<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1998.
REGISTRATION NO. 333-59199
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
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>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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
[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 August 28, 1998, the Company had 9,119,683 shares of Common Stock
outstanding. The Company's Common Stock is traded on the Nasdaq National Market
(symbol: WCNX). On August 28, 1998, the last sale price of the Common Stock on
the Nasdaq National Market was $21.625 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 7 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 September , 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 August 28, 1998, the Company
served more than 182,000 commercial, industrial and residential customers in
California, Idaho, Nebraska, Oklahoma, Oregon, South Dakota, Utah, Washington
and Wyoming. The Company currently owns and operates 20 collection operations,
five transfer stations and one Subtitle D landfill, and operates an additional
five transfer stations, one Subtitle D landfill and three recycling facilities.
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 23 solid waste services related 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. ("Arrow"), 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.
On July 31, 1998, a wholly owned subsidiary of the Company merged into
Shrader Refuse and Recycling Service Company ("Shrader"), a Nebraska corporation
that provides solid waste and recyclables collection services to more than
22,500 customers in eastern Nebraska. On August 3, 1998, the Company acquired
the stock of J&J Sanitation, Inc. and Big Red Roll Off, Inc., two Nebraska
corporations that serve more than 9,500 customers in eastern Nebraska. On August
3, 1998, the Company acquired certain assets of a South Dakota waste collection
business owned by the shareholders of J&J Sanitation, Inc. On July 27, August
10, and August 21, 1998, the Company acquired certain business assets of Miller
Containers, Inc. and ABC Waste, Inc., and Contractors Waste, Inc., respectively,
which together provide solid waste collection services to approximately 290
customers in Utah and "tuck in" to the Company's Utah operations.
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
INCEPTION PRO FORMA SIX MONTHS ENDED
(SEPTEMBER 9, 1997) YEAR ENDED JUNE 30, 1998
THROUGH DECEMBER 31, -------------------------
DECEMBER 31, 1997 1997(1) ACTUAL PRO FORMA
------------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ 6,237 $ 45,301 $ 18,520 $ 25,144
Cost of operations........................ 4,703 33,875 12,830 17,342
Selling, general and administrative....... 619 5,043 1,868 2,564
Depreciation and amortization............. 354 2,984 1,359 1,877
Start-up and integration.................. 493 493 -- --
Stock compensation........................ 4,395 4,395 441 441
---------- ---------- ---------- ---------
Income (loss) from operations............. (4,327) (1,489) 2,022 2,920
Interest expense.......................... (1,035) (3,527) (731) (1,631)
Other income (expense), net............... (36) 208 -- 29
---------- ---------- ---------- ---------
Income (loss) before income taxes......... (5,398) (4,808) 1,291 1,318
Income tax (provision) benefit............ 332 20 (717) (669)
---------- ---------- ---------- ---------
Net income (loss) before extraordinary
item................................... (5,066) (4,788) 573 649
Extraordinary item -- early extinguishment
of debt, net of income tax benefit of
$165................................... -- -- (815) (815)
---------- ---------- ---------- ---------
Net loss.................................. $ (5,066) $ (4,788) $ (242) $ (166)
========== ========== ========== =========
Redeemable convertible preferred stock
accretion.............................. (531) (531) (917) (917)
---------- ---------- ---------- ---------
Net loss applicable to common
stockholders........................... $ (5,597) $ (5,319) $ (1,159) $ (1,083)
========== ========== ========== =========
Basic loss per common share:
Loss before extraordinary item......... $ (2.99) $ (2.03) $ (0.09) $ (0.06)
Extraordinary item..................... -- -- (0.22) (0.18)
---------- ---------- ---------- ---------
Net loss per common share.............. $ (2.99) $ (2.03) $ (0.31) $ (0.24)
========== ========== ========== =========
Shares used in calculating basic net loss
per share.............................. 1,872,567 2,623,883 3,714,027 4,449,905
Pro forma basic net loss per share(2)..... $ (1.16) $ (0.04)
========== ==========
Shares used in calculating pro forma basic
net loss per share..................... 4,372,565 6,397,359
Pro forma diluted net loss per share(2)... $ (0.03)
==========
Shares used in calculating pro forma
diluted net loss per share............. 7,749,050
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
JUNE 30, 1998
DECEMBER 31, ------------------------
1997 ACTUAL PRO FORMA(3)
------------ ------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash...................................................... $ 820 3,243 3,585
Working capital........................................... 836 882 2,123
Property and equipment, net............................... 4,185 14,595 16,960
Total assets.............................................. 18,880 79,448 100,256
Long-term debt(4)......................................... 6,762 23,152 33,399
Redeemable convertible preferred stock.................... 7,523 -- --
Total stockholders' equity (deficit)...................... (551) 45,400 55,397
</TABLE>
- ---------------
(1) Assumes the Company's acquisitions of Shrader Refuse and Recycling Service
Company ("Shrader"), 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 six months ended June 30, 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 Shrader occurred on June 30, 1998.
(4) Excludes redeemable convertible Preferred Stock.
6
<PAGE> 9
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered by this
Prospectus. This Prospectus contains certain forward-looking statements that
involve risks and uncertainties. Discussions containing such forward-looking
statements may be found in the material set forth under "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as in the Prospectus generally.
The cautionary statements contained in this Prospectus should be read as
applying to all related forward-looking statements wherever they appear in this
Prospectus. The Company's actual results could differ materially from those
discussed here as a result of various factors, including without limitation
those discussed below and elsewhere in this Prospectus.
Limited Operating History; Integration of Completed Acquisitions. The
Company was formed in September 1997 and commenced operations on October 1,
1997. Accordingly, the Company has only a limited operating history upon which
to base an evaluation of its business and its prospects. The disclosures
regarding the Company contained in this Prospectus must be considered in light
of the risks, expenses and difficulties frequently encountered by companies in
their early stages of development. In addition, there can be no assurance that
the Company's recently assembled senior management team will be able to manage
the Company successfully and implement the Company's operating and growth
strategies effectively.
The Company's effective integration of acquired businesses into its
organization and operations is and will continue to be important to the
Company's growth and future financial performance. A part of the Company's
strategy is to achieve economies of scale and operating efficiencies by
increasing its size through acquisitions. These goals may not be achieved unless
the Company effectively combines the operations of acquired businesses with its
existing operations. Because of the Company's limited operating history, there
can be no assurance that its recently assembled senior management team will
succeed in integrating the Company's completed and future acquisitions. Any
difficulties the Company encounters in the integration process could have a
material adverse effect on its business, financial condition and results of
operations.
Growth Strategy Implementation; Ability to Manage Growth. The Company's
growth strategy includes (i) expanding through acquisitions, (ii) acquiring
additional exclusive franchise agreements and municipal contracts and (iii)
generating internal growth. The Company's ability to execute its growth strategy
will depend on a number of factors, including the success of existing and
emerging competition, the availability of acquisition targets, the ability to
maintain profit margins in the face of competitive pressures, the ability to
continue to recruit, train and retain qualified employees, the strength of
demand for the Company's services and the availability of capital to support its
growth.
From October 1, 1997, through August 28, 1998, the Company acquired 23
solid waste services related business. 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."
7
<PAGE> 10
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
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<PAGE> 11
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 12 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, Nebraska, 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 August 28, 1998, over 38% 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
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<PAGE> 12
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
10
<PAGE> 13
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
11
<PAGE> 14
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. As of June 30, 1998, the Company had no
capitalized expenditures relating to landfill development projects and $2,912 in
capitalized expenditures relating to acquisitions and pending acquisitions.
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. Some 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
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<PAGE> 15
difficulty in obtaining insurance could also impair the Company's ability to
secure future contracts conditioned on the contractor's having adequate
insurance coverage. Accordingly, the failure of the Company to obtain
performance or surety bonds, letters of credit or other means of financial
assurance or to maintain adequate insurance coverage could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Risk Management, Insurance and Performance Bonds."
Commodity Risk Upon Resale of Recyclables. The Company provides recycling
services to some of its customers. The sale prices of and demand for recyclable
waste products, particularly wastepaper, have been, and may continue to be,
volatile and subject to changing market conditions. Accordingly, the Company's
results of operations may be affected by changing resale prices or demand for
certain recyclable waste products, particularly wastepaper. These changes may
contribute to variability in the Company's period-to-period results of
operations. See "Business -- Services -- Recycling and Other Services."
Potential Anti-Takeover Effect of Certain Charter and By-Law Provisions and
Delaware Law. The Company's Amended and Restated Certificate of Incorporation
(the "Restated Certificate of Incorporation") and Amended and Restated By-Laws
(the "Restated By-Laws") provide for the Company's Board of Directors to be
divided into three classes of directors serving staggered three-year terms. As a
result, beginning in 1998, approximately one-third of the Company's Board will
be elected each year. The classified Board is designed to ensure continuity and
stability in the Board's composition and policies in the event of a hostile
takeover attempt or proxy contest. The classification of the Board would extend
the time required to effect any changes in control of the Board and may
discourage any hostile takeover bid for the Company. The classified Board may
also make the removal of the Company's incumbent management more difficult, even
if such removal would be beneficial to stockholders generally, and therefore may
discourage certain tender offers.
The authorized capital of the Company includes 10,000,000 shares of "blank
check" Preferred Stock, of which 2,500,000 shares have been authorized and
2,499,998 shares 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.
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<PAGE> 16
The 2,300,000 shares sold in the Company's initial public offering in May
1998 are eligible for trading in the public market. In July 1998, the Company
registered an additional 3,000,000 shares of Common Stock on Form S-4, to be
issued from time to time in connection with the Company's acquisitions of solid
waste services businesses. As of the date of this Prospectus, 390,958 of those
shares have been issued and are eligible for trading in the public market. In
addition, the Company intends to file a registration statement under the
Securities Act to register 309,700 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." Subject to certain restrictions under
Rule 144, those shares will be freely saleable in the public market immediately
following exercise of such options. A total of 6,421,751 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 621,753 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 6,275,143 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.
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<PAGE> 17
No Dividends. The Company does not intend to pay cash dividends on the
Common Stock in the foreseeable future and anticipates that future earnings will
be retained to finance future operations and expansion. In addition, the terms
of the Company's credit facility prohibit the Company from paying dividends or
making other payments with respect to its Common Stock without the consent of
the lenders. See "Dividend Policy."
Impact of the Year 2000. The Company will need to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 ("Year 2000") and thereafter. The Company
expects to complete those modifications and upgrades during 1999. The total Year
2000 project cost is estimated to be approximately $100,000. To date, the
Company has not incurred any costs related to the Year 2000 project. The Company
does not believe that its expenditures relating to the Year 2000 project will be
material. The Company's customers may need to make Year 2000 modifications to
software and hardware that is used to generate records, bills and payments
relating to their transactions with the Company. The Company has not completed
its assessment of its customers' Year 2000 readiness and is not certain what
effects customers' lack of Year 2000 readiness might have on the Company. If the
required Year 2000 modifications and conversions are not made or are not
completed in a timely manner by the Company or its customers, the Year 2000
issue could materially affect the Company's operations. The Company has not
established a contingency plan to minimize operational problems if the Company
and its customers do not timely complete all required Year 2000 modifications.
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 August 28, 1998, the last sale price of the Common Stock as reported by
the Nasdaq National Market was $21.625 per share. See "Description of Capital
Stock."
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<PAGE> 18
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 June 30, 1998 and for the six months ended June 30, 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 six months ended June 30, 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 six months ended June
30, 1998 and for the year ended December 31, 1997, gives effect to the sale of
2,300,000 shares of Common Stock in connection with the Company's initial public
offering and the net proceeds therefrom and the Company's acquisitions of
Shrader, Arrow, 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.
16
<PAGE> 19
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
COMBINED (SEPTEMBER 9, COMBINED WASTE CONNECTIONS, INC.
NINE MONTHS 1997) PRO FORMA SIX MONTHS SIX MONTHS ENDED
ENDED THROUGH YEAR ENDED ENDED JUNE 30, 1998
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, JUNE 30, ---------------------------
1997 1997 1997(2) 1997 ACTUAL PRO FORMA(2)
------------- ----------------- ------------ ------------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA(1):
Revenues........................ $18,114 $ 6,237 $ 45,301 $11,784 $ 18,520 $ 25,144
Cost of operations.............. 14,753 4,703 33,875 9,784 12,830 17,342
Selling, general and
administrative................ 3,009 619 5,043 1,305 1,868 2,564
Depreciation and amortization... 1,083 354 2,984 745 1,359 1,877
Start-up and integration........ -- 493 493 -- -- --
Stock compensation.............. -- 4,395 4,395 -- 441 441
------- ---------- ---------- ------- ---------- -----------
Income (loss) from operations... (731) (4,327) (1,489) (50) 2,022 2,920
Interest expense................ (456) (1,035) (3,527) (304) (731) (1,631)
Other income (expense), net..... 14 (36) 208 4 -- 29
------- ---------- ---------- ------- ---------- -----------
Income (loss) before income
taxes......................... (1,173) (5,398) (4,808) (350) 1,291 1,318
Income tax (provision)
benefit....................... -- 332 20 -- (717) (669)
------- ---------- ---------- ------- ---------- -----------
Net income (loss) before
extraordinary item............ $(1,173) (5,066) (4,788) (350) 573 649
Extraordinary item -- early
extinguishment of debt, net of
income tax benefit of $165.... -- -- -- -- (815) (815)
------- ---------- ---------- ------- ---------- -----------
Net income (loss)............... $(1,173) $ (5,066) $ (4,788) $ (350) $ (242) $ (166)
======= ========== ========== ======= ========== ===========
Redeemable convertible preferred
stock accretion............... (531) (531) (917) (917)
---------- ---------- ---------- -----------
Net loss applicable to common
stockholders.................. $ (5,597) $ (5,319) $ (1,159) $ 1,083
========== ========== ========== ===========
Basic loss per common share:
Loss before extraordinary
item........................ $ (2.99) $ (2.03) $ (0.09) $ (0.06)
Extraordinary item............ -- -- (0.22) (0.18)
---------- ---------- ---------- -----------
Net loss per common share..... $ (2.99) $ (2.03) $ (0.31) $ (0.24)
========== ========== ========== ===========
Shares used in calculating basic
net loss per share............ 1,872,567 2,623,883 3,714,027 4,449,905
Pro forma basic net loss per
share(3)...................... $ (1.16) $ (0.04)
========== ==========
Shares used in calculating pro
forma basic net loss per
share......................... 4,372,565 6,397,359
Pro forma diluted net loss per
share(3)...................... $ (0.03)
==========
Shares used in calculating pro
forma diluted net loss per
share......................... 7,749,050
</TABLE>
(See footnotes on following page)
17
<PAGE> 20
<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......... -- -- -- -- -- --
Total stockholders' equity
(deficit)............... 991 (163) 3,045 (1,486) -- (2,067)
<CAPTION>
WASTE CONNECTIONS, INC.
PREDECESSORS ---------------------------------------
COMBINED JUNE 30,1998
DECEMBER 31, DECEMBER 31, ------------------------
1996 1997 ACTUAL PRO FORMA(4)
------------ ------------ ------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA(1):
Cash and equivalents...... $ 102 $ 820 $ 3,243 $ 3,585
Working capital........... 695 836 882 2,123
Property and equipment,
net..................... 5,069 4,185 14,595 16,960
Total assets.............. 15,291 18,880 79,448 100,256
Long-term debt(5)......... 89 6,762 23,152 33,399
Redeemable convertible
preferred stock......... -- 7,523 -- --
Total stockholders' equity
(deficit)............... -- (551) 45,400 55,397
</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, Shrader, 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 six months ended
June 30, 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 Shrader occurred on June 30, 1998.
(5) Excludes redeemable convertible Preferred Stock.
18
<PAGE> 21
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 August 28, 1998, the Company
served more than 182,000 commercial, industrial and residential customers in
California, Idaho, Nebraska, Oklahoma, Oregon, South Dakota, Utah, Washington
and Wyoming. The Company currently owns and operates 20 collection operations,
five transfer stations and one Subtitle D landfill and operates an additional
five transfer stations, one Subtitle D landfill and three recycling facilities.
The Company generally intends to pursue an acquisition-based growth
strategy and has acquired 23 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 the stock of 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> 22
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. On July 31, 1998, a wholly owned subsidiary of
the Company merged into Shrader, a Nebraska corporation that provides solid
waste and recyclables collection services to more than 22,500 customers in
eastern Nebraska. On August 3, 1998, the Company acquired the stock of J&J
Sanitation, Inc. and Big Red Roll Off, Inc., two Nebraska corporations that
serve approximately more than 9,500 customers in eastern Nebraska. On August 3,
1998, the Company acquired certain assets of a South Dakota waste collection
business owned by the shareholders of J&J Sanitation, Inc. On July 27, August
10, and August 21, 1998, the Company acquired certain business assets of Miller
Containers, Inc., ABC Waste, Inc., and Contractors Waste, Inc. respectively,
which together provide solid waste collection services to approximately 290
customers in Utah and "tuck in" to the Company's Utah operations.
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,
20
<PAGE> 23
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.
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. The Company
routinely evaluates all capitalized costs, and expenses those related to
projects the Company believes are not likely to be successful. As of June 30,
1998, the Company had no capitalized expenditures relating to landfill
development projects and $2,912 in capitalized expenditures relating to
acquisitions and pending acquisitions.
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 June 30, 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.
21
<PAGE> 24
BASIS OF PRESENTATION
The entities the Company acquired in September 1997 from BFI are
collectively referred to herein as the Company's predecessors. BFI acquired the
predecessor operations at various times during 1995 and 1996, and prior to being
acquired by BFI, the predecessors operated as separate stand-alone businesses.
During the periods in which the Company's predecessors operated as wholly
owned subsidiaries of BFI, they maintained intercompany accounts with BFI for
recording intercompany charges for costs and expenses, intercompany purchases of
equipment and additions under capital leases and intercompany transfers of cash,
among other transactions. It is not feasible to ascertain the amount of related
interest expense that would have been recorded in the historical financial
statements had the predecessors been operated as stand-alone entities. Charges
for interest expense 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.
22
<PAGE> 25
RESULTS OF OPERATIONS
The financial information for the Company and its predecessors included in
this section and in the audited financial statements included elsewhere herein
relates to the following entities for the periods indicated:
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31, 1995:
The Disposal Group Combined Year ended December 31, 1995
Fibres International, Inc. January 1, 1995 through November 30, 1995 (BFI
acquisition date)
Predecessors One month ended December 31, 1995 (represents the
results of operations of Fibres International, Inc.
subsequent to the BFI acquisition date)
YEAR ENDED DECEMBER 31, 1996:
The Disposal Group Combined January 1, 1996 through July 31, 1996 (BFI acquisition
date)
Predecessors Combined Period ended December 31, 1996 (represents the combined
results of operations of The Disposal Group subsequent
to the BFI acquisition date and the operations for the
year ended December 31, 1996 of Fibres International,
Inc., which was acquired by BFI in 1995)
YEAR ENDED DECEMBER 31, 1997:
Predecessors Combined Nine months ended September 30, 1997 (represents the
combined results of operations for the nine month period
of the entities acquired by BFI in 1995 and 1996
described above)
Waste Connections, Inc. Period from inception (September 9, 1997) through
December 31, 1997
</TABLE>
The Disposal Group Combined consists of three entities that were under
common control prior to their acquisition by BFI: Diamond Fab and Welding
Service, Inc., Buchmann Sanitary Service, Inc., and The Disposal Group.
Due to the fact that the predecessor operations existed for different
periods, year-to-year comparisons are not meaningful and therefore discussions
of SG&A, depreciation and amortization and interest expense have not been
included in this Prospectus.
Waste Connections, Inc. -- Six Months Ended June 30, 1998 vs. Predecessors
Combined -- Six Months Ended June 30, 1997
Revenue. Revenues for the six months ended June 30, 1998 increased $6.7
million, or 57.2%, to $18.5 million from $11.8 million for the six months ended
June 30, 1997. The increase was primarily attributable to the inclusion of the
acquisitions closed since the beginning of 1998 and minor growth in the base
business.
Cost of Operations. Cost of operations for the six months ended June 30,
1998 increased $3.0 million, or 31.1%, to $12.8 million in 1998 from $9.8
million for the six months ended June 30, 1997. The increase was primarily
attributable to acquisitions closed since the beginning of 1998 and a decline in
expenses in the core 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
23
<PAGE> 26
Predecessors Combined for the period ended December 31, 1996 had revenues of
$13.4 million. The Disposal Group Combined had revenues of $8.7 million for the
period from January 1, 1996 to July 31, 1996. The monthly revenue run rate for
the Company and the Company's Predecessors Combined remained relatively
unchanged in 1997 versus 1996.
Cost of Operations. The Company's total cost of operations in 1997 was $4.7
million, or 75.4% of revenue. The total cost of operations was attributable to
the purchase of the Company's predecessors on September 30, 1997. Cost of
operations of the Company's Predecessors Combined for the nine months ended
September 30, 1997 was $14.8 million, or 81.4% of revenue. The Company's
Predecessors Combined for the period ended December 31, 1996 had cost of
operations of $11.4 million, or 85.1% of revenue. The Disposal Group during the
period from January 1, 1996 to July 31, 1996 had cost of operations of $6.2
million, or 70.7% of revenue. The Company's cost of operations as a percentage
of revenue in 1997 declined from the Company's Predecessors Combined cost of
operations as a percentage of revenues in 1997 and 1996, due to price increases
in the fourth quarter of 1997 and operating cost savings in lease expense,
environmental accrual fee allocations from BFI, franchise fees and amortization
of loss contract accrual. The Company's Predecessors Combined cost of operations
as a percentage of revenue for the nine months ended September 30, 1997 declined
from 1996 due to the rollover effect of the acquisition of The Disposal Group in
1996, which had generally higher margins than the existing businesses.
1996 vs. 1995
Revenue. The Company's Predecessors Combined total revenue for 1996 was
$13.4 million. The Disposal Group Combined total revenue for the period from
January 1, 1996 to July 31, 1996 was $8.7 million. The Company's Predecessors
Combined had revenues of $595,000 for the period ended December 31, 1995. The
Disposal Group Combined had revenues of $19.7 million for the year ended
December 31, 1995. Fibres International, Inc. had revenues of $7.3 million for
the period from January 1, 1995 to November 30, 1995. The monthly revenue run
rate for all of the Company's predecessors declined in 1996 from 1995 because of
the expiration of a municipal contract and a reduction in revenue from sales of
recyclable materials due to a reduction in prices of recyclable materials.
Cost of Operations. The Company's Predecessors Combined total cost of
operations for 1996 was $11.4 million, or 85.1% of revenue, and The Disposal
Group Combined cost of operations for the period from January 1, 1996 to July
31, 1996 was $6.2 million, or 70.7% of revenue. Cost of operations of the
Company's Predecessors Combined for the period ended December 31, 1995 was
$527,000 or 88.6% of revenue. Cost of operations of The Disposal Group Combined
for the year ended December 31, 1995 was $16.4 million, or 83.4% of revenue.
Cost of operations of Fibres International, Inc. for the period from January 1,
1995 to November 30, 1995 was $5.7 million, or 77.0% of revenue. Changes in cost
of operations as a percentage of revenue were impacted by reductions in prices
of recyclable materials in 1996, offset by the expiration of a low margin
municipal contract in 1995.
Madera General
Effective February 1, 1998, the Company acquired Madera, an integrated
solid waste services company operating in north central California, with 1997
revenues of approximately $7.8 million. In connection with the Madera
acquisition, the Company acquired one franchise agreement and one municipal
contract, pursuant to which it serves more than 9,000 commercial, industrial and
residential customers, and agreements to operate
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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>
- ---------------
(1) Prior to its acquisition by the Company, Madera operated under Subchapter S
of the Internal Revenue Code and was not subject to corporate federal and
state income tax. The Subchapter S election was terminated upon its
acquisition by the Company. Had Madera filed federal and state income tax
returns as a regular corporation for 1995, 1996 and 1997, income tax expense
under the provisions of Financial Accounting Standards No. 109 would have
been $30, $208 and $295, respectively. See Note 7 of Notes to Madera's
Financial Statements included elsewhere herein.
Madera 1997 vs. 1996
Revenue. Total revenues increased $75,000, or 1.0%, to $7.8 million in 1997
from $7.8 million in 1996. Exclusive of Madera's Professional Cleaning Division
("PCD"), which ceased operations in July, 1997, revenues increased $667,000, or
9.5%, to $7.7 million in 1997 from $7.0 million in 1996. This increase was
primarily attributable to increased landfill and collection volumes resulting
from existing franchise contracts, partially offset by a reduction in landfill
construction revenues.
Cost of Operations. Total cost of operations decreased $223,000 to $5.3
million in 1997 from $5.5 million in 1996. The decrease was principally due to
the elimination of PCD, which was offset by increased operating cost associated
with increased volumes of waste from existing contracts. Cost of operations as a
percentage of revenues decreased to 67.4% from 70.9% in 1996. The percentage
decrease was primarily due to the elimination of PCD.
SG&A. SG&A expenses increased approximately $72,000 to $1.0 million in 1997
from $969,000 in 1996. As a percentage of revenues, SG&A increased to 13.3% from
12.5% in 1996.
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<PAGE> 28
\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.
As of June 30, 1998, the Company had working capital of $882,000, including
cash and cash equivalents of $3.2 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 June 30, 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
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<PAGE> 29
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 six months ended June 30, 1998, net cash provided by operations was
approximately $1.9 million and was primarily provided by operating results for
the period exclusive of non-cash charges.
For the six months ended June 30, 1998, net cash used by investing
activities was $31.1 million. Of this, $30.3 million was used to fund the cash
portion of acquisitions. The remaining cash uses were investments in MIS
systems, trucks and containers.
For the six months ended June 30, 1998, net cash provided by financing
activities was $31.6 million, which was provided by net borrowings under the
Company's various debt arrangements and $24.0 million in proceeds from the sale
of Common Stock in an initial public offering.
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
$5.6 million. On June 16, 1998, Madera completed a $1.8 million bond financing
for certain capital expenditures that were contingent on the 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 $5.6
million. The Company intends to fund its planned 1998 capital expenditures
principally through existing cash, internally generated funds, 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 12.6% during the six months ended June 30, 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 more
than 5.0% during the six months ended June 30, 1998 or is material to its
liquidity and cash flow.
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<PAGE> 30
INFLATION
To date, inflation has not had a significant effect on the Company's
operations. Consistent with industry practice, many of the Company's contracts
provide for a pass-through of certain costs, including increases in landfill
tipping fees and, in some cases, fuel costs. The Company believes, therefore,
that it should be able to implement price increases to offset many cost
increases resulting from inflation. However, competitive pressures may require
the Company to absorb at least part of these cost increases, particularly during
periods of high inflation.
SEASONALITY
Based on historic trends experienced by the businesses the Company has
acquired, the Company's results of operations should be expected to vary
seasonally, with revenues typically lowest in the first quarter, higher in the
second and third quarters and lower in the fourth quarter than in the second and
third quarters. This seasonality reflects the lower volume of solid waste
generated during the late fall, winter and early spring months, resulting from
decreased solid waste volume relating to construction and demolition activities
during the winter months in the Western U.S. In addition, certain of the
Company's operating costs should be expected to be generally higher in the
winter months; winter weather conditions slow waste collection activities,
resulting in higher labor costs, and greater precipitation increases the weight
of collected waste, resulting in higher disposal costs (which are calculated per
ton). Because a majority of the Company's operating expenses are expected to
remain fairly constant throughout the fiscal year, operating income should be
expected to be generally lower during the winter.
IMPACT OF YEAR 2000
The Company will need to modify or replace portions of its software so that
its computer systems will function properly with respect to dates in the year
2000 ("Year 2000") and thereafter. The Company expects to complete those
modifications and upgrades during 1999. The total Year 2000 project cost is
estimated to be approximately $100,000. 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. The
Company's customers may need to make Year 2000 modifications to software and
hardware that is used to generate records, bills and payments relating to their
transactions with the Company. The Company has not completed its assessment of
its customers' Year 2000 readiness and is not certain what effects customers'
lack of Year 2000 readiness might have on the Company. If the required Year 2000
modifications and conversions are not made or are not completed in a timely
manner by the Company or its customers, the Year 2000 issue could materially
affect the Company's operations. The Company has not established a contingency
plan to minimize operational problems if the Company and its customers do not
timely complete all required Year 2000 modifications.
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<PAGE> 31
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 August 28, 1998, the Company
served more than 182,000 commercial, industrial and residential customers in
California, Idaho, Nebraska, Oklahoma, Oregon, South Dakota, Utah, Washington
and Wyoming. The Company currently owns and operates 20 collection operations,
five transfer stations and one Subtitle D landfill and operates an additional
five transfer stations, one Subtitle D landfill and three recycling facilities.
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 23 solid waste services related 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
Colorado, Kansas, Montana 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> 32
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> 33
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, Nebraska, Oklahoma, Oregon, South Dakota, Utah,
Washington and Wyoming and is assessing potential acquisitions of solid waste
services operations in Colorado, Kansas, Montana 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 the states where it currently operates. 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 ten
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> 34
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, insurance and employee benefit 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, Nebraska, 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 which 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. On July 31, 1998, a wholly owned subsidiary of
the Company merged into Shrader, a Nebraska corporation that provides solid
waste and recyclables collection services to more than 22,500 customers in
eastern Nebraska. On August 3, 1998, the Company acquired the stock of J&J
Sanitation, Inc. and Big Red Roll Off, Inc., two Nebraska corporations that
serve more than 9,500 customers in eastern Nebraska. On August 3, 1998, the
Company acquired certain assets of a South Dakota waste collection business
owned by the shareholders of J&J Sanitation, Inc. On July 27, August 10 and
August 21, 1998, the Company acquired certain business assets of Miller
Containers, Inc., ABC Waste, Inc., and Contractors Waste, Inc., respectively,
which together provide solid waste collection services to approximately 290
customers in Utah and "tuck in" to the Company's Utah operations.
SERVICES
Commercial, Industrial and Residential Waste Services
The Company serves more than 182,000 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 80,000 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 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
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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.
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
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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 and providing
portable toilet and septic pumping services.
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 20 operating locations
serving ten market areas, or districts. Each district has a district manager,
who has autonomous service and decision-making authority for that district and
is responsible for maintaining service quality, promoting safety in the
district's operations, implementing marketing programs, and overseeing
day-to-day operations, including contract administration. District managers also
assist in identifying acquisition candidates. Once the Company begins the
acquisition process, business development managers, under the supervision of
district and executive managers, obtain the permits and other governmental
approvals required for the Company to operate the acquired business, including
those related to zoning, environmental and land use.
The Company's financial management, accounting, management information
systems, environmental compliance, risk management and certain personnel
functions are centralized and shared among locations to improve productivity,
lower operating costs and stimulate internal growth. The Company has installed a
Company-wide management information system that assists district personnel in
making decisions based on centralized, real-time financial, productivity,
maintenance and customer information. While district management operates with a
high degree of autonomy, the Company's senior officers monitor district
operations and
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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 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.
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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 12.6% during the three months ended June 30, 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 more than 5.0% during the six months ended June 30, 1998.
COMPETITION
The solid waste services industry is highly competitive and fragmented and
requires substantial labor and capital resources. The industry presently
includes four large national waste companies: Allied Waste Industries, Inc.
(which has announced an impending merger with American Disposal Services, Inc.),
Browning-Ferris Industries, Inc., Republic Services Inc., and Waste Management,
Inc. (which has completed a merger with USA Waste Services, Inc. and announced
an impending merger with Eastern Environmental Services, Inc.) Several other
public companies have annual revenues in excess of $100 million, including
American Disposal Services, Inc., Casella Waste Systems, Inc., Eastern
Environmental Services, Inc., Superior Services, Inc. and Waste Industries, Inc.
Certain of the markets in which the Company competes or will likely compete are
served by one or more large, national solid waste companies, as well as by
numerous regional and local solid waste companies of varying sizes and
resources, some of which have accumulated substantial goodwill in their markets.
The Company also competes with operators of alternative disposal facilities,
including incinerators, and with counties, municipalities, and solid waste
districts that maintain their own waste collection and disposal operations.
Public sector operations may have financial advantages over the Company, because
of their access to user fees and similar charges, tax revenues and tax-exempt
financing.
The Company competes for collection, transfer and disposal volume based
primarily on the price and quality of its services. From time to time,
competitors may reduce the price of their services in an effort to expand their
market shares or service areas or to win competitively bid municipal contracts.
These practices may cause the Company to reduce the price of its services or, if
it elects not to do so, to lose business. The Company provides a substantial
portion of its residential, commercial and industrial collection services under
exclusive franchise and municipal contracts and certificates, some of which are
subject to periodic competitive bidding. The balance of the Company's services
are provided under subscription agreements with individual households and one to
five year service contracts with commercial and industrial customers.
Intense competition exists not only for collection, transfer and disposal
volume, but also for acquisition candidates. The Company generally competes for
acquisition candidates with publicly owned regional and large national waste
management companies.
REGULATION
Introduction
The Company is subject to extensive and evolving federal, state and local
environmental laws and regulations, the enforcement of which has become
increasingly stringent in recent years. The environmental regulations affecting
the Company are administered by the EPA and other federal, state and local
environmental, zoning, health and safety agencies. A substantial portion of the
Company's collection business in Washington is performed under G certificates
awarded by the Washington Utilities and Transportation Commission, which
generally grant the Company perpetual and exclusive collection rights in certain
areas. The Company is currently in substantial compliance with applicable
federal, state and local environmental laws, permits, orders and regulations,
and it does not currently anticipate any material environmental costs necessary
to bring its operations into compliance (although there can be no assurance in
this regard). The Company anticipates that regulation, legislation and
regulatory enforcement actions related to the solid waste services industry will
continue to increase. The Company attempts to anticipate future regulatory
requirements and to plan in advance as necessary to comply with them.
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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.
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
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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.
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
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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.
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.
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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 August 28, 1998, the Company had provided customers
and various regulatory authorities with surety bonds and letters of credit in
the aggregate amount of approximately $3.1 million to secure its obligations.
The Company's credit facility provides for the issuance of letters of credit in
an amount up to $5 million, but any letters of credit issued reduce the
availability of borrowings for acquisitions and other general corporate
purposes. If the Company were unable to obtain surety bonds or letters of credit
in sufficient amounts or at acceptable rates, it could be precluded from
entering into additional municipal solid waste collection contracts or obtaining
or retaining landfill operating permits.
PROPERTY AND EQUIPMENT
As of August 28, 1998, the Company owned and operated 20 collection
operations, five transfer stations and one Subtitle D landfill and operated an
additional five transfer stations, one Subtitle D landfill and three
41
<PAGE> 44
recycling facilities. The Company leases various offices and facilities,
including its corporate offices in Roseville, California. The real estate owned
by the Company is not subject to material encumbrances. The Company owns various
equipment, including waste collection and transportation vehicles, related
support vehicles, carts, containers, and heavy equipment used in landfill
operations. The Company believes that its existing facilities and equipment are
generally adequate for its current operations. However, the Company expects to
make substantial investments in property and equipment for expansion and
replacement of assets and in connection with future acquisitions.
EMPLOYEES
At August 28, the Company employed approximately 507 full-time employees,
including approximately 37 persons classified as professionals or managers,
approximately 423 employees involved in collection, transfer, disposal and
recycling operations, and approximately 47 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 operated under a
one-year negotiating agreement that ended on July 27, 1998. Since that date,
negotiations have continued between the union and the Company, although the
union is permitted to call a strike or call for 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 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 August 28, 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................... 34 Vice President -- Operations; Secretary
Michael R. Foos........................ 33 Vice President and Corporate Controller
Eric J. Moser.......................... 31 Treasurer and Assistant Corporate Controller
David M. Hall.......................... 42 Vice President -- Business Development
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.
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<PAGE> 46
Charles B. Youngclaus has been Vice President -- Madera and an advisory
director of the Company since February 23, 1998. Mr. Youngclaus founded Madera
Disposal Systems, Inc. in 1981 and was its Chief Operating Officer and Vice
President before its acquisition by the Company in 1998. Mr. Youngclaus owned
and operated Madera's predecessor company, Madera County Disposal, from 1965 to
1981. Mr. Youngclaus holds a B.S. from Fresno State University and has completed
advanced coursework in waste management, including certification in clay liner
construction by the University of Texas in 1992. Mr. Youngclaus is a Board
Member of the California Refuse Removal Council and is incoming Treasurer of the
Northern California chapter.
Darrell W. Chambliss has been Vice President -- Operations and Secretary of
the Company since October 1, 1997. Mr. Chambliss held various management
positions at USA Waste Services, Inc. (including Sanifill, Inc. and United
Waste, Inc., both of which were acquired by USA Waste Services, Inc.) from April
1995 to September 1997, including most recently Division Manager in Corning,
California, where he was responsible for the operations of 19 operating
companies as well as supervising and integrating acquisitions. From July 1989 to
April 1995, he held various management positions with Browning-Ferris
Industries, Inc., including serving as Assistant District Manager in San Jose,
California, where he was responsible for a significant hauling operation, and
serving as District Manager in Tucson, Arizona for more than three years. Mr.
Chambliss holds a B.S. in Business Administration from the University of
Arkansas.
Michael R. Foos has been Vice President and Corporate Controller of the
Company since October 1, 1997. Mr. Foos served as Division Controller of USA
Waste Services, Inc. (including Sanifill, Inc., which was acquired by USA Waste
Services, Inc.) from October 1996 to September 1997, where he was responsible
for financial compilation and reporting and acquisition due diligence for a
seven-state region. Mr. Foos served as Assistant Regional Controller at USA
Waste Services, Inc. from August 1995 to September 1996, where he was
responsible for internal financial reporting for operations in six states and
Canada. Mr. Foos also served as District Controller for Waste Management, Inc.
from February 1990 to July 1995, and was a member of the audit staff of Deloitte
& Touche from 1987 to 1990. Mr. Foos holds a B.S. in Accounting from Ferris
State University.
David M. Hall has been Vice President -- Business Development since August
1, 1998. Mr. Hall has over twelve years experience in the solid waste industry
with extensive operating and marketing experience in the Western U.S. From
October, 1995 to July, 1998, Mr. Hall was the Divisional Vice President of USA
Waste Services, Inc., Rocky Mountain Division (including for Sanifill, Inc.
which was acquired by USA Waste Services, Inc.). Mr. Hall was the first Sanifill
employee in the state of Colorado and in his capacity for both USA Waste
Services, Inc. and Sanifill, Inc. he oversaw all operations and business
development in six Rocky Mountain states. Prior to Sanifill, Mr. Hall held
various management positions with BFI from October, 1986 to October, 1995,
including Vice President of Sales for the Western United States. Prior to the
solid waste industry, Mr. Hall was employed from 1979 to 1986 in a variety of
sales and marketing management positions in the high technology sector. Mr. Hall
received a BS degree in Management and Marketing in 1979 from SW Missouri 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. From March 1997 to August 1998, Mr.
Harlan was Vice President and Chief Financial Officer of Apple Orthodontix,
Inc., a publicly traded company that provides practice management services to
orthodontic
44
<PAGE> 47
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 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
Fritz Companies, Inc. and previously was a director of Sanifill, Inc., Cordis
Corp. and La Quinta Motor Inns. 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.
45
<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.
46
<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,
Eric J. Moser and David M. Hall. 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.
47
<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 August 28, 1998, the Company had granted options to purchase
1,075,550 shares of Common Stock at a weighted average exercise price of $7.61
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.
48
<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.
On July 7, 1998, David M. Hall was granted options to purchase 50,000
shares of Common Stock at an exercise price of $18.125 per share, one third of
which become exercisable on each of October 1, 1998, October 1, 1999, and
October 1, 2000.
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 six-month period ending June 30, 1998,
were $65,163.
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<PAGE> 53
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of August 15, 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 10.7%
J. Bradford Bishop(2)(3).............................. 916,607 10.0
Ronald J. Mittelstaedt(2)(4).......................... 1,025,043 11.2
Frank W. Cutler(2)(3)................................. 672,246 7.4
Eugene V. Dupreau(2)(5)............................... 397,000 4.4
Charles B. Youngclaus(2)(5)........................... 375,000 4.1
Kieckhefer Partnership 84-1(2)........................ 562,104 6.2
Michael W. Harlan(2).................................. -- --
William J. Razzouk(2)................................. -- --
Eugene P. Polk(2)(7).................................. 749,470 8.2
All executive officers and directors as a group (9
persons)............................................ 1,926,758 21.1%
</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.
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<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 August 28, 1998,
there were 9,119,683 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,
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<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
53
<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.
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<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 August 28, 1998, the Company had 9,119,683 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 (91,196 shares
as of August 28, 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
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<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.
57
<PAGE> 60
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 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.
The financial statements of Shrader Refuse and Recycling Service Company at
September 30, 1996 and 1997, and for the years then ended, appearing in this
Prospectus and Registration Statement have been audited by Grant Thornton LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
in this Prospectus and Registration Statement. Such financial statements have
been included in this Prospectus in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
58
<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 six months ended
June 30, 1998.......................................... F-5
Notes to Unaudited Pro Forma Consolidated Statements of
Operations............................................. F-6
Unaudited Pro Forma Consolidated Balance Sheet as of June
30, 1998............................................... F-10
Notes to Unaudited Pro Forma Consolidated Balance Sheet... F-11
WASTE CONNECTIONS, INC. AND PREDECESSORS
Report of Ernst & Young LLP, Independent Auditors......... F-12
Combined Balance Sheet of Predecessors as of December 31,
1996................................................... F-13
Consolidated Balance Sheet of Waste Connections, Inc. as
of December 31, 1997 (Audited) and June 30, 1998
(Unaudited)............................................ F-13
Combined Statement of Operations of Predecessors for the
nine months ended
September 30, 1997..................................... F-14
Consolidated Statement of Operations of Waste Connections,
Inc. for the period from
inception (September 9, 1997) through December 31, 1997
(Audited) and the six months ended June 30, 1997 and
1998 (Unaudited)....................................... F-14
Combined Statement of Operations of The Disposal Group for
the period from
January 1, 1996 through July 31, 1996.................. F-15
Combined Statement of Operations of Predecessors for the
period ended December 31, 1996......................... F-15
Combined Statement of Operations of The Disposal Group for
the year ended
December 31, 1995...................................... F-16
Statement of Operations of Fibres International, Inc. for
the period from January 1, 1995 through November 30,
1995................................................... F-16
Statement of Operations of Predecessors for the one month
ended December 31, 1995................................ F-16
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 six months ended
June 30, 1998 (Unaudited).............................. F-17
Combined Statement of Cash Flows of Predecessors for the
nine months ended
September 30, 1997 and the six months ended June 30,
1997................................................... F-18
Consolidated Statement of Cash Flows of Waste Connections,
Inc. for the period from
inception (September 9, 1997) through December 31, 1997
(Audited) and the six months ended June 30, 1998
(Unaudited)............................................ F-18
Combined Statement of Cash Flows of The Disposal Group for
the period from
January 1, 1996 through July 31, 1996.................. F-19
Combined Statement of Cash Flows of Predecessors for the
period ended December 31, 1996......................... F-19
Combined Statement of Cash Flows of The Disposal Group for
the year ended December 31, 1995....................... F-20
Statement of Cash Flows of Fibres International, Inc. for
the period from
January 1, 1995 through November 30, 1995.............. F-20
Statement of Cash Flows of Predecessors for the one month
ended December 31, 1995................................ F-20
Notes to Financial Statements............................. F-21
</TABLE>
F-1
<PAGE> 62
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MADERA DISPOSAL SYSTEMS, INC.
Report of Ernst & Young LLP, Independent Auditors......... F-40
Balance Sheets as of December 31, 1996 and 1997........... F-41
Statements of Income and Retained Earnings for the years
ended
December 31, 1995, 1996 and 1997....................... F-42
Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997.................................... F-43
Notes to Financial Statements............................. F-44
ARROW SANITARY SERVICE, INC.
Report of Ernst & Young LLP, Independent Auditors......... F-50
Balance Sheets as of September 30, 1997 (Audited) and
March 31, 1998 (Unaudited)............................. F-51
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-52
Statements of Cash Flows for the year ended September 30,
1997 (Audited) and
the six months ended March 31, 1997 and 1998
(Unaudited)............................................ F-53
Notes to Financial Statements............................. F-54
SHRADER REFUSE AND RECYCLING SERVICE COMPANY
Report of Grant Thornton LLP, Independent Auditors........ F-60
Balance Sheets as of September 30, 1996 and 1997 (Audited)
and June 30, 1998 (Unaudited).......................... F-61
Statements of Income for the years ended September 30,
1996 and 1997 (Audited) and
the nine months ended June 30, 1997 and 1998
(Unaudited)............................................ F-62
Statement of Stockholders Equity for the years ended
September 30, 1996 and 1997 (Audited) and the nine
months ended June 30, 1998 (Unaudited)................. F-63
Statements of Cash Flows for the years ended September 30,
1996 and 1997 (Audited) and the nine months ended June
30, 1997 and 1998 (Unaudited).......................... F-64
Notes to Financial Statements............................. F-65
</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 June 30,
1998 assumes the Company's acquisition of Shrader Refuse and Recycling Service
Company ("Shrader") occurred on that date. The Unaudited Pro Forma Consolidated
Statements of Operations for the year ended December 31, 1997 and the six months
ended June 30, 1998, give effect to the business combinations involving Waste
Connections, Inc., (the "Company"), its predecessors, Madera Disposal Systems,
Inc. ("Madera"), Arrow Sanitary Service, Inc. ("Arrow") and Shrader as if such
business combinations occurred on January 1, 1997. 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, Arrow and Shrader
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,
Arrow and Shrader 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>
WASTE PRO FORMA
CONNECTIONS, WASTE
INC. CONNECTIONS,
PERIOD FROM PRO FORMA INC. AND MADERA
INCEPTION PREDECESSORS ADJUSTMENTS PREDECESSORS DISPOSAL
(SEPTEMBER 9, COMBINED NINE TO COMBINE WASTE COMBINED SYSTEMS, INC.
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>
SHRADER
ARROW REFUSE
SANITARY SERVICE
SERVICE, INC. COMPANY
YEAR YEAR
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, PRO FORMA
1997 1997 ADJUSTMENTS PRO FORMA
-------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues........................ $6,209 6,896 -- $ 45,301
Operating expenses:
Cost of operations............. 4,970 4,601 -- 33,875
Selling, general and
administrative............... 776 567 (83)(k) 5,043
(184)(v)
Depreciation and
amortization................. 143 770 (377)(l) 2,984
364(m)
(78)(q)
265(r)
(585)(w)
439(x)
Start-up and integration....... -- -- -- 493
Stock compensation............. -- -- -- 4,395
------ ------- ------- ---------
Income (loss) from operations... 320 958 239 (1,489)
Interest expense................ (72) (292) 280(n) (3,527)
(897)(o)
72(s)
(606)(t)
(771)(z)
292(y)
Other income (expense), net..... (2) 59
-- 208
------ ------- ------- ---------
Income (loss) before (provision)
benefit for income taxes....... 246 725 (1,391) (4,808)
(Provision) benefit for income
taxes.......................... (117) (297)(p) 20
198(i)
226(u)
(290)(aa)
60(ab)
------ ------- ------- ---------
Net income (loss)............... $ 129 725 $(1,494) $ (4,788)
====== ======= ======= =========
Redeemable convertible preferred
stock accretion................ $ (531)
---------
Net loss applicable to common
stockholders................... $ (5,319)
=========
Basic net loss per common
share.......................... $ (2.03)
=========
Shares used in the per share
calculation.................... 2,623,883
=========
</TABLE>
See accompanying notes.
F-4
<PAGE> 65
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE
CONNECTIONS, MADERA SHRADER
INC. DISPOSAL ARROW SANITARY REFUSE SERVICE
CONSOLIDATED SYSTEMS, INC. SERVICE, INC. COMPANY
SIX MONTHS ONE MONTH FIVE MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED PRO FORMA PRO FORMA
JUNE 30, 1998 JANUARY 31, 1998 MAY 31, 1998 JUNE 30, 1998 ADJUSTMENTS COMBINED
------------- ---------------- -------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues...................... $ 18,520 $ 611 $2,508 $3,505 $ -- $ 25,144
Operating expenses:
Cost of operations.......... 12,830 412 1,836 2,264 -- 17,342
Selling, general and
administrative............ 1,868 112 385 310 (19)(k) 2,564
(92)(v)
Depreciation and
amortization.............. 1,359 69 67 471 (19)(l)(m) 1,877
90(q)(r)
(160)(w)(x)
Stock compensation.......... 441 -- -- -- -- 441
--------- ----- ------ ------ ----- ---------
Income (loss) from
operations.................. 2,022 18 220 460 200 2,920
Interest expense.............. (731) (289) (14) (191) 14(s) (1,631)
(239)(t)
191(y)
(372)(z)
Other income (expense), net... -- 16 2 11 -- 29
--------- ----- ------ ------ ----- ---------
Income (loss) before
(provision) benefit for
income taxes................ 1,291 (255) 208 280 (206) 1,318
(Provision) benefit for income
taxes....................... (717) -- (89) -- 83(p)(i) (669)
(64)(aa)(ab)
118(u)
--------- ----- ------ ------ ----- ---------
Net income (loss) before
extraordinary item.......... $ 573 $(255) $ 119 $ 280 $ (69) $ 649
========= ===== ====== ====== ===== =========
Extraordinary Item -- early
extinguishment of debt, net
of tax benefit of $165...... (815) (815)
--------- ---------
Net loss...................... $ (242) $ (166)
========= =========
Redeemable convertible
preferred stock accretion... $ (917) $ (917)
--------- ---------
Net loss applicable to common
stockholders................ $ (1,159) $ (1,083)
========= =========
Basic and diluted earnings per
common share
Income (loss) before
extraordinary item.......... $ (0.09) $ (0.06)
Extraordinary item............ (0.20) (0.18)
--------- ---------
Net loss per common share..... $ (0.31) $ (0.24)
========= =========
Shares used in the per share
calculations:
Basic and diluted........... 3,714,027 4,449,905
========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 66
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
ASSUMPTIONS. The unaudited pro forma consolidated statements of operations
for the year ended December 31, 1997, and for the six months ended June 30, 1998
are presented as if the acquisitions of the Company's predecessors, Madera,
Arrow and Shrader 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, Arrow and Shrader consist of the following:
<TABLE>
<CAPTION>
MADERA ARROW SHRADER
------- ------- -------
<S> <C> <C> <C>
Cash paid to shareholders........................... $6,949 $ 7,537 $ 8,106
Common stock issued................................. 7,500 3,045 9,997
Liabilities assumed................................. 4,256 769 2,102
Sellers note........................................ -- -- 378
Acquisition costs................................... 180 125 225
Common stock warrants issued........................ 954 -- --
------- ------- -------
$19,839 $11,476 $20,808
======= ======= =======
</TABLE>
The Company has preliminarily allocated the purchase prices as follows:
<TABLE>
<CAPTION>
MADERA ARROW SHRADER
------- ------- -------
<S> <C> <C> <C>
Tangible assets purchased........................... $4,534 $ 898 $ 4,378
Goodwill............................................ 14,580 10,528 16,300
Covenant not to compete............................. -- 50 130
Long-term franchise agreements and contracts........ 725 -- --
------- ------- -------
$19,839 $11,476 $20,808
======= ======= =======
</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
(DOLLARS 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%.
(v) To adjust officers salaries to levels provided for in the new
employment agreements which were directly attributable to, required
elements of, and a condition of closing of the Shrader acquisition.
(w) To reduce depreciation for the reduction in property and equipment's
carrying value to fair value related to the Shrader acquisition.
F-7
<PAGE> 68
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(x) To increase goodwill and covenant not to compete amortization for the
increases resulting from the Shrader acquisition. Goodwill is
amortized over a term of 40 years and the covenant not to compete is
amortized over a term of five years.
(y) To eliminate interest expense associated with debt obligations of
Shrader which were paid off in connection with the Shrader
acquisition.
(z) To record interest expense on the additional long-term debt
obligations incurred by the Company in connection with the Shrader
acquisition.
(aa) To record income taxes for Shrader, 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
40%.
(ab) To record the estimated tax provisions associated with the pro forma
adjustments for Shrader using the Company's estimated effective tax
rate of 40%.
F-8
<PAGE> 69
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 six
months ended June 30, 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>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
<S> <C> <C>
Company weighted average shares outstanding....... 1,872,567 3,714,027
Shares issued in connection with the acquisition
of Arrow........................................ 213,750 198,312(1)
Shares issued in connection with the acquisition
of Shrader...................................... 537,566 537,566
---------- -----------
Shares used in calculating pro forma basic net
loss per share.................................. 2,623,883 4,449,905
========== ===========
</TABLE>
- ---------------
(1) Includes only incremental shares issued for acquisition of Arrow because
15,438 shares are already included in the Company's weighted average shares
outstanding for the six months ended June 30, 1998.
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. The Company incurred costs of $225
related to the Shrader acquisition, which were factored into the purchase price.
Costs incurred by Shrader were expensed as incurred.
CONTINGENT PAYMENTS. In connection with the Madera and Shrader acquisitions
the Company is required to pay contingent consideration to certain former
shareholders of the respective companies, 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 nor are probable.
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-9
<PAGE> 70
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
SHRADER
WASTE REFUSE
CONNECTIONS, INC. SERVICE PRO FORMA
CONSOLIDATED COMPANY ADJUSTMENTS PRO FORMA
------------------ ------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................... $ 3,243 $ 342 $(8,331)(1) $ 3,585
(1,662)(4)
9,993(5)
Marketable securities.................. -- 576 -- 576
Accounts receivable, net............... 6,430 808 -- 7,238
Prepaid expenses and other current
assets.............................. 650 79 -- 729
------- ------ ------- --------
Total current assets........... 10,323 1,805 -- 12,128
Property and equipment, net.............. 14,595 5,112 (2,747)(2) 16,960
Goodwill, net............................ 50,970 209 16,091(3) 67,270
Other assets............................. 3,560 208 130(3) 3,898
------- ------ ------- --------
$79,448 $7,334 $13,474 $100,256
======= ====== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 5,119 $ 323 $ -- $ 5,442
Deferred revenue....................... 1,405 -- -- 1,405
Accrued liabilities.................... 2,129 117 -- 2,246
Current portion of long term debt...... -- 703 (703)(4) --
Current portion of notes payable....... 465 -- 124(8) 589
Current portion of capital leases...... 97 (97)(4) --
Current portion of accrued losses on
acquired contracts.................. 323 -- -- 323
------- ------ ------- --------
Total current liabilities...... 9,441 1,240 (676) 10,005
Accrued losses on acquired contracts..... 1,076 -- 1,076
Long-term debt, net...................... 23,152 959 254(8) 33,399
(959)(4)
9,993(5)
Long-term portion of capital lease
obligations............................ 1,511 (1,511)(4) --
Deferred income taxes.................... 379 -- -- 379
Redeemable convertible preferred stock... -- -- --
Redeemable common stock.................. -- -- --
Stockholders' equity:
Common stock........................... 85 9 (9)(7) 90
5(6)
Additional paid-in capital............. 52,774 9,992(6) 62,766
Stockholder notes receivable........... (82) -- -- (82)
Deferred stock compensation............ (619) -- -- (619)
Unrealized gain on Marketable
Securities.......................... -- 150 (150)(7) --
Retained earnings (deficit)............ (6,758) 3,465 (3,465)(7) (6,758)
------- ------ ------- --------
Total stockholders' equity..... 45,400 3,624 6,373 55,397
------- ------ ------- --------
$79,448 $7,334 $13,474 $100,256
======= ====== ======= ========
</TABLE>
See accompanying notes.
F-10
<PAGE> 71
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 June
30, 1998 is presented as if the acquisition of Shrader had occurred on June 30,
1998.
PRO FORMA ADJUSTMENTS. The following adjustments have been made to the
unaudited pro forma consolidated balance sheet to reflect the acquisition of
Shrader.
(1) Cash payments to former shareholders of Shrader ($8,106) and payment of
acquisition costs ($225).
(2) To reduce plant, property and equipment ($2,747) to its estimated fair
value.
(3) To record excess of the purchase price over the net assets acquired
from Shrader for goodwill and intangible assets of $16,300 and $130,
respectively.
(4) Pay off outstanding debt obligations of Shrader ($1,662) and eliminate
related party capital lease ($1,608).
(5) To record additional long term debt associated with the acquisition of
Shrader.
(6) To record the common stock issued in connection with the acquisition of
Shrader.
(7) To eliminate the equity accounts of Shrader.
(8) To record Seller Notes Payable issued in connection with the
acquisition of Shrader.
F-11
<PAGE> 72
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-13
through F-20 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-12
<PAGE> 73
WASTE CONNECTIONS, INC. AND PREDECESSORS
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE CONNECTIONS, INC.
CONSOLIDATED
PREDECESSORS --------------------------
COMBINED
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 (NOTE 1) 1997 1998
------------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 102 $ 820 $ 3,243
Accounts receivable, less allowance for doubtful accounts
of $96 at June 30, 1998 and $19 at December 31, 1997
($81 in 1996)........................................... 2,650 3,940 6,430
Prepaid expenses and other current assets................. 339 358 650
------- ------- --------
Total current assets................................ 3,091 5,118 10,323
Property and equipment, net................................. 5,069 4,185 14,595
Goodwill, net............................................... 6,762 9,408 50,970
Other assets................................................ 369 169 3,560
------- ------- --------
$15,291 $18,880 $ 79,448
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 1,025 $ 2,609 $ 5,119
Deferred revenue.......................................... 564 597 1,405
Accrued liabilities....................................... 634 825 2,129
Current portion of accrued losses on acquired contracts... 119 251 323
Current portion of notes payable.......................... -- -- 465
Current portion of long-term debt......................... 54 -- --
------- ------- --------
Total current liabilities........................... 2,396 4,282 9,441
Accrued losses on acquired contracts........................ -- 702 1,076
Long-term debt.............................................. 89 6,762 23,152
Deferred income taxes....................................... -- 162 379
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)... -- 7,523 --
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; 8,523,397 shares issued and
outstanding at June 30, 1998; 11,023,397 shares issued
and outstanding pro forma............................... -- 23 85
Additional paid-in capital................................ -- 5,105 52,774
Stockholder notes receivable.............................. -- (82) (82)
Deferred stock compensation............................... -- -- (619)
Accumulated deficit....................................... -- (5,597) (6,758)
------- ------- --------
Total stockholders' equity (deficit)................ -- (551) 45,400
------- ------- --------
$15,291 $18,880 $ 79,448
======= ======= ========
</TABLE>
See accompanying notes.
