except to the
extent of changes resulting from transactions contemplated or permitted by this
Credit Agreement and the other Loan Documents and changes occurring in the
ordinary course of business that singly or in the aggregate are not materially
adverse, or to the extent that such representations and warranties expressly
relate solely to an earlier
<PAGE> 26
-20-
date). The Agent shall promptly notify each Bank of each Loan and Letter of
Credit Request received by the Agent.
SECTION 2.7. FUNDS FOR REVOLVING CREDIT LOANS.
(a) Not later than 1:00 p.m. (Boston time) on the proposed Drawdown Date
of any Revolving Credit Loan, each of the Banks will make available to the
Agent, at the Agent's Head Office, in immediately available funds, the amount of
such Bank's Commitment Percentage of the amount of the requested Revolving
Credit Loans. Upon receipt from each Bank of such amount, and upon receipt of
the documents required by Sections 9 and 10 and the satisfaction of the other
conditions set forth therein, to the extent applicable, the Agent will make
available to the Borrowers in immediately available funds the aggregate amount
of such Revolving Credit Loans made available to the Agent by the Banks. The
failure or refusal of any Bank to make available to the Agent at the aforesaid
time and place on any Drawdown Date the amount of its Commitment Percentage of
the requested Revolving Credit Loans shall not relieve any other Bank from its
several obligation hereunder to make available to the Agent the amount of such
other Bank's Commitment Percentage of any requested Revolving Credit Loans.
(b) The Agent may, unless notified to the contrary by any Bank prior to
a Drawdown Date, assume that such Bank has made available to the Agent on such
Drawdown Date the amount of such Bank's Commitment Percentage of the Revolving
Credit Loans to be made on such Drawdown Date, and the Agent may (but shall not
be required to), in reliance upon such assumption, make available to the
Borrowers a corresponding amount. If any Bank makes available to the Agent such
amount on a date after such Drawdown Date, such Bank shall pay to the Agent on
demand an amount equal to the product of (i) the average computed for the period
referred to in clause (iii) below, of the weighted average interest rate paid by
the Agent for federal funds acquired by the Agent during each day included in
such period, times (ii) the amount of such Bank's Commitment Percentage of such
Revolving Credit Loans, times (iii) a fraction, the numerator of which is the
number of days that elapse from and including such Drawdown Date to the date on
which the amount of such Bank's Commitment Percentage of such Revolving Credit
Loans shall become immediately available to the Agent, and the denominator of
which is 365. A statement of the Agent submitted to such Bank with respect to
any amounts owing under this paragraph shall be prima facie evidence, absent
manifest error, of the amount due and owing to the Agent by such Bank. If the
amount of such Bank's Commitment Percentage of such Revolving Credit Loans is
not made available to the Agent by such Bank within three (3) Business Days
following such Drawdown Date, the Agent shall be entitled to recover such amount
from the Borrowers on demand, with interest thereon at the rate per annum
applicable to the Revolving Credit Loans made on such Drawdown Date.
SECTION 2.8. MATURITY OF THE LOANS. The Revolving Credit Loans shall be
due and payable on the Maturity Date. The Borrowers jointly and severally
promise to pay on the Maturity Date all Revolving Credit Loans outstanding on
such date, together with any and all accrued and unpaid interest thereon.
<PAGE> 27
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SECTION 2.9. MANDATORY REPAYMENTS OF THE REVOLVING CREDIT LOANS. If at
any time the outstanding amount of the Revolving Credit Loans plus the Maximum
Drawing Amount plus unpaid Reimbursement Obligations exceeds the Total
Commitment, whether by reduction of the Total Commitment or otherwise, then the
Borrowers shall immediately pay the amount of such excess to the Agent for
application to the Revolving Credit Loans, or if no Revolving Credit Loans shall
be outstanding, to be held by the Agent as collateral security for the
Reimbursement Obligations, provided, however, that if the amount of cash
collateral held by the Agent pursuant to this Section 2.9 exceeds the amount of
the Obligations, the Agent shall return such excess to the Borrowers.
SECTION 2.10. OPTIONAL PREPAYMENTS OR REPAYMENTS OF REVOLVING CREDIT
LOANS. The Borrowers shall have the right, at their election, to repay or prepay
the outstanding amount of the Revolving Credit Loans, as a whole or in part, at
any time without penalty or premium (other than the obligation to reimburse the
Banks and the Agent pursuant to Section 4.8 hereof). The Borrowers shall give
written notice to the Agent (or telephonic notice confirmed in writing) no later
than (a) 1:00 p.m. (Boston time) on the Business Day of the proposed prepayment
or repayment of any Base Rate Loan or (b) 1:00 p.m. (Boston time) three (3)
Eurodollar Business Days prior to the proposed prepayment or repayment of any
Eurodollar Loan, in each case specifying the proposed date of prepayment or
repayment of Revolving Credit Loans and the principal amount to be paid. Each
such partial repayment of the Revolving Credit Loans shall be $500,000 or
integral multiples of $500,000 in excess thereof, and shall be accompanied by
the payment of accrued interest on the principal prepaid to the date of
repayment and shall be applied, in the absence of instruction by the Borrowers,
first to the principal of Base Rate Loans and then to the principal of
Eurodollar Loans. Each partial prepayment shall be allocated among the Banks, in
proportion, as nearly as practicable, to the respective unpaid principal amount
of each Bank's Revolving Credit Loans, with adjustments to the extent
practicable to equalize any prior repayments not exactly in proportion.
SECTION 3. LETTERS OF CREDIT.
SECTION 3.1. LETTER OF CREDIT COMMITMENTS.
(a) Subject to the terms and conditions hereof and the execution
and receipt of a Loan and Letter of Credit Request reflecting the Maximum
Drawing Amount of all Letters of Credit (including the requested Letter of
Credit) and a Letter of Credit Application, the Agent, on behalf of the Banks
and in reliance upon the agreement of the Banks set forth in Section 3.1(b) and
upon the representations and warranties of the Borrowers contained herein,
agrees to issue standby letters of credit, in such form as may be requested from
time to time by the Borrowers and agreed to by the Agent; provided, however,
that, after giving effect to such request, the Maximum Drawing Amount shall not
exceed the lesser of (i) $15,000,000 or (ii) the Total Commitment minus the
aggregate outstanding amount of the Revolving Credit Loans. No Letter of Credit
shall have an expiration date later than the earlier of (i) one (1) year after
the date of issuance of the Letter of Credit (which may incorporate automatic
renewals for periods of up to one (1) year, provided that the Agent may, upon 30
days' notice to the beneficiary, cancel
<PAGE> 28
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such Letter of Credit which has been renewed beyond its initial one (1) year
term), or (ii) thirty (30) days prior to the Maturity Date.
(b) Each Bank severally agrees that it shall be absolutely
liable, without regard to the occurrence of any Default or Event of Default or
any other condition precedent whatsoever, to the extent of such Bank's
Commitment Percentage thereof, to reimburse the Agent on demand for the amount
of each draft paid by the Agent under each Letter of Credit issued in accordance
with the terms hereof to the extent that such amount is not reimbursed by the
Borrowers pursuant to Section 3.2 (such agreement for a Bank being called herein
the "Letter of Credit Participation" of such Bank).
(c) Each such payment made by a Bank shall be treated as the
purchase by such Bank of a participating interest in the Borrowers'
Reimbursement Obligation under Section 3.2 in an amount equal to such payment.
Each Bank shall share in accordance with its participating interest in any
interest which accrues pursuant to Section 3.2.
(d) The parties hereby agree that the Madera Letter of Credit
shall be a Letter of Credit under this Credit Agreement upon the issuance
thereof. In addition, this Credit Agreement shall constitute the Reimbursement
Agreement referred to in the Madera Bond Documents.
SECTION 3.2. REIMBURSEMENT OBLIGATION OF THE BORROWERS. In order to
induce the Agent to issue, extend and renew each Letter of Credit and the Banks
to participate therein, the Borrowers hereby agree to reimburse or pay to the
Agent with respect to each Letter of Credit issued, extended or renewed by the
Agent hereunder as follows:
(a) on each date that any draft presented under any Letter of
Credit is honored by the Agent or the Agent otherwise makes payment with respect
thereto, (i) the amount paid by the Agent under or with respect to such Letter
of Credit, and (ii) the amount of any taxes, fees, charges or other costs and
expenses whatsoever incurred by the Agent or any Bank in connection with any
payment made by the Agent or any Bank under, or with respect to, such Letter of
Credit; provided however, if the Borrowers do not reimburse the Agent on the
Drawdown Date, such amount shall, provided that no Event of Default under
Sections12.1(h) or 12.1(i) has occurred, become automatically a Revolving Credit
Loan which is a Base Rate Loan advanced hereunder in an amount equal to such
sum; and
(b) upon the Maturity Date, or the termination of the Total
Commitment, or the acceleration of the Reimbursement Obligations in accordance
with Section 12, an amount equal to the Maximum Drawing Amount, which amount
shall be held by the Agent for the benefit of the Banks and the Agent as cash
collateral for all Reimbursement Obligations.
SECTION 3.3. LETTER OF CREDIT PAYMENTS. If any draft shall be presented
or other demand for payment shall be made under any Letter of Credit, the Agent
shall notify the Borrowers of the date and amount of the draft presented or
demand for payment and of
<PAGE> 29
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the date and time when it expects to pay such draft or honor such demand for
payment. On the date that such draft is paid or other payment is made by the
Agent, the Agent shall promptly notify the Banks of the amount of any unpaid
Reimbursement Obligation. No later than 3:00 p.m. (Boston time) on the Business
Day next following the receipt of such notice, each Bank shall make available to
the Agent, at the Agent's Head Office, in immediately available funds, such
Bank's Commitment Percentage of such Reimbursement Obligation, together with an
amount equal to the product of (a) the weighted average, computed for the period
referred to in clause (c) below, of the interest rate paid by the Agent for
federal funds acquired by the Agent during each day included in such period,
times (b) the amount equal to such Bank's Commitment Percentage of such unpaid
Reimbursement Obligation, times (c) a fraction, the numerator of which is the
number of days that have elapsed from and including the date the Agent paid the
draft presented for honor or otherwise made payment until the date on which such
Bank's Commitment Percentage of such unpaid Reimbursement Obligation shall
become immediately available to the Agent, and the denominator of which is 365.
The responsibility of the Agent to the Borrowers and the Banks shall be only to
determine that the documents (including each draft) delivered under each Letter
of Credit in connection with such presentment shall be in conformity in all
material respects with such Letter of Credit.
SECTION 3.4. OBLIGATIONS ABSOLUTE. The Borrowers' obligations under this
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of the occurrence of any Default or Event of Default or any
condition precedent whatsoever or any setoff, counterclaim or defense to payment
which the Borrowers may have or have had against the Agent, any Bank or any
beneficiary of a Letter of Credit. Subject to the obligations of the Banks
pursuant to Article V of the Uniform Commercial Code and the obligations of the
Agent pursuant to the last sentence of Section 3.3, the Borrowers further agree
with the Agent and the Banks that the Agent and the Banks shall not be
responsible for, and the Borrowers' Reimbursement Obligations under Section 3.2
shall not be affected by, among other things, the validity or genuineness of
documents or of any endorsements thereon, even if such documents should in fact
prove to be in any or all respects invalid, fraudulent or forged, or any dispute
between or among the Borrowers, the beneficiary of any Letter of Credit or any
financing institution or other party to which any Letter of Credit may be
transferred or any claims or defenses whatsoever of the Borrowers against the
beneficiary of any Letter of Credit or any such transferee. The Agent and the
Banks shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit. The Borrowers agree that
any action taken or omitted by the Agent or any Bank under or in connection with
each Letter of Credit and the related drafts and documents, if done in good
faith, shall be binding upon the Borrowers and shall not result in any liability
on the part of the Agent or any Bank to the Borrowers.
SECTION 3.5. RELIANCE BY AGENT. To the extent not inconsistent with
Section 3.4, the Agent shall be entitled to rely, and shall be fully protected
in relying upon, any Letter of Credit, draft, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document
<PAGE> 30
-24-
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel,
independent accountants or other experts selected by the Agent.
SECTION 4. FEES, PAYMENTS, AND COMPUTATIONS; JOINT AND SEVERAL
LIABILITY.
SECTION 4.1. FEES.
(a) COMMITMENT FEE. The Borrowers jointly and severally agree to
pay to the Agent, for the respective account of each Bank, a fee (the
"Commitment Fee") equal to the Applicable Commitment Rate multiplied by the
average daily amount of the unused portion of such Bank's Commitment during each
calendar quarter or portion thereof from the Closing Date to the Maturity Date
(or to the date of termination in full of the Total Commitment, if earlier). The
Commitment Fee shall be payable quarterly in arrears on the first day of each
calendar quarter for the immediately preceding calendar quarter commencing on
July 1, 1998, with a final payment on the Maturity Date.
(b) LETTER OF CREDIT FEES. The Borrowers shall pay a fee (the
"Letter of Credit Fee") equal to (i) the Applicable L/C Margin multiplied by the
Maximum Drawing Amount of each Financial Letter of Credit plus (ii) 50% of the
Applicable L/C Margin multiplied by the Maximum Drawing Amount of each
Performance Letter of Credit. Such Letter of Credit Fee shall be payable to the
Agent for the account of the Banks, to be shared pro rata by the Banks in
accordance with their respective Commitment Percentages. The Borrowers shall
also pay a fee (the "Issuance Fee") to the Agent, for its own account, equal to
0.125% per annum on the Maximum Drawing Amount of all Letters of Credit issued
by such Bank, plus its customary administrative charges. The Letter of Credit
Fee and the Issuance Fee shall be payable for the number of days each Letter of
Credit is outstanding, and shall be payable quarterly in arrears on the first
day of each calendar quarter for the immediately preceding calendar quarter, and
on the Maturity Date.
(c) CLOSING FEES. The Borrowers shall pay at closing any fees
owing to any of the Banks, as previously agreed pursuant to that certain fee
letter between the Borrowers and the Agent dated April 23, 1998.
SECTION 4.2. PAYMENTS.
(a) All payments of principal, interest, Reimbursement
Obligations, fees and any other amounts due hereunder or under any of the other
Loan Documents shall be made to the Agent, for the respective accounts of the
Banks and the Agent, to be received at the Agent's Head Office in immediately
available funds by 12:00 p.m. (Boston time) on any due date.
(b) All payments by the Borrowers hereunder and under any of the
other Loan Documents shall be made without setoff or counterclaim and free and
clear of and without deduction for any taxes, levies, imposts, duties, charges,
fees, deductions,
<PAGE> 31
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withholdings, compulsory loans, restrictions or conditions of any nature now or
hereafter imposed or levied by any jurisdiction or any political subdivision
thereof or taxing or other authority therein unless the Borrowers are compelled
by law to make such deduction or withholding. If any such obligation is imposed
upon the Borrowers with respect to any amount payable by them hereunder or under
any of the other Loan Documents, the Borrowers will pay to the Agent, for the
account of the Banks or (as the case may be) the Agent, on the date on which
such amount is due and payable hereunder or under such other Loan Document, such
additional amount in Dollars as shall be necessary to enable the Banks or the
Agent to receive the same net amount which the Banks or the Agent would have
received on such due date had no such obligation been imposed upon the
Borrowers. In the event that the Borrowers are required to make such deduction
or withholding as a result of the fact that a Bank is organized outside of the
United States, such Bank shall use its reasonable best efforts to transfer its
Loans to an affiliate organized within the United States if such transfer would
have no adverse effect on such Bank or the Loans. The Borrowers will deliver
promptly to the Bank certificates or other valid vouchers for all taxes or other
charges deducted from or paid with respect to payments made by the Borrowers
hereunder or under such other Loan Document.
(c) Whenever a payment hereunder or under any of the other Loan
Documents becomes due on a day that is not a Business Day, the due date for such
payment shall be extended to the next succeeding Business Day, and interest
shall accrue during such extension; provided that any Interest Period for any
Eurodollar Loan which ends on a day that is not a Eurodollar Business Day shall
end on the next succeeding Eurodollar Business Day unless the result of such
extension would be to carry such Interest Period into another calendar month, in
which event such Interest Period shall end on the immediately preceding
Eurodollar Business Day.
SECTION 4.3. COMPUTATIONS. All computations of interest on Base Rate
Loans and of Commitment Fees, Letter of Credit Fees or other fees shall, unless
otherwise expressly provided herein, be based on a 365-day year (or 366-day
year, as applicable) and paid for the actual number of days elapsed. All
computations of interest on Eurodollar Loans shall, unless otherwise expressly
provided herein, be based on a 360-day year and paid for the actual number of
days elapsed.
SECTION 4.4. CAPITAL ADEQUACY. If any present or future law,
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) or the interpretation thereof by a court or
governmental authority with appropriate jurisdiction affects the amount of
capital required or expected to be maintained by any Bank or the Agent or any
corporation controlling such Bank or the Agent, and such Bank or the Agent
determines that the amount of capital required to be maintained by it is
increased by or based upon the existence of such Bank's or the Agent's Loans,
Letter of Credit Participations or Letters of Credit, or commitment with respect
thereto, then such Bank or the Agent may notify the Borrowers of such fact. To
the extent that the costs of such increased capital requirements are not
reflected in the Base Rate (if relating to Base Rate Loans), the Borrowers and
such Bank or (as the case may be) the Agent shall thereafter attempt to
negotiate in good faith, within thirty (30) days of the day on which the
Borrowers receive such notice, an adjustment payable hereunder that will
adequately compensate such Bank or the Agent in light of these circumstances. If
the Borrowers and such Bank or the Agent are unable to agree to such adjustment
within thirty (30) days of the date on which the
<PAGE> 32
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Borrowers receive such notice, then commencing on the date of such notice (but
not earlier than the effective date of any such increased capital requirement),
the fees payable hereunder shall increase by an amount that will, in such Bank's
or the Agent's reasonable determination, provide adequate compensation. Each
Bank and the Agent shall allocate such cost increases among its customers in
good faith and on an equitable basis.
SECTION 4.5. CERTIFICATE. A certificate setting forth any additional
amounts payable pursuant to Section 4.4 and a reasonable explanation of such
amounts which are due, submitted by any Bank or the Agent to the Borrowers,
shall be conclusive, absent manifest error, that such amounts are due and owing.
SECTION 4.6. INTEREST ON OVERDUE AMOUNTS. Overdue principal and (to the
extent permitted by applicable law) interest on the Loans and all other overdue
amounts payable hereunder or under any of the other Loan Documents shall bear
interest compounded monthly and payable on demand at a rate per annum equal to
the Base Rate plus the Applicable Base Rate Margin plus two (2) percentage
points (2.00%) until such amount shall be paid in full (after, as well as
before, judgment).
SECTION 4.7. INTEREST LIMITATION. Notwithstanding any other term of this
Credit Agreement or any Note or any other document referred to herein or
therein, the maximum amount of interest which may be charged to or collected
from any person liable hereunder or under any Note by any Bank shall be
absolutely limited to, and shall in no event exceed, the maximum amount of
interest which could lawfully be charged or collected under applicable law
(including, to the extent applicable, the provisions of Section 5197 of the
Revised Statutes of the United States of America, as amended, 12 U.S.C. Section
85, as amended), so that the maximum of all amounts constituting interest under
applicable law, howsoever computed, shall never exceed as to any Person liable
therefor such lawful maximum, and any term of this Credit Agreement, the Notes,
the Letter of Credit Applications, or any other document referred to herein or
therein which could be construed as providing for interest in excess of such
lawful maximum shall be and hereby is made expressly subject to and modified by
the provisions of this paragraph.
SECTION 4.8. EURODOLLAR INDEMNITY. The Borrowers agree to indemnify the
Banks and the Agent and to hold them harmless from and against any loss, cost or
expenses (including loss of anticipated profits) that the Banks and the Agent
may sustain or incur as a consequence of (a) default by the Borrowers in payment
of the principal amount of or any interest on any Eurodollar Loans as and when
due and payable, including any such loss or expense arising from interest or
fees payable by any Bank or the Agent to lenders of funds obtained by it in
order to maintain its Eurodollar Loans, (b) a prepayment of principal on any
Eurodollar Loan, including prepayments which are the result of acceleration by
the Banks, or (c) default by the Borrowers in making a borrowing or conversion
after the Borrowers have given (or are deemed to have given) notice pursuant
<PAGE> 33
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to Section 2.5 or Section 2.6, the making of any payment of a Eurodollar Loan or
the making of any conversion of any such Eurodollar Loan to a Base Rate Loan on
a day that is not the last day of the applicable Interest Period with respect
thereto, including interest or fees payable by any Bank to lenders of funds
obtained by it in order to maintain any such Loans.
SECTION 4.9. ILLEGALITY; INABILITY TO DETERMINE EURODOLLAR RATE.
Notwithstanding any other provision of this Credit Agreement, if (a) the
introduction of, any change in, or any change in the interpretation of, any law
or regulation applicable to the Agent or any Bank shall make it unlawful, or any
central bank or other governmental authority having jurisdiction thereof shall
assert that it is unlawful, for any Bank or the Agent to perform its obligations
in respect of any Eurodollar Loans, or (b) if any Bank or the Agent shall
reasonably determine with respect to Eurodollar Loans that (i) by reason of
circumstances affecting any Eurodollar interbank market, adequate and reasonable
methods do not exist for ascertaining the Eurodollar Rate which would otherwise
be applicable during any Interest Period, or (ii) deposits of Dollars in the
relevant amount for the relevant Interest Period are not available to such Bank
or the Agent in any Eurodollar interbank market, or (iii) the Eurodollar Rate
does not or will not accurately reflect the cost to such Bank or the Agent of
obtaining or maintaining the applicable Eurodollar Loans during any Interest
Period, then such Bank or the Agent shall promptly give telephonic, telex or
cable notice of such determination to the Borrowers (which notice shall be
conclusive and binding upon the Borrowers). Upon such notification by such Bank
or the Agent, the obligation of such Bank or the Agent to make Eurodollar Loans
shall be suspended until such Bank or the Agent determines that such
circumstances no longer exist, and the outstanding Eurodollar Loans shall
continue to bear interest at the applicable rate based on the Eurodollar Rate
until the end of the applicable Interest Period, and thereafter shall be deemed
converted to Base Rate Loans in equal principal amounts.
SECTION 4.10. ADDITIONAL COSTS, ETC. If any present or future applicable
law, which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to any Bank by any central bank or other fiscal, monetary or
other authority (whether or not having the force of law), shall impose on any
Bank any tax, levy, impost, duty, charge fees, deduction or withholdings of any
nature or requirements with respect to this Credit Agreement, the other Loan
Documents, the Loans, such Bank's Commitment, the Letters of Credit or any class
of loans or commitments or letters of credit of which any of the Loans, the
Commitments or the Letters of Credit forms a part, and the result of any of the
foregoing is:
(i) to increase the cost to such Bank of making, funding,
issuing, renewing, extending or maintaining the Loans, such Bank's Commitment,
or the Letters of Credit; or
<PAGE> 34
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(ii) to reduce the amount of principal, interest or other amount
payable to such Bank hereunder on account of such Bank's Commitment, the Loans,
or drawings under the Letters of Credit, or
(iii) to require such Bank to make any payment or to forego any
interest or other sum payable hereunder, the amount of which payment or foregone
interest or other sum is calculated by reference to the gross amount of any sum
receivable or deemed received by such Bank from the Borrowers hereunder,
then, and in each such case, the Borrowers will, upon demand made by such Bank
at any time and from time to time and as often as the occasion therefor may
arise, pay to such Bank such additional amounts as will be sufficient to
compensate such Bank for such additional cost, reduction, payment or foregone
interest or other sum (after such Bank shall have allocated the same fairly and
equitably among all customers of any class generally affected thereby).
SECTION 4.11. REPLACEMENT OF BANKS. If any Bank (an "Affected Bank") (i)
makes demand upon the Borrowers for (or if the Borrowers are otherwise required
to pay) amounts pursuant to Sections4.4 or 4.10 or (ii) is unable to make or
maintain Eurodollar Loans as a result of a condition described in Section 4.9,
the Borrowers may, within 90 days of receipt of such demand or notice (or the
occurrence of such other event causing the Borrowers to be required to pay such
compensation or causing Section 4.9 to be applicable), by notice in writing to
the Agent and such Affected Bank (a "Replacement Notice") (A) request the
Affected Bank to cooperate with the Borrowers in obtaining a replacement bank
satisfactory to the Agent and the Borrowers (the "Replacement Bank"); (B)
request the non-Affected Banks to acquire and assume all of the Affected Bank's
Loans and Commitment, as provided herein, but none of such Banks shall be under
an obligation to do so; or (C) designate a Replacement Bank reasonably
satisfactory to the Agent. If any satisfactory Replacement Bank shall be
obtained, and/or any of the non-Affected Banks shall agree to acquire and assume
all of the Affected Bank's Loans and Commitment, then such Affected Bank shall,
so long as no Event of Default shall have occurred and be continuing, assign, in
accordance with Section 17, all of its Commitment, Loans, Notes and other rights
and obligations under this Credit Agreement and all other Loan Documents to such
Replacement Bank or non-Affected Banks, as the case may be, in exchange for
payment of the principal amount so assigned and all interest and fees accrued on
the amount so assigned, plus all other Obligations then due and payable to the
Affected Bank; provided, however, that (i) such assignment shall be without
recourse, representation or warranty and shall be on terms and conditions
reasonably satisfactory to such Affected Bank and such Replacement Bank and/or
non-Affected Banks, as the case may be, and (ii) prior to any such assignment,
the Borrowers shall have paid to such Affected Bank all amounts properly
demanded and unreimbursed under Sections4.4, 4.8, 4.9 and 4.10. Upon the
effective date of such assignment, the Borrowers shall issue replacement Notes
to such Replacement Bank and/or non-Affected Banks, as the case may be, and such
institution shall become a "Bank" for all purposes under this Credit Agreement
and the other Loan Documents.
<PAGE> 35
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SECTION 4.12. CONCERNING JOINT AND SEVERAL LIABILITY OF THE BORROWERS.
(a) Each of the Borrowers is accepting joint and several liability
hereunder and under the other Loan Documents in consideration of the financial
accommodations to be provided by the Banks under this Credit Agreement, for the
mutual benefit, directly and indirectly, of each of the Borrowers and in
consideration of the undertakings of each other Borrower to accept joint and
several liability for the Obligations.
(b) Each of the Borrowers, jointly and severally, hereby irrevocably
and unconditionally accepts, not merely as a surety but also as a co-debtor,
joint and several liability with the other Borrowers with respect to the payment
and performance of all of the Obligations (including, without limitation, any
Obligations arising under this Section 4.12), it being the intention of the
parties hereto that all of the Obligations shall be the joint and several
Obligations of each of the Borrowers without preferences or distinction among
them.
(c) If and to the extent that any of the Borrowers shall fail to
make any payment with respect to any of the Obligations as and when due or to
perform any of the Obligations in accordance with the terms thereof, then in
each such event the other Borrowers will make such payment with respect to, or
perform, such Obligation.
(d) The Obligations of each of the Borrowers under the provisions of
this Section 4.12 constitute full recourse Obligations of each of the Borrowers
enforceable against each such corporation to the full extent of its properties
and assets, irrespective of the validity, regularity or enforceability of this
Credit Agreement or any other circumstance whatsoever.
(e) Except as otherwise expressly provided in this Credit Agreement,
each of the Borrowers hereby waives notice of acceptance of its joint and
several liability, notice of any Loans made under this Credit Agreement, notice
of any action at any time taken or omitted by the Banks under or in respect of
any of the Obligations, and, generally, to the extent permitted by applicable
law, all demands, notices and other formalities of every kind in connection with
this Credit Agreement. Each of the Borrowers hereby assents to, and waives
notice of, any extension or postponement of the time for the payment of any of
the Obligations, the acceptance of any payment of any of the Obligations, the
acceptance of any partial payment thereon, any waiver, consent or other action
or acquiescence by the Banks at any time or times in respect of any default by
any of the Borrowers in the performance or satisfaction of any term, covenant,
condition or provision of this Credit Agreement, any and all other indulgences
whatsoever by the Banks in respect of any of the Obligations, and the taking,
addition, substitution or release, in whole or in part, at any time or times, of
any security for any of the Obligations or the addition, substitution or
release, in whole or in part, of any of the Borrowers. Without limiting the
generality of the foregoing, each of the Borrowers assents to any other action
or delay in acting or failure to act on the part of the Banks with respect to
the failure by any of the Borrowers to comply with any of its respective
Obligations, including, without limitation, any failure strictly or diligently
to assert any
<PAGE> 36
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right or to pursue any remedy or to comply fully with applicable laws or
regulations thereunder, which might, but for the provisions of this Section
4.12, afford grounds for terminating, discharging or relieving any of the
Borrowers, in whole or in part, from any of its Obligations under this Section
4.12, it being the intention of each of the Borrowers that, so long as any of
the Obligations hereunder remain unsatisfied, the Obligations of such Borrowers
under this Section 4.12 shall not be discharged except by performance and then
only to the extent of such performance. The Obligations of each of the Borrowers
under this Section 4.12 shall not be diminished or rendered unenforceable by any
winding up, reorganization, arrangement, liquidation, re-construction or similar
proceeding with respect to any of the Borrowers or the Banks. The joint and
several liability of the Borrowers hereunder shall continue in full force and
effect notwithstanding any absorption, merger, amalgamation or any other change
whatsoever in the name, membership, constitution or place of formation of any of
the Borrowers or the Banks.
(f) The provisions of this Section 4.12 are made for the benefit of
the Banks and their successors and assigns, and may be enforced in good faith by
them from time to time against any or all of the Borrowers as often as the
occasion therefor may arise and without requirement on the part of the Banks
first to marshal any of their claims or to exercise any of their rights against
any other Borrower or to exhaust any remedies available to them against any
other Borrower or to resort to any other source or means of obtaining payment of
any of the Obligations hereunder or to elect any other remedy. The provisions of
this Section 4.12 shall remain in effect until all of the Obligations shall have
been paid in full or otherwise fully satisfied. If at any time, any payment, or
any part thereof, made in respect of any of the Obligations, is rescinded or
must otherwise be restored or returned by the Banks upon the insolvency,
bankruptcy or reorganization of any of the Borrowers, or otherwise, the
provisions of this Section 4.12 will forthwith be reinstated in effect, as
though such payment had not been made.
SECTION 5. REPRESENTATIONS AND WARRANTIES. The Borrowers jointly and
severally represent and warrant to the Banks that on and as of the date of this
Credit Agreement, each Drawdown Date, and the date of issuance of any Letter of
Credit (with any disclosure on a schedule pursuant to this Section 5 applying to
all relevant representations and warranties, regardless of whether such schedule
is referenced in each relevant representation):
SECTION 5.1. CORPORATE AUTHORITY.
(a) INCORPORATION; GOOD STANDING. Each Borrower (i) is a corporation
duly organized, validly existing and in good standing or in current status under
the laws of its respective state of incorporation, (ii) has all requisite
corporate power to own its property and conduct its business as now conducted
and as presently contemplated, and (iii) is in good standing as a foreign
corporation and is duly authorized to do business in each jurisdiction in which
its property or business as presently conducted or contemplated makes such
qualification necessary except where a failure to be so qualified would not have
a material adverse effect on the business, assets or financial condition of such
Borrower.
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(b) AUTHORIZATION. The execution, delivery and performance of the
Loan Documents and the transactions contemplated hereby and thereby (i) are
within the corporate authority of each Borrower, (ii) have been duly authorized
by all necessary corporate proceedings, (iii) do not conflict with or result in
any material breach or contravention of any provision of law, statute, rule or
regulation to which any Borrower is subject or any judgment, order, writ,
injunction, license or permit applicable to any Borrower so as to materially
adversely affect the assets, business or any activity of the Borrowers, and (iv)
do not conflict with any provision of the corporate charter or bylaws of any
Borrower or any agreement or other instrument binding upon them.
(c) ENFORCEABILITY. The execution, delivery and performance of the
Loan Documents will result in valid and legally binding obligations of the
Borrowers enforceable against each in accordance with the respective terms and
provisions hereof and thereof, except as enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights and except to the
extent that availability of the remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding
therefor may be brought.
SECTION 5.2. GOVERNMENTAL APPROVALS. The execution, delivery and
performance by the Borrowers of the Loan Documents and the transactions
contemplated hereby and thereby do not require any approval or consent of, or
filing with, any governmental agency or authority other than those already
obtained.
SECTION 5.3. TITLE TO PROPERTIES; LEASES. The Borrowers own all of the
assets reflected in the consolidated balance sheets as at the Balance Sheet Date
or acquired since that date (except property and assets sold or otherwise
disposed of in the ordinary course of business since that date), subject to no
mortgages, capitalized leases, conditional sales agreements, title retention
agreements, liens or other encumbrances except Permitted Liens.
SECTION 5.4. FINANCIAL STATEMENTS; SOLVENCY.
(a) There has been furnished to the Banks audited consolidated
financial statements of the Borrowers dated the Balance Sheet Date. Said
financial statements have been prepared in accordance with GAAP and fairly
present in all material respects the financial condition of the Borrowers on a
consolidated basis, as at the close of business on the date thereof and the
results of operations for the period then ended. There are no contingent
liabilities of the Borrowers involving material amounts, known to the officers
of the Borrowers, which have not been disclosed in said balance sheets and the
related notes thereto or otherwise in writing to the Banks.
(b) The Borrowers on a consolidated basis (both before and after
giving effect to the transactions contemplated by this Credit Agreement) are and
will be solvent (i.e., they have assets having a fair value in excess of the
amount required to pay their probable liabilities on their existing debts as
they become absolute and matured) and
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have, and expect to have, the ability to pay their debts from time to time
incurred in connection therewith as such debts mature.
SECTION 5.5. NO MATERIAL CHANGES, ETC. Since the Balance Sheet Date,
there have occurred no material adverse changes in the financial condition or
businesses of the Borrowers, taken as a whole, as shown on or reflected in the
consolidated balance sheet of the Borrowers as of the Balance Sheet Date, or the
consolidated statement of income for the fiscal year then ended. Since the
Balance Sheet Date, there have not been any Distributions other than as
permitted by Section 7.6 hereof.
SECTION 5.6. PERMITS, FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each
Borrower possess all franchises, patents, copyrights, trademarks, trade names,
licenses and permits, and rights in respect of the foregoing, adequate for the
conduct of their businesses substantially as now conducted without known
conflict with any rights of others.
SECTION 5.7. LITIGATION. Except as shown on Schedules 5.7 and 5.16
hereto, there are no actions, suits, proceedings or investigations of any kind
pending or, to the knowledge of any Borrower, threatened against any Borrower
before any court, tribunal or administrative agency or board which, if adversely
determined, might, either in any individual case or in the aggregate, materially
adversely affect the properties, assets, financial condition or business of the
Borrowers, taken as a whole, or materially impair the right of the Borrowers,
taken as a whole, to carry on business substantially as now conducted, or result
in any substantial liability not adequately covered by insurance, or for which
adequate reserves are not maintained on the consolidated balance sheet or which
question the validity of any of the Loan Documents or any action taken or to be
taken pursuant hereto or thereto.
SECTION 5.8. NO MATERIALLY ADVERSE CONTRACTS, ETC. No Borrower is
subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation which in the judgment of the Borrowers'
officers has or is expected in the future to have a materially adverse effect on
the business, assets or financial condition of the Borrowers, taken as a whole.
No Borrower is a party to any contract or agreement which in the judgment of the
Borrowers' officers has or is expected to have any materially adverse effect on
the business of the Borrowers, taken as a whole, except as otherwise reflected
in adequate reserves.
SECTION 5.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. No Borrower
is violating any provision of its charter documents or by-laws or any agreement
or instrument by which any of them may be subject or by which any of them or any
of their properties may be bound or any decree, order, judgment, or any statute,
license, rule or regulation, in a manner which could result in the imposition of
substantial penalties or materially and adversely affect the financial
condition, properties or business of any Borrower. All Material Contracts (a
complete and accurate list of which is attached hereto as Schedule 5.9) are in
full force and effect, and no default or event of default has occurred and is
continuing under any Material Contract.
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SECTION 5.10. TAX STATUS. Each Borrower has made or filed all federal
and state income and all other tax returns, reports and declarations required by
any jurisdiction to which any of them is subject (unless and only to the extent
that such Borrower has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes); and have paid all taxes and
other governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith; and have set aside on their books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Borrowers know of no basis for any
such claim.
SECTION 5.11. NO EVENT OF DEFAULT. No Default or Event of Default has
occurred and is continuing as of the date of this Credit Agreement.
SECTION 5.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. No Borrower
is a "holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company," as such terms are defined in the Public
Utility Holding Company Act of 1935; nor is any of them a "registered investment
company," or an "affiliated company" or a "principal underwriter" of a
"registered investment company," as such terms are defined in the Investment
Company Act of 1940, as amended.
SECTION 5.13. ABSENCE OF FINANCING STATEMENTS, ETC. Other than Permitted
Liens, there is no financing statement, security agreement, chattel mortgage,
real estate mortgage or other document filed or recorded with any filing
records, registry, or other public office, which purports to cover, affect or
give notice of any present or possible future lien on, or security interest in,
any assets or property of any Borrower, or any rights relating thereto.
SECTION 5.14. EMPLOYEE BENEFIT PLANS.
(a) Each Employee Benefit Plan and each Guaranteed Pension Plan has
been maintained and operated in compliance in all material respects with the
provisions of ERISA and, to the extent applicable, the Code, including but not
limited to the provisions thereunder respecting prohibited transactions and the
bonding of fiduciaries and other persons handling plan funds as required by
Section 412 of ERISA. Each Borrower has heretofore delivered to the Agent the
most recently completed annual report, Form 5500, with all required attachments,
and actuarial statement required to be submitted under Section 103(d) of ERISA,
with respect to each Guaranteed Pension Plan.
(b) No Employee Benefit Plan, which is an employee welfare benefit
plan within the meaning of Section 3(1) or Section 3(2)(B) of ERISA, provides
benefit coverage subsequent to termination of employment, except as required by
Title I, Part 6 of ERISA or the applicable state insurance laws. A Borrower may
terminate each such Plan at any time (or at any time subsequent to the
expiration of any applicable bargaining agreement) in
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the discretion of such Borrower without liability to any Person other than for
claims arising prior to termination.
(c) Each contribution required to be made to a Guaranteed Pension
Plan, whether required to be made to avoid the incurrence of an accumulated
funding deficiency, the notice or lien provisions of Section 302(f) of ERISA, or
otherwise, has been timely made. No waiver of an accumulated funding deficiency
or extension of amortization periods has been received with respect to any
Guaranteed Pension Plan, and no Borrower nor any ERISA Affiliate is obligated to
or has posted security in connection with an amendment to a Guaranteed Pension
Plan pursuant to Section 307 of ERISA or Section 401(a)(29) of the Code. No
liability to the PBGC (other than required insurance premiums, all of which have
been paid) has been incurred by any Borrower or any ERISA Affiliate with respect
to any Guaranteed Pension Plan and there has not been any ERISA Reportable Event
(other than an ERISA Reportable Event as to which the requirement of 30 days
notice has been waived), or any other event or condition which presents a
material risk of termination of any Guaranteed Pension Plan by the PBGC. Based
on the latest valuation of each Guaranteed Pension Plan (which in each case
occurred within twelve months of the date of this representation), and on the
actuarial methods and assumptions employed for that valuation, the aggregate
benefit liabilities of all such Guaranteed Pension Plans within the meaning of
Section 4001 of ERISA did not exceed the aggregate value of the assets of all
such Guaranteed Pension Plans, disregarding for this purpose the benefit
liabilities and assets of any Guaranteed Pension Plan with assets in excess of
benefit liabilities.
(d) No Borrower nor any ERISA Affiliate has incurred any material
liability (including secondary liability) to any Multiemployer Plan as a result
of a complete or partial withdrawal from such Multiemployer Plan under Section
4201 of ERISA or as a result of a sale of assets described in Section 4204 of
ERISA. No Borrower nor any ERISA Affiliate has been notified that any
Multiemployer Plan is in reorganization or insolvent under and within the
meaning of Section 4241 or Section 4245 of ERISA or is at risk of entering
reorganization or becoming insolvent, or that any Multiemployer Plan intends to
terminate or has been terminated under Section 4041A of ERISA.
SECTION 5.15. USE OF PROCEEDS.
SECTION 5.15.1. GENERAL. The proceeds of the Loans shall be used
solely as follows: (a) to finance acquisitions permitted pursuant to Section
7.4; and (b) for capital expenditures, working capital, and general corporate
purposes.
SECTION 5.15.2. REGULATIONS U AND X. No portion of any Loan is
to be used, and no portion of any Letter of Credit is to be obtained, for the
purpose of purchasing or carrying any "margin security" or "margin stock" as
such terms are used in Regulations U and X of the Board of Governors of the
Federal Reserve System, 12 C.F.R. Parts 221 and 224.
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SECTION 5.15.3. INELIGIBLE SECURITIES. No portion of the
proceeds of any Loans is to be used, and no portion of any Letter of Credit is
to be obtained, for the purpose of (a) knowingly purchasing, or providing credit
support for the purchase of, Ineligible Securities from a Section 20 Subsidiary
during any period in which such Section 20 Subsidiary makes a market in such
Ineligible Securities, (b) knowingly purchasing, or providing credit support for
the purchase of, during the underwriting or placement period, any Ineligible
Securities being underwritten or privately placed by a Section 20 Subsidiary, or
(c) making, or providing credit support for the making of, payments of principal
or interest on Ineligible Securities underwritten or privately placed by a
Section 20 Subsidiary and issued by or for the benefit of the Borrowers or other
Affiliate of the Borrowers.
SECTION 5.16. ENVIRONMENTAL COMPLIANCE. Each Borrower has investigated
the past and present condition and usage of the Real Property and the operations
conducted thereon and, based upon such diligent investigation, has determined
that, except as shown on Schedule 5.16:
(a) No Borrower, nor any operator of the Borrowers' properties, is
in violation, or alleged violation, of any judgment, decree, order, law, permit,
license, rule or regulation pertaining to environmental matters, including
without limitation, those arising under RCRA, CERCLA, the Superfund Amendments
and Reauthorization Act of 1986, the Federal Clean Water Act, the Federal Clean
Air Act, the Toxic Substances Control Act, or any state or local statute,
regulation, ordinance, order or decree relating to health, safety or the
environment (the "Environmental Laws"), which violation would have a material
adverse effect on the business, assets or financial condition of the Borrowers
on a consolidated basis.
(b) No Borrower has received notice from any third party, including,
without limitation: any federal, state or local governmental authority, (i) that
any of the Borrowers has been identified by the United States Environmental
Protection Agency ("EPA") as a potentially responsible party under CERCLA with
respect to a site listed on the National Priorities List, 40 C.F.R. Part 300
Appendix B; (ii) that any hazardous waste, as defined by 42 U.S.C.
Section 6903(5), any hazardous substances as defined by 42 U.S.C.
Section 9601(14), any pollutant or contaminant as defined by 42 U.S.C.
Section 9601(33) or any toxic substance, oil or hazardous materials or other
chemicals or substances regulated by any Environmental Laws ("Hazardous
Substances") which any of the Borrowers has generated, transported or disposed
of has been found at any site at which a federal, state or local agency or other
third party has conducted or has ordered that any Borrower conduct a remedial
investigation, removal or other response action pursuant to any Environmental
Law; or (iii) that it is or shall be a named party to any claim, action, cause
of action, complaint, legal or administrative proceeding arising out of any
third party's incurrence of costs, expenses, losses or damages of any kind
whatsoever in connection with the release of Hazardous Substances.
(c) Except where it would not have a material adverse effect on the
value of the Real Property, (i) no portion of the Real Property has been used
for the handling,
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processing, storage or disposal of Hazardous Substances; and no underground tank
or other underground storage receptacle for Hazardous Substances is located on
such properties; (ii) in the course of any activities conducted by the
Borrowers, or operators of the Real Property, no Hazardous Substances have been
generated or are being used on such properties; (iii) there have been no
unpermitted Releases or threatened Releases of Hazardous Substances on, upon,
into or from the Real Property; (iv) to the best of the Borrowers' knowledge,
there have been no Releases on, upon, from or into any real property in the
vicinity of the Real Property which, through soil or groundwater contamination,
may have come to be located on such properties; and (v) in addition, when
required under applicable Environmental Laws, any Hazardous Substances that have
been generated on the Real Property have been transported offsite only by
carriers having an identification number issued by the EPA, treated or disposed
of only by treatment or disposal facilities maintaining valid permits as
required under applicable Environmental Laws, which transporters and facilities,
to the best of the Borrowers' knowledge, have been and are operating in material
compliance with such permits and applicable Environmental Laws.
(d) None of the Real Property is or shall be subject to any
applicable environmental clean-up responsibility law or environmental
restrictive transfer law or regulation, by virtue of the transactions set forth
herein and contemplated hereby.
SECTION 5.17. PERFECTION OF SECURITY INTERESTS. All filings,
assignments, pledges and deposits of documents or instruments have been made and
all other actions have been taken that are necessary or advisable under
applicable law to establish and perfect the Agent's security interest in the
Collateral. The Collateral and the Agent's rights with respect to the Collateral
are not subject to any setoff, claims, withholdings or other defenses.
SECTION 5.18. TRANSACTIONS WITH AFFILIATES. Except as disclosed in
Schedule 5.18 or filings made by the Borrowers under the Securities Exchange Act
of 1934 prior to the Closing Date, and except for arm's length transactions
pursuant to which a Borrower makes payments in the ordinary course of business
upon terms no less favorable than such Borrower could obtain from third parties,
none of the officers, directors, or employees of any Borrower is presently a
party to any transaction with another Borrower (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of any
Borrower, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
SECTION 5.19. SUBSIDIARIES. Schedule 2 sets forth a complete and
accurate list of the Subsidiaries of the Parent, including the name of each
Subsidiary, the location of its chief executive office, and its jurisdiction of
incorporation, together with the number of authorized and outstanding shares of
each Subsidiary. Each Subsidiary listed on
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Schedule 2 is (a) wholly owned by the Parent (other than W.C. International,
which is wholly-owned by W.C. of Washington) and (b) is a Borrower hereunder,
100% of the assets and stock of which have been pledged to the Agent on behalf
of the Banks (subject to Section 7.2(h)) pursuant to the Security Documents. The
Parent has good and marketable title to all of the shares it purports to own of
the stock of each such Subsidiary, and W.C. of Washington has good and
marketable title to all of the shares it purports to own of the stock of W.C.
International, free and clear in each case of any lien. All such shares have
been duly issued and are fully paid and non-assessable.
SECTION 5.20. TRUE COPIES OF CHARTER AND OTHER DOCUMENTS. Each Borrower
has furnished the Agent copies, in each case true and complete as of the Closing
Date, of its (a) charter and other incorporation documents and (b) by-laws, each
including any amendments thereto.
SECTION 5.21. DISCLOSURE. Neither this Credit Agreement, nor any of the
other Loan Documents, nor any document or information furnished by the Borrowers
in connection therewith contains any untrue statement of a material fact or
omits to state a material fact (known to any Borrower in the case of any
document or information not furnished by the Borrowers) necessary in order to
make the statements herein or therein not misleading. There is no fact known to
any Borrower which materially adversely affects, or which is reasonably likely
in the future to materially adversely affect, the business, assets, or financial
condition of any Borrower, exclusive of effects resulting from changes in
general economic conditions, legal standards or regulatory conditions.
SECTION 5.22. CAPITALIZATION.
(a) As of the Closing Date, the authorized capital stock of the
Parent consists of 50,000,000 shares of common stock (par value $0.01) per
share) of which 7,849,998 shares were outstanding as of the Closing Date. All of
such outstanding shares are fully paid and non-assessable. In addition, as of
the Closing Date, the Board of Directors of the Parent has duly reserved
1,401,000 shares of the Parent's common stock for issuance pursuant to
outstanding warrants, and has reserved 880,600 shares of the Parent's common
stock for issuance upon the exercise of outstanding employee stock options.
(b) The shares of the capital stock of the Subsidiaries pledged to
the Agent pursuant to the Stock Pledge Agreements are held of record as set
forth on the respective Annex A to each Stock Pledge Agreement. Such capital
stock constitutes, of record, 100% of the outstanding capital stock of each such
Subsidiary, and, to our knowledge, on a fully-diluted basis, 100% of such
outstanding capital stock.
SECTION 5.23. YEAR 2000 ISSUE. The Borrowers have reviewed the areas
within their business and operations which could be adversely affected by, and
have developed or are developing a program to address on a timely basis, the
Year 2000 Issue. Based on such review and program, the Year 2000 Issue will not
have a material adverse effect on their business and operations.
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SECTION 6. AFFIRMATIVE COVENANTS OF THE BORROWERS. The Borrowers jointly
and severally covenant and agree that, so long as any Loan or Note is
outstanding or the Banks have any obligation to make Loans or the Agent has any
obligation to issue, extend, or renew any Letters of Credit hereunder:
SECTION 6.1. PUNCTUAL PAYMENT. The Borrowers will duly and punctually
pay or cause to be paid the principal and interest on the Loans, all
Reimbursement Obligations, fees and other amounts provided for in this Credit
Agreement and the other Loan Documents, all in accordance with the terms of this
Credit Agreement and such other Loan Documents.
SECTION 6.2. MAINTENANCE OF OFFICES. The Parent will maintain its chief
executive offices at 2260 Douglas Boulevard, Suite 280, Roseville, California
95661, and each Subsidiary will maintain its chief executive offices at the
location set forth on Schedule 2, or at such other place in the United States as
the Borrowers shall designate upon 30 days' prior written notice to the Agent.
SECTION 6.3. RECORDS AND ACCOUNTS. Each Borrower will (i) keep true and
accurate records and books of account in which full, true and correct entries
will be made in accordance with generally accepted accounting principles, (ii)
maintain adequate accounts and reserves for all taxes (including income taxes),
depreciation, depletion, obsolescence and amortization of its properties,
contingencies, and other reserves, and (iii) at all times engage the Accountants
as the independent certified public accountants of the Borrowers.
SECTION 6.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The
Borrowers will deliver to the Banks:
(a) as soon as practicable, but, in any event not later than 90 days
after the end of each fiscal year of the Borrowers, the consolidated and
consolidating balance sheets of the Borrowers as at the end of such year,
statements of cash flows, and the related consolidated and consolidating
statements of operations, each setting forth in comparative form the figures for
the previous fiscal year, all such consolidated and consolidating financial
statements to be in reasonable detail, prepared in accordance with GAAP and,
with respect to the consolidated financial statements, certified by the
Accountants. In addition, simultaneously therewith, the Borrowers shall use
reasonable efforts to provide the Banks with a written statement from the
Accountants to the effect that the Borrowers are in compliance with the
covenants set forth in Section 8 hereof, and that, in making the examination
necessary to said certification, nothing has come to the attention of the
Accountants that would indicate that any Default or Event of Default exists, or,
if the Accountants shall have obtained knowledge of any then existing Default or
Event of Default they shall disclose in such statement any such Default or Event
of Default; provided that the Accountants shall not be liable to the Banks for
failure to obtain knowledge of any Default or Event of Default;
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(b) as soon as practicable, but in any event not later than 45 days
after the end of each fiscal quarter of the Borrowers, copies of the
consolidated and consolidating balance sheets and statement of operations of the
Borrowers as at the end of such quarter, subject to year end adjustments, and
the related statement of cash flows, all in reasonable detail and prepared in
accordance with GAAP, with a certification by the principal financial or
accounting officer of the Borrowers (the "CFO") that the consolidated financial
statements are prepared in accordance with GAAP and fairly present the
consolidated financial condition of the Borrowers as at the close of business on
the date thereof and the results of operations for the period then ended;
(c) as soon as practicable, but in any event within thirty (30) days
after the end of each month in each fiscal year of the Borrowers, unaudited
monthly consolidated and consolidating financial statements of the Borrowers for
such month, prepared in accordance with GAAP, with a certification by the CFO
that the information contained in such financial statements fairly presents the
financial condition of the Borrowers on the date thereof (subject to year-end
adjustments);
(d) simultaneously with the delivery of the financial statements
referred to in (a) and (b) above, a statement in the form of Exhibit C hereto
(the "Compliance Certificate") certified by the CFO that the Borrowers are in
compliance with the covenants contained in Sections 6, 7 and 8 hereof as of
the end of the applicable period setting forth in reasonable detail computations
evidencing such compliance, provided that if the Borrowers shall at the time of
issuance of such certificate or at any other time obtain knowledge of any
Default or Event of Default, the Borrowers shall include in such certificate or
otherwise deliver forthwith to the Banks a certificate specifying the nature and
period of existence thereof and what action the Borrowers propose to take with
respect thereto and a certificate of the Borrowers' Chief Operating Officer in
the form attached hereto as Exhibit D with respect to environmental matters;
(e) contemporaneously with or promptly following the delivery
thereof to the boards of directors of the Borrowers, copies of the financial
statements, financial projections, annual budget, variance reports and business
plan concerning the Borrowers in substantially the same form in which such
information is supplied to the boards of directors of the Borrowers;
(f) contemporaneously with, or promptly following, the filing or
mailing thereof, copies of all material of a financial nature filed with the
Securities and Exchange Commission or sent to the stockholders of the Borrowers;
and
(g) from time to time, such other financial data and other
information (including accountants' management letters) as the Banks may
reasonably request.