F-13
<PAGE> 74
WASTE CONNECTIONS, INC. AND PREDECESSORS
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 (AUDITED)
AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE
CONNECTIONS, INC.
PREDECESSORS CONSOLIDATED
COMBINED PERIOD FROM WASTE
NINE MONTHS INCEPTION PREDECESSORS CONNECTIONS, INC.
ENDED (SEPTEMBER 9, 1997) COMBINED SIX CONSOLIDATED SIX
SEPTEMBER 30, THROUGH MONTHS ENDED MONTHS ENDED
1997 (NOTE 1) DECEMBER 31, 1997 JUNE 30, 1997 JUNE 30, 1998
------------- ------------------- ------------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
- -------------------------------------------------
Revenues......................................... $18,114 $ 6,237 $11,784 $ 18,520
Operating expenses:
Cost of operations............................. 14,753 4,703 9,784 12,830
Selling, general and administrative............ 3,009 619 1,305 1,868
Depreciation and amortization.................. 1,083 354 745 1,359
Start-up and integration....................... -- 493 -- --
Stock compensation............................. -- 4,395 -- 441
------- ---------- ------- ----------
Income (loss) from operations.................... (731) (4,327) (50) 2,022
Interest expense................................. (456) (1,035) (304) (731)
Other income (expense), net...................... 14 (36) 4 --
------- ---------- ------- ----------
Income (loss) before income taxes................ (1,173) (5,398) (350) 1,291
Income tax (provision) benefit................... -- 332 -- (717)
------- ---------- ------- ----------
Net income (loss) before extraordinary item...... $(1,173) (5,066) $ (350) 573
======= =======
Extraordinary item -- early extinguishment
of debt, net of tax benefit of $165............ -- (815)
---------- ----------
Net loss......................................... $ (5,066) $ (242)
========== ==========
Redeemable convertible preferred stock
accretion...................................... (531) (917)
---------- ----------
Net loss applicable to common stockholders....... $ (5,597) $ (1,159)
========== ==========
Basic loss per common share:
Loss before extraordinary item................. $ (2.99) $ (0.09)
Extraordinary item............................. -- (0.22)
---------- ----------
Net loss per common share...................... $ (2.99) $ (0.31)
========== ==========
Shares used in calculating basic net loss per
share.......................................... 1,872,567 3,714,027
========== ==========
Pro forma basic net loss per share............... $ (1.16) $ (0.04)
========== ==========
Shares used in calculating pro forma basic net
loss per share................................. 4,372,565 6,397,359
========== ==========
Pro forma diluted net loss per share............. $ (0.03)
==========
Shares used in calculating pro forma diluted net
loss per share................................. 7,749,050
==========
- -------------------------------------------------
</TABLE>
See accompanying notes.
F-14
<PAGE> 75
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-15
<PAGE> 76
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-16
<PAGE> 77
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 SIX MONTHS ENDED JUNE 30, 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)...................... -- 917 -- -- -- -- -- --
Deferred stock compensation
associated with stock options
(unaudited)...................... -- -- -- -- -- -- 821 --
Amortization of deferred stock
compensation (unaudited)......... -- -- -- -- -- -- -- --
Common stock sold in connection
with IPO (unaudited)............. -- -- -- -- 2,300,000 23 23,963 --
Issuance of common stock
(unaudited)...................... -- -- -- -- 373,399 3 4,953 --
Preferred stock dividend
(unaudited)...................... -- (161) -- -- -- -- -- --
Conversion of redeemable preferred
stock (unaudited)................ (2,499,998) (8,279) -- -- 2,499,998 25 8,254 --
Conversion of redeemable common
stock (unaudited)................ (1,000,000) (7,500) 1,000,000 10 7,490 --
Net income (unaudited)............ -- -- -- -- -- -- -- --
---------- ------- ---------- ------- --------- --- ------- ----
Balances at June 30, 1998
(unaudited)...................... -- $ -- -- $ -- 8,523,397 $85 $52,774 $(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)...................... -- (917) (917)
Deferred stock compensation
associated with stock options
(unaudited)...................... (821) -- --
Amortization of deferred stock
compensation (unaudited)......... 201 -- 201
Common stock sold in connection
with IPO (unaudited)............. -- -- 23,986
Issuance of common stock
(unaudited)...................... -- -- 4,956
Preferred stock dividend
(unaudited)...................... -- -- --
Conversion of redeemable preferred
stock (unaudited)................ -- -- 8,279
Conversion of redeemable common
stock (unaudited)................ -- -- 7,500
Net income (unaudited)............ -- (243) (243)
----- ------- -------
Balances at June 30, 1998
(unaudited)...................... $(620) $(6,757) $45,400
===== ======= =======
</TABLE>
See accompanying notes.
F-17
<PAGE> 78
WASTE CONNECTIONS, INC. AND PREDECESSORS
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 (AUDITED)
AND SIX MONTHS ENDED JUNE 30, 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 SIX SIX MONTHS
SEPTEMBER 30, THROUGH MONTHS ENDED ENDED
1997 (NOTE 1) DECEMBER 31, 1997 JUNE 30, 1997 JUNE 30, 1998
------------- ----------------------- ------------- -----------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
- ----------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................... $(1,173) $ (5,066) $(350) $ (243)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Gain on sale of assets.................... (4) -- -- --
Depreciation and amortization............. 1,083 354 745 1,358
Deferred income taxes..................... -- (369) -- --
Amortization of debt issuance costs, debt
guarantee fees and accretion of discount
on long-term debt....................... -- 860 -- 134
Stock compensation........................ -- 4,395 -- 441
Extraordinary item -- extinguishment of
debt.................................... -- -- -- 981
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Accounts receivable, net................ (604) (1,021) (440) (361)
Prepaid expenses and other current
assets................................ (74) (51) 224 (656)
Accounts payable........................ (221) 2,607 52 119
Deferred revenue........................ (137) 169 (44) 292
Accrued liabilities..................... (450) 801 334 (23)
Accrued losses on acquired contracts.... -- (65) (91) (151)
------- ---------- ----- --------
Net cash provided by (used in) operating
activities................................ (1,580) 2,614 430 1,891
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment................................. 188 -- -- 89
Payments for acquisitions, net of cash
acquired.................................. -- (11,493) -- (30,281)
Prepaid acquisition costs................... -- (20) -- --
Capital expenditures for property and
equipment................................. (735) (264) (726) (934)
Decrease (increase) in other assets......... 22 (19) 66 --
Issuance of stockholder notes receivable.... -- (82) -- --
------- ---------- ----- --------
Net cash used in investing activities......... (525) (11,878) (660) (31,126)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net intercompany balance.................... 2,142 -- 221 --
Proceeds from short-term borrowings......... -- 600 -- --
Proceeds from long-term debt................ -- 5,500 -- 40,862
Principal payments on notes payable......... (38) (2,724) -- (258)
Principal payments on long-term debt........ -- (157) (70) (32,327)
Proceeds from sale of redeemable convertible
preferred stock........................... -- 6,992 -- --
Proceeds from sale of common stock.......... -- 23 -- 24,126
Payment of preferred stock dividend......... -- -- -- (161)
Debt issuance costs......................... -- (150) -- (584)
------- ---------- ----- --------
Net cash provided by financing activities..... 2,104 10,084 151 31,658
------- ---------- ----- --------
Net increase (decrease) in cash............... (1) 820 (79) 2,423
Cash at beginning of period................... 102 -- 102 820
------- ---------- ----- --------
Cash at end of period......................... $ 101 $ 820 $ 23 $ 3,243
======= ========== ===== ========
SUPPLEMENTARY DISCLOSURES OF CASH FLOW
INFORMATION AND NON-CASH TRANSACTIONS:
Cash paid for income taxes.................. $ -- $ -- $ 879
======= ========== ========
Cash paid for interest...................... $ -- $ 183 $ 564
======= ========== ========
Redeemable convertible preferred stock
accretion................................. $ 531 $ 917
========== ========
In connection with the BFI related
acquisitions (Note 2), the Company assumed
liabilities as follows:
Fair value of assets acquired............. $ 17,040 $ 50,283
Cash paid for acquisitions (including
acquisition costs)...................... (11,493) (30,281)
---------- --------
Liabilities assumed, stock and notes
payable to seller....................... $ 5,547 $ 20,002
========== ========
</TABLE>
See accompanying notes.
F-18
<PAGE> 79
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-19
<PAGE> 80
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-20
<PAGE> 81
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 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 change in
the predecessors' combined intercompany balance with BFI (net of income (loss)
and initial
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 JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1997
AND 1998 IS UNAUDITED)
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 June 30, 1998
and for the six months ended June 30, 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 June 30, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998.
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 JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1997
AND 1998 IS UNAUDITED)
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.
Capitalized landfill costs include expenditures for land and related
airspace, permitting costs and preparation costs. Landfill permitting and
preparation costs represent only direct costs related to those activities,
including legal, engineering and construction. Interest is capitalized on
landfill permitting and construction projects and other projects under
development while the assets are undergoing activities to ready them for their
intended use. The interest capitalization rate is based on the Company's
weighted average cost of indebtedness. No interest was capitalized during the
six months ended June 30, 1998. Landfill permitting, acquisition and preparation
costs, excluding the estimated residual value of land, are amortized as
permitted
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 JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1997
AND 1998 IS UNAUDITED)
airspace of the landfill is consumed. Landfill preparation costs include the
costs of construction associated with excavation, liners, site berms and the
installation of leak detection and leachate collection systems. In determining
the amortization rate for a landfill, preparation costs include the total
estimated costs to complete construction of the landfills' permitted capacity.
Units-of-production amortization rates are determined annually for the Company's
operating landfill. The rates are based on estimates provided by the Company's
outside engineers and consider the information provided by surveys which are
performed at least annually.
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 June 30,
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.
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 JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1997
AND 1998 IS UNAUDITED)
As described in Note 9, the Company issued warrants during the period from
inception (September 9, 1997) through December 31, 1997 to a bank in connection
with a line of credit and term loan payable, and to certain directors and
stockholders of the Company in connection with their guarantee of certain of the
Company's debt obligations. The fair value of these warrants is being amortized
into interest expense. During the period from inception (September 9, 1997)
through December 31, 1997, $710 relating to these warrants is included in
interest expense in the accompanying statement of operations of the Company.
Stock-Based Compensation
As permitted under the provisions of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation" ("SFAS 123"), the Company has elected
to account for stock-based compensation using the intrinsic value method
prescribed by Accounting Principles Board's Opinion No. 25 "Accounting for Stock
Issued to Employees" ("APB 25"). Under the intrinsic value method, compensation
cost is the excess, if any, of the quoted market price or fair value of the
stock at the grant date or other measurement date over the amount an employee
must pay to acquire the stock. None of the predecessor entities awarded
stock-based compensation to employees. Consequently, the related disclosures in
the accompanying financial statements and notes relate solely to the Company.
Per Share Information
In 1997, the Financial Accounting Standards Board ("FASB")issued Statement
No. 128, Earnings per Share. Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts have been presented on the
basis set forth in Statement 128 (Note 11). Earnings per share data have not
been presented for the predecessor operations because such data is not
meaningful.
Pro-forma basic net income (loss) per share is computed by dividing the net
income (loss) by the sum of the weighted average number of shares of common
stock outstanding and common 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
The Company does not accrue for closure and post-closure costs related to
the Farimead Landfill it operated in Madera County, California. Madera County as
required by state law, has established a special fund to pay such liabilities.
On June 5, 1998, the Company acquired the stock of Red Carpet Landfill, Inc. in
Oklahoma. Red Carpet is engaged in landfilling of municipal solid waste and
other acceptable waste streams in the county of Major, Oklahoma. As a result of
the acquisition, the Company is required to accrue for closure and post-closure
costs related to the landfill. Accrued closure and post-closure costs include
the current and non-current portion of accruals associated with obligations for
closure and post-closure of the landfill. The Company, based as input from its
outside engineers, estimates its future closure and post-closure
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 JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1997
AND 1998 IS UNAUDITED)
monitoring and maintenance costs for solid waste landfills based on its
interpretation of the technical standards of the U.S. Environmental Protection
Agency's Subtitle D regulations and the air emissions standards under the Clean
Air Act as they are being applied on a state-by-state basis. Closure and
post-closure monitoring and maintenance costs represent the costs related to
cash expenditures yet to be incurred when a landfill facility ceases to accept
waste and closes. Accruals for closure and post-closure monitoring and
maintenance requirements in the U.S. consider final capping of the site, site
inspection, groundwater monitoring, leachate management, methane gas control and
recovery, and operating and maintenance costs to be incurred during the period
after the facility closes. Certain of these environmental costs, principally
capping and methane gas control costs, are also incurred during the operating
life of the site in accordance with the landfill operation requirements of
Subtitle D and the air emissions standards. Reviews of the future requirements
for closure and post-closure monitoring and maintenance costs for the Company's
operating landfills are performed by the Company's consulting engineers at least
annually and are the basis upon which the Company's estimates of these future
costs and the related accrual rates are revised. The Company provides accruals
for these estimated costs as the remaining permitted airspace of such facilities
is consumed. The states in which the Company operates its landfills require a
specified portion of these accrued closure and post-closure obligations to be
funded at any point in time.
New Accounting Pronouncements
In February 1997, the FASB issued Statement No. 129, Disclosure of
Information about Capital Structure, which is effective for financial statements
for periods ending after December 15, 1997. This statement establishes standards
for disclosing information about an entity's capital structure. Adoption of
Statement 129 will have no impact on the Company's existing disclosures.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income. Statement 130 establishes standards for reporting and disclosure of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. Statement 130, which is
effective for fiscal years beginning after December 15, 1997, requires
reclassification of financial statements for earlier periods to be provided for
comparative purposes. The Company anticipates that implementing the provisions
of Statement 130 will not have a significant impact on the Company's existing
disclosures.
In June 1997, the FASB issued Statement No. 131, Disclosure About Segments
of an Enterprise and Related Information. Statement 131 establishes standards
for the way that public business enterprises report information about operating
segments. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. Statement 131 is effective
for fiscal years beginning after December 15, 1997. In the initial year of
application, comparative information for earlier years must be restated. The
Company anticipates that implementing the provisions of Statement 131 will not
have a significant impact on the Company's existing disclosures.
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
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 JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1997
AND 1998 IS UNAUDITED)
were included in the Company's consolidated balance sheet based upon their
estimated fair values on the date of the Acquisitions. The Company's
consolidated statement of operations includes the revenues and expenses of the
acquired businesses after the effective date of the transaction.
Certain items affecting the purchase price and the allocation are
preliminary. A summary of the preliminary purchase price allocation as of
December 31, 1997 for the Acquisitions is as follows:
<TABLE>
<S> <C>
Acquired assets:
Accounts receivable.................................... $ 2,919
Prepaid expenses and other current assets.............. 287
Property and equipment................................. 4,106
Goodwill............................................... 9,578
Non-competition agreement.............................. 150
Assumed liabilities:
Deferred revenue....................................... (428)
Accounts payable and accrued liabilities............... (26)
Accrued losses on acquired contracts................... (1,018)
Deferred income taxes.................................. (532)
-------
$15,036
=======
</TABLE>
During the six months ended June 30, 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.
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.
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 JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1997
AND 1998 IS UNAUDITED)
Certain items affecting the purchase price and the allocation are
preliminary. A summary of the preliminary purchase price allocation for the
Madera acquisition is as follows:
<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>
Arrow Sanitary Service, Inc.
On June 17, 1998, the Company purchased all of the outstanding stock of
Arrow Sanitary Service, Inc. ("Arrow") effective June 1, 1998, pursuant to a
Stock Purchase Agreement (the "Arrow Agreement"). The Arrow Agreement required
the Company to pay the shareholders of Arrow $7,944 in cash (a portion of which
was used to repay the Arrow outstanding debt on the date of the acquisition and
a portion of which is subject to other adjustments as specified in the Arrow
Agreement), 213,750 shares of the Company's common stock with an estimated fair
market value of $3,045.
The Arrow 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 Arrow
acquisition were approximately $11,255 and $10,528, respectively.
Certain items affecting the purchase price and the allocation are
preliminary. A summary of the preliminary purchase price allocation for the
Arrow acquisition is as follows:
<TABLE>
<S> <C>
Acquired assets:
Accounts receivable....................................... $ 575
Prepaid expenses and other current assets................. 10
Property and equipment.................................... 313
Covenant not to compete................................... 50
Goodwill.................................................. 10,528
Assumed liabilities:
Accounts payable and accrued liabilities.................. (221)
-------
$11,255
=======
</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.
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 JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1997
AND 1998 IS UNAUDITED)
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 June 30, 1998
consists of the following:
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
COMBINED --------------------------
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Land and buildings................. $2,314 $ -- $ 2,963
Machinery and equipment............ 146 60 1,742
Rolling stock...................... 2,068 2,353 5,691
Containers......................... 1,084 1,995 5,248
Furniture and fixtures............. 137 67 353
------ ------ -------
5,749 4,475 15,997
Less accumulated depreciation...... (680) (290) (1,402)
------ ------ -------
$5,069 $4,185 $14,595
====== ====== =======
</TABLE>
Combined depreciation expense for the predecessor operations was $1,304,
$1,101, and $789 for the years ended December 31, 1995 and 1996, and the nine
months ended September 30, 1997, respectively. The Company's depreciation
expense for the period from inception (September 9, 1997) through December 31,
1997 was $290.
4. OTHER ASSETS
Other assets as of December 31, 1996 and 1997 and June 30, 1998 consist of
the following:
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
COMBINED --------------------------
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Long-term franchise agreements and
contracts................................ $ -- $ -- $1,056
Non-competition agreement, net............. -- 142 351
Restricted Cash -- Madera Bond Fund........ -- -- 1,800
Other...................................... 369 27 353
---- ---- ------
$369 $169 $3,560
==== ==== ======
</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
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 JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1997
AND 1998 IS UNAUDITED)
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). Accumulated amortization amounted to $19 as of June 30,
1998. 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 and $24 as of June 30, 1998.
5. LINE OF CREDIT
On September 30, 1997, the Company obtained a revolving line of credit (the
"Line") from a bank (the "Bank"). The maximum amount available under the terms
of the Line was $2,000 and borrowings bore interest based on the prime rate plus
1.5% (aggregating 10.0% at December 31, 1997). Interest was payable monthly and
the Line was to expire on September 29, 1998. Borrowings under the Line were
secured by substantially all of the Company's assets and were subordinate to the
notes payable to BFI (Note 6) with respect to certain specified assets. The Line
was personally guaranteed by certain officers and stockholders of the Company
(Note 9). As of December 31, 1997, $600 was outstanding under the Line.
Management used borrowings from a new credit facility obtained in January
1998 (Note 12) to pay off amounts outstanding under the Line, and as such, these
amounts have been included in long-term debt as of December 31, 1997.
6. OTHER LONG-TERM DEBT
Other long-term debt consists of the following as of December 31, 1997:
<TABLE>
<S> <C>
Term loan payable to the Bank bearing interest at the Bank's
prime rate plus 2.0% (aggregating 10.5% as of December 31,
1997); monthly principal payments of $76 plus interest
beginning October 1997 through August 2002; all
outstanding principal and interest are due September 2002;
secured by substantially all of the Company's assets;
subordinate to the notes payable to BFI with respect to
certain specified assets.................................. $5,343
Note payable to BFI bearing interest at 6.0%; all
outstanding principal and interest are due December 1997;
secured by substantially all of the Company's accounts
receivable................................................ 319
Note payable to BFI bearing interest at 10.0%; quarterly
payments of interest beginning December 1997; all
outstanding principal and interest are due March 1998;
secured by substantially all of WCII's assets............. 500
------
$6,162
======
</TABLE>
The term loan payable to the Bank and the notes payable to BFI were
personally guaranteed by certain officers and stockholders of the Company (Note
9).
F-30
<PAGE> 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 JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1997
AND 1998 IS UNAUDITED)
As of December 31, 1997, aggregate contractual future principal payments by
calendar year on long-term debt are due as follows:
<TABLE>
<S> <C>
1998................................ $1,736
1999................................ 917
2000................................ 917
2001................................ 917
2002................................ 917
Thereafter.......................... 758
------
$6,162
======
</TABLE>
Management used borrowings from a new credit facility obtained in January
1998 (Note 12) to pay off all amounts outstanding under the term loan payable to
the Bank and all notes payable to BFI, and as such, these amounts have been
classified as long-term debt as of December 31, 1997.
On June 16, 1998, the Company completed a $1.8 million tax-exempt bond
financing for its Madera subsidiary. These funds will be used for specified
capital expenditures and improvements, including installation of a landfill gas
recovery system. The bonds issued mature on May 1, 2016 and bear interest at
variable rates based on market conditions for California tax exempt bonds. The
bonds are backed by a letter of credit issued by BankBoston under the Credit
Facility for $1.8 million. Funds from the bond offering are held by a trustee
until the capital expenditures are completed. The unused funds are classified as
restricted cash and included in other assets on the accompanying consolidated
balance sheet. The capital expenditures funded by the bonds are expected to be
substantially completed by December 31, 1998.
7. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Leases
The Company leases its facilities and certain equipment under
non-cancelable operating leases for periods ranging from one to five years.
Combined rent expense for the predecessor operations was $398, $412, and $441
for the years ended December 31, 1995 and 1996, and the nine months ended
September 30, 1997, respectively. The Company's rent expense under operating
leases during the period from inception (September 9, 1997) through December 31,
1997 amounted to $52.
As of December 31, 1997, future minimum lease payments under these leases,
by calendar year, are as follows:
<TABLE>
<S> <C>
1998.................................. $206
1999.................................. 196
2000.................................. 192
2001.................................. 140
2002.................................. 10
----
$744
====
</TABLE>
Performance Bonds and Letters of Credit
Municipal solid waste collection contracts may require performance bonds or
other means of financial assurance to secure contractual performance. As of
December 31, 1997, the Company had provided customers
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 JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1997
AND 1998 IS UNAUDITED)
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 June 30, 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 June 30, 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.
Approximately 11 drivers at Arrow Sanitary Services, Inc. ("Arrow"), a wholly
owned subsidiary of the
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 JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1997
AND 1998 IS UNAUDITED)
are represented by the Teamsters Union, with which Arrow entered into 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 operated under a one-year negotiating
agreement, that ended July 27, 1998.
Since July 27, 1998, negotiations have continued between the Union and the
Company, although the Union is permitted to call a strike or call for
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. Each share was
automatically converted into common stock immediately upon the closing of the
Company's initial public offering of common stock at a Conversion Price of $2.80
per share.
Each share of Preferred Stock is redeemable, at the holder's option, during
the period from April 1, 1999 through October 1, 1999 for $4.20 per share plus
any accumulated and unpaid dividends. The difference between the carrying value
of the Preferred Stock and the redemption value (including accumulated
dividends) is being accreted using the interest method through the earliest
redemption date. The redemption of the Preferred Stock is not mandatory if it
would cause the Company to incur additional indebtedness or if it is prohibited
under any of the Company's then existing debt agreements.
The preferred stockholders are entitled to one vote for each share of
common stock into which such shares can be converted, and are also entitled to
liquidation preferences equal to the greater of the initial purchase price per
share ($2.80) plus any accumulated and unpaid dividends, plus the greater of
$4.20 per share or an amount which equals an internal rate of return of 50% to
the investor. After receiving such preference, the holders of the preferred
stock share remaining proceeds with the common stockholders on an as converted
basis.
9. STOCKHOLDERS' EQUITY
Common Stock
Of the 47,700,000 shares of common stock authorized but unissued as of
December 31, 1997, the following shares were reserved for issuance:
<TABLE>
<S> <C>
Preferred Stock................................... 2,521,874
Madera acquisition (Note 2)....................... 1,200,000
Stock option plan................................. 1,200,000
Stock purchase warrants........................... 1,056,000
---------
5,977,874
=========
</TABLE>
F-33
<PAGE> 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 JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1997
AND 1998 IS UNAUDITED)
Stockholder Notes Receivable
In December 1997, the Company provided loans in the aggregate amount of $82
to certain employees, who are also common stockholders, for the purchase of
shares of the Company's Preferred Stock. The notes bear interest at 8%, are due
on January 1, 1999 and are secured by the Preferred Stock purchased and common
stock owned by the employees.
Stock Options
In November 1997, the Company's Board of Directors adopted a stock option
plan in which all officers, employees, directors and consultants may participate
(the "Option Plan"). Options granted under the Option Plan may either be
incentive stock options or nonqualified stock options (the "Options") and they
will generally have a term of 10 years from the date of grant and will vest over
periods determined at the date of grant. The exercise prices of the options are
determined by the Company's Board of Directors and will be at least 100% or 110%
of the fair market value of the Company's common stock on the date of grant as
provided for in the Option Plan.
In connection with the Option Plan, the Company's Board of Directors
approved the reservation of 1,200,000 shares of common stock for issuance
thereunder. As of December 31, 1997 and June 30, 1998, no options to purchase
common stock were exercisable under the Option Plan. In addition, as of December
31, 1997 and June 30, 1998, options for 671,500 and 324,700 shares, respectively
of common stock were available for future grants under the Option Plan.
A summary of the Company's stock option activity and related information
during the period from inception (September 9, 1997) through December 31, 1997
and the three months ended June 30, 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)................... 409,300 7.23
Forfeited (unaudited)................. -- --
Exercised (unaudited)................. -- --
-------
Outstanding as of June 30, 1998
(unaudited)......................... 937,800 5.93
=======
</TABLE>
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 JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1997
AND 1998 IS UNAUDITED)
The following table summarizes information about stock options outstanding
as of December 31, 1997 and June 30, 1998:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1998
------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
EXERCISE RANGE SHARES PRICE SHARES PRICE
-------------- ------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
$ 2.80 to 5.00................. 385,500 2.85 589,800 2.91
$ 6.00 to 9.50................. -- -- 72,500 8.54
$10.50 to 12.50................ 143,000 10.50 245,000 11.07
$15.19 to 16.75................ -- -- 30,500 16.72
------- ----- ------- -----
528,500 4.92 937,800 5.93
======= ===== ======= =====
</TABLE>
The weighted average remaining contractual life of stock options
outstanding as of December 31, 1997, was 9.4 years.
Pro Forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for the period from inception (September 9, 1997) through December
31, 1997: risk-free interest rate of 6%; dividend yield of zero; volatility
factor of the expected market price of the Company's common stock of .40; and a
weighted-average expected life of the option of 4 years.
The Black-Scholes option valuation model was developed for us in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net loss and pro forma basic net loss per share for the period from
inception (September 9, 1997) through December 31, 1997 were $(5,070) and
$(2.99) per share, respectively.
During the six months ended June 30, 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 $201 was recorded during the six
months ended June 30, 1998 relating to these options, and the remaining $619
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
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 JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1997
AND 1998 IS UNAUDITED)
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 May 1998, the Company sold in its initial public offering, a total of
2,300,000 shares of common stock at $12.00 per share. The net proceeds after
underwriters' commissions and fees and other costs associated with the offering
were approximately $23,986. In connection with the offering, the redeemable
convertible preferred stock was converted into common stock, and the redemption
provisions of the common stock issued in connection with the Madera acquisition
(Note 2) expired.
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>
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 JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1997
AND 1998 IS UNAUDITED)
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>
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-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 JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1997
AND 1998 IS UNAUDITED)
11. NET LOSS PER SHARE INFORMATION
The following table sets forth the calculation of the numerator and
denominator used in the computation of basic net loss per share and pro forma
basic and diluted net loss per share for the period from inception (September 9,
1997) through December 31, 1997 and the six months ended June 30, 1998. The pro
forma basic net income (loss) per share calculations assume 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 all outstanding shares of redeemable convertible preferred stock and
redeemable common stock for the six months ended June 30, 1998, as if such
conversions occurred as of the first day of each period presented.
<TABLE>
<CAPTION>
JUNE 30, 1998
DECEMBER 31, 1997 -----------------------------------
--------------------- (UNAUDITED)
PRO FORMA PRO FORMA PRO FORMA
BASIC BASIC BASIC BASIC DILUTED
NET LOSS NET LOSS NET LOSS NET LOSS NET LOSS
PER SHARE PER SHARE PER SHARE PER SHARE PER SHARE
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Numerator:
Income (loss) before extraordinary $ 573
item................................. $ (5,066) $ (4,788) $ 573 $ 573
Redeemable convertible preferred stock --
accretion............................ (531) -- (917) --
--------- --------- --------- --------- ---------
Income (loss) applicable to common $ 573
stockholders before extraordinary
item................................. $ (5,597) $ (4,788) $ (344) $ 573
========= ========= ========= ========= =========
Extraordinary item...................... -- -- (815) (815) (815)
--------- --------- --------- --------- ---------
Net loss applicable to common $ (242)
stockholders......................... $ (5,597) $ (4,788) $ (1,159) $ (242)
========= ========= ========= ========= =========
Denominator:
Weighted average common shares 4,480,694
outstanding.......................... 1,872,567 1,872,567 3,714,027 4,480,694
Dilutive effect of stock options and 1,351,691
warrants outstanding................. -- -- -- --
Incremental common shares issuable upon 1,916,665
conversion of preferred stock........ -- 2,499,998 -- 1,916,665
--------- --------- --------- --------- ---------
1,872,567 4,372,565 3,714,027 6,397,359 7,749,050
========= ========= ========= ========= =========
</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
F-38
<PAGE> 99
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION RELATING TO JUNE 30, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1997
AND 1998 IS UNAUDITED)
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,
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.
On May 28, 1998, the Company entered into a new revolving credit facility
with a syndicate of banks for which BankBoston N.A. acts as agent (the "Credit
Facility"). The maximum amount available under the Credit Facility is $60
million (including stand-by letters of credit) and the borrowings bear interest
at various fixed and/or variable rates at the Company's option (approximately
7.44% as of June 30, 1998). The Credit Facility replaced an existing revolving
credit facility. The Credit Facility allows for the Company to issue up to $5
million in stand-by letters-of-credit. The Credit Facility requires quarterly
payments of interest and it matures in May 2001. Borrowings under the Credit
Facility are secured by virtually all of the Company's assets. The Credit
Facility requires the Company to pay an annual commitment fee equal to 0.375% of
the unused portion of the Credit Facility. The Credit Facility places certain
business, financial and operating restrictions on the Company relating to, among
other things the incurrence of additional indebtedness, investments,
acquisitions, asset sales, mergers, dividends, distributions and repurchase and
redemption of capital stock. The Credit Facility also requires that specified
financial ratios and balances be maintained.
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.
F-39
<PAGE> 100
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-40
<PAGE> 101
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-41
<PAGE> 102
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-42
<PAGE> 103
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-43
<PAGE> 104
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-44
<PAGE> 105
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-45
<PAGE> 106
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-46
<PAGE> 107
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-47
<PAGE> 108
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-48
<PAGE> 109
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-49
<PAGE> 110
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-50
<PAGE> 111
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-51
<PAGE> 112
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-52
<PAGE> 113
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-53
<PAGE> 114
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-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)
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-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)
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-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)
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-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)
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 11 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-58
<PAGE> 119
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-59
<PAGE> 120
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Shrader Refuse and Recycling Service Company
We have audited the accompanying balance sheets of Shrader Refuse and
Recycling Service Company as of September 30, 1996 and 1997, and the related
statements of income, stockholders' equity and cash flows for the years 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 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 Shrader Refuse and Recycling
Service Company at September 30, 1996 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
Lincoln, Nebraska
August 24, 1998
F-60
<PAGE> 121
SHRADER REFUSE AND RECYCLING SERVICE COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- JUNE 30,
1996 1997 1998
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 287 $ 116 $ 342
Marketable equity securities.............................. 246 403 576
Accounts receivable, less allowance for doubtful accounts
of $29 and $32 at September 30, 1996 and 1997,
respectively........................................... 674 897 808
Prepaid expenses.......................................... 37 69 79
------ ------ ------
Total current assets.............................. 1,244 1,485 1,805
Property and equipment, net................................. 3,939 5,195 5,112
Goodwill, net............................................... 223 214 209
Other assets................................................ 122 157 208
------ ------ ------
$5,528 $7,051 $7,334
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 244 $ 202 $ 323
Accrued liabilities....................................... 100 103 117
Current portion of long-term debt......................... 763 703 703
Current portion of capital lease obligations.............. 18 97 97
------ ------ ------
Total current liabilities......................... 1,125 1,105 1,240
Long-term debt, net of current portion...................... 1,676 1,258 959
Capital lease obligations, net of current portion........... 338 1,583 1,511
Commitments and contingencies (Note F)
Stockholders' equity:
Common stock: $1 par value; 10,000 shares authorized;
8,571 shares issued and outstanding.................. 9 9 9
Retained earnings......................................... 2,338 3,012 3,465
Net unrealized gain on marketable equity securities....... 42 84 150
------ ------ ------
Total stockholders' equity........................ 2,389 3,105 3,624
------ ------ ------
$5,528 $7,051 $7,334
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-61
<PAGE> 122
SHRADER REFUSE AND RECYCLING SERVICE COMPANY
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS ENDED
SEPTEMBER 30, JUNE 30,
---------------- ----------------
1996 1997 1997 1998
------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................................ $5,461 $6,896 $5,027 $5,382
Operating expenses:
Cost of operations.................................... 3,861 4,601 3,241 3,479
Selling, general and administrative................... 516 567 426 425
Depreciation and amortization......................... 565 770 546 697
------ ------ ------ ------
4,942 5,938 4,213 4,601
------ ------ ------ ------
Income from operations.................................. 519 958 814 781
Other income (expense):
Interest expense...................................... (206) (292) (219) (287)
Other income, net..................................... 35 59 19 19
------ ------ ------ ------
(171) (233) (200) (268)
------ ------ ------ ------
Net income.............................................. $ 348 $ 725 $ 614 $ 513
====== ====== ====== ======
Pro forma income taxes (unaudited) (Note G)............. $ 141 $ 290 $ 245 $ 206
------ ------ ------ ------
Pro forma net income (unaudited) (Note G)............... $ 207 $ 435 $ 369 $ 307
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-62
<PAGE> 123
SHRADER REFUSE AND RECYCLING SERVICE COMPANY
STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND THE NINE MONTHS ENDED JUNE 30, 1998
(INFORMATION RELATED TO THE NINE MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN (LOSS) ON
COMMON STOCK MARKETABLE TOTAL
--------------- RETAINED EQUITY STOCKHOLDERS'
SHARES AMOUNT EARNINGS SECURITIES EQUITY
------ ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance October 1, 1995........................ 8,571 $9 $2,154 $ (2) $2,161
Net income..................................... -- -- 348 -- 348
Distributions to stockholders.................. -- -- (164) -- (164)
Change in net unrealized gain (loss) on
marketable equity securities................. -- -- -- 44 44
----- -- ------ ---- ------
Balance at September 30, 1996.................. 8,571 9 2,338 42 2,389
Net income..................................... -- -- 725 -- 725
Distributions to stockholders.................. -- -- (51) -- (51)
Change in net unrealized gain (loss) on
marketable equity securities................. -- -- -- 42 42
----- -- ------ ---- ------
Balance at September 30, 1997.................. 8,571 9 3,012 84 3,105
Net income..................................... -- -- 513 -- 513
Distributions to stockholders.................. -- -- (60) -- (60)
Change in net unrealized gain (loss) on
marketable equity securities................. -- -- -- 66 66
----- -- ------ ---- ------
Balance at June 30, 1998....................... 8,571 $9 $3,465 $150 $3,624
===== == ====== ==== ======
</TABLE>
The accompanying notes are an integral part of this statement.
F-63
<PAGE> 124
SHRADER REFUSE AND RECYCLING SERVICE COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS ENDED
SEPTEMBER 30, JUNE 30,
----------------- ----------------
1996 1997 1997 1998
------- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 348 $ 725 $ 614 $ 513
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 565 770 546 697
Realized (gain) loss on marketable equity securities... 8 (23) (19) (19)
Gain on sale of property and equipment................. (6) (8) -- --
Changes in operating assets and liabilities:
Accounts receivable, net............................. (25) (223) (49) 89
Prepaid expenses..................................... 16 (32) (7) (10)
Other assets......................................... (6) (35) (85) (51)
Accounts payable..................................... 73 (42) (30) 121
Accrued liabilities.................................. 23 3 18 14
------- ------ ------ ------
Net cash provided by operating activities......... 996 1,135 988 1,354
------- ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment........... (2,010) (655) (395) (609)
Proceeds from sale of property and equipment.............. 6 26 -- --
Purchases of marketable equity securities................. (272) (307) (273) (232)
Proceeds from sale of marketable equity securities........ 81 215 184 144
------- ------ ------ ------
Net cash used in investing activities............. (2,195) (721) (484) (697)
------- ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. 1,777 300 120 250
Principal payments on long-term debt and capital lease
obligations............................................ (518) (834) (617) (621)
Cash distributions made to stockholders................... (164) (51) (39) (60)
------- ------ ------ ------
Net cash provided by (used in) financing
activities...................................... 1,095 (585) (536) (431)
------- ------ ------ ------
Net change in cash and cash equivalents..................... (104) (171) (32) 226
Cash and cash equivalents:
Beginning of period....................................... 391 287 287 116
------- ------ ------ ------
End of period............................................. $ 287 $ 116 $ 255 $ 342
======= ====== ====== ======
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION AND
NON-CASH TRANSACTIONS:
Cash paid for interest.................................... $ 206 $ 299 $ 219 $ 287
======= ====== ====== ======
Capital lease obligations incurred for the purchase of
property and equipment................................. $ 376 $1,380 $1,380 $ --
======= ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-64
<PAGE> 125
SHRADER REFUSE AND RECYCLING SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO JUNE 30, 1998 AND THE NINE
MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED.)
NOTE A -- ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Organization and Business
Shrader Refuse and Recycling Service Company (the "Company") is a
non-hazardous solid waste services company that provides collection, hauling,
disposal and recycling services to residential and commercial customers in
various counties of Nebraska.
The Company derives a portion of its revenue from exclusive municipal
contracts, of which a significant number will be subject to competitive bidding
at some time in the future. The Company intends to bid on additional municipal
contracts 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.
2. Sale of the Company
On July 31, 1998, the Company's stockholders sold all capital stock of the
Company to Waste Connections, Inc. ("WCI") for cash and common stock of WCI.
3. Interim Financial Information
The unaudited interim financial statements as of June 30, 1998 and for the
nine months ended June 30, 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 nine months ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending September 30,
1998.
4. 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.
5. Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
6. 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.
7. Marketable Equity Securities
The Company's marketable equity securities are classified as "available for
sale" and stated at market value. Unrealized holding gains and losses on such
securities are reported as a separate component of stockholders' equity until
realized.
F-65
<PAGE> 126
SHRADER REFUSE AND RECYCLING SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996 AND 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO JUNE 30, 1998 AND THE NINE
MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED.)
NOTE A -- ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Gains and losses on the disposition of marketable equity securities are
determined using the first-in, first-out method. Declines in the fair value of
individual securities below their cost that are other than temporary are
recorded as realized losses through a charge to income.
8. 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 or
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 of property and equipment are as follows:
<TABLE>
<S> <C>
Buildings under capital leases........................... 10 years
Machinery and equipment.................................. 3-10 years
Rolling stock............................................ 5-10 years
Containers............................................... 5-12 years
</TABLE>
9. Goodwill
Goodwill represents the excess of the purchase price over the fair value of
the tangible 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.
10. 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.
11. Income Taxes
The Company 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 Company's operations flow through to the
individual shareholders.
12. Significant Customer
The Company has one major customer which represents 16% of total revenues
for the year ended September 30, 1997.
NOTE B -- MARKETABLE EQUITY SECURITIES
At September 30, 1996 and 1997, the aggregate market value of marketable
equity securities exceeded their aggregate cost by $42 and $84, respectively.
Gross unrealized gains totaled $44 and $89 and gross unrealized losses totaled
$2 and $5 at September 30, 1996 and 1997, respectively.
F-66
<PAGE> 127
SHRADER REFUSE AND RECYCLING SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996 AND 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO JUNE 30, 1998 AND THE NINE
MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED.)
NOTE B -- MARKETABLE EQUITY SECURITIES (CONTINUED)
Proceeds from sales of marketable equity securities during the years ended
September 30, 1996 and 1997 were $81 and $215, respectively. Gross gains of $4
and gross losses of $12 were realized on sales during 1996. Gross gains of $37
and gross losses of $14 were realized on sales during 1997.
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- JUNE 30,
1996 1997 1998
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Buildings under capital leases....................... $ 376 $1,756 $1,756
Machinery and equipment.............................. 440 455 471
Rolling stock........................................ 3,359 3,656 4,009
Containers........................................... 1,781 2,089 2,328
------ ------ ------
5,956 7,956 8,564
Less accumulated depreciation and amortization....... 2,017 2,761 3,452
------ ------ ------
$3,939 $5,195 $5,112
====== ====== ======
</TABLE>
NOTE D -- GOODWILL
Goodwill is comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- JUNE 30,
1996 1997 1998
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill............................................. $ 351 $ 351 $ 351
Accumulated amortization............................. 128 137 142
------ ------ ------
$ 223 $ 214 $ 209
====== ====== ======
</TABLE>
NOTE E -- FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- JUNE 30,
1996 1997 1998
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable to bank bearing interest at rates
ranging from 7.75% to 9.50%, payable in monthly
installments of principal and interest; maturing
through August 2001................................ $2,244 $1,766 $1,467
Note payable to related party, with interest at 9%
per annum payable quarterly until monthly
installments of principal and interest commence on
November 1997. This note matures July 2003 and is
without collateral................................. 195 195 195
------ ------ ------
2,439 1,961 1,662
Less current portion................................. 763 703 703
------ ------ ------
Long-term debt, net of current portion............... $1,676 $1,258 $ 959
====== ====== ======
</TABLE>
F-67
<PAGE> 128
SHRADER REFUSE AND RECYCLING SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996 AND 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO JUNE 30, 1998 AND THE NINE
MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED.)
NOTE E -- FINANCING ARRANGEMENTS (CONTINUED)
On July 1, 1998, the Company entered into an $875 credit facility with a
bank maturing December 2001. The credit facility is a line of credit through
January 1, 1999, whereupon all borrowings under the facility will be refinanced
on a note payable due in monthly installments through December 2001. Borrowings
bear interest at 8.0% per annum. During July 1998, the Company utilized all of
the credit facility for equipment purchases.
The notes payable to bank and the credit facility are collateralized by
substantially all of the Company's assets and the personal guarantees of the
stockholders. The Company is subject to certain restrictive covenants with the
bank, which among other things, require that a specified debt service coverage
ratio be maintained and restrict the payment of dividends solely to amounts
sufficient to meet the tax requirements of the stockholders relative to the
Company's status as a Subchapter "S" Corporation. The Company was in compliance
with or received waivers of the covenant requirements for the year ended
September 30, 1997.
As of September 30, 1997, aggregate contractual future principal payments
by fiscal year are due as follows:
<TABLE>
<S> <C>
1998................................................ $ 703
1999................................................ 546
2000................................................ 355
2001................................................ 284
2002................................................ 39
Thereafter.......................................... 34
------
$1,961
======
</TABLE>
In conjunction with the acquisition of the Company by WCI on July 31, 1998,
all of the outstanding long-term debt of the Company was repaid.
NOTE F -- COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Leases
The Company leases three facilities from a related party under two ten-year
leases expiring in 2005 and 2007. For financial reporting purposes, minimum
lease rentals relating to the facilities have been capitalized. The related
assets and obligations have been recorded using the Company's implicit borrowing
rate at the inception of the leases. The following amounts are included in
property and equipment as buildings under capital leases:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- JUNE 30,
1996 1997 1998
---- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Buildings....................................... $376 $1,756 $1,756
Less accumulated amortization................... 38 121 253
---- ------ ------
$338 $1,635 $1,503
==== ====== ======
</TABLE>
F-68
<PAGE> 129
SHRADER REFUSE AND RECYCLING SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996 AND 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO JUNE 30, 1998 AND THE NINE
MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED.)
NOTE F -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
The following is a schedule by fiscal years of future minimum lease
payments under capital leases together with the present value of the net minimum
lease payments as of September 30, 1997:
<TABLE>
<S> <C>
1998........................................................ $ 321
1999........................................................ 321
2000........................................................ 321
2001........................................................ 321
2002........................................................ 321
Thereafter.................................................. 1,368
------
Total minimum lease payments................................ 2,973
Less amount representing interest........................... 1,293
------
$1,680
======
Current portion............................................. $ 97
Long-term portion........................................... 1,583
------
$1,680
======
</TABLE>
Prior to entering into the current leases, the Company leased these
facilities on a month-to-month basis from the related party. The Company
recognized rent expense of $171 and $117 in fiscal 1996 and 1997, respectively.
Total rent and minimum lease payments to the related party during fiscal 1996
and 1997 were $249 and $260, respectively.
In conjunction with the acquisition of the Company by WCI on July 31, 1998,
the current leases were terminated, two of the three facilities were acquired
and the remaining facility was leased under a two-year lease with an option to
extend for an additional two years through July 2002.
Noncompete Agreement
The Company has a noncompete agreement with a related party that requires
the Company to pay $4 a month through October 1997 provided the related party
abides by the noncompete agreement. The Company paid the related party $44 in
each of the fiscal years ended September 30, 1996 and 1997.
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
F-69
<PAGE> 130
SHRADER REFUSE AND RECYCLING SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996 AND 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO JUNE 30, 1998 AND THE NINE
MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED.)
NOTE F -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
during the normal operation of the waste management business. As of September
30, 1997, 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.
NOTE G -- PRO FORMA INCOME TAX INFORMATION (UNAUDITED)
Unaudited pro forma information reflects income tax expense as if the
Company had been subject to federal and state income taxes. The pro forma
provisions for income taxes for the years ended September 30, 1996 and 1997 and
the nine month periods ended June 30, 1997 and 1998 differ from the amounts
computed by applying the applicable statutory federal income tax rate (34%) to
income before income taxes due to state income taxes and certain non-deductible
expenses.
The following is a summary of pro forma income taxes for the years ended
September 30, 1996 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
--------------
1996 1997
----- -----
<S> <C> <C>
Current:
Federal................................................... $ 47 $ 66
State..................................................... 10 14
Deferred:
Federal................................................... 69 171
State..................................................... 15 39
---- ----
Pro forma income taxes...................................... $141 $290
==== ====
</TABLE>
The Company's pro forma deferred income tax liabilities of approximately
$739 and $949 at September 30, 1996 and 1997, respectively, relate principally
to differences between tax and financial methods of reporting depreciation
expense and the use of the cash method of accounting for income tax purposes
which gives rise to differences between financial statement and tax return
recognition of receivables, prepaid expenses, accounts payable and accrued
liabilities.
NOTE H -- FINANCIAL INSTRUMENTS
The following estimated fair value information pertains to the Company's
financial instruments and does not purport to represent the aggregate net fair
value of the Company.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents: The carrying amount approximates fair value
because of the short maturity of those instruments.
Marketable equity securities: Quoted market prices for the Company's
marketable equity securities are used to estimate fair value.
Long-term debt and capital lease obligations: Current incremental borrowing
rates for similar type borrowings are used to estimate the fair value of the
Company's long-term debt and capital lease obligations.
F-70
<PAGE> 131
SHRADER REFUSE AND RECYCLING SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996 AND 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO JUNE 30, 1998 AND THE NINE
MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED.)
NOTE H -- FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
--------------------- ---------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents......................... $ 287 $ 287 $ 116 $ 116
Marketable equity securities...................... 246 246 403 403
Financial Liabilities:
Long-term debt.................................... 2,439 2,528 1,961 1,970
Capital lease obligations......................... 356 486 1,680 2,038
</TABLE>
F-71
<PAGE> 132
- ------------------------------------------------------
- ------------------------------------------------------
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.......................... 7
Dividend Policy....................... 15
Price Range of Common Stock........... 15
Selected Historical and Pro Forma
Financial and Operating Data........ 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 29
Management............................ 43
Certain Transactions.................. 49
Principal Stockholders................ 51
Description of Capital Stock.......... 52
Shares Eligible for Future Sale....... 56
Outstanding Securities Covered by this
Prospectus.......................... 56
Legal Matters......................... 57
Experts............................... 58
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,000,000 SHARES
(LOGO)
COMMON STOCK
------------------------
PROSPECTUS
------------------------
SEPTEMBER , 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 133
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> 134
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)
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
</TABLE>
II-2
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
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
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
</TABLE>
II-3
<PAGE> 136
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
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
10.32 Employment Agreement between the Company and David M. Hall,
dated as of July 8, 1998
10.33+ Asset Purchase Agreement, dated as of July 27, 1998, by and
among the Company, Waste Connections of Utah, Inc., Miller
Containers, Inc., and Douglas L. Miller
10.34++ Agreement and Plan of Merger, dated as of July 30, 1998, by
and among the Company, WCI Acquisition Corporation, Shrader
Refuse and Recycling Service Company, Duane E. Shrader,
Myrlen A. Shrader, Daniel L. Shrader, Mark S. Shrader,
Michael D. Shrader and Daren L. Shrader
10.35++ Purchase and Sale Agreement dated as of July 31, 1998, by
and between Ambler Vincent Development Company and Shrader
Refuse and Recycling Service Company
10.36+ Asset Purchase Agreement dated as of August 21, 1998, among
the Company, Waste Connection of Utah, Inc. and Joseph E.
Cunningham and Scott L. Helm
10.37+ Asset Purchase Agreement, dated as of August 10, 1998, by
and among the Company, Waste Connections of Utah, Inc., ABC
Waste Inc., and David Boren
10.38 Form of Investors' Rights Agreement, dated as of July 31,
1998(4)
10.39+ Purchase Agreement, dated as of July 31, 1998, by and among
the Company, Waste Connections of Nebraska, Inc., J & J
Sanitation Inc., Big Red Roll Off Inc., Garry L. Jeffords,
Darin R. Mueller, Leslie J. Jeffords, Leland J. Jeffords,
Bradley Rowan, Great Plains Recycling, Inc., Roma L.
Jeffords, Kristie K. Mueller, Sheri L. Jeffords and Betty L.
Hargis
21.1 Subsidiaries of the Registrant
23.1++ Consent of Shartsis, Friese & Ginsburg LLP
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Grant Thornton 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.
++ Incorporated by reference to the exhibit filed with the Registrant's Form
8-K filed on August 11, 1998.
+ Filed without exhibits and schedules (to be provided supplementally on
request of the Commission).
++ Previously filed.
II-4
<PAGE> 137
(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 66,794 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.
(4) Each of the selling shareholders of Shrader Refuse and Recycling Service
Company is a party to this Investors' Rights Agreement.
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.
II-5
<PAGE> 138
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, 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> 139
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 September 3, 1998.
WASTE CONNECTIONS, INC.
By: /s/ RONALD J. MITTELSTAEDT
------------------------------------
Ronald J. Mittelstaedt
President, Chief Executive Officer
and Chairman
Each person whose signature appears below hereby appoints Ronald J.
Mittelstaedt and Steven F. Bouck and each of them, each of whom may act without
joinder of the other, as his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute in the name and on behalf of
each such person any amendment or any post-effective amendment to this
Registration Statement, and any registration statement relating to any offering
made in connection with the offering covered by this Registration Statement that
is to be effective on filing pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing appropriate or necessary to be done, as fully and for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on September 3, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RONALD J. MITTELSTAEDT President, Chief Executive September 3, 1998
- ----------------------------------------------------- Officer and Chairman
Ronald J. Mittelstaedt
/s/ EUGENE V. DUPREAU Director and Vice September 3, 1998
- ----------------------------------------------------- President -- Madera
Eugene V. Dupreau
/s/ MICHAEL W. HARLAN Director September 3, 1998
- -----------------------------------------------------
Michael W. Harlan
/s/ WILLIAM J. RAZZOUK Director September 3, 1998
- -----------------------------------------------------
William J. Razzouk
/s/ STEVEN F. BOUCK Executive Vice President and September 3, 1998
- ----------------------------------------------------- Chief Financial Officer
Steven F. Bouck
/s/ MICHAEL R. FOOS Vice President and Corporate September 3, 1998
- ----------------------------------------------------- Controller
Michael R. Foos
</TABLE>
II-7
<PAGE> 140
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> 141
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> 142
<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.........................................
10.32 Employment Agreement between the Company and David M. Hall,
dated as of July 8, 1998....................................
10.33+ Asset Purchase Agreement, dated as of July 27, 1998, by and
among the Company, Waste Connections of Utah, Inc., Miller
Containers, Inc., and Douglas L. Miller.....................
10.34++ Agreement and Plan of Merger, dated as of July 30, 1998, by
and among the Company, WCI Acquisition Corporation, Shrader
Refuse and Recycling Service Company, Duane E. Shrader,
Myrlen A. Shrader, Daniel L. Shrader, Mark S. Shrader,
Michael D. Shrader and Daren L. Shrader.....................
10.35++ Purchase and Sale Agreement dated as of July 31, 1998, by
and between Ambler Vincent Development Company and Shrader
Refuse and Recycling Service Company........................
</TABLE>
<PAGE> 143
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<S> <C> <C>
10.36+ Asset Purchase Agreement dated as of August 21, 1998, among
the Company, Waste Connection of Utah, Inc. and Joseph E.
Cunningham and Scott L. Helm................................
10.37+ Asset Purchase Agreement, dated as of August 10, 1998, by
and among the Company, Waste Connections of Utah, Inc., ABC
Waste Inc., and David Boren.................................
10.38 Form of Investors' Rights Agreement, dated as of July 31,
1998(4).....................................................
10.39+ Purchase Agreement, dated as of July 31, 1998, by and among
the Company, Waste Connections of Nebraska, Inc., J & J
Sanitation Inc., Big Red Roll Off Inc., Garry L. Jeffords,
Darin R. Mueller, Leslie J. Jeffords, Leland J. Jeffords,
Bradley Rowan, Great Plains Recycling, Inc., Roma L.
Jeffords, Kristie K. Mueller, Sheri L. Jeffords and Betty L.
Hargis......................................................
21.1 Subsidiaries of the Registrant..............................
23.1++ Consent of Shartsis, Friese & Ginsburg LLP..................
23.2 Consent of Ernst & Young LLP, Independent Auditors..........
23.3 Consent of Grant Thornton 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.
++ Incorporated by reference to the exhibit filed with the Registrant's Form
8-K filed on August 11, 1998.
+ Filed without exhibits and schedules (to be provided supplementally on
request of the Commission).
++ Previously filed.
<PAGE> 1
EXHIBIT 10.32
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of July 8, 1998, to become
effective as soon thereafter as the parties agree is possible, by and between
Waste Connections, Inc., a Delaware corporation (the "Company"), and David M.
Hall (the "Employee"), with reference to the following facts.
The Company desires to engage the services and employment of the
Employee, and the Employee is willing to accept employment by the Company, on
the terms and conditions set forth below.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and conditions herein, the Company and the Employee agree as follows:
1. Employment. The Company agrees to employ the Employee, and the
Employee agrees to accept employment with the Company, on the terms and
conditions stated herein.
2. Position and Responsibilities. During the Term, the Employee shall
serve as Vice President -- Business Development of the Company, reporting
directly to the Company's President. The Employee shall be responsible for
direct supervision of all business development personnel of the Company, for the
attainment of the Company's business development objectives, and for adherence
to the Company's strategic business plan and financial criteria in the conduct
of its business, and shall perform such other duties and responsibilities as the
President or the Board of Directors (the "Board") of the Company may reasonably
assign to the Employee from time to time. The Employee shall be based in
Roseville, California.The Employee shall devote such time and attention to his
duties as are necessary to the proper discharge of his responsibilities
hereunder. The Employee agrees to perform all duties consistent with (a)
policies established from time to time by the Company and (b) all applicable
legal requirements.
3. Term. The period of the Employee's employment under this Agreement
(the "Term") shall commence on the effective date of this Agreement and shall
continue until July 7, 2001, unless terminated earlier as provided herein or
extended by the vote of the Board. On that date, this Agreement shall be renewed
automatically for successive periods of one year, unless either party shall have
given the other notice of termination hereof as provided herein.
4. Compensation, Benefits and Reimbursement of Expenses.
(a) Compensation. The Company shall compensate the Employee
during the Term of this Agreement as follows:
1
<PAGE> 2
(1) Base Salary. The Employee shall be paid a base salary ("Base
Salary") of not less than Eighty Thousand Dollars ($80,000) per year in
installments consistent with the Company's usual practices. The Board shall
review the Employee's Base Salary on July 8 of each year or more frequently, at
the times prescribed in salary administration practices applied generally to
management employees of the Company.
(2) Performance Bonus.
(i) Amount. The Employee shall be entitled to an annual
cash bonus (the "Bonus") based on the Employee's contribution to the Company's
attainment of its acquisition growth targets, as established by the Board. The
Employee's Bonus with respect to the 1998 fiscal year shall be determined by the
President and the Board. For the 1999 fiscal year, the Employee will receive a
Bonus based on the Pro Forma Acquired Revenue of Qualifying Acquisitions
consummated by the Company in 1999, as follows:
<TABLE>
<CAPTION>
Pro Forma Acquired Revenue
of Qualifying Acquisitions Bonus Amount
-------------------------- ------------
<S> <C>
At least $60,000,000 but less
than $75,000,000 $100,000
At least $75,000,000 but less
than $100,000,000 $150,000
$100,000,000 or greater $220,000
</TABLE>
For the purpose of this section 4(a)(2), "Pro Forma Acquired
Revenue" means the aggregate of the gross pro forma revenues estimated by the
Company to be earned by each company or business acquired by or merged with the
Company or any of its subsidiaries in the first twelve months after such
acquisition or merger. "Qualifying Acquisitions" means acquisitions and mergers
consummated by the Company or its subsidiaries that the Employee plays a
substantial role in initiating or negotiating or that are initiated and
negotiated by another employee or consultant under the Employee's supervision.
Qualifying Acquisitions do not include acquisitions and mergers that are
initiated and negotiated primarily by the Company's officers other than the
Employee. The Company's President, in his sole discretion, shall determine
whether an acquisition or merger is a Qualifying Acquisition. If the Employee
participates in an acquisition or merger but the President determines that the
Employee's participation is not substantial enough for it to be a Qualifying
Acquisition, the President, in his discretion, may nevertheless treat a portion
of the Pro Forma Acquired Revenue of that transaction as Pro Forma Acquired
Revenue of a Qualifying Acquisition for the purpose of determining the
Employee's Bonus.
Beginning in 2000, the President may in his discretion change
the structure of the Bonus. If the Bonus structure is not changed, the President
and the Board shall determine
2
<PAGE> 3
the levels of Pro Forma Acquired Revenue and the corresponding Bonus amounts
with respect to the year 2000 and each subsequent year, based on the Company's
acquisition growth targets established by the Board.
(ii) Payment of Bonus. The Bonus shall be paid in
accordance with the Company's bonus plan, as approved by the Board; provided
that in no case shall any portion of the Bonus with respect to any fiscal year
be paid more than seventy-five (75) days after the end of such fiscal year.
Notwithstanding the foregoing, on April 1, 1999 and on the first day of each
succeeding fiscal quarter during the term of this Agreement, the Employee may
elect to be paid in advance a portion of his estimated Bonus ("a Bonus Advance")
with respect to that fiscal year. The maximum Bonus Advance payable to the
Employee with respect to any fiscal quarter is the amount that, when added to
all other Bonus Advances paid made previously to the Employee during that year,
equals one-half of his Projected Bonus (as defined below) for the fiscal year in
which that quarter falls, multiplied by a fraction, the numerator of which is
the number of quarters elapsed to date in that year and the denominator of which
is 4. For the purpose of this Section 4(a)(2)(ii), "Projected Bonus" for a
fiscal year means the Bonus that the Employee would earn with respect to that
year if the Pro Forma Acquired Revenue from Qualifying Acquisitions consummated
to date in that year were annualized.
For example, if as of April 1, 1999, the Company has consummated
Qualifying Acquisitions in 1999 representing Pro Forma Acquired Revenue of
$20,000,000, the Employee's 1999 Projected Bonus would be $150,000, based on
estimated annualized Pro Forma Acquired Revenue of $80,000,000. In such case,
the Employee could elect on April 1, 1999, to be paid a Bonus Advance of up to
$18,750 (one-half of $150,000 multiplied by 1/4). If in the second fiscal
quarter of 1999 the Company consummates additional Qualifying Acquisitions
representing additional Pro Forma Acquired Revenue of $10,000,000, the
Employee's 1999 Projected Bonus would be $100,000, based on estimated annualized
Pro Forma Acquired Revenue of $60,000,000. On July 1, 1999, therefore, assuming
that the Employee was paid a Bonus Advance of $18,750 with respect to the first
quarter, the Employee could elect to be paid an additional Bonus Advance of up
to $6,250, or the amount that, when added to the $18,750 Bonus Advance paid with
respect to the first quarter, equals 50% of the Projected Bonus for 1999
multiplied by 2/4.
Each Bonus Advance shall be paid within 30 days after the
Employee elects to receive it. All Bonus Advances paid made during a fiscal year
shall be deducted from the Bonus to be paid to the Employee after the end of the
year with respect to that year. If the aggregate Bonus Advance payments to the
Employee during a fiscal year exceed the actual Bonus determined at the end of
that year to be payable to him with respect to that year, the Employee shall
repay the excess to the Company within 30 days after the end of that year.
(3) Grants of Options. On the date of this Agreement, the
Company shall grant to the Employee, for no additional consideration, incentive
stock options ("ISOs") to purchase 16,551 shares of the Company's Common Stock
under the Company's 1997 Stock Option Plan. These ISOs shall have a term of 10
years from the date of such grant and shall
3
<PAGE> 4
be exercisable at $18.125 per share. These ISOs shall vest with respect to 5,517
shares on each of October 1, 1998, October 1, 1999 and October 1, 2000.
In addition, on the date of this Agreement, the Company
shall grant to the Employee, for no additional consideration, nonqualified stock
options to purchase 33,449 shares of the Company's Common Stock under the
Company's 1997 Stock Option Plan. These options shall have a term of 10 years
from the date of such grant and shall be exercisable at $18.125 per share. These
options shall vest with respect to 11,150 shares on each of October 1, 1998 and
October 1, 1999, and with respect to 11,149 shares on October 1, 2000.
During the term of this Agreement, the Employee shall be
eligible for annual grants of additional stock options commensurate with his
position and with option grants to other employees of the Company, based on the
recommendation of the Company's President and as approved by the Board.
The terms of the options shall be described in more
detail in Stock Option Agreements to be entered into between the Employee and
the Company. If at any time while any of the options are still outstanding the
Company amends its 1997 Stock Option Plan to provide for a less favorable
vesting schedule for options than that provided herein, any options then
outstanding shall thereupon be converted to warrants entitling the Employee to
purchase the number of shares of Common Stock for which the Employee's then
outstanding options may be exercised, on the same terms as provided under such
options.
(b) Other Benefits. During the Term, the Company shall provide
the Employee with a cellular telephone and will pay or reimburse the Employee's
monthly service fee and costs of calls attributable to Company business. During
the Term, the Employee shall be entitled to receive all other benefits of
employment generally available to other management employees of the Company and
those benefits for which management employees are or shall become eligible,
including, without limitation and to the extent made available by the Company,
medical, dental, vision, disability and prescription coverage, life insurance
and tax-qualified retirement benefits. The Employee shall be entitled to three
(3) weeks of paid vacation in his first twelve months of employment by the
Company, and four (4) weeks per twelve-month period beginning with the second
twelve-month period of employment.
(c) Relocation Benefits. Subject to the condition set forth in
the last sentence of this paragraph, the Company shall pay the Employee, on the
first day of the Term, a lump sum of $85,000 for reasonable out-of-pocket
expenses related to the Employee's relocating from Monument, Colorado to the
Roseville, California area. Notwithstanding the foregoing, if before July 7,
2001, the Employee's employment under this Agreement is terminated under Section
7(a) by the Company for Cause or by the Employee for any reason, the Employee
shall on such termination pay to the Company an amount equal to $85,000
multiplied by a fraction, the numerator of which is (36 minus the number of full
months the Employee was employed under this Agreement), and the denominator of
which is 36.
4
<PAGE> 5
(d) Reimbursement of Other Expenses. The Company agrees to pay
or reimburse the Employee for all reasonable travel and other expenses
(including mileage for business use of the Employee's personal automobile at the
maximum rate permitted under Internal Revenue Service regulations) incurred by
the Employee in connection with the performance of his duties under this
Agreement on presentation of proper expense statements or vouchers. All such
supporting information shall comply with all applicable Company policies
relating to reimbursement for travel and other expenses.
(e) Withholding. All compensation payable to the Employee
hereunder is subject to all withholding requirements under applicable law.
5. Confidentiality. During the Term of his employment, and at all times
thereafter, the Employee shall not, without the prior written consent of the
Company, divulge to any third party or use for his own benefit or the benefit of
any third party or for any purpose other than the exclusive benefit of the
Company, any confidential or proprietary business or technical information
revealed, obtained or developed in the course of his employment with the Company
and which is otherwise the property of the Company or any of its affiliated
corporations, including, but not limited to, trade secrets, customer lists,
formulae and processes of manufacture; provided, however, that nothing herein
contained shall restrict the Employee's ability to make such disclosures during
the course of his employment as may be necessary or appropriate to the effective
and efficient discharge of his duties to the Company.
6. Property. Both during the Term of his employment and thereafter, the
Employee shall not remove from the Company's offices or premises any Company
documents, records, notebooks, files, correspondence, reports, memoranda and
similar materials or property of any kind unless necessary in accordance with
the duties and responsibilities of his employment. In the event that any such
material or property is removed, it shall be returned to its proper file or
place of safekeeping as promptly as possible. The Employee shall not make,
retain, remove or distribute any copies, or divulge to any third person the
nature or contents of any of the foregoing or of any other oral or written
information to which he may have access, except as disclosure shall be necessary
in the performance of his assigned duties. On the termination of his employment
with the Company, the Employee shall leave with or return to the Company all
originals and copies of the foregoing then in his possession or subject to his
control, whether prepared by the Employee or by others.
7. Termination.
(a) Termination by the Company for Cause or by the Employee. The
employment of the Employee may be terminated for Cause at any time by the vote
of the Board; provided, however, that before the Company may terminate the
Employee's employment for Cause for any reason that is susceptible to cure, the
Company shall first send the Employee written notice of its intention to
terminate this Agreement for Cause, specifying in such notice the reasons for
such Cause and those conditions that, if satisfied by the Employee, would cure
the reasons for such Cause, and the Employee shall have 60 days from receipt of
such written
5
<PAGE> 6
notice to satisfy such conditions. If such conditions are satisfied within such
60-day period, the Company shall so advise the Employee in writing. If such
conditions are not satisfied within such 60-day period, the Company may
thereafter terminate this Agreement for Cause on written Notice of Termination
(as defined in Section 8(a)) delivered to the Employee describing with
specificity the grounds for termination. The employment of the Employee may also
be terminated at any time by the Employee on written Notice of Termination
delivered to the Company. Immediately on termination pursuant to this Section
7(a), the Company shall pay to the Employee in a lump sum his then current Base
Salary under Section 4(a)(1) on a prorated basis to the Date of Termination (as
defined in Section 8(b)). On termination pursuant to this Section 7(a), the
Employee shall forfeit (i) his Bonus under Section 4(a)(2) for the year in which
such termination occurs, and (ii) all unvested warrants, options and rights
relating to capital stock of the Company. For purposes of this Agreement, Cause
shall mean:
(1) a material breach of any of the terms of this
Agreement that is not immediately corrected following written notice of default
specifying such breach;
(2) a breach of any of the provisions of Section 10;
(3) repeated intoxication with alcohol or drugs while on
Company premises during its regular business hours to such a degree that, in the
reasonable judgment of the other managers of the Company, the Employee is
abusive or incapable of performing his duties and responsibilities under this
Agreement;
(4) conviction of a felony; or
(5) misappropriation of property belonging to the
Company and/or any of its affiliates.
(b) Termination Without Cause. The employment of the Employee may
be terminated without Cause at any time by the vote of the Board on delivery to
the Employee of a written Notice of Termination (as defined in Section 8(a)). On
the Date of Termination (as defined in Section 8(b)) pursuant to this Section
7(b), the Company shall pay to the Employee in a lump sum an amount equal to the
sum of (i) all Base Salary payable under Section 4(a)(1) through the termination
date, (ii) a pro-rated portion of the maximum Bonus available to the Employee
under Section 4(a)(2) for the year in which the termination occurs (less the
aggregate of all Bonus Advances paid to the Employee in the year in which the
termination occurs), and (iii) an amount equal to the Total Prior Year's
Compensation. For purposes of this section 7(b), the Total Prior Year's
Compensation shall equal the sum of (i) the Base Salary paid to the Employee in
the twelve months prior to the termination date, (ii) the greater of $100,000 or
the average of the Bonuses paid to the Employee in the two years prior to the
termination date, and (iii) the other benefits and expense reimbursements
described in Section 4(b) paid to the Employee by the Company in the twelve
months prior to the termination date. In addition, on termination of the
Employee under this Section 7(b), all of the Employee's outstanding but unvested
warrants, options and rights relating to capital stock of the Company shall
immediately
6
<PAGE> 7
vest and become exercisable. The term of any such warrants, options and rights
shall be extended to the third anniversary of the Employee's termination. The
Employee acknowledges that extending the term of any ISO pursuant to this
Section 7(b), or Section 7(c) or 7(d), could cause such option to lose its
tax-qualified status under the Code and agrees that the Company shall have no
obligation to compensate the Employee for any additional taxes he incurs as a
result.
(c) Termination on Disability. If during the Term the Employee
should fail to perform his duties hereunder on account of physical or mental
illness or other incapacity which the Board shall in good faith determine
renders the Employee incapable of performing his duties hereunder, and such
illness or other incapacity shall continue for a period of more than six (6)
consecutive months ("Disability"), the Company shall have the right, on written
Notice of Termination (as defined in Section 8(a)) delivered to the Employee to
terminate the Employee's employment under this Agreement. During the period that
the Employee shall have been incapacitated due to physical or mental illness,
the Employee shall continue to receive the full Base Salary provided for in
Section 4(a)(1) hereof at the rate then in effect until the Date of Termination
(as defined in Section 8(b)) pursuant to this Section 7(c). On the Date of
Termination pursuant to this Section 7(c), the Company shall pay to the Employee
in a lump sum an amount equal to (i) the Base Salary remaining payable to the
Employee under Section 4(a)(1) for the full remaining Term, plus (ii) a
pro-rated portion of the maximum Bonus available to the Employee under Section
4(a)(2) for the year in which the termination occurs (less the aggregate of all
Bonus Advances paid to the Employee in the year in which the termination
occurs). In addition, on such termination, all of the Employee's outstanding but
unvested warrants, options and rights relating to capital stock of the Company
shall immediately vest and become exercisable. The term of any such warrants,
options and rights shall be extended to the third anniversary of the Employee's
termination.
(d) Termination on Death. If the Employee shall die during the
Term, the employment of the Employee shall thereupon terminate. On the Date of
Termination (as defined in Section 8(b)) pursuant to this Section 7(d), the
Company shall pay to the Employee's estate the payments and other benefits
applicable to termination without Cause set forth in Section 7(b) hereof. In
addition, on termination of the Employee under this Section 7(d), all of the
Employee's outstanding but unvested warrants, options and rights relating to
capital stock of the Company shall immediately vest and become exercisable. The
term of any such warrants, options and rights shall be extended to the third
anniversary of the Employee's termination. The provisions of this Section 7(d)
shall not affect the entitlements of the Employee's heirs, executors,
administrators, legatees, beneficiaries or assigns under any employee benefit
plan, fund or program of the Company.
8. Provisions Applicable to Termination of Employment.
(a) Notice of Termination. Any purported termination of the
Employee's employment by the Company or the Employee pursuant to Section 7 shall
be communicated by
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<PAGE> 8
Notice of Termination to the Employee or the Company, as the case may be, as
provided herein ("Notice of Termination").
(b) Date of Termination. For all purposes, "Date of Termination"
shall mean the date on which a Notice of Termination is given.
(c) Benefits on Termination. On termination of this Agreement
pursuant to Section 7, all profit-sharing, deferred compensation and other
retirement benefits payable to the Employee under benefit plans in which the
Employee then participated shall be paid to the Employee in accordance with the
provisions of the respective plans. Except as otherwise provided in sections
7(b), 7(c), 7(d) and 9, if the Employee's employment by the Company is
terminated before all of the Employee's options, warrants and rights with
respect to the Company's capital stock have vested, the Employee shall forfeit
any such options, warrants and rights that are unvested as of the termination
date.
9. Change In Control.
(a) Payments on Change in Control. Notwithstanding any provision
in this Agreement to the contrary, unless the Employee elects in writing to
waive this provision, a Change in Control (as defined below) of the Company
shall be deemed a termination of the Employee by the Company without Cause, and
the Employee shall be entitled to receive and the Company agrees to pay to the
Employee the amount determined under Section 7(b) that is payable to the
Employee on termination by the Company without Cause; provided, however, that on
a Change in Control, all of the Employee's outstanding but unvested warrants,
options and rights relating to capital stock of the Company shall immediately
vest and become exercisable, and the term of any such warrants, options and
rights shall be extended to the third anniversary of the Employee's termination.
In addition, immediately prior to a Change in Control in which either the
Company is not the surviving entity or the executive officers of the Company
immediately prior to the Change in Control do not retain substantially similar
positions after such Change in Control, the Company shall grant to the Employee,
for no additional consideration, ISOs to purchase 20,000 shares of the Company's
Common Stock under the Company's 1997 Stock Option Plan. These ISOs shall have a
term of 10 years from the date of such grant and shall be exercisable
immediately at $22.00 per share.
After a Change in Control, if any previously outstanding warrant,
option or right (the "Terminated Option") relating to the Company's capital
stock does not remain outstanding, the successor to the Company or its then
Parent (as defined below) shall either:
(i) Issue an option, warrant or right, as appropriate (the
"Successor Option"), to purchase common stock of such successor or Parent in an
amount such that on exercise of the Successor Option the Employee would receive
the same number of shares of the successor's/Parent's common stock as the
Employee would have received had the Employee exercised the Terminated Option
immediately prior to the transaction resulting in the Change in Control and
received shares of such successor/Parent in such transaction. The aggregate
8
<PAGE> 9
exercise price for all of the shares covered by such Successor Option shall
equal the aggregate exercise price of the Terminated Option; or
(ii) Pay the Employee a bonus within ten (10) days after
the consummation of the Change in Control in an amount agreed to by the Employee
and the Company. Such amount shall be at least equivalent on an after-tax basis
to the net after-tax gain that the Employee would have realized if he had been
issued a Successor Option under clause (i) above and had immediately exercised
such Successor Option and sold the underlying stock, taking into account the
different tax rates that apply to such bonus and to such gain, and such amount
shall also reflect other differences to the Employee between receiving a bonus
under this clause (ii) and receiving a Successor Option under clause (i) above.
(b) Definitions. For the purposes of this Agreement, a Change in
Control shall be deemed to have occurred if (i) there shall be consummated (aa)
any reorganization, liquidation or consolidation of the Company, or any merger
or other business combination of the Company with any other corporation, other
than any such merger or other combination that would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent (50%) of the total
voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such transaction, (bb) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company, or if
(ii) any "person" (as defined in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), shall become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of fifty percent (50%) or more of the Company's outstanding
voting securities (except that for purposes of this Section 9(b), "person" shall
not include any person or any person that controls, is controlled by or is under
common control with such person, who as of the date of this Agreement owns ten
percent (10%) or more of the total voting power represented by the outstanding
voting securities of the Company, or a trustee or other fiduciary holding
securities under any employee benefit plan of the Company, or a corporation that
is owned directly or indirectly by the stockholders of the Company in
substantially the same percentage as their ownership of the Company) or if (iii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the entire Board shall cease for any reason to
constitute at least one-half of the membership thereof unless the election, or
the nomination for election by the Company's shareholders, of each new director
was approved by a vote of at least one-half of the directors then still in
office who were directors at the beginning of the period.
The term "Parent" means a corporation, partnership, trust,
limited liability company or other entity that is the ultimate "beneficial
owner" (as defined above) of fifty percent (50%) or more of the Company's
outstanding voting securities.
10. Non-Competition and Non-Solicitation.
9
<PAGE> 10
(a) In consideration of the provisions hereof, for the period
commencing on the date hereof and ending on the termination of this Agreement,
the Employee will not, except as specifically provided below, anywhere in any
county in any state in which the Company is engaged in business as of such
termination date, directly or indirectly, acting individually or as the owner,
shareholder, partner or management employee of any entity, (i) engage in the
operation of a solid waste collection, transporting or disposal business,
transfer facility, recycling facility, materials recovery facility or solid
waste landfill; (ii) enter the employ as a manager of, or render any personal
services to or for the benefit of, or assist in or facilitate the solicitation
of customers for, or receive remuneration in the form of management salary,
commissions or otherwise from, any business engaged in such activities in such
counties; or (iii) receive or purchase a financial interest in, make a loan to,
or make a gift in support of, any such business in any capacity, including
without limitation, as a sole proprietor, partner, shareholder, officer,
director, principal agent or trustee; provided, however, that the Employee may
own, directly or indirectly, solely as an investment, securities of any business
traded on any national securities exchange or quoted on any NASDAQ market,
provided the Employee is not a controlling person of, or a member of a group
which controls, such business and further provided that the Employee does not,
in the aggregate, directly or indirectly, own two percent (2%) or more of any
class of securities of such business.
(b) After termination of this Agreement, the Employee shall not
(i) solicit any residential or commercial customer of the Company to whom the
Company provides service pursuant to a franchise agreement with a public entity
in any county in any state in which the Company is engaged in business as of
such termination date, (ii) solicit any residential or commercial customer of
the Company to enter into a solid waste collection account relationship with a
competitor of the Company in any such county, (iii) solicit any such public
entity to enter into a franchise agreement with any such competitor, (iv)
solicit any officer, employee or contractor of the Company to enter into an
employment or contractor agreement with a competitor of the Company or otherwise
interfere in any such relationship, or (v) solicit on behalf of a competitor of
the Company any prospective customer of the Company that the Employee called on
or was involved in soliciting on behalf of the Company during the Term, in each
case until the second anniversary of the date of such termination, unless
otherwise permitted to do so by Section 10(a).
(c) If the final judgment of a court of competent jurisdiction
declares that any term or provision of this Section 10 is invalid or
unenforceable, the parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration or area of the term or provision, to delete specified words or phrases
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
10
<PAGE> 11
11. Indemnification. As an employee and agent of the Company, the
Employee shall be fully indemnified by the Company to the fullest extent
permitted by applicable law in connection with his employment hereunder.
12. Survival of Provisions. The obligations of the Company under Section
11 of this Agreement, and of the Employee under Sections 5, 6 and 10 of this
Agreement, shall survive the termination of both the Employee's employment and
this Agreement.
13. No Duty to Mitigate; No Offset. The Employee shall not be required
to mitigate damages or the amount of any payment contemplated by this Agreement,
nor shall any such payment be reduced by any earnings that the Employee may
receive from any other sources or offset against any other payments made to him
or required to be made to him pursuant to this Agreement.
14. Assignment; Binding Agreement. The Company may assign this Agreement
to any parent, subsidiary, affiliate or successor of the Company. This Agreement
is not assignable by the Employee and is binding on him and his executors and
other legal representatives. This Agreement shall bind the Company and its
successors and assigns and inure to the benefit of the Employee and his heirs,
executors, administrators, personal representatives, legatees or devisees. The
Company shall assign this Agreement to any entity that acquires its assets or
business.
15. Notice. Any written notice under this Agreement shall be personally
delivered to the other party or sent by certified or registered mail, return
receipt requested and postage prepaid, to such party at the address set forth in
the records of the Company or to such other address as either party may from
time to time specify by written notice.
16. Entire Agreement; Amendments. This Agreement contains the entire
agreement of the parties relating to the Employee's employment and supersedes
all oral or written prior discussions, agreements and understandings of every
nature between them. This Agreement may not be changed except by an agreement in
writing signed by the Company and the Employee.
17. Waiver. The waiver of a breach of any provision of this Agreement
shall not operate or as be construed to be a waiver of any other provision or
subsequent breach of this Agreement.
18. Governing Law and Jurisdictional Agreement. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of California.
19. Severability. In case any one or more of the provisions contained in
this Agreement is, for any reason, held invalid in any respect, such invalidity
shall not affect the validity of any other provision of this Agreement, and such
provision shall be deemed modified to the extent necessary to make it
enforceable.
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<PAGE> 12
20. Enforcement. It is agreed that it is impossible to measure fully, in
money, the damage which will accrue to the Company in the event of a breach or
threatened breach of Sections 5, 6 or 10 of this Agreement, and, in any action
or proceeding to enforce the provisions of Sections 5, 6 or 10 hereof, the
Employee waives the claim or defense that the Company has an adequate remedy at
law and will not assert the claim or defense that such a remedy at law exists.
The Company is entitled to injunctive relief to enforce the provisions of such
sections as well as any and all other remedies available to it at law or in
equity without the posting of any bond. The Employee agrees that if the Employee
breaches any provision of Section 10, the Company may recover as partial damages
all profits realized by the Employee at any time prior to such recovery on the
exercise of any warrant, option or right to purchase the Company's Common Stock
and the subsequent sale of such stock, and may also cancel all outstanding such
warrants, options and rights.
21. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and both of which together shall constitute
one and the same instrument.
22. Due Authorization. The execution of this Agreement has been duly
authorized by the Company by all necessary corporate action.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year set forth above.
WASTE CONNECTIONS, INC., a Delaware
corporation
By:_________________________________
Printed Name:_______________________
Title:______________________________
EMPLOYEE:
____________________________________
David M. Hall
12
<PAGE> 1
EXHIBIT 10.33
ASSET PURCHASE AGREEMENT
Dated as of July 27, 1998, by and among
Waste Connections, Inc.,
Waste Connections of Utah, Inc.,
Miller Containers, Inc.
and
Douglas L. Miller
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. PURCHASE AND SALE OF ASSETS........................................................ 1
1.1. Sale and Transfer of Assets................................................. 1
1.2. Assumption by WCU of Assumed Contracts...................................... 2
1.3. Excluded Liabilities........................................................ 2
1.4. Purchase Price.............................................................. 2
1.5. Payment of Purchase Price................................................... 2
1.6. Certain Taxes............................................................... 3
1.7. Allocation of Purchase Price................................................ 3
1.8. Prorations.................................................................. 3
2. CLOSING TIME AND PLACE............................................................. 3
3. REPRESENTATIONS AND WARRANTIES OF SELLER AND
SHAREHOLDER........................................................................ 3
3.1. Standing and Authority for Business......................................... 3
3.2. All Assets Being Acquired................................................... 3
3.3. Authority for Agreement..................................................... 4
3.4. No Breach or Default........................................................ 4
3.5. Financial Statements........................................................ 4
3.6. Liabilities................................................................. 4
3.7. Conduct of Business......................................................... 5
3.8. Permits and Licenses........................................................ 5
3.9. Brokers; Finders............................................................ 7
3.10. Fixed Assets................................................................ 7
3.11. Acquisition/Disposal of Assets.............................................. 8
3.12. Contracts and Agreements; Adverse Restrictions.............................. 8
3.13. Personnel................................................................... 8
3.14. Benefit Plans and Union Contracts........................................... 8
3.15. Taxes....................................................................... 10
3.16. Copies Complete............................................................. 10
3.17. Customers, Billings, Current Receipts and Receivables....................... 10
3.18. No Change With Respect to Seller............................................ 11
3.19. Closing Date Debt........................................................... 11
3.20. Compliance With Laws........................................................ 11
3.21. Patents, Trademarks, Trade Names, etc....................................... 12
3.22. Suppliers and Customers..................................................... 12
3.23. Absence of Certain Business Practices....................................... 12
3.24. Disclosure Schedules........................................................ 13
3.25. No Misleading Statements.................................................... 13
3.26. Accurate and Complete Records............................................... 13
3.27. Knowledge................................................................... 13
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
4. REPRESENTATIONS AND WARRANTIES OF BUYERS........................................... 13
4.1. Existence and Good Standing................................................. 13
4.2. No Contractual Restrictions................................................. 13
4.3. Authorization of Agreement.................................................. 13
4.4. No Misleading Statements.................................................... 14
5. CLOSING DELIVERIES................................................................. 14
5.1. Buyers' Deliveries.......................................................... 14
5.2. Seller's Deliveries......................................................... 14
6. INDEMNIFICATION.................................................................... 15
6.1. Indemnity by Seller, the Shareholder........................................ 15
6.2. Limitations on Seller's and the Shareholder's Indemnities................... 16
6.3. Notice of Indemnity Claim................................................... 16
6.4. Survival of Representations, Warranties and Agreements...................... 17
6.5. No Exhaustion of Remedies or Subrogation; Right of Set Off.................. 18
7. OTHER POST-CLOSING COVENANTS OF SELLER AND WCI..................................... 18
7.1. Restrictive Covenants....................................................... 18
7.2. Rights and Remedies Upon Breach............................................. 20
8. TERMINATION OF AGREEMENT........................................................... 21
8.1. Termination By Buyers; by Seller............................................ 21
8.2. Notice and Effect of Termination............................................ 21
8.3. Exclusive Negotiations...................................................... 21
9. GENERAL............................................................................ 21
9.1. Additional Conveyances...................................................... 21
9.2. Assignment.................................................................. 22
9.3. Public Announcements........................................................ 22
9.4. Counterparts................................................................ 22
9.5. Notices..................................................................... 22
9.6. Attorneys' Fees............................................................. 23
9.7. Applicable Law.............................................................. 23
9.8. Payment of Fees and Expenses................................................ 23
9.9. Incorporation by Reference.................................................. 23
9.10. Captions.................................................................... 23
9.11. Number and Gender of Words.................................................. 23
9.12. Entire Agreement............................................................ 23
9.13. Waiver...................................................................... 24
9.14. Construction................................................................ 24
</TABLE>
ii
<PAGE> 4
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of July 27, 1998, entered into by and
among Waste Connections, Inc., a Delaware corporation ("WCI"), Waste Connections
of Utah, Inc., a Delaware corporation ("WCU" and, collectively with WCI,
"Buyers"), Miller Containers, Inc., a Utah corporation ("Seller"), and Douglas
L. Miller (the "Shareholder").
WHEREAS, the Seller is engaged in the collection and transport of solid
waste in the City of Salt Lake City, Utah and in certain unincorporated areas of
Davis, Salt Lake, Utah and Weber Counties, Utah, and other activities related to
the collection and transport of solid waste in the above-referenced areas (the
"Business");
WHEREAS, the Shareholder owns all of the issued and outstanding Capital
Stock of the Seller;
WHEREAS, Buyers wish to purchase, and Seller wishes to sell certain
assets that are necessary to operate the Business;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto, each intending to be bound hereby, agree as
follows:
1. PURCHASE AND SALE OF ASSETS.
1.1. Sale and Transfer of Assets. Subject to and in accordance
with the terms and conditions of this Agreement, at the Closing on the Closing
Date (as defined below) Seller shall convey, transfer, deliver and assign to
Buyers (and as among Buyers, as they shall designate to Seller), and Buyers
shall accept from Seller all of the assets listed on Schedule 1.1 (collectively,
the "Assets"), including without limitation:
(a) the trucks, containers, operating machinery and
equipment, processing equipment, shop tools, parts, supplies,
accessories, inventory, physical assets and other tangible personal
property used primarily in connection with the ownership, operation and
management of the Business;
(b) all contracts, leases, agreements, customer accounts,
commitments and arrangements specifically identified in Schedule 3.12(a)
as contracts contemplated to be assumed by Buyer pursuant to this
Agreement (the "ASSUMED CONTRACTS");
(c) all permits, licenses, titles (including motor vehicle
titles and current registrations) and any other similar documents from
any and all governmental authorities constituting a material
authorization or entitlement or otherwise material to the operation or
management of the Business owned by, issued to, or held by or otherwise
benefiting Seller (the "Governmental Permits");
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<PAGE> 5
(d) all customer lists of the Seller relating to the
Business;
(e) the good will of the Business;
(f) all deposits, credits, advance payments, claims or
rights relating to the Assets or the Business, excepting petty cash
amounts in possession of truck drivers, accruing after the Closing Date,
all guarantees, warranties, indemnities and similar rights in favor of
Seller with respect to any of the Assets and all books and records
primarily in connection with the operation of the Business; and
(g) a non-exclusive license to use the name "Miller
Containers, Inc." on the Assets for up to 90 days after the Closing
Date.
Notwithstanding the foregoing, the Buyers shall not acquire any of the accounts
receivable of the Seller. The Buyers agree not to send out their first bills to
customer accounts acquired pursuant to this Agreement until at least July 27,
1998.
1.2. Assumption by WCU of Assumed Contracts. WCU hereby assumes
and agrees to perform and discharge, effective the day after the Closing Date
all of the obligations and commitments of Seller accruing after the Closing Date
under or with respect to each Assumed Contract, but not including any obligation
or liability for any breach thereof occurring on or prior to the Closing Date.
1.3. Excluded Liabilities. Notwithstanding the provisions of
Section 1.2 or any other provision hereof or any Schedule or Exhibit hereto and
regardless of any disclosure to Buyers, Buyers shall not assume or be bound by
any other duties, responsibilities, obligations or liabilities of Seller or to
which Seller or any of the Assets or the Business may be bound or affected, of
whatever kind or nature, whether known, unknown, contingent or otherwise,
arising before, on or after the Closing Date (including without limitation taxes
arising from the operation of the Business or the sale of the Assets) except, as
to obligations and liabilities arising after the Closing Date only, those
obligations and liabilities expressly assumed by Buyers pursuant to Section 1.2
(the "Excluded Liabilities").
1.4. Purchase Price. The purchase price for the Assets (the
"Purchase Price") is Six Hundred Twenty-Five Thousand Dollars ($625,000), minus
the Closing Date Debt (as defined in Section 3.19). The Purchase Price shall be
paid as provided in Section 1.5.
1.5. Payment of Purchase Price. The Purchase Price shall be
payable as follows: (1) WCI shall pay Six Hundred Twenty-Five Thousand Dollars
($625,000), in cash to the Seller at the Closing by wire transfer or check
payable in clearinghouse funds; and (ii) WCI shall pay the Closing Date Debt by
wire transfer to the holders of such debt. The Purchase Price paid at Closing
will be based on Schedule 3.19 as delivered at the Closing, which the parties
understand will include only estimates of the Closing Date Debt. Within 90 days
after the Closing Date, Buyers and Seller will determine the actual Closing Date
Debt. If the Purchase Price increases, Buyer will promptly pay any additional
amount due to Seller; if the Purchase Price decreases, Seller will promptly
repay any amount due to Buyer.
2
<PAGE> 6
1.6. Certain Taxes. The Buyers shall pay any and all sales, use,
excise, transfer and conveyance taxes payable or assessable in connection with
or as a result of the transfer of the Assets under the terms of this Agreement
and the transactions contemplated hereby. Buyers shall not be responsible for
any business, occupation, withholding, possessory interest or similar tax or
assessment or any other tax or fee of any kind relating to any period on or
prior to the Closing Date with respect to Seller, the Assets or the ownership,
operation or management of the Business.
1.7. Allocation of Purchase Price. Ten Thousand Dollars ($10,000)
of the Purchase Price shall be allocated to the covenant not to compete
described in Section 7.1(a).
1.8. Prorations. On the Closing Date, or as promptly as
practicable following the Closing Date, but in no event later than 45 days
thereafter, the rent, insurance premiums, personal property taxes, water, gas,
electricity and other utilities, merchants' association dues and other similar
periodic ordinary and necessary operating costs payable with respect to the
Assets or the Business shall be prorated between Buyers and Seller effective as
of the Closing Date. To the extent practicable, utility meter readings for the
Facilities shall be determined as of the Closing Date. Seller's prorated share
of the personal property taxes shall be payable notwithstanding the fact that
such tax may become payable after the Closing Date, and such tax shall be paid
to Buyer or the appropriate taxing authority on or prior to the date on which
such tax becomes due.
2. CLOSING TIME AND PLACE
Subject to the terms and conditions of this Agreement, the closing of
the transactions contemplated herein (the "Closing") shall take place at such
time on July 27, 1998, as the parties shall agree (the "Closing Date") at the
offices of Shartsis, Friese & Ginsburg LLP, in San Francisco, California, or
through an exchange of consideration and signed documents using overnight
courier service. At the Closing, Buyers and Seller shall deliver to each other
the documents, instruments and other items described in Section 5 of this
Agreement.
3. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER
Seller and the Shareholder, jointly and severally, (i) represent and
warrant that each of the following representations and warranties is true and
complete as of the Closing Date with respect to the Seller, the Assets and the
Business, as the case may be, and (ii) agree that such representations and
warranties shall survive the Closing.
3.1. Standing and Authority for Business. Seller has full power
and authority to own the Assets and to operate the Business as now conducted.
3.2. All Assets Being Acquired. The Assets being acquired by
Buyers hereunder constitute all of the assets of Seller used and necessary to
conduct and operate the Business as it is presently conducted and operated
(other than certain assets set forth on Schedule 3.2, which are the Excluded
Assets).
3
<PAGE> 7
3.3. Authority for Agreement. Each of the Seller and the
Shareholder has full right, power and authority to enter into this Agreement and
to perform its or his obligations hereunder. The execution and delivery of this
Agreement by the Seller has been duly authorized by its Board of Directors. This
Agreement has been duly and validly executed and delivered by Seller and the
Shareholder, and, subject to the due authorization, execution and delivery by
WCI and WCU, constitutes the legal, valid and binding obligation of Seller and
the Shareholder, enforceable against Seller and the Shareholder in accordance
with its terms.
3.4. No Breach or Default. Except as disclosed on Schedule 3.4,
the execution and delivery by Seller and the Shareholder of this Agreement, and
the consummation by Seller and the Shareholder of the transactions contemplated
hereby, will not:
(a) result in the breach of any of the terms or conditions
of, or constitute a default under, or allow for the acceleration or
termination of, or in any manner release any party from any obligation
under, any mortgage, lease, note, bond, indenture, or material contract,
agreement license or other instrument or any obligation of any kind or
nature by which Seller, the Shareholder, or any of the Assets, is or may
be bound or affected; or
(b) violate any law or any order, writ, injunction or decree
of any court, administrative agency or governmental authority, or
require the approval, consent or permission of any governmental or
regulatory authority; or
(c) violate any agreements to which Seller or the
Shareholder is a party relating to the Assets and the Business.
3.5. Financial Statements. Seller has delivered to Buyers, as
Schedule 3.5, copies of the financial statements ("Financial Statements") of
Seller relating to the Business for its three most recent fiscal years and
interim financial statements dated as of May 31, 1998 (the "Income Statement
Date"). The Financial Statements are true and correct and fairly present (i) the
financial position of the Business as of the respective dates of the balance
sheets included in the Financial Statements, and (ii) the results of operations
of the Business for the respective periods indicated. The Financial Statements
have been prepared in accordance with generally accepted accounting principles,
applied consistently with prior periods. Except as disclosed on Schedules 3.5,
3.6, 3.19, Seller had, as of the Income Statement Date, and will have, as of the
Closing Date, no liabilities of any nature, whether accrued, absolute,
contingent or otherwise, including, without limitation, tax liabilities due or
to become due, except those identified on Schedule 3.15.
3.6. Liabilities. Parts I, II and III of Schedule 3.6, are
accurate lists and descriptions of all liabilities of Seller relating to the
Business required to be described below in the format set forth below.
(a) Part I of Schedule 3.6 lists, as of the Closing Date,
all claims, suits and proceedings which are pending against Seller
relating to the Business and, to the knowledge of Seller, all material
contingent liabilities and all material claims, suits and
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proceedings threatened or anticipated against Seller relating to the
Business. For each such liability, Part II of Schedule 3.6 includes a
summary description of such liability, including, without limitation:
(i) the name of each court, agency, bureau, board or body before which
any such claim, suit or proceeding is pending, including, without
limitation, those arising under Environmental Laws (as defined in
Section 3.20), those relating to personal injury or property damage
(including all workers' compensation and occupational disease and injury
claims, suits and proceedings) and those citations arising under the
Federal Occupational Safety and Health Act or any comparable state law,
(ii) the date such claim, suit or proceeding was instituted, (iii) the
parties to such claim, suit or proceeding, (iv) a description of the
factual basis alleged to underlie such claim, suit or proceeding,
including the date or dates of all material occurrences, and (v) the
amount claimed and other relief sought.
(b) Part II of Schedule 3.6 lists, as of the Closing Date
and to the extent not otherwise included in Part I of Schedule 3.6, all
material liens, claims and encumbrances secured by any of the Assets,
including a description of the nature of such lien, claim or
encumbrance, the amount secured if it secures a liability, the nature of
the obligation secured, and the party holding such lien, claim or
encumbrance.
(c) Part III of Schedule 3.6 lists, as of the Closing Date
and to the extent not otherwise included in Part II of Schedule 3.6, all
real property and material personal property leasehold interests to
which Seller is a party as lessor or lessee relating to the Business or
affecting or relating to any Facility Property (as described in Section
3.8).
3.7. Conduct of Business. Except as set forth on Schedule 3.7,
since the Income Statement Date and prior to the Closing Date:
(a) The Business has been conducted only in the ordinary
course; and
(b) There has been no change in the condition (financial or
otherwise) of the Assets or the liabilities or operations of Seller
relating to the Business other than changes in the ordinary course of
business, none of which either singly or in the aggregate has been
materially adverse, or which could have a material adverse effect on the
financial condition, Assets, liabilities (contingent or otherwise),
income or operations of the Business.
3.8. Permits and Licenses.
(a) Schedule 3.8(a) is a full and complete list, and
includes copies, of all material permits, licenses, franchises, titles
(including motor vehicle titles and current registrations), fuel
permits, zoning and land use approvals and authorizations, including,
without limitation, any conditional or special use approvals or zoning
variances, occupancy permits, and any other similar documents
constituting a material authorization or entitlement or otherwise
material to the operation of the Business by Seller (collectively the
"GOVERNMENTAL PERMITS") owned by, issued to, held by or otherwise
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benefiting Seller as of the Closing Date. The status of the Governmental
Permits related to the disposal areas owned or used by Seller,
including, without limitation, any conditions thereto and, if
applicable, the expiration dates thereof, are also described in Schedule
3.8(a). Schedule 3.8(a) also sets forth the name of any governmental
agency from whom Seller or Buyer must obtain consent (the "REQUIRED
GOVERNMENTAL CONSENTS") in order to effect a direct or indirect transfer
of the Governmental Permits required as a result of the consummation of
the transactions contemplated by this Agreement. Except as set forth on
Schedule 3.8(a), all of the Governmental Permits enumerated and listed
on Schedule 3.8(a) are and will be adequate for the operation of the
Business of Seller and of each Facility Property as presently operated
and are valid and in full force and effect. All of said Governmental
Permits and agreements have been duly obtained and are in full force and
effect, and there are no proceedings pending or, to the knowledge of
Seller, threatened which may result in the revocation, cancellation,
suspension or adverse modification of any of the same. Seller has no
knowledge of any reason why all such Governmental Permits and agreements
will not remain in effect after consummation of the transactions
contemplated hereby.
(b) As part of Schedule 3.8(a), Seller has delivered to
Buyer copies of: (i) all records, notifications, reports, permit and
license applications, engineering and geologic studies, and
environmental impact reports, tests or assessments (collectively,
"RECORDS, NOTIFICATIONS AND REPORTS") that (A) are material to the
operation of the Business, or (B) relate to the discharge or release of
materials into the environment and/or the handling or transportation of
waste materials or hazardous or toxic substances or otherwise relate to
the protection of the public health or the environment, or (C) were
filed with or submitted to appropriate governmental agencies during the
past five years by Seller or their agents, and (ii) all material
notifications from such governmental agencies to Seller or their agents
in response to or relating to any of such Records, Notifications and
Reports.
(c) Schedule 3.8(c) lists, as of the Closing Date, each
facility leased, operated or otherwise used by Seller for the Business,
the lease, operation or use of which is being transferred to, assumed by
or otherwise acquired directly or indirectly by Buyer pursuant to this
Agreement (each, a "FACILITY" and collectively, the "FACILITIES").
Except as otherwise disclosed on Schedule 3.8(c):
(i) Each Facility is fully licensed, permitted and
authorized to carry on its current business under all applicable
federal, state and local statutes, orders, approvals, zoning or
land use requirements, rules and regulations and no Facility is a
non-conforming use or otherwise subject to any restrictions
regarding reconstruction.
(ii) All activities and operations at each Facility
are being and have been conducted in compliance in all material
respects with the requirements, criteria, standards and
conditions set forth in all applicable federal, state and local
statutes, orders, approvals, permits, zoning or land use
requirements and restrictions, variances, licenses, rules and
regulations.
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(iii) Each Facility is located on real property owned
or leased by Seller (each a "FACILITY PROPERTY"). The Facility
Properties leased by Seller consist only of two parcels where
Seller's trucks and equipment are maintained or stored and a
small office.
(iv) To Seller's knowledge, there are no
circumstances, conditions or reasons which are likely to be the
basis for revocation or suspension of any Facility's site
assessments, permits, licenses, consents, authorizations, zoning
or land use permits, variances or approvals relating to any
Facility owned by Seller, the Shareholder or any Affiliate (as
hereinafter defined) of the Shareholder and leased to Seller to
be used in the Business after the Closing, and to the knowledge
of Seller there are no circumstances, conditions or reasons which
are likely to be the basis for revocation or suspension of any
site assessments, permits, licenses, consents, authorizations,
zoning or land use permits, variances or approvals relating to
any such Facility.
(d) Seller does not currently own, operate or control, and
has never in the past owned, operated or controlled, any landfill or
treatment, storage or disposal facility.
3.9. Brokers; Finders. No person has acted directly or indirectly
as a broker, finder or financial advisor for Seller or the Shareholder in
connection with the transactions contemplated by this Agreement and no person is
entitled to any broker's, finder's, financial advisory or similar fee or payment
in respect thereof based in any way on any agreement, arrangement or
understanding made by or on behalf of Seller or the Shareholder.
3.10. Fixed Assets.
(a) The assets listed on Schedule 1.1 are, as of the Closing
Date, substantially all the fixed assets (other than real estate) of
Seller used in the Business. Except as described on Schedule 3.10(a),
all of Seller's containers, vehicles, machinery and equipment necessary
for the operation of the Business are in good working order and
condition, normal wear and tear excepted, and all of the motor vehicles
and other rolling stock of Seller are in material compliance with all
applicable laws, rules and regulations. All such vehicles, machinery and
equipment are substantially fit for the purposes for which they are
utilized and are, to be the best of Seller's knowledge, free from
defects which could cause them to fail. All leases of fixed assets are
in full force and effect and binding upon the parties thereto; neither
Seller nor any other party to such leases is in breach of any of the
material provisions thereof.
(b) Seller has good, valid and marketable title to all of
the Assets, tangible and intangible, actually used or necessary for the
conduct of the Business, free of any encumbrance or charge of any kind
except: (i) liens for current taxes not yet due; and (ii) minor
imperfections of title and encumbrances, if any, that are not
substantial in amount, do not materially detract from the value of the
property subject thereto, do not materially impair the value of the
Business or the Assets, and have arisen only in the ordinary course of
business and consistent with past practice. There are and as of the
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Closing Date will be no leases, occupancy agreements, options, rights of
first refusal or any other agreements or arrangements, either oral or
written, that create or confer in any person or entity the right to
acquire, occupy or possess, now or in the future, any Assets, or any
portion thereof, or create in or confer on any person or entity any
right, title or interest therein or in any portion thereof.
3.11. Acquisition/Disposal of Assets. Except as indicated on
Schedule 3.11, since the Income Statement Date, Seller has not acquired or sold
or otherwise disposed of any properties or assets which, singly or in the
aggregate, have a value in excess of $5,000, or which are material to the
operation of the Business as presently conducted.
3.12. Contracts and Agreements; Adverse Restrictions; Judgments,
Orders, Etc.
(a) Schedule 3.12(a) lists, as of the Closing Date, and
includes copies of, all insurance policies, material contracts and
agreements relating to the Business to which Seller is a party or by
which any of the Assets is bound (including,but not limited to, joint
venture or partnership agreements, contracts with any labor
organizations, promissory notes, loan agreements, bonds, mortgages,
deeds of trust, liens, pledges, conditional sales contracts or other
security agreements) (the "Assumed Contracts"). Except as disclosed on
Schedule 3.12(a), all such contracts and agreements included in Schedule
3.12(a) are and on the Closing Date shall be in full force and effect
and binding upon the parties thereto. Except as described or cross
referenced on Schedule 3.12(a), neither Seller nor, to Seller's or any
of the Shareholder's knowledge, any other parties to such contracts and
agreements is in breach thereof, and none of the parties has threatened
to breach any of the material provisions thereof or notified Seller or
the Shareholder of a default thereunder, or exercised any options
thereunder.
(b) Except as set forth on Schedule 3.12(b), there is no
outstanding judgment, order, writ, injunction or decree against Seller,
the result of which could materially adversely affect Seller, the
Business or any of the Assets, nor has Seller been notified that any
such judgment, order, writ, injunction or decree has been requested.
3.13. Personnel. Schedule 3.13 is a complete list, as of the
Closing Date,of all employees (by type or classification) of Seller relating to
the Business and their respective rates of compensation, including (i) the
portions thereof attributable to bonuses, (ii) any other salary, bonus, equity
participation, or other compensation arrangement made with or promised to any of
them, and (iii) copies of all employment agreements with employees. Schedule
3.13 also lists the driver's license number for each driver of motor vehicles
used in the Business.
3.14. Benefit Plans and Union Contracts.
(a) Schedule 3.14(a) is a complete list as of the Closing
Date, and includes complete copies, of all employee benefit plans and
agreements currently maintained or contributed to by Seller relating to
the Business, including employment agreements and any other agreements
containing "golden parachute" provisions, retirement plans, welfare
benefit plans and deferred compensation agreements, together
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with copies of such plans, agreements and any trusts related thereto,
and classifications of employees covered thereby as of the Closing Date.
Except for the employee benefit plans described on Schedule 3.14(a),
Seller has no other pension, profit sharing, deferred compensation, or
other employee benefit plans or arrangements with any party. Except as
disclosed on Schedule 3.14(a), all employee benefit plans listed on
Schedule 3.14(a) are fully funded and in substantial compliance with all
applicable federal, state and local statutes, ordinances and
regulations. All such plans that are intended to qualify under Section
401(a) of the Internal Revenue Code have been determined by the Internal
Revenue Service to be so qualified, and copies of such determination
letters are included as part of Schedule 3.14(a). All reports and other
documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not
limited to, actuarial reports, audits or tax returns) have been timely
filed or distributed, and copies thereof are included as part of
Schedule 3.14(a). All employee benefit plans listed on such Schedule
have been operated in accordance with the terms and provisions of the
plan documents and all related documents and policies. Seller has not
incurred any liability for excise tax or penalty due to the Internal
Revenue Service or U.S. Department of Labor nor any liability to the
Pension Benefit Guaranty Corporation for any employee benefit plan, nor
have Seller, nor party-in-interest or disqualified person, engaged in
any transaction or other activity which would give rise to such
liability. Seller has not participated in or made contributions to any
"multi-employer plan" as defined in the Employee Retirement Income
Security Act of 1974 ("ERISA"), nor would Seller be subject to any
withdrawal liability with respect to such a plan if any such employer
withdrew from such a plan immediately prior to the Closing Date. No
employee pension benefit plan is under funded on a termination basis as
of the date of this Agreement.
(b) Schedule 3.14(b) is a complete list, as of the Closing
Date, and includes complete copies of all union contracts and agreements
between Seller and any collective bargaining group relating to the
Business. In the operation of the Business, Seller has complied in all
material respects with all applicable federal and state laws respecting
employment and employment practices, terms and conditions of employment,
wages and hours, and nondiscrimination in employment, and are not
engaged in any unfair labor practice. There is no charge pending nor, to
Seller's or the Shareholder's knowledge, is there any charge threatened
against Seller relating to the Business before any court or agency and
alleging unlawful discrimination in employment practices. There is no
charge of or proceeding with regard to any unfair labor practice
relating to the Business that is pending before the National Labor
Relations Board. There is no labor strike, dispute, slow down or
stoppage as of the Closing Date, existing or threatened against Seller
relating to the Business; no union organizational activity exists
respecting employees of Seller relating to the Business not currently
subject to a collective bargaining agreement; except as set forth on
Schedule 3.14(b), the Business has not experienced any work stoppage or
material labor difficulty; the union contracts or other agreements
delivered as part of Schedule 3.14(b) constitute all agreements with the
unions or other collective bargaining groups relating to the Business,
and there are no other arrangements or established practices relating to
the employees covered by any collective bargaining agreement; and
Schedule 3.14(b) contains as of the Closing Date
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a list of all arbitration or grievance proceedings relating to the
Business that have occurred since the Income Statement Date. No one has
petitioned within the last five years, and no one is now petitioning,
for union representation of any employees of Seller relating to the
Business. Seller has not experienced any labor strike, slow-down, work
stoppage, or other job action during the last five years relating to the
Business.
3.15. Taxes.
(a) Seller has timely filed all requisite federal, state,
local and other tax and information returns due for all fiscal periods
ended on or before the Closing Date. All such returns are accurate and
complete. Except as set forth on Schedule 3.15, there are no open years,
examinations in progress, extensions of any statute of limitations or
claims against Seller relating to federal, state, local or other taxes
(including penalties and interest) for any period or periods prior to
and including the Closing Date and no notice of any claim for taxes has
been received. Copies of (i) any tax examinations, (ii) extensions of
statutory limitations and (iii) the federal income, and state franchise,
income and sales tax returns of Seller for the last three fiscal years
are attached as part of Schedule 3.15. Seller has not been contacted by
any federal, state or local taxing authority regarding a prospective
examination.
(b) Except as set forth on Schedule 3.15 (which schedule
also includes the amount due) Seller has duly paid all taxes and other
related charges required to be paid prior to the Closing Date.
(c) Seller has withheld all required amounts from their
employees for all pay periods in full and complete compliance with the
withholding provisions of applicable federal, state and local laws. All
required federal, state and local and other returns with respect to
income tax withholding, social security, and unemployment taxes have
been duly filed by Seller for all periods for which returns are due, and
the amounts shown on all such returns to be due and payable have been
paid in full.
3.16. Copies Complete. Except as disclosed on Schedule 3.16, the
copies of all instruments, agreements, licenses, certificates or other documents
that have been delivered to Buyers in connection with the transactions
contemplated hereby are complete and accurate as of the Closing Date and are
true and correct copies of the originals thereof. None of such instruments,
agreements, licenses, certificates or other documents requires notice to, or
consent or approval of, any governmental agency or other third party to any of
the transactions contemplated hereby, except such consents and approvals as are
listed on Schedule 3.16, all of which have been obtained prior to the Closing
Date.
3.17. Customers, Billings, Current Receipts and Receivables.
Schedule 3.17 is a current, accurate and complete list of, and includes:
(a) the customers of the Business that Seller serves on an
ongoing basis, including name, location and current billing rate, as of
the Closing Date; and
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(b) an accurate and complete aging of all accounts and
notes receivable from customers as of the last day of the month
preceding the Closing Date, showing amounts due in 30-day aging
categories.
Since the Income Statement Date, Seller has not lost any customers and no
customers have threatened or otherwise informed Seller that they intend to
discontinue doing business with Seller.
3.18. No Change With Respect to Seller. Except as set forth on
Schedule 3.18, with respect to Seller, since the Income Statement Date, there
has not been, and prior to the Closing there will not be, any change in the
conduct of the Business, the income, operations or financial condition of the
Business, or the Assets.
3.19. Closing Date Debt. At the Closing, Seller shall prepare and
deliver to Buyer Schedule 3.19, which shall set forth the amount of (i) the
aggregate debt (excluding trade payables) of Seller outstanding on the Closing
Date relating to the Business, which debt will be repaid at or immediately after
the Closing Date, including in each case all interest accrued through and
including the Closing Date and all prepayment penalties to be incurred in
connection with the repayment of any such debt required to be repaid, plus (ii)
the present value of all capitalized lease obligations (determined in accordance
with generally accepted accounting principles) included in the Assumed Contracts
or encumbering the Assets and (iii) the present value, discounted at the lease
rate factor, if known, inherent in the lease or, if the lease rate factor is not
known, at the rate charged to Seller by a third party lender in connection with
its most recent borrowing to finance equipment, of all lease obligations that
are not capitalized lease obligations included in the Assumed Contracts or
encumbering the Assets (the "CLOSING DATE DEBT").
3.20. Compliance With Laws. Except as disclosed on Schedule 3.20,
Seller has materially complied with, and Seller is presently in material
compliance with, federal, state and local laws, ordinances, codes, rules,
regulations, Governmental Permits, orders, judgments, awards, decrees, consent
judgments, consent orders and requirements applicable to Seller relating to the
Business (collectively "LAWS"), including, but not limited to, Laws relating to
the public health, safety or protection of the environment (collectively,
"ENVIRONMENTAL LAWS"). Except as disclosed on Schedule 3.20, there has been no
assertion by any party that Seller is in material violation of any Laws.
Specifically and without limiting the generality of the foregoing, except as
disclosed on Schedule 3.20:
(a) Except as permitted under applicable laws and
regulations, including, without limitation, the Federal Resource
Conservation Recovery Act, 42 USC Section 6901 et seq. ("RCRA"), the
Business has not accepted, processed, handled, transferred, generated,
treated, stored or disposed of any Hazardous Material (as defined in
Section 3.20(e) below) nor has it accepted, processed, handled,
transferred, generated, treated, stored or disposed of asbestos, medical
waste, radioactive waste or municipal waste, except in compliance with
Environmental Laws.
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(b) During Seller's leasing of the Facility Property leased
by Seller and, to the best of Seller's knowledge, prior to Seller's
leasing of such Facility Property, no Hazardous Material, other than
that allowed under Environmental Laws, including, without limitation,
RCRA, has been disposed of, or otherwise released on any Facility
Property.
(c) During Seller's leasing of the Facility Property leased
by Seller and, to the best of Seller's knowledge, prior to Seller's
leasing of such Facility Property, no Facility Property has ever been
subject to nor has Seller received any notice of any private,
administrative or judicial action, or notice of any intended private,
administrative or judicial action relating to the presence or alleged
presence of Hazardous Material in, under, upon or emanating from any
Facility Property. There are no pending and no threatened actions or
proceedings from any governmental agency or any other entity involving
remediation of any condition of any Facility Property, including,
without limitation, petroleum contamination, pursuant to Environmental
Laws.
(d) Except as allowed under Environmental Laws, the
Business has not knowingly sent, transported or arranged for the
transportation or disposal of any Hazardous Material, to any site,
location or facility.