The Borrowers hereby authorize the Banks to disclose any information
obtained pursuant to this Credit Agreement to all appropriate governmental
regulatory authorities where required by law; provided, however, that this
authorization shall not be deemed to be a waiver of any rights to object to the
disclosure by the Banks of any such information
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which the Borrowers have or may have under the federal Right to Financial
Privacy Act of 1978, as in effect from time to time.
SECTION 6.5. CORPORATE EXISTENCE AND CONDUCT OF BUSINESS. Each Borrower
will do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence, corporate rights and franchises;
effect and maintain its foreign qualifications, licensing, domestication or
authorization except as terminated by such Borrower's Board of Directors in the
exercise of its reasonable judgment and except where the failure of a Borrower
to remain so qualified would not materially adversely impair the financial
condition of the Borrowers on a consolidated basis; use its best efforts to
comply with all applicable laws; and shall not become obligated under any
contract or binding arrangement which, at the time it was entered into would
materially adversely impair the financial condition of the Borrowers on a
consolidated basis. Each Borrower will continue to engage primarily in the
businesses now conducted by it and in related businesses.
SECTION 6.6. MAINTENANCE OF PROPERTIES. The Borrowers will cause all
material properties used or useful in the conduct of their businesses to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Borrowers may be necessary so that the businesses carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this section shall prevent the Borrowers from
discontinuing the operation and maintenance of any of their properties if such
discontinuance is, in the judgment of the Borrowers, desirable in the conduct of
their business and which does not in the aggregate materially adversely affect
the businesses of the Borrowers on a consolidated basis.
SECTION 6.7. INSURANCE. The Borrowers will maintain with financially
sound and reputable insurance companies, funds or underwriters' insurance of the
kinds, covering the risks (other than risks arising out of or in any way
connected with personal liability of any officers and directors thereof) and in
the relative proportionate amounts usually carried by reasonable and prudent
companies conducting businesses similar to that of the Borrowers, but in no
event less than that required under Section 7 of the Security Agreement. In
addition, the Borrowers will furnish from time to time, upon the Agent's
request, a summary of the insurance coverage of each of the Borrowers, which
summary shall be in form and substance satisfactory to the Agent and, if
requested by the Agent, will furnish to the Agent copies of the applicable
policies.
SECTION 6.8. TAXES. The Borrowers will duly pay and discharge, or cause
to be paid and discharged, before the same shall become overdue, all taxes,
assessments and other governmental charges (other than taxes, assessments and
other governmental charges imposed by foreign jurisdictions which in the
aggregate are not material to the business or assets of any Borrower on an
individual basis or of the Borrowers on a consolidated basis) imposed upon it
and its real properties, sales and activities, or any material part thereof, or
upon the income or profits therefrom, as well as all claims for labor,
materials,
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or supplies, which if unpaid might by law become a lien or charge upon any
material portion of its property, unless such lien is a Permitted Lien;
provided, however, that any such tax, assessment, charge, levy or claim need not
be paid if the validity or amount thereof shall currently be contested in good
faith by appropriate proceedings and if such Borrower shall have set aside on
its books adequate reserves with respect thereto; and provided, further, that
the Borrowers will pay all such taxes, assessments, charges, levies or claims
forthwith upon the commencement of proceedings to foreclose any lien which may
have attached as security therefor.
SECTION 6.9. INSPECTION OF PROPERTIES, BOOKS, AND CONTRACTS. The
Borrowers will permit the Banks, the Agent or any of their designated
representatives, upon reasonable notice and during normal business hours, to
visit and inspect any of their properties, to examine their books of account
(including the making of periodic accounts receivable reviews), or contracts
(and to make copies thereof and extracts therefrom), and to discuss their
affairs, finances and accounts with, and to be advised as to the same by, their
officers, all at such times and intervals as the Banks may reasonably request.
SECTION 6.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES AND PERMITS;
MAINTENANCE OF MATERIAL LICENSES AND PERMITS. The Borrowers will (i) comply with
the provisions of their charter documents and by-laws and all agreements and
instruments by which they or any of their properties may be bound; and (ii)
comply with all applicable laws and regulations (including Environmental Laws),
decrees, orders, judgments, licenses and permits, including, without limitation,
all environmental permits hereto ("Applicable Laws"), except where noncompliance
with such Applicable Laws would not have a material adverse effect in the
aggregate on the consolidated financial condition, properties or businesses of
the Borrowers. If at any time while the Notes, or any Loan or Letter of Credit
is outstanding or any Bank or the Agent has any obligation to make Loans or
issue Letters of Credit hereunder, any authorization, consent, approval, permit
or license from any officer, agency or instrumentality of any government shall
become necessary or required in order that the Borrowers may fulfill any of
their obligations hereunder, the Borrowers will immediately take or cause to be
taken all reasonable steps within the power of the Borrowers to obtain such
authorization, consent, approval, permit or license and furnish the Banks with
evidence thereof.
SECTION 6.11. ENVIRONMENTAL INDEMNIFICATION. Each Borrower covenants and
agrees that it will indemnify and hold the Banks harmless from and against any
and all claims, expense, damage, loss or liability incurred by the Banks
(including all costs of legal representation incurred by the Banks) relating to
(a) any release or threatened release of hazardous substances on the Real
Property; (b) any violation of any Environmental Laws with respect to conditions
at the Real Property or the operations conducted thereon; or (c) the
investigation or remediation of offsite locations at which any Borrower or its
predecessors are alleged to have directly or indirectly disposed of hazardous
substances. It is expressly acknowledged by each Borrower that this covenant of
indemnification shall include claims, expense, damage, loss or liability
incurred by the Banks based upon the Banks' negligence, and this covenant shall
survive any foreclosure or any
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modification, release or discharge of the Loan Documents or the payment of the
Loans and shall inure to the benefit of the Banks, their successors and assigns.
SECTION 6.12. FURTHER ASSURANCES. The Borrowers will cooperate with the
Banks and execute such further instruments and documents as the Banks shall
reasonably request to carry out to the Banks' satisfaction the transactions
contemplated by this Credit Agreement and the Loan Documents.
SECTION 6.13. NOTICE OF POTENTIAL CLAIMS OR LITIGATION. The Borrowers
will deliver to the Banks, within 30 days of receipt thereof, written notice of
the initiation of any action, claim, complaint, or any other notice of dispute
or potential litigation (including without limitation any alleged violation of
any Environmental Law), wherein the potential liability is in excess of
$150,000, together with a copy of each such notice received by any Borrower.
SECTION 6.14. NOTICE OF CERTAIN EVENTS CONCERNING INSURANCE AND
ENVIRONMENTAL CLAIMS.
(a) The Borrowers will provide the Banks with written notice as to
any material cancellation or material change in any insurance of the Borrowers
within ten (10) Business Days after the Borrowers' receipt of any notice
(whether formal or informal) of such cancellation or change by any of their
insurers.
(b) The Borrowers will promptly notify the Banks in writing of any
of the following events:
(i) upon any Borrower obtaining knowledge of any violation
of any Environmental Law regarding the Real Property or any Borrower's
operations, which violation could have a material adverse effect on the Real
Property or on such Borrower's operations; (ii) upon any Borrower obtaining
knowledge of any potential or known Release or threat of Release of any
Hazardous Substance at, from, or into the Real Property which any Borrower
reports in writing or is reportable by it in writing to any governmental
authority and which is material in amount or nature or which could materially
affect the value of the Real Property; (iii) upon any Borrower's receipt of any
notice of violation of any Environmental Laws or of any Release or threatened
Release of Hazardous Substances, including a notice or claim of liability or
potential responsibility from any third party (including without limitation any
federal, state or local governmental officials) and including notice of any
formal inquiry, proceeding, demand, investigation or other action with regard to
(A) any Borrower's or any Person's operation of the Real Property, (B)
contamination on, from or into the Real Property, or (C) investigation or
remediation of offsite locations at which any Borrower or any of its
predecessors is alleged to have directly or indirectly Disposed of Hazardous
Substances, which violation or Release in any such case could have a material
adverse effect on the Real Property or on any Borrower's operations; or (iv)
upon any Borrower obtaining knowledge that any material expense or loss has been
incurred by such governmental authority in connection with the assessment,
containment, removal or remediation of any Hazardous Substances
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with respect to which any Borrower may be liable or for which a lien may be
imposed on the Real Property.
SECTION 6.15. RESPONSE ACTIONS. The Borrowers covenant and agree that if
any Release or Disposal of Hazardous Substances shall occur or shall have
occurred on the Real Property, the Borrowers will cause the prompt containment
and removal of such Hazardous Substances and remediation of the Real Property as
necessary to comply with all Environmental Laws or to preserve the value of the
Real Property.
SECTION 6.16. NOTICE OF DEFAULT. The Borrowers will promptly notify the
Banks in writing of the occurrence of any Default or Event of Default. If any
Person shall give any notice or take any other action in respect of a claimed
default (whether or not constituting an Event of Default) under this Credit
Agreement or any other note, evidence of Indebtedness, indenture or other
obligation evidencing Indebtedness in excess of $250,000 as to which any
Borrower is a party or obligor, whether as principal or surety, the Borrowers
shall forthwith give written notice thereof to the Banks, describing the notice
of action and the nature of the claimed default.
SECTION 6.17. NEW SUBSIDIARIES.
(a) Any newly-created or acquired Subsidiaries permitted under
Section 7.4 shall become Borrowers hereunder by (i) signing a joinder agreement
or entering into an amendment to this Credit Agreement and the Security
Documents, as applicable, with the other parties hereto and thereto, in form and
substance satisfactory to the Agent, providing that such Subsidiary shall become
a Borrower hereunder, 100% of the stock and assets of which shall be pledged to
the Agent for the benefit of the Banks (subject to Section 7.2(h)), and (ii)
providing such other documentation as the Banks or the Agent may reasonably
request, including, without limitation, documentation with respect to the
conditions specified in Section 9 hereof. In such event, the Agent is hereby
authorized by the parties to amend Schedule 2 to include such new Subsidiary.
(b) The Parent shall at all times directly or indirectly through a
Subsidiary own all of the shares of capital stock of each of the Subsidiaries
which are corporations, and such shares shall at all times be pledged to the
Agent pursuant to the Stock Pledge Agreements. The Parent shall at all times
directly or indirectly through a Subsidiary own all of the partnership or joint
venture interests in each of the Subsidiaries which are partnerships or joint
ventures, and such interests shall at all times be pledged to the Agent pursuant
to a partnership pledge agreement in form and substance satisfactory to the
Agent.
SECTION 6.18. EMPLOYEE BENEFIT PLANS. The Borrowers will (i) promptly
upon filing the same with the Department of Labor or Internal Revenue Service,
upon request of the Agent, furnish to the Agent a copy of the most recent
actuarial statement required to be submitted under Section 103(d) of ERISA and
Annual Report, Form 5500, with all required attachments, in respect of each
Guaranteed Pension Plan and (ii) promptly upon receipt or dispatch, furnish to
the Agent any notice, report or demand sent or received in respect of
<PAGE> 50
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a Guaranteed Pension Plan under Sections 302, 4041, 4042, 4043, 4063, 4065,
4066 and 4068 of ERISA, or in respect of a Multiemployer Plan, under
Sections 4041A, 4202, 4219, 4242, or 4245 of ERISA.
SECTION 6.19. NOTICE OF LOSS OF MATERIAL CONTRACTS. The Borrowers will
promptly (and in any event within fifteen (15) Business Days after the
occurrence thereof) notify the Banks in writing of the termination, or (if
earlier) the receipt of a notice of termination of, or any default by any
Borrower under, any Material Contract.
SECTION 7. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS. Each Borrower
agrees that, so long as any Loan or any Note or other Obligation is outstanding
or the Banks have any obligation to make Loans or the Agent has any obligation
to issue, extend or renew any Letters of Credit hereunder:
SECTION 7.1. RESTRICTIONS ON INDEBTEDNESS. No Borrower shall become or
be a guarantor or surety of, or otherwise create, incur, assume, or be or remain
liable, contingently or otherwise, with respect to any Indebtedness, or become
or be responsible in any manner (whether by agreement to purchase any
obligations, stock, assets, goods or services, or to supply or advance any
funds, assets, goods or services or otherwise) with respect to any undertaking
or Indebtedness of any other Person, or incur any Indebtedness other than:
(a) Indebtedness to the Banks and the Agent arising under this
Credit Agreement or the Loan Documents;
(b) incurrence of guaranty, suretyship or indemnification
obligations in connection with the Borrowers' performance of services for their
respective customers in the ordinary course of their businesses;
(c) Indebtedness of one Borrower to another Borrower;
(d) Equipment Financing (subject to Section 8.6), Seller Debt, and
other Indebtedness, in an aggregate amount not to exceed 50% of EBITDA (i) on an
annualized basis for the fiscal quarters ending March 31, 1998 through June 30,
1998, and (ii) thereafter, for the four fiscal quarters ending on such date;
(e) Indebtedness of the Borrowers with respect to performance bonds
existing as of the Closing Date, including extensions and renewals thereof, in
an aggregate amount not to exceed $500,000;
(f) Indebtedness represented by the Madera Bond.
SECTION 7.2. RESTRICTIONS ON LIENS. No Borrower shall create or incur or
suffer to be created or incurred or to exist any lien, encumbrance, mortgage,
pledge, charge, restriction or other security interest of any kind upon any
property or assets of any character, whether now owned or hereafter acquired, or
upon the income or profits therefrom; or transfer any of such property or assets
or the income or profits therefrom
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for the purpose of subjecting the same to the payment of Indebtedness or
performance of any other obligation in priority to payment of its general
creditors; or acquire, or agree or have an option to acquire, any property or
assets upon conditional sale or other title retention or purchase money security
agreement, device or arrangement; or suffer to exist for a period of more than
30 days after the same shall have been incurred any Indebtedness or claim or
demand against it which if unpaid might by law or upon bankruptcy or insolvency,
or otherwise, be given any priority whatsoever over its general creditors; or
sell, assign, pledge or otherwise transfer any accounts, contract rights,
general intangibles or chattel paper, with or without recourse, except as
follows (the "Permitted Liens"):
(a) Liens to secure taxes, assessments and other government charges
in respect of obligations not overdue or liens on properties to secure claims
for labor, material or supplies in respect of obligations not overdue;
(b) Deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age pensions or
other social security obligations;
(c) Liens in respect of judgments or awards which have been in force
for less than the applicable period for taking an appeal so long as execution is
not levied thereunder or in respect of which the applicable Borrower shall at
the time in good faith be prosecuting an appeal or proceedings for review and in
respect of which a stay of execution shall have been obtained pending such
appeal or review and in respect of which such Borrower maintains adequate
reserves;
(d) Liens of carriers, warehousemen, mechanics and materialmen, and
other like liens, in existence less than 120 days from the date of creation
thereof in respect of obligations not overdue, provided that such liens may
continue to exist for a period of more than 120 days if the validity or amount
thereof shall currently be contested by the applicable Borrower in good faith by
appropriate proceedings and if such Borrower shall have set aside on its books
adequate reserves with respect thereto as required by GAAP and provided further
that such Borrower will pay any such claim forthwith upon commencement of
proceedings to foreclose any such lien;
(e) Encumbrances on Real Property consisting of easements, rights of
way, zoning restrictions, restrictions on the use of real property and defects
and irregularities in the title thereto, landlord's or lessor's liens under
leases to which any Borrower is a party, and other minor liens or encumbrances
none of which in the opinion of such Borrower interferes materially with the use
of the property affected in the ordinary conduct of the business of such
Borrower, which defects do not individually or in the aggregate have a material
adverse effect on the business of such Borrower individually or of the Borrowers
on a consolidated basis;
(f) Liens existing as of the date hereof and listed on Schedule 7.2
on the terms and conditions in effect as of the date hereof;
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(g) Liens securing Equipment Financing permitted under Section
7.1(d) incurred in connection with the lease or acquisition of property or fixed
assets useful or intended to be used in carrying on the business of the
Borrowers, provided that such Liens shall encumber only the property or assets
so acquired and shall not exceed the fair market value thereof;
(h) First-priority liens securing Seller Debt and other Indebtedness
permitted by Section 7.1(d), provided that liens securing Seller Debt shall
encumber only the property or assets so acquired or the property or assets of
any Subsidiary whose stock is so acquired and shall not exceed the fair market
value thereof;
(i) Liens in favor of the Agent for the benefit of the Banks and the
Agent under the Loan Documents.
SECTION 7.3. RESTRICTIONS ON INVESTMENTS. No Borrower shall purchase or
acquire, or make any commitment therefor, any capital stock, equity interest, or
other obligations or securities of, or any interest in, any other Person, or
make or commit to make any acquisition under Section 7.4, or make or commit to
make any advance, loan, extension of credit or capital contribution to or any
other investment in, any other Person, other than:
(a) marketable direct or guaranteed obligations of the United States
of America that mature within one (1) year from the date of purchase;
(b) demand deposits, certificates of deposit, bankers acceptances
and time deposits of United States banks or Eligible Foreign Banks having
unimpaired capital and surplus in excess of $250,000,000;
(c) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United States of
America or any state thereof that at the time of purchase have been rated and
the ratings for which are not less than "P 1" if rated by Moody's Investors
Service, Inc., and not less than "A 1" if rated by Standard and Poor's Rating
Group;
(d) extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in the
ordinary course of business;
(e) investments existing on the date hereof and listed on Schedule
7.3;
(f) loans and advances by any Borrower to another Borrower;
(g) investments with respect to Seller Debt permitted under
Section 7.1(d);
(h) investments permitted under Section 7.4;
(i) loans to employees of the Parent for the purpose of financing
such employees' acquisition of equity of the Parent (through the exercise of
stock options or
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otherwise) in an aggregate principal amount not to exceed $107,000 at any time
outstanding.
SECTION 7.4. MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS.
SECTION 7.4.1. MERGERS AND ACQUISITIONS. The Borrowers will not
become a party to any merger or consolidation, or agree to or effect any asset
acquisition or stock acquisition (other than the acquisition of assets in the
ordinary course of business consistent with past practices) except the merger or
consolidation of, or asset or stock acquisitions between existing Borrowers and
except as otherwise provided in this Section 7.4.1. The Borrowers may purchase
or otherwise acquire all or substantially all of the assets or stock or other
equity interests of any other Person provided that:
(a) the Borrowers are in current compliance with and, giving effect
to the proposed acquisition (including any borrowings made or to be made in
connection therewith), will continue to be in compliance with all of the
covenants in Section 8 hereof on a pro forma historical combined basis as if the
transaction occurred on the first day of the period of measurement;
(b) at the time of such acquisition, no Default or Event of Default
has occurred and is continuing, and such acquisition will not otherwise create a
Default or an Event of Default hereunder;
(c) the business to be acquired is predominantly in the same lines
of business as the Borrowers, or businesses reasonably related or incidental
thereto (e.g., non-hazardous solid waste collection, transfer, hauling,
recycling, or disposal);
(d) the business to be acquired operates predominantly in the
continental United States;
(e) all of the assets to be acquired shall be owned by an existing
or newly created Subsidiary of the Parent which Subsidiary shall be a Borrower,
100% of the assets and stock or other equity interests of which have been or,
simultaneously with such acquisition, will be pledged to the Agent on behalf of
the Banks (subject to Section 7.2(h)) or, in the case of a stock or other equity
interest acquisition, the acquired company, simultaneously with such
acquisition, shall become a Borrower or shall be merged with and into a wholly
owned Subsidiary that is a Borrower and such newly acquired or created
Subsidiary shall otherwise comply with the provisions of Section 6.17 hereof;
(f) not later than seven (7) days prior to the proposed acquisition
date, a copy of the purchase agreement and financial projections, together with
audited (if available, or otherwise unaudited) financial statements for any
Subsidiary to be acquired or created, for the preceding two (2) fiscal years or
such shorter period of time as such Subsidiary has been in existence shall have
been furnished to the Agent, only in cases of Material Acquisitions or upon
request by the Agent;
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(g) not later than seven (7) days prior to the proposed acquisition
date, (1) a summary of the Borrowers' results of their standard due diligence
review, and (2) in the case of a landfill acquisition, a review by a Consulting
Engineer and a copy of the Consulting Engineer's report shall have been
furnished to the Agent, only in cases of Material Acquisitions or upon request
by the Agent;
(h) the board of directors and (if required by applicable law) the
shareholders, or the equivalent thereof, of the business to be acquired has
approved such acquisition;
(i) if such acquisition is made by a merger, a Borrower shall be the
surviving entity; and
(j) cash consideration to be paid by such Borrower in connection
with any such acquisition or series of related acquisitions (including cash
deferred payments, contingent or otherwise, and the aggregate amount of all
Funded Debt assumed), shall not exceed $7,000,000 without the consent of the
Agent and the Majority Banks after a Compliance Certificate demonstrating
compliance with Sections 8.1-8.3 on a pro forma historical combined basis
as if the transaction occurred on the first day of the period of measurement as
set forth in (a) of this Section 7.4.1 has been provided to the Banks (any
acquisition requiring cash consideration in excess of $7,000,000 being referred
to as a "Material Acquisition").
SECTION 7.4.2. DISPOSITION OF ASSETS. No Borrower will become a
party to or agree to or effect any disposition of assets in excess of $100,000
in the aggregate (the "Basket"), provided that the proceeds of any such
disposition shall be applied toward repayment of the Revolving Credit Loans.
Notwithstanding the foregoing, the sale of inventory, the licensing of
intellectual property and the disposition of obsolete assets, in each case in
the ordinary course of business consistent with past practices, are permitted
hereunder without being charged against the Basket.
SECTION 7.5. SALE AND LEASEBACK. The Borrowers shall not enter into any
arrangement, directly or indirectly, whereby any Borrower shall sell or transfer
any property owned by it in order then or thereafter to lease such property or
lease other property which such Borrower intends to use for substantially the
same purpose as the property being sold or transferred, without the prior
written consent of the Majority Banks.
SECTION 7.6. RESTRICTED DISTRIBUTIONS AND REDEMPTIONS. The Borrowers
shall not redeem, convert, retire or otherwise acquire shares of any class of
its capital stock, or make any Distributions, except that any Borrower may make
Distributions to another Borrower. In addition, the Borrowers shall not effect
or permit any change in or amendment to any document or instrument pertaining to
the terms of any Borrower's capital stock. Notwithstanding the foregoing, no
Borrower shall make any Distribution under this Section 7.6 if a Default or
Event of Default exists or would be created by the making of such Distribution.
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SECTION 7.7. EMPLOYEE BENEFIT PLANS. No Borrower nor any ERISA Affiliate
will:
(a) engage in any "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code which could result in a
material liability for any Borrower; or
(b) permit any Guaranteed Pension Plan to incur an "accumulated
funding deficiency", as such term is defined in Section 302 of ERISA, whether or
not such deficiency is or may be waived; or
(c) fail to contribute to any Guaranteed Pension Plan to an extent
which, or terminate any Guaranteed Pension Plan in a manner which, could result
in the imposition of a lien or encumbrance on the assets of any Borrower
pursuant to Section 302(f) or Section 4068 of ERISA; or
(d) amend any Guaranteed Pension Plan in circumstances requiring the
posting of security pursuant to Section 307 of ERISA or Section 401(a)(29) of
the Code; or
(e) permit or take any action which would result in the aggregate
benefit liabilities (within the meaning of Section 4001 of ERISA) of all
Guaranteed Pension Plans exceeding the value of the aggregate assets of such
Plans, disregarding for this purpose the benefit liabilities and assets of any
such Plan with assets in excess of benefit liabilities.
SECTION 7.8. NEGATIVE PLEDGES. No Borrower shall enter into or permit to
exist any arrangement or agreement, enforceable under applicable law, which
directly or indirectly prohibits such Borrower from creating or incurring any
lien, encumbrance, mortgage, pledge, charge, restriction or other security
interest in favor of the Agent for the benefit of the Banks and the Agent under
the Loan Documents other than customary anti-assignment provisions in leases and
licensing agreements entered into by such Borrower in the ordinary course of its
business.
SECTION 7.9. BUSINESS ACTIVITIES. No Borrower will engage directly or
indirectly (whether through Subsidiaries or otherwise) in any type of business
other than the businesses conducted by such Borrower on the Closing Date and in
related businesses.
SECTION 7.10. TRANSACTIONS WITH AFFILIATES. No Borrower will engage in
any transaction with any Affiliate (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
such Affiliate or, to the knowledge of the Borrowers, any corporation,
partnership, trust or other entity in which any such Affiliate has a substantial
interest or is an officer, director, trustee or partner, on terms more favorable
to such Person than would have been obtainable on an arm's-length basis in the
ordinary course of business.
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SECTION 8. FINANCIAL COVENANTS. The Borrowers covenant and agree that,
so long as any Loan, any Note, or any Reimbursement Obligation is outstanding or
the Banks have any obligation to make Loans or the Agent has any obligation to
issue, extend or renew any Letters of Credit hereunder:
SECTION 8.1. LEVERAGE RATIO. As of the end of any fiscal quarter of the
Borrowers commencing with the fiscal quarter ending June 30, 1998, the ratio of
Funded Debt to EBITDA shall not exceed 4.00:1. For the purposes of this
Section 8.1, EBITDA shall be calculated on an annualized basis for the fiscal
quarter ending December 31, 1997 through the fiscal quarter ending June 30,
1998, and thereafter, for the four fiscal quarters ending on such date.