(e) As used in this Agreement, "HAZARDOUS MATERIAL" shall
mean (i) any substances defined as "HAZARDOUS WASTE" in 40 CFR 261, and
in any corresponding Utah statute or regulation; and (ii) any substance
the presence of which requires remediation pursuant to any Environmental
Laws.
3.21. Patents, Trademarks, Trade Names, etc. No patents,
tradenames, fictitious business names, trademarks, service marks, copyrights or
other intellectual property is currently used in the operation of the Business
or in connection with the Assets.
3.22. Suppliers and Customers. The relations between Seller and
the customers of the Business are good. Seller has no knowledge of any fact
(other than general economic and industry conditions) which indicates that any
of the suppliers providing use of, or access to, landfills or disposal sites to
Seller intends to cease providing such items to Seller, nor does Seller have
knowledge of any fact (other than general economic and industry conditions)
which indicates that any of the customers of the Business intends to terminate,
limit or reduce its business relations with Seller relating to the Business.
3.23. Absence of Certain Business Practices. Seller has not
directly or indirectly within the past five years given or agreed to give any
gift or similar benefit to any customer, supplier, governmental employee or
other person who is or may be in a position to help or hinder the Business in
connection with any actual or proposed transaction which (a) if not given in the
past, might have had an adverse effect on the financial condition, business or
results of operations of the Business, or (b) if not continued in the future,
might adversely affect the financial condition, business or operations of the
Business or which might subject Buyers to suit or penalty in any private or
governmental litigation or proceeding.
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3.24. Disclosure Schedules. Any matter disclosed by Seller on any
Schedule to this Agreement shall be deemed to have been disclosed on every other
Schedule that refers to such Schedule by cross reference so long as the nature
of the matter disclosed is obvious from a fair reading of the Schedule on which
the matter is disclosed.
3.25. No Misleading Statements. The representations and
warranties of Seller and Shareholder contained in this Agreement, the Exhibits
and Schedules hereto and all other documents and information furnished to Buyers
and their representatives pursuant hereto are complete and accurate in all
material respects and do not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements made and to be
made not misleading.
3.26. Accurate and Complete Records. The books, ledgers,
financial records and other records of Seller relating to the Business:
(a) have been made available to Buyers and their agents at
Seller's offices or at the offices of Buyers' attorneys or Seller's
attorneys;
(b) have been, in all material respects, maintained in
accordance with all applicable laws, rules and regulations; and
(c) are accurate and complete, reflect all material
transactions.
3.27. Knowledge. Wherever reference is made in this Agreement to
the "knowledge" of Seller or the Shareholder, such term means the actual
knowledge of Seller or the Shareholder or any management employee of Seller
whose duties relate to the Business or any knowledge which should have been
obtained by Seller, Shareholder or such employee upon reasonable inquiry by a
reasonable business person.
4. REPRESENTATIONS AND WARRANTIES OF BUYERS
Buyers represent and warrant to Seller that each of the following
representations and warranties is true as of the Closing Date, and agree that
such representations and warranties shall survive the Closing:
4.1. Existence and Good Standing. WCI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. WCU is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and is qualified to transact
business as a foreign corporation in the State of Utah.
4.2. No Contractual Restrictions. No provisions exist in any
article, document or instrument to which WCU or WCI is a party or by which WCU
or WCI is bound which would be violated by consummation of the transactions
contemplated by this Agreement.
4.3. Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by Buyers and, subject to the due
authorization, execution and delivery
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by Seller, constitutes a legal, valid and binding obligation of Buyers. Each of
WCI and WCU has full corporate power, legal right and corporate authority to
enter into and perform its obligations under this Agreement and to carry on the
Business as presently conducted. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and the fulfillment
of and compliance with the terms and conditions hereof do not and will not,
after the giving of notice, or the lapse of time or otherwise: (a) violate any
provisions of any judicial or administrative order, award, judgment or decree
applicable to WCU or WCI: (b) conflict with any of the provisions of the
Certificate or Articles of Incorporation or Bylaws of WCU or WCI; or (c)
conflict with, result in a breach of or constitute a default under any material
agreement or instrument to which WCU or WCI is a party or by which either is
bound.
4.4. No Misleading Statements. The representations and warranties
of WCI and WCU contained in this Agreement, the Exhibits and Schedules hereto
and all other documents and information furnished to Seller pursuant hereto are
materially complete and accurate, and do not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements made and to be made not misleading as of the Closing Date.
5. CLOSING DELIVERIES
At the Closing, the respective parties shall make the deliveries
indicated:
5.1. Buyers' Deliveries.
(a) WCI or WCU shall deliver the cash portion of the
Purchase Price required to be delivered on the Closing Date pursuant to
Section 1.5 to Seller.
(b) WCU shall execute and deliver to the Shareholder an
Employment Agreement (the "Employment Agreement") in substantially the
form of Exhibit 5.1(c).
(c) WCI shall pay off the Closing Date Debt as provided in
Section 1.5.
5.2. Seller's Deliveries.
(a) Seller shall deliver to Buyers (and/or its designee)
an executed bill of sale or bills of sale and other instruments of
transfer and conveyance for the full and complete transfer, conveyance,
assignment and delivery to Buyers on the Closing Date of all of Seller'
right, title and interest in and to all of the Assets, accompanied by
all third party consents required with respect thereto, including,
without limitation, written evidence of the release of the liens and
encumbrances with respect to the Assets;
(b) Seller shall deliver to Buyers an executed assignment
or transfer of the Assumed Contracts and Governmental Permits
accompanied by all third party consents required with respect thereto;
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(c) Seller shall deliver to Buyers (and/or its designee)
all motor vehicle registrations and ownership documents for the motor
vehicles being acquired by Buyers;
(d) Seller shall deliver to Buyers an opinion of counsel
for Seller, dated as of the Closing Date, in substantially the form
attached hereto as Exhibit 5.2(d);
(e) Seller shall deliver to Buyers a counterpart of the
Employment Agreement; and
(f) Seller shall execute and deliver such other documents
and instruments as are reasonably requested by WCI or WCU in order to
consummate the transactions contemplated by this Agreement.
6. INDEMNIFICATION
6.1. Indemnity by Seller, the Shareholder. Subject to Section
6.2, Seller and the Shareholder covenant and agree that they will, jointly and
severally, indemnify and hold harmless WCI and Buyer and their respective
directors, officers and agents and their respective successors and assigns
(collectively the "Indemnitees"), from and after the date of this Agreement,
against any and all losses, damages, assessments, fines, penalties, adjustments,
liabilities, claims, deficiencies, costs, expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation),
expenditures, including, without limitation, any "Environmental Site Losses" (as
such term is hereinafter defined) identified by a Indemnitee with respect to
each of the following contingencies until the expiration of the applicable
statute of limitations (all, the "Indemnity Events"):
(a) Any misrepresentation, breach of warranty, or
nonfulfillment of any agreement or covenant on the part of Seller or the
Shareholder pursuant to the terms of this Agreement or any
misrepresentation in or omission from any Exhibit, Schedule, list,
certificate, or other instrument furnished or to be furnished to WCI or
Buyer pursuant to the terms of this Agreement, regardless of whether, in
the case of a breach of a representation or a warranty, WCI or Buyer
relied on the truth of such representation or warranty or had any
knowledge of any breach thereof.
(b) The design, development, construction or operation of
any "Environmental Site" as hereinafter defined, or the installation or
operation of an Underground Storage Tank ("UST") during any period on or
prior to the Closing Date. As used in this Agreement, "Environmental
Site" shall mean any facility, any UST and any other waste storage,
processing, treatment or disposal facility, and any other business site
or any other real property owned, leased, controlled or operated by
Seller or the Shareholder or by any predecessor thereof on or prior to
the Closing Date and used in the Business, provided however, as to
activities of such predecessors, only to the extent that Seller or the
Shareholder had knowledge of such activities. As used in this Agreement,
"Environmental Site Losses" shall mean any and all losses, damages
(including exemplary damages and penalties), liabilities, claims,
deficiencies, costs, expenses, and expenditures (including, without
limitation, expenses in connection with
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site evaluations, risk assessments and feasibility studies) arising out
of or required by an interim or final judicial or administrative decree,
judgment, injunction, mandate, interim or final permit condition or
restriction, cease and desist order, abatement order, compliance order,
consent order, clean-up order, exhumation order, reclamation order or
any other remedial action that is required to be undertaken under
federal, state or local law in respect of operating activities on or
affecting any facility, any UST or any other Environmental Site,
including, but not limited to (x) any actual or alleged violation of any
law or regulation respecting the protection of the environment,
including, but not limited to, RCRA and CERCLA or any other law or
regulation respecting the protection of the air, water and land and (y)
any remedies or violations, whether by a private or public action,
alleged or sought to be assessed as a consequence, directly or
indirectly, of any "Release" (as defined below) of pollutants (including
odors) or Hazardous Substances from any facility, any UST or any other
Environmental Site resulting from activities thereat, whether such
Release is into the air, water (including groundwater) or land and
whether such Release arose before, during or after the Closing Date. The
term "Release" as used herein means any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping or disposing into the ambient environment.
(c) All actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation)
incident to any of the foregoing.
6.2. Limitations on Seller's and the Shareholder's Indemnities.
The maximum amount which the Indemnitees can recover as a result of one or more
Indemnity Events pursuant to the provisions hereof for Claims shall not in the
aggregate exceed the Purchase Price.
6.3. Notice of Indemnity Claim.
(a) In the event that any claim ("Claim") is hereafter
asserted against or arises with respect to any Indemnitee as to which
such Indemnitee may be entitled to indemnification hereunder, Indemnitee
shall notify Seller and the Shareholder (collectively, the "Indemnifying
Party") in writing thereof (the "Claims Notice") within 60 days after
(i) receipt of written notice of commencement of any third party
litigation against such Indemnitee, (ii) receipt by such Indemnitee of
written notice of any third party claim pursuant to an invoice, notice
of claim or assessment, against such Indemnitee, or (iii) such
Indemnitee becomes aware of the existence of any other event in respect
of which indemnification may be sought from the Indemnifying Party
(including, without limitation, any inaccuracy of any representation or
warranty or breach of any covenant). The Claims Notice shall describe
the Claim and the specific facts and circumstances in reasonable detail,
and shall indicate the amount, if known, or an estimate, if possible, of
the losses that have been or may be incurred or suffered by the
Indemnitee.
(b) The Indemnifying Party may elect to defend any Claim
for money damages where the cumulative total of all Claims (including
such Claims) do not exceed
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<PAGE> 20
the limit set forth in Section 6.2 at the time the Claim is made, by the
Indemnifying Party's own counsel; provided, however, the Indemnifying
Party may assume and undertake the defense of such a third party Claim
only upon written agreement by the Indemnifying Party that the
Indemnifying Party is obligated to fully indemnify Indemnitee with
respect to such action. Indemnitee may participate, at WCI's
Indemnitee's own expense, in the defense of any Claim assumed by the
Indemnifying Party. Without the written approval of Indemnitee, which
approval shall not be unreasonably withheld, the Indemnifying Party
shall not agree to any compromise of a Claim defended by the
Indemnifying Party.
(c) If, within 30 days of the Indemnifying Party's receipt
of a Claims Notice, the Indemnifying Party shall not have provided the
written agreement required by Section 6.3(b) and elected to defend the
Claims, Indemnitee shall have the right to assume control of the defense
and/or compromise of such Claim, and the costs and expenses of such
defense, including reasonable attorneys' fees, shall be added to the
Claim. The Indemnifying Party shall promptly, and in any event within 30
days reimburse Indemnitee for the costs of defending the Claim,
including attorneys' fees and expenses.
(d) The party assuming the defense of any Claim shall keep
the other party reasonably informed at all times of the progress and
development of its or their defense of and compromise efforts with
respect to such Claim and shall furnish the other party with copies of
all relevant pleadings, correspondence and other papers. In addition,
the parties to this Agreement shall cooperate with each other and make
available to each other and their representatives all available relevant
records or other materials required by them for their use in defending,
compromising or contesting any Claim. The failure to timely deliver a
Claims Notice or otherwise notify the Indemnifying Party of the
commencement of such actions in accordance with this Section 6.3 shall
not relieve the Indemnifying Party from the obligation to indemnify
hereunder but only to the extent that the Indemnifying Party establishes
by competent evidence that it has been prejudiced thereby.
(e) In the event both the Indemnitee and the Indemnifying
Party are named as defendants in an action or proceeding initiated by a
third party, they shall both be represented by the same counsel (on whom
they shall agree), unless such counsel, the Indemnitee, or the
Indemnifying Party shall determine that such counsel has a conflict of
interest in representing both the Indemnitee and the Indemnifying Party
in the same action or proceeding and the Indemnitee and the Indemnifying
Party do not waive such conflict to the satisfaction of such counsel.
6.4. Survival of Representations, Warranties and Agreements. The
representations and warranties of the parties contained in this Agreement and in
any certificate, Exhibit or Schedule delivered pursuant hereto, or in any other
writing delivered pursuant to the provisions of this Agreement (the
"Representations and Warranties") and the liability of the party making such
Representations and Warranties for breaches thereof shall survive the
consummation of the transactions contemplated hereby. The parties hereto in
executing and delivering and in
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<PAGE> 21
carrying out the provisions of this Agreement are relying solely on the
representations, warranties, Schedules, Exhibits, agreements and covenants
contained in this Agreement, or in any writing or document delivered pursuant to
the provisions of this Agreement, and not upon any representation, warranty,
agreement, promise or information, written or oral, made by any persons other
than as specifically set forth herein or therein.
6.5. No Exhaustion of Remedies or Subrogation; Right of Set Off.
Seller and the Shareholder waive any right to require any Indemnitee to (i)
proceed against any other person or (iii) pursue any other remedy whatsoever in
the power of any Indemnitee. The Buyers may, but shall not be obligated to, set
off against any and all payments due Seller on the Note, any amount to which
WCI, WCU or any other Indemnitee is entitled to be indemnified hereunder with
respect to any Indemnity Event. Such right of set off shall be separate and
apart from any and all other rights and remedies that the Indemnities may have
against Seller and the Shareholder or their successors.
6.6. Indemnity by Buyers. Buyers covenant and agree that they
will, jointly and severally, indemnify and hold harmless Seller, the Shareholder
and the Seller's directors, officers and agents and their respective successors
and assign, from and after the Closing Date against all losses, damages,
assessments, fines, penalties, adjustments, liabilities, claims, deficiencies,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) with respect to Buyers'
operations of the Business and the Assets under the non-exclusively licensed
name "Miller Container's, Inc." for as long as such name is used by Buyers under
this Agreement, and afterward if such indemnifying event occurred during the
time the name was used by Buyers. In addition, the provisions of Section 6.3
shall be incorporated herein except that wherever the term "Indemnitee" appears
it shall mean Seller and the Shareholder, and whenever the term "Seller and the
Shareholder" appears it shall mean Buyers.
7. OTHER POST-CLOSING COVENANTS OF SELLER AND WCI
7.1. Restrictive Covenants. Seller and Shareholder acknowledge
that (i) Buyers, as the purchasers of the Assets (including the goodwill of the
Business), are and will be engaged in the same business as the Business; (ii)
Seller and Shareholder are intimately familiar with the Business; (iii) the
Business is currently conducted in the State of Utah and Buyers, directly and
indirectly through their Affiliates, currently conduct business in Utah and
intend, by acquisition or otherwise, to expand the Business into other
geographic areas of Utah where it is not presently conducted; (iv) Seller and
Shareholder have had access to trade secrets of, and confidential information
concerning, the Business; (v) the agreements and covenants contained in this
Section 7.1 are essential to protect the Business and the goodwill being
acquired; and (vi) Seller and Shareholder have the means to support themselves
and their dependents other than by engaging in a business substantially similar
to the Business and the provisions of this Section 7 will not impair such
ability. Seller and Shareholder covenant and agree as set forth in (a), (b), (c)
and (d) below with respect to the Business:
(a) Non-Compete. For a period commencing on the Closing
Date and terminating five years thereafter (the "Restricted Period"),
Seller and Shareholder shall
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not, anywhere in the city of Salt Lake, Utah or the counties of Davis,
Salt Lake, Utah and Weber, Utah, directly or indirectly, acting
individually or as the owners, shareholders, partners, or employees of
any entity, (i) engage in the operation of a solid waste collection,
transporting, disposal and/or composting business, transfer facility,
recycling facility, materials recovery facility or solid waste landfill;
(ii) enter the employ of, or render any personal services to or for the
benefit of, or assist in or facilitate the solicitation of customers
for, or receive remuneration in the form of salary, commissions or
otherwise from, any business engaged in such activities; or (iii)
receive or purchase a financial interest in, make a loan to, or make a
gift in support of, any such business in any capacity, including,
without limitation, as a sole proprietor, partner, shareholder, officer,
director, principal, agent, trustee or lender; provided, however, that
Seller and Shareholder may own, directly or indirectly, solely as an
investment, securities of any business traded on any national securities
exchange or NASDAQ, provided Seller and Shareholder are not controlling
persons of, or members of a group which controls, such business and
further provided that Seller and Shareholder do not, in the aggregate,
directly or indirectly, own 2% or more of any class of securities of
such business.
(b) Confidential Information. During the Restricted Period
and thereafter, Seller and Shareholder shall keep secret and retain in
strictest confidence, and shall not use for the benefit of themselves or
others, all data and information relating to the Business ("Confidential
Information"), including without limitation, the existence of and terms
of this Agreement, know-how, trade secrets, customer lists, supplier
lists, details of contracts, pricing policies, operational methods,
marketing plans or strategies, bidding practices and policies, product
development techniques or plans, and technical processes; provided,
however, that the term "Confidential Information" shall not include
information that (i) is or becomes generally available to the public
other than as a result of disclosure by Seller and Shareholder, or (ii)
is general knowledge in the solid waste handling and landfill business
and not specifically related to the Business.
(c) Property of the Business. All memoranda, notes, lists,
records and other documents or papers (and all copies thereof) relating
to the Business, including such items stored in computer memories, on
microfiche or by any other means, made or compiled by or on behalf of
Seller or Shareholder or made available to Seller or Shareholder
relating to the Business, but excluding any materials maintained by any
attorneys for Seller or Shareholder prior to the Closing, are and shall
be the property of WCI or WCU and have been delivered or will be
delivered or made available to WCI or WCU at the Closing.
(d) Non-Solicitation. Without the consent of WCI, which
may be granted or withheld by WCI in its discretion, Seller and
Shareholder shall not solicit any employees of WCI, WCU or their
Affiliates to leave the employ of WCI, WCU or their Affiliates and join
Seller in any business endeavor owned or pursued by Seller.
(e) No Disparagement. From and after the Closing Date,
neither the Seller nor the Shareholder shall, in any way to any customer
or employee of the Business or the Buyers, denigrate or derogate Buyers
or any of its subsidiaries, or any officer,
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<PAGE> 23
director or employee, or any product or service or procedure of any such
company whether or not such denigrating or derogatory statements shall
be true and are based on acts or omissions which are learned by the
Seller or Shareholder from and after the date hereof or on acts or
omissions which occur from and after the date hereof, or otherwise. A
statement shall be deemed denigrating or derogatory to any person if it
adversely affects the regard or esteem in which such person or entity is
held by such person. Without limiting the generality of the foregoing,
neither the Seller nor the Shareholder shall, directly or indirectly in
any way in respect of any such company or any such directors or
officers, communicate with, or take any action which is adverse to the
position of any such company with any customer or employee of the
Business or the Buyers. This paragraph does not apply to the extent that
testimony is required by legal process, provided that WCI has received
not less than five days' prior written notice of such proposed
testimony.
7.2. Rights and Remedies Upon Breach. If Seller or Shareholder
breaches, or threatens to commit a breach of, any of the provisions of Section
7.1(a), (b), (c), (d) or (e) herein (the "Restrictive Covenants"), WCI and WCU
shall have the following rights and remedies, each of which rights and remedies
shall be independent of the others and severally enforceable, and each of which
is in addition to, and not in lieu of, any other rights and remedies available
to Buyers at law or in equity:
(a) Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of
the Restrictive Covenants would cause irreparable injury to WCI and WCU
and that money damages would not provide an adequate remedy to WCU.
Accordingly, in addition to any other rights or remedies, WCI and WCU
shall be entitled to injunctive relief to enforce the terms of the
Restrictive Covenants and to restrain Seller and Shareholder from any
violation thereof.
(b) Accounting. The right and remedy to require Seller and
Shareholder to account for and pay over to WCI or WCU all compensation,
profits, monies, accruals, increments or other benefits derived or
received by Seller and Shareholder as the result of any transactions
constituting a breach of the Restrictive Covenants.
(c) Severability of Covenants. Seller and Shareholder
acknowledge and agree that the Restrictive Covenants are reasonable and
valid in geographical and temporal scope and in all other respects. If
any court determines that any of the Restrictive Covenants, or any part
thereof, is invalid or unenforceable, the remainder of the Restrictive
Covenants shall not thereby be affected and shall be given full effect,
without regard to the invalid portions.
(d) Blue-Penciling. If any court determines that any of
the Restrictive Covenants, or any part thereof, is unenforceable because
of the duration or geographic scope of such provision, such court shall
reduce the duration or scope of such provision,
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as the case may be, to the extent necessary to render it enforceable
and, in its reduced form, such provision shall then be enforced.
(e) Enforceability in Jurisdiction. Buyers, Seller and
Shareholder intend to and hereby confer jurisdiction to enforce the
Restrictive Covenants upon the courts of any jurisdiction within the
geographic scope of the Restrictive Covenants. If the courts of any one
or more of such jurisdictions hold the Restrictive Covenants
unenforceable by reason of the breadth of such scope or otherwise, it is
the intention of Buyers, Seller and Shareholder that such determination
not bar or in any way affect Buyers' right to the relief provided above
in the courts of any other jurisdiction within the geographic scope of
the Restrictive Covenants as to breaches of such covenants in such other
respective jurisdictions, such covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and
independent covenants.
8. TERMINATION OF AGREEMENT
8.1. Termination By Buyers; by Seller. This Agreement may be
terminated at any time prior to the Closing Date:
(a) by the Buyers, by written notice to the Seller if the
representations and warranties of the Seller shall not have been true
and correct in all respects as of the date when made; or
(b) by the Seller by written notice to WCI if the
representations and warranties of the Buyers shall not have been true
and correct in all respects as of the date when made.
8.2. Notice and Effect of Termination. On termination of this
Agreement, the transactions contemplated herein shall forthwith be abandoned and
all continuing obligations and liabilities of the parties under or in connection
with this Agreement shall be terminated and of no further force or effect;
provided, however, that nothing herein shall relieve any party from liability
for any misrepresentation, breach of warranty or breach of covenant contained in
this Agreement prior to such termination.
8.3. Exclusive Negotiations. Following execution of this
Agreement, the Seller and the Shareholder shall not, and the Seller shall not
permit its employees or agents to, initiate, negotiate or discuss with any other
person or entity the possible sale of all or substantially all of the Assets or
the Business with any party other than the Buyers. The Seller and the
Shareholder hereby confirm that no person or entity presently has or may acquire
any rights to purchase or otherwise acquire the Assets or the Business.
9. GENERAL
9.1. Additional Conveyances. Following the Closing, Seller, the
Shareholder and Buyers shall each deliver or cause to be delivered at such times
and places as shall be reasonably agreed upon such additional instruments as
Buyers, the Shareholder or Seller may
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reasonably request for the purpose of carrying out this Agreement. Seller and
the Shareholder will cooperate with Buyers on and after the Closing Date in
furnishing information, evidence, testimony and other assistance in connection
with any actions, proceedings or disputes of any nature with respect to matters
pertaining to all periods prior to the date of this Agreement.
9.2. Assignment. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto, the successors or assigns of WCI,
WCU and Seller and the Shareholder and Seller's and the Shareholder's heirs,
legal representatives or assigns; provided, however, that any such assignment
shall be subject to the terms of this Agreement and shall not relieve the
assignor of its or his responsibilities under this Agreement. The Buyers may
assign some or all of their rights hereunder to another affiliate of WCI.
9.3. Public Announcements. Except as required by law, Seller
shall not make any public announcement or filing with respect to the
transactions provided for herein without the prior written consent of WCI.
9.4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
9.5. Notices. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given if in writing
and either delivered personally, or by air courier service, or mailed by postage
prepaid registered or certified U.S. mail, return receipt requested, to the
addresses designated below or such other addresses as may be designated in
writing by notice given hereunder, and shall be effective upon personal delivery
thereof or upon delivery by registered or certified U.S. mail or one business
day following deposit with an air courier service:
If to Seller: Miller Containers, Inc.
13661 South Bridle Trail Road
Draper, Utah 84020
Attention: Douglas L. Miller
With a copy to: W. Durrell Nielsen II, Esq.
Nielsen & Dixon, P.C.
36 South State Street, Suite 1250
Salt Lake City, Utah 84111-1417
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If to Buyers: Waste Connections, Inc.
2260 Douglas, Suite 280
Roseville, California 95661
Attention: Ronald J. Mittelstaedt
With a copy to: Robert D. Evans, Esq.
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, California 94111
9.6. Attorneys' Fees. In the event of any dispute or controversy
between Buyers on the one hand and Seller and Shareholder on the other hand
relating to the interpretation of this Agreement or to the transactions
contemplated hereby, the prevailing party shall be entitled to recover from the
other party reasonable attorneys' fees and expenses incurred by the prevailing
party. Such award shall include post-judgment attorney's fees and costs.
9.7. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah without regard to its
conflict of laws provisions.
9.8. Payment of Fees and Expenses. Whether or not the
transactions herein contemplated shall be consummated, each party hereto will
pay its own fees, expenses and disbursements incurred in connection herewith and
all other costs and expenses incurred in the performance and compliance with all
conditions to be performed hereunder.
9.9. Incorporation by Reference. All Schedules and Exhibits
attached hereto are incorporated herein by reference as though fully set forth
at each point referred to in this Agreement.
9.10. Captions. The captions in this Agreement are for
convenience only and shall not be considered a part hereof or affect the
construction or interpretation of any provisions of this Agreement.
9.11. Number and Gender of Words. Whenever the singular number is
used herein, the same shall include the plural where appropriate, and shall
apply to all of such number, and to each of them, jointly and severally, and
words of any gender shall include each other gender where appropriate.
9.12. Entire Agreement. This Agreement (including the Schedules
and Exhibits hereto) and the other documents delivered pursuant hereto
constitute the entire Agreement and understanding between Seller and Shareholder
and the Buyers and supersedes any prior agreement and understanding relating to
the subject matter of this Agreement. This Agreement may be modified or amended
only by a written instrument executed by the Seller and the Shareholder and the
Buyers acting through their officers, thereunto duly authorized by their Boards
of Directors.
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9.13. Waiver. No waiver by any party hereto at any time of any
breach of, or compliance with, any condition or provision of this Agreement to
be performed by any other party hereto may be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or at any prior or
subsequent time.
9.14. Construction. The language in all parts of this Agreement
must be in all cases construed simply according to its fair meaning and not
strictly for or against any party. Unless expressly set forth otherwise, all
references herein to a "day" are deemed to be a reference to a calendar day. All
references to "business day" mean any day of the year other than a Saturday,
Sunday or a public or bank holiday in California or Utah. Unless expressly
stated otherwise, cross-references herein refer to provisions within this
Agreement and are not references to the overall transaction or to any other
document.
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IN WITNESS WHEREOF, the parties hereto have executed this Asset Purchase
Agreement by persons thereunto duly authorized as of the date first above
written.
SELLER: MILLER CONTAINERS, INC.
-------------------------------------
Douglas L. Miller
SHAREHOLDER:
-------------------------------------
Douglas L. Miller
WCI: WASTE CONNECTIONS, INC.
By:
----------------------------------
Ronald J. Mittelstaedt
President
WCU: WASTE CONNECTIONS OF UTAH, INC.
By:
----------------------------------
Ronald J. Mittelstaedt
President
25
<PAGE> 1
EXHIBIT 10.36
ASSET PURCHASE AGREEMENT
Dated as of August 21, 1998, by and among
Waste Connections, Inc.
Waste Connections of Utah, Inc.
Contractors Waste, Inc.
Joseph E. Cunningham
Scott L. Helm
<PAGE> 2
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of August 21, 1998, entered into by
and among Waste Connections, Inc., a Delaware corporation ("WCI"), Waste
Connections of Utah, Inc., a Delaware corporation ("BUYER"), Contractors Waste,
Inc., a Utah corporation ("SELLER"), and Joseph E. Cunningham and Scott L. Helm
(the "SHAREHOLDERS").
WHEREAS, Seller is engaged in the collection and transportation of solid
waste in the City of Salt Lake City, Utah, and in certain unincorporated areas
in Salt Lake and Utah Counties, Utah, and other related activities
(collectively, the "BUSINESS");
WHEREAS, the Shareholders own all of the issued and outstanding Capital
Stock of the Seller; and
WHEREAS, Buyer wishes to purchase, and Seller wishes to sell certain
assets that are necessary to operate the Business;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto, each intending to be bound hereby, agree as
follows:
1. PURCHASE AND SALE OF ASSETS.
1.1. Sale and Transfer of Assets. Subject to and in accordance
with the terms and conditions of this Agreement, at the Closing on the Closing
Date (as defined below) Seller shall convey, transfer, deliver and assign to
Buyer, and Buyer shall accept from Seller all of the assets listed on Schedule
1.1 (collectively, the "ASSETS"), including without limitation:
(a) the trucks, containers, operating machinery and
equipment, processing equipment, shop tools, parts, supplies,
accessories, inventory, physical assets and other tangible personal
property used primarily in connection with the ownership, operation and
management of the Business;
(b) all contracts, leases, agreements, customer
accounts, commitments and arrangements specifically identified in
Schedule 3.12(a) as contracts contemplated to be assumed by Buyer
pursuant to this Agreement (the "ASSUMED CONTRACTS");
(c) all permits, licenses, titles (including motor
vehicle titles and current registrations), fuel permits, zoning and land
use approvals and authorizations, including, without limitation, any
conditional or special use approvals or zoning variances, occupancy
permits, and any other similar documents from any and all governmental
authorities constituting a material authorization or entitlement or
otherwise material to the operation or management of the Business owned
by, issued to, or held by or otherwise benefiting Seller (the
"GOVERNMENTAL PERMITS");
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(d) all customer lists of Seller relating to the
Business;
(e) the logos, trade names, fictitious business names
and service marks of Seller, including without limitation, the right to
use the names "Contractor's Waste Inc.", "Contruction Waste, Inc." and
"Dee's Dumpster Service";
(f) the goodwill of the Business;
(g) all guarantees, warranties, indemnities and similar
rights in favor of Seller with respect to any of the Assets and all
books and records primarily in connection with the operation of the
Business; and
(h) All operating and financial records relating to the
Business, including without limitation all ledgers, books of account,
deprecation schedules, inventory information, records relating to
payables and receivables, cancelled checks, bank statements, equipment
records, maintenance records, disposal records and information
concerning customers.
Notwithstanding the foregoing, Buyer shall not acquire any of the assets listed
on Schedule 3.2 (the "EXCLUDED ASSETS").
1.2. Assumption by Buyer of Certain Contracts. Buyer hereby
assumes and agrees to pay, perform and discharge in a timely manner, effective
the day after the Closing Date all of the obligations and commitments of Seller
accruing after the Closing Date under or with respect to each Assumed Contract,
but not including any obligation or liability for any breach thereof occurring
on or prior to the Closing Date.
1.3. Excluded Liabilities. Notwithstanding the provisions of
Section 1.2 or any other provision hereof or any Schedule or Exhibit hereto and
regardless of any disclosure to Buyer, Buyer shall not assume or be bound by any
other duties, responsibilities, obligations, indebtedness or other liabilities
of Seller or to which Seller or any of the Assets or the Business may be bound
or affected, of whatever kind or nature, whether known, unknown, contingent or
otherwise, arising before, on or after the Closing Date (including without
limitation trade payables and taxes arising from the operation of the Business
or the sale of the Assets) except, as to obligations and liabilities arising
after the Closing Date only, those obligations and liabilities expressly assumed
by Buyer pursuant to Section 1.2 (the "EXCLUDED LIABILITIES").
1.4. Purchase Price. The purchase price (the "PURCHASE PRICE")
for the Assets shall be Five Hundred Fifty-Five Thousand Dollars ($555,000),
minus the Closing Date Debt (as definied in Section 3.19). The Purchase Price
shall be paid as provided in Section 1.5.
1.5. Payment of Purchase Price. The Purchase Price shall be
payable as follows:
(a) Four Hundred Thousand Dollars ($400,000), minus the
Closing Date Debt, in cash to the Seller at the Closing by wire
transfer or check payable in
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clearinghouse funds. WCI shall pay the Closing Date Debt by wire
transfer to the holders of such debt. The Purchase Price paid at
the Closing will be based on Schedule 3.19 as delivered at the
Closing, which the parties understand will include only
estimates of the Closing Date Debt as of the Closing Date.
Within 90 days after the Closing Date, Buyer and Seller shall
determine the actual Closing Date Debt, which difference shall
adjust the Purchase Price as described below. If the Purchase
Price increases, Buyer will promptly pay any additional amount
due to Seller; if the Purchase Price declines, Seller will
promptly repay any amount due to Buyer. The adjustments made to
the Purchase Price based on the actual Closing Date Debt shall
be paid in cash.
(b) a number of shares (the "SHARES") of the WCI's
Common Stock, $0.01 par value (the "WCI STOCK"), which shall be
delivered by WCI to the Shareholders at the Closing determined
as follows: The number of Shares shall be an amount equal to One
Hundred Fifty-Five Thousand Dollars ($155,000) divided by the
Average Closing Price (as hereinafter defined). The Average
Closing Price (the "AVERAGE CLOSING PRICE") is the average of
the closing price of WCI Stock as quoted on the NASDAQ Stock
Market for the five (5) successive trading days for which a
closing price is quoted ending on the tenth trading day prior to
the Closing Date. The Average Closing Price and the number of
shares of WCI Stock to be delivered at the Closing shall be
appropriately adjusted in the event of any change in WCI Stock
between the first day for which a closing price is quoted in
determining the Average Closing Price and the Closing Date,
including without limitation any stock dividend, stock split,
reverse stock split, recapitalization, reorganization, merger or
consolidation. WCI shall not be obligated to issue any
fractional shares of WCI Stock, but shall instead pay the
Shareholders cash in lieu of any fractional share equal to the
Average Closing Price multiplied by the fraction of a share of
WCI Stock that would otherwise be issued;
1.6. Certain Taxes. Seller shall pay any and all sales, use,
excise, transfer and conveyance taxes payable or assessable in connection with
or as a result of the transfer of the Assets under the terms of this Agreement
and the transactions contemplated hereby. Buyer shall not be responsible for any
business, occupation, withholding, possessory interest or similar tax or
assessment or any other tax or fee of any kind relating to any period on or
prior to the Closing Date with respect to Seller, the Assets or the ownership,
operation or management of the Business.
1.7. Allocation of Purchase Price. Ten Thousand Dollars
($10,000) of the Purchase Price shall be allocated to the covenant not to
compete described in Section 7.1(a).
2. CLOSING TIME AND PLACE
Subject to the terms and conditions of this Agreement, the closing of
the transactions contemplated herein (the "CLOSING") shall take place at such
time on August 21, 1998 (the "CLOSING DATE"), at the offices of Shartsis, Friese
& Ginsburg LLP, in San Francisco,
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California, or through an exchange of consideration and signed documents using
overnight courier service. At the Closing, Buyer and Seller shall deliver to
each other the documents, instruments and other items described in Section 5 of
this Agreement. For financial reporting purposes, the Closing will be deemed
effective August 1, 1998.
3. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS
Seller and the Shareholders, jointly and severally, (i) represent and
warrant that each of the following representations and warranties is true as of
the Closing Date, and (ii) agree that such representations and warranties shall
survive the Closing.
3.1. Standing and Authority for the Business. Seller is duly
organized, validly existing and in good standing under the laws of the State of
Utah. Seller has full power and authority to own and lease the Assets and to
carry on the Business as now conducted. Seller is not required to be qualified
or licensed to conduct business as a foreign company in any other jurisdiction
where the failure to qualify would have a material adverse effect on the Seller.
3.2. All Assets Being Acquired. The Assets being acquired by
Buyer hereunder constitute all of the assets of Seller used and necessary to
conduct and operate the Business as presently conducted and operated (other than
certain assets set forth on Schedule 3.2, which are the Excluded Assets).
3.3. Authority for Agreement. Seller and each of the
Shareholders have full right, power and authority to enter into this Agreement
and to perform its or his obligations hereunder. The execution and delivery of
this Agreement by Seller has been duly authorized by Seller's managers and/or
members. This Agreement has been duly and validly executed and delivered by
Seller and each of the Shareholders and, subject to the due authorization,
execution and delivery by WCI and Buyer, constitutes the legal, valid and
binding obligation of Seller and each of the Shareholders, enforceable against
Seller and each of the Shareholders in accordance with its terms.
3.4. No Breach or Default. Except as disclosed on Schedule 3.4,
the execution and delivery by Seller and each of the Shareholders of this
Agreement, and the consummation by Seller and each of the Shareholders of the
transactions contemplated hereby, will not:
(a) result in the breach of any of the terms or
conditions of, or constitute a default under, or allow for the
acceleration or termination of, or in any manner release any party from
any obligation under, any mortgage, lease, note, bond, indenture, or
material contract, agreement, license or other instrument or obligation
of any kind or nature to which Seller or any of the Shareholders is a
party, or by which Seller or the Assets, are or may be bound or
affected; or
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(b) violate any law or any order, writ, injunction or
decree of any court, administrative agency or governmental authority, or
require the approval, consent or permission of any governmental or
regulatory authority;
(c) violate the Articles of Organization of Seller; or
(d) violate any agreements to which any Shareholder is a
party relating to the Assets and the Business.
3.5. Financial Statements. Seller has delivered to Buyer, as
Schedule 3.5, copies of the financial statements ("FINANCIAL STATEMENTS") for
its three most recent fiscal years, compiled by Mark E. Hatch, C.P.A., and
interim financial statements for the period ended June 30, 1998 (the "BALANCE
SHEET DATE"). The Financial Statements are true and correct and fairly present
the financial condition and results of operations of the Business for the
respective periods indicated. The Financial Statements have been prepared in
accordance with generally accepted accounting principles, applied consistently
with prior periods. Except as disclosed on Schedules 3.5, 3.6, 3.19(a) or
3.19(b), Seller had, as of the Balance Sheet Date, and will have, as of the
Closing Date, no liabilities of any nature, whether accrued, absolute,
contingent or otherwise, including, without limitation, tax liabilities due or
to become due.
3.6. Liabilities. Parts I, II, III and IV of Schedule 3.6, are
accurate lists and descriptions of all liabilities of Seller relating to the
Business required to be described below in the format set forth below.
(a) Part I of Schedule 3.6 lists, as of the Closing
Date, other than with respect to trade payables and as of the end of the
month prior to the Closing Date with respect to trade payables, all
indebtedness for money borrowed and all other fixed and uncontested
liabilities of any kind, character and description, whether reflected or
not reflected on the Financial Statements and whether accrued or
absolute, and states as to each such liability the amount of such
liability and to whom payable. From the end of the month prior to the
Closing Date, trade payables have been incurred only in the ordinary
course of business consistent with comparable prior periods.
(b) Part II of Schedule 3.6 lists, as of the Closing
Date, all claims, suits and proceedings which are pending against Seller
relating to the Business and, to the knowledge of Seller, all material
contingent liabilities and all material claims, suits and proceedings
threatened or anticipated against Seller relating to the Business. For
each such liability, Part II of Schedule 3.6 includes a summary
description of such liability, including, without limitation: (i) the
name of each court, agency, bureau, board or body before which any such
claim, suit or proceeding is pending, including, without limitation,
those arising under Environmental Laws (as defined in Section 3.20),
those relating to personal injury or property damage (including all
workers' compensation and occupational disease and injury claims, suits
and proceedings) and those citations arising under the Federal
Occupational Safety and Health Act or any comparable state law, (ii) the
date such claim, suit or proceeding was instituted, (iii) the parties to
such claim, suit or proceeding, (iv) a description of the factual basis
alleged to underlie such claim, suit
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or proceeding, including the date or dates of all material occurrences,
and (v) the amount claimed and other relief sought.
(c) Part III of Schedule 3.6 lists, as of the Closing
Date and to the extent not otherwise included in Part I of Schedule 3.6,
all material liens, claims and encumbrances secured by any of the
Assets, including a description of the nature of such lien, claim or
encumbrance, the amount secured if it secures a liability, the nature of
the obligation secured, and the party holding such lien, claim or
encumbrance.
(d) Part IV of Schedule 3.6 lists, as of the Closing
Date and to the extent not otherwise included in Part I or Part III of
Schedule 3.6, all real property and material personal property leasehold
interests to which Seller is a party as lessor or lessee relating to the
Business or affecting or relating to any Facility Property (as described
in Section 3.8).
3.7. Conduct of the Business. Except as set forth on Schedule
3.7, since the Balance Sheet Date and prior to the Closing:
(a) The Business has been conducted only in the ordinary
course of business consistent with past practices; and
(b) There has been no change in Seller's financial
condition, the Assets, liabilities (contingent or otherwise), income or
operations of Seller relating to the Business other than changes in the
ordinary course of business, none of which either singly or in the
aggregate has been materially adverse, or which could have a material
adverse effect on the financial condition, Assets, liabilities
(contingent or otherwise), income or operations of the Business.
3.8. Permits and Licenses.
(a) Schedule 3.8(a) is a full and complete list, and
includes copies, of all material permits, licenses, franchises, titles
(including motor vehicle titles and current registrations), fuel
permits, zoning and land use approvals and authorizations, including,
without limitation, any conditional or special use approvals or zoning
variances, occupancy permits, and any other similar documents
constituting a material authorization or entitlement or otherwise
material to the operation of the Business by Seller (collectively the
"GOVERNMENTAL PERMITS") owned by, issued to, held by or otherwise
benefiting Seller as of the Closing Date. The status of the Governmental
Permits related to the disposal areas owned or used by Seller,
including, without limitation, any conditions thereto and, if
applicable, the expiration dates thereof, are also described in Schedule
3.8(a). Schedule 3.8(a) also sets forth the name of any governmental
agency from whom Seller or Buyer must obtain consent (the "REQUIRED
GOVERNMENTAL CONSENTS") in order to effect a direct or indirect transfer
of the Governmental Permits required as a result of the consummation of
the transactions contemplated by this Agreement. Except as set forth on
Schedule 3.8(a), all of the Governmental Permits enumerated and listed
on Schedule 3.8(a) are and will be adequate
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for the operation of the Business of Seller and of each Facility
Property as presently operated and are valid and in full force and
effect. All of said Governmental Permits and agreements have been duly
obtained and are in full force and effect, and there are no proceedings
pending or, to the knowledge of Seller, threatened which may result in
the revocation, cancellation, suspension or adverse modification of any
of the same. Seller has no knowledge of any reason why all such
Governmental Permits and agreements will not remain in effect after
consummation of the transactions contemplated hereby.
(b) As part of Schedule 3.8(a), Seller has delivered to
Buyer: (i) all records, notifications, reports, permit and license
applications, engineering and geologic studies, and environmental impact
reports, tests or assessments (collectively, "RECORDS, NOTIFICATIONS AND
REPORTS") that (A) are material to the operation of the Business, or (B)
relate to the discharge or release of materials into the environment
and/or the handling or transportation of waste materials or hazardous or
toxic substances or otherwise relate to the protection of the public
health or the environment, or (C) were filed with or submitted to
appropriate governmental agencies during the past five years by Seller
or their agents, and (ii) all material notifications from such
governmental agencies to Seller or their agents in response to or
relating to any of such Records, Notifications and Reports.
(c) Schedule 3.8(c) lists, as of the Closing Date, each
facility leased, operated or otherwise used by Seller for the Business,
the lease, operation or use of which is being transferred to, assumed by
or otherwise acquired directly or indirectly by Buyer pursuant to this
Agreement (each, a "FACILITY" and collectively, the "FACILITIES").
Except as otherwise disclosed on Schedule 3.8(c):
(i) Each Facility is fully licensed, permitted
and authorized to carry on its current business under all
applicable federal, state and local statutes, orders, approvals,
zoning or land use requirements, rules and regulations and no
Facility is a non-conforming use or otherwise subject to any
restrictions regarding reconstruction.
(ii) All activities and operations at each
Facility are being and have been conducted in compliance in all
material respects with the requirements, criteria, standards and
conditions set forth in all applicable federal, state and local
statutes, orders, approvals, permits, zoning or land use
requirements and restrictions, variances, licenses, rules and
regulations.
(iii) Each Facility is located on real property
owned or leased by Seller (each a "FACILITY PROPERTY"). The
Facility Properties leased by Seller consist only of one parcel
where the Business offices are located and two parcels where
Seller's trucks and equipment are stored.
(iv) To Seller's knowledge, there are no
circumstances, conditions or reasons which are likely to be the
basis for revocation or suspension of any Facility's site
assessments, permits, licenses, consents, authorizations,
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zoning or land use permits, variances or approvals relating to
any Facility owned by Seller, any of the Shareholders or any
Affiliate (as hereinafter defined) of any of the Shareholders
and leased to Seller to be used in the Business after the
Closing, and to the knowledge of Seller there are no
circumstances, conditions or reasons which are likely to be the
basis for revocation or suspension of any site assessments,
permits, licenses, consents, authorizations, zoning or land use
permits, variances or approvals relating to any such Facility.
(d) Seller does not currently own, operate or control,
and has never in the past owned, operated or controlled, any landfill or
treatment, storage or disposal facility.
3.9. Intentionally Omitted.
3.10. Fixed Assets.
(a) Schedule 3.10(a) lists, as of the Closing Date,
substantially all the fixed assets (other than real estate) of Seller
used in the Business, including, without limitation, identification of
each vehicle by description and serial number, identification of
machinery, equipment and general descriptions of parts, supplies and
inventory. Except as described on Schedule 3.10(a), all of Seller's
containers, vehicles, machinery and equipment necessary for the
operation of the Business are in good working order and condition,
normal wear and tear excepted, and all of the motor vehicles and other
rolling stock of Seller are in material compliance with all applicable
laws, rules and regulations. All such vehicles, machinery and equipment
are substantially fit for the purposes for which they are utilized and
are free from defects which could cause them to fail. All leases of
fixed assets are in full force and effect and binding upon the parties
thereto; neither Seller nor any other party to such leases is in breach
of any of the material provisions thereof.
(b) Seller has good, valid and marketable title to all
personal properties and assets, tangible and intangible, actually used
or necessary for the conduct of the Business, free of any encumbrance or
charge of any kind except: (i) liens for current taxes not yet due; and
(ii) minor imperfections of title and encumbrances, if any, that are not
substantial in amount, do not materially detract from the value of the
property subject thereto, do not materially impair the value of the
Business or the Assets, and have arisen only in the ordinary course of
business and consistent with past practice. There are and as of the
Closing Date will be no leases, occupancy agreements, options, rights of
first refusal or any other agreements or arrangements, either oral or
written, that create or confer in any person or entity the right to
acquire, occupy or possess, now or in the future, any Assets, or any
portion thereof, or create in or confer on any person or entity any
right, title or interest therein or in any portion thereof.
3.11. Acquisition/Disposal of Assets. Except as indicated on
Schedule 3.11, since the Balance Sheet Date, Seller has not acquired or sold or
otherwise disposed of any properties or assets which, singly or in the
aggregate, have a value in excess of $5,000, or which are material to the
operation of the Business as presently conducted.
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3.12. Contracts and Agreements; Adverse Restrictions; Judgments,
Orders, Etc.
(a) Schedule 3.12(a) lists, as of the Closing Date, and
includes copies of, all insurance policies, material contracts and
agreements relating to the Business to which Seller is a party or by
which any of the Assets is bound (including, but not limited to, joint
venture or partnership agreements, contracts with any labor
organizations, promissory notes, loan agreements, bonds, mortgages,
deeds of trust, liens, pledges, conditional sales contracts or other
security agreements) (the "Assumed Contracts"). Except as disclosed on
Schedule 3.12(a), all such contracts and agreements included in Schedule
3.12(a) are and on the Closing Date shall be in full force and effect
and binding upon the parties thereto. Except as described or cross
referenced on Schedule 3.12(a), neither Seller nor, to Seller's or any
of the Shareholders' knowledge, any other parties to such contracts and
agreements is in breach thereof, and none of the parties has threatened
to breach any of the material provisions thereof or notified Seller or
any of the Shareholders of a default thereunder, or exercised any
options thereunder.
(b) Except as set forth on Schedule 3.12(b), there is no
outstanding judgment, order, writ, injunction or decree against Seller,
the result of which could materially adversely affect Seller, the
Business or any of the Assets, nor has Seller been notified that any
such judgment, order, writ, injunction or decree has been requested.
3.13. Personnel. Schedule 3.13 is a complete list, as of the
Closing Date, of all employees (by type or classification) of Seller relating to
the Business and their respective rates of compensation, including (i) the
portions thereof attributable to bonuses, (ii) any other salary, bonus, equity
participation, or other compensation arrangement made with or promised to any of
them, and (iii) copies of all employment agreements with employees. Schedule
3.13 also lists the driver's license number for each driver of motor vehicles
used in the Business.
3.14. Benefit Plans and Union Contracts.
(a) Schedule 3.14(a) is a complete list as of the
Closing Date, and includes complete copies, of all employee benefit
plans and agreements currently maintained or contributed to by Seller
relating to the Business, including employment agreements and any other
agreements containing "golden parachute" provisions, retirement plans,
welfare benefit plans and deferred compensation agreements, together
with copies of such plans, agreements and any trusts related thereto,
and classifications of employees covered thereby as of the Closing Date.
Except for the employee benefit plans described on Schedule 3.14(a),
Seller has no other pension, profit sharing, deferred compensation, or
other employee benefit plans or arrangements with any party. Except as
disclosed on Schedule 3.14(a), all employee benefit plans listed on
Schedule 3.14(a) are fully funded and in substantial compliance with all
applicable federal, state and local statutes, ordinances and
regulations. All such plans that are intended to qualify under Section
401(a) of the Internal Revenue Code have been determined by the Internal
Revenue Service to be so qualified, and copies of such determination
letters are included as part of Schedule 3.14(a). All reports and other
documents required to be filed with
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any governmental agency or distributed to plan participants or
beneficiaries (including , but not limited to, actuarial reports, audits
or tax returns) have been timely filed or distributed, and copies
thereof are included as part of Schedule 3.14(a). All employee benefit
plans listed on such Schedule have been operated in accordance with the
terms and provisions of the plan documents and all related documents and
policies. Seller has not incurred any liability for excise tax or
penalty due to the Internal Revenue Service or U.S. Department of Labor
nor any liability to the Pension Benefit Guaranty Corporation for any
employee benefit plan, nor have Seller, nor party-in-interest or
disqualified person, engaged in any transaction or other activity which
would give rise to such liability. Seller has not participated in or
made contributions to any "multi-employer plan" as defined in the
Employee Retirement Income Security Act of 1974 ("ERISA"), nor would
Seller be subject to any withdrawal liability with respect to such a
plan if any such employer withdrew from such a plan immediately prior to
the Closing Date. No employee pension benefit plan is under funded on a
termination basis as of the date of this Agreement.
(b) Schedule 3.14(b) is a complete list, as of the
Closing Date, and includes complete copies of all union contracts and
agreements between Seller and any collective bargaining group relating
to the Business. In the operation of the Business, Seller has complied
in all material respects with all applicable federal and state laws
respecting employment and employment practices, terms and conditions of
employment, wages and hours, and nondiscrimination in employment, and
are not engaged in any unfair labor practice. There is no charge pending
nor, to Seller's or the Shareholders' knowledge, is there any charge
threatened against Seller relating to the Business before any court or
agency and alleging unlawful discrimination in employment practices.
There is no charge of or proceeding with regard to any unfair labor
practice relating to the Business that is pending before the National
Labor Relations Board. There is no labor strike, dispute, slow down or
stoppage as of the Closing Date, existing or threatened against Seller
relating to the Business; no union organizational activity exists
respecting employees of Seller relating to the Business not currently
subject to a collective bargaining agreement; except as set forth on
Schedule 3.14(b), the Business has not experienced any work stoppage or
material labor difficulty; the union contracts or other agreements
delivered as part of Schedule 3.14(b) constitute all agreements with the
unions or other collective bargaining groups relating to the Business,
and there are no other arrangements or established practices relating to
the employees covered by any collective bargaining agreement; and
Schedule 3.14(b) contains as of the Closing Date a list of all
arbitration or grievance proceedings relating to the Business that have
occurred since the Balance Sheet Date. No one has petitioned within the
last five years, and no one is now petitioning, for union representation
of any employees of Seller relating to the Business. Seller has not
experienced any labor strike, slow-down, work stoppage, or other job
action during the last five years relating to the Business.
3.15. Taxes.
(a) Seller has timely filed all requisite federal,
state, local and other tax and information returns due for all fiscal
periods ended on or before the Closing
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Date. All such returns are accurate and complete. Except as set forth on
Schedule 3.15, there are no open years, examinations in progress,
extensions of any statute of limitations or claims against Seller
relating to federal, state, local or other taxes (including penalties
and interest) for any period or periods prior to and including the
Closing Date and no notice of any claim for taxes has been received.
Copies of (i) any tax examinations, (ii) extensions of statutory
limitations and (iii) the federal income, and state franchise, income
and sales tax returns of Seller for the last three fiscal years are
attached as part of Schedule 3.15. Seller has not been contacted by any
federal, state or local taxing authority regarding a prospective
examination.
(b) Except as set forth on Schedule 3.15 (which schedule
also includes the amount due) Seller has duly paid all taxes and other
related charges required to be paid prior to the Closing Date. The
reserves for taxes contained in the Financial Statements are adequate to
cover the tax liability of Seller as of the Closing Date.
(c) Seller has withheld all required amounts from their
employees for all pay periods in full and complete compliance with the
withholding provisions of applicable federal, state and local laws. All
required federal, state and local and other returns with respect to
income tax withholding, social security, and unemployment taxes have
been duly filed by Seller for all periods for which returns are due, and
the amounts shown on all such returns to be due and payable have been
paid in full.
3.16. Copies Complete; Consents and Approvals. Except as
disclosed on Schedule 3.16, the copies of all leases, instruments, agreements,
licenses, permits, certificates or other documents that have been delivered to
Buyer in connection with the transactions contemplated hereby are complete and
accurate as of the Closing Date and are true and correct copies of the originals
thereof. None of such leases, instruments, agreements, licenses, permits,
certificates or other documents requires notice to, or consent or approval of,
any governmental agency or other third party to any of the transactions
contemplated hereby, except such consents and approvals as are listed on
Schedule 3.16, all of which will have been obtained prior to the Closing Date.
3.17. Customers, Billings, Current Receipts and Receivables.
Schedule 3.17 is a current, accurate and complete list of, and includes:
(a) the customers of the Business that Seller serves on
an ongoing basis, including name, location and current billing rate, as
of the Closing Date; and
(b) an accurate and complete aging of all accounts and
notes receivable from customers as of the last day of the month
preceding the Closing Date, showing amounts due in 30-day aging
categories. Except to the extent of the allowance for bad debts
reflected on the Financial Statements or otherwise disclosed on Schedule
3.17, Seller's accounts and notes receivable are collectible in the
amounts shown on Schedule 3.17.
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Since the Balance Sheet Date, Seller has not lost any customers and no customers
have threatened or otherwise informed Seller that they intend to discontinue
doing business with Seller. Seller has no knowledge of any intention of any of
such customers that operates a coal mine to terminate or reduce the scope of its
operations at the locations served by the Business, and none of such customers
has indicated to Seller that it is considering terminating or reducing the scope
of any of its operations at any of such locations.
3.18. Brokers; Finders. No person has acted directly or
indirectly as a broker, finder or financial advisor for Seller or the
Shareholders in connection with the transactions contemplated by this Agreement
and no person is entitled to any broker's, finder's, financial advisory or
similar fee or payment in respect thereof based in any way on any agreement,
arrangement or understanding made by or on behalf of Seller or the Shareholders.
3.19. Closing Date Debt. At the Closing, Seller shall prepare
and deliver to Buyer Schedule 3.19, which shall set forth the amount of (i) the
aggregate debt (excluding trade payables) of Seller outstanding on the Closing
Date relating to the Business, which debt will be repaid at or immediately after
the Closing Date, including in each case all interest accrued through and
including the Closing Date and all prepayment penalties to be incurred in
connection with the repayment of any such debt required to be repaid, plus (ii)
the present value of all capitalized lease obligations (determined in accordance
with generally accepted accounting principles) included in the Assumed Contracts
or encumbering the Assets and (iii) the present value, discounted at the lease
rate factor, if known, inherent in the lease or, if the lease rate factor is not
known, at the rate charged to Seller by a third party lender in connection with
its most recent borrowing to finance equipment, of all lease obligations that
are not capitalized lease obligations included in the Assumed Contracts or
encumbering the Assets (the "CLOSING DATE DEBT").
3.20. Compliance With Laws. Except as disclosed on Schedule
3.20, Seller has materially complied with, and Seller is presently in material
compliance with, federal, state and local laws, ordinances, codes, rules,
regulations, Governmental Permits, orders, judgments, awards, decrees, consent
judgments, consent orders and requirements applicable to Seller relating to the
Business (collectively "LAWS"), including, but not limited to, Laws relating to
the public health, safety or protection of the environment (collectively,
"ENVIRONMENTAL LAWS"). Except as disclosed on Schedule 3.20, there has been no
assertion by any party that Seller is in material violation of any Laws.
Specifically and without limiting the generality of the foregoing, except as
disclosed on Schedule 3.20:
(a) Except as permitted under applicable laws and
regulations, including, without limitation, the Federal Resource
Conservation Recovery Act, 42 USC Section 6901 et seq. ("RCRA"), the
Business has not accepted, processed, handled, transferred, generated,
treated, stored or disposed of any Hazardous Material (as defined in
Section 3.20(e) below) nor has it accepted, processed, handled,
transferred, generated, treated, stored or disposed of asbestos, medical
waste, radioactive waste or municipal waste, except in compliance with
Environmental Laws.
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(b) During Seller's leasing of the Facility Property
leased by Seller and prior to Seller's leasing of such Facility
Property, no Hazardous Material, other than that allowed under
Environmental Laws, including, without limitation, RCRA, has been
disposed of, or otherwise released on any Facility Property.
(c) During Seller's leasing of the Facility Property
leased by Seller and prior to Seller's leasing of such Facility
Property, no Facility Property has ever been subject to nor has Seller
received any notice of any private, administrative or judicial action,
or notice of any intended private, administrative or judicial action
relating to the presence or alleged presence of Hazardous Material in,
under, upon or emanating from any Facility Property. There are no
pending and no threatened actions or proceedings from any governmental
agency or any other entity involving remediation of any condition of any
Facility Property, including, without limitation, petroleum
contamination, pursuant to Environmental Laws.
(d) Except as allowed under Environmental Laws, the
Business has not knowingly sent, transported or arranged for the
transportation or disposal of any Hazardous Material, to any site,
location or facility.
(e) As used in this Agreement, "HAZARDOUS MATERIAL"
shall mean (i) any substances defined as "HAZARDOUS WASTE" in 40 CFR
261, and in any corresponding Utah statute or regulation; and (ii) any
substance the presence of which requires remediation pursuant to any
Environmental Laws.
3.21. Patents, Trademarks, Trade Names, etc. Schedule 3.21 lists
all patents, trade names, fictitious business names, trademarks, service marks,
and copyrights owned by Seller or which they are licensed to use in connection
with the Business (other than licenses to use software for personal computer
operating systems that were provided when the computer was purchased and
licenses to use software for personal computers that are granted to retail
purchasers of such software). No patents, trade secrets, know-how, intellectual
property, trademarks, trade names, assumed names, copyrights, or designations
used by Seller in the Business infringe on any patents, trademarks, or
copyrights, or any other rights of any person. Neither Seller nor any of the
Shareholders knows or has any reason to believe that there are any claims of
third parties to the use of any such names or any similar name, or knows of or
has any reason to believe that there exists any basis for any such claim or
claims.
3.22. Assets, etc., Necessary to the Business. Seller owns or
leases all properties and assets, real, personal, and mixed, tangible and
intangible, and, except as disclosed on Schedules 3.4, 3.8(a), 3.12(a) and 3.16,
are a party to all Governmental Permits and other agreements necessary to permit
Seller to carry on the Business as presently conducted.
3.23. Suppliers and Customers. Seller has no knowledge of any
fact (other than general economic and industry conditions) which indicates that
any of the suppliers supplying products, components, materials or providing use
of, or access to, landfills or disposal sites to Seller intends to cease
providing such items to Seller, nor does Seller have knowledge of any fact
(other than general economic and industry conditions) which gives Seller reason
to
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believe that any of the customers of the Business intends to terminate, limit or
reduce its business relations with Seller relating to the Business.
3.24. Absence of Certain Business Practices. Neither Seller nor
any of the Shareholders has directly or indirectly within the past five years
given or agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other person who is or may be in a position to help or
hinder the Business in connection with any actual or proposed transaction which
(a) might subject Seller to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (b) if not given in the past, might have
had an adverse effect on the financial condition, business or results of
operations of the Business, or (c) if not continued in the future, might
adversely affect the financial condition, business or operations of the Business
or which might subject Buyer to suit or penalty in any private or governmental
litigation or proceeding.
3.25. Disclosure Schedules. Any matter disclosed by Seller on
any Schedule to this Agreement shall be deemed to have been disclosed on every
other Schedule that refers to such Schedule by cross reference so long as the
nature of the matter disclosed is obvious from a fair reading of the Schedule on
which the matter is disclosed.
3.26. No Misleading Statements. The representations and
warranties of Seller and the Shareholders contained in this Agreement, the
Exhibits and Schedules hereto and all other documents and information furnished
to Buyer and their representatives pursuant hereto are complete and accurate in
all material respects and do not include any untrue statement of a material fact
or omit to state any material fact necessary to make the statements made and to
be made not misleading.
3.27. Accurate and Complete Records. The books, ledgers,
financial records and other records of Seller relating to the Business:
(a) have been made available to Buyer and its agents at
Seller's offices or at the offices of Buyer's attorneys or Seller's
attorneys;
(b) have been, in all material respects, maintained in
accordance with all applicable laws, rules and regulations; and
(c) are accurate and complete in all material respects,
and reflect all material transactions.
3.28. Intentionally Omitted.
3.29. Investment Representations. Each of the Shareholders
further represent that:
(a) Each of the Shareholders is an "accredited investor"
as defined in Rule 501(a) under the Securities Act of 1933, as amended
(the "Act"). Seller and each of the Shareholders have such knowledge and
experience in financial matters, either
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alone or with their professional advisors, that they are capable of
evaluating the merits and risks of the investment in the WCI Stock.
(b) Each is a resident of the State of Utah.
(c) Each of the Shareholders has had access to such
information relating to WCI as he feels is reasonably necessary to make
an informed investment decision with respect to the WCI Stock.
(d) Each of the Shareholders has had the opportunity to
ask questions and receive answers concerning the terms and conditions of
the transactions contemplated by this Agreement and to obtain additional
information that WCI possesses or can obtain without unreasonable effort
or expense that is necessary to verify the accuracy of the information
provided.
(e) Each of the Shareholders is acquiring the WCI Stock
pursuant to this Agreement for its own account, not as a nominee or
agent. No one else has any interest, beneficial or otherwise, in any of
the WCI Stock.
(f) Each of the Shareholders is able to bear the
economic risk of such an investment in the WCI Stock, are aware that
they must be prepared to hold such WCI Stock for an indefinite period
and are aware that the shares of the WCI Stock have not been registered
under the Act, or registered or qualified under the California Corporate
Securities Law of 1968, as amended, or any other securities law, on the
ground, among others, that no unregistered distribution or public
offering of the WCI Stock is to be effected and that the shares of the
WCI Stock are being issued by WCI without any public offering within the
meaning of section 4(2) of the Act.
(g) Without in any way limiting the representations
herein, each of the Shareholders further agrees that he shall not
encumber, pledge, hypothecate, sell, transfer, assign or otherwise
dispose of, or receive any consideration for, any shares of the WCI
Stock or any interest in them, unless and until prior to any proposed
encumbrance, pledge, hypothecation, sale, transfer, assignment or other
disposition, (i) a registration statement on Form S-1 or S-3 (or any
other form appropriate for the purpose or replacing such form) under the
Act with respect to the shares proposed to be transferred or otherwise
disposed of shall be then effective (ii)(a) he shall have furnished WCI
with a detailed statement of the circumstances of the proposed
disposition, and (b) he or she shall have furnished WCI with an opinion
of counsel or no-action letter issued by the Staff of the Securities and
Exchange Commission ("SEC") (obtained at the Shareholder's expense) in
form and substance satisfactory to WCI to the effect that such
disposition will not require registration of any such WCI Stock under
the Act or qualification of any such shares under any other securities
law; or (iii) Rule 144 is available with respect to such transaction.
(h) Each of the Shareholders understands and agrees that
each certificate or other instrument representing the WCI Stock will
bear a legend on the face
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<PAGE> 17
thereof (or on the reverse thereof with a reference to such legend on
the face thereof) which legend restricts the sale, transfer or other
disposition of the WCI Stock otherwise than in accordance with Section
3.29(g) of this Agreement provided, however, that WCI shall, on the
request of any of the Shareholders, cause such legends to be removed
from the certificates or other instrument evidencing the WCI Stock if
such Shareholder has held such WCI Stock for the period contemplated by
Rule 144(k) under the Act and if such Shareholder is not then and has
not been during the three months preceding such request an affiliate of
WCI (as defined in Rule 144 under the Act).
(i) Each of the Shareholders understands and agrees that
the WCI Stock will be "restricted securities" as that term is defined in
Rule 144 under the Act and, accordingly, that the WCI Stock must be held
indefinitely unless subsequently registered under the Act or an
exemption from such registration is available.
(j) The Shareholders agree to be bound with respect to
the Shares by any "lock up" provisions to which the executive officers
and directors of WCI are also bound as may be requested by any
underwriters of any offering of WCI Stock or securities convertible into
WCI Stock.
4. REPRESENTATIONS AND WARRANTIES OF WCI AND BUYER
WCI and Buyer, jointly and severally, represent and warrant to Seller
and each Shareholder that each of the following representations and warranties
is true as of the Closing Date, and agree that such representations and
warranties shall survive the Closing:
4.1. Existence and Good Standing. WCI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and is qualified to transact
business as a foreign corporation in the State of Utah.
4.2. No Contractual Restrictions. No provisions exist in any
article, document or instrument to which WCI is a party or by which it is bound
which would be violated by consummation of the transactions contemplated by this
Agreement.
4.3. Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by WCI and, subject to the due authorization,
execution and delivery by the Corporation and the Shareholders, constitutes a
legal, valid and binding obligation of WCI. WCI has full corporate power, legal
right and corporate authority to enter into and perform its obligations under
this Agreement and to carry on its business as presently conducted. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and the fulfillment of and compliance with the
terms and conditions hereof do not and will not, after the giving of notice, or
the lapse of time or otherwise: (a) violate any provisions of any judicial or
administrative order, award, judgment or decree applicable to WCI; (b) conflict
with any of the provisions of the Amended and Restated Certificate of
Incorporation or Amended and Restated Bylaws of WCI; or (c) conflict with,
result in a breach of or constitute
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a default under any material agreement or instrument to which WCI is a party or
by which it is bound.
4.4. Status of Shares. The Shares delivered to the Shareholders
at the Closing are duly authorized and delivered shares of WCI, and shall be
fully paid and nonassessable.
4.5. No Misleading Statements. The representations and
warranties of WCI contained in this Agreement, the Exhibits and Schedules hereto
and all other documents and information furnished to the Shareholders pursuant
hereto are materially complete and accurate, and do not include any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements made and to be made not misleading as of the Closing Date.
5. CLOSING DELIVERIES
At the Closing or at the time otherwise indicated, the respective
parties shall make the deliveries indicated:
5.1. WCI's and Buyer's Deliveries.
(a) WCI shall deliver the Purchase Price required to be
delivered on the Closing Date pursuant to Section 1.5; and
(b) WCI shall deliver to the Shareholders certificates
for the Shares.
5.2. Seller's Deliveries.
(a) Seller shall deliver to Buyer (and/or its designee)
an executed bill of sale and other instruments of transfer and
conveyance for the full and complete transfer, conveyance, assignment
and delivery to Buyer on the Closing Date of all of Seller's right,
title and interest in and to all of the Assets, accompanied by all third
party consents required with respect thereto, including, without
limitation, written evidence of the release of the liens and
encumbrances with respect to the Assets;
(b) Seller shall deliver to Buyer an executed assignment
or transfer of the Assumed Contracts and Governmental Permits
accompanied by all third party consents required with respect thereto;
(c) Seller shall deliver to Buyer (and/or its designee)
all motor vehicle registrations and ownership documents for the motor
vehicles being acquired by Seller;
(d) Seller shall deliver to Buyer an opinion of counsel
for Seller, dated as of the Closing Date, in substantially the form
attached hereto as Exhibit 5.2(d);
(e) Seller shall deliver to Buyer evidence satisfactory
to Buyer showing that all written employment contracts and all oral
employment contracts other
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than those that are terminable "at will" without payment of severance
(other than normal severance benefits approved by Buyer) or other
benefits with non-union employees of Seller (including, without
limitation, rights to obtain equity in the Business or Assets) have been
terminated, effective on or before the Closing Date;
(f) Seller shall provide evidence satisfactory to Buyer
of compliance with Utah's Bulk Sales Law, if applicable; and
(g) Seller shall execute and deliver such other
documents and instruments as are reasonably requested by WCI or Buyer in
order to consummate the transactions contemplated by this Agreement.
6. INDEMNIFICATION
6.1. Indemnity by Seller, the Shareholders. Subject to Section
6.2, Seller and the Shareholders covenant and agree that they will, jointly and
severally, indemnify and hold harmless WCI and Buyer and their respective
directors, officers and agents and their respective successors and assigns
(collectively the "INDEMNITEES"), from and after the date of this Agreement,
against any and all losses, damages, assessments, fines, penalties, adjustments,
liabilities, claims, deficiencies, costs, expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation),
expenditures, including, without limitation, any "ENVIRONMENTAL SITE LOSSES" (as
such term is hereinafter defined) identified by a Indemnitee with respect to
each of the following contingencies until the expiration of the applicable
statute of limitations (all, the "INDEMNITY EVENTS"):
(a) Any misrepresentation, breach of warranty, or
nonfulfillment of any agreement or covenant on the part of Seller or the
Shareholders pursuant to the terms of this Agreement or any
misrepresentation in or omission from any Exhibit, Schedule, list,
certificate, or other instrument furnished or to be furnished to WCI or
Buyer pursuant to the terms of this Agreement, regardless of whether, in
the case of a breach of a representation or a warranty, WCI or Buyer
relied on the truth of such representation or warranty or had any
knowledge of any breach thereof.
(b) The design, development, construction or operation
of any "ENVIRONMENTAL SITE" as hereinafter defined, or the installation
or operation of an Underground Storage Tank ("UST") during any period on
or prior to the Closing Date. As used in this Agreement, "Environmental
Site" shall mean any facility, any UST and any other waste storage,
processing, treatment or disposal facility, and any other business site
or any other real property owned, leased, controlled or operated by
Seller or the Shareholders or by any predecessor thereof on or prior to
the Closing Date and used in the Business, provided however, as to
activities of such predecessors, only to the extent that Seller or the
Shareholders had knowledge of such activities. As used in this
Agreement, "ENVIRONMENTAL SITE LOSSES" shall mean any and all losses,
damages (including exemplary damages and penalties), liabilities,
claims, deficiencies, costs, expenses, and expenditures (including,
without limitation, expenses in connection with site evaluations, risk
assessments and feasibility studies) arising out of or required by an
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interim or final judicial or administrative decree, judgment,
injunction, mandate, interim or final permit condition or restriction,
cease and desist order, abatement order, compliance order, consent
order, clean-up order, exhumation order, reclamation order or any other
remedial action that is required to be undertaken under federal, state
or local law in respect of operating activities on or affecting any
facility, any UST or any other Environmental Site, including, but not
limited to (x) any actual or alleged violation of any law or regulation
respecting the protection of the environment, including, but not limited
to, RCRA and CERCLA or any other law or regulation respecting the
protection of the air, water and land and (y) any remedies or
violations, whether by a private or public action, alleged or sought to
be assessed as a consequence, directly or indirectly, of any "RELEASE"
(as defined below) of pollutants (including odors) or Hazardous
Substances from any facility, any UST or any other Environmental Site
resulting from activities thereat, whether such Release is into the air,
water (including groundwater) or land and whether such Release arose
before, during or after the Closing Date. The term "Release" as used
herein means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or
disposing into the ambient environment.
(c) All actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically,
but without limitation, reasonable attorneys' fees and expenses of
investigation) incident to any of the foregoing.
6.2. Limitations on Seller's and the Shareholders' Indemnities.
The maximum amount which the Indemnitees can recover as a result of one or more
Indemnity Events pursuant to the provisions hereof for Claims shall not in the
aggregate exceed the Purchase Price.
6.3. Notice of Indemnity Claim.
(a) In the event that any claim ("CLAIM") is hereafter
asserted against or arises with respect to any Indemnitee as to which
such Indemnitee may be entitled to indemnification hereunder, Indemnitee
shall notify Seller and the Shareholders (collectively, the
"INDEMNIFYING PARTY") in writing thereof (the "CLAIMS NOTICE") within 60
days after (i) receipt of written notice of commencement of any third
party litigation against such Indemnitee, (ii) receipt by such
Indemnitee of written notice of any third party claim pursuant to an
invoice, notice of claim or assessment, against such Indemnitee, or
(iii) such Indemnitee becomes aware of the existence of any other event
in respect of which indemnification may be sought from the Indemnifying
Party (including, without limitation, any inaccuracy of any
representation or warranty or breach of any covenant). The Claims Notice
shall describe the Claim and the specific facts and circumstances in
reasonable detail, and shall indicate the amount, if known, or an
estimate, if possible, of the losses that have been or may be incurred
or suffered by the Indemnitee.
(b) The Indemnifying Party may elect to defend any Claim
for money damages where the cumulative total of all Claims (including
such Claims) do not
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exceed the limit set forth in Section 6.2 at the time the Claim is made,
by the Indemnifying Party's own counsel; provided, however, the
Indemnifying Party may assume and undertake the defense of such a third
party Claim only upon written agreement by the Indemnifying Party that
the Indemnifying Party is obligated to fully indemnify Indemnitee with
respect to such action. Indemnitee may participate, at WCI's
Indemnitee's own expense, in the defense of any Claim assumed by the
Indemnifying Party. Without the written approval of Indemnitee, which
approval shall not be unreasonably withheld, the Indemnifying Party
shall not agree to any compromise of a Claim defended by the
Indemnifying Party.
(c) If, within 30 days of the Indemnifying Party's
receipt of a Claims Notice, the Indemnifying Party shall not have
provided the written agreement required by Section 6.3(b) and elected to
defend the Claims, Indemnitee shall have the right to assume control of
the defense and/or compromise of such Claim, and the costs and expenses
of such defense, including reasonable attorneys' fees, shall be added to
the Claim. The Indemnifying Party shall promptly, and in any event
within 30 days reimburse Indemnitee for the costs of defending the
Claim, including attorneys' fees and expenses.
(d) The party assuming the defense of any Claim shall
keep the other party reasonably informed at all times of the progress
and development of its or their defense of and compromise efforts with
respect to such Claim and shall furnish the other party with copies of
all relevant pleadings, correspondence and other papers. In addition,
the parties to this Agreement shall cooperate with each other and make
available to each other and their representatives all available relevant
records or other materials required by them for their use in defending,
compromising or contesting any Claim. The failure to timely deliver a
Claims Notice or otherwise notify the Indemnifying Party of the
commencement of such actions in accordance with this Section 6.3 shall
not relieve the Indemnifying Party from the obligation to indemnify
hereunder but only to the extent that the Indemnifying Party establishes
by competent evidence that it has been prejudiced thereby.
(e) In the event both the Indemnitee and the
Indemnifying Party are named as defendants in an action or proceeding
initiated by a third party, they shall both be represented by the same
counsel (on whom they shall agree), unless such counsel, the Indemnitee,
or the Indemnifying Party shall determine that such counsel has a
conflict of interest in representing both the Indemnitee and the
Indemnifying Party in the same action or proceeding and the Indemnitee
and the Indemnifying Party do not waive such conflict to the
satisfaction of such counsel.
6.4. Survival of Representations, Warranties and Agreements. The
representations and warranties of the parties contained in this Agreement and in
any certificate, Exhibit or Schedule delivered pursuant hereto, or in any other
writing delivered pursuant to the provisions of this Agreement (the
"REPRESENTATIONS AND WARRANTIES") and the liability of the party making such
Representations and Warranties for breaches thereof shall survive the
consummation of the transactions contemplated hereby. The parties hereto in
executing and
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delivering and in carrying out the provisions of this Agreement are relying
solely on the representations, warranties, Schedules, Exhibits, agreements and
covenants contained in this Agreement, or in any writing or document delivered
pursuant to the provisions of this Agreement, and not upon any representation,
warranty, agreement, promise or information, written or oral, made by any
persons other than as specifically set forth herein or therein.
6.5. No Exhaustion of Remedies or Subrogation; Right of Set Off.
Seller and the Shareholders waive any right to require any Indemnitee to (i)
proceed against Seller; (ii) proceed against any other person; or (iii) pursue
any other remedy whatsoever in the power of any Indemnitee. Buyer may, but shall
not be obligated to, set off against any and all payments due Seller under this
Agreement or any other agreement between the parties, any amount to which WCI,
Buyer or any other Indemnitee is entitled to be indemnified hereunder with
respect to any Indemnity Event. Such right of set off shall be separate and
apart from any and all other rights and remedies that the Indemnities may have
against Seller and the Shareholders or their successors.
7. OTHER POST-CLOSING COVENANTS OF SELLER, THE SHAREHOLDERS, WCI AND
BUYER
7.1. Restrictive Covenants. Seller, the Shareholders, the
Shareholders' and Affiliates acknowledge that (i) WCI and Buyer, as the
purchasers of the Assets (including the goodwill of the Business), are and will
be engaged in the same business as the Business; (ii) Seller, the Shareholders,
the their Affiliates are intimately familiar with the Business; (iii) the
Business is currently conducted in the State of Utah and WCI and Buyer, directly
and indirectly through their Affiliates, currently conduct business in Utah and
intend, by acquisition or otherwise, to expand the Business into other
geographic areas of Utah where it is not presently conducted; (iv) Seller, the
Shareholders, and their Affiliates have had access to trade secrets of, and
confidential information concerning, the Business; (v) the agreements and
covenants contained in this Section 7.1 are essential to protect the Business
and the goodwill being acquired; and (vi) Seller, the Shareholders, and their
Affiliates have the means to support themselves and their dependents other than
by engaging in a business substantially similar to the Business and the
provisions of this Section 7 will not impair such ability. Seller and the
Shareholders covenant and agree as set forth in (a), (b) and (c) below with
respect to the Business:
(a) Non-Compete. For a period commencing on the Closing
Date and terminating five years thereafter (the "RESTRICTED PERIOD"),
Seller, the Shareholders, and their Affiliates shall not, anywhere
within a One Hundred (100) mile radius of Salt Lake City, Utah, directly
or indirectly, acting individually or as the owners, shareholders,
partners, or employees of any entity, (i) engage in the operation of a
solid waste collection, transporting, disposal and/or composting
business, transfer facility, recycling facility, materials recovery
facility or solid waste landfill; (ii) enter the employ of, or render
any personal services to or for the benefit of, or assist in or
facilitate the solicitation of customers for, or receive remuneration in
the form of salary, commissions or otherwise from, any business engaged
in such activities; or (iii) receive or purchase a financial interest
in, make a loan to, or make a gift in support of, any such business
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in any capacity, including, without limitation, as a sole proprietor,
partner, shareholder, officer, director, principal, agent, trustee or
lender; provided, however, that any of Seller or the Shareholders may
own, directly or indirectly, solely as an investment, securities of any
business traded on any national securities exchange or NASDAQ, provided
none of Seller or the Shareholders is a controlling person of, or member
of a group which controls, such business and further provided that
Seller and Shareholders do not, in the aggregate, directly or
indirectly, own 2% or more of any class of securities of such business.
(b) Confidential Information. During the Restricted
Period and thereafter, Seller, the Shareholders and their Affiliates
shall keep secret and retain in strictest confidence, and shall not use
for the benefit of themselves or others, all data and information
relating to the Business ("CONFIDENTIAL INFORMATION"), including without
limitation, the existence of and terms of this Agreement, know-how,
trade secrets, customer lists, supplier lists, details of contracts,
pricing policies, operational methods, marketing plans or strategies,
bidding practices and policies, product development techniques or plans,
and technical processes; provided, however, that the term "Confidential
Information" shall not include information that (i) is or becomes
generally available to the public other than as a result of disclosure
by Seller or any of the Shareholders, or (ii) is general knowledge in
the solid waste handling and landfill business and not specifically
related to the Business.
(c) Property of the Business. All memoranda, notes,
lists, records and other documents or papers (and all copies thereof)
relating to the Business, including such items stored in computer
memories, on microfiche or by any other means, made or compiled by or on
behalf of Seller or made available to Seller relating to the Business
(other than those relating to the Excluded Assets and the Excluded
Liabilities), but excluding any materials maintained by any attorneys
for Seller prior to the Closing, are and shall be the property of WCI or
Buyer and have been delivered or will be delivered or made available to
WCI or Buyer at the Closing.
(d) Non-Solicitation. Without the consent of WCI, which
may be granted or withheld by WCI in its discretion, Seller, the
Shareholders and their Affiliates shall not, during the Restricted
Period, solicit any employees of WCI, Buyer or their Affiliates to leave
the employ of WCI, Buyer or their Affiliates and join Seller, any of
Shareholders or Affiliate in any business endeavor owned or pursued by
any of them.
(e) No Disparagement. From and after the Closing Date,
none of Seller nor the Shareholders shall, in any way to any customer or
employee of the Business or Buyer, denigrate or derogate WCI, Buyer or
any of their subsidiaries, or any officer, director or employee, or any
product or service or procedure of any such company whether or not such
denigrating or derogatory statements shall be true and are based on acts
or omissions which are learned by Seller or the Shareholders from and
after the date hereof or on acts or omissions which occur from and after
the date hereof, or otherwise. A statement shall be deemed denigrating
or derogatory to any person if it adversely affects the regard or esteem
in which such person or entity is held by such
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person. Without limiting the generality of the foregoing, none of Seller
nor the Shareholders shall, directly or indirectly in any way in respect
of any such company or any such directors or officers, communicate with,
or take any action which is adverse to the position of any such company
with any customer or employee of the Business or Buyer. This paragraph
does not apply to the extent that testimony is required by legal
process, provided that WCI has received not less than five days' prior
written notice of such proposed testimony, or such lesser actual notice
as Seller or any Shareholder or Shareholder shall have.
7.2. Rights and Remedies Upon Breach. If Seller, the
Shareholders or any Affiliate breaches, or threatens to commit a breach of, any
of the provisions of Section 7.1(a), (b) or (d) herein (the "RESTRICTIVE
COVENANTS"), WCI and Buyer shall have the following rights and remedies, each of
which rights and remedies shall be independent of the others and severally
enforceable, and each of which is in addition to, and not in lieu of, any other
rights and remedies available to Buyer at law or in equity:
(a) Specific Performance. The right and remedy to have
the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened
breach of the Restrictive Covenants would cause irreparable injury to
WCI and Buyer and that money damages would not provide an adequate
remedy to Buyer. Accordingly, in addition to any other rights or
remedies, WCI and Buyer shall be entitled to injunctive relief to
enforce the terms of the Restrictive Covenants and to restrain Seller
and the Shareholders from any violation thereof.
(b) Accounting. The right and remedy to require Seller
and the Shareholders to account for and pay over to WCI or Buyer all
compensation, profits, monies, accruals, increments or other benefits
derived or received by Seller or the Shareholders as the result of any
transactions constituting a breach of the Restrictive Covenants.
(c) Severability of Covenants. Seller and Shareholders
acknowledge and agree that the Restrictive Covenants are reasonable and
valid in geographical and temporal scope and in all other respects. If
any court determines that any of the Restrictive Covenants, or any part
thereof, is invalid or unenforceable, the remainder of the Restrictive
Covenants shall not thereby be affected and shall be given full effect,
without regard to the invalid portions.
(d) Blue-Penciling. If any court determines that any of
the Restrictive Covenants, or any part thereof, is unenforceable because
of the duration or geographic scope of such provision, such court shall
reduce the duration or scope of such provision, as the case may be, to
the extent necessary to render it enforceable and, in its reduced form,
such provision shall then be enforced.
(e) Enforceability in Jurisdiction. WCI, Buyer, Seller
and Shareholders intend to and hereby confer jurisdiction to enforce the
Restrictive Covenants
23
<PAGE> 25
upon the courts of any jurisdiction within the geographic scope of the
Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of
the breadth of such scope or otherwise, it is the intention of WCI,
Buyer, Seller and Shareholders that such determination not bar or in any
way affect Buyer's right to the relief provided above in the courts of
any other jurisdiction within the geographic scope of the Restrictive
Covenants as to breaches of such covenants in such other respective
jurisdictions, such covenants as they relate to each jurisdiction being,
for this purpose, severable into diverse and independent covenants.
8. TERMINATION OF AGREEMENT
8.1. Termination by Buyer; by Seller. This Agreement may be
terminated at any time prior to the Closing Date:
(a) by Buyer, by written notice to Seller if the
representations and warranties of Seller shall not have been true and
correct in all respects as of the date when made; or
(b) by Seller by written notice to WCI if the
representations and warranties of Buyer shall not have been true and
correct in all respects as of the date when made.
8.2. Notice and Effect of Termination. On termination of this
Agreement, the transactions contemplated herein shall forthwith be abandoned and
all continuing obligations and liabilities of the parties under or in connection
with this Agreement shall be terminated and of no further force or effect;
provided, however, that nothing herein shall relieve any party from liability
for any misrepresentation, breach of warranty or breach of covenant contained in
this Agreement prior to such termination.
8.3. Exclusive Negotiations. Following execution of this
Agreement, Seller and Shareholders shall not, and Seller shall not permit its
employees or agents to, initiate, negotiate or discuss with any other person or
entity the possible sale of all or substantially all of the Assets or the
Business with any party other than Buyer. Seller and Shareholders hereby confirm
that no person or entity presently has or may acquire any rights to purchase or
otherwise acquire the Assets or the Business.
9. GENERAL
9.1. Additional Conveyances. Following the Closing, Seller and
Buyer shall each deliver or cause to be delivered at such times and places as
shall be reasonably agreed upon such additional instruments as Buyer or Seller
may reasonably request for the purpose of carrying out this Agreement. Seller
will cooperate with WCI and Buyer on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
actions, proceedings or disputes of any nature with respect to matters
pertaining to all periods prior to the date of this Agreement.
24
<PAGE> 26
9.2. Assignment. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto, the successors or assigns of WCI,
Buyer and Seller and the heirs, legal representatives or assigns of the
Shareholders; provided, however, that any such assignment shall be subject to
the terms of this Agreement and shall not relieve the assignor of its or his
responsibilities under this Agreement. Buyer may assign some or all of its
rights hereunder to another Affiliate of WCI.
9.3. Public Announcements. Except as required by law, Seller
shall not make any public announcement or filing with respect to the
transactions provided for herein without the prior written consent of WCI.
9.4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
9.5. Notices. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given if in writing
and either delivered personally, sent by facsimile transmission or by air
courier service, or mailed by postage prepaid registered or certified U.S. mail,
return receipt requested, to the addresses designated below or such other
addresses as may be designated in writing by notice given hereunder, and shall
be effective upon personal delivery or facsimile transmission thereof or upon
delivery by registered or certified U.S. mail or one business day following
deposit with an air courier service:
If to Seller:
Joseph E. Cunningham
Contractors Waste, Inc.
Post Office Box 20719
Salt Lake City, Utah 84170
With a copy to:
George Brown, Esq.
Law Offices
Post Office Box 346
American Fork, Utah 84003
If to Buyer:
Waste Connections, Inc.
2260 Douglas Boulevard, Suite 280
Roseville, California 95661
Attention: Ronald J. Mittelstaedt
With a copy to:
Robert D. Evans, Esq.
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, California 94111
9.6. Attorneys' Fees. In the event of any dispute or controversy
between WCI or Buyer on the one hand and Seller or Shareholders on the other
hand relating to the interpretation of this Agreement or to the transactions
contemplated hereby, the prevailing party
25
<PAGE> 27
shall be entitled to recover from the other party reasonable attorneys' fees and
expenses incurred by the prevailing party. Such award shall include
post-judgment attorney's fees and costs.
9.7. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah without regard to its
conflict of laws provisions.
9.8. Payment of Fees and Expenses. Whether or not the
transactions herein contemplated shall be consummated, each party hereto will
pay its own fees, expenses and disbursements incurred in connection herewith and
all other costs and expenses incurred in the performance and compliance with all
conditions to be performed hereunder.
9.9. Incorporation by Reference. All Schedules and Exhibits
attached hereto are incorporated herein by reference as though fully set forth
at each point referred to in this Agreement.
9.10. Captions. The captions in this Agreement are for
convenience only and shall not be considered a part hereof or affect the
construction or interpretation of any provisions of this Agreement.
9.11. Number and Gender of Words. Whenever the singular number
is used herein, the same shall include the plural where appropriate, and shall
apply to all of such number, and to each of them, jointly and severally, and
words of any gender shall include each other gender where appropriate.
9.12. Entire Agreement. This Agreement (including the Schedules
and Exhibits hereto) and the other documents delivered pursuant hereto
constitute the entire Agreement and understanding between Seller, the
Shareholders, WCI and Buyer and supersedes any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement may be modified
or amended only by a written instrument executed by Seller, the Shareholders,
WCI and Buyer acting through their officers, thereunto duly authorized.
9.13. Waiver. No waiver by any party hereto at any time of any
breach of, or compliance with, any condition or provision of this Agreement to
be performed by any other party hereto may be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or at any prior or
subsequent time.
9.14. Construction. The language in all parts of this Agreement
must be in all cases construed simply according to its fair meaning and not
strictly for or against any party. Unless expressly set forth otherwise, all
references herein to a "day" are deemed to be a reference to a calendar day. All
references to "business day" mean any day of the year other than a Saturday,
Sunday or a public or bank holiday in California or Utah. Unless expressly
stated otherwise, cross-references herein refer to provisions within this
Agreement and are not references to the overall transaction or to any other
document.
9.15. Affiliate. For purposes of this Agreement, the term
"AFFILIATE" means, with respect to any person, any person that directly or
indirectly through one or more
26
<PAGE> 28
intermediaries controls, or is controlled by, or is under common control with
such person, and in the case of Seller includes directors and officers, in the
case of individuals includes the individual's spouse, father, mother,
grandfather, grandmother, brothers, sisters, children and grandchildren, and in
the case of a trust includes the grantors, trustees and beneficiaries of the
trust.
9.16. Knowledge. Wherever reference is made in this Agreement to
the "knowledge" of Seller or the Shareholders, such term means the actual
knowledge of Seller, the Shareholders or any director, officer or management
employee of Seller whose duties relate to the Business, or any knowledge which
should have been obtained by Seller, the Shareholders or such employee upon
reasonable inquiry by a reasonable business person.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have executed this Asset Purchase
Agreement by persons thereunto duly authorized as of the date first above
written.
SELLER: CONTRACTORS WASTE, INC.
By:
--------------------------------
Scott L. Helm, President
SHAREHOLDERS:
By:
--------------------------------
Joseph E. Cunningham
By:
--------------------------------
Scott L. Helm
WCI: WASTE CONNECTIONS, INC.
By:
--------------------------------
Ronald J. Mittelstaedt
President, Chief Executive Officer
and Chairman
BUYER: WASTE CONNECTIONS OF UTAH, INC.
By:
--------------------------------
Ronald J. Mittelstaedt, President
28
<PAGE> 1
EXHIBIT 10.37
ASSET PURCHASE AGREEMENT
Dated as of August 10, 1998, by and among
Waste Connections, Inc.,
Waste Connections of Utah, Inc.,
ABC Waste Inc.
and
David Boren
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
1. PURCHASE AND SALE OF ASSETS........................................................ 1
1.1. Sale and Transfer of Assets................................................. 1
1.2. Assumption by UWCI of Freightliner Lease Agreement.......................... 1
1.3. Purchase Price.............................................................. 2
1.4. Payment of Purchase Price................................................... 2
1.5. Certain Taxes............................................................... 2
1.6. Installment Note............................................................ 2
1.7. Allocation of Purchase Price................................................ 2
2. CLOSING TIME AND PLACE............................................................. 3
3. REPRESENTATIONS AND WARRANTIES OF SELLER AND
SHAREHOLDER........................................................................ 3
3.1. Standing and Authority for Business......................................... 3
3.2. Assets Being Acquired....................................................... 3
3.3. Authority for Agreement..................................................... 3
3.4. No Breach or Default........................................................ 4
3.5. Financial Statements........................................................ 4
3.6. Liabilities................................................................. 4
3.7. Conduct of Business......................................................... 5
3.8. Permits and Licenses........................................................ 5
3.9. Brokers; Finders............................................................ 6
3.10. Fixed Assets................................................................ 6
3.11. [INTENTIONALLY OMITTED]..................................................... 6
3.12. Contracts and Agreements; Adverse Restrictions.............................. 6
3.13. [INTENTIONALLY OMITTED]..................................................... 7
3.14. [INTENTIONALLY OMITTED]..................................................... 7
3.15. Taxes....................................................................... 7
3.17. Customers, Billings, Current Receipts and Receivables....................... 7
3.18. No Change With Respect to Seller............................................ 8
3.19. Closing Date Debt........................................................... 8
3.20. Compliance With Laws........................................................ 8
3.21. Patents, Trademarks, Trade Names, etc....................................... 8
3.22. Suppliers and Customers..................................................... 8
3.23. Disclosure Schedules........................................................ 8
3.24. No Misleading Statements.................................................... 9
3.25. Accurate and Complete Records............................................... 9
3.26. Knowledge................................................................... 9
4. REPRESENTATIONS AND WARRANTIES OF BUYERS........................................... 9
4.1. Existence and Good Standing................................................. 9
</TABLE>
i
<PAGE> 3
<TABLE>
Page
----
<S> <C> <C>
4.2. No Contractual Restrictions................................................. 9
4.3. Authorization of Agreement.................................................. 9
4.4. No Misleading Statements.................................................... 10
5. CLOSING DELIVERIES................................................................. 10
5.1. Buyers' Deliveries.......................................................... 10
5.2. Seller's Deliveries......................................................... 10
6. INDEMNIFICATION.................................................................... 11
6.1. Indemnity by Seller, the Shareholder........................................ 11
6.2. Limitations on Seller's and the Shareholder's Indemnities................... 12
6.3. Notice of Indemnity Claim................................................... 12
6.4. Survival of Representations, Warranties and Agreements...................... 13
6.5. No Exhaustion of Remedies or Subrogation; Right of Set Off.................. 13
7. OTHER POST-CLOSING COVENANTS OF SELLER AND WCI..................................... 14
7.1. Restrictive Covenants....................................................... 14
7.2. Rights and Remedies Upon Breach............................................. 15
7.3. Release of Guaranties....................................................... 16
8. GENERAL............................................................................ 17
8.1. Additional Conveyances...................................................... 17
8.2. Assignment.................................................................. 17
8.3. Public Announcements........................................................ 17
8.4. Counterparts................................................................ 17
8.5. Notices..................................................................... 17
8.6. Attorneys' Fees............................................................. 18
8.7. Applicable Law.............................................................. 18
8.8. Payment of Fees and Expenses................................................ 18
8.9. Incorporation by Reference.................................................. 18
8.10. Captions.................................................................... 18
8.11. Number and Gender of Words.................................................. 18
8.12. Entire Agreement............................................................ 18
8.13. Waiver...................................................................... 19
8.14. Construction................................................................ 19
</TABLE>
ii
<PAGE> 4
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of August 10, 1998, entered into by
and among Waste Connections, Inc., a Delaware corporation ("WCI"), Waste
Connections of Utah, Inc., a Delaware corporation ("UWCI" and, collectively with
WCI, "Buyers"), ABC Waste Inc., a Utah corporation ("Seller"), and David Boren
(the "Shareholder").
WHEREAS, the Seller is engaged in the collection and transport of solid
waste in Salt Lake County, Utah, and other activities related to the collection
and transport of solid waste in the above-referenced area (the "Business");
WHEREAS, the Shareholder owns all of the issued and outstanding Capital
Stock of the Seller;
WHEREAS, Buyers wish to purchase, and Seller wishes to sell certain
assets that are necessary to operate the Business;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto, each intending to be bound hereby, agree as
follows:
1. PURCHASE AND SALE OF ASSETS
1.1. Sale and Transfer of Assets. Subject to and in accordance with the
terms and conditions of this Agreement, at the Closing on the Closing Date (as
defined below) Seller shall convey, transfer, deliver and assign to Buyers (and
as among Buyers, as they shall designate to Seller), and Buyers shall accept
from Seller all of the assets listed on Schedule 1.1 (collectively, the
"Assets"), including without limitation:
(a) the trucks and containers used in the Business;
(b) all permits, licenses, titles (including motor vehicle titles
and current registrations) and any other similar documents from any and
all governmental authorities constituting a material authorization or
entitlement or otherwise material to the operation or management of the
Assets owned by, issued to, or held by or otherwise benefiting Seller
(the "Governmental Permits"); and
(c) all customer lists of the Seller relating to the Business.
1.2. Assumption by UWCI of Freightliner Lease Agreement. UWCI hereby
assumes and agrees to perform and discharge, effective the day after the Closing
Date all of the obligations and commitments of Seller accruing after the Closing
Date under or with respect to the Lease Agreement between Truckland Freightliner
and Seller dated as of May 24, 1996, but not including any obligation or
liability for any breach thereof occurring on or prior to the
1
<PAGE> 5
Closing Date. Buyers shall not assume or be bound by any other duties,
responsibilities, obligations or liabilities of Seller or to which Seller or any
of the Assets or the Business may be bound or affected, of whatever kind or
nature, whether known, unknown, contingent or otherwise, arising before, on or
after the Closing Date (including without limitation taxes arising from the
operation of the Business or the sale of the Assets).
1.3. Purchase Price. The purchase price (the "Purchase Price") for the
Assets shall be Six Hundred Twenty Thousand Dollars ($620,000), minus the
Closing Date Debt (as defined in Section 3.19). The Purchase Price shall be paid
as provided in Section 1.4.
1.4. Payment of Purchase Price. The Purchase Price shall be payable as
follows: (i) WCI shall pay Five Hundred Twenty Thousand Dollars ($520,000) minus
the Closing Date Debt, in cash to the Seller at the Closing by wire transfer or
check payable in clearinghouse funds; (ii) WCI shall pay the Closing Date Debt
by wire transfer to the holders of such debt; (iii) WCI shall deliver to the
Shareholder an Installment Note in the amount of Fifty Thousand Dollars
($50,000) pursuant to Section 1.6; and (iv) WCI shall pay Fifty Thousand Dollars
($50,000) in cash to the Seller on the first anniversary of the Closing Date.
The Purchase Price paid at Closing will be based on Schedule 3.19 as delivered
at the Closing, which the parties understand will include only estimates of the
Closing Date Debt. Within 90 days after the Closing Date, Buyers and Seller will
determine the actual Closing Date Debt. If the Purchase Price increases, Buyer
will promptly pay any additional amount due to Seller; if the Purchase Price
decreases, Seller will promptly repay any amount due to Buyer.
1.5. Certain Taxes. The Seller shall pay any and all sales, use, excise,
transfer and conveyance taxes payable or assessable in connection with or as a
result of the transfer of the Assets under the terms of this Agreement and the
transactions contemplated hereby. Buyers shall not be responsible for any
business, occupation, withholding, possessory interest or similar tax or
assessment or any other tax or fee of any kind relating to any period on or
prior to the Closing Date with respect to Seller, the Assets or the ownership,
operation or management of the Business.
1.6. Installment Note. WCI shall deliver to the Shareholder a
non-interest bearing promissory Note (the "Note") in the principal amount of
Fifty Thousand Dollars ($50,000), which Note shall be unsecured and paid to the
Shareholder in six (6) equal monthly installments of Eight Thousand Three
Hundred Thirty-Three Dollars and Thirty-Three Cents ($8333.33) and shall be
substantially in the form of Exhibit 1.6 attached hereto.
1.7. Allocation of Purchase Price. Ten Thousand Dollars ($10,000) of the
Purchase Price payable as cash shall be allocated to the covenant not to compete
described in Section 7.1(a).
1.8. Consulting Relationship. The Seller agrees to assist UWCI with the
integration of the Business into UWCI by supervising the daily operations of
UWCI and advising and assisting UWCI with customer-related issues for a period
of six (6) months commencing on the Closing Date (hereinafter, the Consulting
Period). In exchange for the Seller's consulting assistance during this period,
WCI shall pay the Seller $500 per month as a consulting fee and
2
<PAGE> 6
provide the Shareholder with a monthly vehicle allowance of $300 (to be applied
towards the payment of all vehicle expenses incurred by the Shareholder while he
is performing consulting services for UWCI, including, fuel, maintenance and
insurance). WCI's obligation to pay the Seller a monthly consulting fee and
provide the Shareholder with a monthly vehicle allowance is contingent on the
Seller's and the Shareholder's guarantees that the Shareholder will be available
to perform the aforesaid consulting services on behalf of the Seller during the
Consulting Period. The Shareholder shall not be responsible for repairing any
vehicles or running any collection routes as a part of such services. On the
ninety-first (91st) day of the Consulting Period, UWCI shall notify the
Shareholder of its decision concerning whether it will employ the Shareholder as
a supervisor of the daily operations of UWCI's roll-off routes in Salt Lake
County immediately following the Consulting Period. If UWCI decides to employ
the Shareholder as such site supervisor, UWCI and the Shareholder shall use all
reasonable efforts during the remainder of the Consulting Period to enter into
an employment agreement with mutually agreeable terms.
2. CLOSING TIME AND PLACE
Subject to the terms and conditions of this Agreement, the closing of
the transactions contemplated herein (the "Closing") shall take place at such
time on August 10, 1998, as the parties shall agree (the "Closing Date") at the
offices of Shartsis, Friese & Ginsburg LLP, in San Francisco, California, or
through an exchange of consideration and signed documents using overnight
courier service. At the Closing, Buyers and Seller shall deliver to each other
the documents, instruments and other items described in Section 5 of this
Agreement.
3. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER
Seller and the Shareholder, jointly and severally, (i) represent and
warrant that each of the following representations and warranties is true and
complete as of the Closing Date with respect to the Seller, the Assets and the
Business, as the case may be, and (ii) agree that such representations and
warranties shall survive the Closing.
3.1. Standing and Authority for Business. Seller has full power and
authority to own the Assets and to operate the Business as now conducted.
3.2. Assets Being Acquired. The Assets being acquired by Buyers
hereunder are used in and necessary to conduct and operate the Business as it is
presently conducted and operated and are adequate to service the customers
identified on the customer list attached as Schedule 3.17.
3.3. Authority for Agreement. Each of the Seller and the Shareholder has
full right, power and authority to enter into this Agreement and to perform its
or his obligations hereunder. The execution and delivery of this Agreement by
the Seller has been duly authorized by its Board of Directors. This Agreement
has been duly and validly executed and delivered by Seller and the Shareholder,
and, subject to the due authorization, execution and delivery by WCI and UWCI,
constitutes the legal, valid and binding obligation of Seller and the
Shareholder, enforceable against Seller and the Shareholder in accordance with
its terms.
3
<PAGE> 7
3.4. No Breach or Default. Except as disclosed on Schedule 3.4, the
execution and delivery by Seller and the Shareholder of this Agreement, and the
consummation by Seller and the Shareholder of the transactions contemplated
hereby, will not:
(a) result in the breach of any of the terms or conditions of, or
constitute a default under, or allow for the acceleration or termination
of, or in any manner release any party from any obligation under, any
mortgage, lease, note, bond, indenture, or material contract, agreement
license or other instrument or any obligation of any kind or nature by
which Seller, the Shareholder, or any of the Assets, is or may be bound
or affected; or
(b) violate any law or any order, writ, injunction or decree of
any court, administrative agency or governmental authority, or require
the approval, consent or permission of any governmental or regulatory
authority; or
(c) violate any agreements to which Seller or the Shareholder is
a party relating to the Assets and the Business.
3.5. Financial Statements. Seller has delivered to Buyers, as Schedule
3.5, copies of the internally prepared financial statements ("Financial
Statements") of Seller relating to the Business for its three most recent fiscal
years, the most recent Financial Statement for the period ending December 31,
1997 (the "Balance Sheet Date"). The Financial Statements are true and correct
and fairly present (i) the financial position of the Business as of the
respective dates of the balance sheets included in the Financial Statements, and
(ii) the results of operations of the Business for the respective periods
indicated.
3.6. Liabilities. Parts I, II and III of Schedule 3.6, are accurate
lists and descriptions of all liabilities of Seller relating to the Business
required to be described below in the format set forth below.
(a) Part I of Schedule 3.6 lists, as of the Closing Date, all
claims, suits and proceedings which are pending against Seller relating
to the Business and, to the knowledge of Seller, all material contingent
liabilities and all material claims, suits and proceedings threatened or
anticipated against Seller relating to the Business that could
reasonably affect title to the Assets.
(b) Part II of Schedule 3.6 lists, as of the Closing Date and to
the extent not otherwise included in Part I of Schedule 3.6, all
material liens, claims and encumbrances secured by any of the Assets,
including a description of the nature of such lien, claim or
encumbrance, the amount secured if it secures a liability, the nature of
the obligation secured, and the party holding such lien, claim or
encumbrance.
(c) Part III of Schedule 3.6 lists, as of the Closing Date and to
the extent not otherwise included in Part II of Schedule 3.6, all real
property and material personal property leasehold interests relating to
the Assets to which Seller is a party as lessor or lessee.
4
<PAGE> 8
3.7. Conduct of Business. Except as set forth on Schedule 3.7, since the
Balance Sheet Date and prior to the Closing Date:
(a) The Business has been conducted only in the ordinary course;
and
(b) There has been no change in the condition (financial or
otherwise) of the Assets or the liabilities or operations of Seller
relating to the Business other than changes in the ordinary course of
business, none of which either singly or in the aggregate has been
materially adverse, or which could have a material adverse effect on the
financial condition, Assets, liabilities (contingent or otherwise),
income or operations of the Business.
3.8. Permits and Licenses.
(a) Schedule 3.8(a) is a full and complete list, and includes
copies, of all material permits, licenses, franchises, titles (including
motor vehicle titles and current registrations), fuel permits, zoning
and land use approvals and authorizations, including, without
limitation, any conditional or special use approvals or zoning
variances, occupancy permits, and any other similar documents
constituting a material authorization or entitlement or otherwise
material to the operation of the Business by Seller (collectively the
"GOVERNMENTAL PERMITS") owned by, issued to, held by or otherwise
benefiting Seller as of the Closing Date. Schedule 3.8(a) also sets
forth the name of any governmental agency from whom Seller or Buyer must
obtain consent (the "REQUIRED GOVERNMENTAL CONSENTS") in order to effect
a direct or indirect transfer of the Governmental Permits required as a
result of the consummation of the transactions contemplated by this
Agreement. Except as set forth on Schedule 3.8(a), all of the
Governmental Permits enumerated and listed on Schedule 3.8(a) are and
will be adequate for the operation of the Business of Seller and of each
Facility Property as presently operated and are valid and in full force
and effect. All of said Governmental Permits and agreements have been
duly obtained and are in full force and effect, and there are no
proceedings pending or, to the knowledge of Seller, threatened which may
result in the revocation, cancellation, suspension or adverse
modification of any of the same. Seller has no knowledge of any reason
why all such Governmental Permits and agreements will not remain in
effect after consummation of the transactions contemplated hereby.
(b) As part of Schedule 3.8(a), Seller has delivered to Buyer:
(i) all records, notifications, reports, permit and license
applications, engineering and geologic studies, and environmental impact
reports, tests or assessments (collectively, "RECORDS, NOTIFICATIONS AND
REPORTS") that (A) are material to the operation of the Business, or (B)
relate to the discharge or release of materials into the environment
and/or the handling or transportation of waste materials or hazardous or
toxic substances or otherwise relate to the protection of the public
health or the environment, or (C) were filed with or submitted to
appropriate governmental agencies during the past five years by Seller
or its agents, and (ii) all material notifications from such
governmental agencies to Seller or their agents in response to or
relating to any of such Records, Notifications and Reports.
5
<PAGE> 9
(c) Seller does not currently own, operate or control, and has
never in the past owned, operated or controlled, any landfill or
treatment, storage or disposal facility.
3.9. Brokers; Finders. No person has acted directly or indirectly as a
broker, finder or financial advisor for Seller or the Shareholder in connection
with the transactions contemplated by this Agreement and no person is entitled
to any broker's, finder's, financial advisory or similar fee or payment in
respect thereof based in any way on any agreement, arrangement or understanding
made by or on behalf of Seller or the Shareholder.
3.10. Fixed Assets.
(a) The assets listed on Schedule 1.1 are, as of the Closing
Date, substantially all the fixed assets (other than real estate) of
Seller used in the Business. Except as described on Schedule 3.10(a),
all of the Assets are in good working order and condition, normal wear
and tear excepted, and all of the motor vehicles and other rolling stock
included in the Assets are in material compliance with all applicable
laws, rules and regulations. All such vehicles, machinery and equipment
are substantially fit for the purposes for which they are utilized and
are free from known defects which could cause them to fail. All leases
of fixed assets are in full force and effect and binding upon the
parties thereto; neither Seller nor any other party to such leases is in
breach of any of the material provisions thereof.
(b) Seller has good, valid and marketable title to all of the
Assets, tangible and intangible, free of any encumbrance or charge of
any kind except: (i) liens for current taxes not yet due; and (ii) minor
imperfections of title and encumbrances, if any, that are not
substantial in amount, do not materially detract from the value of the
property subject thereto, do not materially impair the value of the
Business or the Assets, and have arisen only in the ordinary course of
business and consistent with past practice. There are and as of the
Closing Date will be no leases, occupancy agreements, options, rights of
first refusal or any other agreements or arrangements, either oral or
written, that create or confer in any person or entity the right to
acquire, occupy or possess, now or in the future, any Assets, or any
portion thereof, or create in or confer on any person or entity any
right, title or interest therein or in any portion thereof.
3.11. [INTENTIONALLY OMITTED]
3.12. Contracts and Agreements; Adverse Restrictions; Judgments,
Orders, Etc.
(a) Schedule 3.12(a) lists, as of the Closing Date, and includes
copies of, all material contracts and agreements relating to the Assets
to which Seller is a party or by which any of the Assets is bound
(including,but not limited to, joint venture or partnership agreements,
contracts with any labor organizations, promissory notes, loan
agreements, bonds, mortgages, deeds of trust, liens, pledges,
conditional sales contracts or other security agreements). Except as
disclosed on Schedule 3.12(a), all such contracts and agreements
included in Schedule 3.12(a) are and on the Closing Date shall be in
full force and effect and binding upon the parties thereto. Except as
described or
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cross referenced on Schedule 3.12(a), neither Seller nor, to Seller's or
any of the Shareholder's knowledge, any other parties to such contracts
and agreements is in breach thereof, and none of the parties has
threatened to breach any of the material provisions thereof or notified
Seller or the Shareholder of a default thereunder, or exercised any
options thereunder.
(b) Except as set forth on Schedule 3.12(b), there is no
outstanding judgment, order, writ, injunction or decree against Seller,
the result of which could materially adversely affect Seller, the
Business or any of the Assets, nor has Seller been notified that any
such judgment, order, writ, injunction or decree has been requested.
3.13. [INTENTIONALLY OMITTED]
3.14. [INTENTIONALLY OMITTED]
3.15. Taxes.
(a) Seller has timely filed all requisite federal, state, local
and other tax and information returns related to the Assets due for all
fiscal periods ended on or before the Closing Date. All such returns are
accurate and complete. Except as set forth on Schedule 3.15, there are
no open years, examinations in progress, extensions of any statute of
limitations or claims against Seller relating to federal, state, local
or other taxes (including penalties and interest) for any period or
periods prior to and including the Closing Date and no notice of any
claim for taxes has been received. Copies of (i) any tax examinations,
(ii) extensions of statutory limitations and (iii) the tax returns of
Seller related to the Assets for the last three fiscal years are
attached as part of Schedule 3.15. Seller has not been contacted by any
federal, state or local taxing authority regarding a prospective
examination.
(b) Except as set forth on Schedule 3.15 (which schedule also
includes the amount due) Seller has duly paid all taxes and other
related charges required to be paid prior to the Closing Date. The
reserves for taxes contained in the Financial Statements are adequate to
cover the tax liability of Seller as of the Closing Date.
3.16. Copies Complete. Except as disclosed on Schedule 3.16, the copies
of all instruments, agreements, licenses, certificates or other documents that
have been delivered to Buyers in connection with the transactions contemplated
hereby are complete and accurate as of the Closing Date and are true and correct
copies of the originals thereof. None of such instruments, agreements, licenses,
certificates or other documents requires notice to, or consent or approval of,
any governmental agency or other third party to any of the transactions
contemplated hereby, except such consents and approvals as are listed on
Schedule 3.16, all of which have been obtained prior to the Closing Date.
3.17. Customers, Billings, Current Receipts and Receivables. Schedule
3.17 is a current, accurate and complete list of, and includes:
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(a) the customers of the Business that Seller serves on an
ongoing basis, including name, location and current billing rate, as of
the Closing Date; and
Since the Balance Sheet Date, Seller has not lost any customers and no customers
have threatened or otherwise informed Seller that they intend to discontinue
doing business with Seller. Seller has no knowledge of any intention of any of
such customers that operates a coal mine to terminate or reduce the scope of its
operations at the locations served by the Business, and none of such customers
has indicated to Seller that it is considering terminating or reducing the scope
of any of its operations at any of such locations.
3.18. No Change With Respect to Seller. Except as set forth on Schedule
3.18, with respect to Seller, since the Balance Sheet Date, there has not been,
and prior to the Closing there will not be, any change in the conduct of the
Business, the income, operations or financial condition of the Business, or the
Assets.
3.19. Closing Date Debt. At the Closing, Seller shall prepare and
deliver to Buyer Schedule 3.19, which shall set forth the amount of (i) the
aggregate debt (excluding trade payables) of Seller outstanding on the Closing
Date relating to the Assets, which debt will be repaid at or immediately after
the Closing Date, including in each case all interest accrued through and
including the Closing Date and all prepayment penalties to be incurred in
connection with the repayment of any such debt required to be repaid (the
"CLOSING DATE DEBT").
3.20. Compliance With Laws. Except as disclosed on Schedule 3.20, Seller
has materially complied with, and Seller is presently in material compliance
with, federal, state and local laws, ordinances, codes, rules, regulations,
Governmental Permits, orders, judgments, awards, decrees, consent judgments,
consent orders and requirements applicable to Seller relating to the Assets
(collectively "LAWS"), including, but not limited to, Laws relating to the
public health, safety or protection of the environment (collectively,
"ENVIRONMENTAL LAWS"). Except as disclosed on Schedule 3.20, there has been no
assertion by any party that Seller is in material violation of any Laws.