SECTION 8.2. FUNDED DEBT TO CAPITALIZATION RATIO. The Borrowers shall
not at any time permit the ratio of (a) Funded Debt to (b) the sum of Funded
Debt plus Consolidated Net Worth to exceed 65%.
SECTION 8.3. INTEREST COVERAGE RATIO. As of the end of any fiscal
quarter of the Borrowers commencing with the fiscal quarter ending June 30,
1998, the ratio of (a) EBIT to (b) Consolidated Total Interest Expense shall not
be less than 2.00:1. The Interest Coverage Ratio shall be calculated on a
cumulative quarterly basis for the fiscal quarter ending December 31, 1997
through the fiscal quarter ending June 30, 1998, and thereafter, for the four
fiscal quarters ending on such date.
SECTION 8.4. PROFITABLE OPERATIONS. The Borrowers will not permit
Consolidated Net Income to be less than $1.00 for any fiscal quarter, provided
that Consolidated Net Income may exclude (a) non-cash charges for interest
expense attributable to loan fees paid, and warrants issued to, BKB in
connection with the Prior Credit Agreement of up to $1,100,000 in the aggregate
taken in the fiscal quarter ending June 30, 1998, and (b) non-cash stock
compensation charges of up to $745,000 in the aggregate (to the extent deducted
in determining Consolidated Net Income).
SECTION 8.5. CONSOLIDATED NET WORTH. The Borrowers will not permit
Consolidated Net Worth at any time to be less than $33,700,000 plus the sum of
(A) 100% of positive Consolidated Net Income for each fiscal quarter on a
cumulative basis, beginning with the fiscal quarter ended June 30, 1998, and (B)
100% of the proceeds of any sale by the Borrowers of equity securities issued by
the Borrowers or warrants or subscription rights for equity securities issued by
the Borrowers after the Closing Date (including, without limitation, the 30-day
option granted to underwriters in connection with the Initial Public Offering).
SECTION 8.6. CAPITAL EXPENDITURES. The Borrowers will not make Capital
Expenditures in any fiscal year that exceed, in the aggregate, 1.5 times the
actual depreciation expenses for such fiscal year.
SECTION 9. CLOSING CONDITIONS. The obligations of the Banks to make the
Loans and the Agent to issue Letters of Credit on the Closing Date and otherwise
be bound by
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the terms of this Credit Agreement shall be subject to the satisfaction of each
of the following conditions precedent:
SECTION 9.1. CORPORATE ACTION. All corporate action necessary for the
valid execution, delivery and performance by the Borrowers of the Loan Documents
shall have been duly and effectively taken, and satisfactory evidence thereof
shall have been provided to the Agent.
SECTION 9.2. LOAN DOCUMENTS, ETC. Each of the Loan Documents shall have
been duly and properly authorized, executed and delivered by the respective
parties thereto and shall be in full force and effect in a form satisfactory to
the Banks.
SECTION 9.3. CERTIFICATE OF SECRETARY; GOOD STANDING CERTIFICATES. The
Agent shall have received from each Borrower a certificate as to the good
standing of each from the Secretary of State or other appropriate official of
the state of its organization, dated no earlier than January 9, 1998. The Agent
shall also have received from each Borrower a certificate of its Secretary
certifying the following attachments thereto: (a) a copy of its certificate or
articles of incorporation or constitutive documents, in each case as amended to
date, certified as of a recent date by the Secretary of State or other
appropriate official of the state of its organization, (b) a true and correct
copy of its by-laws, including all amendments thereto, (c) a true and correct
copy of the resolutions of its board of directors authorizing the transactions
contemplated hereunder and under the other Loan Documents. Such Secretary's
Certificate shall also give the name and bear a specimen signature of each
individual who shall be authorized (i) to sign the Loan Documents on behalf of
the Borrowers; (ii) to make Loan and Letter of Credit Requests; and (iii) to
give notices and to take other action on the Borrowers' behalf under the Loan
Documents. A Secretary's certificate stating that there have been no changes to
the applicable Borrower's charter documents and by-laws since (x) January 30,
1998 with respect to Waste Connections of Idaho, Inc. Waste Connections of
Washington, Inc. and Waste Connections International, Inc., (y) February 23,
1998 with respect to Madera, or (z) April 8, 1998 with respect to Waste
Connections of Wyoming, Inc. will satisfy the requirements of this Section
9.3(a) and (b).
SECTION 9.4. VALIDITY OF LIENS. The Security Documents shall be
effective to create in favor of the Agent a legal, valid and enforceable first
(except for Permitted Liens entitled to priority under applicable law) security
interest in and lien upon the Collateral. All filings, recordings, deliveries of
instruments and other actions necessary or desirable in the opinion of the Agent
to protect and preserve such security interests shall have been duly effected.
The Agent shall have received evidence thereof in form and substance
satisfactory to the Agent.
SECTION 9.5. PERFECTION CERTIFICATES AND UCC SEARCH RESULTS. The Agent
shall have received from each Borrower a completed and fully executed Perfection
Certificate and the results of UCC searches with respect to the Collateral,
indicating no liens other than Permitted Liens and otherwise in form and
substance satisfactory to the Agent.
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SECTION 9.6. CERTIFICATES OF INSURANCE. The Agent shall have received a
certificate of insurance signed by the insurer or an agent authorized to bind
the insurer dated as of the Closing Date, or within 15 days prior thereto,
identifying insurers, types of insurance, insurance limits, and policy terms,
and otherwise describing the Borrowers' insurance coverage.
SECTION 9.7. LEGAL OPINIONS. The Agent shall have received a favorable
legal opinion from counsel to the Borrowers, addressed to the Agent and the
Banks, dated as of the Closing Date, in form and substance satisfactory to the
Agent, including but not limited to an opinion regarding completion of the
Initial Public Offering.
SECTION 9.8. ENVIRONMENTAL PERMIT CERTIFICATE. The Banks shall have
received an environmental permit certificate from the Borrowers satisfactory to
the Agent concerning principal operating permits at the Borrowers' principal
operating facilities.
SECTION 9.9. PAYMENT OF FEES. The Borrowers shall have paid any fees
owing to any of the Banks.
SECTION 9.10. CLOSING CERTIFICATE. The Borrowers shall have delivered to
the Agent a certificate, dated as of the Closing Date, stating that, as of such
date (a) the representations and warranties set forth herein or in any other
Loan Document are true and correct (b) no Default or Event of Default has
occurred and is continuing, and (c) each Material Contract is in full force and
effect, and no default or event of default has occurred and is continuing under
any Material Contract.
SECTION 9.11. CONTRACTS. The Agent shall have received copies of all
Material Contracts.
SECTION 9.12. INITIAL PUBLIC OFFERING. The Agent shall have received
satisfactory evidence that the Initial Public Offering has been completed
substantially in accordance with the terms and conditions set forth in the S-1
registration statement filed on March 16, 1998 as reviewed by the Agent, the net
proceeds of which shall not be less than $17,500,000.
SECTION 10. CONDITIONS OF ALL LOANS. The obligations of the Banks to
make any Loan (including without limitation the obligation of the Agent to
issue, extend or renew any Letter of Credit) on and subsequent to the Closing
Date is subject to the following conditions precedent:
SECTION 10.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the
representations and warranties of the Borrowers contained in this Credit
Agreement or in any document or instrument delivered pursuant to or in
connection with this Credit Agreement shall be true as of the date as of which
they were made and shall also be true at and as of the time of any Drawdown Date
or the issuance of any Letter of Credit with the same effect as if made at and
as of that time (except to the extent of changes resulting from transactions
contemplated or permitted by this Credit Agreement and changes occurring in the
ordinary course of business which singly or in the aggregate are not materially
adverse,
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or to the extent that such representations and warranties relate solely and
expressly to an earlier date) and no Default or Event of Default shall have
occurred and be continuing.
SECTION 10.2. PERFORMANCE; NO EVENT OF DEFAULT. The Borrowers shall have
performed and complied with all terms and conditions herein required to be
performed or complied with by the Borrowers prior to or at the time of any Loan,
and at the time of any Loan, there shall exist no Event of Default or condition
which would result in an Event of Default upon consummation of such Loan
(including without limitation any amounts to be drawn under a Letter of Credit).
Each request by the Borrowers for a Loan (including without limitation each
request for issuance of a Letter of Credit) subsequent to the first Loan shall
constitute certification by the Borrowers that the conditions specified in
Sections 10.1 and 10.2 will be duly satisfied on the date of such Loan or
Letter of Credit issuance.
SECTION 10.3. NO LEGAL IMPEDIMENT. No change shall have occurred in any
law or regulations thereunder or interpretations thereof which in the reasonable
opinion of the Banks would make it illegal for the Banks to make Loans
hereunder.
SECTION 10.4. GOVERNMENTAL REGULATION. The Banks shall have received
such statements in form and substance reasonably satisfactory to the Banks as
they shall require for the purpose of compliance with any applicable regulations
of the Comptroller of the Currency or the Board of Governors of the Federal
Reserve System.
SECTION 10.5. PROCEEDINGS AND DOCUMENTS. All proceedings in connection
with the transactions contemplated by this Credit Agreement and all documents
incident thereto shall have been delivered to the Banks as of the date hereof in
form and substance satisfactory to the Banks, including without limitation a
Loan and Letter of Credit Request in the form attached hereto as Exhibit B, and
the Banks shall have received all information and such counterpart originals or
certified or other copies of such documents as the Banks may reasonably request.
SECTION 11. COLLATERAL SECURITY.
SECTION 11.1. SECURITY OF BORROWERS.
(a) The Obligations shall be secured by a (i) perfected first
priority security interest (subject only to Permitted Liens entitled to priority
under applicable law or under Section 7.2(h)) in all of the assets of the
Borrowers (other than moneys due under the Excluded Contracts), whether now
owned or hereafter acquired, pursuant to the terms of the Security Documents to
which the Borrowers are a party, and (ii) a pledge of all of the stock of each
Subsidiary pursuant to the terms of the Stock Pledge Agreements.
(b) The Borrowers hereby acknowledge that (i) any and all Uniform
Commercial Code financing statements filed in connection with the Prior Credit
Agreement naming BankBoston, N.A., as Agent, as secured party, and such
Borrower, as debtor, shall be effective to perfect the Agent's security interest
granted by such Borrower pursuant to this Credit Agreement to the extent that
such security interest may
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be perfected by the filing of Uniform Commercial Code financing statements and
(ii) such prior filings represent pre-filings of Uniform Commercial Code
financing statements for purposes of so perfecting the security interest granted
by the Borrowers hereunder. Until all of the Obligations have been finally paid
and satisfied in full, the provisions of this Section 11.1(b) shall continue to
apply, and such pre-filings shall continue to be effective and not subject to
any right of termination in respect of the security interests granted herein,
whether any obligations under the Prior Credit Agreement are to be discharged
with the proceeds of any of the Loans or are to continue independently or
otherwise.
SECTION 12. EVENTS OF DEFAULT; ACCELERATION; TERMINATION OF COMMITMENT.
SECTION 12.1. EVENTS OF DEFAULT AND ACCELERATION. If any of the
following events ("Events of Default" or, if the giving of notice or the lapse
of time or both is required, then, prior to such notice and/or lapse of time,
"Defaults") shall occur:
(a) if the Borrowers shall fail to pay any principal of the Loans or
any Reimbursement Obligation when the same shall become due and payable, whether
at the Maturity Date or any accelerated date of maturity or at any other date
fixed for payment;
(b) if the Borrowers shall fail to pay any interest or fees or other
amounts owing hereunder within five (5) Business Days after the same shall
become due and payable whether at the Maturity Date or any accelerated date of
maturity or at any other date fixed for payment;
(c) if the Borrowers shall fail to comply with the covenants
contained in Sections 6.1, 6.7, 6.8, 6.10, 6.13, 6.14, 6.16, 6.17, 6.19, 7
or 8;
(d) if the Borrowers shall fail to comply with the covenants
contained in (i) Sections 6.2, 6.3, 6.5, 6.6, 6.9, 6.11, 6.12, 6.15, or 6.18
within thirty (30) days of the Borrowers' knowledge of a violation of such
covenants or (ii) Section 6.4 within five (5) days of the Borrowers' knowledge
of a violation of such covenant;
(e) if the Borrowers shall fail to perform any term, covenant or
agreement contained herein or in any of the other Loan Documents (other than
those specified in subsections (a), (b), (c) and (d) above) within 30 days after
written notice of such failure has been given to the Borrowers by the Agent or
any Bank;
(f) if any representation or warranty contained in this Credit
Agreement or in any document or instrument delivered pursuant to or in
connection with this Credit Agreement shall prove to have been false in any
material respect upon the date when made or repeated;
(g) if any Borrower shall fail to pay at maturity, or within any
applicable period of grace, any and all obligations for borrowed money (other
than the Obligations) or any guaranty with respect thereto in an aggregate
amount greater than $250,000 or fail
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to observe or perform any material term, covenant or agreement contained in any
agreement by which it is bound, evidencing or securing borrowed money in an
aggregate amount greater than $250,000 for such period of time as would, or
would have permitted (assuming the giving of appropriate notice if required) the
holder or holders thereof or of any obligations issued thereunder to accelerate
the maturity thereof, unless the same shall have been waived by the holder(s)
thereof; or
(h) if any Borrower makes an assignment for the benefit of
creditors, or admits in writing its inability to pay or generally fails to pay
its debts as they mature or become due, or petitions or applies for the
appointment of a trustee or other custodian, liquidator or receiver of any
Borrower or of any substantial part of the assets of any Borrower or commences
any case or other proceeding relating to any Borrower under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law of any jurisdiction, now or hereafter in effect, or
takes any action to authorize or in furtherance of any of the foregoing, or if
any such petition or application is filed or any such case or other proceeding
is commenced against any Borrower or such Borrower indicates its approval
thereof, consent thereto or acquiescence therein, or such petition or
application shall not have been dismissed within sixty (60) days following the
filing thereof;
(i) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating any Borrower bankrupt or
insolvent, or approving a petition in any such case or other proceeding, or a
decree or order for relief is entered in respect of any Borrower in an
involuntary case under federal bankruptcy laws as now or hereafter constituted;
(j) if there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty (30) days, whether or not consecutive, any final
judgment against any Borrower which, with other outstanding final judgments
against the Borrowers, exceeds in the aggregate $250,000 after taking into
account any undisputed insurance coverage;
(k) any Borrower or any ERISA Affiliate incurs any liability to the
PBGC or a Guaranteed Pension Plan pursuant to Title IV of ERISA in an aggregate
amount exceeding $250,000, or any Borrower or any ERISA Affiliate is assessed
withdrawal liability pursuant to Title IV of ERISA by a Multiemployer Plan
requiring aggregate annual payments exceeding $250,000, or any of the following
occurs with respect to a Guaranteed Pension Plan: (i) an ERISA Reportable Event,
or a failure to make a required installment or other payment (within the meaning
of Section 302(f)(1) of ERISA), provided that the Agent determines in its
reasonable discretion that such event (A) could be expected to result in
liability of any Borrower to the PBGC or such Guaranteed Pension Plan in an
aggregate amount exceeding $250,000 and (B) could constitute grounds for the
termination of such Guaranteed Pension Plan by the PBGC, for the appointment by
the appropriate United States District Court of a trustee to administer such
Guaranteed Pension Plan or for the imposition of a lien in favor of such
Guaranteed Pension Plan; or (ii) the appointment by a United States District
Court of a trustee to administer such
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Guaranteed Pension Plan; or (iii) the institution by the PBGC of proceedings to
terminate such Guaranteed Pension Plan;
(l) if any of the Loan Documents shall be cancelled, terminated,
revoked or rescinded or the Agent's security interests or liens in a substantial
portion of the Collateral shall cease to be perfected, or shall cease to have
the priority contemplated by the Security Documents, in each case otherwise than
in accordance with the terms thereof or with the express prior written
agreement, consent or approval of the Banks, or any action at law, suit or in
equity or other legal proceeding to cancel, revoke or rescind any of the Loan
Documents shall be commenced by or on behalf of any Borrower or any stockholder
of any Borrower who is an officer or director of such Borrower, or any court or
any other governmental or regulatory authority or agency of competent
jurisdiction shall make a determination that, or issue a judgment, order, decree
or ruling to the effect that, any one or more of the Loan Documents is illegal,
invalid or unenforceable in accordance with the terms thereof;
(m) (i) the Parent shall at any time, legally or beneficially own
less than one hundred percent (100%) of the shares of the capital stock of each
other Borrower (indirectly through W.C. of Washington in the case of W.C.
International), or (ii) any person or group of persons (within the meaning of
Section 13 or 14 of the Securities Exchange Act of 1934, as amended) other than
existing shareholders of the Parent as of the Closing Date shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission under said Act) of 20% or more of the
outstanding shares of common stock of the Parent; or, during any period of
twelve consecutive calendar months, individuals who were directors of the Parent
on the first day of such period shall cease to constitute a majority of the
board of directors; provided, however, that any such change of control resulting
from an acquisition permitted under Section 7.4 shall not constitute a Default
or an Event of Default hereunder; or
(n) the early termination or cancellation of, or any material
default by a Borrower under, any Material Contract;
then, and in any such event, so long as the same may be continuing, the Agent
may, and at the request of the Majority Banks shall, by notice in writing to the
Borrowers, declare all amounts owing with respect to this Credit Agreement, the
Notes and the other Loan Documents and all Reimbursement Obligations to be, and
they shall thereupon forthwith become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrowers; provided that in the event of any
Event of Default specified in Sections 12.1(h) or 12.1(i), all such amounts
shall become immediately due and payable automatically and without any
requirement of notice from the Agent or any Bank. Upon demand by the Banks after
the occurrence of any Event of Default, the Borrowers shall immediately provide
to the Agent cash in an amount equal to the Maximum Drawing Amount, to be held
by the Agent as collateral security for the Obligations, provided that in the
event of any Event of Default specified in Sections 12.1(h) or 12.1(i), all
such amounts shall become immediately due
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and payable automatically and without any requirement of notice from the Agent
or any Bank.
SECTION 12.2. TERMINATION OF COMMITMENTS. If any Event of Default shall
occur, the Agent may, and at the request of the Majority Banks shall, by notice
to the Borrowers, terminate the unused portion of the Total Commitment
hereunder, and upon such notice being given, such unused portion of the Total
Commitment hereunder shall terminate immediately and the Banks shall be relieved
of all further obligations to make Loans to or issue Letters of Credit for the
account of the Borrowers hereunder, provided that in the event of any Event of
Default specified in Sections 12.1(h) or 12.1(i), all such amounts shall
become immediately due and payable automatically and without any requirement of
notice from the Agent or any Bank. No termination of any portion of the Total
Commitment hereunder shall relieve the Borrowers of any of their existing
Obligations to the Banks hereunder or elsewhere.
SECTION 12.3. REMEDIES. Subject to Section 13, in case any one or more
Events of Default shall have occurred and be continuing, and whether or not the
Banks shall have accelerated the maturity of the Loans pursuant to Section 12.1,
each Bank, if owed any amount with respect to the Loans or the Reimbursement
Obligations, may, with the consent of the Majority Banks but not otherwise, and
if the Agent shall have received opinions of nationally recognized law firms
specializing in California law, Louisiana law, and the law of any other state,
as applicable, having a one form of action rule to the effect that actions by
such Bank under such circumstances shall not constitute an action for purposes
of such state's one form of action rule or in any other way impair the
Collateral or the other Banks' rights hereunder or under the other Loan
Documents, proceed to protect and enforce its rights by suit in equity, action
at law or other appropriate proceeding, whether for the specific performance of
any covenant or agreement contained in this Credit Agreement and the other Loan
Documents or any instrument pursuant to which the Obligations to such Bank are
evidenced, including, without limitation, as permitted by applicable law the
obtaining of the ex parte appointment of a receiver, and, if such amount shall
have become due, by declaration or otherwise, proceed to enforce the payment
thereof or any legal or equitable right of such Bank. No remedy herein conferred
upon any Bank or the Agent or the holder of any Note or purchaser of any Letter
of Credit Participation is intended to be exclusive of any other remedy and each
and every remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or any other provision of law.
SECTION 13. SETOFF. Regardless of the adequacy of any collateral, during
the continuance of an Event of Default, any deposits or other sums credited by
or due from any Bank to the Borrowers and any securities or other property of
the Borrowers in the possession of such Bank may be applied to or set off
against the payment of the Obligations and any and all other liabilities, direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, of the Borrowers to the Banks. The Banks agree among
themselves that, if a Bank shall obtain payment on any Obligation outstanding
under this Credit Agreement through the exercise of a right of offset,
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banker's lien or counterclaim, or from any other source including under
Section 12.3 (other than by way of a pro rata payment under this Credit
Agreement), it shall promptly make such adjustments with the other Banks as
shall be equitable to the end that all the Banks shall share the benefits of
such payments pro rata in accordance with the aggregate unpaid amount of the
Revolving Credit Notes held by each Bank immediately prior to the payment
obtained by such Bank as aforesaid. The Banks further agree among themselves
that if any payment to a Bank obtained by such Bank through the exercise of a
right of offset, banker's lien or counterclaim, or from any other source (other
than by way of a pro rata payment) as aforesaid shall be rescinded or must
otherwise be restored, the Banks who shall have shared the benefit of such
payment shall return their share of that benefit to the Bank whose payment shall
have been rescinded or otherwise restored.
SECTION 14. THE AGENT.
SECTION 14.1. APPOINTMENT OF AGENT, POWERS AND IMMUNITIES. Each Bank
hereby irrevocably appoints and authorizes the Agent to act as its agent
hereunder and under the other Loan Documents, provided, however, the Agent is
hereby authorized to serve only as an administrative and collateral agent for
the Banks and to exercise such powers as are reasonably incidental thereto and
as are set forth in this Credit Agreement and the other Loan Documents. The
Agent hereby acknowledges that it does not have the authority to negotiate any
agreement which would bind the Banks or agree to any amendment, waiver or
modification of any of the Loan Documents or bind the Banks except as set forth
in this Credit Agreement or the Loan Documents. Except as provided in this
Section 14 and in the other Loan Documents, the Agent shall take action or
refrain from acting only upon instructions of the Banks and no action taken or
failure to act without the consent of the Banks shall be binding on any Bank
which has not consented. Each Bank irrevocably authorizes the Agent to execute
the Security Documents and all other instruments relating thereto and to take
such action on behalf of each of the Banks and to exercise all such powers as
are expressly delegated to the Agent under the Loan Documents and all related
documents, together with such other powers as are reasonably incidental thereto.
It is agreed that the duties, rights, privileges and immunities of BKB, in its
capacity as issuer of Letters of Credit hereunder, shall be identical to its
duties, rights, privileges and immunities as a Bank as provided in this
Section 14. The Agent shall not have any duties or responsibilities or any
fiduciary relationship with any Bank except those expressly set forth in this
Credit Agreement. Neither the Agent nor any of its affiliates shall be
responsible to the Banks for any recitals, statements, representations or
warranties made by the Borrowers or any other Person whether contained herein or
otherwise or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Credit Agreement, the other Loan Documents or any other
document referred to or provided for herein or therein or for any failure by the
Borrowers or any other Person to perform its obligations hereunder or thereunder
or in respect of the Notes. The Agent may employ agents and attorneys-in-fact
and shall not be responsible for the negligence or misconduct of any such agents
or attorneys-in-fact selected by it with reasonable care. The Agent shall
exercise the same care in administering the Loans as it exercises with respect
to similar transactions entered into solely for its own account; however,
neither the Agent nor any of its directors, officers, employees or agents shall
be responsible for any action
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taken or omitted to be taken in good faith by it or them hereunder or in
connection herewith, except for its or their own gross negligence or willful
misconduct. The Bank in its separate capacity as a Bank shall have the same
rights and powers hereunder as any other Bank.
SECTION 14.2. ACTIONS BY AGENT. The Agent shall be fully justified in
failing or refusing to take any action under this Credit Agreement as it
reasonably deems appropriate unless it shall first have received such advice or
concurrence of the Banks and shall be indemnified to its reasonable satisfaction
by the Banks against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. The Agent shall in
all cases be fully protected in acting, or in refraining from acting, under this
Credit Agreement or any of the Loan Documents in accordance with a request of
the Majority Banks, and such request and any action taken or failure to act
pursuant thereto shall be binding upon the Banks and all future holders of the
Notes or any Letter of Credit Participation.
SECTION 14.3. INDEMNIFICATION. Without limiting the obligations of the
Borrowers under this Credit Agreement or any other Loan Document, the Banks
ratably agree hereby to indemnify and hold harmless the Agent, the Arranger, and
their affiliates from and against any and all claims, actions and suits (whether
groundless or otherwise), losses, damages, costs, expenses (including any
expenses for which the Agent, the Arranger or such affiliate has not been
reimbursed by the Borrowers as required by Section 15), and liabilities of every
nature and character arising out of or related to this Credit Agreement, the
Notes, or any of the other Loan Documents or the transactions contemplated or
evidenced hereby or thereby, or the Agent's actions taken hereunder or
thereunder, except to the extent that any of the same shall be directly caused
by the Agent's willful misconduct or gross negligence, it being the intent of
the parties hereto that all such indemnified parties shall be indemnified for
their ordinary sole or contributory negligence.
SECTION 14.4. REIMBURSEMENT. Without limiting the provisions of
Section 14.3, the Banks and the Agent hereby agree that the Agent shall not be
obliged to make available to any Person any sum which the Agent is expecting to
receive for the account of that Person until the Agent has determined that it
has received that sum. The Agent may, however, disburse funds prior to
determining that the sums which the Agent expects to receive have been finally
and unconditionally paid to the Agent, if the Agent wishes to do so. If and to
the extent that the Agent does disburse funds and it later becomes known that
the Agent did not then receive a payment in an amount equal to the sum paid out,
then any Person to whom the Agent made the funds available shall, on demand from
the Agent, refund to the Agent the sum paid to that Person. If, in the opinion
of the Agent, the distribution of any amount received by it in such capacity
hereunder or under the Loan Documents might involve it in liability, it may
refrain from making distribution until its right to make distribution shall have
been adjudicated by a court of competent jurisdiction. If a court of competent
jurisdiction shall adjudge that any amount received and distributed by the Agent
is to be repaid, each Person to whom any such distribution shall have been made
shall either repay to the Agent its proportionate share of the amount
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so adjudged to be repaid or shall pay over the same in such manner and to such
Persons as shall be determined by such court.