3.21. Patents, Trademarks, Trade Names, etc. No patents, tradenames,
fictitious business names, trademarks, service marks, copyrights or other
intellectual property is currently used in the operation of the Business or in
connection with the Assets.
3.22. Suppliers and Customers. The relations between Seller and the
customers of the Business are good. Seller has no knowledge of any fact (other
than general economic and industry conditions) which indicates that any of the
suppliers providing use of, or access to, landfills or disposal sites to Seller
intends to cease providing such items to Seller, nor does Seller have knowledge
of any fact (other than general economic and industry conditions) which
indicates that any of the customers of the Business intends to terminate, limit
or reduce its business relations with Seller relating to the Business.
3.23. Disclosure Schedules. Any matter disclosed by Seller on any
Schedule to this Agreement shall be deemed to have been disclosed on every other
Schedule that refers to such
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Schedule by cross reference so long as the nature of the matter disclosed is
obvious from a fair reading of the Schedule on which the matter is disclosed.
3.24. No Misleading Statements. The representations and warranties of
Seller and Shareholder contained in this Agreement, the Exhibits and Schedules
hereto and all other documents and information furnished to Buyers and their
representatives pursuant hereto are complete and accurate in all material
respects and do not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements made and to be made not
misleading.
3.25. Accurate and Complete Records. The books, ledgers, financial
records and other records of Seller relating to the Business:
(a) have been made available to Buyers and their agents at
Seller's offices or at the offices of Buyers' attorneys or Seller'
attorneys;
(b) have been, in all material respects, maintained in accordance
with all applicable laws, rules and regulations; and
(c) are accurate and complete, and reflect all material
transactions.
3.26. Knowledge. Wherever reference is made in this Agreement to the
"knowledge" of Seller or the Shareholder, such term means the actual knowledge
of Seller or the Shareholder or any management employee of Seller whose duties
relate to the Business or any knowledge which should have been obtained by
Seller, Shareholder or such employee upon reasonable inquiry by a reasonable
business person.
4. REPRESENTATIONS AND WARRANTIES OF BUYERS
Buyers represent and warrant to Seller that each of the following
representations and warranties is true as of the Closing Date, and agree that
such representations and warranties shall survive the Closing:
4.1. Existence and Good Standing. WCI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
UWCI is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and is qualified to transact business as
a foreign corporation in the State of Utah.
4.2. No Contractual Restrictions. No provisions exist in any article,
document or instrument to which UWCI or WCI is a party or by which UWCI or WCI
is bound which would be violated by consummation of the transactions
contemplated by this Agreement.
4.3. Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by Buyers and, subject to the due
authorization, execution and delivery by Seller, constitutes a legal, valid and
binding obligation of Buyers. Each of WCI and UWCI has full corporate power,
legal right and corporate authority to enter into and perform its obligations
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under this Agreement and to carry on the Business as presently conducted. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and the fulfillment of and compliance with the
terms and conditions hereof do not and will not, after the giving of notice, or
the lapse of time or otherwise: (a) violate any provisions of any judicial or
administrative order, award, judgment or decree applicable to UWCI or WCI: (b)
conflict with any of the provisions of the Certificate or Articles of
Incorporation or Bylaws of UWCI or WCI; or (c) conflict with, result in a breach
of or constitute a default under any material agreement or instrument to which
UWCI or WCI is a party or by which either is bound.
4.4. No Misleading Statements. The representations and warranties of WCI
and UWCI contained in this Agreement, the Exhibits and Schedules hereto and all
other documents and information furnished to Seller pursuant hereto are
materially complete and accurate, and do not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements made and to be made not misleading as of the Closing Date.
5. CLOSING DELIVERIES
At the Closing, the respective parties shall make the deliveries
indicated:
5.1. Buyers' Deliveries.
(a) WCI or UWCI shall deliver the cash portion of the Purchase
Price and Note required to be delivered on the Closing Date pursuant to
Section 1.5 to Seller.
(b) WCI shall pay off the Closing Date Debt as provided in
Section 1.5.
5.2. Seller's Deliveries.
(a) Seller shall deliver to Buyers (and/or its designee) an
executed bill of sale or bills of sale and other instruments of transfer
and conveyance for the full and complete transfer, conveyance,
assignment and delivery to Buyers on the Closing Date of all of Seller'
right, title and interest in and to all of the Assets, accompanied by
all third party consents required with respect thereto, including,
without limitation, written evidence of the release of the liens and
encumbrances with respect to the Assets;
(b) Seller shall deliver to Buyers an executed assignment or
transfer of the Governmental Permits accompanied by all third party
consents required with respect thereto;
(c) Seller shall deliver to Buyers (and/or its designee) all
motor vehicle registrations and ownership documents for the motor
vehicles being acquired by Buyers;
(d) Seller shall deliver to Buyers an opinion of counsel for
Seller, dated as of the Closing Date, in substantially the form attached
hereto as Exhibit 5.2(d); and
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(e) Seller shall execute and deliver such other documents and
instruments as are reasonably requested by WCI or UWCI in order to
consummate the transactions contemplated by this Agreement.
6. INDEMNIFICATION
6.1. Indemnity by Seller, the Shareholder. Subject to Section 6.2,
Seller and the Shareholder covenant and agree that they will, jointly and
severally, indemnify and hold harmless WCI and Buyer and their respective
directors, officers and agents and their respective successors and assigns
(collectively the "INDEMNITEES"), from and after the date of this Agreement,
against any and all losses, damages, assessments, fines, penalties, adjustments,
liabilities, claims, deficiencies, costs, expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation),
expenditures, including, without limitation, any "ENVIRONMENTAL SITE LOSSES" (as
such term is hereinafter defined) identified by a Indemnitee with respect to
each of the following contingencies until the expiration of the applicable
statute of limitations (all, the "INDEMNITY EVENTS"):
(a) Any misrepresentation, breach of warranty, or nonfulfillment
of any agreement or covenant on the part of Seller or the Shareholder
pursuant to the terms of this Agreement or any misrepresentation in or
omission from any Exhibit, Schedule, list, certificate, or other
instrument furnished or to be furnished to WCI or Buyer pursuant to the
terms of this Agreement, regardless of whether, in the case of a breach
of a representation or a warranty, WCI or Buyer relied on the truth of
such representation or warranty or had any knowledge of any breach
thereof.
(b) The design, development, construction or operation of any
"ENVIRONMENTAL SITE" as hereinafter defined, or the installation or
operation of an Underground Storage Tank ("UST") during any period on or
prior to the Closing Date. As used in this Agreement, "Environmental
Site" shall mean any facility, any UST and any other waste storage,
processing, treatment or disposal facility, and any other business site
or any other real property owned, leased, controlled or operated by
Seller or the Shareholder or by any predecessor thereof on or prior to
the Closing Date and used in the Business, provided however, as to
activities of such predecessors, only to the extent that Seller or the
Shareholder had knowledge of such activities. As used in this Agreement,
"ENVIRONMENTAL SITE LOSSES" shall mean any and all losses, damages
(including exemplary damages and penalties), liabilities, claims,
deficiencies, costs, expenses, and expenditures (including, without
limitation, expenses in connection with site evaluations, risk
assessments and feasibility studies) arising out of or required by an
interim or final judicial or administrative decree, judgment,
injunction, mandate, interim or final permit condition or restriction,
cease and desist order, abatement order, compliance order, consent
order, clean-up order, exhumation order, reclamation order or any other
remedial action that is required to be undertaken under federal, state
or local law in respect of operating activities on or affecting any
facility, any UST or any other Environmental Site, including, but not
limited to (x) any actual or alleged violation of any law or regulation
respecting the protection of the environment, including, but not limited
to, the Federal Resource Conservation Recovery Act, 42 USC Section 6901
et seq. and
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CERCLA or any other law or regulation respecting the protection of the
air, water and land and (y) any remedies or violations, whether by a
private or public action, alleged or sought to be assessed as a
consequence, directly or indirectly, of any "RELEASE" (as defined below)
of pollutants (including odors) or Hazardous Substances from any
facility, any UST or any other Environmental Site resulting from
activities thereat, whether such Release is into the air, water
(including groundwater) or land and whether such Release arose before,
during or after the Closing Date. The term "Release" as used herein
means any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping or disposing into
the ambient environment.
(c) All actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation)
incident to any of the foregoing.
6.2. Limitations on Seller's and the Shareholder's Indemnities. The
maximum amount which the Indemnitees can recover as a result of one or more
Indemnity Events pursuant to the provisions hereof for Claims shall not in the
aggregate exceed the Purchase Price.
6.3. Notice of Indemnity Claim.
(a) In the event that any claim ("CLAIM") is hereafter asserted
against or arises with respect to any Indemnitee as to which such
Indemnitee may be entitled to indemnification hereunder, Indemnitee
shall notify Seller and the Shareholder (collectively, the "INDEMNIFYING
PARTY") in writing thereof (the "CLAIMS NOTICE") within 60 days after
(i) receipt of written notice of commencement of any third party
litigation against such Indemnitee, (ii) receipt by such Indemnitee of
written notice of any third party claim pursuant to an invoice, notice
of claim or assessment, against such Indemnitee, or (iii) such
Indemnitee becomes aware of the existence of any other event in respect
of which indemnification may be sought from the Indemnifying Party
(including, without limitation, any inaccuracy of any representation or
warranty or breach of any covenant). The Claims Notice shall describe
the Claim and the specific facts and circumstances in reasonable detail,
and shall indicate the amount, if known, or an estimate, if possible, of
the losses that have been or may be incurred or suffered by the
Indemnitee.
(b) The Indemnifying Party may elect to defend any Claim for
money damages where the cumulative total of all Claims (including such
Claims) do not exceed the limit set forth in Section 6.2 at the time the
Claim is made, by the Indemnifying Party's own counsel; provided,
however, the Indemnifying Party may assume and undertake the defense of
such a third party Claim only upon written agreement by the Indemnifying
Party that the Indemnifying Party is obligated to fully indemnify
Indemnitee with respect to such action. Indemnitee may participate, at
WCI's Indemnitee's own expense, in the defense of any Claim assumed by
the Indemnifying Party. Without the written approval of Indemnitee,
which approval shall not be unreasonably withheld, the Indemnifying
Party shall not agree to any compromise of a Claim defended by the
Indemnifying Party.
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(c) If, within 30 days of the Indemnifying Party's receipt of a
Claims Notice, the Indemnifying Party shall not have provided the
written agreement required by Section 6.3(b) and elected to defend the
Claims, Indemnitee shall have the right to assume control of the defense
and/or compromise of such Claim, and the costs and expenses of such
defense, including reasonable attorneys' fees, shall be added to the
Claim. The Indemnifying Party shall promptly, and in any event within 30
days reimburse Indemnitee for the costs of defending the Claim,
including attorneys' fees and expenses.
(d) The party assuming the defense of any Claim shall keep the
other party reasonably informed at all times of the progress and
development of its or their defense of and compromise efforts with
respect to such Claim and shall furnish the other party with copies of
all relevant pleadings, correspondence and other papers. In addition,
the parties to this Agreement shall cooperate with each other and make
available to each other and their representatives all available relevant
records or other materials required by them for their use in defending,
compromising or contesting any Claim. The failure to timely deliver a
Claims Notice or otherwise notify the Indemnifying Party of the
commencement of such actions in accordance with this Section 6.3 shall
not relieve the Indemnifying Party from the obligation to indemnify
hereunder but only to the extent that the Indemnifying Party establishes
by competent evidence that it has been prejudiced thereby.
(e) In the event both the Indemnitee and the Indemnifying Party
are named as defendants in an action or proceeding initiated by a third
party, they shall both be represented by the same counsel (on whom they
shall agree), unless such counsel, the Indemnitee, or the Indemnifying
Party shall determine that such counsel has a conflict of interest in
representing both the Indemnitee and the Indemnifying Party in the same
action or proceeding and the Indemnitee and the Indemnifying Party do
not waive such conflict to the satisfaction of such counsel.
6.4. Survival of Representations, Warranties and Agreements. The
representations and warranties of the parties contained in this Agreement and in
any certificate, Exhibit or Schedule delivered pursuant hereto, or in any other
writing delivered pursuant to the provisions of this Agreement (the
"Representations and Warranties") and the liability of the party making such
Representations and Warranties for breaches thereof shall survive the
consummation of the transactions contemplated hereby. The parties hereto in
executing and delivering and in carrying out the provisions of this Agreement
are relying solely on the representations, warranties, Schedules, Exhibits,
agreements and covenants contained in this Agreement, or in any writing or
document delivered pursuant to the provisions of this Agreement, and not upon
any representation, warranty, agreement, promise or information, written or
oral, made by any persons other than as specifically set forth herein or
therein.
6.5. No Exhaustion of Remedies or Subrogation; Right of Set Off. Seller
and the Shareholder waive any right to require any Indemnitee to (i) proceed
against any other person or (ii) pursue any other remedy whatsoever in the power
of any Indemnitee. The Buyers may, but shall not be obligated to, set off
against any and all payments due Seller on the Note, any amount to which WCI,
UWCI or any other Indemnitee is entitled to be indemnified hereunder
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with respect to any Indemnity Event. Such right of set off shall be separate and
apart from any and all other rights and remedies that the Indemnities may have
against Seller and the Shareholder or their successors.
7. OTHER POST-CLOSING COVENANTS OF SELLER AND WCI
7.1. Restrictive Covenants. Seller and Shareholder acknowledge that (i)
Buyers, as the purchasers of the Assets, are and will be engaged in the same
business as the Business; (ii) Seller and Shareholder are intimately familiar
with the Business; (iii) the Business is currently conducted in the State of
Utah and Buyers, directly and indirectly through their Affiliates, currently
conduct business in Utah and intend, by acquisition or otherwise, to expand the
Business into other geographic areas of Utah where it is not presently
conducted; (iv) Seller and Shareholder have had access to trade secrets of, and
confidential information concerning, the Business; (v) the agreements and
covenants contained in this Section 7.1 are essential to protect the Business;
and (vi) Seller and Shareholder have the means to support themselves and their
dependents other than by engaging in a business substantially similar to the
Business and the provisions of this Section 7 will not impair such ability.
Seller and Shareholder covenant and agree as set forth in (a), (b), (c) and (d)
below with respect to the Business:
(a) Non-Compete. For the period commencing on the Closing Date
and terminating five (5) years thereafter (the "5 Year Period"),
anywhere in the county of Salt Lake, Utah, and for the period commencing
on the Closing Date and terminating two (2) years thereafter, anywhere
in the counties of Davis, Utah and Weber, Utah, Seller and Shareholder
shall not, directly or indirectly, acting individually or as the owners,
shareholders, partners, or employees of any entity, (i) engage in the
operation of a solid waste collection, transporting, disposal and/or
composting business, transfer facility, recycling facility, materials
recovery facility or solid waste landfill; (ii) enter the employ of, or
render any personal services to or for the benefit of, or assist in or
facilitate the solicitation of customers for, or receive remuneration in
the form of salary, commissions or otherwise from, any business engaged
in such activities; or (iii) receive or purchase a financial interest
in, make a loan to, or make a gift in support of, any such business in
any capacity, including, without limitation, as a sole proprietor,
partner, shareholder, officer, director, principal, agent, trustee or
lender; provided, however, that Seller and Shareholder may own, directly
or indirectly, solely as an investment, securities of any business
traded on any national securities exchange or NASDAQ, provided Seller
and Shareholder are not controlling persons of, or members of a group
which controls, such business and further provided that Seller and
Shareholder do not, in the aggregate, directly or indirectly, own 2% or
more of any class of securities of such business.
(b) Confidential Information. From and after the Closing Date,
Seller and Shareholder shall keep secret and retain in strictest
confidence, and shall not use for the benefit of themselves or others,
all data and information relating to (i) the Assets and learned by the
Seller or Shareholder prior to the Closing Date; and (ii) WCI's or
UWCI's solid waste collection and transport business and learned by the
Seller or Shareholder after the Closing Date ("Confidential
Information"), including without limitation, the existence of and terms
of this Agreement, know-how, trade secrets,
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customer lists, supplier lists, details of contracts, pricing policies,
operational methods, marketing plans or strategies, bidding practices
and policies, product development techniques or plans, and technical
processes; provided, however, that the term "Confidential Information"
shall not include information that (i) is or becomes generally available
to the public other than as a result of disclosure by Seller and
Shareholder, (ii) is general knowledge in the solid waste handling and
landfill business and not specifically related to the Business, or (iii)
Seller or Shareholder learned, knew, understood or used prior to the
Closing Date that is unrelated to the Assets or WCI's or UWCI's solid
waste collection and transport business.
(c) Property of the Business. All memoranda, notes, lists,
records and other documents or papers (and all copies thereof) relating
to the Assets, including such items stored in computer memories, on
microfiche or by any other means, made or compiled by or on behalf of
Seller or Shareholder or made available to Seller or Shareholder
relating to the Business, but excluding any materials maintained by any
attorneys for Seller or Shareholder prior to the Closing, are and shall
be the property of WCI or UWCI and have been delivered or will be
delivered or made available to WCI or UWCI at the Closing.
(d) Non-Solicitation. From and after the Closing Date, without
the consent of WCI, which may be granted or withheld by WCI in its
discretion, Seller and Shareholder shall not solicit any employees of
WCI, UWCI or their Affiliates to leave the employ of WCI, UWCI or their
Affiliates and join Seller in any business endeavor owned or pursued by
Seller.
(e) No Disparagement. From and after the Closing Date, neither
the Seller nor the Shareholder shall, in any way to any customer or
employee of the Business or the Buyers, denigrate or derogate Buyers or
any of its subsidiaries, or any officer, director or employee, or any
product or service or procedure of any such company whether or not such
denigrating or derogatory statements shall be true and are based on acts
or omissions which are learned by the Seller or Shareholder from and
after the date hereof or on acts or omissions which occur from and after
the date hereof, or otherwise. A statement shall be deemed denigrating
or derogatory to any person if it adversely affects the regard or esteem
in which such person or entity is held by such person. Without limiting
the generality of the foregoing, neither the Seller nor the Shareholder
shall, directly or indirectly in any way in respect of any such company
or any such directors or officers, communicate with, or take any action
which is adverse to the position of any such company with any customer
or employee of the Business or the Buyers. This paragraph does not apply
to the extent that testimony is required by legal process, provided that
WCI has received not less than five days' prior written notice of such
proposed testimony.
7.2. Rights and Remedies Upon Breach. If Seller or Shareholder breaches,
or threatens to commit a breach of, any of the provisions of Section 7.1(a),
(b), (c), (d) or (e) herein (the "Restrictive Covenants"), WCI and UWCI shall
have the following rights and remedies, each of which rights and remedies shall
be independent of the others and severally
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enforceable, and each of which is in addition to, and not in lieu of, any other
rights and remedies available to Buyers at law or in equity:
(a) Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of
the Restrictive Covenants would cause irreparable injury to WCI and UWCI
and that money damages would not provide an adequate remedy to UWCI.
Accordingly, in addition to any other rights or remedies, WCI and UWCI
shall be entitled to injunctive relief to enforce the terms of the
Restrictive Covenants and to restrain Seller and Shareholder from any
violation thereof.
(b) Accounting. The right and remedy to require Seller and
Shareholder to account for and pay over to WCI or UWCI all compensation,
profits, monies, accruals, increments or other benefits derived or
received by Seller and Shareholder as the result of any transactions
constituting a breach of the Restrictive Covenants.
(c) Severability of Covenants. Seller and Shareholder acknowledge
and agree that the Restrictive Covenants are reasonable and valid in
geographical and temporal scope and in all other respects. If any court
determines that any of the Restrictive Covenants, or any part thereof,
is invalid or unenforceable, the remainder of the Restrictive Covenants
shall not thereby be affected and shall be given full effect, without
regard to the invalid portions.
(d) Blue-Penciling. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of
the duration or geographic scope of such provision, such court shall
reduce the duration or scope of such provision, as the case may be, to
the extent necessary to render it enforceable and, in its reduced form,
such provision shall then be enforced.
(e) Enforceability in Jurisdiction. Buyers, Seller and
Shareholder intend to and hereby confer jurisdiction to enforce the
Restrictive Covenants upon the courts of any jurisdiction within the
geographic scope of the Restrictive Covenants. If the courts of any one
or more of such jurisdictions hold the Restrictive Covenants
unenforceable by reason of the breadth of such scope or otherwise, it is
the intention of Buyers, Seller and Shareholder that such determination
not bar or in any way affect Buyers' right to the relief provided above
in the courts of any other jurisdiction within the geographic scope of
the Restrictive Covenants as to breaches of such covenants in such other
respective jurisdictions, such covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and
independent covenants.
7.3. Release of Guaranties. WCI shall use reasonable efforts to obtain
the termination and release promptly after the Closing Date of the personal
guaranties of the Shareholder listed on Schedule 7.3, all of which relate to
indebtedness of Seller included in the Financial Statements as of the Balance
Sheet Date, or Buyers shall indemnify the Shareholder and hold him harmless from
and against all losses, expenses or claims by third parties to enforce or
collect indebtedness owed by Seller as of the Closing Date which is personally
guaranteed by
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<PAGE> 20
the Shareholder pursuant to such guaranties. The Shareholder may notify the
obligees under such guaranties that he have terminated his obligations under
such guaranties. The Shareholder shall cooperate with WCI in obtaining such
releases.
7.4. Access to Financial Statements and Records. For three years from
the Closing Date, if necessary for Buyers to obtain financing, Seller shall
allow Buyers or Buyers' designee to read and audit Seller's financial statements
and accounting records for the period of January 1, 1995, through the Closing
Date. Buyers shall assume any costs of such audit.
8. GENERAL
8.1. Additional Conveyances. Following the Closing, Seller, the
Shareholder and Buyers shall each deliver or cause to be delivered at such times
and places as shall be reasonably agreed upon such additional instruments as
Buyers, the Shareholder or Seller may reasonably request for the purpose of
carrying out this Agreement. Seller and the Shareholder will cooperate with
Buyers on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any actions, proceedings or
disputes of any nature with respect to matters pertaining to all periods prior
to the date of this Agreement.
8.2. Assignment. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto, the successors or assigns of WCI, UWCI and
Seller and the Shareholder and Seller's and the Shareholder's heirs, legal
representatives or assigns; provided, however, that any such assignment shall be
subject to the terms of this Agreement and shall not relieve the assignor of its
or his responsibilities under this Agreement. The Buyers may assign some or all
of their rights hereunder to another affiliate of WCI.
8.3. Public Announcements. Except as required by law, Seller shall not
make any public announcement or filing with respect to the transactions provided
for herein without the prior written consent of WCI.
8.4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
8.5. Notices. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given if in writing and either
delivered personally, or by air courier service, or mailed by postage prepaid
registered or certified U.S. mail, return receipt requested, to the addresses
designated below or such other addresses as may be designated in writing by
notice given hereunder, and shall be effective upon personal delivery thereof or
upon delivery by registered or certified U.S. mail or one business day following
deposit with an air courier service:
If to Seller: David Boren
1827 Yalecrest Avenue
Salt Lake City, Utah 84108
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<PAGE> 21
If to Buyers: Waste Connections, Inc.
2260 Douglas Boulevard, Suite 280
Roseville, California 95661
Attention: Ronald J. Mittelstaedt
With a copy to: Robert D. Evans, Esq.
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, California 94111
8.6. Attorneys' Fees. In the event of any dispute or controversy between
Buyers on the one hand and Seller and Shareholder on the other hand relating to
the interpretation of this Agreement or to the transactions contemplated hereby,
the prevailing party shall be entitled to recover from the other party
reasonable attorneys' fees and expenses incurred by the prevailing party. Such
award shall include post-judgment attorney's fees and costs.
8.7. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California without regard to its
conflict of laws provisions.
8.8. Payment of Fees and Expenses. Whether or not the transactions
herein contemplated shall be consummated, each party hereto will pay its own
fees, expenses and disbursements incurred in connection herewith and all other
costs and expenses incurred in the performance and compliance with all
conditions to be performed hereunder.
8.9. Incorporation by Reference. All Schedules and Exhibits attached
hereto are incorporated herein by reference as though fully set forth at each
point referred to in this Agreement.
8.10. Captions. The captions in this Agreement are for convenience only
and shall not be considered a part hereof or affect the construction or
interpretation of any provisions of this Agreement.
8.11. Number and Gender of Words. Whenever the singular number is used
herein, the same shall include the plural where appropriate, and shall apply to
all of such number, and to each of them, jointly and severally, and words of any
gender shall include each other gender where appropriate.
8.12. Entire Agreement. This Agreement (including the Schedules and
Exhibits hereto) and the other documents delivered pursuant hereto constitute
the entire Agreement and understanding between Seller and Shareholder and the
Buyers and supersedes any prior agreement and understanding relating to the
subject matter of this Agreement. This Agreement may be modified or amended only
by a written instrument executed by the Seller and the Shareholder and the
Buyers acting through their officers, thereunto duly authorized by their Boards
of Directors.
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<PAGE> 22
8.13. Waiver. No waiver by any party hereto at any time of any breach
of, or compliance with, any condition or provision of this Agreement to be
performed by any other party hereto may be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or at any prior or
subsequent time.
8.14. Construction. The language in all parts of this Agreement must be
in all cases construed simply according to its fair meaning and not strictly for
or against any party. Unless expressly set forth otherwise, all references
herein to a "day" are deemed to be a reference to a calendar day. All references
to "business day" mean any day of the year other than a Saturday, Sunday or a
public or bank holiday in California or Utah. Unless expressly stated otherwise,
cross-references herein refer to provisions within this Agreement and are not
references to the overall transaction or to any other document.
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<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this Asset Purchase
Agreement by persons thereunto duly authorized as of the date first above
written.
SELLER: ABC WASTE INC.
------------------------------------
David Boren, President
SHAREHOLDER:
------------------------------------
David Boren
WCI: WASTE CONNECTIONS, INC.
By:
---------------------------------
Ronald J. Mittelstaedt, President
UWCI: WASTE CONNECTIONS OF UTAH, INC.
By:
---------------------------------
Ronald J. Mittelstaedt, President
20
<PAGE> 1
EXHIBIT 10.38
WASTE CONNECTIONS, INC.
INVESTORS' RIGHTS AGREEMENT
Dated as of
July 31, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. Registration Rights.....................................................................................1
1.1 Definitions....................................................................................1
1.2 Form S-3 Registration..........................................................................2
1.3 Obligations of the Company.....................................................................3
1.4 Furnish Information............................................................................4
1.5 Expenses of Company Registration...............................................................5
1.6 Delay of Registration..........................................................................5
1.7 Indemnification................................................................................5
1.8 Reports Under Securities Exchange Act of 1934..................................................7
1.9 Assignment of Registration Rights..............................................................7
1.10 Termination of Registration Rights.............................................................8
2. Miscellaneous...........................................................................................8
2.1 Restrictive Legend.............................................................................8
2.2 Notice of Proposed Transfer....................................................................8
2.3 Successors and Assigns.........................................................................9
2.4 Governing Law..................................................................................9
2.5 Counterparts...................................................................................9
2.6 Titles and Subtitles...........................................................................9
2.7 Notices........................................................................................9
2.8 Expenses......................................................................................10
2.9 Amendments and Waivers........................................................................10
2.10 Severability..................................................................................10
2.11 Aggregation of Stock..........................................................................10
2.12 Entire Agreement..............................................................................10
2.13 Further Assurances............................................................................10
2.14 Interpretation................................................................................10
Exhibit A Schedule of Investors
</TABLE>
-i-
<PAGE> 3
INVESTORS' RIGHTS AGREEMENT
THIS INVESTORS' RIGHTS AGREEMENT (this "Agreement") is made as of July
31, 1998, by and among Waste Connections, Inc., a Delaware corporation (the
"Company"), and the investors listed on Exhibit A hereto, each of which is
herein referred to as an "Investor," with reference to the following facts:
The Company and the Investors are parties to the Agreement and Plan of
Merger dated as of July 30, 1998 (the "Merger Agreement") with respect to the
merger of WCI Acquisition Corporation, a Nebraska corporation and wholly-owned
subsidiary of the Company, into Shrader Refuse and Recycling Service Company, a
Nebraska corporation ("Shrader"). In order to induce the Company and the
Investors to enter into the Merger Agreement, the Investors and the Company
hereby agree that this Agreement shall govern the rights of the Investors to
cause the Company to register shares of Common Stock issuable to such Investors
and certain other matters as set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and conditions set forth in this Agreement, the parties agree
as follows:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Agreement:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) A "Change in Control" of the Company shall be deemed to
have occurred if (i) there shall be consummated (A) any reorganization,
liquidation or consolidation of the Company, or any merger or other business
combination of the Company with any other corporation, other than any such
merger or other combination that would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after such transaction,
or (B) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all, of the assets of
the Company, or if (ii) any "person" (as defined in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall
become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of fifty percent (50%) or more during the first two (2)
years after July 31, 1998, thirty-five percent (35%) or more during the third
and fourth years after July 31, 1998, or thirty percent (30%) or more during the
fifth year after July 31, 1998, of the Company's outstanding voting securities
(except that for the purpose of this definition, "person" shall not include any
person or any person that controls, is controlled by or is under common control
with such person, who as of the date of this Agreement owns ten percent (10%) or
more of the total voting power represented by the outstanding voting securities
of the Company, or a trustee or other fiduciary holding securities under any
employee benefit plan of the Company, or a corporation that is owned directly or
indirectly by the stockholders of the
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<PAGE> 4
Company in substantially the same percentage as their ownership of the Company)
or if (iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the entire Board of the Company shall cease
for any reason to constitute at least one-half of the membership thereof unless
the election, or the nomination for election by the Company's shareholders, of
each new director was approved by a vote of at least one-half of the directors
then still in office who were directors at the beginning of the period, or if
(iv) Ronald J. Mittelstaedt shall cease to be Chairman of the Board of the
Company; provided, that upon the occurrence of an event described in one of the
preceding clauses (i), (ii) or (iii), a Change in Control shall be deemed to
have occurred only if two or all of the President, Chief Financial Officer and
Corporate Secretary of the Company immediately prior to such event do not retain
substantially similar positions.
(c) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
(d) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.10.
(e) The term "1934 Act" shall mean the Securities Exchange Act
of 1934, as amended.
(f) The terms "register", "registered" and "registration"
refers to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(g) The term "Registrable Securities" means (i) the
"Contingent Shares," if any, delivered to the Investors pursuant to Sections
2.2(a) and 2.2(b) of the Merger Agreement, on or after the date thereof, and
(ii) if a Change in Control (as defined below) of the Company occurs before July
31, 2003, then as of the date of such Change in Control, the "Unregistered
Shares" delivered to the Investors pursuant to Section 2.1(b) of the Merger
Agreement.
(h) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(i) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Form S-3 Registration. In case the Company shall receive
written request or requests from at least ten percent (10%) of the Holders of
the Registrable Securities that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
2
<PAGE> 5
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 20
days after effectiveness of such written notice from the Company pursuant to
Section 2.7; provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance pursuant to this
Section 1.2: (i) if Form S-3 is not available for such offering by the Holders;
(ii) if the Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at any aggregate price to the
public less than $750,000; or (iii) as provided in Section 1.3(a) or Section
1.3(d).
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders.
1.3 Obligations of the Company. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for a period of up to one hundred twenty
(120) days or until the dist ribution contemplated in the Registration Statement
has been completed; provided, however, that (i) such 120-day period shall be
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Act, permits an offering on a continuous or delayed
basis, and provided further that applicable rules under the Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment which (i) includes any prospectus required by Section
10(a)(3) of the Act or (ii) reflects facts or events representing a material or
fundamental change in the information set forth in the registration statement,
the incorporation by reference of information required to be included in (i) and
(ii) above to be contained in periodic reports filed pursuant to Section 13 or
15(d) of the 1934 Act in the registration statement. Notwithstanding anything to
the contrary in this Agreement, the Company may delay filing a Registration
Statement, and may withhold efforts to cause a Registration Statement to become
effective, for a period not to exceed 120 days, if the Company shall furnish to
Holders a certificate signed by the Chairman of the Board stating that in the
good faith judgment of the Board of Directors of the Company, it would be
3
<PAGE> 6
seriously detrimental to the Company and its shareholders for such registration
statement to be effected at such time; provided that such right to delay a
request shall be exercised by the Company not more than once in any twelve (12)
month period. If, after a Registration Statement becomes effective, the Company
advises the holders of registered shares that the Company considers it
appropriate for the Registration Statement to be amended or supplemented, the
holders of such shares shall suspend any further sales of their registered
shares, for a period not to exceed 90 days, until the Company advises them that
the registration statement has been amended or updated.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by - such registration statement under such other securities
or Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.4 Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 1
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company such information regarding
4
<PAGE> 7
itself, the Registrable Securities held by it, and the intended method of
disposition of such securities as shall be required to effect the registration
of such Holder's Registrable Securities.
1.5 Expenses of Company Registration. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to this Section 1 for each Holder (which right may be assigned as
provided in Section 1.9), including (without limitation) all registration,
filing, 4 and qualification fees, printers and accounting fees relating or
apportionable thereto and the fees and disbursements of counsel for the Company
and one separate counsel for the selling Holders hereunder (selected by the
Holders of a majority of the Registrable Securities that are included in the
corresponding registration), but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.6 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.7 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities joint or several) to which they may become subject under the Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof arise out of or are based
upon any of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, the 1934 Act or any state securities law;
and the Company will pay to each such Holder, underwriter or controlling person,
as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection 1.7(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person of such
Holder.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the
5
<PAGE> 8
Act, any underwriter, any other Holder selling securities in such registration
statement and any controlling person of any such underwriter or other Holder,
against any losses, claims, damages or liabilities (joint or several) to which
any of the foregoing persons may become subject, under the Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will pay, as incurred, any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this
subsection 1.7(b), in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this subsection 1.7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this subsection 1.7(b) exceed the net proceeds from the offering received
by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.7, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.7.
(d) If the indemnification provided for in this Section 1.7 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
6
<PAGE> 9
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the 0 provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.7 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.8 Reports Under Securities Exchange Act of 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any time permit
a Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.9 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned to a transferee or assignee (other than a competitor of the Company)
who acquires at least twenty-five percent (25%) of the shares held by a Holder
provided: (a) the Company is, within a reasonable time after such transfer,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned; (b) such transferee or assignee agrees in writing to be bound by
and subject to the terms and conditions of this Agreement; (c) such assignment
shall be effective only if immediately following such transfer the further
disposition of such securities by the transferee or assignee is restricted under
the Act; and (d) transfer of registration rights to a limited or general partner
of any Holder that is a partnership will be without restriction as to minimum
shareholding. For the
7
<PAGE> 10
purposes of determining the number of shares of Registrable Securities held by a
transferee or assignee, the holdings of transferees and assignees of a
partnership or limited liability company who are partners or retired partners of
such partnership or members or retired members of such limited liability company
(including spouses and ancestors, lineal descendants and siblings of such
partners, members or spouses who acquire Registrable Securities by gift, will or
intestate succession) shall be aggregated together and with the partnership or
limited liability company; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under this Section 1.
1.10 Termination of Registration Rights. The right of any
Holder to request registration or inclusion in any registration pursuant to
Section 1 shall terminate on such date as all shares of Registrable Securities
held or entitled to be held upon conversion by such Holder may immediately be
sold under Rule 144 during any 90 day period.
2. Miscellaneous.
2.1 Restrictive Legend. Each certificate representing Common
Stock shall, except as otherwise provided in Section 2.2, be stamped or
otherwise imprinted with a legend substantially in the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN
REGISTERED UNDER SUCH ACT AND ALL SUCH OTHER APPLICABLE LAWS
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company the securities being sold thereby may be publicly
sold without registration under the Act and any applicable state securities
laws.
2.2 Notice of Proposed Transfer. Prior to any proposed
transfer of any Common Stock (other than under the circumstances described in
Section 1), the holder thereof shall give written notice to the Company of his
or her intention to effect such transfer. Each such notice shall describe the
manner of the proposed transfer and, if reasonably requested by the Company,
shall be accompanied by an opinion of counsel satisfactory to the Company to the
effect that the proposed transfer may be effected without registration under the
Act and any applicable state securities laws, whereupon the holder of such stock
shall be entitled to transfer such stock in accordance with the terms of the
notice; provided, however, that no such opinion of counsel shall be required for
a transfer to one or more partners or members of the transferor (in the case of
a transferor that is a partnership or limited liability company) or to an
affiliated corporation (in the case of a transferor that is a corporation).Each
certificate for Common Stock issued upon conversion thereof transferred as above
provided shall bear the legend set forth in Section 2.1, except that such
certificate shall not bear such legend if (i) such transfer is in accordance
with the provisions of Rule 144 (or any other rule permitting public sale
without registration under the Act) or (ii) the opinion of counsel referred to
above is to the further effect that the transferee and
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any subsequent transferee (other than an affiliate of the Company) would be
entitled to transfer such securities in a public sale without registration under
the Act. The restrictions provided for in this Section 2.2 shall not apply to
securities which are not required to bear the legend prescribed by Section 2.1
in accordance with the provisions of that Section.
2.3 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
2.4 Governing Law. This Agreement shall be governed by and
construed and interpreted in accordance with the laws of the State of Nebraska,
without regard to that state's conflict of laws principles.
2.5 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
2.6 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.7 Notices. Any notice, consent, authorization or other
communication to be given hereunder shall be in writing and shall be deemed duly
given and received when delivered personally or transmitted by facsimile
transmission with receipt acknowledged by the addressee or three days after
being mailed by first class mail, or the next business day after being deposited
for next-day delivery with a nationally recognized overnight delivery service,
charges and postage prepaid, properly addressed to the party to receive such
notice at the following address for such party (or at such other address as
shall be specified by like notice):
(a) if to the Company, to:
Waste Connections, Inc.
2260 Douglas Blvd., Suite 280
Roseville, CA 95661
Attention: Ronald J. Mittelstaedt
Telephone: (916) 772-2221
Facsimile: (916) 772-2920
with copies to:
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, California 94111
Attention: Robert D. Evans, Esq.
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Telephone: (415) 421-6500
Facsimile: (415) 421-2922
(b) if to the Investors, to the address indicated on Exhibit
A.
Unless otherwise provided, any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery to the party to be notified or upon deposit with the United States Post
Office, by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such part on the signature
page hereof, or at such other address as such party may designate by ten (10)
days' advance written notice to the other parties.
2.8 Expenses. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
2.9 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this Section shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
2.10 Severability. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid or unenforceable, the remainder of this Agreement, or the application of
such provision to persons or circumstances other than those to which it is held
to be invalid or unenforceable, shall not be affected thereby.
2.11 Aggregation of Stock. All shares of Registrable
Securities held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
2.12 Entire Agreement. This Agreement and the Merger Agreement
of even date contain the entire agreement of the parties and supersede all prior
negotiations, correspondence, agreements and understandings, written and oral,
between or among the parties, regarding the subject matter hereof.
2.13 Further Assurances. Each party shall execute such other
and further certificates, instruments and other documents as may be necessary
and proper to implement, complete and perfect the transactions contemplated by
this Agreement.
2.14 Interpretation. All parties have been assisted by counsel
in the preparation and negotiation of this Agreement and the transactions
contemplated hereby, and this Agreement shall be construed according to its fair
language. The rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY: WASTE CONNECTIONS, INC.
By:
-------------------------------------
Ronald J. Mittelstaedt
President & CEO
INVESTOR:
----------------------------------------
(Name of Investor)
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
11
<PAGE> 14
Exhibit A
LIST OF INVESTORS
Duane E. Shrader
Myrien A. Shrader
Daniel L. Shrader
Mark S. Shrader
Michael D. Shrader
Daren L. Shrader
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<PAGE> 1
EXHIBIT 10.39
PURCHASE AGREEMENT
Dated as of July 31, 1998, by and among
Waste Connections, Inc.
Waste Connections of Nebraska, Inc.
J & J Sanitation Inc. Big Red Roll Off Inc.
Garry L. Jeffords
Darin R. Mueller
Leslie J. Jeffords
Leland J. Jeffords
Bradley Rowan
Roma L. Jeffords
Kristie K. Mueller
Sheri L. Jeffords
Betty L. Hargis
Great Plains Recycling, Inc.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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1. PURCHASE OF CORPORATIONS' STOCK AND SOUTH DAKOTA
BUSINESS' ASSETS.................................................................... 1
1.1 Shares to be Purchased...................................................... 1
1.2 Sale and Transfer of Assets................................................. 2
1.3 Assumption by Buyer of Certain Contracts.................................... 3
1.4 Excluded Liabilities........................................................ 3
1.5 Purchase Price.............................................................. 3
1.6 Additional Contingent Purchase Price........................................ 4
1.7 Hold Back................................................................... 5
1.8 Allocation of the Purchase Price............................................ 7
2. CLOSING TIME AND PLACE.............................................................. 8
3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE
SHAREHOLDERS........................................................................ 8
3.1 Organization, Standing and Qualification.................................... 8
3.2 Capitalization.............................................................. 8
3.3 All Stock and Assets Being Acquired......................................... 9
3.4 Authority for Agreement..................................................... 9
3.5 No Breach or Default........................................................ 9
3.6 Subsidiaries................................................................ 9
3.7 Financial Statements........................................................ 9
3.8 Liabilities................................................................. 10
3.9 Conduct of Business......................................................... 11
3.10 Permits and Licenses........................................................ 11
3.11 Certain Receivables......................................................... 13
3.12 Fixed Assets and Real Property.............................................. 13
3.13 Acquisition/Disposal of Assets.............................................. 14
3.14 Contracts and Agreements; Adverse Restrictions.............................. 14
3.15 Insurance................................................................... 15
3.16 Personnel................................................................... 15
3.17 Benefit Plans and Union Contracts........................................... 15
3.18 Taxes....................................................................... 16
3.19 Copies Complete; Required Consents.......................................... 17
3.20 Customers, Billings, Current Receipts and Receivables....................... 17
3.21 No Change With Respect to any Seller and Business........................... 18
3.22 Closing Date Debt; Closing Date Current Assets and Closing Date
Current Liabilities......................................................... 19
3.23 Bank Accounts............................................................... 20
3.24 Compliance With Laws........................................................ 20
3.25 Powers of Attorney.......................................................... 21
</TABLE>
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3.26 Underground Storage Tanks................................................... 21
3.27 Patents, Trademarks, Trade Names, etc....................................... 22
3.28 Assets, etc., Necessary to Business......................................... 22
3.29 Condemnation................................................................ 23
3.30 Suppliers and Customers..................................................... 23
3.31 Absence of Certain Business Practices....................................... 23
3.32 Related Party Transactions.................................................. 23
3.33 Disclosure Schedules........................................................ 23
3.34 No Misleading Statements.................................................... 24
3.35 Accurate and Complete Records............................................... 24
3.36 Knowledge................................................................... 24
3.37 Brokers; Finders............................................................ 24
3.38 Investment Representations.................................................. 24
3.39 S Corporation............................................................... 26
4. REPRESENTATIONS AND WARRANTIES OF WCI AND BUYER..................................... 26
4.1 Existence and Good Standing................................................. 26
4.2 No Contractual Restrictions................................................. 26
4.3 Authorization of Agreement.................................................. 26
4.4 Status of Shares............................................................ 27
4.5 No Misleading Statements.................................................... 27
4.6 Brokers; Finders............................................................ 27
4.7 Disclosure Schedules........................................................ 27
5. COVENANTS FROM SIGNING TO CLOSING DATE.............................................. 27
5.1 Operations.................................................................. 27
5.2 No Change................................................................... 28
5.3 Obtain Consents............................................................. 29
5.4 Access; Confidential Information............................................ 29
5.5 Notice of Material Adverse Change........................................... 30
6. CONDITIONS PRECEDENT TO OBLIGATION OF BUYER TO CLOSE................................ 30
6.1 Representations and Warranties.............................................. 30
6.2 Conditions.................................................................. 30
6.3 No Material Adverse Change.................................................. 30
6.4 Certificates................................................................ 30
6.5 No Litigation............................................................... 30
6.6 Other Deliveries............................................................ 30
6.7 Governmental Approvals; Consents to Transfer................................ 30
6.8 Release of Security Interests............................................... 31
7. CONDITIONS PRECEDENT TO OBLIGATION OF THE SHAREHOLDERS
TO CLOSE............................................................................ 31
7.1 Representations and Warranties.............................................. 31
7.2 Conditions.................................................................. 31
</TABLE>
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<TABLE>
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7.3 Certificate................................................................. 31
7.4 No Litigation............................................................... 31
7.5 Other Deliveries............................................................ 31
8. CLOSING DELIVERIES.................................................................. 31
8.1 WCI and Buyer Deliveries.................................................... 32
8.2 Shareholders' Deliveries.................................................... 32
9. ADDITIONAL COVENANTS OF WCI, BUYER, THE SELLERS AND THE
SHAREHOLDERS........................................................................ 33
9.1 No Delay.................................................................... 33
9.2 Release of Guaranties....................................................... 34
9.3 Release of Security Interests............................................... 34
9.4 Confidentiality............................................................. 34
9.5 Brokers and Finders Fees.................................................... 34
9.6 Taxes....................................................................... 34
9.7 Short Year Tax Returns...................................................... 34
9.8 Certain Tax Matters......................................................... 35
9.9 Shareholders' Representative................................................ 35
9.10 General Release by Shareholders............................................. 36
10. INDEMNIFICATION..................................................................... 37
10.1 Indemnity by the Shareholders............................................... 37
10.2 Limitations on Shareholders' Indemnities.................................... 39
10.3 Notice of Indemnity Claim................................................... 39
10.4 Survival of Representations, Warranties and Agreements...................... 40
10.5 No Exhaustion of Remedies or Subrogation; Right of Set Off.................. 41
11. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS, WCI
AND BUYER........................................................................... 41
11.1 Restrictive Covenants....................................................... 41
11.2 Rights and Remedies Upon Breach............................................. 43
12. TERMINATION OF AGREEMENT............................................................ 44
12.1 Termination Date............................................................ 44
12.2 Notice and Effect of Termination............................................ 44
12.3 Exclusive Negotiations...................................................... 44
13. GENERAL............................................................................. 44
13.1 Additional Conveyances...................................................... 44
13.2 Assignment.................................................................. 45
13.3 Public Announcements........................................................ 45
13.4 Counterparts................................................................ 45
13.5 Notices..................................................................... 45
13.6 Attorneys' Fees............................................................. 46
</TABLE>
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13.7 Applicable Law.............................................................. 46
13.8 Payment of Fees and Expenses................................................ 46
13.9 Incorporation by Reference.................................................. 46
13.10 Captions.................................................................... 46
13.11 Number and Gender of Words; Sellers......................................... 46
13.12 Entire Agreement............................................................ 46
13.13 Waiver...................................................................... 46
13.14 Construction................................................................ 46
14. ARBITRATION AND DISPUTE RESOLUTION.................................................. 47
15. GLOSSARY............................................................................ 47
</TABLE>
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PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of July 31, 1998, is entered into by and among
Waste Connections, Inc., a Delaware corporation ("WCI"), Waste Connections of
Nebraska, Inc., a Delaware corporation ("BUYER"), J & J Sanitation Inc., a
Nebraska corporation and Big Red Roll Off Inc., a Nebraska corporation
(collectively, the "CORPORATIONS"), Garry L. Jeffords ("GARRY"), Darin R.
Mueller ("DARIN"), Leslie J. Jeffords ("LES"), Leland J. Jeffords ("LEE")
(Garry, Darin, Les and Lee are sometimes referred to collectively as the "OWNER"
and collectively, with the Corporations, the "SELLERS"), Bradley Rowan ("BRAD")
(Garry, Darin, Les, Lee and Brad are sometimes referred to collectively as the
"SHAREHOLDERS"), Great Plains Recycling, Inc., a Nebraska corporation ("GREAT
PLAINS"), and Roma L. Jeffords ("ROMA"), Kristie K. Mueller ("KRISTIE"), Sheri
L. Jeffords ("SHERI") and Betty L. Hargis ("BETTY") (Garry, Darin, Les, Lee,
Roma, Kristie, Sheri and Betty are sometimes referred to collectively as the
"GREAT PLAINS SHAREHOLDERS").
WHEREAS, the Corporations are engaged in the collection and transport of
solid waste in those cities, towns and political subdivisions in Nebraska as
identified on Exhibit A attached hereto and by this reference incorporated
herein, and other related activities;
WHEREAS, the Owner is engaged in the collection and transport of solid
waste and recyclables in those cities, towns and political subdivisions in South
Dakota as identified on Exhibit A, and other related activities (the "SOUTH
DAKOTA BUSINESS");
WHEREAS, the Shareholders own all of the issued and outstanding capital
stock of the Corporations (the "CORPORATIONS' STOCK");
WHEREAS, the Owner is the sole owner of the South Dakota Business,
WHEREAS, Buyer wishes to acquire from the Shareholders all of the
Corporations' Stock;
WHEREAS, Buyer wishes to acquire from the Owner substantially all of the
assets, properties, rights, privileges and interests owned leased, held or used
by the Owner in connection with the operation of the South Dakota Business
except certain nonbusiness related assets;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto, each intending to be bound hereby, agree as
follows:
1. PURCHASE OF CORPORATIONS' STOCK AND SOUTH DAKOTA BUSINESS' ASSETS
1.1 Shares to be Purchased. At the Closing (as defined in Section 2), the
Shareholders shall sell and deliver to Buyer all of the issued and outstanding
shares of the
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Corporations' Stock, being the number of shares of the Corporations set forth on
Schedule 3.2 opposite each Shareholder's name. At the Closing, Buyer shall
purchase the Corporations' Stock and in exchange therefor shall deliver to the
Shareholders at the Closing or thereafter as provided by this Agreement a
portion of the purchase price described in Section 1.5 (the "PURCHASE PRICE"),
plus any and all additions to the Purchase Price payable pursuant to Section 1.6
(the "CONTINGENT PURCHASE PRICE").
1.2 Sale and Transfer of Assets. At the Closing, the Owner shall convey,
transfer, deliver and assign to Buyer or its designee, and in exchange therefor,
Buyer shall deliver to the Owner at the Closing or thereafter as provided by
this Agreement a portion of the Purchase Price, plus any and all additions to
the Purchase Price payable pursuant to Section 1.6 and accept from the Owner all
of the assets, rights, privileges and interests, tangible, intangible, real,
personal or mixed, and wherever located, now or hereafter owned, leased, held or
used primarily in connection with the ownership, operation and management of the
South Dakota Business, including without limitation (collectively, the
"ASSETS"):
(a) the trucks, containers, operating machinery and equipment,
processing equipment, shop tools, parts, supplies, accessories, inventory,
physical assets and other tangible personal property used primarily in
connection with the ownership, operation and management of the South Dakota
Business (the "PURCHASED TRUCKS");
(b) all contracts, leases, agreements, customer accounts, commitments
and arrangements specifically identified in Schedule 3.14(a) as contracts
contemplated to be assumed by Buyer pursuant to this Agreement (the
"ASSUMED CONTRACTS");
(c) all permits, licenses, titles (including motor vehicle titles and
current registrations), fuel permits, zoning and land use approvals and
authorizations, including, without limitation, any conditional or special
use approvals or zoning variances, occupancy permits, and any other similar
documents from any and all governmental authorities constituting a material
authorization or entitlement or otherwise material to the operation or
management of the South Dakota Business owned by, issued to, or held by or
otherwise benefiting the Owner (the "GOVERNMENTAL PERMITS");
(d) all customer lists of the Owner relating to the South Dakota
Business;
(e) the logos, trade names, fictitious business names and service
marks of the Owner;
(f) the goodwill of the South Dakota Business;
(g) all guarantees, warranties, indemnities and similar rights in
favor of the Owner with respect to any of the Assets and all books and
records primarily in connection with the operation of the South Dakota
Business; and
(h) All operating and financial records relating to the South Dakota
Business, including without limitation all ledgers, books of account,
depreciation schedules,
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inventory information, records relating to payables and receivables,
cancelled checks, bank statements, equipment records, maintenance records,
disposal records and information concerning customers.
Notwithstanding the foregoing, Buyer shall not acquire any of the assets listed
on Schedule 3.3 (the "EXCLUDED ASSETS").
1.3 Assumption by Buyer of Certain Contracts. Buyer hereby assumes and
agrees to pay, perform and discharge, effective the day after the Closing Date,
all of the obligations, liabilities and commitments of the Owner accruing after
the Closing Date under or with respect to each Assumed Contract, but not
including any obligation or liability for any breach thereof occurring on or
prior to the Closing Date.
1.4 Excluded Liabilities. Notwithstanding the provisions of Section 1.3 or
any other provision hereof or any Schedule or Exhibit hereto and regardless of
any disclosure to Buyer, Buyer shall not assume or be bound by any other duties,
responsibilities, obligations, indebtedness or other liabilities of the Owner or
to which the Owner or any of the Assets or the South Dakota Business may be
bound or affected, of whatever kind or nature, whether known, unknown,
contingent or otherwise, arising before, on or after the Closing Date (including
without limitation taxes arising from the operation of the South Dakota Business
or the sale of the Assets) except, as to obligations and liabilities arising
after the Closing Date only, those obligations and liabilities expressly assumed
by Buyer pursuant to Section 1.3 (the "EXCLUDED LIABILITIES").
1.5 Purchase Price. The Purchase Price is:
(a) three million dollars ($3,000,000), (i) minus the Closing Date
Debt (as defined in Section 3.22(a)), (ii) plus or minus, as the case may
be, the amount by which the Closing Date Current Assets (as defined in
Section 3.22(b)) are greater or less than the Closing Date Current
Liabilities (as defined in Section 3.22(b)), and (iii) plus the value of
additional assets listed on Schedule 1.5(a), which were purchased by the
Sellers after April 3, 1998, payable to the Shareholders at Closing in cash
by wire transfer or check payable in clearinghouse funds. The adjustment to
the Purchase Price based on the Closing Date Debt, the Closing Date Current
Assets and the Closing Date Current Liabilities shall be based on estimates
of such amounts provided at the Closing and based on the Sellers' balance
sheets as of June 30, 1998. For purposes of valuing the accounts receivable
of each Seller as of the Closing Date ("CLOSING DATE ACCOUNTS RECEIVABLE"),
in determining Closing Date Current Assets, such accounts receivable
outstanding forty-five (45) days or less as of the Closing Date will be
valued at One Hundred Percent (100%) of their face value, accounts
receivable outstanding forty-six (46) to ninety (90) days as of the Closing
Date will be valued at Forty Percent (40%) of their face value, and all
other accounts receivable of each Seller shall be valued at zero and shall
be transferred by each Seller to the Shareholders' Representative on the
Closing Date, who shall hold and attempt to collect such accounts
receivable for the benefit of the Shareholders. Before the Test Date (as
defined in Section 1.7(c)), WCI, Buyer and the Shareholders' Representative
(as hereinafter defined) shall determine the actual Closing
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Date Debt, Closing Date Current Assets and Closing Date Current
Liabilities. If the difference between the actual amounts of such items and
the estimated amounts provided at the Closing Date results in an increase
in the amount that should have been paid at the Closing over the amount
that was so paid, WCI shall pay such amount to the Shareholders pursuant to
Section 1.7(d); if the result is a decrease in the amount that should have
been paid at the Closing from the amount that was so paid, the Shareholders
shall pay such amount to WCI pursuant to Section 1.7(d);
(b) A number of shares (the "SHARES") of the WCI's Common Stock, $0.01
par value (the "WCI STOCK"), which shall be delivered by WCI to the Escrow
Agent (as defined below) to be delivered to the Shareholders sixty (60)
days after the Test Date (as defined below) pursuant to Section 1.7
determined as follows: the number of Shares shall be an amount equal to one
million dollars ($1,000,000) (the "VALUE OF THE SHARES") divided by the
Average Closing Price (as hereinafter defined). The Average Closing Price
is the average of the closing price of WCI Stock as quoted on the NASDAQ
Stock Market for the twenty (20) successive trading days for which a
closing price is quoted ending on the tenth trading day prior to the
Closing Date. The Average Closing Price and the number of shares of WCI
Stock to be delivered shall be appropriately adjusted in the event of any
change in WCI Stock between the first day for which a closing price is
quoted in determining the Average Closing Price and the Closing Date,
including without limitation any stock dividend, stock split, reverse stock
split, recapitalization, reorganization, merger or consolidation. WCI shall
not be obligated to issue any fractional shares of WCI Stock, but shall
instead pay the Shareholders cash in lieu of any fractional share equal to
the Average Closing Price multiplied by the fraction of a share of WCI
Stock that would otherwise be issued;
(c) Installment Note. WCI shall deliver to Garry a non-interest
bearing promissory Note (the "Note") in the principal amount of One Hundred
Thousand Dollars ($100,000), which Note shall be unsecured and paid to the
Shareholder in twnety-four (24) equal monthly installments of Four Thousand
One Hundred Sixty-Six Dollars and Sixty-Seven Cents ($4,166.67) and shall
be substantially in the form of Exhibit 1.5(c) attached hereto.
1.6 Additional Contingent Purchase Price. The Purchase Price may be
increased by the additional contingent payments described in this Section.
If, within eighteen (18) months after the date of this Agreement (the
"SIGNING DATE"), the Shareholders successfully assist WCI or any of its
subsidiaries in acquiring directly or indirectly (through asset purchase,
stock purchase, merger or otherwise) the waste collection operations of any
other company providing such services north of the Platte River in the
State of Nebraska to the South Dakota border, and in the State of South
Dakota from the South Dakota border north to Interstate 90, WCI shall pay
the Shareholders as additional Contingent Purchase Price a cash amount
equal to two percent (2%) of the projected gross revenue (after deduction
of any disposal or transfer fees) with respect to such operations during
the first year after they are acquired by WCI, which amount shall be paid
on the Closing Date (as defined in Section 2) if such acquisition is
consummated on or prior to the Closing Date or thirty (30) days after the
date any such acquisition is consummated if consummated after the Closing
Date. WCI shall have sole discretion in
4
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determining whether and on what terms it will consummate any such acquisition,
and WCI shall not be liable to any of the Shareholders for any decision not to
pursue any such acquisition or its failure to consummate any such acquisition,
without regard to the reason therefor.
1.7 Hold Back.
(a) WCI shall deliver the Shares (the "ESCROW SHARES"), which Shares
shall be deposited by WCI with U.S. Bank Trust National Association (the
"ESCROW AGENT") to be held pursuant to an Escrow Agreement (the "ESCROW
AGREEMENT") for later distribution pending the determination of the amount
of the Working Capital Adjustment pursuant to Section 1.7(b) and the
satisfaction of the EBITDA Requirement pursuant to Section 1.7(c). WCI and
the Shareholders' Representative (as defined in Section 9.9) will use
reasonable efforts to complete the Working Capital Adjustment before the
Test Date. If there is no disagreement between WCI and the Shareholders'
Representative regarding the Working Capital Adjustment and the EBITDA
Requirement is satisfied, WCI and the Shareholders' Representative will
adjust the Purchase Price by the amount of such Adjustment. In the event of
any disagreement between WCI and the Shareholders' Representative regarding
the dollar amount of any such adjustment, WCI and the Shareholders'
Representative shall work to resolve such disagreement in accordance with
the terms hereof. Notwithstanding the foregoing, WCI shall not be limited
to the Escrow Shares as a sole remedy in the event that any Purchase Price
adjustment exceeds the Value of the Shares.
(b) The Purchase Price shall be reduced by the amount, if any, by
which the amount of Closing Date Accounts Receivable collected within 90
days after the Closing Date is less than the value of the Closing Date
Accounts Receivable included in the Closing Date Current Assets. WCI will
cause the Sellers to use reasonable efforts to collect all such Closing
Date Accounts Receivable within 90 days after the Closing Date. Payments
received within 90 days after the Closing Date on accounts receivable for
customers who generate accounts receivable before and after the Closing
Date shall be credited to the oldest receivables first until the payments
have been fully credited. The Closing Date Accounts Receivable not
collected within 90 days after the Closing Date shall be transferred by the
Sellers to the Shareholders' Representative, who shall hold and attempt to
collect them for the benefit of the Shareholders. The Sellers shall have no
right to receive any of such collections and no obligation to assist the
Shareholders in the collection of these Closing Date Accounts Receivable.
The adjustments to this Section 1.7(b) and to Closing Current Assets and
Closing Date Current Liabilities pursuant to Section 1.5(a) are herein
called the "WORKING CAPITAL ADJUSTMENT". If the Purchase Price increases as
a result of the Working Capital Adjustment, WCI will pay any additional
amount due to the Shareholders; if the Purchase Price declines, WCI may
deduct the amount by which the Purchase Price declines from the amount due
the Shareholders. To the extent the parties disagree on the amount of any
Working Capital Adjustment, WCI and the Shareholders' Representative will
attempt to resolve such dispute and, if they are unable to do so, such
dispute shall be decided by arbitration in accordance with Section 14.
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<PAGE> 11
(c) The Escrow Shares will not be released to the Shareholders unless,
for the twelve-month period beginning on the first day of the first month
following the Closing Date (the "TEST PERIOD"), the aggregate amount of
earnings before interest, tax, depreciation and amortization of the Sellers
and Great Plains combined (the "EBITDA") is greater than or equal to
twenty-six and a half percent (26.5%) of the aggregate amount of the
Sellers' and Great Plains' total revenues less any revenue and income from
intercompany transactions (the "EBITDA REQUIREMENT"). If the EBITDA
Requirement is achieved, WCI shall release a number of Escrow Shares
according to the following formula:
(i) If the EBITDA is greater than or equal to thirty percent
(30%) of the aggregate amount of the Sellers' and Great Plains' total
revenues for the Test Period less any revenue and income from
intercompany transactions, WCI shall release the Escrow Shares in
their entirety;
(ii) If the EBITDA is greater than 26.5% but less than
twenty-seven percent (27%) of the aggregate amount of the Sellers' and
Great Plains' total revenues for the Test Period less any revenue and
income from intercompany transactions, WCI shall release a number of
Escrow Shares equal to half the Value of the Shares; and
(iii) If the EBITDA is greater than or equal to 27% but less than
30% of the aggregate amount of the Sellers' and Great Plains' total
revenues for the Test Period less any revenue and income from
intercompany transactions, WCI shall release the number of Escrow
Shares pursuant to Section 1.7(c)(ii) plus a number of Escrow Shares
equal to $71,428.57 divided by the Average Closing Price for each half
percent (0.5%) increment beginning with 27% through twenty-nine and a
half percent (29.5%) as the following table indicates.
<TABLE>
<CAPTION>
EBITDA Value of Escrow Shares
- ------ ----------------------
<S> <C>
27% $571,428.57
27.5% $642,857.14
28% $714,285.71
28.5% $785,714.28
29% $857,142.85
29.5% $928,571.42
</TABLE>
WCI shall have sixty (60) days following expiration of the Test
Period to determine the EBITDA as a percentage of the aggregate amount
of the Seller's and Great Plains' total revenues for the Test Period
less any revenue and income from intercompany transactions. In
determining the percentage of the EBITDA, (i) the Sellers' EBITDA
shall be determined separately from Great Plains' EBITDA; and (ii) the
EBITDA shall include all operating and selling, general and
administrative expenses of the Sellers and Great Plains combined but
not including any WCI corporate allocations.
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<PAGE> 12
(d) If the EBITDA Requirement is achieved, Buyer has the option
(the "OPTION") to require the Great Plains Shareholders to deliver to
Buyer the certificates representing the outstanding stock of Great
Plains (the "GREAT PLAINS SHARES") in exchange for One Dollar ($1.00)
within sixty (60) days after expiration of the Test Period (the
"REQUEST PERIOD"). If Buyer does not make such a request within the
Request Period, the Option shall be null and void. Thirty (30) days
after receiving written notice of Buyer's request (THE "DELIVERY
DATE"), the Great Plains Shareholders shall deliver to Buyer free and
clear of all liens, security interests, claims and encumbrances, the
Great Plains Shares, accompanied by a stock power duly executed in
blank, and the schedules required by Section 3 of this Agreement. On
the Delivery Date, the term "Corporations" as it is used in this
Agreement shall include Great Plains and the term "Shareholders" as it
is used in this Agreement shall include the Great Plains Shareholders
in so far as Sections 3, 9, 10 and 11 are concerned, and the
representations and warranties set forth in Section 3 shall be deemed
made as of the Delivery Date with respect to Great Plains and shall be
true and correct as of the Delivery Date, excepting those
representations and warranties made in Sections 3.7, 3.22, 3.38 and
3.39. The representations set forth in Section 3.7 shall be deemed
made as of the Delivery Date but shall relate to financial statements
that Great Plains shall deliver to Buyer pursuant to Section 9.11. The
representations set forth in Sections 3.22, 3.38 and 3.39 shall not
apply to Great Plains.
(e) Adjustments to the Purchase Price pursuant to this Section
1.7 shall be effected by adding to or reducing the number of Escrow
Shares and instructing the Escrow Agent to deliver the Escrow Shares
within 60 days after the last day of the Test Period (the "TEST DATE")
or the resolution of any dispute, if later than the Test Date. If the
Purchase Price is reduced, WCI and the Shareholders' Representative
shall instruct the Escrow Agent to return to WCI for cancellation a
number of Escrow Shares determined by dividing the amount of the
reduction by the Average Closing Price and to deliver the remaining
Escrow Shares to the Shareholders. If the Purchase Price is increased,
WCI shall deliver to the Escrow Agent for delivery to the Shareholders
a number of additional shares of WCI Stock determined by dividing the
amount of the increase by the Average Closing Price. In lieu of
delivering any fractional shares, WCI may deliver cash to the
Shareholders equal to the fraction of a share otherwise deliverable,
multiplied by the Average Closing Price.
1.8 Allocation of the Purchase Price. WCI and Buyer understand that
ownership of the Sellers differs as among the Shareholders and that only the
Owner has an interest in the South Dakota Business. The Shareholders acknowledge
that Buyer is purchasing the entire business of the Corporations and the South
Dakota Business for the aggregate Purchase Price provided herein, and agree that
they shall allocate the Purchase Price among themselves as they shall agree. WCI
shall pay the Purchase Price as allocated among the Shareholders as set forth on
Schedule 1.8. Fifteen Thousand dollars ($15,000) of the Purchase Price shall be
allocated to the covenant not to compete as described in Section 11.1(a) hereof,
and the balance of the Purchase Price shall be allocated among the Corporations'
Stock and the Assets in the manner set forth on Schedule 1.8.
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<PAGE> 13
2. CLOSING TIME AND PLACE
Subject to the terms and conditions of this Agreement, the closing of the
transactions contemplated herein (the "CLOSING") shall take place on the later
of August 3, 1998, and such date after the consents required by Section 6.7 have
been obtained (or Buyer has waived the requirement that one or more such
consents be obtained) as Buyer and the Shareholders' Representative shall agree
(the "CLOSING DATE"). For tax and accounting purposes, the effective date of the
Closing is July 1, 1998. The Closing shall take place at the principal office of
J & J Sanitation Inc., 1112 West Douglas Street, O'Neill, Nebraska 68763, or
through an exchange of consideration and signed documents using overnight
courier service. At the Closing, Buyer, the Sellers and the Shareholders shall
deliver to each other the documents, instruments and other items described in
Section 5 of this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE SHAREHOLDERS
The Sellers and the Shareholders, jointly and severally, (i) represent and
warrant that each of the following representations and warranties is true as of
the Signing Date and will be true as of the Closing Date, and (ii) agree that
such representations and warranties shall survive the Closing.
3.1 Organization, Standing and Qualification. The Corporations are duly
organized, validly existing and in good standing under the laws of the State of
Nebraska. Each Seller has full power and authority to own and lease their
properties and to carry on their businesses as now conducted. The Corporations
are not required to be qualified or licensed to conduct business as a foreign
corporation in any other jurisdiction.
3.2 Capitalization. Schedule 3.2 sets forth, as of the Signing Date, the
authorized and outstanding capital of the Corporations, the names, addresses and
social security numbers or taxpayer identification numbers of the record and
beneficial owners thereof, the number of shares so owned, the allocation of the
cash and Shares among the Shareholders as agreed to among themselves, and wire
transfer instructions for each Shareholder relating to the bank account to which
the Purchase Price and the Contingent Purchase Price, if any, should be sent. On
the Closing Date, all of the issued and outstanding shares of the capital stock
of the Corporations are owned of record and beneficially by the Shareholders, as
set forth in Schedule 3.2, and are free and clear of all liens, security
interests, encumbrances and claims of every kind except as set forth in Schedule
3.2. Each share of the capital stock of the Corporations are duly and validly
authorized and issued, fully paid and nonassessable, and was not issued in
violation of any preemptive rights of any past or present shareholder of the
Corporations. No option, warrant, call, conversion right or commitment of any
kind (including any of the foregoing created in connection with any indebtedness
of the Corporations) exists which obligates the Corporations to issue any of its
authorized but unissued capital stock or other equity interest or which
obligates any Shareholder to transfer the Corporations' Stock to any person.
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<PAGE> 14
3.3 All Stock and Assets Being Acquired. The Corporations' Stock being
acquired by Buyer hereunder constitutes all of the outstanding capital stock of
the Corporations. The assets of the Corporations listed on Schedule 3.3 shall be
distributed to the Shareholders prior to the Closing, and Buyer shall acquire no
interest in or claim to any of such assets. The Assets being acquired by Buyer
hereunder constitute all of the assets of the South Dakota Business used and
necessary to conduct and operate the South Dakota Business as presently
conducted and operated (other than certain assets set forth on Schedule 3.3,
which are the Excluded Assets).
3.4 Authority for Agreement. Each Seller and Shareholder has full right,
power and authority to enter into this Agreement and to perform its or his or
her obligations hereunder. The execution and delivery of this Agreement by the
Corporations and the consummation of the transactions contemplated hereby by the
Corporations have been duly authorized by their Board of Directors. This
Agreement has been duly and validly executed and delivered by each Seller and
Shareholder and, subject to the due authorization, execution and delivery by
Buyer, constitutes the legal, valid and binding obligation of each Seller and
Shareholder enforceable against each of them in accordance with its terms.
3.5 No Breach or Default. Except as disclosed on Schedule 3.5, the
execution and delivery by the Sellers and the Shareholders of this Agreement,
and the consummation by the Shareholders of the transactions contemplated
hereby, will not:
(a) result in the breach of any of the terms or conditions of, or
constitute a default under, or allow for the acceleration or termination
of, or in any manner release any party from any obligation under, any
mortgage, lease, note, bond, indenture, or material contract, agreement,
license or other instrument or obligation of any kind or nature to which
any Seller or Shareholder is a party, or by which any Seller or
Shareholder, or any of their assets, are or may be bound or affected; or
(b) violate any law or any order, writ, injunction or decree of any
court, administrative agency or governmental authority, or require the
approval, consent or permission of any governmental or regulatory
authority; or
(c) violate the Articles of Incorporation or Bylaws of the
Corporations.
3.6 Subsidiaries. Schedule 3.6 lists as of the Signing Date any and all
subsidiaries of the Corporations and any securities of any other corporation or
any securities or other interest in any other business entity owned by the
Corporations or any of its subsidiaries.
3.7 Financial Statements. Each Seller has delivered to Buyer, as Schedule
3.7, copies of financial statements ("FINANCIAL STATEMENTS") for its two most
recent fiscal years, compiled by Nikodym Tax Service and unaudited interim
financial statements for each Seller for the period ended June 30, 1998 (the
"BALANCE SHEET DATE"). The Financial Statements are true and correct and fairly
present (i) the financial position of each Seller as of the respective dates of
the balance sheets included in said statements, and (ii) the results of
operations for the respective periods indicated. The Financial Statements have
been prepared consistently with prior periods. Except to the extent reflected or
reserved against in each Seller's balance sheet as of the Balance
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<PAGE> 15
Sheet Date, or as disclosed on Schedule 3.7 or Schedule 3.8, each Seller had as
of the Balance Sheet Date, and has as of the Closing Date, no liabilities of any
nature, whether accrued, absolute, contingent or otherwise, including, without
limitation, tax liabilities due or to become due, except with respect to the
period from the Signing Date through the Closing Date, as permitted by Section
5.2(d).
3.8 Liabilities. Parts I, II, III and IV of Schedule 3.8, are accurate
lists and descriptions of all liabilities of each Seller required to be
described below in the format set forth below.
(a) Part I of Schedule 3.8 lists, as of the Signing Date, other than
with respect to trade payables and as of the end of the month prior to the
Signing Date with respect to trade payables, all indebtedness for money borrowed
and all other fixed and uncontested liabilities of any kind, character and
description (excluding all real and personal property leasehold interests
included in Part IV of Schedule 3.8), whether reflected or not reflected on the
Financial Statements and whether accrued or absolute, and states as to each such
liability the amount of such liability and to whom payable. From the date as of
which information is provided with respect to trade payables, trade payables
have been incurred only in the ordinary course of business consistent with
comparable prior periods.
(b) Part II of Schedule 3.8 lists, as of the Signing Date, all
claims, suits and proceedings which are pending against each Seller, all
contingent liabilities, and, to the knowledge of each Seller and Shareholder,
all contingent liabilities and all claims, suits and proceedings threatened or
anticipated against each Seller. Part II of Schedule 3.8 includes a summary
description of each such liability, including, without limitation, (A) the name
of each court, agency, bureau, board or body before which any such claim, suit
or proceeding is pending, (B) the date such claim, suit or proceeding was
instituted, (C) the parties to such claim, suit or proceeding, (D) a brief
description of the factual basis alleged to underlie such claim, suit or
proceeding, including the date or dates of all material occurrences, and (E) the
amount claimed and other relief sought, together with copies of all material
documents, reports and other records relating thereto to the extent that they
are in the Seller's or any Shareholder's possession or control.
(c) Part III of Schedule 3.8 lists, as of the Signing Date and to the
extent not otherwise included in Part I of Schedule 3.8, all liens, claims and
encumbrances secured by or otherwise affecting any asset of each Seller
(including any Property, as hereafter defined), including a description of the
nature of such lien, claim or encumbrance, the amount secured if it secures a
liability, the nature of the obligation secured, and the party holding such
lien, claim or encumbrance.
(d) Part IV of Schedule 3.8 lists, as of the Signing Date and to the
extent not otherwise included in Part I or Part III of Schedule 3.8, all real
and personal property leasehold interests to which each Seller is a party as
lessor or lessee or, to the knowledge of each Seller or the Shareholders,
affecting or relating to any Property, and includes a description of the nature
and principal terms of such leasehold interest, including, without limitation,
the identity of the other party thereto, the term of such leasehold interest
(including renewal options), the
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<PAGE> 16
base rent and any additional rent owing thereunder (including any adjustments
thereto), security deposits, rights of first offer or first refusal, purchase
options, and restrictions on transfer.
Except as described on the applicable part of Schedule 3.8, no Seller
nor Shareholder has made any payment or committed to make any payment since the
Balance Sheet Date on or with respect to any of the liabilities or obligations
listed on Schedule 3.8 except, in the case of liabilities and obligations listed
on Parts I, III and IV of Schedule 3.8, periodic payments required to be made
under the terms of the agreements or instruments governing such obligations or
liabilities or made in the ordinary course of business. Between the Balance
Sheet Date and the Closing Date, trade payables have been incurred only in the
ordinary course of business consistent with comparable prior periods.
3.9 Conduct of Business. Except as set forth on Schedule 3.21, since the
Balance Sheet Date:
(a) The business of each Seller has been conducted only in the
ordinary course; and
(b) There has been no change in the condition (financial or
otherwise) of the assets, liabilities or operations of any Seller other than
changes in the ordinary course of business, none of which either singly or in
the aggregate has been materially adverse.
3.10 Permits and Licenses.
(a) Schedule 3.10(a) is a full and complete list, and includes
copies, of all material permits, licenses, franchises, and service agreements
pursuant to which each Seller is authorized to collect and haul industrial,
commercial and residential solid waste (the "COLLECTION FRANCHISES"), and of all
other material permits, licenses, titles (including motor vehicle titles and
current registrations), fuel permits, zoning and land use approvals and
authorizations, including, without limitation, any conditional or special use
approvals or zoning variances, occupancy permits, and any other similar
documents constituting a material authorization or entitlement or otherwise
material to the operation of the business of each Sellers (collectively the
"GOVERNMENTAL PERMITS") owned by, issued to, held by or otherwise benefitting
each Seller or the Shareholders as of the Signing Date. The status of the
Governmental Permits related to the disposal areas owned or used by each Seller,
including, without limitation, any conditions thereto and, if applicable, the
expiration dates thereof, are also described in Schedule 3.10(a). Schedule
3.10(a) also sets forth the name of any governmental agency or other third party
from whom the Shareholders, a Seller or Buyer must obtain consent (the "REQUIRED
GOVERNMENTAL CONSENTS") in order to effect a direct or indirect transfer of the
Collection Franchises or other Governmental Permits required as a result of the
consummation of the transactions contemplated by this Agreement. The Sellers
agree to assist Buyer in obtaining all such consents on or prior to the Closing
Date, or with Buyer's consent, after the Closing Date with such consents to be
effective no later than August 3, 1998. Except as set forth on Schedule 3.10(a),
all of the Collection Franchises and other Governmental Permits enumerated and
listed on Schedule 3.10(a) are adequate for the operation of the business of
each Seller and of each Property as presently operated and are valid and in full
force and effect. All of said Collection
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<PAGE> 17
Franchises and other Governmental Permits and agreements have been duly obtained
and are in full force and effect, and there are no proceedings pending or, to
the knowledge of each Seller or Shareholder, threatened which may result in the
revocation, cancellation, suspension or adverse modification of any of the same.
No Seller nor Shareholder has any knowledge of any reason why all such
Governmental Permits and agreements will not remain in effect after consummation
of the transactions contemplated hereby.
(b) Schedule 3.10(b) includes: (i) all records, notifications,
reports, permit and license applications, engineering and geologic studies, and
environmental impact reports, tests or assessments (collectively, "RECORDS,
NOTIFICATIONS AND REPORTS") that (A) are material to the operation of the
business of each Seller, or (B) relate to the discharge or release of materials
into the environment and/or the handling or transportation of waste materials or
hazardous or toxic substances or otherwise relate to the protection of the
public health or the environment, or (C) were filed with or submitted to
appropriate governmental agencies during the past 24 months by any Seller or any
of the Shareholders or their agents with respect to the business of each Seller,
and (ii) all material notifications from such governmental agencies to any
Seller, the Shareholders or their agents in response to or relating to any of
such Records, Notifications and Reports.
(c) Schedule 3.10(c) lists, as of the Signing Date, each facility
owned, leased, operated or otherwise used by each Seller, the ownership, lease,
operation or use of which is being transferred to, assumed by or otherwise
acquired directly or indirectly by Buyer pursuant to this Agreement (each, a
"FACILITY" and collectively, the "FACILITIES"). Except as otherwise disclosed on
Schedule 3.10(c):
(i) Each Facility is fully licensed, permitted and authorized to
carry on its current business under all applicable federal, state and
local statutes, orders, approvals, zoning or land use requirements,
rules and regulations, and no Facility or the current use thereof
constitutes a non-conforming use or is otherwise subject to any
restrictions regarding the operation, renovation or reconstruction
thereof.
(ii) All activities and operations at each Facility are being and
have been conducted in compliance in all material respects with the
requirements, criteria, standards and conditions set forth in all
applicable federal, state and local statutes, orders, approvals,
permits, zoning or land use requirements and restrictions, variances,
licenses, rules and regulations.
(iii) Each Facility is located on real property owned or leased
by a Seller (each a "FACILITY PROPERTY") and each Facility Property
owned by such Seller is legally described on the preliminary title
reports, surveys or site plans attached to Schedule 3.10(c) (the
"FACILITY SURVEYS/SITE PLANS"), which accurately depict the respective
Facility Property.
(iv) There are no circumstances, conditions or reasons which are
likely to be the basis for revocation or suspension of any Facility's
site assessments,
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<PAGE> 18
permits, licenses, consents, authorizations, zoning or land use
permits, variances or approvals relating to any Facility owned by any
Seller or owned by any of the Shareholders or an Affiliate (as
hereinafter defined) of any of the Shareholders and leased to any
Seller, and to the knowledge of each Seller and the Shareholders there
are no circumstances, conditions or reasons which are likely to be the
basis for revocation or suspension of any site assessment, permits,
licenses, consents, authorizations, zoning or land use permits,
variances or approvals relating to any Facility.
3.11 Certain Receivables. Schedule 3.11 is an accurate list as of the
Signing Date of the accounts and notes receivable of each Seller from and
advances to employees, former employees, officers, directors, the Shareholders
and Affiliates of the foregoing which have not been repaid. For purposes of this
Agreement, the term "AFFILIATE" means, with respect to any person, any person
that directly or indirectly through one or more intermediaries controls or has
an ownership interest in, or is controlled or owned in whole or in part by, or
is under common control or ownership in whole or in part with such person, and
in the case of the Corporations includes directors and officers, in the case of
individuals includes the individual's spouse, father, mother, grandfather,
grandmother, brothers, sisters, children and grandchildren and in the case of a
trust includes the grantors, trustees and beneficiaries of the trust.
3.12 Fixed Assets and Real Property.
(a) Schedule 3.12(a) lists, as of the Signing Date, substantially all
the fixed assets (other than real estate) of each Seller, including, without
limitation, identification of each vehicle by description and serial number,
identification of machinery, equipment and general descriptions of parts,
supplies and inventory. Except as described on Schedule 3.12(a), all of each
Seller's containers, vehicles, machinery and equipment necessary for the
operation of its business are in operable condition, and all of the motor
vehicles and other rolling stock of each Seller are in material compliance with
all applicable laws, rules and regulations. All such containers, vehicles,
machinery and equipment are substantially free of known defects that would cause
them to fail. All leases of fixed assets are in full force and effect and
binding upon the parties thereto; no Seller nor, to the knowledge of each Seller
or the Shareholders, any other party to such leases is in breach of any of the
material provisions thereof.
(b) Each parcel of real property leased, owned or being purchased by
any Seller as of the Signing Date (the "PROPERTY"), including the street address
and, in the case of Property owned or being purchased, the legal description
thereof, is listed on Schedule 3.12(b) - Part I, and attached to said Schedule
3.12(b) - Part I are copies of all leases, deeds, outstanding mortgages, other
encumbrances and any existing title insurance policies or lawyer's title
opinions relating to each Property, as well as a current commitment for title
insurance issued by a title insurance company satisfactory to Buyer with respect
to each Property owned or being purchased by any Seller, together with copies of
all of the title exceptions referred to in each such commitment. All leases
listed on Schedule 3.12(b) - Part I are in full force and effect and binding on
the parties thereto; no Seller nor any other party to any such lease is in
breach of any of the material provisions thereof; the landlord's interest in any
such lease has not been assigned to any third party nor has any such interest
been mortgaged, pledged or hypothecated; and no
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<PAGE> 19
Seller has assigned any such lease or subletted all or any part of the Property
which is the subject of any such lease. Except as described on Schedule 3.12(b)
- - Part II, there are no material physical or mechanical defects in any Facility
located on any Property and each such Facility is in good condition and repair.
(c) Each Seller has good, valid and marketable title to all
properties and assets, real, personal, and mixed, tangible and intangible,
actually used or necessary for the conduct of its business, free of any
encumbrance or charge of any kind except: (i) liens for current taxes not yet
due; (ii) minor imperfections of title and encumbrances, if any, that are not
substantial in amount, do not materially reduce the value or impair the use of
the property subject thereto, do not materially impair the value of any Seller,
and have arisen only in the ordinary course of business and consistent with past
practice; and (iii) the liens identified on Part III of Schedule 3.8
(collectively, the "PERMITTED LIENS"). Except as described on Schedule 3.12(b) -
Part I, there are no leases, occupancy agreements, options, rights of first
refusal or any other agreements or arrangements, either oral or written, that
create or confer in any person or entity the right to acquire, occupy or
possess, now or in the future, any Facility, any Property, or any portion
thereof, or create in or confer on any person or entity any right, title or
interest therein or in any portion thereof.
3.13 Acquisition/Disposal of Assets. Except as indicated on Schedule 3.13,
since the Balance Sheet Date, no Seller has acquired or sold or otherwise
disposed of any properties or assets which, singly or in the aggregate, have a
value in excess of $10,000, or which are material to the operation of each
Seller's business as presently conducted, without the prior written consent of
Buyer.
3.14 Contracts and Agreements; Adverse Restrictions.
(a) Schedule 3.14(a) lists, as of the Signing Date, and includes
copies of, all material contracts and agreements (other than leases and
documents included with Schedule 3.12(b) and contracts terminable at will or on
thirty days or less prior notice) to which any Seller is a party or by which it
or any of its property is bound (including, but not limited to, joint venture or
partnership agreements, contracts with any labor organizations, promissory
notes, loan agreements, bonds, mortgages, deeds of trust, liens, pledges,
conditional sales contracts or other security agreements). Except as disclosed
on Schedule 3.14(a), all such contracts and agreements included in Schedule
3.14(a) are and on the Closing Date shall be in full force and effect and
binding upon the parties thereto. Except as described or cross referenced on
Schedule 3.14(a), no Seller nor, to any Seller's or any of the Shareholder's
knowledge, any other parties to such contracts and agreements is in breach
thereof, and none of the parties has threatened to breach any of the material
provisions thereof or notified any Seller or any of the Shareholders of a
default thereunder, or exercised any options thereunder.
(b) Except as set forth on Schedule 3.14(b), there is no outstanding
judgment, order, writ, injunction or decree against any Seller, the result of
which could materially adversely affect a Seller or its business or any of the
Properties, nor has any Seller been notified that any such judgment, order,
writ, injunction or decree has been requested.
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<PAGE> 20
3.15 Insurance. Schedule 3.15 is a complete list and includes copies, as of
the Signing Date, of all insurance policies in effect on the Signing Date or,
with respect to "occurrence" policies that were in effect, carried by any Seller
in respect of the Properties or any other property used by any Seller
specifying, for each policy, the name of the insurer, the type of risks insured,
the deductible and limits of coverage, and the annual premium therefor. Each
Seller currently carries insurance in the type and amount ordinarily carried by
owners or corporations in similar circumstances, in respect to each Seller's
properties, assets and business. During the last five years, there has been no
lapse in any material insurance coverage of any Seller. For each insurer
providing coverage for any of the contingent or other liabilities listed on
Schedule 3.8, except to the extent otherwise set forth in Part II of Schedule
3.8, each such insurer, if required, has been properly and timely notified of
such liability, no reservation of rights letters have been received by any
Seller and the insurer has assumed defense of each suit or legal proceeding. All
such proceedings are fully covered by insurance, subject to normal deductibles.
3.16 Personnel. Schedule 3.16 is a complete list, as of the Signing Date,
of all officers, directors and employees (by type or classification) of each
Seller and their respective rates of compensation, including (i) the portions
thereof attributable to bonuses, (ii) any other salary, bonus, stock option,
equity participation, or other compensation arrangement made with or promised to
any of them, and (iii) copies of all employment agreements with non-union
officers, directors and employees. Schedule 3.16 also lists the driver's license
number for each driver of each Seller's motor vehicles.
3.17 Benefit Plans and Union Contracts.
(a) Schedule 3.17(a) is a complete list as of the Signing Date, and
includes complete copies (or, in the case of oral arrangements, descriptions),
of all employee benefit plans and agreements (written or oral) currently
maintained or contributed to by each Seller, including employment agreements and
any other agreements containing "golden parachute" provisions, retirement plans,
welfare benefit plans and deferred compensation agreements, together with copies
of such plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Signing Date. Except for the employee
benefit plans described on Schedule 3.17(a), no Seller has any other pension,
retirement, welfare, profit sharing, deferred compensation, stock option,
employee stock purchase or other employee benefit plans or arrangements with any
party. Except as disclosed on Schedule 3.17(a), all employee benefit plans
listed on Schedule 3.17(a) are fully funded and in substantial compliance with
all applicable federal, state and local statutes, ordinances and regulations.
All such plans that are intended to qualify under Section 401(a) of the Internal
Revenue Code have been determined by the Internal Revenue Service to be so
qualified, and copies of such determination letters are included as part of
Schedule 3.17(a). Except as disclosed on Schedule 3.17(a), all reports and other
documents required to be filed with any governmental agency or distributed to
plan participants or beneficiaries (including, but not limited to, actuarial
reports, audits or tax returns) have been timely filed or distributed, and
copies thereof are included as part of Schedule 3.17(a). All employee benefit
plans listed on such Schedule have been operated in accordance with the terms
and provisions of the plan documents and all related documents and policies. No
Seller has incurred any liability for excise tax or penalty due to the Internal
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Revenue Service or U.S. Department of Labor nor any liability to the Pension
Benefit Guaranty Corporation for any employee benefit plan, nor has any Seller,
nor party-in-interest or disqualified person, engaged in any transaction or
other activity which would give rise to such liability. No Seller has
participated in or made contributions to any "multi-employer plan" as defined in
the Employee Retirement Income Security Act of 1974 ("ERISA"), nor would any
Seller or any affiliate be subject to any withdrawal liability with respect to
such a plan if any such employer withdrew from such a plan immediately prior to
the Signing Date. No employee pension benefit plan is under funded on a
termination basis as of the date of this Agreement.
(b) Schedule 3.17(b) is a complete list, as of the Signing Date, and
includes complete copies of all union contracts and agreements between any
Seller and any collective bargaining group. All Sellers are in compliance in all
material respects with all applicable federal and state laws respecting
employment and employment practices, terms and conditions of employment, wages
and hours, and nondiscrimination in employment, and is not engaged in any unfair
labor practice. There is no charge pending or, to any Seller's or the
Shareholders' knowledge, threatened, against any Seller before any court or
agency and alleging unlawful discrimination in employment practices and there is
no charge of or proceeding with regard to any unfair labor practice against it
pending before the National Labor Relations Board. There is no labor strike,
dispute, slow down or stoppage as of the Signing Date, existing or threatened
against any Seller; no union organizational activity exists respecting employees
of any Seller not currently subject to a collective bargaining agreement; the
union contracts or other agreements delivered as part of Schedule 3.17(b)
constitute all agreements with the unions or other collective bargaining groups,
and there are no other arrangements or established practices relating to the
employees covered by any collective bargaining agreement; and Schedule 3.17(b)
contains as of the date it is delivered a list of all arbitration or grievance
proceedings that have occurred since the Balance Sheet Date. No one has
petitioned within the last five years, and no one is now petitioning, for union
representation of any employees of any Seller. No Seller has experienced any
labor strike, slow-down, work stoppage, labor difficulty or other job action
during the last five years.
(c) No payment made to any employee, officer, director or independent
contractor of any Seller (the "RECIPIENT") pursuant to any employment contract,
severance agreement or other arrangement (the "Golden Parachute Payment") will
be nondeductible by any Seller because of the application of Sections 280G and
4999 of the Code to the Golden Parachute Payment, nor will any Seller be
required to compensate any Recipient because of the imposition of an excise tax
(including any interest or penalties related thereto) on the Recipient by reason
of Sections 280G and 4999 of the Code.
3.18 Taxes.
(a) Each Seller has timely filed all requisite federal, state, local
and other tax and information returns due for all fiscal periods ended on or
before the Signing Date. All such returns are accurate and complete. Except as
set forth on Schedule 3.18, there are no open years (other than those within the
statute of limitations), examinations in progress, extensions of any statute of
limitations or claims against any Seller relating to federal, state, local or
other taxes (including penalties and interest) for any period or periods prior
to and including the
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Signing Date and no notice of any claim for taxes has been received. Copies of
(i) any tax examinations, (ii) extensions of statutory limitations and (iii) the
federal income, and state franchise, income and sales tax returns of each Seller
for its last two fiscal years are attached as part of Schedule 3.18. Copies of
all other federal, state, local and other tax and information returns for all
prior years of each Seller's existence have been made available to Buyer and are
among the records of each Seller which will accrue to Buyer at the Closing. No
Seller has been contacted by any federal, state or local taxing authority
regarding a prospective examination.
(b) Except as set forth on Schedule 3.18 (which schedule also
includes the amount due with respect to any Seller) each Seller has duly paid
all taxes and other related charges required to be paid prior to the Signing
Date. The reserves for taxes contained in the Financial Statements of each
Seller are adequate to cover its tax liability as of the Signing Date.
(c) Each Seller has withheld all required amounts from its employees
for all pay periods in full and complete compliance with the withholding
provisions of applicable federal, state and local laws. All required federal,
state and local and other returns with respect to income tax withholding, social
security, and unemployment taxes have been duly filed by each Seller for all
periods for which returns are due, and the amounts shown on all such returns to
be due and payable have been paid in full.
3.19 Copies Complete; Required Consents. Except as disclosed on Schedule
3.19, the certified copies of the Articles of Incorporation and Bylaws of the
Corporations, both as amended to the Signing Date, and the copies of all leases,
instruments, agreements, licenses, permits, certificates or other documents that
have been delivered to Buyer in connection with the transactions contemplated
hereby are complete and accurate as of the Signing Date and are true and correct
copies of the originals thereof. Except as specifically disclosed on Schedule
3.19, the rights and benefits of any Seller will not be adversely affected by
the transactions contemplated hereby, and the execution of this Agreement and
the performance of the obligations hereunder will not violate or result in a
breach or constitute a default under any of the terms or provisions thereof.
None of such leases, instruments, agreements, licenses, permits, site
assessments, certificates or other documents requires notice to, or consent or
approval of, any governmental agency or other third party to any of the
transactions contemplated hereby, except the Required Governmental Consents,
such consents and approvals as are listed on Schedule 3.19; all of which will
have been given or obtained prior to the Closing, or with Buyer's consent,
immediately after the Closing with such consents to be effective no later than
August 3, 1998.
3.20 Customers, Billings, Current Receipts and Receivables. Schedule 3.20
is a current, accurate and complete list of, and includes:
(a) the customers each Seller serves on an ongoing basis, including
name, location and current billing rate, as of the Signing Date;
(b) an accurate and complete aging of all accounts and notes
receivable from customers as of the last day of the month preceding the month in
which such Schedule is delivered, showing amounts due in 30-day aging
categories. Except to the extent of the
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allowance for bad debts reflected on the Financial Statements or otherwise
disclosed on Schedules 3.12 and 3.20, each Seller' accounts and notes receivable
are collectible in the amounts shown on Schedules 3.12 and 3.20; and
(c) the average monthly revenues of each Seller derived from billings
to its customers for each of the twelve months preceding the Signing Date.
Except as set forth on Schedule 3.19, the Sellers and the Shareholders have no
knowledge of any reason why each Seller's average monthly revenues derived from
billings to its customers after the Closing Date should not continue at
approximately the same rate as before the Signing Date.
3.21 No Change With Respect to any Seller and Business. Except as set forth
on Schedule 3.21, since the Balance Sheet Date, the business of each Seller has
been conducted only in the ordinary course and there has been no change in the
condition (financial or otherwise) of the assets, liabilities or operations of
any Seller other than changes in the ordinary course of business, none of which
either singly or in the aggregate has been materially adverse. Specifically, and
without limiting the generality of the foregoing, except as set forth on
Schedule 3.21, with respect to each Seller, since the Balance Sheet Date, there
has not been:
(a) any material change in their financial condition, assets,
liabilities (contingent or otherwise), income, operations or business which
would have a material adverse effect on the financial condition, assets,
liabilities (contingent or otherwise), income, operations or business of any
Seller, taken as a whole;
(b) any material damage, destruction or loss (whether or not covered
by insurance) adversely affecting any material portion of their properties or
business;
(c) any change in or agreement to change any Corporation's (i)
shareholders, (ii) ownership of its authorized capital or outstanding
securities, or (iii) securities;
(d) any declaration or payment of, or any agreement to declare or
pay, any dividend or distribution in respect of any Corporation's capital stock
or any direct or indirect redemption, purchase or other acquisition of any of a
Corporation's capital stock;
(e) any material increase or bonus or promised increase or bonus in
the compensation payable or to become payable by them, in excess of usual and
customary practices, to any of its employees or agents, or any Corporation's
directors or officers, or any accrual or arrangement for or payment of any bonus
or other special compensation to any employee or any severance or termination
pay paid to any Corporation's present or former officers or other key employees;
(f) any labor dispute or any other event or condition of any
character with respect to each Seller's employees, materially adversely
affecting its business or future prospects;
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(g) any sale or transfer, or any agreement to sell or transfer,
any of their material assets, property or rights to any other person, including,
without limitation, the Shareholders and their Affiliates, other than in the
ordinary course of business;
(h) any cancellation, or agreement to cancel, any material
indebtedness or other material obligation owing to them, including, without
limitation, any indebtedness or obligation of any of the Shareholders or any
Affiliate thereof;
(i) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of their assets, property or
rights or requiring consent of any party to the transfer and assignment of any
such assets, property or rights;
(j) any purchase or acquisition of, or any agreement, plan or
arrangement to purchase or acquire, any of their property, rights or assets
outside the ordinary course of their business;
(k) any waiver of any of their material rights or claims;
(l) any new or any amendment or termination of any existing
material contract, agreement, license, permit or other right to which they are
party;
(m) any other material transaction outside the ordinary course of
its business.
3.22 Closing Date Debt; Closing Date Current Assets and Closing Date
Current Liabilities.
(a) At the Closing, the Shareholders shall prepare and deliver to
Buyer Schedule 3.22(a), which shall be a statement of (i) the amount of the
aggregate debt (excluding trade payables) of each Seller outstanding on the
Closing Date required to be repaid by Buyer at or immediately after the Closing
Date and all prepayment penalties incurred or to be incurred by Buyer or any
Seller in connection with the repayment of any such debt, (ii) the amount of the
aggregate debt (excluding trade payables) of each Seller outstanding on the
Closing Date that will remain outstanding obligations of each Seller after the
Closing Date, and all prepayment penalties applicable to such debt if repaid
prior to maturity, including in each case all interest accrued through and
including the Closing Date, (iii) the aggregate amount of the present value,
discounted at the lease rate factor, if known, inherent in the lease or, if the
lease rate factor is not known, at the rate charged to any Seller by a third
party lender in connection with its most recent borrowing to finance equipment,
of all lease obligations of each Seller that are not capitalized lease
obligations and (iv) the aggregate amount of the present value of all
capitalized lease obligations (determined in accordance with generally accepted
accounting principles) of each Seller (the "CLOSING DATE DEBT"). Schedule
3.22(a) shall include wire transfer instructions for creditors whose Closing
Date Debt Buyer has designated for payment, and attached to Schedule 3.22(a)
shall be pay-off letters or instructions from such creditors in the form
provided by Buyer's bank.
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(b) At the Closing, the Shareholders shall prepare and deliver to
Buyer Schedule 3.22(b), which shall be an estimate as of the Closing Date of the
amount of the aggregate current liabilities (including any reserve for unpaid
taxes and excluding the current portion of long-term debt to the extent such
current portion is included in Closing Date Debt) and trade payables of each
Seller as of the Closing Date other than the Excluded Liabilities (the "CLOSING
DATE CURRENT LIABILITIES") and the amount of the aggregate cash and other
current assets of each Seller as of the Closing Date, including prepaid expenses
the benefit of which survives the Closing Date and the accounts receivable of
each Seller earned prior to the Closing Date, and collectible (less an allowance
for doubtful accounts) on or after the Closing Date (the "CLOSING DATE CURRENT
ASSETS").
3.23 Bank Accounts.
(a) Schedule 3.23(a) is a complete and accurate list, as of
the Signing Date, of:
(i) the name of each bank in which any Seller has
accounts or safe deposit boxes;
(ii) the name(s) in which the accounts or boxes are held;
(iii) the type of account; and
(iv) the name of each person authorized to draw thereon
or have access thereto.
(b) Schedule 3.23(b) is a complete and accurate list, as of
the Signing Date, of:
(i) each credit card or other charge account issued to
any Seller; and
(ii) the name of each person to whom such credit cards or
other charge accounts have been issued.
3.24 Compliance With Laws. Except as disclosed on Schedule 3.24, each
Seller has complied with, and each Seller is presently in compliance with,
federal, state and local laws, ordinances, codes, rules, regulations,
Governmental Permits, orders, judgments, awards, decrees, consent judgments,
consent orders and requirements applicable to it (collectively "LAWS"),
including, but not limited to, the Americans with Disabilities Act, the Federal
Occupational Safety and Health Act, and Laws relating to the public health,
safety or protection of the environment (collectively, "ENVIRONMENTAL LAWS").
Except as disclosed on Schedule 3.24, there has been no assertion by any party
that any Seller is in violation of any Laws. Specifically and without limiting
the generality of the foregoing, except as disclosed on Schedule 3.24:
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(a) Except as permitted under applicable laws and regulations,
including, without limitation, the federal Resource Conservation Recovery Act,
42 USC Section 6901 et seq. ("RCRA"), no Seller has accepted, processed,
handled, transferred, generated, treated, stored or disposed of any Hazardous
Material (as defined in Section 3.24(e) below) nor has any Seller accepted,
processed, handled, transferred, generated, treated, stored or disposed of
asbestos, medical waste, radioactive waste or municipal waste, except in
compliance with Environmental Laws.
(b) During any Seller's ownership or leasing of the Property
owned or leased by it and, to the knowledge of each Seller and the Shareholders,
prior to any Seller's ownership or leasing of such Property, no Hazardous
Material, other than that allowed under Environmental Laws, including, without
limitation, RCRA, has been disposed of, or otherwise released on any Property.
(c) During any Seller's ownership or leasing of the Property
owned or leased by it and, to the knowledge of each Seller and the Shareholders,
prior to any Seller's ownership or leasing of such Property, no Property has
ever been subject to or received any notice of any private, administrative or
judicial action, or notice of any intended private, administrative or judicial
action relating to the presence or alleged presence of Hazardous Material in,
under, upon or emanating from any Property or any real property now or
previously owned or leased by any Seller. There are no pending and, to each
Seller's and Shareholder's knowledge, no threatened actions or proceedings from
any governmental agency or any other entity involving remediation of any
condition of the Property, including, without limitation, petroleum
contamination, pursuant to Environmental Laws.
(d) Except as allowed under Environmental Laws, no Seller has
knowingly sent, transported or arranged for the transportation or disposal of
any Hazardous Material, to any site, location or facility.
(e) As used in this Agreement, "HAZARDOUS MATERIAL" means the
substances (i) defined as "HAZARDOUS WASTE" in 40 CFR 261, and substances
defined in any comparable Nebraska and South Dakota statute or regulation; (ii)
any substance the presence of which requires remediation pursuant to any
Environmental Laws; and (iii) any substance disposed of in a manner not in
compliance with Environmental Laws.
3.25 Powers of Attorney. No Seller has granted any power of attorney
(except routine powers of attorney relating to representation before
governmental agencies) or entered into any agency or similar agreement whereby a
third party may bind or commit any Seller in any manner.
3.26 Underground Storage Tanks. Except as set forth on Schedule 3.26, no
underground storage tanks containing petroleum products or wastes or other
hazardous substances regulated by 40 CFR 280 or Environmental Laws are currently
or have been located on any Property. Except as set forth on Schedule 3.26, no
Seller has ever owned or leased any real property not included in the Property
having any underground storage tanks containing petroleum products or wastes or
other hazardous substances regulated by 40 CFR 280. As to
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each such underground storage tank ("UST") identified on Schedule 3.26, each
Seller has provided to Buyer, on Schedule 3.26:
(a) the location of the UST, information and material, including
any available drawings and photographs, showing the location, and whether any
Seller currently owns or leases the property on which the UST is located (and if
the Seller does not currently own or lease such property, the dates on which it
did and the current owner or lessee of such property);
(b) the date of installation and specific use or uses of the UST;
(c) copies of tank and piping tightness tests and cathodic
protection tests and similar studies or reports for each UST;
(d) a copy of each notice to or from a governmental body or
agency relating to the UST;
(e) other material records with regard to the UST, including,
without limitation, repair records, financial assurance compliance records and
records of ownership; and
(f) to the extent not otherwise set forth pursuant to the above,
a summary description of instances, past or present, in which, to each Seller's,
or Shareholder's knowledge, the UST failed to meet applicable standards and
regulations for tightness or otherwise and the extent of such failure, and any
other operational or environmental problems with regard to the UST, including,
without limitation, spills, including spills in connection with delivery of
materials to the UST, releases from the UST and soil contamination.
Except to the extent set forth on Schedule 3.26, each Seller has
complied with Environmental Laws regarding the installation, use, testing,
monitoring, operation and closure of each UST described on Schedule 3.26.
3.27 Patents, Trademarks, Trade Names, etc. Schedule 3.27 lists all
patents, trade names, fictitious business names, trademarks, service marks, and
copyrights owned by each Seller or which any Seller is licensed to use (other
than licenses to use software for personal computer operating systems that were
provided when the computer was purchased and licenses to use software for
personal computers that are granted to retail purchasers of such software). No
patents, trade secrets, know-how, intellectual property, trademarks, trade
names, assumed names, copyrights, or designations used by any Seller in its
business infringe on any patents, trademarks, or copyrights, or any other rights
of any person. No Seller nor any of the Shareholders knows or has any reason to
believe that there are any claims of third parties to the use of any such names
or any similar name, or knows of or has any reason to believe that there exists
any basis for any such claim or claims.
3.28 Assets, etc., Necessary to Business. Each Seller owns or leases all
properties and assets, real, personal, and mixed, tangible and intangible, and,
except as disclosed on Schedules 3.5, 3.10(a), 3.10(c), 3.14(a) and 3.19, is a
party to all Collection Franchises and Governmental Permits and other agreements
necessary to permit it to carry on its business as
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presently conducted. All of said Collection Franchises and Governmental Permits
and agreements have been duly obtained and, except as disclosed on Schedules
3.5, 3.8 - Part II, 3.10(a), 3.10(c), 3.14(a) and 3.19, are in full force and
effect and there are no proceedings pending or threatened which may result in
the revocation, cancellation, suspension or adverse modification of any of the
same. No Seller nor any of the Shareholders has any knowledge of any reason why
all such Collection Franchises and Governmental Permits and agreements will not
remain in effect after consummation of the transactions contemplated hereby.
3.29 Condemnation. No Property owned or leased by any Seller is the
subject of, or would be affected by, any pending condemnation or eminent domain
proceedings, and, to the knowledge of each Seller and the Shareholders, no such
proceedings are threatened.
3.30 Suppliers and Customers. The relations between each Seller and its
customers are good. No Seller nor any of the Shareholders has knowledge of any
fact (other than general economic and industry conditions) which indicates that
any of the suppliers supplying products, components, materials or providing use
of, or access to, landfills or disposal sites to each Seller intends to cease
providing such items to any Seller, nor does any Seller or any of the
Shareholders have knowledge of any fact (other than general economic and
industry conditions) which indicates that any of the customers of any Seller
intends to terminate, limit or reduce its business relations with any Seller.
3.31 Absence of Certain Business Practices. No Seller nor any of the
Shareholders has directly or indirectly within the past five years given or
agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other person who is or may be in a position to help or
hinder the business of any Seller in connection with any actual or proposed
transaction which (a) might subject any Seller to any damage or penalty in any
civil, criminal or governmental litigation or proceeding, (b) if not given in
the past, might have had an adverse effect on the financial condition, business
or results of operations of any Seller, or (c) if not continued in the future,
might adversely affect the financial condition, business or operations of any
Seller or which might subject any Seller to suit or penalty in any private or
governmental litigation or proceeding.
3.32 Related Party Transactions. None of the Shareholders or their
respective Affiliates has entered into any transaction with or is a party to any
agreement, lease or other instrument, or as of the date of this Agreement is
indebted to or is owed money by, any Seller not disclosed on the Financial
Statements delivered to Buyer prior to the Signing Date. Except as disclosed in
the Financial Statements, none of the Shareholders or their Affiliates owns any
direct or indirect interest of any kind in, or controls or is a director,
officer, employee, shareholder or partner of, or consultant or lender to or
borrower from or has the right to participate in the profits of, any Person
which is a competitor, supplier, customer, landlord, tenant, creditor or debtor
of any Seller.
3.33 Disclosure Schedules. Any matter disclosed on any Schedule to this
Agreement shall be deemed to have been disclosed on every other Schedule that
refers to such Schedule by cross reference so long as the nature of the matter
disclosed is obvious from a fair reading of the Schedule on which the matter is
disclosed.
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3.34 No Misleading Statements. The representations and warranties of
each Seller and Shareholder contained in this Agreement, the Exhibits and
Schedules hereto and all other documents and information furnished to Buyer and
its representatives pursuant hereto are complete and accurate in all material
respects and do not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements made and to be made not
misleading.
3.35 Accurate and Complete Records. The corporate minute books, stock
ledgers, books, ledgers, financial records and other records of each Seller:
(a) have been made available to Buyer and its agents at each
Seller's offices or at the offices of Buyer's attorneys or each Seller's
attorneys;
(b) have been, in all material respects, maintained in accordance
with all applicable laws, rules and regulations; and
(c) are accurate and complete, and with respect to the
Corporations, reflect all material corporate transactions required to be
authorized by the Boards of Directors and/or shareholders of the Corporations
and do not contain or reflect any material discrepancies.
3.36 Knowledge. Wherever reference is made in this Agreement to the
"KNOWLEDGE" of the Shareholders, such term means the actual knowledge of the
Shareholders or any knowledge which should have been obtained by the
Shareholders upon reasonable inquiry by a reasonable business person. In the
case of a Shareholder that is a trust, the term "knowledge" means the actual
knowledge of the trustee or trustees of the trust or any knowledge which should
have been obtained by the trustee or trustees upon reasonable inquiry by a
reasonable business person. Wherever reference is made in this Agreement to the
"knowledge" of a Seller, such term means the actual knowledge of any management
employee, and in the case of a Corporation, any officer or director, of any
Seller or any knowledge which should have been obtained by any such person upon
reasonable inquiry by a reasonable business person.
3.37 Brokers; Finders. No person has acted directly or indirectly as a
broker, finder or financial advisor for the Sellers or the Shareholders in
connection with the transactions contemplated by this Agreement and no person is
entitled to any broker's, finder's, financial advisory or similar fee or payment
in respect thereof based in any way on any agreement, arrangement or
understanding made by or on behalf of the Sellers or the Shareholders.
3.38 Investment Representations. The Shareholders further represent
that:
(a) Each of the Shareholders has such knowledge and experience in
financial matters, either alone or with the Shareholder's professional advisors,
that he or she is capable of evaluating the merits and risks of the investment
in the Shares.
(b) Darin, Kristie, Lee and Betty are residents of the State of
South Dakota and the other Shareholders are residents of the State of Nebraska.
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(c) Each of the Shareholders has had access to such information
relating to WCI as such Shareholder feels is reasonably necessary to make an
informed investment decision with respect to the Shares, including, without
limitation, WCI's Prospectus dated May 21, 1998. Each of the Shareholders
understands that the Shares are not covered by the Prospectus, but rather that
such Prospectus has been given to the Shareholders to provide them information
about WCI.
(d) Each of the Shareholders has had the opportunity to ask
questions and receive answers concerning the terms and conditions of the
transactions contemplated by this Agreement and to obtain additional information
that WCI possesses or can obtain without unreasonable effort or expense that is
necessary to verify the accuracy of the information provided.
(e) Each of the Shareholders is acquiring the Shares pursuant to
this Agreement for its own account, not as a nominee or agent. No one else has
any interest, beneficial or otherwise, in any of the Shares.
(f) Each of the Shareholders is able to bear the economic risk of
such an investment in the Shares, is aware that he, she or it must be prepared
to hold such Shares for an indefinite period and is aware that the Shares have
not been registered under the Act, or registered or qualified under the
securities laws of any state, on the ground, among others, that no unregistered
distribution or public offering of Shares is to be effected and the Shares are
being issued by WCI without any public offering within the meaning of section
4(2) of the Act.
(g) Without in any way limiting the representations herein, each
of the Shareholders further agrees that such Shareholder shall not encumber,
pledge, hypothecate, sell, transfer, assign or otherwise dispose of, or receive
any consideration for, any Shares or any interest in them, unless and until
prior to any proposed encumbrance, pledge, hypothecation, sale, transfer,
assignment or other disposition, (i) a registration statement on Form S-1 or S-3
(or any other form appropriate for the purpose or replacing such form) under the
Act with respect to the shares proposed to be transferred or otherwise disposed
of shall be then effective (ii)(a) he, she or it shall have furnished WCI with a
detailed statement of the circumstances of the proposed disposition, and (b) he,
she or it shall have furnished WCI with an opinion of counsel or no-action
letter issued by the Staff of the Securities and Exchange Commission ("SEC")
(obtained at the Shareholders' expense) in form and substance satisfactory to
WCI to the effect that such disposition will not require registration of any
such Shares under the Act or qualification of any such Shares under any other
securities law; or (iii) Rule 144 is available with respect to such transaction.
(h) Each of the Shareholders understands and agrees that each
certificate or other instrument representing the Shares will bear a legend on
the face thereof (or on the reverse thereof with a reference to such legend on
the face thereof) which legend restricts the sale, transfer or other disposition
of the Shares otherwise than in accordance with Sections 3.38(g) of this
Agreement provided, however, that WCI shall, on the request of any of the
Shareholders, cause such legends to be removed from the certificates or other
instrument evidencing the Shares if such Shareholder has held such Shares for
the period contemplated by Rule 144(k) under the
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Act and if the Shareholder is not then and has not been during the three months
preceding such request an affiliate of WCI (as defined in Rule 144 under the
Act).
(i) Each of the Shareholders understands and agrees that the
Shares will be "restricted securities" as that term is defined in Rule 144 under
the Act and, accordingly, that the Shares must be held for one year from the
Closing Date unless subsequently registered under the Act or an exemption from
such registration is available.
(j) The Shareholders agree to be bound with respect to the Shares
by any "lock up" provisions to which the executive officers and directors of WCI
are also bound as may be requested by any underwriters of any offering of WCI
Stock or securities convertible into WCI Stock.
3.39 S Corporation. J & J Sanitation Inc. has elected to be taxed as an
S Corporation under the Internal Revenue Code of 1986, as amended, for all of
the years listed on Schedule 3.39.
3.40 Contract Extensions. Each solid waste collection contract in the
form attached as Schedule 3.40 shall automatically renew on the termination of
such contract on the same terms and conditions for additional annual terms
unless either party to such contract notifies the other in writing within sixty
(60) days from the date of the annual expiration date of its intention not to
renew the contract.
4. REPRESENTATIONS AND WARRANTIES OF WCI AND BUYER
WCI and Buyer represent and warrant to the Shareholders that each of the
following representations and warranties is true as of the date of this
Agreement and will be true as of the Closing Date, and agree that such
representations and warranties shall survive the Closing:
4.1 Existence and Good Standing. WCI and Buyer are corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware. WCI and WCI have full corporate power and authority to own and lease
its properties and to carry on its business as now conducted. WCI is not
required to be qualified or licensed to conduct business as a foreign
corporation in any jurisdiction where the failure to be so qualified would have
a material adverse effect on its financial condition. Buyer is qualified to
transact business as a foreign corporation in the States of Nebraska and South
Dakota.
4.2 No Contractual Restrictions. No provisions exist in any article,
document or instrument to which Buyer is a party or by which it is bound which
would be violated by consummation of the transactions contemplated by this
Agreement.