SECTION 14.5. DOCUMENTS.
SECTION 14.5.1. CLOSING DOCUMENTATION. For purposes of determining
compliance with the conditions set forth in Section 9, each Bank that has
executed this Credit Agreement shall be deemed to have consented to, approved or
accepted, or to be satisfied with, each document and matter either sent, or made
available, by the Agent or the Arranger to such Bank for consent, approval,
acceptance or satisfaction, or required thereunder to be consented to or
approved by or acceptable or satisfactory to such Bank, unless the Agent shall
have received notice from such Bank prior to the Closing Date specifying such
Bank's objection thereto and such objection shall not have been withdrawn by
notice to the Agent to such effect on or prior to the Closing Date.
SECTION 14.5.2. OTHER DOCUMENTS. The Agent will forward to each Bank,
promptly after the Agent's receipt thereof, a copy of each notice or other
document furnished to the Agent for such Bank hereunder; provided, however, that
notwithstanding the foregoing, the Agent may furnish to the Banks a monthly
summary with respect to Letters of Credit issued hereunder in lieu of copies of
the related Letter of Credit Applications.
SECTION 14.6. NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank
represents that it has, independently and without reliance on the Agent or any
other Bank, and based on such documents and information as it has deemed
appropriate, made its own appraisal of the financial condition and affairs of
the Borrowers and decision to enter into this Credit Agreement and the other
Loan Documents and agrees that it will, independently and without reliance upon
the Agent or any other Bank, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own appraisals and
decisions in taking or not taking action under this Credit Agreement or any
other Loan Document. The Agent shall not be required to keep informed as to the
performance or observance by the Borrowers of this Credit Agreement, the other
Loan Documents or any other document referred to or provided for herein or
therein or by any other Person of any other agreement or to make inquiry of, or
to inspect the properties or books of, any Person. Except for notices, reports
and other documents and information expressly required to be furnished to the
Banks by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning any person which may come into the possession of the Agent or any of
its affiliates. Each Bank shall have access to all documents relating to the
Agent's performance of its duties hereunder at such Bank's request. Unless any
Bank shall promptly object to any action taken by the Agent hereunder (other
than actions to which the provisions of Section 14.8 are applicable and other
than actions which constitute gross negligence or willful misconduct by the
Agent), such Bank shall conclusively be presumed to have approved the same.
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SECTION 14.7. RESIGNATION OR REMOVAL OF AGENT. The Agent may resign at
any time by giving 60 days' prior written notice thereof to the Banks and the
Borrowers. Upon any such resignation, the Banks shall have the right to appoint
a successor Agent. If no successor Agent shall have been so appointed by the
Banks (and, provided that no Default or Event of Default shall have occurred and
be continuing, approved by the Borrowers, such approval not to be unreasonably
withheld) and shall have accepted such appointment within 30 days after the
retiring Agent's giving of notice of resignation, then the retiring Agent may,
on behalf of the Banks, appoint a successor Agent, which shall be a financial
institution having a combined capital and surplus in excess of $150,000,000.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation, the provisions of this Credit Agreement shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Agent. Any new Agent appointed pursuant to
this Section 14.7 shall immediately issue new Letters of Credit in place of
Letters of Credit previously issued by the Agent (to the extent such Letters of
Credit are returned by the beneficiaries for purposes of such exchange).
SECTION 14.8. CONSENTS, AMENDMENTS, WAIVERS, ETC. Any consent or
approval required or permitted by this Credit Agreement to be given by the Banks
may be given, and any term of this Credit Agreement, the other Loan Documents or
any other instrument related hereto or mentioned herein may be amended, and the
performance or observance by the Borrowers of any terms of this Credit
Agreement, the other Loan Documents or such other instrument or the continuance
of any Default or Event of Default may be waived (either generally or in a
particular instance and either retroactively or prospectively) with, but only
with, the written consent of the Borrowers and the written consent of the
Majority Banks, provided however, that the Agent may, in its reasonable
discretion, release Collateral with an aggregate value of $500,000 or less in
any calendar year. Notwithstanding the foregoing, no amendment, waiver or
consent shall do any of the following unless in writing and signed by the
Borrowers and each of the Banks affected thereby: (a) increase the Commitments
of the Banks or subject any Bank to any additional obligations, or (b) reduce
the principal of or the rate of interest on the Notes (including, without
limitation, interest on overdue amounts) or any fees payable hereunder; and
FURTHER, no amendment, waiver or consent shall do any of the following unless in
writing and signed by ALL of the Banks: (c) postpone the Maturity Date or any
date fixed for any payment in respect of principal or interest (including,
without limitation, interest on overdue amounts) on the Notes, (d) change the
definition of "Majority Banks" or the number of Banks which shall be required
for the Banks or any of them to take any action under the Loan Documents; (e)
amend this Section 14.8 or Section 18; (f) release any Collateral with an
aggregate value exceeding $500,000 in any calendar year or (g) release any
Borrower from its obligations hereunder.
No waiver shall extend to or affect any obligation not expressly waived
or impair any right consequent thereon. No course of dealing or delay or
omission on the part of the Agent or any Bank in exercising any right shall
operate as a waiver thereof or
<PAGE> 68
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otherwise be prejudicial thereto. No notice to or demand upon the Borrowers
shall entitle the Borrowers to other or further notice or demand in similar or
other circumstances.
SECTION 14.9. DELINQUENT BANKS. Notwithstanding anything to the contrary
contained in this Credit Agreement or any of the other Loan Documents, any Bank
that fails (i) to make available to the Agent its pro rata share of any Loan or
to purchase any Letter of Credit Participation or (ii) to comply with the
provisions of Section 13 with respect to making dispositions and arrangements
with the other Banks, where such Bank's share of any payment received, whether
by setoff or otherwise, is in excess of its pro rata share of such payments due
and payable to all of the Banks, in each case as, when and to the full extent
required by the provisions of this Credit Agreement, shall be deemed delinquent
(a "Delinquent Bank") and shall be deemed a Delinquent Bank until such time as
such delinquency is satisfied. A Delinquent Bank shall be deemed to have
assigned any and all payments due to it from the Borrowers, whether on account
of outstanding Loans, Reimbursement Obligations, interest, fees or otherwise, to
the remaining nondelinquent Banks for application to, and reduction of, their
respective pro rata shares of all outstanding Loans and Reimbursement
Obligations. The Delinquent Bank hereby authorizes the Agent to distribute such
payments to the nondelinquent Banks in proportion to their respective pro rata
shares of all outstanding Loans and Reimbursement Obligations. A Delinquent Bank
shall be deemed to have satisfied in full a delinquency when and if, as a result
of application of the assigned payments to all outstanding Loans and
Reimbursement Obligations of the nondelinquent Banks, the Banks' respective pro
rata shares of all outstanding Loans and Reimbursement Obligations have returned
to those in effect immediately prior to such delinquency and without giving
effect to the nonpayment causing such delinquency.
SECTION 15. EXPENSES AND INDEMNIFICATION.
SECTION 15.1. EXPENSES. Whether or not the transactions contemplated
herein shall be consummated, the Borrowers agree to pay (i) the reasonable costs
of producing and reproducing this Credit Agreement, the other Loan Documents and
the other agreements and instruments mentioned herein, (ii) any taxes (including
any interest and penalties in respect thereto) payable by the Agent or any of
the Banks (other than taxes based upon the Agent's or any Bank's net income) on
or with respect to the transactions contemplated by this Credit Agreement (the
Borrowers hereby agreeing to indemnify the Agent and each Bank with respect
thereto), (iii) the reasonable fees, expenses and disbursements of counsel to
the Agent incurred in connection with the preparation, syndication,
administration or interpretation of the Loan Documents and other instruments
mentioned herein, each closing hereunder, any amendments, modifications,
approvals, consents or waivers hereto or hereunder, or the cancellation of any
Loan Document upon payment in full in cash of all of the Obligations or pursuant
to any terms of such Loan Document providing for such cancellation, (iv) the
reasonable fees, expenses and disbursements of the Agent, the Arranger, or any
of their affiliates incurred by the Agent, the Arranger, or such affiliate in
connection with the preparation, syndication, administration or interpretation
of the Loan Documents and other instruments mentioned herein, including all
title insurance premiums and surveyor, engineering and appraisal charges, (v)
all
<PAGE> 69
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reasonable out-of-pocket expenses (including without limitation reasonable
attorneys' fees and costs, which attorneys may be employees of any Bank or the
Agent, and reasonable consulting, accounting, appraisal, investment banking and
similar professional fees and charges) incurred by any Bank or the Agent in
connection with (A) the enforcement of or preservation of rights under any of
the Loan Documents against the Borrowers or the administration thereof after the
occurrence of a Default or Event of Default and (B) any litigation, proceeding
or dispute whether arising hereunder or under any of the other Loan Documents,
in any way related to any Bank's or the Agent's relationship with the Borrowers
and (vi) all reasonable fees, expenses and disbursements of the Agent incurred
in connection with UCC searches and UCC filings.
SECTION 15.2. INDEMNIFICATION. The Borrowers agree to indemnify and hold
harmless the Agent, the Arranger, their affiliates and the Banks from and
against any and all claims, actions and suits whether groundless or otherwise,
and from and against any and all liabilities, losses, damages and expenses of
every nature and character arising out of this Credit Agreement or any of the
other Loan Documents or the transactions contemplated hereby including, without
limitation, (i) any actual or proposed use by the Borrowers of the proceeds of
any of the Loans or Letters of Credit, (ii) the Borrowers entering into or
performing this Credit Agreement or any of the other Loan Documents or (iii)
with respect to the Borrowers and their respective properties and assets, the
violation of any Environmental Law, the presence, disposal, escape, seepage,
leakage, spillage, discharge, emission, release or threatened release of any
Hazardous Substances or any action, suit, proceeding or investigation brought or
threatened with respect to any Hazardous Substances (including, but not limited
to, claims with respect to wrongful death, personal injury or damage to
property), in each case including, without limitation, the reasonable fees and
disbursements of counsel and allocated costs of internal counsel incurred in
connection with any such investigation, litigation or other proceeding. In
litigation, or the preparation therefor, the Banks and the Agent, the Arranger,
and their affiliates shall be entitled to select their own counsel and, in
addition to the foregoing indemnity, the Borrowers agree to pay promptly the
reasonable fees and expenses of such counsel. If, and to the extent that the
obligations of the Borrowers under this Section 15.2 are unenforceable for any
reason, the Borrowers hereby agree to make the maximum contribution to the
payment in satisfaction of such obligations which is permissible under
applicable law.
SECTION 15.3. SURVIVAL. The covenants contained in this Section 15 shall
survive payment or satisfaction in full of all other Obligations.
SECTION 16. SURVIVAL OF COVENANTS, ETC. Unless otherwise stated herein,
all covenants, agreements, representations and warranties made herein, in the
other Loan Documents or in any documents or other papers delivered by or on
behalf of the Borrowers pursuant hereto shall be deemed to have been relied upon
by the Banks and the Agent, notwithstanding any investigation heretofore or
hereafter made by any of them, and shall survive the making by the Banks of the
Loans and the issuance, extension or renewal of any Letters of Credit, as herein
contemplated, and shall continue in full force and effect so long as any amount
due under this Credit Agreement, any Letter of
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Credit or the Notes remains outstanding and unpaid or any Bank has any
obligation to make any Loans or issue any Letters of Credit hereunder. All
statements contained in any certificate or other paper delivered by or on behalf
of the Borrowers pursuant hereto or in connection with the transactions
contemplated hereby shall constitute representations and warranties by the
Borrowers hereunder.
SECTION 17. ASSIGNMENT AND PARTICIPATION. It is understood and agreed
that each Bank shall have the right to assign or participate at any time all or
a portion of its Commitment and interests in the risk relating to any Loans and
outstanding Letters of Credit hereunder in an amount equal to or greater than
$5,000,000 (which assignment shall be of an equal percentage of such Bank's
Commitment, the Revolving Credit Loans and outstanding Letters of Credit) to
Eligible Assignees with the prior written consent of the Agent and, unless a
Default or an Event of Default shall have occurred and be continuing, the
Borrowers, which approvals shall not be unreasonably withheld. It is further
agreed that each Eligible Assignee which executes and delivers to the Banks and
the Borrowers an Assignment and Acceptance in substantially the form of Exhibit
E (an "Assignment and Acceptance") shall, on the date specified in such
Assignment and Acceptance, become a party to this Credit Agreement and the other
Loan Documents for all purposes of this Credit Agreement and the other Loan
Documents, and its Commitment shall be as set forth in such Assignment and
Acceptance. Upon the execution and delivery of such Assignment and Acceptance
and payment by the assigning bank of an assignment fee in the amount of $3,500
to the Agent, (a) the Borrowers shall issue to such Eligible Assignee a
Revolving Credit Note in the amount of such Eligible Assignee's Commitment dated
the Closing Date or such other date as may be specified by the Agent and
otherwise completed in substantially the form of Exhibit A hereto and, to the
extent any assigning Bank has retained a portion of its obligations hereunder, a
replacement Revolving Credit Note to the assigning Bank; (b) the Agent shall
distribute to the Borrowers, the Banks and such Eligible Assignee a schedule
reflecting such changes; (c) this Credit Agreement shall be appropriately
amended to reflect (i) the status of such Eligible Assignee as a party hereto
and (ii) the status and rights of the Banks and Agent hereunder; and (d) the
Borrowers shall take such action as the Agent may reasonably request to perfect
any security interests in favor of the Banks, including any Eligible Assignee
which becomes a party to this Credit Agreement. The documents evidencing any
such participation may provide that, except with the consent of the bank or
financial institution that is a party thereto, such Bank will not consent to (a)
the reduction in or forgiveness of the stated principal of or rate of interest
on or Commitment Fee with respect to the portion of any Loan subject to such
participation or assignment, (b) the extension or postponement of any stated
date fixed for payment of principal or interest or Commitment Fee with respect
to the portion of any Loan subject to such participation or assignment, or (c)
the waiver or reduction of any right to indemnification of such Bank hereunder.
Notwithstanding the foregoing, no syndication or participation shall operate to
increase the Total Commitment hereunder or otherwise alter the substantive terms
of this Credit Agreement. Anything contained in this Section 17 to the contrary
notwithstanding, any Bank may at any time pledge all or any portion of its
interest and rights under this Credit Agreement (including all or any portion of
its Notes) to any of the twelve Federal Reserve Banks organized under Section 4
of the Federal Reserve
<PAGE> 71
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Act, 12 U.S.C. Section 341. No such pledge or the enforcement thereof shall
release the pledgor Bank from its obligations hereunder or under any of the
other Loan Documents.
SECTION 18. PARTIES IN INTEREST. All the terms of this Credit Agreement
and the other Loan Documents shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto and thereto; provided that the Borrowers shall not assign or transfer
their rights hereunder without the prior written consent of each Bank.
SECTION 19. NOTICES, ETC. Except as otherwise expressly provided in this
Credit Agreement, all notices and other communications made or required to be
given pursuant to this Credit Agreement or the other Loan Documents shall be in
writing and shall be delivered in hand, mailed by United States first-class
mail, postage prepaid, or sent by telex or facsimile and confirmed by letter,
addressed as follows:
(a) if to the Borrowers, at Waste Connections, Inc., 2260 Douglas
Boulevard, Suite 280, Roseville, California 95661, Attention: Steven F. Bouck,
Executive Vice President and Chief Financial Officer, telephone number
916-772-2221, fax number 916-772-2920;
(b) if to the Agent or BKB, at 100 Federal Street, Boston,
Massachusetts 02110, Attention: Timothy M. Laurion, Director, telephone number
617-434-9689, telecopy number 617-434-2160;
or such other address for notice as shall have last been furnished in
writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (a) if delivered by hand to a responsible
officer of the party to which it is directed, at the time of the receipt thereof
by such officer, (b) if sent by registered or certified first-class mail,
postage prepaid, five Business Days after the posting thereof, (c) if sent by
telex or cable, at the time of the dispatch thereof, if in normal business hours
in the country of receipt, or otherwise at the opening of business on the
following Business Day, and (d) if sent by facsimile, when transmitted,
confirmation received.
SECTION 20. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION.
SECTION 20.1. SHARING OF INFORMATION WITH SECTION 20 SUBSIDIARY. The
Borrowers acknowledge that from time to time financial advisory, investment
banking and other services may be offered or provided to the Borrowers, in
connection with this Credit Agreement or otherwise, by a Section 20 Subsidiary.
The Borrowers hereby authorize (a) such Section 20 Subsidiary to share with the
Agent and each Bank any information delivered to such Section 20 Subsidiary by
the Borrowers, and (b) the Agent and each Bank to share with such Section 20
Subsidiary any information delivered to the Agent or such Bank by the Borrowers
pursuant to this Credit Agreement, or in connection with the decision of such
Bank to enter into this Credit Agreement; it being
<PAGE> 72
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understood, in each case, that any such Section 20 Subsidiary receiving such
information shall be bound by the confidentiality provisions of this Credit
Agreement. Such authorization shall survive the payment and satisfaction in full
of all of the Obligations.
SECTION 20.2. CONFIDENTIALITY. Each of the Banks and the Agent agrees,
on behalf of itself and each of their affiliates, directors, officers, employees
and representatives, to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of the same nature and in accordance with safe and sound banking practices, any
non-public information supplied to it by the Borrowers pursuant to this Credit
Agreement that is identified by such Person as being confidential at the time
the same is delivered to the Banks or the Agent, provided that nothing herein
shall limit the disclosure of any such information (a) after such information
shall have become public other than through a violation of this Section 20, (b)
to the extent required by statute, rule, regulation or judicial process, (c) to
counsel for any of the Banks or the Agent, (d) to bank examiners or any other
regulatory authority having jurisdiction over any Bank or the Agent, or to
auditors or accountants, (e) to the Agent, any Bank or any Section 20
Subsidiary, (f) in connection with any litigation to which any one or more of
the Banks, the Agent or any Section 20 Subsidiary is a party, or in connection
with the enforcement of rights or remedies hereunder or under any other Loan
Document, (g) to a subsidiary or affiliate of such Bank as provided in
Section 20.1 or (h) to any assignee or participant (or prospective assignee or
participant) so long as such assignee or participant agrees to be bound by the
provisions of this Section 20.
SECTION 20.3. PRIOR NOTIFICATION. Unless specifically prohibited by
applicable law or court order, each of the Banks and the Agent shall, prior to
disclosure thereof, notify the Borrowers of any request for disclosure of any
such non-public information by any governmental agency or representative thereof
(other than any such request in connection with an examination of the financial
condition of such Bank by such governmental agency) or pursuant to legal
process.
SECTION 20.4. OTHER. In no event shall any Bank or the Agent be
obligated or required to return any materials furnished to it or any Section 20
Subsidiary by the Borrowers. The obligations of each Bank under this Section 20
shall supersede and replace the obligations of such Bank under any
confidentiality letter in respect of this financing signed and delivered by such
Bank to the Borrowers prior to the date hereof and shall be binding upon any
assignee of, or purchaser of any participation in, any interest in any of the
Loans or Reimbursement Obligations from any Bank.
SECTION 21. MISCELLANEOUS. The rights and remedies herein expressed are
cumulative and not exclusive of any other rights which the Banks or Agent would
otherwise have. The captions in this Credit Agreement are for convenience of
reference only and shall not define or limit the provisions hereof. This Credit
Agreement and any amendment hereof may be executed in several counterparts and
by each party on a separate counterpart, each of which when so executed and
delivered shall be an original, but all of which together shall constitute one
instrument. In proving this Credit
<PAGE> 73
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Agreement it shall not be necessary to produce or account for more than one such
counterpart signed by the party against whom enforcement is sought.
SECTION 22. ENTIRE AGREEMENT, ETC. The Loan Documents and any other
documents executed in connection herewith or therewith express the entire
understanding of the parties with respect to the transactions contemplated
hereby. Neither this Credit Agreement nor any term hereof may be changed,
waived, discharged or terminated, except as provided in Section 14.8. No waiver
shall extend to or affect any obligation not expressly waived or impair any
right consequent thereon. No course of dealing or omission on the part of the
Agent or any Bank in exercising any right shall operate as a waiver thereof or
otherwise be prejudicial thereto. No notice to or demand upon the Borrowers
shall entitle the Borrowers to other or further notice or demand in similar or
other circumstances.
SECTION 23. WAIVER OF JURY TRIAL. EACH BORROWER HEREBY WAIVES ITS RIGHT
TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE
IN CONNECTION WITH THIS CREDIT AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN
DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE
OF SUCH RIGHTS AND OBLIGATIONS. EXCEPT AS PROHIBITED BY LAW, EACH BORROWER
HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION
REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES. THE BORROWERS (A) CERTIFY THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
ANY BANK OR THE AGENT HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH BANK OR
THE AGENT WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVERS AND (B) ACKNOWLEDGE THAT THE AGENT AND THE BANKS HAVE BEEN INDUCED TO
ENTER INTO THIS CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH THEY ARE
A PARTY BECAUSE OF, AMONG OTHER THINGS, THE BORROWERS' WAIVERS AND
CERTIFICATIONS CONTAINED HEREIN.
SECTION 24. GOVERNING LAW. This Credit Agreement and each of the other
Loan Documents are contracts under the laws of the Commonwealth of Massachusetts
and shall for all purposes be construED IN accordance with and governed by the
laws of said commonwealth (excluding the laws applicable to conflicts or choice
of law). The Borrowers consent to the jurisdiction of any of the federal or
state courts located in the Commonwealth of Massachusetts in connection with any
suit to enforce the rights of any Bank or the Agent under this Credit Agreement
or any of the other Loan Documents.
SECTION 25. SEVERABILITY. The provisions of this Credit Agreement are
severable and if any one clause or provision hereof shall be held invalid or
unenforceable in whole or in part in any jurisdicTION, then such invalidity or
unenforceability shall affect only
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such clause or provision, or part thereof, in such jurisdiction, and shall not
in any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision of this Credit Agreement in any jurisdiction.
[Signature Pages Follow]
<PAGE> 75
IN WITNESS WHEREOF, the undersigned have duly executed this Credit
Agreement under seal as of the date first set forth above.
THE BORROWERS:
WASTE CONNECTIONS, INC.
WASTE CONNECTIONS OF WASHINGTON, INC.
WASTE CONNECTIONS OF IDAHO, INC.
WASTE CONNECTIONS INTERNATIONAL, INC.
MADERA DISPOSAL SYSTEMS, INC.
WASTE CONNECTIONS OF WYOMING, INC.
SUNSHINE SANITATION, INCORPORATED
SOWERS' SANITATION, INC.
T & T DISPOSAL, INC.
By:_________________________________________
Ronald J. Mittelstaedt
President
THE LENDERS:
BANKBOSTON, N.A.,
individually and as Agent
By:_________________________________________
Timothy M. Laurion, Director
UNION BANK OF CALIFORNIA, N.A.
By:_________________________________________
Name:
Title:
COMERICA BANK - CALIFORNIA, N.A.
By:_________________________________________
Name:
Title:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By:_________________________________________
Name:
Title:
<PAGE> 1
EXECUTION COPY
------------------------------------------------------------------------------
LOAN AGREEMENT
Between
CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY
And
MADERA DISPOSAL SYSTEMS, INC.
Dated as of June 1, 1998
relating to
$1,800,000
California Pollution Control Financing Authority
Variable Rate Demand
Solid Waste Disposal Revenue Bonds
(Madera Disposal Systems, Inc. Project)
Series 1998A
------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<CAPTION>
LOAN AGREEMENT
TABLE OF CONTENTS
Page
<S> <C>
PARTIES ................................................................................... 1
PREAMBLES .................................................................................. 1
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITION OF TERMS................................................. 2
SECTION 1.2. NUMBER AND GENDER................................................... 2
SECTION 1.3. ARTICLES, SECTIONS, ETC............................................. 2
ARTICLE II
REPRESENTATIONS
SECTION 2.1. REPRESENTATIONS OF THE AUTHORITY.................................... 2
SECTION 2.2. REPRESENTATIONS OF THE BORROWER..................................... 3
ARTICLE III
CONSTRUCTION OF THE PROJECT; ISSUANCE OF THE 1998A BONDS
SECTION 3.1. AGREEMENT TO CONSTRUCT THE PROJECT.................................. 4
SECTION 3.2. DISBURSEMENTS FROM THE CONSTRUCTION FUND;
DISBURSEMENTS FROM THE COSTS OF ISSUANCE FUND....................... 5
SECTION 3.3. ESTABLISHMENT OF COMPLETION DATE; OBLIGATION
OF BORROWER TO COMPLETE............................................. 6
SECTION 3.4. INVESTMENT OF MONEYS IN FUND........................................ 7
SECTION 3.5. ISSUANCE OF ADDITIONAL BONDS........................................ 7
ARTICLE IV
LOANS OF PROCEEDS; REPAYMENT PROVISIONS
SECTION 4.1. LOAN OF BOND PROCEEDS; ISSUANCE OF BONDS............................ 8
SECTION 4.2. REPAYMENT AND PAYMENT OF OTHER AMOUNTS
PAYABLE............................................................. 8
SECTION 4.3. UNCONDITIONAL OBLIGATION............................................ 10
SECTION 4.4. ASSIGNMENT OF AUTHORITY'S RIGHTS.................................... 10
SECTION 4.5. AMOUNTS REMAINING IN FUNDS.......................................... 10
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE V
SPECIAL COVENANTS AND AGREEMENTS
<S> <C>
SECTION 5.1. RIGHT OF ACCESS TO THE PROJECT...................................... 11
SECTION 5.2. THE BORROWER'S MAINTENANCE OF ITS EXISTENCE;
ASSIGNMENTS......................................................... 11
SECTION 5.3. RECORDS AND FINANCIAL STATEMENTS OF BORROWER........................ 13
SECTION 5.4. INSURANCE........................................................... 13
SECTION 5.5. MAINTENANCE AND REPAIR; TAXES; UTILITY AND
OTHER CHARGES....................................................... 13
SECTION 5.6. QUALIFICATION IN CALIFORNIA......................................... 14
SECTION 5.7. ALTERNATE CREDIT FACILITY........................................... 14
SECTION 5.8. LETTER OF CREDIT.................................................... 15
SECTION 5.9. GENERAL TAX COVENANTS; REBATE....................................... 16
SECTION 5.10. SPECIAL ARBITRAGE CERTIFICATIONS.................................... 16
SECTION 5.11. NOTICE AND CERTIFICATES TO TRUSTEE.................................. 16
SECTION 5.12. FINANCING AND CONTINUATION STATEMENTS............................... 17
SECTION 5.13. CHANGE IN INTEREST RATES............................................ 17
SECTION 5.14. CONTINUING DISCLOSURE............................................... 17
ARTICLE VI
DAMAGE, DESTRUCTION AND CONDEMNATION;
USE OF PROCEEDS
SECTION 6.1. OBLIGATION TO CONTINUE PAYMENTS..................................... 17
SECTION 6.2. APPLICATION OF NET PROCEEDS......................................... 18
SECTION 6.3. INSUFFICIENCY OF NET PROCEEDS....................................... 18
SECTION 6.4. DAMAGE TO OR CONDEMNATION OF OTHER PROPERTY......................... 19
ARTICLE VII
LOAN DEFAULT EVENTS AND REMEDIES
SECTION 7.1. LOAN DEFAULT EVENTS................................................. 19
SECTION 7.2. REMEDIES ON DEFAULT................................................. 20
SECTION 7.3. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES....................... 21
SECTION 7.4. NO REMEDY EXCLUSIVE................................................. 21
SECTION 7.5. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER.......................... 22
ARTICLE VIII
PREPAYMENT
SECTION 8.1. REDEMPTION OF BONDS WITH PREPAYMENT MONEYS.......................... 22
SECTION 8.2. OPTIONS TO PREPAY INSTALLMENTS...................................... 22
SECTION 8.3. MANDATORY PREPAYMENT................................................ 22
SECTION 8.4. AMOUNT OF PREPAYMENT................................................ 23
SECTION 8.5. NOTICE OF PREPAYMENT................................................ 23
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE IX
NON-LIABILITY OF AUTHORITY; EXPENSES; INDEMNIFICATION
<S> <C>
SECTION 9.1. NON-LIABILITY OF AUTHORITY.......................................... 24
SECTION 9.2. EXPENSES............................................................ 24
SECTION 9.3. INDEMNIFICATION..................................................... 24
ARTICLE X
MISCELLANEOUS
SECTION 10.1. NOTICES............................................................. 25
SECTION 10.2. SEVERABILITY........................................................ 26
SECTION 10.3. EXECUTION OF COUNTERPARTS........................................... 26
SECTION 10.4. AMENDMENTS, CHANGES AND MODIFICATIONS............................... 26
SECTION 10.5. GOVERNING LAW; VENUE................................................ 26
SECTION 10.6. AUTHORIZED REPRESENTATIVE........................................... 26
SECTION 10.7. TERM OF THE AGREEMENT............................................... 27
SECTION 10.8. BINDING EFFECT...................................................... 27
SECTION 10.9. SURVIVAL OF FEE OBLIGATION.......................................... 27
SECTION 10.10. PURCHASE OF BONDS................................................... 27
SECTION 10.11. COMPLETE AGREEMENT.................................................. 27
EXECUTION .................................................................................S-1
EXHIBIT A DESCRIPTION OF THE PROJECT......................................................A-1
</TABLE>
<PAGE> 5
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of June 1, 1998, between CALIFORNIA
POLLUTION CONTROL FINANCING AUTHORITY, a public instrumentality and political
subdivision of the State of California (the "Authority"), and MADERA DISPOSAL
SYSTEMS, INC. (the "Borrower")
W I T N E S S E T H:
WHEREAS, the Authority is a public instrumentality and political
subdivision of the State of California, created by the California Pollution
Control Financing Authority Act (constituting Division 27 of the Health and
Safety Code of the State of California as now in effect and as it may from time
to time hereafter be amended or supplemented) (the "Act") and authorized to
finance certain capital projects consisting of solid waste pollution control
facilities;
WHEREAS, the Authority is further authorized to issue its bonds
for the purpose of paying all or any part of the costs of a project, and for any
other authorized purpose; to acquire and hold property, including funds, project
agreements and other obligations of any kind, and pledge, encumber or assign the
same, or the revenues therefrom or any portion of such revenues, or other
rights, whether then owned or possessed, or thereafter acquired, for the benefit
of the owners, and as security or additional security for any bonds or the
performance of obligations under an indenture; to provide for the advance of
bond proceeds and other funds pursuant to Project agreements as necessary to pay
or reimburse for project costs; and to enter into loan agreements; and
WHEREAS, the Borrower has duly caused an application to be filed
with the Authority for financial assistance to construct certain solid waste
disposal facilities to be located in Madera County, California, as more
particularly described in Exhibit A hereto (the "Project"), which qualify as a
"project" under the Act; and
WHEREAS, the Authority after due investigation and deliberation
has adopted its resolutions approving said application and authorizing the
making of a loan to the Borrower for the acquisition, construction and
installation of the Project at such locations; and
WHEREAS, the Authority proposes to issue its California Pollution
Control Financing Authority Variable Rate Demand Solid Waste Disposal Revenue
Bonds (Madera Disposal Systems, Inc. Project) Series 1998A (the "1998A Bonds"),
in the aggregate principal amount of $1,800,000, to finance a portion of the
cost of acquiring, constructing and installing the Project upon the terms and
conditions set forth herein; and
WHEREAS, the Authority will enter into an Indenture, dated as of
June 1, 1998 (the "Indenture"), with BNY Western Trust Company as trustee (the
"Trustee"), pursuant to which the 1998A Bonds will be issued; and
WHEREAS, payment of the 1998A Bonds is initially enhanced by a
direct-pay irrevocable Letter of Credit issued to the Trustee by BankBoston,
N.A. (the "Bank");
NOW, THEREFORE, for and in consideration of the premises and the
material
<PAGE> 6
covenants hereinafter contained, the parties hereto hereby formally covenant,
agree and bind themselves as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITION OF TERMS. Unless the context otherwise
requires, the terms used in this Agreement shall have the meanings specified in
Section 1.01 of the Indenture, as originally executed or as it may from time to
time be supplemented or amended as provided therein.
SECTION 1.2. NUMBER AND GENDER. The singular form of any word
used herein, including the terms defined in Section 1.01 of the Indenture, shall
include the plural, and vice versa. The use herein of a word of any gender shall
include all genders.
SECTION 1.3. ARTICLES, SECTIONS, ETC. Unless otherwise specified,
references to Articles, Sections and other subdivisions of this Agreement are to
the designated Articles, Sections and other subdivisions of this Agreement as
amended from time to time. The words "hereof," "herein," "hereunder" and words
of similar import refer to this Agreement as a whole. The headings or titles of
the several articles and sections, and the table of contents appended to copies
hereof, shall be solely for convenience of reference and shall not affect the
meaning, construction or effect of the provisions hereof.
ARTICLE II
REPRESENTATIONS
SECTION 2.1. REPRESENTATIONS OF THE AUTHORITY. The Authority
makes the following representations as the basis for its undertakings herein
contained:
(a) The Authority is a public instrumentality and political
subdivision of the State of California. Under the provisions of the Act, the
Authority has the power to enter into the transactions contemplated by this
Agreement and the Indenture and to carry out its obligations hereunder. The
Project constitutes a "project" as that term is defined in the Act. By proper
action, the Authority has been duly authorized to execute, deliver and duly
perform its obligations under this Agreement and the Indenture.
(b) On January 28, 1998, the Authority gave its preliminary
approval for the financing of the Project. On March 19, 1998, a public hearing
with respect to the 1998A Bonds and the Project was held in accordance with the
provisions of the Code. On March 25, 1998, the Authority adopted its resolution
approving financing of the Project.
(c) The Authority has taken proper action to allocate to the
1998A Bonds a share of the State ceiling on private activity bonds (as defined
in Section 141 of the Code), which was available to the Authority pursuant to
Section 146 of the Code, in an aggregate amount at
<PAGE> 7
least equal to the $1,800,000 aggregate principal amount of the 1998A Bonds.
Issuance of the 1998A Bonds will not violate any provisions of said Section 146.
(d) The Authority will issue the Bonds under and the Bonds will
be secured by the Indenture, pursuant to which the Authority's interest in this
Agreement (except certain rights of the Authority to payment for expenses and
indemnification and to inspection and consent) will be pledged to the Trustee as
security for payment of the principal of, premium, if any, and interest on the
Bonds and then to the Bank as security for the payment of the obligations of the
Borrower under the Reimbursement Agreement.
(e) The Authority has not pledged and will not pledge its
interest in this Agreement for any purpose other than to secure the Bonds under
the Indenture and the obligations of the Borrower under the Reimbursement
Agreement.
(f) The Authority is not in default under any of the provisions
of the laws of the State of California which default would affect its existence
or its powers referred to in subsection (a) of this Section 2.1.
(g) The Authority has found and determined and hereby finds and
determines that (i) the Borrower is a "participating party" as such term is
defined in the Act; (ii) the loan to be made hereunder with the proceeds of the
1998A Bonds will promote the purposes of the Act by providing funds to finance
the acquisition, rehabilitation and equipping of the Project; (iii) said loan is
in the public interest, serves the public purposes and meets the requirements of
the Act; and (iv) the portion of such loan allocable to the Costs of the Project
does not exceed the total cost thereof as determined by the Borrower and
approved by the Authority.
(h) No member, officer or other official of the Authority has any
financial interest whatsoever in the Borrower or in the transactions
contemplated by this Agreement and the Indenture.
(i) Based upon representations of Westhoff, Cone & Holmstedt in
the Bond Purchase Contract (as hereinafter defined), the Authority has approved
the use of a single Official Statement for the Bonds.
SECTION 2.2. REPRESENTATIONS OF THE BORROWER. The Borrower makes
the following representations as the basis for its undertakings herein
contained:
(a) The Borrower is a corporation duly formed under the laws of
the State of California, is in good standing in the State of California and has
the power to enter into and has duly authorized, by proper action, the execution
and delivery of this Agreement, the Remarketing Agreement, the Reimbursement
Agreement and all other documents contemplated hereby to be executed by the
Borrower.
(b) Neither the execution and delivery of this Agreement, the
Remarketing Agreement or the Reimbursement Agreement, the consummation of the
transactions contemplated hereby and thereby, nor the fulfillment of or
compliance with the terms and conditions hereof and
<PAGE> 8
thereof, conflicts with or results in a breach of any of the terms, conditions
or provisions of the Borrower's Articles of Incorporation or Bylaws or of any
material corporate actions or of any material agreement or instrument to which
the Borrower is now a party or by which it is bound, or constitutes a default
(with due notice or the passage of time or both) under any of the foregoing, or
results in the creation or imposition of any prohibited lien, charge or
encumbrance whatsoever upon any of the property or assets of the Borrower under
the terms of any material instrument or agreement to which the Borrower is now a
party or by which it is bound.
(c) The Costs of the Project are as set forth in the Tax
Certificate dated the Date of Delivery and have been determined in accordance
with standard engineering/construction and accounting principles. All the
information and representations in the Tax Certificate are true and correct as
of the date thereof.
(d) The Project consists of various equipment and facilities
described in Exhibit A and the Borrower shall not make any changes to the
Project or to the operation thereof which would affect the qualification of the
Project under the Act or impair the exemption from federal income taxation of
the interest on the 1998A Bonds. In particular, the Borrower shall comply with
all requirements set forth in the Tax Certificate. The Borrower intends to own
and cause to be operated the Project as solid waste disposal facilities
described by the Act until the principal of, the premium, if any, and the
interest on the 1998A Bonds shall have been paid in full.
(e) The Borrower has a sufficient interest in the property
comprising the Project sufficient to carry out the purposes of this Agreement.
(f) All certificates, approvals, permits and authorizations of
applicable local governmental agencies, the State of California and the federal
government which are required to date for the Project have been obtained and
continue in force.
(g) No event has occurred and no condition exists which would
constitute an Event of Default (as defined in the Indenture) or which, with the
passing of time or with the giving of notice or both would become such an Event
of Default.
(h) To the best of the knowledge of the Borrower, no member,
officer, or other official of the Authority has any interest whatsoever in the
Borrower or in the transactions contemplated by this Agreement.
(i) The Borrower is a "Small Business" as classified pursuant to
Title 13 Code of Federal Regulations, Part 121 (1990 edition) or has 500
employees or less, and is otherwise eligible for assistance from the Small
Business Assistance Fund.
ARTICLE III
CONSTRUCTION OF THE PROJECT; ISSUANCE OF THE 1998A BONDS
SECTION 3.1. AGREEMENT TO CONSTRUCT THE PROJECT. The
<PAGE> 9
Borrower agrees that it will equip, construct, rehabilitate and install, or
complete the construction, equipping, rehabilitation and installation of, the
Project, and will acquire, equip, construct, rehabilitate and install all other
facilities and real and personal property deemed necessary for the operation of
the Project, substantially in accordance with the description of the Project
prepared by the Borrower and approved by the Authority, including any and all
supplements, amendments and additions or deletions thereto or therefrom, it
being understood that the approval of the Authority shall not be required for
changes in such description which do not substantially alter the purpose and
description of the Project as set forth in Exhibit A hereto. The Borrower
further agrees to proceed with due diligence to complete the Project within
three years from the date hereof.
In the event that the Borrower desires to alter or change the
Project, and such alteration or change substantially alters the purpose and
description of the Project as described in Exhibit A hereto, the Authority may
enter into such changes in its discretion and, if it agrees to do so, will
instruct the Trustee to consent to, such amendment or supplement to Exhibit A as
shall be required to reflect such alteration or change to the Project upon
receipt of:
(i) a certificate of the Authorized Representative of the
Borrower describing in detail the proposed changes and stating that they
will not have the effect of disqualifying the Project as facilities that
may be financed pursuant to the Act;
(ii) a copy of the proposed form of amended or supplemented
Exhibit A hereto;
(iii) an opinion of Bond Counsel that such proposed changes will
not adversely affect the Tax-exempt status of interest on the Bonds; and
(iv) the written approval of the Bank.
SECTION 3.2. DISBURSEMENTS FROM THE CONSTRUCTION FUND;
DISBURSEMENTS FROM THE COSTS OF ISSUANCE FUND. (a) The Borrower will authorize
and direct the Trustee, upon compliance with Section 3.03 of the Indenture, to
disburse the moneys in the 1998A Construction Account to or on behalf of the
Borrower only for the following purposes (and not for Costs of Issuance),
subject to the provisions of Section 3.3 hereof:
(i) Payment to the Borrower of such amounts, if any, as shall be
necessary to reimburse the Borrower in full for all advances and payments made
by it, at any time prior to or after the delivery of the 1998A Bonds, in
connection with (A) the preparation of plans and specifications for the Project
(including any preliminary study or planning of the Project or any aspect
thereof) and (B) subject to any limitation imposed by subsection (vi) hereof,
the acquisition, equipping, construction, rehabilitation and installation of the
Project.
(ii) Payment for labor, services, materials and supplies used by
or furnished to the Borrower to improve the site and to acquire, equip,
construct and install the Project, as provided in the plans, specifications and
work orders therefor; payment of the costs of acquiring,
<PAGE> 10
equipping, constructing, and installing utility services or other related
facilities; payment of the costs of acquiring all real and personal property
deemed necessary to construct the Project; insurance during the construction
period as required by the Reimbursement Agreement; and payment of the
miscellaneous expenses incidental to any of the foregoing items.
(iii) Payment of the fees, if any, of architects, engineers,
legal counsel and supervisors expended in connection with the acquisition,
equipping, construction, rehabilitation and installation of the Project.
(iv) Payment of taxes including property taxes, assessments and
other charges, if any, that may become payable during the construction period
with respect to the Project, or reimbursement thereof, if paid by the Borrower.
(v) Payment of expenses incurred in seeking to enforce any remedy
against any contractor or subcontractor in respect of any default under a
contract relating to the acquisition, equipping, construction, rehabilitation or
installation of the Project.
(vi) Payment of any other Costs of the Project permitted by the
Tax Certificate (including, without limitation, interest accruing on the 1998A
Bonds during the construction period of the Project and reimbursement to the
Borrower of costs of financing the Costs of the Project, but not including any
Costs of Issuance).
All moneys remaining in the 1998A Construction Account after the
Completion Date and after payment or provision for payment of all other items
provided for in the preceding subsections (i) to (vi), inclusive, of this
Section, shall be used in accordance with Section 3.03 of the Indenture.
Each of the payments referred to in this Section 3.2(a) shall be
made upon receipt by the Trustee of a written requisition in the form prescribed
by Section 3.03 of the Indenture, signed by the Authorized Representative of the
Borrower.
(b) The Borrower will authorize and direct the Trustee, upon
compliance with Section 3.04 of the Indenture, to disburse the moneys in the
1998A Costs of Issuance Account to or on behalf of the Borrower only for Costs
of Issuance. Each of the payments referred to in this Section 3.2(b) shall be
made upon receipt by the Trustee of a written requisition in the form prescribed
by Section 3.04 of the Indenture, signed by the Authorized Representative of the
Borrower, and, in the case of withdrawals from the Authority Subaccount, the
Acting Executive Director or Deputy Executive Director of the Authority.
SECTION 3.3. ESTABLISHMENT OF COMPLETION DATE; OBLIGATION OF
BORROWER TO COMPLETE. As soon as the Project is completed, the Authorized
Representative of the Borrower, on behalf of the Borrower, shall evidence the
Completion Date by providing a certificate, which shall be approved by the Bank,
to the Trustee and the Authority stating the Costs of the Project and further
stating that (i) the acquisition, equipping, rehabilitation and construction of
the Project has been completed substantially in accordance with the plans,
specifications and work orders therefor, and all labor, services,
<PAGE> 11
materials and supplies used in the acquisition, equipping, rehabilitation and
construction have been paid or provided for, and (ii) all other facilities
necessary in connection with the Project have been acquired, constructed and
installed in accordance with the plans and specifications and work orders
therefor and all costs and expenses incurred in connection therewith have been
paid or provided for. Notwithstanding the foregoing, such certificate may state
that it is given without prejudice to any rights of the Borrower against third
parties for any claims or for the payment of any amount not then due and payable
which has been incurred at the date of such certificate or which may
subsequently be incurred.
At the time such certificate is delivered to the Trustee, moneys
remaining in the 1998A Construction Account (other than moneys relating to
provisional payments permitted by Section 3.2), including any earnings resulting
from the investment of such moneys, shall be used as provided in Section 3.03 of
the Indenture.
In the event the moneys in the 1998A Construction Account
available for payment of the Costs of the Project should be insufficient to pay
the costs thereof in full, the Borrower agrees to pay directly, or to deposit in
the 1998A Construction Account moneys sufficient to pay, any costs of completing
the Project in excess of the moneys available for such purpose in such
Construction Accounts. The Authority makes no express or implied warranty that
the moneys deposited in the 1998A Construction Account and available for payment
of the Costs of the Project, under the provisions of this Agreement, will be
sufficient to pay all the amounts which may be incurred for such Cost. The
Borrower agrees that if, after exhaustion of the moneys in the 1998A
Construction Account, the Borrower should pay, or deposit moneys in the 1998A
Construction Account for the payment of, any portion of the Costs of the Project
pursuant to the provisions of this Section, it shall not be entitled to any
reimbursement therefor from the Authority, from the Trustee or from the holders
of any of the Bonds, nor shall it be entitled to any diminution of the amounts
payable under Section 4.2 hereof.
SECTION 3.4. INVESTMENT OF MONEYS IN FUND. Any moneys in any fund
or account held by the Trustee shall, at the written request of the Authorized
Representative of the Borrower, be invested or reinvested by the Trustee as
provided in the Indenture. Such investments shall be held by the Trustee and
shall be deemed at all times a part of the fund or account from which such
investments were made, and the interest accruing thereon, and any profit or loss
realized therefrom, shall be credited or charged to such fund or account.
SECTION 3.5. ISSUANCE OF ADDITIONAL BONDS. If the Borrower is not
in default hereunder, the Authority may by the adoption of an appropriate
resolution or resolutions, at the request of the Borrower, authorize the
issuance of Additional Bonds upon the terms and conditions provided herein and
in Sections 2.12 and 2.13 of the Indenture, but in no event shall the Authority
be liable for not issuing such Additional Bonds. Additional Bonds may only be
issued to provide funds to pay any one or more of the following: (i) the costs
of completing the Project; (ii) the costs of making at any time or from time to
time such substitutions, additions, modifications and improvements to the
Project or any portion thereof, or financing other facilities within the State
which qualify as a "project" under the Act, all as authorized by the Act, as the
Borrower may deem necessary or desirable; (iii) the costs of
<PAGE> 12
refunding, to the extent permitted, any Bonds then Outstanding; and (iv) the
costs of the issuance and sale of the Additional Bonds, interest expenses during
the construction period and other costs reasonably related to the financing as
shall be agreed upon by the Borrower and the Authority. Prior to the issuance of
such Additional Bonds, the terms thereof, the purchase price to be paid therefor
and the manner in which the proceeds therefrom are to be disbursed shall have
been approved in writing by the Borrower; the Authority shall have entered into
an amendment to this Agreement to provide that, for all purposes of this
Agreement, the Project shall include any facilities and/or equipment being
financed by the Additional Bonds, which facilities and/or equipment shall be
described in amendments to Exhibit A hereto, and to provide for an increase in
the amount payable under Section 4.2 hereof as shall be necessary to pay the
principal of, premium, if any, and interest on the Additional Bonds as provided
in the supplemental indenture required by Sections 2.12 and 2.13 of the
Indenture, and to extend the term of this Agreement if the maturity of any of
the Additional Bonds would otherwise occur after the expiration of the term of
this Agreement; and the Authority shall have otherwise complied with the
provisions of Sections 2.12 and 2.13 of the Indenture with respect to the
issuance of such Additional Bonds.
ARTICLE IV
LOANS OF PROCEEDS; REPAYMENT PROVISIONS
SECTION 4.1. LOAN OF BOND PROCEEDS; ISSUANCE OF BONDS. The
Authority covenants and agrees, upon the terms and conditions in this Agreement,
to make a loan to the Borrower for the purpose of financing the Costs of the
Project and the Costs of Issuance. The Authority further covenants and agrees
that it shall take all actions within its authority to keep this Agreement in
effect in accordance with its terms. Pursuant to said covenants and agreements,
the Authority will issue the Bonds upon the terms and conditions contained in
this Agreement and the Indenture and will cause the Bond proceeds to be applied
as provided in Article III of the Indenture.
SECTION 4.2. REPAYMENT AND PAYMENT OF OTHER AMOUNTS PAYABLE. (a)
On or before one Business Day prior to each Bond Payment Date (as hereinafter
defined), until the principal of, premium, if any, and interest on, the Bonds
shall have been fully paid or provision for such payment shall have been made as
provided in the Indenture, the Borrower covenants and agrees to pay to the
Trustee as a repayment on the loan made to the Borrower from Bond proceeds
pursuant to Section 4.1 hereof, a sum equal to the amount payable on the next
Bond Payment Date as principal of and premium, if any, and interest on, the
Bonds as provided in the Indenture. Such Loan Repayments shall be made in
federal funds or other funds immediately available at the Corporate Trust Office
of the Trustee. The term "Bond Payment Date" as used in this Section shall mean
any date upon which any amounts payable with respect to the Bonds shall become
due, whether upon redemption (including without limitation sinking fund
redemption), acceleration, maturity or otherwise.
Each payment made pursuant to this Section 4.2(a) shall at all
times be sufficient to pay the total amount of interest and principal (whether
at maturity or upon redemption or acceleration) and premium, if any, becoming
due and payable on the Bonds on each Bond Payment Date; provided that on the
Business Day prior to each Bond Payment Date, any amount
<PAGE> 13
held by the Trustee in the Revenue Fund on the due date for a Loan Repayment
hereunder shall be credited against the installment due on such date to the
extent available for such purpose under the terms of the Indenture; and provided
further that, subject to the provisions of this paragraph, if at any time the
amounts held by the Trustee in the Revenue Fund are sufficient to pay all of the
principal of and interest and premium, if any, on, the Bonds as such payments
become due, the Borrower shall be relieved of any obligation to make any further
payments under the provisions of this Section. Notwithstanding the foregoing, if
on any date the amount held by the Trustee in the Revenue Fund is insufficient
to make any required payments of principal of (whether at maturity or upon
redemption (including without limitation sinking fund redemption) or
acceleration) and interest and premium, if any, on, the Bonds as such payments
become due, the Borrower shall forthwith pay such deficiency as a Loan Repayment
hereunder.
The obligation of the Borrower to make any payment under this
Section 4.2(a) shall be deemed to have been satisfied to the extent of any
corresponding payment made by the Bank to the Trustee under the Letter of
Credit.
(b) The Borrower also agrees to pay (i) the annual fee of the
Trustee and the Tender Agent for its ordinary services rendered as trustee, and
its ordinary expenses incurred under the Indenture, as and when the same become
due, (ii) the reasonable fees, charges and expenses (including reasonable legal
fees and expenses) of the Trustee, as bond registrar and paying agent, and the
reasonable fees of any other paying agent on the Bonds as provided in the
Indenture, as and when the same become due, (iii) the reasonable fees, charges
and expenses of the Trustee for the necessary extraordinary services rendered by
it and extraordinary expenses incurred by it under the Indenture, as and when
the same become due, (iv) the cost of printing any Bonds required to be
furnished by the Authority at the expense of the Authority, and (v) any amounts
required to be deposited in the Rebate Fund to comply with the provisions of
Section 5.10 hereof and Section 6.06 of the Indenture and the payment of any
rebate analyst. The Trustee's compensation shall not be limited by any provision
of law regarding the compensation of a Trustee of an express trust.