4.3 Authorization of Agreement. This Agreement has been duly authorized,
executed and delivered by WCI and Buyer and, subject to the due authorization,
execution and delivery by the Sellers and the Shareholders, constitutes a legal,
valid and binding obligation of WCI and Buyer. Each of WCI and Buyer has full
corporate power, legal right and corporate authority to enter into and perform
its obligations under this Agreement and to carry on its business as
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presently conducted. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and the fulfillment of and
compliance with the terms and conditions hereof do not and will not, after the
giving of notice, or the lapse of time or otherwise: (a) violate any provisions
of any judicial or administrative order, award, judgment or decree applicable to
WCI or Buyer; (b) conflict with any of the provisions of the Amended and
Restated Certificate of Incorporation or Amended and Restated Bylaws of WCI or
Buyer; or (c) conflict with, result in a breach of or constitute a default under
any material agreement or instrument to which WCI or Buyer is a party or by
which it is bound.
4.4 Status of Shares. The Shares delivered to the Shareholders at the
Closing are duly authorized and delivered shares of WCI, and shall be fully paid
and nonassessable.
4.5 No Misleading Statements. The representations and warranties of WCI
and Buyer contained in this Agreement, the Exhibits and Schedules hereto and all
other documents and information furnished to the Shareholders pursuant hereto
are materially complete and accurate, and do not include any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements made and to be made not misleading as of the Closing Date.
4.6 Brokers; Finders. No person has acted directly or indirectly as a
broker, finder or financial advisor for WCI and Buyer in connection with the
transactions contemplated by this Agreement and no person is entitled to any
broker's, finder's, financial advisory or similar fee or payment in respect
thereof based in any way on any agreement, arrangement or understanding made by
or on behalf of WCI and Buyer.
4.7 Disclosure Schedules. Any matter disclosed by WCI and Buyer on any
Schedule to this Agreement shall be deemed to have been disclosed on every other
Schedule that refers to such Schedule by cross reference so long as the nature
disclosed is obvious from a fair reading of the Schedule on which the matter is
disclosed.
5. COVENANTS FROM SIGNING TO CLOSING DATE
5.1 Operations. Between the Signing Date and the Closing Date, each
Seller will, and the Shareholders will cause each of the Corporations to:
(a) carry on its business in substantially the same manner as it
has heretofore and not introduce any material new method, or discontinue any
existing material method, of operation or accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(c) perform all of its material obligations under agreements
relating to or affecting its assets, properties, business operations and rights;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
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(e) use its best efforts to maintain and preserve its business
organization intact, retain its present employees and maintain its relationship
with suppliers, customers and others having business relations with it;
(f) file on a timely basis all notices, reports or other filings
required to be filed with or reported to any federal, state, municipal or other
governmental department, commission, board, bureau, agency or any
instrumentality of any of the foregoing wherever located with respect to the
continuing operations of each Seller;
(g) maintain material compliance with all Collection Franchises
and Governmental Permits and all laws, rules, regulations and consent orders;
(h) file on a timely basis all complete and correct applications
or other documents necessary to maintain, renew or extend any site assessment,
permit, license, variance or any other approval required by any governmental
authority necessary and/or required for the continuing operation of each
Corporation's business operations, whether or not such approval would expire
before or after the Closing; and
(i) advise Buyer promptly in writing of any material change in
any document, Schedule, Exhibit, or other information delivered pursuant to this
Agreement.
5.2 No Change. Between the Signing Date and the Closing Date, no Seller
will, and the Shareholders will not permit any Corporation to, take any action
described below without the prior written consent of WCI:
(a) with respect to the Corporations, make any change in its
Articles of Incorporation or Bylaws;
(b) with respect to the Corporations, authorize, issue, transfer
or distribute any securities;
(c) with respect to the Corporations, declare or pay any dividend
or make any distribution in respect of its capital stock whether now or
hereafter outstanding, or purchase, redeem or otherwise acquire or retire for
value any shares of its capital stock;
(d) enter into any contract or commitment or incur or agree to
incur any liability other than in the ordinary course of business other than the
transactions contemplated by this Agreement or make any single capital
expenditure in excess of $10,000 or in excess of $25,000 in the aggregate during
any consecutive 30 day period without regard to whether such capital expenditure
is in the ordinary course of business;
(e) except as set forth on Schedule 3.16, change or promise to
change the compensation payable or to become payable to any director, officer,
employee or agent, or make or promise to make any bonus payment to any such
person;
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(f) create, assume or otherwise permit the imposition of any
mortgage, pledge or other lien or encumbrance upon or grant any option or right
of first refusal with respect to any assets or properties whether now owned or
hereafter acquired;
(g) sell, assign, lease or otherwise transfer or dispose of any
property or equipment other than in the ordinary course of business;
(h) merge or consolidate or agree to merge or consolidate with or
into any firm, corporation or other entity;
(i) waive any material rights or claims;
(j) amend or terminate any material agreement or any site
assessment, permit, license or other right;
(k) enter into any other transaction outside the ordinary course
of the Corporation's business or prohibited hereunder; or
(l) take any action or suffer or permit any event to occur that
would cause any representation or warranty of the Sellers or the Shareholders to
become untrue as of the Closing Date.
5.3 Obtain Consents. Promptly after the execution of this Agreement,
each Seller will, and the Shareholders shall cause each Corporation to, make all
filings and take all steps reasonably necessary to obtain all other approvals
and consents required to be obtained by each Seller or the Shareholders to
consummate the transactions contemplated by this Agreement and otherwise to
satisfy the conditions of Section 6.7.
5.4 Access; Confidential Information. Between the Signing Date and the
Closing Date, the Shareholders and each Seller will, and the Shareholders will
cause each Corporation to, afford to the officers and authorized representatives
of Buyer, including, without limitation, its engineers, counsel, independent
auditors and investment bankers, access to the Facilities, plants, Properties
and other properties, books and records of each Seller, and will furnish Buyer
with such additional financial and operating data and other information as to
the business and properties of each Seller as Buyer may from time to time
reasonably request. The Shareholders will and will cause each Corporation to
cooperate with Buyer, its representatives and counsel in the preparation of any
documents or other material which may be required by any governmental agency.
Buyer will cause all information obtained from the Shareholders and each Seller
in connection with the negotiation and performance of this Agreement which the
Shareholders or the Sellers have stamped or otherwise marked as confidential to
be treated as confidential (except such information which is in the public
domain or which Buyer may be required to disclose to any governmental agency, or
pursuant to any court or regulatory agency order) and will not use, and will not
knowingly permit others to use, any such confidential information in a manner
detrimental to any Seller or the Shareholders. The Sellers will not, and the
Shareholders will not and will cause the Sellers not to, disclose to any third
persons other
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than their accountants, bankers or legal counsel any of the terms or provisions
of this Agreement prior to or after the Closing Date without the prior written
consent of WCI.
5.5 Notice of Material Adverse Change. WCI shall promptly notify the
Shareholders' Representative of any material adverse change in its business or
financial condition between the Signing Date and the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATION OF BUYER TO CLOSE
The obligations of Buyer under this Agreement are subject to the
satisfaction, at or before Closing, of all of the following conditions
precedent, unless waived in writing by Buyer:
6.1 Representations and Warranties. All representations and warranties
of the Sellers and the Shareholders contained in this Agreement or in any
statement, Exhibit, Schedule, certificate or document delivered by the Sellers
or the Shareholders under this Agreement shall be true, correct and complete on
and as of the date when made and at all times prior to the Closing Date, shall
be deemed to be made again on the Closing Date, and shall then be true, correct
and complete in all material respects as of the Closing Date.
6.2 Conditions. Each Seller and the Shareholders shall have performed,
satisfied and complied with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by them on or before
the Closing Date.
6.3 No Material Adverse Change. Since the Signing Date, there shall not
have been any material adverse change in the condition (financial or otherwise),
business, properties or assets of any Seller.
6.4 Certificates. The President of each Corporation shall have delivered
to Buyer a certificate, dated as of the Closing Date, in form and substance
satisfactory to Buyer, certifying to the fulfillment of the conditions set forth
in Sections 6.1, 6.2 and 6.3, and the Shareholders shall have delivered to Buyer
a certificate dated as of the Closing Date, in form and substance satisfactory
to Buyer, certifying to the fulfillment of the conditions set forth in Section
6.1, 6.2 and 6.3 applicable to the Shareholders.
6.5 No Litigation. None of the transactions contemplated hereby shall
have been enjoined by any court or by any federal or state governmental branch,
agency, commission or regulatory authority and no suit or other proceeding
challenging the transactions contemplated hereby shall have been threatened or
instituted and no investigative or other demand shall have been made by any
federal or state governmental branch, agency, commission or regulatory
authority.
6.6 Other Deliveries. The Shareholders shall have delivered the items
which they are required to deliver under Section 8 of this Agreement.
6.7 Governmental Approvals; Consents to Transfer. All governmental
consents and approvals, if any, necessary to permit the consummation of the
transactions contemplated by this
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Agreement shall have been received, and each other party whose consent is
required to the transactions contemplated by this Agreement, including without
limitation (if applicable) each party to any contract with any Seller, each
municipality or other jurisdiction that has granted a franchise to any Seller
and each jurisdiction issuing or granting any other Governmental Permit, shall
have consented to such transactions, and every other Required Governmental
Consent shall have been obtained.
6.8 Release of Security Interests. All security interests in assets of
each Seller that have been created in favor of financial institutions or other
lenders to secure indebtedness of the Shareholders or their Affiliates shall
have been released.
7. CONDITIONS PRECEDENT TO OBLIGATION OF THE SHAREHOLDERS TO
CLOSE
The obligations of the Shareholders and Corporations under this
Agreement are subject to the satisfaction, at or before Closing, of all of the
following conditions precedent, unless waived in writing by the Shareholders:
7.1 Representations and Warranties. All representations and warranties
of WCI and Buyer contained in this Agreement or in any statement, Exhibit,
Schedule, certificate or document delivered by WCI or Buyer under this Agreement
shall be true, correct and complete on and as of the date when made and at all
times prior to the Closing Date, shall be deemed to be made again on the Closing
Date, and shall then be true, correct and complete in all respects as of the
Closing Date.
7.2 Conditions. Buyer shall have performed, satisfied and complied with
all covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by it on or before the Closing Date.
7.3 Certificate. Buyer shall have delivered to the Shareholders a
certificate, dated as of the Closing Date, in form and substance satisfactory to
the Shareholders, certifying to the fulfillment of the conditions set forth in
Sections 7.1 and 7.2.
7.4 No Litigation. None of the transactions contemplated hereby shall
have been enjoined by any court or by any federal or state governmental branch,
agency, commission or regulatory authority and no suit or other proceeding
challenging the transactions contemplated hereby shall have been threatened or
instituted and no investigative or other demand shall have been made by any
federal or state governmental branch, agency, commission or regulatory
authority.
7.5 Other Deliveries. Buyer shall have delivered the items which it is
required to deliver under Section 8 of this Agreement.
8. CLOSING DELIVERIES
At the Closing, the respective parties shall make the deliveries
indicated:
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8.1 WCI and Buyer Deliveries.
(a) WCI shall deliver the cash portion of the Purchase Price
required to be delivered on the Closing Date pursuant to Section 1.5.
(b) WCI shall deliver to the Shareholders the Note pursuant to
Section 1.5(c).
(c) Buyer shall execute and deliver the Escrow Agreement and
deliver the Escrow Shares to the Escrow Agent.
(d) Buyer shall execute and deliver an Employment Agreement with
Darin and Lee (collectively, the "KEY MANAGERS"), substantially in the form of
Exhibit 8.1(f).
(e) WCI shall execute and deliver the Second Amended and Restated
Investors' Rights Agreement in the form of Exhibit 8.1(g).
(f) Buyer shall execute and deliver a Solid Waste Delivery
Agreement substantially in the form of Exhibit 8.1(h).
8.2 Shareholders' Deliveries.
(a) The Shareholders shall deliver to Buyer the certificates
representing the outstanding Corporations' Stock free and clear of all liens,
security interests, claims and encumbrances, accompanied by a stock power duly
executed in blank.
(b) The Owner shall deliver to Buyer (and/or its designee) an
executed bill of sale or bills of sale and other instruments of transfer and
conveyance for the full and complete transfer, conveyance, assignment and
delivery to Buyer on the Closing Date of all of the Owner's right, title and
interest in and to all of the Assets, accompanied by all third party consents
required with respect thereto, including, without limitation, written evidence
of the release of the liens and encumbrances with respect to the Assets;
(c) The Owner shall deliver to Buyer an executed assignment or
transfer of the Assumed Contracts and Governmental Permits accompanied by all
third party consents required with respect thereto;
(d) The Shareholders shall deliver to Buyer (and/or its designee)
all motor vehicle registrations and ownership documents for the motor vehicles
being acquired by Buyer;
(e) The Shareholders shall deliver to Buyer an opinion of counsel
for the Shareholders, dated as of the Closing Date, in substantially the form
attached hereto as Exhibit 8.2(e).
(f) The Shareholders shall deliver evidence reasonably
satisfactory to Buyer that all required third-party consents to the transactions
contemplated hereby, including without limitation all Required Governmental
Consents and all required consents of the landlords under
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all real estate leases to which any Seller is a party, were obtained and the
Shareholders shall deliver an estoppel certificate from the landlords under all
real estate leases to which any Seller is a party confirming the terms thereof
and the rental amount owing thereunder, certifying that such lease is in full
force and effect, that the Seller is not in default under any of the terms or
conditions thereof, that there have been no amendments or modifications to any
such lease (or specifying the same), and otherwise containing such statements
and certifications as Buyer may require.
(g) Each Seller shall deliver to Buyer evidence satisfactory to
Buyer showing that all written employment contracts and all oral employment
contracts other than those that are terminable "at will" without payment of
severance (other than normal severance benefits approved by Buyer) or other
benefits with non-union employees of each Seller (including, without limitation,
stock options or other rights to obtain equity in any Corporation) have been
terminated, effective on or before the Closing Date.
(h) The Shareholders shall cause each officer and director of
each Corporation to deliver a resignation as an officer and/or director of each
Corporation together with a general release of each officer and director who is
not a Shareholder releasing each Corporation from all obligations under any
indemnification agreements, the charter documents of each Corporation, or
otherwise, arising out of or relating to this Agreement or the consummation of
the transactions contemplated thereby, other than obligations arising after the
Closing Date under this Agreement.
(i) The Shareholders shall execute and deliver the Escrow
Agreement.
(j) The Shareholders shall deliver to Buyer a counterpart of the
Employment Agreements executed by the Key Managers in the form of Exhibit
8.1(f).
(k) Each Shareholder shall execute and deliver the Second Amended
and Restated Investors' Rights Agreement in the form of Exhibit 8.1(g).
(l) Great Plains shall execute and deliver the Solid Waste
Delivery Agreement in the form of Exhibit 8.1(h).
9. ADDITIONAL COVENANTS OF WCI, BUYER, THE SELLERS AND THE
SHAREHOLDERS
9.1 No Delay. The Sellers, the Shareholders, WCI and Buyer covenant and
agree from and after the date hereof not to hinder in any way or unreasonably
delay the Closing Date and to use their respective reasonable efforts to obtain
required Governmental Consents and otherwise to cause the Closing Date to occur
as soon as reasonably practicable after the Signing Date, provided, however,
that in using its reasonable efforts WCI and Buyer shall not be required to take
any action or to agree to any condition, including without limitation any
condition imposed by any government authority with respect to the transfer of
any Governmental Permit, that, in WCI's reasonable judgment, imposes a
materially adverse financial burden or operating condition on WCI.
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9.2 Release of Guaranties. WCI shall use reasonable efforts to obtain
the termination and release promptly after the Closing Date of the personal
guaranties of the Shareholders listed on Schedule 9.2, all of which relate to
indebtedness of each Seller included in the Financial Statements as of the
Balance Sheet Date or WCI and Buyer shall indemnify the Shareholders and hold
them harmless from and against all losses, expenses or claims by third parties
to enforce or collect indebtedness owed by each Seller as of the Closing Date
which is personally guaranteed by the Shareholders pursuant to such guaranties.
The Shareholders may notify the obligees under such guaranties that they have
terminated their obligations under such guaranties. The Shareholders shall
cooperate with WCI in obtaining such releases.
9.3 Release of Security Interests. Between the Signing Date and the
Closing Date, the Shareholders and their respective Affiliates shall cause those
security interests in the assets of each Seller that have been created in favor
of financial institutions or other lenders to secure indebtedness (other than
indebtedness of the Seller) of the Shareholders or their respective Affiliates
to be released in a manner reasonably satisfactory to WCI, and shall cause all
guaranties by each Seller relating to the indebtedness of the Shareholders to be
released to the reasonable satisfaction of WCI.
9.4 Confidentiality. No Seller nor any of the Shareholders shall
disclose or make any public announcements of the transactions contemplated by
this Agreement without the prior written consent of WCI, unless required to make
such disclosure or announcement by law, in which event the party making the
disclosure or announcement shall notify WCI at least 24 hours before such
disclosure or announcement is expected to be made. WCI shall not disclose or
make any public announcement of the transactions contemplated by this Agreement
without the prior written consent of the Shareholders' Representative, unless in
connection with the initial public offering of WCI Stock or otherwise required
to make such disclosure or announcement by law, in which event WCI shall notify
the Shareholders' Representative at least 24 hours before such disclosure or
announcement is expected to be made.
9.5 Brokers and Finders Fees. Each party shall pay and be responsible
for any broker's, finder's or financial advisory fee incurred by such party in
connection with the transactions contemplated by this Agreement.
9.6 Taxes. WCI shall reasonably cooperate, at the expense of the
Shareholders, with the Shareholders with respect to any matters involving the
Shareholders arising out of the Shareholders' ownership of the Sellers prior to
the Closing, including matters relating to tax returns and any tax audits,
appeals, claims or litigation with respect to such tax returns or the
preparation of such tax returns. In connection therewith, WCI shall make
available to the Shareholders such files, documents, books and records of each
Seller for inspection and copying as may be reasonably requested by the
Shareholders and shall cooperate with the Shareholders with respect to retaining
information and documents which relate to such matters.
9.7 Short Year Tax Returns. After the Closing Date, the Shareholders
shall prepare at their sole cost and expense, all short year federal, state,
county, local and foreign tax returns required by law for the period beginning
with the first day of each Seller' fiscal year in which the Closing occurs and
ending with the Closing Date. Each such return shall be prepared in a
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financially responsible and conservative manner and shall be delivered to WCI
together with all necessary supporting schedules within 120 days following the
Closing Date for its approval (but such approval shall not relieve the
Shareholders of their responsibility for the taxes assessed under these
returns). The Shareholders shall be responsible for the payment of all taxes
shown to be due or that may come to be due on such returns or otherwise relating
to the period prior to the Closing Date in excess of the amount of any reserve
for taxes included in Closing Date Current Liabilities. The Shareholders shall
also be responsible for all taxes arising from the conversion of each Seller
from a cash to accrual basis of reporting whether or not due on such returns or
on the first return filed by each Seller for the period commencing after the
Closing Date. At the time of the delivery of the returns, shall
contemporaneously deliver to WCI checks payable to the respective taxing
authorities in amounts equal to the amount due. WCI shall sign tax returns and
cause such returns to be timely filed with the appropriate authorities. The
Shareholders shall be entitled to receive all refunds shown on said returns and
any such refunds received by any Seller or WCI shall be remitted to the
Shareholders.
9.8 Certain Tax Matters. The Shareholders acknowledge that WCI may make
an election under Section 338(h)(10) of the Internal Revenue Code of 1986, as
amended, with respect to the Corporations. The Shareholders agree that WCI, in
its discretion, may make such election; provided, however, that such election
shall be made no later than the due date for such election. If such election is
made by WCI:
(a) WCI shall be authorized to complete Form 8023-A;
(b) The Shareholders shall sign such completed Form 8023-A at the
Closing; and
(c) WCI shall determine the allocation of the Purchase Price
among the assets (including intangible assets) of the Corporations.
(d) If WCI does make its election under Section 338(h)(10) of the
Internal Revenue Code of 1986, as amended, WCI shall reimburse the Shareholders
and the Corporations for any additional taxes, penalties, interest and costs of
preparation of amended income tax returns incurred due to such election
resulting from the recapture of depreciation previously taken on various assets
of the Corporations at ordinary income instead of capital gain rates. Such
reimbursement shall be in a sum computed by a simultaneous equation computing
the additional tax owed by the Shareholders, as well as the tax on the payment
of that sum.
9.9 Shareholders' Representative.
(a) In order to administer efficiently the rights and
obligations of the Shareholders under this Agreement, the Shareholders hereby
designate and appoint Garry as the Shareholders' Representative, to serve as the
Shareholders' agent, proxy and attorney-in-fact for the limited purposes set
forth in this Agreement.
(b) Each of the Shareholders hereby appoints the
Shareholders' Representative as such Shareholder's agent, proxy and
attorney-in-fact, with full power of
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substitution, for all purposes set forth in this Agreement, including, without
limitation, the full power and authority on such Shareholder's behalf (i) to
consummate the transactions contemplated by this Agreement, (ii) to disburse any
funds received hereunder to the Shareholders, (iii) to execute and deliver on
behalf of each Shareholder any amendment or waiver under this Agreement, to
agree to the amount of the actual Closing Date Debt, Closing Date Current Assets
and Closing Date Current Liabilities pursuant to Sections 1.5(a), and to agree
to resolution of all Claims hereunder, (iv) to retain legal counsel and other
professional services, at the expense of the Shareholders, in connection with
the performance by the Shareholders' Representative of this Agreement, and (v)
to do each and every act and exercise any and all rights which such Shareholder
or Shareholders are permitted or required to do or exercise under this Agreement
and the other agreements, documents and certificates executed in connection
herewith. Each of the Shareholders agrees that such agency and proxy are coupled
with an interest, are therefore irrevocable without the consent of the
Shareholders' Representative and shall survive the death, bankruptcy or other
incapacity of any Shareholder.
(c) Each of the Shareholders hereby agrees that any
amendment or waiver under this Agreement, and any action taken on behalf of the
Shareholders to enforce the rights of the Shareholders under this Agreement, and
any action taken with respect to any adjustment or Claim (including any action
taken to object to, defend, compromise or agree to the payment of such
adjustment or Claim), shall be effective if approved in writing by persons who
were the holders of a majority of the Corporations' Stock immediately prior to
the Closing, and that each and every action so taken shall be binding and
conclusive on every Shareholder, whether or not such Shareholder had notice of,
or approved, such amendment or waiver.
(d) Garry shall serve as the Shareholders' Representative
until he resigns or is otherwise unable or unwilling to serve. In the event that
a Shareholders' Representative resigns from such position or is otherwise unable
or unwilling to serve, the remaining Shareholders shall select, by the vote of
the holders of a majority of the Corporations' Stock immediately prior to the
Closing, a successor representative to fill such vacancy, shall provide prompt
written notice to WCI of such change and such substituted representative shall
then be deemed to be the Shareholders' Representative for all purposes of this
Agreement.
9.10 General Release by Shareholders. Each of the Shareholders hereby
fully releases and discharges each Seller and, with respect to the Corporations,
its directors, officers, agents and employees from all rights, claims and
actions, known or unknown, of any kind whatsoever, which any of such
Shareholders now has or may hereafter have against any Seller and, with respect
to the Corporations, its directors, officers, agents and employees, arising out
of or relating to events arising prior to or on the Closing Date, except (a) as
may be described in written contracts disclosed in Schedule 9.10 and expressly
described and specifically excepted from this release in Schedule 9.10, (b)
compensation as an employee of any Seller for current periods expressly
described and excepted from such release on schedule 9.10, and (c) for the
obligations of each Seller arising after the Closing Date under this Agreement.
Specifically, but not by way of limitation, each of the Shareholders waives any
right of indemnification, contribution or other recourse against each Seller
which he now has or may hereafter have against any Seller with respect to
representations, warranties or covenants made in this Agreement by each Seller.
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Each of the Shareholders hereby waives and relinquishes all
rights and benefits afforded by Section 1542 of the California Civil Code, which
states as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS TO WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
Each of the Shareholders understands and acknowledges the significance and
consequence of this waiver of Section 1542 and nevertheless elects to, and does,
release those claims described in this Section 9.10, known or unknown, that it
may have now or in the future arising out of or relating to any event arising on
or prior to the date of this Agreement.
9.11 Great Plains' Deliveries. Thirty (30) days prior to the Test Date,
Great Plains shall deliver to Buyer copies of compiled, reviewed or audited
financial statements for its most recent fiscal year and unaudited interim
financial statements for the period beginning on the first day of Great Plains'
current fiscal year and ending on the Test Date.
9.12 Great Plains' Covenants. Between the Request Period and the
Delivery Date, Great Plains shall observe the covenants in Sections 5.1, 5.2,
5.3 and 5.4.
9.13 Transfer Facility Use Agreement. Between the Closing Date and the
first operating day of Great Plains' O'Neill, Nebraska transfer facility, Great
Plains and the Corporations shall use all reasonable efforts to enter into an
agreement whereby the Corporations are granted use of a portion of the facility,
such reasonable efforts to include obtaining the consent of the City of O'Neill
to such use.
10. INDEMNIFICATION
10.1 Indemnity by the Shareholders. Each of the Shareholders, jointly
and severally, subject to the limitations set forth in Section 10.2, covenants
and agrees that he will indemnify and hold harmless WCI and Buyer, each
Corporation and their respective directors, officers and agents and their
respective successors and assigns (collectively the "WCI INDEMNITEES"), from and
after the Signing Date and until the third anniversary of the Closing Date,
against any and all losses, damages, assessments, fines, penalties, adjustments,
liabilities, claims, deficiencies, costs, expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation),
expenditures, including, without limitation, any "Environmental Site Losses" (as
such term is hereinafter defined) identified by a WCI Indemnitee in a Claims
Notice (as defined in Section 10.3(a)), or asserted by a WCI Indemnitee in
litigation commenced against the Shareholders provided that in either case any
such Claims Notice shall be given or the litigation commenced prior to the
earlier of the third anniversary of this Agreement or the expiration of the
applicable statute of limitations (irrespective of the date of discovery), with
respect to each of the following contingencies (all, the "10.1 INDEMNITY
EVENTS"):
(a) Any misrepresentation, breach of warranty, or nonfulfillment
of any agreement or covenant on the part of the Shareholders or any Seller
pursuant to the terms of this
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Agreement or any misrepresentation in or omission from any Exhibit, Schedule,
list, certificate, or other instrument furnished or to be furnished to WCI or
Buyer pursuant to the terms of this Agreement, regardless of whether, in the
case of a breach of a representation or a warranty, WCI or Buyer relied on the
truth of such representation or warranty or had any knowledge of any breach
thereof.
(b) The design, development, construction or operation of any
Facility or any other "Environmental Site" as hereinafter defined, or the
installation or operation of a UST during any period on or prior to the Closing
Date, in excess of the amount of liability with respect thereto, if any, set
forth on Part II of Schedule 3.7. As used in this Agreement, "ENVIRONMENTAL
SITE" shall mean any Facility, any UST and any other waste storage, processing,
treatment or disposal facility, and any other business site or any other real
property owned, leased, controlled or operated by any Seller or by any
predecessor thereof on or prior to the Closing Date. As used in this Agreement,
"ENVIRONMENTAL SITE LOSSES" shall mean any and all losses, damages (including
exemplary damages and penalties), liabilities, claims, deficiencies, costs,
expenses, and expenditures (including, without limitation, expenses in
connection with site evaluations, risk assessments and feasibility studies)
arising out of or required by an interim or final judicial or administrative
decree, judgment, injunction, mandate, interim or final permit condition or
restriction, cease and desist order, abatement order, compliance order, consent
order, clean-up order, exhumation order, reclamation order or any other remedial
action that is required to be undertaken under federal, state or local law in
respect of operating activities on or affecting any Facility, any UST or any
other Environmental Site, including, but not limited to (x) any actual or
alleged violation of any law or regulation respecting the protection of the
environment, including, but not limited to, RCRA and CERCLA or any other law or
regulation respecting the protection of the air, water and land and (y) any
remedies or violations, whether by a private or public action, alleged or sought
to be assessed as a consequence, directly or indirectly, of any "Release" (as
defined below) of pollutants (including odors) or Hazardous Substances from any
Facility, any UST or any other Environmental Site resulting from activities
thereat, whether such Release is into the air, water (including groundwater) or
land and whether such Release arose before, during or after the Closing Date.
The term "RELEASE" as used herein means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing into the ambient environment. Notwithstanding anything in this
paragraph to the contrary, it is specifically understood and agreed that a
Release composed solely of Hazardous Substances contained in household waste
lawfully disposed of in a landfill during the time any Seller owned and/or
operated such landfill does not constitute an Environmental Site Loss.
(c) All matters on Schedule 3.8 - Part II.
(d) All actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incident to any of the
foregoing, to the extent provided under Nebraska law.
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10.2 Limitations on Shareholders' Indemnities.
(a) Subject to the provisions of 10.2(b) hereof, the obligations
of the Shareholders to indemnify the WCI Indemnitees as provided in Section 10.1
shall be equal to the amount by which the cumulative amount of all such
liabilities, claims, damages deficiencies, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses, expenditures and Environmental
Site Losses with respect to any or all 10.1 Indemnity Events exceed $35,000 (the
"GENERAL DEDUCTIBLE AMOUNT").
(b) The maximum amount which Buyer can recover as a result of one
or more 10.1 Indemnity Events shall not exceed:
(i) sixty-five percent (65%) of the Purchase Price (as
adjusted pursuant to Section 1.5(a) hereof) if the 10.1 Indemnity Event
occurs during the time period from the Closing Date to, and including,
the first anniversary of the Closing Date; and
(ii) fifty percent (50%) of the Purchase Price (as
adjusted pursuant to Section 1.5(a) hereof) if the 10.1 Indemnity Event
occurs during the time period from the first anniversary of the Closing
Date to, and including, the third anniversary of the Closing Date.
For this purpose, the Shares shall be valued at the Average Closing Price.
10.3 Notice of Indemnity Claim.
(a) In the event that any claim ("CLAIM") is hereafter asserted
against or arises with respect to any WCI Indemnitee as to which such Indemnitee
may be entitled to indemnification hereunder, the WCI Indemnitee shall notify
the Shareholders (as applicable collectively, the "INDEMNIFYING PARTY") in
writing thereof (the "CLAIMS NOTICE") within 60 days after (i) receipt of
written notice of commencement of any third party litigation against such WCI
Indemnitee, (ii) receipt by such WCI Indemnitee of written notice of any third
party claim pursuant to an invoice, notice of claim or assessment, against such
WCI Indemnitee, or (iii) such WCI Indemnitee becomes aware of the existence of
any other event in respect of which indemnification may be sought from the
Indemnifying Party (including, without limitation, any inaccuracy of any
representation or warranty or breach of any covenant). The Claims Notice shall
describe the Claim and the specific facts and circumstances in reasonable
detail, and shall indicate the amount, if known, or an estimate, if possible, of
the losses that have been or may be incurred or suffered by the WCI Indemnitee.
(b) The Indemnifying Party may elect to defend any Claim for
money damages where the cumulative total of all Claims (including such Claims)
do not exceed the limit set forth in Section 10.2 at the time the Claim is made,
by the Indemnifying Party's own counsel; provided, however, the Indemnifying
Party may assume and undertake the defense of such a third party Claim only upon
written agreement by the Indemnifying Party that the Indemnifying Party is
obligated to fully indemnify the WCI Indemnitee with respect to such action. The
WCI Indemnitee may participate, at the WCI Indemnitee's own expense, in the
defense of any Claim
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assumed by the Indemnifying Party. Without the written approval of the WCI
Indemnitee, which approval shall not be unreasonably withheld, the Indemnifying
Party shall not agree to any compromise of a Claim defended by the Indemnifying
Party.
(c) If, within thirty (30) days of the Indemnifying Party's
receipt of a Claims Notice, the Indemnifying Party shall not have provided the
written agreement required by Section 10.3(b) and elected to defend the Claim,
the WCI Indemnitee shall have the right to assume control of the defense and/or
compromise of such Claim, and the costs and expenses of such defense, including
reasonable attorneys' fees, shall be added to the Claim to the extent provided
under Nebraska law. The Indemnifying Party shall promptly, and in any event
within thirty (30) days after demand therefor, reimburse the WCI Indemnitee for
the costs of defending the Claim, including attorneys' fees and expenses.
(d) The party assuming the defense of any Claim shall keep the
other party reasonably informed at all times of the progress and development of
its or their defense of and compromise efforts with respect to such Claim and
shall furnish the other party with copies of all relevant pleadings,
correspondence and other papers. In addition, the parties to this Agreement
shall cooperate with each other and make available to each other and their
representatives all available relevant records or other materials required by
them for their use in defending, compromising or contesting any Claim. The
failure to timely deliver a Claims Notice or otherwise notify the Indemnifying
Party of the commencement of such actions in accordance with this Section 10.3
shall not relieve the Indemnifying Party from the obligation to indemnify
hereunder but only to the extent that the Indemnifying Party establishes by
competent evidence that it has been prejudiced thereby.
(e) In the event both the WCI Indemnitee and the Indemnifying
Party are named as defendants in an action or proceeding initiated by a third
party, they shall both be represented by the same counsel (on whom they shall
agree), unless such counsel the WCI Indemnitee, or the Indemnifying Party shall
determine that such counsel has a conflict of interest in representing both the
WCI Indemnitee and the Indemnifying Party in the same action or proceeding and
the WCI Indemnitee and the Indemnifying Party do not waive such conflict to the
satisfaction of such counsel.
10.4 Survival of Representations, Warranties and Agreements. The
representations and warranties of the parties contained in this Agreement and in
any certificate, Exhibit or Schedule delivered pursuant hereto, or in any other
writing delivered pursuant to the provisions of this Agreement (the
"REPRESENTATIONS AND WARRANTIES") and the liability of the party making such
Representations and Warranties for breaches thereof shall survive the
consummation of the transactions contemplated hereby. The parties hereto in
executing and delivering and in carrying out the provisions of this Agreement
are relying solely on the representations, warranties, Schedules, Exhibits,
agreements and covenants contained in this Agreement, or in any writing or
document delivered pursuant to the provisions of this Agreement, and not upon
any representation, warranty, agreement, promise or information, written or
oral, made by any persons other than as specifically set forth herein or
therein.
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10.5 No Exhaustion of Remedies or Subrogation; Right of Set Off. The
Shareholders waive any right to require any WCI Indemnitee to (i) proceed
against any Seller; (ii) proceed against any other person; or (iii) pursue any
other remedy whatsoever in the power of any WCI Indemnitee. Buyer may, but shall
not be obligated to, set off against any and all payments due any Shareholder
pursuant to the Escrow Shares or under any other agreement, any amount to which
any WCI Indemnitee is entitled to be indemnified hereunder with respect to any
10.1 Indemnity Event. Such right of set off shall be separate and apart from any
and all other rights and remedies that the Indemnities may have against
Shareholders or their successors.
11. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS, WCI AND
BUYER
11.1 Restrictive Covenants. As to any Seller, the Shareholders and their
Affiliates acknowledge that (i) WCI and Buyer, as the purchasers of the
Corporations' Stock and the Assets, is and will be engaged in the same business
as the Sellers (the "BUSINESS"); (ii) the Shareholders and their Affiliates are
intimately familiar with the Business; (iii) the Business is currently conducted
in the States of Nebraska and South Dakota and WCI and Buyer intends to continue
the Business in Nebraska and South Dakota and intends, by acquisition or
otherwise, to expand the Business into other geographic areas of Nebraska and
South Dakota where it is not presently conducted; (iv) the Shareholders and
their Affiliates have had access to trade secrets of, and confidential
information concerning, the Business; (v) the agreements and covenants contained
in this Section 11.1 are essential to protect the Business and the goodwill
being acquired; and (vi) the Shareholders and their Affiliates have the means to
support themselves and their dependents other than by engaging in a business
substantially similar to the Business and the provisions of this Section 11 will
not impair such ability. The Shareholders covenant and agree as set forth in
(a), (b) and (c) below with respect to each Seller:
(a) Non-Compete. For a period commencing on the Closing Date and
terminating five years thereafter (the "RESTRICTED PERIOD"), neither the
Shareholders nor any of their Affiliates shall, anywhere in the State of
Nebraska, north of the Platte River and south of the South Dakota border as well
as any and all cities, villages and political subdivisions itemized on Exhibit
A, and anywhere in the State of South Dakota, north of the South Dakota/Nebraska
state line and south of Interstate 90 as well as any and all cities, villages or
political subdivisions identified on Exhibit A, where Buyer or one of its
subsidiaries owns or operates a business similar to the Business (the
"RESTRICTED COUNTIES"), directly or indirectly, acting individually or as the
owner, shareholder, partner, or employee of any entity, (i) engage in the
operation of a solid waste collection, transporting, disposal and/or composting
business, transfer facility, recycling facility, materials recovery facility or
solid waste landfill; (ii) enter the employ of, or render any personal services
to or for the benefit of, or assist in or facilitate the solicitation of
customers for, or receive remuneration in the form of salary, commissions or
otherwise from, any business engaged in such activities; (iii) as owner or
lessor of real estate or personal property, rent to lease any facility,
equipment or other assets to any business engaged in the same business as any
Seller; or (iv) receive or purchase a financial interest in, make a loan to, or
make a gift in support of, any such business in any capacity, including, without
limitation, as a sole proprietor, partner, shareholder, officer, director,
principal, agent, trustee or lender; provided, however, that any of the
Shareholders may own, directly or indirectly, solely as an
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investment, securities of any business traded on any national securities
exchange or NASDAQ, provided none of the Shareholders is a controlling person
of, or a member of a group which controls, such business and further provided
that the Shareholders do not, in the aggregate, directly or indirectly, own 2%
or more of any class of securities of such business.
(b) Confidential Information. During the Restricted Period and
thereafter, the Shareholders and their Affiliates shall keep secret and retain
in strictest confidence, and shall not use for the benefit of themselves or
others, all data and information relating to the Business ("CONFIDENTIAL
INFORMATION"), including without limitation, know-how, trade secrets, customer
lists, supplier lists, details of contracts, pricing policies, operational
methods, marketing plans or strategies, bidding information, practices, policies
or procedures, product development techniques or plans, and technical processes;
provided, however, that the term "Confidential Information" shall not include
information that (i) is or becomes generally available to the public other than
as a result of disclosure by the Shareholders or (ii) is general knowledge in
the solid waste handling and landfill business and not specifically related to
the Business.
(c) Property of the Business. All memoranda, notes, lists,
records and other documents or papers (and all copies thereof) relating to the
Business, including such items stored in computer memories, on microfiche or by
any other means, made or compiled by or on behalf of the Shareholders or any
Seller or made available to them relating to the Business, but excluding any
materials (other than the minute books of any Corporation) maintained by any
attorneys for the Sellers or the Shareholders prior to the Closing, are and
shall be the property of WCI or Buyer and have been delivered or will be
delivered or made available to WCI or Buyer at the Closing.
(d) Non-Solicitation. Without the consent of WCI, which may be
granted or withheld by WCI in its discretion, the Shareholders and their
Affiliates shall not solicit any employees of WCI, Buyer or their Affiliates to
leave the employ of WCI, Buyer or their Affiliates and join the Shareholders or
any Affiliate in any business endeavor owned or pursued by the Shareholders.
(e) No Disparagement. From and after the Closing Date, none of
the Shareholders shall, in any way or to any person or entity or governmental or
regulatory body or agency, denigrate or derogate WCI, Buyer or any of its
subsidiaries, or any officer, director or employee, or any product or service or
procedure of any such company whether or not such denigrating or derogatory
statements shall be true and are based on acts or omissions which are learned by
the Shareholders from and after the date hereof or on acts or omissions which
occur from and after the date hereof, or otherwise. A statement shall be deemed
denigrating or derogatory to any person or entity if it adversely affects the
regard or esteem in which such person or entity is held by investors, lenders or
licensing, rating, or regulatory entities. Without limiting the generality of
the foregoing, none of the Shareholders shall, directly or indirectly in any way
in respect of any such company or any such directors or officers, communicate
with, or take any action which is adverse to the position of any such company
with any person, entity or governmental or regulatory body or agency who or
which has dealings or prospective dealings with any such company or jurisdiction
or prospective jurisdiction over any such company. This
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paragraph does not apply to the extent that testimony is required by legal
process, provided that WCI has received not less than five days' prior written
notice of such proposed testimony.
11.2 Rights and Remedies Upon Breach. If any of the Shareholders or any
Affiliate breaches, or threatens to commit a breach of, any of the provisions of
Section 11.1 herein (the "RESTRICTIVE COVENANTS"), WCI and Buyer shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the others and severally enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to WCI
and Buyer at law or in equity:
(a) Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants would cause irreparable injury to WCI and Buyer and that
money damages would not provide an adequate remedy to WCI and Buyer.
Accordingly, in addition to any other rights or remedies, WCI and Buyer shall be
entitled to injunctive relief to enforce the terms of the Restrictive Covenants
and to restrain the Shareholders from any violation thereof.
(b) Accounting. The right and remedy to require the Shareholders
to account for and pay over to WCI or Buyer all compensation, profits, monies,
accruals, increments or other benefits derived or received by the Shareholders
as the result of any transactions constituting a breach of the Restrictive
Covenants.
(c) Severability of Covenants. The Shareholders acknowledge and
agree that the Restrictive Covenants are reasonable and valid in geographical
and temporal scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
(d) Blue-Penciling. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographic scope of such provision, such court shall reduce the
duration or scope of such provision, as the case may be, to the extent necessary
to render it enforceable and, in its reduced form, such provision shall then be
enforced.
(e) Enforceability in Jurisdiction. WCI, Buyer and the
Shareholders intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographic scope of the
Restrictive Covenants. If the courts of any one or more of such jurisdictions
hold the Restrictive Covenants unenforceable by reason of the breadth of such
scope or otherwise, it is the intention of WCI, Buyer and the Shareholders that
such determination not bar or in any way affect WCI or Buyer's right to the
relief provided above in the courts of any other jurisdiction within the
geographic scope of the Restrictive Covenants as to breaches of such covenants
in such other respective jurisdictions, such covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and independent
covenants.
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12. TERMINATION OF AGREEMENT
12.1 Termination Date.
(a) If the Closing Date has not occurred by August 31, 1998, this
Agreement shall be terminated at 5:00 p.m., Pacific Time, August 31, 1998,
unless the Sellers have not then obtained all of the consents required by
Section 6.7, in which event this Agreement shall terminate 10 days after the
later of (i) if any such consent is denied, the latest time for filing any
appeal or further appeal of such denial has lapsed; (ii) if any such consent is
denied and such denial is appealed, the day the last appeal of such denial has
been dismissed, refused or decided adversely to any Seller; and (iii) notice by
WCI.
(b) This Agreement may be terminated at any time prior to the
Closing Date:
(i) by WCI or Buyer, by written notice to the Sellers and
the Shareholders if the representations and warranties of the
Sellers and the Shareholders shall not have been true and correct
in all respects as of the date when made; or
(ii) by the Sellers and the Shareholders by written notice
to WCI if the representations and warranties of Buyer shall not
have been true and correct in all respects as of the date when
made.
12.2 Notice and Effect of Termination. On termination of this Agreement,
the transactions contemplated herein shall forthwith be abandoned and all
continuing obligations and liabilities of the parties under or in connection
with this Agreement shall be terminated and of no further force or effect;
provided, however, that nothing herein shall relieve any party from liability
for any misrepresentation, breach of warranty or breach of covenant contained in
this Agreement prior to such termination.
12.3 Exclusive Negotiations. Following execution of this Agreement, the
Sellers and the Shareholders shall not, and the Shareholders shall not permit
any Seller or any Seller's employees or agents, or in the case of a Corporation,
any Corporation's officers of directors to, initiate, negotiate or discuss with
any other person or entity the possible sale of all or substantially all of the
Assets, or substantially all of the assets of the business or stock of any
Corporation, or to effect the merger of any Corporation with any party other
than Buyer. The Shareholders hereby confirm that no person or entity presently
has or may acquire any rights to purchase or otherwise acquire the Assets or the
assets or stock of any Corporation.
13. GENERAL
13.1 Additional Conveyances. Following the Closing, the Shareholders and
Buyer shall each deliver or cause to be delivered at such times and places as
shall be reasonably agreed upon such additional instruments as Buyer or the
Shareholders may reasonably request for the purpose of carrying out this
Agreement. The Shareholders will cooperate with WCI, Buyer and/or the Sellers on
and after the Closing Date in furnishing information, evidence, testimony and
other
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assistance in connection with any actions, proceedings or disputes of any nature
with respect to matters pertaining to all periods prior to the date of this
Agreement.
13.2 Assignment. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto, the successors or assigns of WCI, Buyer and
the heirs, legal representatives or assigns of the Shareholders; provided,
however, that any such assignment shall be subject to the terms of this
Agreement and shall not relieve the assignor of its responsibilities under this
Agreement. Buyer may assign some or all of its rights hereunder to another
affiliate of WCI.
13.3 Public Announcements. Except as required by law, no party shall
make any public announcement or filing with respect to the transactions provided
for herein prior to the Closing Date without the prior consent of the other
parties hereto.
13.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
13.5 Notices. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given if in writing and either
delivered personally, sent by facsimile transmission or by air courier service,
or mailed by postage prepaid registered or certified U.S. mail, return receipt
requested, to the addresses designated below or such other addresses as may be
designated in writing by notice given hereunder, and shall be effective upon
personal delivery or facsimile transmission thereof or upon delivery by
registered or certified U.S. mail or one business day following deposit with an
air courier service:
If to the Shareholders: at their respective addresses set forth on
Schedule 3.2
With a copy to: Peetz & Peetz
126 North Fourth Street
O'Neill, Nebraska 68763
Attention: Forrest Peetz, Esq.
Facsimile: (402) 336-3384
If to WCI or Buyer: Waste Connections, Inc.
2260 Douglas Boulevard, Suite 280
Roseville, California 95661
Attention: Ronald J. Mittelstaedt
Facsimile: (916) 772-2920
With a copy to: Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, California 94111
Attention: Robert D. Evans, Esq.
Facsimile: (415) 421-2922
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13.6 Attorneys' Fees. In the event of any dispute or controversy between
WCI or Buyer on the one hand and any Seller or the Shareholders on the other
hand relating to the interpretation of this Agreement or to the transactions
contemplated hereby, each party shall pay its own attorneys' fees and expenses
incurred in connection with such dispute or controversy. Such award shall
include post-judgment attorney's fees and costs.
13.7 Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Nebraska without regard to its
conflict of laws provisions.
13.8 Payment of Fees and Expenses. Whether or not the transactions
herein contemplated shall be consummated, each party hereto will pay its own
fees, expenses and disbursements incurred in connection herewith and all other
costs and expenses incurred in the performance and compliance with all
conditions to be performed hereunder (including, in the case of the
Shareholders, any such fees, expenses and disbursements paid or accrued by, or
charged to, any Corporation).
13.9 Incorporation by Reference. All Schedules and Exhibits attached
hereto are incorporated herein by reference as though fully set forth at each
point referred to in this Agreement.
13.10 Captions. The captions in this Agreement are for convenience only
and shall not be considered a part hereof or affect the construction or
interpretation of any provisions of this Agreement.
13.11 Number and Gender of Words; Sellers. Whenever the singular number
is used herein, the same shall include the plural where appropriate, and shall
apply to all of such number, and to each of them, jointly and severally, and
words of any gender shall include each other gender where appropriate.
13.12 Entire Agreement. This Agreement (including the Schedules and
Exhibits hereto) and the other documents delivered pursuant hereto constitute
the entire Agreement and understanding between the Sellers, the Shareholders,
WCI and Buyer and supersedes any prior agreement and understanding relating to
the subject matter of this Agreement. This Agreement may be modified or amended
only by a written instrument executed by the Sellers, the Shareholders (or the
Shareholders' Representative on their behalf), Great Plains, WCI and Buyer
acting through its officers, thereunto duly authorized by its Board of
Directors.
13.13 Waiver. No waiver by any party hereto at any time of any breach
of, or compliance with, any condition or provision of this Agreement to be
performed by any other party hereto may be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or at any prior or
subsequent time.
13.14 Construction. The language in all parts of this Agreement must be
in all cases construed simply according to its fair meaning and not strictly for
or against any party. Unless expressly set forth otherwise, all references
herein to a "day" are deemed to be a reference to
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a calendar day. All references to "BUSINESS DAY" mean any day of the year other
than a Saturday, Sunday or a public or bank holiday in California or Nebraska.
Unless expressly stated otherwise, cross-references herein refer to provisions
within this Agreement and are not references to the overall transaction or to
any other document.
14. ARBITRATION AND DISPUTE RESOLUTION.
THE PARTIES WAIVE THEIR RIGHT TO SEEK REMEDIES IN COURT, INCLUDING ANY
RIGHT TO A JURY TRIAL, WITH RESPECT TO ANY DISPUTE CONCERNING DETERMINATION OF
THE ADJUSTMENTS TO THE PURCHASE PRICE UNDER SECTIONS 1.5(a) AND 1.7 ONLY. The
parties agree that in the event Buyer and the Shareholders' Representative are
unable to resolve a dispute concerning determination of the Adjustments to the
Purchase Price, such dispute shall be resolved exclusively by arbitration to be
conducted in O'Neill, Nebraska in accordance with the provisions of Nebraska
statutes for arbitration of civil disputes. Either party may appoint an
arbitrator and give notice to the other party. Within ten (10) days of receipt
of such notice the other party shall appoint an arbitrator and the two
arbitrators so appointed shall, within ten (10) days of appointment of the
second arbitrator, appoint a third arbitrator. All three arbitrators shall be
attorneys or certified public accountants with at least ten (10) years
experience in the handling of business sales and acquisitions of a similar
nature to the present transaction.
The three arbitrators shall conduct a hearing and shall issue an award
which shall be final and binding on the parties, and judgment may be entered on
it in any court of competent jurisdiction as otherwise provided by law. In no
event shall the arbitrators award punitive damages. The preceding portion of
this Section does not apply to any dispute relating to any other provision of
the Agreement, or to any other aspect of the transactions contemplated herein,
and such other disputes may be resolved by the parties by any means available,
including without limitation court action and a jury trial. The parties
expressly do not waive any right to pursue any remedy available with respect to
any dispute other than one concerning determination of the adjustments to the
Purchase Price under Sections 1.5(a) and 1.7, and expressly do not waive the
right to trial with respect any other dispute.
15. GLOSSARY
The definitions of the terms used below can be found at the Section
indicated:
<TABLE>
<CAPTION>
<S> <C>
Term Section
Act Section 3.38
Affiliate Section 3.11
Assets Section 1.2
Balance Sheet Date Section 3.7
Betty Parties
Brad Parties
Business Section 11.1
Buyer Parties
Assumed Contracts Section 1.2(b)
business day Section 13.14
</TABLE>
47
<PAGE> 53
<TABLE>
<CAPTION>
<S> <C>
Claim Section 10.3
Claims Notice Section 7.3(a)
Closing Section 2
Closing Date Section 2
Closing Date Accounts Receivable Section 1.5(a)
Closing Date Current Assets Section 3.22(b)
Closing Date Current Liabilities Section 3.22(b)
Closing Date Debt Section 3.22(a)
Collection Franchises Section 3.10(a)
Confidential Information Section 11.1(b)
Contingent Purchase Price Section 1.1
Corporations Parties
Corporations' Stock Third Recital
Darin Delivery Date
Parties Section 1.7(d)
EBITDA Requirement Section 1.7(c)
Environmental Laws Section 3.24
Environmental Site Section 10.1(b)
Environmental Site Losses Section 10.1
Environmental Site Losses Section 10.1(b)
ERISA Section 3.17(a)
Escrow Agent Section 1.7(a)
Escrow Agreement Section 1.7(a)
Excluded Assets Section 1.9
Excluded Liabilities Section 1.4
Facility Section 3.10(c)
Facilities Section 3.10(c)
Facility Property Section 3.10(c)(iii)
Facility Surveys/Site Plans Section 3.10(c)(iii)
Financial Statements Section 3.7
Garry Parties
General Deductible Amount Section 10.2(a)
Governmental Consents Section 3.10(a)
Governmental Permits Section 3.10(a)
Great Plains Parties
Great Plains Shareholder Section 1.7(d)
Great Plains Shares Section 1.7(d)
Hazardous Material Section 3.24(e)
Hazardous Waste Section 3.24(e)
Escrow Shares Section 1.7(a)
Indemnifying Party Section 10.3(a)
Indemnity Events Section 10.1
Key Managers Section 8.1
knowledge Section 3.36
Kristie Parties Laws Section 3.24
</TABLE>
48
<PAGE> 54
<TABLE>
<CAPTION>
<S> <C>
Lee Parties
Les Parties
Option Section 1.7(d)
Owner Parties
Permitted Liens Section 3.12(c)
Property Section 3.12(b)
Purchase Price Section 1.1
Purchased Trucks Section 1.2(a)
RCRA Section 3.24(a)
Recipient Section 3.17(c)
Records, Notifications and Reports Section 3.10(b)
Release Section 10.1(b)
Representations and Warranties Section 10.4
Request Period Section 1.7(d)
Restricted Counties Section 11.1(a)
Restricted Period Section 11.1(a)
Restrictive Covenants Section 8.2
Required Governmental Consents Section 3.10(a)
Roma Parties
SEC Section 3.38(g)
Sellers Parties
Shareholders Parties
Shares Section 1.2(b)
Sheri Parties
Signing Date Section 1.6
South Dakota Business Second Recital
Test Date Test Period
Section 1.7(e) Section 1.7(c)
UST Section 3.26
Value of the Shares Section 1.5(b)
WCI Indemnitees Section 10.1
WCI Parties
WCI Stock Section 1.2(b)
Working Capital Adjustment Section 1.7(b)
</TABLE>
49
<PAGE> 55
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
persons thereunto duly authorized as of the date first above written.
WCI: WASTE CONNECTIONS, INC.
By:
----------------------------------
Ronald J. Mittelstaedt, President
BUYER: WASTE CONNECTIONS OF NEBRASKA, INC.
By:
----------------------------------
Ronald J. Mittelstaedt, President
SELLERS: J & J SANITATION INC.
By:
----------------------------------
Garry L. Jeffords, President
BIG RED ROLL OFF INC.
By:
-----------------------------------
Darin R. Mueller, President
-----------------------------------
Garry L. Jeffords
-----------------------------------
Darin R. Mueller
-----------------------------------
Leslie J. Jeffords
-----------------------------------
Leland J. Jeffords
50
<PAGE> 56
SHAREHOLDERS:
-----------------------------------
Garry L. Jeffords
-----------------------------------
Darin R. Mueller
-----------------------------------
Leslie J. Jeffords
-----------------------------------
Leland J. Jeffords
-----------------------------------
Bradley Rowan
GREAT PLAINS: GREAT PLAINS RECYCLING, INC.
By:
--------------------------------
Garry L. Jeffords, President
GREAT PLAINS SHAREHOLDERS:
-----------------------------------
Garry L. Jeffords
-----------------------------------
Darin R. Mueller
-----------------------------------
Leslie J. Jeffords
-----------------------------------
Leland J. Jeffords
-----------------------------------
Roma L. Jeffords
51
<PAGE> 57
-----------------------------------
Kristie K. Mueller
-----------------------------------
Sheri L. Jeffords
-----------------------------------
Betty L. Hargis
52
<PAGE> 58
[SAMPLE FORM FOR EACH SIGNATORY]
<TABLE>
<S> <C>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGEMENT
=================================================================================================================================
STATE OF ) OPTIONAL SECTION
) CAPACITY CLAIMED BY SIGNER
COUNTY OF ) Though statute does not require the Notary
-----------------------------------------
to fill in the data below, doing so may
On ______________________, 1998 before me, ________________________, Notary prove invaluable to persons relying on the
Public, personally appeared ______________________________, document.
[ ] personally known to me - OR - [ ] proved to me on the basis of satisfactory [ ] INDIVIDUAL
evidence to be the person(s) whose [ ] CORPORATE OFFICER(S)
names(s) is/are subscribed to the within ----------------------------------------
instrument and acknowledged to me that TITLE(S)
he/she/they executed the same in his/her/ [ ] PARTNER(S)[ ] LIMITED
their authorized capacity(ies), and that [ ] GENERAL
by his/her/their signature(s) on the [ ] ATTORNEY-IN-FACT
instrument the person(s), or the entity [ ] TRUSTEE(S)
upon behalf of which the person(s) acted, [ ] GUARDIAN/CONSERVATOR
executed the instrument. [ ] OTHER:
--------------------------------
WITNESS my hand and official seal. --------------------------------
SIGNER IS REPRESENTING:
(NAME OF PERSON(S) OR ENTITY(IES))
---------------------------------------- -------------------------------------------
(SIGNATURE OF NOTARY) -------------------------------------------
============================================================================================================================
OPTIONAL SECTION
THIS CERTIFICATE MUST BE ATTACHED TO TITLE OR TYPE OF DOCUMENT
THE DOCUMENT DESCRIBED AT -----------------------------------------------
RIGHT: NUMBER OF PAGES DATE OF DOCUMENT
--------------------------------- ----- ------------------------------------
Though the data requested here is not
required by law, it could prevent fraudulent
reattachment of this form. SIGNER(S) OTHER THAN NAMES ABOVE
-----------------------------------------
============================================================================================================================
</TABLE>
<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.)
Waste Connections of Nebraska Inc., a Delaware corporation
Shrader Refuse and Recycling Service Company, a Nebraska corporation
<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 Post Effective Amendment No. 1 to
the Registration Statement (Form S-4 No. 333-59199) 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 Post Effective
Amendment No. 1 to the Registration Statement (Form S-4 No. 333-59199) 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 Post Effective Amendment
No. 1 to the Registration Statement (Form S-4 No. 333-59199) and related
Prospectus of Waste Connections, Inc. for the registration of 3,000,000 shares
of its common stock.
ERNST & YOUNG LLP
Sacramento, California
September 1, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated August 24, 1998, accompanying the financial
statements of Shrader Refuse and Recycling Service Company contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts".
GRANT THORNTON LLP
Lincoln, Nebraska
September 3, 1998