(c) The Borrower also agrees to pay, (i) as soon as practicable
after receipt of request for payment thereof, all expenses required to be paid
by the Borrower under the terms of the Bond Purchase Contract relating to the
sale of the Bonds, executed by the Treasurer of the State, the Authority,
Westhoff, Cone & Holmstedt and the Borrower (the "Bond Purchase Contract"); (ii)
at the time of Bond closing, the Authority's administrative fee in the amount of
two-tenths of one percent of the original principal amount of the Bonds (less
any amounts previously paid by the Borrower to the Authority); and (iii) all
reasonable expenses of the Authority related to the Project which are not
otherwise required to be paid by the Borrower under the terms of this Agreement;
provided that the Authority shall have obtained the prior written approval of
the Authorized Borrower Representative for any expenditures other than those
provided for herein or in the Bond Purchase Contract.
(d) The Borrower also agrees to pay fees and expenses of
independent certified public accountants necessary for the preparation of annual
or other audits, reports or summaries thereof required by the Indenture or by
the Authority, including a report of an independent certified public accountant
with respect to any fund established under the Indenture;
<PAGE> 14
and reasonable expenses of the Authority pursuant to Sections 44525 and 44548 of
the California Health and Safety Code, and any agency of the State of California
selected by the Authority to act on its behalf in connection with the Bonds,
including any and all reasonable expenses incurred by the Attorney General of
the State of California in connection with any litigation which may at any time
be instituted involving the Bonds.
(e) In the event the Borrower should fail to make any of the
payments required by Subsections (a) through (d) of this Section, such payments
shall continue as obligations of the Borrower until such amounts shall have been
fully paid. The Borrower agrees to pay such amounts, together with interest
thereon until paid, to the extent permitted by law, at the rate of seven percent
(7%) per annum or, if seven percent is greater than the rate then permitted by
law, at the maximum rate so permitted, following a delinquency of 30 days or
longer until such amount has been paid. Interest on overdue payments required
under subsection (a) above shall be applied as provided in Sections 5.02 and
5.03 of the Indenture.
SECTION 4.3. UNCONDITIONAL OBLIGATION. The obligations of the
Borrower to make the payments required by Section 4.2 hereof and to perform and
observe the other agreements on its part contained herein shall be absolute and
unconditional, irrespective of any defense or any rights of set-off, recoupment
or counterclaim it might otherwise have against the Authority, and during the
term of this Agreement, the Borrower shall pay all payments required to be made
on account of the loan (which payments shall be net of any other obligations of
the Borrower) as prescribed in Section 4.2 and all other payments required
hereunder, free of any deductions and without abatement, diminution or set-off.
Until such time as the principal of, premium, if any, sinking fund installments,
if any, and interest on, the Bonds shall have been fully paid, or provision for
the payment thereof shall have been made as required by the Indenture, the
Borrower (i) will not suspend or discontinue any payments provided for in
Section 4.2 hereof; (ii) will perform and observe all of its other covenants
contained in this Agreement; and (iii) except as provided in Article VIII
hereof, will not terminate this Agreement for any cause, including, without
limitation, the occurrence of any act or circumstances that may constitute
failure of consideration, destruction of or damage to all or a portion of those
facilities or equipment comprising the Project, commercial frustration of
purpose, any change in the tax or other laws of the United States of America or
of the State of California or any political subdivision of either of these, or
any failure of the Authority or the Trustee to perform and observe any covenant,
whether express or implied, or any duty, liability or obligation arising out of
or connected with this Agreement or the Indenture, except to the extent
permitted by this Agreement.
SECTION 4.4. ASSIGNMENT OF AUTHORITY'S RIGHTS. As security for
the payment of the Bonds, the Authority will assign to the Trustee the
Authority's rights under this Agreement, including the right to receive payments
hereunder (except the right of the Authority to receive certain payments, if
any, with respect to expenses and indemnification, or to enforce its rights
under Sections 4.2(c), 4.2(d), 7.3, 9.2 and 9.3 hereof and its rights of
indemnification and consent), and the Authority hereby directs the Borrower to
make the payments required hereunder (except such payments for expenses and
indemnification) directly to the Trustee. The Borrower hereby assents to such
assignment and agrees to make payments directly to the Trustee without defense
or set-off by reason of any dispute between the Borrower
<PAGE> 15
and the Authority or the Trustee.
SECTION 4.5. AMOUNTS REMAINING IN FUNDS. It is agreed by the
parties hereto that after payment in full of (i) the Bonds, or after provision
for such payment shall have been made as provided in the Indenture, (ii) the
fees, charges and expenses of the Trustee and paying agents in accordance with
the Indenture, (iii) all other amounts required to be paid under this Agreement
and the Indenture, and (iv) any amounts owed to the Bank by the Borrower under
the Reimbursement Agreement, any amounts remaining in any fund held by the
Trustee under the Indenture (excepting the Rebate Fund) shall be paid as
provided in Section 10.01 of the Indenture.
ARTICLE V
SPECIAL COVENANTS AND AGREEMENTS
SECTION 5.1. RIGHT OF ACCESS TO THE PROJECT. The Borrower agrees
that during the term of this Agreement the Authority, the Trustee, the Bank and
the duly authorized agents of any of them shall have the right at all reasonable
times during normal business hours to enter upon the site of the Project to
examine and inspect the Project; provided, however, that reasonable notice shall
be given to the Borrower prior to such examination or inspection. The rights of
access hereby reserved to the Authority, the Trustee and the Bank may be
exercised only after such agent shall have executed release of liability and
secrecy agreements if requested by the Borrower in the form then currently used
by the Borrower, and nothing contained in this Section or in any other provision
of this Agreement shall be construed to entitle the Authority, the Trustee or
the Bank to any information or inspection involving the confidential knowledge,
expertise or know-how of the Borrower.
SECTION 5.2. THE BORROWER'S MAINTENANCE OF ITS EXISTENCE;
ASSIGNMENTS. (a) To the extent permitted by law and its articles of
incorporation, the Borrower covenants and agrees that during the term of this
Agreement it will maintain its existence as a corporation, will continue to
maintain its status as a corporation in good standing in the State of
California, will not dissolve, sell or otherwise dispose of all or substantially
all of its assets and will not combine or consolidate with or merge into another
entity or permit one or more other entities (except for a wholly owned
subsidiary of the Borrower, an entity of which the Borrower is a wholly owned
subsidiary, or an entity wholly owned by the entity of which the Borrower is a
wholly owned subsidiary) to consolidate with or merge into it; provided,
however, that if the Borrower has obtained the prior written consent of the
Authority and the Bank, the Borrower may so combine, consolidate with or merge
into another entity, or permit one or more other entities to consolidate with or
merge into it, or sell or otherwise transfer to another entity all or
substantially all of its assets as an entirety and thereafter dissolve. The
consent of the Authority (which shall not be unreasonably withheld) shall be
given within 30 days after the Authority receives satisfactory evidence that:
(i) the surviving, resulting, or transferee person or entity, as the case may
be, assumes and agrees in writing to pay and perform all of the obligations of
the Borrower hereunder, (ii) the surviving, resulting, or transferee person or
entity, as the case may be, qualifies to do business in the State of California,
(iii) the existing Letter of Credit will remain in full force and effect, and
(iv) the credit rating on the Bonds, as
<PAGE> 16
determined by any Rating Agency then rating the Bonds, shall be no lower than
the rating level of the Bonds immediately prior to the effective date of such
consolidation, merger, sale or transfer. The Authority shall also have received
an Opinion of Bond Counsel to the effect that the resulting change in ownership
of the Borrower will not cause interest on the Bonds to be included in gross
income for federal income tax purposes. If the Authority does not act within 30
days after such written evidence is received, such consent shall be deemed to be
given.
If the outcome of the transaction would have a result other than
the surviving, resulting or transferee person or entity owning any of the assets
financed with proceeds of the Bonds and assuming all of the obligations of the
Borrower to be performed hereunder, the Borrower shall deliver to the Trustee
and the Authority prior to the consummation of the transaction an Opinion of
Bond Counsel stating to the effect that the resulting change in ownership of the
assets financed with proceeds of the Bonds will not cause interest on the Bonds
to be included in gross income for federal income tax purposes.
Within 10 days after the consummation of the merger or other
transaction, the Borrower shall provide the Authority and the Trustee with
counterpart copies of the merger instruments, or other documents constituting
the transaction, including (A) copies of the instruments of assumption referred
to in (i) above, (B) evidence of qualification as referred to in (ii) above, (C)
evidence demonstrating compliance with the requirements of clauses (iii) and
(iv) above, and (D) an officer's certificate stating that the requirements of
Section 5.2(a) have been met. The Borrower shall give the Authority at least 30
days' written notice prior to the effective date of any merger or other
transaction described above, together with drafts of the documents of assumption
and officer's certificate as required herein. The Borrower agrees to provide
such other information as the Authority may reasonably request in order to
assure compliance with this Section 5.2(a).
Notwithstanding any other provisions of this Section 5.2(a), the
Borrower need not comply with any of the provisions of Section 5.2(a) above if,
at the time of such merger, combination, sale of assets, dissolution or
reorganization, the Bonds will be defeased as provided in Article X of the
Indenture.
(b) The rights and obligations of the Borrower under this
Agreement may be assigned by the Borrower to any person in whole or in part,
subject, however, to each of the following conditions:
(i) No assignment other than pursuant to subsection (a) of
this Section shall relieve the Borrower from primary liability for any
of its obligations hereunder, and in the event of any assignment not
pursuant to subsection (a) of this Section the Borrower shall continue
to remain primarily liable for the payments specified in Section 4.2
hereof and for performance and observance of the other agreements herein
provided to be performed and observed by it.
(ii) Any assignment from the Borrower shall retain for the
Borrower such rights and interests as will permit it to perform its
obligations under this Agreement, and any assignee from the Borrower
shall assume in writing the obligations of the
<PAGE> 17
Borrower hereunder to the extent of the interest assigned.
(iii) The Borrower shall give the Authority and the Bank
30 days' prior written notice of any assignment other than pursuant to
subsection(a), and shall, within 30 days after delivery thereof, furnish
or cause to be furnished to the Authority, the Trustee and the Bank a
true and complete copy of each such assignment together with an
instrument of assumption and an Opinion of Counsel satisfactory to the
Authority that the provisions of this Section 5.2(b) have been complied
with.
If a merger, consolidation, sale or other transfer is effected as
provided in this Section, all provisions of this Section shall continue in full
force and effect and no further merger, consolidation, sale or transfer shall be
effected except in accordance with the provisions of this Section.
SECTION 5.3. RECORDS AND FINANCIAL STATEMENTS OF BORROWER. (a)
The Borrower covenants and agrees at all times to keep, or cause to be kept,
proper books of record and account, prepared in accordance with generally
accepted accounting principles, in which complete and accurate entries shall be
made of all transactions of or in relation to the business, properties and
operations of the Borrower. Such books of record and account shall be available
for inspection by the Authority, the Bank or the Trustee at reasonable hours,
under reasonable circumstances and after reasonable prior notice to the
Borrower.
(b) The Borrower further covenants and agrees to furnish to the
Authority, the Remarketing Agent and the Trustee, within 120 days after the end
of each Fiscal Year, (i) a Certificate of an Authorized Representative of the
Borrower stating that its financial statements have been completed and that no
event which constitutes a Loan Default Event or which with the giving of notice
or the passage of time or both would constitute a Loan Default Event has
occurred and is continuing as of the end of such Fiscal Year, or specifying the
nature of such event and the actions taken and proposed to be taken by the
Borrower to cure such default, and (ii) copies of the consolidated financial
statements of Waste Connections, Inc. and its subsidiaries in such form as are
required to be provided to the Bank.
SECTION 5.4. INSURANCE. The Borrower agrees to insure the Project
or cause the Project to be insured during the term of this Agreement for such
amounts and for such occurrences as are customary for similar facilities within
the State of California, or as may be required by the Bank pursuant to the
Reimbursement Agreement, by means of policies issued by reputable insurance
companies qualified to do business in the State of California. The Borrower
agrees to deliver, upon request, to the Authority, the Bank and the Trustee
memorandum copies of the insurance policies or certificates of insurance
covering the Project, and the certification by an insurance consultant that the
insurance on the Project meets the above requirements.
SECTION 5.5. MAINTENANCE AND REPAIR; TAXES; UTILITY AND OTHER
CHARGES. The Borrower agrees to maintain the Project, or cause the Project to be
maintained, during the term of this Agreement (i) in as reasonably safe
condition as its operations shall permit and (ii) in good repair and in good
operating condition, ordinary wear and tear
<PAGE> 18
excepted, making from time to time all necessary repairs thereto and renewals
and replacements thereof.
The Borrower agrees to pay or cause to be paid during the term of
this Agreement all taxes, governmental charges of any kind lawfully assessed or
levied upon the Project or any part thereof, including any taxes levied against
any portion of the Project which, if not paid, will become a charge on the
receipts from the Project prior to or on a parity with the charge thereon and
the pledge or assignment thereof to be created therefrom or under this
Agreement, all utility and other charges incurred in the operation, maintenance,
use, occupancy and upkeep of any portion of the Project and all assessments and
charges lawfully made by any governmental body for public improvements that may
be secured by a lien on the Project, provided that with respect to special
assessments or other governmental charges that may lawfully be paid in
installments over a period of years, the Borrower shall be obligated to pay only
such installments as are required to be paid during the term of this Agreement.
The Borrower may, at the Borrower's expense and in the Borrower's name, in good
faith, contest any such taxes, assessments and other charges and, in the event
of any such contest, may permit the taxes, assessments or other charges so
contested to remain unpaid during that period of such contest and any appeal
therefrom unless by such nonpayment the Project or any part thereof will be
subject to loss or forfeiture.
SECTION 5.6. QUALIFICATION IN CALIFORNIA. The Borrower agrees
that throughout the term of this Agreement it, or any successor or assignee as
permitted by Section 5.2, will be qualified to do business in the State of
California.
SECTION 5.7. ALTERNATE CREDIT FACILITY. The Borrower may deposit
with the Trustee an Alternate Credit Facility, in lieu of keeping the Letter of
Credit in place as required by Section 5.8 hereof, at least 60 days before the
expiration date of any existing Letter of Credit.
Upon deposit with the Trustee, the Alternate Credit Facility must
meet the following conditions:
(a) the Alternate Credit Facility must be approved by the
Authority or any successors and assigns;
(b) provisions of the Alternate Credit Facility must be
acceptable to the Trustee;
(c) the term of the Alternate Credit Facility must extend at
least one year or to at least the first date on which the Bonds are
subject to redemption pursuant to the Indenture, whichever is longer;
and
(d) the Alternate Credit Facility must be in an amount
sufficient to pay principal of, interest, Purchase Price and any
redemption premium payable upon optional redemption of the Bonds.
Not less than 30 days prior to the delivery of an Alternate
Credit Facility, the
<PAGE> 19
Borrower shall (i) deliver to the Trustee a commitment for the delivery of such
Alternate Credit Facility, (ii) inform the Trustee of the date on which the
Alternate Credit Facility will become effective, which date shall not be less
than 5 calendar days prior to the stated expiration date of the existing Credit
Facility and (iii) inform the Trustee of the rating expected to apply to the
1998A Bonds after the Alternate Credit Facility is delivered. On or prior to the
date of the delivery of an Alternate Credit Facility to the Trustee, the
Borrower shall cause to be furnished to the Trustee (i) an opinion of Bond
Counsel to the effect that the delivery of such Alternate Credit Facility to the
Trustee is authorized under the Indenture and complies with the terms hereof and
will not adversely affect the Tax-exempt status of the Bonds, (ii) an opinion to
the effect that the Alternate Credit Facility is enforceable in accordance with
its terms, except to the extent that enforceability thereof may be limited by
bankruptcy, reorganization or similar laws limiting the enforceability of
creditors' rights generally and except that no opinion need be expressed as to
the availability of any discretionary equitable rights; and (iii) written
evidence from a Rating Agency to the effect that such rating agency has review
the proposed Alternate Credit Facility and (A) that the substitution of the
proposed Alternate Credit Facility for the Letter of Credit will not, by itself,
result in a reduction or withdrawal of its rating of the Bonds, from the rating
which then prevails, unless on the effective date of such Alternate Credit
Facility the Holders of the Bonds are subject to mandatory tender pursuant to
Section 4.06 of the Indenture, in which case, subject to clause (B) following,
the rating of the Bonds may be reduced, and (B) if the Bonds then have a
long-term rating, that the Bonds will be rated Moody's "A1" or Fitch "A+" (or
equivalent) or higher or, if the Bonds only have a short-term rating, will be in
the highest short-term rating category.
SECTION 5.8. LETTER OF CREDIT. (a) Subject to Section 5.7 hereof
and except as may be permitted under the Indenture, the Borrower agrees that
throughout the term of this Agreement it, or any successor or assignee as
permitted by Section 5.2 hereof, will maintain or cause to be maintained the
Letter of Credit or an Alternate Letter of Credit. At any time the Borrower may,
at its option, provide for the delivery to the Trustee of an Alternate Letter of
Credit and the Borrower shall, in any event, cause to be delivered an Alternate
Letter of Credit at least 60 days before the expiration date of any existing
Letter of Credit, unless otherwise permitted by the Indenture, or any existing
Alternate Credit Facility. An Alternate Letter of Credit shall be an irrevocable
letter of credit or other irrevocable credit facility (including, if applicable,
a confirming letter of credit), issued by a commercial bank or other financial
institution, the terms of which shall in all material respects be the same as
the Letter of Credit; provided, that the expiration date of such Alternate
Letter of Credit shall be a date not earlier than one year from its date of
issuance, subject to earlier termination upon payment of all Bonds in full or
provision for such payment in accordance with Article X of the Indenture. Not
less than 30 days prior to the delivery of an Alternate Letter of Credit, the
Borrower shall (i) deliver to the Trustee a commitment for the delivery of such
Alternate Letter of Credit, (ii) inform the Trustee of the date on which the
Alternate Letter of Credit will become effective, which date shall not be less
than 5 calendar days prior to the stated expiration date of the existing Letter
of Credit and (iii) inform the Trustee of the rating expected to apply to the
1998A Bonds after the Alternate Letter of Credit is delivered. On or prior to
the date of the delivery of an Alternate Letter of Credit to the Trustee, the
Borrower shall cause to be furnished to the Trustee (i) an opinion of Bond
Counsel stating that the delivery of such Alternate Letter of Credit to the
Trustee is authorized under the Indenture and complies with the terms hereof and
will not adversely affect
<PAGE> 20
the Tax-exempt status of the Bonds, (ii) an opinion that such Alternate Letter
of Credit is enforceable in accordance with its terms (except to the extent that
the enforceability thereof may be limited by bankruptcy, reorganization or
similar laws limiting the enforceability of creditors' rights generally and
except that no opinion need be expressed as to the availability of any
discretionary equitable remedies), and (iii) written evidence from a Rating
Agency to the effect that such rating agency has reviewed the proposed Alternate
Letter of Credit and (A) that the substitution of the proposed Alternate Letter
of Credit for the Letter of Credit will not, by itself, result in a reduction or
withdrawal of its rating of the Bonds from the rating which then prevails,
unless on the effective date of such Alternate Letter of Credit the Holders of
the Bonds are subject to mandatory tender pursuant to Section 4.06 of the
Indenture, in which case, subject to clause (B) following, the rating of the
Bonds may be reduced, and (B) if the Bonds then have a long-term rating, that
the Bonds will be rated Moody's "A1" or Fitch "A+" (or equivalent) or higher or,
if the Bonds only have a short-term rating, will be in the highest short-term
rating category.
(b) The Borrower shall provide a written statement to the Trustee
(with copies to the Authority) on or before June 1 of each year indicating the
status of the extension of the term of the Letter of Credit. If the Letter of
Credit provides for automatic annual extensions, the Borrower shall notify the
Trustee either (i) that the term of the Letter of Credit has been automatically
extended pursuant to its terms, or (ii) that the Letter of Credit Bank has given
written notice of a decision not to extend the term of the Letter of Credit. If
the Letter of Credit does not provide for automatic extensions, the Borrower
shall notify the Trustee whether or not the Bank has given written approval for
an extension of the term of the Letter of Credit.
SECTION 5.9. GENERAL TAX COVENANTS; REBATE. It is the intention
of the parties hereto that interest on the Bonds shall be and remain Tax-exempt,
and to that end the Borrower covenants to comply with all requirements in the
Tax Certificate, in this Section and in Section 5.10 which are for the benefit
of the Trustee and each and every Holder of the Bonds.
The Borrower shall calculate, or cause to be calculated, its
rebate liability at such times as are required by Section 148(f) of the Code and
any temporary, proposed or final Regulations as may be applicable to the Bonds
from time to time. The Borrower shall provide to the Trustee a copy of each
calculation of rebate liability prepared by or on behalf of the Borrower, which
documentation shall be made available to the Authority upon request.
SECTION 5.10. SPECIAL ARBITRAGE CERTIFICATIONS. The Authority
hereby certifies to the Borrower (i) that it has not been notified of any
listing or proposed listing of it by the Internal Revenue Service as a bond
issuer whose arbitrage certifications may not be relied upon and (ii) that
issuance of the Bonds will not violate any provisions of Section 103, or of
Section 148 of the Code or Treasury Regulations issued under those Sections of
the Code, such that the Bonds are not Tax-exempt. To that end, the Borrower
acknowledges that it has read Sections 5.06 and 6.06 of the Indenture and that
it will comply with the requirements of those sections as if they were set forth
in full in this Agreement.
SECTION 5.11. NOTICE AND CERTIFICATES TO TRUSTEE. The
<PAGE> 21
Borrower hereby agrees to provide the Trustee and the Bank with the following:
(a) On or before June 15 and December 15 of each year any of the
Bonds are Outstanding, a certificate of an Authorized Representative of
the Borrower that: (i) all payments required under this Agreement have
been made and (ii) any applicable third party credit support will
continue in full force during the succeeding twelve months, or
explaining why not;
(b) Within 120 days of the end of the fiscal year of the
Borrower, (i) a certificate of the Borrower to the effect that all
payments have been made under this Agreement and that, to the best of
its knowledge, there exists no event of default or unmatured default and
(ii) the audited consolidated financial statements of Waste Connections,
Inc. and its subsidiaries;
(c) Promptly upon knowledge of an Event of Default, notice of
such Event of Default, such notice to include a description of the
nature of such event and what steps are being taken to remedy such Event
of Default; and
(d) On or before December 20 of each year during which any of
the Bonds are Outstanding, a written disclosure of any significant
change known to the Borrower that occurs which would adversely impact
the Trustee's ability to perform its duties under the Indenture, or of
any conflicts which may result because of other business dealings
between the Trustee and the Borrower.
SECTION 5.12. FINANCING AND CONTINUATION STATEMENTS. The Borrower
hereby agrees to file all financing and continuation statements required to be
filed, if any, relating to the Bonds and their security.
SECTION 5.13. CHANGE IN INTEREST RATES. The Authority
acknowledges the right of the Borrower to adjust the Interest Rate Period for
any Series of the Bonds from time to time under the terms and conditions of the
Indenture.
SECTION 5.14. CONTINUING DISCLOSURE. The Borrower hereby
covenants and agrees, upon the adjustment to a Term Interest Rate Period with a
duration of one year or greater with respect to any Series of the Bonds pursuant
to Section 2.03D(II) of the Indenture and the remarketing of such Bonds pursuant
to Section 4.07 of the Indenture, to comply with the continuing disclosure
requirements promulgated under S.E.C. Rule 15c2-12, as it may from time to time
hereafter be amended or supplemented. Notwithstanding any other provision of
this Loan Agreement, failure of the Borrower to comply with the requirements of
S.E.C. Rule 15c2-12, as it may from time to time hereafter be amended or
supplemented, shall not be considered a Loan Default Event; however, the Trustee
at the written request of the Remarketing Agent or the Holders of at least 25%
aggregate principal amount of Outstanding Bonds, shall, but only to the extent
indemnified to its satisfaction from and against any cost, liability or expense
of any kind whatsoever related thereto, including, without limitation, fees and
expenses of its attorneys and advisors and additional fees and expenses of the
Trustee, or any Bondholder or beneficial owner of the Bonds may take such
actions as may be necessary and
<PAGE> 22
appropriate, including seeking mandate or specific performance by court order,
to cause the Borrower to comply with its obligations pursuant to this Section
5.14.
ARTICLE VI
DAMAGE, DESTRUCTION AND CONDEMNATION;
USE OF PROCEEDS
SECTION 6.1. OBLIGATION TO CONTINUE PAYMENTS. If prior to full
payment of the Bonds (or provision for payment thereof in accordance with the
provisions of the Indenture) (i) the Project or any portion thereof is destroyed
(in whole or in part) or is damaged by fire or other casualty, or (ii) title to,
or the temporary use of, the Project or any portion thereof shall be taken under
the exercise of the power of eminent domain by any governmental body or by any
person, firm or corporation acting under governmental authority, the Borrower
shall nevertheless be obligated to continue to pay the amounts specified in
Article IV hereof, to the extent not prepaid in accordance with Article VIII
hereof.
SECTION 6.2. APPLICATION OF NET PROCEEDS. The Borrower shall be
entitled to the Net Proceeds, if any, of any insurance or condemnation awards
resulting from the damage, destruction or condemnation of the Project or any
portion thereof. All Net Proceeds shall be deposited by the Borrower in an
escrow account and shall be applied, with the consent of the Bank and by written
notice to the Authority and the Trustee, in one or more of the following ways at
the election of the Borrower:
(a) The prompt repair, restoration, relocation,
modification or improvement of the stage of completion of construction
of the damaged, destroyed or condemned portion of the Project to enable
such portion of the Project to accomplish at least the same function as
such portion of the Project was designed to accomplish prior to such
damage or destruction or exercise of such power of eminent domain. Any
balance of the Net Proceeds remaining after such work has been completed
shall be deposited in the Revenue Fund to be applied to the payment of
principal of and premium, if any, and interest on the Bonds, or, if the
Bonds have been fully paid (or provision for payment thereof has been
made in accordance with the provisions of the Indenture), any balance
remaining in the Revenue Fund shall be paid as provided in Section 10.01
of the Indenture.
(b) Prepayment of all or a portion of the amounts payable
hereunder, in accordance with Article VIII hereof, and redemption of
Bonds; provided that no part of the Net Proceeds may be applied for such
purpose unless (1) all of the amounts payable under this Agreement are
so prepaid and all Outstanding Bonds are to be redeemed in accordance
with the Indenture, or (2) in the event that less than all of the
amounts payable hereunder are so prepaid, the Borrower shall furnish to
the Authority and the Trustee a certificate of the Authorized
Representative acceptable to the Authority and the Trustee stating (i)
that the property forming part of the portion of the Project that was
damaged or destroyed by such casualty or was taken by such condemnation
proceedings is not essential to the Borrower's use or possession of such
portion of the Project or (ii) that
<PAGE> 23
such part of the portion of the Project theretofore completed has been
repaired, replaced, restored, relocated, modified or improved to enable
such portion of the Project to accomplish at least the same function as
such portion of the Project was designed to accomplish prior to such
damage or destruction or the taking by such condemnation proceedings.
SECTION 6.3. INSUFFICIENCY OF NET PROCEEDS. If the Project or a
portion thereof is to be repaired, restored, relocated, modified or improved
pursuant to Section 6.2 hereof, and if the Net Proceeds are insufficient to pay
in full the cost of such repair, restoration, relocation, modification or
improvement, the Borrower will nonetheless complete the work or cause the work
to be completed and will pay or cause to be paid any cost in excess of the
amount of the Net Proceeds held in escrow.
SECTION 6.4. DAMAGE TO OR CONDEMNATION OF OTHER PROPERTY. The
Borrower shall be entitled to the Net Proceeds of any insurance or condemnation
award or portion thereof made for damages to or takings of its property not
included in the Project.
ARTICLE VII
LOAN DEFAULT EVENTS AND REMEDIES
SECTION 7.1. LOAN DEFAULT EVENTS. Any one of the following which
occurs and continues shall constitute a Loan Default Event:
(a) failure of the Borrower to make any payment required by
Section 4.2(a) hereof when due; or
(b) failure of the Borrower to observe and perform any covenant,
condition or agreement on its part required to be observed or performed
by this Agreement other than as provided in (a), which continues for a
period of 30 days after written notice delivered to the Borrower and the
Bank, which notice shall specify such failure and request that it be
remedied, given to the Borrower and the Bank by the Authority or the
Trustee, unless the Authority and the Trustee shall agree in writing to
an extension of such time; provided, however, that if the failure stated
in the notice cannot be corrected within such period, the Authority and
the Trustee will not unreasonably withhold their consent to an extension
of such time if corrective action is instituted within such period and
diligently pursued until the default is corrected; or
(c) existence of an Event of Default under and as defined in
Section 7.01(a), (b) or (e) of the Indenture; or
(d) existence of an Event of Default under and as defined in
Section 7.01(c) of the Indenture.
The provisions of subsection (b) of this Section are subject to the
limitation that the
<PAGE> 24
Borrower shall not be deemed in default if and so long as the Borrower is
unable to carry out its agreements hereunder by reason of strikes, lockouts or
other industrial disturbances; acts of public enemies; orders of any kind of the
government of the United States or of the State of California or any of their
departments, agencies, or officials, or any civil or military authority;
insurrections, riots, epidemics, landslides; lightning; earthquake; fire;
hurricanes; storms; floods; washouts; droughts; arrests; restraint of government
and people; civil disturbances; explosions; breakage or accident to machinery,
transmission pipes or canals; partial or entire failure of utilities; or any
other cause or event not reasonably within the control of the Borrower; it being
agreed that the settlement of strikes, lockouts and other industrial
disturbances shall be entirely within the discretion of the Borrower, and the
Borrower shall not be required to make settlement of strikes, lockouts and other
industrial disturbances by acceding to the demands of the opposing party or
parties when such course is, in the judgment of the Borrower, unfavorable to the
Borrower. This limitation shall not apply to any default under subsections (a),
(c) or (d) of this Section. Notwithstanding any other provision of this
Agreement to the contrary, so long as the Bank is not in default under the
Letter of Credit, the Trustee shall not without the prior written consent or
direction of the Bank exercise any remedies under the Agreement in the case of
any Loan Default Event described in subsections (a), (b) or (c) above; provided,
however, that no consent of the Bank shall be required with respect to the
enforcement of Section 4.2(c), 4.2(d), 7.3, 9.2 or 9.3 hereof. The Trustee may
exercise any and all remedies under the Indenture and the Agreement (except
acceleration) to collect any fees, expenses and indemnification from the
Borrower without obtaining the consent of the Bank.
SECTION 7.2. REMEDIES ON DEFAULT. Subject to Section 7.1 hereof,
whenever any Loan Default Event shall have occurred and shall be continuing,
(a) The Trustee, by written notice to the Authority, the
Borrower and the Bank, shall declare the unpaid balance of the loan
payable under Section 4.2(a) of this Agreement to be due and payable
immediately, provided that concurrently with or prior to such notice the
unpaid principal amount of the Bonds shall have been declared to be due
and payable under the Indenture. Upon any such declaration such amount
shall become and shall be immediately due and payable as determined in
accordance with Section 7.01 of the Indenture.
(b) The Trustee may have access to and may inspect,
examine and make copies of the books and records and any and all
accounts, data and federal income tax and other tax returns of the
Borrower; provided that the Trustee shall be obligated to protect the
confidentiality of such information to the extent provided by State and
federal law and prevent its disclosure to the public, except the
Authority.
(c) The Authority or the Trustee may take whatever action
at law or in equity as may be necessary or desirable to collect the
payments and other amounts then due and thereafter to become due or to
enforce performance and observance of any obligation, agreement or
covenant of the Borrower under this Agreement.
<PAGE> 25
(d) The Trustee shall immediately draw upon the Letter of
Credit, if permitted by its terms and required by the terms of the
Indenture, and apply the amount so drawn in accordance with the
Indenture and may exercise any remedy available to it thereunder.
In case the Trustee or the Authority shall have proceeded to
enforce its rights under this Agreement and such proceedings shall have been
discontinued or abandoned for any reason or shall have been determined adversely
to the Trustee or the Authority, then, and in every such case, the Borrower, the
Trustee and the Authority shall be restored respectively to their several
positions and rights hereunder, and all rights, remedies and powers of the
Borrower, the Trustee and the Authority shall continue as though no such action
had been taken.
The Borrower covenants that, in case a Loan Default Event shall
occur with respect to the payment of any Loan Repayment payable under Section
4.2(a) hereof, then, upon demand of the Trustee, the Borrower will pay to the
Trustee the whole amount that then shall have become due and payable under said
Section, with interest on the amount then overdue at the rate of seven percent
(7%) per annum, following a delinquency of 30 days or longer until such amount
has been paid or, if seven percent is greater than the rate then permitted by
law, at the greatest rate then permitted. Such overdue rate shall be in effect
following a delinquency of 30 days and shall remain in effect until such overdue
amount has been paid.
In case the Borrower shall fail forthwith to pay such amounts
upon such demand, the Trustee shall be entitled and empowered to institute any
action or proceeding at law or in equity for the collection of the sums so due
and unpaid, and may prosecute any such action or proceeding to judgment or final
decree, and may enforce any such judgment or final decree against the Borrower
and collect in the manner provided by law the moneys adjudged or decreed to be
payable.
In case proceedings shall be pending for the bankruptcy or for
the reorganization of the Borrower under the federal bankruptcy laws or any
other applicable law, or in case a receiver or trustee shall have been appointed
for the property of the Borrower or in the case of any other similar judicial
proceedings relative to the Borrower, or the creditors or property of the
Borrower, then the Trustee shall be entitled and empowered, by intervention in
such proceedings or otherwise, to file and prove a claim or claims for the whole
amount owing and unpaid pursuant to this Agreement and, in case of any judicial
proceedings, to file such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee allowed in
such judicial proceedings relative to the Borrower, its creditors or its
property, and to collect and receive any moneys or other property payable or
deliverable on any such claims, and to distribute such amounts as provided in
the Indenture after the deduction of its reasonable charges and expenses to the
extent permitted by the Indenture. Any receiver, assignee or trustee in
bankruptcy or reorganization is hereby authorized to make such payments to the
Trustee, and to pay to the Trustee any amount due it for reasonable compensation
and expenses, including reasonable expenses and fees of counsel incurred by it
up to the date of such distribution.
SECTION 7.3. AGREEMENT TO PAY ATTORNEYS' FEES AND
<PAGE> 26
EXPENSES. In the event the Borrower should default under any of the provisions
of this Agreement and the Authority or the Trustee should employ attorneys or
incur other expenses for the collection of the payments due under this Agreement
or the enforcement of performance or observance of any obligation or agreement
on the part of the Borrower herein contained, the Borrower agrees to pay to the
Authority or the Trustee the reasonable fees of such attorneys and such other
reasonable expenses so incurred by the Authority or the Trustee.
SECTION 7.4. NO REMEDY EXCLUSIVE. No remedy herein conferred upon
or reserved to the Authority or the Trustee is intended to be exclusive of any
other available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Agreement or now or hereafter existing at law or in equity or by statute. No
delay or omission to exercise any right or power accruing upon any default shall
impair any such right or power or shall be construed to be a waiver thereof, but
any such right and power may be exercised from time to time and as often as may
be deemed expedient. In order to entitle the Authority or the Trustee to
exercise any remedy reserved to it in this Article, it shall not be necessary to
give any notice, other than such notice as may be herein expressly required.
Such rights and remedies as are given the Authority hereunder shall also extend
to the Trustee, and the Trustee and the Holders of the Bonds shall be deemed
third party beneficiaries of all covenants and agreements herein contained.
SECTION 7.5. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In the
event any agreement or covenant contained in this Agreement should be breached
by the Borrower and thereafter waived by the Authority or the Trustee, such
waiver shall be limited to the particular breach so waived and shall not be
deemed to waive any other breach hereunder.
ARTICLE VIII
PREPAYMENT
SECTION 8.1. REDEMPTION OF BONDS WITH PREPAYMENT MONEYS. By
virtue of the assignment of the rights of the Authority under this Agreement to
the Trustee as is provided in Section 4.4 hereof, the Borrower agrees to and
shall pay directly to the Trustee any amount permitted or required to be paid by
it under this Article VIII. The Trustee shall use the moneys so paid to it by
the Borrower to redeem the Bonds on the date set for such redemption pursuant to
Section 8.5 hereof. The Authority shall call Bonds for redemption as required by
Article IV of the Indenture or as requested by the Borrower pursuant to the
Indenture or this Agreement.
SECTION 8.2. OPTIONS TO PREPAY INSTALLMENTS. The Borrower shall
have the option to prepay the amounts payable under Section 4.2(a) hereof by
paying to the Trustee, for deposit in the Revenue Fund, the amount set forth in
Section 8.4 hereof, under the following circumstances:
(a) The Borrower may prepay all or any part of the Loan
Repayments under the circumstances described in Section 6.2 hereof, and
cause all or any part of the Bonds to be redeemed at the price and time
and under the conditions set forth in Section
<PAGE> 27
4.01(5)(i) of the Indenture and in any Supplemental Indenture.
(b) The Borrower may prepay such amounts in whole, or in
part, and cause all of the Bonds to be redeemed at the price and time
and under the conditions set forth in Section 4.01(5)(ii) of the
Indenture.
(c) The Borrower shall also have the option to prepay all
or any part of the Loan Repayments and to cause all or any part of the
Bonds to be redeemed at the times and at the prices set forth in Section
4.01(6) or (7) of the Indenture and in any Supplemental Indenture and
subject to any additional requirements of the Reimbursement Agreement.
SECTION 8.3. MANDATORY PREPAYMENT. The Borrower shall have and
hereby accepts the obligation to prepay in whole the Loan Repayments required by
Section 4.2(a) of this Agreement, together with interest accrued, but unpaid,
thereon, to be used to redeem all or a part of the Outstanding Bonds under any
of the following circumstances:
(a) if and when as a result of any changes in the
Constitution of the United States of America or the California
Constitution or as a result of any legislative, judicial or
administrative action, this Agreement shall have become void or
unenforceable or impossible of performance in accordance with the
intention and purposes of the parties hereto, or shall have been
declared unlawful;
(b) if, due to the untruth or inaccuracy of any
representation or warranty made by the Borrower in this Agreement or in
connection with the offer and sale of the Bonds, or the breach of any
covenant or warranty of the Borrower contained in this Agreement or in
the Tax Certificate, interest on the Bonds, or any of them, is
determined not to be Tax-exempt to the Holders thereof (other than a
Holder who is a "substantial user" of the Project or a "related person"
within the meaning of Section 147(a) of the Code) by a final
administrative determination of the Internal Revenue Service or judicial
decision of a court of competent jurisdiction in a proceeding of which
the Borrower received notice and was afforded an opportunity to
participate in to the full extent permitted by law. A determination or
decision will be considered final for this purpose when all periods for
administrative and judicial review have expired; or
(c) if mandatory redemption is required by Section
4.01(2), 4.01(3) or 4.01(4) of the Indenture or by any Supplemental
Indenture.
The amount payable by the Borrower in the event of a prepayment required by this
Section shall be determined as set forth in Section 8.4 and shall be deposited
in the Revenue Fund.
SECTION 8.4. AMOUNT OF PREPAYMENT. In the case of a prepayment of
the entire amount due hereunder pursuant to Section 8.2 or 8.3 hereof, the
amount to be paid shall be a sum sufficient, together with other funds and the
yield on any securities deposited with the Trustee and available for such
purpose, to pay (1) the principal of all Bonds Outstanding on the redemption
date specified in the notice of redemption, plus interest accrued and to accrue
to
<PAGE> 28
the payment or redemption date of the Bonds, plus premium, if any, pursuant to
the Indenture, (2) all reasonable and necessary fees and expenses of the
Authority, the Trustee and any paying agent accrued and to accrue through final
payment of the Bonds and (3) all other liabilities of the Borrower accrued and
to accrue under this Agreement.
In the case of partial prepayment of the Loan Repayments, the
amount payable shall be a sum sufficient, together with other funds deposited
with the Trustee and available for such purpose, to pay the principal amount of
and premium, if any, and accrued interest on the Bonds to be redeemed, as
provided in the Indenture, and to pay expenses of redemption of such Bonds. All
partial prepayments of the Loan Repayments shall be applied in inverse order of
the due dates thereof.
SECTION 8.5. NOTICE OF PREPAYMENT. To exercise an option granted
in or to perform an obligation required by this Article VIII, the Borrower shall
give written notice, at least 15 days prior to the last day by which the Trustee
is permitted to give notice of redemption pursuant to Section 4.03 of the
Indenture, to the Authority, the Bank, and the Trustee specifying the amount to
be prepaid and the date upon which any prepayment will be made. If the Borrower
fails to give such notice of a prepayment in connection with a mandatory
redemption under this Agreement, such notice may be given by the Authority, by
the Trustee or by any Holder or Holders of 10% or more in aggregate principal
amount of each Series of the Bonds Outstanding. The Authority and the Trustee,
at the request of the Borrower or any such Bondholder, shall forthwith take all
steps necessary under the applicable provisions of the Indenture (except that
the Authority shall not be required to make payment of any money required for
such redemption) to effect redemption of all or part of the then Outstanding
Bonds, as the case may be, on the earliest practicable date thereafter on which
such redemption may be made under applicable provisions of the Indenture.
ARTICLE IX
NON-LIABILITY OF AUTHORITY; EXPENSES; INDEMNIFICATION
SECTION 9.1. NON-LIABILITY OF AUTHORITY. The Authority shall not
be obligated to pay the principal of, or premium, if any, or interest on the
Bonds, except from Revenues. The Borrower hereby acknowledges that the
Authority's sole source of moneys to repay the Bonds will be provided by the
payments made by the Borrower pursuant to this Agreement, together with other
Revenues, including investment income on certain funds and accounts held by the
Trustee under the Indenture, and hereby agrees that if the payments to be made
hereunder shall ever prove insufficient to pay all principal of, and premium, if
any, and interest on the Bonds as the same shall become due (whether by
maturity, redemption, acceleration or otherwise), then upon notice from the
Trustee, the Borrower shall pay such amounts as are required from time to time
to prevent any deficiency or default in the payment of such principal, premium
or interest, including, but not limited to, any deficiency caused by acts,
omissions, nonfeasance or malfeasance on the part of the Trustee, the Borrower,
the Authority or any third party.
SECTION 9.2. EXPENSES. The Borrower covenants and agrees to pay
and
<PAGE> 29
to indemnify the Authority and the Trustee against all costs and charges,
including reasonable fees and disbursements of attorneys, accountants,
consultants and other experts, incurred in good faith in connection with this
Agreement, the Bonds or the Indenture.
SECTION 9.3. INDEMNIFICATION. The Borrower releases the Authority
and the Trustee from, and covenants and agrees that neither the Authority nor
the Trustee shall be liable for, and covenants and agrees, to the extent
permitted by law, to indemnify and hold harmless the Authority and the Trustee
and their officers, employees and agents from and against, any and all losses,
claims, damages, liabilities or expenses, of every conceivable kind, character
and nature whatsoever arising out of, resulting from or in any way connected
with (1) the Project, or the conditions, occupancy, use, possession, conduct or
management of, or work done in or about, or from the planning, design,
acquisition, installation, rehabilitation or construction of the Project or any
part thereof; (2) the issuance of any Bonds or any certifications or
representations made in connection therewith and the carrying out of any of the
transactions contemplated by the Bonds and this Agreement; (3) the Trustee's
acceptance or administration of the trusts under the Indenture, or the exercise
or performance of any of its powers or duties under the Indenture or this
Agreement; (4) any untrue statement or alleged untrue statement of any material
fact or omission or alleged omission to state a material fact necessary to make
the statements made, in light of the circumstances under which they were made,
not misleading, in any official statement or other offering circular utilized by
the Authority or any underwriter or placement agent in connection with the sale
or remarketing of any Bonds; or (5) the cleanup of any hazardous materials or
toxic wastes from the Project or the authorization of payments of costs thereof;
provided that such indemnity shall not be required for damages that result from
negligence or willful misconduct on the part of the party seeking such
indemnity. The indemnity required by this Section shall be only to the extent
that any loss sustained by the Authority or the Trustee exceeds the Net Proceeds
the Authority or the Trustee receives from any insurance carried by the Borrower
with respect to the loss sustained. The Borrower further covenants and agrees,
to the extent permitted by law, to pay or to reimburse the Authority and the
Trustee and their officers, employees and agents for any and all costs,
reasonable attorneys fees and expenses, liabilities or other expenses incurred
in connection with investigating, defending against or otherwise in connection
with any such losses, claims, damages, liabilities, expenses or actions, except
to the extent that the same arise out of the negligence or willful misconduct of
the party claiming such payment or reimbursement. The provisions of this Section
shall survive any resignation or removal of the Trustee and the retirement of
the Bonds.
ARTICLE X
MISCELLANEOUS
SECTION 10.1. NOTICES. All notices, certificates or other
communications shall be deemed sufficiently given on the second day following
the day on which the same have been mailed by certified mail, postage prepaid,
addressed to the Authority, the Borrower, the Trustee, or the Bank, as the case
may be, as follows:
<PAGE> 30
To the Authority: California Pollution Control
Financing Authority
915 Capitol Mall, Room 457
Sacramento, CA 95814
Attn: Acting Executive Director
To the Borrower: Madera Disposal Systems, Inc.
21739 Road 19
Chowchilla, CA 93610
Attn: Vice President, Operations
with a copy to: Waste Connections, Inc.
2260 Douglas Blvd., Suite 280
Roseville, CA 95661
Attn: Steven F. Bouck
To the Trustee: BNY Western Trust Company
700 S. Flower Street, Suite 500
Los Angeles, CA 90017
Attn: Corporate Trust Department
To the Bank: BankBoston, N.A.
100 Federal Street
Boston, MA 02110
Attn: Timothy M. Laurion
Environmental Services Division
A duplicate copy of each notice, certificate or other communication given
hereunder by either the Authority or the Borrower to the other shall also be
given to the Trustee and the Bank. The Authority, the Borrower, the Trustee, and
the Bank may, by notice given hereunder, designate any different addresses to
which subsequent notices, certificates or other communications shall be sent.
SECTION 10.2. SEVERABILITY. If any provision of this Agreement
shall be held or deemed to be, or shall in fact be, illegal, inoperative or
unenforceable, the same shall not affect any other provision or provisions
herein contained or render the same invalid, inoperative, or unenforceable to
any extent whatever.
SECTION 10.3. EXECUTION OF COUNTERPARTS. This Agreement may be
simultaneously executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same instrument;
provided, however, that for purposes of perfecting a security interest in this
Agreement by the Trustee and the Bank under Article 9 of the California Uniform
Commercial Code, only the counterpart delivered, pledged, and assigned to the
Trustee shall be deemed the original.
SECTION 10.4. AMENDMENTS, CHANGES AND MODIFICATIONS.
<PAGE> 31
Except as otherwise provided in this Agreement or the Indenture, subsequent to
the initial issuance of Bonds and prior to their payment in full, or provision
for such payment having been made as provided in the Indenture, this Agreement
may not be effectively amended, changed, modified, altered or terminated without
the written consent of the Trustee given in accordance with Section 6.07(B) of
the Indenture, and the Bank.
SECTION 10.5. GOVERNING LAW; VENUE. This Agreement shall be
construed in accordance with and governed by the Constitution and laws of the
State applicable to contracts made and performed in the State. This Agreement
shall be enforceable in the State, and any action arising out of this Agreement
shall be filed and maintained in the Sacramento County Superior Court,
Sacramento, California, unless the Authority waives this requirement. In the
event of a dispute between the parties under this Agreement, the losing party in
such dispute shall pay all costs and expenses incurred by the prevailing party
in connection therewith, including, but not limited to, attorneys' fees.
SECTION 10.6. AUTHORIZED REPRESENTATIVE. Whenever under the
provisions of this Agreement the approval of the Borrower is required or the
Borrower is required to take some action at the request of the Authority, such
approval or such request shall be given on behalf of the Borrower by the
Authorized Representative, and the Authority and the Trustee shall be authorized
to act on any such approval or request and neither party hereto shall have any
complaint against the other or against the Trustee as a result of any such
action taken.
SECTION 10.7. TERM OF THE AGREEMENT. This Agreement shall be in
full force and effect from the date hereof and shall continue in effect as long
as any of the Bonds or the Letter of Credit is outstanding or the Trustee holds
any moneys under the Indenture, whichever is later. All representations and
certifications by the Borrower as to all matters affecting the Tax-exempt status
of the Bonds shall survive the termination of this Agreement.
SECTION 10.8. BINDING EFFECT. This Agreement shall inure to the
benefit of and shall be binding upon the Authority, the Borrower and their
respective successors and assigns; subject, however, to the limitations
contained in Section 5.2 hereof.
SECTION 10.9. SURVIVAL OF FEE OBLIGATION. The right of the
Authority, the Trustee, and the Bank to receive any fees or be reimbursed for
any expenses incurred pursuant to this Agreement, and the right of the Trustee
to be protected from any liability as provided in this Agreement, shall survive
the retirement of the Bonds.
SECTION 10.10. PURCHASE OF BONDS. The Borrower agrees that it
shall not purchase Bonds from the Remarketing Agent or otherwise, and that it
shall cause any Guarantor and any shareholder of the Borrower not to purchase
Bonds from the Remarketing Agent or otherwise.
SECTION 10.11. COMPLETE AGREEMENT. The parties agree that the
terms and conditions of this Agreement supersede those of all previous
agreements between the parties, and that this Agreement, together with the
documents referred to in this Agreement, contains the entire agreement between
the parties hereto.
<PAGE> 32
[REST OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 33
IN WITNESS WHEREOF, the California Pollution Control Financing
Authority has caused this Agreement to be executed in its name and its seal to
be hereunto affixed and attested by its duly authorized officers, and the
Borrower has caused this Agreement to be executed in its name all as of the date
first above written.
CALIFORNIA POLLUTION CONTROL
FINANCING AUTHORITY
By Chairman
By
-------------------------------------------
Deputy
[SEAL]
Attest:
- -----------------------------------
Acting Executive Director
MADERA DISPOSAL SYSTEMS, INC.
By
----------------------------------
Authorized Representative
<PAGE> 34
EXHIBIT A
DESCRIPTION OF THE PROJECT
The Project consists of the financing of the improvements to and
the expansion of a landfill operated by the Borrower and located in Madera
County, California.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF WASTE CONNECTIONS, INC.
Waste Connections of Idaho, Inc., a Delaware corporation
Waste Connections of Washington, Inc., a Washington corporation
Waste Connections of Wyoming, Inc., a Delaware corporation
Madera Disposal Systems, Inc., a California corporation
Sunshine Sanitation, Incorporated, a South Dakota corporation
Sowers' Sanitation, Inc., a South Dakota corporation
Waste Connections of Utah, Inc., a Delaware corporation
B&B Sanitation, Inc., an Oklahoma corporation
Red Carpet Landfill, Inc., an Oklahoma corporation
Darlin Equipment, Inc., an Oklahoma corporation
Arrow Sanitary Service, Inc., an Oregon corporation doing business as "Oregon
Paper Fiber"
Curry Transfer and Recycling, Inc., an Oregon corporation
Waste Connections International, Inc., a Washington corporation (wholly owned by
Waste Connections of Washington, Inc.)
Oregon Waste Technology, Inc., an Oregon corporation (wholly owned by Curry
Transfer and
Recycling, Inc.)
<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 the Registration Statement (Form
S-4) and related Prospectus of Waste Connections, Inc. for the registration of
3,000,000 shares of its common stock.
Our audits also included the financial statement schedule of Waste
Connections, Inc. and Predecessors listed in Item 21.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, presents 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 the
Registration Statement (Form S-4) and related Prospectus of Waste Connections,
Inc. for the registration of 3,000,000 shares of its common stock.
We also consent to the reference to our firm under the caption "Experts"
and to the use of our report dated July 8, 1998, with respect to the financial
statements of Arrow Sanitary Service, Inc. included in the Registration
Statement (Form S-4) and related Prospectus of Waste Connections, Inc. for the
registration of 3,000,000 shares of its common stock.
ERNST & YOUNG LLP
Sacramento, California
July 13, 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
the Registration Statement (Form S-4) and related Prospectus of Waste
Connections, Inc. filed in July 1998 for the registration of up to 3,000,000
shares of its Common Stock.
WILLIAMS, KASTNER & GIBBS PLLC
Seattle, Washington
July 14, 1998
